Tax Havens or Financial Sinkholes?

James K. Boyce

Tax havens have gotten a lot of press lately. In Britain, the UK Uncut movement has mounted demonstrations across the country against tax dodging by large corporations and wealthy individuals – making the connection between profits parked abroad and deficits and budget cuts at home.

Last month in the U.S., The New York Times revealed that GE, one of the nation’s largest companies, earned 46% of its revenue in the U.S. over the last three years but booked less than one-fifth of its profits there, shifting most of its booked profits to low-tax countries. In 2010, taking advantage of loopholes in U.S. tax laws (for which the firm had lobbied Washington lawmakers), GE paid negative taxes: despite $5.1 billion in declared pre-tax U.S. profits, the firm received a $3.2 billion tax credit. This and other blatant examples of corporate tax dodging are inspiring the birth of US Uncut, an American cousin of the British movement.

The term “tax haven” is a euphemism, however, for two reasons.

First, “haven” carries the connotation of a safe refuge from oppression. As Nicholas Shaxson writes in his new book, Treasure Islands: Tax Havens and the Men Who Stole the World, tax havens “offer escape routes from the duties that come with living in and obtaining benefits from society.” They provide refuge not from oppression but from responsibility – the responsibility to contribute to the physical and institutional infrastructure of the economies in which the dodgers themselves make money.

Second, “tax” havens are not just about dodging tax. Money flows to these places not only to hide from the taxman, but also to hide from the law. As secrecy jurisdictions, tax havens allow asset holders to hide their identities from authorities in their own countries, and often from authorities in the secrecy jurisdictions themselves. For a modest price, front men, dummy corporations, and multi-layered transactions provide anonymity.

Shielding the loot of corrupt politicians, crooked officials, and organized criminals from discovery and recovery, secrecy jurisdictions act as financial sinkholes – places where vast sums of money flow between the legitimate world economy and the illicit underworld economy.

Tropical islands are the best-known secrecy jurisdictions. In a 2008 debate, presidential candidate Barack Obama cited a single building in the Cayman Islands that “supposedly houses 12,000 corporations,” making it “either the biggest building or the biggest tax scam on record.” That same year, a U.S. Government Accountability Office report revealed that Citigroup had 90 subsidiaries in the Cayman Islands alone.

But as Shaxson’s book makes clear, the U.S. and Britain are themselves big players in the secrecy game. Both countries welcome foreign money of dubious origins, with few if any questions asked.

The costs of financial sinkholes are borne by ordinary citizens throughout the world, not only by taxpayers in the industrialized countries but also by many of the world’s poorest people. In our forthcoming book, Africa’s Odious Debts, my colleague Léonce Ndikumana and I document the flight of $735 billion (in constant 2008 dollars) from sub-Saharan Africa from 1970 to 2008. Most of this disappeared into financial sinkholes; recorded African deposits in Western banks amounted to less than 6% of this amount.

To put Africa’s capital hemorrhage into perspective, the total foreign debt of the same countries stood at $177 billion at the end of 2008. In this sense Africa is a net creditor to the rest of the world: its external assets far exceed its external liabilities. A crucial difference, however, is that the assets are private and hidden, whereas the liabilities are public, owed by the people of Africa through their governments.

Much of the credit for growing public awareness of these issues goes to advocacy groups like the Tax Justice Network, Global Financial Integrity, and Global Witness, who have exposed the shadowy underside of the international financial system. Governments are starting to take more notice, too. In 2009 a Norwegian government task force produced a comprehensive report on how tax havens undermine development in low-income countries. In the U.S., Senator Carl Levin (D-Mich.) is championing legislation to clamp down on offshore secrecy jurisdictions and to get the U.S. out of the money-hiding business.

When the countries of the world joined together to eradicate smallpox a generation ago, they achieved a historic victory for global public health. International cooperation to plug the world’s financial sinkholes could bring a comparable victory for global economic health. This is a cause that can unite ordinary Americans and Africans alike.

46 Responses to “Tax Havens or Financial Sinkholes?”

  1. Dev Kar says:


    Thank you for sending me this article which is very well-written and informative. Articles such as yours show that the academia is beginning to recognize the harmful impact of tax havens on both developing and developed countries.

