Dirty Secrets: How Tax Havens Destroy the Economy by Richard Murphy

Key Takeaways

  • Tax havens are places where non-citizens can legally avoid paying taxes; Murphy contends that the real issue with tax havens is not the abuse itself, but the secrecy that allows it.
  • Too many third-world nations rely on foreign help because of tax abuse, primarily in the form of tax evasion by the wealthy elite.
  • A new policy can help reduce this menace; businesses must report only seven categories of information for each country in which they operate: sales, earnings before tax, tax paid in each country, scope of operations, number of employees, and total value of investments.
  • The concentration of a large amount of wealth in a small number of hands is another way in which tax havens are harmful to both fair competition and economic growth.


U.K.-born political economist Richard Murphy is well cited for his research and writings on the ethical and legal implications of tax havens and offshore tax havens. Furthermore, he is a consultant for the Trades Union Congress and a member of the Tax Justice Network. Additionally, he oversees technological operations at Fair Tax Mark.


Although the book was written in response to the 2016 Panama Papers scandal, the largest disclosure to date of offshore accounts and the people who have been linked to them, its reach has turned out to be much broader. By rebranding tax havens as “secrecy jurisdictions,” Murphy’s work better conveys the destructive nature of these areas. Tax havens, he argues, pose a danger to our GDP, our stock markets, our standard of living, and, ultimately, our democracy. Nevertheless, the book has a more optimistic tone than a negative one because it proposes viable measures that would shock tax havens to their foundations.

Tax Havens’ Meaning, Functions, and Products

It is common practice to use the terms “tax haven” and “offshore (industry)” interchangeably. The meanings and interpretations of these two terms are, however, “different.” To be sure, “offshore” can be understood as “elsewhere” in the context of flight and avoidance, but this “elsewhere” does not refer to any particular physical location. It is just that the contracting parties are not physically located in the same place as the deal. But tax havens are real places that can be researched. Simply put, tax havens are actual locations where non-citizens can legally avoid paying taxes.

To prove that tax havens lead to a broader variety of earnings than offshore businesses, it is necessary to distinguish between the two. Murphy identifies the following three primary functions for tax havens: 

  1. They routinely break the law to further the interests of the “elite” in our society.
  2. They prevent democratically elected governments from fulfilling the expectations of their constituents and carrying out the policies they campaigned on.
  3. They contribute to the global concentration of income and wealth.

The complex nature of the problems generated by all three of these activities renders current policy mechanisms designed by groups like the OECD ineffective. This is because tax havens use a diverse array of products and services that serve to reinforce these insulating layers. As a result of the workings of the world’s secrecy jurisdictions, products like trusts, foundations, and companies backed by politicians, lawyers, accountants, bankers, and so-called wealth-management professionals transform into an integrated web that facilitates the offshore world where tax abuse takes place.

Tax Havens or Secrecy Jurisdictions?

In place of the less-than-accurate term “tax haven,” the word “secrecy jurisdiction” has been proposed. Murphy maintains that the real problem with tax havens is not tax abuse itself, important though that is, but the secrecy that permits that abuse and all that jazz. This opaque nature of tax havens provides support for the idea that they are, at heart, secrecy countries. 


The modern incentive offered by tax havens is far more harmful than tax evasion, hence the focus on secrecy is warranted. They offer a safe haven from not only tax authorities but also other regulators, competitors, creditors, stockholders, and (least of all) wives and children. Therefore, assuming that tax is the only reason someone would choose to record an action in a tax haven is erroneous and fundamentally wrong.

How Tax Havens Destroy the Economy?

As was previously noted, tax havens, also known as secrecy jurisdictions, present a significant problem for the economy of the entire world. The following are some of the more significant effects that they have:

Developing nations’ aid dependence

Too many third-world nations rely on foreign help because of tax abuse, primarily in the form of tax evasion by the wealthy elite. In terms of direct economic effects, tax havens have less of an impact on industrialized countries because of their ability to compensate for losses using other means. Because of tax avoidance and insufficient revenue, emerging and third-world governments are often forced to borrow money at exorbitant interest rates.

Lack of transparency in markets

These days, the market system is the basis for the vast majority of the world’s economies. Economists generally agree that perfect knowledge is essential to succeeding under this system. This means that businesses, investors, employees, regulators, governments, and others with a stake in the allocation of resources should have access to as much relevant data as feasible. Tax havens typically conceal this information about major market participants, which disrupts market equilibrium.

Lack of fair competition and growth

Equal opportunity for everyone is yet another necessary and essential requirement for the successful operation of markets. Equal access to money ensures that individuals who are able to come up with innovative products are able to bring those products to market. The concentration of a large amount of wealth in a small number of hands is another way in which tax havens are harmful to both fair competition and economic growth.

Cost to democracy

It is essential for the electorate of any democratic government to have full and comprehensive knowledge of the candidates running for office in order to make an informed choice. It should go without saying that tax havens prevent citizens from gaining access to this information. This is due to the fact that the majority of candidates belonging to the higher echelons of society own an enormous amount of money that was accumulated through such dishonest tactics. Therefore, in this sense, tax havens give criminals the opportunity to get away with their deeds.

Tax competition

Tax competition is a technique that is employed by many governments across the globe to attract capital and labour by giving reduced tax rates and other comparable incentives. This practise is known by its formal name, tax competition. In point of fact, however, this is an attempt by one state to deliberately deny to another state the resources that are rightfully property of the latter, and as a result, this is nothing short of a tax war. This tax war frequently leads to a misallocation of resources, which results in greater financial loss than financial gain for all of the parties involved.

Tax Havens: Policy Reforms to Combat Them

Several countries and international organizations (including the OECD, the European Union, and the International Monetary Fund) have developed strategies to address this issue over the past two decades. They’ve all been unsuccessful, though. It seems that in most of these cases, failure was intentional in the design of the policies. Some of the developments since these reforms were implemented are detailed, along with new policy objectives from the book that pursue similar ends. But this threat can be managed. 

The OECD noted in the 1990s that increased transparency into the activities of multinational firms might help reduce tax fraud. Since these corporations are responsible for the majority of offshore accounts, it is urgent that laws be enacted to prevent them from doing so. To comply with the new policy, businesses will need to report only seven categories of information for each country in which they operate: sales; earnings before tax; tax paid in each country; scope of operations; number of employees; and total value of investments. Thanks to this consolidated data, more people will be able to learn about the company’s operations and the value it brings to each country in which it has a presence.


Suffice to say, places called “tax havens” allow non-citizens to legitimately evade taxation. Murphy claims that the confidentiality afforded by tax havens is the root of the problem, not tax abuse per se. Because of tax misuse, especially tax evasion by the wealthy elite, too many poor countries are dependent on aid from others. A further aspect in which tax havens are detrimental to free and open markets and economic growth is that they facilitate the consolidation of wealth among a small elite. This is an absurdly dangerous and opprobrious activity that must be dealt with appropriately.


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