Why is this useful to you, the MBA student?
No matter what specialisation you choose, there is a little something of policy, law, history and just general awareness in this for all. So the first question that comes to mind? How on Earth did the UK become a tax haven? Well, it’s not specifically the UK if you ask the Government. It’s the offshore islands that do not fall under the UK jurisdiction.
It all started post World War 2. The UK was facing a financial crisis of gigantic proportions. This is when President Abdel Nasser decided to nationalise the Suez Canal. Which meant that all trade routes would be under control of not the British or French, but the Egyptians. This meant losing revenues that the British received when they shared control of the Suez Canal with France. This was a bad sign for investors in the British economy. They saw that Britain no longer controlled major world trade, or even had a significant stake in it and so they started exchanging the Pound for other, more valuable currency.
This is when the British Central Bank decided to act. Domestic British bankers were asked to stop lending to overseas borrowers. But this move affected the banks. Bankers were not happy and a compromise was made. The Central Bank mandated that foreign lending could continue, given that the transactions were not in Pound Sterling. Also, they stipulated that lenders and borrowers needed to reside somewhere else, not the UK. Basically, these transactions had no traceable address.
Now if you’ve ever participated in a bank transaction of any kind, you know that a domicile or an address are important aspects. So bankers had to furnish an address for these dubious transactions. They simply chose British overseas territories for the job. And if you haven’t yet figured it out, this was an excellent way to circumvent regulations. Bankers ended up exchanging their pounds to more valuable currency, lending it and borrowing it became an easier process, and it was all deemed legal and above board. Also, local authorities in these areas deliberately designed regulations to make the process more seamless. And offshore banking took off in a massive way. That’s pretty much the story of tax havens started, at last in the UK. A place where you stow your funds, which may or may not be visible on the account books. A great way to save tax for the uber rich.
What do you think? Do you think tax havens are, like many other undesirable aspects of our society, a result of capitalism? Do you think tax havens augment the divide between rich and poor? Do you believe that systems are made to favour the moneyed classes of society? Do you think organisations and companies actually benefit from these havens? Share your thoughts and opinions in the comments section below!
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