I met Nicholas Shaxson last summer at a gay barbecue in Berlin. Shaxson isn’t gay, but he’s the kind of dude who will rock up at a gay barbecue, wife and child in tow, and unself-consciously eat sausage and ribs with the inverts. We discovered, lounging on a blanket, that we both work for small NGOs, live in Berlin, and dabble in journalism. And we both work on issues (me: corporate human rights violations; him: tax havens) that the rest of the world manages to ignore for most of their day.
Last year Shaxson published a Vanity Fair article, “A Tale of Two Londons,” that described the residents of one of London’s most exclusive addresses—One Hyde Park—and the accounting acrobatics they had performed to get there.
Here’s how it works: If you’re a Russian oil billionaire or a Nigerian bureaucro-baron and you want to hide some of your money from national taxes and local scrutiny, London real estate is a great place to stash it. All you need to do is establish a holding company, park it offshore and get a-buying. Here’s Shaxson:
These buyers use offshore companies for three big and related reasons: tax, secrecy, and “asset protection.” A property owned outright becomes subject to various British taxes, particularly capital-gains and taxes on transfers of ownership. But properties held through offshore companies can often avoid these taxes. According to London lawyers, the big reason for using these structures has been to avoid inheritance taxes. […]
But secrecy, for many, is at least as important: once a foreign investor has avoided British taxes, then offshore secrecy gives him the opportunity to avoid scrutiny from his own country’s tax—or criminal—authorities too. Others use offshore structures for “asset protection”—frequently, to avoid angry creditors. That seems to be the case with a company called Postlake Ltd.—registered on the Isle of Man—which owns a $5.6 million apartment on the fourth floor [of One Hyde Park].
Shaxson argues that this phenomenon has taken over the U.K. real estate market—extortionate penthouses for the ultrarich sitting empty while the rest of us outbid each other for the froth below.
Shaxson’s piece was one of the best long-form pieces I read last year (I did in fact believe this before I met him, but you can take that with a grain of salt if you’d like), and last week I asked Shaxson to sit down with me for a proper conversation about how the story came about and whether it achieved what he wanted.
So tell me about the origins of this One Hyde Park story.
I didn’t contact [Vanity Fair]. They got in touch with me, out of the blue. They’d read my book, Treasure Islands, and asked for some ideas. I sent a long, complicated pitch, which wasn’t good enough. I probably hadn’t got a good enough sense of Vanity Fair. They’re interested in individual subjects, people, that kind of thing. I was more pitching concepts and ideas. They very kindly said “try again.”
I pitched five stories—one long paragraph per pitch—and they took two: one on Mitt Romney’s offshore shenanigans, which came out shortly before the last U.S. elections, and the more recent one on One Hyde Park. It was the book, not really the pitch, that got them interested.
It was a great opportunity to ring up people I’ve been meaning to ring up. And with VF, you can pick up the phone and pretty much anybody will answer. In the end I sent them 10,000 words [the story was eventually cut down to 6,000]. A lot of people in there had given me a lot of their time and were sliced out unceremoniously. I kind of feel bad about those people.
As a writer, it’s difficult to make the issue of offshoring and tax havens real, right? You have to create this somewhat artificial construct of One Hyde Park, then tie these more general observations to it.
I was kind of marrying the stuff I’d been working on, which was about tax havens, with something that was already a bit of a cause celèbre among politically-aware people in Britain. One Hyde Park is emblematic of a phenomenon that has engulfed London, and all over the world in fact. In any big city you’re seeing this sharp price spike in desirable areas, and something of an emptying out, as expensive properties become commodities for a mostly absentee global superclass.
What, like cities are competing over who can attract the most Russian oil billionaires?
Every property person I spoke to in London said this was the global epicenter of this super-property phenomenon, and New York was number two. I think that’s probably true, even though a couple of interviewees in New York were resistant to the idea. It’s a bit of a beauty pageant. The proximity of all this corruptly-obtained wealth in the former Soviet Union, the Middle East, and Africa certainly has something to do with it. Asians are piling in too.
Was there still a process of discovery when you were writing the article, or did you know all this stuff already?
The thing that did surprise me was, I had been laboring under the assumption that the most expensive properties went to bankers. But actually, no. Bankers were near the top, but except for a few very big names, it wasn’t them: it was global commodities, like oligarchs in very poor, corrupt countries. Either they had direct interests in, say, an oilfield, or some sort of monopolistic hold on a sector in one of these countries, like construction. That was the top of the top: 30 million pounds plus.
