Jonny-Gordon-Farleigh: Your book Treasure Islands: Tax Havens and the Men who Stole the World was first published in 2010 and has since been an extremely important contribution to our understanding of a secret, hidden and misrepresented part of our global economy: tax havens. What has happened since then in terms of the scale and complexity of tax avoidance schemes and how have governments responded?
Nicholas Shaxson: That’s a big question. I would say that different things have happened in different countries but what has been a common factor in most has been that public deficits and austerity measures have focused minds on tax revenues. There has been a real change in the public mood and receptiveness to the issue of tax avoidance and that it’s a problem more serious than we thought. In the Go-Go years before the boom, in places such as the UK, the attitude was “I’m alright, Jack,” and people didn’t seem to worry about it. Now, the general public are also realising that tax havens are much more central to the global economy than anyone had previously imagined. They had previously been seen as an exotic sideshow to the main event but, increasingly, the public is realising that tax havens are at the heart of the mainstream global economy. On some measures half of all cross-border trade is conducted on paper through tax havens. Tax havens are not so much about Mafiosi and drug dealers, even though there is plenty of that still about, but most fundamentally about banks and financial intermediaries. That’s the context.
Now politicians, if we take the example of the UK, are being led by the public mood. It’s remarkable to see a Conservative prime minister making such statements about tax avoidance, which had previously been considered legal and therefore little wrong with the practice. The shift in public mood means politicians are being forced to condemn tax avoidance and are certainly making the right noises. Also, the OECD — a club of rich countries that had previously jealously protected this awful system of secret information exchange that is very favourable to tax havens and corporate taxation that is very favourable to tax avoiders — now suddenly seem much more open to looking for real alternatives. A closed door is now open, at least a bit. This has not yet translated into any serious policies but there are some incremental changes that have been made such as openings into Swiss bank secrecy, even though there’s still a long way to go there.
On the other side of the equation, though, the offshore system has been growing under its own momentum for decades. It is a self-reinforcing process where countries compete with each other to offer the best tax loopholes or secrecy facilities. This race-to-the-bottom dynamic is still firmly in place. So there are two opposing forces: one is the offshore system pushing ahead through its own momentum, and then the public mood pushing in the other direction. I wouldn’t say anything more than that things are beginning to change. A true rollback of offshore abuses needs much more sustained public pressure.
JGF: In a recent year-long investigation by Action Aid it found Associated British Foods — whose brands include Twinings Tea and Silver Spoon — have avoided tax and this loss of public revenue leads to less essential social services in Zambia. One of the main arguments in your book is that it is impossible to understand poverty, particularly in Africa, without looking at the offshore system. What is the relationship between tax havens and poverty?
NS: The relationship is enormous and some of the best data for Africa comes from Léonce Ndikumana and Jim Boyce of the University of Massachusetts, in their book Africa’s Odious Debts: How Foreign Loans and Capital Flight Bled a Continent. They found that cumulative capital flight for 33 African countries from 1970-2008 stood at $944 billion including interest — close to the $800-ish billion that wealth managers estimate are held by Africa’s wealthiest individuals. But these countries’ combined external debts in 2008 stood at ‘only’ $177 billion. So these countries are not debtors but massive creditors — to the tune of $767 billion, on these numbers. The problem is the assets are owned by a tiny section of the elite in offshore accounts while the debt is shouldered by the ordinary people of Africa. So Africa doesn’t have a debt problem — it has a private offshore wealth problem. This wealth could easily pay off the debt service payments if it was captured by African governments. Let’s not forget that most of this wealth was effectively stolen. And let’s also not forget that the end destination of this wealth is — nearly always — the rich countries and their tax havens. This is the core political problem.
Tax, not aid, is the most sustainable way of financing development. Tax makes rulers accountable to citizens but aid makes rulers accountable to donors. The offshore system creates many profoundly damaging dynamics where a small elite in developing countries, and also developed countries, can conduct their financial affairs with impunity, riding roughshod over the population. This will always happen up until a point, but the offshore system accelerates the problem. Many of the governance problems we see in Africa are substantially, though never entirely, based upon the elites’ ability to do this.
One fascinating aspect of the fight against the offshore system is that it brings the citizens of developing countries and the citizens of rich countries together into a common cause. It is unlike foreign aid, where rich countries dole out to poor countries, to put it crudely. However, on the question of tax avoidance there is an alignment and the possibilities for a global movement to emerge. I think we are seeing the stirrings of this now.
The other thing I would mention is that when a Conservative UK prime minister supports the goals of the Tax Justice Network it highlights that this is not an issue of Left or Right politics. Certainly, the Left has more widely embraced the fight against tax havens but essentially this is about the corruption of markets and plenty of people on the Right also hate corruption. This could be a centrepiece of a new form of politics that transcends old political categories. I don’t think the Labour Party has seriously grasped this possibility and would say that the Conservative Party has probably gone a little further in this respect. There is, however, still a very long way to go.