Moments in My Mind
Trust and Foundations
As a young man, I already in 1965 was introduced to trust and foundations, trusteeship and fiduciary activities, all with a lot of small prints, when the client’s signed. However, I had to serious learn all this, and become quite an expert, so much so that I later become co-trustee for many foundations and acted as fiduciary agent for many. Trusts have existed since Roman times and have become one of the most important innovations in property law. I advised professionally, clients as to Liechtenstein, Panama and Bermuda foundations and trusts. My partner in M. Hauschildt et Cie and co-founder with me in 1974 was Bryan Jeeves, who due to the event in Denmark, formed himself the highly respected Jeeves Group which operates all over the world.
As an introducing agent to several Swiss banks, including the first Banque Pariente in Geneva and later UBS, Edmund Safra’s Trade Development Bank and sometime later on Bank Landau & Kimche and Bank Julius Bar in Zurich. I very early learned that most of the bankers recommended establishing a Liechtenstein trust, mostly, looking back, to obtain more annual fees and have a structure in place if something happened, a legal entity they could “sit-on” for years.
At the time, I only received a small fee for the introduction to the banks, later on, it becomes common to receive a share in the bank’s fees and brokerage. After my time, this becomes even more profitable for introducing agents.
Going back to this period I was mostly dealing with the Cayman Island, Bermuda and Bahamas, Jersey, Guernsey, and Alderney Island. The Channel Islands and the Isle of Man – places very good of exploiting their clients and able to charge ridiculous fees for little or no work. I had very early the same experience with Liechtenstein and Bermuda. Later when working with people like Dr Batliner in Vaduz and Appleby in Bermuda, I started sharing the front end and annual fees, this somewhat kept me “in” on the milking the cow, year after year. This became normal, especially as I sometimes became co-trustee with the lawyers. This fact saved me when the events took place in Denmark in 1980, however, it also turned out bad for many clients, as lawyers were the only trustee and able to charge huge fees.
I have just seen (December 2018) that the FCA in the UK has given Santander Bank a fine of £32.8 million fine over probate failings. The FCA states the impact of the failings was:
probate and bereavement processes would stall and remain incomplete, meaning that funds would not be transferred to those entitled to them despite Santander being informed a customer had died; or
certain funds belonging to deceased customers would not be identified and transferred to those who were entitled to them who were unaware of the existence of those funds.
The FCA states that a bank is required to have an effective process for dealing with a deceased customer’s accounts and investments from notification of death to the transfer of funds to those who are entitled to receive them.”
I know for a fact, that in the 1950s and 60s Swiss banks loved when their client died (I am sure they still do) and an estate was created. Because this allowed them to more or less take the money into their own assets, moreover, engage lawyers and authorities, legitimizing their actions, all costing large fees and being paid out of the estate. The procedure for any beneficiary would be so many problems and hassle that few could go through the process, many would expose themselves to going to prison or pay a huge amount of tax.
As to Swiss bank accounts, at the time (as to my experience mid-1960s) it was common practice for most foreigners to have numbered account, not using their names or even address. They would have to go to the bank and state their account number(shorten to a few digits) thereafter show their signature and passport. Although the bank had a photocopy of the passport, they made sure not to connect the passport to the numbered account, as they later could state they did not know the client.
Going back to the 1930s the Swiss have learned from the attack by the French and German authorities, where clients of Swiss banks were even imprisoned and put to death.
In the 1960s the Swiss banks did not require that the client appointed beneficiaries of the account and the requirement for “paperwork” did not exist, normally only one page. Such a numbered account was very profitable for the banks. The client who wanted to appoint beneficiaries, was always recommended to use a judicial structure like a trust, so the bank could take part in a never-ending fee arrangement, moreover, appoint a trustee.
Since clients were always advised not to have any papers related to their account, just in case, it was somewhat very difficult for relatives to come along and claim the assets in the accounts. We had a standard procedure of not accepting anyone and told them first to go to the Embassy in Bern and establish the credential, many did not do this out of fear, and the last thing they wanted was to tell their respective countries that a relative had left money for them in Switzerland.
The Swiss banks defended this advice because most foreigners came from countries where even having a Swiss bank account, could result in that they could be arrested and even executed. In most European countries like Germany, France, and Italy, the fiscal authorities were constantly on the lookout and could punish their citizens, very harshly, just to show an example.
During my time, I know of cases where French and German citizens either had to leave their country or face long jail sentences, just because they had a “secret” Swiss Bank account. The fact, that people had established such account, made them vulnerable to blackmail from family members or in case of divorce.
As to the so-called secret Swiss bank account, if a US citizen had an account with substantial sums, the US authorities had ways to approach the weakest senior member of the bank and offer a 40% “finder fee” in addition, protection in US and even a new name and papers, in return for details as to the account. Somewhat similar methods used by the German and other European countries getting criminals to steal data on Swiss and Liechtenstein bank’s clients.
However, through all the years, it did not stop the wealthy families finding ways around such control, to hold on to their assets and estates.
Most offshore structures we established for business clients, was for the client involved with import or export business and we used re-invoicing set-up or quietly moving patents and royalty into offshore entities. This allowed companies and trust hiding the ownership and beneficiaries, allowing royalties to be out, without any tax liability.
Later on, this becomes the case with several large Scandinavian companies, such as Maersk, IKEA, and Lego. In the late 1960s, a few Scandinavian and German companies were able to use the out-of-site offshore companies to buy “themselves out” locally at arm’s length, no one ever was prosecuted or found out at the time.
What later made a big difference in the world of tax evasion and avoidance was when foreign exchange trading become common among international companies. This truly allowed to swift profit and losses, wherever required, it becomes even better when derivatives become an instrument of preference.
The term “gnome of Zürich” originated in a meeting of the Labour politicians in November 1964. The politicians blamed Swiss bankers for raising speculation against the pound. During the meeting, politician George Brown criticised the Swiss bankers and said, “The gnomes of Zürich are at work again”. Later on, it was then used by many other politicians of the time. In the late 60s, I met George Brown several times, and had several discussions with him, mostly in bars.
During the mid-1960s, I introduced many clients, to the Swiss banks, from the British elite and together with a few German during those years. One of the banks had already many clients in the United Kingdom, including the former Home Secretary and the then present minister of transport, at the time. It was strictly illegal to have a Swiss bank account and indeed a criminal offence, but that had not stopped the Home Secretary, in charge of the Police, Prosecution and the Prison Service, from having such an account, moreover, having the money paid into the account from third parties.
At the time, it was strictly illegal to take money out of the United Kingdom, due to strong enforced exchange control by Bank of England. It was risky for a domiciled citizen to take money out of the country and most Merchant Bank did not want to be directly associated with this, however, they knew people like me and I only acted as an agent with even giving them an introductory fee.
The Labour government restricted the allowance of Sterling to take out of the country to £25 Pounds. If you were stopped at Heathrow with 50 Pounds, they would seize it all. If you had, one hundred they would arrest you and give you a large fine. That was Exchange Control
The Swiss banks did not take “cash” out of the country; in fact, money never left the UK, at least the transaction I was involved with at the time, was all back-to-back. There was cash involved, as clients had initially to pay the money in cash so they could not be traced. So the client came to me with small bags of £10,000 Sterling at the time, the most I received in one go was £35,000, otherwise, they slowly built up larger amounts. I would then pass this money on to another agent, who deposited the money as normal in an account in London.
Later on, I went to a bank in the City and paid in the money. The money put together in £100,000 units would be sold to many International corporations, ranging from General Electric, Ford, Unilever and Shell, and the US. These companies would buy local Sterling at a discount rate, and in return deposit US Dollars or Swiss Francs in the Swiss banks. £100,000 was a lot of money then, I paid a secretary around £10-12 per week and they took shorthand dictation and spoke French fluently, as the Geneva bankers conducted their business in French.
So a back-to-back transaction took place, which as far as the client was concerned, took place the same day, so when I received e.g. £25,000 cash in London, he could call the Swiss bank and have this confirmed over the phone, that the money had been credited his account in Geneva or Zurich.
