Posted by Outis Philalithopoulos, who in life was an economist, and now, as a ghost, watches fascinated as ever stranger events flit through the world of mortals.
Certain stories that get virtually no traction nevertheless involve phenomena that are quite important in understanding the way the world operates. One instance is the network of secrecy jurisdictions (“tax havens”), which play a huge role in the global economy by providing back channels used by a substantial fraction of the world’s wealth. For those interested in the details, one good place to start is Nicholas Shaxson’s 2010 book Treasure Islands.
The Tax Justice Network in the piece below suggests that the Bahamas is now angling for a position at the head of the secrecy jurisdiction line, “loudly advertising its desire to take criminal money.”
Originally posted at the Tax Justice Network.
Update: as it happens, The Economist has just published an excellent story about the Bahamas, subtitled The Bahamas Cocks a Snook at the War on Tax Dodgers. (Our only beef with that subtitle is that this is about so much more than just tax.)
We’ve periodically remarkedon the Bahamas as a secrecy jurisdiction of great concern. Like Panama, it’s generally had a greater tolerance of dirty money than most modern offshore centres: more of a willingness to turn a blind eye and to overlook noncompliance by Bahamas-based actors of its own rules and laws.
The purpose of this blog is to flag up the Bahamas in a more pointed way: as a major wrecking-ball threatening global efforts to clamp down on cross-border financial secrecy.
The Bahamas has hosted an offshore centre for crime and tax evasion for decades, and it has historically had a higher tolerance for dirty money than most tax havens. Its secrecy score of 79 in our Financial Secrecy Index is one of the world’s highest. Treasure Islands summarises an important component of the Bahamas’ history and identity, via Chicago gangster Al Capone’s moneyman, Meyer Lansky:
More recently, we have become aware of two closely related matters of concern.
The first concerns the OECD’s Common Reporting Standard project, a global scheme for countries to share banking information across borders. The Bahamas is, in essence, thumbing its nose at this project – saying, in effect, that ‘we are the dirty-money centre of choice’ – and it is currently attracting a lot of financial activity as a result. Second, the Bahamas government is sending out delegations around the world, to all and sundry, advertising itself as a holdout against proper compliance. And it’s doing this via typically tax-havenish devious methods. As one notorious offshore promoter puts it:
“The government of The Bahamas . . . is highly proactive in its attempts to attract offshore business, which accounts for over 30% of the country’s economy.”
The second, related problem is that the OECD doesn’t (yet) seem to be doing anything about this. We do expect that the OECD will be pushed and prodded towards action soon, and we expect the criticism of The Bahamas to rise very significantly in the near future, and the Bahamas will eventually be forced to change tack.
What Bahamas is actually doing
It’s fairly straightforward. Now the Bahamas has committed to the CRS system, but in a particularly narrow way. From the Bahamas Weekly:
“The optional methods of implementation defined by the OECD are a multilateral and bilateral approach, both of which adhere to the international standards for tax cooperation and tax transparency.”
All of which is true. The key question is: does your country engage with the CRS multilaterally, or bilaterally? Do you exchange with the world, or do you cherry-pick which jurisdictions you’re going to exchange with? In general terms, cherry-picking means exchanging information with a) powerful jurisdictions they’re afraid of antagonising, like the United States, and b) jurisdictions that don’t matter to their offshore industries, like the Faroe Islands. And the rest – the ones that matter, frequently developing countries that are most vulnerable to looting by their élites – get full-service secrecy for those same crooked élites. ‘We’ll take your dirty money, and we’ll cover it up.’
Now the OECD has been fairly successful in corralling countries into the multilateral approach.
As of August 19th, a total of 84 countries, including nearly every major tax haven, had signed up to the multilateral approach. Among the important tax havens there are three noticeable hold-outs which haven’t signed: Singapore, Panama and . . . the Bahamas.
All deserve extreme opprobrium. But of these three, the Bahamas’ approach is by far the worst. This is because Panama (under tremendous, scandal-fueled global pressure) and Singapore have both signed (and Singapore has ratified) the so-called “Multilateral Convention on Mutual Legal Assistance in Tax Matters, an older instrument which is the legal basis for exchanging information under the CRS. Bahamas hasn’t even signed that. Armed with this legal basis, Singapore could sign an information-sharing agreement with Indonesia tomorrow, and Panama could sign with Brazil. But if Bahamas wanted to exchange with someone, they’d have to go about the long, arduous process of indiviually negotiating a “Tax Information Exchange Agreement” with that jurisdiction.
