Empire & Secrecy
Even as empires ended, the transfer of wealth to the West continued. This was enabled by two key policies.
By the first, the US allowed Britain to effectively default (https://thewire.in/banking/how-india paid-to-create-the-london-of-today) on its wartime debt to India (including Pakistan) & Egypt of money owed for exports to the United States & expenditure on Allied war effort in Italy North Africa the Middle East Burma Malaya & Japan, by secretly working out a deal in 1947 to allow the UK post War Labour Government to renege on its formal commitment to convertibility of the pound sterling upon which those countries had predicated their agreements with the UK (https://thewire.in/history/independent-india-secret-uk-us-deal-britain-wartime-debt).
As a result, the UK not only very gradually drew down its worldwide colonial commitments over the next two decades, but banks worldwide were compelled to hold sterling at a time when all – conspicuously India & Egypt-- had wished to switch to US dollars in order to import wheat, rice, heavy plant & machinery, technology, steel, rolling stock to revive their economies after the War. Instead they were compelled to import obsolete British technology & goods, such as second-hand Royal Navy vessels such as HMS Achilles which became INS Delhi or the Ambassador car, as the Empire, with a parting kick, enforced their post-Independence backwardness. Had Britain honoured the obligation to convertibility, the exit of such countries from the pound sterling would have shut down Britain’s large financial services industry closely linked to the Bank of England, British managing agencies around the world, Anglo Persian Oil Company, note issuing Standard Chartered & Grindlays & other relics of empire. And Britain would not have been able to maintain an imperial presence worldwide with the Royal Navy & bases, nor would she have been able to fight the Malayan War.
Under the second policy, Britain & the US developed an elaborate secrecy regime that lured in criminal money from all over the world. Britain’s worldwide network of former colonies & ports & coaling stations, from Hong Kong, Singapore, Dubai, Mauritius, Gibraltar, Malta, to the Caymans & other Caribbean possessions, were made into tax havens that welcomed those who brought in any sort of cash.
The Dependencies of Jersey, Guernsey & Man, those tiny islands offshore that the UK specifically maintains for this purpose as possessions of the Crown as Duke of Normandy & in succession to the King of Norway, nominally independent jurisdictions outside its law & therefore the reach of Parliament, then act as the next stage of laundering the proceeds of international crime, absurdly accounting for over sixty per cent[1] of the total capital flows into the UK --US$126.683 billion, out of US$208.252 billion.
Although Jersey & Guernsey are claimed to be outside UK jurisdiction in fact by Treaty [of Lambeth with France 1217], Act of Parliament {Interpretation Act of 1978 http://www.legislation.gov.uk/ukpga/1978/30/section/27 (http://www.legislation.gov.uk/ukpga/1978/30/section/27), British Nationality Act of 1981 http://www.legislation.gov.uk/ukpga/1981/61 (http://www.legislation.gov.uk/ukpga/1981/61) } & judgement of the International Court of Justice [Minquiers and Ecrehos Case Judgment of 17th November 1953 https://www.icj-cij.org/case/17 (https://www.icj-cij.org/case/17)] ) England thereafter the UK has undertaken that these are really part of the UK.
Finally the Clapham Junction of the City completes the process of laundry, so funds can finally be transferred to Wall Street. A set of US measures set up between 1982 to 1984[2] assure both anonymity & freedom from taxation to foreign depositors in US banks & investors in US securities (https://www.irs.gov/individuals/international-taxpayers/nonresident-aliens-exclusions-from-income) & https://www.irs.gov/individuals/international-taxpayers/taxation-of-nonresident-aliens.
It is these specific measures that enabled London merchant bankers to develop the Eurodollar market (the trade in US dollars held abroad with London) & remake the City as the centre of worldwide finance (https://thewire.in/economy/looking-hidden-black-money-london-might-place-start), even as the United States & its vassal United Kingdom preside over the system of money laundering that funds it.
