Beyond HSBC and Swissleaks: tax havens and international banking

The HSBC tax evasion scandal and the so-called Swissleaks brought to the fore one of the most classic financial strategies of the past half century: the internationalisation of banking to offshore centres practicing lax regulatory and supervisory regime (tax havens, to cut it short). By its relative detail and its scope, the recent enquiry attracted considerable attention. Yet the roots of this process started some decades ago, around the 1970s, when banks looked for new opportunities on the international stage as their national markets tended to be “over-banked.”

It looks at times as if this trend was being discovered now. This is rather surprising since some of the data that can help to see this process is in open access, in particular with the various editions of the Bankers’ Almanac. I am currently working on piece on the development of Bahrain as an international financial centre, and use the Bankers’ Almanac quite extensively as it is the ideal source to find the list of banks established in a given financial centre (or the other way around, the list of places where an individual bank is established).

As a smaller-scale exercise, I had compiled a while ago a list of the banks established in the Cayman Islands between 1962 and 1981. I wanted to see the rise of tax havens and the internationalisation of banking in a specific financial centre (although I can’t remember why I chose the Cayman Islands over, say, Panama or the Bahamas). The specific start and end dates are a bit arbitrary – I had in mind a chronological span going from the early 1960s until the early 1980s. I was mostly interested in seeing what general trend would come up, and indeed if any clear trend was observable at all. The vast majority of these banks are foreign banks, given the small size of the local banking sector. But to confirm this would require going back to the Bankers’ Almanac and double-checking each and every bank’s origin.

The graph speaks for itself: a regular and spectacular rise in the number of banks (importantly sometimes only representative offices of banks) occurred after the mid-1970s. One to three banks were established in the Cayman in the 1960s, while 111 were represented in 1981! This confirms that the 1970s was a pivotal decade in the internationalisation of banking and in the rise of offshore centres, and tax havens.

This graph is unfortunately not as nicely presented and comprehensive as Martin Grandjean’s great mapping of HSBC’s international development for instance. Many things ought to be polished: filling the gap of 1974 (I cannot remember why, but I had not collected the data for the year 1974 – presumably the volume was absent in the library at the time); the chronology could be longer; I could single out the coming of individual banks and the absence of others; and probably also present the data per bank’s country of origin. In spite of this, I thought it was worth sharing as it stands.


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