Around the time that Dean Acheson remarked that “Britain has lost an empire and not yet found a role”, the financial sector in London quietly resumed its traditional role as the centre of an offshore empire. Americans with dollar holdings that they didn’t want to repatriate began to use London as a home away from home. The American authorities didn’t like it and in the early sixties it looked like the Kennedy administration would clamp down on the so-called Eurodollar market. That didn’t happen. Instead, the rulers of the Persian Gulf joined US companies and individuals when nationalisation and the oil price spike made them wildly rich. Nowadays, so long as you have serious money, London is open for business.
London became the centre for a system of regulatory arbitrage. Things that could get you in serious trouble in your own country could be done with impunity. British private bankers travelled the world offering a tempting combination of reliability and deep incuriosity. The rich, no matter how they made their money, could expect discreet, high quality advice and assistance from what Nick Shaxson has called a “pinstripe architecture” of lawyers, accountants and bankers. When Boris Johnson calls London “the world’s preeminent financial centre”, this is what he means. London asks few questions and gives sensible answers.
All this was of a piece with London’s historical role in, as Geoffrey Ingham puts it, “surmounting the substantive obstacles to absolutely free exchange which the existence of nation states presents”. Efforts at national regulation elsewhere become lucrative opportunities for the businesses promoted by the City of London. For a while this was called globalisation. The City calls it freedom.
“Efforts at national regulation elsewhere become lucrative opportunities for the businesses promoted by the City of London. For a while this was called globalisation. The City calls it freedom.”
As I wrote some months ago, London’s continued ability to act as an offshore centre depends crucially on the acquiescence of other powers, America in particular. Those who find Britain’s foreign policy baffling need not resort to conspiracy theories about CIA agents in Downing Street. Obedience to America is part of the price that the nation as a whole has paid for the privileges enjoyed by the City of London.
Despite Britain’s eager bellicosity in America’s wars it seems that the current arrangements are being challenged. An early indication that trouble was on the way came in June when the head of the Commodity Futures Trading Commission (CFTC) expressed concerns that American taxpayers might have to foot the bill for trading losses incurred by JP Morgan in London. At the time a Democratic representative from New York, Carolyn Maloney, noted the “disturbing pattern in the last few years of London literally becoming the centre of financial trading disasters”.
Since then three scandals have broken, each driven by the authorities in the US. On June 27 the CFTC fined Barclays hundreds of millions of dollars for manipulating two benchmark interest rates, LIBOR and EURIBOR. A few weeks later on July 17 a Senate committee accused HSBC of acting as a conduit for “drug kingpins and rogue nations”. And on Monday 6 August the New York State Department of Financial Services alleged that a third British bank, Standard Chartered, had used its New York branch “as a front for prohibited dealings with Iran”. The regulator’s report detailed how in October 2006 an employee of the bank warned that doing business with Iran carried a risk of “catastrophic reputational damage” and “serious criminal liability”. A banker in London responded in the authentic tones of a City free trader: “You f—ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”
Soldiers have a saying. “Twice is coincidence. Three times is enemy action”. When the authorities in the US attacked a third UK bank, the British establishment began to mobilise against what John Mann MP has called “a real power grab” by the Americans. Meanwhile, the Financial Times quoted “a senior City figure” saying that “that there has to be some stage where Number 10 or the Treasury says something in defence of the banks”.
“New York and London are both massive offshore centres. The politics that underpin their relationship are murky when aren’t flat-out polluted.”
But the Treasury and Number 10 might not be much use in defending the City if, as Mann claims, there is “a clear political agenda that has merged with a domestic American agenda to shift financial markets from London to New York”. Besides, George Osborne has hardly helped matters, by trumpeting his ambition “to make London a western hub” for trade in the Chinese currency. Though devoted to the offshore empire, the current government have done a terrible job protecting it from scrutiny.
New York and London are both massive offshore centres. The politics that underpin their relationship are murky when they aren’t flat-out polluted. Perhaps the Obama White House really is planning to demote London. Perhaps Romney’s advisers were hinting that their man is in favour of the traditional entente criminel when they talked about putting Churchill’s bust back in the Oval Office. We can, as the saying goes in London and New York, only speculate.
One thing we do know. Offshore is a disaster for most people in both countries. It is used to hide money from tax authorities and it enables transnational crime to flourish. It has helped inequality in both countries reach grotesque levels. Silence about it has reduced the visible world of public life to a pantomime of absurd non sequiturs and witless hokum. We would be better off, and sleep more soundly, if this great machinery of secret corruption was dismantled once and for all.
RIP, Gore Vidal.
Dan Hind is the author of two books, The Threat to Reason and The Return of the Public. His pamphlet Common Sense: Occupation, Assembly, and the Future of Liberty, was published as an e-book in March. He is a member of the Tax Justice Network.