Michael Oswald’s film The Spider’s Web reveals how at the demise of the empire, the City of London’s financial interests created a web of secrecy jurisdictions that captured wealth from across the globe and hid it in a web of offshore islands. Today, up to half of global offshore wealth is hidden in British jurisdictions and Britain and its dependencies are the largest global players in The Secret World of Finance.
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The film you are about to see was entirely self-funded, at a budget of £4000.
At the twilight of the British Empire, bankers, lawyers and accountants from the City of London set up a spider’s web of offshore secrecy jurisdictions that captured wealth from across the globe and funnelled it to London.
The British soldier: all around the globe you’ll find him, from Gibraltar to Hong Kong.
Everywhere he stands against the threatening years, staunch symbol of our common will to order.
Fire!
The Spider’s Web: Britain’s Second Empire
The British Empire.
The largest Empire the world has ever known.
For over 300 years Britain ruled, its armies conquered and its bankers proclaimed the might of its currency.
But one day it all began to fall apart.
One by one countries declared their independence from Britain, and no amount of force could reverse the tide.
As British elites saw their wealth, privileges and empire disintegrate, they began to search for a new role in a changing world, and they found one in finance.
This is a film about how Britain transformed from a colonial power to a modern financial power and how this transformation has shaped the world we live in.
The British Empire
In the days of the British Empire the City of London was the world’s biggest global financial centre. The City of London was the beating financial heart of the British Empire. Historians Cain and Hopkins called it the governor of the imperial engine. All these countries in the empire used to use the sterling currency and the City of London was the financier, not just inside the sterling zone but outside the sterling zone as well.
As Britain’s Empire declined, so too did the City of London.
Newsreel: One British Army truck is bombed, killing two soldiers and wounding 12. As rioting becomes daily more widespread on Cyprus, young people of high-school age take an increasing part in the violence. Here, a group of girls are being dispersed after a rock-throwing battle with British Military Police.
With the decline of Empire, British commercial interests across the globe were under threat. In 1956 Egypt nationalised the Suez Canal.
Newsreel: A new Middle East crisis arises, as president Nasser of Egypt tells a wildly cheering crowd in Alexandria that Egypt has seized the internationally owned Suez Canal.
Newsreel: France and Britain issue a 12-hour ultimatum. Within hours of its expiration, Britain’s warplanes are winging their way to Egypt and its Bombers attack 5 key cities including Cairo.
The United States was opposed to the invasion and put pressure on Britain and France to withdraw their troops.
There will be no United States involvement in these present hostilities.
It is our hope and intent that this matter will be brought before the United Nations General Assembly.
There, the opinion of the world can be brought to bear in our quest for a just end to this tormenting problem.
Britain was humiliated.
The Suez Crisis signified the end of Britain’s role as one of the world’s major powers.
The Eurodollar Market
Following the crisis there was a run on sterling, the UK pound.
Some suspected the American government was encouraging this run on the UK pound.
As financiers withdrew their money from Britain, the value of the pound decreased.
To protect the value of the pound, Britain limited the banks’ overseas lending.
They were unable to invest abroad, and obviously they were unhappy.
We don’t know exactly the context, but it is very clear that the banks or their representatives made a representation to the Bank of England, which in itself was dominated by representatives from the banking industry.
It seems that they reached an agreement, which was never written, that if banks intermediated between two non-residents, in a foreign currency, in that case the dollar, this particular intermediation, this particular deal, would not be considered by the Bank of England under its own jurisdiction.
The banks began to create a market for dollars in London, called the London Eurodollar market.
To differentiate these Euromarket activities from their domestic banking activities, banks kept two sets of accounts.
The Bank of England, the UK regulator, declared that the London Euromarket accounts were not in London, they were elsewhere, and therefore it had no responsibility for regulating them.
It is about providing a legal space in which you pretend activity is taking place.
And the importance of that is that you pretend it is not taking place in the economy where it really is taking place.
So you are taking activity from the place where it is regulated and taxed, and pretending that it is happening elsewhere.
Now, where doesn’t really matter, it’s just elsewhere.
When American banks realised that London offered the ability to avoid US regulations, they moved their international operations to the City.
The Last Remnants of Empire
Around the same time as American banks were moving their international operations to London, another new kind of financial space began to emerge, far away from London, in Britain’s overseas jurisdictions, the last remnants of Empire.
Back in the 1960s the Cayman Islands was a complete backwater. The stories go that mosquitoes were so thick in the air that they were enough to suffocate cows. That is a legend about the Cayman Islands, I don’t know how true it was, but there was nothing happening there.
Accountants and lawyers from London arrived in the Cayman Islands and other British dependencies, and began to draft a set of financial secrecy laws and regulations. Because these jurisdictions’ main selling point was secrecy, they were called “secrecy jurisdictions”.
What the Cayman Islands was doing was straightforward illegal activity.
Drugs money was coming in in huge quantities.
Tax evasion, whatever you wanted, you could have it.
The Bank of England was observing the developments from London and noted in a report marked secret dated 11th of April 1969,
“We need 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. There is of course no objection to their providing bolt holes for non-residents, but we need to be sure that in so doing opportunities are not created for the transfer of UK capital to the non-sterling area outside UK rules”.
These small territories, the last remnants of the British Empire, which are still overseas territories today, they are still the last of the empire.
There are 14 of these overseas territories.
Seven of them are bona fide tax havens, including the Cayman Islands, Bermuda, the British Virgin Islands…
Some of the biggest tax havens in the world today are still British.
With access to large amounts of offshore money the Euromarket grew rapidly.
By 1980 it had reached $500 billion, by 1988 $4.8 trillion, and by 1997 nearly 90% of all international loans were made through this market.
The British Empire had sunk, leaving hardly a trace behind, but the City of London adapted and survived.
The Corporation of London
The City of London, London’s financial district, is a peculiar place. It has been called a city within a city, a state within a state. It is run by an organisation called the City of London Corporation, a private company that performs all the functions of a local council with a private police force and private courts.
