The Story of London’s City: A City Within a City, Ruling Global Finance
The City of London is the beating heart of capitalism in Britain, and today, nearly a quarter of global capital is controlled by the UK and its dependencies.
How London Became the Financial Capital of the World
For 300 years, Britain ruled the largest empire in history. Its soldiers marched wherever they wanted, and its bankers maintained the value of its currency. But by the 1960s, countries began declaring their independence one after another, and the British Empire unraveled. British politicians watched their wealth and privileges crumble. However, they weren’t ready to give up their influence and sought a new way to build a modern empire, shifting from colonial rule to financial power. This transformation not only reshaped Britain’s destiny but also impacted all of us.
The British Empire
During the height of the British Empire, London was the largest financial hub, driving its imperialist ambitions. Countries under British rule used the pound sterling, which was distributed globally by London. However, with the collapse of the empire, London lost its former glory, and even Britain’s trade privileges were at risk.
For instance, in 1956, Egypt nationalized the Suez Canal, ending its international ownership. This event shocked Europe, leading Britain and France to issue a 12-hour ultimatum threatening military action against key Egyptian cities, including Cairo.
However, the U.S. opposed military intervention and pressured Britain and France to withdraw their forces. The Suez Crisis marked the official end of Britain’s role as a global superpower, and the pound’s value plummeted.
The Eurodollar Market
To preserve the value of the pound, Britain imposed restrictions on foreign loans by banks, preventing them from investing abroad.
As bankers struggled with these limitations, they reached an unspoken agreement. They decided that if a bank acted as an intermediary between two foreign entities, the Bank of England wouldn’t consider the transaction under its jurisdiction.
This loophole allowed banks to create the Eurodollar market in London, where U.S. dollars could be traded outside the reach of U.S. regulations. Banks set up separate accounts for Eurodollar transactions, and the Bank of England clarified that these accounts were not technically held in London but “somewhere else.”
No one cared where they were; what mattered was the legal gray area they operated in. When American banks realized they could bypass U.S. laws by moving their foreign dealings to London, they swiftly shifted most of their international business there.
The Last Vestiges of the Empire
Almost simultaneously with American banks shifting their international dealings to Britain, another development occurred far from London in the Cayman Islands. These Caribbean islands, still part of British territory, were so quiet in the early 1960s that no one knew what was happening there. Lawyers and accountants seized the opportunity and quickly moved to the Cayman Islands and other British territories, where they established banking secrecy laws to easily evade other regulations.
What was happening in the Cayman Islands at that time was entirely illegal; vast amounts of drug money flowed into the country, individuals enjoyed tax exemptions through investments, and virtually anything was permissible. The market grew rapidly, reaching a value of $500 million by 1980 and $4.8 trillion by 1988. Although the British Empire fell, the City of London managed to survive.
Lawyers and accountants quickly took advantage of the opportunities presented by the offshore tax havens, relocating to the Cayman Islands and other British territories. There, they established banking secrecy laws designed to circumvent other regulations with ease.
Euro-dollar accounts, on the other hand, existed elsewhere, and banks did not bear responsibility for verifying the legality of these transactions. They pretended that these transactions were not occurring within their markets, effectively evading oversight and accountability.
The City of London
The City of London is the heart of financial transactions in London, much like Wall Street is to New York. It has been the center of England’s financial activities and, arguably, the global economic hub in the 19th century. Often seen as a city within a city, it is managed by the City of London Corporation, an entity with such influence that it even has its private police force. The City is a smaller part of Greater London and has its mayor, separate from the Mayor of London.
The origins of the City of London date back to before 1066 AD. When William the Conqueror of the Normans invaded England, the City of London was the only place he could not conquer. Consequently, the new king allowed the city to operate independently. To this day, the City of London considers itself exempt from many laws that apply to the rest of Britain, with policies dating back to the Middle Ages.
