Broken Dreams

by Tom Bower

  Fowler agreed to transfer the rights owned by his company, the Tortola Development and Trust Co., to Bates. Once the deal was completed, Bates began negotiations with Martin Staveley, the local British administrator representing the Foreign and Colonial Office in London.

  During his discussions, Bates’s ambitions grew. Spotting Anegada, a flat, isolated coral island only accessible for the local population of 200 by boat, he proposed to Staveley that he imitate the property developments in the American Virgin Islands and, after constructing an infrastructure of roads, electricity and an airport, he would sell plots of land on the 15 square miles to Americans and Britons to build houses on a new tax haven.

  Bates’s power of persuasion was astonishing. In September 1966, contrary to the Foreign Office’s advice, Staveley signed an agreement, a veritable coup for Bates. He had secured the right to reclaim Wickham’s Cay and enjoy a ten year tax holiday for all the profits he would subsequently earn. In parallel, Staveley granted Bates a 199-year lease over all the island of Anegada, excluding only the 1,500 acres where the few inhabitants lived. On the British government’s behalf, Staveley had also agreed that throughout the 199-year lease of Anegada, Bates’s company and the island’s new inhabitants would pay no taxes. Bates and Torquil Norman anticipated earning a further $50 million of profits. Three days after concluding the agreement Staveley’s term of office ended and he left the island. News of the agreement only reached the Foreign Office four months later, on 20 January 1967. A baffled Treasury official in Whitehall would question why Staveley had signed away the Virgin Islands’ single biggest source of future earnings. Inexplicably, Staveley would plead to his colleagues to have acted ‘under pressure’.

  To finance the development, on 25 July 1967, Bates and Torquil Norman floated Wickham’s Cay Ltd, a company registered in the Virgin Islands. Torquil Norman secured a loan from Barclays Bank in New York, encouraging investors from London, including Michael Tollemache, an Old Etonian City broker. Others in London were less enamoured by Bates. In July 1968, after Philip Hill merged with Samuel, another merchant bank, the directors were unwilling to continue working with Bates, blaming his appalling manners. ‘They felt that Ken wasn’t one of us,’ recalled Torquil Norman, who bought Batehill with Bates and relaunched the company by remortgaging their homes. The City bankers’ disdain for Bates was unsurprising since the aspiring tycoon openly confessed, according to the Financial Times, how he had earned his money by ‘breaking the rules’. His strategy, he admitted, had not always been successful: ‘I over-traded, made a penny do the work of three quid and headed straight for disaster – or that’s what they said. Let’s face it, there are a lot of people who want to see you fail because you don’t go by the book. That may have been all right years ago, but nowadays we’re a nation of spivs living off our wits.’ Convinced of earning his fortune in the Virgin Islands, Bates cursed the City and flew towards the sun.

  In July 1968, while the reclamation of the Cay was underway, Bates arrived in the Virgin Islands with his wife and five children. They lived in primitive conditions in Long Look, on Anegada, first in a caravan and later a house. Sitting in the sunshine overlooking the blue Caribbean sea, Bates nurtured his dreams. Executing an exit from Burnley was astute and his inevitable wealth at the end of the construction in the Virgin Islands would confirm his abilities. His departure from England had been fortunate. After selling his new home in Cheshire and resigning from Howarth, the company had revealed debts of £1.8 million and, on 24 July 1969, appointed a receiver. Bates was as unloved by the abandoned creditors as much as he was feared by his children. Robert, his son, complained of his father’s explosive temper and denigration of his family by his habit of divide and rule. Neither complaint appeared to be of much concern to Bates. Convinced of his destiny, he began writing his memoirs, describing himself on a veranda in the Caribbean wearing shorts and drinking champagne, reproaching the world for failing to recognize the existence of an outstanding tycoon. In his artless prose, described by one reader as ‘Ken at his egotistical best’, Bates styled himself as the ‘Master of the Game’, the Cockney raised in a rough London council estate pulling the strings to outwit lawyers, accountants and other Establishment professionals despite his lack of education. The thin, uncompleted, typed manuscript, glorifying ‘Ken Scoring’, was vainglorious testimony to his strengths and weaknesses. Unintellectual, ruthless and rude, he begged to join the ranks of the global tycoons but lacked the self-awareness to recognize the consequences of his unsophisticated ignorance. Accomplished tycoons concealed their emotions, especially their lust for revenge; Bates’s anger was raw and flaunted. Publicly denigrating others produced many enemies but became a self-inflicted wound.

