Offshore: Stealth Wealth and the New Colonialism, by Brooke Harrington, is a heavily-endnoted “Norton Short” of about 100 pages—at about half the length of Oxford’s VSI series, that makes Offshore a “Very, Very Short Introduction” to the perils and pleasures of covert wealth management, if you will. I found it to be an utterly compelling (and enraging) read, and would only fault it for its brevity (and since that is by design, I can therefore hardly fault it at all). It makes me want to read much more about this topic in general (fortunately there is a generous related readings section after the endnotes to assist with this), and more by Brooke Harrington in particular (I shall be moving on to her other, much longer at 400pp, work on the topic, Capital Without Borders: Wealth Managers and the One Percent very shortly), for the author proved herself to be a reliable tour guide to the many freeports out there, be they actually in Freeport, Bahamas, on other islands  in the former British Empire—one key sine qua non which makes offshore finance even possible—or elsewhere in copycat islands, city-states, and even American states (Delaware, Montana, and a few others being now leaders in “offshoring” attracting foreign capital from a rogues’ gallery of bad hombres the world over, as it happens)….

But I get ahead of myself.

The author, a professional sociologist at Dartmouth, states that she was inspired to immerse herself in the industry of private wealth management (no footprints division) by none other than one of sociology’s 20thC luminaries, C. Wright Mills, whose seminal work, The Power Elite, first charted the intermeshed workings of what we now call the “Revolving Door” via which professionals move from government work to the private sector and back again—and thereby maintain a plutocratic, oligarchic homeostasis over American life.

Professor Harrington also follows Mills’ method (“a hybrid of biography and scientific inquiry”) in performing her research into those who aid and abet the ultra-wealthy evade financial and legal accountability from mere nation-states, in that she chose to train as one of these professionals so as to immerse herself not only in their culture, but also in their professional and social networks: by training as an international “wealth manager” she both found out that they are perhaps better described as “secrecy experts”, and also gained sufficient trust with her colleagues that she nevertheless convinced seventy of these mandarins of the down-low to submit to interviews with her… What follows here is a bit more of a gloss on what she learned from this work than a review—so I’ll get the review part over with right away, right here: Offshore was a kind of amuse-bouche which made me hunger so for much, much more of the who-what-and-wheres (and how) of this unsavoury feast, a private function for that handful of the truly Elect that none of us Preterite many are invited, of course—though we are left to pick up the cheque after They “dine and dash”…

Since publishing her first, longer book on the topic in 2016, the Panama Papers (2016). Paradise Papers (2017) and Pandora Papers (2021) all leaked to some fanfare, but to surprising little legal action (much less results). Why this was so necessitates an understanding of how and why national governments not only turn a blind eye to the illegal financial activities of a relatively small number of individuals—a picture which, by the close of this brief primer, Professor Harrington ably sketches in rough outline .

“Conflict of Interest” is one important element in this: our politicians, plutocrats, and power brokers maintain an active interest in keeping offshore finance out of the public discussion, it seems:

For example, while David Cameron was prime minister of the United Kingdom, he famously railed against British celebrities who used offshore accounts to dodge taxes. But when the Panama Papers broke, the world learned that Cameron himself had concealed from British voters that he was the beneficiary of an offshore trust based in Panama City. Five years later, the Pandora Papers revealed that Czech prime minister Andrej Babiš—who had come to power as an anti-corruption campaigner—was laundering tens of millions of dollars he’d acquired through tax fraud, using a string of secret offshore structures in the British Virgin Islands, the United States, and Monaco to buy seaside villas in the south of France.

Furthermore, it remains the interest of offshore tax havens to keep business flowing, since for most of these low- or no-tax jurisdictions, fees and licenses associated with the industry contribute a substantial, sometimes overwhelming, slice of their annual GDP: many of these jurisdictions can actually be said to have been “taken over” by the local players in this industry, for all intents and purposes (Mauritius, the Bahamas, Jersey, and Luxembourg particularly shall be touched upon below).

But this is hardly a tale of backwater banana republics, however:

Because most of the world’s offshore financial flows pass through London and New York, both the United Kingdom and United States have fought hard to keep as much foreign capital in their jurisdictions as possible. For example, both countries use tax and profit incentives to make it extremely attractive for foreigners to buy real estate there, and to establish corporations and trusts to hold their assets […] For this reason, the business model of offshore finance has proven attractive to U.S. states with fragile economic bases, like Delaware and South Dakota. Much like postcolonial island nations, these states have little independent means to generate revenue, so they have loosened their regulations to make their jurisdictions appealing to foreign capital. While Delaware is most famous as a corporate tax haven, it also competes to attract the business of high-net-worth individuals, as does South Dakota. When these and a handful of other states changed their regulations to remove the time limit on trust funds (a highly secretive method of shielding wealth from taxes, debts, and other claims), they pulled in an additional $6 billion each in assets, generating an average 20 percent increase in business revenues for financial services professionals.