A tax adviser put it to TJN like this:
“Singapore and Hong Kong: they have a law which says ‘if you suspect the money is untaxed you should file a suspicious report.’ Bahamas is like ‘what’s suspicious about this suitcase full of money?’
The Bahamas Ministry of Finance is crowing about this. In a briefing on the subject, not only spells out but emphasises that it has failed to sign the multilateral instrument necessary to participate, with a single isolated sentence:
“The Bahamas is NOT a signatory to this Convention.”
Their emphasis added. Make no mistake: this is a giant, fist-pumping Screw-You to the civilised world. The Bahamas is loudly advertising its desire to take criminal money. And, as mentioned, they’re aggressively sending delegations out to places like Mexico and Colombia, which are suffering terrible violence and murder because of their drugs wars, and advertising an open shop to the drugs cartels. As the Best of Both Worlds site puts it, on a page dedicated to the CRS:
“The Bahamas government delegations travel globally, sponsoring seminars, attracting new business by assuring financial industry intermediaries that Bahamas will categorically not undertake exchange of information with many countries, especially Latin America, due to bogus security concerns.”
Bahamas’ excuse for going this way is twofold. First, it cites bogus data security concerns. (If you think such concerns are legitimate, read this.) Second, it says that the multilateral approach isn’t appropriate for jurisdictions ‘with a direct taxation regime.’ Pure nonsense. Look at all those tax havens without direct taxes that have signed the multilateral instrument.
So that’s the Bahamas. We can’t finish this blog without reminding our readers of other key recalcitrants, however. We’ve already pointed out thatthe OECD has inexplicably allowed cherry-picking even inside the multilateral instrument. (Switzerland does this, not just to its shame, but also to the shame of the OECD, which tolerates this.)
And then there is the United States, which has opted out of the CRS entirely, instead forging ahead with its own system, which it says is equivalent to the CRS, but most certainly isn’t.
The key to understanding WHY the Bahamas and other offshore banking centers remain in business can be seen from looking at the Treasury Bulletin’s quarterly reports on these enclaves. Look for “US Bank liabilities to …” and you’ll see that the hot money that goes there is deposited in branches of US banks, which send them to their US head offices.
Then, look at US Treasury, ownership of U.S. Government securities, and see how many are held in these islands.
The hot money ends up in the US. They are a major support of the dollar’s exchange rate.
These jurisdictions are the product of existing tax regimes……..
Were income tax on corporations replaced with a goods and services tax (value added) which taxed imported goods on full landed value, including transportation costs, offshore markups would cease. Eliminating the war on drugs, would eliminate the rest.
We had an income tax system that took care of the “value added” issue in place for many years. It taxed corporations just like U.S. citizens (on all world income). It was simple and effective. It was only changed when the neoliberals took over the asylum. Now corporations are able to transfer income and it’s consequent taxation as if they are a citizen of no country but on the other hand can use their money to control our government. We have gone from taxation without representation to representation without taxation – what could go wrong?
I might add that legalizing drugs would cause the money laundering issue to die of natural causes. The war on drugs is Prohibition v.2. People have rights and also responsibilities. They want to destroy their lives, it should only concern us when they destroy ours too. With drugs illegal, the negative impact on those who don’t partake is not worth the cost.
^That.^ It would also make purities known, lessen overdoses, lessen the stigma of addiction and treatment, and pull the plug on funding for organized crime.
There’s certainly a logic to it, and the ‘war and drugs’ has been about as successful as the wars in the Middle East. But how do you envision this working? Do Bayer and Merck starting producing and selling heroin, meth and cocaine? Does the FDA certify safety and proper dosage? Are the drugs sold OTC or does one need a doctor’s script? Or are they available only at government dispensaries? Are they covered by insurance, or are they free?
I’m not being snarky. I want to understand how it would work. If you have a good link on the subject, I’d love to read it.
Mike – Only in perfect world do you have none of these issues to deal with. Drugs are another person’s choice from alcohol. Doctors tell me that Xanax works on the brain in a similar way to alcohol. People take drugs because throughout history they make it easier to get through the day. People abuse alcohol and must be treated. People abuse drugs and are jailed. Why? Understand that the problems will occur as part of the human condition and provide the best means to treat those in need. That is the issue. As far as how they are marketed and regulated, it is fair to say that if we can’t come up with a better way than now we are getting what we deserve.
