An interview with Nick Shaxson, author
of ‘Treasure Islands: tax havens and the men who stole the world’
Source: Site Transition Culture; 14
May 2012; Interviewer: ROB HOPKINS
I [Rob Hopkins] recently read Nick Shaxson’s excellent
book which explores the extent of offshore banking in the world, shocking
stuff. I was honoured to be able to interview Nick recently, you can either
listen to our conversation below, or read the transcript. You can find
out more about the book here.
[1] Nick, thanks very
much for joining us. For people who haven’t read Treasure Islands, can you
describe for us its key findings?
1. There are a couple of
main conclusions. One is that the offshore
system of tax havens is much much bigger and much more central to the
global economy than almost anybody had thought. It’s seen in the popular
imagination as an exotic sideshow to the global economy.
2. But really since the era
of globalisation began in the 1970s the
offshore system of tax havens has been growing much much faster than the
supposedly onshore economy. It has been steadily pushing its way
onshore so that a lot of big countries are increasingly resembling tax havens
as they try and compete with each other to attract the hot money. So they
increasingly offer stronger forms of secrecy and new forms of trust and
corporations and so on to try and attract the hot money, and new tax loopholes.
3. Another big finding is
that tax havens are not where most people think they are. Of course places like
Switzerland, the Cayman Islands and Monaco are tax havens, big and important tax havens. But the really
big ones are places like the United
States and the United Kingdom
which runs a huge network of satellite
tax havens around it, feeding the
City of London.
4. The UK and its overseas
territories, which it partly controls, include the Cayman Islands, Gibraltar,
British Virgin Islands. Massive tax
havens. And also the crown dependencies which are Jersey, Guernsey and the
Isle of Man. And these are all like,
in Treasure Island I describe it as a bit like a spider’s web with the City of London at the middle. So these
places are capturing money from around the world, and the business of handling
the money from around the world and funneling
this money up to London.
5. They are deliberately
lowering the standards on secrecy and various other things to entice this
money. And so the City of London itself is only indirectly implicated in this
stuff. It is at one step remove and there’s plausible deniability. We’re not
offering these specific facilities. But this network is. It’s very much a
British network and it is, in a sense, a financial empire.
6. It grew up from the 1950s
onwards with the City of London, the growth
of the oil markets. That was when the formal British empire was ended but
the UK has managed to retain a significant degree of influence over the flows
of money around the world after the collapse Empire and it now has this new kind of financial empire. So
these were my two big conclusions.
[2] Are there any
countries that don’t allow the offshoring of capital? And if so, how do they do
it? And also, are there any countries that have reintroduced those mechanisms.
7. The trouble with this is
that there are all shades of grey. Some countries deliberately set out to be
tax havens. So Switzerland is a
classic example. It has for decades set out to provide banking secrecy and to
attract dirty money, criminal money and other sorts of money from around the
world. But every country, in a sense, is a tax haven in its own right because
there isn’t an international network of transparency, of sharing information
between countries that makes any country in the world completely transparent.
8. If you take your money to
Germany, or somewhere like that, it’s going to be difficult – if you’re an
African government or something like that – it’s going to be quite difficult to
get hold of information about that money, there’s no automatic sharing
mechanisms. There are some sharing mechanisms in their fledgling state. The
European Union has one called the Savings
Tax Directive and the United States is starting to get more active in this
area. So there are some international information sharing transparency
mechanisms, but it’s still very much a patchwork, an insufficient patchwork. So
when money moves across borders very often is able to find secrecy.
9. But I think when you’re
looking at tax havens what you’re really looking at are places that are
deliberately setting out on a strategy to do this. Some countries are tax
havens kind of by accident but they tend not to the big players. The big
players are the ones that deliberately set out to create this stuff.
[3] What’s your view on
the supposed benefits of extra liquidity that our internationalised banking and
money system provides versus the loss of money in the real economy that
Treasure Islands describes so well?
10. If you take the UK for
example, on the one hand you have the UK losing tax revenue to tax havens. So
British tax evaders or tax avoiders, that is, for example, corporations that
are not technically breaking the law but are still cutting their tax bills
substantially. These are costing the treasury billions of dollars, billions of
pounds. But at the same time the money that is coming into the United Kingdom
from tax havens, there’s this huge kind of feeder mechanism into the UK, is
benefiting the City of London.
11. I’d be very careful about
how to phrase this because what the City does is it says, “this is good for Britain, this
is money that is coming into Britain.” But I argue very strongly that
it isn’t. This is money that is good for the City but what it does is it
creates this international financial centre, this offshore financial centre in the heart of the United Kingdom. Makes
it almost unreformable. People are worried about the power of the City of
London, the fact that it’s able to suck up the best talent and all the best
capital and influence all the policy makers.
12. This power and this
strength comes in very large measure from its international network and the
offshore network. So just to say, “oh, money coming into Britain must be good
for Britain”, it’s just not true.