Those of you who are not from the UK, and some of you even who are, might not be aware just how weird a thing the little City of London is within the big London. The City of London is a separate entity to the wider London, and it has its own head, the Lord Mayor, who is distinct from the mayor who runs the rest of London.
Every November, the City stages the Lord Mayor’s show, the world’s oldest civic procession.
The City of London has long had this curious legal status, because back in 1066 when William the Conqueror came over, the City was one of the only portions of England that he failed to conquer.
And he struck a deal with the City in 1067 that allowed them to continue functioning.
To this day the City of London is exempt from numerous laws that govern the rest of Britain.
Its political system derives from the Middle Ages.
The City’s electorate is dominated not by its residents, but by the private businesses operating within the City.
Its Lord Mayor is selected by the heads of medieval guilds.
They have a representative in the House of Commons, called the Remembrancer.
Apart from the clerks of the court of the House of Commons he is the only unelected person there.
All other lobbyists have to stop in the lobby.
The City of London has a permanent representative in the House of Commons, whose role is to report back to the City of London Corporation and to lobby Parliament on behalf of the City.
The Corporation of London clearly is a unique and interesting phenomenon that should have attracted many political scientists, political economists and economists.
But I don’t know of anyone who has studied systematically the Corporation of London and its impact on policy, or economic policy.
So we can only surmise.
Some people assume or surmise that the Corporation of London is extremely powerful and is able in one way or another to shape British policy, particularly in financial methods.
Clement Attlee, the Prime Minister after World War II, had something to say about the City of London Corporation.
“Over and over again we have seen that there is in this country another power than that which has its seat at Westminster.
The City of London, a convenient term for a collection of financial interests, is able to assert itself against the government of the country.
Those who control money can pursue a policy at home and abroad contrary to that which has been decided by the people”.
At the heart of the City of London stands the Bank of England.
The Bank of England is not just a Central Bank, it is also a financial regulator.
The Bank of Credit and Commerce International
At the demise of Empire the Bank of England used this regulatory authority to help attract the world’s banks to London. In 1972, the Bank of England issued a licence to the Bank of Credit and Commerce International, which set up its head office in London. Within ten years BCCI grew into the 7th largest bank in the world. Ten years later BCCI was bankrupt.
News: The deputy director of the CIA Richard Kerr, said late today, that the CIA did use BCCI to support CIA activities overseas.
But BCCI had not just collaborated with the world’s intelligence services, it had also engaged in extensive financial fraud, money laundering and terrorist financing.
BCCI constituted international global crime of a level that boggles the mind.
News: BCCI was financing terrorism, the Bank of England knew it, says the report, but instead of supervising it properly, it tried to prevent the bank’s collapse.
I am saying very directly that the Bank of England had sufficient information in front of it to close BCCI 15 months earlier than it did, and millions of depositors were hurt in that process.
Numerous whistleblowers from BCCI had contacted the Bank of England, yet the Bank of England did nothing.
The Bank of England had plenty of time to intervene and investigate
but it did not do so because the tradition at that time, which still survives,
is that you have to just kind of send hints and talk over lunch tables
with the chaps regulating other chaps
and all will be well.
Robin Leigh Pemberton, the Governor of the Bank of England
at the time of the collapse of BCCI, commented,
“The present system of supervision has served the community well…
If we closed down a bank every time we found an incidence of fraud,
you would have rather fewer banks than we do at the moment”.
London was a place for banks to engage in business
that was not allowed elsewhere,
where senior bankers did not have to worry about the consequences of their actions.
This is one of the reasons why today there are more banks in London
than in any other financial centre.
In Britain nobody goes to jail,
no bankers go to jail, they generally don’t.
They are a protected species.
And that is part of the offshore business model of the UK,
is to say, “Bring your money here we will look after you,
we will not put you in prison, we’ll let you do what you want”.
Light-touch regulation was one way of attracting business to London.
Another was secrecy.
From the 1960s onwards,
City of London institutions began to establish offshore branches
in former outposts of the British Empire.
Their aim was to create offshore centres with strong secrecy legislation,
in order to attract capital from across the globe.
Trusts
Swiss banking secrecy is the most famous. You know you put your money in a Swiss bank and they promise not to tell anybody. That is one kind of secrecy. But another kind of secrecy, which is very British, is the trust, and the trust is a very slippery, complicated and devious mechanism. Trusts emerged, the legend has it, from the time of the Crusades, when knights would go off to fight in foreign lands and they would leave their assets in the care of trusted stewards.
What trusts do ultimately is they play with the concept of ownership. Ownership is not such a simple thing. So the settlor, the knight in this case, would hand over the assets to someone, who these days would be called a trustee, it is often a lawyer. Legally you are separated from those assets, they are not yours anymore, there is a barrier. You can’t be taxed on them, nobody is going to find anything about your connection to these assets.
In Britain’s offshore jurisdictions no qualifications are necessary to be a trustee, anyone can set up a trust and act as a trustee. There is no registry of trusts, there are no bodies to certify that a trust has been set up.
The only persons who know about the creation of this agreement are the trustee and the settlor. There is no obligation to register it. There is no financial reporting obligation of trusts. They are not required to put annual statements onto account anywhere. So, trusts are to all intents and purposes invisible arrangements.
Economist John Christensen was an economic adviser to the secrecy jurisdiction of Jersey for ten years.
We are not talking about a few million. We are talking now about trillions. Trillions of dollars of capital which apparently belong to nobody. For tax purposes and for other purposes, they belong to nobody. Everything, works of art, gold bullion, racehorses, cars, real estate, not just financial assets but a whole load of non-financial assets, belong to these trusts, sitting there belonging to nobody. Now, think that one through, because we are talking about maybe as much as $50 trillion of assets sitting offshore behind these instruments.
The Cayman Islands are among several British overseas territories who have signed a new information exchange agreement with Britain and the rest of Europe to tackle tax evasion.
