Join Us At FireDogLake’s Book Salon on Saturday to Discuss Treasure Islands by Nicholas Shaxson

Readers may know that Nicholas Shaxson’s Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens, has created a big stir in the UK by shedding light on the scale of offshore banking and the numerous types of harm it does. We’ll be hosting a FireDogLake Book Salon tomorrow at 5 PM Eastern 2 PM Pacific.

Not only did I enjoy this book (it manages the difficult feat of being a lively and accessible discussion of banking and taxation), but it is certain to be one of the most important books of the year.

From the FDL overview of the book:

A thrilling ride inside the world of tax havens and corporate masterminds

While the United States experiences recession and economic stagnation and European countries face bankruptcy, experts struggle to make sense of the crisis. Nicholas Shaxson, a former correspondent for the Financial Times and The Economist, argues that tax havens are a central cause of all these disasters.

In this hard hitting investigation he uncovers how offshore tax evasion, which has cost the U.S. 100 billion dollars in lost revenue each year, is just one item on a long rap sheet outlining the damage that offshoring wreaks on our societies. In a riveting journey from Moscow to London to Switzerland to Delaware, Shaxson dives deep into a vast and secret playground where bankers and multinational corporations operate side by side with nefarious tax evaders, organized criminals and the world’s wealthiest citizens. Tax havens are where all these players get to maximize their own rewards and leave the middle class to pick up the bill.

With eye opening revelations, Treasure Islands exposes the culprits and its victims, and shows how:

*Over half of world trade is routed through tax havens

*The rampant practices that precipitated the latest financial crisis can be traced back to Wall Street’s offshoring practices

*For every dollar of aid we send to developing countries, ten dollars leave again by the backdoor

The offshore system sits much closer to home than the pristine tropical islands of the popular imagination. In fact, it all starts on a tiny island called Manhattan. In this fast paced narrative, Treasure Islands at last explains how the system works and how it’s contributing to our ever deepening economic divide.

You can participate in the discussion tomorrow via this link. Hope to see you there!

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  1. Cedric Regula

    I have trouble believing Manhattan has palm trees, but the rest of the book is probably true.

  2. Max424

    If the United States wasn’t such a scaredy cat it would attack the Cayman Islands, and defeat them.

    But our big, tough Navy doesn’t want any part of the operation, because the Cayman Islands has notoriously accurate — vintage 1863 — coastal guns. And Marine commanders don’t want to land there, because they believe the sands of the Cayman beaches would prove too hot for their Jarheads delicate little toesies.

    The Cayman Islands stares down the United States of America, and America blinks. The Cayman Islands laughs at the United States, mocks the United States, pisses on the United States, in front of all the world, and the United States does nothing.

    Because the United States is afraid. The United States has shown it willing to randomly attack (mostly) innocent countries that cannot defend themselves. But when faced with a mortal threat from a large and menacing country like the Cayman Islands, the United States can only roll up turtle, and show abject cowardice in the face of the enemy.

    1. attempter

      If you’re referring to the American people failing to take back their country and then do things like wipe out the “legality” of offshore tax havens and carry out all appropriate restitutions and extraditions, I agree.

      But if you’re referring to this criminal government, then I think you misunderstand. Why would Washington want to liquidate the Caymans when such tax havens were set up with Washington’s encouragement and indulgence in the first place?

  3. john bougearel

    When you speak of Shaxson creating “a big stir in the UK by shedding light on the scale of offshore banking and the numerous types of harm it does” I am reminded of Kate Stockett’s Feb 2009 release of “The Help” ~ a story about black maids in the 1950s and 60s during the rise of the civil rights movement telling their numerous stories of harm, subjugation, and fear working for racist “white ladies.”

  4. rps

    I haven’t read this British author’s book, but am curious if his book details the Queen Pirate? The UK’s Crown Protectorates-Crown Dependencies- or best known as HM Elizabeth II privately owned pirate islands. The Pirate Queen Hag flies her jolly roger over many treasure islands; Isle of Man, Jersey, Belize, Turks Caicos, Channel Islands, Guernsey, Gibraltar British Virgin Islands and Bahamas etc….

    I stumbled onto this article: Kingston Smith LLP Accountants “Forged Delaware Corporations Case Files” Carroll Trust – John Yates Scotland Yard Fraud Case

    In sensational new criminal allegations in the Carroll Foundation Trust one billion dollars cross-border offshore tax evasion fraud case it has also been revealed that the HM Treasury legal advisors Slaughter & May were paid a bewildering thirty two million pounds in legal fees to prop up most of the bankrupt British banking system…..Hard on the heels of this horrific “abuse of power” by 10 Downing Street and the HM Treasury further shocking disclosures in the Carroll Trust case are understood to now involve new explosive dossiers…sources have said that these dossiers contain forged and falsified tax haven corporations directly “linked” to fraudulent HSBC International offshore “numbered bank accounts” which effectively impulsed this massive tax fraud heist operation which stretches the globe…seriously implicated in the parallel US Department of Justice Carroll Maryland Trust FBI files surrounding the “fraudulent incorporation” of Delaware “registered” Carroll Trust corporations which also provided a “corporate criminal screen” for this huge tax evasion scam spanning three continents….

