An Anatomy of Tax Havens: Europe, the Caribbean and the United States of America 9783110985108, 9783110996678

Table of contents :
Acknowledgements
Contents
Prologue: The US Tax Havens
Chapter 1 Where are the tax havens?
Chapter 2 What is a “tax haven”?
Chapter 3 Becoming a tax haven
Chapter 4 Smoke and mirrors – privacy versus secrecy
Chapter 5 Beneficial ownership – transparency and concealment
Chapter 6 Chimeric solutions and where to find them
Chapter 7 Global impact
Chapter 8 Domestic impact
Chapter 9 Afterword
Index

Citation preview

Paul R. Beckett An Anatomy of Tax Havens

Paul R. Beckett

An Anatomy of Tax Havens Europe, the Caribbean and the United States of America

ISBN 978-3-11-099667-8 e-ISBN (PDF) 978-3-11-098510-8 e-ISBN (EPUB) 978-3-11-098516-0 Library of Congress Control Number: 2023940598 Bibliographic information published by the Deutsche Nationalbibliothek The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available on the Internet at http://dnb.dnb.de. © 2023 Walter de Gruyter GmbH, Berlin/Boston Cover image: Daren Ward, Forward Marketing, www.forward-marketing.im Typesettung: Integra Software Services Pvt. Ltd. Printing and Binding: CPI books GmbH, Leck www.degruyter.com

This book is dedicated to Peter Rutland Altiora Etiam Petamus

Acknowledgements I have practised business law offshore for nearly four decades, and those who have positively influenced and guided me, and those who have just plain appalled me, have in my consciousness long since lost their individual voices and become a choir. I cherish the harmonies and the dissonance. They have certainly left their mark on my thinking. My approach to undertaking this anatomy of tax havens has been formed by them as much as by my own interests and enthusiasms. I have for many years also been an advocate of human rights, both domestic and international. A commercial lawyer applying human rights principles in a tax haven is as unlikely as it sounds; but that is my profession. My wife, Dr. Lesley Stone, has been patient with and supportive of me throughout the project, as she has throughout the writing of my previous three books these past five years. In the middle of the present project, we celebrated our 35th wedding anniversary. It began to feel as though we were married to An Anatomy of Tax Havens as well. The book is dedicated to Professor Peter Rutland, professor of government and the Colin and Nancy Campbell Chair for Global Issues and Democratic Thought at Wesleyan University (Middletown, Conn.) We met at school in 1968, were contemporaries at Oxford in the Seventies and have never been out of contact. He has contributed so generously to the research for this book. Understated to a fault, he tells me that it’s entirely up to me whether or not I dedicate the book to him. Let’s go for it, Peter. I express my thanks finally to the publishing team at De Gruyter, and in particular to Steve Hardman and Maximilian Gessl, for sharing my vision of what this book could become and for providing me with the means to make it a reality. Paul R. Beckett Isle of Man 25 March 2023

https://doi.org/10.1515/9783110985108-202

Contents Acknowledgements

VII

Prologue: The US Tax Havens

XV

Chapter 1 Where are the tax havens? 1 Introduction 1 Where are the tax havens? 2 Onshore tax havens – The United States of America, The Netherlands and the City of London 4 The United States of America 4 The Netherlands 7 The City of London 10 An ultra-secret tax haven – Campione 13 Ghost Havens – the freeports 14 “Super tax havens” – cryptocurrency and the blockchain 15 OECD’s Crypto-Asset Reporting Framework (CARF) and Amendments to the Common Reporting Standard 19 European Union – Markets in Crypto-assets Regulation (MiCA) 20 Blockchain Havens 23 Gibraltar 26 Malta 26 Switzerland 27 Wyoming 27 Isle of Man 28 Tax haven cryptocurrency and blockchain legislation 29 Reflections 37 Chapter 2 What is a “tax haven”? 46 Introduction 46 What is a “tax haven”? 46 Historical perspective 48 Basic characteristics 49 Immunities 50 Classification: Evolution and fragmentation Reflections 55 Appendix Classification of tax havens 56

51

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Contents

Chapter 3 Becoming a tax haven 79 Introduction 79 Failing marginal or subsistence economies 81 Isle of Man 82 South Dakota 83 Principality of Liechtenstein 84 Former colonies re-colonised 85 The Bahamas, the Bay Street Boys and the American Mafia 89 The Cayman Islands – from wasteland to premier international finance centre 92 The “Butlers” – tax haven enablers 96 Professional enablers and professional money launderers 97 Wealth managers and corporate service providers 99 Lawyers and consultants 100 Complicit onshore governments 101 Counter-initiatives 103 United States of America: A stalled initiative? 103 European Union: A first step 107 Reflections 108 Chapter 4 Smoke and mirrors – privacy versus secrecy 113 Introduction 113 Privacy versus secrecy 115 The meaning of “privacy” 115 Secrecy jurisdictions 115 Press intrusion – investigative journalism 117 State intrusion – surveillance 118 An American perspective 119 Leaving the back door unlocked 120 Whistle-blowers, investigative journalists and spies 121 Confidential relationships – the Cayman Islands 123 Liechtenstein, Germany and the United States: LGT Group 2008 124 Switzerland and the USA: UBS 2009 128 Switzerland: Credit Suisse and the Suisse Secrets Investigation 2022 130 International Consortium of Investigative Journalists: Panama, Paradise and Pandora Papers 132 Spies 133

Contents

2023: Rehabilitation of whistle-blowers 134 “LuxLeaks” 2014 – decision of the European Court of Human Rights in Halet v Luxembourg 2023 135 Reflections 138 Chapter 5 Beneficial ownership – transparency and concealment 143 Introduction 143 Beneficial ownership 144 Anonymous real estate in the United Kingdom and the United States of America 145 United Kingdom 145 United States of America 146 Orthodox strategy: Registration 147 Transparency initiatives: The United Kingdom, the United States of America, the European Union 148 United Kingdom 150 Registration shortcomings at the UK’s Companies House 150 Unexplained Wealth Orders 153 Economic Crime (Transparency and Enforcement) Act 2022 154 United States of America 155 Geographic Targeting Orders (GTOs) 155 Corporate Transparency Act 156 The European Union 160 Fifth Anti-Money Laundering Directive (5AMLD) 160 Impact of 5AMLD on the Crown Dependencies and the British Overseas Territories 162 November 2022 – an unexpected and seismic shift away from disclosure 166 Reaction of the United Kingdom 169 Off the leash? Consequences for the United Kingdom’s Crown Dependencies and British Overseas Territories 170 “Unshell” – rules to prevent the misuse of shell companies for tax purposes: ATAD 3 171 Reflections 173 Appendix A: The concept of “ownership” in world legal systems 174 Appendix B: Beneficial Ownership Transparency 179

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Chapter 6 Chimeric solutions and where to find them 200 Introduction 200 Companies, trusts and foundations explained 202 Companies 202 Shell companies 203 Trusts 204 Some fundamental aspects of trusts 205 Foundations 206 Chimeric solutions 207 Trusts 207 United States dynastic trusts 207 BVI VISTA Trust 211 Cayman STAR trust 214 Cook Islands international relationship property trust 215 Isle of Man trusts 222 Non-charitable purpose trusts 225 How classic trusts and non-charitable purpose trusts compare 226 The practical effect of holding assets in a non-charitable purpose trust 227 Are they truly trusts? Uncertainty and the Hague Convention 229 Transparency concerns – No-man’s land? 230 Technical analysis of the Isle of Man Purpose Trusts Act 1996 231 Foundations 233 Cayman Islands foundation companies 233 Liechtenstein private-benefit foundation 237 Nevis multiform foundation 238 New Hampshire Foundation 242 Panama Private Foundation 245 BVI Business Companies 247 United States of America: Delaware – blockchain maintenance of corporate records 251 United States of America: Wyoming – Decentralized Autonomous Organizations (DAOs) 254 Bahamas Executive Entities 260 Liechtenstein Anstalt 263 Isle of Man Life Assurance Policies 265 Reflections 272

Contents

Chapter 7 Global impact 279 Introduction 279 Perceived global impact of tax havens 280 Tax avoidance versus tax evasion 284 Money laundering and the “super tax havens” 287 Illicit funds flow, kleptocracy, corruption and financial crime 295 Luxembourg 300 The Russian Federation 302 The People’s Republic of China 307 International human rights abuse 309 Limitations of “Soft Law” 311 Focus on human rights and taxation, rather than on tax havens Environmental degradation 315 Reflections 316 Appendix 317

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311

Chapter 8 Domestic impact 330 Introduction 330 Reputations lost and won 331 The biter bit – “finance sector capture”, inequality and the Dual State 336 Finance sector capture 336 The Sovereignty Ploy 341 “Intervention is too hard a sell”? 343 Laws on demand – domestic pressure 347 Laws on demand – international ultimatum – EU Economic Substance 353 The Dual State, inequality and discrimination 357 New modern feudalism 363 Domestic human rights abuse 367 Abandoned: The curious case of Curaçao 370 Constitutional status 370 Tax haven and the “Dutch Sandwich” 371 Decline and fall 372 Domestic impact – a failed state 373 Reflections 376

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Contents

Chapter 9 Afterword 384 Good or bad? The moral maze 384 Tax havens on trial 385 The case for the prosecution 385 The case for the defence 387 The decision of the jury? 389 Binary solutions are ineffective 389 Concluding reflection 390 Index

393

Prologue: The US Tax Havens What sets the US tax havens apart from the rest? The US tax havens have time travelled. They are what tax havens used to be in the early 1980’s. Subject to minimal, if any, regulatory oversight on the part of their governments, they offer secrecy and unaccountability which goes far beyond mere confidentiality. The abuse of bank secrecy and tax evasion are global issues, and traditionally thought to have centred on Switzerland, but as international lawyer Philip Marcovici observes: Switzerland and bank secrecy provided important protection to many families in and around the turmoil of wars, expropriations, corruption, and more. But bank secrecy has been abused – and not only in Switzerland. Data leaks in Panama and elsewhere1 make it easy for the press and others to bash offshore “tax havens” and those involved in promoting the use of opaque structures designed to hide assets. Not enough is being done, however, to have an open dialogue about the reality that the USA is one of the best places for money to be hidden, given its lack of regard for the needs of countries other than the USA to get information on companies, trusts, and assets connected to the USA.2

