Le Show; 2012-12-02

From deep inside your radio, ladies and gentlemen from New York City, and you know I couldn't be proud of to say that if I tried harder. This is important, married guys, this is important, you really have to listen up. I'm serious. Nothing is going to be said on today's show that is more important than what I'm about to tell you. I'm broadcasting today, as I say from Manhattan. I really have to be a bit discreet about exactly where, but I can tell you it's a major from inside a major office building in the media district of Manhattan, which is all media district as far as I can tell, except for the financial district, which owns the media district. And it's a, it's not a small time operation, that's what I'm going to say, you know, it's not some Jerry built thing, although it sure seemed like it for about a minute and a half.

But here's the point. It's Sunday, it's a New York office building, the men's room is outside a locked door from the compound in which I'm sitting. So I had to ladies and gentlemen, I had to make use of the ladies room, which is of course inside the compound, you know, because I guess there are laws these days that the gals don't have to wait. So anyway, that's all by way of explaining how I know this, but I do know this. You have to trust me on this. And this is Sunday. So the last people probably to have been in this room were the cleaning crew. So they're operating on orders, they have instructions on how to leave it, how to leave it nice. Don't they?

You would think so. Okay. Mary gentlemen, listening up, when I walked in, you hear me, because I'm not hearing, oh, there we go. When I walked in, the toilet seat was up, that's all I have to say, okay. I told you it would be the most important thing you'd hear on this broadcast today. Now ladies and gentlemen, we are not number one in one more area of modern life. We are not number one in the United States. This from Dan Frumkin at the Huffington Post, access to justice is a core American value, a new survey of the rule of law across the globe finds that the US ranks surprisingly low relative to its high income peers in terms of access to legal counsel and civil disputes and in terms of equal protection under criminal law. This is according to the rule of law index released this week by the independent world justice project.

It found that in some categories, the US ranks below some developing nations such as Georgia and Botswana, Botswana, the surveys off authors to the problems of the US are primarily due to unequal access to justice based on race and class. What are they? We don't have. What country in the US socio economic level matters as Alejandro Ponce, oh, speak English with your name chief research officer for the world justice project poor people are at it. This advantage in all these situations as our ethnic minorities in the category of criminal justice, the US ranked 26th among 97 countries and in the bottom 27% of wealthy nations dragged down by low scores in the category of equal protection in a civil justice category. The US got dinged because it lacks behind in providing access to disadvantaged groups according to the survey. The survey illustrated the problem by comparing civil law practices in the US with those in Finland, which ranked among the Finland again with the Finland among the top five countries

when facing a common civil dispute, like an unpaid debt, most people in Finland, regardless of their socio economic status, tend to use formal dispute resolution channels while only a few choose to take no action situation is quite different in the US while high income in Americans believe behave similarly to the Finns, low income people get very different treatment only a few use the court system, including small claims, while many take no action to resolve their disputes. One obvious difference in many countries legal services are much more widely available and subsidized or low income people. That's again ladies and gentlemen, we're not number one. Put the seat down. Welcome to the show. We're leading one on the front porch ice cream in my hand melting in the Sun all the

chocolate on my tongue and asking good enough reason to live and holyよ end name. And in the bathtub, high by playing low, Diggin' old, I green, where you must know what I mean. And that's good enough reason to live, good enough reason to live. If I die young, at least I got some chocolate on my tongue. If I die young, at least I got some chocolate on my tongue. Sitting in the front seat, good girl in my arms, smiling in my eyes, getting me all hypnotized.

And that's good enough reason to live, good enough reason to live. If I die young, at least I got some chocolate on my tongue. If I die young, at least I got some chocolate on my tongue. If I die young, at least I got some chocolate on my tongue. This is Lesho and we're not in tax season yet. We're in gift season, but taxes are on the minds of at least some folks in London where I'm recording this broadcast.

There's been a great deal of attention in the newspapers and the news media in the last couple of weeks. To the tax affairs of multinational corporations such as Google, Amazon and Starbucks at Parliamentary Committee held hearings last couple of weeks. And there's been a great fuss made about whether these companies are in fact paying what term of art we would use as their fair share of taxes. And this put me in mind of a book on the subject of multinationals and taxation that I read a couple of years ago and it is still incredibly relevant to what's going on now. And so my guest today is the author of that book, Nicholas Shaxon. The book is called Treasure Islands. It's available both in the United States and in the UK and Nicholas is joining us from his home city of Switzerland. Welcome. Hello, thank you. Thank you. What made you take on this subject and write this book?

Well, really, it was a couple of things. There were moments of illumination for me several years ago. I was confronted with evidence that the offshore system of tax havens was so much bigger than I or perhaps nearly everybody imagined. I think in the popular imagination, it's always been a kind of, you know, these tax havens have been a sort of exotic side show to the global economy. They've been places where a few kind of, you know, Maffeoc and celebrity tax dodgers and a few bankers go and stash their ill-gotten gains. But I began to see that this system was actually much, much bigger and much more central to the global economy than I'd ever suspected. One of those moments of illumination came when I was talking to a US lawyer and he was explaining to me that the United States itself had over the last few decades been turning itself into a tax haven. In other words, providing secrecy facilities to foreigners to attract hot money from around the world and essentially trying to kind of copy Switzerland, copy other tax havens to bring all this money into Wall Street.

