The G20 should be leading the world out of the coronavirus crisis – but it's gone AWOL

In March it promised to support countries in need. Since then, virtual silence. Yet this pandemic requires bold, united leadership writes Gordon Brown in The Guardian

 

The G20’s video conference meeting in Brasilia on 26 March 26. Photograph: Marcos Correa/Brazilian Presidency/AFP via Getty Images


If coronavirus crosses all boundaries, so too must the war to vanquish it. But the G20, which calls itself the world’s premier international forum for international economic cooperation and should be at the centre of waging that war, has gone awol – absent without lending – with no plan to convene, online or otherwise, at any point in the next six months.

This is not just an abdication of responsibility; it is, potentially, a death sentence for the world’s poorest people, whose healthcare requires international aid and who the richest countries depend on to prevent a second wave of the disease hitting our shores.

On 26 March, just as the full force of the pandemic was becoming clear, the G20 promised “to use all available policy tools” to support countries in need. There would be a “swift implementation” of an emergency response, it said, and its efforts would be “amplified” over the coming weeks. As the International Monetary Fund (IMF) said at the time, emerging markets and developing nations needed at least $2.5tn (£2,000bn) in support. But with new Covid-19 cases round the world running above 100,000 a day and still to peak, the vacuum left by G20 inactivity means that allocations from the IMF and the World Bank to poorer countries will remain a fraction of what is required.

And yet the economic disruption, and the decline in hours worked across the world, is now equivalent to the loss of more than 300 million full-time jobs, according to the International Labour Organization. For the first time this century, global poverty is rising, and three decades of improving living standards are now in reverse. An additional 420 million more people will fall into extreme poverty and, according to the World Food Programme, 265 million face malnutrition. Developing economies and emerging markets have none of the fiscal room for manoeuvre that richer countries enjoy, and not surprisingly more than 100 such countries have applied to the IMF for emergency support.

The G20’s failure to meet is all the more disgraceful because the global response to Covid-19 should this month be moving from its first phase, the rescue operation, to its second, a comprehensive recovery plan – and at its heart there should be a globally coordinated stimulus with an agreed global growth plan.

To make this recovery sustainable the “green new deal” needs to go global; and to help pay for it, a coordinated blitz is required on the estimated $7.4tn hidden untaxed in offshore havens.

As a group of 200 former leaders state in today’s letter to the G20, the poorest countries need international aid within days, not weeks or months. Debt relief is the quickest way of releasing resources. Until now, sub-Saharan Africa has been spending more on debt repayments than on health. The $80bn owed by the 76 poorest nations should be waived until at least December 2021.

But poor countries also need direct cash support. The IMF should dip into its $35bn reserves, and the development banks should announce they are prepared to raise additional money.

A second trillion can be raised by issuing – as we did in the global financial crisis – new international money (known as special drawing rights), which can be converted into dollars or local currency. To their credit, European countries like the UK, France and Germany have already lent some of this money to poorer countries and, if the IMF agreed, $500bn could be issued immediately and $500bn more by 2022.

And we must declare now that any new vaccine and cure will be made freely available to all who need it – and resist US pressure by supporting the World Health Organization in its efforts to ensure the poorest nations do not lose out. This Thursday, at the pledging conference held for the global vaccine alliance in London, donor countries should contribute the $7bn needed to help make immunisation more widely available.

No country can eliminate infectious diseases unless all countries do so. And it is because we cannot deal with the health nor the economic emergency without bringing the whole world together that Donald Trump’s latest counterproposal – to parade a few favoured leaders in Washington in September – is no substitute for a G20 summit.

His event would exclude Africa, the Middle East, Latin America and most of Asia, and would represent only 2 billion of the world’s 7 billion people. Yet the lesson of history is that, at key moments of crisis, we require bold, united leadership, and to resist initiatives that will be seen as “divide and rule”.

So, it is time for the other 19 G20 members to demand an early summit, and avert what would be the greatest global social and economic policy failure of our generation.

On Shekar Gupta - An Indian supporter of Arthur Laffer

By Girish Menon

Arthur Laffer found his two minutes of fame first under Ronald Reagan and now under Donald Trump. He is famous for his statement that government revenues will be zero if the tax rate is either 0 or 100 %. He further prescribed that for government revenues to maximise it should be low enough to provide incentives for citizens to want to pay tax.

Sounds right doesn’t it?

I have some difficulties with Laffer’s proposition especially with the part that the tax regime should ‘provide incentives for citizens to want to pay tax’. Isn’t it the job of every citizen to pay the taxes levied by their elected government? And in the case of the rich isn’t this your preferred government? So why not pay your share of taxes to keep your side a winner?

Laffer, however, is pragmatic to realise that tax evaders (no matter their patriotic image) usually carry out a cost benefit analysis on the costs involved in avoiding taxes and the benefits that follow from it. If the benefits are higher than the costs then they make a rational choice to evade taxes either legally or even illegally.

And there is a big global economy involving tax havens, accountants and lawyers who have successfully convinced the rich that the benefits of tax evasion far exceed the costs.

Economists who support Laffer argue that money in the pockets of the wealthy is better off for the economy because they will re-invest in new businesses thus boosting the economy and will reduce unemployment and put the economy on the virtuous cycle of growth and prosperity for all.

However, historical data does not bother such economists and their followers. The period following World War II saw the highest rate of taxation.  In the bastion of free markets viz. the USA it was as high as 80% or more. Tax rates in welfare state European economies was similarly high too. This coincided with the best economic growth and employment rates in these economies till it was shattered by the oil price shock.

After Reagan followed Laffer’s advice in the 1980s European economies also followed suit but at no time has economic growth nor investment rates exceeded the 1950-60s. Despite the evidence to the contrary, these economies continued to cut tax rates even further; yet growth and investment rates have failed to match post World War II levels.

Shekar Gupta is one Indian journalist who appears to be a fan of Laffer’s tax cuts. On the one hand he argues that the rich will not be affected by the tax rate hike in the latest Indian government budget. In the same breath he also argues that the tax hike will affect investment in the Indian economy.

The Indian economy’s growth rate has been stalling for some time even before the current budget. Unemployment has been high and rising. Investment levels were low pre-budget, with many firms filing for bankruptcy. So does India need more investment or more consumption to utilise the already existing production capacity? 

Also, won’t the tax cuts if proffered by the Indian government find its way into tax havens and join the tranches of hot money circulating the global economy?

India in my opinion, needs a rise in consumption by the poorer and lower middle classes to boost demand within the economy. Now may be the time for PM Modi to redeem his promise made before the 2014 elections and give each countrymen the promised sum of Rs. 15 lacs in vouchers which they have to spend within a certain time period. This could help revive the economy.

What effect it will have on the environment is unimportant since climate change deniers seem to rule the world.

“Winners Take All”: Anand Giridharadas on the Elite Charade of Changing the World

We don’t want billionaires’ charity. We want them to pay their taxes

Owen Jones in The Guardian

Charity is a cold, grey loveless thing. If a rich man wants to help the poor, he should pay his taxes gladly, not dole out money at a whim.” It is a phrase commonly ascribed to Clement Attlee – the credit actually belongs to his biographer, Francis Beckett – but it elegantly sums up the case for progressive taxation. According to a report by the Swiss bank UBS, last year billionaires made more money than any other point in the history of human civilisation. Their wealth jumped by a fifth – a staggering $8.9tn – and 179 new billionaires joined an exclusive cabal of 2,158. Some have signed up to Giving Pledge, committing to leave half their wealth to charity. While the richest man on earth, Jeff Bezos – who has $146bn to his name – has not, he has committed £2bn to tackling homelessness and improving education.

Who can begrudge the generosity of the wealthy, you might say. Wherever you stand on the concentration of wealth and power in the hands of a tiny global elite, surely such charity should be applauded? But philanthropy is a dangerous substitution for progressive taxation. Consider Bono, a man who gained a reputation for ceaselessly campaigning for the world’s neediest. Except his band, U2, moved their tax affairs from Ireland to the Netherlandsin 2006 in order to avoid tax. Bono himself appeared in the Paradise Papers – a huge set of documents exposing offshore investments by the wealthy – after he invested in a company based in Malta that bought a Lithuanian firm. This behaviour is legal: Bono himself said of U2’s affairs it was “just some smart people we have … trying to be sensible about the way we’re taxed”.

And he’s right: rich people and major corporations have the means to legally avoid tax. It’s estimated that global losses from multinational corporations shifting their profits are about $500bn a year, while cash stashed in tax havens is worth at least 10% of the world’s economy. It is the world’s poorest who suffer the consequences. Philanthropy, then, is a means of making the uber rich look generous, while they save far more money through exploiting loopholes and using tax havens.