The United States of America has become “the largest provider of money laundering and financial secrecy services in the world”.3

Regulation-lite USA In 2002 following the disaster of the 9/11 attack on the World Trade Center in New York, the Patriot Act4 was introduced, bringing with it a raft of anti-money laundering provisions. But the US Treasury, citing the need to monitor the possibly inhibiting effects on the US economy of anti-money laundering procedures, almost immediately issued temporary exemptions which are still in place two decades later to real estate agents and those overseeing escrow accounts, private equity and hedge fund managers, and luxury goods vendors. The Patriot Act itself did not extend to American lawyers.5

 See the discussion on whistle-blowers and spies in ch 4.  Philip Marcovici, The Destructive Power of Family Wealth. A Guide to Succession Planning, Asset Protection, Taxation and Wealth Management (Wiley, Chichester, 2016) 46.  Casey Michel, American Kleptocracy. How the U.S. Created the Greatest Money-laundering Scheme in History (Scribe Publications, London and Brunswick, Victoria, Australia, 2021) 9.  Public Law 107-56-Oct. 26, 2001 Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism < https://www.congress.gov/107/plaws/publ56/PLAW107publ56.pdf> (accessed 19 March 2023).  Casey Michel, American Kleptocracy. How the U.S. Created the Greatest Money-laundering Scheme in History (Scribe Publications, London and Brunswick, Victoria, Australia, 2021) 99-100. https://doi.org/10.1515/9783110985108-204

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Prologue: The US Tax Havens

Foreign funds can be converted into real world assets – land, property, artworks, luxury vehicles, yachts and all the other popular icons of material success – without the vendor having to run any checks on the source of wealth of the purchaser. Funds placed in the client account of a US law firm are not subject to anti-money laundering checks, and are then able to be utilised in the formation of shell companies and trusts. As Casey Michel writes: And in the U.S., industries have sprung up to make sure that those trillions of dollars tied directly to noxious regimes or their oligarchic minions or the criminal networks tracing the globe can quickly become – poof! – clean, legitimate, and available. In so doing, they have helped the U.S. become the greatest kleptocratic haven in the world, and the biggest money laundromat known to man.6

“The South Dakota Advantage” South Dakota? South Dakota is best known for its vast stretches of flat land and the Mount Rushmore monument, where the heads of four presidents are carved into the Black Hill Mountains. Its population of 858,469 ranks 46th in the country. Locals joke that it has more pheasants – about 1.5m – than people. Yet despite its small town feel, Sioux Falls has become a magnet for the ultrawealthy who set up trusts to protect their fortunes from taxes and future ex-spouses.7

Singled out in the Pandora Papers,8 the State of South Dakota is pre-eminent amongst the tax havens in the USA – “ground zero for the earthquake of financial deregulation that has rocked the world’s economy”.9 Michael Heller and James Salzman state it bluntly: South Dakota is crushing Switzerland, the Cayman Islands, and other traditional tax-avoidance and banking-secrecy havens. If you are super-rich, you already know this; if not, it may be a surprise to learn that the globe’s excess wealth spigot now drains into South Dakotan trusts.10

 Casey Michel, American Kleptocracy. How the U.S. Created the Greatest Money-laundering Scheme in History (Scribe Publications, London and Brunswick, Victoria, Australia, 2021) 13.  Kara Scannell and Vanessa Houlder, ‘US tax havens: The new Switzerland’ Financial Times (London, 8 May 2016) (accessed 19 March 2023) A review of South Dakota’s key industries and financial services is available from the South Dakota Governor’s Office of Economic Development (accessed 19 March 2023).  International Consortium of Investigative Journalists, Pandora Papers (4 October 2021), (accessed 19 March 2023).  Oliver Bullough, ‘The great American tax haven: why the super-rich love South Dakota’ The Guardian (London, 14 November 2019) (accessed 19 March 2023).  Michael Heller and James Salzman, Mine! How the Hidden Rules of Ownership Control Our Lives (Atlantic Books, London, 2021) 225.

“The South Dakota Advantage”

XVII

Laws have been made to measure. A combination of trusts (including non-charitable purpose trusts and the ability for trusts to exist in perpetuity), shell companies, no usury laws (so interest rates on transactions such as credit cards can soar), supportive legislation and very light regulation has created a vast industry, known to local fiduciary and legal practitioners as “The South Dakota Advantage”. In the past ten years this formerly predominantly farming-based economy has quadrupled assets in trusts which now have a value estimated at USD 360 billion11 (though this is likely to be a huge underestimate given the depths of secrecy on offer). Oliver Bullough writing in 2019 comments: The money of the world’s mega-wealthy, though, is heading there in ever-larger volumes. In the past decade, hundreds of billions of dollars have poured out of traditional offshore jurisdictions such as Switzerland and Jersey, and into a small number of American states: Delaware, Nevada, Wyoming – and, above all, South Dakota. “To some, South Dakota is a ‘fly-over’ state,” the chief justice of the state’s supreme court said in a speech to the legislature in January. “While many people may find a way to ‘fly over’ South Dakota, somehow their dollars find a way to land here.” [. . .] A South Dakotan trust [. . .] protects assets from claims from ex-spouses, disgruntled business partners, creditors, litigious clients and pretty much anyone else. It won’t protect you from criminal prosecution, but it does prevent information on your assets from leaking out in a way that might spark interest from the police. And it shields your wealth from the government, since South Dakota has no income tax, no inheritance tax and no capital gains tax. [. . .] US politicians like to boast that their country is the best place in the world to get rich, but South Dakota has become something else: the best place in the world to stay rich.12

And as David Pegg and Dominic Rushe write: South Dakota is sheltering billions of dollars in wealth, some linked to individuals and companies accused of financial crimes or serious wrongdoing, [. . .] [T]he US Midwestern state now rivals Switzerland, Panama, the Cayman Islands and other famous tax havens as a premier venue for the international rich seeking to protect their assets from local taxes or the authorities. Wealthy foreign individuals and their families are moving millions of dollars to South Dakota trust funds, which enjoy some of the world’s most powerful legal protections from taxes, creditors and prying eyes.13

It was a conscious decision on the part of South Dakota’s lawmakers to position the state in the offshore world. In 1997 the then state governor William “Wild Bill” Jan-

 Will Fitzgibbon, Debbie Cenziper and Salwan Georges, ‘Suspect foreign money flows into booming American tax havens on promise of eternal secrecy’ (Pandora Papers, 4 October 2021) (accessed 19 March 2023).  Oliver Bullough, ‘The great American tax haven: why the super-rich love South Dakota’ The Guardian (London, 14 November 2019) (accessed 19 March 2023).  David Pegg and Dominic Rushe, ‘Pandora papers reveal South Dakota’s role as $367bn tax haven’ The Guardian (London, 4 October 2021) < https://www.theguardian.com/news/2021/oct/04/pandorapapers-reveal-south-dakotas-role-as-367bn-tax-haven> (accessed 19 March 2023).

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Prologue: The US Tax Havens

klow instituted the Task Force on Trust Administration Review and Reform, which has flourished: The Task Force operates under the authority of Executive Order 2017–08.14 It is a body comprised of representatives from the trust industry, recognized as experts in their field and appointed by the Governor. This body has been assembled with the goal of establishing and maintaining South Dakota’s stature as the premier trust jurisdiction in the United States. Members of the Task Force were instrumental in crafting South Dakota’s Trust Company Act, South Dakota Codified Law (SDCL) 51A-6A,15 which helped establish South Dakota as a leader in the fiduciary services industry. Members are appointed by the Governor to terms of three years. Responsibilities of the Task Force include reviewing and making recommendations for changing South Dakota’s trust administration statutes. The primary goals of the Task Force are to provide the most efficient and effective environment for the administration of trusts, and to provide a timely response to ongoing innovation and evolution in fiduciary services.16

As Casey Michel observes: And what reforms they were. In South Dakota, not only do trusts remain entirely secret from the public – or from journalists or tax authorities or human rights activists trying to track down looted assets – but any court documents pertaining to South Dakota Trusts are kept private in perpetuity. No information on South Dakota trusts will ever be shared with other governments.17

With no limit on the length of time a trust can exist – South Dakota is not the only tax haven to have done away with the “rule against perpetuities” which limited the lifetime of a trust to little more than 100 years – family dynasties are created.18 In the pursuit of fees, not much thought is given by trustees as to how their successors centuries hence will cope: Lawrence Waggoner, a law professor at the University of Michigan, condemns the dynasty trusts pioneered by states like South Dakota as a “folly”. He argues that over time they would be riven by disputes and very difficult to manage. After a few hundred years there would be tens of thousands of beneficiaries. Arranging a meeting would be impossible: even the Rose Bowl football stadium in California would not be large enough to hold them all.19

 State of South Dakota, Office of the Governor, Executive Order 2017–08 (accessed 19 March 2023).  Chapter 51A-6A Creation of Trust Companies (South Dakota) (accessed 19 March 2023).  ‘Governor’s Task Force on Trust Administration Review and Reform’ (South Dakota Dept. of Labor & Regulation) (accessed 19 March 2023).  Casey Michel, American Kleptocracy. How the U.S. Created the Greatest Money-laundering Scheme in History (Scribe Publications, London and Brunswick, Victoria, Australia, 2021) 13 188.  See the discussion on Dynastic Trusts in the United States of America in ch 6.  Kara Scannell and Vanessa Houlder, ‘US tax havens: The new Switzerland’ Financial Times (London, 8 May 2016) (accessed 19 March 2023).