And not only that, but he was saying that the US had this kind of under the radar as a central pillar in its strategy to finance its external deficits. And that conversation told me two things, one that the geography of tax havens, the tax havens weren't where I thought they were, not just the Cayman Islands and places like that. But the United States itself and I subsequently found out my own country, the United Kingdom, arguably even more important than the most central player in the system. So there's the geography of tax havens, but also the size of it. I mean, this is absolutely huge stuff we're talking about. This is, the offshore economy has been growing much faster than the supposedly onshore economy for decades and as a result, it's grown up to something of absolutely enormous proportions. So when we hear tax havens, is there any justification for these are, let me, let's get definitional for a minute. These are jurisdictions where they're jersey off the coast of Britain or Cayman Islands notoriously, where tax rates are quite low and corporations may appear to locate some or all of their most important business affairs.

Is there any in the literature of the folks who defend tax havens? Is there any rationale for their existence beyond hiding from taxation in a home country? Well, first of all, I want to, this definitional aspect is actually very important indeed. Tax havens are, you know, I tried in Treasure Islands to drill down into what exactly is it these places offer? And, you know, tax, the name is a little bit of a misnomer. Tax is certainly an important aspect of what they offer, but there's a lot more to it as well. I mean, secrecy is another part of it. And there are various other aspects such as financial regulation, escape from criminal laws. All these different aspects sort of come together in a package in these places, in these, you know, they tend to be large, important financial centres. And drilling down to what, you know, what this package is all about, I eventually got down to the bedrock of two words and one is this word escape.

So you take your money elsewhere and you escape from domestic rules at home, whether those rules be tax laws or whether they'd be financial regulations or whether they'd be criminal laws or whatever. So there's this issue of escape from the rules of society that bind most people and usually it's the wealthiest elites in a society that can escape. And the other word is elsewhere. So you're taking your money to another jurisdiction. And with that taking your money elsewhere, you know, effectively the lines of democratic accountability are cut. So the laws of one jurisdiction of the British Virgin Islands or the Cayman Islands, for example, are not designed directly for the benefits of the citizens of those small jurisdictions. They are designed to target, you know, the business operations and citizens of the United States of Latin America, of other parts of the world. And these laws are made in consultations in kind of small private consultations with insiders and they're not made in consultation with the US public or the citizens of other, you know, of Latin American countries. And so there's absolutely no kind of democratic accountability for how these laws are made.

So that's, you know, that kind of almost from a definitional point of view, you have a problem there. This is kind of an anti-democratic system right from the outset. Now, now you asked a second question about, you know, what are the defenses that tax havens make for themselves? Well, there are a series of defenses that are put forward that I believe, you know, all of them kind of fall apart once you unpick them. One of the defenses is that, I mean, a common one is, of course, that taxes are bad and anything that helps you escape taxes is good. And, you know, you know, you can have a whole debate about the relative benefits of taxes and how high or low they should be. And I deliberately try not to say that taxes should be higher or lower or whatever. I just think that, you know, democracies need to decide what level the taxes are at. But that's kind of a debate one can have. So from a defense of tax haven point of view, another very common defense is that they make the international financial system more efficient. In other words, they help capital flow around the world more smoothly. They remove obstacles from the path of international financial flows.

And I'm very deliberately using the word financial. I'm not talking about trade here necessarily. Of course, there's a relationship, but I'm talking about capital flows, financial flows. And that sounds great. You know, efficiency, who could argue against efficiency? But again, if you unpick that, you work out that, you know, what are these obstacles that are put in the way of international financial flows? And, you know, these obstacles are things like tax, they're things like financial regulation, they're things like criminal laws. And these places kind of strip these things out, you know, in a sense that does make it more efficient in terms of the actual free flow of movement. That doesn't necessarily make the whole system more efficient. And that's kind of one of my big beefs with tax havens. That language sort of dates from an earlier era where countries would oppose capital flight restrictions to strengthen their national currencies, doesn't it? Well, yes, I mean, there's a whole chapter in Treasure Island looking at the period after the Second World War, the kind of quarter century that followed the Second World War roughly. That was a period when there was a great kind of, you know, under the Breton Woods cooperative international arrangements, there was a kind of agreement to heavily restrict the cross board of flow of capital.

And this was a kind of as a result of the lessons learnt from the Great Depression when there had previously been, you know, financial deregulation and, you know, wild cross board of capital flows and a realization that these could actually be harmful for economies. And so after the Second World War, they put into place. It was a kind of unique period in history. They put into place these very tight controls on the financial sector domestically in the United States on Wall Street and so on and to a lesser extent in the UK. And but also the these kind of controls on cross board of flows of capital. And that period of what's known as financial repression was actually the period, the greatest period of growth worldwide in history. And this was broad based economic growth. This was not the kind of growth we're seeing. We've been seeing in the last few decades where a lot of people at the top are getting hugely, hugely wealthier and most of the middle classes are kind of stagnating.