Elections in the City of London are not conducted by its citizens but by companies operating within it. The City also has a permanent representative, known as the Remembrancer, in the House of Commons, who speaks on behalf of the City in Parliament. The City of London remains a fascinating phenomenon, often shrouded in speculation rather than concrete facts. For instance, some believe its power is so great it can influence British laws, particularly those related to financial activities. At its core lies the Bank of England, which, beyond being a central bank, also regulates Britain’s financial system. During the fall of the Empire, the Bank of England leveraged its position to attract other banks to London.
International Banking and Commerce
In 1972, the Bank of England authorized the establishment of the Bank of Credit and Commerce International (BCCI). Soon, BCCI became the seventh-largest bank in the world. However, within ten years, it went bankrupt and was ultimately shut down in 1991. Throughout its operation, BCCI engaged in some of the highest levels of financial misconduct, including money laundering, supporting terrorism, arms trafficking, tax evasion, and human trafficking, accumulating around $20 billion in assets.
The Bank of England was fully aware of these issues but instead of stopping them, it briefly tried to keep BCCI afloat. It took almost 15 months for the Bank of England to issue a termination order, during which millions of depositors were harmed. Despite having ample time to conduct a thorough investigation, the bank chose not to.
At the time, a tradition existed where financial regulators would discuss matters over lunch with their peers and resolve issues informally. London was uniquely a place where bankers were not concerned about the consequences of their actions, which partly explains why the number of banks in the City of London exceeds that of any other financial center in the world. Another reason might be that, remarkably, bankers rarely face imprisonment, appearing to be a protected class. This phenomenon was also part of the “offshore” trading laws. Since the 1960s, institutions in the City of London set up overseas branches in the last remnants of the British Empire, aiming to establish secretive regulations and attract global capital.
Trusts
The confidentiality laws used by England are typically based on the concept of trusts, which have a complex and deceptive mechanism. A trust is a relationship where the owner of an asset transfers ownership to another person, known as a trustee, and the benefits are used for other individuals or beneficiaries. It is said that the concept of trusts originated during the Crusades when knights would entrust their properties and lands to a trusted person for protection and management while they were away. In the modern world, individuals can still transfer their assets to trustees, usually lawyers, under trust law. In this situation, you are no longer the legal owner of the assets, so you are not taxed on them, and no one knows about your connection to these assets. In British offshore jurisdictions, there are no specific qualifications for becoming a trustee, allowing anyone to utilize trust law.
In essence, a trust is an invisible transaction. The number of trusts has grown so significantly that it now exceeds several million dollars, with nearly $50 trillion in essentially ownerless assets. These assets can range from art to gold bullion.
Recently, the Cayman Islands and several British territories signed agreements with Britain and other European countries to exchange information to prevent tax evasion. The Cayman Islands was the first to sign this agreement, taking a significant step towards combating tax evasion.
Among all the options available in Britain’s banking secrecy model, trusts are at the core of its offshore structure. A trust here controls its assets and can have trustees in other countries and beneficiaries elsewhere. This structure includes various types of trusts and banking secrecy, each complex in its way. Ultimately, the goal of all these structures is to obscure the identity of the asset owner and facilitate the movement of assets in the global market.
London is uniquely a place where bankers are unconcerned about the consequences of their actions, contributing to the higher number of banks in the City of London compared to any other commercial center in the world.
A trust is a relationship where the owner of an asset transfers ownership to another person, known as a trustee, and the benefits are used for other individuals or beneficiaries.
Who Oversees Britain’s Offshore Territories?
When issues arise in Britain’s offshore territories and complaints are made, the British government often responds with mere expressions of regret, claiming these matters fall outside their jurisdiction and that they cannot intervene. This is a misleading excuse; in reality, the British government chooses not to interfere. When it serves their interests, Britain pretends that these territories are independent, though they are not, and Britain maintains oversight over their foreign relations, government, and defense. Essentially, Britain controls these territories, allowing them a degree of political autonomy.
The relationship between these territories and Britain seems to involve a mutual understanding. Britain implicitly acknowledges their operations while keeping its power concealed, allowing it to claim that these territories are politically independent. In reality, much of the activity conducted in these territories is controlled from London. The City of London prefers to conduct its “dirty work” outside London to mitigate risk. Most of these transactions are initiated in the City but are moved abroad to avoid taxes and other regulations.