Even much larger American states have been complicit in helping Russian oligarchs funnel money into the U.S. at the very moment when they were ostensibly subject to harsh sanctions over the war in Ukraine: New York and Florida in particular “were helping foreign nationals circumvent both federal law and American foreign policy” at the time—and one suspects, perhaps in an ongoing capacity, since “patriotism and national cohesion are no match for the vast sums to be made undermining the international rule of law.” Thus it is (or at least seems) a bit ironic, then, that when the OECD attempted to rectify this situation in 2014 with a “Common Reporting Standard (CRS)” for international tax reporting, just take a wild guess as to which nation led the way in frustrating these efforts! (Hint: in 2013, it “didn’t even make the top five list of financial secrecy havens,” but by 2022, it “was ranked number one worldwide”….

Well, if you still haven’t guessed, consider it a secret, at least until you read this book for yourself. “Secrets” after all, is almost Wealth’s secret, pet name: as the 19thC German sociologist Georg Simmel observed, this loving couple walk “hand in hand”:

The kind of inequality that endures and grows over generations, in which the rich get richer while the rest languish, thrives best when least examined. Secrets themselves can be a kind of wealth: Simmel called them “inner private property.” Like gold and jewels, he wrote, some secrets adorn the possessor and signify to others “I have something which you do not have.” It seems an apt metaphor: as the rest of us are more surveilled than ever before, the secrecy offshore finance provides has become a luxury status symbol as well as an invaluable tool for maintaining power.

Once you have all the money and power, and manage to not only maintain it but watch it grow ever-larger (tax free!), of course, you might find yourself losing whatever common ground you may or may not once have had with all those little people back home: Professor Harrington calls thisa kind of new feudalism (echoing the Yanis Varoufakis book, I wonder?) in which today’s new -money neo-aristocracy passes down to the next generation a craven, crass, predatory “noblesse without the oblige” (one wealth manager tells her that their clients believe “they are descended from the pharohs and destined to inherit the earth”), since our new self-styled “wealth creators” now feel that they are under no obligations whatsoever toward those societies which not only permitted their vast accumulation, but indeed made it even possible.

Like Dickens’s Bounderby in Hard Times, they were literally born with silver  spoons in their mouths but try to convince others as they have convinced themselves: they are “self-made m[e]n” to a man. Witness Eong Musk parlay a relatively small  mining inheritance into gazillions via “$6.7 billion in federal cash infusions and regulatory credits” and former Starbucks CEO Howard Schultz pull himself up by his own Munchausening bootstraps out of the derelict swamplands of “federally subsidized housing” of his youth to say “no one gave it to me”!

But our Dickensian tale of inequality goes back still further in time, to an Origin Story in the

seventeenth-century heyday of piracy in the Atlantic Ocean, in which “plunder economies” arose from the aggressive theft perpetrated by figures like Henry Morgan, namesake of the well-known Captain Morgan rum brand. His method of wealth accumulation based on international networks of theft and predation survived only because there were place

to cache the plunder: depots known as “pirate nests.” On the peripheries of colonial outposts—including in American mainland and Caribbean colonies that later became offshore financial centers—local elites often helped the pirates protect their ill-gotten wealth from the law back in their home countries, in return for a share of the spoils.

So we are not talking about capitalism, then (in Smithian and Schumpeterian  theory, perhaps, if not quite in practice: the pursuit of profit via innovatory production spurred on by competition which is enforced by an economic law of survival of the fittest—and the “creative destruction” of the weak and inefficient), but predation. As chief predator, Peter Thiel has said, in the brave new world of ultrawealth accumulation, “competition is for losers”, but welfare is for corporate bailouts and subsidies, not for people—a “heads I win, tails you lose” con game in which you “lobby” (bribe, or au moins donate to) legislators to deregulate your industry while “looting the public purse” at the same time:

 The 2008 global financial crisis exemplified this economic model. The collapse originated with the failure of two offshore hedge funds based in the Cayman Islands. Even by financial industry standards, the funds had taken on reckless amounts of debt and risk trading in barely regulated securities that few people understood. MIT finance professor Andrew Lo called them “among the most secretive of financial institutions,” and this was key to their destructive potential. With minimal transparency or oversight, the Caymans incubated the seeds of a catastrophe whose impact reached far beyond the economic realm.

