The Finance Curse. Nicholas Shaxson
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Latin Americans, Africans, and many others paying a murderous price for Britain helping their elites, drug gangs, and kleptocrats to ransack their national coffers. These activities, he said, were “mainly aimed at North American companies” and “may have little adverse effect on the UK.” Screw you, America.
The Bank of England quietly welcomed foreigners stashing money in the territories, generating foreign currency fees just as the Euromarkets were doing in London. The same Bank memo urged the authorities “to be quite sure that the possible proliferation of trust companies, banks, etc. which in most cases would be no more than brass plates manipulating assets outside the Islands, does not get out of hand.” But as long as exchange controls were not breached, “there is of course no objection to their providing bolt holes for non-residents.” That last sentence is, of course, code language for welcoming shady money. Especially North and South American shady money.22
The correspondence shows a mounting range of scams and schemes building up in Britain’s havens. One memo described a “financial pirates’ nest” being set up in the British Virgin Islands, used for drugs and gunrunning, while another opposed a plan by an American consortium of “investors,” with the innocuous name of Global Risk Underwriters Inc., to take over Antigua’s satellite island of Barbuda, to set up a free port and an investment bank with numbered accounts and exemption from any investigation, along with unregulated gold refining, gambling, and, officials suspected, drug smuggling.23 Officials in London discovered that an American financier called Clovis McAlpin was proposing a scheme in the Turks and Caicos Islands that would amount to “exclusive rights which would virtually turn him into the uncrowned king of the islands.” (The scheme came to nothing.) They fretted that the Caymans had been “literally raided by an expatriate tax council, who overnight persuaded them to enact trust legislation which goes beyond anything yet attempted elsewhere.” (This council has evolved and still exists today, and it largely writes the Caymans’ tax haven laws.) One memo slammed Cayman’s Trust Law of 1967 as “quite uncivilised,” while another lamented the role of the accounting firm Price Waterhouse, which had been urging nearby Montserrat to set up an “objectionable” brass-plate business, again catering mostly to Americans. There were new laws on shell companies in the British Virgin Islands, whose users would be “immune for at least twenty years from all enquiries from any source,” and this risked infuriating the US government.24
As one scheme followed another, the wrangling continued in London. The archives show how those supporting the offshore tax haven model slowly began to gain the upper hand. The merry-go-round continued, getting ever faster and more interconnected with the Euromarkets. More and more private operators flocked to the territories, urging each to compete fiercely with its rivals by putting in place ever more devious and criminal-friendly secrecy facilities, trust laws, and financial regulatory loopholes.
This era, from the mid-1950s to the early 1980s, was the great watershed between the two ages of the global system of tax havens, as the slow, discreet system of secret offshore banking dominated by the Swiss ceded ground to a more hyperactive, aggressive Anglo-Saxon strain, operating first out of the London-centered Euromarkets, then rippling out into the unpoliced and heavily criminalized British offshore network that still exists today. If you consider Britain and its tax haven satellites together as a network, it would soon constitute the world’s biggest offshore tax haven. This network is like a spider’s web, linking the City of London at the center to satellites like the Caymans or Gibraltar.25 Fees or assets captured in the web, typically from jurisdictions near the haven in question, get fed upward to the City of London. So, for example, a Colombian criminal or American mobster might set up a shell company or bank in the Cayman Islands; or a French bank or energy company will establish a special purpose vehicle (SPV) in Jersey to hide assets from shareholders or from government regulators; or a Russian oligarch might set up a dodgy bank in Gibraltar. Sometimes illegal activity is involved, sometimes not. Each step needs lawyers, accountants, and banking services, which the British network happily provides. The most profitable heavy lifting happens in London, but it is often the haven that snared the business in the first place. A spider’s web is a sinister analogy, but it is apt.26
In 1976 Anthony Field, the managing director of Castle Bank & Trust in the Caymans and the Bahamas, was arrested at a Miami airport, after a private eye hired by the IRS discovered that the bank had been helping two hundred rich Americans dodge taxes: Americans who included Playboy’s Hugh Hefner, the rock band Creedence Clearwater Revival, Chicago’s Pritzker family, and members of the Cleveland Mafia. The Castle banker was told he faced jail if he didn’t provide details about his American tax-evading clients. He refused, saying he’d be prosecuted in the Caymans if he did. To bolster Field’s case, the Cayman government drafted a ferocious new secrecy law that could land you in jail not only for leaking confidential information to outsiders but for merely asking for it (a version of the law is still in place today). This Cayman law was an astonishingly brazen, London-approved, fist-pumping fuck-you to the United States. (In the end President Richard Nixon stepped in and appointed a new IRS commissioner from Cleveland, who squashed the whole case.)27
The close legal links these British havens have with London is crucial, providing the reassuring legal bedrock, political support, and familiarity that other fly-speck havens can’t match. If there’s a dispute over a Cayman-incorporated structure, for instance, British courts and British judges will rule on the case and have the final say. Why would you deposit your money in a banana republic bank when you can go to the Cayman Islands and have your stash protected by the British legal system? The importance of the British link was illustrated clearly when the Bahamas became fully independent from Britain in 1973 under a black nationalist premier, Lynden Pindling (who was also, as it happens, on Meyer Lansky’s payroll). The money fled the Bahamas in droves, and most of it alighted in the nearby Caymans, which was still British. A London-based lawyer called Milton Grundy, who helped write laws of “labyrinth complexity” for tax havens like the Caymans, explained why the money left the Bahamas so fast: “It wasn’t that Pindling did anything to damage the banks,” he said. “It was just that he was black.”28
The need for this British bedrock highlights how tax havens turn two faces to the world. On the one hand, they need to appear clean, trustworthy, and efficient, to reassure flighty clients that they’re in safe hands. On the other hand, they want to get hold of as much dirty money as they can. They square this apparent contradiction with a simple offering to the world’s stateless hot money, which goes roughly like this: “You can trust us not to steal your money, but if you want to steal someone else’s money, then you can also trust us to turn a blind eye.” This helps explain why Swiss people are famed around the world for their punctuality, personal honesty, and efficiency—and yet Switzerland is historically one of the world’s greatest money-laundering sinks of dirty money. And it’s a similar story in Britain. British people are still admired the world over for fair play, and British judges for their incorruptibility, yet at the same time we find Roberto Saviano, Italy’s most celebrated anti-Mafia journalist, calling Britain “the most corrupt place on Earth” because of all the City’s dirty money. This contrast between apparently clean officials and dirty money is no coincidence; it is the heart of the offshore model.
With these financial arrangements in place, Britain was able to make up for the loss of its ability to use its soldiers and gunboats to extract riches from foreign countries. Professor Ronen Palan of City University in the UK describes this spider’s web as “a second British empire which is at the very core of global financial markets today.”29 This second financial empire has characteristics in common with Britain’s lost territorial empire. First, the libertarian character of its escape routes strongly echoes the old empire’s evangelical devotion to freedom. Criminals inevitably flock to libertarian, unpoliced free spaces to deal in money, just as wasps will mysteriously turn up when you open a pot of strawberry jelly at a summer picnic. Laws were carefully drafted to achieve maximum secrecy, and when packing crates full of drug money arrived in the Caymans or Panama, the police would be on hand to escort them safely from the airport to the local banks. And as we will see, this laissez-faire approach to money in the British tax havens would extend far beyond handling the proceeds of drug deals and organized crime and into high finance. The veteran US crime-fighting lawyer Jack