Tuesday, October 06, 2009

The British Connection

Earlier this year British Prime Minister Gordon Brown, addressing a joint session of the US Congress and Senate, asked:

How much safer would everybody's savings be if the whole world finally came together to outlaw shadow banking systems and outlaw offshore tax havens?

Well, by now everyone knows the answer to that question: very much safer!

But will the British Prime Minister (or any successor) have the courage to take action against tax havens (we prefer the term secrecy jurisdiction) when even the right-wing press agrees with our view that the City of London is the Big Daddy of all tax havens?

The truth of the matter is that Britain has based much of its development strategy over the past four decades on turning London into the global hub of financial capitalism, and many of its Overseas Territories and all its Crown Dependencies - the flotsam and jetsam of empire - have been encouraged to transform themselves into satellites of the City, where the really toxic transactions can be routed for cosmetic purposes. And whisper it gently, but Her Majesty's Treasury boffins are clueless about how to shift towards a more sustainable strategy that doesn't depend on massive illicit financial flows and tax avoidance.

Over half of the secrecy jurisdictions we mapped while researching the faultlines in the global financial system have close connections to Britain, either through their international status as Crown Dependencies or British Overseas Territories, or through membership of the Commonwealth of Nations (formerly the British Commonwealth).

Our Mapping the Faultlines project enumerates 60 secrecy jurisdictions. 31 of these are connected to Britain.

3 are British Crown Dependencies (Guernsey, Isle of Man and Jersey).

7 are British Overseas Territories (Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Montserrat, and Turks & Caicos).

21 are members of the Commonwealth (Antigua & Barbuda, Bahamas, Barbados, Belize, Brunei, Cook Islands, Cyprus, Dominica, Grenada, Labuan, Maldives, Malta, Mauritius, Nauru, Seychelles, Singapore, St Kitts & Nevis, St Lucia, St Vincent & Grenadines, UK, Vanuatu)

How has Britain got away with this monkey business for so long?

We can only speculate about why academics have largely ignored the issue. We know that the Commonwealth Secretariat has become a shill for secrecy jurisdictions. But at the political level the problem is far more intractable. A large proportion of political party funding now comes from corporate sources, and then there is the endless revolving door between big business and defrocked government ministers. Another serious problem lies with the lobbying strength of the City of London itself, a point picked up on in a recent report on UK banking reform:

The distributive coalition around the City of London has spun a story about the social value of the finance sector whose competitiveness must therefore be maintained. Senior politicians in both major parties have been co-opted into doing nothing by way of (re)regulation which would hinder finance's continued success.

The same report also notes:

The UK has become a very peculiar place where the main employers' organisation is headed by a retired financial journalist and where finance company lobbyists can include authorship of Treasury reports on their CVs. This was not always so; our democracy once worked very differently and more effectively before Thatcher and Blair's aversion to dissent assailed it.

Observing IMF proceedings in Istanbul this week Guardian economist Larry Elliott picks up on a similar theme:

Meanwhile, the financial sector has regrouped and is lobbying hard against "excessive" levels of regulation. Joseph Ackermann, the chief executive of Deutsche Bank, said at the weekend that if banks were forced to hold too much capital it would impair lending and damage the economy.

In reality, what the financial sector calls excessive is what was once normal and prudential. Counter-cyclical capital requirements limiting the ability of banks to lend during booms and encouraging them to keep credit flowing during busts are vital for economic stability.

It is interesting, though, how the financial sector has managed to conflate its own interests with those of the wider economy. Any attempt at reform – witness Adair Turner's comment that some City activities are socially useless – is met with the argument that the financial sector is an important part of the economy creating lots of jobs. And that is supposed to be that.

For decades Britain has been held hostage by the City of London and its offshore satellites. Any attempt at reform is met with naked threats that 'talent' (yes, that's the same people who collectively failed to notice the largest financial pile-up in post medieval history) will up-sticks and leave for Dublin or Zurich if they have to pay more tax to cover the cost of their own failures. And despite the rhetoric about putting an end to secrecy jurisdictions, the reality is that nothing short of a political movement comparable to the nineteenth century anti-slave trade campaign will put an end to Britain's dependence on dirty business.


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