n official government report issued in 1969, two years after the Cayman Islands, a British colony, approved its first law allowing secretive offshore trusts, struck an ominous tone. It warned that a tidal wave of glitzy proposals from private developers was sweeping the islands. Cayman was quickly becoming a haven for dubious business.
The Pandora Papers, a massive data dump orchestrated by the International Consortium of Investigative Journalists, exposed the ominous beginnings of a modern system. More than 330 politicians and public officials from over 90 nations and territories — as well as more than 130 billionaires from Russia, the United States, and others — were named in the papers, exposing a buffet of covert and questionable financial dealings. A dazzling assortment of deception and money hoarding was on display, frequently by the very people who should be cracking down on it.
The facts, which were made public on October 3, have a global scope. But if there is one country at the center of the system, it is the United Kingdom. Together with its partially controlled overseas colonies, Britain plays a key role in the global hiding of wealth and assets. It is “the money laundering capital of the world,” as a member of the ruling Conservative Party put it last week. The City of London, with its opulent financial district, lies at the heart of the system.
That is bad enough for the United Kingdom, whose bloated finance industry exacerbates widespread economic woes. It is far worse for the rest of the globe, which is at the mercy of an economic system skewed in favour of the wealthy.
By design, the offshore ecology is a maze of complexity. Offshore trusts, tax loopholes, and shell companies, as well as banking secrecy and lax financial regulation, shroud the wealthy’s assets in legal obscurity. Tax havens such as the Cook Islands, the British Virgin Islands, and Jersey (one of the Channel Islands) are in the center of it all, acting as smugglers’ coves. The wealthy and evil send their money there not only to keep it safe, but also to avoid rules, laws, and taxes that they dislike.
Estimates of the wealth stored in tax havens range from $6 trillion to $36 trillion. And, contrary to popular belief, some tax havens are closer to home than you might think. The United States has long been a key part of the secrecy system, with its shadowy Delaware shell firms and South Dakota trusts. A slew of European countries, including Luxembourg, Ireland, and Switzerland, provide another set of options for getting out. Hong Kong and Singapore are, of course, in Asia.
However, the British network is unquestionably the largest. The Financial Secrecy Index, published by the Tax Justice Network, ranks Britain and its “spider’s web” of offshore satellites #1 among tax-havens. Over two-thirds of the 956 firms linked to public figures in the Pandora Papers were established in the British Virgin Islands.
The City of London is at the heart of the process. The City manages perfectly acceptable financial activity from all over the world through international stock market listings, currency trading, bond issuing, and more. However, it is also the hub of the shadowy global offshore system that hides and protects the world’s stolen money.
The City of London, formerly the financial metropolis of the British Empire, has reinvented itself as a vital conduit for all types of foreign money. The Bank of England allowed the country to host the nascent Eurodollar market during decolonization, which was a watershed moment. This was an almost unregulated and extremely profitable offshore zone apart from the British economy, where foreign banks, especially from the United States, could do things they could not do at home.
This rapidly expanding market began to merge with Britain’s tax havens, among others, in the 1970s, forming a seamless global network. Since then, British havens have served as collection vessels for a wide range of financial activities, both legal and illegal, from throughout the world, typically delegating accounting, banking, and legal services to corporations in the City.
Together, they have wreaked havoc on the world. The amount of tax income lost is staggering: corporations utilize tax havens to avoid paying between $245 billion and $600 billion every year in taxes. (Those losses will be mitigated by a new worldwide agreement to set a minimum corporate tax rate of 15%.) Individuals also keep large sums of money.
Taxes, however, are only one aspect of the picture. The wealthy and their City servants have been playing a global game of deception for decades, eroding the rule of law and destroying people’s faith in the system.
There were several reform efforts following the global financial meltdown of 2008, which revealed the banking system’s exorbitant excesses. The “London loophole,” as it was dubbed by Gary Gensler, chairman of a US regulatory body, was closed. The government now wants to resurrect the City’s darker arts as memories of the financial crisis fade and Brexit bites. A key advice document it released in July, “A New Chapter for Financial Services,” clearly foreshadowed a return to more lenient times. Over 15 times, the words “competitiveness” and “competitive” are used as code words for low taxes, lax regulation, and enforcement.
The United Kingdom’s acquiescence to shady money is self-defeating. Its too “competitive” financial core is a scourge with numerous consequences: regional inequality, an unbalanced economy, dwindling productivity, blocked investment, asset price inflation, and political corruption. Britain can hardly afford an enormous City after years of austerity and amid food and fuel shortages.
The world, on the other hand, is the one that bears the brunt of the consequences. The offshore ecosystem affords impunity to corrupt entrepreneurs and long-serving political leaders by hiding capital and hoarding wealth. The system ensures that wealth stays in the domain of the few since it is unaccountable and frequently untraceable. We must take on the havens — and the vested interests in London that support them — to reverse the unfairness and injustice highlighted by the pandemic.
Africa, on the other hand, looks up to their colonial masters as the bedrock of a well-meaning economy that has a proper structure in place, giving opportunity for all citizens and foreigners alike to grow. But, the Pandora Papers had exposed otherwise. This revelation goes to show that the colonial masters are the encouragers of corruption, backers of ill-willed politicians, and instability in Africa especially in the sense that they would welcome and house any money without questioning the source since it is going to boost their own economy tremendously. So, they use ill-gotten wealth to their advantage, and most times, since the “thieves” that launder the money from Africa to overseas would rather be faceless by putting a citizen of that nation (where the assets or money is being deposited) as the beneficiary, a large portion of the asset/money most times always end up becoming the property of the host nation especially in the event where the “thief” suddenly kicks the bucket, the assets/money is automatically deemed unclaimable for life.