‘Just an offshore guy, living in an offshore world’


From London Review of Books:

How to sum up Saif al-Islam Gaddafi, that emblematic figure of our times, with his doctorate from the LSE (‘The Role of Civil Society in the Democratisation of Global Governance Institutions’), his charitable foundations, his extensive property portfolio, his playboy lifestyle, his motley collection of friends (Peter Mandelson, Nat Rothschild, Prince Andrew), his ready access to Libya’s sovereign wealth fund, and his recently professed willingness to eliminate the enemies of his father’s regime one bullet at a time? He’s a hypocrite, of course, but that hardly does him justice (who isn’t?). He is also, on some accounts, a victim: his unfortunate mentor at the LSE, David Held, has described the predicament the ostensibly reform-minded Saif found himself in after his father’s people had revolted as ‘the stuff of Shakespeare’, but that surely is letting everyone concerned off far too lightly. He may just be a smooth-talking thug, and many online observers have noted that he seems to model himself on the smooth-talking thug and would-be businessman Stringer Bell from The Wire. But the word that best captures Saif Gaddafi comes from Nicholas Shaxson’s blistering account of the role that tax havens play in international finance. Shaxson doesn’t discuss the Gaddafis themselves, but he does paint a picture of the world in which the young Gaddafi, until very recently, felt right at home. This is the world of ‘offshore’. Shaxson doesn’t limit the term to its technical meaning, as a simple description of the particular jurisdictions that enable people to eliminate their tax bills. He applies it to people as well as places, and to a way of life along with a state of mind. Seen like this, it turns out to be a very useful word. Saif Gaddafi is just an offshore guy, living in an offshore world.

The essence of offshore is the need to keep up a solid appearance of respectability, while allowing money in and out with as little fuss as possible. Tax avoidance (unlike tax evasion) is not a clandestine activity, and tax havens don’t exist just to enable people to squirrel their money away from the authorities. The money needs to be accessible, and it needs to be liquid. For that reason, people prefer tax havens where they can conduct their business relatively openly, and the most successful offshore jurisdictions are the ones that ask no questions but also tell no lies. Shaxson’s memorable phrase for this is ‘theatre of probity’. The Swiss have always been the masters, with their formal manners and careful paperwork. But it turns out that the other champions of this way of doing business are the British. Shaxson’s book explains how and why London became the centre of what he calls a ‘spider’s web’ of offshore activities (and in the process such a comfortable home for the likes of Saif Gaddafi). It is because offshore is the offshoot of an empire in decline. It perfectly suited a country with the appearance of grandeur and traditionally high standards, but underneath it all a reek of desperation and the pressing need for more cash.

As Shaxson shows, many of the world’s most successful tax havens are former or current British imperial outposts. These include Hong Kong, the Channel Islands and remaining overseas territories like the Cayman Islands. What such places offer are limited or non-existent tax regimes, extremely lax regulation, weak local politics, but plenty of the trappings of respectability and democratic accountability. Depositors are happiest putting their money in locations that have the feel of a major jurisdiction like Britain without actually being subject to British rules and regulations (or British tax rates). The Caymans, or Jersey, make full use of their British connections to reassure people that their money is safe (the Cayman national anthem is still ‘God Save the Queen’), but when anyone complains to the authorities back in London that these places are being used by criminals and dictators to launder their assets, they are told that it is no longer Britain’s role to tell its dependencies how to run their own affairs. It was a function Hong Kong fulfilled before its handover to China in 1997: it could be presented to the outside world as somewhere with British values but without its unfortunate tendency to raise either taxes or regulatory standards in response to political pressure. Strikingly, it plays the same role for China today. After 1997 China preserved Hong Kong as a ‘special administrative zone’ autonomous of the mainland in all matters except foreign relations and defence. As Shaxson puts it, ‘The resemblance with the ambiguous Britain-Jersey link, or the Britain-Cayman arrangement, is no coincidence. Chinese elites want their own offshore centre, complete with political control and judicial separation.’ So offshore suits empires on the rise as well. The other thing most of these places have in common is that they are islands. Islands make good tax havens, and not simply because they can cut themselves off from the demands of mainland politics. It is also because they are often tight-knit communities, in which everyone knows what’s going on but no one wants to speak out for fear of ostracism.

“Didn’t they notice?”, David Runciman, London Review of Books

Read excerpts from ‘Treasure Islands: Uncovering the Damage of Offshore Banking and Tax Havens’ here (part 1) and here (part 2)