Right after WWII, a group of governments put a global financial system in place that was meant to ensure economic growth and stability. Called the Bretton Woods System, it used gold-backed US dollars as an impartial international currency and controlled the exchange of currency between nations. That US currency wasn’t impartial, though, and the whole systems slowed British banking so much that bankers became more known for short work days and boozy lunches than for their work.
For The Guardian, Oliver Bullough explains how a banker named Ian Fraser helped upend that old system, which led to offshore banking and allowed for the unprecedented concentration of wealth we now see in a handfull of the world’s richest people. As Bullough points out, this is all like a real life version of Goldfinger, from the James Bond book. Too bad real life doesn’t have as happy an ending. Thanks a lot, Fraser!
Warburg’s new bond issue – these bonds became known as “eurobonds,” after the example set by eurodollars – was led by Ian Fraser, a Scottish war hero turned journalist turned banker. He and his colleague Peter Spira had to find ways to defang the taxes and controls designed to prevent hot money flowing across borders, and to find ways to pick and choose different aspects of different countries’ regulations for the various elements of their creation.
If the bonds had been issued in Britain, there would have been a 4% tax on them, so Fraser formally issued them at Schiphol airport in the Netherlands. If the interest were to be paid in Britain, it would have attracted another tax, so Fraser arranged for it to be paid in Luxembourg. He managed to persuade the London Stock Exchange to list the bonds, despite their not being issued or redeemed in Britain, and talked around the central banks of France, the Netherlands, Sweden, Denmark and Britain, all of which were rightly concerned about the eurobonds’ impact on currency controls. The final trick was to pretend that the borrower was Autostrade – the Italian state motorway company – when really it was IRI, a state holding company. If IRI had been the borrower, it would have had to deduct tax at source, while Autostrade did not have to.
The cumulative effect of this game of jurisdictional Twister was that Fraser created a bond paying a good rate of interest, on which no one had to pay tax of any kind, and which could be turned back into cash anywhere. These were what are known as bearer bonds. Whoever possessed the bond owned them; there was no register of ownership or any obligation to record your holding, which was not written down anywhere.