The secretive Mr Stone
One of the people I worked with was Mr Stone, an accountant living in Hampstead London, he had two sons, and his story was unique.
He did not smoke and did not tolerate that anyone smoked in his presence. I never smoked so we got along fine. Smoke reminded him about the smoke from the chimneys in the Auschwitz concentration camp. His story was very special. He had just married when arrested and his wife and he had been shipped off to Auschwitz, as so terrible many.
Nearly all perished in this death camp; however, he was one of the few who escaped. His wife did not escape, but for some miracle, she survived. After the war, she was moved to various refugee camps and ultimately ended up in a camp close to Paris in France.
He not only escape from Auschwitz, but he also got to London, where he joined the BBC services after the war and made a special broadcast to Continental Europe. One day he received a letter from France, from a woman who wrote that she had heard his voice on BBC many times and just wanted to tell him that she listen to his broadcasting as he sounded like her husband. She knew that he was not her husband, who she believed had died in Auschwitz, although, some had told her that he escaped, something she did not believe.
She wrote that she knew that he, Mr Stone, therefore, could not be her husband. Little did she know, that he had changed his name to Stone in order to Anglo sized the Jewish name. Further, that he had been told that his wife had died in Auschwitz. After a few letters, it becomes clear to him that she was his wife and he travelled to Paris and got her out of the refugee camp. Later in London, they had two boys.
Apart from this story of his life and how they found each other after the war, he was enigmatic and secretive, despite we become close in many ways and his wife and he had a lovely and welcoming home.
As to arranging the various transfers, we used various codes speaking on the telephone, as to informing the Swiss banks, mostly making out we were acting as a travel agent, making inquiries or confirming travel arrangements. The amount of money could always be stated in people travelling and their status referred to 10,000, 100,000 and 1,000,000. The telephone and telex in Switzerland were never listed at a bank. We always assumed that the telephone calls would be recorded and never took any risk calling from our own phones.
This was an excellent business for me, as a young man earning good money and having a unique introduction to the world of “private banking” very private, further to many members of the British ruling class and Swiss Banking.
So much so, I could walk into Coutts bank in Mount Street in Mayfair in 1965 and open a bank account, only with them making a call to my Swiss bank. Without any deposit, Coutts gave me a credit on two issued cheques of mine for £38,000.
At the time I had stagged an IPO, one normally stagged for tenfold the number of shares, in order to get an allocation of some shares, as most IPO was much oversubscribed. Until that time, the cheques would always be returned and not cashed, having the investor to issue a new cheque for the shares allocated and not applied for. However, the companies I had been stagging (their public offering), cashed the initial cheques in full, thereby creating an unsecured bank overdraft for me of £38,000. At the time a very large amount, you could buy a new large house in Hampstead for £15,000 and less, I was paying secretaries speaking 3 languages, did shorthand and French dictation £ 12 a week. The sum was so large, that I only once later in the year made such an amount by accepting millions of East African Shillings from a person named Hussein Jaffa from Uganda.
The Indian fleeing Uganda
Idi Aim in Uganda had put pressure on the India population to leave, and nearly all did. I did help a few at the time, but more than a year later, when I attended to other business, I was presented with a Mr. Jaffa. Strange enough, Hussein Jaffa came to my office in 112 Park Street Mayfair, one Saturday after the staff had left at 13:00, carrying two “cheap” large suitcases, he entered the reception, where the porter/concierge call me directly telling me that a “foreign-looking” person asked to see me. He was somewhat reluctant to allow him to go upstairs alone in the lift; nevertheless, I told him that I would look out for him. Mr. Jaffa was Indian and he came with several millions of “dirty” banknotes all denominated in East African Shilling, all money owned by fleeing Indian families from Ida Amin. Money possibly gathered by many families, as their life savings, I never knew.
Although my office was close by, a few hundred meters, to where I lived with my wife and two children, in 35-37 Grosvenor Square, I had to take a taxi there with the two large dirty looking suitcases, which made even the porter in my building wonder. Both our Nanny and my wife tried for hours to count the money, some of which were so dirty.
I told Mr Jaffa that I was not in this kind of business any longer; however, I would make an exception this time, as I could see his expectation for the Swiss equalling amount was quite unknowledgeable. I felt I could make some big money here. He told me that many families had put their last savings together and he acted for them and to take them to Mr. Mogens in London. I did not know the people he mentioned and never knew. When I told him that I could not give him a receipt, as I was unable to count the money, he said he did not need a receipt! He gave me a present, some small African native carved figures of elephant and other animals including one in Ivory. His case, become the exception to the normal trade I did because he handed me cash which I had to transport to Switzerland. At the time, foreign currency was not subject to exchange control.
However, what I did taking this money out of the United Kingdom, was totally out of my character then, because, I did not drink alcohol or take drugs or anything. Nevertheless, the next day I took the two suitcases on a British European Airways flight to Geneva, allowing the suitcases to go by normal transport at check-in on the rail with all the other suitcases. They were never opened in Heathrow or in Geneva’s airport.
At the time, I normally stayed at Le Richemond in Geneva, however, as this trip had not been planned, they did not have a room and I was referred to a newly built hotel Le President, now Hotel President Wilson. When arriving at the hotel, I asked to see their safe deposit boxes, when I saw them I asked if I could take them all. From that day on, they always asked me, when I came back, if I required all the deposit boxes.
People’s misfortune is others gain
What I learned early in life was something I did find distasteful; possible an early revelation about the morals used in banking and finance, more about the legal and accounting advisers who surrounded the detailed aspects of banking. The fact that the bankers had been given a legal clearance to charge, what they liked, moreover – always exploit other people’s misfortune, like lawyers and many other professions.
Having gone through a “house instruction” of a Swiss Bank, I never forgot being told, that we really make our money on other peoples misery, when they are either dead or subject to difficulties ranging from fiscal investigation to divorce and the break-up of families. The Swiss bankers go into hibernation with their money and our legal department and outside lawyers move in, just charging. Since we escrow the money, we earn interest, not the client, on their money! Many numbered accounts will never be claimed.
All their account has been set-a-side, immediately upon us receiving notification of their problems and trouble. When one of the other people being brief asked, what happens to the client’s money when they die and have not listed beneficiaries of the account, he was told off, are you stupid, “that is our money than”. Despite, teaching us about the normal procedure when a relative, child or wife coming to the bank claiming that their father had an account with the bank, the response was a Big NO! Thereafter, if they ever succeeded proofing that their father had left money in the bank – it would take years.
I recall giving a friend advice, who was a lawyer in the early 1970s setting out his practice in Zurich as a one-man-band. I told him that if he had a good office address in Bahnhofstrasse, he eventually would find himself having a rich widower one day coming to his office or client who was subject to either divorce or “official” investigations from the country they came from. All this allowing him to be “retired” for life – charging fees.
I never forget my partner Bryan Jeeves and I sitting in the best restaurant in Vaduz, having a great lunch, as usual, he pointed out to me a local Vaduz lawyer, who had stolen millions (allegedly more than 20 million D.M) from the most famous German football player at the time. When confronted about this Bryan said: what can the German superstar do – Nothing, because if he told the German authorities, he would go to jail for many years and for sure nothing is happening here in Vaduz.
Years earlier, I had a complaint to a bank charging my client huge fees (for nothing) and objected, they told me who is the client going to tell? I still felt bad about it but the client had to accept what had happened, even that he thought that I was involved. This lesson meant that I did move my introducing banking business away from that specific bank. However, at the time, I had to accept that this was the business I was in and they all got away with charging the client too much.
Another bank, I regularly dealt with offered a price for counterfeit US dollars. Where we had an obligation to hand such counterfeit currency over to the Swiss National Bank for destruction, this specific banker always offered a good rate, if the counterfeit was good, I recall even up to 10-15% of nominal value, e.g. the fake currency notes denomination. Others told me that the banker had good contacts in the Soviet and Eastern Countries. Therefore, the people ending up with the counterfeit notes could never show their holdings of American Dollars, they risked to be imprisoned and executed. The money could be left under the madras or dug into the garden for decades, and they would never find out that their money was counterfeit.
