Treasure Islands

When you think of globalization, you might picture trade, technology, or travel—but the real engine of global inequality runs through offshore finance. In this book, the author argues that the offshore system is not a fringe network of palm-fringed havens, but a core architecture of modern capitalism. It allows corporations, billionaires, and political elites to escape accountability, move wealth invisibly, and shape national policies from the shadows.

The term offshore describes more than geography—it is a mentality of escape and secrecy. It builds legal and financial structures that help money slip beyond the jurisdiction of the state that created it. The result is a “world elsewhere” that exists everywhere and nowhere: trusts in Jersey, shell firms in the Caymans, Eurodollar accounts in London, bearer bonds in Luxembourg, and Delaware LLCs in the U.S. Each piece has a legitimate veneer, yet together they form an ecosystem that redistributes wealth and power upward.

From Keynes to the Offshore Age

To grasp what this system replaced, you have to revisit John Maynard Keynes’s postwar vision. At Bretton Woods, Keynes helped design capital controls and exchange-management systems so democratic governments could pursue full employment and social stability without fear of capital flight. But beginning in the 1950s, the City of London began unpicking that system. The creation of the Euromarkets—a space where U.S. dollars could be traded offshore, free of regulation—marked finance’s “great escape.” Banks discovered they could keep one regulated book onshore and another offshore, unleashing leverage and risk without oversight. By the 1970s, hot money was flowing freely, undermining Keynes’s entire framework.

That opening in London spawned the broader offshore network that now wraps the world like a spiderweb. Britain’s Crown Dependencies (Jersey, Guernsey, Isle of Man) and Overseas Territories (Cayman, Bermuda, BVI) became the “capillaries” feeding London’s financial heart. Each jurisdiction specialized: Jersey in trusts, the Caymans in hedge funds, Bermuda in insurance—all feeding profits back into the City while preserving legal distance from scrutiny. This imperial-era design remains a defining feature of the offshore system.

How the System Works

Offshore, you don’t break laws—you change which laws apply. A company or individual can incorporate in one jurisdiction, transact in another, bank in a third, and hold assets in a fourth. This fragmentation of accountability ensures that no single regulator sees the full picture. Tools like trusts and shell companies hide beneficial owners; transfer pricing and treaty shopping move profits to low-tax conduits; secrecy laws block investigation. Cases like the Elf scandal in Gabon, the Vestey brothers’ offshore trusts, or Angola’s oil-for-debt Abalone affair show how this infrastructure channels national wealth into private pockets.

In practical terms, offshore finance lets multinationals pay near-zero tax while local businesses and citizens fund the public realm. It drains developing countries: between 1970 and 2008, Global Financial Integrity estimated over $850 billion in illicit outflows from Africa, with similar losses across Asia and Latin America. The offshore economy thus becomes a reverse aid system—from poorest to richest.

Culture, Politics, and Capture

The machinery of secrecy is held together not only by laws but by culture and ideology. Inside havens, compliance officers and bankers internalize rules of silence—don’t ask, don’t reveal, don’t rock the boat. Whistleblowers face exile, harassment, or imprisonment, while regulators often depend socially or economically on the industries they oversee. This creates a moral vacuum where avoidance feels normal. Meanwhile, powerful lobby groups such as the Center for Freedom and Prosperity and think tanks like the Heritage Foundation construct an ideological defense around “tax competition” and “economic freedom,” reframing avoidance as virtue.

This propaganda pays off. In the early 2000s, U.S. opposition gutted the OECD’s initiative against harmful tax competition, watering it down to “on request” information disclosure—an almost useless measure. Offshore interests have learned to speak the language of liberty even as they erode collective welfare.

The Human and Systemic Cost

Behind every faceless shell lie ordinary costs: hospitals unbuilt, schools unfunded, and societies hollowed out. Offshore mechanisms enable capital flight that dwarfs aid flows—for every dollar of aid entering developing countries, roughly ten leave illegally. The result is not just economic inequality but democratic decay. When elites can remove their wealth from the polity, they lose incentive to build functioning states. Offshore finance thus becomes both an economic drain and a moral hazard that destabilizes nations.

