Treasure Islands - Nicholas Shaxson [57]
As time went on, however, the Bank became increasingly worried that these Wild West British offshore centers were becoming weak points in the Sterling Area, allowing leakage outside the zone. In 1972, under the Bank’s guidance, Britain shrank its Sterling Area to cover only Britain and Ireland and the Crown Dependencies, excluding the new tax havens. The Cayman Islands, for its part, adopted the Cayman dollar as its new currency, at par with the U.S. dollar, and two years later this was de-valued to 1.20 Caymanian dollars to the U.S. dollar—where it has remained ever since.
In the same year that the Sterling Area was shrunk, the officials who were trying to stop the tax havenry suddenly disappeared from the archive files. Taking their place was a new group of officials who seemed to be unaware of the 1971 report warning about the dangers of tax haven activities. They realized that the contraction of the Sterling Area hadn’t solved the problem at all. In 1977 the new group appears to have rediscovered, still sitting on a shelf, unimplemented, the 1971 report warning about tax havenry. Again nothing was done. It looks to have been like institutional Ground-hog Day within the UK Civil Service: Reports were written, memos were drafted—and nothing changed. History had repeated itself within and between the departments, all in a matter of less than ten years.14 Each time, we find the Bank of England officials working hard to fight the tax havens’ corner.
At the same time, the representative of the Overseas Development Ministry, clearly supporting the Bank of England’s line, seems to have been concerned almost exclusively with the ten thousand Cayman Islanders, apparently entirely blinkered to the terrible impact this may be having on, say, the several hundred million victims of capital flight in nearby Latin America. Whatever its motivations—hopeless myopia, or a cynical attempt to privilege its own dependent territories at the expense of the rest of the developing world—the development ministry ends up stoutly defending the legislation of places like the Cayman Islands, legislation designed specifically to undermine the tax authorities and economies of developing nations around the world.
A comment from a Caymanian lawyer in the 1970s highlights where the main beneficiaries of all these illicit financial flows were. His clients, he said, would periodically contact him, worrying about Fidel Castro’s Cuba nearby and insisting on special clauses to compensate them should Castro invade. “I have to explain that Castro wouldn’t find any [money] in the safe,” he said; “they’re all really held in New York or London.”
A long letter in 1971 from Kenneth Crook, the newly arrived British governor of the Cayman Islands, provides a little more detail on the thinking in London in those days and on Britain’s behind-the-scenes controlling role. “You, sir, and the office as a whole,” he wrote in his first long report back to his superiors in London, “might find some interest in the first reactions of a pair of Diplomatic Service eyes and ears (two pairs, if you count my wife’s) to this basically colonial situation.”
Then, as today, His Excellency the Governor, whom the British Queen appoints on the British government’s advice, was the most powerful person on the island, presiding over a cabinet of local Caymanians. They do have elections in Cayman, with revved-up political rallies and all the fun of the fair—but the governor sent from London remains responsible for defense, internal security, and foreign