“The South Dakota Advantage”

XIX

Not only the wealthy outside the United States are taking advantage of these dynastic wealth transmission strategies. US tax residents themselves, America’s super-rich: pass on massive amounts of wealth tax-free and lock in inequality for generations, exploiting cracks in our system of taxing inherited wealth. [. . .] America’s ultra-wealthy have pulled off a brilliantly designed heist, with a string of South Dakota governors as accomplices. Nearly no one in South Dakota complains, because the harm falls on the national economy, federal taxpayers and places such as New York and California where the super-rich actually live.20

Debates on the changes which South Dakota has introduced have filled academic journals and reverberated around lecture halls, but that is the very strength of them politically. Their very technicality and legal obscurity is their shield. As Michael Heller and James Salzman write: South Dakota has made tiny tweaks to arcane ownership rules, but the consequences are vast. They help create the paths through which America sustains the most unequal distribution of wealth of any major country on earthy. Make no mistake: this transformation is not happening by accident, by magic, through the free market, or just naturally. It is a brilliantly designed heist, engineered by family-dynasty lobbyists and accomplice legislators.21

The fiduciary services industry itself is not shy when it comes to promoting its services. In an advertisement placed widely in the trade press, over a photograph of South Dakota’s famous Mount Rushmore National Memorial, the South Dakota Trust Company LLC sets out its stall: We seek to tailor our services to each family who have chosen SDTC due to the following: – Trust accounts representing more than $135 billion in assets under administration – Currently work with over 115 billionaire and 360 centi-millionaire clients – No products of any kind – experience with all types of liquid & illiquid assets (both onshore and offshore) – 15% of SDTC’s clients are international families from over 54 countries – Private family trust company relationships worth in excess of $82 billion – Highest ranked jurisdiction in the U.S.: #1 in all categories (Trusts & Estates, January 2022)22

The regulation of trust providers in South Dakota is held by the South Dakota Division of Banking to be comprehensive and adequate. The providers are separated out into public and private trust companies. The former are inspected every 36 months, the latter every 24, and then rated “strong, needs improvement or unsatisfactory”. Trust

 Michael Heller and James Salzman, ‘America’s ultra-wealthy have pulled off a brilliant heist – in South Dakota’ The Washington Post (Washington D.C., 19 March 2021) (accessed 19 March 2023).  Michael Heller and James Salzman, Mine! How the Hidden Rules of Ownership Control Our Lives (Atlantic Books, London, 2021) 228.  STEP Journal Issue 1 2023. Advertisement text © South Dakota Trust Company LLC (accessed 19 March 2023).

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Prologue: The US Tax Havens

ratings of 1 to 5 (with 5 being the lowest) are assigned. The consequences of a trust rating of 5 are not dire: A Trust Rating of “5” is assigned. Fiduciary activities are conducted in an extremely unsafe and unsound manner. Administration of fiduciary activities is critically deficient in numerous major respects, with problems resulting from incompetent or neglectful administration, flagrant and/or repeated disregard for laws and regulations, or a wilful departure from sound fiduciary principles and practices. The volume and severity of problems are beyond management’s ability or willingness to control or correct. Such conditions evidence a flagrant disregard for the interests of the beneficiaries and may pose a serious threat to the soundness of the institution. Continuous close supervisory attention is warranted and may include termination of the institution’s fiduciary activities.23 [Emphasis added]

Wyoming – the “Cowboy Cocktail” On 20 December 2021, in light of revelations in the ICIJ Pandora Papers, the Washington Post carried an exposé on the burgeoning offshore services in Wyoming, which is the least populated state in the USA:24 JACKSON, Wyo. – The honky-tonk bar under neon lights on the town square serves Grand Teton Amber Ale and Yellowstone Lemonade. The Cowboy Coffee Co. offers bison chili, and the Five & Dime General Store sells Stetson hats and souvenirs made from bullets. In this tourist-friendly Western town, home to four celebrated arches fashioned from elk antlers, lawyers and estate planners draw customers with something far more exclusive. It’s called the “Cowboy Cocktail,” and in recent years the coveted financial arrangement has attracted a new set of outsiders to the least populated state in America. The cocktail and variations of it – \consisting of a Wyoming trust and layers of private companies with concealed ownership – allow the world’s wealthy to move and spend money in extraordinary secrecy, protected by some of the strongest privacy laws in the country and, in some cases, without even the cursory oversight performed by regulators in other states. Millionaires and billionaires around the world have taken note. In recent years, families from India to Italy to Venezuela have abandoned international financial centers for law firms in Wyoming’s ski resorts and mining towns, helping to turn the state into one of the world’s top tax havens. [. . .] For years, anti-money-laundering experts and law enforcement have warned federal and state lawmakers that suspect money was flowing into U.S. tax havens, eluding taxing authorities, creditors and criminal investigators. In Wyoming, with the support of state lawmakers, the industry charged ahead, promoting a suite of financial arrangements to potential customers around the world.

 South Dakota, Division of Banking: Trust Company Examination Procedures. A detailed account of the regulation of trust companies in South Dakota is at: (accessed 19 March 2023).  Debbie Cooper and Will Fitzgibbon, ‘The “Cowboy Cocktail”: How Wyoming became one of the world’s top tax havens’ The Washington Post (Washington D.C., 21 December 2021) (accessed 19 March 2023).

Wyoming – the “Cowboy Cocktail”

XXI

Corporate and trust service providers in Wyoming live up (down?) to the “Wild West” cliché: CHEYENNE, Wyoming – The clapboard house sits off a gravel road on the outskirts of town, partly hidden behind a fence and a heaping pile of trash. Here, amid grassland that stretches for miles, 77-year-old Cyndy Jackson is the official gatekeeper for more than 350 companies that operate in the United States and around the world. The state doesn’t require any training for company representatives like Jackson, known as registered agents. She said she uses the internet and gut instinct to size up the owners she represents, but has no formal procedures for examining their backgrounds. The state doesn’t require that, either. “You just have to kind of go on trust,” said Jackson, an agent for 30 years. “Nobody knows who anybody is anymore.” Few other facilitators in the U.S. financial system operate with as little oversight as the thousands of registered agents who often serve as the only publicly known contact for companies with anonymous owners. Oligarchs, criminals and online scammers have reaped the benefits.25

How this is achieved is – from the perspective of the former tax havens, which are now self-styled offshore finance centres, such as the Isle of Man and the Channel Islands – a flashback to the 1980s. As The Washington Post reports: Wyoming is one of a small number of states that allow customers to place a private company – often controlled by family members – at the helm of their trust, ensuring complete control of the assets and an additional layer of financial secrecy. Some of the companies are unregulated, exempt from periodic examinations and other state scrutiny. Customers can also establish a second company inside their trusts to hold the assets, such as property and bank accounts, concealing wealth behind yet another corporate layer. Using this approach – the Cowboy Cocktail – wealthy people can move money into the United States and invest and spend it with a level of anonymity found in few other tax havens.26

Trust companies in Wyoming currently manage at least US$31.5 billion, according to the state government, cited in The Washington Post article. Writing in 2014, Michael G Findley, Daniel L Nielson and J C Sharman singled out one Wyoming corporate service provider for particular criticism – Wyoming Corporate Services, Inc.: A Reuters News Service special report by Kelly Carr and Brian Grow detailed some of the activities of shell companies formed by Wyoming Corporate services Inc. [. . .] One company shields earnings from illegal internet poker businesses. Another sold fake truck parts to the Pentagon. Others hawked controlled pharmaceuticals illegally and route earnings from unlawful sub-prime credit cards. Still others have been sued for unpaid taxes, securities fraud, and trademark infringement.27

 Will Fitzgibbon, Debbie Cenziper and Alice Crites, ‘The gatekeepers who help open America to oligarchs and scammers’ (ICIJ, 5 April 2022) (accessed 19 March 2023).  Debbie Cooper and Will Fitzgibbon, ‘The “Cowboy Cocktail”: How Wyoming became one of the world’s top tax havens’ The Washington Post (Washington D.C., 21 December 2021) (accessed 19 March 2023).  Michael G Findley, Daniel L Nielson and J C Sharman, Global Shell Games. Experiments in Transnational Relations, Crime, and Terrorism (Cambridge University Press, Cambridge, 2014) 9.

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The list of allegations went on. In the intervening decade, Wyoming Corporate Services Inc. has continued to promote privacy, asset protection, tax and estate planning structures, aged “shelf” companies with years of regulatory filings behind them (giving the new owner built-in history) and the appointment of a US attorney to act as a nominee – “The use of these services allows you to keep your name not only off the public record but also gives you the benefit of attorney-client privilege”.28 The company extols the benefits of Wyoming, including an absence of personal and corporate income tax, “burdensome regulations” and disclosure of shareholders. Specifically, the customer has the ability to “own nothing and control everything”: –

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You can be everything in Wyoming – Some states require that you have more than one person to serve as the various officers and directors of your corporation. Again, not so in Wyoming! One person can fill all of the required corporate positions, giving you the ultimate in flexibility and control. You have a right to privacy with a Wyoming Corporation – The more information about you that appears in the public record, the easier it is for you to become a target of a lawsuit. Wyoming has no requirement for the names of shareholders to be filed with the state. Restrictions and corporate formalities are at an absolute minimum in Wyoming – If you would like less “red tape,” bureaucracy, and restrictions in your business life, Wyoming is the place for you! As an officer or director, you cannot be held responsible for the debts of the corporation – Wyoming law is quite strong in this respect and holds generally that as long as you did not intentionally break the law, you are protected from claims against the corporation. Stock in your Wyoming corporation may be issued in exchange for “anything of value” – You may use cash, of course, but also property, services, or any valuable consideration at the total discretion of the board of directors which, you’ll remember, can be one person. Lifetime proxy – John D. Rockefeller was the first individual to acquire a personal net worth of one billion dollars. When asked late in life how he accomplished such a feat, he is reported to have shared with a young interviewer that his simple secret was to “own nothing and control everything.” That is indeed wonderful advice for a host of reasons (consider, no one can take from you that which you do not own), but it is sometimes more easily said than done. By allowing another person or entity to own shares, you can use proxies to maintain complete control. The problem is that most state laws require proxies to expire and be subsequently renewed every six or seven years. If the “legal owner” declined to renew your proxy, you could be literally left with nothing and no recourse. That is hardly a scenario that makes us feel secure, nor is it one that we would recommend to you. However, realize that Wyoming allows for lifetime proxies, thereby protecting you from any such problem arising.29

Back in 2011 the founder of Wyoming Corporate Services Inc., Gerald Pitts, informed Reuters:

 Wyoming Corporate Services Inc (accessed 19 March 2023).  Wyoming Corporate Services Inc, ‘Why Wyoming is Better. The Wyoming Advantage’ (accessed 19 March 2023).

