Tax evasion

The Final Days of a Tax Haven

Vanuatu’s offshore financial center dates back to the early 1970s, when the British and French still shared administrative control over the islands, then known as the New Hebrides. The collapse of the Bretton Woods system of fixed-exchange rates, along with financial globalization, made capital far more mobile than it had ever been.

For Pacific island-states such as Vanuatu, Samoa, Niue, the Cook Islands, Tonga, and Nauru, setting up attractive tax and ­regulatory regimes to promote the offshore financial industry was a way of luring skilled professionals, financial know-how, and hard ­currency. The expats who found their way here stirred demand for better schooling, health care, and services. That in turn helped some of these islands develop tourism, an industry that now represents 50 percent of Vanuatu’s economy.

Then the haven experiment on the high seas began to ­unravel. The rise of global terrorism and tax evasion scandals that hit big international banks emboldened U.S. and European regulators to pressure global financial institutions and governments to hand over more information about suspicious transactions and complex money trails.