Here are two stories I was told today. They illustrate why those among our politicians who tell us that all we need is “better regulation” are either inbred or think we are. I have had to leave out all the identifying names at the request of the two people who told me.
The first story concerns a British near shore, off-shore Tax haven and a very large European bank, well known in Britain.
According to the person who spoke to me this bank does a massive amount of its work in this tax haven, BUT everything they do is accessed from servers that are physically in Switzerland. The bank staff in the tax haven do their work and go home as anyone else would. But then some of them return in the evening and their job is to close all the work out completely and leave no trace of the deals in the tax haven. At the end of each day there is nothing that any UK regulator could access. All the work has been ‘done’ under the jurisdiction where the servers are located. This seems to me to correspond closely to the testimony of the German bankers who were flown to Ireland for the day for the purpose of doing deals they could not do in Germany. This is the online version of the same idea.
The work is done in one place, but falls in the jurisdiction of another. This on line version not only cuts out the local regulator but further completely cloaks the transactions in Swiss secrecy but without the banks being seen as a ‘secretive’ swiss bank. It maintains its identity as a UK bank but avoids any pesky ‘regulators’ who might come snooping.
Not that the bank would have any trouble from UK regulators. This same person told me that this bank had once been told by the SFO that SFO officers would ‘raid’ it, but in a year’s time. A year later they were duly ‘raided’. Nothing was found, the SFO had done its duty but at the same time they had made sure that there had been no risk of potentially embarrassing material being found.
Although the person told me in good faith and professed to be telling me the truth I felt uneasy about it. So I checked this with another banker who works in Europe at a quite different bank.
This second banker laughed and told me this rang perfectly true. She went on to tell me this. She had been working as a market risk manager at a large lender in a country at the eastern end of the Med. Her job had involved watching two parallel sets of accounts which the bank kept, one in the country in which they were based and one in The Cayman Islands. The banker was told that if ever she saw or heard that the bank regulator, auditor or any outside official was coming, she was to transfer anything she was told to, to the Cayman account and log out from it. Thus hiding from the national regulatory ’embarrasing transactions or activities’.
The parallel accounts allowed the bank to keep tight records of its transactions and accounts for the purposes of internal accounting and risk management but to do so in a way that allowed them to hide anything and everything from the national regulator.
I am sorry I can’t give you names but if I did I would cause havoc. I realize it does mean these accounts lack in the details that could be used to verify them. I know the people who told me. I trust them both.
They show me that regulation is window dressing. That what is ‘regulated’ is largely whatever the banks are content with and nothing more.
The second banker also told me that the story about the SFO rang true. When I asked why, she laughed at me and said I really was being naive. She said that to her personal knowledge one of the banks she had worked for held accounts for some of that country’s most prominent national politicians the purpose of which were to massively avoid taxes and therefore would embarrass both the financial and political class were they to be ‘investigated’. Thus, she said, it was common for banks to be given lots of notice of any ‘raid’ so as to make sure nothing incendiary could be found. That way the raid could be seen to be rigorous and thorough and yet have no chance of turning anything up.
Regulation is a joke. It is window dressing for the proles to comfort themselves with. It works much like the Christmas time displays. Simple mechanisms behind thick glass to give children a warm feeling.