The trouble with charitable billionaires



There’s another issue, too. The decision on how philanthropic money is spent is made on the whims and personal interests of the wealthy, rather than what is best. In the US, for example, only 12% of philanthropic money went to human services: it was more likely be spent on arts and higher education. Those choosing where the money goes are often highly unrepresentative of the broader population, and thus more likely to be out of touch with their needs. In the US, 85% of charitable foundation board members are white, and just 7% are African Americans. Money raised by progressive taxation, on the other hand, is spent by democratically accountable governments that have to justify their priorities, which are far more likely to relate to social need.

What is striking is that even as the rich get richer, they are spending less on charity, while the poor give a higher percentage of their income to good causes. That the world’s eight richest people have as much wealth as the poorest half of humanity is a damning indictment of our entire social order. The answer to that is not self-serving philanthropy, which makes a wealthy elite determined to put vast fortunes out of reach of the authorities look good. We need global tax justice, not charitable scraps dictated by the fancies of the elite.

Nevis: how the world’s most secretive offshore haven refuses to clean up

Oliver Bullough in The Guardian


Tax havens hate attention. Places such as Jersey, Switzerland and the British Virgin Islands made a handsome living from helping their clients break other countries’ laws for decades, without anyone really noticing. And they liked it that way. Then came the 2007-8 financial crisis, and the good times ended. Rich nations, angry over the loss to their budgets caused by tax dodging, put diplomatic pressure on the havens. Activists, furious over the theft of hundreds of billions of pounds from poor countries, exposed them in the press. The release of vast troves of confidential information – SwissLeaks, the HSBC files, the Panama Papers, the Paradise Papers – cemented a public perception that offshore financial centres exist to help the powerful dodge their obligations to the rest of us, and governments have queued up to punish them. In May, when Britain’s parliament voted to force transparency on its Caribbean islands, it was just the latest blow to the offshore havens.

This concerted campaign has threatened the tax haven business model. Since Swiss banks were forced to open up by the US Department of Justice in 2010, their share of the world’s offshore wealth has dropped from almost half to less than a third. In the British Virgin Islands (BVI), where UK investigators now have access to corporate ownership information, the number of new companies created annually has fallen by more than 50% since 2012. Jersey’s banking sector is barely half the size that it was in 2007.

Although cooperating with outsiders in this way has proven expensive, the havens clearly concluded there was little choice. If denied access to the global financial system, or sanctioned by Brussels or Washington, an offshore centre could be put out of business altogether.

This is good. Tax havens have helped the world’s wealthiest and most powerful keep a disproportionate share of the benefits of globalisation, by preventing the rest of us from seeing how much they own. This, in turn, has eroded trust in democracy and capitalism all over the world. Restricting the operations of tax havens, and enforcing true transparency on the ownership of property, is crucial if citizens are truly to take back control of their countries’ destinies. 

Yet, at the heart of this increasingly encouraging picture, there remain a few holdouts – places that have stuck to the old habit of keeping the secrets of the powerful. Foremost among them is Nevis, a solitary volcano in the Caribbean with a population of just 11,000, which has been implicated in some of the most sordid financial scams of modern times, from Britain’s biggest-ever tax fraud to the fleecing of 620,000 vulnerable Americans in a $220m payday loan scam. The story of Nevis reveals the difficulties the world faces in trying to put an end to tax evasion, fraud and kleptocracy.

While Nevis’s rivals have lost business by opening up, Nevis has doubled down on secrecy. Not long ago, I spoke to a lawyer with extensive experience of the island, who asked not to be identified because he still needs to work with Nevisian officials. “The only good thing that Donald Trump could do, if he was ever so inclined,” he said, “is take a battleship and roll it up to Nevis, and literally train the guns and say: ‘Get rid of these bullshit laws or I’ll blow you to kingdom come.’”

In short, he said, “A bright light needs to be shone on this cockroach.”

Tax havens are often lumped together as if they all do the same job. In reality, they are distinctive and highly specialised predators in the financial shark tank. At the top of the food chain – as far as the western world goes, anyway – are places such as London, Switzerland and New York. These apex predators are surrounded by clouds of pilot fish that snap up the scraps: places such as Monaco, Jersey and the Cayman Islands.

These smaller centres all play different aspects of the offshore game: Jersey specialises in trusts, the BVI in incorporation, Liechtenstein in foundations. They also differ in their tolerance for criminality. Among the British territories: Gibraltar is dodgier than Guernsey, but cleaner than Anguilla. And they serve different geographical regions: Mauritius for Africa and India; Cyprus for the former Soviet Union; the Bahamas for the US.

In the world of offshore, Nevis is a bottom-feeder. It specialises in letting its clients create corporations with greater anonymity than almost anywhere else on earth. Last year, information on 70,000 Nevisian companies was leaked as part of the Paradise Papers investigation, but that didn’t help us find out who owns them: ownership information is so secret there that even the island’s own corporate registry doesn’t know. In other words, there was nothing substantial to leak.

“We feel very strongly that people are entitled to some semblance of financial privacy,” the Nevis premier, Mark Brantley, himself an offshore lawyer, told me when we met in his office in January. “Why shouldn’t you be entitled to a secret?”

The secrets don’t belong to residents of Nevis, of course: it would be hard to keep anything quiet for long on an island this size. The secrets belong to foreigners and are being kept from other foreigners, with Nevis getting paid to protect them.

A satellite image of St Kitts and Nevis (the smaller island to the bottom right). Photograph: Planet Observer/UIG/Getty/Universal images

We can see that these secrets exist thanks to the UK’s Land Registry, which releases spreadsheets listing all offshore-owned property in the country, along with the registered address of the company that owns it. Some of the secrets are mundane and could be entirely innocent. For instance, who is behind Shi Li Gao Trustees Ltd, the Nevis-incorporated company that owns 13 Brunswick Gardens, a handsome terrace a short walk from Kensington Palace? Some of them are intriguing: for what reason would a Catholic primary school in Liverpool be held via this little Caribbean volcano? And some are decidedly weird: who on earth decided to structure their ownership of a room in a hotel on Llandudno’s North Parade through Caribbean Establishment LLC?

But all of these questions are impossible to answer since the secrets are sealed away in Nevis. If these properties were owned via a British company, the true owner of that company would have to be declared to Companies House, and would be visible to anyone with access to the internet. If they were owned via a BVI company, that information would be available to the British police. But a Nevisian company is a closed book, and some people really like it that way.
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While the BVI has seen the number of companies created there each year collapse, the number created in Nevis has stayed stable. Since 2012, the island’s financial services sector has grown by more than a quarter, as people with secrets have moved to a place that still keeps them. That is a pretty good argument for Brantley’s government not to follow the BVI in opening up its corporate registries to foreigners. Secrecy pays.

“The numbers are relatively small, compared to other financial services industries around, but bear in mind the size of Nevis,” Brantley said. “We get direct revenues of $5m-$5.5m, simply from renewal fees.” Renewal fees are what you pay to maintain your company’s registration; the more companies there are, the more fees you get. “When that is extrapolated outwards – in terms of rental of office space, employment – we recognise that it does have a multiplier effect on the economy.”

It is this provision of secrecy that makes Nevis such an obstacle to law-enforcement investigators. If police can’t prove who owns something, they can’t prove it was criminally acquired, say, or that tax was avoided on the profits from it. This is what crooks are looking for when they send their business offshore. Around 300 British properties are owned in Nevis, and Brantley was unrepentant in defending the secrecy his island provides to those properties’ owners.

“Why should a bureaucrat in London, or wherever, curious about his neighbour’s financial situation, pick up the phone and say, ‘You know what, I need to know if Mr John Smith, who’s my neighbour down the road, has an account or a company in Nevis.’ Why’s that his business?” Brantley asked. “Why are Mr John Smith’s financial affairs any business of a bureaucrat in London, unless there’s an allegation against Mr John Smith that he’s somehow contravening some law somewhere?”

It is an interesting philosophical question, but it is also a major problem. Countries recognise and respect each other’s laws and sovereignty, so Nevis corporations have as much international validity as anyone’s. So, as long as Nevis persists in denying foreigners access to the ownership information of its companies – no matter how hard other places work to open up – scoundrels can keep routing their business via Nevis, breaking the chain of traceable ownership, and hiding themselves and their crimes from discovery. That means crooked politicians, tax dodgers and fraudsters in Ukraine, Nigeria, Malaysia, the US or anywhere else get to mismanage their country’s finances for their own benefit.