Fortress America: The “Billionaire Playbook”?

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Wyoming Corporate Services fully complies with the law and doesn’t have any knowledge of how clients use the companies he registers. “However, we recognize that business entities (whether aged, shell or traditional) may be used for both good and ill,” Pitts wrote in an email to Reuters. “WCS will always cooperate with law enforcement agencies who request information or assistance. WCS does not provide any product or service with the intent that it be used to violate the law.”30

In 2022 the company does have a disclaimer: If you are looking to use a company to do something illegal or unethical, DO NOT USE OUR SERVICES. We will not knowingly help someone form or use a company for any type of unethical or illegal purposes. If we find out that you are using a company for such purposes, we will terminate our services immediately.31

This of course begs the question to what extent any corporate service provider anywhere in the United States is required by state or federal law to undertake anti-money laundering and countering the financing of terrorism checks. Oliver Bullough writes: It is so easy to register companies in states that do not require you to disclose your identity that there is little point in going to ones with higher standards. And there is no incentive for the more permissive states to clean up their act.32

Don’t ask, don’t tell. Wyoming continues to evolve. It is not necessarily a mere coincidence that Wyoming has enacted thirteen laws between 2019 and 2021 to welcome blockchain and cryptocurrency companies.33

Fortress America: The “Billionaire Playbook”? Tax havens are not mistakes. They are not discovered and then exploited by vigilant accountants. Tax havens are created in law offices for wealthy clients and sold to governments by the tax haven industry. Tax havens are difficult to combat because they constantly evolve. As governments push for greater transparency, tax havens preserve secrecy either by creating new financial instruments or using old structures in new ways. Think of it as a game of dodgeball. One team looks to create fair tax sys-

 Kelly Carr and Brian Gow, ‘Special Report: A little house of secrets on the Great Plains’ (Reuters, 28 June 2011) (accessed 19 March 2023).  Wyoming Corporate Services Inc (accessed 19 March 2023).  Oliver Bullough, Moneyland. Why Thieves & Crooks Now Rule the World & How to Take It Back (Profile Books, London, 2018) 95.  Gregory Barber, ‘The Newest Haven for Cryptocurrency Companies? Wyoming’ (Wired, 13 June 2019) (accessed 19 March 2023) See the discussion of Blockchain Havens in ch 1 and of Wyoming Decentralized Autonomous Organizations (DAOs) in ch 6.

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tems where everyone pays their share. The other team is looking for every way to escape taxes by constantly shifting to new instruments of avoidance. Former President Donald Trump placed “America First”, and this continues to be the case. In an article published on 14 April 2022 the Financial Times looked at why the US has hit some Russian oligarchs with sanctions but not others.34 It quotes an unnamed former US Treasury official as saying: This is no longer about fair and unfair. We’re pulling our punches where there would be implications for the US and our allies.

US Treasury Secretary Janet Yellen is quoted in the same article giving evidence to a US House of Representatives meeting, and the FT comments: Former US officials familiar with discussions inside the administration said Washington may also be holding back on some individuals to maintain ambiguity around its response and leave itself some flexibility to do more at a later stage. But much of the rationale appears to be economic. During her committee appearance, Yellen stressed that the US was highly attuned to any blowback from any sanctions and was calibrating its actions accordingly. “Our goal from the outset has been to impose maximum pain on Russia while, to the best of our ability, shielding the United States and our partners of undue economic harm,” she said. [Emphasis added]

The same economic rationale espoused by the US Treasury Secretary with regard to Russian sanctions is apparent in the debate within the US on whether US tax havens should be curbed. On 14 April 2022 ProPublica35 hosted an online discussion entitled “The Billionaire Playbook”.36 This question was put to the panel of experts: To what extent are the beneficial ownership avoidance products of the domestic US tax havens such as South Dakota complicit in the tax avoidance planning of the ultra wealthy in the US?

In response to that question, moderator Jesse Eisinger of ProPublica said We are really the biggest tax haven in the world, aren’t we?”

One of the experts speaking at the event, Professor Daniel Hemel of the University of Chicago Law School, commented that the USA is “the world’s ultimate tax haven. A country that will take your money and invest it in real things, and not look too hard where it came from.” He added, when asked about the comparable roles and significance of the US tax havens and those outside the US which are longer established,

 Courtney Weaver, James Politi and Henry Foy, ‘Why the US has hit some Russian oligarchs with sanctions but not others’ Financial Times (London, 14 April 2022) (accessed 19 March 2023).  ProPublica describes itself as “Investigative Journalism in the Public Interest” (accessed 19 March 2023).  The discussion is available on YouTube at (accessed 19 march 2023) The discussion on tax havens begins at 53:20 into the broadcast.

Bibliography

XXV

The Cayman Islands, Antigua – those countries are replaceable in the tax evasion game. What you really need is a country that will take your money and invest it in things and not look too hard. And the United States does that. We allow foreigners to pour money into the New York Stock Exchange and other US Exchanges and we allow them to earn gains and we don’t tax them on their gains, and that is the engine of international tax evasion.

His fellow panellist Binyamin Appelbaum of the New York Times remarked: The United States has tremendous leverage in these negotiations [with foreign tax authorities] and has for the most part been is unsympathetic to foreign concerns about these issues. [. . .] It’s not our job to police where that money is coming from. I don’t see a lot of evidence that the United States is interested in cracking down on any of that.

No panellist thought anything was likely to change in the foreseeable future. What has been the constitutional and social effect on the United States? What price has it paid and will continue to pay? Michael Heller and James Salzman conclude: Historically, states did not undermine shared values and the national good so unilaterally, but long-standing norms of comity and forbearance are breaking down, with South Dakota leading the way. Advisers for the wealthy realized that America’s decentralised ownership system creates an opportunity: a state can be as deviant as its average uninformed voter will tolerate, and then that state can impose those extreme views nationwide. Money is mobile. Add in a passive Congress, and states face almost no federal oversight.37

How the United States following the invasion of Ukraine by forces of the Russian Federation in February 2022 has confronted its own status as a kleptocracy, and to what extent evolutionary change is underway both federally and at the state level, forms part of the warp and weft of this book.

Bibliography Legislation and regulations United States of America (Federal) Public Law 107-56-Oct. 26, 2001 Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (accessed 19 March 2023).

 Michael Heller and James Salzman, Mine! How the Hidden Rules of Ownership Control Our Lives (Atlantic Books, London, 2021) 225.

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South Dakota Chapter 51A-6A Creation of Trust Companies (South Dakota) (accessed 19 March 2023). South Dakota, Division of Banking: Trust Company Examination Procedures. (accessed 19 March 2023). State of South Dakota, Office of the Governor, Executive Order 2017–08 (accessed 19 March 2023).

Secondary sources Barber, Gregory ‘The Newest Haven for Cryptocurrency Companies? Wyoming’ (Wired, 13 June 2019) (accessed 19 March 2023). Bullough, Oliver Moneyland. Why Thieves & Crooks Now Rule the World & How to Take It Back (Profile Books, London, 2018). Bullough, Oliver ‘The great American tax haven: why the super-rich love South Dakota’ The Guardian (London, 14 November 2019) (accessed 19 March 2023). Carr, Kelly and Gow, Brian ‘Special Report: A little house of secrets on the Great Plains’ (Reuters, 28 June 2011) (accessed 19 March 2023). Cooper, Debbie and Fitzgibbon, Will ‘The “Cowboy Cocktail”: How Wyoming became one of the world’s top tax havens’ The Washington Post (Washington D.C., 21 December 2021) (accessed 19 March 2023). Findley, Michael G Nielson, Daniel L and Sharman, J C Global Shell Games. Experiments in Transnational Relations, Crime, and Terrorism (Cambridge University Press, Cambridge, 2014). Fitzgibbon, Will, Cenziper, Debbie and Crites, Alice ‘The gatekeepers who help open America to oligarchs and scammers’ (ICIJ, 5 April 2022) (accessed 19 March 2023). Fitzgibbon, Will, Cenziper, Debbie and Georges, Salwan ‘Suspect foreign money flows into booming American tax havens on promise of eternal secrecy’ (Pandora Papers, 4 October 2021) (accessed 19 March 2023). ‘Governor’s Task Force on Trust Administration Review and Reform’ (South Dakota Dept. of Labor & Regulation) (accessed 19 March 2023). Heller, Michael and Salzman, James ‘America’s ultra-wealthy have pulled off a brilliant heist – in South Dakota’ The Washington Post (Washington D.C., 19 March 2021) (accessed 19 March 2023). Heller, Michael and Salzman, James Mine! How the Hidden Rules of Ownership Control Our Lives (Atlantic Books, London, 2021). International Consortium of Investigative Journalists, Pandora Papers (4 October 2021), (accessed 19 March 2023). Marcovici, Philip The Destructive Power of Family Wealth. A Guide to Succession Planning, Asset Protection, Taxation and Wealth Management (Wiley, Chichester, 2016). Michel, Casey American Kleptocracy. How the U.S. Created the Greatest Money-laundering Scheme in History (Scribe Publications, London and Brunswick, Victoria, Australia, 2021).

Bibliography

XXVII

Pegg, David and Rushe, Dominic ‘Pandora papers reveal South Dakota’s role as $367bn tax haven’ The Guardian (London, 4 October 2021) < https://www.theguardian.com/news/2021/oct/04/pandora-pa pers-reveal-south-dakotas-role-as-367bn-tax-haven> (accessed 19 March 2023). Scannell, Kara and Houlder, Vanessa ‘US tax havens: The new Switzerland’ Financial Times (London, 8 May 2016) (accessed 19 March 2023). Weaver, Courtney, Politi, James and Foy, Henry ‘Why the US has hit some Russian oligarchs with sanctions but not others’ Financial Times (London, 14 April 2022) (accessed 19 March 2023).

