Nick Shaxson ■ Nick Shaxson: Leaving the Tax Justice Network
Some reflections on how a small band of people sparked a global movement.
Tax Justice Network announced today that tax justice pioneer Nicholas Shaxson is leaving the Tax Justice Network to co-lead the newly-established Balanced Economy Project. We thank Nick for his outstanding contributions to the development of the tax justice movement, and wish him all the best.
One afternoon in Amsterdam in 2006 I took a phone call from John Christensen, who I’d come across before as a private investigator of interesting trends in troubled countries. As a journalist, I’d been living in and writing about west African petro-states since serving as a Reuters and Financial Times correspondent in Luanda in the early 1990s during the Angolan civil war. Until I took John’s call, I assumed that would continue to be my career.
I was just about to publish my first book, Poisoned Wells, about how oil mixes up with politics, war, culture, foreign meddling, international banks, and ordinary people’s lives in six oil-rich but poverty-wracked countries – Angola, Nigeria, Gabon, Congo-Brazzaville, São Tomé and Equatorial Guinea.
I was fascinated by something that all these countries shared. It wasn’t just that crooked leaders were looting their countries, and that the money was being wasted. There was plenty of that, but many of these countries seemed to be even poorer than if they’d had no minerals. Research from the mid to late 1990s backed this up, suggesting that mineral-dependent countries like Angola tended to be poorer, more conflicted, more corrupt, more dictatorial, and more unequal than their resource-poor peers. They were calling this the ‘paradox of poverty from plenty.’
This certainly matched the Angola I knew, where minerals had created the resources, twisted the motivations, and widened the divisions, that fed a very hot civil war. There were other factors, of course: cold war rivalries, South African meddling, ethnic and linguistic issues, and not least the psychopathic megalomania of UNITA leader Jonas Savimbi. But still.
I had no idea then, but oil in Africa would later help me understand my own country, the United Kingdom, and inform my future work on tax havens with the Tax Justice Network
Pouring oil money in at the top
Each of the six countries I wrote about in Poisoned Wells had its own unique political, cultural, ethnic, and economic soap operas going on, and each are as different from the others as Britain, France or Germany, say, are from each other.
But the common characteristics are striking, once you look for them. If you pour oil money in at the top of a country’s political system, starting with the president, then this will shape not just the economy, but the political system as it sluices down. Top-down politics becomes a game of allocating resources downwards, in exchange for political support. Underlings jostle for access to the rents, and this generates conflict, worsening any existing ethnic, regional or other cleavages. Politicians lose sight of the difficult challenges of nation-building and instead turn their attentions towards getting access to the oil-fed cake. Meanwhile, roller-coaster oil prices, which ranged from some $10 a barrel in the late 1990s, to over $150 within a decade, play havoc with planning. When minerals make up 99.5 percent of your export revenues – as was the case with Angola when I was there – turbulence in world commodity prices causes mayhem.
And oil crowds out other economic sectors. It raises local price levels that make locally produced tradable goods and services more expensive versus imports, in a “Dutch Disease” that cripples local agriculture. All the most talented and best educated people flock to where the money is: either the oil sector itself, or thoroughly oil-dependent sectors like banking or construction. Other economic sectors that aren’t oil-dependent, like agriculture, don’t stand a chance. You could buy plump Brazilian-grown chicken in the local Roque Santeiro market cheaper thanthe scrawny home-grown versions.
The tax haven sinkhole
We’d all heard of tax havens: but for me they represented simply an end point of my investigations at the time, a sinkhole where corrupt leaders’ money disappeared. This was never more real for me than when I stumbled rather haplessly (long story) into the heart of the “Elf Affair,” then Europe’s biggest corruption investigation since the Second World War. On my first visit to Gabon, campaigning magistrates in Paris were just then uncovering a gargantuan web of bribery and corruption that revolved around oil-rich Gabon, whose ruler Omar Bongo allowed his oil industry to become a kind of weird oily offshore turntable for the secret financing of French political parties, the intelligence services, and global-scale bribery on behalf of French multinationals.
The Elf blob? was skittish about my arrival: they sent a mysterious man, Monsieur Autogue plus an assistant, to shepherd me around: they even appeared to introduce me to what felt like a classic honey trap, in the form of a beautiful “Air France stewardess,” whose attentions I rebuffed. Something weird was afoot, that much was clear – and offshore was at the heart of it all. In the words of Eva Joly, who led the investigations in the Elf Affair, back then, havens were impenetrable fortresses. “The magistrates are like sheriffs in the spaghetti westerns who watch the bandits celebrate on the other side of the Rio Grande,” she said ruefully. “They taunt us, and there is nothing we can do.” And at the heart of much of the chicanery, she accused, lay Britain. That was a bit of a surprise.