Paths to Change

Yet the book insists reform is possible. The solutions are technical but political: country-by-country reporting so each firm discloses profits and taxes per nation; automatic exchange of information to end “on request” secrecy; robust laws on beneficial ownership; and reforms of the accounting profession to reduce capture. Onshore measures like land-value taxation and resource dividend models could help keep revenue grounded where value is created.

Ultimately, the greatest change is cultural. Tax should be seen not as theft but as investment in collective well-being. Finance must serve democracy, not the reverse. Offshore’s greatest illusion is that it is too complex or inevitable to fix. As the book shows, it was built by deliberate policy choices—and with equal deliberation, it can be unmade.

At its core, the offshore world is an architecture of secrecy. It hides the people behind the money and the money behind complex legal forms. What matters is not where these structures sit physically, but how they function.

How Offshore Works

Four main tools underpin this system. First, shell companies—entities that exist only on paper, often operating from a mailbox in Belize or a shelf company warehouse in Delaware. Second, trusts—legal devices that separate ownership from benefit, letting wealth pass invisibly across generations. Third, nominee directors and bearer shares, which mask real controllers. Fourth, jurisdictional layering—routing funds through multiple havens (e.g., Panama → Bahamas → Cayman → Luxembourg) to fragment any audit trail.

Together, these tools let wealth vanish from legal oversight. In cases like the Elf oil scandal or Nigeria’s Abacha regime, investigators found trails leading through half a dozen havens, each claiming limited jurisdiction. Prosecutors saw fragments of wrongdoing but never the whole web.

The British Spiderweb

Nowhere exemplifies this better than the City of London. More than a square mile of bankers and brokers, it is the command center of a network spanning Crown Dependencies (Jersey, Guernsey, Isle of Man) and Overseas Territories (Cayman, Bermuda, BVI). These jurisdictions act as secrecy satellites, pooling global capital and channeling it into London’s markets. The City profits from transactions while maintaining diplomatic distance from scandal—a system born of empire but thriving in globalization.

The City’s power endures through its unique governance: the City of London Corporation operates as a semi-sovereign entity with ancient privileges, its own Lord Mayor, and a permanent parliamentary lobbyist called the Remembrancer. This constitutionally protected autonomy helps the City shield its network from reform.

Insight

Elsewhere becomes nowhere: the essence of the offshore system is to divide information so that no authority sees the whole truth.

America’s Onshore Havens

The U.S. is not an innocent bystander. Through International Banking Facilities (IBFs), permissive state laws, and weak beneficial ownership rules, America recreated offshore structures domestically. Delaware, Wyoming, and Nevada offer anonymous company formation indistinguishable from the Caymans. Robert Rubin’s “Qualified Intermediary” program allowed foreign clients to maintain secrecy while Americans were scrutinized, effectively turning U.S. law into a selective secrecy service.

As one observer noted, “Ugland House in Cayman looks scandalous, but 1209 North Orange Street in Delaware houses more companies than residents.” This duality blurs the boundary between onshore and offshore, showing that secrecy is a political choice, not a geographical accident.

Understanding this architecture helps you spot red flags: disproportionate use of trusts or shell firms, offshore subsidiaries with no staff, or financial filings showing implausible internal trade prices. These clues point to the hidden plumbing of global finance—a system designed not to serve productivity but to make ownership invisible.

While secrecy shrouds individuals, the offshore network’s greatest achievement is helping multinational corporations shift profits beyond taxation. The technique hinges on paper transactions that transform real economic activity in one country into phantom profits in another.

Transfer Pricing and Tricks

Intra-company pricing—the rate one subsidiary charges another—becomes the escape hatch. When a company like Google or Starbucks sells intellectual property to a subsidiary in Ireland for a token amount, then charges royalties back to itself worldwide, profits move to low- or zero-tax zones. This is how Google achieved a 2.4% overseas tax rate, channeling profits through the “Double Irish and Dutch Sandwich.”

Historically, the Vestey brothers did something similar: controlling meat operations through trusts and subsidiaries to reduce U.K. taxes early in the twentieth century. The modern scale is staggering—tens of billions shifted annually. The IMF and Tax Justice Network estimate that around $600 billion in corporate taxes vanish globally each year due to such practices.