The major problems with drugs are not how they are produced. Oxycodone and hydrocodone are two of the most abused drugs in the US. Both are legal, when prescribed by a doctor (commonly known and Percocet and Vicodin, when mixed with acetaminophen (think Tylenol). The problem with the entire drug-legalization argument is that when Prohibition was repealed (in the US), the number of alcoholics went up. Thus, although it took away a major money-maker from the Mob, it caused more addiction. The same would likely happen with legalization of all drugs. (BTW, percocet and vicodin are both sold illegally in huge amounts.)
The entire idea of “legalization” would mean that no drugs would need to be prescribed (i.e. it would not be illegal to buy any of them). Obviously, smarter people would stay clear of drugs that “should” be prescribed by physicians, but how would the common person know which ones they should “not” take w/o doctor’s recommendation? This would cause major problems in society. Any suggestion of legalizing all drugs should have to refer to Aden and Kat.
Thank you and Whine Country for the good comments. It’s obviously a complex issue, and one I need to think further about…
Actually everybody is correct in this discussion. Its a complex topic because human nature is complex. I would like to state my qualifications and position up front: I am a survivor, and an addiction counsellor. I deal with this stuff in real life, I see it up close and personal all the time. And IMHO, all forms of addiction (not just drugs) have a profound negative effect on society at large, and the individuals immediate family. Yes, I include the kleptocrats, oligarchs, etc etc in the list of addicts… because its never enough for them. Thus there is no way to have an addiction without it costing others around you. IMHO gov’t efforts tend to fail because they tend to address symptoms of deeper causes and conditions. My own approach is a blend of psychological/spiritual and practical day-to-day living techniques which are designed to rebuild and strengthen the individual. Decent success rates, too, far above average.
These problems have grown incrementally and will only be reversed incrementally. I commend you for doing your part. It is a well documented fact that prison exacerbates the problems that led to incarceration and very rarely lead to improving the prisoner’s contributions to himself his family and society.
Yes incarceration tends to have a very negative effect at the individual level. I’ve known a few who rose above it but that is rare… and re acclimating takes effort from everyone
Yes incarceration tends to have a very negative effect at the individual level. I’ve known a few who rose above it but that is rare… and re acclimating takes effort from everyone
Robert – I respectfully disagree with your conclusions. Making the use of drugs a medical issue instead of a criminal issue will lessen the impacts felt by the large criminal enterprise that now exists. That is the issue. Treating alcoholics is the preferred method as opposed to jailing them. Also, the availability of certain illegal drugs affects consumption patterns. All drugs do not have to be legalized in order to substantially reduce the criminal enterprise which currently exists. Drugs can be broken down into categories as to the effect which is brought about, and those that are the most harmful can be made illegal. Just because beer and gin are legal does not mean that certain beverages labeled “beer” and “gin” can legally be sold. So to is it with drugs. Nothing is perfect and with all due respect, your arguments are in the category of, if the alternative is not perfect it is de facto not an improvement on what we have. I disagree. In the interests of full disclosure, I am a retired CPA with no connections to law enforcement, past or present. What say you?
In my post, I did not say that I favor the status quo. I said that all such discussions need to acknowledge that legalizing drugs will have negative consequences. Are those consequences less than what we are currently doing? Probably. However, they are not trivial.
Meanwhile, legalizing some of the less-potent narcotics, preferably with at least a few caveats might be a major boon to society (as the Portugal example suggests). The US is not Portugal, and we likely have more people who came from dysfunctional families (in the past–maybe also today). This might make our experience with legalization more difficult.
I was a pharmaceutical chemist before I became disabled (for whatever credentials–personally I find the arguments more compelling than someone’s credentials–but for disclosure sake).
Legalizing drugs does not have to mean they would be totally unregulated. Heroin could be legal but controlled, for example. (BTW big pharma still manufactures cocaine, which does have medical uses). If the USA really cares about drug abuse there should be treatment centers everywhere.
Portugal legalized all drugs a few years ago, and have seen a lot of drug-related problems diminish or disappear as a result. The police there are happy.
Repeal didn’t cause addiction.