There was almost no understanding of the offshore world: It was an exotic sideshow to the global economy, a racy and exciting place of James Bond films, usually located in small islands peopled by mafiosi, a few celebrity tax-dodgers, assassins, tax dodging millionaires, rock stars, drug mules, racing drivers and spies. That was – I’m not exaggerating – about as far as anyone’s understanding went.
There was no body of serious academic research, no economic analysis, little that anyone had drawn together. The best-known work was by Susan Strange, who saw the offshore problem clearly and early, but she was shouting into the ideological vacuum of an earlier era, and died in 1998. There were rare publications – such as the book International Business Taxation from 1992, which had a strong influence on John. Most of the other academic and professional voices out there who had already ‘got it’ – I won’t name them, for fear of leaving people out – were previously isolated voices who ended up coming together as pro bono Senior Advisers to TJN. But until TJN put a flag up and brought these disparate people into the tent, the issue had barely been on the radar. And it was all secret.
The dark heart of globalisation
Which is why that call from John Christensen in 2006 was so stunning. I was instantly hooked: I arranged to meet him soon in London, and over several hours he laid out an extraordinary tale. John had previously served as the Economic Adviser to the British tax haven of Jersey, and had worked in the corrupt world of offshore trusts before that, always with a view to exposing the system one day. He described the offshore phenomenon from an economist’s perspective for the first time. This wasn’t an exotic sideshow to the world economy: it was right at the heart of the globalisation project: its dark heart.
From that meeting, I took away three big lessons.
The first thing I learned was that tax havens weren’t where I thought they were. The traditional view of tax havens as being small islands, plus Switzerland, had given way to an understanding that arguably the two biggest tax havens in the world were the United Kingdom and the United States.
People from around the world could park their wealth in these countries – whether as real estate, bank accounts, share portfolios, or whatever – and neither their home-country governments, tax authorities nor law enforcement agencies, had a hope in hell of finding out what they were earning, or what they owned. The most interesting part was what we later came to call the British spider web: Britain’s network of semi-independent Crown Dependencies (such as Jersey, Guernsey) and Overseas Territories (including Bermuda, Cayman, British Virgin Islands.)
The OECD, the club of rich countries, had had a go at reining in this system in 1998, but got beaten back by a consortium of libertarian lobbyists, tax haven operators and conservative ideologues – along with the governments of the biggest players in the system: Britain, the United States, and Switzerland. They wanted to keep the money coming in.
The second message I took from that day was that this phenomenon was far bigger than anyone imagined: enough to throw off-kilter the external capital accounts of large rich countries like the United States. Financial liberalisation had freed up international financial capital, under a lovely theory that it would flow efficiently to where it could be put to best use. So poor countries in Africa, the thinking went, are capital-starved: so open up their borders to the world’s money, and it will flow in, generating returns for investors, and much-needed investment. John had had a frontline view of one of the key reasons why this happy fantasy wasn’t working. After financial liberalisation, capital was flowing out, under the table, into tax havens. Loans into some African or Asian or Latin American countries, for instance, were being snaffled by the élites, and then sent out to tax havens, creating a small layer of rich African elites, creditors to the rich-world banking centres, alongside enormous debts, on the shoulders of ordinary Africans.
The third message, which perhaps fascinated me most of all, was that tax havens were not just tax. When elites took their money offshore they were removing it from the rule of law: they were escaping tax, escaping disclosure, criminal laws, labour laws, financial regulations, inheritance rules: pretty much any responsibilities that elites didn’t like having to bow down to.
This was Eva Joly’s Rio Grande: rich and powerful elites were escaping offshore – elsewhere – to do the things they couldn’t do at home. And the world’s richest and most powerful countries were running the game. It may seem strange now, but back then, almost nobody knew this! (except for the rich and powerful who were benefiting of course)
John was looking for a writer to tell this story that he and a few others had been putting together. Was I interested?
Transfixed by The Story
I had never heard anything like this. Crucially, this information was coming from an insider: this was someone with credibility and experience. As I left that meeting I felt as if I possessed some sort of secret knowledge, which in a way, I did. Within days – truthfully, probably within an hour, a sudden career change had become inevitable for me: a switch from oil-in-Africa to tax havens. My book Poisoned Wells was about to be published, and it was a natural time for me to make the shift.
I joined the Tax Justice network in 2007, on a part-time contract (they didn’t have enough funding to pay me full time, and I was too transfixed by this story for this to stop me.)
My early work with the Tax Justice Network involved two things. The first was to pitch and write a book about tax havens, laying out this agenda. My second task was to write stuff for the Tax Justice Network: blogs, reports, and so on. But before getting into this, it is well worth a digression into the Tax Justice Network’s origin story, which preceded me by a few years.