13. These hundreds of
billions of dollars that have been flooding into the UK. Is Britain any better
off than say, Germany or France or Sweden or Canada which have not been playing
nearly such a financial game? I would say “no”.
14. Britain is on many
measures much more unequal, worse health outcomes, worse social outcomes than
these other countries and I think there’s quite a lot of evidence to suggest
that the financial centre has been a very powerful driver rather a contributor,
rather than anything that benefits Britain.
[4] Is it possible to
reform the financial institutions that we have that are responsible for so much
of the world’s current crisis or is building a new financial institution based
on co-operative banks, credit unions, regional currencies and so on the only
way? How might we start that shift and where might the political support come
from?
15. The lobbyist of the City
of London, and the financial industry
more generally, always say, they always wheel out this argument, “don’t
regulate us too much, don’t tax us too much because then we’ll pull on our
horns and we won’t lend anything and the economy will collapse”. But
the fact is that there has been almost a fraud perpetrated by the financial
sector on the UK. It’s well known now that has been that when times are good
all the benefits go to the bankers and the banks, and when times are bad all
those risks and costs gets shifted onto the burden of ordinary tax payers.
16. This narrative that comes
out of the city and is widely repeated, is demonstrably untrue. It is a much
more complicated and nuanced picture than that. I would argue that if you have
a system that remains unregulated and uncontrolled, you’re going to store up
even bigger problems in the future. I think if you did start to regulate banks
and banking properly, not just in an offshore sense but in terms of, you know,
capital requirements and all sorts of other things, you would end up having a
much stronger, much healthier economy. In fact, there is historical evidence to
suggest that this is the case.
17. Back in the period after
the Second World War when the Bretton Woods institutions were set up, that was
an era when people had really learned the lessons of the Great Depression.
There were huge policy mistakes.
18. The Great Depression
itself followed a period of extreme financial freedoms and afterwards the
international policy makers in the UK and United States and elsewhere decided
that the way forward was to powerfully restrain the banks and to prevent them
from speculating large amounts across borders and to really curtail them.
19. In Treasure Islands I
describe how the banks were really champing at the bit. In the 25 or so years
following the Second World War the banks were really tightly constrained. That
was a period of extremely high and broad-based economic growth internationally.
It’s now known as the golden age of capitalism and it kind of came to the end
in the 1970s.
20. Since then we’ve seen
ordinary people’s wages stagnate, lots of financial crises and all sorts of
other problems. That has coincided with a period of financial liberalisation
and financial freedoms which has been very substantially accelerated by the offshore system.
21. So financial
liberalisation kind of opens up the international markets for the flow of
capital but tax havens take that one step further by artificially creating
things that will attract cross border money flows, will accelerate those flows,
so if you offer secrecy then lots of money will flow in pursuit of that. So the tax havens have been a sort of
accelerator of financial globalisation and I would argue, with very harmful
effect.
[5] The UK economy is
inextricably linked to offshore banking, a relationship you brilliant
outline in your book. Assuming that it were possible to regulate that and to
curtail its activities, would the impacts of doing that only be beneficial or
for the 99%, as it were, might there be a downside?
22. That’s a very good
question. I think there’s a difference between now and the Great Depression.
When the Great Depression happened, things were so bad that you did see a major
political realignment, particularly in the United States, and you had the New
Deal coming in with very progressive legislation and high tax breaks and, as I
said, very tight constrains on banks and the financial sector and on capital
flows. So you know this political realignment really set the stage for a period
of wonderful prosperity for quite some time. Unfortunately this crisis does not
seem to have produced that realignment yet.
23. We have seen tinkering at
the edges and at the end of the day it’s all about political realignments, it’s
all about citizens collectively forcing the politicians to really change. We
are seeing a little bit of a swing now, there does seem to be a swing in Europe
against austerity and perhaps that’s the start of something bigger.
24. But I think until we see
a much more fundamental political and social change in response to the crisis
and maybe the Occupy movement times
10, I think that’s when we’re going to start seeing the possibility of change.
I think until then, we do have in Britain particularly and very substantially in
the United States, you have the banks calling the shots and telling the
politicians what to do. Not much has changed there. I think that is the
essential first step.
[6] So the audience for
this interview is the Transition movement; people out in their communities
trying to build community resilience, local food systems, local energy systems
and that kind of thing, which brings up a couple of questions. And the first
one is do you think that something like Transition can succeed despite the
enormous power and influence which will be fundamentally threatened by a real
relocalisation a real programme of community resilience building?
25. For me, what’s important
when one uses the word ‘local’, I think what I’m particularly interested in is
the sort of fragmentation of the international
financial architecture and the fragments are nation states. That for me is
the key fault line that is the problem for me. Because within a nation state
you have democratically created tax systems and sometimes inside nation states,
you know in Switzerland for example they have the cantons where you have a lot
of local tax raising. But essentially it needs the nation state, that is the
most important local level.
