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In recent years, many countries in Oceania have developed tax havens, profiting by providing offshore havens from metropolitan taxation and regulation. This account surveys the timely, important, and controversial topic of Pacific Islands’ tax havens, which currently hold hundreds of billions of dollars. Exploring the range of financial mechanisms used—including offshore companies and banks, maritime flags of convenience, and laundering—this book also delineates the international regulatory attempts that have been made with limited success. Arguing that at the core of these large financial transactions is Pacific Islands sovereignty within the international community and its rights to maintain its own tax and regulatory systems without outside interference, this discussion is an essential resource of economic research.

Published: University of Queensland Press an imprint of Independent Publishers Group on
ISBN: 9781921902239
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Tax Havens - Anthony van Fossen

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Anthony van Fossen teaches Social Sciences at Griffith University in Brisbane. He has conducted long-term research on the international political economy of the Pacific Islands, especially the region’s tax havens. He holds an undergraduate honours degree from the Ohio State University and a doctorate from Princeton University, and he has held teaching and research posts at the University of Adelaide and Curtin University in Australia, and Hollins University of Virginia in the United States. He has published widely on the Pacific Islands and is the author of South Pacific Futures: Oceania toward 2050, the first comprehensive survey of expert views of the region’s future. His work has been extensively cited in academic publications, and he is on the Editorial Advisory Board of The Open Criminology Journal. His views have been quoted extensively in Time magazine, The New York Times, the International Herald Tribune and Islands Business, and he has appeared as an expert commentator on TVNZ and radio programs of the Australian Broadcasting Corporation.

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(Second Edition)

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‘Global capitalism does not erase sovereignty, it does not compete with the national ideal; it subverts it, fragments it, enlists it, and provokes it.’

Horsman and Marshall, 1994: 207

‘A dwarf is as much a man as a giant is; a small republic is no less a sovereign State than the most powerful Kingdom.’

de Vattel, Le Droit des Gens, 1758, trans. owned by C.G. Fenwick, 1916, ch. 1, s. 18, as quoted in Crawford 1989: 284

‘I have long dreamed of buying an island nation and of putting the World Headquarters of the Dow Company on the truly neutral ground of such an island, beholden to no nation or society.’

Carl Gerstacker, head of Dow Chemical, as quoted in Sampson 1988: 246

‘You can’t have a workers’ revolution to take over a bank if the bank is in Vanuatu.’

Peter Thiel, billionaire Facebook and PayPal entrepreneur and libertarian theorist, as quoted in The Guardian, 14/1/08: 6


This is the first book on Pacific Islands tax havens and it aims to be something of an exposé. It clarifies activities that are intentionally obscure. It analyses Oceania through the lens of its tax havens and challenges the common idea that Pacific Islands are ‘merely local’. It reflects on how they wield their sovereignty and jurisdiction to become global power. It presents tax havens in terms of what they actually do.

This work belongs within a broader understanding of tax havens which transcends the narrow, rigid orthodoxies of conventional economics and presents the larger, richer and heterodox perspectives articulated by Tom Naylor, Ronen Palan, Mark Hampton, Richard Murphy, Jason Sharman, William Vlcek and a number of others. I have especially benefited from conversations with Tom, Mark and Jason.

Others have influenced the book’s development, but it is impossible to list them all or to repay fully the debts I owe them. However, a few people deserve special gratitude. First of all, my parents and Lena Dimopoulos, my star of love, have watched over the comings and goings of my life. My love and admiration for my father, Theodore, and my stepfather, Richard, are no dimmer because they are no longer with us. Griffith University has functioned as an extraordinary community for interdisciplinary social sciences, and my initial research blossomed in the often exhilarating meetings of the Political Economy Forum, a timely support group including George Lafferty, Sally Rickson, Malcolm Alexander and Jacques Bierling. Georgina Murray deserves thanks for her bright, cheerful personality and spontaneity – providing much sympathy, hope, constant encouragement and intellectual discussion during the process of writing and revising the book. I owe a great deal to my present and former students and colleagues – especially to Catherine Hoyte, who read almost the entire manuscript and is responsible for a few additions and for many deletions and modifications.

