3. Tax havens help criminals hide their loot

For example

…the Madoff scandal, a multi-billion dollar scheme orchestrated by the infamous Wall Street financier Bernie Madoff.

The dirty details

On 11 December 2008, a Mr. Bernard L. Madoff was arrested at his New York apartment and charged with securities fraud.[1]

The infamous Wall Street financier had been orchestrating a US$ 65 billion fraud[2] right in the very heart of one of the world’s most important financial districts. In doing so, the charlatan wreaked destruction upon the lives of thousands who trusted him… or ‘disposable investors’ in Madoff-speak.

The Madoff scandal has the dubious distinction of being the largest Ponzi scheme ever detected.[3] Named after Italian con artist Charles Ponzi, the term refers to a swindle in which potential investors are lured in with promises of high returns which, in fact, are simply paid out of newer investors’ money. Such schemes, sometimes referred to as pyramid schemes, need ever-growing numbers of newcomers to provide gains to earlier investors.

In Madoff’s case, he held clients’ money in a bank – rather than investing it in securities – and used new deposits to pay bogus returns, giving the impression of a successful business.[4] When he was finally sentenced aged 71, the disgraced fraudster received the maximum 150 year sentence.

While Madoff is destined to spend the rest of his life in prison[5], many of those he cheated struggle to piece their lives back together bit by bit. Speaking at the hearing, some of Madoff’s victims described how their entire life savings had been wiped out by a man leading a life of unrestrained luxury.[6]

Shortly after Madoff’s arrest, investigations into the financier’s misdemeanours turned to his dodgy tax dealings and the ways in which secrecy jurisdictions had helped him cover up his illegal practices for so long: “Madoff probe focuses on tax havens”[7] read The Observer, followed a couple of days later by “Madoff Spotlight Turns to Role of Offshore Funds”[8] in The New York Times.

It became public knowledge that hundreds of millions of dollars were stashed in offshore accounts in the Caribbean and Europe[9] in order to avoid American taxes. Furthermore, the complexity of the investigation into Madoff’s dirty deals was significantly compounded by the fact that each individual investment account operated offshore could be its own self-contained fraud.[10]

Tax havens, it appears, are breeding grounds for two-faced criminals.


Measures need to be taken to remove the walls of secrecy that encourage and enable dictators and wealthy tax evaders from hiding their ill-gotten gains offshore. Offshore companies, offshore trusts and foundations, and similar legal entities, must be properly registered on public record, and must disclose the identities of every person who benefits from them.

Key statistic

The failure of the Securities and Exchange Commission (SEC) – the U.S. financial watchdog – to recognise the Madoff fraud is one thing (and a pretty shoddy thing at that). It is quite another, however, to discover that, for years, the SEC had been destroying evidence gathered during thousands of investigations, “18,000 [records] including Madoff”,[11] according to whistleblower Darcy Flynn in 2011. Indeed, many of the files that had been wiped off the record over the years involved companies and individuals who were subsequently central to the financial crisis of 2008.[12] Regulation is fundamental; corrupt regulation is farcical.

The final word

From Tax Havens: How Globalization Really Works, by Ronen Palan, Richard Murphy, Christian Chavagneux:

That well-known tax havens became embroiled in the financial crisis was not a coincidence. If you think of tax havens as sun-kissed exotic islands reminiscent of the Garden of Eden where a few billionaires, mafiosi, and corrupt autocrats hide their ill-gotten gains, then think again. Tax havens are the underlying constant theme of the financial crisis of 2008-9.” from Tax Havens: How Globalization Really Works, by Ronen Palan, Richard Murphy, Christian Chavagneux


[1] [accessed 15/11/11]
[2] [accessed 9/11/11]
[3] [accessed 15/11/11]
[4] [accessed 9/11/11]
[5] [accessed 9/11/11]
[6] [accessed 9/11/11]
[7] [accessed 15/11/11]
[8] [accessed 15/11/11]
[9] [accessed 15/11/11]
[10] [accessed 15/11/11]
[11] [accessed 9/11/11]
[12] [accessed 9/11/11]