The Finance Curse. Nicholas Shaxson

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СКАЧАТЬ to source essential foreign goods if things came to a crunch. Midland’s dodgy activities were generating healthy dollar fees, bolstering Britain’s dollar reserves, so the Bank of England decided to look the other way. Slowly, as more dollar profits tumbled in, this temporary indulgence solidified into a permanent tolerance. In effect, Britain had decided to host, but not regulate, a new market for dollars in London. Yet this new business wasn’t regulated or taxed by the United States either. So who was regulating it? The answer was: nobody.

      Ironically, some of the first users of this über-capitalist market were Soviet and Communist Chinese banks, delighted that their transactions weren’t being regulated or overseen by Western governments during the Cold War. But soon their funds were swamped by far bigger tides, as American banks realized they could come to London and do things they weren’t allowed to do at home, bypassing tight New Deal financial regulations in the States.⁸ In short, these bankers could take their business elsewhere to escape the rules they didn’t like at home. Amid high anxiety about the loss of empire, the City establishment had quietly turned Britain into an offshore tax and financial haven.

      As word got out, more and more banks, especially American ones, got in on the action. The Americans gave this business an appropriate name, the Eurodollar markets, or the Euromarkets. This didn’t have anything to do with today’s euro currency; a Eurodollar was simply a dollar that had escaped Bretton Woods controls and was being traded in these new libertarian markets, mostly located in Europe. Eurodollars were a new form of stateless money and, as a London banker put it, “completely isolated from the monetary mass” of the rest of the UK. Bankers in London would simply keep two sets of books: one for offshore Eurodollar deals in foreign currencies, where (mostly) dollars got borrowed and re-lent around the world, and a second book for deals in sterling hooked into the British economy.

      So Eurodollars were in one sense dollars like any other, but in another sense they were different because they had escaped into a market outside government control, where they could behave freely. It’s a bit like helping someone escape from their conservative family home environment in the suburbs and taking them to Las Vegas, then offering them whiskey and cocaine. They are the same person but also different—more fun but also more irresponsible. This is a good way to understand not only Eurodollars but also offshore tax havens.

      As London created this profitable offshore market, other preexisting tax havens in the neighborhood—notably Switzerland and Luxembourg—also joined the Eurodollar party.

      Switzerland was the granddaddy of the world’s tax havens, having harbored the wealth of European elites in secret for centuries. This dark history is directly connected to the country’s famous political neutrality and also to its snow-capped Alpine geography. After becoming a unified country in 1848, Switzerland was always riven by internal divisions, as hardy and self-reliant Alpine valley communities, often speaking different languages and practicing different religions, were separated from one another by forbidding snow-covered mountain ranges. A German-speaking part around Zurich in the north, center, and east, bordering Germany and Austria, sits next to a very different French-speaking zone in the west, dominated by Geneva and up against the French border, and an Italian-speaking area in the smaller southern segment, above Italy. So if a European war were to break out between France and Germany, for instance, this could pitch Switzerland’s French- and German-speaking zones into conflict with each other. To counter this threat, the Swiss had to adopt political neutrality in all foreign wars. But they also created a remarkable constitutional machinery to minimize internal conflicts, including a major decentralization of power to the cantons and regions, plus a system of government based on rule by consensus between the main parties, called Concordance. These two mechanisms—neutrality and this unique political machinery to curb latent internal linguistic, religious, and cultural antagonisms—have been so successful that they have made Switzerland into one of Europe’s most stable countries. And on this bedrock, a great tax haven has been built.

      When Catholic French kings took large loans from heretical Protestants, it was Swiss bankers who acted as the intermediaries, helping them hide the money trails. When European wars broke out, elites in opposing countries looked to discreet Switzerland, not just as a place to stash their gold in the event of banking catastrophes at home but also as a place to continue to do profitable business with the enemy. Even more important, European governments at war needed to raise taxes to pay for their armies, and the elites looked to Swiss bankers to hide their wealth and shelter it from those war taxes: let the lesser classes send their sons to die and pay for the costs of fighting and subsequent reconstruction. The first real flows of offshore wealth came during the Thirty Years’ War of 1618–48, and this was followed by larger rivers of money during the Franco-Prussian War of 1870–71. Then World War I came and brought a flood. World War II brought great dirty tides of it, helped by the fact that in 1934 Switzerland had codified its long traditions of banking secrecy into an ironclad law, with dire penalties for transgression.

      Swiss bankers love to tell a story that their banking secrecy law was put in place to protect Jewish money from the Nazis. In fact, pretty much the opposite was true. During the war the Swiss banking establishment protected Nazi loot, and when Jewish survivors tried to reclaim their money after Germany surrendered, the Swiss stonewalled them for decades. It was only in the 1990s that the US government finally started putting pressure on them, and they began to disgorge at least some of that stolen money. The story about Swiss banking secrecy being put in place to protect Jewish money was first created by a bulletin of the Schweizerisches Kreditanstalt (now Credit Suisse) in 1966, and it was eagerly embraced and trumpeted by Swiss officials and bankers as a convenient myth to wrap around themselves to justify helping the world’s dictators, cronies, and crooks pursue their dark sports with impunity.⁹

      In early 1945, as the war wound down, the Swiss signed a new agreement with the Nazis to accept three more tons of looted gold, some from melted-down dental fillings and wedding rings from Jews and other victims of Nazi concentration camps. The US government heaped pressure on Switzerland to open up the books, and the Swiss promised to cough up information on Nazi gold, but it was a ruse. Allied lawyers soon spotted loopholes and evasions, but Swiss officials knew they had a powerful friend among the Allied forces: the British banking establishment. So Swiss officials began musing publicly that amending Swiss banking secrecy laws would reveal British secrets too. British officials began backpedaling. A crackdown, the Brits reckoned, might risk disclosure of certain numbered Swiss accounts that they didn’t want opened up. Furious correspondence went back and forth between the British treasury, the prime minister’s office, and diplomatic offices. “We need to go slow on this,” one official said. “We don’t want to be forced to reveal Swiss banking secrets.” An urgent telegram came flying back: “You are not (repeat not) doing anything that would lead to requests for disclosure of information from British banks.” American diplomats, many fresh from the horrors of confronting the Nazi war machine, were flabbergasted.¹⁰

      Swiss banking laws were not only about secrecy of bank deposits and other assets, but also about a deliberate lack of official oversight and regulation of all kinds. So when the Euromarkets first appeared in London, it is hardly surprising that the Swiss were among the most enthusiastic followers. A Bank of England memo in those early days explained the Euromarkets’ attractions: freedom from local supervisory controls such as banking regulations to restrain risk-taking; freedom from foreign exchange controls; low taxes for the players and for their customers; deep secrecy; and “very liberal company legislation” to let company directors get away with operating outside standard democratic rules. While the Euromarkets were mostly disconnected from mainstream economies, the unrestricted interconnections among the emerging centers were intense, effectively creating a single rootless nowhere zone of finance. (Think of it as being a bit like cloud banking.) It was an unaccountable, profitable, seamless global financial adventure playground, overseen by nobody—and growing like a virus on speed.¹¹

      This rules-free paradise was ideal for tax cheats, scammers, and criminals. But there was another big attraction. The banking system in any country constantly creates new money when banks make СКАЧАТЬ