The new international financial architecture and Caribbean ofcs: Confronting financial stability discourse

Abstract

This article examines the role and force of international finance in contemporary capitalism and the norms being established by international financial governance structures. More than the matter of exclusion, the article argues that financial stability discourse girding issues related to the nature of capital market liberalisation, terrorist financing, money laundering and tax evasion attempts to suture over, erase and/or render illegitimate ideational resistance—particularly by offshore financial centres (ofcs) of the global South. The ongoing experience of the English-speaking Caribbean ofcs is discussed as local operatives have long been simultaneously framing as well as resisting Anglo-American insistence on a new configuration of market ethics, norms and sociality in the virtual world of ‘shores’ and high finance. This adds to the emerging body of work seeking to discursively unpack financialisation.

Notes

1 I refer here to money-capitalists who send out large flows of funds into portfolio investments (ie buying securities), Treasury Bills, currency speculation, and government bonds—of which the US bond market is the largest. To be sure, portfolio investment rests on exploiting interest rate differentials as investors move to refinance existing debt and purchase existing companies in emerging and other markets in the global South. The nature of the above mentioned investment is short-term, volatile and speculative. Altogether it increases market volatility and can induce panics and manias, of which more is discussed later. For more on this, see P Gowan, The Global Gamble: Washington's Faustian Bid for World Dominance, London: Verso, 1999; and S Strange, Mad Money, Manchester: Manchester University Press, 1998.

2 A few examples of recently exposed financial scandals are the 1998 collapse of US hedge fund Long-Term Capital Management; the collapse of US energy corporation Enron in December 1998, the 2006 fraud charges levelled against three bankers at NatWest which would see them extradited to the USA under the terms of a 2003 Extradition Act—not ratified by the USA in its correspondent UK – US Treaty—on the grounds that they used their business knowledge about Enron's fragile financial state for their individual or competitor gain; and various reports on international money laundering by the fatf and the Egmont Group of Financial Intelligence Units between 1997 and 2004.

3 To be sure I am drawing on Anglo-American variants of ‘Caribbeanist’ discourse, recognising that there are French, Hispanic and Dutch variants that may produce other understandings of how the Caribbean was perceived and represented. There is no doubt, however, that there was overlap, as the Caribbean was orientalised from its inception in relation to Europe's East. See D Root, Cannibal Culture: Art, Appropriation and the Commodification of Difference, Boulder, CO: Westview Press, 1998.

4 The latest attempt has been to place tax policy reform onto the agenda for good governance, a consideration advanced by the EU in its trade and development negotiations with the Caribbean. Altogether the Anglophone Caribbean heads of government have been unequivocal in their objection to including such matters in talks leading to an Economic Partnership Agreement. For more on this, see G Edwards, ‘Region: no tax talks with EU’, Daily Nation, 24 July 2006.

5 For a brief synopsis on the evolution of the international financial architecture, see F Saccomanni, ‘Introduction: a new architecture or new system? A survey of international monetary reform in the 1990s’, 1991, at http://www.associazioneguidocarli.org/pdfs/saccomanni.html.

6 British regulators could not be convinced by US officials to close the Euromarkets in the 1970s. For more on this, see S Strange, ‘Still an extraordinary power: America's role in the global monetary system’, in R Lombra & W Witte (eds), The Political Economy of International and Domestic Monetary Relations, Ames, IO: Iowa State University Press, 1982; E Helleiner, States and the Re-emergence of Global Finance: From Bretton Woods to the 1990s, Ithaca, NY: Cornell University Press, 1994; and LW Pauly, Who Elected the Bankers? Surveillance and Control in the World Economy, Manchester: Manchester University Press, 1997.

7 RD Germain, ‘Global financial governance and the problem of inclusion’, Global Governance, 7 (4), 2001, p 415.

8 M De Goede, ‘Beyond economism in international political economy’, Review of International Studies, 29, 2003, p 96.

9 I made this observation in another publication. See DD Marshall, ‘Governance and re-regulation of offshore financial centres: (re)framing the confines of legitimate debate and protest’, in C Barrow-Giles & DD Marshall (eds), Living at the Borderlines: Issues in Caribbean Sovereignty and Development, Kingston: Ian Randle Press, 2003, pp 63 – 74.

10 See, for example, A Claire Cutler, Virginia Haufler & Tony Porter (eds), Private Authority in International Affairs, New York: State University of New York Press, 1999; and Susanne Soederberg (ed), ‘The New International Financial Architecture’, special issue of Global Governance, 7 (4), 2001.