    If you happen to be in Washington DC please do contact us. We would love to meet you and discuss subject matters of mutual interest. All the best,

    Dev Kar

  2. James Garang says:

    Professor Boyce,

    This is a great piece and one that explains succinctly the danger of tax havens. It is high time that responsible governments address the matter. I hope your book will generate enough debate and bring the issue to policymaker’s attention.


  3. […] Tax Havens or Financial Sinkholes? TripleCrisis, April 18, 2011 […]

  4. […] ZDA pa so se očitno zdaj spomnili tudi davčnih oaz, prek katerih nadnacionalke in premožni posamezniki dobičke skrivajo pred davkarijo, medtem ko […]

  5. Jon Frate says:

    Firstly, much like the anti-climate scientists, anti-science religious nutjobs, and the quack-science faith healers, taxation is one of those things that’s complicated, and when a little bit of truth is mixed in with a little bit of conjecture and innuendo, the wrong conclusion can be reached.

    Secondly, considering the point above, you need to STOP perpetuating the MYTH that GE somehow cheated on their tax bill. Their accrued profit vs. tax bill as a result of writing off past losses was perfectly legitimate and no different than what bob the builder or joe the plumber might do in their small enterprise where they have a good year followed by a bad year, followed by a good year. You claim to be intelligent, and either you’re intentionally misrepresenting the complicated tax situation, or perhaps you’re not as intelligent on this subject matter as you claim and it’s time to educate yourself.

    Thirdly, GE has posted a response to all this baffle-gab that’s ricocheting through the blogosphere and that’s amplified by the quack-science, oops I mean quack-economist psuedo lefty or righty political class that wants to prove a point (the right says – GE cheats on it’s taxes, corporations are selling out America to get into bed with China, the left says – GE Cheats on it’s taxes, the right is selling us out to get into bed with Corporations). Neither is the truth. Here is the crystal clear explanation, I wish you would have read it before posting:

    Fourthly, your ethnocentric view of the world becomes transparent in the way that you feel other (smaller) countries need to structure their tax affairs. What business of yours is it if UngaBunga Land decides to deliver services by taxing consumption and not taxing income? Or better yet, what business of England or America is it if the Dominican Republic, Taiwan, Cayman, feel that their tax department collects enough money by taxing business that happens in their own country, and not taxing global income equally. Surely when the UK government gives tax incentives to property owners to remodel their homes, or when the non-dom rules are used to promote investment by Russian Billionaires, it benefits England, and the Dominican should have no say in dictating England’s Tax policy?

    Fifthly, what’s wrong with tax competition? If Cayman can operate by charging 3% taxation on income, then what’s wrong with this driving England to rethink it’s tax policy? Maybe next budget, they will stop silly wars into Libya and Iraq. hundreds of billions wasted building an empire abroad, maybe that money can be better spent on health and education, and taxes can be brought down as a result to compete for business?

  6. […] James Boyce suggests we refer not to tax havens but as financial sinkholes. The term “tax haven” is a euphemism. . .for two reasons. […]

  7. Dr. DIAS says:

    Most if not all these Havens are depositing Drug money, stolen funds from Governments, corporations, and of course the money launders who use the major international Banks at will!

    Most if not all large multinational corporations, banks and governments move $Millions if not $billions without any real control or oversight between each other!

    One good example, “How a big US bank laundered billions from Mexico’s murderous drug gangs”

    Yet, if you have $10,000.00 or more in cash in your hand it is confiscated immediately as illegal gain!

    Tax policy is now driven to take more, make more from the poor, the underprivileged, and the Middle class.

    All the while all large companies, corporations, the CEO’s, CFO’,( all the “O”), Management, and the big stock and bond holders pay little or no Taxes, period.

    These so-called wealthy elites really do not realize that they still have to breath the same air and travel on the same streets just like the rest of us.

    Money can only buy so much security and protection.

    It only took a few radical religious fanatics(less than a couple thousand) to cost this Planet’s Government $billions and now $trillions to have a very uneasy sense of security, that is really a shame and does not give any real security.

    The only safe and clean Place left for these overly corrupted greedy “O” is the moon!

