Tax Havens-R-Us: Digital non-geographies and the financial gaming of distance and difference

In today’s world of off-shore tax havens,i quantitative easing,ii high frequency trading,iii and rampant global asset and real estate speculation it seems that a sort of gamified monetary space-race is going on and that it’s advancing with increasing speed. This monetary space-race game is one that is partially defined by both off-shoring and “on-shoring,” by both making assets disappear behind the legal shrouds provided by nation states that profit by providing secrecy to wealthy international clients and conglomerates, and by making virtual assets material in the form of, for example, international real-estate speculation.

But this immaterial/material financial binary is not adequate if we are to identify more comprehensively the space and spaces – the game dynamics – being put to work in service of global finance capital. For example, as but one expression of this monetary space-race, the recent tax haven scandals surrounding Panama’s Mossack Fonseca (which after two weeks of headlines is barely discussed anymore) is not so much about securing or profiting from locating capital in distant geographical spaces – tax-free islands, sandy beaches, and sun-drenched shell-company postal boxes, as it is about taking advantage of new and emerging forms of: 1) interstitial temporal spaces; 2) immaterial or undetectable digital spaces; and / or 3) invisible spaces that, as far as the public is aware, simply do not exist. That is, despite superficial appearances, the new monetary space-race is less about physically off-shoring capital and currency, than it is about staying ahead of the embittered and comparatively impoverished masses and the increasingly indebted governments ever more desperate for funds by hiding, or making invisible, digital money that’s been stored in “the cloud,” on the internet, or on an array of hard-drives. In other words, generating financial distance between wealth and the tax-hungry governments who would love access to it is not achieved through the separation offered by geographical space, but through the creation of new spaces, non-spaces, unknowable spaces that may or may not be physically located in a data-centre or business park next to you in Canada, London, New York,iv or Delaware.v

When interest rates are so historically lowvi that barriers to accessing credit and loans is effectively zero, stocks, bonds, and other financial assets become increasingly desirable if for no other reason than they are capable of providing some of the interest and dividend payments needed to pay down past borrowing and capitalize new investments; of course, to maximize these profits taxes are best avoided. The global rich have played this game for centuriesvii and have always sought hide-outs and shadowy territories for their wealth. Indeed, tax avoidance is something desirable for most of us. This will not change. But in a world where money’s physicality is increasinglyviii under threat with calls for a global all-digital money systemix growing louder,x not to mention a world where unfunded government liabilitiesxi and ongoing infrastructure needs are becoming increasinglyxii expensive, the world’s wealthy and their outsized assets are finding it harderxiii and harderxiv to hide.

The strategy for the wealthy, then, is not to seek out distant geographical spaces ideal for hording wealth, but to identify shifting, emergent, non-geographic digital spaces that allow them and their financial assets to stay one step ahead of regulation, taxation, and identification. To create new rules of the game as they go along. Increasingly, these spaces are diminishing as technology and the public’s intolerance for tax-evasion accelerates. Of course, given that tax-haven spaces are most effective when they’re invisible to the prying eyes of the public and governments, it’s clear that the Panama Papers – not to mention the tax evasion in Delaware – are not the real scandals.  The real scandals are invisible (and may remain so). Indeed, the Panama Papers could be understood as merely a distraction or party trick, drawing the public’s attention while the real money is hidden elsewhere (and while money launderingxv is perpetrated in our own backyards).

Following the Panama Papers’ release Kasperkevic wrote in the Guardian:

The term tax haven usually evokes an image of some faraway place like Belize or the Cayman Islands. Yet in 2015, in a ranking of tax havens most attractive for those looking to hide assets, the US came in thirdxvi – surpassing Cayman and Singapore. The two places that were even better suited as tax havens for the rich were Switzerland and Hong Kong, according to the Tax Justice Network that published the ranking. What was Panama’s ranking? It was 10 spots behind the US, at 13.xvii

So while the significance of the Panama Papers should not be downplayed, to imagine that in this era of global capital flows and revolving doors between governments,xviii financial institutions,xix and corporationsxx that tax havens are not in multiple ways aided and abetted by our own governments and elites – despite their lip-service to closing tax loopholes and need for funding – is to willfully ignore our own role in electing officials all too willing to cater to those with the deepest pockets (consider Canada’s own coddlingxxi of foreign real-estate buyersxxii), not to mention those eager to keep their money beyond the clutches of government.

Today’s tax havens objectify the degree to which the real distances, gaps, and spaces today are not between money centers and their respective tax havens, but between the insiders and the outsiders, the haves and the have nots, the 1% and the 99%. Indeed, the Panama Papers remind us that increasingly the 1% and our elected officials are hoarding their financial gains side-by-side in a cozy digital ether with no space for the rest of us. Game over.