Empire and Global Financial Centers
Today, Britain is the largest provider of financial services globally, holding a unique role in the global market. According to the Global Financial Centers Index (GFCI) for 2023, the U.S. controls 19% of the global market, while London and its territories account for 25%.
Although British soldiers may have left other countries, their influence still controls the financial flows of those nations. This ongoing influence can be seen as a second British empire, which oversees much of the world. Even during the height of the British Empire, the City of London was the world’s largest trading hub, and independent countries also established banking branches there. Following the collapse of the British Empire, the City of London was on the verge of dissolution. However, the promotion of the Eurodollar market allowed the City to survive. With new banking secrecy laws in England, international banks gradually established branches in the City of London or British offshore territories to benefit from the new system. This setup has become so advanced that it now provides substantial employment opportunities.
In the 1960s, Britain had a physical presence in India. Comparing financial flows from that era to recent years, it’s evident that Britain’s influence has grown even more. It can be concluded that Britain continues to use its former colonies to enhance its power. Consequently, a significant portion of global wealth is likely hidden within Britain’s banking secrecy laws. Africa is one of the biggest losers in this system, being the largest debtor globally, with African countries owing approximately $645 billion by 2023. Despite efforts to prevent capital flight and tax evasion through the establishment of a UN tax committee, Africa has faced repeated obstacles.
First-world countries have consistently obstructed global financial transparency while saving their wealth abroad. The systems they use to evade taxes have created conditions that allow wealthy individuals from developing countries to plunder and transfer their countries’ assets elsewhere. Smuggling is one reason that leads to corruption among powerful individuals and impedes progress and development in some countries. When personal desires and the ability to pursue dreams in illegal financial flows become easier and less troublesome, there is little consideration for systems that could develop or positively impact the local economy. Each year, third-world countries lose trillions of dollars, a significant portion of which is transferred to first-world countries, strengthening their currencies.
How Did the U.S. Support Britain’s Offshore Investment?
The flow of illicit funds to Western countries had another side effect: nations like the UK and the US became deeply engaged in financialization, leading to the development of capitalism. The onset of financialization or deindustrialization dates back to the 1960s. During the Vietnam War, the United States spent enormous amounts on its military abroad, disrupting the economic balance in the US.
The US made several attempts to prevent capital flight during the war but was unsuccessful each time. Eventually, they realized that by establishing banking branches overseas, they could create an influx of capital into the domestic market and maintain the value of the dollar. During this period, drug traffickers and other criminals deposited their funds abroad, with the deposits eventually transferred to central branches in the US.
Each country assesses its currency value based on exchange rates. Exchange rates depend not only on imports and exports but also define capital flows. A look at US financial statistics reveals a balanced market where a significant amount of deposits are moved. These discrepancies are essentially capital flight.
A similar situation occurred in Britain during the 1960s and 1970s. A vast amount of capital was flowing out of the country, and Britain soon realized it could maintain the value of the pound. By creating a market across the ocean, Britain facilitated the movement of trillions of dollars. Like the US, this market also led to unexpected side effects. Banks shifted from investing in industries to investing in real estate and foreign exchange markets. Thus, the development of capitalism in London helped deindustrialize Britain, as it faced an influx of capital, which in turn preserved the value of the pound.
Although British soldiers may have left other countries, their influence continues to control the financial flows of those nations.
Each country evaluates its currency based on exchange rates, which are defined by capital flows, not just imports and exports.
Growth of Offshore Trade and Financial Corruption
With the quiet support of the United States, the offshore financial market in Britain saw significant growth and quickly became the largest international market globally. It can be confidently stated that half of the transactions involving banking secrecy occur in Britain and its affiliated countries. They claim that these transactions are entirely transparent and conducted legally; however, legal transactions do not require banking secrecy and the concealment of identities.