Treaty Shopping and Conduits

Offshore facilitation depends on favorable bilateral treaties. Jurisdictions like the Netherlands, Luxembourg, and Mauritius specialize in offering wide treaty networks that allow companies to siphon income with minimal withholding taxes. For instance, Mauritius became the preferred route for “round-tripping” money into India—domestic funds disguised as foreign, claiming tax breaks meant for genuine investors. The structure turns bilateral cooperation into legalized leakage of public revenue.

Developing countries lose most here. They rely heavily on corporate tax, but treaty terms written by or for rich states prioritize the “residence principle”—letting the investor’s home country collect tax rather than the host. When corporations move residence to havens, both sides lose and the public sector withers. Aid becomes a palliative for a system that is itself the cause of fiscal anemia.

(Note: This mirrors Saskia Sassen’s argument that deregulation isn’t the end of regulation but its redirection to serve mobile capital.)

Moral Reflection

As Dennis Healey observed, “the difference between tax avoidance and tax evasion is the thickness of a prison wall.” Offshore blurred even that thin line.

Each product you buy—phones, bananas, or oil—carries traces of this system. Transfer pricing shifts the tax burden from corporate profits to consumer spending. Until tax treaties, accounting standards, and corporate reporting catch up, profit shifting will continue to transform the global economy into a machine that privatizes gain and socializes loss.

Modern offshore finance was born from the Great Escape of the Euromarkets—the 1950s discovery that banks could trade foreign currency in London, unbound by national rules. This innovation undermined the system John Maynard Keynes had envisioned at Bretton Woods and set the stage for globalization’s ungoverned financial flows.

Banks Find Freedom

By treating offshore dollar deposits as “outside” U.K. jurisdiction, the Bank of England effectively sanctioned a parallel world of unregulated capital. Banks expanded balance sheets without reserve requirements, multiplying profits through leverage. Institutions like Citibank and Morgan built vast offshore operations, handling petrodollars after the 1970s oil shocks and Soviet trade flows during the Cold War.

This permissiveness created a new global regime: money became hypermobile. As Citibank’s Walter Wriston bragged, capital could leave nations “with a few keystrokes.” That threat coerced governments into liberalization lest business flee to freer jurisdictions. Thus, the offshore revolution exported deregulation back home.

Offshore as Deregulation Factory

Offshore havens didn’t just house capital—they invented the regulatory minimalism that later spread globally. Delaware’s 1981 Financial Center Development Act removed interest caps, enabling a boom in credit-card lending and household debt. Jersey’s Limited Liability Partnership laws, drafted to attract Big Four auditors, pressured the U.K. into following suit, eroding auditor accountability worldwide. These race-to-the-bottom episodes show offshore jurisdictions as political laboratories for financial deregulation, not mere bystanders.

The same pattern produced the “shadow banking system.” Special-purpose vehicles in Cayman, Luxembourg, and Ireland held trillions in securitized assets off balance sheet, masking risk until the 2007 crisis exposed the illusion. Long-Term Capital Management’s transatlantic web of entities foreshadowed this fragility; Goldman Sachs’s Abacus deals repeated it. Offshore secrecy magnified the contagion by obscuring who owed what to whom.

Key Lesson

When regulation retreats “elsewhere,” risk does not disappear—it concentrates unseen until it explodes.

By externalizing risk and internalizing profit, the Euromarket era laid the foundation for every subsequent crisis. You can trace today’s volatility—housing bubbles, sovereign debt crises, or currency instability—back to that quiet mid-century moment when regulators let capital slip offshore “just this once.”

The offshore world is not neutral plumbing—it is a drain on states and citizens. Its secrecy and loopholes facilitate massive outflows from developing countries and hollow out tax systems worldwide.

The Scale of the Drain

According to the Tax Justice Network, more than $11 trillion of private wealth sits offshore—over a quarter of global assets. Global Financial Integrity calculates that developing countries lost $1.2 trillion annually in illicit outflows by the late 2000s. Africa alone lost nearly $1 trillion between 1970 and 2008. For every dollar of aid entering poor countries, roughly ten dollars leak out through capital flight, under-invoicing, or embezzlement.