Tax Justice Network’s cheap, scrappy origins
John had worked undercover in Jersey for many years, and left as a whistleblower, having exposed a large bank scandal to the Wall Street Journal in 1996. Outed as a ‘traitor’ to his island, he went to London, where he worked on various projects, including spurring and informing an Oxfam report on tax havens in 2000, which was far ahead of its time. In October 2002 he got a call from three elderly Jersey folk who he didn’t know: Pat Lucas, Jean Andersson and Frank Norman. They flew to see him and, from memory of my discussions with John, the conversation went along these lines:
“Offshore finance has taken over our beautiful island, and we wondered if you could help us get rid of it.”
“Er . . . well, this is a huge interconnected global phenomenon, and you’d have to take on the whole world to get rid of it just in Jersey. Tricky.”
“Still, let’s do it!”
And so it began. They held car boot sales and found other ways to raise money, and provided some seed funding for the Tax Justice Network. John began to organise. Once you put a flag in the ground and say you’ll do something, you will tend to attract people you’ve never heard of, who have been thinking along similar lines. It was hard – fundraising, in particular – but interesting characters began to show up.
When I joined in 2007, the Tax Justice Network had two salaried employees: John, on a tiny full-time salary, and me, on a tiny part-time salary. That was it. We had several expert fellow travellers around us, providing pro bono advice, principally on international tax. (You can see who they were, here.) Perhaps the most similar outfit, already with a venerable pedigree back then, was the excellent US group Citizens for Tax Justice, although they were very domestically focused and didn’t put too much energy into the tax haven stuff.
The Tax Justice Network ended up having a transformative effect on global finance, building an incredibly powerful global movement from these tiny origins. Our first signature policy proposals were widely derided as utopian, pie in the sky, leftist nonsense – and yet all of them, to one degree or another, are now mainstream policies endorsed and applied by international institutions and governments around the world.
A few days after I joined in 2007, The Economist ran a cover story and collection of articles on tax havens, basically laying out a trickle-down tale that the havens were efficient, friction-free conduits of finance around the globe, and “good for the global financial system”. It quoted John briefly, framing him as carping from the sidelines, adding a sneering “not everyone believes him.” (It also tended to run sleazy advertisements on its back pages, offering dodgy and presumably criminal-friendly offshore secrecy services.) Just six years later, the Economist ran another cover story and special report on tax havens, far better-informed, headlined “Storm Survivors,” reflecting the post-crisis battering that tax havens had taken from publics and governments around the world. Tax havens were (and are) far from dead, but there has been tremendous progress in tackling some of the worst elements of the system. We were far from the only factors, as I’ll soon explain – but we played a role.
So I’d like to offer some reflections now, on the ingredients of success, of which we were one important element. I will avoid the “theories of change” donor-speak here: these are my personal reflections on what I saw.
Win a fight, not a seat at the high table
My first tasks were to run a cheap, scrappy blog (I’ve just looked, and to my delight it’s still there.) I often tried to pump out a story or so a day: mostly short, spiky articles commenting on events of the day, each one seeking to lay out a couple of messages. Many blogs took less than ten minutes to write, were often highly irreverent: approval times usually took five minutes or less.
We published a photograph of the tax justice headquarters: a shed at the bottom of John’s garden, where he kept his papers and often worked. The Cayman Islands tried to use this photo to smear us: evidence that we weren’t serious, but they simply failed to grasp what we were doing. We pulled stunts such as writing to our dear (now departed) Queen to explain what her Overseas Territories were doing in her name, and publicly attacked Very Serious People defending the indefensible. I remember a stand-up row with a sneering Cayman Islands regulator at a conference in Geneva: he had previously called me an ‘imbecile’ in public and had been expecting to give me a good kicking in front of a home crowd. (He didn’t, and afterwards, he refused to shake my offered hand.)
There wasn’t much detailed evidence to go on beyond what we had seen in our investigations, some basic measurements, and John’s undercover work, but that didn’t matter too much: this was long before academics and others started piling in, prodding and measuring the phenomenon, essentially confirming what we knew. What we had at the time was a story: a big and coherent new story about how the world works.
The historian Ben Phillips, in his recent book How to Fight Inequality, talks of an “evidence based paradox” where many people believe that collecting good evidence is the way to force policy change, when there is little historical evidence of that working!
“I remember sitting in a room full of economists exchanging formulas with Greek letters. Then I raised my hand, ‘just wondering, everyone here seems to see it as their role that they will present the facts that will explain to leaders how inequality is harmful, and what policy mix would reduce it, is that right?’ I was told ‘yes.’
So I said OK, can anyone tell me about when and where doing that brought a noteworthy reduction in inequality? They went very quiet. Then they started laughing. There had been no historical example of that unspoken assumption ever delivering.”
