 I'm Salvatore Bobonis and today's lecture is International Tax Havens. Some of the most liberal jurisdictions in the world are also some of the most notorious for facilitating the undermining of other countries' democracies, the International Tax Havens. International Tax Havens are mainly Anglo-American jurisdictions with extreme negative freedoms including most prominently extensive privacy protections. Estimates of the amount of money legally held in International Tax Havens run from 10.5 trillion US dollars to more than 30 trillion US dollars. The whole point is that nobody really knows the amount. Tax Havens provide the most dramatic demonstration of how negative freedoms can be used to disproportionately benefit societies richest and most powerful citizens. In Tax Havens, nominee executives and nominee directors serve as a legal face of companies while keeping the actual beneficial owners private. Companies and individuals that want to hide beneficial ownership structures put their wealth into shell companies registered to nominee directors. Beneficial ownership means the person who actually benefits from the proceeds of a company or the person whose money it really is. These beneficial owners are kept secret while nominee directors, that is people who have been legally nominated to be registered as the public face of the company, are actually recorded on the company's documents. Typically, these nominee directors are professional directors. They do nothing in life except maybe live a playboy luxury life in a Tax Haven and put their name on hundreds or even thousands of companies as a legal director. Nominee directors don't actually do any directing of these companies. In fact, they sign agreements saying that they will in all cases act at the direction of the beneficial owners. So the owners call all the shots, the nominee directors are merely the people who legally front for them. They do this in shell companies. Shell companies are companies that simply own other companies, that's all they do. So in a typical arrangement, a company or an individual that wants to hide its ownership of funds would establish a company in a country like the British Virgin Islands. That company in the British Virgin Islands doesn't actually do anything, it simply owns another company back in the original person's home country. So a rich Chinese billionaire would establish a company in the British Virgin Islands that has the sole purpose of owning his company back in China. Legally, his company in China is owned by a British Virgin Islands shell company, but in fact the beneficial owner is that original rich person back in China. Tax Haven jurisdictions provide privacy about these kind of arrangements. Only the company names and legal directors are recorded. No information about the actual operation of these companies and no auditing done by accounting firms. And even to get the names of the legal directors, you need a court order. So Tax Havens insist that they operate within the bounds of international legal norms, but it's very difficult to prosecute illegal activity if you have to know in advance that a company is engaged in illegal business before you can get the name of the director. The secrecy provisions ensure that it's almost impossible, especially when companies might be owned by a chain of 10 or 20 companies, each one owning the other and each one requiring a new court order to divulge that fact. Virtually impossible for courts in legitimate business jurisdictions to penetrate these shells of shell companies. Typically no actual money even flows through Tax Havens. The companies registered there are legal fictions, that is they are merely companies on paper existing in a post office box and in a computer entry. They're not companies that do any actual business whatsoever. International Tax Havens provide a high level of privacy or secrecy to companies that legally register in their jurisdictions and many of the typical countries and jurisdictions that appear in Tax Haven lists are shown in this listing from the Sydney Morning Herald of Tax Havens used by large Australian companies. They include Caribbean jurisdictions like Bermuda, the Cayman Islands, Turk and Caicos, British Virgin Islands as well as European jurisdictions like Jersey, Switzerland and Luxembourg. Not listed here is one of the world's largest Tax Havens, Panama. Panama was created as a country by the United States in 1902 for the purpose of cutting the Panama Canal. Panama was separated from Colombia with the support of US military intervention to obtain its independence and ever since 1902, Colombia has operated as a kind of American-sponsored Tax Haven and client state straddling the Caribbean Sea and the Pacific Ocean. In 2015-2016, there was a massive leak of papers or electronic papers from a Panama company from a Panama company that was a registrar of shell companies. The Panama company Mossack Fonseca had as its business the register of companies on behalf of other people and other companies worldwide. Mossack Fonseca would register companies in the British Virgin Islands or Panama or other jurisdictions on behalf of their clients without having any idea what those companies actually did, and as you can see in this graphic, they've registered hundreds of thousands of companies over the years to support all kinds of activities. Some of the kinds of activities supported by Tax Havens, for example, include tax evasion, corruption and even outright criminal activity. For example, the British Virgin Islands is the fourth largest source of foreign direct investment into China. The British Virgin Islands is a larger investor in China than the United States and the United Kingdom combined. It's unbelievable, except that, of course, the money is not coming from the Virgin Islands, the money is coming from the United States, the United Kingdom, and in many cases from China itself. British Virgin Island companies are owned by all sorts of rich Chinese, including those that are closely connected to the Chinese government itself. Money is often round-tripped through the British Virgin Islands to hide its original beneficial owner, so a rich Chinese person often with political connections will register a company in the British Virgin Islands that will then own his or her assets in China itself. Money being round-tripped that is sent from China out to the BVI and back to China in order to wash it or hide its origins. Of course, the desire of the rich and powerful to have these sort of tools also facilitates activities of actual criminal organizations that would also want to hide the origins of their money. And in fact, a former president of Panama is now, Emmanuel Noriega, is now in a United States prison precisely for participating in illegal drug organizations in an organized way, helping them evade or conduct financial operations through Panama. Key takeaways Tax havens are mainly Anglo-American jurisdictions that provide high levels of financial privacy or secrecy. They are often used to separate the beneficial ownership of a company from its registered legal identity. And finally, round-tripping is commonly used to hide the origins of money that is then reinvested in origin countries. Thank you for listening. You can find out more about me at SalvaturbaBonus.com, where you can also sign up for my monthly newsletter on global affairs.