The List: Where the Cash Is Stashed

Governments engaged in the war on terror have more than just terrorist havens in their sights. They are also targeting the world’s tax havens. With more than $11 trillion in hidden income, these locales are coming under fire to close their financial loopholes. In this week’s List, FP visits six of the world’s leading tax havens to find out where the world stashes its wealth.

Cayman Islands

Cayman Islands

The place: The king of all tax havens, an independent British protectorate made up of three islands in the Caribbean Sea.

The evaders: Wealthy individuals and firms of every sort. The tiny Caymans host 5,000 investment funds, almost 400 banks, and more than 40,000 companies. Their banks alone manage assets of about $800 billion, making the islands the fifth-largest banking center in the world, just after New York.

The attraction: No taxes of any kind, robust privacy laws, and proximity to the United States. The Caymans give companies immunity from public inspection and have privacy laws that make money hard to trace. Financial and geographic proximity to the United States allows companies and individuals easy access to the worlds largest economy. For some corporations, the Caymans will even sweeten the tax deal by offering no-tax guarantees for up to 100 years.

The future: Hard to tell. After two major corporate scandals in the United StatesEnron and Tycouncovered tax evasion and shell companies in the Caymans, American lawmakers are on the alert. Democratic Sen. John Kerry made it an election issue in 2004, and a recent congressional investigation estimated that the U.S. government loses an annual $40 to $70 billion in taxes to offshore havens such as the Caymans. Following intense international pressure, the Caymans have inked information-sharing agreements with the United States and the EU to avoid future sanctions.


The place: Island nation in the Mediterranean split into two semiautonomous regions due to the conflict between Greek and Turkish Cypriots.

The evaders: Russian tycoons, bankers, and businessmen. Most of the countrys 14,000 offshore companies are Russian-owned, and there were more than 50,000 Russians living in the country as of 2003. Cypriot banks manage close to $30 billion worth of assets.

The attraction: Low taxes and even lower government oversight of the financial sector make the island a hotspot for shady personal deals and brass plate firmsoffshore entities that do no real work but take credit for income earned abroad to avoid taxes. The country also has a double-tax treaty with Russia, which grants Cyprus-registered firms tax breaks on revenue earned in Russia.

The future: Grim. The bottom, Greek two thirds of the island joined the European Union (EU) in 2004 and has rapidly increased financial information sharing with other governments. The tax environment has also become decidedly less friendly. The 4.25 percent flat tax on offshore firms that attracted so many Russians in the 1990s has risen to between 10 and 15 percent. Financial oversight is still lax, but many Russians are fleeing the island out of fear that a crackdown is imminent.


The place: Europes Celtic Tiger, with the highest per capita gross domestic product in the EU, at $41,000.

The evaders: Writers, musicians, artists, and multinational companies. Some foreign artists, such as British rock band Def Leppard and French novelist Michel Houellebecq, moved to Ireland as tax exiles. Microsoft has saved billions in taxes by moving some operations, like product development, to the country.

The attraction: In a nod to its tradition of great authors and artists, Ireland has a law dating back to the 1960s that exempts creative products such as paintings, music, and books from taxation on royalties. The rule costs the Irish government nearly $50 million a year, but it is credited for sustaining the vibrant Irish arts scene. Ireland also undercuts the rest of Europe by taxing corporations a measly 12.5 percent on trading profits and charging them nothing at all for patent income, saving multinationals billions.

The future: Bright. Despite talk last year that Ireland might suspend its creative product tax exemption, a booming economy and flourishing arts scene provide the country little incentive to change course. It might, however, impose a cap on tax savings. As one of the EUs oldest members, it can easily withstand criticism of its tax practices by newer EU countries.


The place: West African country that ended its 14-year civil war in 2003 and held democratic elections last year.

The evaders: Shipping magnates and multinationals. Liberia has nearly 2,100 ships registered to its portsalmost none of which are Liberian-ownedwhich makes it the second-largest home port in the world. It also hosts a number of brass-plate firms, including 41 U.S. oil and gas subsidiaries.

The attraction: Liberia offers a flag of convenience for international ships. International companies may register their ships in the country, but they dont have to pay any shipping income tax under the Liberian Business Corporation Act of 1977. Whats more, Liberia operates a territorial taxation system, so all foreign income is tax free. The Liberian International Ship and Corporate Registry openly boasts that it offers one of the most convenient, efficient, and tax effective offshore corporate registries in the world.

The future: Unclear. Though Liberia remains on the tax haven blacklist of the Organisation for Economic Co-Operation and Development, the country faces little to no pressure from foreign governments to reform. The real threat to Liberias success as a tax haven comes from its political instability. The civil war discouraged many non-shipping corporations from setting up shop in the country, and future instability could direct shipping business away from Liberia to competitors such as Panama.


The place: A dreary, mountainous monarchy the size of Washington, D.C., located between Switzerland and Austria. It joined fellow tax haven Switzerland in a customs union back in 1924.

The evaders: Money launderers, criminals, and mafia typesas well as the usual roundup of corporations. Saddam Hussein and other Baath Party officials from Iraq once kept money there. There are currently 75,000 corporate subsidiaries in the tiny country and $90 billion amassed in local banks.

The attraction: A tradition of super-strict secrecy laws, corporate taxes as low as 7.5 percent, income tax as low as 3 percent, nearly nonexistent property tax, and extremely lax oversight of financial industry.

The future: Bleak. Liechtenstein raised red flags with financial investigators in 2000 after a number of high-profile criminal accounts were uncovered in the country, linking it to unsavory characters in Russian and Italian mafia and Latin American drug cartels. Since 9/11, the country has come under increasing pressure to clean up its financial sector. It has recently allowed secrecy laws to be waived for criminal investigations and entered into a legal assistance treaty with the United States. Yet its still on the OECD tax haven blacklistwhich means that accounts in the country could come under further scrutiny in the near future.


The place: A tiny principality on the French Riviera, world famous for its casinos, beaches, and glamorous lifestyle.

The evaders: The jet set, ranging from movie stars and playboys to CEOs and wealthy pensioners. As of 2000, Monacos banks managed some 350,000 accounts worth $44 billioneven though the principality claims just 30,000 residents.

The attraction: In addition to the luxurious setting, there are no taxes on personal income, capital gains, or inheritance. The country rarely discloses financial information to foreign revenue collectors, and tax evasion abroad isnt frowned upon. Benefits dont extend to the French, however: After pressure from French President Charles de Gaulle in the 1960s, Monaco has kept its tax loopholes closed to French citizens.

The future: Rosy. The OECD may list Monaco as one of the last few uncooperative tax havens in the world, and it faces heavy pressure from France and other EU countries to bring its tax practices in line with the rest of Europe. But recently enthroned Prince Albert II hasnt begun to end Monacos reign as the worlds most fabulous haven for the rich.

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