Not Quite Her Majesty’s Service

The United Kingdom has no equivalent to the FBI’s International Corruption Squad or the Department of Justice’s Kleptocracy Team. The City of London has a small financial crimes unit, but it lacks the resources and political heft of the Southern District of New York when it comes to the perp walk. Yet London’s stock exchange moves more money than New York’s, and buying a home in London will cost you nearly twice as much per square foot as buying in New York.

“We’re not a policeman, like you guys,” Oliver Bullough tells a stunned American investigative journalist who has come to London on the paper trail of financial crime, “we’re a butler, a butler to the world.” The British empire of finance was not created in a fit of absent-mindedness. A studied absence of interest in the sources of foreign wealth, Bullough explains, is deliberate: all part of the service. The gentleman’s gentleman never spills the secrets. Like Jeeves to Wooster in P.G. Wodehouse’s novels, he knows how to smooth over difficulties with the local constabulary.

Wodehouse’s novels are hilarious, and Bullough works the butler metaphor to droll advantage, but Britain’s willed descent into see-no-evil financial services is no laughing matter. Russian oligarchs call London “Laundromat”: the place to clean dirty money and launder a reputation. Since 1990, and especially since the tightening of American regulations after the 9/11 attacks and the expansion of the Chinese economy, a tide of foreign money, some of it belonging to “the worst people in existence,” has washed through London. The food has improved beyond measure, but ask-no-questions finance has deformed the life of the city and corrupted Britain’s political class.

The creamy mansions of Belgravia, the neighborhood beyond Buckingham Palace’s garden wall, were once the London homes of the British aristocracy. They are now bank deposits in bricks and mortar: places to park money from less lawful jurisdictions, to spread the investment portfolio, or give lightly soiled cash a further rinsing. Their owners rarely visit their empty holdings. The cab drivers call Belgravia “the Empty Quarter,” like the desert of Saudi Arabia. Meanwhile, Conservative politicians solicit contributions from Russian oligarchs.

Britain, Bullough writes, “hides the reality of what it’s doing behind quaint traditions, literary allusions, immaculate tailoring, references to the Second World War, and a supercilious manner.” The continuities are telling. The foundations of this empire of finance were laid after 1945 as the real empire collapsed. In 1914, British investors “owned assets overseas that were cumulatively larger than the whole home economy.” By the early 1950s, Britain’s net overseas holdings had turned negative. London owed the colonies and dominions so much money that currency controls were the only defense against total collapse.

The Suez Crisis of 1956 confirmed that the dollar, not the pound, was now almighty. The pound had been the reserve currency of the global system, but what mattered, the bankers in London now realized, was the system, not its currency. The world was now awash in dollars: Even the Soviets kept their foreign holdings in them. The British banks started borrowing dollars outside the United States, including from Soviet-owned banks in London, and using them to buy pounds.

As these dollars were beyond the purview of the Fed, the London banks could set more generous interest rates. They called their invention the Eurodollar. It was “a wholesale market which allowed banks to raise funds without limits of restrictions,” and it became “one of the most consequential financial tools of the twentieth century.” When the city transfused dollars into the sclerotic arteries of the sterling system, “the blockages fell away, and life-giving capital poured through once more in the global economy.” American investors piled in, and the surge in cash “made London feel young again.”

The Eurodollar was the first of several great British inventions that, while not exactly illegal, were not exactly as gentlemanly as the small and snobbish cartel of London bankers fancied themselves to be. As the colonies fell to the natives, soon to be followed by the local economies, the colonists needed somewhere to stash their “funk money”; that’s “funk” as in fear, not music. This postcolonial version of “white flight” turned London into the front office of the offshore finance system.

Tax in Britain, as that singing economist George Harrison noted in “Taxman” (1966), was so high that even the dead should “Declare the pennies on your eyes.” The City of London devised “clever financial instruments” that allowed the returning colonists to park their money in places such as Switzerland, the Bahamas, and the Channel Islands. This allowed the rich to retain more money by paying less tax. They could enjoy more of their money, too, because they were dodging currency controls. The next step was to repurpose the remains of empire as tax havens.

