Treasure Islands: Tax Havens and the Men Who Stole the World
Nicholas Shaxson, The Bodley Head, 336pp, £14.99
The first company I worked for was based in the Cayman Islands. It was easy to forget, walking to work in the freezing January rain, that we were a Caribbean business. The Mayfair hedge fund that employed me had only a spectral presence in the Caymans. None of the fund's employees worked in those least lovely of the Caribbean islands; our directors out there had little say in the day-to-day running of the business. The CEO and legal team would jet off to biannual board meetings on Grand Cayman, where decisions would be rubber-stamped by the directors, and then fly out again. The fund paid no tax in the UK despite having almost $60bn of assets under management. The Cayman registration was a tax-avoidance scheme, one employed by many of the funds along "Hedge Row" in Mayfair. Nicholas Shaxson's new book subjects such financial skulduggery to ferocious scrutiny.
This diatribe is a gripping read. Never losing its focus on how companies and individuals, with the collusion of governments, use tax avoidance to cheat those who are less fortunate, Treasure Islands tells the history of tax havens. It is an account illuminated by anecdotes that are often more James Bond than eurobond. At the end of the book, Shaxson issues a call to arms to governments and regulators: abolish tax havens and you will eradicate much of what is wrong with the modern world. If we don't, he writes: "A tiny few will have their boots washed in champagne while the rest of us struggle for our lives in conditions of steepening inequality. We can avert this future. We can because we must." It's heady stuff.
The statistics that Shaxson reels off are astonishing. Roughly a quarter of the world's wealth is held offshore; in the Channel Islands alone, UK tax to the tune of $30bn (£19bn) is lost each year - more than double Britain's foreign aid budget. Shaxson obsesses over this last point - what would happen if the taxes were collected? And if that money were spent tackling the world's injustices? A passage on multinational transfer pricing estimates the tax revenues lost at $160bn: enough to "save the lives of 1,000 under-five children per day".
Tax havens allow companies to avoid paying taxes that might have been used to improve the lot of the poor, but that is not all. Shaxson argues that the expertise needed to negotiate their complexities ensures that rich countries will get richer while poorer nations, lacking the financial know-how, will be left behind. The book is at its best when it traces how the UK and the US have built up virtual empires (the former's closely mapping its colonial footprint, the latter's a result of foreign and trade policy) with a spider's web of offshore tax havens.
Shaxson's polemical style will not be for everyone. Bombast occasionally wins out over nuance and, the nature of the argument being one-sided, some objections are steamrollered rather than addressed. The most obvious of these is that the capitalist system rests on companies' fiduciary duties to shareholders and profit maximisation (read tax minimisation). Tax "efficiency" - and Shaxson does an excellent job of unbundling the doublespeak inherent in this most pernicious of euphemisms - is so embedded in the way that companies do business that talk of abolishing tax havens tout court is simplistic. Treasure Islands reminded me at times of a Michael Moore film: it is so caught up in raging against the system that it relies on the flow of invective to carry the audience along instead of stopping to analyse and dissect.
But all this is part of the charm of Treasure Islands. The best books about finance (hell, the best books about anything) make us re-examine the set ideas we have about the world. I had worked in the City for a good few years before I even questioned the convoluted systems by which banks manage to keep their profits out of the hands of the taxman. And this was in an era when hogwash about corporate social responsibility filled the pages of every multinational's annual report. Treasure Islands correctly identifies tax as "the missing element in the corporate social responsibility debate". It's time this changed. Shaxson shows us that the global financial machine is broken and that very few of us have noticed. l
Alex Preston writes the New Statesman's city and finance column