Tax havens hate attention. Places such as Jersey, Switzerland and the British Virgin Islands made a handsome living from helping their clients break other countries’ laws for decades, without anyone really noticing. And they liked it that way. Then came the 2007-8 financial crisis, and the good times ended. Rich nations, angry over the loss to their budgets caused by tax dodging, put diplomatic pressure on the havens. Activists, furious over the theft of hundreds of billions of pounds from poor countries, exposed them in the press. The release of vast troves of confidential information – SwissLeaks, the HSBC files, the Panama Papers, the Paradise Papers – cemented a public perception that offshore financial centres exist to help the powerful dodge their obligations to the rest of us, and governments have queued up to punish them. In May, when Britain’s parliament voted to force transparency on its Caribbean islands, it was just the latest blow to the offshore havens.
This concerted campaign has threatened the tax haven business model. Since Swiss banks were forced to open up by the US Department of Justice in 2010, their share of the world’s offshore wealth has dropped from almost half to less than a third. In the British Virgin Islands (BVI), where UK investigators now have access to corporate ownership information, the number of new companies created annually has fallen by more than 50% since 2012. Jersey’s banking sector is barely half the size that it was in 2007.
Although cooperating with outsiders in this way has proven expensive, the havens clearly concluded there was little choice. If denied access to the global financial system, or sanctioned by Brussels or Washington, an offshore centre could be put out of business altogether.
This is good. Tax havens have helped the world’s wealthiest and most powerful keep a disproportionate share of the benefits of globalisation, by preventing the rest of us from seeing how much they own. This, in turn, has eroded trust in democracy and capitalism all over the world. Restricting the operations of tax havens, and enforcing true transparency on the ownership of property, is crucial if citizens are truly to take back control of their countries’ destinies.
Yet, at the heart of this increasingly encouraging picture, there remain a few holdouts – places that have stuck to the old habit of keeping the secrets of the powerful. Foremost among them is Nevis, a solitary volcano in the Caribbean with a population of just 11,000, which has been implicated in some of the most sordid financial scams of modern times, from Britain’s biggest-ever tax fraud to the fleecing of 620,000 vulnerable Americans in a $220m payday loan scam. The story of Nevis reveals the difficulties the world faces in trying to put an end to tax evasion, fraud and kleptocracy.
While Nevis’s rivals have lost business by opening up, Nevis has doubled down on secrecy. Not long ago, I spoke to a lawyer with extensive experience of the island, who asked not to be identified because he still needs to work with Nevisian officials. “The only good thing that Donald Trump could do, if he was ever so inclined,” he said, “is take a battleship and roll it up to Nevis, and literally train the guns and say: ‘Get rid of these bullshit laws or I’ll blow you to kingdom come.’”
In short, he said, “A bright light needs to be shone on this cockroach.”
Tax havens are often lumped together as if they all do the same job. In reality, they are distinctive and highly specialised predators in the financial shark tank. At the top of the food chain – as far as the western world goes, anyway – are places such as London, Switzerland and New York. These apex predators are surrounded by clouds of pilot fish that snap up the scraps: places such as Monaco, Jersey and the Cayman Islands.
These smaller centres all play different aspects of the offshore game: Jersey specialises in trusts, the BVI in incorporation, Liechtenstein in foundations. They also differ in their tolerance for criminality. Among the British territories: Gibraltar is dodgier than Guernsey, but cleaner than Anguilla. And they serve different geographical regions: Mauritius for Africa and India; Cyprus for the former Soviet Union; the Bahamas for the US.
In the world of offshore, Nevis is a bottom-feeder. It specialises in letting its clients create corporations with greater anonymity than almost anywhere else on earth. Last year, information on 70,000 Nevisian companies was leaked as part of the Paradise Papers investigation, but that didn’t help us find out who owns them: ownership information is so secret there that even the island’s own corporate registry doesn’t know. In other words, there was nothing substantial to leak. (...)
In simple terms, Nevis’s laws allow rich people to put ramparts around their property, to protect it from someone who might want to use the courts to take it away, whether that be a business partner, a spouse, an estranged child, or indeed anyone. All tax havens do this, but Nevis turned the ratchet many clicks further than its rivals, in its efforts to tempt business away from its rivals.
To bring legal proceedings on Nevis, you have to file a bond of $100,000 with the court as proof that your case isn’t frivolous. If you win, that is only the beginning of your quest for the assets. Nevis’s regulator holds no information on either the ownership of the company or its assets. Nevis’s LLCs – Neufeld’s innovation – can’t be wound up, meaning you won’t be able to confiscate any assets they own, and you would have to seek redress elsewhere. If you seek to challenge the legality of a property being put in a Nevis-registered trust – for example, if you thought the property actually belonged to you – you have to prove beyond reasonable doubt that the trust’s creation was fraudulent, and you would have to begin that legal challenge within a year of its creation. This is tricky, since Nevis law requires all information on the trust to be confidential, so you would be unlikely to know it even existed.