Though an estimated $50 trillion was wiped off the global financial map (“one full year of global GDP”), and austerity was subsequently imposed throughout the EU and UK, “only one top banker” was ever held to legal account—a “socialism for the rich” jackpot which cost every American taxpayer “70,000 in lifetime income”.

How our new feudal overlords managed this feat has quite a history, but it has something to do, Professor Harrington maintains, with a theory of Max Weber’s, of how Europe first made the transition to capitalism and why it occurred in Europe and not in the then-more-prosperous middle- and far-east (for an alternate, to my mind more persuasive, view of this “transition debate”, see my post on the work of Ellen Meiksins Wood over on my Longreads site):

A century from now, as economists like Thomas Piketty have shown, the richest members of society will simply be the descendants of today’s wealthiest people—a return to quasi-feudal conditions.

The reduction of capital flow and the stagnation in upward mobility caused by keeping wealth in the hands of the same families over generations have long been identified as antithetical to capitalism. These problems were central to Max Weber’s theory about why capitalism arose when and where it did: among a fringe group of Calvinist merchants in Western Europe, rather than in the seemingly more promising environment of the great trading empires of Asia, Africa, and the Middle East. The Ottoman Empire, for example, would seem fertile ground for capitalism to have emerged, thanks to the fabulous wealth it accumulated from commercial networks that spanned three continents and brought the coffee and tulip bulb crazes to Europe in the seventeenth century.

What held the Ottomans back, Weber wrote, was not any lack of commercial acumen but their invention of the vakf: a legal structure that allowed wealth to be locked up in the hands of elite families, generation after generation. While the vakf was supposed to consolidate capital for charitable purposes, its use as a means of transmitting wealth through inheritance helped to create a rentier class among the Ottoman elite. This meant that they lived on income from property and investments, without creating any new value in the economy. The result was stagnation instead of the dynamism required by capitalism. “The very persistent immobilization of accumulated wealth in the form of vakfs,” Weber wrote, “was of very great importance for the economic development of the Orient … which used accumulated wealth as a source of rent, not as acquisitive capital.”

Transition debates aside, what Professor Harrington is implying is that it is our current legal structures in our “offshore” financial zones (however far inland they may be) which have helped create and now effectively maintain this new, feudal accumulation of rent (as distinct from capitalist profit).

Feudal lords were not just extractors of ground rents from the peasantry, were not merely piratical predatory plunderers,  they were also the political powers of their fiefs in their day, and so too does such concentration of wealth undermine the very practices of liberal democracy :

The economic power that can be amassed through the offshore system gives a small group of individuals outsized leverage vis-à-vis state power. For example, a former economic adviser to the government of the Channel Island of Jersey—one of the world’s most popular tax havens—reported that “superwealthy people … can actually negotiate the tax rates they pay” by arranging secret deals with island officials.

And in the specific case of Jersey, as we learn still later in the book, the superwealthy even managed to suppress all legal inquiry into horrific levels of abuse of children on that island—such is their power to bend, even subvert justice and the very political system entirely, as the 2016 Brexit and Trump campaigns showed (to take but two of numerous examples provided by the author): for both of these featured massive “contributions from both Russian and American oligarchs”.

Oligarchs, though: who even are  these people? Well, besides the more (and somewhat less)  public ones like Musk (and Schultz, and Thiel), our “cast of characters” in pursuit of libertarian “self-government” includes “castle-owning members of ancient continental European aristocracies, fanatical supporters of American libertarian writer Ayn Rand, members of the world’s intelligence services, global criminals, British public schoolboys, assorted lords and ladies and bankers galore.”

Thiel in particular deserves further mention (not least because of his display of remarkable levels of ignorance unveiled via the 20-something opponents at the Cambridge Debating Union of late***) for “demand[ing] radical freedom for [himself], while backing authoritarians to rule over the rest of us.” For antediluvian patriarch Thiel, the deluge occurred in the 1920s, when women in western nations finally achieved suffrage after decades of struggle. He wrote:

The 1920s were the last decade in American history during which one could be genuinely optimistic about politics. Since 1920, the vast increase in welfare beneficiaries and the extension of the franchise to women—two constituencies that are notoriously tough for libertarians—have rendered the notion of “capitalist democracy” into an oxymoron.

Thiel is emblematic of the ultrawealthy generally, who now largely view democracy as outmoded and themselves as “postnational” anyhow, since as one wealth manager tells our author, “they all know each other” and they have “a lot more in common with each other than with the people of their own countries.” What’s more, many of them are devotees not only of the likes of Ayn Rand and other assorted intellectual charlatans, many of them refer repeatedly to one book in particular, of of Thiel’s six favourite all-time tomes, The Sovereign Individual, which like a pool of dark water reflects back to these self-fond navel-gazers their own self-image as being god-like, and superhuman, since, as the book itself maintains, “Commanding vastly greater resources and beyond the reach of many forms of compulsion, the Sovereign Individual will redesign governments and reconfigure economies.”

