In 1969, two years after the Cayman Islands, a British territory passed its first law to allow housing offshore financial institutions, an official government report issued an ominous warning. A number of companies set up by private investors were laundering dirty money in that territory.
Cayman was fast becoming a state caught up in dubious finances. They were the beginnings of a modern system that has been unmasked again by the Pandora Papers, through a large leak of confidential data, coordinated by the International Consortium of Investigative Journalists.
These documents exposed a secret and controversial financial agreement by more than 330 politicians and public officials from over 90 countries and territories, as well as over 130 billionaires from Russia, the United States, etc. Part of this wealth hiding scheme were a dizzying group of well-known people, even those who supposedly had to fight this phenomenon.
The revelations, made public on October 3, have a global reach. But if there is one country that is at the heart of this system, it is Britain. Taken together with its partially controlled overseas territories, Britain is important in the worldwide concealment of money and assets.
It is, as a member of the ruling Conservative Party said last week, “the money laundering capital of the world.” And London, the financial center, is at the center of the system. For Britain, whose inflated financial sector exacerbates widespread economic problems, this is something very negative.
For the world, which is at the mercy of an economic system manipulated at the expense of the rich, it is even worse. The structure of fiscal havens is very complex. Many intricate and obscure instruments – including offshore foundations, and shell companies – plus banking secrecy and negligent financial regulation, hide the wealth of the rich through vague regulations.
Central to all are the tax havens, such as the Cook Islands, the British Virgin Islands and Jersey (one of the Channel Islands), can also function as harbors for smugglers. The rich and the criminals take their money there to protect them, but also to escape from the rules, laws and taxes they do not like.
The wealth held in tax havens is staggering: Estimates range from $ 6 trillion to $ 36 trillion. And some tax havens are closer to our home than we would imagine. The United States, with its obscure companies in Deluaer and foundations in South Dakota, has long represented a large part of this money laundering system.
A group of European countries, including Luxembourg, Ireland and Switzerland, offer another alternative to hiding money. Of course Asia, has Hong Kong and Singapore. But the British network is definitely the biggest. The Justice Tax Network’s Financial Secrecy Index, which periodically lists tax havens, shows that Britain and its “spider web” offshore branches rank first in the world.
Over 2/3 of the 956 companies Pandora Papers associate with public officials are based in the British Virgin Islands. And the center of coordination is the City of London, the center of British finance. Through international stock market listing, currency trading, bond issuance and more, City deals with fully respected financial activities from around the world.
But it is also the main nerve center of the world’s darkest system of offshore companies, which hide and guard the world’s stolen wealth. Once the heart of the British Empire funding, the City has become a crucial channel for international capital of all kinds.
The key moment came when in the midst of the decolonization process, the Bank of England left the country to host the new euro-dollar market. It was an almost unregulated and highly lucrative offshore space, separated from the British economy, and where foreign banks, mostly American ones, could do things they could not do in the US.
In the 1970s, this rapidly growing market began to merge with British, but also other, tax havens into a perfect global network. British tax havens have since functioned as fundraisers for various financial activities around the world, legal or not.
They have caused incalculable damage. Tax revenue lost is staggering: Corporations use tax havens to save about $ 245 billion to $ 600 billion a year. (A new global agreement on a minimum 15 percent corporate tax rate would curb those losses).
Even individuals hold large sums in these tax havens. But the tax is only part of the story. The global game of fraud, played for decades by the rich and their functionaries in London, has eroded the rule of law and eroded citizens’ trust in the system.
After the global financial crisis of 2008, which highlighted the extravagant surpluses of the financial system, several reform efforts were made. The “greed of London”, as the head of a US regulatory agency, Gary Gensler, called it, was curbed.
But now that memories of the crisis are fading and the negative effects of Brexit are being felt, the government wants to revive London’s darkest practices. “A new chapter on financial services”, a guidance document published in July this year, clearly signaled a return to old times.
The terms “competitiveness” and “competitiveness” over low taxes, poor regulation and poor enforcement appear over 15 times. Britain’s support for money laundering is self-defeating. Its highly “competitive” financial center is in fact a curse on the country, and the consequences are regional inequality, an unbalanced economy, declining productivity, stalled investment, asset price inflation and political corruption.
After years of austerity measures, and amid serious shortages of food and fuel, Britain can not afford an expansion of illegal activities in London. But what suffers most from this practice is the world.
For long-serving businessmen and political leaders who have long served in office, the tax haven ecosystem provides impunity, capital coverage, and wealth protection. Irresponsible and often untraceable, this system ensures that prosperity remains the backbone of those few. To end inequality and injustice so clearly exposed by the Covid-19 pandemic, we must close the tax havens and oppose those in London who defend them. / (By Nicholas Shaxson – “New York Times” – Bota.al)
Note: Nicholas Shaxson is a member of the Fiscal Justice Network and co-founder of the Balanced Economy Project, an anti-monopoly organization. He is the author of Treasure Islands: Fiscal Paradise and the People Who Stole the World, and The Curse of Finance: How Global Finances Are Making Us All Poorer.
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