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who were virulently opposed to tax havenry and who found the Caymans to be especially obnoxious. The U.S. authorities were getting vexed, too, and in large part because of this the British Foreign Office was broadly opposing havenry, though its position was more nuanced. On the other side of this divide sat the Bank of England, acting as the cheerleader for the new havenry and wishing to see it grow fast—though also trying to make sure that this freewheeling Caribbean offshore expansion did not spin entirely out of control. Supporting the Bank of England, with far less influence, was the British Overseas Development Ministry, which saw offshore finance purely as a trick to get the territories to pay their own way and reduce their demands for British aid without any sign that they had any concern for the inhabitants of developing nations around the world that would suffer vast drains of wealth into the Caribbean sinkholes.11 Discreetly, within the British establishment, battle lines were drawn. The exchanges were vigorous and at times even acrimonious.

The UK Treasury put together a working party whose report in 1971 said Britain should, in effect, stop encouraging tax havenry in its overseas territories. A worried confidential memorandum from the British Foreign Office in 197312 shares some of the same concern: “The Cayman Islands set up as a tax haven in 1967 and passed appropriate legislation which went considerably beyond what the UK Treasury was prepared to wear.” One particularly significant Caymans bill, it noted, had quietly passed into law after an unnamed desk officer had failed, through an “administrative error,” to submit the new Cayman legislation to London for consent. The effect of this, the memorandum continued, had been to drive a wedge through the Treasury’s carefully constructed defenses against abuse of tax havenry. Britain later patched the holes in its own tax code as best it could, the memorandum notes—leaving, of course, elites in the United States, Latin America, and the rest of the world free to take advantage of the Caymans’ offshore facilities. Despite the warning, however, nothing was done.

Further research in the archives, however, reveals something rather more deliberate than a supposed “administrative error” in the construction of the Cayman Islands as one of the world’s most important tax havens. A letter from the Bank of England dated April 11, 1969, marked “SECRET,” gives us a better sense of the real forces driving the changes.13 It shows several things.

First, despite Britain’s guiding hand, these territories were extremely vulnerable to shady operators—and the smaller such jurisdictions are, the easier it is for their local administrations to be captured by unaccountable financial interests based elsewhere. “The smaller, less sophisticated and remote islands are receiving almost constant attention and blandishments from expatriate operators who aspire to turn them into their own private empires,” the Bank letter notes. “The administrations in these paces find it difficult to understand what is involved and to resist tempting offers.” The Bank of England letter had identified something generic to offshore centers: They are small states captured by large foreign financial, and often criminal, interests. “We need to be quite sure that the possible proliferation of trust companies, banks, etc., which in most cases would be no more than brass plates manipulating assets outside the Islands, does not get out of hand.”

But the Bank of England’s concerns did not reflect ethical qualms about the harm these places were wreaking on other countries—the Bank was simply expressing its desire to retain power to influence events, and particularly to safeguard the Sterling Area, the British-linked currency zone that had included most British colonies and dominions and whose members enjoyed relative freedom of payments inside the zone but which were strictly constrained from letting capital flow outside the Sterling Area. Attracting foreign dirty money, by contrast, was keenly appreciated by the Bank.