9. Tax havens make laws in secret which affect us all.

For example

… Delaware, the best place to escape tax in the world, and that’s official. In 2009, the tiny state helped push the U.S.A. to first place as number one offender in the Tax Justice Network’s Financial Secrecy Index.[1]

The dirty details

Close your eyes and let me take you on a journey to North Orange Street, a fairly uneventful road in Wilmington, Delaware. There’s some uneventful tarmac, a fair amount of uneventful concrete and a few rather uneventful buildings lit up at night by the occasional uneventful streetlamp. Can you picture it? Good.

Now keep your eyes closed while I tell you about one particular yellow-brick building along this street, number 1209. For such an uneventful-looking office block, you might be a little taken aback to learn that this is the legally registered office of over two hundred thousand companies,[2] including global brand names such as Google[3] and Coca-Cola.[4] By locating tax-exempt subsidiaries at this address, these companies are significantly reducing their state tax bills. You can open your eyes now.

The term to get to grips with here is shell companies, or mailbox subsidiaries. The majority of companies on North Orange Street, for example, are shell companies – they exist but do not have any assets, nor do they do any direct business, meaning they make a grand total of nothing. Indeed, some just employ a lone clerk who may be working for several hundred shells at a time. What they do provide, however, is a vehicle for transactions; business is done via the shell, enabling companies to get away with not reporting the various sums involved, therefore escaping tax payments.

Delaware is notorious for these sorts of deals: in the 1990s, the U.S. government paid out millions in aid to help former Soviet Union countries improve security at their nuclear power plants. After much of the money went missing, the U.S. Department of Justice finally tracked it down to anonymous shell companies in Delaware and Pennsylvania.[5] Ah, the ‘why worry about nuclear catastrophe when you can save yourself some tax’ school of thought.

Oh yes, and one more thing: these days you can add one more layer to the web of deception and create an ‘aged shelf company’ that can help you pretend you’ve been trading for years when really you have only just started up.[6] It’s like corporate anti-wrinkle cream but in reverse.


Requiring full public disclosure of corporate ownership – not the nominee shareholders, but the real, warm-blooded people who ultimately enjoy the benefits of ownership – would take away the attractions for dodgy people wanting to hide behind shell companies.

Requiring bankers, lawyers and accountants to file an anti-money laundering report whenever they think a client might be engaged in tax evasion would put pressure on them to stop playing the game of ‘wilful blindness’ to their client’s criminality.

Key statistic

The East Coast state of Delaware hosts 50% of the United States’ quoted firms and 650,000 companies – approximately one company per Delaware resident.[7]

The final word

From Lawyer and member of Tax Justice Network Jack Blum[8]:

Secrecy in Delaware has been a massive problem and has been for sometime. They have a lot of rules that make it so advantageous to be there that it is breathtaking.


[1] [accessed 15/11/11].
[2] [accessed 15/11/11].
[3] [accessed 15/11/11]
[4] [accessed 15/11/11]
[5] Nicholas Shaxson, Treasure Islands, p.137.
[6] Nicholas Shaxson, Treasure Islands, p.137.
[7] [accessed 14/11/11]
[8] [accessed 15/11/11].