Notes CHAPTER 1 I. There are some serious problems with these figures however; see Chapter 6 for a discussion of the way this broad estimate was arrived at. 2. Powell argues that post-war tourism was a significant factor in Jersey's development as an OFC, both in terms of infrastructure (airport etc.) and the wider awareness of the island. From a letter to the author 18 April 1989. 3. The increasing use of holding companies and trusts by us citizens led President Roosevelt to request the formation of a joint Congressional Committee on Tax Evasion and Avoidance to study the problem. 4. Some OFCs host manufacturing industry in Export Processing Zones (EPZs) like Mauritius and The Bahamas, but there would not seem to be a clear link between TNCs and banks there. EPZs and OFCs may have some theoretical linkage though (Grubel, 1982). 5. What determines multinational bank location has been well covered by Kelly, 1977; Yannopo)ous, 1983; Campayne, 1990; and many others. 6. The Canadian banks were both operating in the Euromarkets from their London bases (Rogers, 1971), and concentrating on private banking services in the Caribbean. The latter may be inferred from the RBC move to Guernsey in 1972. 7. The UK can still be considered a high tax country, despite Conservative governments progressively lowering direct tax rates since 1979 whilst indirect tax rates such as VAT have actually increased. 8. ICI still use captives and have a captive in the Cayman Islands (Peagam, 1989: 58). 9. An interesting recent development is the use of captives by public sector organisations. Guernsey now has two captives owned by the UK govern­ ment: London Transport and the NAAFI (Guernsey Financial Services Commission, 1995: 3). This again suggests a high level UK government acceptance of nearby OFCs. CHAPTER 2 I. See Kindleberger, 1974; Reed, 1981; Choi et a/., 1986; Sassen, 1991; Coakley, 1992; Thrift, 1994; and Roberts, 1994. 2. However, we can make a distinction between major international banks such as Citibank, Barclays or ABN-AMRO and the small, private 'off­ shore banks' located in various notional OFCs. The latter may be legal entities formed purely to shelter an individual or family'S wealth rather than financial intermediaries for general banking activities. 226 Notes 227 3. From an interview with Mr Doubonossov, Chairman of the Moscow Narodny bank in The Banker, 1967a: 195, March. 4. The term 'soporific' is from the report of the Monopolies Commission cited by McRae and Cairncross, 1977: 32. 5. In 1951 the clearers agreed to the Bank's suggestion ofa liquidity ratio in the range of 28-30 per cent. In practise, the upper figure of 30 per cent was the norm. In 1963 the official liquidity ratio was lowered to 28 per cent. The non-clearers were free of such restriction until the 1971 Credit and Competition Controls introduced a reserve requirement for all banks of 12.5 per cent (Collins, 1988: 435). 6. Revell (1975: 47) notes this is difficult to research as the Bank of England has never publicised its operating methods. His source was a series of interviews with Bank officials. 7. Hirsch (I977) argues that the informal 'Bagehot Function' of mutual trust within a small in-group of banks is necessary to prevent individuals from cheating in response to the market. He contends that there are size limits for such informal controls of 50-100 banks, and notes that the City contains over 300. 8. See Coakley and Harris, 1983; Ingham, 1984; Cain and Hopkins, 1987; and Nicholls, 1988. 9. Canadian banks were also involved in the London Eurocurrency markets. For example their foreign currency assets increased from $2.7 billion in 1960, to $13.5 billion by June 1971 (Rogers, 1971: 1216). 10. The Banking Supervision division now has a staff of over 150 and is responsible for around 600 financial institutions (Geddes, 1987). II. It is possible to speculate that this was a consideration for the manage­ ment of BCCI. 12. Deregulation of financial services was also taking place in Canada (with the introduction of the 'International Banking Cities' of Vancouver and Montreal), Australia, and so on (Johns and Le Marchant, 1993). In addition, several Newly Industrialising Countries such as Thailand and Taiwan set up IBFs in the early 1990s. 13. EU banking legislation permits a bank, once registered and under the supervision of the central bank of a EU member country, to set up branches elsewhere in the Union as it holds a single regulatory 'passport'. 14. By mid-1995 the affair was still rumbling on with allegations of a secret 'lifeboat' of £ 1 billion to support some of the small banks that had serious difficulties when BCCI collapsed (Bates and Milner, 1993). CHAPTER 3 1. Officially the Report of the House Committee on Banking and Currency, chaired by Senator Pujo. 2. At the time of writing (late-I 995) US government deregulation of banking seems set to continue with the reform or repeal of the Glass-Steagall Act in various bills presently before Congress. 