Chapter 1 Where are the tax havens? Introduction Practically anywhere can become a tax haven if it puts its mind to it, and the idea that a tax haven must be a palm-fringed island set in an azure sea selling shell companies to Mafia types is straight out of comic books and cheap thrillers. Make no mistake, some tax havens can be very dark and threatening places indeed, mired in corruption and complexity. Others may strive to be clean and well-regulated offshore finance sectors. No two tax havens are exactly alike. Where lies the truth about them? The goal of this book is to dispel some of the myths, mischaracterisations and misunderstandings about the very idea of a tax haven. It explains that tax havens do indeed offer low or no taxation, because that is how they all originated and it has historically been a powerful force driving business to the tax havens. Today they promote so much more than this. The abandonment of low corporate tax rates is no longer the main issue. The issues are secrecy, the aggressive promotion of beneficial ownership avoidance and fostering both social and criminal unaccountability. Tax havens enable their customers to escape their responsibilities and, in some cases, to disappear from the legal record altogether. Oliver Bullough explains their attraction: globalisation is incomplete. In our modern financial system, money travels where its owners like, but laws are still made at a local level. So money inevitably flows to the places where governments offer the lowest taxes and the highest security. Anyone who can afford the legal fees to profit from this mismatch is able to keep wealth that the rest of us would lose, which helps to explain why – all over the world – the rich have become so much richer and the rest of us have not.1

In most cases, tax havens themselves are or eventually become just as much victims of their own status as those whom their customers abuse.2 And a warning from Mark Solly, writing in the Isle of Man half a century ago: Tax havens, like any other sphere of human activity, attract their fair share of rogues and fools. There is no substitute for the use of good common sense to avoid being made to look a fool either by rogues or other fools.3

This chapter explains how widespread tax havens have become, and how in some cases they operate in disguise. Chapter 2 looks at what is meant by “tax haven”, something which has eluded precise definition. Chapter 3 explores the reasons why somewhere

 Oliver Bullough, ‘The great American tax haven: why the super-rich love South Dakota’ The Guardian (London, 14 November 2019) (accessed 19 March 2023).  This is explored in Ch 7 and 8.  Mark Solly, Anatomy of a Tax Haven. The Isle of Man (Shearwater Press, Douglas, 1975) 10. https://doi.org/10.1515/9783110985108-001

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becomes a tax haven, and whether this is by their own choice or by sheer necessity or as a result of external pressure. (These three chapters can be read in any order.)

Where are the tax havens? Tax havens come in many forms and are spread across the globe, even in places which at first sight would seem unlikely to merit that description. In combination, they also become a global “virtual haven”. You are standing on East Capitol Avenue in Pierre, South Dakota. Way to the west, beyond the coast lie the Pacific tax havens. Tiny Pacific nations such as Cook Islands, Marshall Islands, Nauru, Niue, Samoa, Vanuatu have entered – and in one case later publicly abandoned – the tax haven league. Far to the east, across the Atlantic, are the old European tax havens – the British Crown Dependencies of the Isle of Man, Guernsey and Jersey; the British Overseas Territory Gibraltar; the City of London; the Principality of Liechtenstein; Switzerland; and the seven internal tax havens of the European Union – Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and The Netherlands;4 whilst micro-states Andorra, San Marino and the Principality of Monaco and tiny, charismatic Campione also have a customer base wholly disproportionate to their size. In the distant Eastern Caribbean and just to its north are the former British and Dutch colonies turned tax havens: Anguilla, Antigua and Barbuda, Aruba, the Bahamas, Barbados, Bermuda, the British Virgin Islands, the Cayman Islands, Curaçao, Dominica, Grenada, Montserrat, St. Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Sint Maarten, Trinidad and Tobago, the Turks and Caicos Islands. And beyond them, in South America, Belize and Panama. To these can be added nations girdling the planet – SAR Hong Kong and SAR Macau, the Seychelles, Mauritius, and Singapore. Which tax haven tops the list? Which direction must you face? There is a strong case to make against the United Kingdom for promoting money laundering in the City of London on an industrial scale. Switzerland ranks second in the world’s table of tax havens,5 as the secrecy jurisdiction to end all secrecy jurisdictions, whilst its neighbour the Principality of Liechtenstein has been a tax haven since the 1920s.

 In February 2019 the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3) of the European Parliament reported that these seven EU Member States “display traits of a tax haven and facilitate aggressive tax planning”: ‘Tax crimes: special committee calls for a European financial police force’ (European Parliament Press Release, 27 February 2019) (accessed 19 March 2023).  Financial Secrecy Index 2022 (Tax Justice Network) (accessed 19 March 2023).

Where are the tax havens?

3

Yet the answer may surprise you. Just look around: you are in it. The United States of America tops the list – that is, if the United States had ever been on a list in the first place, which it has not.6 Until the International Consortium of Investigative Journalists released the Pandora Papers in 20217 no international classification had pointed to the tax havens within the United States. Those States are Delaware, Nevada, New Hampshire, South Dakota and Wyoming. They enjoy constitutional independence in matters of taxation and legal structuring, protected from external regulation and foreign political pressures because they are part of the most democratic, powerful, self-aware and fiercely patriotic country imaginable. The location of tax havens is bound up with the subjective assessment of the person searching for them, and can be surprising. In 2000 Marshall Langer gave his view, which has since taken on the status of a cliché: It does not surprise anyone when I tell them that the most important tax haven in the world is an island. They are surprised, however, when I tell them the name of this island is Manhattan. Moreover, the second most important tax haven in the world is located on an island. It is a city called London in the United Kingdom.8

Though we look for tax havens in atlases and geography textbooks, there is a sense in which they also exist outside those physical spaces as so-called “metanationals”: In a global system where the nation-state no longer has a monopoly on the realm of politics, metanationals exist not across but above borders. They do not operate against the sovereign state, not do they seek to de-legitimize it. Rather they function in a space of their own, separate and above that of the nation-state – a metaspace.9

This setting aside of national boundaries as a determining factor in where tax havens are located, and the emergence of a “virtual offshore” alongside the traditional physical locations, is remarked on by James S Henry: This “pirate banking” system now launders, shelters, manages and if necessary re-domiciles the riches of many of the world’s worst villains, as well as the tangible and intangible assets and liabilities of many of our wealthiest individuals, alongside our most successful mainstream banks, corporations, shipping companies, insurance companies, accounting firms and law firms. All these players have become, as it were, citizens of a brave new virtual country – one that lacks physical boundaries but can still offer escape routes from many of the taxes, financial regu-

 Other than that compiled by the Tax Justice Network – see ch 2 Appendix c. The TJN treats the USA federally rather than on a State by State basis.  International Consortium of Investigative Journalists, Pandora Papers (4 October 2021) (accessed 19 March 2023).  Marshall J Langer, Tax Notes International 18 December 2000.  Sandrine Tessner, The United Nations and Business: A Partnership Recovered (Macmillan, Basingstoke, 2000) quoted in Ronen Palan, The Offshore World. Sovereign Markets, Virtual Places and Nomad Millionaires (Cornell University Press, Ithaca and London, 2003) 63.

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Chapter 1 Where are the tax havens?

lations, human rights standards, and moral restraints that the rest of us take for granted: the responsibilities of society.10

In combination, tax havens may even be – indeed, often are – greater than the sum of their parts. Oliver Bullough has imagined a virtual space which he calls “Moneyland”: Moneyland is not an easy place to confront, however. You can’t send in an army against it, since it doesn’t feature on any maps. Nor can you implement sanctions against it, or send diplomats to talk it round. Unlike conventional countries, it has no border guards to stamp your passport, no flag to salute and no foreign minister to talk to on the phone. It has no army to protect it, because it doesn’t need one. It exists wherever there is someone who wants to keep their money out of the reach of their country’s government, and who can afford the lawyers and financiers required to do so. Maltese passports, English libel, American privacy, Panamanian shell companies, Jersey trusts, Liechtenstein foundations, all add together to create a virtual space that is far greater than the sum of their parts. The laws of Moneyland are whichever laws anywhere are most suited to those wealthy enough to afford them at any moment in time.11

Onshore tax havens – The United States of America, The Netherlands and the City of London None of the United States of America, The Netherlands and the City of London is likely to come up in general conversation as being thought of as a tax haven, and yet these are three of the most active and influential of all the tax havens. The United States of America It is arguable that the US is a long way along the road to becoming the world’s largest tax haven itself, profiting from enhanced banking secrecy laws and less stringent disclosure requirements under the Foreign Account Tax Compliance Act12 than under the Common Reporting Standard13 promoted by the Organisation for Economic CoOperation and Development (OECD).

 James S Henry, ‘The Price of Offshore Revisited. New Estimates for “Missing” Global Private Wealth, Income, Inequality and Lost Taxes’ (Tax Justice Network, July 2012) © James S Henry, TJN 2012 (accessed 19 March 2023).  Oliver Bullough, Moneyland. Why Thieves & Crooks Now Rule the World & How to Take It Back (Profile Books, London, 2018) 21, 23–24.  Foreign Account Tax Compliance Act 2010 (United States of America) (accessed 19 March 2023).  OECD Common Reporting Standard 15 July 2014 (accessed 19 March 2023).

Where are the tax havens?

