top of page

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


Since we have a clutch of big tax chiselers right here in River City*, this subject interests me greatly. As the Great Recession drags on for six years, with 9300 homeless just in our county, I have been puzzled by our economy’s apparent inability to right itself. This book and a couple of others have opened my eyes to central problems that don’t seem to get much attention, and certainly not clear analysis, in the media. To my mind the problems are those of offshoring of jobs, offshoring and withholding of capital, the resulting debt and the avoidance and shifting of tax burden down the social scale, further reducing the spendable incomes needed for a robust economy. This has all been done under the rubric of “deregulation for efficiency” and the supposed provision of more for everyone. However, any greater efficiency and increased GDP that has occurred since the deregulation craze began in the Carter Administration is due to advances in science, I believe, not deregulation.

The fruits of scientific advance, on the other hand, are not being shared fairly. Much of the great developments in science are funded by us all through government sponsored research, and in any case are not the fundamental product of the creativity of the 1% who have reaped most of the benefits. The book Treasure Islands by Nicholas Shaxson deals with the offshoring problem, i.e., the wizardry of tax avoidance, tax evasion, and the hiding of illegally acquired assets. He makes the case that this seriously hurts us, Europeans and the people of less-developed nations equally. The money lost just by U.S. taxpayers is estimated to be $100 billion per year. Just think how that might be used productively here. Google “Jeff Reifman and Crosscut” for a local example.

As I listen to Thom Hartmann today pointing out that a third of all U.S. taxes in the Eisenhower years were paid by corporations and that it is now down to 8%, I think about the story told so entertainingly and persuasively by this book. It is a story of the offshore ways that U.S. corporations have perfected since the Eisenhower years to accomplish this. It is also a history of the development of opportunities to hide illegally acquired loot that has been offered internationally to new political leaders as the French, British and American colonial empires were nominally dissolved and the local elites adjusted their larcenous methods.

Shaxson is a journalist who has specialized in African affairs, has written for the Economist and Financial Times and is an associate fellow with the Royal Institute of International Affairs. He begins his story with his own introduction to a mixture of oil money, French politics, intelligence services and bribery as it was applied to wealth extraction in Gabon, the small ex-French colony in West Africa. Wealth extraction and its concentration elsewhere is the theme of this book and that is what he sees as the greatly destructive effect of tax havens. They often divert funds in ways that corrupt democratic government at the source and always leave it less productive at its final resting place, or worse, free to finance mayhem.

The small oil-rich ex-French colony of Gabon is portrayed as a jewel in the crown of post-colonial power relationships. Here the French even bivouacked a few hundred paratroopers within quick reach of the dictator’s palace by means of a tunnel, just to assure his continued compliant reign. He lived to be the world’s longest serving chief of state. As it happened, the author’s visit to Gabon came as what became known as the giant ELF Aquitaine corruption affair began to explode in France, revealing some of the nastier political and criminal effects of such arrangements. That, as he tells it, drew him into the study of tax havens that produced the book.

His narrative draws the reader in like a novel of international intrigue. It has the appeal of telling you about the bad and semi-bad guys who are reaming you tax-wise, supported by extensive footnotes you can ignore, while making the whole thing go down easily, greased with spicy details. There is the overly inquisitive accountant who is poisoned, a miniature coffin sent to a French investigating magistrate, secret handshakes, the detective who knows when to back off, an executive found in the back of his burning hatchback, and naked girls greeting drug lords when they touch down at private Caribbean airfields. Even the statistics are riveting: As the dust jacket blurb points out, over half of world trade is routed through tax havens. Off balance sheet practices that caused much of the crash of 2008 can be traced to tax havens. And ten times as many dollars we send in aid to developing countries slip out the back door to the secret tax haven accounts of corrupt rulers and elites.

Shaxson digs deeper and deeper into the details of the tangled and growing mass of havens such as Liechtenstein, the Isle of Jersey, the Caymans,the Bahamas, Hong Kong, Nevada, Delaware, Wyoming, Nauru and on and on. He finds that the connections circle back to The City of London. This is a small enclave within London proper that has only 9000 or so real inhabitants. It has been the center of international finance since the glory days of the British Empire and because of the firms officially located there has developed the strands of what he characterizes as a web of unregulated and obscure financial transactions for the purpose of secrecy. While Switzerland may be the final resting place of a great deal of invisible money, the records that would be necessary to trace the travels of that money are protected from any agency’s discovery by this carefully constructed web at which The City is the center.

As we know from our daily news, London continues to provide the seductive advantages of dodgy financial supervision. You get whiffs of this in the episode of Morgan Chase’s multi-billion dollar London Whale fracas and the criminal fixing of international interest rates, to say nothing of the several strange Morgan employee deaths. Then there is the chapter detailing the corrupting effect of captured small governments on larger countries through the threat that companies can then make of leaving a relatively respectable jurisdiction for more complacent climes. The examples of Delaware and Jersey are striking. There, successful efforts were mounted to effect lax legislation in Parliament and Washington allowing, respectively, audit firms to avoid liability for bad audits and banks to remove limits on usurious credit card interest rates, both things that certainly contributed to our current troubles. All of this is justified, it seems, using the new twisted free market philosophy of subverting and reducing government while using what government remains greedily for special purposes.

But the most troubling aspect of this story is the effect these financial pipelines out of poor countries have on their economies. This, he claims, is why places with great potential mineral or agricultural wealth remain desperately poor. Contrary to self serving theories of the benefits of minimal government, he argues, poor countries need sufficient bureaucracy to enforce a system of taxation, one to create the proper infrastructure conducive to a modern productive society and prevent this very outflow of loot that drains the country of investment funds. A healthy and honestly administered tax system, he says, can encourage creation of local enterprise and the democracy giving residents a stake in civil society that we tell less developed societies they should have. He finishes by providing a list of several correctives to the ills he sees, all of which are impossible to enact given the present political scene. The next step in any program of reform will clearly have to involve removal of the suffocating influence of big money in U.S. politics. That is another book altogether and a rant I will reserve for another day.

A book that explores the matter of the economics of less developed nations, and in my opinion pretty persuasively destroys the inflexible “free-trade” rationale of the IMF and World Bank, is Cambridge professor Ha-Joon Chang’s Bad Samaritans. He points out that, in contrast with less developed nations of the present day, in our Gilded Age we had the advantage that the loot of the great buccaneers was kept at home to be invested by them in our economy. That book won’t be as much fun. No death, drugs and intrigue, but you might try looking at it as well. The two together could just shake up your whole worldview. Good books can do that.

~Jim Snell

*“Right here in River City” refers to the song “Ya got Trouble” from The Music Man.

bottom of page