3. Although the 1995 referendum in Bermuda indicated that the indepen­ dence issue may be increasingly important in the future despite the high aggregate standard of living generated by the successful OFC. 228 Notes 4. The first modern use may have been the 1949 French creation of Associated States in South East Asia after the collapse of the Indochinese Union. Vietnam, Cambodia and Laos were in an enforced customs union with France and she also controlled defence and foreign affairs (The Dictionary of World History, 1973). 5. Although the statistics are from the height of the US intervention in nearby Central America in the 1980s, these figures are impressive given the small size of most of the Caribbean territories. 6. The issue of other possible benefits from controlling remote dependencies such as access to fishing grounds and other resources including oil fields is outside our focus on OFCs. 7. The States of Jersey felt that there was a lack of coordination between UK government departments, specifically that new EU Directives that con­ cerned the island were being considered only at the last moment. The island requested an 'early warning system' to give the States time to consider the implications of forthcoming Directives but reportedly this was not done by the Home Office (JWP, 199Ib). 8. We can reinterpret the so-called Battle of Jersey of 1781, and argue that it was in fact a French attempt to attack the Jersey privateers at source, rather than an 'invasion' to retake Jersey for France. This neatly illustrates the use of military power for broadly economic purposes. 9. Source: Colin Powell, Chief Advisor to the States of Jersey in an interview with the author, 7 January 1992. CHAPTER 4 I. Aruba was granted independence from the rest of the Netherlands Antilles in 1986, but still remains an autonomous area within the King­ dom of the Netherlands. 2. These initiatives included using the services of international tax lawyer Milton Grundy to advise the government on the creation of offshore legislation that would attljlct business such as trusts (Sampson, 1982). 3. Madame Giradin, in a reply to a question from the author about the lack of OFCs in French dependent territories after the presentation of her paper at the 'Dependent Territories Conference', London, 24 November 1993. 4. All three of these colonial powers have banks that are still amongst the largest in the world (The Bllnker, Top 1000 World Banks, July 1992). 5. However, the abstract concept of the fractions of capital has become increasingly harder to see at a concrete level as many large firms which used to be primarily manufacturing-based have diversified and formed in­ house banks etc. to manage their financial resources more efficiently. This trend can be observed in TNCs such as the Hanson Group, General Motors or in the Japanese 'sogo shosha' conglomerates (Dicken, 1992). At the same time, the interpenetration of capital can be seen as the financial institutions (especially institutional investors such as banks and pension fund managers) hold increasing stakes in the capital stock of TNCs, as exemplified by Eurobonds. Notes 229 6. Money laundering per se was not actually a criminal offence in the US until the 1986 Money Laundering Control Act (Lacey, 1991: 632). Until then, prosecutions were brought under various tax laws or the 1970 Bank Secrecy Act. 7. For example, the Inland Revenue wrote to certain Jersey companies asking for client details relating to offshore share dealing. The response was that the Revenue was trying to extend into a separate jurisdiction, and their letters were reportedly filed under 'waste paper basket' (JWP, 1991a; Sunday Times, 1991). 8. The question of why the Conservative government took nine years to plug this drain of revenue is unclear, although we could perhaps speculate about the wealthy individuals who might gain from the loophole and their possible financial contributions to the Conservative Party's funds. Again, this appears to reinforce my argument concerning financial capital being the dominant fraction and thus being close to central government in the UK. 9. However, there have been hints from the Inland Revenue that there may be a fundamental shift towards considering the global location of taxpayers' assets. This would be a move towards US style extraterritori­ ality and has serious implications for tax planning (source: interview responden t). CHAPTER 5 1. Petit (1991) argues that in the 1990s transactions are more complex than the simple, bilateral, buyer-seUer relationship, with increasing influence of third parties, and a plethora of sophisticated financial instruments offered to prospective buyers. This results in increasing market segmentation into different products which leads to collusion both amongst providers and users of the services.