And, thanks to Nevis’s curious constitutional situation – it is neither an independent country nor can it be controlled by any other country – there doesn’t appear to be anything we can do about it.

From the sea, Nevis (pronounced “knee-vis”) resembles a green nipple. It is elegantly symmetrical, a tropical volcano ringed with golden beaches. By surface area, it is roughly the same size as Bristol, yet its peak is taller than any mountain in England, so the whole island slopes upwards, starting gently where the beach bars shelter among the palm trees, then steadily steepening, while the tree cover gets denser. If you hike up the peak, you are in true rainforest, and will find yourself scrutinised by monkeys in the overhanging greenery.

It is a gorgeous place, much frequented by famous people. Earlier this week, John Cleese told Newsnight he was so fed up with how Britain is run that he is moving to Nevis for good. “It’s one of the nicest islands I’ve ever been to,” he said. “The children and adults are extraordinarily well-educated, the weather’s good the whole time, I’m very lucky.”

The island was once a major centre for Britain’s sugar growers and slave traders, but it slipped into obscurity in the 18th century, when it was out-competed by larger and more fertile rivals. In the 19th century, Britain added it to neighbouring St Kitts for administrative purposes, and it was as the junior half of the Federation of St Kitts and Nevis that it became independent in 1983.

The 80s were a bonanza period for Caribbean islands, as the global economy opened up and law enforcement was caught flat-footed. Tax evaders and drug dealers from North and South America flew planeloads of dollar bills into places such as Cayman and Anguilla, stashed them in bank accounts owned by untraceable shell companies, then invested them in property in Florida, the south of France or New York.

In 1984, Bill Barnard, an American lawyer who had taken to vacationing on Nevis, asked the island’s premier if he would be interested in getting into the offshore game. Thanks to the almost complete autonomy Nevis enjoys under the federal constitution of St Kitts and Nevis, its first premier, Simeon Daniel, was free to do what he liked. He approved Barnard’s suggestion, passed the incorporation and secrecy laws the American lawyer drafted and awarded Barnard’s company, Morning Star Holdings, the right to act as exclusive agent for creating the companies. It was a win for both of them. (Neither Morning Star Holdings nor Barnard wished to comment for this piece.)

At first, Nevis struggled to compete with already-established rivals, partly because it had no particular advantage of its own. Barnard and his team of American lawyers had borrowed their legislation from Delaware, which acts as a sort of tax haven within the US by offering laxer regulations and lower taxes than the other states, so there wasn’t much reason to look to a remote island for products you could already buy elsewhere. “It was certainly successful,” says David Neufeld, a New Jersey lawyer and an expert on company structuring and international tax. “But it was never at the level of BVI or Cayman.”

 

Long Haul Bay, Nevis. Photograph: Michael Runkel/Robert Harding/Getty
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When Barnard’s monopoly expired in 1994, Nevis took the opportunity to reboot. Neufeld already worked with Barnard, and was asked to help Nevis diversify its offering. Tax havens are always borrowing ideas from each other, seeking to improve on laws that are proving popular – and this process has led to progressively greater secrecy, fewer taxes and lighter regulations. Neufeld looked to the USnited States for inspiration, and specifically to Wyoming, which had invented the limited liability company (LLC), a useful hybrid structure that allowed people to avoid identification and taxes at the same time, as well as offering other benefits.

LLCs make it hard for your creditors to find your assets, which also helps rich people avoid paying damages if they lose a lawsuit. Your creditors may have a court judgment against you, but if they can’t find your stuff, they will settle for perhaps 50 cents on the dollar to get the legal wrangling over with. Lawyers call this asset protection.

But in the US, it is hard to hide property, since courts can order disclosure of information. Handily, those courts have no jurisdiction in Nevis, which made the idea of a Caribbean version of the LLC very attractive. “In my mind, I was trying to create an LLC for the 51st state,” Neufeld told me. “If you see yourself as someone who could be exposed to some kind of predatory lawsuit where people feel you have assets that are exposed, this gives you an opportunity to protect that.”

In simple terms, Nevis’s laws allow rich people to put ramparts around their property, to protect it from someone who might want to use the courts to take it away, whether that be a business partner, a spouse, an estranged child, or indeed anyone. All tax havens do this, but Nevis turned the ratchet many clicks further than its rivals, in its efforts to tempt business away from its rivals.

To bring legal proceedings on Nevis, you have to file a bond of $100,000 with the court as proof that your case isn’t frivolous. If you win, that is only the beginning of your quest for the assets. Nevis’s regulator holds no information on either the ownership of the company or its assets. Nevis’s LLCs – Neufeld’s innovation – can’t be wound up, meaning you won’t be able to confiscate any assets they own, and you would have to seek redress elsewhere. If you seek to challenge the legality of a property being put in a Nevis-registered trust – for example, if you thought the property actually belonged to you – you have to prove beyond reasonable doubt that the trust’s creation was fraudulent, and you would have to begin that legal challenge within a year of its creation. This is tricky, since Nevis law requires all information on the trust to be confidential, so you would be unlikely to know it even existed.

These ludicrously formidable defences are not really intended to be used, but instead – like the bright colouring of a poisonous tree frog – they exist to warn you off attacking in the first place. If they can persuade a plaintiff to settle out of court for less than is owed, then, for a rich person with vulnerable assets, they are well worth paying for.

“I don’t like the word ‘hidden’,” says Laurie Lawrence, who retired a couple of years ago after two decades as permanent secretary to the Nevis government. “It’s protected, not hidden. There’s nothing to hide. Look at it from the other way: a lot of females are gold-diggers. You are married to a man; you don’t really love him, but he has money. People find ways and means to protect their assets.”

This is perhaps why a wealthy person might want to own a Kensington house (or, indeed, a Llandudno hotel room) via a Nevisian company or other structure: it prevents a divorced spouse, or any other creditor, from accessing that property, without a tortuous legal process. “Nevis structures started coming up about 12 years ago, and they’re coming around with increasing prevalence,” Jeffrey Fisher, one of America’s leading divorce lawyers, told me by telephone from West Palm Beach in Florida.

“I’m a former prosecutor, and I know about the ways people hide money, and what they’ll do,” said Fisher. “My approach to getting assets that are in asset protection entities like a Nevis LLC, is that you don’t go to Nevis and try to get the money out – that is a foolhardy enterprise. They passed laws and they set up structures to stop us and to make it expensive and to make it take years and years and years. What we do here is we use some more creative approaches to, for lack of a better term, make them cough up the dough.”

Fisher’s approach is to target property and bank accounts in the US, to make his opponents’ lives so onerous that they eventually beg to settle – and he’s extremely good at it. The trouble is that anyone who cannot afford to employ highly expensive specialists such as Fisher has no prospect of even finding where their spouse has put their property, let alone wrestling a fair share away from them. They have to accept what they’re given – there’s no court that can help them.

“You’ve got to realise that the asset protection industry is trillions of dollars, not billions of dollars, it’s trillions of dollars,” said Fisher. “Essentially, it’s: we’re going to find a way to screw legitimate creditors out of collecting a legitimate debt. That’s the business these people are in.”

Brantley, the Nevis premier, is fluent and passionate in his defence of the ramparts that Nevis builds for rich people looking to protect their assets from creditors. “All it does is say that you’re creating a locked box, so to speak, if you want to protect assets,” Brantley said, when we met in his office up the hill from Charlestown, Nevis’s capital village. “And people protect assets for a variety of reasons. It’s not always to get away from a pending divorce.”

The trouble is that when you cast your eye beyond the divorce cases, Nevis’s business model begins to looks even worse. The Nevis financial system is rudimentary compared to the large tax havens – places such as Jersey, or the Cayman Islands, which have major accountancy firms, fund managers, large banks and other global behemoths. In Nevis, there’s precious little money for anyone to avoid tax on. But then, it isn’t really a haven from taxes at all, so much as a haven from scrutiny of any kind. The same laws that appeal to the kind of nervous and wealthy men who want to hide their assets from their wives, have been regularly exploited by crooks from all over the world.

Britain’s biggest-ever tax fraud – for which five men were jailed in November, after attempting to scam the Treasury out of £107m in tax – involved Nevis-registered companies, which were helping to hide the identity of the fraudsters. The family of a former president of Taiwan used a Nevis trust to help to hide its ownership of corruptly acquired US property. Ukraine’s deposed president, Viktor Yanukovych, used Nevis structures to hide his stolen assets, as did corrupt Russian officials who stole $230m from the budget in 2007. (When the accountant Sergei Magnitsky uncovered the scam, they arrested him and left him to die in jail.) British trader Navinder Sarao, who pleaded guilty to fraud for helping cause 2010’s flash crash, diverted some of his profits to a Nevis structure called the NAV Sarao Milking Markets Fund.