After seeing Indian families fleeing Uganda and arriving with fake US Dollars, being confronted with such devastation and family ruin, it is very difficult to have to tell the people that their hard-earned money, which they all had faith in, is worthless.
Lloyds a flagship institution
I enjoyed many lunches in the Lord Nelson’s dining room in the old Lloyds building and introduced the first foreigners to become members of Lloyds, two Norwegian ship-owners.
To be a part of the most profitable syndicates (underwriters), one had to have a connection (also the right background and school tie). Like the powerful city people either Masons or members of some of the main livery societies in City, further to have an account of the main Merchants Banks. It was normal for clients of the main Merchants Banks to be introduced to Lloyds since the bank could confirm the assets of the client.
The City of London
Even Lloyds emerged and inevitably had links to the Atlantic slave trade. I got to work with many people who already were so-called members of Lloyd’s syndicates (Maritime and general underwriting). Their membership allowed them, without putting up capital or making any investment, a substantial annual income from Lloyds. They had to undertake to risk a certain amount for the various syndicates they took part in. In order to join Lloyds, one had to show a certain amount of wealth and assets, which could be in property, land, bonds or equities. Many members of the aristocracy and ruling class enjoyed these privileges of income from Lloyds. Some newcomers were directed to more risky syndicates and ultimately lost a fortune because if the syndicate had bad underwriting risks on its books, members had ultimately to pay up, even that it meant some went into personal bankruptcies.
The professional active members, could always select the best insurance deals for their own syndicates and place the risky underwriting with the outside members’ syndicate.
At the time Merchant Banks to me was above morals and ethics, later when I started putting my dinner conversation together, I realised that these people, morale did never come into it, moreover, that is how the world had always operated. The few exploited the many.
I recall many visits to the Baring’s offices in the late 60s early 70s and dining in their director’s dining room. One had history right in front of you, where ever you looked on the walls. The Barings had represented so many countries, done so many deals in their more than 200 years history and most was detailed recorded. However, they at the time operated out of London and I specifically recall their first step abroad, when they became a founder shareholder in the Australian merchant bank in the mid-sixties. In the 1970 and 80s, the expanded all over the place and the whole game ended in Tokyo and Singapore. The two Barings I knew was the old traditions of Merchant Banking.
I had my first taste of backstabbing and betrayal by my business partners when I in 1966 formed Intervestor S.A. in Luxembourg, one of the first investment holding companies in Luxembourg. Not having any olders to advise me, two of my business partners, all the old school, with a background of good schooling and City education, they “simply stole” the company in front of me. Edward La Coste and Barrie Hoare, I have later learned that the British are the most experienced backstabbers and the even smile when the put the knife into you from behind.
Thankfully, I got a chance to know better people, when I in 1968 formed one of the first financial and estate planning companies in Europe, Associated Financial Planning (AFP) together with the Duke of St. Albans, the Marquess of Reading, Euan Inchbald and James Talbot, I received far more inside into the working of the City. Specific from our twice a week lunches and social life. I also got to know some quite decent people, with morals and ethics working in the City.
James Talbot was head of the largest investment trust at the time F&C Foreign and Colonial. Michael, Marquess of Reading held the highest title in the British peerage ever attained by a Jew, he was a stockbroker.
Charles, 13th Duke of St. Albans taught me so much about French food and wine, as his wife Suzanne Marie-Adèle, was French and an inventive cook, artist, and writer. Even my wife Elizabeth become inspired and went to the Cordon Bleu School for Culinary Arts.
At the time we had an investment trust, ScanInvest, established in Luxembourg, with the management company in Bermuda. This meant that we once a month had to fly to Paris, landing at Orly in the morning, going to Place de la Concorde, to the offices of Clifford Turner, the lawyers, to hold our monthly board meeting. Since these board meetings was a formality, (to show the minutes had been recorded in Paris) after 30-40 minutes, Charles had the lunch menus from a different chosen restaurant brought in to the meeting, so we could decide what we would eat and drink at “normally” a 3 hours wet lunch, giving us enough time to just rush to Rue Saint Honore and buy a little gift for the wives, before back to Orly airport and London.
At the time, the Inland Revenue demanded that investment decision had to be seen to be made outside the UK when operating an offshore investment trust. The same was the position of the IRS in the USA, so the saying goes, that offshore was just off Wall Street and Throgmorton Street in the City of London.
When we give an order to buy or sell stocks and bonds, we telephone the broker, thereafter, we sent a telex to Bermuda, which copied the telex and sent this to the London broker, in order to show that the telex instructions had come from Bermuda. At the time the stockbrokers did not have to “clock” their dealings, they could do everything in the book, front running and selecting the best deals for themselves and buy shares for their account ahead of a firm’s strong buy recommendation to clients – all normal.
The Background of the City
What I learned as to the City, the slave and sugar trade had given a solid foundation to the creation of the City and British wealth, in addition to the loot from all the colonies.
London City after the 17th century was made possible mainly because of Britain’s financial institutions, the trading houses; insurance companies and banks emerged to underpin Britain’s overseas trade and empire.
I had no real knowledge of this and indeed about the foundation of the big money, like the slave trade and later the sugar plantations. The large trading houses even had their own army and paid the British Navy for protection. Fear and torture were used to drive black workers to cut, mill, boil and “clay” the sugar, so it could be shipped to Britain as part of a lucrative “triangle of trade” between the west coast of Africa, the Americas and Britain. The trade-in slaves, and the goods they were forced to produce – sugar, tobacco and eventually cotton – created the first lords of modern capitalism.
As to the slave trade;” We can only begin to understand slavery’s influence on Britain today by first allowing 500 years of human history to flash before our eyes. Beginning in the last decades of the 1400s, we see African people kidnapped from their families, crammed into the dark pits of slave forts, and then piled into the bowels of ships. We see voyagers and traders, such as John Hawkins in the 1560s, becoming some of the first British men to make massive fortunes from this trade in kidnapped Africans.
By the late 17th century, we see the British coming to dominate the slave trade, having overtaken the Portuguese, Spanish and Dutch. We see tens of thousands of merchant ships making the “middle passage”, the voyage across the Atlantic that transformed captives from Africa into American slave commodities. Half of all the Africans transported into slavery during the 18th century were carried in the holds of British ships.
From the 15th to the 19th centuries, more than 11 million shackled black captives were forcibly transported to the Americas, and unknown multitudes were lost at sea. Captives were often thrown overboard when they were too sick, or too strong-willed, or too numerous to feed. Those who survived the journey were dumped on the shores and sold to the highest bidder, then sold on repeatedly like financial assets. Mothers were separated from children, and husbands from wives, as persons were turned into property. Slaves were raped and lynched; their bodies were branded, flayed and mutilated.
Many slave owners, in their diaries, manuals, newspaper writings, and correspondence, readily admitted the punishments and violations they exacted on black people on the cane fields and in their homes. Take, for example, the unapologetic recollections of violence and predation that comprise the diary of Thomas Thistlewood, a British slave owner in Jamaica in the mid-1700s. Thistlewood recorded 3,852 acts of sexual intercourse with 136 enslaved women in his 37 years in Jamaica. In his 23 July 1756 entry, he described punishing a slave in the following manner: “Gave him a moderate whipping, pickled him well, made Hector shit in his mouth, immediately put a gag in it whilst his mouth was full and made him wear it 4 or 5 hours.”
