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Nicholas Shaxson: Why Monaco is the offshore choice for the elite (just don't call it a tax haven)

When Bono, the U2 frontman, was asked on a visit to Monaco to sum up his favourite thing about the place, his reply came in three words: "No fucking paparazzi." Perhaps Harry Redknapp liked that about Monaco too. But the tiny Mediterranean principality's reticence about photographers signals a far deeper attraction for the world's wealthy: its financial secrecy.

Monaco, of course, is a notorious tax haven. Its biggest offering is its lack of income taxes for residents – and it will hand out residency permits to people who have enough cash to impress it and who can afford its property prices. The world's wealthy have flocked to Monaco for decades, from Formula One drivers and celebrities to wealthy retirees and City millionaires who fly to and from the UK just infrequently enough to avoid falling into the UK tax net.

But it's not just wealthy residents who get special treatment. If you live elsewhere but send your money there, you can escape tax too, and Monaco won't tell HM Revenue and Customs about your stash: there is no treaty with the UK obliging Monaco to cough up any information.

Still, things are less straightforward than they used to be. Monaco used to levy no direct taxes at all, but under a European scheme to crack down on tax dodgers, it now withholds tax on bank interest income paid to non-residents and remits most of that to their home countries. The tax rate started at 15 per cent when the scheme began in 2005 and by last July it had reached 35 per cent. If Redknapp's "Rosie 47" account was of the plain vanilla sort, he would have paid some tax – though far less than HMRC said he should have. But the European scheme doesn't catch other taxes like inheritance and gift taxes, it doesn't penetrate Monaco's secrecy, and with the right accountant, you can dodge it completely.

Like all tax havens, Monaco loudly denies what it is. It is "a great misconception", huffed its ambassador to the UK recently. Nonsense. It's just that nobody likes being called a tax haven.

Tax havens are the project of elites elsewhere: places that help them cream off the benefits of society – roads, hospitals, educated workforces, courts and contracts and so on – while shaking off the costs, risks and responsibilities: the taxes, the disclosure rules, the criminal laws and more. Whereas the tax haven of Jersey is a historical project of the British elites, Monaco is France's.

Most worrying is how hard the world has found it to crack down on such places. Leaders at a G20 summit in 2009 declared "the era of banking secrecy is over" and promised a big crackdown. They delivered modest changes, but the overall result looks more like a whitewash. It leaves a sour taste, and a question: why do we still tolerate these offshore bolt holes? The answer: because our wealthiest and most powerful élites want them. In this age of austerity, we need a better reason.

Nicholas Shaxson is the author of 'Treasure Islands: Tax Havens and the Men Who Stole the World'