Inside "secrecy jurisdictions"

Mon Aug 15, 2011 11:40am EDT

This is part of a special report on failed hedge fund DD Growth Premium.

By Sara Ledwith

LONDON (Reuters) - Alberto Micalizzi, the economics professor whose hedge fund collapse is the subject of a Reuters investigation, based his company in London but registered its funds in the Cayman Islands, one of the world's favorite places for the seriously wealthy to park their money. According to Nicholas Shaxson, a journalist and researcher for the Tax Justice Network, we ignore the Caymans and other financial playgrounds such as Jersey or Switzerland at our peril.

Shaxson's book, "Treasure Islands," published earlier this year, is a polemic that argues that the global web of 60 or so "secrecy jurisdictions" -- including Delaware, Panama, Ireland, the City of London, the Netherlands, and Mauritius -- hides several trillion dollars, a vast criminal economy, and plenty of repression.

Saddam Hussein, Silvio Berlusconi, Kim Jong-Il and Bono -- as well as most multinationals, banks and hedge funds -- have all made use of offshore havens, Shaxson says.

He argues that they foster a no-man's land where the proceeds of crime are handled as easily as legitimate flows. In today's offshore world, jurisdictions compete to lower the regulatory bar. One result: the rich get richer, and inequality increases.

Conspiracy theorists will enjoy "Treasure Islands." Though its assertions about crime suffer from a lack of specific examples, the book raises serious questions about what Shaxson, a former Reuters journalist, calls "the great untold story about big finance and the supremely powerful weapon it has deployed in its battle to capture political power around the world."

Besides evoking repressive insularity on the island of Jersey, Shaxson hones in on the Corporation of London, the "state within a state" that lies behind the City, as London's financial center is known. The Corporation predates parliament and has sent its own representative -- the ominously named "remembrancer" -- to Britain's lower house since 1571. His mission: to remind the monarch of their debt.

Political parties have abandoned pledges to abolish the Corporation, which runs funds including City Cash, "a private fund built up over the last eight centuries." It will never give any account of its assets, "because as a City established from time immemorial which has never been in debt, we are not required to give any public accounting." According to the book, a London journalist's efforts to use Freedom of Information requests to learn more about the Corporation's cash have been legally thwarted.

"It is time for the great global debate about tax havens to begin in earnest," Shaxson writes. "If we do not act together to contain and control financial secrecy then ... a tiny few will have their boots washed in champagne while the rest of us struggle for our lives in conditions of steepening inequality."

(Edited by Simon Robinson)

(Sara Ledwith)

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