This was really broad based growth with, you know, it's kind of, you know, many people call it the golden age of capitalism now. And that was a period of tightly restricted financial flows. So we wouldn't want that. Well, the thing is, I mean, something like that. It's kind of politically impossible to imagine these days. I mean, you've had huge advances in technology. It's, you know, how would you return to such such an age. And people also say that, you know, correlation isn't causation. You can't prove that those restrictions are what caused that high growth. But you can, you can say that it is quite possible to have very high growth amid very tight restrictions on the financial sector and cross board of flows. And you are seeing now the IMF and other bodies that, you know, previously would have been complete and laughable to even mention the words, words such as capital controls, controlling the flow of finance across borders. They're beginning to timidly mention it. And, you know, there has been a real sort of reassessment in light of all that's happened the financial crisis of, you know, these kind of tools and whether they could be useful again.

Let's, let's get a sense of perspective. I think in the Guardian newspaper this very day, there was an estimate of the amount of money that's involved in the offshore economy. And it's in the low trillions. Would that be correct? Well, again, because nobody agrees on what a tax haven is, there's no definitional agreement. All these estimates are subject to, you know, a lot of leeway. But there was a very influential report put out a few months ago by the tax justice network, a UK-based group estimating that the amount of assets sitting offshore range between 21 and 32 trillion. That's trillion, not billion. Which, you know, if you look at the sort of total estimates of world financial wealth, that's kind of 10 or 15% of the total. So it's a very significant chunk. Again, you know, those numbers are subject, you know, what is a tax haven? What is offshore? Nobody agrees. So you could, you could make a lot of estimates in different directions. But we're talking, we're talking many trillions of dollars, that's for sure.

We're talking real money, as they say. We're talking real money, yeah. So when, when did all this start? I mean, when, when did, who, who set up the first tax haven and when was it? Well, the offshore, I mean, in a sense, offshore has always been with us. I mean, it's always been possible to take you, you know, going back hundreds of years, been always been possible to take your money to another country where, you know, your rulers can't, you know, see it or, you know, it's invisible to people at home. The first real big-swet tax haven was Switzerland. And in fact, even before Switzerland became, came together to become a country. It, it was a place that for various reasons has been not only very stable politically, they kind of, because they have a lot of divisions inside Switzerland, they set up these very clever constitutional mechanisms to kind of deal with conflict. And that has created a very stable society. And also, it's neutrality. It's historically been a neutral country. And that has, that has meant that when there's been, you know, er, times of turbulence, you know, conflict that the first and second world wars, you've seen huge flows of money into this kind of stable, safe haven.

And with the latest financial crisis, you've seen a lot of that as well. I mean, it's not, not conflict related, but it's, you know, Greeks worried about their country being ejected from the euro and all that kind of stuff. And you, so you've seen this flight to Switzerland. There's been huge amounts of money coming in and the Swiss Central Bank's been buying up very large foreign exchange reserves to kind of try and stem the, you know, the currency appreciation. And so that's kind of, you know, that the safe haven haven aspect of it has been, has been always very important. But that safe haven aspect has also come with the fabled Swiss banking secrecy, which back in 1934, it was, it was kind of enshrined in law. This was, it was already a kind of day facto tax haven. People already knew that Swiss bankers were going to take their secrets to the grave. But in 1934, it was enshrined in law. This was in response to some banking scandal in France that this happened.

And since then, you know, Swiss bankers have kind of been very influential in the politics and made sure that secrecy has been a kind of bedrock of Swiss society ever since. So Switzerland was kind of the really the first, the first big one. But then you had, when the period of globalization started in the, you know, kind of from the 60s and the 70s, especially onwards, you had a kind of second system grow up that I would describe as a sort of the Anglo-Saxon system, which fundamentally the Britain was the most important part of this. And it was a kind of slightly different rather than Swiss bankers, you know, stayed quiet, secretive, sitting with vast kind of stores of wealth and the barnhoferstrasse here in Zurich. You had kind of much more high octane Anglo-Saxon finance running through these tax havens. And there was a lot more kind of getting away from financial regulations and, but also secrecy is an important part of it. And Britain is, as I describe it in Central, in Treasure Islands, there's what I call a spider's web where essentially you have the city of London and right at the center.

And around it, you have this series of kind of concentric rings of tax havens. So you have tax havens like Jersey in the English Channel, you have tax havens like the Cayman Islands, the British Virgin Islands, Gibraltar are so even today they're so called British overseas territories. And they're kind of half in and half out of Britain, they're partly controlled by Britain, they're governed as are still appointed by the Queen, but they have their own independent politics. And this kind of network, and outside of that there's another whole ring of commonwealth countries which are tax havens. And this kind of network acts as a sort of feeder system. So it's kind of grabbing business and the business of handling money from around the world and feeding it into London, into the city of London. So that's kind of, for me, the second big aspect of it. And of course, the United States is sort of a third major component of the system. And they've grown up the two latter ones have grown up very much, very substantially in the last few decades.