  After one year, the reclamation work at Wickham’s Cay was nearly completed, while on Anegada, the infrastructure for roads, an air strip, a power station, a hotel and the first houses was evident. ‘I went out and I made it work,’ boasted Bates, but there were no celebrations. Bates’s behaviour had incensed the local population. Not only was he vulgar, especially to local women politicians, but he had insensitively renamed Anegada the ‘Crown Colony Caribbean’. Locals in Road Town blamed the inadequate drainage and sea walls along the new waterfront in Wickham’s Cay built by Bates for flooding the town after a storm. They threatened violence against Bates’s ‘cavalier attitude’ and worse, to punish the investor, the local government began enacting a law to limit the rights of aliens to own land and refused to enact the promised tax concessions. Those sanctions coincided with an economic recession in America, jeopardizing the entire project. The businessman’s reaction to the crisis was incendiary, prompting ‘The Battle of Bates’. In the developer’s opinion, however, he was the victim of agitators in New York and antagonistic local civil servants. ‘The outsiders wanted to nick the thing for nothing,’ he insisted. ‘I had no problem with the local people.’

  Others were equally certain about the cause of the argument. In November 1970, the Foreign Office in London had become concerned about Bates’s continued presence in the area. His personality, an official concluded, was ‘totally unfit for these islands and I don’t think that things will get any better until he either changes his attitudes or he gets out altogether’. The ‘unrest’ Bates was provoking, officials feared, would cause ‘a political crisis and a probable breakdown in law and order’. Their nightmare was a repetition of the coup in Anguilla, a neighbouring British island, which had been suppressed after a humiliating ‘invasion’ by British troops. If Bates did not leave Tortola, the officials feared, there would be a coup and Britain would be compelled to abandon the islands.

  Removing Bates was the problem. His agreement with Staveley was legally watertight and in the opinion of Lavity Stoutt, the islands’ chief minister, Bates was a ‘tough egg’ who would ‘tenaciously hold on to his legal rights’. Haplessly, Stoutt and British officials hoped that Bates would ‘give way’ without compensation. ‘We think that it is most important that we avoid any commitment whatsoever to paying compensation to Mr Bates,’ an official recorded. Bates shattered that illusion.

  ‘I want $10 million,’ Bates told the British administrator after halting all work, firing his British staff, and threatening to destroy the islands’ opportunity to attract future American investors. ‘I do not intend to run a social security scheme on the island,’ he announced. His employees complained of having been ‘misled by Bates’.

  Returning to England in October 1970, Bates invited Anthony Fairclough, the head of the West Indian Department at the Foreign Office, for lunch. Influencing the British government at the meeting was crucial to Bates’s financial fortunes, but his bullying of Fairclough undermined his opportunity. ‘I want £5 million or I’ll get mean,’ Bates threatened Fairclough. ‘If there’s no quick solution, the BVI’s reputation will stink.’ Bates, however, refused to present his accounts to justify his demand. His subsequent letters to ‘get bought out’ were criticized as ‘offensive, abusive and unhelpful’.
Bates’s explanation is unambiguous: ‘I’ve got contempt for civil servants.’ Fairclough concluded that Bates was ‘running a very big risk’ and accordingly advised, ‘no special favour is due to Mr Bates’. The civil servants’ attitude changed in December. After vacillating between threatening compulsory purchase and offering compensation, the officials grudgingly decided to offer Bates a maximum of £2.5 million ($6 million). Their offer was rejected by Bates as ‘a blatant piece of theft’.

  At the end of March 1971, Bates was under pressure to accept the deal. Dislike of Bates had spread to Barclays Bank who had loaned him $1.5 million and, fearing delays in repayment of his loan, demanded total and immediate refunding. Bates was incapable of withstanding the bankers’ pressure. ‘Norman wanted to give up,’ explained Bates. ‘Life was too short to argue.’ To the relief of the Foreign Office, in March 1971 the developer was sufficiently concerned to telephone in a panic to seek a settlement.

