How do tax havens negatively impact the American economy and positively impact other countries’ economies?
Quite what qualifies as a tax haven is in the eye of the beholder. In 1981 the IRS concluded that “a country is a tax haven if it looks like one and if it is considered to be one by those who care.” In many ways, the United States is the world’s largest tax haven.
For example, the US allows the purchase of shell companies that can’t be linked back to the real owner, something that has been banned in classic island tax havens like the Caymans or the Seychelles for over a decade.
The US benefits from being a tax haven in attracting foreign capital to the country, much of it the proceeds of crime, which is then invested in US real estate, the stock market, and the banking sector. When it comes to global financial transparency, the US gets to set global rules that are enforced against other jurisdictions, and then exempt itself.
Many people putting their money in tax havens, including the US, live in countries whose governments are predatory or corrupt.
- For example, most Russians and Chinese believe that in most cases their courts bow to the will of the government, regardless of what the law says.
Where there is no rule of law and property rights exist only at the whim of the ruler, those who can tend to move their money offshore. Thus much of the investment in havens is driven by fear rather than greed, though often both are in play.
What would the layman find most interesting and accessible within your research?
Both in my single-authored and joint work on corruption and money laundering have been based on a strategy of testing how rules work by trying to break them and then seeing what happens.
So for example we impersonated a range of would-be criminals via email and sought to buy untraceable shell companies prohibited by international law. In a few cases I actually bought such companies and then used them to open bank accounts. This is a pretty simple and direct strategy, but surprisingly it hadn’t been tried before.
What is the most interesting story in your academic career? Your greatest adventure, mishap, fortuitous incident etc.
My research often involves going to small, obscure places. I once got stuck in Nauru, a tiny and very remote Pacific island republic of 10,000 people, as the only plane that serviced the island broke down.
Per capita it had been the richest country in the world in the 1970s thanks to huge phosphate reserves. However the country blew its chances when everyone gave up working (and school), contracting foreigners to do the mining and provide all other services.
The phosphate eventually ran out, and for a while Nauru turned to being a tax haven, selling hundreds of banking licences to a variety of shady characters, which led to international sanctions against the country.
Finally, the government of Nauru staked the last of the national fortunes on sponsoring a West End musical in London about a supposed romance between Mona Lisa and Leonardo da Vinci. It bombed and the country went broke. I heard a lot of these stories when I was on the island, they don’t get many visitors.
With all the funding in the world, what would you have researched and how?
I wouldn’t actually need that much money to do my ideal research project. I’m interested in hiring mystery shoppers to go around the world looking to open bank accounts with a variety of financial institutions to see if they are actually applying the rules they should be. I don’t think it would cost that much, but the ethics clearance might be tricky.