Now for Americans, the concept of the city of London is a strange one. It is not to be confused with the metropolis that we know as London, England. And it's a very special part of it. And in your book there's a lot of revealing information about what the city of London actually is. And it's particular peculiar legal status. So could you go into that a little bit? Yeah, I was really astonished when I researched this bit about the city of London. And this is stuff that very few people in Britain knew about. And it's getting a little bit more attention now. But the city of London, it kind of in the popular language, it means it means a couple of things. First of all, it just means UK financial services, the sort of international finance centre. And that's quite often when people, the people just talk about the city, they're talking about all this money coming into Britain. But more specifically, there is a jurisdiction inside London, which is one of the local authorities. It's geographically right at the centre of London. It's very small. It's only got about, I think at the moment, 9,000 people living in this small borough, it's known as the square mile as well. So it's slightly larger than one square mile. And this is where the Bank of England is and headquarters of major banks.

And this local authority is known as the city of London Corporation. And it's a completely unique body in Britain. And it is a local authority, but it's unlike all of the others. It is also officially a lobbying organisation for the deregulation of finance. I mean, you will find them saying this for keeping finance deregulated in the United Kingdom and internationally. The city of London has a Lord Mayor who is not to be confused with the mayor of London, currently known as Boris Johnson. The mayor of London looks after 10 million people and the city of London Corporation for the Lord Mayor. He's just responsible for a few thousand for 9,000 or so. And it has its own very strange constitutional position inside UK as a local authority elsewhere in Britain. People just vote in the local elections, but in the city of London. Corporations are able to vote as well. It's a remarkable fact and corporations get a vote allocation according to how big they are.

This is the reification of Mitt Romney's famous dictum that corporations are people too. Well, in a sense, yes. And this has been going on for, you know, hundreds and hundreds of years. I mean, this is an ancient, they call themselves the world's most ancient constitutional democracy. They say, you know, there's no record of the corporation actually coming into existence, the city of London Corporation. And it is also this incredible sort of old boys network and it's full of these old delivery companies, which are old trade associations, but they're still very much alive and many of the top people in the professions in various different professions are members of these delivery companies. So you have, as of a few years ago, the worshipful company of tax advisors, which contains some very powerful people in it. And they are, you know, they are, these delivery companies are dedicated to supporting the Lord Mayor of the city of London, whose role is officially to support the deregulation of finance.

It sounds extraordinary. I mean, when I was writing this, I was kind of worried I was going to sound like some sort of conspiracy not writing about it, but it's just there. You can go and look at the city of London Corporation, go and look at their website and have a look what's in there. It's remarkable. How does it relate to the regulatory structure of British law generally? Are they under it totally? Do they have carved out exemptions? Well, they are not the regulators for the financial centre, the city of London Corporation is not the regulator, but they are incredibly influential. And they're influential through this kind of old boys network that is, you know, incredibly pervasive and they have a huge, you know, they stand heavily on ceremony and the Lord Mayor goes around in these gilded coaches and they have these banquets. And they have sort of fingers reaching out and legislation that's passed will have had a lot of attention paid by the city of London Corporation. And the corporation has an official who is known as the Remembrance, who sits in the British Houses of Parliament and he kind of monitors legislation that's out there and watches out for populist attacks on finance and things like that.

And so they're very influential and it's very hard to quantify. I mean, how just how powerful they are. I mean, they say, well, we're just a sort of funny old group of people and we're quaint. Yeah, exactly. I think they hide behind their quaintness, but they do put out these regular reports, you know, kind of saying, you know, the city of London is losing its competitiveness as too many taxes, too much regulation. So these, these reports just come out like a drumbeat and quite often the newspapers just kind of parrot them, you know, they just say city of London say London is losing its competitiveness and then they're all the politicians get frightened and say, oh, we mustn't tax them to tax the banks too much. And so it's a, it's a very curious phenomenon. It's unlike anything else. I mean, it's something that, you know, an economist will not be able to get their heads around this thing and political scientists find it hard enough. It's just a very curious sort of anomaly, but a very, very important one. We'll get back to the role of London in the offshoring phenomenon, but there was an article in the, I think in the Washington Post a couple years ago before I even read your book that first opened the door to part of this world, which is, as I said, since become better known through the parliamentary inquiry into Google Amazon and Starbucks, which is a,

a tax avoidance scheme, as they call it in Britain, without the derogatory implication that it has in the United States called the double Irish with a Dutch sandwich. Could you, could you walk us through that? Well, this is that one is actually quite a common one. I think there was a, there was a good Bloomberg report that looked at that particular one. So essentially, you will have multinationals looking to find pathways through the international tax system that result in them paying very little tax. And there are lots of jurisdictions. I mean, Ireland and Luxembourg are two very, very important tax havens that most people don't really think of them as tax havens.

If people, most people don't really think about Luxembourg at all, but in Europe it is very, very important. And Ireland, you know, the Irish financial services centre is a great big, kind of wild west area of deregulated finance that was, has actually, if you look deep into it, it's got a lot of implication in the latest financial crisis, a lot of Wall Street stuff was parked there. And, and, you know, the Netherlands is another big one, Switzerland is another big one, the United Kingdom is another big one where multinationals basically are looking to cut their tax bills. And the way they do this generally is each, each multinational is treated by the international tax rules as a collection of separate entities. They have subsidiaries all over the world. And these entities trade with each other. And they can adjust these internal trades inside the multinationals. And, and they can adjust the prices of these trades to suit their tax bills. So what they can do, for example, a tax haven subsidiary will buy something from another subsidiary of the multinationals. Maybe it's a cargo of bananas or something.