Outside Griffith, the late Ron Crocombe offered helpful and extensive comments on some of the material and urged me to write the book. Brij Lal read the entire manuscript and encouraged publication. Thanks are also due to the anonymous reviewers who were indispensable for giving me and others confidence in the manuscript. Clive Moore deserves exceptional praise for quickly moving it to publication. The Australian Taxation Office also financed and furthered the research through two consultancy stints over four years. Penny Mansley did meticulous final editing. None of those mentioned above are responsible for what might be unsound in this book – errors of fact, logic and proportion are my own.

The following chapters of this book have greatly revised material that appeared in the earlier published forms indicated below:

Chapter 1: 1998 Sovereignty, Security, and the Development of Offshore Financial Centres in the Pacific Islands. In Michael Bowe, Lino Briguglio and James Dean (eds), Banking and Finance in Islands and Small States. London: Pinter, 155–170.

Chapter 2: 2002 Pacific Islands Offshore Financial Centres and Internal Development. Pacific Economic Bulletin 17(1): 51–75.

Chapter 3: 2001 Secessionist Tax Haven Movements in the Pacific Islands. Canadian Review of Studies in Nationalism 28: 77–92.

Chapter 4: 1992 The International Political Economy of Pacific Islands Flags of Convenience. Nathan: Griffith University.

Chapter 5: 2002 Risk Havens. Social and Legal Studies 11(4): 503–521; 2003 Offshore Gambling in Pacific Islands Tax Havens. Pacific Studies 26(3/4): 1–32.

Chapter 6: 2003 Money Laundering, Global Financial Instability and Tax Havens in the Pacific Islands. The Contemporary Pacific 15(2): 237–275.

I am greatly obliged to the editors and publishers of the above-mentioned publications for permission to reprint this material.

Anthony van Fossen

Griffith University


ACT Australian Capital Territory

AMC Australian Media Company

APT asset protection trust

BoNY Bank of New York

CSP Casinos of the South Pacific

EU European Union

FATF Financial Action Task Force

FIU Financial Intelligence Unit

FOC flag of convenience

FPMA foreign professional monopoly agency

FSC foreign sales corporation

FSF Financial Stability Forum

FTZ free trade zone

IG Internet gambling

IMF International Monetary Fund

IMO International Maritime Organization

IOCS International Organization for Community Sharing

IRI International Registries Incorporated

ITF International Transport Workers’ Federation

IUU illegal, unregulated and unreported

MOU memorandum of understanding

MRA Micronesia Registration Advisors

NCP New Country Project

NDP New Discoveries Publishing Corporation

OECD Organisation for Economic Co-operation and Development

OFC offshore financial centre

OG offshore gambling

OHA Office of Hawaiian Affairs

PITH Pacific Islands tax haven

SP starting price (illegal fixed-odds betting)

TNC transnational corporation

UIGEA Unlawful Internet Gambling Enforcement Act

VITAB Vanuatu and Pacific Islands International TAB

VMA Vanuatu Maritime Authority

VMS Vanuatu Maritime Services

WTO World Trade Organization



Tax havens have transformed the Pacific Islands. Since the late 1960s, when international capital became more mobile, many Oceanian states have become offshore centres for the global economy, linked by rapid telecommunications. Each Pacific haven has its special roles. The Marshall Islands have become the third largest shipping nation in the world, providing a flag of convenience (FOC) for vessels from yachts to the largest supertankers. The Cook Islands concentrate on forming trusts to protect assets from seizure by courts, wives, husbands or creditors. Samoa is excellent for registering international companies, which can hold stocks, bonds, real estate and other assets so that taxes can be avoided on incomes from dividends, interest, rents or profits when the holdings are sold. Vanuatu has more offshore insurers, banks, casinos and tax-free real estate than any other Oceanian haven. Offshore mutual funds operate in Vanuatu, and hedge funds register and banks book large international loans in the Cook Islands to minimise taxes, avoid regulation and increase secrecy.

