January 15, 2019

Following the election of Donald Trump and claims of Russian meddling during his campaign, a privatisation deal of Russia’s state-owned oil company Rosneft caught the media’s attention: despite sanctions, some €10 billion had been invested in Rosneft via a Singapore-based shell company, representing a 20 per cent stake in the oil giant.

Rosneft argued that the investment was a simple joint venture between the Qatari Investment Authority and Swiss oil trader Glencore, but the numbers simply did not add up. Yet there is no way of knowing who owns the Rosneft stake, because the ownership is hidden in a Cayman Island’s shell company.

‘Like many large deals, the Rosneft privatisation uses a structure of shell companies owning shell companies’ across offshore jurisdictions. In this case it left a dead-end paper trail from Qatar and Switzerland to a company in Singapore, which is owned by a London-based firm, itself controlled by a mailbox in the Caymans, registered at the address of a prestigious law firm. Although the deal remains a mystery, it shows how the rich and powerful hide and transfer their assets, including large transactions of geopolitical significance, in complete anonymity.

This essay focuses on the murky financial realm known as offshore finance. It shows that offshore finance is not solely about capital moving beyond the reach of states, but involves the rampant unbundling and commercialisation of state sovereignty itself.

Offshore jurisdictions effectively cultivate two parallel legal regimes. On the one hand, we have the standard regulated and taxed space for domestic citizens in which we all live, on the other we have an ‘extraterritorial’ secretive offshore space exclusively maintained for foreign businesses and billionaires, or non-resident capital, comprising ‘a set of juridical realms marked by more or less withdrawal of regulation and taxation’.

This offshore world is a state-created legal space at the core of the global financial system, and hence global capitalism, housing the world’s major capital stocks, flows and property claims with the goal of protecting wealth and financial returns. Viewed as an integrated system, it is a curious sovereign creature capable of exerting a political-economic authority similar to imperial powers of the past.

Some call it Moneyland, others see a return to feudal times. The offshore world could also be compared to the two-tiered architecture of imperial Panem in Suzanne Collin’s dystopian Hunger Games trilogy, which is said to reflect the workings of the Roman empire.

Specifically, the present international system of states might be compared with Panem’s troubled ‘districts’, where ordinary citizens are territorially enclosed and forced to pay hefty ‘tributes’, while the exclusive offshore world resembles aspects of Panem’s mighty capital city – the Capitol - where its affluent ruling class are exempt from austerity, taxation and authoritarian rule, living from the wealth created by others.

We focus on so-called offshore financial centres (OFC) as the building blocks of offshore finance. These centres are defined as ‘a country or jurisdiction that provides financial services to nonresidents on a scale that is incommensurate with the size and the financing of its domestic economy’.

Besides functioning as tax havens or secrecy jurisdictions, OFCs are used as platforms for acquiring debt, structuring funds, company formation, investment protection, and so forth. Depending on the definition, up to 100 jurisdictions worldwide can be classified as OFCs. These might function as ‘conduit’ and ‘sink’ jurisdictions, intermediate or final destinations for mobile capital.

As OFCs increasingly cultivate niche strategies, their subcategories have become ever more specific: while some are focused on providing secrecy and wealth protection to conceal illicit money, others cater for corporations and banks seeking ‘light touch’ regulatory stepping stones to arrange global financial flows. The budding variety in specialisations complicates a uniform comparative framework to study distinctive offshore centres. Notwithstanding these differences, the essential fact is that offshore finance ultimately constitutes a globally integrated space operating beyond the control of any individual state.

This essay details the history, geography, mechanisms, enablers and inhabitants of the offshore world. Our account shows how the global economy is manufactured through national politics or, to paraphrase the erstwhile Nazi jurist Carl Schmitt, how the economic world of property (dominium) is built through political sovereignty (imperium).

This focus also allows us to counter the idea that the many nationalists currently rising across the world are ‘challengers’ to the global order. On the contrary, our counter perspective considers the global rise of authoritarian nationalism to be a logical continuation of the neoliberal project.

Understanding how financial power is typically fused with, and ultimately couched in, state power also means rethinking ideological divides between public and private spheres; between political and economic domains; or between state and market. For in the offshore world – the mighty Capitol of our age - financialised and hypermobile global capital effectively is the state.