“The owners of slaves in British society were not just the super-rich. Recent research by historians at University College London has shown the striking diversity of the people who received compensation, from widows in York to clergymen in the Midlands, attorneys in Durham to glass manufacturers in Bristol. Still, most of the money ended up in the pockets of the richest citizens, who owned the greatest number of slaves. More than 50% of the total compensation money went to just 6% of the total number of claimants. The benefits of slave-owner compensation were passed down from generation to generation of Britain’s elite. Among the descendants of the recipients of slave-owner, compensation is the former Prime Minister David Cameron. (The Guardian 29.03.2018 By Kris Manjapra)
I saw no difference between the City banks and institutions and what I had learned about Swiss banks and the early merchants’ bank on the Continent “they all do it”. Moreover, as the Swiss bankers said we could not consider what is legal or illegal today in any country because tomorrow the law could be changed, how can we show respect for other countries laws? How can we morally consider, if an African dictator is good for his country or a socialist Politician in Europe exploiting the population with his own rhetoric and ideals, well knowing that he creates a state, which steals from the few, hardworking and creative citizen.
The expansion of overseas trade in the 17th and 18th centuries, especially in the Atlantic, relied on credit, and bills of credit (like modern travellers’ cheques), which were at the heart of the slave trade. Similarly, the maritime insurance, which was focused at Lloyds of London, thrived on the Atlantic slave trade.
There were no banks in the City until the mid-17th century, and even a century later, banking was under-developed outside London. However, slave traders and planters badly needed credit. A slave voyage from Liverpool to Africa then on to the Caribbean, before heading home, could take more than 18 months. In addition, each point of the trade – buying and selling Africans, buying and importing produce (mainly sugar) cultivated using the labour of enslaved people – involved credit arrangements. Merchants and traders in London, Bristol, and Liverpool bought the planters’ produce, so in effect, British merchants became the bankers of the slave trade. Little did I realise this when I visited the partner’s dining rooms in the very exclusive interior of some of the Merchant Banks. Or when I was dining in the White’s and Boodle’s private members’ clubs with members of families who made their money in the slave and sugar trade.
Provincial banking in the UK emerged first in the 18th century because of the need for credit in the long-distance Atlantic slave trade. For example, Liverpool merchants involved in slave trading later formed Heywoods Bank, which eventually became part of Even Barclays Bank came out of the slave trade, the Liverpool merchants involved in the slave trade formed Heywoods Bank, later to become Barclays.
Other modern banking names, such as Lloyd Bank, emerged in this way and inevitably had links to the Atlantic slave trade. The Bank of England was also involved. When it was set up in 1694, it underpinned the whole system of commercial credit, and its wealthy City members, from the governor down, were often men whose fortunes had been made wholly or partly in the slave trade. The Bank of England stabilised the national finances and enabled the state to wage its major wars of the 18th century. These wars were aimed at securing and safeguarding overseas possessions, including the slave colonies, and to finance the military and naval means that protected the Atlantic slave routes and the plantation economies.
My own experiences
As to the Swiss bankers and lawyers, I still recall a lawyer telling me that all his client’s secrets were kept only by him in the office, as he feared staff could blackmail some of his clients. Even Edmond Safra, the banker, kept his personal notes and important papers in a language very few could understand, an ancient Sephardic or Arabic script.
Edmund Safra established TDB (Trade Development Bank) in Geneva. In 1965, he was only 35 years old and I met him many times. As I am not Jewish, otherwise, I would have stayed working more closely with him. He had the fortune that his father and grandfather passed on the wisdom about human beings, their greed, and fear and the family tradition of banking. Safra went on in 1966 to New York and founded what was to be his most successful American operation, the Republic National Bank of New York.
One of the first offshore companies, I established in the Channel Islands, was in Alderney, where in the mid-1960s, we had nominee directors who were sheep farmers, paying them less than £10 p.a.
I worked already back in the late 1960s with Dr. Batliner in Liechtenstein and later in 1973 formed an unlimited partnership with Bryan Jeeves, CMG OBE in Vaduz and Zurich in 1974. Our unlimited partnership M. Hauschildt et Cie still exist in Zurich. I suggested to Jürgen Dieter Mossack in the 1970s, when he was working in London, to go back to Panama, establish a business selling Panama and its legal entities as a business, and compete with Liechtenstein as to foundations. Panama had taken their new trust law from Liechtenstein and Bermuda, all working well until the “Panama Papers” and all the dirty washing was hanging out.
In the early seventies, I got Bryan Jeeves engaged more actively in the offshore trust business, after working in the 1960s selling Encyclopedias and working with his family transport business in the United Kingdom and on the Continent. Bryan had married into an important Liechtenstein family and had a son. He became my partner in M. Hauschildt et Cie in Zurich, an unlimited financial company. It was our intention to seek a banking license after 5-8 years of operation; however, events in Denmark prevented all this. At the time of the event in Denmark, Hauschildt et Cie was solvent with over four million Swiss Francs.
In 1968, I was the co-founder of the first company to do serious research into offshore investment trust (closed and open-ended) and we published an institutional investors report for several years. This later resulted in that I personally testified to the US Congressional investigations into offshore funds in the early 1970s. I was an established authority on offshore investment and family trusts, specific open and close-ended investment trust, qouted regurlarly in New York Times and even with a special article in Esquire Magazine.
All built on the laissez-faire, the zero-tax, secrecy-enhancing foundation of the 1960 companies law. I even recall the days of Jean Doucet in the Cayman Islands with his fraudulent set-up. I worked with Bill Walker who even helped draft the trust legislation in Cayman, all taken from the Bahamas.
The Cayman Islands in the early 1960s had no telephone service and electricity did not extend to all districts of Grand Cayman. There was no piped water supply or sewage system. Mosquitoes were so thick at certain times of the year they even suffocated cows. Many of Cayman’s roads were unpaved. There was no tourist industry in Cayman, except for a few scuba divers. I recall that jets could not land at the small airport.
The Banks and Trust Companies regulation in Cayman directly copied from the Bahamas; Liechtenstein trusts and British laws influenced the Trusts Law.
When Lynden Pindling in the Bahamas became the first black premier of the British colony, things really started moving for the Cayman Islands as it took business away from the Bahamas, at the time one of the well-established offshore financial centres. With Pindling and his party’s rise to power came the winds of independence and an increase in racial tensions, not a place one wanted to set up a company.
Bahamas financial investors and its offshore banking industry, already nervous because of the uncertainty, started looking to move to other jurisdictions from the late 1960s to great benefit for the Cayman Islands.
For family reasons at the time (an excuse), ignorance and indeed that, I believed the whole business could not continue I did not engage myself in this lucrative business, something I so many times later regretted having been there from the start.
My change of direction was entirely due to the fact that I could not believe in a business, where a London barrister, who I worked closely with, involved first with setting up the trust law in Cayman, later advised the Labour government how to close the loopholes and then later again charged big fees to advise the Cayman Island how to get around the changes to UK fiscal law. Surely, such madness could not continue, I was so wrong. I even said that governments would simply prevent all this, in the future, I was indeed wrong. Further, I did not believe in the moral of the business, just charging large fees and effectively most of the time had a hold on their client by holding the secret of many of their client’s action, actions which could result in client going to prison or worse.
Perhaps, I did not have the patient and did not see the constructive in all this, I do not know. I was so wrong because where could all the corrupt politicians bring their money and secrets. As we have seen in recent history, we allowed all the politicians and thieves stealing billions from Africa, South America and Asia to deposit their money in London. We have seen how all the Russian Oligarchs have succeeded in cleaning their money via offshore structures, advised by prominent lawyers and accountants.
London – the Money Laundering Capital of the World
Since I first came into contact with City, witnessing the expertise by law firms, accountants and international bankers, I knew this was a set-up of great scope and with the ultimate support by the government and the power lobby of politicians. Already back in the 1960s, London welcomed African dictator money, civil servant’s loots from Africa and South America. Frankly, no questions asked, only look how much to charge. It has always been a known fact, that City could get away with murder, not even the Swiss could compete.
I believe, it has always been a hundred years of tradition by the British to attract capital and loots from ill forgotten gains by politicians and criminals from all over the world. I think the British tradition of corruption laid the foundation.