Several tax havens in Oceania provide offshore safety deposit boxes for private assets, precious metals, securities and sensitive documents. They contort accounting of transactions – for example, by ‘re-invoicing’ – to manipulate buying and selling prices – so multinational corporations can amass untaxed money offshore and then borrow it back, receiving onshore tax deductions for interest payments to their island haven.

Much of the region (including Nauru, Niue, Tonga, the Northern Marianas, Guam, Palau, Tuvalu and Kiribati) has provided innovative offshore services shaping global wealth accumulation. Tax reduction is the common theme – more pivotal in some centres than others. All twelve countries are tax havens, providing legalised immunity for financial arrangements that would be penalised elsewhere. Their offshore centres have been the results of deliberate Pacific government policy and have protected people from surveillance and policing, to varying degrees, consolidating the impression that many Islands countries operate in the shadows of the international system. Their havens have involved these Pacific countries in rich and complex international intrigues and have influenced their reputations. These havens have played roles in major corporate bankruptcies, financial frauds, political corruption, theft of state resources, tax evasion, labour abuses, environmental destruction, drug and human trafficking, arms shipments to terrorists and money laundering.

Pacific Islands laws create these havens’ autonomy, but their importance comes from outside – from their links to international flows of hot money. Their offshore centres are set apart from the regulations of ordinary domestic business, so that the laws are different for each and they may be available only to foreigners. Pacific havens are multinational. Many languages (especially English) are spoken by clients and financial specialists (accountants, lawyers, bankers, investment managers and so on), who are drawn from around the world to make claims on global property and profits.

Sometimes, as in Vanuatu and Nauru, foreigners initially discover opportunities because these unusual countries have never had income taxes. Other Pacific Islands have deliberately started offshore havens to take advantage of opportunities offered by the international economy. Offshore centres may generate government fees, employment, training, investment, high-end tourism, better telecommunications and greater international recognition.

The haven is centred in the national capital, where offshore business is built, but its influence may extend over the entire country, even to the point of fomenting secession in a bid to create new tax haven countries. Tax haven-oriented secession movements have arisen in Vanuatu, the Marshall Islands and the Torres Strait Islands (Australia), creating severe conflicts and sometimes even violence and political crises.

All haven states are sovereign and are therefore cut off from the countries around them by their ability to make their own laws concerning taxation and regulation. They offer protection to foreigners from outside dangers. Their sovereignty provides a wall of defence, which allows them to incapacitate the laws, regulations and law enforcement of other states. Their centres are organised to limit unwelcome incursions. There are degrees of sovereignty, however. The least sovereign Pacific states have the greatest difficulty maintaining successful offshore centres. If they are like Norfolk Island they remain residential tax havens (with no domestic income tax), providing some limited offshore services.

Just as the founding of new sovereign Pacific Islands nation-states reproduced the sovereign state form, so their offshore financial centres (OFCs) imitated models from elsewhere. They are parts of the global system. If an offshore centre is to last, if it is to be real, it must be legitimated by a jurisdiction recognised as sovereign by the rest of the world.

The Pacific Islands offshore centre is a place of junction between all points of the global economy held together by its telecommunication system. The onshore world at large is the hinterland for the small island OFC, which often has no extensive local hinterland. Pacific Islands offshore centres carve out autonomous jurisdictional powers for the proactive and flexible strategic use of overseas metropolitan economic resources, providing escape routes from taxation and regulation for their metropolitan clients while protecting them from ‘external intervention’ by metropolitan authorities (Baldacchino 2006). In this sense, the tax haven is a centre, a sanctuary where many spheres intersect. It is where people can re-create their financial identities, constructing a new reality – in a tax haven, which the French call a financial paradise (paradis fiscal). It is a place of economic redemption, which promotional brochures depict in photographs of beautiful, peaceful, sun-drenched Pacific Islands beaches edged by palm trees. But the offshore haven is also a meeting place – a point of intersection between different spheres which may be separated onshore, a channel joining the white, grey and black economies, where the legitimate world makes contact with the underworld. Lawyers, accountants, bankers and investment advisors may serve criminal and legitimate businesses, allowing them to transact with each other, and even contact local politicians for additional opportunities.

