In the 1970s the late American cartoonist Walt Kelly coined the phrase “We have met the enemy and he is us.”
This was derived from the American Commodore, Oliver Hazard Perry’s famous War of 1812 report of the Battle of Lake Erie to General William Henry Harrison in which he wrote: “We have met the enemy and they are ours: two ships, two brigs, one schooner and one sloop.”
Both quotes imply a realization that the enemy against whom the speaker is fighting turns out to be either himself or members of his team or side.
Over the years, ever since I started working in the area of financial services, first as a regulator with the then Financial Services Department of the Government of Anguilla in August 1999, to today in private practice, I have marveled at the way in which international financial centers have been maligned. This has been the case, firstly, within their own geographical confines and regions amongst their own people and, secondly, internationally.
Coming from a small, non-independent British overseas territory like Anguilla, I was taken aback by the lack of push-back – at least from my limited vantage point in my then office in The Valley, Anguilla’s capital – by the larger, independent countries as a result of the 1998 OECD Harmful Tax Competition Report, which launched the most recent series of attacks on IFCs.
This was an attack which continues today and has now morphed into arguments surrounding public registers of beneficial ownership information of all companies and common reporting standards. Even among the British overseas territories, the response was tepid at best.
While one can always argue that they have to, at the end of the day, adhere to what London wants, no one can realistically look at how they handled the initial 1998 attack and say that they did a good job of defending their interests.
Throughout this period of my professional life, I have thought deeply about this issue, commented on it to some colleagues and after now nearly 16 years in the industry, perhaps it is time I share some of my observations.
In doing so, it is my hope that industry professionals, politicians and other decision-makers will reflect on these thoughts with a view toward better positioning ourselves and our jurisdictions to respond to future attacks which are inevitable.
Knowledge of the industry matters
My first observation is that the political directorates of IFCs, fundamentally, in many cases, did not in 1998/99 and do not now understand the industry that forms part of the economic lives of their jurisdictions.
While indeed it was the politicians who were charged with enacting the legislative framework that facilitated the development of the industry, we are all aware of the fact that in many IFCs they do not really understand in great detail what it is they are enacting. One could argue that they do not need to understand the finer legal points but should focus on the broader macro-economic policy objectives of the legislation.
However, it is often clear that they also do not understand the global environment in which the legislation operates, the underlying trends in and threats to the industry, and what goes on in financial services on a daily or regular basis.
This critique is not meant to disparage our leaders since legislators enacting laws which they do not understand fully seems to be a growing phenomenon. In the U.S., during the Troubled Asset Recovery Program (TARP) bailout debate of 2008, the vast majority of the legislators who voted in favor of the legislation did not read it, let alone understand what they were voting on. This, of course, is no way to run a country but it is reality and is what it is as some would say.
What this lack of understanding of financial services on the part of the jurisdictions’ legislators does, however, is to make it difficult for them to adapt to fast-moving changes through legislative action and get the machinery of government to respond to external threats or come up with new and innovative ways to take advantage of new opportunities in a timely manner.
Even more disheartening is the similar lack of understanding among senior civil servants, local and regional media and the body politic at large. In our jurisdictions, we depend on senior public servants to maintain the continuity of government and some stability in policy because of the frequent changes in political leadership.
We cannot expect each government, although it would be ideal if the understanding were generally held among the politicians, to be experts in this field due to the smallness of some international financial centers and the specialist nature of the industry.
This is made worse by the peculiarities of IFCs where politics is personal, familial in many ways, and driven often by ego, ambition and self-entitlement as opposed to a genuine desire to effect change and bring development to our people. While one may counter this by saying that this is the nature of politics globally, in small places the downside of this phenomenon is more pronounced and felt.
Thus, civil servants can serve as the bastion of stability in policy-making to protect, enhance and develop the industry.
It is indeed a fact that during the 1970s and 1980s, Caribbean IFCs, namely through the banking and in some cases tourism sectors, were used (along with plenty of financial institutions in the onshore world) to launder the proceeds of the profitable and growing drug trade in the U.S., especially in New York and later, Miami.
This of course has been well-documented in books and documentaries especially the “Cocaine Cowboys” of the mid-2000s. However, even today, when the average citizen of a Caribbean IFC is asked about what they think of the offshore or IFC sector, images from this era along with those of the 1993, Tom Cruise film, “The Firm” still seem to inform their responses.
No mention is made of the fact that IFCs make use of their legitimate laws, and right to have such laws, to attract corporate domiciles; that there were no laws against money laundering in the IFCs during that period of the 70s and 80s, and thus the bankers did nothing illegal; or the fact that U.S. citizens were then and still are legally obligated to report their offshore income and their failure to do so is neither the fault nor the responsibility of offshore service providers.
