The City of London & Its Offshore Empire

February 10, 2012

A few weeks ago Westminster MP Mark Field, one of Britain’s most prominent cheerleaders for tax havens and the City of London, cited a couple of interesting statistics, to bolster his argument that people should go easy on  tax havens. “The UK has a constitutional relationship with half of the top 30 offshore finance centres,” he said – implying that this is a good thing. He added, for good measure, that just the three island tax havens closest to the UK – the Crown Dependencies of Jersey, Guernsey and the Isle of Man – provided net financing to UK banks of a staggering $332.5bn in the second quarter of 2009. Jersey Finance, the promoters of the profoundly corrupt tax haven of Jersey, puts it in plain English: “For many corporate treasurers, institutional bankers and treasury specialists, fund promoters, brokers and other corporate financiers, Jersey represents an extension of the City of London.”

These statements are all quite correct. In my book Treasure Islands, I describe the City of London as the spider at the centre of a web of tax havens scattered around the world, feeding vast tides of money, and the business of handling money, to the City.

If you are worried about the political and economic might of the City of London and want to know how to confront it, you cannot make serious progress without tackling tax havens. And tax havens make an excellent target, especially for the Occupy movement. In November I said in a speech on the steps of St. Paul’s that I believe Occupy’s greatest strength – the key to its ability to resonate with ordinary people around the world – is in its focus on two things: extremely high and rising inequality, and the corruption of capitalism. In both respects, tax havens are right at the very heart of concerns about both. And Britain is right at the heart of global concerns about tax havens.

First, take a look in a little more detail at this British web of tax havens.

In the inner ring of the British web lie these three Crown Dependencies: Jersey and Guernsey in the English Channel, and the Isle of Man between the UK mainland and Ireland. The next set of links in the web are the Overseas Territories: the remnants of the British Empire which resolved to remain constitutionally attached to Britain after most of the rest of Britain’s empire achieved independence. The Overseas Territories include some of the world’s biggest tax havens: the Cayman Islands, British Virgin Islands and Bermuda – along with Gibraltar, Turks and Caicos, Anguilla and Montserrat.

The spider analogy may seem unnecessarily sinister, but it is quite apt. The tax havens will generally focus on hoovering up money flows from nearby jurisdictions: so the tax havens in the Caribbean will focus heavily on attracting money flows from North and South America, for instance, while the Crown Dependencies will focus heavily on Europe, and so on. These places are often merely serving as booking centres, entries in an accountant’s computer that allow a company to pretend that it is really located in the especially mucky Overseas Territory of the British Virgin Islands while the real business – the hammering together of that banking syndicate, the legal work for that giant property deal, and so on – gets sent up to London.  “If I have money to spare, I pass it to the father,” said Martyn Scriven, secretary of the Jersey Bankers’ Association in 2009. “Great dollops of money go into London from here.” Vast, secretive and often dirty financial flows wash into the stock markets and football clubs and financial institutions in the City every day from tax havens. Whatever this offshore money touches, it causes harm: blowing up unproductive property bubbles, corrupting football clubs, hiding ownership patterns in the stock markets, and on and on.

The whole relationship between the UK and its tax havens plays out as an elaborate charade. These territories are partly inside, and partly outside, the UK. They have their own local politics, with all the fun of the fair, and they love to say they have full independence when it comes to setting their own laws. But probe into the constitutional relationship, and it becomes clear that responsibility falls to the UK. Smokescreens come wafting out of London and the tax haven capitals whenever the relationship is probed – ‘there is nothing we can do’ is the typical response to those who say that the UK cracks down on the criminality, abuse and corruption run out of these places. And behind it all lies the City of London, anxious to preserve its access to the world’s dirty money.

In both the Crown Dependencies and the Overseas Territories, the Queen appoints the governor, domestic legislation is given royal assent and the United Kingdom is responsible for their good governance, defence and international relations. It is also the guarantor of these territories’ debts. Given that many of the tax and secrecy facilities provided by these places constitute acts of economic warfare against the revenue authorities and taxpayers of other countries, and is an aspect of the governance of these islands, this puts the responsibility for their tax haven activity firmly in the UK government’s hands. As I say in Treasure Islands, the British spider’s web “is a money-laundering filter that lets the City get involved in dirty business while providing it with enough distance to maintain plausible deniability.”

The City of London Corporation loves its tax havens. Although it did not appear on his official itinerary (why not?) the Lord Mayor of the City of London visited the Isle of Man last month, where he praised its “longstanding and much-valued partnership” with the City. The City of London Corporation has called the Isle of Man a “core asset” for the City. The Lord Mayor roams the world with an official mandate to expound the “values of financial liberalisation” around the globe (what a strange role for the head of a municipal authority).  The more that other countries liberalise their economies, the more financial activity there is buzzing around, ready to be caught by the nearby tax havens and funneled up to the City.

These tax havens love to declare how clean they are – but they can be shockingly, even terrifyingly corrupt. Anyone visiting Jersey on a summer holiday might be forgiven for thinking that this is simply another part of Britain: apart from the different-looking ten pound notes, the high street in St. Helier looks and feels just like any other in Britain. But look into the politics in enough depth, and the difference is staggering. People won’t believe you when you explain how corrupt Jersey is.

In an affidavit signed in May 2011 Lenny Harper, Jersey’s former Deputy Police Chief, said: “I went to Jersey in 2002 full of expectation of the challenge that lay ahead.  I soon learnt that it was like nowhere else in the British Isles. . . . There are no checks and balances on power and the abuse of it.  This is obvious each time one tries to make a complaint against any member of the government. With such an absence of controls, such an absence of accountability, the ordinary decent people of Jersey are helpless.” Stuart Syvret, a former health minister, is less diplomatic, and he is worth quoting at some length.

“Jersey is governed by a crypto-feudal oligarchy which, of itself, is captured by the international offshore banking industry. It is a gangster regime, cloaked with the “respectability” of the trappings of the British establishment. . . . As the local elites of these tiny islands continue to provide a loyal service to the rich British elites – for example, enabling them to dodge taxation – then the miniature oligarchs of places like Jersey are guaranteed protection. No matter just how nakedly lawless their own conduct.”

The media – both the Jersey Evening Post, as well as the Jersey arm of BBC – are captured by the finance industry. They parrot the pro-tax haven line daily – sometimes almost to a comical degree – and dissidents are only quoted rarely, and usually highly disparagingly. Syvret has been thrown in prison more than once. The dominance of the finance industry in Jersey is nearly absolute. And few people in Britain care.

We should all care. As the British web of tax havens around the world feeds the City, pumping up its already mighty powers, Britain is turning into more and more of an offshore island in the world – and the City of London is turning into more and more of an offshore island within Britain. If we don’t stand up to the City and its tax havens, we face a future that looks increasingly like Jersey’s. But without such nice beaches.


Nicholas Shaxson is the author of Treasure Islands: Tax Havens and the Men Who Stole the World