Treasure Islands - Nicholas Shaxson [42]
The next component of the City’s offshore status is its role in running, protecting, and being fed by Britain’s offshore spiderweb. As a reminder, this web of partly British tax havens around the world provides the City with three things. First, it captures passing foreign business and assets nearby and channels them, and the business of handling them, to London, just as a spiderweb catches insects. Second, it is a storage mechanism for assets. Third, it is a kind of money-laundering filter that lets the City get involved in foreign dirty business but at sufficient distance to minimize the stink. In the second quarter of 2009, the UK received19 net bank financing of $332.5 billion just from its tax havens of Jersey, Guernsey, and the Isle of Man; in June 2009 the British web as a whole held an estimated $3.2 trillion in offshore bank deposits, half the global total, according to data from the Bank for International Settlements.
London’s next offshore attraction is secrecy. Britain does not practice Swiss bank secrecy, which would make its violation a criminal offense, but it uses other equally effective mechanisms. The British spiderweb is a big part of this story, as is UK trust law. When Denis MacShane, a former British foreign office minister, criticized bank secrecy at a European seminar, his opposite number from Luxembourg retorted: “Have you ever examined UK trust law? All our bankers and financial lawyers say that if you really, really want to hide money, go to London and set up a trust.”20 Britain offers all manner of other secrecy facilities. Under UK law, for example, offshore companies can be directors of UK companies, and it is usually impossible to know who the real owners are.21
Another London attraction is the so-called “domicile” rule, whereby wealthy foreigners can come to live in England and escape tax on all their non-UK income. In pursuit of this tax break, the world’s super-rich—from Greek shipping magnates to Saudi princesses—have descended on London in hordes. Having gone out of its way to welcome wealthy Arabs since the 1980s and rich Japanese and oil-rich Africans since the 1990s, the City has more recently aggressively courted Russian oiligarchs, offering them an almost tax-free bolt-hole beyond the reach of Russian law enforcement: Alexander Zvygintsev, Russia’s deputy prosecutor-general, describes “London-grad,” as it is sometimes known, as “a giant laundrette for laundering criminally sourced funds.”22
The contrast between London and New York, in terms of tolerance for criminal behavior, is stark. In January 2009, for instance, U.S. law enforcement fined the British bank Lloyds TSB $350 million after it admitted to secretly channeling Iranian and Sudanese money into the U.S. banking system. Robert Morgenthau, the Manhattan district attorney, explained how Lloyds would routinely strip out identifying features from payments from Iran so that wire transfers would pass undetected through filters at U.S. financial institutions.23 In the City of London, this business just went on unperturbed.
“In America they send hundreds of people to jail: in this country bankers don’t go to jail,” explains the British author and publisher Robin Ramsay. “There are no consequences in London.” Though Americans may roll their eyes at this, as they consider the financial crimes that have gone unpunished at home in the wake of the latest financial crisis, there is no doubt that London’s tolerance for abusive or criminal financial behavior is in a class of its own. The Paris-based investigating magistrate Eva Joly, who broke open the Elf Scandal in Paris, described another view from overseas: “The City of London, that state within a state which has never transmitted even the smallest piece of usable evidence to