  Bates had become the victim of his ignorance. Self-satisfied and boastful, he was insensitive to the government’s own dilemma. Foreign Office officials had secretly acknowledged his entitlement to at least $6.8 million and probably more. Securing ‘an early settlement’, the civil servants agreed, was a ‘political imperative’. More refined tycoons would have perceived Whitehall’s weaknesses, but Bates remained oblivious. On 21 April 1971, he accepted $5.8 million in compensation, less than he had been offered one month earlier. ‘It’s grossly unfair,’ he moaned. At the request of Barclays, the money was deposited by the British government at their bank in New York. The bankers had confided their fear to the Foreign Office that after receiving any compensation from the British government, Bates would ‘skip with the money and leave his creditors in the lurch’. There was no evidence that Bates would behave in such a manner, but his relationship with the bankers had clearly provoked unrestrained spleen. In the final settlement, Bates’s personal profit from the British government was about $1.5 million, the equivalent today of $10 million. The British taxpayers’ money was transferred by Bates to an offshore tax haven. None of the shareholders or banks had lost any money and Bates had paid all the creditors, but he had failed to earn his anticipated fortune. In consolation, he could use the compensation as seed money for a new venture.

  To reduce his tax bills Bates established a residence at Hersilia in Monte Carlo. On the Côte d’Azur he met Stanley Tollman, a South African acquaintance he had recently met at the Dorchester Hotel in London. Tollman was an aggressive and like-minded hotelier, who assumed Bates’s address as his own. Tollman was a distinctive character; even in July he wore a dark brown mink coat. Tollman and his brother had, it was said, ‘been ducking and diving for years’, but the brothers were Bates’s chosen partners for his next enterprise in Ireland, where he had settled with his family in 1971. Shankill House, his home near Dublin, was an imposing mansion, suitable for an aspiring banker.

  Life in the Virgin Islands had introduced Bates to the advantages of offshore banking. He had registered the Bank of Anegada, establishing himself as a banker and, to increase his investments in property and businesses, he applied for a licence to own a bank in Ireland. His timing was propitious. The country’s banking regulations were still remarkably lax. Obtaining a licence from the Central Bank required only the production of a testament to the applicant’s good reputation and proof of some assets. The finance for the proposed bank was provided by the International Trust Group, a company established in the Isle of Man shortly after Bates returned from the Virgin Islands. Among those recruited in Dublin by Bates were Giles Montgomery, a solicitor, and Tom Phelan, a well-connected accountant, apparently flattered by their new status as bankers. Together, in June 1971, they bought Kildare Bank, an off-the-shelf company. Two months later, the bank was renamed the Irish Trust Bank, with small premises at 5 Dawson Street. The next requirement was to find depositors.

  To attract money Bates hired Brian Loughney, a persuasive salesman. Loughney’s targets were the small savers in Ireland and the Irish communities in the United States lured by advertisements in New York’s Irish Echo. To those emotionally attached to the Emerald Isle the Irish Trust Bank offered a safe haven for their savings, paying significantly higher rates of interest, tax-free. The same salesmanship enticed borrowers to the bank’s branch office in Manchester, including George Best and Bobby Charlton.

  Over the first year, the bank attracted 1,400 savers in Eire, England and America, who deposited about £3.5 million. Compared with methods used by Dublin’s more established banks their money was used in an unorthodox manner. Bates’s bank advanced a small number of large loans to property companies. Among the recipients was a loan of £1.4 million to the International Trust Group, a company registered in the Isle of Man, which owned 20 per cent of the bank itself and produced two-thirds of the bank’s income; a further loan was advanced to purchase land and property in Queensland, Australia, where Bates would later live; and £250,000 was loaned to Moore Holdings, a property company in Dublin owned by Robert Noonan, one of Dublin’s famous go-go speculators, who would later own Chelsea FC.

  Under Bates’s management, the bank was also notable for other striking features. The depositors were paid high rates of interest but the bank lent money, especially to the International Trust Group, at commercially low rates of interest. Balancing the books to produce a profit was difficult. A second distinctive feature was the obscurity of many ultimate borrowers. Peculiarly, while some loans were channelled through the International Trust Group in the Isle of Man, the legal borrower was another offshore nominee company whose directors were anonymous. Unusually, the loan documents excluded ITG from responsibility for the loans. In that manner, the bank also made a loan to Hebrides Investments, an anonymous company in Gibraltar, another tax haven, which in turn lent money to a nominee company in Cairns, Australia, to buy land in Queensland. Frequently the loans were granted without proper collateral or a comprehensible legal framework.

