by Ali Changezi 31 October 2022
Britain was the global superpower from the 17th Century up to the mid-20th Century. During this period, the British Empire had become the largest Empire in the world. As the 20th Century proceeded, Britain saw a decline in its status as a world power, giving way to the United States becoming the ruling state. The British, however, had other plans. In this threat of the Empire’s decline, they saw an opportunity, and that opportunity was in the world of finance.
After the Second World War, the London Euro Dollar market emerged under the supervision of the Bank of England (BoE). The BoE is the Central Bank and financial regulator of Britain and its territories. Any market outside the US where Dollar transactions take place is known as a “Euro-Dollar” market. Contrary to the mainstream practice, the banks that functioned within the London Euro-Dollar market were not required to report on their activities to the Central Bank, thus the banks were able to lend the deposited dollars to third parties without being regulated.
During this time, another form of financial activity started far off from the British Isles, in the Islands of the Caribbean. In the 1960s, Trusts began to be set up in British Overseas Territories. These offshore territories are 14 in number, and 7 of them are Bona Fide Tax Havens. The most notable are the Cayman Islands, the British Virgin Islands, and Bermuda. Offshore Shell Companies were set up by lawyers and accountants who knew how to rig the system.
Trusts are the hallmark of Anglo-Saxon secrecy, and their mechanism resembles, to a certain extent, that of Swiss Banking Secrecy. What the Trust ultimately does is that it plays with the concept of ownership. A person or a corporation can store their wealth in a Shell Company operated by a Trust without being legally connected. The stored wealth usually amounts to millions of dollars. The original beneficiary thus cannot be traced, and this compels us to examine how corruption gets facilitated.
Developing nations, owing to financial corruption by politicians, businessmen, and government servants, lose upwards of $1 trillion annually to capital flight. Capital flight is the phenomenon wherein tax money, loans from International Monetary Institutions, and other government earnings are misappropriated and lost to corruption, after which they are funneled to offshore jurisdictions such as the Cayman Islands, where they cannot be regulated by tax and income authorities. The secrecy provided by these offshore jurisdictions has incentivized corruption in the developing economies of the world, where dynastic politics have taken deep roots.
What is more disturbing, is the fact that the wealth that gets funneled from developing economies to these offshore territories, most of which are British, tends to strengthen Britain’s economy at the expense of the developing economies. The reason is that by virtue of being British territories, they are essentially offshoots of the mainstream British economy. That is why by 1980, the London Euro Dollar market had reached a volume of $500 billion, and by 1988 it had reached $4.8 trillion. All of this money brought tremendous confidence in the British market and thus guaranteed the steadiness of the British Imperial Engine just like it was once sustained through direct colonialism, but this time it was less obvious.
The only hidden power is the power that endures
The Bank of England is well aware of the illicit financial activities conducted in these offshore tax havens, yet it willfully does not intervene. Britain denies any control over these territories and maintains that these jurisdictions are independent. Yet, in reality, Britain controls their Foreign Policy, and Defense and can even veto its legislation. By keeping its powers hidden, Britain pretends that it has no responsibility or stake in the world of offshore companies.
Politics and business do not make a sustainable combination, and their merger is detrimental to the welfare of the State and the population. One of the reasons why politicians indulge in corruption is because they also need to sustain businesses alongside their political careers. The secrecy provided by the Offshore Jurisdictions provides huge incentives for stakeholders to be corrupt.
Pakistan has also been a victim of offshore tax havens exposed by the Panama Papers. The Panama Papers allegedly exposed politicians, business tycoons, and retired government servants for holding millions of dollars in offshore tax havens. In 2016, an International Consortium of Investigative Journalists’ leak of the Panama Papers identified former Prime Minister Nawaz Sharif and his children as beneficiaries of the offshore firm Mossack Fonseca. Sharif and his family owned four luxurious apartments known as “Avenfield House”, in London. Upon investigation and trial, Nawaz Sharif was handed a fine of 8 million Pounds and 10 years in jail. In contrast, his daughter, Maryam Safdar, was sentenced to 7 years in jail for involvement in illicit financial activities.
There is a dire need for awareness because one cannot counter a phenomenon as long as it is hidden. It is time to uncover the secret world of Offshore Tax Havens and initiate a struggle against it. It is the ordinary people who can build up resistance against them being looted. The developing world cannot prosper without eliminating the scourge of corruption and secret arrangements of the offshore tax heavens.