Book Review - Treasure Islands

Written by Rashi Chandok

Want to have a deep dive into the creation and history of tax havens? Want to comprehend how multinational corporations manage to pay a negligible amount of tax while making enormous profits? Want to figure out how the offshore havens are continuing to thrive despite the worldwide criticism of their secrecy laws? This book by Nicholas Shaxson is the perfect one to pick for getting a clear picture of this secret and hidden world. Targeting the layman using simple language, multiple examples, and insightful conversations, Shaxson has made an effort to explain this mysterious phenomenon that has swept the world in the last century. A bit hard to follow because of the journalistic style of writing, this book rewards the reader with a lot of information and well-researched facts about the creation and sustenance of this web of secrecy.

The first and most hard-hitting fact is the revelation that offshore is not always a far-off island with lax controls and flexible regulations. Some of the most important tax havens are the world’s most powerful countries eg - Delaware in the US, London in the UK, etc. The end of the imperial rule might have reduced the power of the UK in the eyes of the world but this empire found a way to continue to exert its influence behind the scenes i.e. with the establishment of tax havens in its former colonies and territories. These tax havens were started in a bid to get more capital into their hands but to keep their shroud of innocence intact at the same time by distancing themselves from these territories through the appointment of an in-name democracy and leaders selected/controlled by them.

The second important revelation is the fact that these offshore territories are helping the rich grow richer and make the poor people, poorer. The taxation policies of a lot of these tax shelters are detrimental to their own population (because they charge taxes on the earnings of their citizens but make the foreign income tax-free) as well as to the developing countries around the world (corrupt money flows in these tax havens rather than being taxed in countries that desperately need it to grow their economies). Tactics used by multinational corporations to get away with paying little to no taxes like transfer pricing and deferred taxation are highlighted and explained for a layman to grasp the enormity of these concepts. The loss of tax revenue by the developing nations leads to a cry for help in the way of foreign aid is clearly shown as a problem created by the wealthy nations of the world who shirk from this burden and get away by blaming it on the mismanagement and the inefficiency of these vulnerable, poor countries.

The third revelation is the basic fact of life - money means power. The money hidden in these tax havens belongs to influential people who lobby to get bills passed in their countries that prevent any real transparency or exchange of tax-related information from taking place.

Using the example of LLP’s creation, Shaxson explains how the corrupt system leads to passing legislations that are clearly unreasonable and made just for the benefit of corporations i.e. to help in reducing their accountability and obligations. The justifications given by these elite individuals and well-to-do corporations for the existence of tax havens have been argued against and reasonably explained as being damaging to society as a whole. Citing examples of innovative rules formed in these offshore jurisdictions to counter any anti-money laundering laws made by OECD countries, Shaxson clarifies that the power is held in a few hands who control and manipulate the scene to continue running these tax shelters despite their public remarks and commitment to fight the flow of dirty money. All of the players like big corporations, massive drug cartels, or vicious dictators of Third World countries are treated equally in these jurisdictions which means that there is no real incentive to fight against corruption, money laundering, drugs, and crimes by the world leaders since all they would like this web to continue for their own benefit.

The fourth revelation is the tactics through which all the major countries maintain their cover of innocence. Placing the blame on tax havens in case of any leaks and not acknowledging the undeniable fact that the money flows into these economies from companies and citizens of the wealthy nations is the perfect tactic used for not accepting responsibility for creating and encouraging this situation. For a long time, all major reports highlighted Caymans, Bahamas, Mauritius, etc. as the problematic areas rather than Delaware, Netherlands, and Switzerland. The governments publicly maintain the stance of promoting and sharing information among nations to foster a culture of transparency however, as Shaxson corrects points out - “Requests for information can take months or years to process—and the assets under investigation can be shifted elsewhere in hours or even minutes.” Politicians vote on bills that impede transparency and encourage secrecy but the bizarre justifications for their actions have remained the same through the decades - “I thought it was a good bill”, “I don’t understand the intricacies of this proposal but I think it will be beneficial for the public”, etc. leading to our current hopeless situation of massive verbal condemnation of offshore secrecy and wealth but no prominent actions to curb the same.

On the whole, the problems highlighted in this book are real and distressing however, the solutions provided by the author are very underwhelming. “Change the culture”, “corporate responsibility” and “confront the British spiderweb” are not practical or even pursuable solutions to this pervasive problem. As mentioned in the book, no political party can be the solution since the entire system is corrupt so, we, as a society, need to come up with workable solutions to bring about a change in the way things are run.

So, if you would like to understand the history and formation of tax havens then this book will guide you well however if you are looking for solutions and actions that can be taken to curb this free flow of money then, this book will likely disappoint you!