The system controlling Britain’s offshore trade is designed to prevent the exposure of information outside this system. Employees working in this system, who are dissatisfied due to financial corruption, are kept busy enough that they rarely consider exposing such information. Although no one has ever been imprisoned for this reason, companies kept employees occupied with additional tasks to ensure they stayed away from such issues.
Politicians and Banking Secrecy
It appears that many involved in offshore trade hold high political positions and can act in their business interests. British politicians claim to be fighting financial corruption, but in practice, they often do the opposite. Many of these politicians have personal and financial ties to the City of London and the UK’s banking secrecy. Often, it is these politicians and their affiliates who benefit from the system, creating no incentive for its dismantlement. Economists argue that if politicians wanted to reform or dismantle this system, they would have done so by now.
The English elite, who control the current governance of Britain, have greatly benefited from offshore trade. They have moved from managing an empire to becoming stewards of global financial trade. As more capital flowed into offshore trade, its impact on people’s daily lives became more pronounced.
Many countries around the world lack transparency in financial matters such as legal ownership or financial corruption, yet they always have representatives who legislate for their people. Countries with rampant tax evasion and similar violations often have systems designed for anonymous ownership and specific levels of financial corruption. When everything is hidden at this level, it is unrealistic to expect equal asset distribution or a better market.
Improving the situation requires citizens to be aware of these issues and understand that they are sustaining the system. Politicians exempt themselves from paying taxes and avoid taking responsibility for the system. Ordinary people are the ones who pay their taxes and fund the system’s maintenance. This represents a fundamental injustice, as citizens cannot even act in their financial interests.
Accountants
Today, international companies and elites conduct much of their business in the offshore sector. Tax evasion has become a new business method, requiring extensive infrastructure to conceal. Accountants are key players in this system. They manage structures that allow individuals and companies to move their capital offshore without tax liability. It can be said that a significant part of major accounting firms’ business models now involves ignoring the general public to facilitate tax evasion.
One person who facilitated this process was David Hartnett, former Chief Secretary of HM Revenue and Customs (HMRC), who managed tax collection in his way. He would discuss matters privately with individuals to reach a mutual agreement. In 2011, protests for financial justice and anti-tax evasion measures emerged. Following these protests, a Treasury Select Committee questioned David Hartnett, but he claimed he could not provide information to the committee under banking secrecy laws. Essentially, the UK financial industry has enacted and enforced laws to benefit itself. The political power now controlling the City of London has made politicians act as spokespeople for these companies and banks.
Private Finance Initiative (PFI)
The Private Finance Initiative (PFI) is an infrastructure scheme used by Britain to fund hospitals, schools, and other public services. Instead of funding these sectors through its system, the UK relies on the private sector. This method results in repayment costs reaching three to four times the initial amount after 30 to 40 years. Thus, this scheme can be seen as another example of accounting firms’ fraudulent practices. After implementing this scheme, accountants sought companies to sign PFI contracts.
For instance, the main office of HMRC has a PFI deal with a company to manage its finances. This company has taken out a 15% interest offshore loan to manage the HMRC main office, a rate so high that it appears the company is losing its capital and therefore does not pay taxes.
Countries worldwide may lack transparency in financial matters such as legal ownership or corruption but always have representatives who legislate for their people.
It can be confidently stated that half of the transactions involving banking secrecy occur in Britain and its affiliated countries.
Summary and Discussion
It is now clear that the City of London is the beating heart of capitalism in Britain. Despite the fall of the British Empire in the 1960s and 1970s, London transformed from the center of the empire to the global financial hub, maintaining its power. Territories that previously had little appeal have become the foundation of banking secrecy laws in the UK’s offshore areas, funneling capital from around the world into the City of London. Today, nearly a quarter of global capital is in the hands of Britain and its affiliates, and half of the offshore banking secrecy-related domains worldwide are under British control. Ultimately, it can be asserted that despite all the laws and organizations that have made Britain the largest tax haven in the world, the country has served only its elites and stakeholders in recent years, pushing capitalism to its extreme.
