The Secretive City That Is Home to Britain’s New Empire
Hidden deep in the heart of London is another thriving city, shrouded in mystery and secrecy.
Deep in the heart of London, in an area occupying just over one square mile, lies the City of London. It is the oldest part of London which was originally named Londinium by its founders, the Romans. The City is home to London’s financial sector and boasts the Bank of England, the London Stock Exchange and the Royal Courts of Justice as but a few of its eminent tenants.
The area boasts its own Mayor, referred to as the Lord Mayor, its own police force and courts, and operates as an entirely independent city within the boundaries of Greater London. Some would even apply the term ‘State’. It exists and operates outside the laws of the United Kingdom and dictates the country's fiscal and banking policies. It is the beating heart of London’s claim to being the financial capital of the world.
The City’s creation is rooted in Britain’s medieval past and its continued existence is interwoven with Britain’s colonial aspirations and the collapse of the old Empire. This is the story of the secret City. It is also the story of the birth of Britain's New Empire, for the one story cannot be told independently of the other.
All the drama, the intrigue, the bid for global financial domination, play out in area no larger than 1 square mile.
The Birth of the City
The year is 1066. William the Conqueror invades England and almost all of the country falls to his invading army. Almost. The City of London survives repeated attempts against his occupying forces and eventually in 1067 William grants protection to this small enclave in the heart of London. This act allows the City to flourish and places it firmly on its path to dominating both greater London and England itself.
The modern day City of London is both unique and peculiar.
It is exempt from numerous laws that govern the rest of Britain. This is a direct result of the status it was accorded by William.
Its political system derives from the Middle Ages. It is not the residents of the City that are its elected officials, but rather the businesses that are based and operate from within its walls.
Its Lord Mayor is elected by heads of medieval guilds and his yearly procession in November is the world’s oldest surviving civil procession.
A 2011 population census put its permanent residents, or those living within the Square Mile at 7,400 people. 2019 estimates place that figure at around 11,000 people.
It is run by a company called the The City of London Corporation, a private firm with control over its police and infrastructure.
In recent times, few have dared to speak out against the power the City wields in both financial and legal sectors. It’s continued ability to adapt and thrive has seen it survive centuries of change. In more recent times, despite clear flouting of global financial regulations and abetting massive global frauds, it remains unscathed, a true testament to wealth and power.
Its survival has in no small part been due to secrecy. In the 1960s it extended this policy of secrecy through the Bank of England with the creation of secrecy jurisdictions. I will discuss these jurisdictions in more detail later. One of the few political voices to speak out publicly against the City was the late Prime Minister of Britain, Clement Attlee (1945 -1951)
“Over and over again we have seen that there is another power base than that which has its seat at Westminster. The City of London, a convenient term for a collection of financial interests is able to exert itself against the government of the country. Those who control money can pursue a policy at home and abroad that is contrary to that which is being decided by the people.”
To understand how the City was able to maneuver itself into its current position of influence over Britain's financial, legal and political systems, we need to go back a few centuries. Back to the time of colonialism and the first and grand British Empire.
The fall of the first Empire
For nearly 300 years England thrived as the biggest colonial power the world had ever seen. Its subjects spanned continents and the globe, from territories in the Americas, Africa, and Europe to the far-flung shores of Hong Kong, India, and Australia. The financial beneficiaries of this empire were firmly ensconced within the City of London and for generations, these families amassed enormous fortunes.
Then in the early twentieth century, the Empire began unraveling, slowly at first, and then at an alarming speed as countries sought their independence. By the time the Suez crisis erupted in 1956, Britain was no longer a global leader.
The sterling zones, financial areas Britain had created throughout its Empire and linked to the British pound had almost disappeared within a generation. The Suez crisis was a turning point. It left Britain humiliated on the global stage and led to a run on sterling. A run many suspect was instigated by America who had been vocally opposed to military action against Egypt, opting rather for the intervention of the United Nations. It was time for a new strategy and as always, the City of London delivered and in doing so began the slow march towards the establishment of the second British Empire.
A new Empire emerges
To save further devaluation of its currency Britain instituted protective measures, effectively limiting banks from investing in or lending to overseas markets. Sterling could no longer be moved abroad or utilized in financial transactions transacted outside of Britain’s territories. Powerful banking firms within the City of London lobbied the Bank of England to allow for an exclusionary policy for non-resident transactions. In effect, if the banks intermediated between non-residents in a foreign currency, the transaction would not be subject to British jurisdiction. The Bank of England agreed.
The result was the creation of the London Euro Dollar (LED) market, a fictional space where financial transactions could be concluded away from prying eyes. The fact that these transactions were still taking place on British soil within the confines of the City of London was overlooked by the Bank of England.
They declared the LED market was not within the confines of England, stating simply that the space it occupied was elsewhere. Soon, American banks, realizing they could utilize this market space to avoid US regulations, moved their international operations to the City of London. They were joined in rapid succession by other banking institutions from around the globe.
At more or less the same time that the LED market was expanding, the City of London turned its eyes once again to an old time-proven favorite, Britain’s remaining overseas territories. Bankers and lawyers descended on the Cayman Islands and started drafting a set of banking and secrecy laws to regulate financial transactions concluded in these territories.
These agreements led to the creation of what was to become known as secrecy jurisdictions. It was the birth of offshore banking as we know it today. These territories took in huge sums of money and engaged in blatantly illegal activities that included money laundering of drug money and tax evasion. With access to these overseas funds the LED market flourished. In 1980 it was estimated to have been worth 500 billion dollars. By 1988 that figure had grown to 4.8 trillion dollars and it is estimated that by 199o, nearly 90% of all international loans utilized this market.
The City of London had once again delivered the goods and in doing so, had secured its privileged status. Britain’s new Empire was born and it would grow spectacularly over the next few decades.
Banking secrecy had long been the domain of the Swiss. Give us your cash and we won’t say a word. The Bank of England and the City of London set about creating a different form of secrecy. They set up a financial instrument called a Trust.
The Trust is a legally complex and very English instrument. It is thought to have originated during the English crusades when crusading Knights would entrust their land and possessions to a trusted steward to protect and administer in their absence. This instrument was seized upon by the banking sector and coupled with the City’s proclivity for secrecy, offshore trusts flourished.
There is no law in Britain that obliges a Trust to record the details of a trustee or a requirement to register the Trust in the public domain. No financial reporting is required. Offshore Trusts are in effect the ultimate tool for financial secrecy.
Across the globe, estimates vary, but it is not conservative to imagine that at least 50 trillion dollars worth of financial and non-financial assets are held by these trusts, 50 trillion dollars worth of assets that effectively belong to no one. The impacts of these trust have been massive on poorer undeveloped countries, in particular on the African and South American continents.
The complex nature and complete anonymity of these Trusts has enabled wealthy political dynasties and privileged individuals to drain the fiscal wealth of their countries with almost no accountability. Colonialism it seems may have changed ships, but it is still flying the same flag.
In Part 2 of this article, I will explore the modern-day City of London and the challenges it faces in a rapidly evolving financial and global market place. A market place that is subject to ever-tightening restrictions. Will it survive and is it already undergoing yet another metamorphosis?