They're all happening on paper. It's not the bananas aren't actually going to that tax haven. So they will buy a cargo bananas at a very cheap price. And then they will sell that cargo on to the UK subsidiary or the French subsidiary at a very expensive price. And so they've bought cheap and they've sold expensive and they've made a huge profit. And that profit is now sitting in the tax haven, because that's where that entity is. And it's untaxed. Meanwhile, in the UK, where they're selling it on, they will sell that cargo at a very, very high price to a retailer. So there's no profit in the UK there to tax. And a similar thing when they're buying it from, you know, Ecuador, but the cargo bananas from Ecuador, they'll, they'll buy it at a very low price. They'll buy it basically at cost price in Ecuador. So they'll tell the tax authorities in Ecuador, you know, this is how much we, we sold this cargo bananas for. And it's the same price of the cost. So there are no profits there. So what you're seeing here is you're seeing profits shifted from both the sale end and the production end into the tax haven. And that's the sort of essence of the game. And, you know, countries do take, there are all sorts of countermeasures that countries do take against this.

And it is a constant dance between the countries and the multinationals, but developing countries in particular find it impossible to challenge. These incredible, you know, they will find themselves faced with armies of lawyers and accountants and there's just nothing they can do. And, you know, and particularly companies with, you know, intellectual property. If you have, you know, you can, you can locate a company's brand or a logo in a tax haven. And then you say it's worth this much. And the tax authorities try and challenge that. And, you know, how much is Coca-Cola's brand worth? And how much is Google's brand worth? Well, you know, it's really worth what it's account, the company's accountants will say it's worth. And it's very difficult to challenge. So you have an international tax system that is incredibly dysfunctional. It was kind of set up decades ago. And it just hasn't kept pace with globalization. One would think that if the Peace Corps were still in business, they might want to be sending armies of lawyers to developing countries. Well, that's an interest. That's actually what you're talking about there is there is a fledgling organization being set up.

It was originally conceived as something called tax inspectors without borders, which is exactly what you're suggesting. And I know that the OECD, the group of rich countries has taken this idea on board. I don't happen to know where it's running with it. But this would be, this is exactly a very good idea indeed. And I hope it becomes a great success. Another thing that is just, we're just beginning to see happening is people talking about running training courses for journalists to try and, particularly in developing countries, to try and help them understand how to look at the offshore system, how to understand it, and how to investigate it. And so these are just kind of new initiatives that are just bubbling up. And I think that, you know, they could go a long way to helping expose what's going on. Well, let's talk about your background for a minute. Before you delved into this subject, what were you doing? Were you a journalist and economist? I'm a journalist by background. I sort of economic and financial journalists. I spent many years writing about oil producing countries in Africa. I wrote a book called Poisoned Wells that was published in 2007.

That was a result of nearly 15 years' work of visiting these countries. And I spent the whole time trying to understand why it was that these countries were not realizing the benefits. We had countries like Nigeria, hundreds, Angola, hundreds of billions of dollars flying into these countries. And yet the people of these countries were just seen to be as poor as any other African countries. It was a very sort of depressing time to spend. It was very interesting, of course. But over that time, when I was researching it, academics were beginning to put together this thesis, this set of research that nowadays goes by the name of the resource curse. In other words, many countries that find minerals like oil seem to not only find it hard to harness them for national development. In some cases, it seemed to be even worse off than if they hadn't found anything. And I strongly believe, Angola, the country that I know best, which is a big oil exporter, is really has been cursed by its minerals, oil and diamonds.

And if they hadn't found any, I think their people on average would be much better off than if they'd just been a non-resource country. But one of the most interesting things about this is having moved, made the transition from oil, the resource curse, to tax havens and financial centers. I began to see, I have seen so many similarities in terms of the political dynamics, countries that are dependent on finance like the UK, are also finding it terribly hard to harness all this money. Trillions of dollars coming in and out of the city of London and huge sums of tides of money coming into the UK property market and stuff. And yet you look at the real human development statistics for the UK, infant mortality and health outcomes and things like that. And the UK is doing worse than France or Germany or other countries with which you could compare it.

And a lot of the reasons for this, I think are quite similar. I mean, you have a single dominant sector in Angola's case, it was oil in the UK case, it's finance. Sucking all the best talent out of the rest of the economy out of both the private sector and the public sector and focusing it on this one single sector. You also have, you know, exchange rate effects where the dominant sector will raise price levels making it much harder for other sectors to compete. And all these kinds of factors add up to what I am increasingly beginning to call a finance curse. And this goes way beyond what, you know, most people are angry about what's happened on Wall Street and what's happened on the city and all this financial crisis stuff. This goes way beyond that. This is something much more fundamental. This is something that was afflicting countries long before the economic crisis, the financial crisis came along. And this is a thesis I'm kind of currently developing and I'll be publishing something on this early next year. Okay, we'll wait that. In the meantime, you mentioned among your list of tax haven type countries, one that may surprise a lot of listeners, i.e. the United States of America.