As I said earlier, it is a certain legal structure which facilitates such delusions of grandeur as well as, alas, the actual accumulation of much ill-gotten booty: the Common Law Trust, which derives from the Norman Conquest of 1066 and U.K. Common Law, literally involved an aristocrat handing over his property to a trusted intermediary so that he might evade taxation at the hands of his king. Add to this the freebooting predilections of British mercantile ships in the 16th and 17th centuries as well as the low tax-rates imposed upon British colonies (several magnitudes lower than those imposed by, e.g. the Spanish), and we have the beginnings of an “operating system” for present-day offshore finance. But something else in Common Law deserves pointed mention:

Common law functions in a fundamentally different way from civil law: the tradition derived from the Romans, still dominant in continental European countries and their former colonies. Crucially, common law is less restrictive and much more flexible to innovation than civil law. This makes common law better suited to performing what legal scholars call the “tricks” for “manipulating facets of ownership” that make offshore secrecy possible. The civil-law system works like the children’s game “Mother, May I,” in that it spells out precisely what is permitted; everything else is by definition prohibited. Common law works in the opposite way: it establishes what is forbidden and implicitly permits everything else. Unlike in civil law, the boundaries between legal and illegal conduct can shift readily based on decisions of common-law judges in different times and jurisdictions. This allows offshore financial centers to compete with one another by tailoring their laws to the changing needs of the ultra-wealthy.

The fact that Common Law is also British is a helpful aid to the air of global “respectability” of the entire system, as is its ultimate Court of Appeal for present British protectorates in particular: the Privy Council in London (whose financial “City”, perhaps of second importance to our story of money laundering after New York’s Wall Street—such that elsewhere in this book it is reported as now sporting the nickname “Londongrad”—is itself largely distinct from and treated much separately from the rest of the U.K., which are best by decades of persistent stagnation, and, since Brexit, even significant decline).

And the particular innovation which is so crucial to our “operating system” that its code has been replicated in offshore zones which lie far outside the British Commonwealth is, as I have mentioned above, the Trust.

Trusts are private agreements in which assets are legally owned by one person (the trustee) while being used by someone else (the beneficiary). In many countries, trusts are not required to register with the state, meaning they can exist in secret; in contrast, corporations and foundations must register and deliver periodic reports on their assets and governing personnel. Furthermore, unlike corporations and foundations, trusts are not legal entities in their own right, meaning that they can’t go bankrupt or be sued. Finally, the wealth contained in a trust may accumulate with little to no taxation when trustees are based—as they often are—in one of the many low- or nil-tax jurisdictions of the former British colonies.

But how British protectorate and former territories became the hosts to said Trusts is partly a tale of decolonization (making sure these islands had some kind of “industry” so that they could pay their own way instead of dragging an ailing Britain even further down), but also one of Re-colonization (of the penetration of the governments regulatory systems of the former colonizers by the ultrawealthy who themselves had—sometimes literally, as in the Bahamas—seized the seats of governments in the colonies themselves: first in the 1960s with the British Virgin Islands (and their untaxed, unaudited, un-book-keeperly shell corporations named, yup, “BVIs” ), then the previously-near-derelict Cayman Islands, and the Bahamas, home of pirate, galore since 1492 (and, with the smart money fleeing crisis America, since 1776 and 1865). Long known also as a “free” zone in which otherwise “mercantilist” countries (whose colonies could only trade with motherland ships) could trade with one another, it also became a site of legal evasion in the 20th century under Prohibition and the New Deal, when Rumrunners and Billionaires rubbed shoulders and sought shelter from the long arms of the U.S. AFT and IRS.

Even more important to Professor Harrington’s exeplary tale of the Bahamas, however, was one man in particular, the felon and tax-dodger Wallace Groves, who fled to and then transformed (and, more than kinda-sorta, even owned, via a now classic tale of “acquisition through dispossession”) the Bahamas into the very “archetype of the tax haven”, in that, as one local journalist put it at the time, it promised wealthy foreigners that they could:

1.     Opening up secret bank accounts;
2.     Purchasing shell companies for given transactions;
3.     Interposing unrelated third parties (in the Bahamas), usually on a commission basis, for terminal tax-avoidance purposes; and
4.     Fabrication of pre-dated agreements, commitments, invoices, etc., to accommodate income diversion to the Bahamas.…

The reporter adds, beneath their list: “At best, most are on the fringe of the laws of the high-tax country being deprived of the income and thus, give rise to questions of morality.”