The countries are now required to automatically provide details of the ownership of bank accounts and how they are used.
Cayman became the first signatory last week.
It is important that the Cayman Islands should be recognised as the first overseas territory to sign such an agreement with the United Kingdom, and I think this importantly reflects the constructive approach that the Cayman Islands has taken in delivering our shared objective of rooting out tax evasion.
The trust lies at the core of the British secrecy model.
They don’t use banking secrecy: the Swiss use banking secrecy.
The British of course are only too willing to kill off banking secrecy
because they will then capture a larger market share.
That is why the Brits are doing this.
Trusts are the basic building block of Anglo-Saxon secrecy
and they form the basis from which complex offshore structures are created.
Every secrecy jurisdiction offers a specific set of services,
from trusts to shell companies
to secret bank accounts and nominee directors.
The combination of these services into complex structures
spanning multiple jurisdictions
enables the creation of secrecy structures
that are almost impossible to penetrate.
An offshore structure will often have a trust kind of sitting on top of it.
The trust will be here managing the assets, kind of controlling the assets.
Underneath that the trust will own some shell companies,
each one might be in a different jurisdiction.
So you might have a trust in one jurisdiction, whose trustees are somewhere else,
whose beneficiaries are somewhere else,
which owns offshore companies somewhere else.
Each of these companies might then own assets,
they might own a bank account, a racehorse, a yacht,
a painting, a portfolio of shares or whatever.
There are numerous variations of trusts and offshore secrecy structures.
There are offshore lawyers whose work entails
the creation of ever more complex and obscure structures.
The aim of these structures is to hide the identity of the owners of offshore assets
and allow offshore wealth to be recycled back into global markets.
Looking at the amount of money
being administered from tax havens,
you see that it is a curve going like this.
And all the talking we have been doing along with other wonderful people
fighting against tax havens has not changed anything.
It is a world were you go on talking and go on talking:
“You’re interesting me, but I’ll go on doing what I want to do”.
We know everything today,
because we have had the Panama Papers.
We have seen it, and we are not able to act upon it.
And we are not able to act upon it
because this system is really protecting
the few people who are benefiting from it.
And these are in percentage very few people,
but they are powerful.
And I see in the Panama Committee that I’m sitting in
that the only thing that could change this
is to have a publicly accessible register of the beneficial ownership
of trusts and of all kinds of companies.
It is easy.
The Panama Papers are a collection of leaks
from the offshore law firm Mossack Fonseca.
Mossack Fonseca is the 4th largest offshore law firm.
The other nine of the ten largest offshore law firms
are registered in British overseas jurisdictions.
Who is in charge of Britain’s Overseas Territories?
When countries complain to Britain about the activities run out of its offshore havens, Britain claims that these places are independent and that there is nothing it can do.
I have heard time and time again from officials in Berlin and in Paris and in Washington and in other countries, that they have been told by the British government, yes, they are aware of what is going on in Jersey and they think it is very unfortunate, but they don’t have the powers to intervene. Well, that is a straightforward lie. They do have the powers to intervene, they just choose not to.
Britain plays this kind of game of pretending when it suits them to pretend that these places are independent. At the end of the day Britain appoints the governor, appoints lots of senior people in these places, they are responsible for foreign relations and defence and also they can veto their legislation as well. So, Britain has a massive degree of control, basically it is controlling these places. It is allowing them a little bit of political space.
During his time as economic adviser to Jersey, John Christensen frequently travelled to London for talks with various British government departments.
As economic adviser I had a lot of contact with different departments.
Traditionally, UK governments have tried not to interfere
in the domestic affairs of places like Jersey.
So it happens in a more subtle sort of way,
you kind of go and talk to someone either at the Home Office or the Treasury
and they’d say, “We are not actually particularly keen
on this piece of legislation,
it might be a good idea if you didn’t go down that route”.
And over a cup of tea, that is quite a strong signal,
that is a signal, “Go back to the island and say they don’t want you to do this”.
The British government prefers not to interfere overtly,
instead, it communicates its desires through informal discussions.
There is no paper trail or official statement,
discussions take place behind closed doors.
The relationship that these places have with London
is very much about the British establishment,
people understanding each other.
Anybody who is British or knows British people
knows that communication between us is often very subtle
and you have to kind of know the codes when people say stuff.
There is a lot of irony involved
and a lot of codified language for British establishment.
But people kind of understand how it works.
And I think that is very much the case
with the British relationship with the tax havens.
I think there is a lot of understanding of what we can and can’t do
without anyone having to actually spell it out.
By keeping its power hidden,
Britain is able to claim that these jurisdictions are politically autonomous.
Independence for Cayman is not on the government’s agenda,
that is the message that is being sent
to the UN special committee on decolonisation.
Attorney Steve McField will be representing government at the UN meeting.
The committee was set up
to help colonies around the world on the road to independence,
but Mr McField says he will be making it clear
that Cayman is not ready for that transition.
And that message is that the Premier, this cabinet, this party,
has no mandate from the people of the Cayman Islands to seek independence,
that is the message that I will be carrying.
When the Bahamas declared independence from Britain in 1967,
the offshore bankers relocated to the Cayman Islands
and continued their business from there.
It was the British connection
that reassured bankers and their clients that their money was safe.
This British bedrock
is what has allowed these places to become so trusted
by the financial services industry and offshore finance and all these people.
In reality much of the wealth administered in Britain’s offshore havens
is controlled from London.
The City of London by and large
likes to do its really dirty work outside London.
There might, heaven forbid, be a regulator who actually takes the job seriously
and starts to prosecute them for fraud in London.
So better to do the frauds offshore in Gibraltar or Jersey
where there is much less risk that a serious prosecution will ever happen.
Deals are often discussed and concluded in London
but then registered offshore, for tax, transparency and regulatory purposes.
What they allow the City to do is to get involved in dirty business,
but then when the scandal hits, to say,
“Well, they are kind of independent, there is nothing we can do about those places.
That is not us, that is tax haven activity and we are the City.