Now, I last year happened to be in Wilmington, Delaware for a couple of days and I walked through downtown Wilmington, a downtown festooned with a lot of tall buildings with the names of banks on them. And at midday, I think I was about one of three people walking the streets of downtown Wilmington. And I thought, what in these buildings, if not people? Yes, Wilmington's a fascinating little place and it's got its own little financial center. And that results from the main sort of impetus for that was the so-called Financial Center Development Act of 1981. And this was initially a project to essentially, what I regard as offshore activity, poaching activity off other states by deregulating, you know, it's the kind of race to the bottom activity. And at the time, there were strong curbs on interest rates and what banks could charge.

Do you mean the so-called Usually Laws? Yes, the Usually Laws, exactly. And essentially there was a court case in which it became clear that individual states were allowed to export their own interest rates to other states. They were allowed to roll out credit card operations or whatever and use them in other states, use the same rules in other states. So South Dakota tried to start, tried to be the first to get on this bandwagon. But South Dakota is quite off the beaten track compared to Delaware, which is halfway between New York and Washington, D.C. And so Delaware got on to this one and it created this financial center development act. And what really struck me about it was, you know, I researched this in detail and I had a very good researcher working with me. And we discovered that essentially this was a project that was done with absolutely no local consultation. There was a small group of insiders who decided they wanted this thing. There was no consultation even with the population of Delaware, let alone the states that were going to be affected by all this legislation. It was a deal that was done. The Democrats were brought in on it. It was a Republican governor at the time, but he brought the Democrats in and the Democrats agreed not to make any noise about it until after the after the election.

And it was a deal that was just kind of presented. It was created by the finance industry and there was no, there was just no democratic consultation. And you know, that's kind of my main point. I mean, one can argue about whether or not usually laws should have been repealed or not. But, you know, some people argue that it was, you know, has been a very negative thing. But, you know, the thing that struck me was just this kind of small kind of, it was just like what I'd seen in other tax havens. It was just small groups of people coming together in private, talking to the finances, what do you want will give you what you want. And that's it. And we'll make the laws and no one need to know about it until we've created the laws. And you have in these very small jurisdictions, you have, you know, usually there is not very much expertise. And people just essentially saying, OK, we trust you on this. Well, you know, you're going to make this legislation. We don't really understand it. But, you know, we'll vote for it. That's fine. And, you know, I saw exactly the same thing in other tax havens. It's just a sort of small jurisdiction mentality where finance comes in and gets what it wants. And no questions are asked really. But this, Delaware had had always been or had long been a, a prime site for incorporations. Right. Yes. That didn't start in that. That's another. Yes. And that's another important aspect of it. Yes.

So Delaware has always been for over a century, been a prime site for incorporations. And that is offering a slightly different package there. And that's to do with particularly to do with corporate governance. So you offer corporate governance services services that are particularly favorable to managers, often at the expense of shareholders. And that encourages corporate managers to incorporate there. And that's just a kind of very simple business model. You relax your laws and the money will come. And one of the type of, I mean, there are many types of reasons that companies incorporate in Delaware. But one of them is secrecy. And this is part of what I was talking about earlier, the United States as a secrecy jurisdiction. This offers secrecy both at a federal level and also at a state by let state level and Delaware corporations. And Delaware is not alone. There's Nevada is another one Wyoming is another and there are various others. States offer secret corporations. In other words, they will, they will allow you to set up a corporation for just a few hundred dollars that provide extraordinarily strong secrecy. And in some cases as strong as Swiss banking secrecy.

And they do this through a completely different route. They do it by allowing you to set up a company with nominees, shareholders and nominee directors. And so, you know, these people are nominees. They will be the directors of hundreds, if not thousands of companies. And you can find out as much information as you like about these people. But that brings you no closer to the real warm, warm blooded person who owns that corporation. Those people, you know, the real owners, the beneficial owners will stay secret. And there has been a lot of dirty money running through all of these corporations and drugs money and so on. And there's been quite a lot of noise about it recently. But still, you know, the lobbyists have managed to say, oh, it's going to be difficult. It's inefficient to make us, you know, have more own risk due diligence requirements to check up on, you know, who owns these companies. And so still, there's, you know, there's a lot of work to be done to clean up the sector in Delaware as a massive provider of state level secrecy through its corporations.

Now recently, I've been reading about in eavesmiths, naked capitalism blog, among other places, about a blossoming of this kind of stuff in New Zealand. Ah, yes. New Zealand is a kind of, there are so many tax havens around the world that seem to have this sort of blemish free existence. And New Zealand has the distinction of being ranked as the cleanest country by transparency international at the moment. But if you look at some of the things they're providing, I was looking at this recently and I, I, I, naked capitalism is a site. I, I visit regularly enjoy very much and they help give me a tip off in a couple of cases here. But New Zealand has a couple of different strings to this particular bow. One is again, secret corporations that have been investigations into, you know, you have these little houses. The house in Auckland that's just sitting there with thousands of thousands of corporations in filing cabinets and no information and the government's not asking them for any information and all sorts of, you know, they've been linked to all sorts of nasty, you know, East European mafia and drugs money and stuff.