Portugal legalized all drugs in 2001, and it seems to be working well there. Addiction and crime are both down, according to a Cato Institute study done by Glenn Greenwald in 2009 — http://content.time.com/time/health/article/0,8599,1893946,00.html
Interesting link, thank you. However, it seems Portugal didn’t really change treatment of the supply side of the question, which sounds like it’s still illegal, and still being prosecuted — hence still a ‘mob’ business with its dark pools of capital. At least that’s what I understood from the article.
Exactly. I was just about to say to the many misinformed comments above — “what if there was some actual evidence, like a real country that decriminalized drugs????”
Solar – I mean no offense but are you suggesting that we are better to wait for someone else to be a guinea pig? I would like to think that we could provide leadership on something as important as this. Looks like we’re all presently waiting for someone else to make the first attempt.
The War on Drugs has catalyzed a fantastic flow of laundered money. That said, money laundering is as old as criminal activity that generate large sums of cash, and more generally the flow of hot money as M Hudson points out. For those unfamiliar w the term
If the WoD ever has a sunset, and I wouldn’t hold my breath on that, it’s to lucrative for all parties involved, I would not expect a cessation of money laundering.
A fascinating book on the subject, revised 1998
The Laundrymen: Inside the World’s Third Largest Business
I did not mean to disagree with Dr. Oprisko but merely wanted to pointed that we had a means to deter transferring the taxation of value added out of the US. That said, there is an even simpler way to fix the problem – a national sales tax. The people can accumulate all the money they want but when they use it they pay tax. Apply a very small percentage to EVERY time money changes hands and the problem disappears. Many years ago I became acquainted with an attorney who tried to create interest in this approach. At that time he calculated that if such a tax were instituted a mere 4 percent rate would eliminate every tax on the books at that time.
I wonder how many large transactions would have a substantial % go off book?
A fair question. Doing business with actual cash is the only way that can happen and you are correct that it would be difficult to monitor, Eliminating cheating is impossible however. It’s is always and everywhere a case of managing it.
That’s why it’s called “regulation.”
I want to add there is credible evidence that one of the largest money laundering operations is American tobacco companies. Enormous quantities of cigarettes are purchased with cash and efforts to compel reporting of who the purchasers are have been successfully quashed by lobbyists and the tobacco companies themselves.
To Whine Country’s comment, one could add that before the US income tax of 1913, financial privacy was considered a hallmark of civilization.
Your finances were a private matter between you, your banker and your attorney. Government had no interest in demanding disclosure of your bank accounts, since it collected revenues from excise tax, property tax and customs duties.
Now we live in a tightening global panopticon, which claims that the last holdouts of traditional values “deserve extreme opprobrium.”
That’s a personal value judgment of the Facebook/Snapchat/Instagram generation, which we are not obliged to share. We need not worship our plunderers.
Yeah, that privacy is very special to those who loot. Of course. But then people who prosper under the Regime of Bezzle do not give a scoot what happens to other people who are looted and abused by Holy Unregulated Business, right? “Sauve qui peut,” and all that. Eat what you kill or can steal.
Yet of course even the looters want “the government” to protect their takings, now don’t they? And use the mechanisms of “discovery of private finances” offensively to crush their competitors…
And that initial premise about financial privacy being a hallmark of civilization prior to 1913 is patently false. Government discovery of private income and wealth for purposes of taxation and corruption goes way back, before the Domesday Book even— https://newint.org/features/2008/10/01/tax-history/
I did all the hallucinogenics & like Psylicibin the best. Forgive me I don’t feel like looking it up.
At any rate the opioids have all been by prescription because of important chronic pain. It would be otherwise “disabling” pain, as I have been there.
So I says that for pot it is 24 hours joint to joystick, and three days if you eat hashish, which I have done. Far as muscle memory and motor skills there is no diminished ability. For either. However you will get lost.
The Drug War kills and pot as prohibited shows how Joe Mcarthy and J. Edgar Hoover run our lives domestically. A sick situation of corrupt interests topped by the For Profit Prison System.
The Intelligence Community Front Businesses have a strong interest in joining the criminals at the bank in the Bahamas, or Panama, or Singapore.
I personally am concerned about the Fronts of the CIA & MI6. IN-Q-TEL is of interest same as its friend American Airlines. How CIA Front Businesses get Treasury Dollars and then take care of themselves first, imitating the disloyal habits of the Jet Setters is cause to burn.
