20.“Reaction to the Tax Gap Series,” The Guardian, February 14, 2009.
21.Prem Sikka, “UK Company Law Is Terrorism’s Friend,” The Guardian, January 20, 2010.
22.Will Stewart, “Londongrad . . . Russia’s Money Laundry,” The Express (UK), February 27, 2010; and “Britain Called Crooks’ Haven,” Sydney Morning Herald, February 28, 2010.
23.See “Lloyds Forfeits $350m for Disguising Origin of Funds from Iran and Sudan,” The Guardian, January 20, 2009; and “Lloyds TSB to Pay $350 Million to Settle Probe,” Bloomberg, January 10, 2009.
24.Megan Murphy, “Banking: City Limits,” Financial Times, December 13, 2009; and Richard Roberts, The City: A Guide to London’s Global Financial Centre, 2nd ed. (London: The Economist/Profile Books, 2008), pp. 261–73.
25.The voting is supposed to reflect the “composition” of the workforce but not the “wishes” of the workforce. It is done through voting appointments: Business managers appoint voters from the workforce, who must be UK or Commonwealth or European Union residents. Source: Corporation of London website.
26.City of London, City Livery Companies, www.cityoflondon.gov.uk, accessed August 2010.
27.The Corporation itself hints at this: “The right of the City to run its own affairs was gradually won as concessions were gained from the Crown. London’s importance as a centre of trade, population and wealth secured it rights and liberties earlier than other towns and cities. From medieval to Stuart times the City was the major source of financial loans to monarchs, who sought funds to support their policies at home and abroad.” Source: City of London, “Development of local government,” www.cityoflondon.gov.uk, November 19, 2009, http://www.cityoflondon.gov.uk/Corporation/LGNL_Services/Leisure_and_culture/Local_history_and_heritage/development.htm.
28.Clement Attlee, The Labour Party in Perspective, first published in 1937.
29.John David, Reforming London: The London Government Problem, 1855–1900 (Oxford: OUP, 1988), p. 51.
30.Reginald R. Sharpe, London and the Kingdom, Volume 1 (Bibliobazaar LLC, 2008).
31.Ibid., p. 42. Winchester was left out of the original survey too, but was later surveyed; the City never was.
32.Which King James I had granted to the City of London.
33.While the 6,000 human residents would still get a vote each, the corporate vote was widened, increasing their votes from about 23,000 to 32,000. Voting rights would reflect the number of employees, but not the “wishes” of the workforce.
34.His role is, as the Remembrancer’s Office puts it, to have “day to day contact with officials in Government departments responsible for developing government policy, the drafting and promotion of legislation and responsibility for relations with both Houses of Parliament and their Committees.” City of London, City Remembrancer’s Office, www.cityoflondon.gov.uk, accessed August 2009.
35.A previous Remembrancer boasted that his operating principle was to “oppose every bill which would interfere with the rights and privileges enjoyed by the Corporation.”
36.“House of Lords European Union Sub-committee A (Economic and Financial Affairs and International Trade): Inquiry into Directive on Alternative Investment Fund Managers,” memorandum from the City of London Corporation, submitted by the Office of the City Remembrancer, September 2009.
37.“House of Lords European Union Sub-committee A: Inquiry into the Commission’s Communications on Ensuring Efficient, Safe and Sound Derivatives Markets,” memorandum from the City of London Corporation, submitted by the Office of the City Remembrancer, January 2010.
38.City of London, “City of London funds,” www.cityoflondon.gov.uk, accessed August 2010.
39.Developments are described in the blog “Mammon. From Superhero to Subzero,” Open Shoreditch, February 8, 2009.
40.City Cash funds offices in Brussels, Mumbai, Beijing, and Shanghai.
41.David Hencke and Rob Evans, “Medieval Powers in City Trial of Strength,” The Guardian, October 5, 2002.
42.Jason Beattie, an experienced British political reporter, tried to dig into City Cash using Freedom of Information (FOI) requests—standard journalistic tools that force reluctant British government departments to yield information. He had no success, and the Corporation’s website, in fact, reveals why. The FOI Act of 2000, it admits, “applies to the City of London as a local authority, police authority and port health authority only,” and the last word is emphasized with boldface type. In other words, everything is open to examination, except the money, which is the part that matters. City of London, “Access to Information,” www.cityoflondon.gov.uk, accessed August 2010.
43.Some of this sentence was drawn directly from Burn, The Reemergence of Global Finance, pp. 151 and 158.
44.Ibid., p. 160.
45.Schenk, “The Origins of the Eurodollar Market in London,” p. 235.
