Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens by Nicholas Shaxson

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WELCOME TO NOWHERE
An Introduction to Offshore
THE OFFSHORE WORLD IS ALL AROUND US. Over half of world
trade passes, at least on paper, through tax havens. Over half of all bank
assets, and a third of foreign direct investment by multinational
corporations, are routed offshore. Some 85 percent of international
banking and bond issuance takes place in the so-called Euromarkets, a
stateless offshore zone that we shall soon explore. Nearly every
multinational corporation uses tax havens, and their largest users—by far—
are on Wall Street.
Tax havens don’t just offer an escape from tax. They also provide wealthy
and powerful elites with secrecy and all manner of ways to shrug off the
laws and duties that come along with living in and obtaining benefits from
society—taxes, prudent financial regulation, criminal laws, inheritance
rules, and many others. Offering these escape routes is the tax havens’ core
line of business. It is what they do.
Before getting into the real story of offshore, this chapter will lay some
basic groundwork for understanding tax havens, offering a few essential
principles, some brief history, and a short overview of where the tax havens
are located.
Nobody agrees exactly what a tax haven is, but I will offer a loose
description here: It is a place that seeks to attract money by offering
politically stable facilities to help people or entities get around the rules,
laws, and regulations of jurisdictions elsewhere. This definition is quite
broad, compared to some others, and I have chosen it for two main reasons.
First, I aim to challenge a common idea that it is perfectly OK for one
jurisdiction to exercise its sovereign right to get rich by undermining the
sovereign laws and rules of other places. Second, I am offering a lens
through which to view the history of the modern world. This definition will
help me show how the offshore system is not just a colorful appendage at
the fringes of the global economy but rather lies at its very center.
I should also make a short point here about some confusion in the
language. When I say “offshore,” I obviously am not referring to offshore
oil drilling. I am also not talking about “offshoring,” which is what happens
when a company moves a manufacturing plant or, say, a call center from the
United States to India or China, perhaps to save on labor costs. When I say
“offshore,” I am talking about the artificial movement or use of money
across borders, and about the jurisdictions, commonly known as tax havens,
that host and facilitate this activity. Once the money has escaped offshore, it
is reclassified in an accountant’s ledger and it assumes a different identity—
and that means, very often, that the forces of law and order will never find
it.
A number of features help us spot tax havens. Here are some important
ones.
First, as my colleagues have found through painstaking research, all tax
havens offer secrecy, in various forms. The term secrecy jurisdiction
emerged in the United States in the late 1990s, and in this book I will use it
interchangeably with tax haven. I will call the whole global structure of
these places, and the private infrastructure that services them, the offshore
system.
Another common marker for tax havens is very low or zero taxes, of
course. People and corporations use them to escape tax, legally or illegally.
Secrecy jurisdictions also have very large financial services industries in
comparison to the size of the local economy. These places also routinely
“ring-fence” their own economies from the facilities they offer to protect
themselves from their own offshore tricks. So they might, for example,
offer a zero tax rate to nonresidents who park their money there but tax
local residents fully. This ring-fencing is a tacit admission that what they do
is harmful.
Various other telltale signs exist. Tax havens usually deny what they are
and strenuously assert that they are clean. Search for “We are not a tax

Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens by Nicholas Shaxson