According to the independent advocacy group Tax Justice Network, Nevis out-obscures all the traditional offshore centres: BVI, Switzerland, Guernsey, the Isle of Man, Luxembourg, and even fellow bottom-feeders such as Belize and the Cook Islands. And its enthusiasm for secrets impedes other countries’ efforts to enforce transparency.

To see how, just look at the UK. In theory, it has always been possible to find out who a British company’s shareholders are, but until recently there was a loophole. If a company was owned offshore, shareholders could preserve their anonymity. To combat this, in 2016, the government brought in a law that requires UK companies to declare the identity of their true owner or owners: any person with significant control (PSC). (Defined thus: “A person of significant control is someone that holds more than 25% of shares or voting rights in a company, has the right to appoint or remove the majority of the board of directors or otherwise exercises significant influence or control.”) This new system is imperfect, not least because Companies House doesn’t check the information provided to it, but it’s a step towards full transparency, and part of the UK’s commitment to stop its companies being used to enable tax dodging and kleptocracy.

But a search of the Companies House website reveals how Nevis is able to defang Britain’s attack on secrecy. For instance, I recently came across three LLPs, all of which are owned by the same two Nevis companies: Tallberg and Uniwell. According to data gathered by the Organised Crime and Corruption Reporting Project, one of these LLPs controlled a Latvian bank account used in a money-laundering scheme; the other two have not been implicated in any wrongdoing (and neither have Tallberg and Uniwell).

According to Companies House, the three LLPs have the same ownership structure, which means that their person or persons with significant control should be the same. Mysteriously, however, each of the LLPs is listed as having a different PSC. This is technically possible, but highly unlikely. But we have no way of finding out the truth, since Nevis does not cooperate with the UK in allowing law enforcement officers to see who really owns Nevisian companies such as Tallberg and Uniwell. These three LLPs are not isolated examples – Tallberg and Uniwell alone have owned dozens of British companies, and there are many more Nevisian corporations like them.

The new UK law requiring disclosure of true owners is useless if that ownership can just be hidden in Nevis. And this is why Nevis-controlled but British-registered companies, whose ownership is unclear, have been involved in many of the massive eastern European money-laundering scams collectively known as the “laundromats”, which have moved tens of billions of dollars out of the former Soviet Union. Nevis ownership can transform a supposedly transparent British company into a secrecy vehicle as iniquitous as anything on earth.

In the words of Jack Blum, a veteran investigator of corruption who has worked for the UN and the US senate: “If somebody finds out that there’s a Nevis corporation involved [in a scam], and they go to Nevis, they could waterboard the entire board of directors and nobody would know anything.”

Charlestown is a handsome place, consisting of a long street of two-storey buildings parallel to the shore, many with first-floor balconies for catching the sea breeze. Its most striking feature, however, is the truly remarkable number of signs advertising lawyers, accountants and administrators. The Devon town of Ilfracombe, with its 11,000 inhabitants, has two lawyers’ offices, an insurance company and two sets of accountants, as well as a branch of Lloyds and a Nationwide. The 11,000 Nevisians, by contrast, host six domestic banks, one international bank, 18 insurance managers, seven international insurance entities, four money service businesses and 58 registered agents, many of them law firms. Nevis may be the most over-lawyered place on earth.

When you get off the ferry, almost the first house you see is the Henville building, nominal home to the Azerbaijan first family’s business empire. If you then turn right at the T-junction, you see the Edith Solomon building (although it has lost two of the letters from its name), which hosted an Idaho payday loan company that was shut down by the state government in 2012, for operating without a license. Barely 100 metres in the opposite direction on Main Street, meanwhile, is the office of Morning Star Holdings, pioneers of the Nevis offshore industry.

I was keen to find the registered address of Tallberg and Uniwell, the two Nevisian companies that had so successfully outmanoeuvred UK company law, in the – admittedly, rather forlorn – hope that I could find someone who would give me information about them. Their registered address was the same as that of the Nevis International Trust Company (NITC), which, according to its website, will supply you not only with a shell company, but also with nominee directors and shareholders, which will further obscure your involvement in it, as well as a bank account, a credit card and a stock trading account. “Nevis is an excellent location for: privacy, estate planning, asset protection, tax reduction planning, holding investments, royalty and licensing ownership,” the website states.

I had an address for the NITC’s office, but no one on the island was able to tell me where it was. I spent a frustrating, hot and thirsty morning searching for it and, when I finally got through on the phone, was brushed off. “I’m not a robber,” I told the woman who answered the phone, after she had refused to help me. “I don’t know that, do I?” she replied.

In fairness, she had a good reason not to talk. According to a 1985 law, anyone on Nevis disclosing financial information without a court order is liable to a prison term of up to a year, as well as a fine of $10,000. (This is another area where Nevis is resisting the trend towards openness. Cayman previously had a similar law against breaching confidentiality, but decriminalised the offence in 2016.)

When I tried phoning the registered office of Tallberg and Uniwell, the receptionist refused to even tell me where the office was, so I couldn’t visit. When I emailed the NITC, there was no reply. Eventually I had to accept that it was not going to be possible to make contact with them, which meant the true ownership information for the three LLPs was undiscoverable.

 

Nevis, looking up at the volcano. Photograph: Marka/Getty

And it is not just journalists who are unable to check the reliability of Nevis’ financial information for themselves; foreign police can’t either. That means we are all reliant on the Nevis financial services regulatory commission to do it for us. The commission is based in an office in the centre of Charlestown, and is run by Heidi-Lynn Sutton, its chief regulator, who works in an office on the first floor.

Sutton started off unfriendly, and became less friendly as our 45-minute chat progressed, her manner becoming increasingly exasperated. She flatly dismissed the US state department’s description of Nevis as “a desirable location for criminals to conceal proceeds”. It was simply untrue, she said, that Nevis had anonymous bank accounts, bank secrecy and an opaque corporate register.

This was odd, since her regulator’s own website states that bank account holders on the island have no obligation to provide any “statement, return or information (to) … the regulator or the minister”. However, Sutton defended Nevis against all allegations, no matter how serious. The heavy cost of bringing proceedings in Nevis court, for example, was simply to protect the justice system from being “bombarded with frivolous lawsuits”, rather than to protect the wealthy. “That is our weeding-out mechanism,” she said. “Some countries are very litigious. If you get a little burn on your hand because you spill a McDonald’s coffee, somebody will sue you.”

When I explained the difficulty I had faced in even finding NITC, Sutton laughed, asking why I was looking for it. I explained that I had hoped to discover who actually owned the limited partnerships on the British registry. When I asked about whether the regulator she runs might have failed to notice a number of serious money-laundering schemes, she simply said: “I can’t speak to that, I really cannot speak to that.”

What about the fact that the former ruling families of Taiwan and Ukraine, as well as lower-profile crooks from all over the world, had used Nevis vehicles to obscure the ownership of their stolen assets? Sutton laughed again. “I can’t accept that there has been multiple usage of our structures to facilitate whatever. I can’t accept hearing it from you. I won’t be able to speak to that.”

If the island is so clean, why did online trolls looking to smear Emmanuel Macron before the 2017 French presidential election create fake documents supposedly showing he had a shell company in Nevis? Isn’t that a sign that the industry Sutton oversees has an image problem? “People make things up all the time,” she replied. “Once you are an international financial centre, and provide certain services, you will always be a target, it doesn’t mean that it’s true.”

I have spent most of the last four years researching financial crimes, and have spoken to dozens of regulators and investigators in multiple jurisdictions, but never before had I met one who responded in such a way to allegations of grand corruption, money laundering and fraud that I was making against their jurisdiction.

Like any financial centre, Nevis must choose between turning away dirty money, or attracting as much business as it can. I did not find my visit to Nevis reassuring.

Since Nevisian officials appear happy with the current situation, it is up to outsiders to force change on the island, and sadly – thanks to the constitutional peculiarities of the federation – this is all but impossible. We know this because it has been tried.