To this end the US promoted World Bank & IMF policies directed tax evading corrupt & criminal funds to the City & Wall Street, & set up a vast industry of private banking, law & accounting firms, as well as trust jurisdictions such as the Caymans to service such criminal money. Encouraging lawlessness in states too weak to resist it, it subverted democracy, & ushered in corrupt autocracy[3]. Such flows of money from all over the world finance the long running trade deficits[4] of the US & the UK. These countries are indebted not just to foreign institutional investors, but also anonymous individuals: US$ 9.082 trillion out of US$ 25.686 trillion of US long term securities is held in tax havens, the UK bloc (US$4.765 trillion) accounting for over half[5].
Only that Anglo-American deal of 1947 to which I have referred above whereby the United States allowed Britain to default on its postwar commitment to convertibility, & the Reagan Administration's decision to make America the ultimate destination of flight capital can explain how the UK was enabled to set up shop as the global centre of money laundering (https://www.nybooks.com/articles/2024/05/23/safe-havens-butler-to-the-world-bullough/). It would be inconceivable without these two preconditions having been met.
At the same time, these elaborate arrangements permit the charade of Britain periodically admonishing its own money laundering outposts to cease & desist, with a nod & a wink (https://www.theguardian.com/world/article/2024/may/14/nearly-40-of-dirty-money-is-laundered-in-london-and-uk-crown-dependenies).
Yet these inward flows of flight capital have also altered their societies & of all the West.
An increasingly sophisticated financialised economy demands high returns that make much industrial investment unattractive at Western wage levels, exporting industry to low-cost & low-enforcement jurisdictions.
As organised labour in advanced economies is weakened & unable to bargain, the welfare state is steadily whittled away, & these flight capital destination states become increasingly unequal (https://thewire.in/books/the-long-history-of-capital-flight-and-how-it-subverts-democracy).
Moreover, since rational economic plans on the end-use of investment might limit returns, they are abandoned; in the pursuit of the highest returns, the private plans of wealthy individuals substitute for planning for society as a whole; the costs of many businesses such as the production of hydrocarbons or minerals employed for electric vehicle production are effectively socialised.
Such high growth may be illusory. Climate change has great costs, which will ultimately have to be paid by future generations, as the planet races to extinction.
All this can only be challenged by increased democracy. Such as in capital exit states such as India or Congo or Mexico. Or others that play some intermediary part or other in the global mechanism of extraction & subordination such as Yemen or Egypt.
And, ultimately, the destination states of flight capital, the United Kingdom & the United States.
[1] fourth quarter balance of payments accounts for 2023, October to December: https://www.bankofengland.co.uk/statistics/details/further-details-about-external-business-of-monetary-financial-institutions-operating-in-the-uk-data
2 As the US Treasury explains, they may invest in special instruments called ‘bearer securities’:‘ “Bearer securities" are .. payable to “bearer” on their face at maturity or at call for redemption... The ownership is not recorded (https://www.treasurydirect.gov/forms/sec3987.pdf ).’ The Center for Freedom and Prosperity (a libertarian lobbying group connected to Mossack Fonseca the Panamanian law firm about whose international clients evaded taxes in numerous countries) has estimated that such foreigners deposited over $3 trillion in US accounts http://freedomandprosperity.org/2012/publications/interest-reporting-regulation-threatens-economy/
3 in the United States that includes for instance the traffic in persons as long as that is done overseas--& also of course the evasion of taxes in every jurisdiction
[4] The UK’s current account deficit October to December 2023 was a negative trade balance of -£21.177 billion; the cumulative effect of such liabilities has meant that the UK’s net international investment position is -£824.993 billion. So too the US current account deficit was a negative trade balance of -$194.8 billion in the fourth quarter of 2023 & net negative international investment position -$19.77 trillion.
[5] that is Caymans US$ 2.237 trillion & UK US$2.528 trillion Foreign holdings of US securities by country as of end June 2022 --Foreign Portfolio Holdings of US Securities Department of Treasury Federal Reserve Bank of New York Board of Governors of the Federal Reserve System April 2023
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