We are not involved in that kind of stuff”.
So it is an incredibly convenient relationship.
Global Financial Centers and Empire
The City of London has shaped the way in which Jersey, Guernsey and the British overseas territories have developed as tax havens. I see these places as the Frankensteins created by the City of London.
Today, the UK is the world’s largest provider of international financial services.
The UK has an almost unique role in global finance. If you look at the data, the kind of data that we have constructed in the financial secrecy index, you can see the relative shares of each country in the global provision of financial services exports, that is financial services to non-residents.
Now, there are two big centres, and everything else is quite small in comparison.
The two large centres are the United States with around 19% of the global market, and the United Kingdom and its offshore jurisdictions, which have around 25% of the global market.
And if you add to that other jurisdictions, ex-colonies, but recently independent, fairly recently, by which I mean Hong Kong, Singapore, maybe even Dubai, Bahrain and Cyprus, then you reach a figure of nearly 40%.
And I think that figure represents better the position of London in the global financial market.
The soldiers left, the administrators left all the colonies, but they still kept a significant degree of control over the financial flows from these former parts of Empire and the rest of the world.
So you could describe it as a second empire,
Britain’s second empire, hidden financial empire spanning large parts of the globe.
At the time of the British Empire, the City of London was the world’s largest global financial centre.
Not only Britain’s colonies, but also independent countries did their banking in London, and used the empire’s currency for trade and financing.
As the empire declined, so too did the City of London.
The establishment of the London Euromarket
enabled City of London banks to continue to exploit
their Empire era networks and expertise,
and the creation of secrecy jurisdictions
gave banks access to large amounts of cheap money.
International banks from across the globe set up branches
in London and Britain’s offshore jurisdictions
in order to take advantage of this new system.
This system has taken the place of the occupation.
Up to 1962 for France, I don’t know for England,
but about the same time,
England was physically present in India for instance or in other colonies.
And when you look at the money flows through the tax havens,
they are increasing when we withdraw from the colonies.
We are still plundering developing countries as former colonial powers.
Wealthy individuals, organised crime and corporations
shifted their wealth offshore in exchange for secrecy and no tax.
And, as countries around the world
began to deregulate and open their economies,
it became ever easier to do so.
Today, as much as half of all global offshore wealth
may be hidden in Britain’s secrecy jurisdictions.
One of the losers is Africa,
whose flight capital flows mostly into the modern British spider’s web.
I think it is no coincidence that Britain’s offshore empire
emerged more or less at the same time as the collapse of the formal empire.
We tend to think of Africa as being
a huge net debtor to the rest of the world.
But that was the extent of their debts
at the end of 2008: $177 billion.
The debt of sub-Saharan African nations stood at $177 billion in 2008,
yet, the wealth these countries’ elites had moved offshore
between 1970 and 2008 is estimated at 944 billion dollars,
over 5 times their foreign debt.
$944 billion… Do the maths.
Far from being a net debtor,
Africa, sub-Saharan Africa,
is a net creditor to the rest of the world.
As capital moved offshore,
African nations borrowed money from international banks at high interest.
Over time, these debts became so great
that they may never be repaid.
Secrecy jurisdictions were starving developing nations
of their wealth and their tax revenues.
For a long time many developing countries,
including recently Ecuador,
have been trying to set up a UN tax body which is of a higher value
than what is currently there, the UN tax committee,
and every time this has happened it has been blocked.
During the Financing for Development process in Addis Ababa last year,
I think it was the UK and the US that again blocked attempts
to set up this world tax organisation.
Why would they not want to have democratic decision-making
in global decisions on how tax gets collected across borders?
I don’t understand this.
As long as we have cross-border activity
that involves both criminal and legal activity,
and we are unable to separate the two,
this is going to continue to be a problem.
Western nations block attempts to provide greater transparency
of international financial flows
and the implementation of global standards
for the collection of tax across borders,
whilst elites in developing nations use offshore centres
to hide their wealth offshore.
The oil in Gabon has not benefited the people in Gabon.
And this is true for the copper in Zambia, for the gold in Mozambique or in Mali.
They have benefited the companies that extract it and their shareholders,
it has benefited the corrupt elite in the country.
In developing countries the offshore system of tax havens
has facilitated the looting of these countries by their elites.
It has enabled them to steal the money
and keep it safe somewhere else.
Illicit financial flows,
because the anonymity that drives them,
creates incentives for people in positions of power to be corrupt…
This is why there is a group of countries
where development progress is so difficult.
It is that the incentives of individuals and the ability to pursue them
through all the mechanisms that underpin illicit flows,
outweigh the type of mechanisms that lead you to a powerful,
representative, effective state that can start to deliver development.
Worldwide, developing countries lose over a trillion dollars every year
in capital flight and tax evasion.
Most of this wealth flows into large western nations
like the United States and Britain,
and enables their currencies to stay strong,
whilst developing nations currencies remain weak.
But illicit flows into western nations
also had another unexpected side effect:
the economies of the United States and Britain began to financialise.
The origins of this financialisation or de-industrialisation,
go back to the 1960s.
How America Embraced Offshore Finance
News: Anti-war demonstrators protest US involvement in the Vietnam War, in mass marches, rallies and demonstrations. President Johnson meanwhile, let it be known that the FBI is closely watching all anti-war activity.
In the 1960s US Economist Michael Hudson was working at Chase Manhattan bank on Wall Street as Chase’s balance of payments economist.
During the 1960s, the United States balance of payments deficit was entirely a result of foreign military expenditures.
Dollars were flowing out of the United States as a result of the cost of the Vietnam War. Dollars were flowing out of the United States as a result of the cost of the Vietnam War. The United States attempted to prevent the dollars flowing to Vietnam from being deposited in foreign banks.
The government asked Chase to set up a branch in Saigon during the Vietnam War.
As you can imagine it didn’t have windows, it was sort of a fortress, it lost money.