In 1995, in federation-wide elections, the St Kitts and Nevis Labour party swept to power with seven of the 11 federal seats, and its leader, Denzil Douglas, became prime minister. He had no seats on Nevis, but did not need any to pass laws for the whole federation. Among his priorities was restricting Nevis’ sordid financial sector. “We were aware that the international community had begun to frown upon Nevis, and on the international financial services that were poorly regulated, not supervised, etc,” said Douglas when we met in his office in Basseterre, the federal capital, which is on St Kitts. “And we sought to bring in new legislation. So they had their referendum.”

The federal constitution allows Nevis to hold a referendum on secession whenever it wants to, and so, in 1998, annoyed by Douglas’s attempt to rein in its lawyers, it did. And 62% of Nevisians voted to break free of their neighbours, which was not quite enough to reach the two-thirds super-majority that the constitution demanded, but enough to make Douglas and his government back down. “The government has no choice,” Douglas said, “because we’ve tried.”

In 2000, the Financial Action Task Force – a Paris-based group created by the G7 to develop policies against money-laundering – blacklisted the whole of St Kitts and Nevis, as one of 15 countries deemed to be non-cooperative. That forced Nevis to agree to federal legislation, but did not change the basic dynamic that it has significantly more autonomy than Scotland has within the UK, and in some ways more than individual US states. One financial professional in Basseterre described the relationship between Nevis and St Kitts as like that of a teenager with access to his big brother’s credit card.

Even if Premier Brantley were not ideologically committed to selling privacy to wealthy foreigners, his government’s statistics provide plenty of reasons for him to favour maintaining the country’s opaque company-registration system on purely pragmatic grounds. Fees from incorporating companies and renewing their registration made up more than 16% of Nevis’s government revenue in 2015, up from less than 12% in 2014.

None of the tools that large countries have used against tax havens such as Switzerland or Jersey – diplomatic pressure, legal proceedings against banks, and so on – are applicable to Nevis. It is part of a fully independent country (unlike the BVI or Gibraltar) and the companies providing its services (unlike the Swiss banks targeted by the US Department of Justice) are not large enough to fear losing their offices in the US.

Major western countries will have to make their criticism of Nevis via diplomatic channels, if they want it to change its ways. Brantley got his retaliation in first, however, accusing the British government of hypocrisy.

“It is no secret that the UK, and London in particular, has a disproportionate number of wealthy Russians, for example, and wealthy oligarchs from all around the world, and the question is: why? It can’t be for the weather. So, why are people flocking to London? So, if the United Kingdom can do that, then what is the issue with other countries, not as endowed as the UK, trying to stand on their own two feet?”

The issue is that if every jurisdiction thinks only of how to stand on its own two feet – whether that’s post-Brexit Britain, Nevis or Wyoming – we will all be pushed over separately by the world’s crooks and thieves. Brantley is right that we all need to do more to fight kleptocrats and fraudsters, but by keeping their secrets and making money from it, Nevis is stopping the rest of us from moving forward.

Oligarchs hide billions in shell companies. Here's how we stop them

The Panama Papers have helped tax authorities recover over $500m around the world. Property registries could ensure that even more is recovered

Frederik Obermaier and Bastian Obermayer in The Guardian 

 

According to Navi Pillay, the former UN high commissioner for human rights, ‘The money stolen through corruption every year is enough to feed the world’s hungry 80 times over.’ Photograph: Arnulfo Franco/AP


Two years ago we published the Panama Papers after an anonymous source provided 2.6 terabytes of internal data from the dubious Panamanian law firm of Mossack Fonseca. We shared the data with 400 journalists worldwide and together revealed how the wealthy and powerful use shell companies to hide their assets. Such companies are exploited by dictators, drug cartels, mafia clans, fraudsters, weapons dealers and regimes like North Korea and Iran to hide their shady business transactions.


As a consequence, Sigmundur Davíð Gunnlaugsson, the prime minister of Iceland, resigned. Pakistani prime minister Nawaz Sharif did the same, and in the United Kingdom even David Cameron’s father was implicated. So far, the Panama Papers have helped tax authorities around the world to recover more than $500m in unpaid taxes and penalties. It could be far more if lawmakers finally take action.

After publishing the Panama Papers, we have heard a lot of promises from politicians around the world. They have talked about the need for transparency, and while the discussion is warm, the details are complicated: a multilateral exchange of information and stronger anti-money laundering regulations are as difficult to implement and control as they sound.

But why bother? There is a far less bureaucratic and more powerful measure: public beneficial ownership registries. Databases in which citizens can easily access and explore the owners of companies. Not the nominee director, not the fake shareholder – the real owner. The person at the center of the matryoshka-like corporate structures, or, as experts refer to them: the ultimate beneficial owner of a company.

A database of actual owners would enable companies to check with whom they are actually doing business with. It would enable activists, journalists and skeptical citizens to investigate the individuals running dubious companies which earn millions in alleged “consulting contracts”, which are in many cases nothing more than concealed payments of corruption money. It would also give prosecutors the opportunity to follow dark money without having to rely on nerve-racking, time-consuming legal maneuvers with foreign governments.

Searchable by company and by individual names, it would enable investigators to see if Dictator X or Autocrat Y owns companies in Country Z. Combined with a public property register, it would narrow, if not close, loopholes which allow oligarchs and their relatives to betray their own citizens and stash plundered money across the globe.

Creating beneficial ownership registries will not be easy. Recently, the UK House of Lords rejected an attempt to force overseas territories under British control to create said registries. And in the United States, where some states make it more difficult to vote than to start a company, there has yet to be any reasonable public discussion about creating these transparent registries, making America a willing accomplice in global corruption. The treasury department in 2015 estimated that approximately $300bn in illicit proceeds are generated in the US per year!

Critics of public beneficial ownership registries often say that exposing company owners could put them in danger of blackmail or even kidnapping. However, no data supports such claims and there will likely never be any. As it is, the financial elite often surround themselves with the symbols and spoils of wealth, such as big cars, yachts and villas. There is no desire to hide their treasure; in fact, they often flaunt it.

Corruption is a scourge. It hits the poor first and hits them hard. Whole continents are plundered, the proceeds of human trafficking are laundered, wars are financed and violent religious extremism is supported.

The word “corruption” comes from the Latin “corrumpere”, which can mean “to destroy”. Corruption destroys democracy. Corruption costs citizens extraordinary amounts of money. According to estimates, corruption consumes more than 5% of the global gross domestic product.

Developing regions lose more than 10 times the money they receive in foreign aid to illicit financial schemes. Without corruption and the shell companies that make it possible, there might be no need for aid to Africa or Asia. Most importantly, corruption kills. According to Navi Pillay, the former United Nations high commissioner for human rights, “The money stolen through corruption every year is enough to feed the world’s hungry 80 times over”.

As Louis Brandeis, the late associate justice of the supreme court of the United States, once pointed out sunlight is the best disinfectant. Hence let the sunshine in! Lawmakers must make public beneficial ownership registries a priority to ensure that institutions remain transparent and democratic.

There is no legitimate reason to allow individuals to own anonymous companies or to help new “entrepreneurs” to create them. Lava Jato in Brazil, the Fifa scandal and nearly every other major corruption case have involved opaque company structures created to bribe, receive bribes or to hide dirty money.

Financial crimes rely on exploiting anonymous companies and trusts, and secrecy jurisdictions like the British Virgin Islands, the Cayman Islands and the states of Delaware and Nevada are partners in those crimes. They must be held accountable.

Waiting for a global solution means waiting a long time, if not forever. The only way to draw the corporate curtain back and expose corruption is for lawmakers to work in the public interest and create public beneficial ownership registries and public property registries now. The more countries that adopt these measures, the less places dictators, human traffickers, weapons dealers and oligarchs can hide.

Lawmakers that claim to stand against corruption should do so by fighting for these kinds of registries now, or forever hold their peace.

How a tax haven is leading the race to privatise space

Atossa Araxia Abrahamian


On a drizzly afternoon in April, Prince Guillaume, the hereditary grand duke of Luxembourg, and his wife, Princess Stéphanie, sailed through the front doors of an office building in the outskirts of Seattle and into the headquarters of an asteroid-mining startup called Planetary Resources, which plans to “expand the economy into space”.

The company’s engineers greeted the royals with hors d’oeuvres, craft beer and bottles upon bottles of Columbia Valley rieslings and syrahs. In the corner of the lounge stood a vintage Asteroids arcade game; on the wall hung an American flag alongside the grand duchy’s own red, white and blue stripes. Between the two flags was a prototype of a spacecraft designed to roam the galaxy, prospecting asteroids for precious natural resources that would someday – at least in theory – make the shareholders of Planetary Resources very wealthy earthlings indeed.