We were never anti-evidence, of course: far from it. We did a few big set-piece reports, notably Jim Henry’s Price of Offshore, Revisited, laying out some very big trillions stashed in tax havens, which got worldwide attention. But, more than anything we had a story: a story filled out with analysis, some evidence, insider knowledge, argument, human stories, outrageous facts. Crucially, this story was internally coherent, and worked across multiple dimensions.
Philips offered three core ingredients for success. First, overcome deference: don’t tiptoe around trying to get a seat at the high table. Speak truth to power, and be a troublemaker. Second, wield a story. These two, we had. His third piece of advice was to organise. Build power together with others.
Let a thousand flowers bloom
It was obvious to anyone who gave it a moment’s thought, that this tiny band of people couldn’t change the world on our own. So we decided to take our story to different constituencies, on the principle of “letting a thousand flowers bloom.” Let’s show powerful constituencies the story, show how it was relevant to them, and let them run with it.
So we started going to big development NGOs, who at the time were fretting about increasing official aid levels to poorer countries. Look, John would say at their events, you’re worried about how much money is flowing IN to Africa: but aren’t you worried about the bigger sums flowing OUT, under the table, into tax havens? Initially, he would tend to get a message ‘interesting, but we’re very busy and can’t take on new stuff’, but quite soon lights began to go on in people’s heads, and soon we had a whole new set of allies, pulling roughly in the same direction as us, in our own way. They were incredible force multipliers.
Tougher to crack were investors, who’d get together to try to improve ‘corporate social responsibility’. John would stand up and tell them that their first responsibility was to pay tax. This kind of thing was personally hard: it was like he’d thrown a live snake on the table in front of them. But, once again, lights began to go on, and we could feel the activist holy grail: traction.
We began to get traction. First journalists, then governments, began to pay attention.
But beyond the three ingredients of overcoming deference, being troublemakers, and wielding a story, we added others.
Story, story, story
The small band of people around the early-years of Tax Justice Network had crafted a number of raw elements of a stunningly powerful new story about how the world really worked, and one of the most compelling answers to the question, “Why has globalisation been so disappointing?” My job was to package up these different ideas into a book, a single place where they could be brought together.
Originally called The Threat from Offshore, I was persuaded by a friend at The Mirror newspaper, and my agent, to give it a better title: Treasure Islands. John and I originally discussed it as a kind of reverse Heart of Darkness: a journey from the badlands of the world’s poorest and most troubled nations, into the world of global money’s real Heart of Darkness: the City of London and related havens. My agent, however, persuaded me that the complexities of trying to marry different elements of our narrative with complex elements in Joseph Conrad’s original classic could easily go awry: so I settled for a more conventional investigation.
I moved to Switzerland (conveniently, but ultimately for family reasons), and took the raw story elements that others in the network had developed, melded them with things I’d learned from oil-in-Africa days, conducted new research, wrapped it in a bit of a populist writing style, and in the book created a weird, but evidently readable, new synthesis. Treasure Islands was stunningly successful: if the new story was anywhere, it was here. It sparked at least three films (including the Spider’s Web, now on Netflix) and became required reading for any journalists or investigators working in this area.
This will likely come across as arrogant: but I’m immensely proud of this episode, and the success of Treasure Islands is an integral part of the analysis here, so please bear with me.
There is nothing like a human story, or an anecdote, to get your message across. One of my favourites came in an ActionAid report, which highlighted a small Ghanaian stallholder, Marta Luttgrodt, who lived in the shadow of a giant SABMiller brewery. The report explained (my emphasis added):
“She pays annual tax stamps to the authorities and says, ‘If we don’t pay, they come [to lock our stalls] with a padlock.’
SABMiller has been shifting so much of its profits out of Ghana and into tax havens that its Ghanaian subsidiary has been declaring a loss, thereby paying no corporation tax.
Incredibly, this means Marta has been paying more corporation tax in Ghana than the giant multinational whose UK parent company declares profits in excess of £2 billion a year.’
Holy shit! Does that make you angry, dear reader? It still gets me, 12 years later on.
Act where the power is
Activist organisations have limited capacity, so you have to prioritise. Globally, where should we focus? If Africa is being looted, and the wealth is being stashed in rich-country tax havens like the British Virgin Islands, where do you act? Africa, where the pain is? Or the UK, where the power is?
Obviously both, but as we had to prioritise, we focused firmly and deliberately on the latter: where the power is, where change will have its most significant impacts.
