In the Victorian seaside town of Douglas, a new mood of uncertainty has punctured the customary ebullience of the Isle of Man’s senior legal and financial officials as they fret about the loyalty of their most powerful neighbour. “If jettisoned by the UK, we will have to fight tooth and nail for our survival,” says William Corlett, the island’s attorney general.

In the 1960s, young Manx people began to leave the windswept island until politicians started creating jobs for them by scrapping taxes and luring financial institutions to do business in the self-governing Crown dependency. Finance, says Mr Corlett, is what has saved the Isle of Man, 60 miles off the western coast of Britain, from the fate suffered by other isolated outposts such as Scotland’s Western Isles, which are plagued by depopulation.

Hence the sense of vulnerability as the island’s close relationship with the City of London is called into question. Alistair Darling, the UK chancellor of the exchequer, launched a review last week into London’s financial ties with what he has described as “a tax haven sitting in the Irish Sea”. From next month, the White House will be occupied by an avowed enemy of tax havens who backed a bill targeting “offshore secrecy jurisdictions”, including the Isle of Man.

This icy blast is a sign of the growing hostility to the tiny states and islands around the world that harbour an estimated $6,000bn (£3,895bn, €4,725bn) of offshore assets. After months of financial crisis and banking scandals that rocked Liechtenstein and Switzerland, the world’s most powerful countries have lost patience.

In Washington last month, finance ministers from the Group of 20 leading industrial and developing nations concluded that tax secrecy “should be vigorously addressed”. This weekend, it was the turn of the developing countries. At a United Nations meeting on development in Doha, tax havens came under fire for fuelling capital flight.

Tax havens are used to threatening language. Ever since they came into vogue after the second world war as places for individuals to shelter money and savvy international corporations to manage their tax affairs, havens have faced pressure from bigger countries. Will it be different this time? If it is, what future is there for the small island and mountain countries that turned the dusty notions of privacy and opaque corporate architecture into lucrative national industries?

“The political climate on the issue of tax havens has changed dramatically over the past three months,” says Jeffrey Owens of the Paris-based Organisation for Economic Co-operation and Development. As the official who has driven the international crackdown on secrecy for more than a decade, he says the new climate could turn the reform promises extracted from many offshore centres into a reality. The financial crisis has intensified the attack on havens. The near-collapse of the west’s banking industry has drastically increased governments’ need to raise funds, brutally exposed the risks inherent in small countries with large financial sectors, and raised questions about the role of offshore centres in destabilising the system.

Some European finance ministers claim that the “opaque environment” of offshore finance – particularly hedge funds – contributed to reckless behaviour and, ultimately, the current crisis. President Nicolas Sarkozy of France is among those questioning whether, at a time of taxpayer-funded bail-outs, banks should even be allowed to operate in tax havens.

Onshore businesses in London and New York exploit the offshore benefits offered by the likes of Jersey and the Cayman Islands to optimise the tax efficiency of certain deals, such as the repackaging of debt and cross-border lending. The havens themselves reject claims that they fuelled the crisis. “It is like blaming a car manufacturer for road crashes,” says an official in one of Britain’s overseas territories.

The arrival of Barack Obama in the White House provokes even more anxiety for the havens. As well as launching last year’s Stop Tax Haven Abuse Act, the president-elect helped this year to launch the Incorporation Transparency and Law Enforcement Assistance Act. This aims to make it easier for investigators to “see through” opaque corporate ownership structures and stop the flow of offshore funds to the US from hedge funds and private equity that are “of unknown origin” but do not have to pass money-laundering checks.

On the campaign trail, Mr Obama also laid bare his hostility to the corporate use of offshore jurisdictions for international tax planning, which analysts estimate accounts for between one third and a half of the revenues that Washington loses through offshore evasion and avoidance. “There’s a building in the Cayman Islands that houses supposedly 12,000 US-based corporations,” he said. “That’s either the biggest building in the world or the biggest tax scam in the world, and we know which one it is.”

Turning tough talk into real action will require considerable political will. Any reform of US tax to stop offshore fiscal planning is sure to face fierce opposition from US multinationals worried about being put at a disadvantage to foreign competitors. Martin Sullivan of Tax Analysts, a non-profit US publication, says: “Nothing will sail through. It will be much diluted.”

Havens hope the likely differences between the Obama administration and that of President George W. Bush have been exaggerated. “The Democrats are never as bad as their rhetoric; the Republicans never as good,” says an official at a centre bruised by concessions on transparency that were extracted after the 2001 terror attacks.