The sovereign equality of states allows each jurisdiction to be a ‘centre’, and the multiplication of sovereignties in Oceania has multiplied its OFCs. Each offshore centre is based on the central pillar of sovereignty. There are three distinct institutional shapes assumed by Pacific offshore centres – subcultures, professional monopoly agencies and isolates. Resident subcultures of tax haven professionals (in Vanuatu, the Cook Islands and Samoa) have great political influence and a powerful impact on how the state shapes the offshore centre and the laws, regulations and policies relating to it. All offshore activities generate opposition from foreign governments, but domestic political support may be much stronger when they are run by local subcultures rather than by a foreign professional monopoly with only a token presence in the Pacific Islands country (as in Niue) or if they are isolated, with little relationship to other organisations and few local supporters (as in Nauru).

It is hard to gain admittance into the exclusive club of sovereign nations. Once achieved, sovereignty requires jurisdictions to meet international standards. These have been rising for tax havens for over a decade. Havens have been faced with movements to curb their use. Opponents have especially targeted offshore financial secrecy, adding to havens’ political and economic costs. Islands jurisdictions have had varying levels of success in defending their centres, especially against hostile international organisation and metropolitan states’ taxation and regulatory agencies and courts. Not all Pacific countries have been able to meet this challenge, and some have had to abandon some of their offshore activities. Others have succeeded, and in recent years the offshore centres in Samoa and the Marshall Islands have grown impressively.

Offshore havens have moved the world closer to free markets and laissez faire, and many large nations have felt the pressures from them. Pacific Islands OFCs are constructed to restore a nineteenth-century laissez-faire system (for which clients may be nostalgic), to transcend the welfare states of metropolitan countries and to find a place in Oceania for what is harder to achieve in their homelands. Clients attempt to access in space, in the Pacific Islands, what they can no longer find in time. The actualisation of these havens is possible because of their sovereignty.

Pacific Islands nation-states, with small populations and land (but not sea) areas, have formal sovereign equality with the largest and most powerful states in the world. Sovereignty means that they need not recognise any authority as superior to theirs as they create their own laws on taxation, corporations and trusts, banking, insurance, the sea and money laundering. They create their own sovereign personalities, but in order to become and remain recognised states they must fulfil sovereign responsibilities.

The sovereign state is the standard unit of the modern world-system. Sovereignty provides the framework for the global operations between competing states according to firm, objective rules and procedures. It is necessary to meet clear standards of legitimacy to enter and remain in the exclusive club of sovereign states, which have supreme power within their own borders and equality with all other states. Yet sovereignty can also be a malleable resource to be exploited. It can be the basis of a business when a state enacts laws and rules to profit from foreigners who register entities under its jurisdiction to advance their interests in a competitive international market. This book examines how growing numbers of states in the Pacific Islands used their sovereignty to create and sustain a range of tax havens and OFCs¹ with profound international repercussions.



Sovereignty is power¹. It is the ability to make laws, it is the basis of legal authority and it can be commercialised. It provides a boundary allowing practices which would be illegal, difficult or expensive in a person’s home country to be carried out legally, easily and cheaply offshore². Considerable money can be made by states that recast the desires of the rich into laws, which they then defend in terms of the apparently neutral doctrines of the sovereign equality of states.

OFCs have diffused across the Pacific Islands region. They give greater sovereign reality to Pacific Islands microstates, particularly when they generate substantial revenues or make a significant impact on the world. Examples include billions of dollars flowing into Cook Islands asset protection trusts (APTs) or Nauru offshore banks, and the Marshall Islands having the world’s third largest shipping fleet under its flag.