Matthew Tiessen (Ryerson University)

i Green, N. (2016, April 13). In defence of “tax havens”: offshore banking is not the same as dodgy dealing. The Guardian. Retrieved from http://www.theguardian.com/commentisfree/2016/apr/13/offshore-panama-papers-murky-investors

ii White, T.(2016, April 4). Europe’s Central Banks Begin Boosting QE Price Transparency. Bloomberg.com. Retrieved from http://www.bloomberg.com/news/articles/2016-04-04/europe-s-central-banks-begin-boosting-price-transparency-for-qe

iii Tiessen, M. (2012, September 9). High-Frequency Trading and the Centering of the (Financial) Periphery. Volume Project. Retrieved from http://volumeproject.org/high-frequency-trading-and-the-centering-of-the-financial-periphery/

iv Swanson, A. (2016, April 5). How the U.S. became one of the world’s biggest tax havens. Washington Post. Retrieved from https://www.washingtonpost.com/news/wonk/wp/2016/04/05/how-the-u-s-became-one-of-the-worlds-biggest-tax-havens/

v Kasperkevic, J. (2016, April 6). Forget Panama: it’s easier to hide your money in the US than almost anywhere. The Guardian. Retrieved from http://www.theguardian.com/us-news/2016/apr/06/panama-papers-us-tax-havens-delaware

vii

 Hodges, J. (2013, May 3). Offshore Tax Havens in Spotlight After 200-Year History. Bloomberg.com. Retrieved from http://www.bloomberg.com/news/articles/2013-05-03/offshore-tax-havens-in-spotlight-after-200-year-history

viii Editorial Board. (2016, January 31). Bring On the Cashless Future. Bloomberg. Retrieved from http://www.bloombergview.com/articles/2016-01-31/bring-on-the-cashless-future

ix Batiz-Lazo, B. (2016, January 11). Are we heading towards a cashless economy? World Economic Forum. Retrieved from https://www.weforum.org/agenda/2016/01/are-we-heading-towards-a-cashless-economy/

x Frisby, D. (2016, March 21). Why we should fear a cashless world. (2016, March 21). The Guardian. Retrieved from http://www.theguardian.com/money/commentisfree/2016/mar/21/fear-cashless-world-contactless

xi Ginn, V. (2014, January 17). You Think The Deficit Is Bad? Federal Unfunded Liabilities Exceed $127 Trillion. Forbes.com. Retrieved from http://www.forbes.com/sites/realspin/2014/01/17/you-think-the-deficit-is-bad-federal-unfunded-liabilities-exceed-127-trillion/

xii Fox, J. (2016, April 8). Why U.S. Infrastructure Costs So Much. Bloomberg.com. Retrieved from http://www.bloombergview.com/articles/2016-04-08/why-u-s-infrastructure-costs-so-much

xiii Fekete, J. (2016, April 11). Crackdown on tax cheats to generate $2.6B, Canada Revenue Agency says. Financial Post. Retrieved from http://business.financialpost.com/news/economy/canada-revenue-agency-aims-to-recoup-2-6-billion-in-missing-taxes-in-crackdown-on-tax-cheats

xiv Frean, A. (2016, April 7). Obama tax crackdown “will deter investors.” The Times. Retrieved from http://www.thetimes.co.uk/article/obama-tax-crackdown-will-deter-investors-qnczwps0b

xv Hanning, J. & D. Connett. (2015, July 4). London “now the global money-laundering centre for the drug trade.” The Independent. Retrieved from http://www.independent.co.uk/news/uk/crime/london-is-now-the-global-money-laundering-centre-for-the-drug-trade-says-crime-expert-10366262.html

xvi Bowers, S. (2015, November 2). US overtakes Caymans and Singapore as haven for assets of super-rich. The Guardian. Retrieved from http://www.theguardian.com/politics/2015/nov/02/united-states-overtakes-caymans-singapore-tax-haven-financial-secrecy-index

xvii Kasperkevic, J. (2016, April 6). Forget Panama: it’s easier to hide your money in the US than almost anywhere. The Guardian. Retrieved from http://www.theguardian.com/us-news/2016/apr/06/panama-papers-us-tax-havens-delaware

xviii Boesler, M., & Kearns, J. (2015, January 30). “Revolving Door” Between Fed and Banks Spins Faster. Bloomberg.com. Retrieved from http://www.bloomberg.com/news/articles/2015-01-30/fed-s-revolving-door-spins-faster-as-banks-boost-hiring

xix Protess, B. (2013, November 11). Slowing the Revolving Door Between Public and Private Jobs. NYTimes.com. Retrieved from http://dealbook.nytimes.com/2013/11/11/slowing-the-revolving-door-between-public-and-private-jobs/

xx Fang, L. (2013, May 4). The Reverse Revolving Door: How Corporate Insiders Are Rewarded Upon Leaving Firms for Congress. The Nation. Retrieved from http://www.thenation.com/article/reverse-revolving-door-how-corporate-insiders-are-rewarded-upon-leaving-firms-congres/

xxi Powers, L. (2016, May 8). How 5 other countries keep checks on foreign cash in real estate. CBC.ca. Retrieved from http://www.cbc.ca/news/business/real-estate-housing-foreign-buyers-1.3479508

xxii Tomlinson, K. (2015, October 7). Foreign investors avoid taxes by buying real estate in Canada. Globe and Mail. Retrieved from http://www.theglobeandmail.com/real-estate/the-market/foreign-investors-avoid-taxes-by-buying-real-estate-in-canada/article26683767/