But the prospect of a renewed crackdown on secrecy is jangling nerves. The more reputable offshore centres are fearful that the difference between co-operative and unco-operative jurisdictions will be lost. “Politicians like scapegoats. In a crusade, the details get swept away,” says Allan Bell, the Isle of Man’s treasury minister. He complains that the nuances of the debate – including offshore-style tax dodging in many large “onshore” countries – are being overlooked. In October, he won support from Angel Gurría, OECD secretary-general, who called for “clear political recognition” of the half-dozen jurisdictions, such as the Isle of Man, that had taken “high political risk” in their move to greater transparency.

But even the most co-operative havens are only partially transparent. Information about private companies or trusts is not on public record. At best they will surrender information only to foreign tax inspectors who already have a “smoking gun” demonstrating evidence of wrongdoing. In practice, information exchange is rare.

Yet moving too far, too fast, might put the more co-operative tax havens at a competitive disadvantage. Wealthy individuals can be highly sensitive about financial privacy. Advisers at leading banks report that clients are already moving their money to Singapore and Switzerland – widely perceived as the last hold-outs against the international drive for transparency.

The danger of focusing solely on small players while ignoring similar shortcomings in some industrialised countries was one lesson of an OECD crackdown on secrecy launched in 1996. Tax havens have exploited this evident hypocrisy to stall reforms pending the introduction of a “level playing field”. The success of the latest crackdown is likely to depend on the attitude of relatively powerful countries such as Switzerland and Singapore.

Even if secrecy is eliminated, the leading offshore jurisdictions will survive, reckons Tax Analysts’ Mr Sullivan. “Will there still be Switzerland, Jersey, the Cayman Islands and the Isle of Man in a world where there was no tax evasion? Absolutely.” But for dozens of others, the outlook is bleak. “There is so much competition. Some would go out of business.”

That message has yet to reach the many eager wannabes. Last month, Tax Justice Network, one of several campaign groups that have vigorously lobbied against havens, proclaimed the Indian Ocean island of Anjouan to be the “new kid on the block”. But such newcomers may not have reckoned with the ever-mounting costs of new regulations designed to tackle terrorist financing and money laundering.

Smaller, less successful tax havens are caught in a pincer as competition and regulatory costs mount. As recession arrives, their fragile economies are also feeling the pain from declines in tourism and other industries. Construction companies are pulling out across the Caribbean. In the Turks and Caicos, a UK dependency in the region, unpaid workers stranded by the Lehman Brothers collapse prevented managers from leaving the premises.

Some locations have tried to diversify. Liechtenstein is the world’s largest false-teeth exporter. Monaco has more jobs in manufacturing than in finance. The Isle of Man has a foothold in the space industry and a lively manufacturing sector. Bermuda wants to break into the gambling business.

Despite such efforts, the tax havens still fear a bleak future if the international firms of accountants, lawyers and bankers pull out. “They are birds of passage. If they up sticks and go somewhere else, unemployment would be dramatic,” says one official.

The tiny states and protectorates that thrived in the free-wheeling second half of the 20th century are left struggling to shore up their defences against the coming storm. But as big countries try to block the leakage of much-needed tax revenues and stanch the flow of dirty money, sympathy for the tax havens is in short supply.

Additional reporting by Rachel Keeler

DELAWARE: AMERICA’S OWN HOME TO CORPORATE ANONYMITY

Joe Biden, the US vice-president-elect, has a distinction that went all but unnoticed during the election campaign: he is senior senator for a state prominent in the world of tax havens, writes Michael Peel.

Delaware, represented by Mr Biden since 1972, is infamous for allowing corporate financial secrecy of the kind that president-elect Barack Obama and many others are seeking to shatter in offshore financial centres.

Arguments over Delaware – whose more than 600,000 registered companies compare with an estimated 865,000 inhabitants – are part of a broader fight over what many havens see as rich-country double standards in international action to tackle money laundering and tax evasion. “The reality of Delaware is not lost on anybody,” says one official involved in efforts to improve financial transparency.

Delaware corporations are under no obligation to file names of shareholders or beneficial owners, according to a 2006 report by the intergovernmental Financial Action Task Force on money laundering. The state offers a structure known as a limited liability company, which can be registered with not much more than a name and address.

The report says Delaware company agents advertise the state as allowing even greater secrecy than offshore tax havens. “The Delaware LLC provides the anonymity that most international jurisdictions do not offer,” claims one agent website quoted by the task force.

Carl Levin, the senator with whom Mr Obama has campaigned on tax haven reform, is critical of the US failure to heed the task force’s calls to lift the confidentiality surrounding companies in Delaware and states such as Nevada and Wyoming. Before the election, a Levin aide told the FT the senator believed that the US “ought to meet its international commitments, especially when it is urging other countries to strengthen their anti-money-laundering controls”.

The debate highlights the vulnerability of the global campaign on tax havens to accusations that leading economies fail to practise what they preach.

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