Treasure Islands - Nicholas Shaxson [67]
Although change was coming, the United States still harbored major and powerful opponents of the offshore system. After the Great Depression, Wall Street, diluted in a large and diversified industrial economy, had relatively little political clout to veto progressive New Deal–style legislation. By contrast, the City of London’s position at the center of the globe-spanning British empire gave it the domestic political heft to sabotage any British version of the New Deal. Not only that, but British finance hadn’t been so directly implicated in the excesses of the 1920s. London was perfectly placed to provide American banks with an escape route from regulation at home. They could rebuild their powers offshore.
The brief memo passed to Hudson in the elevator suggested, however, that some Americans were hoping to transform the U.S. approach to the offshore world.
“Like Switzerland, flight money probably flows to the US from every country in the world,” the memo started. But then the complaints began. The United States was not following the Swiss lead aggressively enough, it said. “US-based and US-controlled entities are badly penalized in competing for flight money with the Swiss or other foreign flight money centers.” One reason the United States lagged in the quest for dirty money, it argued, was “the demonstrated ability of the US Treasury, Justice Department, CIA, and FBI to subpoena client records, attach client accounts, and force testimony from US officers of US-controlled entities, with proper US court back-up.” There were also American taxes, plus risks associated with the Cold War and a view among “sophisticated” foreigners that U.S. money managers were “naïve and inexperienced in manipulation of foreign funds.”3 It also criticized investment and brokerage restraints “which limit the flexibility and secrecy of investment activity.”
The message was unequivocal and strong. America ought to turn itself into a tax haven.
“They were saying ‘We want to replace Switzerland. All this money will come here if we make this the criminal center of the world. This is how we fund Vietnam,’” Hudson remembers. “We wanted foreign criminal money, which was patriotic, but not the American criminal money.” The operative in the elevator suggested to Hudson that he might find out how much foreign illicit money the United States might be able to get.
Fast forward 40 years, and it is clear that the wishes of whoever wrote that memo have been realized. A table in Raymond Baker’s 2005 book Capitalism’s Achilles Heel outlines just how far the United States has fallen. By then, it showed, U.S. banks were free to receive the proceeds from a long list of crimes committed outside the country, including alien smuggling, racketeering, peonage, and slavery.4 Profiting from these crimes is legal, just so long as the crime itself happens offshore. A few of these loopholes have now been closed, and U.S. law addresses some of the others, though often only in tangential, incomplete ways. But it remains true that a U.S. bank can knowingly receive the proceeds of a wide range of foreign crimes, such as handling stolen property generated offshore. The United States is wide open for dirty money, just as that Hudson memo anticipated.
Tax havenry has always been contested in the United States. Only a month after coming to power in 1961, President Kennedy called for an end to the abuse of “foreign tax havens” and, as noted in chapter 1, asked Congress for legislation to “drive them out of existence.” Barack Obama’s cosponsorship of the Stop Tax Haven Abuse Act just before he came to power, and the subsequent evisceration of the act by offshore lobbyists, is merely a recent skirmish in an old war.
The United States, like most countries, already had some tax haven characteristics long before the day in 1966 that Michael Hudson stepped into that Chase elevator. From 1921 the United States has let foreigners deposit money with American banks and receive interest tax-free as long as it isn’t connected with a U.S.