One of our earliest outputs was the Financial Secrecy Index (FSI), a ranking of the world’s most dangerous tax havens, which a few of us decided to set up at a meeting in Nairobi in 2007. The intention was to counter stories like Transparency International’s world-famous Corruption Perceptions Index, which tends to rank African countries as ‘most corrupt’ and rich countries as ‘least corrupt.’ The Financial Secrecy Index basically flipped the Corruption Perception index upside down, pointing to rich countries as the Heart of Darkness. Although it would have been far easier to fundraise for putting a lot of our efforts into events and reports from an African perspective, we decided to focus on creating headlines in countries like the UK. This, at times, led to accusations of western-centrism on our part. These accusations held water, but we held this course because we thought we could achieve global change faster this way.
But we also nuanced this rich-country focus with a crucial bit of framing. We did not pose this as a battle between rich countries and poor countries (even though there was plenty of this, for example in the rules of the international tax system, set up by the OECD, a club of rich countries.) Instead, we framed this as a battle pitting the offshore-diving elites in every country, rich or poor, against ordinary people in every country, in a shared international struggle. Activists gluing themselves to shop windows in London to protest domestic tax dodging, found common cause with protesters in South Africa or India or Brazil, suffering similar oppression, and worse.
For example, the first big newspaper investigation inspired by the Tax Justice Network was an investigation into the sale of bananas from poor countries in rich countries, with a tax-dodging paper trail via tax havens. The big multinational was escaping paying tax both in poor and in rich countries: here was a shared international agenda.
Hold everyone’s feet to the fire: don’t get deflected
Responses to our work often involved the ‘either-or’ fallacy, as in, ‘we, a big multinational, are just following the tax laws as they are written, don’t criticise us for responding to shareholder demands to cut our tax bill, go after the governments instead.’
The answer to this is simple: criticise both, criticise them all. The governments, the multinationals, the tax accountants and bankers and other ‘enablers’ of tax-dodging, Not least, because tax systems are significantly the product of lobbying by the multinationals and their advisers!
Join the dots
The tax justice movement’s story could be made relevant to almost anyone, and we deliberately played on this, seeking to bring people together from many walks of life. TJN itself, when considered along with its expert advisers, was made up of accountants, economists, lawyers, and journalists, so was itself already bound to create an interesting new synthesis, just in the bringing-together.
But also, our ability to tell essentially the same story about tax havens to different constituencies – from trade unions worried about paying for public services, to development NGOs worried about revenue losses in the Global South, to rights-based groups concerned about the erosion of democracy at the hands of untouchable elites, the same basic story applied.
Moreover, the anti-tax haven story could appeal across large parts of the political spectrum, from left to right. For the left, we framed this as being about elites escaping the law, about inequality, and about unfairness. For those more to the right, tax havens can be portrayed as corrupting markets, worsening monopoly power, and threatening the rule of law and national security. We pulled all these levers, and then some.
Choose your terrain
A bedrock of expert credibility is essential, in any fight like this. But more important, perhaps, is to choose your own battleground. Tax havens are hotbeds of loopholes, obfuscation, subterfuge and complexity, and we sidestepped this at every opportunity. Were SABMiller’s tax schemes in Ghana legal? Most likely their tax accountants made sure that they were (although beware: a lot of this kind of stuff is less ‘legal’ than is commonly reported). In cases such as this, we could have dived into incredible arguments about clauses in tax treaties with Mauritius, arguments about price transfers between subsidiaries, and plenty more. Had we done so, we’d have been fighting on the accountants’ terrain, and very difficult territory, despite the tax experts we could rely on.
Instead, we dragged this into the terrain of economics, fairness, democracy, inequality, and so on: a rich multinational is paying zero tax in a poverty-stricken country. Elites are escaping the rule of law, and this is eroding everyone’s faith in their political system. Poor people like Marta Luttgrodt are paying their taxes but rich people aren’t: this is making the world more unequal. Vladimir Putin and his cronies are using the City of London and its satellites as bolt-holes: this threatens our security. Those arguments are slam-dunks, and you can explain them to anyone in a bar who’s willing to chat. Here is the problem to fix: we’ll offer solutions, build political support – and we can deal with the fine print later.
And you can build this into your let-a-thousand-flowers-bloom strategy of constituency-building: each aspect of unfairness or danger can be showed to people or groups fighting in that area, and with luck you’ll persuade them to run with your arguments too.
Appeal across the political spectrum
The leaders of the tax justice movement would mostly be labeled left-wingers. But in truth, we always believed that we had a good story to tell for many people who’d describe themselves as centre-right or even right wing.
For those on the left (sidestepping what this fuzzy and shifting term means), we talked about how tax havens boost inequality, undercut democracy, create impunity for rulers and billionaires, erode tax systems, and so on. For those on the ‘right,’ we talked about how tax havens corrupt markets, damage democracy, hurt national security, and feed global organised crime. We had more success with the former constituencies, but a fair share of success with the latter too.
