The Finance Curse. Nicholas Shaxson

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СКАЧАТЬ 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 Blum remembers first understanding the links between crime and financial deregulation on a trip to the Caymans in the 1980s: “I began to see that drugs were only a fraction of the thing,” he told me. “Then there was the [other] criminal money. Then the tax evasion money. And then I realized, ‘Oh my God, it’s all about off the books—off balance sheet.’” By 1989 the Cayman Islands, with just twenty-five thousand inhabitants, would be on paper the world’s fifth-biggest banking center, a position it more or less holds today.

      The spider’s web has enabled people connected to the City of London to make immense profits from illegal or immoral activities, typically involving American citizens and taxpayers, while using the overseas territories like barge poles—to hold the stink at arm’s length. And whenever a bad smell has emerged, British officials have told their irate detractors, “Look, chaps, these places are largely independent from us; there’s really not much we can do.” Yet this claim of powerlessness is false. Her Majesty the Queen appoints the governors of these British overseas territories; all their laws were and still are sent to London for approval; and Britain has always had complete power to revoke these laws. Yet it almost never does.³⁰

      We should be outraged at this long-running British government strategy in support of the City of London. But not too outraged, because there’s another large player in the tax haven game that may be just as bad, in its own way. The United States itself.

      In 1967 Michael Hudson, then a balance-of-payments economist at Chase Manhattan Bank, was in a company elevator when someone handed him a State Department memo asking Chase to take the lead in helping turn the United States into a giant tax haven. “Like Switzerland, flight money probably flows to the US from every country,” the memo began. The United States at that time was suffering outflows of dollars as US forces conducted bloody and expensive ground offensives in Vietnam, and it was looking to attract some money back. The memo listed its complaints: the US Treasury and FBI were too enthusiastic in their use of subpoenas and other tools to crack down on crime; taxes and regulations on foreign money were too high. Hudson was asked if he could estimate how much foreign illicit money the United States might be able to get its hands on. “The hot money wouldn’t come directly into Chase, because that wouldn’t be nice and very legal,” remembers Hudson, now a finance professor at the University of Missouri at Kansas City. “What happened was that the Latin American criminals, other criminals, drug dealers, all sorts of organized crime would put their money in the offshore Caribbean banks, and these offshore banks would then deposit the inflow in the head office.”

      According to Hudson, “they were saying, ‘We want to replace Switzerland. All this money will come here if we make this the criminal center of the world. This is how we fund Vietnam. We wanted the foreign criminal money, which is patriotic, but not the American criminal money.’”³¹

      In fact, the United States already had some discreet laws to attract foreign money and had, since 1921, exempted from tax the interest income on bank deposits owned by foreigners. After World War II, there were widespread fears that if European economies collapsed again they might fall into communism and the Soviet orbit and also fears that enormous quantities of US aid to address this, under the Marshall Plan, might be undermined by wealthy Europeans seeking to escape paying their share. US policy makers in Congress deplored the “small, bloated, selfish class of [Europeans] whose assets have been spread all over the place” and asked “whether or not [the United States] should become a sanctuary for refugee money.” СКАЧАТЬ