Treasure Islands - Nicholas Shaxson [81]
This is not to say that all of these problems don’t have other explanations too. They always do. Tax havens are never the only story because offshore exists only in relation to elsewhere. That is why it is called offshore.
Without understanding offshore, we will never properly understand the history of the modern world. The time has come to make a start in filling this gigantic hole in our knowledge and to appreciate the gravity of offshore: how it has bent the world’s economy into its modern, globalized shape, transforming societies and political systems in its image.
I will now describe a rare episode where offshore’s role is widely acknowledged: the case of the Bank of Credit and Commerce International (BCCI), arguably the most offshore bank in history. The story is well known, but for one or two crucial features.
The BCCI case broke open after Jack Blum, a lawyer and investigator working for John Kerry’s Foreign Relations Committee, began picking up signs of wrongdoing in 1988.
Like most people, Blum initially saw secrecy jurisdictions mainly as centers for drug smugglers and other assorted lowlifes. But on a visit to the Cayman Islands in 1974 for the U.S. Senate Foreign Relations Committee, he remembers seeing a line of well-dressed men waiting to use the phone in his hotel lobby. He learned that they were U.S. lawyers and accountants arranging to meet Cayman bankers to set up bank accounts and trusts for tax-evading U.S. clients. The American bankers were referring U.S. customers to their Canadian colleagues, and the Canadians were returning the favor. Over time, he began to notice more sophisticated tricks and to see that this was far bigger than almost anyone imagined.
“I began to see that drugs were only a fraction of the thing,” Blum said. “Then there was the criminal money. Then the tax evasion money. And then I realized—‘Oh my God—it’s all about off the books, off the balance sheet. Offshore, there are no rules about how the books are kept,’” he continued. “I refer to offshore as a kitchen, where corporate books are cooked.”
When contacts started fingering BCCI in the late 1980s, Blum already knew it had a bad smell: He had worked previously in private practice, where he remembers his team meeting the staff of Mellon Bank in Pittsburgh and telling them about BCCI. “The entire senior international staff at Mellon just about threw up on the table,” Blum said. They would not, under any circumstances, accept letters of credit from BCCI.4
The bank was set up in 1972 by an Indian-born banker, Agha Hassan Abedi, who got backing for his venture from members of the Saudi royal family and from Sheikh Zayed Bin Sultan Al-Nahayan, the ruler of Abu Dhabi. BCCI grew superfast under a simple business model: create the appearance of a reputable business, make powerful friends, then agree to do anything, anywhere, on behalf of anyone, for any reason. BCCI larded politicians with bribes and served some of the twentieth century’s greatest villains: Saddam Hussein, the terrorist leader Abu Nidal, the Colombian Medellin drug cartel, and the Asian heroin warlord Khun Sa. It got involved in trafficking nuclear materials, in sales of Chinese Silkworm missiles to Saudi Arabia, and in peddling North Korean Scud-B missiles to Syria. Its branches in the Caribbean and Panama serviced the Latin American drug trade; its divisions in the United Arab Emirates, then amid an oil boom and an offshore banking bonanza, serviced the heroin trades in Pakistan, Iran, and Afghanistan; and it used Hong Kong to cater to drug traffickers in Laos, Thailand, and Burma. It also got into the U.S. banking system, getting around the concerns of U.S. regulators by using offshore secrecy structures to make its ownership invisible. It paid off Washington insiders and built up a solid partnership with the CIA. This gave it fearsome political cover and made Blum’s investigations extraordinarily difficult from the outset.
“There was an army of people