This last point, however, has been turned on its head by the advent of FATCA, but the popular view among the general public, and indeed, media professionals who should know better, was that prior to FATCA, IFCs were somehow at fault.
The benefits of IFCs to the global economy and to their citizens are never highlighted, even by the media within these jurisdictions, and that is perhaps the greatest weakness of the job the industry is doing locally and the saddest part of this entire debate. IFCs’ role in keeping global taxes low, serving as a bridge for capital to enter markets in countries with weak governance structures and company law legal systems, as well as allowing for more efficient wealth management and structuring, are totally ignored in favor of the sensationalism of stories regarding ill-gotten gains.
Despite efforts at educating the media, both local and regional media buy into the negative narrative coming from abroad that IFCs are somehow the bane of the financial crisis, and all manner of evil arises as a result of their existence.
Knowledge of politics and diplomacy matters
The second factor that I feel has caused IFCs and those in the Caribbean, in particular, to be so badly maligned is their lack of understanding of global geopolitics and media manipulation. This was perhaps the most disappointing observation to make especially for the independent jurisdictions which all have diplomatic representation in the U.S., at the UN, in the U.K. (through their various High Commissions), and in Brussels. I can recall vividly hearing of the meetings of the jurisdictions with the OECD in Barbados and then in Paris in the early 2000s at which each jurisdiction’s representatives came to plead their case as to why they should not be blacklisted.
As a middle-rank civil servant, fresh out of graduate school while still working on my LLB, I found the episodes perplexing, but I lacked both status/authority and a holistic understanding of the multiplicity of issues, both seen and unseen, to be able to comprehend what was happening and how badly the IFCs were being outmaneuvered.
While the OECD and their aligned friends on the political left especially in the established media, have savvy media and political operations dedicated to drive an agenda, the IFCs were caught flat-footed with top-heavy diplomats in key centers lost as to what to do.
I remember discussing this with a friend based in Washington to understand how something like this could happen with diplomatic representation on the ground especially along Embassy Row. His response was that diplomatic postings are often gifted to the well connected with no specific skill-sets necessary to do the job.
Whether this is an accurate reflection of the current diplomatic corps from the Caribbean IFCs is unknown to me but no one can honestly say that the interests of our jurisdictions were properly defended in the halls and corridors of power since the 1998 OECD report was published.
The OECD and its aligned NGOs such as Oxfam, Christian Aid, Transparency International along with broadsheets such as the U.K.’s The Guardian, The Times and the U.S.’ Washington Post and New York Times, continuously write and speak negatively about IFCs in general and specifically those in the Caribbean.
Yet our jurisdictions have not, 16 years later, developed a comprehensive and consistent marketing and public relations strategy to counter this one-sided image. Instead, our diplomats remain tongue-tied with some jurisdictions foolishly pumping millions of dollars down the Washington DC lobbying black-hole in a misguided attempt to curry favor and gain influence there without understanding the broader geopolitical undercurrents.
Despite years of non-stop attacks, Caribbean IFCs still have not developed a coordinated strategy to address these issues, nor have they worked across jurisdictions or identified a single spokesperson or media team to do battle. Yet our detractors have, in some cases taxpayer-funded, teams based in the U.K. and elsewhere.
These pump out near-daily press releases, lobby governments, monitor, influence and in some cases manipulate the legislative process in these countries, and through a pliant, friendly and leftist, bent mass media, push an anti-IFC agenda. This sad state of play can only be an indication of a lack of political will, a dreadful manifestation of an inability to cooperate despite being competitors and a sign of both political immaturity and cowardice on the part of the political leaders of the region.
Whether through Caricom, the OECS, the now defunct ITIO, or some other regional body, surely, after this length of time, and despite what happened in Barbados in 2000, when it was felt by some that then Prime Minister Owen Arthur cut a sweet-heart deal with the OECD while leaving all the other jurisdictions out in cold, some semblance of cooperation should have been instituted by now.
The British overseas territories and Crown dependencies, which are all under the aegis of the U.K., tend to cooperate but even then their attempts have been flat-footed and have come about a bit too late in my humble opinion. It was disappointing to see how they were bamboozled by Prime Minister David Cameron in June 2013 at Downing Street having trusted No 10’s media operations to get their position out.
I cannot be too hard on the leaders from the BOTs/CDs since our jurisdictions do not have diplomatic machineries because we are not sovereign countries, but anyone who is media savvy and versed in international politics would have known that they needed their own media firm to get their message out instead of depending on, or trusting, the U.K. government to give them a fair voice.