  8. Jon D. says:

    Good rebuttal Dr. Dias,

    I completely agree with you that corporations have taken advantage of the corruption in third world governments to avoid paying their taxes at home. Only a hard line right wing nutcase would think otherwise. Just look at how much tax income was lost during the Bush tax cuts, all of which went to the so called “job makers”. Well I don’t see any jobs being made, just a lot of hoarding by filthy rich who are completely disconnected from the real world and the severe problems affecting it today. If anything is really going to change in this world, the rich supposedly well educated must step up to the plate and take responsibility for paying their taxes. If not third world poverty, our crumbling infrastructure in the U.S etc etc will get worse and this world will become completely unbearable to live in for the majority. The one issue blocking any real political decisions on this matter is the amount of money in politics that makes honest politicians into corporate cronies.

    Keep up the good work on this site, its an invaluable news source

  9. Hi, just required you to know I have added your website to my Google bookmarks because of your extraordinary blog layout. But seriously, I think your web site has a single with the freshest theme I’ve came across. It incredibly helps make reading your blog a lot easier.

  10. url shortner says:

    I have been surfing on-line more than three hours as of late, yet I by no means discovered any fascinating article like yours.
    It is lovely value sufficient for me. In my opinion, if all website owners and bloggers made good content as you did, the internet might be a lot more useful than
    ever before.

  11. Download and install Quantum From Solace Entire Movie-
    Free of charge And Lawful Way?

  12. I pay a visit day-to-day some sites and blogs to read posts, but this blog provides quality based articles.

    Feel free to visit my web-site; weight loss tips

  13. Max says:

    Someone were saying that money launders use offshore banks… Actually they own banks.
    Anyway, I have gone offshore since 1 year and happy with it. Here is who I can recommend as well known trustful provider: ICO SERVICES

  14. Thank you for any other magnificent post. Where else may
    just anyone get that kind of info in such an ideal approach of
    writing? I’ve a presentation next week, and I am on the look for such information.

    Review my page raze telecharger

  15. Hi there i am kavin, its my first occasion to commenting anywhere, when i read this post
    i thought i could also make comment due to this sensible paragraph.

    Also visit my web page; beyond outrage download

  16. Hello, i think that i saw you visited my blog thus i came to “return the favor”.I am trying to find things to improve my web site!I suppose its ok to use some
    of your ideas!!

    Also visit my blog … Cold Comes the Night Download

  17. I’m impressed, I must say. Seldom do I encounter a blog that’s both equally educative and amusing, and let me tell you, you’ve hit the nail on the head.
    The issue is something too few folks are speaking intelligently
    about. Now i’m very happy I stumbled across this during my hunt
    for something relating to this.

    Stop by my page :: pompei download

  18. This is the perfect blog for anybody who wishes to
    find out about this topic. You know so much its almost tough to
    argue with you (not that I personally will need to…HaHa).

    You definitely put a brand new spin on a subject that’s been written about
    for ages. Great stuff, just excellent!

    Feel free to surf to my web site – stalingrad download

  19. Great post but I was wondering if you could write a litte more on this topic?

    I’d be very thankful if you could elaborate
    a little bit more. Many thanks!

    My webpage That Awkward Moment download

  20. Ahaa, its fastidious conversation regarding this article at this place at this weblog, I have read all that, so now me also commenting at this place.

    Also visit my web-site … the truth about emanuel download

  21. It’s going to be end of mine day, except before
    finish I am reading this enormous post to
    improve my know-how.

    Here is my web page … date and switch download

  22. A person essentially lend a hand to make significantly articles I’d state.
    This is the very first time I frequented your web page and up to now?
    I amazed with the research you made to make this actual submit extraordinary.
    Excellent process!

    Here is my web blog :: childs pose download

  23. Hi my family member! I want to say that this post is amazing, nice written and come with approximately all vital infos.
    I would like to look extra posts like this .

    my web site :: generation war download

  24. An impressive share! I’ve just forwarded this onto a friend who had
    been conducting a little homework on this. And he in fact
    bought me breakfast because I discovered it for him…
    lol. So let me reword this…. Thanks for the meal!! But yeah, thanks for
    spending the time to discuss this issue here on your website.