5

After years of lambasting other countries for helping rich Americans hide their money offshore, the U.S. is emerging as a leading tax and secrecy haven for rich foreigners. By resisting new global disclosure standards, the U.S. is creating a hot new market, becoming the go-to place to stash foreign wealth [. . .] helping the world’s rich move accounts from places like the Bahamas and the British Virgin Islands to Nevada, Wyoming and South Dakota.14

The approach to corporate formations in Delaware and to banking facilities for nonresidents in Florida appear little different to those of some of the bottom end tax havens. As The Economist commented a decade ago: Not all these havens are in sunny climes; indeed not all are technically offshore. Mr Obama likes to cite Ugland House, a building in the Cayman Islands that is officially home to 18,000 companies, as the epitome of a rigged system. But Ugland House is not a patch on Delaware (population 917,092), which is home to 945,000 companies, many of which are dodgy shells. Miami is a massive offshore banking centre, offering depositors from emerging markets the sort of protection from prying eyes that their home countries can no longer get away with.15

In 2018 the United States of America was in second place in the Financial Secrecy Index issued by the Tax Justice Network. In 2022 it had risen to first place.16 It is therefore ironic that the United States of America is itself a victim in fiscal terms of other tax havens. The report Offshore Shell Games 2016 The Use of Offshore Tax Havens by Fortune 500 Companies published in October 201617 explores what is described as the standard use by Fortune 500 companies of tax havens to avoid US taxation. US based multinational corporations have successfully lobbied to be able to set their own rules of the game under the US Tax Code: The most transparent and galling aspect of this is that often a company’s operational presence in a tax haven may be nothing more than a mailbox. Overall, multinational corporations use tax havens to avoid an estimated $100 billion in federal income taxes each year.

According to the report, most of the largest corporations in the US maintain subsidiaries in tax havens – the most popular (counter-intuitively) being The Netherlands, followed

 Jesse Drucker, ‘The World’s Favorite New Tax Haven is the United States’ (Bloomberg, 27 January 2016) (accessed 19 March 2023).  ‘The Missing $20 Trillion’ (The Economist, 16 February 2013) (accessed 19 March 2023).  Financial Secrecy Index 2022 (Tax Justice Network) (accessed 19 March 2023).  Richard Phillips, Citizens for Tax Justice, Matt Gardner, Institute on Taxation and Economic Policy, Kayla Kitson, Institute on Taxation and Economic Policy, Alexandria Robins, U.S. PIRG Education Fund Michelle Surka, U.S. PIRG Education Fund, Offshore Shell Games 2016 The Use of Offshore Tax Havens by Fortune 500 Companies (Citizens for Tax Justice, Institute on Taxation and Economic Policy and U.S. PIRG Education Fund, October 2016) 1–4 (accessed 19 March 2023).

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by Bermuda and the Cayman Islands. At least 367 companies (73% of the Fortune 500) operate one or more subsidiaries in tax havens, totalling 10,366. Setting this in context, the report states that the profits that all US multinationals (including, but not limited to, the Fortune 500) collectively claimed they earned in Bermuda and in the Cayman Islands totalled 1,884% and 1,313% of each country’s entire yearly economic output, respectively. Fortune 500 companies hold $2.5 trillion in accumulated profits offshore, which if repatriated would collectively owe $717.8 billion in additional federal taxes. The report is not reluctant to name what it describes as “some of the worst offenders”: Apple, Citigroup, Nike, Pfizer, PepsiCo, Goldman Sachs, Walmart, Google. But it must be borne in mind that: The combination of U.S. reliance on a worldwide system of taxation (compared to a territorial system of taxation used by most other industrialized nations) and one of the highest corporate tax rates in the world undercuts the tax competitiveness of the U.S. compared to the other G-20 and OECD nations. The competitive tax disadvantage has created an incentive for U.S. multinationals to hold foreign earnings overseas (over $2 trillion to date). These foreign earnings are not reinvested in a company’s domestic operations because of the high tax cost of bringing those profits home.18

In 2018 Gary Kalman, then Executive Director of the FACT Coalition,19 issued a statement on the ranking of the United States of America under that year’s Financial Secrecy Index: This is not a ranking in which the U.S. wants to be number one or even number two. However, that is our place. We have one of the strongest economies and one of the most secret. It’s a perfect recipe for attracting the proceeds of crime, corruption, and tax evasion. Internationally, this secrecy facilitates corruption that drains wealth from developing countries. And we are fueling an austerity movement here at home. Our role and lack of global leadership on these issues also hurts us by enabling the larger tax haven industry. Legislators talk about the federal deficit, and they battle over raising revenue and cutting programs. What about addressing the more than $100 billion that is lost each year to money shifted offshore, much of it through the use of anonymous companies, to cover both illegal tax evasion and questionable tax avoidance practices?20

 Karl Frieden and Ferdinand Hogroian, State Tax Haven Legislation: A Misguided Approach to a Global Issue (State Taxation Research Institute, Washington D.C., February 2016) 7 (accessed 19 March 2023).  The Financial Accountability and Corporate Transparency (FACT) Coalition is based in Washington DC and describes itself as “a non-partisan alliance of more than 100 state, national, and international organisations working toward a far tax system that addresses the challenges of a global economy and promoting policies to combat the harmful impacts of corrupt financial markets”. (accessed 19 March 2023).  ‘New Report: U.S. the 2nd Biggest Tax Haven in the World’ (FACT Coalition, 30 January 2018) (accessed 19 March 2023).

Where are the tax havens?

7

The Netherlands The Netherlands has its own blacklist of what it regards as tax havens. The irony, that for decades The Netherlands has been the most prominent tax haven within the European community, vying with Luxembourg (and, later, Malta and Cyprus) for pre-eminence within the European Union in international corporate taxation reduction strategies and aggressive tax planning, appears to have been lost on its Government. Tijn van Beurden and Joost Jonker attribute the status of The Netherlands as a tax haven as arising out of its relationship with its dependency Curaçao, which – until it was dissolved and broken into its constituent parts on 10 October 2010 – was within The Netherlands Antilles. They write: [T]he Curaçao OFC evolved in close symbiosis with the Netherlands. Curaçao became a successful OFC largely because Dutch corporations, banks and financial service providers set up an ever widening array of subsidiaries there dedicated to exploiting the island’s lenient fiscal and legal regimes. [. . .] Curaçao’s dependency, is highlighted by the fact that the Dutch government supported the island’s OFC development as long as the Netherlands profited from it, at times even sacrificing tax income to corporate profits, but it thwarted Curaçao initiatives that threatened to harm home country interests. [. . .] Dutch banks and multinationals spearheaded the creation of institutions on the island facilitating tax avoidance. In this they were aided and abetted by their government, which firmly supported the Antilles in getting access to bilateral tax treaties, notably the one with the United States.

As Curaçao lost its competitive edge, The Netherlands seized the chance to do for itself what the tiny dependency had undertaken on its behalf, enabling The Netherlands “to turn itself into a hub for international revenue flows that today still feed both Dutch tax income and specialised financial, legal and accounting services”.21 Neither its origin as successor tax haven nor its status as a tax haven in its own right has been acknowledged by the government of The Netherlands. Jack Ewing, writing in the New York Times in September 2018 commented: The Netherlands wants you to know that it is not a tax haven. But Menno Snel, the country’s No. 2 finance official, grudgingly acknowledges that the Dutch have become experts at something else: aggressive tax planning. That’s backed up by the amount of money pouring across its borders. For tax avoidance purposes, the Netherlands offers the status of a European country, while allowing big multinationals, like Google and Ikea, to move global profits through Dutch subsidiaries, drastically lowering their tax payments. The atrium of the Dutch Finance Ministry, where Mr. Snel works, is even adorned with full-grown potted palms that give it a whiff of a tropical tax haven. The suggestion of any parallel is probably unintentional. [. . .] As a relatively affluent member of the eurozone, the Netherlands offers a reliable court system and lack of official corruption not always present in island tax havens. It also boasts a comprehensive network of tax

 Tijn van Beurden and Joost Jonker, ‘A perfect symbiosis: Curaçao, the Netherlands and financial offshore services, 1951–2013ʹ Financial History Review, Volume 28, Issue 1, April 2021 67–95. Published online by Cambridge University Press, 14 January 2021 (accessed 19 March 2023).

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Chapter 1 Where are the tax havens?

treaties with almost every nation, and little or no tax on money passing through the country. It is easy to move money in, and easy to move it out.22

Maarten Hietland writing for Open Democracy in August 2020 noted that in The Netherlands taxes on international capital flows are generally close to zero – on both outward and incoming capital flows. This has led to a situation where non-Dutch companies structure their international businesses via the Netherlands. They do this by using ‘letterbox companies’ – so called because they are only registered there for tax avoiding purposes and have no real economic presence (they, for example, do not employ people). It was estimated that there are currently about 14,000 of these letterbox companies in the Netherlands, with assets on their accounts worth more than €4,000 billion. Through the position of the Netherlands, other countries lose about €22 billion per year. Why would the Netherlands offer its tax system to mailbox companies that do not even pay taxes in the Netherlands? An important reason is the employment it creates for consultants, lawyers, tax advisors and accountants that secure the incorporation of the letterbox companies in the Netherlands. They have a strong and vested interest in this mailbox industry. A second reason is the expectation by the Dutch government that some mailbox companies will eventually change into real companies with real economic activities in The Netherlands. They literally call this opportunistic expectation the ‘nursery room idea’ or the euphemistic ‘swan cling to’ doctrine. It is unclear to what extent this expectation has actually been realized.23

This is a strategy indistinguishable from that commonly encountered in the tax havens which have grown largely dependent on their finance sectors – “finance sector capture”.24 The authors of the Paradise Papers give voice to this: The Netherlands doesn’t even make much money off the policy, either. [. . .] At best, the policy creates jobs through the many firms that run their European operations from the Netherlands. It’s a prime example of the first principle of tax havens: A little in one’s own country is better than a lot in someone else’s.25

In 2018 the Government of The Netherlands decided that offence was the best form of reputational defence, and – even though by then the European Union, of which it is a member state, had published its own tax haven blacklist26 – created a list of 21 coun-

 Jack Ewing, ‘The Netherlands, a Tax Avoidance Center, Tries to Mend Its Ways’ New York Times (New York, 20 September 2018) (accessed 19 March 2023).  Maarten Hietland, ‘How tax havens like the Netherlands are draining developing countries of precious public funds. The small nation is depriving other countries of €22 billion a year’ (Open Democracy, 19 August 2020) (accessed 19 March 2023).  Finance sector capture is discussed in ch 8.  Elisabeth Gamperl, Frederik Obermaier and Bastian Obermayer, ‘Just Do It’ Süddeutsche Zeitung (Munich, 6 November 2017) (accessed 19 March 2023).  See ch 2 Appendix a.