How have things changed since the story came out?
I’m not really researching now, but a top estate agent in North London for the ultra-rich told me last October that the very, very top of the market had totally stalled. I think prices have just got too ridiculous up there. Anything below a few million pounds, though, and the market is roaring.
What’s driving this rush to real estate?
Two things: genuine demand due to a growing population and housing shortages—and speculation that prices will keep rising at crazy rates forever. At dinner parties in the U.K., it’s all anyone ever talks about. It is a circus. Stagnant income levels for most of the population can’t support these insane prices forever. Also, during the global economic and financial crisis, the U.K. was seen as a bit of a haven from turmoil.
Is there an argument among British politicians that all this buying by rich people is actually a good thing? Like it shows that Britain is stable, it’s competitive, people want to invest?
Many politicians love that argument. They wield this silly word “competitive” without pondering what it actually means. It has nothing to do with genuine competition between firms in a market. A lot of it’s about “competition” to attract dirty money, no questions asked. The Conservative Party wants to win the next election. Nothing will harm their chances more than a housing price collapse, so they’re desperate to keep the party going. The opposition parties don’t criticize it; they’ll be accused of talking down Britain’s prospects.
Are there people who would read the article and say, “so what”?
Plenty. But there’s also an increasing recognition that the U.K. is the epicentre of the world’s tax haven industry. If you take the U.K. with all its dependencies, the Cayman Islands, Jersey, Bermuda, the British Virgin islands and various others, the U.K. is Offshore Central. These part-British satellites serve partly as laundering facilities for the world’s dirty and questionable money. It’s not just about tax or secrecy. Wall Street banks have all piled into London, to escape stronger U.S. regulations. But we Brits like the money—and it’s very profitable—and most don’t care. Still, many are growing uncomfortable with the whole iffy business.
And there’s a funny thing. My previous book was about oil producing countries in Africa. They suffer this “Resource Curse,” where all this money comes wheeling in, but on development indicators they don’t do any better than their peers, and they’re often worse off: more corrupt, poorer, more conflicted. I found incredible similarities between what was happening in those countries and in countries like the U.K. that are dominated by a very large financial sector—which in the U.K.’s case is heavily underpinned by real estate.
What’s different about the character of inequality in Britain versus the U.S.?
The economic inequalities are comparable, I think, but the political inequalities are worse. Wall Street and the City of London are similar in size, in absolute terms. But Wall Street is diluted by a much bigger democracy. So the capture of U.S. politics by Wall Street is less extreme than the very deep-rooted (and ancient) grip that the City of London has on Britain.
Reading your piece, part of me wants to think, why are we pissed off at companies for avoiding taxes? Companies are companies. Using loopholes to increase their profits is what they do. Shouldn’t we be pissed off at our government for failing to close these loopholes?
If you try to make technical arguments about whether or not a company has broken the law, you’ll probably go mad because it’s so complex. But from a political or economic perspective, it is much clearer. They tell their investors how profitable they are, then tell the tax authorities how unprofitable they are. They and their mostly wealthy owners are free-riding off ordinary taxpayers: taking the benefits of society—the roads, educated workforces, the rule of law, the courts and police, and not paying for them. That’s the heart of the matter. And of course they lobby fiercely to eviscerate the tax laws.
There is a huge gray area between law-breaking and not law-breaking, and company directors must decide how aggressive to be. Nothing in law tells them to be hyper-aggressive and push deep into this gray area. But they often do, and don’t get challenged.
So: Hold governments to account, for sure—but hold companies’ feet to the fire too.
One thing I think is interesting about your article is that you’re writing about something you do for a living. Usually, you would be the guy a journalist would interview when they’re writing the Vanity Fair article.
Well, I’m a journalist at heart, and by background. The research I’m doing on tax havens, partly supported by the NGO I work with, is like adventurous journalism. This is new terrain where until the last couple of years neither the economics profession, nor the political economists, nor any other group of thinkers, ever seriously ventured. This is the greatest and most interesting faultline in the globalisation project, and nobody ever properly noticed. Most people think offshore is just an exotic sideshow to the global economy. It’s not: it’s grown so fast that now it’s at the heart of everything.
Interview has been condensed for length and clarity.
More about tax havens and tax evasion:
• Shaxson’s book.
• Shaxson’s Vanity Fair article about Mitt Romney’s offshore accounts
• Youtube explainers: The weird history of the City of London (part 1, part 2).
• Previously at Longreads: Atossa Araxia Abrahamian’s reading list of stories about tax evasion.