The nation of Luxembourg is one of Planetary Resources’ main boosters. The country’s pledge of €25m (£22.5m) – which includes both direct funding and state support for research and development – is just one element of its wildly ambitious campaign to become a terrestrial hub for the business of mining minerals, metals and other resources on celestial bodies. The tiny country enriched itself significantly over the past century by greasing the wheels of global finance; now, as companies such as Planetary Resources prepare for a cosmic land grab, Luxembourg wants to use its tiny terrestrial perch to help send capitalism into space.

Space exploration has historically been an arena for grand, nationalistic operations that were too costly, dangerous and complex for civilians to take up without state backing. But now, private companies now want in, raising questions that, until recently, have seemed like mere thought experiments or hypotheticals: who can lay claim to an asteroid and all of its extractive wealth? Should space benefit “all of humankind”, as the international treaties signed in the 60s intended, or is that idealism outdated? How do you measure those benefits, anyway? Does trickle-down theory apply in zero-gravity conditions?

Space is becoming a testing ground for these thorny ethical and legal questions, and Luxembourg – a tiny country that has sustained itself off of regulatory intricacies and tax loopholes for decades – is positioning itself to help find the answers. While major nations such as China and India plough increasing sums of money into developing space programmes to rival Nasa, Luxembourg is making a different bet: that it can become home to a multinational cast of entrepreneurs who want to go into space not for just the sake of scientific progress or to strengthen their nation’s geopolitical hand, but also to make money.

It already has a keen clientele. Space entrepreneurs speak of a new “gold rush” and compare their mission to that of the frontiersmen, or the early industrialists. While planet Earth’s limited stock of natural resources is rapidly being depleted, asteroid miners see a solution in the vast quantities of untapped water, minerals and metals in outer space. And the fledgling “NewSpace” industry – an umbrella term for commercial spaceflight, asteroid mining and other private ventures – has found eager supporters in the investor class. In April, Goldman Sachs sent a note to clients claiming that asteroid mining “could be more realistic than perceived”, thanks to the falling cost of launching rockets and the vast quantities of platinum sitting on space rocks, just waiting to be exploited.

“[Mining asteroids] is not a new idea, but what’s new is state support of the idea,” says Chris Voorhees, the chief engineer of Planetary Resources. “Everyone thought it was inevitable but they weren’t sure when it would occur.” Now, he says, Luxembourg is “making it happen”.

The grand duchy – which has all the square footage of an asteroid and, with a population of half a million, not all that many more inhabitants – has earmarked €200m to fund NewSpace companies that join its new space sector; to date, six have taken it up on the offer. It has sent officials to Japan, China and the UAE to talk about space exploration partnerships, and appointed space industry veterans, including the ex-head of the European Space Agency, to advise them. In May, it took out a glossy supplement in Scientific American magazine to signal it is committed not just to helping businesses, but to advancing research as well.

And in July, the parliament passed its law – the first of its kind in Europe, and the most far-reaching in the world – asserting that if a Luxembourgish company launches a spacecraft that obtains water, silver, gold or any other valuable substance on a celestial body, the extracted materials will be considered the company’s legitimate private property by a legitimate sovereign nation.

The presence of royalty at Planetary Resources HQ ahead of the passing of the law was a canny part of the country’s space incursion. The young couple was there to dazzle, charm and lend gravitas to the operation – European aristocracy doesn’t show up in suburban office parks any old day – but the mission’s greater aim was to impress upon Silicon Valley executives, the bemused Luxembourgish press and space scientists around the world that mining asteroids was no longer science fiction. To that end, the royals were accompanied by about 40 of their subjects, all of whom had a role to play in this emerging industry.

Etienne Schneider, Luxembourg’s congenial deputy prime minister, led the delegation. With his easy manner, excellent English and penchant for fancy cars, he cuts a Macronian figure: a product of European socialist political parties, sure, and a social liberal to his core – Schneider is married to a man – but one who will willingly play handmaiden to global capitalist interests should the right opportunity arise. He announced recently that he would be running for the role of prime minister in 2018.

With Schneider came a delegation of scientists, trade attaches, bankers, lawyers and local journalists who switched between German, English, French and the local language, a consonant-heavy mix of Flemish and German with the occasional foreign word thrown in to supplement: “meeting”, “framework”, “brunch”. (“We don’t have all the words,” a member of the delegation told me sheepishly.) In French, the language is known as Luxembourgeois, which pretty much says it all; the duchy’s 500,000 citizens, who have a GDP per capita of $104,000 (£78,800), are the wealthiest in the world after Qatar’s, according to the International Monetary Fund.

The Planetary Resources team took their benefactors on a tour of the labs where its hardware is built. The company isn’t mining asteroids yet, but to benefit from Luxembourg’s concessions, it opened an office in the grand duchy this year. Up close, its Arkyd 6 spacecraft – which is ready for launch – looks just like satellites look in the movies, only smaller. It had multiple flaps and appendages, including an infrared sensor, a star tracker to orient the craft in space and a GPS unit, which works only in the earth’s orbit.

Once the tour was complete, cocktail hour began. Schneider, who owns a vineyard, bounced from one conversation to another, brimming with enthusiasm. To end the visit, Chris Lewicki, the CEO of the company, gave a toast praising Luxembourg’s contributions “to an abundant future for all of humanity”. As a parting gift, he presented her royal highness with a necklace. Instead of jewels, it was studded with tiny fragments of asteroids.

It is reasonable to wonder what, exactly, a marginal European monarchy, egged on by a vivacious gay socialist, was doing telling American entrepreneurs on the cutting edge of innovation that their hamlet-sized state could propel humanity – and capitalism – into deep space. The grand duchy has no national space agency, no launching sites, and only modest research capabilities. It opened its first and only university in 2003 and its military consists of 1,008 troops. Luxembourg does not fit the image of a spacefaring nation; in fact, some have questioned whether it should even be a nation at all.

Yet Luxembourg’s very essence – as a speck in the heart of Europe – allows, even requires, it to partake in such ambitious ventures. Its national motto is “We want to remain what we are” and, over the centuries, this independent spirit has endured occupations by the dukes of Burgundy, the kings of Spain and France, the emperors of Austria and the king of the Netherlands. Today, the state, which only gained full independence in 1867, occupies a curious position in the global imagination: a country with an outsized economic influence that everyone has heard of, but that no one can quite locate on a map.

According to Gabriel Zucman, assistant professor of economics at UC Berkeley, the country is hard to miss in the financial world. “Luxembourg has private banks like Switzerland, it has a big mutual fund industry like Ireland’s, it’s used for corporate tax avoidance like Bermuda or the Netherlands, and it also hosts one of the two international central depositories for securities, so it’s active in euro bonds,” he says. “It’s the tax haven of tax havens, present at all stages of the financial industry.” Tony Norfield, a former banker in the City of London who now writes on global finance, has described Luxembourg as “a paragon of parasitism”.

The story of how a marginal and relatively powerless country has survived world wars, economic crises and cataclysmic technological advances to become a banking and finance powerhouse tells us a lot about how far a small country can go if it devotes itself to anticipating and accommodating the needs of global capital. It’s a contentious business: for every happy shareholder praising Luxembourg’s business-friendly rules and money-saving loopholes, there’s a critic condemning Luxembourg’s willingness to expedite the regulatory “race to the bottom”.

 

Luxembourg City. Photograph: Design Pics Inc/Rex/Shutterstock

Then again, there aren’t many options for a country like Luxembourg besides exploiting its most valuable resource: its national sovereignty. And Luxembourg has done this more and better than any other country in the world. By crafting innovative rules, laws and regulations that only it could (or would) put on offer, Luxembourg has attracted banks, telecommunications companies and consulting firms before any of these industries came to dominate the global economy. Now, by courting asteroid miners before anyone else takes them seriously, it may very well end up doing the same thing for the commercialisation of space.

Luxembourg’s first significant attempts at liberalisation began in the late 1920s and early 1930s. As radio grew popular, the grand duchy decided not to create a publicly funded radio service like its neighbours. Instead, it handed its airwaves to a private, commercial broadcasting company. That company – now known as RTL – became the first ad-supported commercial station to broadcast music, culture and entertainment programmes across Europe in multiple languages. “By handing the rights to a public good to a private company, the state commercialised, for the first time, its sovereign rights in a media context,” notes a 2000 book on Luxembourg’s economic history. The title of the book, published by a Luxembourgish bank, is, tellingly, The Fruits of National Sovereignty.

