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O’Connelly insisted on a suite at the Astor House, for a starter, three nights. It was one of Shanghai’s iconic hotels, not in the same class of luxury as the Peace Hotel on the Bund, where he was booked once his official programme got under way.
Smeatons grandfather had been a regular visitor to the Astor House during the period prior to the Japanese occupation of Shanghai in December 1941. His family had founded the Anglo-Dutch Commercial Bank, which had served the interests of British and Dutch businesses in their respective country’s colonies in the East Indies.
At that time Shanghai was one of the world’s greatest cities with a population of three million, a vast metropolis at the mouth of the Yangtze River, the gateway to the heart of China, a booming industrial and commercial centre. The Bund, in the International Settlement, was the symbol of the wealth and success of Shanghai. It was an extraterritorial treaty port and governed by the Shanghai Municipal Council which was effectively controlled by the British.
Smeaton’s Jakarta based bank along with its branches in Singapore and Hong Kong had prospered even into the early war years. Then, December 7, 1941, after the Japanese fleet attacked Pearl Harbour, the imperial powers’ dominoes fell in rapid succession. The morning following Pearl Harbour, the foreign concessions in Shanghai were seized by Japanese forces and Hong Kong attacked early the same day. On Christmas Day 1941, Hong Kong surrendered; Manilla was occupied January 2, 1942; Kuala Lumpur January 11; Singapore February 15; and in March the Japanese conquest of Europe’s colonies in South East Asia was complete.
With the fall of Singapore the fate of Indonesia was sealed and the Smeatons took refuge in Australia. There they remained until the US unleashed its terrible revenge on Nagasaki and Hiroshima and Japan surrendered.
Astor House Hotel – Shanghai
Smeaton returned from Australia in the autumn of 1945 and retook control of the family possessions and banking business in Singapore, and then in Jakarta, where the Dutch, with the aid of British forces, had moved back into their colony after the Japanese occupation. In 1946, the independence movement under General Sukarno had other ideas about the future of the country and a desultory war was waged by Indonesian independentist forces against their former masters. Finally, in 1949, Amsterdam was forced to accept the end of their centuries long rule in the Dutch East Indies and modern Indonesia was born.
As a wind of change swept through South East Asia, the Bandung Conference, held in Java 1955, invented the Third World. Smeaton’s father saw troubled times ahead when in 1957, Malaysia became independent along with Singapore, the latter being part of the newly created Federation. There was no future for Europeans in this new world and young Malcolm Smeaton, encouraged by his father, turned westwards.
Malcolm, who had spent his childhood in Jakarta and Melbourne, his youth in Singapore, was dispatched to London to further his studies at London University, where after two dismal years he, the scion of the old banking family, banished the idea of a career in grimy, cold, damp, foggy London with its post-war austerity - forever.
At that time Singapore was in ebullition, first race riots, then expulsion from the recently created Federation of Malaysia. After the independence from the Federation, the future of small Singapore, led by Lee Kuan Yee, with its mainly Chinese population, looked dim, inciting Malcolm to seek a new base in the hope of saving his family’s fortunes.
In Britain, as successive governments, already in dire financial straits, struggled to finance the welfare state and fulfil their engagements overseas, taxation pressures grew and the wealthy fearing for their money turned to the newly independent Caribbean territories.
It was a signal for Smeaton who headed for the Caribbean where independence and self-government was taking shape with the prospect of new opportunities for bankers and the prospect of tax shelters.
The Bahamas seemed like a good starting point; it was British and nearby to the USA, a place in the sun for the rich, where Americans could hide their money from Uncle Sam, though the Duke of Windsor had disparaged the islands as a ‘third class British colony’.
London’s cumbersome colonies in the Caribbean had been described described by V.S.Naipul as ‘part of the jetsam of an empire’, and a high level official in the British Foreign and Commonwealth Office when asked how they would survive quipped: they would turn themselves into tax havens.
After Smeaton debarked in Nassau, after his long BOAC flight had hopped across the Atlantic and North America from London, he not only found sunshine and palm trees, which reminded him of his East Indies home, he also discovered offshore banking: a potential goldmine. The Bahamas proximity to the US mainland was especially attractive to American citizens, with the English language and a British style administration to reassure visitors. Then when islands became self-governing, British law allowed ‘virtual’ residencies, which permitted companies to incorporate in Britain without paying taxes, laws that also applied in self-governing British territories such as those in the Caribbean.
The concept of virtual residency went back a long way. It was established as a precedence in British law in 1929, after it was successfully argued the Egyptian Delta Land and Investment Co. Ltd., though registered in London, did not have any activities in the UK and was therefore not subject to British taxation. This effectively made Britain a tax haven, as companies could incorporate in Britain without paying British tax on their activities outside the UK. The ruling was not only valid for the UK, but also the entire British Empire, which of course included the Bahamas.
Another ruling, in 1957, this time by by the Bank of England, reinforced the concept. With the emergence of the Euromarket, Threadneedle Street recognised that transactions made by UK commercial banks on behalf of non-resident clients were not considered to have taken place in the UK.
As a consequence such transactions were effectively offshore and therefore outside of the Bank of England’s jurisdiction, or for that matter, any other UK regulating authority.
The Euromarket was created following the Suez Crisis of 1956, in response to restrictions on the use of pound sterling in trade credits, allowing the use the US dollars in commercial exchanges by non-UK businesses abroad, transacted on their behalf by banks located in London.
As in earlier similar such rulings, these transactions were considered to be offshore since they were made on behalf of non-residents, in foreign currency and overseas, even if the contractual documents were drawn up in the UK.
The result was the creation of a new, non-regulated, banking environment beyond the jurisdiction of the Bank of England, or any other central bank.
Thus, it was in this legal environment offshore finance was born.
Malcolm Smeatons was quick to seize the opportunities offered by the system and incorporated his first offshore bank in Bahamas, the Anglo-Dutch Nassau Bank.
When the status of the smaller British islands in the Caribbean changed from that of colonies to states in free association with the UK in 1967; the former colonial power retaining control of external affairs and defence, Smeaton incorporated another bank in Dominica, a small almost forgotten former British possession that lay between French Guadeloupe and Martinique. There he calculated he would be totally free from prying Brits with whom, he, being part of an old colonial family, had never been really been at ease, his suspicion bordering on mistrust, especially of London’s political classes and the UK’s ruling establishment. The Smeatons had lived through the fall of Hong Kong, Kuala Lumpur and Singapore, and had witnessed British treachery in the face of the Japanese ambitions in Shanghai, followed by the collapse of the British Empire and the subsequent abandonment of its colonies to their sort.
Cornucopia Page 92