Where are the tax havens?

9

tries which it considered to be low-tax jurisdictions. The test was whether a jurisdiction taxed corporate profits at a rate of 9% or less. The 21 jurisdictions included a range of jurisdictions commonly thought of as tax havens. By 2022 the list comprised: Anguilla, the Bahamas, Bahrain, Barbados, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Guam, Isle of Man, Jersey, Palau, Panama, Samoa, Trinidad and Tobago, Turkmenistan, Turks and Caicos Islands, the United Arab Emirates, the US Virgin Islands, US Samoa and Vanuatu.27 On 29 May 2020 the government of The Netherlands announced that in 2024 it would introduce withholding tax on dividend flows to low tax jurisdictions (on top of a withholding tax imposed on interest and royalties, imposed in 2021). The new tax will enable the Netherlands to tax dividend payments to countries that levy little or no tax, and will also help curb the use of the Netherlands as a conduit country. The measure will apply to financial flows to countries with a corporate tax rate of under 9% and to countries on the EU blacklist, even if the Netherlands has a tax treaty with them. As State Secretary for Finance Hans Vijlbrief explains: ‘This additional withholding tax represents another major step in our fight against tax avoidance. Financial flows channelled from or through the Netherlands to another country where they are not or not sufficiently taxed, will soon no longer go untaxed. It’s now vital to make even better international agreements to prevent other countries being used for tax avoidance purposes.’28

The significance from the point of view of classifying tax havens is that the measure unites the blacklists both of The Netherlands itself and of the European Union, the former retaining its purely Dutch character. This was made clear in December 2021 when Anguilla29 and Barbados were moved to the EU’s Orange List of co-operative jurisdictions, but nevertheless, as countries designated with an income tax rate of less than 9%, remain on The Netherlands’ blacklist.30 Importantly, the measure, limited as it is to low tax jurisdictions, in no way impacts adversely on The Netherlands’ own status as a tax haven servicing businesses from higher taxed systems. The Netherlands exists in a dual reality – both a powerful tax haven and the selfappointed scourge of tax havens (tax havens which The Netherlands itself defines on its own terms).

 Source: ‘Changes to Netherlands blacklist of low-taxed jurisdictions’ (Buren, 18 January 2022) (accessed 19 March 2023).  Government of The Netherlands Government to step up fight against tax avoidance with new withholding tax on dividend flows (accessed 19 March 2023).  Anguilla was returned to the Red List on 14 February 2023. See ch 2 Appendix a.  Regulation No. 2021–0000025821 of 28 December 2021, The Dutch Official Gazette No. 48636/2021.

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Chapter 1 Where are the tax havens?

The City of London The City of London is often misunderstood. It is not London, the sprawling metropolis which is the capital of the United Kingdom. It is just one square mile at the heart of London, more or less bounded by the ancient Roman walls of Londinium: “The Square Mile”. It has a Lord Mayor (not to be confused with the Mayor of London31) who in the City ranks above all but the reigning monarch: In modern times the Crown retains a special relationship with the City, indeed the Sovereign is the only person who outranks the Lord Mayor in the City, and even so the Lord Mayor’s permission is sought before the Sovereign enters the City. By custom the Lord Mayor greets the Sovereign at the City limits, often at the site of the old Temple Bar, and presents the Pearl Sword of the City of London (hilt uppermost) to him or her in recognition of the Sovereign’s authority.32

It has its own police force33 and its own municipal governing body, the City of London Corporation, which correctly describes itself as the oldest continuous municipal democracy in what is now the United Kingdom:34 The City of London developed a unique form of government which led to the system of parliamentary government at local and national level. Its constitution is rooted in the ancient rights and privileges enjoyed by citizens before the Norman Conquest in 1066. That London enjoyed certain freedoms and had a form of civic administration before the Norman conquest, can be seen in the Charter granted by William the Conqueror in 1067, in which he promised to recognise the rights, privileges and laws that the City had enjoyed since the time of Edward the Confessor (1042–62). In Saxon London and in the medieval period, municipal authority rested principally with Aldermen (‘elder’ men or elderfolk), who met in the City’s ancient Court of Husting – the supreme court of the medieval City, with administrative and judicial functions. There is reliable evidence of its existence in 1032, although it was probably much older, and by the mid-12th century it was held weekly. It is likely that the Court of Aldermen developed from the administrative side of the work of the Court of Husting. The right of the City to run its own affairs was gradually won as concessions were gained from the Crown. London’s importance as a centre of trade, population and wealth secured it rights and liberties earlier than other towns and cities. From medieval to Stuart times the City was the major source of financial loans to monarchs, who sought funds to support their policies at home and abroad. In early times London was two cities – the trading and residential City of London and the royal, administrative and religious Westminster. As London grew, the City specialised in trade.

 Mayor of London (accessed 19 March 2023).  City and Livery, ‘The City, The Crown and the Royal Family’ (accessed 19 March 2023).  City of London Police (accessed 19 March 2023).  City of London Corporation (accessed 19 March 2023).

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The City’s links to its original trading roots are still alive today in its connection with the livery companies. These were created from the early trade practices dating back to the 12th century and maintained standards in their industries, regulated their crafts and had a major say in the way the City was run.35

Brooke Harrington characterises the City of London as a “feudal remnant” from Medieval times: The most important of these feudal holdovers is undoubtedly the City of London, the selfgoverning square mile enclosed by but distinct from London, the national capital. An estimated $1.1 trillion in personal wealth originating outside the United Kingdom – 11 percent of the private offshore finance business worldwide – passes through the 1,000 year old City.36

If the United Kingdom’s eager-to-please and not particularly discriminating financial services sector has been, in Oliver Bullough’s phrase “Butler to the World”,37 then the City of London is the “Butler’s Pantry”. Nicholas Shaxson (not concerning himself in this context with the relative standing of the American tax havens) remarks that “Few British people, let alone anyone else, know that the City of London is the most important financial center in the global offshore system” and describes it as being at the hub of “a layered hub-and-spoke array of tax havens [. . .] which mostly emerged from the ashes of the British Empire. [. . .] [I]t is no coincidence that the City of London, once the capital of the greatest empire the world has known, is the center of the most important part of the global offshore system.” He describes those layers as firstly the Crown Dependencies of Jersey, Guernsey and the Isle of Man; secondly the British Overseas Territories (which he regards as “the last surviving outposts of Britain’s formal empire”), including the Cayman Islands, Bermuda, the British Virgin Islands, the Turks and Caicos Islands and Gibraltar; and thirdly “the more diverse array of havens like Hong Kong and the Bahamas, which are outside Britain’s direct control but nevertheless have strong historical links to the empire and deep current links to the City of London”.38 In 2019 in the United Kingdom Parliament, the Treasury Committee of the House of Commons issued its report “Economic crime – Anti-money laundering supervision and sanctions implementations”39 Looking specifically at London as a financial centre, the Committee commented:

 City of London, The City’s government (accessed 19 March 2023).  Brooke Harrington, Capital without Borders. Wealth Managers and the One Percent (Harvard University Press, 2016) 37–38.  Oliver Bullough, Butler to the World. How Britain became the servant of tycoons, tax dodgers, kleptocrats and criminals (Profile Books, London, 2022).  Nicholas Shaxson, Treasure Islands – Uncovering the damage of offshore banking and tax havens (Palgrave Macmillan, Basingstoke, 2011) 17–18, 67; and see 67–74 for an overview of the history and structure of the City of London and what Nicholas Shaxson describes as its peculiarities.  United Kingdom House of Commons Treasury Committee, ‘Economic crime – Anti-money laundering supervision and sanctions implementations’ (HC 2187, 7 May 2019) (accessed 19 March 2023). The Committee’s deliberations from which the quoted extracts are taken are at: (accessed 19 March 2023).  Global Witness (accessed 19 March 2023).  Royal United Services Institute (accessed 19 March 2023).  Dominic Thomas-James, Offshore Financial Centres and the Law. Suspect wealth in British Overseas Territories (Routledge, London and New York, 2021) 58–59.

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Catherine Belton points to the City of London as being the destination of choice for those promoting the illicit flow of funds from the former Soviet Union and the present Russian Federation – London as “Londongrad” or Moskva-na-Thames (Moscow on the Thames).43 That the United Kingdom and the City of London in particular serviced post-Soviet elites (until the invasion of Ukraine by the Russian Federation in February 2022) and as a result has a kleptocracy problem is well beyond doubt.44

An ultra-secret tax haven – Campione There are tax havens so ultra-secret (or just plain odd) that they find their way onto no blacklists and appear in no classification tables. After the behemoths of the United States of America, The Netherlands and the City of London, Campione comes as light relief. Few have heard of Campione. It lies on the shore of Lake Lugano, a tiny enclave geographically within the Swiss Canton of Ticino, but politically part of the province of Como, Italy, to which both Switzerland and Italy tended to turn a blind eye. Its principal source of revenue is the profits generated by a municipally owned casino. In the last years of the 20th century, Campione gave the impression of existing in a parallel continuum; lovely and baffling in equal measure.45 In 1993 in a privately printed, numbered edition work, W.G. Hill described Campione as “Switzerland’s secret semitropical tax haven” and “a back door to paradise”, in terms reminiscent of a thriller writer: If you are a non-Italian individual living in Campione, the tax officials in Como will probably never know your name! There is no liaison at present between the police, who issue the permesso di soggiorno (“permit to stay”) and the tax authorities. [. . .] With the casino being a major source of revenue for the government of Italy, the local citizens are in a tax limbo between Switzerland and Italy. Neither Italian nor Swiss income tax collectors have yet bothered the Campionese. It should be noted however that this arrangement is NOT sanctioned by any laws or exemptions. It is just the way things work out.