Then, just three months before the stock market collapsed in 1929, Luxembourg’s parliament passed legislation exempting holding companies – that is, parent firms that exist solely to own parts of or control other companies – from paying corporation taxes. In the first five years after the law’s passing, 700 holding companies were established; in 1960, there were 1,200, and by the turn of the century, some 15,000 “letterbox” firms – one for every 18 citizens – were incorporated in Luxembourg. (In 2006, the European commission found that this exemption violated EU rules, so Luxembourg promptly created a new designation, the “family estate management company”, that complied with the country’s EU treaty obligations while offering many of the same money-saving advantages.)

Throughout the first half of 20th century, Luxembourg’s main industry was steel, but by 1980, that business all but collapsed. Even before its iron ore mines shut down, though, the grand duchy came to represent a discreet but powerful regulatory freedom. A homegrown economic model began to take shape: over the next decades, it would make a name for itself by passing legislation “designed to tempt the world’s hot money,” notes the Tax Justice Network, an anti-tax-evasion advocacy group.

The country’s policymakers also realized that less could really be more. According to Georges Schmit, a lifelong civil servant who has played a big role in shaping the country’s economy since he joined the ministry of the economy in 1981, a key component of Luxembourg’s early success was the fact that it did not have its own central bank. The country had been in a monetary union with Belgium since 1921, and didn’t impose reserve requirements on financial firms. This meant banks could lend or spend the money that they would have had to keep on deposit in other jurisdictions. In Schmit’s words, Luxembourg’s biggest draw “wasn’t our doing; it was the lack of our doing anything”.

Over the years, the government managed to coax over foreign financial institutions, from complex securitisation vehicles to Islamic banks. And on the consumer level, the state’s low taxes drew Europe’s tax-averse petty bourgeoisie. Starting in the 1960s, “Belgian dentists” and “German butchers” – the prevailing stereotypes cited in the international financial press – began taking daytrips to the grand duchy to deposit money to avoid tax at home. The Luxembourgish state even lowered fuel costs to attract the daytrippers, and in 1981, introduced legally binding bank secrecy comparable to Switzerland’s.

In the next century, the dentists would give way to Qatari princes, Chinese princelings and other global members of the global super-rich – or at the very least, their investments. “When a country is small, the rest of the world is big,” says Schmit. “Since independence we needed to find larger economic spaces, be they regional or continental.” By serving as a hub for investors, companies and markets during decades of rapid deregulation and globalisation, Luxembourg turned itself into an indispensable cog in the machinery of international finance.

In 2009, Schmit embarked for California to continue his life’s work: finding new ways for his country to attract money, this time as the general consul and trade envoy in Silicon Valley.

Since he had joined the ministry of the economy to devise new innovation strategies almost three decades earlier, his country seemed to have defied all odds and made virtues of its apparent weaknesses. Its small size had not prevented it from becoming the largest centre for investment funds in the world after the US. Its tiny population had not deterred multinationals and EU institutions such as the court of justice from basing their headquarters there. It had parlayed its status as a neutral country and founding member of many European organisations into sending three of its politicians – more than any other country – to preside over the European commission. And by marketing its easy access to Europe, an educated workforce, bank secrecy (which it voted to ended in 2014 under pressure from other countries and the OECD) and myriad regulatory advantages, the country built an outsized financial sector.

Crucially, Luxembourg never seemed to let an opportunity pass it by. Following its support for commercial radio 50 years prior, the country was the first in Europe to privatise satellite television. In 1985, the grand duchy granted a company called Société Européenne des Satellites (SES) the right to broadcast TV directly to viewers’ homes from a satellite positioned in space. “The big innovation is that this was a privatisation of space,” says Schmit, who served for 17 years on the SES board. “All the other operators were owned by governments through international agreements. This was the first commercial company that set out to use space for broadcasting.” When SES grew profitable, Luxembourg’s bet paid off: the tiny country became home to a telecoms giant, and, as an early investor, received a piece of the pie.

FacebookTwitterPinterest Prince Guillaume and Princess Stéphanie of Luxembourg. Photograph: Didier Baverel/WireImage

In the early 2000s, Luxembourg pounced at the chance to court retailers such as Amazon and Apple with tax incentives. There were the perks the state was happy to publicise – the lowest VAT in Europe, for instance – and there were case-by-case deals with large companies that it kept rather quieter. The companies flocked in, but in the aftermath of the financial crisis, with awareness of wealth inequality growing and austerity measures bruising ordinary Europeans across the continent, Luxembourg could only keep these arrangements under wraps for so long.

In late 2014, the grand duchy went from relative obscurity to complete infamy when the details of these “tax rulings” – versions of which were also carried out by Belgium, Ireland and the Netherlands – were disclosed by the International Consortium of Investigative Journalists. Known as the “Lux leaks”, the massive trove of leaked data revealed that, from 2002 to 2010, the country’s tax agency approved a series of confidential deals that allowed AIG, Ikea, Deutsche Bank and more than 300 other large firms to save billions of dollars they might have otherwise owed to other countries.

The rulings weren’t necessarily illegal, and they weren’t unique to Luxembourg, but they did cause a scandal, provoking damning reports in the media, protests around Europe and promises for tighter regulation from within the EU. Investigations on both sides of the Atlantic on related matters followed, and lawsuits revealed information on more companies still. (One memorable detail: Amazon’s 28-step tax-restructuring arrangement in Luxembourg was named Project Goldcrest after the country’s national bird.)

Around this time, Zucman, a recent Paris School of Economics PhD who studied with Thomas Piketty, began looking into Luxembourg’s role in international tax avoidance and evasion. His focus was not on the multinationals, but on Luxembourg’s thriving fund industry, which through niche regulations and loopholes allowed investors to avoid certain taxes, too. Luxembourg was a well-known financial centre, but the statistics Zucman dug up while researching his book, The Hidden Wealth of Nations, took him aback: in 2015, national data showed $3.5tn worth of shares in Luxembourgish mutual funds were domiciled in the grand duchy, while data from other countries accounted for only two of those trillions. The missing $1.5tn suggested to him that the money – which, he notes, was probably accumulating interest by the day – had no identifiable owner. That meant the countries to whom tax was owed on these ungodly sums were unaware of their existence.

Globally, Zucman calculated almost $8tn in financial wealth – which does not include real estate, luxury goods, gold or other commodities – has been stolen from countries and taxpayers in this fashion thanks to “secrecy jurisdictions” such as Luxembourg, the Virgin Islands or Panama working “in symbiosis”. In his book, Zucman described Luxembourg as an “economic colony of the international financial industry” and challenged its right to its greatest asset: its sovereignty.

“Imagine an ocean platform where the inhabitants would meet during the day to produce and trade, free of any law or any tax, before being teleported in the evening back home to their families on the mainland,” he wrote, referring to the country’s unusual demographics: 47% of Luxembourg’s 500,000 residents are foreign, and 44% of the workforce commutes in across nation-state lines each day for work. “No one would dream of considering such a place, where 100% of its production is sent abroad, as a nation.

“The trade of sovereignty knows no limits,” Zucman continues. “Everything is bought; everything is negotiable. Luxembourg is not the only country that has sold its sovereignty, far from it … but it is the one that has gone the furthest.”

Scrutiny of Luxembourg’s tax practices – from the press, the public and the EU – spread at an awkward time. At the end of 2013, the country elected a new prime minister, Xavier Bettel, whose coalition government of democrats, socialists and greens wanted to distance themselves from the economic policies of former prime minister Jean-Claude Juncker and play by the EU’s rules. “Honestly, I am fed up with being accused of being a defender of a tax haven and a hotbed of sin,” Bettel said in a speech to the Luxembourg Bankers’ Association shortly after taking office. “We need to work on our image … we have much changed in the last years, now it is time to make sure that everybody knows.”

Etienne Schneider, then economy minister, was part of this effort, too. But instead of being applauded for breaking with the past, from the moment they took power the politicians were constantly reminded of their country’s indiscretions. The new government needed to square the Luxembourgish model of economic development with new political realities. It had to keep looking ahead. Most of all, it wanted to change the conversation.

A curious possibility had emerged the previous summer, when Georges Schmit visited Nasa’s Ames research centre in Palo Alto and found himself in conversation with Pete Worden, a former director of the centre. Over coffee, Worden told Schmit about the emerging NewSpace sector and about his dream of finding life on other stars and planets.

Schmit sensed Worden would hit it off with Schneider, so he introduced them. At first, asteroid mining struck Schneider as crazy. “I listened to him and wondered what this guy might have smoked this morning; it sounded like complete science fiction,” he recalled. But the more he listened, the more it made sense. Worden persuaded Schneider that “it’s not if it will happen, it’s when it’ll happen. And the countries who’ll be the pioneers will be the ones that’ll get the most out of it later on.”