The case of Angola’s Abalone affair reveals the pattern. In the 1990s, intermediaries like Arkady Gaydamak and Pierre Falcone restructured state oil debt through offshore vehicles in Switzerland and Cyprus. Hundreds of millions vanished into private accounts while Angolan citizens faced poverty and underfunded hospitals. (A judge who briefly froze the transactions was later overruled—a telling sign of political pressure.)

Human Consequences

Such flows aren’t abstract—they cost lives. When wealth leaves public budgets, hospitals lack medicines, roads crumble, and inequality deepens. A child dying of infection in Luanda embodies a system where governance itself erodes: elites who can shield assets abroad have little incentive to govern competently.

Nigeria under Sani Abacha lost billions to offshore accounts. BCCI, the collapsed “Bank of Crooks and Criminals International,” laundered drug money and political funds through the Caymans and Luxembourg. Arms-for-oil deals in Angola and Congo bolstered warlords through Swiss and Caribbean intermediaries. Offshore secrecy connects these dots: it turns corruption into liquidity.

(Note: Raymond Baker calls this “the ugliest chapter in global economic affairs since slavery.”)

Political Insight

As Hillary Clinton once noted of Pakistan, when elites don’t pay taxes, the state collapses and insecurity follows. Offshore makes that collapse global.

The implication is clear: transparency is not charity but necessity. Reforms like automatic information exchange, beneficial ownership registries, and sanctions on facilitators are essential if the world hopes to reverse this invisible colonization of national budgets.

Tackling offshore secrecy demands more than closing loopholes—it requires confronting its ideology, institutions, and culture. The system persists because powerful actors defend it as freedom while societies mistake complexity for inevitability.

Ideological Shields

The chief ideological defense is the notion of “tax competition.” Proponents like Dan Mitchell claim havens keep governments lean and innovative. But as the book shows, states aren’t firms in a market that can go bankrupt; when they lose tax capacity, citizens absorb the cost through weaker healthcare, education, and infrastructure. Another claim—that secrecy protects political dissidents—is debunked by history: Swiss secrecy law arose from a bank scandal, not humanitarian ideals, and havens overwhelmingly protect kleptocrats, not reformers.

These narratives, amplified by think tanks and lobby groups such as the Center for Freedom and Prosperity, derailed the OECD’s 1990s initiative on “harmful tax competition.” Washington’s withdrawal under Paul O’Neill neutered reform efforts, leaving “on request” disclosure—the weakest possible outcome. Ideology had again triumphed over accountability.

Changing Culture

Inside havens, secrecy is socialized. Career networks reward silence and punish dissent. Bankers like “Beth Krall” recount the normalization of evasive paperwork and deliberate blindness. Whistleblowers such as Rudolf Elmer or Bradley Birkenfeld faced ruin or prison for exposing misconduct. To change behavior, you must change these incentives—grant protection and recognition to those who speak up.

Culture also shapes public morality. Journalists and politicians often glamourize tax avoidance as “smart.” The book insists on a shift: tax is not theft but the price of civilization. Civic narratives must reframe contribution as virtue and avoidance as exploitation.

Reform Strategies

Effective reform means combining technical tools with political will. Implement country-by-country reporting so multinationals reveal profits and taxes everywhere they operate. Enforce automatic exchange of information among tax authorities. Create beneficial ownership registries accessible to the public. Prosecute the intermediaries—the lawyers, accountants, and bankers—who enable and profit from secrecy.

Domestically, pursue land-value taxation and citizen dividends from natural-resource rents, grounding wealth where it originates. As the U.S. Patriot Act’s ban on shell-bank relationships showed, strong unilateral leadership can shift global norms even without universal treaties.

Final Takeaway

Offshore persists because we treat it as too complicated to challenge. In truth, it is a man-made system of privilege. It can—and must—be redesigned to serve public good over private escape.

If you want to change the future of finance, this is where to begin: demand transparency, hold intermediaries liable, and cultivate a culture that prizes fairness over secrecy.