46.“The Earl of Cromer Is Dead at Seventy-Two: Former Head of Bank of England,” New York Times, March 19, 1991.
47.See Eddie George, “The Bank of England: How the Pieces Fit Together,” Bank of England Lectures, 1996, p. 91, http://www.bankofengland.co.uk/publications/quarterlybulletin/qb960110.pdf.
48.Burn, The Reemergence of Global Finance, p. 142.
49.Ibid., p. 124.
50.Jeffrey Robinson, The Sink: How Banks, Lawyers and Accountants Finance Terrorism and Crime—and Why Governments Can’t Stop Them (Robinson Publishing, 2004), p. 57.
51.Burn, The Reemergence of Global Finance, p. 161.
52.Ibid., p. 164.
53.Richard Sylla, “United States Banks and Europe: Strategy and Attitudes,” in Stefano Battilossi and Youssef Cassis, eds., European Banks and the American Challenge (Oxford: OUP, 2002), p. 62.
54.Cited in Martin Mayer, The Bankers (London: W. H. Allen, 1976), quoted in Burn, The Reemergence of Global Finance, p. 165.
55.Burn, The Reemergence of Global Finance, p. 125.
56.Thomas A. Bass, “The Future of Money,” Wired, October 1996, http://www.wired.com/wired/archive/4.10/wriston_pr.html.
57.Kynaston, The City of London Volume IV, p. 569.
58.Ibid., p. 442, quoting Janet Kelly, Bankers and Borders (Cambridge, MA: HarperBusiness, 1977).
59.Mostly this involved borrowing from the Euromarkets in London and its fast-growing tax haven satellites, then lending out to other parts of the world; and through investment banking activities that they were not allowed to do at home. See Ulrich Ramm, “German Banks and the American Challenge,” in Battilossi and Cassis, eds., European Banks and the American Challenge, p. 182. According to Ramm, the share of U.S. banks’ foreign balance sheet business handled via London fell from 50.6 percent to 37.5 percent from 1973–76, while the Bahamas and Caymans increased their shares from 19.5 to 30.6 percent.
60.Anthony Sampson, Who Runs This Place? The Anatomy of Britain in the 21st Century (New York: John Murray, 2005), p. 255.
61.See “The Economic Effects of Capital Controls,” Congressional Budget Office, August 1985, http://www.cbo.gov/doc.cfm?index=5981&type=0.
62.Burn, The Reemergence of Global Finance, p. 146.
63.Bass, “The Future of Money.”
64.Kynaston, The City of London Volume IV, p. 396; and Mark P. Hampton and Jason P. Abbott, Offshore Finance Centres and Tax Havens (London: Macmillan, 1999), p. 91.
65.Letter from HB Mynors of the Bank of England to Sir Charles J. Hambro of Hambro Bank, January 29, 1963. Cited in Schenk, “The Origins of the Eurodollar Market in London.”
66.In 1962 Time magazine concluded that “the Eurodollar, most experts agree, will gradually disappear if U.S. interest rates rise to European levels, or the U.S. payments deficit ends.” “Western Europe: Those Eurodollars,” Time, July 27, 1962.
67.Burn, The Reemergence of Global Finance, pp. 36, 140.
68.These concerns would be echoed a generation later when the Bank for International Settlements asked in June 2008, as financial panic spread around the globe, “How could a huge shadow banking system emerge without p
rovoking clear statements of official concern?”
69.But add “In private meetings and speeches,” the Corporation notes, “the Lord Mayor expounds the values of liberalisation.” See City of London, the Lord Mayor’s International World, www.cityoflondon.gov.uk, accessed August 2010.
70.See, for example, “Ordinance 10 and Its Impacts on Chinese Companies London IPOs,” Fasken Martineau Corporate e-bulletin, July 2009, http://www.fasken.com/china_equity/. The Lord Mayor was told that Ordinance 10 was designed to “prevent the illegal transfer of assets overseas.”
71.“Report by the Rt Hon. the Lord Mayor (Alderman John Stuttard) on His Visit to China, Hong Kong and South Korea,” City of London Corporation, November 8, 2007.
72.For example, David Kynaston’s magnum opus of the modern City of London, subtitled “A Club No More,” regarded by some as the definitive work on the City, hardly mentions the Corporation of London, and even then it hardly strays beyond discussing the Corporation’s role in City construction projects.
73.All Glasman quotes are from the author’s interviews with Glasman, 2009 and 2010.
CHAPTER 5 CONSTRUCTION OF A SPIDERWEB
1.See Tom Naylor, Hot Money and the Politics of Debt, 3rd ed. (McGill-Queen’s University Press, 2004), pp. 20–22.
