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The channeling of wealth away from the redistributive and democratizing effects of taxation has been one of the great drivers of structural inequality, corruption, and authoritarianism. “Off-shore” networks holding an estimated $7–9 trillion dollars, more than what the poorer half of the world’s population owns, exist in parallel with nation-state and internationally organized economies. Revelations like the Panama, Pandora, and Paradise papers have detailed how such tax havens help individuals, families (including organized crime families), and corporations amass greater wealth and power while they undermine political systems and starve their home countries of revenue.

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Historian Vanessa Ogle finds the roots of the tax-avoidance of “archipelago capitalism” in the British empire—and its decline. When, for instance, the British House of Lords ruled in 1906 that a South African company with directors in London could be taxed in London, colonial entities rushed to set up headquarters elsewhere. Then, during the mid-twentieth-century decolonization period, London offered up financial services as a form of development in the places from which they had so long extracted wealth.

Today, around half of the world’s tax havens are former British colonies or possessions. Some, like Guernsey, a Crown Dependency, and Bermuda, a British Overseas Territory, still maintain strong links to the old metropole. Others have essentially been recolonized by international finance. In the Americas, for instance, the Bahamas comes third after the United States and Canada by GDP because one of its gross domestic products is tax avoidance. Off-shoring in the Bahamas began with the “Freeport” development in the mid-1950s, a project spearheaded by an American who had served time for an investment scam. His local allies became known the “Bay Street Boys,” white British finance bros avant la lettre who controlled the local government for years.

It was in the mid-twentieth century, Ogle argues, that the “off-shore world emerged on a significant scale.” This was “precisely at the moment” when such “state-based projects” as the “New Deal, the European welfare state, decolonization, development and modernization” all “began to assume their greatest importance.” A period “otherwise dominated by a belief in nationally organized economies and a strong and interventionist, to a certain degree redistributive, state” also seeded the flourishing of small-scale archipelago capitalism.

The archipelago has metastasized since then. As Ogle argues, it’s characterized by

tax havens, with their relaxed regulations and minimal taxes; flags of convenience registries, which allowed a ship whose owner lived in one country to be registered under and subject to the laws of another country; offshore financial markets and banking institutions, which offered investors advantages absent in national financial markets; and foreign trade or special economic zones, which provided incentives designed to attract investment.

The “archipelago-like landscape allowed free-market capitalism to flourish on the sidelines of a world increasingly dominated by larger and more interventionist nation-states,” continues Ogle. This alternate political economy was “the product of concrete, conscious, and deliberate governmental decisions and support.” The people responsible for setting up the system included “lawyers, accountants, former diplomats and politicians” as well as “former spies and people in intelligence services.” And old colonials.

It was, for instance, a white colonial born in Tanganyika (today Tanzania), whose off-shore law firm helped write the International Business Companies Act of the British Virgin Islands (BVI) in 1984. Tens of thousands of companies have incorporated in the BVI since then. The law, partially based on the precedent of the state of Delaware’s 1899 general corporate law, then became the model for many other off-shore shell corporations.

The case of Delaware itself shows that “off-shore” doesn’t always literally mean off-shore. In the US, two-thirds of the Fortune 500 companies, including some of the biggest in the world (e.g., Walmart and Apple), are registered in Delaware. Meanwhile, when the US made it harder for citizens to hide money overseas, states like Nevada and South Dakota rushed to fill in the gap for those who wanted places to squirrel away their loot.

Through the twentieth century and into the present, small jurisdictions such as Delaware, Switzerland, the Cayman Islands, Singapore, Liechtenstein, Malta, Panama, Monaco, Bermuda, and BVI—the list is now lengthy—have hidden and laundered monies. Much of this has been “legal” somewhere, for the law is generally written by and for propertied elites. Ogle’s exploration of how this came about is a key text of our age.

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The American Historical Review, Vol. 122, No. 5 (DECEMBER 2017), pp. 1431–1458
Oxford University Press on behalf of the American Historical Association