The Finance Curse. Nicholas Shaxson

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СКАЧАТЬ should be “required” to help each other address capital flight, especially with transparency: telling European governments about their wealthy citizens’ stashes of offshore wealth. Yet an alliance of US bankers, with some help from Treasury officials, fought back hard against such transparency, fulminating that these and other controls would do “maximum violence to our position as a world financial center”;³² in the end the IMF would no longer require countries to help each other track down offshore stashes, merely permit them to do so. Through this tiny loophole whooshed huge volumes of European treasure, much of it the proceeds of US Marshall Plan aid that had been sequestered by that small, bloated, selfish class of Europeans almost as soon as it landed, and sent back offshore to the United States: a total of at least $4–$5 billion in 1947, which in those days was a vast sum of capital lost to a Europe desperate for capital for reconstruction. Only a major new economic crisis in Europe in 1947, caused largely by these outflows, forced US policy makers to tighten up again.³³

      Over the ensuing decades, foreign capital continued to wash into the United States, much of it from Europe and much of it smuggled undetected alongside bona fide trade flows. Once the money was there, the US banking community was able to hold on to it by cloaking it in deep secrecy, for the United States didn’t have any meaningful arrangements in place to tell foreign governments about their wealthy citizens’ holdings. And it steadily put in place new federal-level regulations to bolster the attractions: by 1976, when a new US Tax Reform Act reaffirmed America’s commitment to use tax haven secrecy facilities to attract capital to the United States, it was estimated that a third of all bank deposits were from Latin Americans evading taxes and controls at home.

      And while this shift was happening at a federal level, mostly with respect to banking deposits, another whole set of games was going on at the state level, as places like Delaware and Nevada started passing laws to allow the creation of shell companies and other mechanisms that would be all but impenetrable to outsiders—including the IRS. In 1984 Time magazine summarized the changes: “America has become the largest and possibly the most alluring tax haven in the world.” At any rate, it was giving the British postimperial spiderweb a run for its money.³⁴

      The Janus-faced offshore business model of trying to appear clean and well regulated while attracting as much criminal and dirty money as possible poses many problems for any country, like the United States or Britain, that hosts and encourages this kind of activity.

      For one thing, it assumes you can sequester the dirt and the criminality safely away from the rest of the economy, from democracy, and from society. This, however, is impossible, for the two most dangerous parts of a political system are most likely to meet and become intertwined: the richest and most powerful members of society, who are of course the biggest users of tax havens, and criminals. Fish, as the saying goes, rot from the head. Crafting a national economic strategy that relies on offshore finance creates inevitable blowback, which has criminalized American and British elites in four main ways: it brings the wealthiest and most powerful into close proximity with criminals; it offers the elites permanent temptations to criminality; it makes criminals rich, enabling them to join the ranks of the elites; and, by making it easy to escape rules and laws, it creates a culture of impunity and a real sense of being above the law. Modern US politics, with sleazy revelation after sleazy revelation, exposes how dangerous this strategy has been.

      All this history helps us answer a question that bothers many people about tax havens: Why don’t governments just close these financial brothels down? Lee Sheppard, a leading US tax expert, summarizes the answer to this question as well as anyone: “We fuss about them, we howl that the activity is illegal, but we don’t shut them down because the town fathers are in there, with their pants around their ankles.”³⁵

      And this, in turn, brings us to a further major characteristic of these offshore territories: they are all, especially the smaller island tax havens, “legislatures for hire,” as the British tax haven expert Prem Sikka puts it. Like the old colonies, their political and economic development is mainly dictated not by local democracy but by foreign interests, and in the case of tax havens this means rootless foreign offshore money. A memo in Britain’s national archives from 1969 illustrates this problem, fretting about

      a flow of propositions involving Crown lands put daily and endlessly to the government by private developers. These propositions are inevitably propounded in an atmosphere of geniality, lavish hospitality, implied generosity and overwhelming urgency. They are usually backed by glossy lay-outs, and declaimed by a team of businessmen supported by consultants of all sorts. They are invariably staged against an impossibly tight deadline, with an implicit threat of jam today or none tomorrow. On the other side of the table—the Administrator and his civil servants. No business expertise, no consultants, no economists, no statisticians, no specialists in any of the vital fields. Gentlemen vs Players—with the Gentlemen unskilled in the game and unversed in its rules. It is hardly surprising that the professionals are winning, hands-down.³⁶

      In small island tax havens, administrations staffed by former fisherfolk or owners or employees of bed-and-breakfast hotels are asked to scrutinize complex laws on special purpose vehicles or offshore trusts. Even in those rare cases where administrators do possess the technical knowledge to understand such laws, there is a wall of money pressuring them not to oppose any proposal. With Cayman-registered banks now holding $1 trillion in assets, equivalent to 100,000 percent of that microstate’s gross national product, it is clear where the power lies. As a result, local administrators can usually do little more than rubber-stamp laws devised for the owners of the world’s hot money. The Panama Papers leaks in 2015 revealed how Mossack Fonseca, the Panamanian firm at the center of the scandal, effectively wrote the tax haven laws of Niue, a tiny Pacific island of 1,500 people. Mossack Fonseca got an exclusive agreement to register offshore companies there, and this operation was soon generating 80 percent of that territory’s government revenue. The logic, as described by the firm’s cofounder Ramón Fonseca, was that “if we had a jurisdiction that was small, and we had it from the beginning, we could offer people a stable environment, a stable price.” They certainly had Niue.³⁷

      It is also essential to understand how the business model of these places is purposely antidemocratic. A tax haven’s deliberately constructed loopholes are not designed to help locals escape laws and rules but to help others, elsewhere, do so. Officials carefully write their laws to ensure that any resulting damage in unpaid taxes or evaded financial regulations is inflicted elsewhere, protecting the tax haven against self-harm. This “offshore” element means that the people who make the tax haven laws are always separated from those who are affected by those laws. So there is never democratic consultation between lawmakers in tax havens and the people elsewhere affected by their laws. That is the whole point of offshore. And it means that offshore is, almost by definition, the equivalent of the smoke-filled room, where business gets done by cigar-chomping gentlemen outside of, and indeed in opposition to, the democratic process. And they operate according to the golden rule: whoever has the gold makes the rules.

      Rudolf Elmer, a Swiss bank whistleblower who was accused of passing information to WikiLeaks about shady arms brokers, Mexican officials linked to drug dealers, Saudi companies linked to the bin Laden family, and around forty American and other politicians accused of corruption, found out the cost of offshore dissent. Two men followed him to work, began watching his wife at home, and hung around his young daughter’s day care and offered her chocolates in the street. The Swiss police declined to help; instead, they searched his house, and he ended up in prison. “I was an outlaw,” he said. “I was godfather to a child whose father is in finance. He said I had to stop—’you are a threat to the family.’” After Elmer’s release, the courts kept pursuing him, and in June 2015 he sent me a trove of documents that showed how Switzerland, under instructions from its banking establishment, had corrupted its judicial system to nail Elmer, despite the case having no legal merit because he had been working in the Caymans when he blew the whistle. The court declined to allow him to call witnesses, refused to accept documents to support his case, and used false evidence. СКАЧАТЬ