Tax Havens And The Cryptocurrency Renaissance – K.G. Abbot
The Offshore Leaks Database is a dataset composed of a multitude of leaked documents from a number of sources that is administered by the International Consortium of Investigative Journalists. Open to anyone who wants to dig around, even a cursory amble through the data shows how complex and, admittedly suspicious, these international dealings are. Even to a luddite such as this writer, eyebrows immediately rose when reading about how a single person can be the director of over a hundred ‘companies’ or how one office can be the registered address of a horde of different organisations.
For all their complexities, intricacies, bureaucracy, paperwork, and jargon, tax havens really depend on a singular element: secrecy. They are little else but locations of clandestine financial activity. Their game strategy is to protect the true identity of an originator, owner, or beneficiary. This secrecy facility allows entities to circumvent the rules and regulations of regions in which they might reside or do business. The term ‘tax haven’ is widely used, but nowadays it tends to be misleading since they offer so much more: financial services that allow both individuals and corporate entities to undermine laws that govern disclosure and transparency.
Indeed the Tax Justice Network (TJN) emphasises two words that this secrecy promotes: ‘escape’ and ‘elsewhere’ and prefers the term ‘secrecy jurisdiction’. The TJN is an independent and international group that formed in 2003. They are concerned with global finance and are pushing for “systemic change”. Their website states: “We could very loosely be described as a fast, flexible, expert-led, activist think tank. We are not politically aligned.”
The Tax Justice Network also maintains an index of financial secrecy. This is a measure of secrecy combined with offshore activities. The 2018 count shows 112 jurisdictions. Put perhaps a little simply, the rankings are based on the combination of a secrecy score (based on indicators) and a “Global Scale Weight” (their share of global financial services exports). Switzerland holds the prestigious position of being at the top.
Being world renown as the mother of offshore financial covertness, according to the TJN’s narrative report, Switzerland holds $6.5 trillion in under assets management with 48 percent originating abroad: “this made Switzerland the world leader in global cross-border asset management, with a 25 percent share of that market.”
It is no coincidence that many of these financial oases are also geographical ones too. Number three on the list is another famous secrecy jurisdiction: the Cayman Islands. This is an autonomous British Overseas Territory. Many jurisdictions on the list have had some form of British influence or interference at some point, much of it due to imperial rule. Combine this with the fact that the UK is home to one of the world’s most formidable and pre-eminent historical financial centres and this inescapably fosters — even after empires have receded — satellite locations with complimentary financial scaffolding. After these transformations have taken place, such a location will have been perfectly placed to offer unique services to their parent or agitator, but also remain free to adhere only to their own rules. Once communications technology had properly caught up, the expansion of the offshore banking system became all but inevitable.
The rise of the internet and the creation of blockchain technology gave the world its first completely decentralised digital money in 2009: bitcoin. This in turn has given rise to thousands of cryptocurrencies with names such as Etherium, Tether, Litecoin, Stella, Cardano, Zcash, Basic Attention Token, TrueUSD, Synthetix Network Token, Lisk, Karatgold Coin, Komodo, and so on. Not to be left behind, even Facebook is joining the fray with its own offering called Libra.
At the time of writing, according to CoinLore, one bitcoin is worth $9,202.25. Also at the time of writing, and according to Bullion By Post, one ounce of gold is worth $1,483.75. So just one bitcoin is currently worth over six ounces of the popular yellow stuff: something that, at one time, all fiat currency was leveraged against. You would be forgiven for thinking that the age of the cryptocurrency has arrived.
The cryptographic technology of the blockchain — credit to the unknown entity Satoshi Nakamoto — enables the information ledger of cryptocurrency to be available to all and accessible by none. In this fashion, everyone who uses the currency can take joint ownership of the whole system. No trust to a guardian or membership of an organisation is required. Transactions are untainted by data skimming by transglobal commercial leviathans such as Bank of America or HSBC. Even the parties involved need not trust one another because everyone has oversight. Is this then, the beginning of a financial utopia?
Yes. No. Maybe.
Cryptocurrencies are attractive because they are free from the intervention of big business and government. For all of their respective power and influence, should the wholesale adoption of cryptocurrencies take place, there is little these groups can do. To the disenfranchised, the poor, the wronged, and the overlooked, this prospect is mouth watering.