Be lucky, especially on timing
Four crucial elements created the foundations for a thriving movement today.
First, the global financial crisis unleashed a giant tidal wave of public indignation, from 2007 onwards. Angry voters in many countries were furious with the mess that their out-of-touch, law-escaping elites had made, and nowhere was more emblematic of this failure than offshore. The Occupy movement tapped into this – a number of Occupy protesters held up pictures of Treasure Islands to highlight their anger at unaccountable élites – as did the wildcat tax protest movement UK Uncut, which shut down major multinational high street stores across the UK. (I participated in such a protest in Washington, D.C., and was surprised at how much personal courage it requires to stand up and shout like that: I’m not a natural street protester, I guess.)
Lasting change was happening before our eyes, as our story helped focus some of the broad public anger about the crisis into specific actions and ideas: this helped embed the concept of ‘tax justice’ into what is now dominant, embedded mainstream narrative: the new commonsense. Here’s an illustration, from the UK in 2021:
“Among Conservative voters in the 2019 general election, 90% agreed that tax avoidance by large companies was “morally wrong even if legal”, the poll found.”
‘Almost all Tory voters agree company tax avoidance morally wrong, poll finds’, The Guardian, 22 Oct 2021
When I joined the Tax Justice Network, such a prospect would have been laughable.
Second, governments roiled by the crisis were looking desperately for new sources of revenue, and cracking down on the anti-social and sometimes illegal tax-dodging escapades of rich and powerful people was an obvious place to go. At least, being seen to crack down, was a vote-winner: progress was far less than necessary, but there was progress.
Third, when the crisis hit, policy makers were in the grip of TINA – There Is No Alternative. Some call it neoliberalism, others call it trickle-down: but the curious and obviously idiotic idea they sold us was that the way to help ordinary people was to take their money and give it to rich people, because, they argued, these were the ‘wealth creators.’ Tax justice, like broader economic justice, rode on exposing this nonsense. And we had a big, coherent new story. That story was crucial glue that held, and holds, the movement together.
Fourth, a bit later on, the Panama Papers and subsequent offshore leaks, coordinated by the International Consortium of Investigative Journalists, confirmed for the doubters everything we’d been saying. Our story helped inform and shape their work, and their reporting brought power to our story.
Solutions, solutions, solutions
It wasn’t enough to have a story about where it had all gone wrong. We needed to push positively for something. Even before I arrived at the Tax Justice Network, the activists and their expert helpers had began to put together some solutions to the problem of tax havens. There were four, (now known as the ABCs).
A first was to push for Automatic Exchange of Information, where countries would automatically share information with each other about the cross-border assets of their rich citizens.
A second was to create registries of Beneficial ownership, meaning the genuine flesh and blood owners of assets should be identified, available for exchange or other purposes.
The third was country by country reporting, where multinationals would need to break down their financial and tax data for every country where they operated, instead of (as was then the case) being able to mash all their national data into a big regional set of figures, which could not be unscrambled to find out what was happening in each place.
The fourth, later one was unitary tax (with formula apportionment), a completely different way to tax multinational corporations, which in theory could cut out the tax havens entirely.
None of these ideas were new: they had all been proposed before, by experts. It was the changing times, the crisis, and the story that we packaged them with, that seems to have finally brought them to the high table.
Once derided as far-fetched, these ideas are now all, to one degree or another, mainstream global policies, even if patchily drafted and observed. Other ideas, such as global minimum tax rates, weren’t originally pushed by us, but the tax justice movement contributed to the changing mood that allowed this.
Use language to suit your purposes
The word ‘tax haven’ is terrible: not least, because it makes some people think they are only about tax. In her fantastic book Capital Without Borders, the sociologist Brooke Harrington explains that the central offering of the offshore system is ‘generalised law avoidance’. Tax is one significant element. “Offshore” was problematic for different reasons: it suggested that we were talking about small islands somewhere, thus distracting from the fact that the United States and United Kingdom are among the world’s most important tax havens.
We also struggled with defining this complex international phenomenon. There was, and still is, no commonly agreed definition of what a tax haven is. I boil it down to two words: ‘escape’ and ‘elsewhere’. You shift your assets elsewhere (hence the term offshore) to escape (hence the word ‘haven’) the rules and laws at home that you don’t like. This would cover the pirate coves of old, as well as the financial regulatory black hole that the City of London became ahead of the last global financial crisis. (And this, shamefully, is now coming back, with the blessing of the UK Labour Party.)