A Caribbean diplomat to United Nations told me years ago, that the British ruled the colonies by corruption, not paying civil servants, so they could rob the locals and remain loyal to the British for allowing their positions. Recently, the Guardian revealed that it had received documents from a three-year investigation by the Latvian and Moldavian authorities into what has been dubbed the Global Laundromat. According to the newspaper “these documents show that between 2010 and 2014, British registered companies and British-based banks helped move out of Russia at least $20bn of the proceeds of criminal activities.
This should come as no surprise. In 2016, the Home Affairs Select Committee concluded that the London property market was the primary avenue for the laundering of £100bn of illicit money a year. The investigative journalist Roberto Saviano has said of the international drug trade: “Mexico is its heart and London is its head.”
London has not become the global capital of money laundering by accident. Money launderers and those financing terrorist activities have two main requirements. The first is a place crowded with financial transactions, in which their own will be easy to lose. The second is a place where those who enable the setting up of companies and the opening of bank accounts are prepared to turn a blind eye to who is the owner of a business. Secrecy over the beneficial ownership of companies is the main conduit of money laundering.
Three academics—Michael Findley, Daniel Nielson, and Jason Sharman—undertook an experiment, detailed in their book “Global Shell Games.” They tried to set up a company in the way that a money launderer would (refusing to provide ownership information and other markers), emailing 7,400 solicitations to lawyers and corporate service providers in 182 countries. Contrary to what you might think, it is more than three times harder to obtain an untraceable shell company in tax havens than in rich, developed countries such as the UK and the United States.
At the moment, the UK is a member of two organizations, the OECD and the European Union, which routinely publishes blacklists of countries that are deemed “high risk” when it comes to money laundering and a “danger to the international financial system”. The UK, the US, and Switzerland have never been blacklisted. Instead, the usual pariahs of the west—Cuba, North Korea, Iran and so on—appear, along with small states such as Antigua or St Kitts and Nevis.
This motley collection of countries present the most marginal threat to the international financial system. They are merely powerless to respond to being listed. Former US official Juan Zarate has boasted that a dedicated team at the US Treasury uses its influence to get American enemies blacklisted and friends left alone, in the name of counter-terrorism. Banks face large fines for facilitating transactions with countries on these lists, and as a result, they have withdrawn services, leaving these countries stranded financially. Caribbean countries have lost the most correspondent relationships with international banks. The EU and OECD are in danger of pushing countries into the hands of the very people they listed them for helping.
There is a word in German—Lebenslüge—meaning the lie you have to tell yourself to live your life. It is appropriate here. We prefer to think that the success of the City of London and our property market relates to our skills honed in ancient universities, not the banking of nouveau riche criminals. Once British newspapers have salivated over the details of the latest money laundering ring, they quickly return to the narrative that the real threat lies on small, palm-fringed islands.
Yet in the Findley, Nielson and Sharman study, they were never able to set up a shell company in Caymans, Bahamas or Seychelles. The politicisation of the blacklists has enabled London to become the global centre of money laundering. These criminals will not be defeated until our capital and others are no longer protected. Quite accidentally that time may come soon. Some in the City of London think that Brexit will allow them to prosper—but it could instead give the EU the opportunity to add it to a list.
“LONDON — London has become the money-laundering capital of the world with billions of dollars in stolen funds illegally hidden in the city’s booming property market, according to an investigation that will be broadcast Wednesday.”
A team of undercover reporters, one of whom was disguised as a corrupt Russian politician, secretly recorded some of London’s top real estate agents offering to help facilitate illicit transactions despite British laws that require the agents to report suspicious activity to the authorities.
Openly bragging to the property brokers that he had pocketed millions in back-handers, “Boris” explained that he was a Russian health minister. All five of the real estate agents approached, who stood to gain commissions of up to $500,000, appeared willing to recommend ways to hide the money through offshore companies or passed on details of lawyers who might be able to do the same.
Roman Borisovich, the anti-corruption campaigner who posed as Boris, said he was stunned that none of the brokers challenged his legal ability to purchase the properties.
“It’s just appalling,” he told the makers of From Russia With Cash. “The fact that they would all suggest different ways of going ahead with the deal with clearly stolen money; this is brazen, this is in their face, and all of them are willing to proceed.”
In the undercover footage, “Boris” clearly explained that the money he had made personally while procuring drugs for the Russian health-care service could never be discovered. “The most important thing is I need to buy it very discretely—I’m a Russian government official. Every contract brings a little to my pocket,” he told one of the unsuspecting real estate agents.
“Nobody is surprised, nobody is shocked, it’s business as usual,” he said afterwards.
While some of the real estate agents, who were selling properties worth up to $25 million, said they didn’t want to know the details, others offered detailed advice about how to funnel the cash through shell companies operating anonymously.
None of them suggested there was any reason that the deals should not progress.
Jonathan Fisher QC, a financial crime lawyer, watched in horror as “Boris” and one property marketer, which are known as estate agents in Britain, plotted the purchase of a $15 million home in West London.
“It’s 100% consistent with the using of this mechanism to handle the proceeds of crime—in short to money-launder,” he told Channel 4.
“It’s a miserable and incredibly disappointing account of what estate agents, some estate agents are plainly up to in Central London, and I’d rather thought, naively, that following the introduction of the money-laundering regulations in 2003 that applied to estate agents from that point onward, I’d rather thought we’d gone past that stage.”
Keith Gorny, a broker at state agency Marsh and Parsons, described on camera that he had identified two offshore trusts in Jersey that specialized in Russian clients. “In terms of structuring the purchase, I’ve spoken to a couple of people. Your best route will be through a Jersey trust that will, in turn, own a company that owns the property,” he said.
Marsh and Parsons, which advertises with the slogan “The Only Way is Ethics,” denied any wrongdoing and said they would respond fully once they had seen the program.
On camera, Gorny suggested that foreign buyers who insisted on the utmost discretion were a growing part of the top-end London property market. “80% of my transactions, actually more I’d say now, are to international overseas-based buyers, and I’d say 50 to 60% of those were conducted in various stages of anonymity,” he said.
Chido Dunn, who works for Global Witness, an international anti-corruption organization, said Britain was leading the world in helping criminals hide their assets. “Stolen billions don’t fit under mattresses—people only steal them if it is somewhere safe to put them and the U.K.’s property market is providing that safe haven,” she said. “London is, in effect, the money-laundering capital of the world.”
Ben Judah, author of Fragile Empire: How Russia Fell In and Out of Love With Vladimir Putin, was a consultant on the documentary, which was his idea. “The idea to make it came from rage at the ‘looting-machine’ at work in London: billions of dollars are being laundered through London property from Russia and all the other dictatorships of the world,” he told The Daily Beast. “This is impoverishing their people and propping up those regimes. The UN estimates corruption enabled by rackets like this kill 3.6m people a year by stealing their public services. Victorian brick has become the global reserve currency of kleptocracy. I came up with the idea for #FromRussiaWithCash to expose how easy it is to launder money in London—and also show how Britain’s elites are themselves being transformed for the ill.”
The men who plundered Europe’: bankers on trial for siphoning €60bn
Courtesy of Guardian News & Media Ltd
Martin Shields and Nick Diable are accused of tax fraud in ‘cum-ex’ scandal that exposes City’s pursuit of profit
They have been called “the men who plundered Europe”: a group of cowboy traders, seasoned tax lawyers and mathematical whizz kids who are alleged to have conspired in the heart of the City of London to siphon at least €60bn in taxpayers’ money from the state coffers of several EU countries.
In Britain, the so-called “cum-ex” scandal, named after the complex derivatives juggling act employed, gained little attention amid the frenzied debate around the UK’s departure from the European Union when the fraud scheme was discovered in 2017.
But in continental Europe what Le Monde has described as the “robbery of the century” has done almost as much to shape the view of Britain as Brexit itself. Dutch media has called it “organised crime in pinstripe suits” and one of the original German whistleblowers saying he now welcomes Britain’s exit from the EU in the hope it could weaken the influence of London investment banking on European financial institutions.
This week, a British former investment banker involved in developing the scheme for the first time gave the public an insight into how the scheme worked and what spurred on its architects.
