In our fourth seminar of the semester, the CSMCH teamed up with the new Edinburgh Centre for Global History to invite Vanessa Ogle (Berkeley) to talk about her work on offshore tax havens. She used the Centre’s theme of ‘space’ to deliver a masterclass in how global history can be done effectively and innovatively. You can read Anita Klingler’s succinct seminar report, or listen to the recording via the Audiomack link below or via the CSMCH podcast channel (on iTunes or wherever you get your podcasts).
The topic of Vanessa’s talk was the emergence of so-called tax havens over the course of the twentieth century and her central argument was that decolonization, besides being a political, social, and cultural process, should also be viewed as a financial event.
In view of the constantly expanding nature of global capitalism, Vanessa’s work is underpinned by impressively extensive archival research, literally all over the globe, from Europe, to Australia, to the Bahamas and back. She began her talk by pointing out that the ‘offshore world’ consisted of four distinct elements: tax havens, with very low tax rates, special rates for foreign businesses, and strong bank secrecy laws; secondly, offshore finance; thirdly, ‘flags of convenience’ registries; and lastly, free trade zones. Her paper would focus on the first of those four elements, tax havens.
Their emergence, as Vanessa pointed out, was largely a product of the First World War and the postwar world. Many countries, the UK among them, raised or introduced new taxes during the war, thus prompting the development of tax havens in the Channel Islands and other locations in Europe. The second wave of tax haven development followed after the Second World War, particularly in the North Atlantic world, the Caribbean, and South-East Asia. In a third wave, further tax havens sprang up in the Pacific world in the 1980s and 1990s. From the 1980s onwards, Vanessa remarked, recalling Hannah Arendt’s arguments on colonial violence, financial instruments developed in the (formerly) colonial world began to make their way back to the metropole.
What Vanessa’s research led her to discover was a correlation between the moment when former colonies gained independence and a noticeable effort to move capital out of those places and into known tax havens. Her first example of this was the Swiss National Bank which, in the second half of the 1950s, began to notice an increasing number of foreign banks requesting permission to open in Switzerland.
Among them, were two Moroccan banks operating out of Tangier. Following the effective partition of Morocco in 1912, Tangier was brought under international governance and developed into a tax haven. When it was reunited with newly independent Morocco in 1956, however, Tangier stopped being attractive as a tax haven and capital was systematically moved elsewhere, for example Switzerland.
One of Vanessa’s slides, as simple as it was striking, listed some fourteen cases in which her archival research has allowed her to retrace similar capital flows from formerly colonised countries to international tax havens, at the very moment of upheaval in those areas and/or national independence for those countries.
During the first wave of decolonisation following the Second World War, in particular, places which had a significant European settler community witnessed the exodus not only of the European settlers themselves, fearing violence and repercussions under the new independent regimes, but also of their money. Examples which Vanessa discussed included that of capital being shifted from Kenya, in view of the Mau Mau Uprising, and Rhodesia to Caribbean tax havens such as the Bahamas; as well as white South Africans who decided to move to the UK, especially following the Sharpeville massacre of 1960, but chose to move their liquidated assets to Gibraltar instead.
There was an awareness that these processes were going on even at the time, which earned the capital thus shifted the moniker ‘funk money’. Banks in emergent tax havens in fact made active efforts to attract capital, for example in Malta, which, while still under British control, offered pensioners who settled there very low taxes. Other groups which were targeted specifically by banks were minorities, such as the East African Indian population or Christians living in North Africa, who feared future political developments.
In another striking display of numbers, Vanessa pointed to the vastly different tax rates between (former) colonies and the metropole; a discrepancy which, in her analysis, led to the creation of a taxation culture which tried to avoid repatriating wealth, for example to the UK, and move it into tax havens instead.
Vanessa ended her talk by explaining that the channels created by bankers between the developing world and international tax havens continue to be used today by corrupt local elites to move their assets out of their countries, causing these economies significant losses in tax revenue and exacerbating their economic difficulties. In the end, the question of who had had the power to buy up the assets which were being sold at the end of Empire, has in fact set up power structures in the decolonised world which endure today, lending strong credence to Vanessa’s argument that decolonisation was a financial event.
Vanessa’s talk was followed by a brief comment by Martin Chick (Edinburgh). He reminded the audience that individuals who had fixed assets in colonial settings, such as land or houses, and chose to liquidate them when moving elsewhere, had virtually no incentive to move their money to places like the UK or France, as both countries were, up to the late 1960s, active in nationalising industries. There were therefore good reasons not to want one’s assets in the developed world, and, depending on one’s approach to risk, investments outside the developed world were much more attractive. The stability of the Bretton Woods system thus encouraged the development of overseas tax havens where its rules did not apply. Following the end of the Bretton Woods system in 1971, however, tax havens did not begin to disappear, but continued to flourish instead. Martin ended by observing that the ‘funk money’ flowing freely around the world in the last few decades has had the effect of driving up asset prices globally.
In the question and answer session, audience members invited the speaker to share her reflections on the political-ethical dimensions of her research project. How can or should historians position themselves while also avoiding writing a ‘how-to’ manual on tax evasion? Further, related, questions addressed the changing culture of ‘scandalisation’ around tax evasion; and possible solutions to this ongoing phenomenon. While our speaker was too wise to make predictions about the future, some of Vanessa’s suggestions focused on the necessity for a certain political moment, which, in her analysis, the growing discourse on inequality since the financial crisis of 2008 has potentially provided, and in which changes to legislation might be possible. Nevertheless, the cycle of plugging existing loopholes while bankers and lawyers try to find new ones will likely continue as a constant game of cat-and-mouse.
Anita Klingler is a PhD student in History. Her research interests lie broadly in twentieth century European history, political and colonial violence, and coming to terms with a violent past. Her thesis compares attitudes towards political violence in interwar Britain and Germany. She is a CSMCH steering committee member.