11 For a discussion of accountability, see JA Fox & LD Brown (eds), The Struggle for Accountability: The World Bank, ngo s and Grassroots Movements, Cambridge, MA: mit Press, 1998. On the need for wider inclusion see Germain, ‘Global financial governance and the problem of inclusion’, pp 411 – 426; T Porter, ‘The democratic deficit in the institutional arrangements for regulating global finance’, Global Governance, 7 (4), 2001, pp 427 – 439; and D Held, Global Covenant: The Social Democratic Alternative to the Washington Consensus, Cambridge: Polity Press, 2004. Porter signals the need to look at finance as a discourse, with others making this their emphasis. See, for example, Nigel Thrift, ‘It's the romance, not the finance, that makes the business worth pursuing’, Economy and Society, 30, 2001, 412 – 432; and De Goede, ‘Beyond economism in international political economy’, pp 79 – 97.

12 I am borrowing Cornel West's term here even as he deploys it in a different context. See C West, ‘Race and modernity’, in West, The Cornel West Reader, New York: Basic Civitas Books, 1999, ch 5.

13 See L Seabrooke, The Social Sources of Financial Power, Ithaca, NY: Cornell University Press, 2006.

14 See especially M de Goede, Virtue, Fortune and Faith: A Genealogy of Finance, Minneapolis, MN: University of Minneapolis Press, 2005. See also L Neal, The Rise of Financial Capitalism: International Capital Markets in the Age of Reason, Cambridge: Cambridge University Press, 1990; and R Germain, The International Organisation of Credit, Cambridge: Cambridge University Press, 1997.

15 And this is after some 35 years of international banking and surveillance. While the Bank for International Settlements was created in 1930, I refer to the work and mandate of the two main Committees responsible for tracing and establishing standards for effective monitoring of financial transactions. These are the Committee on the Global Financial System created in 1971 and the Basel Committee on Banking Supervision formed in 1974.

16 See C Arnsperger, ‘Probing the “moralisations of capitalism” problem: democratic experimentalism and the co-evolution of norms’, International Social Science Journal, 185, 2005, pp 433 – 444.

17 This quotation is drawn from R Herrera, ‘The neoliberal “rebirth” of development economics’, Monthly Review, 58 (1), 2006, p 49.

18 For more on this, see R Blackburn, ‘Finance and the fourth dimension’, New Left Review, 39, 2006, pp 39 – 70.

19 Ibid.

20 See ‘Goldman Sachs and the culture of risk’, The Economist, 29 April 2006.

21 When investment banks position themselves and their clients in relationship to the wider impact of a merger or some other major event, it is referred to as risk arbitrage.

22 Surplus can be distributed as shareholder dividends or as funds for artificially inflating the stock price, and also as wage increases, as retained cash or as reinvested profits.

23 See the report on Mr Nout Welling's address, ‘bis holds annual general meeting and releases its 75th annual report’, 27 June 2005, at http://www.bis.org/press/p050627a.htm, accessed 30 June 2006.

24 See Paul Langley, ‘In the eye of the “perfect storm”: the final salary pensions crisis and financialisation of Anglo-American capitalism’, New Political Economy, 9 (4), 2004, pp 539 – 558.

25 See, for example, S Vogel, Freer Markets, More Rules: Regulatory Reform in Advanced Industrialised Countries, Ithaca, NY: Cornell University Press, 1998.

26 See the contributions in R Latham & S Sassen (eds), Digital Formations: it and New Architectures in the Global Realm, Princeton, NJ: Princeton University Press, 2005.

27 I treat the arguments of McKinnon and Shaw as representative of the position in favour of deregulation. See R McKinnon, Money and Capital in Economic Development, Washington, DC: Brookings Institution, 1973; and E Shaw, Financial Deepening in Economic Development, New York: Oxford University Press, 1973.

28 This narrative of course is used to point up the hegemonic influence of the USA and to a lesser extent Britain in the shaping of financial market policies among core countries. For more on the hegemonic thesis, see E Helleiner, States and the Re-emergence of Global Finance; and R Gilpin, Global Political Economy: Understanding the International Economic Order, Princeton, NJ: Princeton University Press, 2001.

29 Beginning with the international efforts of over 600 ngos and grassroots movements to strike down the Multilateral Agreement on Investment and the 1998 Battle of Seattle, there have been protests against neoliberal globalisation, corporate power in the form of transnational companies (tncs), and the exclusionary nature of global governance institutions. Throughout, justice claims are being made on behalf of a putative ‘global civil society’ concerned with fair trade, fair wages, the health of the planet and local environments, human rights, protection for minority groups and interests, cultural diversity and decent work, among other issues.

