The Spider’s Web: Britain’s Second Empire | The Secret World of Finance

The Spider’s Web: Britain’s Second Empire | The Secret World of Finance Michael Oswald’s film The Spider’s Web reveals how at the demise of the empire, the City of London’s financial interests created a web of secrecy jurisdictions that captured wealth from across the globe and hid it in a web of offshore islands. Today, up to half of global offshore wealth is hidden in British jurisdictions and Britain and its dependencies are the largest global players in The Secret World of Finance.

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1. Introduction

• Overview of the British Empire
  • Largest empire in history, ruled for over 300 years.
  • British soldiers present globally (e.g., Gibraltar to Hong Kong).
  • Armies conquered territories, and bankers reinforced the power of the British currency (sterling).
• Decline of the Empire
  • Countries declared independence, leading to the empire’s disintegration.
  • British elites sought a new role in finance.
• Transformation Theme
  • Shift from colonial power to a modern financial power.
  • Influence on shaping the current global financial landscape.

1. The British Empire

• Financial Dominance
  • City of London as the world’s biggest global financial center during the empire.
  • Sterling currency used widely within and beyond the empire.
  • Described as the “governor of the imperial engine” by historians Cain and Hopkins.
• Decline of Empire
  • Loss of colonial territories weakened the City of London’s dominance.
  • Example: Newsreel of British military struggles in Cyprus (bombings, riots).
• Suez Crisis (1956)
  • Egypt nationalized the Suez Canal, prompting a military response from Britain and France.
  • U.S. opposition and pressure forced withdrawal, humiliating Britain.
  • Marked the end of Britain’s status as a major world power.
  • Resulted in a “run on sterling,” devaluing the pound.

III. The Eurodollar Market

• Response to Sterling’s Decline
  • Suspected U.S. encouragement of the run on the pound.
  • Britain restricted banks’ overseas lending to protect the pound’s value.
• Creation of the Eurodollar Market
  • Banks negotiated with the Bank of England to allow dollar transactions between non-residents.
  • London Eurodollar market emerged, unregulated by the Bank of England.
  • Banks maintained separate accounts for Euromarket activities, declared “not in London.”
• Impact
  • Provided a legal loophole to avoid regulation and taxation.
  • Attracted American banks to London to bypass U.S. regulations.

1. The Last Remnants of Empire

• Emergence of Offshore Jurisdictions
  • British overseas territories (e.g., Cayman Islands) became financial secrecy hubs.
  • 1960s Cayman Islands: underdeveloped, transformed by London accountants and lawyers.
• Secrecy Jurisdictions
  • Laws drafted to ensure financial secrecy, attracting illicit funds (e.g., drug money, tax evasion).
  • Bank of England monitored but did not regulate these activities (1969 secret report).
• Key Territories
  • 14 British overseas territories, 7 identified as major tax havens (e.g., Cayman Islands, Bermuda, British Virgin Islands).
• Growth of the Euromarket
  • Fueled by offshore money, grew to $500 billion (1980), $4.8 trillion (1988), and dominated 90% of international loans by 1997.

1. The Corporation of London

• Unique Status
  • City of London as a “city within a city,” run by the private City of London Corporation.
  • Features private police, courts, and a distinct political system rooted in medieval traditions.
• Historical Context
  • Originated in 1067 when William the Conqueror granted it autonomy.
  • Exempt from many British laws; electorate dominated by businesses, not residents.
• Influence
  • Permanent representative (Remembrancer) in the House of Commons to lobby for City interests.
  • Speculated to wield significant, understudied power over British financial policy.

1. The Bank of Credit and Commerce International (BCCI)

• Rise and Fall
  • Licensed by the Bank of England in 1972, grew to the 7th largest bank by 1982, collapsed in 1991.
• Criminal Activities
  • Involved in fraud, money laundering, terrorist financing, and collaboration with intelligence agencies (e.g., CIA).
• Regulatory Failure
  • Bank of England had evidence to close BCCI earlier but delayed action, prioritizing informal regulation.
  • Culture of “light touch regulation” protected bankers from consequences.

VII. Trusts and Financial Secrecy

• British Trusts
  • Originated during the Crusades; separate ownership from control, enabling secrecy.
  • No registration or reporting requirements in British offshore jurisdictions.
• Scale of Offshore Wealth
  • Trillions of dollars in assets (e.g., art, real estate) hidden in trusts, “belonging to nobody” for tax purposes.
• Secrecy Structures
  • Complex arrangements (trusts, shell companies) across multiple jurisdictions to obscure ownership.
• Panama Papers
  • Exposed offshore secrecy; most major offshore law firms linked to British territories.
  • Highlighted resistance to transparency despite public leaks.