    Here is my weblog At Middleton Download

  25. Hi! This is kind of off topic but I need some advice from
    an established blog. Is it very hard to set up your own blog?
    I’m not very techincal but I can figure things out pretty
    quick. I’m thinking about setting up my own but I’m not sure where to start.
    Do you have any ideas or suggestions? Thank you

    Also visit my site – in secret download

  26. I’m impressed, I have to admit. Seldom do I come
    across a blog that’s equally educative and engaging, and let me tell you, you’ve hit
    the nail on the head. The issue is an issue that too few folks are speaking intelligently about.

    I’m very happy I stumbled across this in my hunt for something relating to this.

    My website … G.B.F. Download

  27. I every time used to study article in news papers but now as I am a user of net therefore from now I am
    using net for posts, thanks to web.

    my web blog :: open grave download

  28. Ahaa, its nice discussion concerning this paragraph here at this website, I have read all that, so now me also commenting here.

    My web site … Devils Due Download

  29. I used to be able to find good info from your articles.

    my web site; repentance download

  30. Good web site you have here.. It’s hard to find high quality writing like yours nowadays.
    I honestly appreciate people like you! Take care!!

    Have a look at my web site – Crave Film Gratis

  31. Nice post. I used to be checking continuously this blog and I’m impressed!

    Very helpful info specially the remaining section :)
    I care for such information much. I used to be looking for
    this particular information for a long time.
    Thanks and good luck.

    Review my webpage – nurse 3D download

  32. funny images says:

    Pretty nice post. I just stumbled upon your blog and wanted to say that I have really enjoyed surfing around your blog posts.
    After all I will be subscribing to your feed and I hope you write again soon!

    My web site funny images

  33. Hmm it looks like your site ate my first comment (it was super long) so I guess I’ll just sum it up what I
    had written and say, I’m thoroughly enjoying
    your blog. I too am an aspiring blog blogger but I’m still new
    to the whole thing. Do you have any tips for beginner blog writers?
    I’d genuinely appreciate it.

    Feel free to surf to my web blog :: the selfish giant gratis

  34. Hey there, You’ve done an incredible job. I’ll definitely digg
    it and personally recommend to my friends. I am sure they will
    be benefited from this website.

    Feel free to surf to my page :: pompei film gratis

  35. What’s Happening i’m new to this, I stumbled
    upon this I have discovered It absolutely useful and it has aided me out loads.
    I’m hoping to contribute & aid different customers like its
    aided me. Good job.

    Here is my blog: vampire academy download

  36. Very shortly this web site will be famous amid
    all blog users, due to it’s good articles or reviews

    Look into my webpage :: Enemies Closer Gratis

  37. Hello, Neat post. There’s a problem along with your site in internet
    explorer, could test this? IE nonetheless is the marketplace chief
    and a huge component of people will pass over your great writing due to this problem.

    Feel free to surf to my web page: Paintings Gallery

  38. Pretty nice post. I just stumbled upon your blog and wanted to say that I’ve truly enjoyed surfing around your
    blog posts. After all I’ll be subscribing to your feed and
    I hope you write once more soon!

    my page … the christmas candle download

  39. Wow, incredible blog format! How lengthy have you ever been blogging for?
    you made running a blog look easy. The whole glance of your web site is magnificent,
    as well as the content!

    My blog post; out of the furnace gratis

  40. This design is steller! You definitely know how to
    keep a reader amused. Between your wit and your videos, I was almost moved
    to start my own blog (well, almost…HaHa!) Great job.
    I really enjoyed what you had to say, and more than that,
    how you presented it. Too cool!

    Here is my website – wrong cops gratis

  41. This is a topic that’s close to my heart…
    Best wishes! Where are your contact details though?

    Feel free to surf to my homepage … the best offer gratis

  42. Hello, just wanted to mention, I loved this post. It was funny.

    Keep on posting!

    Have a look at my web-site khumba film gratis

  43. Hello mates, how is the whole thing, and what you wish for to say regarding
    this piece of writing, in my view its genuinely awesome in support of me.

    Have a look at my page :: 300 naissance d’un empire telecharger

  44. No matter if some one searches for his required thing, thus he/she wishes to
    be available that in detail, so that thing is maintained over here.

    Here is my web site: n’importe qui telecharger