The British had not entirely lost their empire. A handful of Caribbean islands stayed in the fold as “British Overseas Territories” (BOTs), largely because they had no visible means of support. Since the 1970s, mass tourism has created a visible economy, but that is the sweaty tip of the iceberg. The real business of places like the British Virgin Islands and the Cayman Islands is the shell game: not braiding the hair of sunburned tourists, but serving as the postal address for the layers of shell companies that hide cash from the taxman. The British Virgin Islands are now “the world’s leading financial secrecy jurisdiction.”

As Her Majesty is an enlightened monarch, the BOTs set their own laws as if they were independent states. It is perfectly legal for them to undercut the rate of taxation in, say, the United States, just as it is perfectly legal in the United States for Delaware, which President Biden represented with such integrity for so many years, to make itself the “credit-card state,” or for Nevada, which Hunter Biden has visited with such passion, to make itself the pimping and gambling state.

The Irish have done it, too. Cutting corporate taxes made Ireland “the Celtic Tiger” and deprived the IRS of billions of dollars in taxation on corporate profits. The European Union has now set its eye on Ireland’s pot of gold and is threatening to change the EU tax code. If this happens, American corporations will simply move their registration to balmier financial climes. Post-Brexit London will be delighted to scoop up their custom, no questions asked. The only major government cracking down on capital flight at the moment is that of Xi Jinping. But then, it’s his tax loss.

Most citizens would agree that paying less tax on legal earnings is nice work if you can get it. This is not the same as corporations offshoring themselves on paper while continuing to lobby for political influence in their home territories; this is technically legal but, the voters feel, demonstrably unethical. Neither of these dodges is the same as outright criminals hiding the proceeds of crime; that is illegal, even in Britain. Bullough is right in arguing that deliberate opacity helps all these forms of financial chicanery to thrive. But he might be more attentive to the difference between them.

The effect, though, is much the same. An endemic and unscrupulous appetite for dodgy cash damages British society, too. In their imperial heyday, British merchants had imported Indian opium into Britain as mercilessly as they lobbied their government to force it into China’s ports. The new empire also brought the business home to damaging effect. Gibraltar, the island that controlled the western entrance to the Mediterranean, had lost most of its strategic value, but, refloated as a BOT that sets its own taxes and regulations, it was perfectly located for offshore finance.

Gibraltar sets its own taxes and regulations. In the 1980s, Britain’s gambling industry moved its operations online and its back offices to Gibraltar. Between 2014 and 2019, the value of online gambling in Britain grew from £13.4 billion per year to £121.3 billion, with profits up from £1.5 billion to £5.5 billion. Britain now has more “problem gamblers” than crackheads, but this is the British welfare state’s problem. Privatize the profit, socialize the loss. The canny bankers and lawyers of Britain have even converted the Scottish limited company, originally a vehicle for agricultural tenancies, into a “getaway vehicle for hundreds of billions of pounds of stolen wealth.”

This is a chatty and readable account of how the posh scoundrels in London sold Britain’s soul to the highest bidder, and how a trickle-down enrichment effect on the local economy turned into a torrent of corruption. Oliver Bullough now has a sideline as a tour guide, showing the mansions of villains and crooks for London Kleptocracy Tours. He has a Jeeves moment here, too.

In 2016, the “Panama Papers,” the records of the Panamanian-based fixers Mossack Fonseca, exposed the endemic tax-dodging of corporations and rich individuals. It emerged that the owners of the piously anti-capitalist Guardian had been at it too. In 2008, Guardian Media Group sold a 50 percent share in the magazine Auto Trader. Using a shell company in the Caymans, it paid no U.K. tax at all on its £302 million profit. It also invested hundreds of millions in offshore hedge funds.

Bullough is a regular contributor to the Guardian. In his account of the Panama Papers, he credits the Guardian with exposing how a London law firm “helped the daughters of Azerbaijan’s president create offshore structures to invest in UK property.” For some reason, he omits mention of Guardian Media Group’s use of similar structures. Very good, Jeeves!

Butler to the World: How Britain Helps the World’s Worst People Launder Money, Commit Crimes, and Get Away with Anything
by Oliver Bullough
St. Martin’s Press, 288 pp., $28.99

Dominic Green is a fellow of the Royal Historical Society and the Foreign Policy Research Institute. His latest book is The Religious Revolution: The Birth of Modern Spirituality, 1848-1898.