But the government went to Chase and said, “If you don’t get this money that is being thrown off by the military in Vietnam, then it is going to go into French banks, it will get to General De Gaulle, and you know what he is going to do every month. He is going to cash it in for gold”.
That is what the United States was trying to stop.
The US was not successful in stopping the outflow of money,
so it began to hatch a different plan.
In 1967, Michael Hudson was handed a memo
by a former State Department employee.
In 1967 I was given, by a former State Department employee
in the elevator at Chase Manhattan,
a memo from the State Department,
urging that Chase Manhattan would take the lead
in helping the United States become the Switzerland of the world,
meaning for flight capital.
The State Department, through Chase, asked me to estimate,
“how much money do you think is available if America were to become
the new Switzerland and how do we do it”.
The plan was to organise offshore banking centres,
in the Caribbean and elsewhere,
and that the hot money wouldn’t come directly into Chase
because that wouldn’t be nice and very legal.
What happened was, the Latin American criminals,
other criminals, drug dealers, all sorts of organised crime,
would put their money into the offshore Caribbean banks
and these offshore banks would then
deposit the inflow in the head office.
By moving offshore dollars back into the United States,
the US was able to stop the outflow of dollars
and support the value of its currency.
Every country looks to its foreign exchange rate.
Foreign exchange rate is not only imports and exports,
it’s capital movements.
And if you look at the International Monetary Fund’s
monthly international financial statistics,
you have sort of a steady balance of trade,
a steady immigrants’ remittances…
What goes up and down are called errors and omissions.
What the United Nations and the IMF
call errors and omissions are flight capital.
The reason that it is omitted is that they don’t really like to look at this.
In the 1930s, Roy Ovid Hall, economist for the US Commerce Department
wanted to include criminal movements in the balance of payments statistics.
Congress got very upset.
I was told in Washington the argument was,
“We are a Christian country we don’t want to report crime.
We don’t look at it”.
They forbade him to include criminal money in the balance of payments.
I guess now you call it errors and omissions,
you don’t call it criminal inflow and outflow.
In the 1960s and ’70s,
Britain was faced with a similar dilemma as the United States:
money was flowing out and this decreased the value of the pound.
Britain realised that it too could support the value of its currency
by opening its domestic market to the trillions of dollars
passing through its offshore havens.
But just as in the United States, this had an unexpected side effect.
British banks today, just as in the 19th century,
don’t put their money into British manufacturing.
They put their money into real estate speculation,
into financial speculation, foreign currency trade.
So the financialisation of London
has helped de-industrialise the country,
because it has enabled sterling to be supported
by this huge inflow of hot money,
this inflow of drug dealing money, criminal money and tax evasion money
all over the world that is going to London
instead of going to Switzerland, Lichtenstein or the Caribbean.
Growth of Offshore Finance and Corruption
With the silent backing of the United States,
Britain’s offshore havens grew rapidly
and before long the offshore system
developed into the world’s dominant international financial market.
Few were aware how this market functioned.
In 1986 economist John Christensen went offshore to investigate.
He applied for a position at the Jersey office
of one of the world’s major accounting firms.
At Deloitte & Touche
I was working in what is called company and trust administration,
straightforward offshore stuff.
I went offshore specifically to work in that area,
because that is where you’re dealing with the offshore companies,
the shell companies, the offshore trusts and you are administering them.
That way I could see from working inside a big global accounting firm,
exactly what the clients were doing.
I had complete access to all the client files
and over the course of my period of working with Deloitte & Touche
I investigated over 100 of their clients offshore
and this is what I found.
There were some insider traders, some market rigging,
some avoiding disclosure of conflicts of interest, illicit arms trading,
illicit political campaign donations, contract kickbacks, bribery,
fraudulent invoicing, trade mispricing and tax evasion. OK?
This is what the clients were doing.
On the basis of a sample of the clients that I looked at,
not a single client was involved in what I would regard
as genuinely legitimate activity,
they were all involved in some kind of tax dodging or worse.
I met with Carl Levin, he used to be an American Senator,
and he made a lot of inquiries into private banking.
Asking questions to the bankers,
“What do you think the percentage is among your clients
that are using these companies for legitimate purposes?”
And the answer was,
“I believe that 99.9% of my clients
are using these companies for illicit purposes”.
This is the reality,
this is American bankers telling what they are doing,
and it is exactly the same thing with UK bankers helping their clients
to have accounts in Panama or Bermuda or in the Cayman Islands.
Secrecy jurisdictions are heavily used
for fraudulent and grey-area financial activities,
areas were secrecy is not just desirable, but a necessity.
Legitimate financial activity has no need
for the secrecy offshore havens provide,
nor a desire to pay the high fees offshore banks and law firms charge.
Today, close to half of the world’s secrecy jurisdictions
are British dependencies.
In public, these jurisdictions claim they are transparent
and their financial services sectors
are engaged in legitimate financial activities.
Our economy is not based on secrecy.
It’s based on transparency.
It’s based on a sound regulatory environment,
It’s based on good governance and good government,
with a British government legal system,
that is what our financial institutions are based on.
Tonight we have a response from the head of Cayman Finance,
after a group of US-based anti-tax evasion activists announced plans
to travel to Cayman to draw attention to what they feel is corporate tax evasion.
Finance Chairman Mr Richard Cole says he is encouraging the group to visit
and says our financial sector has nothing to hide.
I would say if anybody wants to come to Cayman
to find out what we do here,
come on down, we have no secrets here.
When I went to the Cayman Islands back in 2008, I think it was,
I called the government spokesman and he said,
“We have had an order from on high
that nobody is allowed to speak to you, you are off-limits”.
In 2011 journalist Nicholas Shaxson released “Treasure Islands”,
a ground-breaking book about the offshore system.
The author of a series of international media reports says
he would welcome a debate with Cayman finance chair Tony Travers.
Mr Travers recently called Nicholas Shaxson
an imbecile with the understanding of an 11-year-old.
There are always going to be the politics of envy.
Now, the politics of envy are exacerbated by imbeciles,
who don’t actually understand what is going on in the Cayman Islands.