These ludicrously formidable defences are not really intended to be used, but instead – like the bright colouring of a poisonous tree frog – they exist to warn you off attacking in the first place. If they can persuade a plaintiff to settle out of court for less than is owed, then, for a rich person with vulnerable assets, they are well worth paying for.
by Oliver Bullough, The Guardian | Read more:
This concerted campaign has threatened the tax haven business model. Since Swiss banks were forced to open up by the US Department of Justice in 2010, their share of the world’s offshore wealth has dropped from almost half to less than a third. In the British Virgin Islands (BVI), where UK investigators now have access to corporate ownership information, the number of new companies created annually has fallen by more than 50% since 2012. Jersey’s banking sector is barely half the size that it was in 2007.
Although cooperating with outsiders in this way has proven expensive, the havens clearly concluded there was little choice. If denied access to the global financial system, or sanctioned by Brussels or Washington, an offshore centre could be put out of business altogether.This is good. Tax havens have helped the world’s wealthiest and most powerful keep a disproportionate share of the benefits of globalisation, by preventing the rest of us from seeing how much they own. This, in turn, has eroded trust in democracy and capitalism all over the world. Restricting the operations of tax havens, and enforcing true transparency on the ownership of property, is crucial if citizens are truly to take back control of their countries’ destinies.
Yet, at the heart of this increasingly encouraging picture, there remain a few holdouts – places that have stuck to the old habit of keeping the secrets of the powerful. Foremost among them is Nevis, a solitary volcano in the Caribbean with a population of just 11,000, which has been implicated in some of the most sordid financial scams of modern times, from Britain’s biggest-ever tax fraud to the fleecing of 620,000 vulnerable Americans in a $220m payday loan scam. The story of Nevis reveals the difficulties the world faces in trying to put an end to tax evasion, fraud and kleptocracy.
While Nevis’s rivals have lost business by opening up, Nevis has doubled down on secrecy. Not long ago, I spoke to a lawyer with extensive experience of the island, who asked not to be identified because he still needs to work with Nevisian officials. “The only good thing that Donald Trump could do, if he was ever so inclined,” he said, “is take a battleship and roll it up to Nevis, and literally train the guns and say: ‘Get rid of these bullshit laws or I’ll blow you to kingdom come.’”
In short, he said, “A bright light needs to be shone on this cockroach.”
Tax havens are often lumped together as if they all do the same job. In reality, they are distinctive and highly specialised predators in the financial shark tank. At the top of the food chain – as far as the western world goes, anyway – are places such as London, Switzerland and New York. These apex predators are surrounded by clouds of pilot fish that snap up the scraps: places such as Monaco, Jersey and the Cayman Islands.
These smaller centres all play different aspects of the offshore game: Jersey specialises in trusts, the BVI in incorporation, Liechtenstein in foundations. They also differ in their tolerance for criminality. Among the British territories: Gibraltar is dodgier than Guernsey, but cleaner than Anguilla. And they serve different geographical regions: Mauritius for Africa and India; Cyprus for the former Soviet Union; the Bahamas for the US.
In the world of offshore, Nevis is a bottom-feeder. It specialises in letting its clients create corporations with greater anonymity than almost anywhere else on earth. Last year, information on 70,000 Nevisian companies was leaked as part of the Paradise Papers investigation, but that didn’t help us find out who owns them: ownership information is so secret there that even the island’s own corporate registry doesn’t know. In other words, there was nothing substantial to leak. (...)
In simple terms, Nevis’s laws allow rich people to put ramparts around their property, to protect it from someone who might want to use the courts to take it away, whether that be a business partner, a spouse, an estranged child, or indeed anyone. All tax havens do this, but Nevis turned the ratchet many clicks further than its rivals, in its efforts to tempt business away from its rivals.
To bring legal proceedings on Nevis, you have to file a bond of $100,000 with the court as proof that your case isn’t frivolous. If you win, that is only the beginning of your quest for the assets. Nevis’s regulator holds no information on either the ownership of the company or its assets. Nevis’s LLCs – Neufeld’s innovation – can’t be wound up, meaning you won’t be able to confiscate any assets they own, and you would have to seek redress elsewhere. If you seek to challenge the legality of a property being put in a Nevis-registered trust – for example, if you thought the property actually belonged to you – you have to prove beyond reasonable doubt that the trust’s creation was fraudulent, and you would have to begin that legal challenge within a year of its creation. This is tricky, since Nevis law requires all information on the trust to be confidential, so you would be unlikely to know it even existed.
These ludicrously formidable defences are not really intended to be used, but instead – like the bright colouring of a poisonous tree frog – they exist to warn you off attacking in the first place. If they can persuade a plaintiff to settle out of court for less than is owed, then, for a rich person with vulnerable assets, they are well worth paying for.
by Oliver Bullough, The Guardian | Read more:
Image:Planet Observer/UIG/Getty/Universal images
