Latest Reading: “Treasure Islands: Tax Havens and the Men Who Stole the World” by Nicholas Shaxson

Nicholas Shaxson is an English economics writer for The Financial Times and The Economist. This book is an excellent introduction to tax havens. He defines tax havens by ”places that seek to attract business by offering politically stable facilities to help people or entities get around the rules, laws, and regulations of jurisdictions elsewhere.” I was aware of these places due to my expatriate lifestyle, as many expats have bank accounts or do business in these types of places. I wasn’t aware of the magnitude of the money found in these tax havens. Shaxson argues that these tax havens were a big cause of the global economic meltdown recently and that they do much damage to countries that are missing out on tax revenue. The book is an excellent introduction to this world, and he is a good storyteller and it is an easy read, not very much financial jargon. I enjoyed the book and recommend it to others who want to know more about this.

As I am typing this book review, I am following the Australian Open Tennis Championship, and I notice how many of the players live in Monaco or Monte Carlo, two tax havens! All three of Serbia’s superstars, Novak Djokovic, Jelena Jankovic, and Ana Ivanovic, live abroad. Imagine how much tax money Serbia is being deprived by these people living outside the country. I also think many high income earners avoid taxes this way. Shaxson describes how the system began historically and how they spread and maintain themselves.

Tax havens offer secrecy, very low or zero taxes, and have a financial service industry that is very large compared to the size of the size of the local economy. I learned that the world contains about sixty secrecy jurisdictions.

The most important is of all places, London. I thought that with the British organization, that this would be the last place where people to hide money from tax authorities, but “The City of London” is private organization within the municipality of London, that is outside of the government laws, not only city, but on par with the British Monarch and Prime Minister. This is historical, and Shaxson devotes an entire chapter to looking at it.

It was his impression that the latest global economic crisis, was caused in a large part, by these financial service companies and investment banks, operating unregulated in these havens. This offshore system is huge, with expert estimates stating that about half of all banking assets, and  a third of foreign investment is found in these havens.

Other European places that are tax havens are the Serbian tennis professional enclave of Monaco, the Netherlands, Luxembourg, Jersey Island, and, the traditional Switzerland. Shaxson debunks the myth that the Swiss bank secrecy began with the Nazis. It started before them, and it came about because Swiss farmers, and the traditional of independence of the isolated, mountain valleys in the country. They keep the country together by having autonomous regions.

Some other places in the world are the Cayman Islands, Bahamas, Hong Kong, (outgrowth of the British Empire and the City of London), and the USA is not exempt, with Florida, the Virgin Islands, etc. Shaxson also points out that much illegal (drugs, arms sales, dictator theft) ends up in accounts in these areas. Also, many multinational corporations, like petroleum companies, use these to avoid taxes.

I can see why rich people and companies do not want to pay taxes and how they justify them. I am sure Novak Djokovic is saying that the Serbian government is corrupt and his money would not be used well. He also gives back much to Serbia through promoting the country, winning the Davis Cup, charity, etc. The author however, is dead set against this and he does have many valid points. He points out how the British media loves Virgin’s Richard Branson, who nonetheless, is a major tax-dodger. It is the “little guy” who can’t get out of paying the bulk of taxes. In the last chapter, he gives a list of reforms that would track down this money distribute it to various nation’s governments.

Last week I met gentleman who worked for the German tax authorities. It was his job to work in London, tracking down Germans that owe taxes. It was funny in the book that the rich Russians refer to it as “Londongrad.” I would have to agree with Shaxson, in that this lost revenue could help countries. The book also got me to think about my retirement accounts and savings. Where do I want to put them…

I recommend the book to anyone who wants to learn more about this topic and it is also good for expatriates to read.

 

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