The subtitle to this book by Oliver Bullough, is ‘How Britain became the Servant of Tycoons, Tax Dodgers, Kleptocrats and Criminals’. The ‘Butler’ idea is based on Jeeves, the character created by PG Wodehouse for his comic tales of a buffoonish, usually befuddled young toff managed by his resourceful manservant. Jeeves always knows how to cunningly come out on top in any predicament.
The trilemma
In the early chapters, the author outlines the background of changing politics and economics in post-war, post-Empire Great Britain. He asserts that nation states have three options (a trilemma): “fixed exchange rates, which exporters and importers love because they make trade predictable; free capital flows, which banks love because they make investment overseas easy and profitable; and domestic autonomy, which governments love because it allows them to respond to the wishes of their electorate”. It is possible to choose only two of these. In the years when the UK was recovering from the war, the government chose fixed exchange rates to boost trade and manufacturing. This did not suit the City, which wanted more money to flow through its systems than the Bank of England allowed.
Collusion
A small loophole was utilised by the Midland Bank in collusion with Moscow Narodny, the London bank looking after the Soviet Union’s dollars. By borrowing dollars from the Soviets, Midland could expand its domestic loan investments in pounds. But after the Suez crisis had given the British merchant banks a nasty shock when the Americans restricted dollar loans, the City took up the Midland wheeze, so ‘Eurodollars’ were born to increase money flows world-wide.
“By basing themselves in London they avoided US restrictions on how much interest they could pay; by using dollars they could void British restrictions on how much money they could move.” By December 1969, the volume of Eurodollars hit $40bn, and many American banks had set up in the City. Footloose capital could now flow freely around the world, without democratic controls from national governments trying to manage inflation and taxability.
Shell companies
The chapter called “Shell Shock” tells how shell companies were first developed by a lawyer from Tanzania, Michael Riegels. At the time, Tanzania was nationalising most companies, and there was ‘funk’ money from departing expatriates looking for banks to put their pensions into.
In a career move to the British Virgin Islands (BVI), Riegels devised the solution of BVI-registered companies, tax-free, with anonymous owners, able to move to other jurisdictions at will, and thus very attractive to anyone with money of dubious origins. Ironically, Riegel’s scheme harmed Tanzania, the country of his birth, in that the bribes paid by BAE Systems for a large contract there went into BVI shell companies.
Gambling
The chapter called ‘Rock Solid’ is about how Gibraltar attracted money once it lost its role as a British Navy station. It started with Brits in Spain wanting to bet on UK sports events. In 1989, Freddie Ballester was able to get a betting licence to receive gambling money at a lower tax rate than British betting shops. In post-war years, UK gambling was closely regulated. Sports bets were allowed in rather secretive dowdy shops placed discreetly in working-class streets.
Eventually, Gibraltar became the chosen relocation site for all the leading British gambling companies, receiving bets not only from the UK but from big international punters. In Gibraltar they had to pay £1–2 tax on every £100 profit, whereas in the UK tax would have been £36. At $111,505 per head, Gibraltar is now the third richest place in the world, after only Monaco and Qatar. Meanwhile, gambling has hugely increased in the UK to £121.3bn, estimated at £2,000 per person!
Not the people the Government is worried about
The chapter called ‘Scottish Laundromat’ starts with a bank swindle in Moldova. When investigated by a Scottish detective, this led to an address in Edinburgh used by a Scottish Limited Partnership (SLP), which allows a company not to reveal its true owners. The Moldovan criminals bankrupted three banks with the loot they transported via SLPs. SLPs are different from limited companies in that ‘in Scotland a firm is a legal person distinct from the partners of whom it is composed’.
Unlike English limited companies, they do not publish accounts or pay tax (the partners pay as individuals), but they can still own property and enter contracts. Originally, they were devised for Scottish landowners gaining money from their tenants. They rapidly became appealing to Eastern Europe’s most sophisticated money-launderers after the fall of the Iron Curtain.
After the Moldovan scandal broke, an SNP MP took up the matter of criminal finance via SLPs in the Westminster Parliament. He soon hit opposition from City financiers who, as it turns out, were already handling a lot of money flowing via SLPs. Where Mullin was trying to get better regulation of SLPs, the City, and even the Treasury, wanted less regulation.
To achieve more deregulation, they only needed a Legislative Reform Order (LRO). This does not have to be discussed in Parliament and can be passed by simple vote in the legislative reform committee, which happens to be chaired by Andrew Bridgen, right-wing Conservative and Brexiter. The City got the desired limited partnerships. An expert commented: “the government is in hock to the financial institutions … there are victims here, but they’re not the people the government is worried about”.
Putin’s man in Ukraine
The chapter, ‘Down the Tubes’, starts with an attempt to buy a disused Tube station in Brompton Road. This was blocked by the Ukrainian owner of the adjacent mansion, Mr Firtash, who bought the station himself. Firtash has been dubbed ‘Putin’s man in Ukraine’, the origins of his wealth being a gas deal with Russia. Some of the ensuing money was used to prop up the government of Yanukovich, who eventually fled to Russia.
Meanwhile, starting in 2008 with donations to a foundation to help Ukrainian students in Cambridge, Firtash was infiltrating the British establishment, buying luxury London property and advising the government on how to negotiate with Putin. “I tried to persuade them that imposing sanctions on Russia was a bad idea,” he said. He is currently under house arrest in Austria, fighting extradition to the USA to face a charge of corruption, but he has now publicly spoken out against Putin’s war.
In 2020, Parliament’s Intelligence and Security Committee published a report on Russian influence in the UK. Boris Johnson dismissed this as an attempt to undermine the Brexit referendum, but it pointed to ‘the inherent tension between the government’s prosperity agenda and the need to protect national security’. This conundrum has become even more urgent with the outbreak of the Ukraine war.
Discreetly enabling
The final three chapters give hints on how to tackle British collusion with tax dodgers, kleptocrats and criminals. Bullough himself gave evidence in a 2018 Foreign Affairs Parliamentary committee following the Russian poisoning in Salisbury. The committee wanted to know if the Russian money flowing into the UK could be corrupting British politicians. Mrs May had declared: “there is no place for these people, or their money, in our country”.
But as Bullough’s investigations and writings continue to demonstrate, Britain is a very attractive place for these people to own property and stash their money because, like a good butler, it discreetly enables. There is a network of lawyers, accountants, property agents, private schools, nanny recruiters and influential individuals willing, for a fee, to introduce those with enough money to the good life in the UK.
Also, the government is unwilling to devote enough resources to enforcement agencies. In 1989, an international financial action task force was set up to define actions against money-laundering. The UK action on this was more regulation, but in each case, these regulations are policed by the financial and legal associations, “essentially outsourc[ing] responsibility for stopping the money-launderers to the money-launderers”.(Bullough).
Disparities and loopholes
However, in 2018, two Labour politicians, Margaret Hodge and Andrew Mitchell, managed to get an amendment to a bill going through Parliament, which obliged shell companies to name their owners. The territories that host these shell companies were discombobulated and annoyed that their sovereignty was in question.
But, as Bullough points out, it is the disparities between different bits of ‘Britain’ that create the loopholes through which the money-launderers thrive: mismatch in gambling taxes between UK and Gibraltar, or in company regulation for the BVI, or in limited partnership for Scotland. Bullough says firmly that the one lesson he would like to be taken from his book is the need to iron out these differences.
One journalist has cheekily suggested that this is a task for the new sovereign, King Charles III, as he is Head of State of many of them, including the British Virgin Islands.
Butler to the World by Oliver Bullough
Published 2022 by Profile Books
ISBN: 178816587X / 978-1788165877