I don’t know what he’s talking about
and furthermore he doesn’t know what he’s talking about.
The Cayman Islands is the fifth largest financial centre in the world,
it hosts 80,000 registered companies,
over three quarters of the world’s hedge funds,
and $1.9 trillion in deposits.
It has a population of 60,000,
roughly equivalent to New York’s homeless population.
A strange mixture of characters populate the offshore world:
British ex-public school boys,
members of the world’s intelligence services,
global criminals, assorted lords and ladies, and bankers galore.
Whistleblowers
With so much at stake for so many wealthy and powerful individuals, it may come as no surprise that Britain’s offshore havens have developed their own curious mechanisms to prevent information from leaking out.
For many people who work offshore and don’t like what they are doing, it is very hard indeed to dissent, because they will be attacked personally with a degree of viciousness which is quite extraordinary. Most of the time the instruments of suppression are relatively sophisticated: “You won’t get promotion by doing this, your family won’t like it”.
It’s not generally, “Let’s slam them in prison”, that is far too crude. We are talking about very substantially… you know, the establishment, the British establishment in these cases, and the mechanisms are very, very, subtle, sort of ostracism is one way of doing it. These peculiar mechanisms, if someone tries to blow the whistle you find all sorts of methods. You don’t just fire them, you give them far too much work to do, you steer them in a different direction.
One person who is intimately familiar with how suppression works offshore is former Jersey Senator and Health Minister Stuart Syvret. In 2009 he leaked a report on a rogue nurse suspected of killing patients at Jersey’s Hospital.
Jersey News: It all came to a head during a States debate on Tuesday, the 10th of March. Senator Stuart Syvret brought the sitting to a standstill claiming Senator Jimmy Perchard had sworn at him and told him to go and top himself. Senator Perchard denied the claim saying, “I absolutely refute that”. But less than a week later he was forced to admit he had lied. Senator Perchard has now admitted that on another occasion he did tell Senator Stuart Syvret to go and do everyone a favour and slit his wrists.
I was arrested at my house one morning by six plainclothes police officers. There were another two specialist data search police officers on hand and also another two police officers in full body armour with one of those battering rams they use in drugs raids. So 10 police officers descended on me without a search warrant. The property was turned over from top to bottom, all of the computers were seized and searched, all kinds of private constituency data was stolen by the police.
Shortly after we began filming, a police officer exited the police station. As he hurried past he grinned at the camera. The officer was on his way to test the sirens on his motorbike, which he did at intervals throughout much of the remainder of the interview.
When it came to prosecuting me…
Stuart Syvret was prosecuted under the Data Protection Law.
When the authorities were prosecuting me, I claimed that this was a legitimate public interest disclosure defence. And I, with an expert witness, was able to produce a set of reports that effectively destroyed the prosecution case.
In reaction to this, the magistrates ruled that Stuart Syvret’s defence case, that he’d leaked the report in the public interest, would no longer be admissible, but continued to prosecute him all the same, without a defence case. Over the past seven years Stuart Syvret has been repeatedly taken to court, and imprisoned three times. He does not know when or if the persecution will end, nor does he know when he will find himself behind bars again.
To look at Jersey from the outside, it looks like it has a prosecution system, it looks like it has a court and a legislature, but none of it is real. It is a Potemkin village. None of these systems in Jersey meet the tests of being objective or actually functioning properly.
The experience that Stuart Syvret had is perhaps at the blunter end of the scale. He was simply suppressed and taken to court on trumped-up charges.
Let’s carry on doing the interview, they might get bored. This is kind of how oppression happens in Jersey. All kinds of little things get done to harass people. They don’t often go to the extremes that they did against me in terms of actually arresting me and putting me in prison. The authorities use all kinds of other, lesser little methods to interfere with people, kind of sabotage things, obstruct people, make life difficult for people. If you annoy the establishment in Jersey you won’t get a job here, your children won’t get decent jobs. That is kind of how it works.
I went to Jersey in March 2009 with Nicholas Shaxson.
About 24 hours after we had arrived in Jersey,
we were there for several days, Nick said,
“Have you noticed that we are being followed?
Ever since we arrived at the airport we have been followed.
Don’t look now but we are being followed now”.
It turns out he was quite correct, we were being followed.
And I found that very disturbing, very disturbing indeed.
They have a saying in Jersey,
“If you don’t like it here, there’s always a boat in the morning”.
“Jersey Finance” promotional literature states:
“Jersey represents an extension of the City of London”.
It is where the City of London chooses to do many of the activities
which they couldn’t do in London itself.
We’re here to talk about this one company called Appleby.
I’ll just read what they say on their website.
“Members of the firm, Appleby, have gone on not only to political office
but also in a number of centres, Bermuda, Jersey,
the Isle of Man and the Cayman Islands, to senior judicial office”.
So essentially they are boasting of the fact
that their staff and their partners have a real interchange
between the people that are in power in these offshore financial centres.
The same lawyers and accountants
who set up and administer offshore trusts
also occupy senior political positions.
Politicians and Financial Secrecy
In Britain’s offshore world, most politicians are in business, they lobby for business and promote business interests. They draft, refine and pass legislation. Politicians sit on the boards of the companies they are supposed to regulate.
There is no place for dirty money in Britain. Indeed there should be no place for dirty money anywhere. The challenge I am laying down for every country today is to root out the rot of corruption, to ensure transparency over what your own companies are doing, and require transparency for foreign companies in your country too, and work with us to spread this approach to transparency around the world.
In public, British politicians claim they are cracking down on secrecy jurisdictions and corruption, but in practice they do the opposite.
When I talk to politicians in Brussels, they say that they have had more lobbyists from London, including politicians, come to them to protect the City of London’s interests, than they have had from every other European member state combined which gives you some idea of the extent to which British politicians see themselves as essentially lobbyists for the City of London.
We begin with our big story, Cayman’s efforts to ensure transparency in its financial services sector is being recognised
by the international community.
