The Panama Papers, a cache of 11.5 million leaked documents belonging to the law firm Mossack Fonseca in Panama, has implicated dozens of world leaders and celebrities in offshore banking and tax evasion. And yet these revelations are small when compared to the actual size of global financial crime. Panama, after all, is only one of more than 90 financial secrecy jurisdictions around the world today, compared with just a dozen or so in the early 1970s. Together, as of 2015, they hold at least $24 trillion to $36 trillion in anonymous private financial wealth, most of which belong to the top 0.1 percent of the planet’s wealthiest.
These “treasure islands” are not limited to sultry tropical paradises such as the Bahamas, Anguilla, Aruba, Barbados, Belize, Bermuda, BVI, the Cayman Islands, Panama, St. Lucia, St. Kitts, and St. Vincent. They also include much older traditional European havens, including Andorra, the Channel Islands, Cyprus, Gibraltar, the Isle of Man, Jersey, Guernsey, Liechtenstein, Malta, and Monaco. There are also many other newer, even more remote, havens, including the Cook Islands, Mauritius, the Marshall Islands, Nauru, the Seychelles, and Vanuatu. For certain purposes, several reputable “onshore” secrecy jurisdictions—the City of London, Switzerland, Delaware, Nevada, Luxembourg, Dubai, Singapore, Malaysia, and Hong Kong—have also become important members of the pack.
The basic role of such treasure islands is to rent their sovereignty to wealthy foreigners. They provide anonymity for financial and corporate capital, intellectual property, and non-financial assets, helping to put the foreigners’ offshore private wealth beyond the reach of taxes, regulations, and law enforcement.
But here is the catch: most of this wealth is not actually invested in the treasure islands themselves. The reason is simple: the very things that make the islands good places to stash money also make them dangerous places to do so. They generally have tiny capital markets and loose financial regulations; they are home to regulators, police, and judges who are not quite as impervious to back-door influences as First World enforcers. So tax dodgers like to be able to count on reliable legal frameworks and the rule of law when it comes to protecting their investments. They also prefer to invest in places with liquid markets, access to top-flight investment managers, and financial and political stability.
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