    Shiver me timbers!

  5. Jim Haygood

    ‘While the United States experiences recession and economic stagnation and European countries face bankruptcy … tax havens are a central cause of all these disasters. Offshore tax evasion … has cost the U.S. 100 billion dollars in lost revenue each year.’

    This proposition is absurd on its face. How could $100 billion in lost revenue — less than 3% of US federal expenditure — cause recession, economic stagnation, and bankruptcy? What an overhyped crock.

    Meanwhile, US expats who simply need foreign bank accounts for the honest purposes of paying their bills and cashing their checks, are the main victims of the war on tax havens. Using a blunderbuss to pulverize a mosquito, the HIRE Act of 2010 imposes such harsh IRS reporting requirements on foreign banks that most simply refuse to serve US citizens.

    The leper status which Americans face when seeking overseas banking facilities is a non-issue for Brits such as Shaxson. Like other normal countries, Britain doesn’t tax income which its expatriated citizens earn outside its borders.

    Americans naively whooping up the war on tax shelters should be aware that if they ever intend to, say, live in Sydney, Australia, they may find it impossible to open a local bank account. The HIRE Act wasn’t on the books when Yves Smith lived there. But by 2013, if Westpac, NAB, Macquarie, etc. don’t have approved IRS reporting plans, they will face the ‘nuclear option’ of 30% withholding on all their USD remittances unless they stop serving US citizens. Nice, huh?

    Nothing like drawing a bead on the super-rich and blowing off your own foot.

    1. Elbert Dinglebart

      Just out of curiosity, how can the IRS put reporting requirements on foreign banks in foreign countries? Does the U.S. suddenly have jurisdiction over any bank in any part of the world?

      It seems to me that the graft money paid to politicians is still safe.

      1. Yves Smith Post author

        Effectively, they do. If you want access to the US as a financial firm, you ultimately need access to transaction facilities under the control of US regulators. So we can cut them off from access to US business, which is lucrative enough for most big players (and even if not, necessary to present yourself as a big player) to make them regard this as a dire threat.

        You are right that some smaller, purely domestic banks might not care and therefore not comply.

    2. Yves Smith Post author


      You don’t know what your are taking about re HIRE. Macquarie is not a retail bank and offshore accounts are completely useless if you intend to live abroad. You need transactional accounts in local currency.

      US expats continue to take foreign assignments for major corporations, which would be completely impossible if banks were indeed refusing to allow them to have foreign accounts.

      And you are 100% wrong re the costs of offshore. I suggest you read Shaxson before shooting off your mouth.

      1. Jim Haygood

        Excuse me, but I have lived abroad as an expat in both Europe and Asia. When I did, I opened local bank accounts, denominated in local currency, to pay my bills. I had an account at Crédit Lyonnais, denominated in French francs (yeah, I’m like 110 years old). I had an account at a bank in Taipei, denominated in New Taiwan dollars. And so forth. That’s what I’m talking about.

        The HIRE Act mandates that foreign banks which do not execute a reporting agreement with the IRS by 2013 either accept a 30% haircut on all dollar remittances, or stop doing business with US citizens. It doesn’t matter whether the account is in dollars or local currency. Most banks will not find it cost effective to enter into such agreements.

        US expats are still accepting foreign assignments because this law was only enacted last year, and does not fully go into effect until 2013. It’s possible that, like the Real ID Act, this incredibly presumptuous exercise in extraterritoriality will be resisted by some countries. Also, lacking sufficient enforcement staff, it will take a lot longer than 2013 for the US to work its way down to non-OECD countries which are not prominent providers of banking services.

        Finally, with a Visa or MasterCard branded debit card, it’s possible (though inconvenient) to obtain cash advances overseas and function without a local currency bank account. That’s what US expats increasingly will be obliged to do, as the HIRE Act goes into effect.

        I would respectfully suggest that you are the one who is not up to speed on this sleeper legislation. It would even make for an interesting post, if you care to look into it rather than just lashing out in irritation.

        1. Yves Smith Post author


          When I lived in Australia, all banks had a 100 point verification system to open an account if you were not an Australian citizen. The sort of information I had to submit would make it a snap for them to comply with HIRE. I had no US reporting obligation (IIRC the level was $5000 or $10000 in a foreign account) because I deliberately kept my balances low (foreign bank accounts are an audit red flag, I had NO interest in being audited) which meant moving money to the US with some frequency, not hard in this modern world of wire transfers. I’d imagine at least some expats had small accounts at multiple banks for precisely that reason. These small accounts could well be uneconomical in some countries depending on their retail banking regulations (Australian banks charge lots of fees, so they make out like bandits regardless). So again, despite your hyperventilation, this isn’t a big issue.