30 The ‘house-in-order’ school was dominant in the early Reagan/Thatcher years. This occurred at a time when negotiations and debates on international monetary reform were based on the idea that each country should follow sound, non-inflationary policies ‘at home’. With increased episodes of financial instability, the G7 Summit in Halifax began considering ways to deliberately intervene in the direction of international management. Some of the key challenges financial globalisation poses to central bankers include rising equity prices; the ease with which the US current account deficit can be financed from abroad; the weakening of its dollar as its trade deficit widens; and the sharp wealth losses those creditor countries face on dollar-denominated assets. And in a financial crisis where Emergency Liquidity Assistance is required by a corporation deeply ensconced in financial trading, who is to give it—the home country or the host country—and in what currency, given the multilateral commitments of the financial firm? For more on these and related issues, see the proceedings of the Fifth bis Annual Conference: ‘Financial Globalisation’, Brunnen, Switzerland, 19 – 20 June 2006, at http://www.bis.org/events/conf060619.htm, accessed 30 June 2006.

31 Indeed the ‘Financing for Development’ conference in Monterrey, Mexico in 2002 revealed more about the ways in which poverty-alleviation measures and greater access to aid are tied to a re-jigged relationship with the imf and World Bank than about a G7 commitment to financing the transition to market liberalisation in countries of the global South.

32 The Doha Round has gone awry largely because major differences abound between core and emerging countries relative to balancing market openings in agriculture with those in industrial goods (ie modalities upon which to begin talks on agriculture and non-agriculture market access).

33 For a recent discussion of this issue, see WK Tabb, ‘Trouble, trouble, debt, and bubble’, Monthly Review, 58 (1), 2006, pp 28 – 37.

34 See J Bhagwati, ‘The capital myth: the differences between trade in widgets and trade in dollars’, Foreign Affairs, 77 (3), 1998, p 8.

35 See Bhagwati, ‘The capital myth’; and J Sachs, ‘Lessons from the Thais’, Financial Times, 30 July1997, p 26, at http://www.stern.nyu.edu/∼nroubini/asia/AsiaCrisisSachsViewFT897.html. For a fuller discussion on the assault on neoliberal assumptions, see D Felix, ‘The economic case against free capital mobility’, in LE Armijo (ed), Debating the Global Financial Architecture, New York: suny Press, 2003.

36 See oecd Corporate Governance Guidelines, Paris: oecd, 1998. See also PS Heller, ‘Considering the imf's perspective on “sound fiscal policy”’, imf Policy Discussion Paper, 8, 2002, Washington, DC: International Monetary Fund; and A Abiad, N Oomes, & K Ueda, ‘The quality effect: does financial liberalisation improve the allocation of capital?’, imf Working Paper, 112, 2004, Washington, DC: International Monetary Fund.

37 The G20 includes the G-7, a senior representative from the European Union, the World Bank, the Bank's Development Committee, the imf, the Fund's new International Monetary and Financial Committee, and the following ‘systematically important’ market economies: Argentina, Australia, Brazil, China, India, Indonesia, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey.

38 See Bhagwati, ‘The capital myth’, pp 11 – 12.

39 Ibid; Gowan, The Global Gamble; Soederberg, special issue of Global Governance; and R Brenner, ‘New boom or new bubble?’, New Left Review, 25, 2004, pp 57 – 100.

40 The evidence reveals that financial-sector profits climbed as a percentage of total US corporate profits from 14% in 1981 to 39% in 2001. See Brenner, ‘New boom or new bubble?’, p 76.

41 The USA Patriot Act (2001) became The USA Patriot Improvement and Reauthorisation Act of 2005, signed by President George W Bush on 9 March 2006. For the various ways money laundering is considered and legally addressed, see Title III—International Money Laundering Abatement and Anti-terrorist Financing Act of 2001, of the Patriot Act.

42 See Financial Action Task Force, ‘Money laundering and terrorist financing typologies’, prepared by the fatf Secretariat, oecd, on 10 June 2005.

43 For a rich analysis of the origins of money laundering and financial corruption, see J Walker, ‘Modelling global money laundering flows—some findings’, Crime Trend Analysis, at http://members.ozemail.com.au/∼john.walker/crimetrendsanalysis/mlmethod.htm.

44 See Petrus van Duyne & Hervy de Miranda, ‘The emperor's clothes of disclosure: hot money and suspect disclosures’, Crime, Law and Social Change, 31 (3), 1999, pp 245 – 271.

45 The information here is drawn from the fatf website at www.fatf-gafi.org, accessed 6 April 2006. It is also corroborated by the cases published by the Egmont Group of Financial Intelligence Units and available from the UK's National Criminal Intelligence Services’ website at www.ncis.gov.uk/publications, accessed 6 April 2006.

