SAM KOIM, THE chairman of Papua New Guinea’s anti-corruption watchdog, raised eyebrows at a meeting of financial crime-fighters in Sydney last October when he described how officials from his country were systematically “using Australia as a Cayman Islands” by laundering a significant portion of corruptly obtained funds through Australian banks and property deals. Papuans were thought to be the largest property investors in Australia’s far north. He vowed to keep up the pressure on Australia until it stopped taking such business.

The traditional image of a tax haven is a palm-fringed Caribbean island, a chillier outcrop in the English Channel or a European microstate such as Monaco or Liechtenstein. But offshore is not so much a geographical concept as a set of activities and offerings. What havens generally peddle is an escape from high taxes and strict regulation, along with easy incorporation and secrecy. Some of the biggest tax havens are in fact OECD economies, including America and Britain, that many would see as firmly onshore. They provide something the offshore islands cannot: a destination for money rather than a mere conduit, with first-world capital markets and banks backstopped by large numbers of taxpayers.

Latin Americans have flocked to banks in Miami for decades, both for legitimate reasons of confidentiality (for instance, fears that details of wealth held at home could be leaked) and to dodge tax. A congressional investigator, asked where America keeps its dirtiest money, answers without hesitation: “Brickell” (Miami’s financial district).

Can this party go on? Under new IRS rules, from last month America’s banks have had to report interest payments to non-residents. In some circumstances this information could be shared with 80 countries that have information-exchange agreements with America. The regulations were bitterly opposed by Florida’s banks and politicians, who worried that Latin American depositors would flee in droves. They lost, victims of America’s need to offer some form of reciprocation as it presses foreign governments to provide details of Americans who hold money abroad. The scale of the withdrawals from Miami is not yet clear.

America’s other offshore speciality is shell-company registration. States such as Delaware and Nevada offer cheap, easy incorporation, with anonymity guaranteed. Registration agents do not even have to ask for ID, as they do in most tax havens. And what is not collected cannot be passed to the police, which is why criminals and debtors love American shells. Martin Kenney, a fraud-busting lawyer in the BVI, finds them harder to penetrate than vehicles in the Caribbean, where “there will at least be some sort of lead, even if only nominees, to help you start pounding through the layers.” Dodgy operators also like the air of legitimacy around an American company, and the ease with which shells can be used to open corporate bank accounts.

Delaware is America’s incorporation giant, with 945,000 active entities. It makes so much money from company fees that it does not need to levy taxes on sales. Like some of the classic offshore havens, it is a small state with an economy that relies heavily on services for non-residents. Its political class, left and right, is all in favour of crafting local laws to accommodate corporate customers. Registrations grew by an average of 7% a year in the decade to 2011, and anything that interferes with them is fought tooth and nail.

Delaware’s corporate spectrum is broad, with a few thousand public companies at one end, overseen by its world-renowned Chancery Court, and hundreds of thousands of tiny, opaque LLCs (limited-liability corporations) and partnerships at the other. Delaware lawyers say the sleazy reputation of the smaller entities is unjustified, and that many LLCs are created by respectable companies for joint ventures and property transactions. Jeffrey Bullock, Delaware’s secretary of state, insists that it has struck the right balance between curbing criminality and “paying deference to the millions of legitimate businesspeople who benefit” from hassle-free incorporation.

Some of the biggest tax havens are in fact OECD economies, including America and Britain, that many would see as firmly onshore

But according to a World Bank database, American shells are the most popular corporate vehicles among perpetrators of large-scale corruption. An avid user was Viktor Bout, known as the “Merchant of Death”, a convicted arms smuggler. In a study last year three academics, led by Griffith University’s Mr Sharman, approached shell-company providers around the world posing as corrupt officials and money-launderers. They found that OECD countries were less compliant than tax havens with international standards on corporate transparency, that America was among the least compliant, and that Delaware was one of the worst states (with not a single fully compliant response). Investigators joke that Delaware stands for “Dollars and Euros Laundered And Washed At Reasonable Expense”.

A federal bill supported by Barack Obama, which would force states to collect information on beneficial owners (the human sort rather than “legal persons” such as trusts), has been stalled for several years. The formidable anti-reform coalition includes the national lawyers’ association and the United States Chamber of Commerce.

Britain, too, offers lax rules to crafty operators. A report last year by Global Witness, a campaigning group, highlighted the use of British shells as cover for allegedly corrupt funds originating in Central Asia. The main shareholder of one of the companies was a Russian who had died years before the company was registered. Other firms featured nominee shareholders and directors from the BVI and the Seychelles who were, as the authors put it, “paid to pimp their identities” (perfectly legally) for their customers to hide behind.

Investigators also point the finger at limited-liability partnerships, introduced in Britain a decade ago at the urging of accounting firms whose partners were hoping to dilute their long-standing “joint and several” liability. This corporate form has since been widely misused by people other than accountants to hide or shift dirty money. Most LLPs do not have to file tax returns, be audited or have real people as directors.

A 2011 report by Britain’s Financial Services Authority concluded that British banks suffered from serious flaws in their controls so that, knowingly or unknowingly, many of them were handling the proceeds of corruption. Most worrying, the regulator found there had been little progress in compliance since its previous review in 2001. And even as the British government bludgeons rich nationals who use offshore structures, it continues to offer wealthy resident “non-doms” juicy tax advantages.

The City of London first dabbled in offshore finance in the 1950s with the creation of the “euromarkets”—unregulated finance in dollars and other currencies outside their home markets. This grew rapidly, fuelled by Wall Street firms that used it to escape restrictions at home. The City’s offshore connections strengthened from the 1970s to the 1990s when British overseas territories in the Caribbean joined the crown dependencies of Jersey, Guernsey and the Isle of Man in tailoring their laws to attract deep-pocketed non-residents. Today London is at the centre of a vast hub-and-spoke system, with the offshore territories acting as feeders. Banks in Jersey, for instance, who could not possibly find borrowers for all the deposits they take in, pump most of them into the Square Mile, where they finance a variety of activities at the big banks and securities firms.

Ronen Palan of London’s City University calls this “Britain’s second empire”, noting that one-third of all international deposits and investments flow through Britain and its offshore satellites. The strength of their relationship shows up in IMF data that make it clear Britain’s and America’s financial links to offshore centres are far closer than the euro area’s and Japan’s.

America has its own (smaller) offshore zone of influence. This includes the Marshall Islands, a former possession, which offers some particularly impenetrable corporate structures and is one of the five most secretive tax havens, according to a ranking by the Tax Justice Network. The islands’ corporate registry is run by a private company in Reston, Virginia, which casts an odd light on America’s relentless bashing of the tax regimes in Switzerland and the Cayman Islands.

Britain aside, the European Union has several other tax havens. Ireland is popular with mutual funds and tax-planning companies. The Netherlands is the world’s largest venue for tax-treaty shopping. Multinationals put foreign investment through Dutch holding companies to avoid withholding taxes on dividends. U2, a stadium-filling rock band, upset fans when it moved part of its business to the Netherlands to cut its tax bill.

Luxembourg has bigger and broader offshore offerings, hosting large numbers of “tax-efficient” corporate transactions and thousands of mutual funds with around $3.2 trillion in assets, though most are managed elsewhere. As in traditional tax havens, finance plays an outsized role in the economy: in a country of 525,000, some 13,000 jobs are linked to the fund industry alone. Luxembourg works hard for new business. The Grand Duchy now presents a bigger competitive threat to the BVI than its Caribbean neighbours do, says a lawyer in Road Town.

FATF chance