          And yes, to keep my balance low back in 2002-4, I’d pull my rent money out of my US account once a month using a regular ATM card, dump it in a specific account I used to pay rent, and write checks off that. So I functioned with banking constraints (albeit self imposed) and didn’t get hysterical about them, as you are wont to do.

          It’s pretty obvious where this comes out:

          1. In countries which allow banks to charge customers every time they look crosseyed at a bank, plus already require a lot of data capture on accounts opened by furriners, they’ll probably absorb the costs.

          2. In countries where banking regs restrict fees on retail accounts such that a lot of types of banking accounts are not terribly profitable or unprofitable to banks, Americans will have a harder time unless they open accounts with a big balance or their US employer leans on a particular bank it does a lot of business with to accommodate them. In this case, expect pressure by the banks (who’d love an excuse to charge higher fees) and the smaller US companies to get the regs changed so US citizens can be charged more.

          Why do you think this rule does not become effective till 2013? I’d imagine for point 2 type changes to be implemented.

      2. Jim Haygood

        Perhaps you missed this Wall Street Journal article from last year. Excerpts:

        American expatriates are fast becoming the world’s financial refugees. Onerous legislation from the U.S. government is making it too difficult – and too expensive – for banks to service U.S. citizens that live abroad.

        Foreign banks are, in effect, being asked to act as the international enforcement arms of the Internal Revenue Service. Those banks that don’t comply will be subject to a 30% withholding tax on all payments made to them in the U.S. Many banks and wealth managers have decided it is far easier to politely show their U.S. clients the door.

        Earlier this month, the law firm Withers conducted a survey of bankers, accountants, independent financial advisers, trust companies and other private client advisors to analyze the impact of the HIRE Act. Over half said they have seen instances where Americans were denied investment and banking services in the last two years. And 95% expect this to increase as a result of the HIRE Act.

        David Treitel, a tax director, at U.S. Tax & Financial Services, said that at least 20% of the American customers serviced by his company’s London and Swiss offices have had their bank accounts closed over the past year.

        1. Yves Smith Post author


          I’ve shredded enough stories from the Wall Street Journal that I don’t buy its claims without independent verification. And I have NOT seen anything on this on the tax and the investment sites I frequent. So this could just as easily fall in the category of banking industry PR (which I see a great deal of) as opposed to a real issue. And I’ve worked in six continents, so don’t try the “you’ve never worked overseas” line on me.

          20% does not mean that services are being denied wholesale. And query what services they want. The intent of the law is to restrict non-reporting of income, both wage and investments. Given that the number is well below 50%, it may be a combination of small and largely inactive accounts (ones the bank would like to get rid of, and small balances are not consistent with them being essential, save perhaps for students living abroad, I could see them having a hard time) and accounts the bank might think didn’t pass the smell test from the US perspective.

          This is not evidence of Americans being unbankable but in finding it more difficult. Big difference from what you were asserting.

          Now I most certainly wouldn’t like having to shop for a bank, but this is not as fatal as you suggest. And I anticipate this gets sorted out. See my comment immediately above yours.

          And you seem to forget that being an expat is by nature a high hassle undertaking.

    3. Anonymous Jones

      Jim is correct. If we cannot attack this problem in a perfect manner, we should not do anything at all.

      If the wealthy get a $100 billion here or a $100 billion there (and manage to avoid standard rules of fair competition in order to incite a race to the bottom), it doesn’t really matter much in the scheme of things. Just let it go.

      It’s kind of the same thing with the unjustly incarcerated. We should just shut down the whole penal system in order to ensure that no person unjustly accused shall ever go to prison again.

  6. Chauncey Gardiner

    Following Yves recommendation last month, I had intended to buy this book; but was told it was not available in the U.S. until after April 1st, and it then slipped my mind as so much seems to these days. Thank you for reminding me of Mr. Shaxson’s work.
    An aspect of this issue I have wondered about for some time is the extent to which U.S. and U.K. charitable foundations that are active globally utilize tax havens/safe havens to deprive tax authorities, financial regulators, and the public of a view of their founding “philanthropists” and “big donors” activities. Is there a reporting requirement for them similar to that which the IRS requires of individuals. Of course, they are only one category among many individuals, corporations and other entities.
    As I asked in March, why was the SWIFT system transferred to Switzerland in 2007, just ahead of the collapse of the global financial system and before the level of looting came to the public’s attention?
    Hopefully Mr. Shaxson’s book will answer my many questions.

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