2.Jeffrey Robinson, The Sink: How Banks, Lawyers and Accountants Finance Terrorism and Crime—and Why Governments Can’t Stop Them (Robinson Publishing, 2004), pp. 29–37.
3.E.g., Baron Grey of Naunton, 1964–1968; Francis Edward Hovell-Thurlow-Cumming-Bruce, 8th Baron Thurlow KCMG, 1968–1972; Sir John Warburton Paul, GCMG, OBE, MC.
4.The Bahamas became internally self-governing in 1964 and fully independent in 1973, though remaining a member of the British Commonwealth.
5.Memo V 122/2 to Rickett from M. H. Parsons, June 5, 1963.
6.See, for example, Lisa S. King, “Sir Stafford Sands’ Legacy Reviewed,” Freeport News, Nassau, August 31, 2005.
7.See Marvin Miller, compiler, “The Breaking of a President 1974—The Nixon Connection,” http://www.mail-archive.com/[email protected]/msg11727.html.
8.See Tom Naylor, Hot Money and the Politics of Debt, 3rd ed., p. 40; also see Oswald Brown, “Restore Sir Stafford’s Portrait to the $10 Bill,” Freeport News (Bahamas), Feb. 13, 2009, http://freeport.nassauguardian.net/editorial/293789643182596.php; “The Bahamas: Bad News for the Boys,” Time, Jan. 20, 1967, http://www.time.com/time/magazine/article/0,9171,843308,00.html.
9.Anthony Sampson, “Treasure Island,” published in YellowBlackRed, 1999, www.reocities.com/blackyellowred/#top.
10.Report on a team visit to the Cayman Island, British Development Division in the Caribbean, April 14–17, 1969. From the British National Archives.
11.Paul Sagar, the primary researcher for this material, provides the essence of this summary.
12.DSC 203940.
13.Research conducted in British national archives by Paul Sagar on behalf of this book.
14.Thanks to Paul Sagar for this concise summary.
15.William Brittain-Catlin, Offshore: The Dark Side of the Global Economy (New York: Picador, 2005), p. 33.
16.In the interview, and J. A. Roy Bodden, The Cayman Islands in Transition (Kingston/Miami: Ian Randle Publishers, 2007), p. 105.
17.Robinson, The Sink, p. 48.
18.Widely cited. See, for example, “Bernard Cornfeld,” www.includipedia.com, accessed August 2010.
19.Author’s interview with Gill, George Town, Grand Cayman, May 2009.
20.Field refused to testify, pleading Fifth Amendment protection, but the U.S. Court of Appeals rejected this plea.
21.The Confidential Relationships (Preservation) law was amended in 2009, making the law somewhat less hard-line, but the essential elements providing criminal sanctions against breaking secrecy remain in place.
22.Norman’s Cay: Playground for Drug Smugglers, PBS Frontline, www.pbs.org.
23.Seamus Andrew and Niall Goodsir-Cullen, “Accountability of Cayman Islands Directors,” published by SC Andrew LLP, London, 2008.
24.See “Companies and Partnerships,” published by Cayman Islands Financial Services, Cayman Islands government, http://www.scandrew.com/publications/Accountability%20of%20Cayman%20Islands%20Directors.pdf, accessed August 27, 2010.
25.Letter to Benn from Michael Dun, one of Benn’s constituents, “Ref. Tax Havens and the Bank of England,” May 30, 1975. The letter was forwarded to the UK Chancellor, Dennis Healey.
26.Author’s interview with Scriven, March 2009.
27.Michael Foot, “Final Report of the Independent Review of British Offshore Financial Centres,” HM Treasury, October 2009, http://www.hm-treasury.gov.uk/d/foot_review_main.pdf.
28.“Jersey Banking: The International Finance Centre,” Jersey Finance Ltd., Fact Sheet, August 2009, http://www.jerseyfinance.je/_bluebox/download.cfm?attachment=18FCF7CA.
29.Some illustrative comparative data is provided at Ann Hollingshead, “Bamboozled!,” Task Force on Financial Integrity blog, October 16, 2009.
30.When Lee Kwan Yew approached the Bank of England for support in setting up an offshore market, it was less encouraging, saying that it supported Hong Kong as a financial center instead. See Lee Kwan Yew, From Third World to First: The Singapore Story, 1965–2000 (Singapore: Singapore Press Holdings, 2000), p. 90.
