Wed, Jun 24, 2015 - Page 9 News List

Follow the money: inside the world’s tax havens

There are many tricks used to shift money offshore, and a pinstriped army of accountants and lawyers to help people do it

By Nicholas Shaxson  /  The Guardian

HavenCo is the key to the puzzle. It bought the container for US$1,000 and sold it for US$3,000 — a US$2,000 profit — but it is based in a haven, so it pays no tax. In short, all the profits have been stripped out of France and Ecuador, and shoveled into the haven. Hey presto.

In the real world, things are more complicated. Countries put in place defenses against this kind of nonsense, but the lawyers find ways to get around them in a constant game of cat and mouse. These games transfer wealth from taxpayers toward corporate shareholders. This is not about creating wealth, but about one group of people extracting wealth from another group. These transactions boost inequality, every time.

They also help multinationals outcompete their smaller and more local competitors.

Tax havens are not the only reason your local bookstore has gone out of business — but they are a big part of it. (Note, too, that these are not “leftist” concerns. Tax havens are tilting the playing field for business: People across the political spectrum should oppose this. To be anti-tax haven is, in a very profound sense, to be pro-business.)

Let us not forget all the criminality that tax haven secrecy facilitates. When multinationals use these platforms, they provide these places with immense political cover. Again, this should worry people on both the left and the right. It is, really, a fight between a globetrotting elite, in one corner, versus ordinary people in rich and poor nations — who all have a shared interest in tackling these problems. Nothing illegal has necessarily happened here; to focus only on who broke the law and who did not is to miss the big picture — which is, who got the cream and who did not.

About a decade ago, I was writing a book about six nations along a stretch of west Africa’s oil-soaked coast, running from Angola up to Nigeria. Despite hundreds of billions of dollars in oil revenues, their people did not seem to be better off. In the case of Angola, then just starting to recover from an oil-and-diamond-fueled war, it was surely worse off than if no natural resources had been discovered.

I wrote an article about corruption in west Africa’s oil-producing states and a few days later got a letter from David Spencer, a US attorney who had worked with a big global bank in Latin America. He invited me to visit him in New York.

Several months later we met and, before we had finished our starters, Spencer was getting worked up about matters that were not at all on my agenda — accounting rules, US tax exemptions, transfer pricing — and some curious legal arrangements in Delaware, a small US state roughly halfway between New York and Washington.

What on earth did any of this have to do with Nigeria?

Realization began to dawn: Spencer was telling me that the US was itself a giant tax haven and that this was intensely relevant for west Africa. He explained why.

During the Vietnam War, the US was spending more money overseas than it was earning there and dollars were flowing out. To finance its growing deficit, the US wanted to lure foreign dollars back home. It did this by turning itself into a haven: creating tax benefits for foreigners. The idea was to start hoovering up capital flight and dirty money from around the world — looted west African oil money would do nicely.

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