VIII. Britain’s Oversight of Offshore Territories

• Claim of Independence
  • Britain portrays territories as autonomous, denying responsibility for their activities.
• Actual Control
  • Appoints governors, controls foreign relations, defense, and can veto legislation.
  • Subtle influence via informal discussions (e.g., “over a cup of tea”).
• Cayman Islands Example
  • Rejects independence; relies on British stability to attract finance.
• Wealth Management
  • Much offshore wealth controlled from London, with “dirty work” outsourced to havens.

1. Global Financial Centers and Empire

• Britain’s Financial Empire
  • Controls 25% of global financial services, 40% with ex-colonies (e.g., Hong Kong, Singapore).
  • Described as a “second empire” of hidden financial control.
• Transformation
  • From physical occupation to financial dominance via the Euromarket and secrecy jurisdictions.
• Impact on Developing Nations
  • Africa: $944 billion in flight capital (1970–2008) vs. $177 billion debt, a net creditor.
  • Offshore system facilitates elite looting, weakening development.

1. How America Embraced Offshore Finance

• Vietnam War Context
  • U.S. balance of payments deficit driven by military spending.
  • Efforts to prevent dollar outflows failed (e.g., Chase branch in Saigon).
• Offshore Strategy
  • 1967 State Department memo proposed the U.S. become a hub for flight capital.
  • Offshore Caribbean banks funneled criminal money back to U.S. banks, supporting the dollar.

1. Growth of Offshore Finance and Corruption

• Expansion
  • U.S. and UK offshore systems grew into the dominant global financial market.
• Investigation (John Christensen, 1986)
  • Found Deloitte & Touche clients in Jersey engaged in tax evasion, bribery, and illicit activities.
  • No legitimate activity among sampled clients.
• Secrecy’s Role
  • Essential for fraudulent activities; legitimate finance avoids high fees and secrecy needs.

XII. Whistleblowers and Suppression

• Challenges of Dissent
  • Offshore workers face subtle suppression (e.g., ostracism, overwork) rather than overt punishment.
• Stuart Syvret Case (Jersey)
  • Leaked a report on a rogue nurse, faced harassment, arrest, and prosecution without a defense.
  • Describes Jersey’s systems as a “Potemkin village”—superficially legitimate but dysfunctional.

XIII. Politicians and Financial Secrecy

• Conflict of Interest
  • Politicians in offshore jurisdictions often tied to financial firms (e.g., Appleby staff in political roles).
• British Politicians
  • Publicly oppose corruption but lobby for City interests (e.g., David Cameron’s defense of territories).
  • Personal ties (e.g., Ian Cameron’s offshore wealth).
• Establishment Networks
  • Old boys’ network facilitates offshore activity for elites, not outsiders.

XIV. Accountants and Tax Evasion

• Role of Accountants
  • Design tax avoidance schemes for corporations and individuals (e.g., 330,000 UK accountants).
  • Undermine elected governments’ tax policies.
• HMRC Leadership
  • Dave Hartnett negotiated secret tax deals (e.g., £1 billion BT refund), later joined Deloitte.
  • Accountancy firms penetrate government, shaping policy.

1. Private Finance Initiative (PFI)

• Mechanism
  • Funds public infrastructure via private loans at high cost (3–4 times government borrowing).
• Accountancy Firms’ Role
  • Advised Treasury on PFI, then profited from implementation.
• Tax Avoidance
  • HMRC offices owned offshore (e.g., Mapley STEPS in Bermuda), avoiding UK tax.

XVI. Conclusion

• Transformation Summary
  • City of London shifted from empire’s financial hub to a global center via offshore secrecy.
• Scale of Influence
  • 25% of global finance, nearly half of secrecy jurisdictions under British control.
  • Up to half of offshore wealth hidden in British havens.
• Societal Impact
  • Benefits elites (e.g., ex-ministers, MI5/MI6 retirees) at the expense of global development.
  • Britain as the world’s largest tax haven, prioritizing elite interests over the public.

This outline captures the text’s structure, key points, and thematic progression from the British Empire’s decline to its reinvention as a financial power through offshore secrecy and the City of London’s enduring influence.