Speaking at a regional court in Bonn, Martin Shields, one of two former bankers on trial for 34 instances of serious tax fraud between 2006 and 2011, painted a picture of a London banking scene which lured in the brightest scientists from the country’s top universities and used them to boost their profit margins – without teaching them about the moral and legal consequences of their actions in return.
What is a cum-ex deal?
A cum-ex deal, from the Latin meaning with-without, is a complex set of share transactions with the purpose of getting the state to reimburse a tax that was never paid in the first place.
Cum-ex transactions work by trading shares at high speed on or just before the dividend record date – the day the company checks its records to identify shareholders – and then claiming two or more refunds for capital gains tax which had in fact only been paid to the state once. Because the payout is automated, the trade can be repeated again and again.
Some financial experts have likened the practice to the banking equivalent of parents claiming child benefit for multiple children when they only have one.
“This was the environment at that time: a financial industry that – at least as far as I could see – was geared towards maximum profit optimisation,” the 41-year-old told a packed courtroom on Wednesday.
“One tool to achieve this goal was tax optimisation: avoiding taxation as far as possible – and taking advantage of any opportunities that could be found or created. This was not the clandestine approach of a few. Rather, I saw it as the clear and openly communicated expectation of most major banks and their customers.”
Hailed as a maths prodigy at school, Shields accepted a junior position at Merrill Lynch after studying engineering, economics and management at Oxford University because the trading room floor offered him a thrilling, dynamic environment. He was not alone: of 120 engineers in his year group at university, Shields added, only five went into engineering.
Wearing a navy blue suit and the latest Apple Watch 5 with a white strap, Shields on Wednesday used a Powerpoint presentation to talk the court through the “cum-ex ecosystem” of labyrinthine trade chains he helped conceive and control, which prosecutors say cost the German state €450m. A translator tasked with rendering City trader jargon into German legalese was struggling to keep up.
The financial rewards were breathtaking: for the five years in which Shields practised cum-ex trades through Gibraltar-based investment vehicle Ballance Capital, his personal income amounted to €12m. In 2010 Shields and his wife managed to purchase a £9.7m mansion on Chelsea’s Egerton Crescent, followed by a €6m Edwardian terrace on Shrewsbury Road, Dublin’s most expensive residential street.
While Shields did not respond directly to the charges of serious tax fraud this week, he said in hindsight he had started to feel regret about devising the schemes, which hoovered up money that could have otherwise been spent on building roads, hospitals or nurseries.
He told the court: “I often ask myself whether if I had my time again I would do things differently. Knowing what I now know, the answer is obvious. I would not have involved myself in the cum-ex industry.”
He had made the “difficult decision” to cooperate with the investigation, which increases his chance of reducing a potential 10-year jail service. Co-accused Nick Diable (39), who worked with Shields for Germany’s fourth-largest bank HypoVereinsbank (HVB), will also give testimony in the trial, which is expected to last until next year.
Shields said cum-ex trades were practised on an “industrial scale” in the first decade of the 21st century and involved a vast network of banks, companies, brokers, lawyers and financial advisers. Even the most basic cum-ex deal involves at least 12 transactions.
The banks and financial institutions he mentioned in Wednesday’s and Thursday’s court session included Clearstream AG, a 100% owned subsidiary of Deutsche Börse AG that processes the dividend compensation payments and which Shields appeared to suggest played an active part in keeping the cum-ex bonanza going after German lawmakers tried to close a loophole in 2007.
A spokesman for Deutsche Börse, which was raided in connection with the wider investigation in August, said it was cooperating with the authorities.
During Shields’s appearance this week, the backbenches of the court were packed with numerous lawyers representing high-profile banks and financial institutions that could be dragged into the scandal if the judge in Bonn rules that cum-ex trades did not merely exploit a legal loophole but violated the law at the time.
Three characters mentioned in the testimony were notable by their absence from the court proceedings: Shields’s long-time boss and later business partner Paul Mora, and the renowned German tax lawyer Hanno Berger, who allegedly introduced him to cum-ex methods at HVB. A third man, Dubai-based British citizen Sanjay Shah, is alleged to have copied their methods to defraud the Danish treasury on a vast scale.
Until 2015, Mora was a director of the Cinnamon Club, an opulent Indian restaurant located in a Grade II-listed Victorian building next to the Department for Education and popular with politicians and business people. According to Die Zeit, the restaurant was where cum-ex deals were contrived and later celebrated, and one insider referred to it as the “cum-ex lounge”. Mora has denied wrongdoing, telling New Zealand media that all his trades were “approved by legal experts and undertaken in accordance with the advice”.
In separate investigations into the same scheme, the justice minister of North-Rhine Westphalia said that Cologne prosecutors are now conducting 56 probes with a total of about 400 suspects related to cum-ex. More than 400 individuals and companies have been charged in connection with the scheme in Denmark.
Estimated losses include an estimated €31.8 bn Germany, at least €17bn for France, €4.5bn in Italy, €1.7bn in Denmark and €201m for Belgium“The Cologne investigations have now reached a point that prosecutors say that cum-ex wasn’t a legal tax-driven trading strategy, but organised white-collar crime of unimaginable magnitude,” the minister said.
How Corrupt Is Britain?
In my experience very, if you define corruption and what it really means. In the old days, it was natural that those who did not succeed in getting a professional education or had a good university background could always end up in the City, because of school. military or club connections. This was a kind of corruption and I have observed many, which never meant the use of a little brown envelope. The systemic corruption in planning, in some places, does involve money.
David Whyte, professor at the University of Liverpool, recently produced a comprehensive guide that includes other examples of serious corruption in the UK. Editor of the book How Corrupt Is Britain?
Courtesy of Guardian News & Media Ltd
Just how corrupt is the UK?
By Ian Fraser (from an article 13th May 2016)
” How corrupt is Britain?
Over the past few days, quite a few people have been insisting Britain isn’t corrupt. They claim to see nothing wrong with Cameron describing countries such as Afghanistan and Nigeria, whose leaders were in London for the Anti-Corruption Summit in Lancaster House this week, as “fantastically corrupt”. When Cameron was caught on camera uttering these words in what he thought was a private conversation with the Queen, his clear insinuation was that their former colonial master is, by comparison, whiter than white.
On social media, many people subsequently claimed they could see nothing wrong with the prime minister’s remarks. As evidence, they cite Transparency International’s Corruption Perceptions Index, according to which Britain is the 10th least corrupt country of 168 countries surveyed. Or, to be precise, Britain is ranked 10th= “least corrupt country”, alongside Luxembourg and Germany. By contrast, Afghanistan, where Britain fought a war from 2001-14, was ranked 166th, and Nigeria, which was a British colony until 1960, was ranked 136th.
Unfortunately, however, the methodology Transparency International uses to produce its corruption index is flawed. It is based on subjective “perceptions” of corruption garnered from pre-existing surveys and interviews — whose very subjectivity means there’s a risk of reinforcing existing stereotypes — not from primary research.
Another issue is Transparency International’s somewhat narrow definition of “corruption”. Its annual survey focuses solely on whether politicians and public officials demand, and get, bribes. This follows the World Bank’s narrow definition of corruption: “the abuse of public office for private gain”.
However, in a recent piece in the Washington Post, Sussex University professor Dan Hough wrote:
“The Corruption Perceptions Index . . . says nothing about corruption in private business – say the Libor scandal in Britain, or the recent VW emissions scandal in the United States. These events involve private actors, but they have very real public impacts, whether on the interest rates that people pay on their mortgages or on public health.”
In the FAQs section of its latest CPI report, Transparency International acknowledges that its approach is at best partial, stating: “The Corruption Perceptions Index is an indicator of perceptions of public sector corruption, i.e. administrative and political corruption. It is not a verdict on the levels of corruption of entire nations or societies, or of their policies, or the activities of their private sector.”
In short, TI acknowledges its index falls short of giving the full picture.
Off the scale
Even though “brown envelopes” are less ubiquitous here than they are in places like Afghanistan and Nigeria, there can be no doubt that Britain is seriously corrupt.
