Apr 10 2012

British aristocracy, banks running offshore company rackets

Posted by: Nick Shaxson in: Thoughts

The Economist has two useful articles here and here on shell corporations, which number in their millions and are used for all manner of dubious and often outright criminal activity (and some of which advertise regularly in the back of The Economist.) There is a pernicious race to the bottom going on here: the biggest players make a name by being what they call ‘efficient’ – but that word effectively means getting around pesky things like disclosure, regulatory compliance and so on. One line in the first Economist story says:

“OCRA Worldwide, based on the Isle of Man and chaired by Lord St John of Bletso, a hereditary peer and lawyer. It did not respond to requests for an interview … Its website says its 350 employees sell more than 30,000 companies a year in 20 locations.”

OCRA markets itself all over the place. So just who is Lord St. John of Bletso? Well, Wikipedia describes him as

“one of the ninety hereditary peers elected to remain in the House of Lords. . .  he succeeded to his father’s titles in 1978. . . . St John is also an extra Lord-in-Waiting to The Queen.”

Well, his aristocracy may be a slightly trivial issue, but it fits closely with the fact described in Treasure Islands that major parts of the offshore system re run and managed by what many people regard to be members of the cream of British high society. In other areas, Lord Bletso is not a screaming libertarian right-winger, so that sets him apart from many offshore leaders, but his running of OCRA raises all sorts of uncomfortable questions. As The Economist notes of the sector in general:

“Most of the industry’s financial accounts are as impenetrable as the shell companies they peddle.
. . .
Many are paper firms, often with nominee directors and free of any obligation to publish their accounts. That helps stop outsiders from working out what they do or own, where they operate, who controls them and whom they really belong to.”

Indeed, and there is a faultline in global capitalism, right there, which (among many other things) makes it very hard to quantify the damage caused by all this. Don’t forget that the banks are also major players in this game, as the case of offshore incorporation firm Intertrust:

“Waterland, a Dutch private-equity group, bought Intertrust from the Dutch government in 2009 for well below the €350m asking price. The government gained the business when it nationalised its parent, Fortis, but hurried to offload a firm that helps the rich to minimise tax bills.”

And:

“A former UBS employee who left in 2008 says that the member of his department who had sold the most shells the previous month received a gift and a bonus.”

Then there is the awfulness of places like the British Virgin Islands:

Regulators may also broker forced marriages. The BVI’s financial-services commission is said to prefer this to cancelling the licences of errant providers, which could draw unwelcome attention.

In other words: this particular manoeuvre of ‘forced marriages’ is a great way to cover up nastiness. The Economist also claims it is ‘above board’ that such structures can help companies

“fend off lawsuits in countries with predatory governments or corrupt courts.”

It sounds reasonable, doesn’t it? But first of all, who are these offshore companies to decide which is a predatory government with corrupt courts? Second, if you have an unjust law in a country, what happens if you provide an offshore escape route, generally used only by the wealthiest sections of society? You will remove the one constituency that has the power to change the unjust law. And you leave everyone else in the lurch. If the wealthy in a country don’t need to worry about corrupt courts because they can escape them, then they won’t care about shaping up those courts.

As I never tire of pointing out, two of the biggest offenders are Britain and the United States:

“Britain (unlike most offshore locations) does not regulate company-formation agents. It even lets firms be founded with bearer shares, which, like cash, belong to whoever happens to have them with him at the time. Most countries have abolished these securities, under pressure from international financial regulators, but one British website offers same-day incorporation of a UK bearer-owned shell for a mere £142 ($227), within four to six hours. America is even laxer. “

Quite so. The Economist spends a lot of time writing about the ‘efficiency’ of offshore incorporators, without explicitly unpacking that word. “One-day registration’ may sound efficient – but it cannot be achieved without a completely reckless and even contemptuous attitude towards the various checks and balances of society.

Had The Economist chosen to unpack that word, it would have written a very different and far more critical article, and understood the subject matter very differently.

3 comments so far

Mac 4th April, 2012 8.43 am

Re the noble Lord: you didn’t spot that he’s a strategic adviser to an IT company called 2e2, who have a significant offshore interests

[…] reading: some colourful glimpses of the UK’s company registration regime and London’s […]

[…] reading: some colourful glimpses of the UK’s company registration regime and London’s […]

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