The right to tax (or not to tax) is at the core of sovereignty, and tax havens sharply reduce their clients’ tax liabilities. They frequently minimise costs in other ways also – reducing labour costs aboard FOC vessels, protecting assets from litigators and plaintiffs or providing cheap access to interbank or insurance markets. Taxation shapes society, and taxes have always been at the centre of politics. Disputes between metropolitan governments and their citizens or residents using tax havens often become conflicts between the laws of states. The growing number of sovereign states in Oceania (defined in terms of full, partial and candidate sovereignty) is an expression of the modern world-system’s trend toward making the state the general political form and toward extending the interstate system globally (Wallerstein 1991: 140).

The world-system creates states and sovereignties, which provide the framework in which property rights are defined, upheld and enforced. Markets are based on exchange contracts governed by a constant succession of legal relations which must be located in a sovereign state – placing sovereignty at the centre of the world economy (Palan 2003: 85–87). The sovereignty of tax havens restrains other states from exercising their sovereignty over economic transactions, thereby promoting a reconciliation of the seemingly contradictory principles of state sovereignty and economic liberalism. Global capitalism enlists tax haven sovereignty to serve its purposes.

Some degree of sovereignty is necessary to play the tax haven game. Almost all the original OFCs were European before World War II, when few jurisdictions with substantial sovereignty existed outside Europe and European settler countries. Liberia was one of the rare non-western sovereign states and one of the first developing world OFCs. In the postwar era, and particularly since the early 1960s, non-European governments have gained sovereignty to compete on the global playing field but not necessarily in the same league. This more inclusive but hierarchising development in the interstate system parallels the evolution of OFCs. The postcolonial era has seen more players, growing segmentation and increasing competition.

In the previous period of economic austerity, after World War I, the traditional European OFCs of Switzerland, Liechtenstein and (to a much lesser extent) Monaco expanded and solidified. There was an extraordinary increase in international tax-evading movements and capital flight as well as a general doctrine of ‘liberal fundamentalism’ (Eichengreen 1992, 1996: 45–92; Helleiner 1999: 62–63). Offshore development was subdued during the great boom from 1945 to 1967, when a version of global Keynesianism severely restricted tax-avoiding financial movements and capital flight. The newer Caribbean and Pacific Islands OFCs became prominent in the current (1968–present) era of austerity, creating today’s expanding and competitive market for tax haven services.

There is a dialectic between sovereignty and tax haven development in the Pacific Islands (see Map 1, Table 1). The most successful Pacific Islands tax havens (PITHs) have been internally self-regulating without subservience to any metropolitan power hostile toward haven development. On the other hand, full sovereignty (in the sense of complete political independence) has not necessarily been a crucial advantage. It may even have been associated with a lack of proper security (such as that underwritten by a core power) and have attracted sleazy operators and clients, as in the case of Nauru’s offshore banks and Tonga’s FOC. Furthermore, some fully independent Pacific states (Papua New Guinea, Fiji and the Solomon Islands) have been too politically unstable to develop viable OFCs. Nevertheless, the OFCs of Samoa, Vanuatu, the Marshall Islands and the Cook Islands have developed continuously through elaborating legal structures favouring the internationalisation of capital. Their OFC laws valorise individual appropriation rather than public distribution, minimise state regulation and privilege private ownership. Compared to the second, contrasting group of PITH jurisdictions which we consider next, these states have relatively full sovereignty.

The OFCs of Norfolk Island, the Northern Marianas, Niue, Palau and Guam have developed unevenly. They have been constantly influenced by the conflicting prohibitions and requirements of the metropolitan states to which they are closely attached – Australia in the case of Norfolk Island, New Zealand in relation to Niue, and the United States for the other three. Frustrations for OFC promoters have come from the great influence which core powers have over how they legally define the rights and character of property. A sixth, erratic OFC (in Nauru) has far more sovereignty but has been strongly and effectively attacked by the international community for promoting money laundering, tax evasion and financial instability. All these offshore centres have sometimes been beset by a sense of crisis and ruin.

For a map of the Pacific Islands, please refer to the image on page xii.

