Europe, Globe, United Kingdom, World

Britain’s offshore empire of magic money islands

Colonialism always was about trade. Offshore trading is merely the latest mutation. The global economy is at the mercy of financial gangsters, backed by teams of lawyers, who understand the ecology of the new system only too well. The bad boys of Brexit will be the beneficiaries, while pulling the strings of patriotism.

 

Photo: Pixabay

Graham Douglas

 

The word ‘empire’ is often used carelessly. Britain no longer has an empire in the way it had in the 19th Century, with slaves, huge flows of raw materials into the UK, and territories under military garrison.

But in the same way that gold coins have evolved first into paper and then into weightless movements of electrons, so one of the most significant parts of the UK economy has moved with the times.

In    we how offshore islands emerged almost ready-made for a niche in this new financial ecology, with their lack of infrastructure and their desperate need for investment, especially following the break-up of Britain’s physical empire. And although the image of empire is usually one of ceremonial display, military domination and grateful natives, much of its motivation as well as its daily activity was simply about trade.

India and swathes of China and the Far East were invaded with the aim of taking raw materials at bargain prices and forcing open local markets to British manufactured goods.

Only when the natives were a bit ungracious was it time for undiplomatic methods, as Pankat Mishraj describes in “From the ruins of Empire”.

The secret empire of finance

Nowadays the UK has no colonies but it has three nearby Crown Dependencies, of which Jersey is the biggest player, and 14 Offshore Territories which are nominally self-governing, but in practice controlled with a light touch by UK financial interests, as Nicholas Shaxson has described in detail (Ch.6 of “Treasure islands”).

Second to the sheer quantity of money being moved each day, in the most tax-efficient ways, there is the issue of secrecy.

The 2018 Financial Secrecy Index points out that although the UK is relatively healthy on the scale of transparency with a score of 42, compared to the worst example the Turks and Caicos Islands at 77, this masks the fact that the City of London sits at the centre of a huge spiders web of offshore finance centres and tax havens.

If all these were added up and attributed to the UK, we would be in charge of by far the biggest stream of global capital flows (UKFS, p.1).

We got to this position in steps, many of them quite recent. Limited Companies began in the UK in 1855, and following court cases in 1876 and 1929 companies could be registered in the UK while doing business elsewhere, and being free of UK tax on their profits.

So foreign businesses got the gloss of a London address while being free of UK tax burden. It might seem odd that the UK apparently gave up a possible new stream of taxation, but of course there was nothing to stop British businessmen opening a company abroad and re-patriating the profits to the UK.

Just one suggestion that laws are often made by parliaments to suit lobby groups and not the public interest.

The next step in this sideways-stepping walk away from responsibility came with the innovation of Trusts, allowing the legal separation of owners from controllers.

Some trusts, such as those protecting a child’s inheritance from unscrupulous relatives are perfectly benign.

But others evolved from their mediaeval heritage to become a tool of modern finance, in which inequality and secrecy go hand in hand, and are not backed by force of arms, but by battalions of clever lawyers and made-to-measure legislation created in offshore jurisdictions.

Secrecy is the killer here, allowing layer-upon-layer of shells to be built up with the aim of frustrating would-be investigators, and sometimes the topology becomes so pretzelated that the person sailing the yacht can fully legally enjoy their rights while yet not being the legal owner.

And these financial entities and instruments continue to evolve. A relatively recent mutation being the Limited Liability Partnership, an offshore islander’s dream made reality through intense lobbying in the States or parliament of Jersey.

And it illustrates the ecological dynamics of the financial world.

First of all the motive, taken from Shaxson’s book “Treasure Islands”, pp.175 – 184: a Limited Liability Company (Ltd) allows the directors of the company to be liable to lose only what they have personally invested in the event of bankruptcy, but in return they have to accept that the company’s accounts are open to public scrutiny and auditing.

On the other hand, a general partnership is free of this requirement, but each of the directors are liable to the shareholders for the full value the company in the event of collapse. They cannot shift their liability onto the general public as in the case of a Ltd company.

So, here’s a wheeze – how about inventing an LLP, a Limited Liability Partnership so we can avoid public scrutiny as in a partnership, while also having limited liability in case of failure -let the punters take the rap? Cool, eh?

This way, the bottom line is that the state ultimately shields the bad boys from the consequences of their action – anyone for a ride on the Brexit tiger chaps? Jacob Rees-Mogg is ready with his LLP Somerset Capital Management.

Now the ecological dynamics – since the UK parliament wouldn’t countenance this kind of legislation, we need a trojan horse to help us out, a financial vehicle, a virus almost, as it would soon turn out.

The States in Jersey was happy to provide the legislation, and armed with this, the financial lobby could simply say to the UK: “either you give us something similar for London or our little mice will swarm all over the virtual world picking up files and simply dropping them into a happier habitat – Hello World!

Well, it wasn’t quite that simple of course, and Westminster was not quite so accommodating in terms of no disclosure, but the UK legislation has dramatically reduced the incentives for careful auditing of these new companies. Then we mustn’t forget another stage that also happened in London, between the so-called Big Bang deregulation of banking in 1986, and the global financial crash of 2008.

And that was one of New Labour’s wheezes, the so-called ‘competitiveness agenda’, by which, in the words of the TJN Report, ‘unless tax breaks, subsidies and other goodies were showered on Capital and its owners, they would re-locate elsewhere’.

Yes, we’ve heard this mantra before: unless we grovel before the chariots of unelected global capital someone else will come and steal our futures, and when it all goes wrong, well we just have to accept that they are too-big-to-fail.

It’s a curious thing this idea that we need to leave the EU to escape the continental monster intent on devouring our island home, this precious stone set in a silver sea, when actually it is our own jolly chaps and smarmy hedge fund managers who are really setting us on the road to ruin.

And things can get so twisted, that Nigel Farage claimed in a rousing speech to the European Parliament, five days after the 2016 referendum that he was against the banks and the multi-nationals.

Yet curiously, his Leave.Eu campaign accepted over £7 million from Aaron Banks, whose overseas banking operations figured in the Paradise Papers. Hey-ho off we go on the post-modern carousel, history has ended, but paradise beckons.

One of the conclusions to all this is that the UK, as fronted by the City of London, has a huge motivation to avoid the coming EU moves to control offshore finance, and in fact has been working to obstruct it. But not only the UK, as we shall see in a future article. The European Parliament condemned the European Council last year, for its opposition to a money-laundering blacklist.

(Next edition: State capture and the resources curse).

 

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