New Zealand also has a trust sect and our trusts are another whole kind of worms. Offshore trust in particular can be very slippery creatures and very, again, very, very strong providers of secrecy. And New Zealand trusts have been implicated in all sorts of, you know, that Mexican drug money and stuff like that. And so here you have this, this country that has, you know, in many cases it, you know, it has a very clean reputation. And yet on the other hand, it has this incredibly dirty financial thing going there. And that's the same of many, many jurisdictions. I mean, you know, the city of London tries to portray itself, you know, UK people generally regard the UK as a very warm and friendly place in British as trustworthy and it's got very strong courts and legal system and, you know, all this sort of stuff is true. But on the other hand, you have this kind of ocean of dirty money that sits alongside this, this, you know, this probity and it seems like an incredible paradox to have these two sitting sitting side by side.

In the final moment, and I'm speaking with Nicholas Shaxx and author of Treasure Island in the final moments we have together, there are some efforts by some governments to exert what might be called tax transparency upon all this stuff. Who's on what side of that? Well, there are a series of measures going on. I mean, the biggest and most important are there's one project going on in the European Union and there's another project going on in the United States that are the most serious efforts. Now, the US effort is kind of a unilateral thing. It's protecting the US tax system from offshore erosion and the United States have been very fierce. It's, in recent years, has had a huge fight with Switzerland in particular. The justice department has had cases against Swiss banks and they've caught them red-handed helping Americans evade taxes with all sorts of colorful stories about hiding diamonds and toothpaste tubes or, you know, poaching, you know, going to the America's cup and trying to, you know, just looking for customers and helping them, you know, get their money offshore.

So there's, you know, that kind of thing has really stuck in the public crawl and the Obama administration under the Obama administration, there's been a, you know, a fair degree of attack on Switzerland in particular. But also there is that they have this legislation coming in the Foreign Account Tax Compliance Act, which requires foreign financial institutions to identify any American clients that they have and pass information about their assets to Uncle Sam. So that's a kind of unilateral US thing. It's an interesting and sort of positive development, but it's not, and the US is kind of pushing, you know, this out to make it more reciprocal with other countries. So that's one, you know, it's kind of, I see that as one pillar of an emerging architecture and another big pillar is the European Union.

It's got this scheme going, which is currently full of loopholes, but it's essentially an information sharing mechanisms where governments share information with each other about their wealthiest citizens, assets and income so that they can tax each other properly. And, you know, it's geographically limited to there are 42 jurisdictions in here, but it's kind of, I see this as the sort of first stirrings of something new of an emerging architecture of transparency, which is still in its early stages and still, you know, full of holes and, you know, still not raising huge amounts of money, but it is new. It's the start of something new, and I think with governments, you know, facing austerity and looking for tax revenues everywhere, I think the political momentum behind this kind of thing is really growing now, and I think, you know, there's a long way to go, and I think there are positive things happening. So, let me go back to where we were at the beginning. There has been a lot of publicity about Starbucks in England and Amazon and England making significant profits to some eyes, and yet paying no income tax, or paying negligible income taxes because of tax avoidance procedures that are strictly legal under current English law. There's been talk about boycotting these companies. If you lived in England, which you don't, would you be patronizing or boycotting Starbucks in Amazon?

I'd be boycotting them, because for the simple reason, I mean, this defense, they come out, it's legal, so it's fine. It doesn't hold water. For various reasons. One is, when you're talking about corporate tax affairs, you're talking about an incredibly complex arena, and between the legal and illegal. There is a large gray area, and these corporations operate frequently in this gray area, and you only find out which side of the law they really are on, once there's been a court case, the tax authorities have taken them to court, and you get a resolution one way or the other. There's a question of how aggressive the question is, how aggressive these companies are going to be, and it seems that Amazon and Starbucks have been particularly aggressive, pushing into this gray area, where it's not quite clear. You certainly can't say they've broken the law, but you can't say either they haven't broken the law, and it'd be interesting to see what the tax authorities would say. But more fundamentally, I think you have corporations that are coming in and using, coming into the UK, and taking all the benefits, the services, the infrastructure, the well-educated workforces, the rule of law, the courts, all these fine things, which are all paid for out of tax dollars, they're taking these things, and then they're making their profits and not paying for the services.

And that is something that sticks in, it's a very simple thing, it's something you can get people in the streets very, very angry about, and it makes me very unhappy to see this happening. And even worse than that perhaps, these corporations are competing with domestic companies that are doing trying to be in the same business, but they're being killed by the multinationals on this factor tax, which has nothing to do with real productivity, with real economic efficiency, nothing to do with making better goods and widgets. But everything to do with transferring money away from others, transferring wealth to them from others, and there's nothing productive at all about this, this is simply a gigantic distortion in the market. And so it's profoundly damaging to, in a sense, this whole thing is anti-business, even though multinationals are getting lower tax rates, they are harming, you are harming domestic businesses smaller, more local businesses.