Table 1

Relative Sovereignty and Offshore Financial Centres

Note: Hawaii, Easter Island and Galapagos Island are not included in the table because they are states or provinces incorporated into metropolitan states.

a A substantial OFC has existed at some time in this jurisdiction.

b 21/9/06.

c 15/12/09.

d 31/1/08.

e 1/9/06.

f 15/10/08.

g 1/10/06.

h 9/4/08.

i 2007.

j 24/4/08.

k 12/1/07.

l 22/6/10.

m Dependency of New South Wales in 1897.

n Protectorate of France in 1842.

o Possession of France in 1853.

p Protectorate of France in 1887.

q Ceded to US in 1898.

Norfolk Island’s emergence as Oceania’s first offshore centre, in 1966, constituted an initial and relatively insignificant challenge to a global regime in which a high proportion of property ownership was defined and regulated by core states’ laws, which postulated and largely enforced an associated set of rights and duties. The substantially different contemporary world comprises a vastly expanded number of states, intense ethnic nationalism daily making further claims to sovereignty, and a growing volume of dynamic stateless³ capital domiciled in offshore centres, which have proliferated around the world and in the Pacific Islands.

OFCs increase the power of transnational corporations (TNCs) over the global system by proposing new stateless financial instruments and arrangements which internalise transactions within the firm and make them less accessible to regulators, taxation officials and competitors. They help TNCs to maintain control over valuable knowledge about the world on the most advantageous financial and political terms. They facilitate international mergers which vertically integrate TNCs. They encourage capital to use cheaper developing world labour and threaten protected workers in the core. They enhance TNCs’ bargaining power in relation to nation-states by offering capital unparalleled mobility and flexibility. They encourage developing world elites to place assets internationally rather than locally, making them less likely to be nationalist competitors with TNCs and more inclined to be investors in them. They actively compete with each other, regionally and internationally, to produce laws and services that promote ever greater control of the world by TNCs and the rich.

OFCs are used to minimise the power of governments which attempt to tax ‘their’ TNCs and rich citizens on their worldwide incomes. The taxation agency is the state to a significant degree, and it is strong in the core and weak in the periphery. Offshore centres have become targets of international (and particularly American) offensives against terrorism, narcotics trafficking and other criminal activities. This has been used to justify violations of the sovereignty of developing world states (including OFCs), often placing them on the defensive. Worldwide taxation and anti-money laundering legislation of the US and other countries have produced major conflicts about the definition of offshore jurisdictions’ sovereignty in international law.

Only international cooperation has been effective against offshore centres generally. But even anti-OFC countries such as the US and Australia have done very little to stop the inflow of flight capital coming from the developing world through offshore centres. Metropolitan taxation and regulatory systems are sometimes incompatible or contradictory. Covert action by governments through OFCs can frustrate national efforts against them, such as the CIA’s alleged support of the Cook Islands’ tax haven, while the Internal Revenue Service opposed it (Wilkes 1987a, 1987b, 1987c, 1989). It is unlikely that there will be any immediate extensive decriminalisation of narcotics trafficking or other illegal activities that inject funds into offshore centres, or a substantial decline in their use to avoid and evade foreign exchange controls and taxation through them.

OFCs facilitate tax avoidance and evasion and erode tax morality. They promise a privacy that is unavailable domestically, which may be suspended only in relation to some criminal offences such as money laundering for narcotics trafficking, massive fraud or affiliation with terrorist groups. They depend vitally on a form of trust that is not always honoured and can be legally unenforceable (as in the numerous bank frauds that have afflicted a number of PITHs). Generally, OFCs encourage short-term planning and liquid (rather than durable) capital formation. They increase the speed of capital to take advantage of opportunities and to avoid taxation, regulation and even discovery.