The failure to prosecute any of the bankers who are widely believed to have committed fraud in the run-up to the banking crisis and our so-called “two-tier justice system” is clear evidence of that.
This was yesterday encapsulated by the announcement from Scotland’s state prosecutor, the Crown Office and Procurator Fiscal Service, that it had found “insufficient evidence” to press criminal charges on Fred Goodwin or other former directors of RBS, despite what is widely considered to have been the bank’s fraudulent rights issue in April 2008. That was capped by the appointment of the Lord Advocate who presided over the fruitless, five-year RBS inquiry, or should I say “whitewash”?, Frank Mulholland, as a judge in Scotland’s top commercial court, the Court of Session.
The bailing out of kleptocratic banks with more than £1.3 trillion of taxpayers’ funds in 2008-9 without demanding or enforcing structural or behavioural change on the banking sector is another sign of, at best, “crony capitalism” and, at worst, “corruption”. One might argue that the rebranding of criminal fraud as “mis-selling” and “misconduct” is another; as is the UK government’s shameful kowtowing to the congenitally corrupt HSBC, which saw Cameron’s government last year water down much-needed post-crisis banking reforms after Europe’s largest bank rattled its sabre and threatened to remove its headquarters from the UK.
Other signs of insidious corruption in the UK include the ability of the former prime minister, Tony Blair, to (i) appease bankers by enfeebling City regulation, mainly in 2002-07, a period when he and fellow Labour cabinet ministers repeatedly intervened to prevent the FSA from doing its job in order to protect banks from much-needed scrutiny; (ii) take a $3m-a-year senior advisory role with JPMorgan Chase within weeks of leaving Downing Street. And don’t get me started on the other roles that Blair has fulfilled since 2007, including his notorious £5m deal to launder the image of Kazakh president Nursultan Nazarbayev, a man accused of horrendous human rights abuses.
The revolving door between Westminster/Whitehall and the City of London/private sector is not the exclusive preserve of former prime ministers. Former chancellor Alistair Darling is now a director of the US banking giant Morgan Stanley and former chief secretary of the Treasury Danny Alexander, who lost his Inverness, Nairn, Badenoch and Strathspey parliamentary seat in the May 2015 general election, is now vice-president and corporate secretary of the Asian Infrastructure Investment Bank. And of course, another former Labour prime minister, Gordon Brown, last December joined the global advisory board of Pimco, the world’s largest bond fund manager.
According to a piece in the Daily Mail, these four are the tip of the iceberg. Nearly 400 former government ministers and senior civil servants have, since 2008, cashed in on their experience of government in order to pass through the gilded revolving door into the lucrative private sector and regulatory jobs. The revolving door also works in the other direction with, for example, Stephen Green, former chairman of HSBC, being ennobled by Prime Minister David Cameron so he could become a trade minister. As the revolving door has spun at warp speed, so the scope for corruption has intensified.
There are plenty of other signs of institutional corruption in the UK, including the appalling Hillsborough cover-up and the Tories’ attempted cover-up of alleged election fraud related to money spent on ‘battle buses’ during last year’s general election campaign, a matter which is now being criminally probed by more than ten police forces.
Then there’s the captured and atrophied state of our financial regulators, a situation which gives banks and other financial institutions more or less free rein to fleece their clients at will, without any fear of retribution; the leeway and credence given to “Big Four” accountancy firms even though, by their own actions, they have shown themselves to be useless and corrupt; the way in which almost every UK inquiry the audit and other failures of PwC, KPMG, Deloitte and EY either never really happens or ends up getting suppressed; and the way in which Tony Blair succumbed to bullying by the Saudis to drop the Serious Fraud Office’s probe into BAE Systems bribes associated with Al Yamamah, the $150 billion arms deal between Britain and Saudi Arabia (see my earlier blog Britain Is Fast Turning into a Banana Monarchy and Geoff Gilson’s blog).
Stench offshore, Courtesy of Guardian News & Media Ltd
I would single out the recent failure of David Cameron’s government, despite the revelations contained in the Panama Papers, to force Britain’s Overseas Territories and Crown Dependencies, which include the British Virgin Islands, and indeed the City of London itself, to become more open and transparent and to cease acting as a hiding place for tax evaders, money launderers, drugs barons, fraudsters and corrupt politicians to stash their ill-gotten gains as the most glaring recent example of corruption.
The governments of Nigeria, Kenya, France and Afghanistan all recently committed to providing public registers of the beneficial ownership of companies, trusts and foundations. But the UK’s tax and secrecy havens are refusing to make any such commitment and Cameron has no intention of forcing their hands.
Dirty money from tax-evading oligarchs and other nefarious individuals is inflating London’s property bubble (in the process turning the capital into even more of an unlivable city for ordinary mortals) at the same time as adding what is perceived to be much-needed liquidity to the London’s financial markets. However, in welcoming it, we’re effectively giving a “getaway vehicle” to international gangsters. In the process, we’re fuelling international crime, war and terrorism and depriving developing countries including Russia, China and India of hundreds of billions of dollars that is rightfully theirs.
None of this would be possible were it not for the UK’s notoriously feeble anti-money laundering defences.
In its excellent “Don’t Look, Won’t Find” report, Transparency International highlighted how so-called professionals in banking, accountancy, law, estate agency and company formation — as well as direct sellers of products and services to wealthy foreigners including auction houses, purveyors of luxury goods and private schools — are ushering in this toxic tide. Most of the 22 regulators that are supposed to stem the flow of “dirty money” into the UK were revealed to be far more interested in cheerleading and lobbying for their member firms (which of course make huge sums from laundering dirty cash) than in regulating them. Such self-regulation has become an utter farce.
Scotland’s company factories
The situation in company formation is particularly worrying. Anyone from anywhere in the world can set up the opaque UK registered Limited Partnership (shell company) for a relatively small fee, on a no-questions-asked basis.
Companies House admits that verifying the identities of those who incorporate such vehicles, or checking whether they have legitimate intent, are outside its remit. Last summer Richard Smith and I, when researching the role of Scottish limited partnerships in a $1bn Moldovan bank fraud, discovered that such vehicles are now widely recognised as “Europe’s secrecy vehicle of choice” and are widely favoured by organised criminals, tax evaders, fraudsters and money launderers.
18 Royston Mains Street, EH5 1LB
Today these secrecy vehicles are being churned out at a rate of 6,000 a year (up from 500 a year in 2008) by “company factories” based in a twilight zone of modest ex-council flats in housing schemes in places like Edinburgh and Inverness. We found that a single ground-floor, one-bedroom flat located in the neighbourhood where Irvine Welsh set Trainspotting (pictured left), was not only home to two company formation businesses —Royston Business Services and Arran Business Services — but was also the registered address of 425 companies. One of the firms based in the flat, Fortuna United LP, was, according to investigators Kroll, pivotal to a $1bn bank fraud which has devastated Moldova’s economy and caused the collapse of the former Soviet republic’s government.
At least 90 per cent of the Scottish limited partnerships churned out by these “company factories” have anonymous general and limited partners (corporate “beneficial owners”) located in offshore secrecy havens such as the British Virgin Islands, Marshall Islands, the Seychelles, Belize and Panama. Fortuna United was controlled by two firms purportedly based in the Seychelles — Trafford United Ltd, where the flat’s owner ViktorijaZirnelyte is the sole director, and Brixton Ventures Ltd, where her fellow Lithuanian RemigijusMikalauskas is the sole director.
Scottish limited partnerships along similar lines to Fortuna United — whose opacity is so impregnable it’s virtually impossible to verify the purpose to which they’re being put, who controls them or the sums being channelled through them — are today being heavily marketed by company formation businesses across Central & Eastern Europe and further afield. These include Darwin Tax (believed to be a feeder for Zirnelyte and Mikalauskas), Five Consult, Gestion Baltic, Inlat Plus, LTSS and Sanemto, all Riga-based, and agents based in jurisdictions including Belarus, Belize, Cyprus, Dominica, Greece, Ukraine (where there are a great many providers), Panama, Russia and Hong Kong.
