The Final Days of a Tax Haven

In Vanuatu, a remote archipelago in the South Pacific, a popular tourist attraction is something called land diving. Villagers on the lush outer island of Pentecost jump headfirst from a tall wooden tower with tree vines tied to their ankles to break their fall. For the divers, the rite of passage is a plunge into the unknown—and that’s not a bad metaphor for where this secretive tax haven is headed these days.

Anchored in the deep seas between Australia and Fiji, this exotic microstate has faced sanctions since last year for not complying with stricter anti-money-laundering standards established by the Financial Action Task Force. The FATF, an intergovernmental body created by the Group of Seven leading industrial countries, has placed the former Anglo-French colony on its “gray list,” which also includes Iraq, Syria, and Yemen. The action effectively turned Vanuatu banks into financial pariahs.