The World – How it Changes

I BEGAN  WORKING in this industry in 1972, when I returned to my native Isle of Man after spending 10 years in banking and industrial finance in East Africa (mostly) and England.In those days the Isle of Man was impoverished and was experiencing mass emigration as young Manx people left to find worthwhile jobs. I went home to open the office of a subsidiary of a London investment bank. The parent subsequently collapsed in 1975 in the aftermath of ‘Barber’s boom’, the runaway boom createdby the ‘Dash For Growth’ economic policy of the first Heath Government. Today, we know that the problem was not too little demand in the British economy at the time, but the sclerotic nature of the supply side of the economy where the monopolistic power of unions and other restrictive practices simply made the economy incapable of responding to demand other than with inflation.

I remember those days with horror.When a British Prime Minister was bulliedo such an extent by the trade unions that he pleaded with them to ‘take your tanks off my lawn’, something had to happen.When one union, the Miners, thought that they could dictate to the government, and brought the entire economy to its knees, something had to happen. When the top tax rate reached 98 per cent in the pound, something had to happen. The United Kingdom was full of self appointed experts, politicians with private agendas, bureaucrats feathering their nests, power crazed trade union officials, all seeking to indulge themselves at the expense of ordinary people.

But the world was a much simpler place then. Globalisation had not yet begun. No emails, no faxes. No automatic telephone dialling. Few computers, and certainly noton desktops. No mobile phones. Indeed, it was only a few years since photocopiers had been invented (I remember seeing my first one), and since banks have ceased to be run by armies of clerks sitting at high stools (I was one) adding and subtractingin pounds, shillings (multiples of 20), and pence (multiples of 12). I remember seeing my first National Cash Register accounting machine. There was exchange control – going to France on holiday was by no means a simple matter. That lasted until Mrs Thatcher’s days. Travel was expensive. When I first went to East Africa I was a soldier, so the price did not impact on me. But when I flew there in 1963 in a BOAC Comet, the air fare from London to Nairobi was threetimes the annual salary of a young bank officer. Assuming that such a salary today would be £20,000, that would make asingle fare to Nairobi £60,000. No Easyjet in those days.

There were no problems with illegal immigrants. The problem was illegal emigrants trying to get their money out through Exchange Control regulations. I recall well simply failing to understandwhy the East African Asians, in the 1960s,were trying to get to Britain to live. As faras I was concerned I was trying to leave! Had it not been for a determined wife,I would never have returned to Harold Wilson’s Britain, a grim place if ever therewas one. Tax havens were very definitely forthe super rich. I recall reading, in 1969,a paper written for the General Managersof Barclays Bank DCO, for whom I thenworked in London, by the CaribbeanHead Office on the subject of offshorebanking in the Cayman Islands, then a brand new emerging centre. Then in 1972, I went home, havingbeen offered a job to run a bank. There was no such thing as regulation in thosedays. You could, and people did, form acompany with a name like Central Bank Ltd, with a capital of £2, and open for deposit taking business the next day. No qualifications required, no checks, no references. Nor did you have to check on the clients. Suitcases with a million pounds in readies were not that uncommon.

In 1975 the parent bank went bust. My little subsidiary bank was sold. I left. I started a trust company. No permissions were required. I had to learn fast, and did so. My business grew fast. Despite Exchange Control, which really meant that we could not do work outside Britain and Ireland (the Republic being part of the Sterling Area, using pounds like the UK), demand was considerable. This was mainly because with the miseries of socialist Britain, the wealthy, the enterprising, even the retired, were tryingto get their money beyond the reach of the taxmen, beyond the reach of the Bank of England. At the same time, antiavoidance tax measures were very limited, and the idea that any jurisdiction would enforce the tax laws of another was quite unthinkable. I recall well a conversation that I had with a senior officer of the Inland Revenue. He explained to me that his duty was to his Government, and I explained that my duty was to my clients: I had no duty to his (foreign) government.

How things have changed. I always knew that things would change, but the change has been faster, more profound than ever I imagined.However, change never stops. Thebureaucrat who has just put the final touches to his regulatory empire shouldstop and despair. I never expected to see Communism collapse in my lifetime.It has. I fully expect to see the great bureaucrat regulatory empires of theOECD and the like vanish in my lifetime.My message to anyone working for theOECD and other such bodies is to makeas much money as you can. Do not liftyour snout from the gravy train, because if you do, it may not be there when you return.In our finance industry, the bureaucrats in the big high taxing countries are congratulating themselves on the fact that they have imposed on their smaller neighbours such a burden of regulation and reporting and‘transparency’, that the economies of these little countries are being seriously threatened. Do they really think that their little neighbours will simply accept the destruction of their livelihoods? Communities do not forget oppression from neighbours. Memories can last a long time – centuries indeed.

Human beings have not changed. Every parent wants to do the best for their children. That is right, and should be encouraged. Every successful person wishes to leave something behind when he dies. He may wish to found a dynastydedicated to the service of his country (look at the armed services, and see how many officers come from families whereserving the crown is considered the right thing to do). He may wish to found auniversity or have a college named after him (500 years ago, they were named after Christian saints – today they are named after businessmen!). He may wishto found a hospital. Such instincts should be encouraged.

Any government or ideology that denies these basic human aspirations, that seeks to divert wealth from the productive to the non-productive, that seeks to destroyhe wealth conservers and wealth stewards will, inevitably, destroy itself. The lesson of history is absolutely clear. In my own lifetime I have seen it happen.In the process of this never-ending war,the offshore finance industry will always be in the middle of no-man’s-land. Thefunction of the offshore finance industry is to help the enterprising, the wealth creators, the economic innovators. It is absolutely essential that offshore finance business leaders not only understand their function, but enjoy the processof innovation that comes out of this war. The second world war began with fighters that were open cockpit bi-planes. It began with tanks that were little more than tracked bread vans. It finished, sixyears later with supersonic jets, with fighting tanks that were armoured giants.Wars bring constant innovation and rapid change. The winners are those who can respond fastest to the demands of change, and can produce the winning products. The offshore finance world is a constant battle field. The offshore regulators who do not understand that, who try to hold back innovation because they do not understand it, are the saboteurs and enemies of their own jurisdictions, and will be treated as such. Nor will anyone ever win this war.Human beings will not change. For every entrepreneur and risk-taking businessman,for every inventor of new financial waysof creating wealth, there are a hundred sterile bureaucrats, devoid of imagination and intelligence. Every time the innovator finds a new way to do something, there will be no shortage of bureaucrats wanting to attack.

In the Isle of Man, we have a story about the Manx Crab. A visitor was standing on the quayside, when a little crab fishing boat came in. The fisherman placed baskets fullof crabs on the quayside, as he unloaded his boat. The visitor noticed that, in one of the baskets, one crab had detached himself from the scrum at the bottom, and was carefully climbing up the side. ‘Hey, Mister’ calledthe visitor, ‘one of your crabs is about to get out!’ The fisherman did not even look up.‘Those are Manx crabs,’ he said. ‘Before any crab can get out, the others will all reach up and pull him back again’.

Que sera sera.