Panama-based World Merchant, part of Nevis-registered OP Group Services LLC, is currently advertising SLPs as the “ideal entities for international merchant accounts”. On its website, World Merchant adds:-
Under Scottish law . . . the tax transparency [of Scottish LPs] means that, provided no business is done in the UK and provided the two partners are located in tax-free jurisdictions (we typically prefer Belize, Nevis or Panama), no tax is payable anywhere. The LP is free to do business tax-free in the whole world outside the UK, even including the European Union. An SLP can be set up at relatively low-cost by our preferred incorporation partners, Offshore Pro Group. Typical time required for setting up a new partnership is 5-7 days.
If it was not for ready availability of anonymous shell companies registered in supposedly reputable tax havens and jurisdictions such as the UK, time could be called on the offshore game. Without them, the corrupt would be unable to loot developing counties without leaving fingerprints, and western firms allegedly including Rolls-Royce, Petrofac and Weir Group would have no anonymous conduits with which to grease the palms of overseas officials and politicians in the hope of securing lucrative contracts.
In ‘Dirty Oil‘, her excellent BBC Radio 4 ‘File on 4’ documentary on the Unaoil scandal, first broadcast on Tuesday 10th May 2016, Jane Deith revealed how UK-based shell companies, including Comex Industries LLP, were allegedly being used by Monaco-based Unaoil to funnel bribes to, among others, Iraqi politicians.
There’s no suggestion, though, that any of the above-mentioned company formation businesses knowingly create or serve companies or partnerships that are used in offshore tax evasion, corruption or fraud, or that they could be especially useful for such purposes.
Despite David Cameron’s recent grandiloquent claims, neither the British nor the Scottish government seems willing to do anything to address this particular open sore, as the revised beneficial ownership rules he keeps trumpeting don’t apply to Limited Partnerships with overseas partners. If you can face reading more on some of the uses to which Scottish LPs are being put, I’d recommend A billion-dollar bank fraud in Moldova, and 20,000 opaque British corporations (by Richard Smith and me) and The billion-dollar ex-council flat (by the BBC’s Tim Whewell).”
Do not ever wait to say, what needs to be said! – Time wait for no one
I knew two of the Barings in the 1960s and 70s, to me they represented the gentleman merchant bankers, I never forget my visits to their offices, the first time in 1967, very impressive. I met privately with one of the Barings many times and found him a true English country gentleman. I was not surprised what happened to them, however, it was sad such company failed so fast and hundreds of years expertise and experience went down the drain.
Having read about the American investment bankers history and their starts in the 19th Century, it was all about the family, as one could not trust outsiders. I had also seen this with many private Swiss Banks. I truly understood this too late, sadly, I had no family and my children were not old enough.
I recall when I in 1986-87 together with Woody Brock visited a number of the largest European banks. We went to two largest French banks in Paris, two German in Frankfurt and three Swiss Banks in Zurich and spoke to a director and board member in each bank. Since we used a GRID laptop (at the time cost in excess of US$ 20.000), we found that only one director in seven could use a computer and keyboard!
The story of Barings, which was Britain’s oldest merchant bank, is a classic example of how hubris, weak oversight, and a lack of internal checks and balances can bring a company down. In just a few weeks, the Singapore-based trader Nick Leeson racked up hundreds of millions of pounds in losses, disguised them as profits, and fled authorities.
The venerable institution fell into administration just days after management discovered the full scale of the losses, and was sold to the Dutch bank ING for just £1. In the aftermath of the collapse, the Bank of England was roundly criticised, and later stripped of certain powers to create the new Financial Services Authority, whose lack of oversight many believe amplified the effects of the 2008 financial crisis.
Now, what remains of Barings is scattered across the world. The name lives on only through its asset management arm, sold to a US life insurance group 10 years ago, while what remains of the investment bank was absorbed into ING.
The bank’s collapse ended the family control that had lasted for more than two centuries, with its chairman at the time, Peter Baring, retiring soon after ING’s acquisition. It was an inglorious end for what was perhaps the banking world’s most famous dynasty.
Barings was founded on Christmas Day 1762 by John, Francis and Charles Baring, the sons of John Baring, a German wool trader who had arrived in Britain some 45 years earlier.
It began life as a merchant house but soon developed into financing other merchants, becoming a fully-fledged bank. It was its role in Britain’s war efforts, first against the American Revolution and then Napoleon’s France, that really made its name, however. In 1803, the bank financed the Louisiana Purchase, America’s $15m acquisition of land from France that doubled the size of the USA. Three years later it moved to the Bishopsgate office, where it remained until its collapse.
As capitalism swept across Britain, Barings moved from a merchant bank to commercial activities. In 1886, it floated the Guinness brewery, and after a Bank of England-led rescue of the bank in 1890, following Barings’ near collapse when Argentina appeared close to defaulting on its debt, its commercial arm expanded.
In 1984 Barings acquired a Japanese securities business from Henderson Crosthwaite, the stockbroker, and in 1991 a 40pc interest in US investment bank Dillon Read.
In 1992, Leeson, an ambitious young back-office banker who had joined three years earlier from Morgan Stanley, was put in charge of Barings Futures Singapore (BFS). The unit’s job was simply to trade futures contracts – largely 10-year Japanese bonds and the Nikkei 225 – for clients.
Leeson was put in charge of both the trading floor and transaction settlement operations. James Bax, who ran Barings’ Asian operations, warned that “we are in danger of setting up a structure which will prove disastrous and with which we will succeed in losing either a lot of money or client goodwill or probably both”.
A year later, BFS began to trade using its own account, attempting to take advantage of the difference between futures on the Japanese and Singaporean exchanges to make a profit. Such arbitrage, referred to inside Barings as “switching”, was seen as “essentially risk-free and very profitable” by management in London, including its chairman Peter Baring, according to the Bank of England’s report into the bank’s collapse.
Leeson, however, set up a secret account, number 88888, which he used to make seismic bets on the Japanese markets.
By the end of 1994, account 88888 had lost 33bn yen (£208m), but Barings’ London management was not aware. Leeson, as head of both front and back office, was able to disguise his losses as debts owed by Barings clients. Leeson’s bonus more than trebled in 1994 to £450,000.
Things came to a head, however, on January 17, 1995. The devastating Kobe earthquake caused $100bn in damage, or 2.5pc of Japan’s GDP, and shook its bond and stock markets. Leeson’s losses ballooned to £827m and he was no longer able to disguise them from Barings management – Peter Baring and the bank’s new chief executive Peter Norris.
On Thursday, February 23, after executives began to ask questions, Leeson and his wife fled Singapore for Malaysia, from where he faxed his resignation. The next day, Peter Baring met Rupert Pennant-Rea, the deputy governor of the Bank of England, to inform him that Barings had been defrauded. The Bank’s governor, Eddie George, was recalled from his Swiss skiing holiday, and rescue was attempted over the weekend. Ernst & Young were brought in as administrators on Sunday, February 26.
A week later, ING had agreed to buy Barings, and Leeson had been arrested in Frankfurt. He would serve two-thirds of a six-and-a-half-year sentence, and was released after been diagnosed with colon cancer, from which he has recovered. Now 47, Leeson’s City days are over, but he remains on the after-dinner speaking circuit, after several years as chief executive of Irish football club Galway United.
Peter Baring, whose resignation as chairman ended 232 years of unbroken family control of the bank, retired, but Norris staged a comeback after being banned from the City for four years. He established a corporate finance business and went on to become chairman of Sir Richard Branson’s Virgin Group in 2009.
A report by the Bank of England’s board of banking supervision found that it “did not have an adequate understanding” of Barings. Two years later Labour made the Financial Services Authority the primary policeman of the banking sector.
Whether 2008 would have been managed better or worse had the events of February 1995 not unfolded as they did, one can only speculate. But the collapse of Barings remains a crucial chapter in Britain’s financial history