Head and Tails
There is another side to the digital coin. Most assuredly, without oversight, cryptocurrencies are left open to those who would exploit any weaknesses it might have. In an article by the BBC in August called “Facebook: UK privacy joint chief warning about cryptocurrency” Elizabeth Dunham, who runs the UK Information Commissioner’s Office, states warnings in regard to Facebook’s planned digital currency and its its potential lack of privacy. This is perhaps not surprising since Mr Zuckerberg has been subject to much scrutiny in that particular arena.
There appears to be a general hubbub currently as to the amount of privacy cryptocurrencies offer. Take the progenitor of the industry, for example — bitcoin. Bitcoin Magazine describes bitcoin not as being anonymous, but pseudonymous. In a nutshell, this means with some technical knowhow and tenacity, one can track backwards from a bitcoin transaction to both the originators and receivers. The narrative goes on and says: “If an address is used on an exchange that implements KYC — Know Your Customer — then that address may be easily linked to a real-world identity.”
A cryptocurrency exchange is a business platform that enables customers to swap their digital money for other assets, such as fiat currency (and other digital ones). It is important to note in the quote from BM above that they state “an exchange that implements KYC”. Exchanges, up until relatively recently, have been somewhat lacking in their due diligence. However, this appears to be gradually changing as more and more make concessions to regulation (a current news item being a case in point: Crypto Exchange Regulations are Coming to Hong Kong).
It is apparent that cryptocurrencies are at a crucial stage in their development. The emerging capitulation of exchanges to at least some regulation is a sea change in attitude in comparison to the budding days of the industry. To the establishment, cryptocurrencies were rebel tender and to the techno pioneers, they were a revolution. Are there some stark warnings to be heeded from the evolution of fiat currency though?
With each country there will come different rules by which an exchange must abide. This in turn will create a patchwork quilt of jurisdictions each beholden to their own values. Surely then, the opportunity arises for any enterprising group to forge crypto havens outside any regulating bodies or commercial governance? Would this not be akin to the same situation we face in the form of tax havens?
Needless to say, and as outlined by the Library Of Congress on a page on their website called “Regulation of Cryptocurrency Around the World”, the situation is inexorably increasing in complexity. Not only are there more currencies appearing, and not only are there more countries legislating for cryptocurrency use, there are also growing numbers of exchanges forever emerging. Each country, each business, and each currency, is jockeying for a premier place in this unique hinterland. With all the competition, let us hope eyes aren’t taken off the ball that might allow the proverbial fox into the hen house of this young and neoteric frontier. For globalisation means no secrecy jurisdiction is just an island.
KG Abbot is a freelance writer for hire offering copywriting, blogging services, and article creation. He creates content that ranks powerfully in online searches and social media attraction. Specializing in technological and environmental issues, he utilizes his ongoing master’s degree in creative writing to compose compelling material.
https://offshoreleaks.icij.org: Offshore Leaks Database by the International Consortium of Investigative Journalists.
https://www.taxjustice.net/faq/tax-havens/: The Tax Justice Network, Tax Havens.
https://www.financialsecrecyindex.com/en/introduction/fsi-2018-results: The Tax Justice Network, The Financial Secrecy Index.
http://www.financialsecrecyindex.com/PDF/FSI-Methodology.pdf: The Tax Justice Network, Financial Secrecy Methodology.
https://www.financialsecrecyindex.com/PDF/Switzerland.pdf: The Tax Justice Network, Switzerland Narrative Report 2018.
https://www.coinlore.com/all_coins: CoinLore Cryptocurrency Market.
https://www.bullionbypost.co.uk/gold-price/gold-price-per-ounce/: Bullion By post, Gold Price per Ounce.
https://www.bbc.co.uk/news/business-49244232: BBC News, “Facebook: UK Privacy Chief Joins Warning About Cryptocurrency”, Monday 5th August 2019.
https://bitcoinmagazine.com/guides/bitcoin-anonymous: Bitcoin Magazine Guide, “Is Bitcoin Anonymous?”.
https://bitcoinist.com/crypto-exchange-regulations-are-coming-to-hong-kong/: Bitcoinist, “Crypto Exchange Regulations Coming To Hong Kong
https://www.loc.gov/law/help/cryptocurrency/world-survey.php: Library Of Congress, Regulation Of Cryptocurrency Around The World.
https://ico.org.uk/about-the-ico/who-we-are/information-commissioner/: Elizabeth Denham, The Information Commissioner’s Office.
Published at Sun, 10 Nov 2019 18:07:30 +0000