As a teen and young man, I studied U.S. politics intensely and was fascinated by it. Some may say that this was a misspent youth but regardless one of the most insightful things I learned is that information abhors a vacuum and an “un-responded to” attack will be believed by the masses. I suppose this is an extension of the expression that “if you repeat a lie often enough, people will believe it.” The lies that the anti-IFCs forces have repeatedly stated over the years are now commonly accepted as truisms and for this situation, we must all accept responsibility.
Respected organizations from across the political spectrum, whether the BBC or the Wall Street Journal, parrot nonsense such as the amount of money held in Cayman Islands’ banks and the role that IFCs played in the financial crisis of 2008. Even the actions of non-IFC actors like Bernie Madoff, who was regulated by the SEC, are often linked to IFCs as if we are the source of all the world’s financial ills.
Yet, despite this, in 2015, there is not an organization whose sole task it is to rebuff these misconceptions in the media and this can only be described as tragic.
Preach what you practice
My third and final observation I made, which I think is at the root of IFCs’ problems, is a lack of belief in the work done in IFCs by the practitioners themselves, coupled with not understanding free market economics and a fear to defend our beliefs. It is obvious to see that those who oppose IFCs believe in their argument and defend it vigorously and passionately.
It is equally obvious that many practitioners in IFCs are tepid at best in defending their work. I have observed that many really don’t believe in low taxes or free markets as basic, fundamental economic principles.
This lack of belief was on clear display during the 2008 U.S. presidential elections when, if a poll were taken of candidate preferences in many IFCs, President Barack Obama, despite his negative comments about Ugland House in the Cayman Islands, would have been the overwhelming favorite of practitioners.
While I can understand the historic reasons for many of my fellow Anguillians and Caribbean people to favor then Senator Obama given issues of race and culture, it was surprising that many persons of non-African racial descent were equally supportive of him. I believe this is because philosophically, our practitioners share President Obama’s economic ideas in all areas except perhaps for his stance on IFCs, to include high taxes, wealth distribution, and government intrusion into the marketplace etc.
On the U.S. political spectrum, I have observed that vast numbers of IFC practitioners are liberals not only on social issues but also economics; thus, they are conflicted. On one hand, they make their living from the industry, but on the other, they agree politically and philosophically with their enemies.
They seem to feel more comfortable among OECD representatives and other elite bureaucrats, than around free-market economists, especially U.S.-based ones, who are often conservative for fear of being tagged as being a right-winger. It is an odd situation when IFC practitioners feel better about themselves around their enemies than they do when around their friends.
This might be as close a case of Stockholm syndrome that I will ever see but it appears to be based on the fact that many practitioners are lawyers who trained in the U.K. or Caribbean where law can be studied as a first degree unlike in the U.S., where it is a post-graduate qualification. As a result, not many have studied economics, business, finance or anything else as a matter of fact before they studied law.
Therefore, they lack a background in understanding economic theory and many do not have firmly held or researched views except perhaps those picked up from the mass media which are invariably liberal.
Even the newspapers which one would have considered free-market and right-wing in the 80s, such as the Wall Street Journal and Financial Times, have bought into the anti-IFC, anti-tax avoidance, pro-big government spending, higher taxes paradigm shift. Perhaps only their editorial pages stand against such but for the most part the rest of their copy, being reflective of the liberal bent of their reporters, often parrots repeats of the anti-IFC line generally fed to the reporters by the likes of the aforementioned NGOs who are supposed to be experts on financial centers.
Most lawyers often see the world in terms of right and wrong, what is moral or immoral, and consider issues of ethics. However, they fail to see the unintended consequences of some of their decisions which, on the surface, may seem right and moral.
For example, many lawyers would argue for concepts such as increases in the minimum wage or settlements in tort actions without considering the ripple effects that both would have on the employment of others and businesses.
It is a known fact that in some economies, and here I am not referring to those where wages are so low that even persons working full-time cannot afford the basics of life, increases in the minimum wage will cause unemployment to increase as businesses reduce staff in order to cover the increased wages of the others. Yet many lawyers in supporting arguments for increases in the minimum wage may not see this effect. Again, this is not a personal criticism of my fellow practitioners but a pertinent observation which I believe helps to explain the state in which IFCs find themselves today.
In closing, until we in the industry start defending ourselves, believe in the work that we do and become our own advocates, then we will continue to be on the back-foot in this situation. We need advocates in government, in the media, and on the international stage, who can command the respect of journalists and make cogent, insightful and concise arguments in defense of our position.
I hope that these thoughts will spur some of us and some of our governments to shift gears and begin the fight to protect the industry and free-markets from the onslaught of the political left.