46 According to Spitz, a tax haven is a ‘jurisdiction’‘a) where there are no relevant taxes; b) where taxes are levied only on internal taxable events but not at all, or at low rates, on profits from foreign sources; c) where special tax privileges are granted to certain types of taxable persons or events. Such special tax privileges may be accorded by the domestic internal tax system or may derive from a combination of domestic and treaty provisions.’ See B Spitz (ed), Tax Havens Encyclopedia, Issue 15, London: Butterworths, 1983.

47 SM Roberts, ‘Fictitious capital, fictitious spaces? The geography of offshore financial flows’, in S Corbridge, R Martin & N Thrift (eds), Money, Power and Space, Oxford: Blackwell, 1994, pp 91 – 115.

48 See R Palan, The Offshore World: Sovereign Markets, Virtual Places and Nomad Millionaires, Ithaca, NY: Cornell University Press, 2006.

49 The s&p report was based on a ranking of the top 150 global reinsurers. See also MJ Moody, ‘Bermuda's influence spreads’, Rough Notes Magazine, November 2005 (online edition), Indiana: Rough Notes Company.

50 See T Thorndike, ‘The future of the British Caribbean dependencies’, Journal of Interamerican Studies and Would Affairs, 31(3), 1989, pp 117 – 140. See also R Palan, ‘Tax havens and the commercialisation of state sovereignty’, International Organisation, 56 (1), 2002, pp 151 – 176; and A Kochen, ‘Cleaning up by cleaning up’, Euromoney, April 1991, p 73.

51 See Oxfam, ‘Tax havens: releasing the hidden billions for poverty eradication’, Oxfam Policy Papers, 6, 2000, at http://www.oxfam.org.uk/policy/papers/taxhvn/tax1.htm.

52 Palan, ‘Tax havens and the commercialisation of state sovereignty’.

53 This essay, entitled ‘US – Canada cross-border corporate fraud’, is authored by Farah Malik of Gowling Lafleur Henderson llp.

54 The blacklist was published by the oecd on 24 November 2000 under the title ‘Framework for a collective Memorandum of Understanding on eliminating harmful tax practices’.

55 The legal and professional team preparing the legal defence of these international business interests often relies on or is drawn from the expertise located in the offshore jurisdiction. Follow the links on the two tax shelter cases listed below. The information is drawn from the website set up by the American Institute of Chartered Accountants, publisher of the online Journal of Accountancy, at www.aicpa.org/pubs/jofa/jun2005/taxcases.html, accessed July 28 2006:

• i) TIFD-III-E Inc v Commissioner, 94 AFTR 2d 2004-6635 (DC Conn., 11/1/2004);

• ii) Black & Decker Corp v United States (DC MD 10/20/2004).

56 This is discussed and captured by R Saunders, ‘The fight against fiscal colonialism: the oecd and small jurisdictions’, The Round Table: The Commonwealth Journal of International Affairs, 2002, pp 325 – 348.

57 These remarks are attributed to Malcolm Spence, technical advisor on intellectual property and agriculture with the Caricom Regional Negotiating Machinery. See the Daily Nation, 24 July 2006.

58 See the online copy of ‘Diasporas in Caribbean development’, the Rapporteur's Report by Michelle Lapointe, Inter-American Dialogue and the World Bank, August 2004, at www.thedialogue.org/publications/country_studies/caribbean/diasporas.pdf, accessed 29 July 2006.

59 As reported by the Inter-American Development Bank News, 13 March 2006.

60 For the Forty Recommendations, see Financial Action Task Force, ‘Report on money laundering typologies’, fatf Secretariat, Paris, 2004. For a recent extension to these recommendations, see Financial Action Task Force/oecd, ‘Report on new payment methods’, fatf Secretariat, Paris, 2006.

61 The new payment methods refer to pre-paid cards, internet payments systems, mobile payments, and digital precious metals. fatf, ‘Report on new payment methods’, pp 4 – 9. On ‘politically exposed persons’, this category includes senior government, judicial and military officials, former or current heads of government and state, and senior executives of state. See fatf, ‘Report on money laundering typologies’, pp 19 – 23.

62 Remarks made on 1 July 2003 by Vincent Harvey, Director of Economic Crime for the National Criminal Intelligence Service, now retitled The Serious Organised Crime Agency (soca). The soca has since 1 April 2006 taken over from the National Criminal Intelligence Service responsibility for the regime's Financial Intelligence Unit and its database of sars. For more on this see http://www.4ni.co.uk, accessed 26 June 2006.