26. I think it’s very
interesting and useful to have local
community organisation. I think that’s a very powerful thing and very
important. It’s not something I have particularly paid attention to just
because I’m much more focussed on the international level. But I do think, from
the point of view of tax havens, it’s the jurisdictional unit of the nation
state that is the fundamental building block of the whole process with regard
to tax havens.
27. I do think community
organising can be fantastic at creating networks and creating awareness. In
terms of the actual mechanics of off shoring it doesn’t mesh immediately with
that problem, if you see what I mean.
[7] And how do you think
people who are involved in Transition and similar things should split their
time and energy between trying to stop the corporate looting that you write of
and building resilience at the local level?
28. There is no magic bullet.
If there is a magic bullet it is political and local and social organisation.
And awareness, the building of
awareness. That is the stage we’re at now. I think it is significant. We’ve
had groups such as UK Uncut which have protested against corporate tax
avoidance and Occupy which has been
very important, which many have derided as not having achieving many particular
aims, but in fact, what we have seen. We have seen the remarkable spectacle of
conservative chancellor, George Osborne, calling aggressive tax avoidance
“morally repugnant”.
29. Also a lot of statements
from business leaders such Andrew Whitty
of GlaxoSmithKline making some very powerful statements about corporate
responsibility and the responsibility of corporations not to just to their
shareholders but to wider sets of stakeholders and particularly with tax in
mind. I think tax, for me, is a real
touchstone of corporate responsibility. If a corporation is prepared to
engage in a tax debate, then, it’s so easy for corporations to do window
dressing and things that don’t matter to them, but I think when you touch on
tax, that’s when you really start to see whether they’re just window dressing
or if they’re really interested in engaging.
30. I think touching on tax
from a corporate responsibility perspective is very important. The fact that
there have been these protest movements is much more significant and have had
much more significant impacts than I think many people think because really now
the politicians do know that they can’t get away with saying, “ah let’s just
get on with this stuff”. They have to at least be seen to be doing the right
thing. Whether they do the right thing is another matter, but I think all of
this is just an important first step. But I think much more awareness raising
is needed.
31. I also would suggest that
the economics profession in particular has had this massive blind spot when it
comes to tax havens and offshore and secrecy and tax evasion and things like
that. They have just chosen, because it’s so difficult to measure and so
difficult to understand, they have basically treated it like a somebody else’s
problem, and let somebody else deal with that. As a result it’s been left to
fester and grow rapidly without anyone challenging it. I think if we can
get economists to start taking this stuff seriously, because economists are so
influential, I think that will also be an important step. But at the bottom of
it all is awareness raising of political consciousness and that’s what needs to
happen now.
[8] Do you think there is
a way out of our current financial crisis and the steady worsening of it that
we’ve seen in countries such as Greece and Portugal, without tackling tax
havens?
32. I think it would be very
difficult without tackling offshore
banking. A lot of these problems have a whole array of causes. Offshore is
one of these underlying causes that is very diffuse and very hard to put your
finger on, that’s one of the great problems with it and many of these other
causes that the size and the power of the financial sector, are very strongly
influenced by the fact that financial actors are able to use the offshore
escape route to escape financial regulations. Offshore is a kind of thing
that’s in the background of so much that’s been going on.
33. Because it’s hard to
point to as a specific, you know, here’s a trigger from offshore, that’s making
it much harder for people to see this. I think if you did tackle offshore, and
you did also find mechanisms to curb the huge tides of hot money that flow
through the global economy, I think you would have a serious chance of getting
the financial system on a much better long term footing. But I think that’s a
long way in the future.
[9] Lastly Nick, I’m
really interested to know, having written the book, how it’s changed your own
relationship to how you bank and how you live your life.
34. One thing I’ve realised
is that if you want to avoid tax havens, the best way to do it is to go and
live in a cave somewhere, because they’re everywhere.
[10] A cave with
broadband by the sound of it!
35. No you couldn’t have
broadband! You basically can’t avoid it. All the multinationals on the high
street that you see will be using tax havens in one way or another for various
different reasons. The banks, of course,
all of them are massively steeped in tax havens. If you’re an overseas
resident, as I am, they will try and encourage you to use offshore accounts.
You will get a lower interest rate if you use an onshore account. They’re
always trying to get you to use offshore accounts.
36. That’s something actually
I didn’t really touch on in Treasure Islands and I do want to research it when
I get some time as to just why this is. I have banked with a bank in the UK for
many years because I set it up when I was in the UK and that is still my bank,
but I actually recently tried to change my account to the Co-operative Bank and
I wasn’t allowed to because I was overseas. I would have been allowed to set up
an offshore account but not an onshore account, so that wasn’t possible. It’s
very difficult. I think if you’re looking to confront this monster and to
tackle it, voting with your wallet is important, but I think it’s very hard to
do. I think political action is really the way to go and raising awareness is
what matters here.
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