We never found a replacement for ‘tax haven.’ Instead, we took a horses-for-courses approach: use language nimbly for each circumstance. Tax haven, for tax-related haven tales. Offshore, for non-tax issues, sometimes. Some of us talked about “secrecy jurisdictions,” which had some success. ‘Tax avoidance’ was enormously tricky, too. Newpapers’ libel lawyers would force Journalists to describe stuff they were invesigating as ‘tax avoidance’, which the dictionary says is ‘legal’ (as opposed to tax evasion) but the reality is, as already mentioned, this is often inaccurate: legality is a very elusive concept. We used ‘tax dodging’ often enough, to skip past these minefields. And so on.
It was, and is, good enough.
There is a final chapter in the offshore story, which isn’t yet embedded, but I believe will grow. For me, this connects my tax haven work with my earlier “Resource Curse” oil-in-Africa investigations.
So: a tax haven is a financial centre that transmits harm outwards, to other countries. The secrecy of British Virgin Islands shell companies harms Brazil, Tanzania, and pretty much any other country you care to think of.
But it’s well known that politics, and activism needs to be local to get real traction. It’s one thing to get people on the streets about a domestic billionaire or rich politician’s wife or multinational paying zero tax locally, or otherwise escaping rules. It’s much harder to mobilise support for complex international initiatives. I never saw “Automatic Exchange of Information Now” on a protester’s placard.
Part of the answer lies in having many local partners worldwide, such as Tax Justice Network Africa, or Tax Justice UK.
But the tax haven story has another important wrinkle, in this respect. The British tax haven racket hurts Africa, but it brings money into the UK banking system. We may hate the idea of Africa being looted, but – whisper it quietly – we Brits like the money coming in. That’s a recipe for political inaction, and it’s a testament to the Tax Justice Network’s success that our story about the British offshore spider web got such traction in the UK.
How can we overcome this difficulty? Could it be the case that tax haven activity transmits harm inwards, to the countries that host it? If we could show that, then we really could have a powerful platform.
Some elements were already pretty compelling. As chief economic adviser to the government of the tax haven of Jersey, John had watched the rapid rise of offshore finance crowd out other local economic sectors, widening inequality, and corrupting the politics. A financial brain drain was sucking all the best educated and most talented people out of other sectors – especially agriculture and tourism, in Jersey’s case — and into becoming trust company owners, or offshore wealth managers for dodgy clients. Massive inflows of money forced property prices into the stratosphere, pushing large numbers of people (some of who may have earned more by working in offshore finance), back to Square One, or below. An underclass began to develop: people either having to work two or three jobs to make ends meet, or leave the islands. That was the Dutch Disease: generally higher price levels made it harder for local production to compete against imports, so those sectors withered.
Then there was the rent-seeking phenomenon, rotting the system from the top. Writing a new secrecy law is like drilling and striking an oilfield. If your law is written right, the world’s dirty money will come flowing in, without much effort. The Polish writer Ryszard Kapuscinski describes the oil curse poetically, and well:
Oil kindles extraordinary emotions and hopes, since oil is above all a great temptation. It is the temptation of ease, wealth, strength, fortune, power. It is a filthy, foul-smelling liquid that squirts obligingly into the air and falls back to earth as a rustling shower of money. Oil creates the illusion of a completely changed life, life without work, life for free. Oil is a resource that anaesthetizes thought, blurs vision, corrupts.
People from poor countries go around thinking: God, if only we had oil! The concept of oil expresses perfectly the eternal human dream of wealth achieved through lucky accident, through a kiss of fortune and not by sweat, anguish, hard work. In this sense oil is a fairy tale and, like every fairy tale, it is a bit of a lie. It does not replace thinking or wisdom.
Does that remind you of crypto? Well, it’s a tax haven story too. The corruption in Jersey, John recalled, was spectacular. That’s another story (recalling my visit there in the Life Offshore chapterin Treasure Islands, I compared it to a cross between the English seaside town of Bournemouth, and oil-rich Equatorial Guinea.)
The parallels between the Jersey that John introduced me to, and my oil-in-Africa work on the Resource Curse, were obvious.
John had been calling this island sickness – the same sickness that had led Pat, Jean and Frank to call on him to fix their island – the Jersey Disease. I persuaded him of a better name, closer to the Resource Curse: The Finance Curse. And clearly these problems didn’t only apply to heavily finance-dependent jurisdictions like Jersey, but to finance-dependent Britain too.
We co-authored our first Finance Curse report in 2013, ten years ago now. (The picture on the front cover, by a local artist, provocatively shows jackbooted financiers in Jersey’s capital St. Helier.) By then, a significant amount of post-crisis academic research had emerged, by the IMF, the Bank for International Settlements, and if you plot it on a graph you find a curious banana-shaped relationship between finance and economic growth.