I know that DARPA has made exoskeletons with their money, but because it is only for the tank cannon carousel loader, or Red Ball Express loads on Duece & a half stake backs, our chicken head chop and cut workers are tortured, along with sheetrock movers who suffer 70 percent disability.
There really are good reasons that all is not accounted for, but they are few and there must be even a wise checklist for the wise.
Such was the end of Rome.
> The hot money ends up in the US
Well, I should hope so!
So, you try to close a hole while another one enlarges or arises. The same old story. For the sake of clarity I would highligth from the very beginning that the CRS is NOT being implemented or pushed by the OECD, but by de OECD-EXCEPT THE US. This waters down the potential impact of the initiative from the very beginning.
“As of August 19th, a total of 84 countries, including nearly every major tax haven, had signed up to the multilateral approach. Among the important tax havens there are three noticeable hold-outs which haven’t signed: Singapore, Panama and . . . the Bahamas”
I read this paragraph and, well , it sound fishy. I look into the document and, as I suspected, there is another little little tax haven that has not signed: the United States (which was the building which has that many corporations…).
I do not remember where I read (possibly here in NC) that one way to look at Panama papers is as a way the US found to fight the competition for the dirty money.
I have to say, I don’t really care. The reason the cartels exist is because drugs are on a black market. Eliminate the black market and you won’t have cartels, you’ll have small businesses operating in that market.
Or, let’s take other black markets, like arms trade. Gun runners export their weapons to warzones, because who else needs tons and tons of arms? Well, looking at the world’s biggest conflict zones, the top three are US-funded quagmires (Afghanistan, Iraq, Syria). All preventable.
Not to mention the connection between US occupation/destabilization of Afghanistan and the opium trade.
If a country wants to be the black market banking haven, I think you use what pressure you can to stop them, and that’s all you can do. Best way to defund the Bahamas, Singapore, whatever shady practices? Stop the foreign and domestic policies that create demand fulfilled by black markets. At that point, the Bahamas will be used to launder money in above-ground markets, which they’ll find much less lucrative.
Very interesting thought exercise; look at tax havens another way in that all the rich people/governments in the world need a place to stash their cash. Tax Havens are necessary to facilitate corruption. So the rich need tax havens, but they also need to show the public “they are doing something” about it without actually doing anything.
But I think your idea aims to tackle this problem at the source. Its clearly not the American way to solve things (i.e. we do the right thing only after exhausting all other options).
Until enough people understand what you describe, the problems will only worsen.
Correct root cause analysis which will never be formally recognized.
In your example, if the black market for weapons was ever seriously addressed it would systemically strangle the ROI of many of the institutionalized weapons (and countermeasures) manufacturers.
As well, the WoD feeds a massive edifice of bureaucracies -both on the production/distribution dide as well as on the interdiction/prosecution/incarceration side. Hugely systemic threads throughout the world’s economies.
At least with the drug trade there’s a possibility for change, but it is obvious that our overlords are pro-arms trade. When it comes to the world’s elites, I would guess that in many cases there is a nexus of great wealth and great crimes. It should be fairly trivial to hide a chip in weapons that would allow them to be traced or monitored but the chances of that actually happening are probably zero. There is just too much money to be made.
“Civilized world,” my ass. Category error to start out. unless by civilization is meant the whole process of oppression and looting and violence that started with the little walled towns that were built to protect the granaries that spawned “religion” and “politics” and armies and police and writing and that illustrative Code of Hammurabi of which many principles are carried over into the “US Commercial Code” and WTO “rules” and the rest…
Historically, from that old guy, Alexander Pope:
Blest paper credit! last and best supply!
That lends corruption lighter wings to fly!
A single leaf shall waft an army o’er
Or ship off senates to a distant shore.
Pregnant with thousands flits the scrap unseen
And silent sells a king, or buys a queen.
I believe Dr. Philalithopoulos is famed for irony…
Splendid to see Pope quoted! Pope’s satirical, elegant rage is apt for our times.
..’is famed…’ or ‘…was famed…’.
Are you referring to the person (was famed, since he is deceased) or the ghost (is famed) which is presumably ‘alive’ and in the present time. I argue for the deceased version, since I am not familar with the ghost; am a scholar of the economist, outis philalithopoulos (google and see this man’s work – yes, the singular form).
“will have been famed”….
The system, matters. There are “Best Practices”.
The Fronts of the Intelligence community would appear to have strong interests in untraceable secret funds.