'Blistering' book exposes tax rorts


Treasure Islands
By Nicholas Shaxson
Random House, 2011
329 pages

Every once in a while a book comes along that changes a mass audience's view of the world.

Naomi Klein’s 2000 book No Logo, which deconstructed consumer culture, was one. Treasure Islands, a revealing expose of tax havens written by financial journalist Nicholas Shaxson, is equally groundbreaking.

Critics are hailing it as “blistering”, “breathtaking”, “brilliant”, “the most important book published in Britain so far this year” and even “the No Logo for a new century”.

“The reaction in Britain has been incredible,” Shaxson tells Green Left Weekly, fresh off a promotional tour of the US including TV slots on MSNBC and Democracy Now!

“Recently a friend sent me a photo he’d taken at the airport in London in the books department of WH Smith, which is a huge chain, and in its ‘top 20’ section it had Jackie Collins at number one and Treasure Islands at number two.

“I sent him a playful note back saying that this was probably the high point of my whole life and it would all be downhill from here.”

That seems unlikely. Treasure Islands, which manages to make a cumbersome and complex subject read like a thriller, is already being made into a film called Cashback.

The book has hit a chord with a public pummelled by austerity cuts. It shows how the rich have become nauseatingly wealthy by making tax havens far bigger and more damaging than most people realise.

Shaxson begins by debunking the popular perception that tax havens are all tiny tropical islands. The two biggest tax havens, he says, are islands. But they are the island of Manhattan, in New York, and the City of London, in the British Isles.

The British empire faked its own death, says Shaxson. When Britain was left broke and unable to hold on to its crumbling empire after World War II, it instead found a new way to grab hold of the world's wealth. It offered the City of London as a secret bolt-hole for the rich, ring-fenced off from the financial rules placed on British citizens.

As the billionaire Leona Helmsley memorably put it: “Only the little people pay taxes.”

Britain held on to a few fragments of its physical empire in tiny islands dotted around the world that now join up like a giant spider's web. They ensnare money by offering an escape from the fiscal regulations enforced in larger countries nearby.

The cash is then funnelled back to London.

The US has had little choice, says Shaxson, but to follow suit.

“In competitive markets, what becomes possible becomes necessary,” he says. “And in this context I would call Britain an epicentre of a gigantic system of corruption: the corruption of global markets.”

Shaxson tells how two Brits in particular pioneered the dark art of tax evasion. The Vestey brothers initiated “transfer pricing”. This is the method by which multinationals choose to declare their profits in the lowest-taxed countries in which they operate, and declare their losses in the highest-taxed countries.

It was through this method that General Electric recently paid zero tax and claimed a tax refund of US$3.2 billion.

Shaxson is an expert on the Vesteys’ creative accounting, but less aware of their notoriety in Australia.

It was the Vesteys who, as cattle barons, fought a battle with Aboriginal stockhands over equal pay. The fight resulted in the Gurindji walk-off and strike for land rights in the Northern Territory, which lasted from 1966-1975.

It helped lead to the passing of the Aboriginal Land Rights Act, drafted by the Whitlam Labor government, in 1976.

“I had been aware of such problems in Australia with the Vesteys, but hadn’t researched it,” he says.

“The story doesn’t surprise me in the least. In fact, it’s a pattern — the companies that play hardest and fastest with workforces, labour rights, the environment and so on are, very frequently, the most aggressive tax avoiders.

“It’s a mindset, and the Vesteys were earlier pioneers of how to play this game.”

It's a game that now gambles with the habitability of the planet.

“Those that use tax havens most aggressively do also tend to be most aggressive in dealing with the environment,” says Shaxson.

“It is, after all, an issue of contempt for others that is the common theme here. The offshore system gives the most aggressive players tremendous powers. You will find, if you dig, that in pretty much every specific environmental disaster, there will be tax havens involved.

“There is, of course, the secrecy element. If you don’t want people to see what you’re doing, then go offshore.

“It’s pretty simple, on one level.”

Shaxson places great emphasis on the secrecy of tax havens. In the book, he deliberately alternates between calling them “tax havens” to emphasise their financial aspects and “secrecy jurisdictions” to stress how they avoid the openness of democracy.

Central to the way tax havens operate are trusts, which are documents that switch the legal ownership of assets to someone else, real or imagined.

The trusts send payments through layer upon layer of lawyers, who are all protected by lawyer-client confidentiality. Thus it is impossible for even those in the chain to know where the final payment is going.

Naturally, the players in this game don't like prying eyes, and one has to wonder whether Shaxson has put his life in danger by writing the book.

“I had spent many years researching oil, politics and corruption in West Africa, so I was already quite hardened to this kind of stuff,” says the Malawian-born writer, whose previous book, Poisoned Wells: The Dirty Politics of African Oil, was his debut as an author.

“I knew that with Treasure Islands I was taking on something much bigger than the oil industry, and in many cases these are far nastier people to challenge, too. But this is a book about a global system and how it all fits together, far more than it is an investigation of any particular bits of murk.

“I haven't had any threats. The closest I came was in the Cayman Islands where someone warned me that I should watch my safety if I went to the Bahamas and started asking ‘all these questions’.”

Yet there is a link between African corruption and places such as the Bahamas. It is the global South that is worst affected by tax havens. Less money pours into Africa than pours out — and most that pours out goes to tax havens.

“Developing countries lost up to a trillion dollars in illicit financial outflows just in 2006,” writes Shaxson. “That is $10 out for every dollar of aid flowing in … Africa is a net creditor to the rest of the world, with its net external assets vastly exceeding its debts.”

But tax havens also greatly damage the global North. They dictate the politics of Western countries, which try to compete by constantly cutting corporate tax and shoving the burden onto ordinary taxpayers.

Little wonder that the Rudd government's feeble attempt to enforce a super profits tax on miners in Australia resulted in a bloodless coup that installed Julia Gillard, who instantly dropped the tax.

“I remember reading about that with great interest,” says Shaxson, who reckons any change that is worthwhile will always be fiercely opposed.

“Ordinary Australians would have lost out from that — but the difficulty of succeeding is no reason not to gear up and mobilise on this stuff. Tax is, at the end of the day, at the very heart of democratic bargaining, and it ought to be on everyone’s agenda.”

But how can the average person in the street take on tax havens?

Shaxson points to the Uncut campaign that uses non-violent direct action to target corporations known to dodge taxes.

“At this stage, join the corporate tax avoidance protests,” he says.

“Start up Uncuts in a town near you. And over time, I think the Uncut movement will flower into something focusing not just on tax avoidance — important thought that is — into a framework for understanding, and protesting about, the corruption of the global economy.”

Activists are already taking his lead. Crowds of protesters have been shown on US television holding up copies of Shaxson's book.

How does that make the self-deprecating author feel?

“Honoured,” he says. “Really honoured. These protests are something that I and people I’ve been working with have been dreaming of for a long time.”

It seems Treasure Islands is the wake-up call the world has been waiting for.

Nicholas Shaxson on Democracy Now!