The capture of tax haven Ireland: “the bankers, hedge funds got virtually everything they wanted”


Cross-posted with the Treasure Islands blog

The Financial Times is carrying an important and fascinating story about the tax haven of Ireland. It focuses on a particular issue which is dear to my heart, and the subject of a whole chapter of Treasure Islands.

This is, at heart, a story about how small financial centres become entirely ‘captured’ by financial services interests, with the deliberate removal of democratic checks and balances and carte blanche given to financial services interests to write laws in secret. This is exactly why I call offshore the ‘smoke-filled room,’ where gentleman arrange the world’s financial affairs over cognac and cigars.

In the ‘Ratchet’ chapter of Treasure Islands I compared Delaware’s Big Bang of 1981 with another episode in the British tax haven of Jersey a decade later, and discovered a remarkable, even astonishing similarity between the two. I would boil that down to three words: the Captured Financial State. And that is exactly, precisely what has happened in tax haven after tax haven. Cyprus, it turns out, was exactly the same: see here (and take a look at this astonishing and telling picture here.) And now the FT is reporting exactly, precisely the same thing in Ireland.

If you had time, a read (or re-read) of the “Ratchet” chapter in Treasure Islands will provide the necssary background. Then take a look at this latest, from the FT, discussing a meeting in November 2011 of top civil servants with top officials from the financial sector, amid painful austerity:

They met under the auspices of the “Clearing House”, a secretive group of financial industry executives, accountants and public servants formed in 1987 to promote Dublin as a financial hub.

This sentence will ring alarm bells with anyone who’s read the “Ratchet” chapter. But there’s more.

The participants thrashed out 21 separate taxation and legal incentives sought by the financial industry at the meeting, which took place in room 308 in the prime ministers’ offices.
. . .
“The lobbying was done in secret behind closed doors,” says Nessa Childers, an Irish member of the European parliament, who got minutes of the meeting using freedom of information laws last year. “The bankers and hedge fund industry got virtually everything they asked for while the public got hit with a number of austerity measures”.

There you have it. The minutes of the meetings, along with a statement from Childers, are provided by Childers here. The last sentence epitomises the captured financial state. For more details on how Ireland got captured, see this special report for TJN’s Financial Secrecy Index.

Now take a look at what happened in Cyprus. The very same phenomenon, in different form. It’s just the same in Jersey. And in Delaware. And the same, in more diluted forms, in Switzerland, the United States, and the UK.

This is what’s happening, all over the world. Anyone wanting to understand the offshore phenomenon needs to understand: this is what it is all about.