Earlier this week the UK’s Prime Minister, David Cameron,
told Parliament that the tax-haven label placed on
its Crown Dependencies and Overseas Territories is unfair.
Many British politicians have personal and business ties
with the City of London and British secrecy jurisdictions.
Former British Prime Minister David Cameron’s father, Ian Cameron,
was an expert in offshore funds,
and was involved in offshore trusts from the 1980s onwards.
At this courthouse behind me here in St. Helier,
we found this.
It is a document called a “grant of probate”,
and it is attached to the English will
of none other than Ian Cameron, David Cameron’s father.
Ian Cameron was certainly a wealthy man.
In 2009 his personal fortune was estimated
by researchers for the Sunday Times’ Rich list at £10 million.
Yet when Ian Cameron died in 2010,
his estate was much smaller than might be expected,
just £2.7 million.
In many cases it is the politicians
and their cronies and their families and so on,
and the business people who sponsor the political parties,
who are using these offshore services themselves.
So they have no personal interest in closing it down.
If they wanted to close it down, they could do it tomorrow.
The fact of the matter is, they don’t want to do it
because they themselves are complicit in the process.
If you come from the same kind of background
and you know the right people,
then all the kind of legal niceties will often fall away.
You can get away with doing all sorts of things
that they wouldn’t just let any old person…
If you came knocking on the door saying,
“Can you set up an offshore company to do this?”,
they will tell you to get lost. But, if you are part of the networks
you can do these kinds of things.
That is a very important part of the whole system,
this upper class, British public school kind of establishment
that has been there for centuries.
The British establishment, an old boys network of privileged elites,
had carved out a lucrative niche for themselves in the offshore world
after the demise of Empire.
They transformed themselves from administrators of empire
into financial handlers for the global elite
and multinational corporations.
As more money flowed offshore,
societies around the globe began to feel the impact of the offshore world.
The reality is not what you believe,
that your Prime Minister has the power to decide
on the future of your country.
The power is hidden here.
We have country after country around the world,
where the lack of financial transparency about taxation,
about ownership, about corruption,
has undermined the extent to which governments
deliver representative policy-making for their citizens.
We have extreme cases like the hiding of tax evasion
by people in finance ministries in Greece, in France,
but we also have this system that in general is geared towards
anonymous company ownership,
the anonymous ownership of properties across London,
of half of the land in Scotland.
Do we really think that there is any circumstance
in which governments work better, in which markets work better,
in which the distribution of income and assets is better,
when we allow so much to be hidden?
Who wants to not know who you’re doing business with?
Who wants their government to have people working for it
or to be led by people whose assets are hidden,
whose financial transactions are conducted anonymously offshore?
This is a bad direction for the world.
We need the citizens to understand what is happening,
that they are the ones who are carrying the burden
and some individuals having the power
are exonerating themselves.
Ordinary people are paying taxes, rich people are not.
So this is inequality and it is leading up to populism,
because it shows so clearly,
that the people leading the world today
are not able to take care of the interests of ordinary people.
Back in the 1960s and ’70s,
tax evasion or pushing back against taxation,
it was kind of seen as anti-establishment.
So you know, the Rolling Stones and Phil Collins, all these people
kind of going offshore, going away.
It was seen as kind of a rebellious thing to do,
and if you fast-forward to the present day,
now that is the establishment, the offshore system is the establishment.
Accountants
Today, offshore is the way elites and multinational corporations conduct their affairs.
Tax evasion is the way business is done.
This kind of sophisticated cheating requires a huge infrastructure.
We like to talk about the pinstriped infrastructure of highly educated people who think it is their right to help others to cheat societies.
We have a new mafia in town. It does not actually shoot people. It does not put bullets in their kneecaps. But its trade is just as deadly: it deprives people of opportunities to have healthcare, education, security, justice and, essentially, a fulfilling life.
Accountants form the backbone of the offshore system.
They administer the structures that allow individuals and corporations to shift their money offshore and evade taxes.
There are about 2.5 million professionally qualified accountants on this planet.
About 330,000 are in the UK.
Well-known people, well dressed, well fed, highly paid, are sitting in city centre offices and they are paid to dream up tax avoidance schemes for individuals and for corporations.
We can all elect a government which says, “Vote for us, we will give you better healthcare, better education, better security”, and the next day the accountant says, “Sorry folks, you elected this government but we actually have a tax-avoidance scheme, and the Amazons and the Googles and the Microsofts won’t be paying any taxes in your jurisdiction. Too bad, you voted for it but you’re going to get something else”.
So it is a crazy world,
that part of the business model of big accountancy firms
is how to deny public the services by erosion of tax revenues.
And these firms are then rewarded with government-funded contracts,
and the same firms are then advising
local governments and the central governments,
and the same firms then report on the company accounts
and tell us all is well.
When I argued this with a Price Waterhouse partner
in a face-to-face debate, he said:
“Professor Sikka you never give us credit for anything.
We generate millions of dollars of revenues
and we have lots and lots of satisfied clients. What is your problem?”
And my response was very simple:
“That is the language of drug pushers and pimps”.
In Britain, a new breed of civil servant was rising to the top.
One such civil servant was Dave Hartnett,
who rose to the top of HMRC, the UK tax authority.
Dave Hartnett had a new way of collecting tax:
deals would be negotiated on an individual basis,
behind closed doors.
In the case of the largest clients,
Dave Hartnett frequently led the negotiations himself.
British Telecom was one of the first companies through the program
and received a refund of over £1 billion.
BT’s Chief Executive, Ben Verwaayen, wrote:
“Earnings per share up 14% and nice to know
that we have a £1 billion credit from the taxman”.
Dave Hartnett claimed this approach was more… efficient.
Litigation in the courts is really phenomenally expensive
in this day and age all over the world,
and I think it is to be avoided where possible.
The art is to persuade people to pay
by strength of argument and the like.
Pay your tax! Pay your tax!