I won’t belabour you here with much more from the book: though brief, it is yet sufficiently replete with details a-plenty as to not only depress you immensely, but also to stimulate, I think further inquiry. But I shall end with two passages which stirred the embers of my antipathy towards this kind of industry (those cynics who abet our ruination and who yet, Professor Harrington maintains, may well be, if we pressure them all-too-subject to shame and obloquy) and these kinds of people (those who would rather watch the world end from their bunkers than lift a finger to save it—as the author quotes Douglas Rushkoff, who spent time amongst a number of them).

One of these passages somewhat complicates what I feel about President Trump’s recent boasts about seizing the Panama Canal, and reminds me that I must learn a lot more about the subtleties and specifics of this topic before I know anything at all:

[…] because it sits on a geographical choke point in the global economy, the Panama Canal, the country has withstood decades of international pressure to curtail its involvement in the offshore financial services business. A wealth manager I interviewed there explained:

The OECD threatens to blacklist countries that don’t share tax information, but … Panama has leverage. It has something called the Retaliation Act—allowing the country to use economic leverage to fight back against attacks. In practice, that means shutting down the canal. This is especially important with the U.S., which has had a Big Brother relationship with Panama for more than a century. So Panama has a credible threat to use against strong-arming from the OECD and America: the country can shut down the economy of the U.S. East Coast if they want.

This way of reframing Panama’s offshore financial services business as a form of postcolonial resistance also recasts any regulatory effort from the international community as “economic imperialism.” I encountered this rationale elsewhere in my journey around the offshore world, and other scholars—like political scientist Jason Sharman—have written whole books about it. To be sure, the offshore financial services industry allowed former colonies to turn the tables, enabling them to exploit the colonial metropoles by draining their wealth and undermining their laws. But what might have been a “revenge of the colonized” story doesn’t have such a satisfying conclusion: instead, the former colonies end up selling impunity to global elites while offloading the costs of society onto their own local populations.

The other of these passages reminds me that we have much work to do politically: by learning as much as we can about what the ultrawealthy would prefer to remain very much in the shadows and then by discussing this as good citizens needs must do with hopefully similarly-informed friends, neighbours and family members, we might hopefully evade what I fear might well be our fate: succumbing to the temptations of fascistic demagoguery because it is easier to blame a scapegoat (an immigrant, a foreigner, a minority) than to grapple with the complex root causes of what ails us:

But many people, even in what used to be considered stable, developed Western democracies, sense that something is really wrong. They vote, but their political leaders seem to ignore them; they pay their taxes, but their hospitals and schools are being closed, or the quality of services is plummeting. They work hard, but their social, political, and economic systems don’t seem to work for them. In this sense, the offshore financial system is Colonialism 2.0, with much of the exploitation and injustice of the original version, updated with a postmodern twist: the colonizers are no longer the agents of individual nations but instead represent borderless capital, and the colonies they exploit include much of the “free” world. Worse yet, the vast majority of the colonized have no idea that they are being preyed upon by an offshore elite that has largely liberated itself from the concept of nationality, except as a convenience to protect their property rights.

Unlike the original version, Colonialism 2.0 is “de-territorialized,” meaning that power is exerted by actors—both individuals and organizations—who aren’t tied down or locatable in any particular place. The same can be said of their wealth. The organizations, mostly companies, are multinational. The individual elites obtain and abandon citizenship as it suits them. For both groups, their assets move more or less frictionlessly to whichever locale offers the best opportunity to grow without constraints, such as taxes and regulations.

The original subjects of colonialism could locate the people exploiting them, and even see them face-to-face. That isn’t possible now. Demagogues and fascists thrive in such conditions, because no one needs to be convinced that society is falling apart: they just want to be told whose fault it is. So instead of colonial revolts, we get populism and pogroms. This is where offshore intersects with the global rise of anti-democratic authoritarian movements, as economist Thomas Piketty and historian Ruth Ben-Ghiat have pointed out. Even in a world beset by conspiracy theories, it’s remarkably difficult to convey how much of what’s wrong with democracy and capitalism is due to the distortion of those systems by private capital flowing around the world in secret. It is much easier to convince people that the problem lies with individuals they can see: perhaps immigrants or those who worship differently. One of the most important tasks for modern sociology is to counteract this simmering “war of all against all” by exposing some of the systemic sources of these conflicts.

Let us not go to war, my friends—or at least, not against the wrong foe(s).