  One year after its creation, Adrian Byrne, responsible for supervision at the Irish Central Bank, became concerned about Bates and his bank. In his aggressive manner, Bates had bid on behalf of the International Trust Group in the Isle of Man for an Irish property company. Irritated by Bates, the company investigated his background and discovered stains on the hostile bidder’s reputation. Firstly, the British government’s fury with Bates concerning Anegada; secondly, the discovery that the ‘Bank of Anegada’ amounted to just a file in Bates’s briefcase; and thirdly, that Bates was reported to have not disclosed his past directorship of Howarth, the insolvent property company. On 12 January 1972, Bernard Breen, the secretary of the Central Bank, wrote to James Keogh, a friend at the Bank of England, asking for any information about Bates. Keogh replied that while he could find nothing to Bates’s ‘discredit’, none of his former bankers in England ‘would be gladdened if he returned to them’. Keogh concluded that if Bates applied in London for a banking licence, ‘I would have no option but to reject his claim.’

  That was deemed sufficient for the Central Bank to apply to the Dublin High Court to revoke Bates’s banking licence. The bank told the court that it ‘did not regard Mr Bates as acceptable as a director of this bank’ because he had omitted to mention in his application for a banking licence his directorship of Howarth. To Bates’s good fortune, the bank’s application was legally flawed and his counter-challenge was successful. Nevertheless, on 17 April 1972, Bates resigned as a director. Among the bank’s new shareholders were Bates’s five children – Fiona, Robert, Richard, Susan and Catherine – all of whom were minors, and Overseas Metals Ltd, an anonymous company registered in Gibraltar. Bates was replaced as a director by Freddie Pye, a former wrestler, a scrap metal merchant and the chairman of Stockport FC, who had spent a holiday with Bates in the Caribbean. Freddie Pye’s company, Pye Metals, secured a loan of £200,000 from the Irish Trust Bank through ITG in the Isle of Man at a commercially low rate of interest.

  Despite his resignation as a director, Bates
continued to work from Dawson Street and offered advice about the bank’s lending in his search for new opportunities. Bankruptcies became the source of the gambler’s fortune. He was introduced to this by John Papi, a Kuwaiti employed as an assistant to Martin Spencer, an insolvency expert at Stoy Hayward, the accountants. Papi’s skill was to find businessmen willing to take over companies in liquidation at no cost in return for repaying some of the debts owed to the companies’ creditors. In Bates, Papi found a man determined to prove himself right.

  The two met in 1974 at the Sherlock Holmes Hotel in Baker Street, London. Both were attending a meeting of creditors of the Court Hotels (London) Ltd. The administrator was Papi, and among the directors of the insolvent company was Stanley Tollman. Bates was present as an interested observer.

  Soon after their meeting, Papi offered Trafalgar Travel, an insolvent subsidiary of Court Hotels, to Bates. ‘You can make a bomb on this,’ said Papi, suggesting that he pay a small smount to the creditors and inherit a good business. The Irish Trust Bank advanced a loan to Stanley Tollman, Bates’s partner. Trafalgar Travel’s profits in the first year were £2 million. Excited by Papi’s offerings, Bates also took over a publishing company on the brink of liquidation. Kemps Directories, based off the Portobello Road in London, was bought for £1 and earned Bates about £1 million; and with Papi’s help he took over Hales Owen Press, a printing company, which was also profitably transformed. Papi’s best offer was the Montcalm Hotel near Marble Arch. The cost was £1, plus repayment of £72,500 of debts to the creditors. Bates’s Irish bank financed the purchase of the hotel from Barclays Bank, although Stanley Tollman and not Bates appeared to be the principal involved. Tollman was in the midst of creating a hotel empire which would eventually be declared bankrupt in a scheme which profited Tollman and his brother at the expense of many banks. Eighteen months after the original purchase in the early 1970s, the hotel was sold for £2.5 million. Throughout that period Bates often lived on the premises. He appeared to be averse to owning homes in England and preferred renting. People he encountered at the time recall that his pockets bulged with wodges of banknotes.