After protests erupted in 2011,
the Treasury Select Committee questioned Dave Hartnett.
Dave Hartnett claimed he could not give any information
due to taxpayer confidentiality.
What statute prevents you
from disclosing information to Parliament?
All my advice, Mr Barclay, so far has been that I am prevented…
my colleagues are prevented,
by the act and by the decision of the commissioners.
Dave Hartnett failed to mention that the legal advice he had received,
stated that the disclosure of information
was at the discretion of the head of HMRC.
The head of HMRC was Dave Hartnett himself.
Just like the mafia has penetrated the state,
accountancy firms have also penetrated the state.
The head of anti-avoidance in the UK tax authority
is from one of these firms.
The newly appointed chairman of Her Majesty’s Revenue and Customs,
which is a tax authority, is a partner from KPMG.
Their partners have penetrated the state.
They are running the Treasury.
Britain’s financial services industry had penetrated the state,
and began to shape its laws for its own benefit.
The degree of political capture
by the City of London, by the big banks and big law firms,
is so enormous
that the politicians have effectively become their spokespersons.
Protesters Confront Dave Hartnett
With the government unwilling to act in the interest of the public, a group of protesters confronted Dave Hartnett at a private event in Oxford.
I’m sorry to interrupt. We will just take a few moments of your time. We are here tonight to present Dave with an award, the Lifetime Achievement Award for services to corporate tax planning.
Dave has been a great friend to the industry, a great friend to many of us over the years. Really, we just cannot thank you enough for what you have done.
From us at Vodafone, it saved us billions off our tax bill, and our friends at Goldman Sachs as well, saved us millions.
25 million.
Everybody, these people are trespassers and intruders.
This is an unlawful conspiracy to trespass.
And you will go, sir. You will depart immediately, before we set the dogs on you.
♫ For he is a jolly good fellow, for he is a jolly good fellow,
♫ and so say Goldman Sachs and so say Goldman Sachs.
Go, you are trespassing scum. Go!
After his retirement, Dave Hartnett moved to the private sector. One of his positions was at accountancy firm Deloitte, where he advises foreign governments on corporate taxation. Dave Hartnett is a Companion of the Order of the Bath, an honour bestowed on him by the British monarch.
You have former ministers acting as advisers to accountancy firms.
Accountancy firms provide jobs and consultancies for potential ministers.
To my mind really, it is an indication of corrupt structures.
People are buying and selling influences.
When a former minister works for an accountancy firm, he is not providing any accounting knowledge: he is opening political opportunities at home and abroad, that is what they are doing.
I hope by now you will share my view that I don’t trust most bankers, I don’t trust most lawyers, I don’t trust most accounting firms.
I actually think they are engaged in a conspiracy against the public interest.
In Britain, secrecy and complexity in finance and government help to obscure corruption in public office.
Financial structures are often so complex that even after they are publicly revealed, they are not widely recognised for what they are.
An example of this is PFI, the Private Finance Initiative.
Private Finance Initiative
PFI is private finance initiative. It is a way of funding public infrastructure, things like hospitals, schools, roads and bridges, but financing them via the private sector rather than the historical method, which is via the central government. Over a period of 30 or 40 years the amount of repayment costs will be three or four times higher overall, than if you had borrowed it from the central government. So it is basically a giant accounting scam. Once the PFI policy has been set up, you find that the big four accountancy firms were actually paid members of staff within the Treasury Department, who were then actually going around and selling and advising upon the implementation of PFI contracts by public authorities.
Effectively saying, “Come to us, and we will show you how to derive the most benefit from it”. In other words, how to perhaps exploit the legislation.
Even the offices of the state tax authority are now owned offshore. HMRC, which is the tax collector here in the UK, their offices are owned in Bermuda by a company called Mapley STEPS. It is quite incredible.
The company that owns the PFI contract to run HMRC’s head office borrowed money from offshore investors at 15% interest.
Because the interest was so high, the company was losing money, therefore it did not pay tax.
In 2011, HMRC could not prove that any PFI company was paying any tax in the UK.
I think we need a serious conversation about the role of government in this whole debacle and how much have governments been penetrated by big banks and accountancy firms, and ultimately in whose interest it operates.
Africa PPP Conference: London 2016.
The reason we were protesting outside the Africa PPP Conference is that we wanted to make sure that citizens back in Africa
should hear about the fact that such policies
have been a complete failure here in the UK.
We know that these products are not marketed to African countries
in their own best interest.
The only motivation is to spread the reach of financial services into new markets.
It is all being promoted in the interests of the City of London.
What you are seeing is basically a second form of colonisation.
You have had initially occupation and resource extraction,
and through that process countries like Britain,
which have had a large offshore empire,
have developed significant networks, and now those networks
are being used to promote and exploit financial services.
Conclusion
The City of London was the beating financial heart of the British Empire. As Britain’s Empire declined, the City transformed itself from a hub operating the financial machinery of Empire into a global financial centre. Former insignificant outposts of Empire became the basis for a spider’s web of offshore secrecy jurisdictions that captured wealth from across the globe and funnelled it to the City of London. Today, 25% of international finance is conducted on British territory. Almost half of the world’s secrecy jurisdictions are under British protection. Up to half of offshore wealth may be hidden in Britain’s offshore havens. Financial services is how Britain’s elites make their money, and it is also where former government ministers, senior civil servants and retired spooks from MI5 and MI6 receive lucrative consulting positions after their time in public service. Together they have transformed Britain and its dependencies into the world’s largest tax haven, harming development throughout the world, and turning Britain itself, into a country that serves above all the interests of its elites.
Putting an end to tax havens and secrecy jurisdictions is not impossible.
Here are five easy steps to put and end to them:
1. Stop local councils from issuing public contracts to companies operating out of tax havens.
2. Create public registries of beneficial owners of companies, trusts and foundations.
3. Introduce full transparency of deals and secret tax agreements between companies and governments.
4. Introduce public country-by-country reporting by multinational companies.
5. Introduce automatic information exchange between all countries.