 Catherine Belton, Putin’s People. How the KGB took back Russia and then took on the West.(William Collins, London, 2020) ch 11 Londongrad And see the discussion of illicit funds flow out of the Russian Federation in ch 7.  John Heathershaw, Alexander Cooley, Tom Mayne, Casey Michel, Tena Prelec, Jason Sharman and Ricardo Soares de Oliveira, ‘The UK’s kleptocracy problem. How servicing post-Soviet elites weakens the rule of law’ (Chatham House, December 2021) (accessed 19 March 2023).  The author recalls advising wealthy middle-aged European residents in their lakeside villa in Campione over afternoon tea in the 1990’s, expecting Alice’s White Rabbit and Mad Hatter to enter at any moment.

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Chapter 1 Where are the tax havens?

[. . .] Some years ago, it was suspected that employees of the casino were conspiring with Mafia and Camorra gangsters in a money laundering and transfer scheme. The casino’s wire transfer facilities were linked up with other casinos in Las Vegas and elsewhere around the world. For a time this provided a sort of private banking network for organized crime. [. . .] A massive police raid took place with Swiss authorization. Records were seized, accusations made. Then, as usual, no one ever heard another peep.46

The curtain fell (or perhaps it would be more apposite to say that someone turned on the lights) on 1 January 2020 when Campione became part of the customs territory of the European Union.47

Ghost Havens – the freeports A freeport48 is a port or a zone designated by its government as an area with little or no taxation. Though inside a country, for tax purposes they exist outside its borders. Technically, the good are in transit, though they may remain in the freeport for years on end. The use of freeports goes back in Europe many centuries, from the medieval Cinque Ports of Southern England and the northern Hanseatic League, to 19th century bonded warehouses. Their use has expanded exponentially. Within the European Union there are 82 freeports or zones in 21 EU member states.49 Amongst the tax havens, the Isle of Man has its own freeport.50 It is not the only tax haven to wrap a better deal inside a great one. Jake Bernstein describes the Geneva Freeport, a Swiss initiative focussing on art, which provides a “locker for the superrich”:51 The art trade in Switzerland is a multi-billion business. At its center is the Geneva Freeport, more than 600,000 square feet [56,000 sq m] of storage space in an industrial area west of the city [. . .] [containing] approximately 1.2 million pieces of art. [. . .] Together the goods inside the Geneva Freeport are conservatively valued at more than $100 billion. Unlike a museum, nobody ever

 W. G. Hill, The Campione Report. Switzerland’s Secret Semi-Tropical Tax Haven (Third edition, revised and expanded for 1993–94) (Scope International Limited, Waterlooville, 1993) 7, 31, 43.  Council Directive (EU) 2019/475 of 18 February 2019 (accessed 19 March 2023).  Richard Partington, ‘What is a free port? All you need to know about the free-trade zones’ The Guardian (London, 6 July 2019) (accessed 19 March 2023).  A list of EU “free zones” as of 17 August 2022 is at: (accessed 19 March 2023).  Isle of Man Freeport Free Zone Designation Order 2021 SD No. 2021/0173 (accessed 19 March 2023).  ‘The Purpose of Geneva Freeport and Other Facilities Storing Great Works of Art’ (Widewalls, 2 February 2018) (accessed 19 March 2023).

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sees all these treasures together. They are locked away in vaults, the contents of which, in many cases, are known only to their owners. For another layer of anonymity, one can, as many Freeport customers do, create an offshore company based in the BVI or a similar secrecy jurisdiction, and rent a vault under the company name. In Switzerland, there is no obligation to disclose the beneficial owner of an offshore company. [. . .] While the Geneva repository is the oldest, other freeports specialising in art can be found in Luxembourg, Monaco, Singapore, Beijing and Delaware.52

In the case of fine art, items may be sold between vaults, the sale proceeds transferred to a shell company. There exists the suspicion that because there are no price controls having any bearing on a sale between a willing seller and a willing buyer, and there being no requirement for checks on whether the items correspond to their description and claimed authenticity or even actually exist, a freeport offers a classic money laundering opportunity. It is impossible to verify: the quintessence of secrecy. These then are the Ghost Havens, where no one lives, hardly anyone need visit save to deposit or retrieve, and the only sound is the hum of climate-controlled warehousing.

“Super tax havens” – cryptocurrency and the blockchain Tax havens do not exist solely in the physical world.53 They do not have to have a geographical presence, or even a government to rule them. Those that do not are the “super tax havens”. They operate in virtual reality, and interface with the world through portals provided by the “Blockchain Havens”. The “super tax havens” are created through the manipulation of cryptocurrency and transactions on the blockchain in such a way as to replicate the tax haven services offered in the real world.

 Jake Bernstein, The Laundromat. Inside the Panama Papers Investigation of Illicit Money Networks and the Global Elite (Penguin, London, 2019) 103–104.  For a discussion of the abusive potential of “super tax havens” in financial crime money laundering, see ch 7.

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Chapter 1 Where are the tax havens?

Cryptocurrency (also known as digital or virtual currency)54 is an electronically issued currency the transferability of which into fiat currency55 is not guaranteed by the state.56 A popular example is Bitcoin.57 Blockchain is a record of all validated transactions grouped into blocks, each cryptographically linked to predecessor transactions down to the genesis block, thereby creating a ‘chain of blocks’.58 Blockchain is described by the World Economic Forum as follows: Currently, most people use a trusted middleman such as a bank to make a transaction. But blockchain allows consumers and suppliers to connect directly, removing the need for a third party. Using cryptography to keep exchanges secure, blockchain provides a decentralized database, or “digital ledger”, of transactions that everyone on the network can see. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded. In the case of Bitcoin, blockchain stores the details of every transaction of the digital currency, and the technology stops the same Bitcoin being (duplicated and) spent more than once. The technology can

 “While the various forms of what are broadly known as “cryptocurrencies” are similar in that they are primarily based on the same type of decentralized technology known as blockchain with inherent encryption, the terminology used to describe them varies greatly from one jurisdiction to another. Some of the terms used by countries to reference cryptocurrency include: digital currency (Argentina, Thailand, and Australia), virtual commodity (Canada, China, Taiwan), crypto-token (Germany), payment token (Switzerland), cyber currency (Italy and Lebanon), electronic currency (Colombia and Lebanon), and virtual asset (Honduras and Mexico).” ‘Regulation of Cryptocurrency Around the World’ (The Law Library of Congress, Global Legal Research Centre, June 2018) 1 (accessed 19 March 2023).  “Fiat money is a government-issued currency that is not backed by a physical commodity, such as gold or silver, but rather by the government that issued it. The value of fiat money is derived from the relationship between supply and demand and the stability of the issuing government, rather than the worth of a commodity backing it. Most modern paper currencies are fiat currencies, including the U.S. dollar, the euro, and other major global currencies.” James Chen, ‘Fiat Money: What It Is, How It Works, Example, Pros & Cons’ (Investopedia, 19 April 2022) (accessed 19 March 2023).  This however may soon change, with the rise of central bank digital currency; a form of statebacked cryptocurrency the value of which is pegged to the value of fiat currency and issued by that state’s central bank. The United Kingdom is considering a state-backed digital Pound Sterling: see Shiona McCallum, ‘Digital pound likely this decade, Treasury says’ (BBC News, 7 February 2023) (accessed 19 March 2023) and the Consultation Paper ‘The digital pound: a new form of money for households and businesses?’ issued in February 2023 by the Bank of England and HM Treasury (accessed 19 March 2023).  Bitcoin describes itself as “an innovative payment network and a new kind of money” (accessed 19 March 2023).  Garrick Hileman and Michel Rauchs, Global Cryptocurrency Benchmarking Study (Cambridge Centre for Alternative Finance, University of Cambridge Judge Business School, 2017) 13 (accessed 19 March 2023).

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work for almost every type of transaction involving value, including money, goods and property. Its potential uses are almost limitless: from collecting taxes to enabling migrants to send money back to family in countries where banking is difficult. Blockchain could also help to reduce fraud because every transaction would be recorded and distributed on a public ledger for anyone to see.59

Everyone can view the chain, though identities are anonymised. The anonymisation of identity is from the outside looking in. Between participants themselves in the blockchain, identities are not necessarily unknown. The parties to a blockchain transaction clearly need to know – and do know – who each other are, because they are in a peerto-peer contractual relationship. Yet the transaction is unregulated, and literally outside the law. To the external observer, the contracting parties are unknowable. Writing in 2013, and noting that Bitcoin was trading at $139 per coin, the very farsighted Omri Marian suggested that as the use of cryptocurrencies expanded they would themselves become what he called “super tax havens”: Governments around the world have, for the first time, begun to successfully cooperate with their foreign counterparts in their battle against offshore tax evasion. They are doing so by targeting the financial intermediaries through which tax-evaders traditionally operate rather than by targeting the tax-haven jurisdictions that host the financial intermediaries. Financial intermediaries, like banks, are gradually becoming agents in the service of tax authorities. These financial institutions face increased governmental pressure to deliver information about account holders, to withhold taxes from earnings accumulating in financial accounts, and to remit such taxes to taxing authorities around the world. [. . .] Cryptocurrencies possess the traditional characteristics of tax havens: earnings are not subject to taxation and taxpayers’ anonymity is maintained. Cryptocurrencies, however, also possess one added value: their operation is not dependent on the existence of financial institutions. [. . .] While cryptocurrencies can be used for legitimate purposes, they are also well suited to support illicit transactions. From a tax-evasion point of view, they are particularly attractive. Cryptocurrencies possess the two most important characteristics of a traditional tax haven. First, because there is no jurisdiction in which they operate (they are “held” in cyberspace accounts known as online “wallets”), they are not subject to taxation at source. Second, cryptocurrency accounts are anonymous. Users can start as many online “wallets” as they want to buy or mine Bitcoins and trade them without ever providing any identifying information. Significantly, Bitcoin (and other cryptocurrencies) offer one additional major advantage to tax-evaders that traditional tax havens do not: the operation of Bitcoin is not dependent on the existence of financial intermediaries such as banks. Bitcoin is exchangeable peer-to-peer by definition. [. . .] In cyberspace, financial institutions—the emerging agents of tax collection—are taken out of the picture. Thus, cryptocurrencies have the potential to become super tax havens.60

 Rosamond Hutt All you need to know about blockchain, explained simply (World Economic Forum, 17 June 2016)