PITHs’ and other offshore centres’ secrecy and tax provisions can be used to obscure troubled companies’ financial positions and even allow them to claim tax-free profits, thereby deceiving shareholders and creditors. Many of the largest Australian and New Zealand companies which used the Cook Islands’ OFC extensively during the 1980s are either bankrupt or greatly diminished – for example, Bond, Ariadne, Equiticorp, Linter, Euro-national, Renouf, Judge, Industrial Equity, Bell Group and Bell Resources. PITHs and OFCs elsewhere in the world facilitate delaying actions that may artificially defer collapse in the short term but make the ultimate resolution of the problems more costly⁴. In a time of declining rates of real profit, such as the period from 1968 to the present (Brenner 1998: 5–8; Crotty 2003: 273; Thurow 1996), PITHs and other offshore centres facilitate forms of mystification which may be crucial to corporate strategies.

The amount of capital domiciled in offshore banks is estimated to have grown from $11b in 1968 to $2tr in 1996 and to over $5.7tr in 2009, while total assets in OFCs are said to have risen from $500b in 1986 to $5.5tr in 1996 and to $11.5tr in 2005⁵ (Bank for International Settlements Quarterly Review 6/10; Diamond, Diamond and Kaplan 1997; FT 7/6/96; US Senate 2006). Some funds flow through OFCs without staying there. It is estimated that about $2.1tr was laundered in 2005, mostly through OFCs (Economist 24/2/07). It is widely believed that a substantially greater quantity of ‘grey’ money was mediated through OFCs to minimise taxes, avoid economic sanctions, evade currency control laws, finance covert operations and espionage, and provide security for wealthy people in unstable regions, occupations or personal circumstances.

Banks are the most important intermediaries to tax havens, and a tax haven’s strength is closely related to the depth of international banks’ involvement. Until 2000 it was relatively easy for rich people and corporations to establish their own banks in offshore centres to strengthen their position in interbank transactions, gain anonymity and substantial tax advantages, avoid exchange controls and escape regulations on such matters as maximum interest rates and minimum reserves. But this financial secrecy and lack of accountability increased risks of money laundering, tax evasion and volatility in the international financial system and helped to explain the increasingly successful attempts by international organisations and metropolitan regulators to impede offshore banking development, especially in the Pacific Islands.

Metropolitan countries’ attempts to limit OFCs have generally been inconsistent, with little or no restriction on the agents or representatives of offshore centres operating within their borders or on their own financial institutions operating in OFCs. Financial institutions’ interest in offshore centres has varied markedly: of the largest four banks in Australia, ANZ and Westpac (each with operations in Vanuatu, the Cook Islands and Samoa) have been far more important than National Australia and the Commonwealth. Banking tends to be a very lucrative business in PITHs, with high profit margins (see Chapter 2).

Strict anti-tax haven measures have been approved and computerised surveillance accelerated by most metropolitan countries, but extremely low rates of prosecution and conviction for tax evasion using offshore centres persist. It is important to emphasise that OFCs have grown on the basis of a tax assessment ideology of ‘domicile’ or ‘residence’, which capital-exporting core governments have defended adamantly and which gives priority to the place of residence or domicile of the owners of capital over the place of labour and production. This is significantly related to geopolitical conflict and unequal exchange with the developing world, where tax officials understandably prefer tax assessment by ‘source’ of income. Metropolitan actions against OFCs are hampered since opportunities for companies nominally domiciled in tax havens arise from loopholes and unintended consequences within the core’s own predominant ideology of ‘residence’, even when core states assess ‘residents’ on their worldwide incomes. This is oriented around the larger hegemonic ideology of a world of equal sovereign states in which a person or company can reside.

Taxation and regulation based on ‘residence’ and a system of equal sovereignty have made extraterritorial approaches and even intergovernmental cooperation between metropolitan states and OFC jurisdictions problematic. Mutual legal assistance treaties with tax havens, if negotiated, may be ineffective. Profits often metamorphose (for example, from dividends to interest to royalties) as they cross borders. ‘Interest’ or ‘royalty’ payments may even be tax-deductible, perhaps in one or more countries, making further problems for metropolitan taxation officials.

Until 2000, countermeasures against Pacific Islands OFCs were generally on a