31.This was widely reported. E.g., Netty Ismail, “Morgan Stanley Fallout from Andy Xie Costs More Jobs,” Bloomberg, October 12, 2006; and Netty Ismail, “Morgan Stanley Fallout From Andy Xie Costs More Jobs (Update1),” Bloomberg, October 12, 2006.
CHAPTER 6 THE FALL OF AMERICA
1.From author’s interview with Hudson, New York, 2008.
2.These days, it is intangibles like patents or brands that are most often abused: Transfer mispricing on oil is much harder because the market price of oil is widely known.
3.As told to author by Hudson in New York in 2008; the memo is reproduced on p. 33 of the 2004 paperback edition of Tom Naylor’s Hot Money and the Politics of Debt, 3rd ed. (McGill-Queen’s University Press).
4.Raymond Baker, Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free Market System (Hoboken, NJ: John Wiley & Sons, 2005). Baker is a world authority on illicit cross-border financial flows. The chapter 4 table entitled “Specified Unlawful Activities under U.S. Anti-Money Laundering Laws” lists 65 crimes—aircraft piracy, human trafficking, alien smuggling, bank fraud, bribery, ocean dumping, and so on—that can be used as a basis for money-laundering charges under U.S. law. The table then cross-checks each crime against two columns: first, if the crime underlying the money flow is committed in the United States; and second, if the crime is committed overseas. The table shows all 65 crimes triggering U.S. money-laundering laws if the crime is committed in United States. But if the crime is committed overseas, three-quarters of them—including alien smuggling, racketeering, peonage, and slavery, and nearly all forms of tax evasion—are excluded from the “prohibited” list.
5.See, for example, “US Bankers Attack IRS Deposit Interest Reporting Requirement,” Tax News, December 3, 2002.
6.“Miami: The Capital of Latin America,” Time, December 2, 1993.
7.See Naylor, Hot Money and the Politics of Debt, p. 292.
8.Author’s interviews with Blum.
9.Blum, by correspondence, and Naylor, Hot Money and the Politics of Debt, p. 293.
10.This was the Interest Equalization Tax. The Kennedy speech on this subject is available at the American Presidency Project, http://www.presidency.ucsb.edu/ws/index.php?pid=9349.
11.The tax did not cover loans, so many corporations simply switched from bond financing to lending. To check bank loans to foreign countries, the U.S. Congress enacted the Voluntary Foreign Credit Restraint Program (VFCRP) in February 1965, broadening it in 1966. U.S. corporations were asked to voluntarily limit their direct foreign investment. The program was made mandatory in 1968. Capital controls were relaxed in 1969 and phased out in 1974, after the United States left t
he Bretton-Woods system of fixed-exchange rates. See, for example, “Introduction to Capital Controls,” St. Louis Fed. Review, November/December 1999, p. 24.
12.This “deferral,” as it is known, was not uniformly available. The Kennedy administration had enacted Subpart F of the Code in 1962, which defended against tax havens by curbing deferral of U.S. corporate taxes in certain situations, deeming the income of foreign subsidiaries and affiliates of U.S. corporations to have been distributed to the U.S. parent and taxed in the U.S. even though this income is not actually distributed.
13.Some countries have limited defenses against deferral; so-called “Subpart F” legislation in the United States (disallowing deferral on passive income) is an example. Even this defense is patchy, however, and developing nations usually find it impossible to construct meaningful defenses using this strategy.
14.David Cay Johnston, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich—and Cheat Everybody Else (New York: Penguin, 2003).
15.Eric Helleiner, States and the Reemergence of Global Finance: From Bretton Woods to the 1990s (Ithaca, NY: Cornell University Press, 1996), pp. 135–6. “Ironically the triumph of ‘monetarism’ seemed to be occurring at just the time that international linkages were reducing the Fed’s ability to control the monetary base.”
16.Ibid., p. 137.
17.Ronen Palan, The Offshore World: Sovereign Markets, Virtual Places, and Nomad Millionaires (Ithaca, NY: Cornell University Press, 2003), p. 134.
18.The Federal Reserve Bank of St. Louis, which studied the new offshore IBFs, noted that the decline in Caribbean business “suggests that the growth of business in this area was almost entirely intended to bypass U.S. monetary regulations.” See K. Alec Chrystal, “International Banking Facilities,” St. Louis Fed. Review, April 1984, https://research.stlouisfed.org/publications/review/84/04/International_Apr1984.pdf.
19.Mark Hampton, The Offshore Interface: Tax Havens in the Global Economy (London: Macmillan, 1996), p. 63.
20.Palan, The Offshore World, p. 135.
Treasure Islands: Dirty Money, Tax Havens and the Men Who Stole Your Cash Page 33