Which are often the job creators and the innovators, and they're being killed on this as a result of this gigantic distortion. So it's a huge problem, and it's not hiding behind the saying, well, it's all legal, it's just not going to work. Nicholas Jackson, I highly recommend treasure. Is the American version the same as the British version? It's pretty similar, yeah, it's essentially the same, there's a little bit shorter, but it's essentially the same. Treasure Allens is the book, and it's fascinating, the story of offshore in all its ramifications, which continue to this day. Thanks so much for sharing your time with us on this show. Thank you, great to talk to you. You too. Now ladies and gentlemen, the apologies of the week. It's so sorry.

You won't even ask why the American version is slightly shorter than the British version. Not of the apologies of the week. Angus T. Jones, actor and two and a half men, a video came out of him calling his show Filth and urging viewers to stop watching it. That video went viral one day later, 19 year old Jones has issued an apology. Quote, without qualification, I'm grateful to and have the highest regard and respect for all the wonderful people and two and a half men who have worked with over the last ten years, who become an extension of my family. That's what you want on your family extensions. Chuck Laurie Peter, Peter Roth. I'm giving you a radio hug, Peter Roth. And many others are wondering about this, and CBS are responsible for what has been one of the most significant experiences of my life to date. He continued to gush in the statement. I apologize he adds if my remarks reflect me showing indifference to and disrespect to my colleagues in a lack of appreciation of the extraordinary opportunity of which I have been blessed. He adds, guess he went to.

I guess he was homeschooled in English. In his original video interview on a religious website, he said, I'm on two and a half men and I don't want to be on it. Please stop watching it. I'm not okay with what I'm learning about what the Bible says and being on that television show. You go all or nothing. Biggie Charlie's Sheen looks sane. Dayline Columbia South Carolina, the woman responsible for running elections in Richland County, gave its legislative delegation several apologies. But not a lot of answers for long lines and vote counting irregularities. Richland County elections and voter registration director Lillian McBride opened with an apology. Several lawmakers demanded specifics on what the mistakes were that she was apologizing for. Each time she told them she didn't have answers. And then apologized again. Paper ballots, ladies and gentlemen, hand counted paper ballots. Loudon County, Virginia leaders hope to avoid yet another season of controversy and media attention over the placement of holiday displays on their courthouse grounds in Leesburg. But the debate is only heightened in recent weeks after local atheists presented readings

from Charles Darwin on the public property and county supervisor Kenneth Reed, a Republican, referred to the group as terrorists. He is now apologized. Another religious, let's see, where is his apology? My use of the word terrorist was a poor choice of words. In the Washington Times newspaper did not tell it in full context. He said in an email, my comments and the times were directed specifically at the atheist groups that have been relentlessly pursuing their goals to remove all religious holiday symbols from the courthouse law and not all atheists. Thank you for that clarification, Ken. Miami-based carnival cruise lines has quickly apologized after finding itself in hot water with gay passengers on an upcoming drag cruise. The passengers were told to refrain from engaging in inappropriate conduct in public areas or to be kicked off the liner, glory. Now carnival says anyone who wishes to dress in drag may do so. And anyone still unhappy could cancel travel and receive a full refund,

including, quote, reimbursement for any non-refundable travel-related expenses, like gowns. The drag stars at sea cruise is scheduled to port. I'll actually today visit ports through the Caribbean and return December 9th about a thousand passengers, one-third of the glory's total travelers, booked through Allen Truck Travel, a gay-oriented travel company in Sarasota, Florida. They're scheduled to be entertained separately throughout the cruise by well-known drag stars who have appeared on logo TV. But carnival is now sorry. And 70 years after Norway helped send hundreds of Jews to Auschwitz, the nation's police force has apologized for their role in rounding up and deporting people to Nazi concentration camps. The sober words from the Norwegian National Police Commissioner marked the first such apology from Norwegian police. Hey, Norway, thank you right back. The apologies of the week later, gentlemen, a copyrighted feature of this broadcast.

Oh, one more apology, other news from the Cleveland Browns, not so disturbing. Reserve Brown's linebacker Tank Carter has apologized for using a homophobic slur on his Twitter account. Just wanted to say Tank Carter, ladies and gentlemen. That's going to conclude this week's edition of the show. The program returns next week at the same time over these same stations. And then PR worldwide throughout Europe, using full 40 cables system in Japan around the world's facilities of the American forces that work up and down the East Coast of North America via the shortwave giant WBCQ, the planet 7.490 megahertz shortwave on the mighty 104 in Berlin

around the world by the Internet at two different locations live on archive, whenever you want at harryshear.com and KCRW.com. Available for your smart phones through Stitcher.com and available as a free podcast at KCRW.com. And it'd be just like us getting to offshore our profits too. If you'd agree to join me then, would you already thank you very much. Uh-huh. Chip of the show, shout out to the San Diego Pittsburgh Hawaii and Chicago desks. If you're up for today's broadcast, thanks as always to Pam Hallstead. Thanks also to Andy Stella Brass at the Langley Studios in London and Tom Winger at Tom Studio in Zurich. I hope that's the production of today's broadcast. And thanks to the Chicago guests for being right here in New York. Is it you who left the toilet seat and ladies room up? Yeah, that's what I thought. The email address for this broadcast and the playlist for the music heard here on.

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