From 2014 to 2016, a series of meetings between the Americans and the Luxembourgeois took place. If they resembled April’s trade mission, they will have involved tedious tours of technology companies, self-aggrandising speeches about how space would bring about Earth’s “third industrial revolution”, and many hours stuck in traffic – but also genuine wonder at what might happen if humankind made space their own.

Schneider hung his hopes – and his political future – on the stars. Here was a chance to change the conversation away from taxes and towards space; to establish an industry for Luxembourg’s future; to contribute to science and human knowledge, even. Besides, in such trying times, who didn’t like talking about the wonders of exploring the great unknown? NewSpace companies were certainly eager to work with Luxembourg. They were thirsty for funds and attention, and felt invisible in the US. Luxembourg was a place where they could get meetings with high-level politicians in minutes; where everyone spoke great English; where the bureaucracy was minimal, and the promise of low taxes remained. As one NewSpace executive told me this year: “We just want to work with a government who won’t get in the way.”

The only catch was the ambiguity of space law: companies wanted assurances that the fruits of their extraterrestrial labour would be recognised here on Earth. This is not a given. Unlike on Earth, where a country can grant a company a mining concession, or a person can sell the right to exploit their land, no one has an obvious legal claim to what’s outside our atmosphere. In fact, the Outer Space Treaty, signed by 107 countries at the UN in 1967, explicitly prohibits countries from claiming sovereignty over celestial bodies. The question now is: if nobody owns or governs the great unknown, who is to say who gets to own a little piece of it?

Since the emergence of the NewSpace sector, individual countries have attempted to lend some clarity to eager entrepreneurs, reasoning that the prospect of private property in space will encourage hard work and innovation. The American Space Act, passed in 2015, is the first “finders, keepers” law that recognises ownership of space resources, but it only does so for companies owned by US citizens.

In October 2015, Luxembourg commissioned a study on whether it could fill that legal void. The report, completed in 2016, noted that “while legal uncertainty remains, under the current legal and regulatory framework, space mining activities are (at least) not prohibited” and concluded that Luxembourg should pass legislation that gives miners the right to keep the extraterrestrial bounty they extract.

Such a law was drafted shortly after the study’s completion, and on 1 August 2017, it went into effect. Luxembourg’s bill does not discriminate by nationality, or even by the location of a company’s headquarters. In fact, the law indicates the country’s willingness to serve as a sort of flag of convenience for spacecrafts, allowing them to play by one country’s futuristic rules in the absence of universal, binding agreements. Rick Tumlinson, of Deep Space Industries, another space exploration company in which Luxembourg has invested, told me that there was value in Luxembourg’s law because it saw no citizens and no borders: just one blue planet from high above.

Six weeks after the trade mission in California, I disembarked from a tiny plane on the runway of Luxembourg City’s airport in a melee of grey suits and black carry-on roller bags. I walked past large wealth-management and equity-fund advertisements into the car park, where I caught the bus into the city centre, passing dozens of huge new building projects, a tramline under construction and two enormous yellow towers that, in the afternoon light, resembled twin gold bars reaching for the sky.

Luxembourg City. Photograph: Rex/Shutterstock

Within an hour, I was sitting at a table outside a dive bar opposite the old city’s bathhouse with Lars Schmitz, 29, and Gabrielle Taillefert, 21, two members of a local theatre and art collective called Richtung22 (Direction22). Over the past few years, the group has staged a series of performances lampooning their country’s mercenary modus operandi. Instead of writing their own scripts from scratch, the collective makes dramatic collages almost entirely out of primary documents: laws, press releases, speeches, transcripts from parliament, promotional videos and so on.

One of Richtung22’s early works satirised Luxembourg’s nation branding committee, which was set up in March 2013 to promote the country abroad. The play, which was financed in part by the culture ministry, was entitled Lëtzebuerg, du hannerhältegt Stéck Schäiss (Luxembourg, Vicious Pile of Shit). Since then, Schmitz says, state funds for Richtung22’s work have dried up.

In his spare time, Schmitz, who is slight of build with cropped blonde hair, works on antifascist and anti-capitalist organising. He has the droll resignation of a leftwing activist operating in a country whose politics are so abstract and so global that grassroots resistance must necessarily come in the form of farce. Richtung22’s latest play savages the country’s efforts to attract the NewSpace industry. Its title is Luxembourg’s Private Space Explorevolutionary Superfancy Asteroid Tailoring. Schmitz sees space mining as a high-tech spin on an age-old scam: selling sovereignty. “The country’s business model is hidden,” he said. “It’s making laws that companies want, and taking a risk on those companies. But the government uses it to say ‘This is how modern we are! This is something new!”

Zucman shares Schmitz’s view. “Adapting this strategy to the business of space conquest is what being an offshore financial centre means,” he says. “It’s not diversification. It’s just extending the logic of being a tax haven to new area.”

On stage, the entire space enterprise is portrayed as a cynical, money-grubbing, reputation-redeeming debacle dictated by private-sector interests. “We feel bad that our country does this to the world, and no one else here talks about this stuff,” Schmitz told me. He ran off a dozen or so Luxembourgish transgressions, including but not limited to aiding and abetting tax evasion and weaseling its way out of EU banking regulations. In such a small country, it’s hard to be so outspoken against the national interest. “People think we’re traitors,” he said.

Was there anything good about his country, I asked. “It’s beautiful,” Schmitz conceded. He was right: Luxembourg is beautiful, and was particularly charming on that balmy May evening. The city rests on two levels; the smaller “low” city’s quaint little streets and sidewalk cafes skim the river, while the “high” city centre is home to a lively main drag with pricey boutiques, fancy chocolate shops and chains such as H&M. Cafes advertise crémant – a local bubbly wine – and local dishes that borrow their richness from the French and their stodginess from the Germans.

The next day, I went to meet Marc Baum, an MP from the democratic socialist party déi Lénk (the Left). He handed me a policy paper his party published criticising Schneider’s space-mining proposal: they believe his law is inconsistent with Luxembourg’s outer-space treaty obligations, that it creates opportunities for billionaires to further enrich themselves and could be harmful to the environment. Even worse, it enshrines the notion of “competition instead of cooperation” between states. “It’s infinite capitalism!” Baum exclaimed over a cold beer on a terrace.

Baum, as it happened, is an actor, too. When we met, he was preparing to perform Eugène Ionesco’s Rhinoceros, an absurdist play about a town whose protagonists speak exclusively in cliches and end up turning into rhinos on account of their unquestioning conformity. Over the course of the drama, the townspeople justify their decision to “go rhino” by declaring that “humanism is dead, those who follow it are just old sentimentalists”. The play’s sole hero, Berenger, resists succumbing to “rhinoceritis”, but fails to save anyone else: he ends up being the only person in the whole town who does not grow a horn. The analogy between that and Baum’s own predicament seems a little on the nose. He was one of just two politicians who voted against the space law in July.

In June, about a month before his signature legislation was passed by the parliament, Schneider and some of his associates flew to New York for yet another sales pitch – this time, for the benefit of venture capitalists on the east coast.

His speech focused on the financial aspects of Luxembourg’s space race, and the country’s intention to get in on the ground floor of commercial space exploration. “Under the US Space Act, your capital has to be majority US capital,” he said, referring to US willingness to recognise property rights in space for its citizens. “We don’t really care where the money comes from in our country, as long as the money is clean.”

On Schneider’s telling, Luxembourg could do for the space-resource trade what it had done for the eurodollar market, international holding companies and multinationals: provide a safe, reliable base where they could operate in tandem with a keen and cooperative – or, by his detractors’ assessment, pliable and sycophantic – state. Schneider announced that after passing its law, Luxembourg would create its own space agency. This would not be a copy of Nasa, but would instead “focus only on commercial space resources”. He told the audience that Luxembourg would solicit private funding to capitalise NewSpace companies, and seek the advice of venture capitalists to decide what companies to invest in. If asteroid mining does, in fact, take off, Luxembourg will be what Schneider’s friends in Silicon Valley might call an “early adopter”.

It’s a gamble, for sure. But it’s difficult to imagine where Luxembourg would be had it not deployed this ingenious development strategy continuously over the past century. The global economy offers few alternatives than to serve it, and rewards its enablers richly. Perhaps a mercenary spirit is what it takes to succeed as a small country in the world – and that “we want to remain what we are” is just Luxembourgeois for the old French saying: plus ça change.