Here, crudely, is what the graphs seemed to say. Every country needs a financial centre: if you have an under-developed banking system, you will do well to develop it. More finance means a stronger economy, more economic growth. But there comes a point where your financial sector is doing everything that your economy needs. If the financial sector grows beyond this point, the growth benefits go into reverse. It starts harming your domestic economy, not just because of the brain drain and Dutch Disease effects, but as financiers chasing high returns start to develop more predatory activities, and inevitably start to prey on the domestic economy.
There’s no space to get into this here: suffice to say that this is a new story.
I took a couple of years off from the Tax Justice Network to write a book about it, The Finance Curse, published in 2018.It was well reviewed, got some attention, made the Financial Times economics books of the year list, and sold acceptably, but never had the success of Treasure Islands.
I’m curious to understand why. One reason is that – perhaps predictably – an academic counter-blast has pushed back against the Too Much Finance analysis, and now the picture is more complex, more contested. There is a whole research agenda to unroll here now. But there remains no doubt that, in essence, overly finance-dependent economies suffer awful drawbacks, and a more balanced economy where finance serves the economy, rather than the other way around, is likely to be a healthier, more resilient, more secure, less unequal, more democratic, less authoritarian and more prosperous place to live.
I strongly believe that Finance Curse is ultimately a more politically potent narrative than Treasure Islands, given that for powerful countries like the UK and US the former is a ‘this hurts them’ story about damaging other countries, while Finance Curse is a ‘this hurts us’ story: a much better basis for domestic action. With John and a couple of others we’re now making a film about this, and I plan plenty more work in this area.
The next phase: corporate power
Why am I leaving the Tax Justice Network? Because I’ve been captivated by another, related story.
Since 2016, I’ve been watching the emergence of a spectacular anti-monopoly movement in the United States. There’s no time to write about that here (see this, for instance, for an introduction.)
Basically, the US economy is massively monopolised, and a small bunch of people, principally journalists and lawyers, got together to tell a radical, even revolutionary new story, reaching back to old US anti-monopoly traditions and making them relevant for the digital age. With their combination of expertise and radicalism, they began having spectacular success, they began garnering huge media attention, challenging a corrupt old pro-monopoly establishment that since the 1970s had been embraced by Republican and Democrat administrations, until the disappointing Obama years, and beyond.
To cut a long and interesting story very short, one of those radical anti-monopolists, a former journalist and lawyer called Lina Khan, was in 2021 appointed Chair of the US Federal Trade Commission, the main agency that directly regulates corporate power. She, along with other radical anti-monopolists also appointed to key posts, is now leading a titanic struggle against the Big Tech giants, medical monopolies, concentrated farming structures, and much more besides.
There’s a long, long way to go on this, but that US movement has undoubtedly been even more successful than the Tax Justice Network. From when I began watching them, I could see many parallels with the early-years of the Tax Justice Network that I was part of: the power of a coherent, radical, expert-guided but public-facing story to change the world.
But there was always one question in my mind: why have we seen no matching movement anywhere else. In November 2019, I wrote a Tax Justice Network blog, entitled If tax havens scare you, monopolies should too. And vice versa. It may turn out to be the most important blog article I ever wrote. I sent it to Barry Lynn, the Director of the Open Markets Institute, a former trade journalist who kicked off the US movement with his book Cornered, and had among other things, incubated Lina Khan.
A little while later, I got an impatient email from a disgruntled UK competition lawyer, Michelle Meagher, who had also been wondering why there was no such movement. We soon decided to set up a new organisation, the Balanced Economy Project, to try and change this.
We spent the first year, 2021, mostly just talking to people: Michelle on a pro bono basis, and the Tax Justice Network supported me to do this, part time. Last year, Michelle went on maternity leave, and I spent much of the time building up the organisation with fundraising and recruitment – again, with a Tax Justice Network grant and other support. This year, we plan to start spreading this story. I stayed working with the Tax Justice Network, one day a week, until now. (We’ve already started collaborating – we and others will build on this collections of essays on Tax and Monopoly Power that we’ve already put together.)
Anyway, that’s why I’m leaving now. I’m immensely grateful to the Tax Justice Network over the years for everything it’s given me. I’ve had my disagreements with the organisation. The basic new tax haven story is now told, and so different approaches are needed. It’s a different organisation now, the priorities have changed, many for the better, I think. Our original tax justice movement-builders, especially in the earliest years, were mostly middle-aged or ageing white men (including some very difficult characters) – it’s no individual fault of our own for being middle aged and white, I guess. But we began to build a movement and narrative with far more inclusive goals. Now the Tax Justice Network is much more diverse, more professionally organised and funded, and seems to be a happy family.
But my own personality better fits the storytelling and start-up worlds, and I’m keen to return to the rawness, the risk, and the innovation that are needed to build movements. It’s time for me to move on to anti-monopoly: the next chapter for me.
So long, TJN, and thanks for all the memories.
Image credit: Mark Garner © captivation.de