Dan Atkinson in London and Mark Milner in Seoul
When Yamaichi Securities was looking for a discreet home for 1-billion-odd of bad trades, it didn’t have to look for long. There was really just one place for the duff trades – offshore. And, for the true connoisseur of offshore, the destination of the dud deals was obvious.
Thus, the losses were dispatched 13 300km from rain-soaked, royal-family loving Tokyo to the sun-soaked, royal-family loving Cayman Islands. Surprise, surprise, Yamaichi’s dodgy deals ended up in the erstwhile home of BCC (Overseas), crooked offshoot of Bank of Credit and Commerce International.
For the wide boys at Yamaichi, the Caymans were just the ticket. The Japanese securities house was parking losses with “related” companies and clients. These companies and clients suffered a serious handicap – they didn’t exist. But that is no handicap at all in the Caymans, where it is the easiest thing in the world to set up an “exempt” company – one that does little business in the British colony – whose true ownership is impossible to trace.
So-called “bearer shares” – stocks conferring ownership on whoever happens to be holding them – can be issued and then taken anywhere. The Yamaichi crowd could have shredded them or sent them six fathoms deep to the bottom of the Caribbean. Anonymity would have been guaranteed.
Had any Japanese bank regulator been keen enough to try to identify Yamaichi’s non- existent counterparties (unlikely as Japanese bank regulators seem to make Britian’s dozy crew look like Eliot Ness and The Untouchables), he would have hit a brick wall.
Caymanians boast the highest density of fax machines in the world. But then, they need them, so that all the resident companies can do “business'” with themselves.
Of course, the Cayman Islands, like the rest of offshore, is cleaning up its act. In February 1995, financial secretary George McCarthy took to the road to persuade audiences in New York, London and Hong Kong that BCC (Overseas) and any other unfortunate incidents were now history. “I would not describe the Cayman Islands as offshore,” said McCarthy. “We are an international financial centre and the same level of scrutiny (that obtains) onshore obtains in the Cayman Islands.”
The Yamaichi disclosures prove once again that the “cleaning up” of offshore centres is rather like the reform of the Common Agricultural Policy or the rebirth of English Test cricket: always on the brink of happening.
Meanwhile, Western markets largely shrugged off the Asian crisis this week, although Japanese share prices fell sharply as the markets re-opened after the announcement that Yamaichi had closed – the biggest bankruptcy in Japan’s history.
In South Korea, where negotiations between the government and the International Monetary Fund are under way, union leaders from Seoul’s stockbroking houses staged a sit-down protest against the stock exchange’s demand for trading to be suspended. “It is unfair that all the burden of the bankrupt South Korean economy is being passed on to stock investors, who are being driven to the road of death,” one protester said.
There are signs that the fund negotiations are already proving tough, with the extent of budgetary belt-tightening and the restructuring of the country’s cash- strapped banking sector among the most contentious issues.
Finance ministry officials are reported to be warning that South Korea is not capable of “an overnight facelift” and that if the fund is too demanding the talks could turn “sour”.
South Korea’s most influential trade union has also warned of industrial action if the IMF imposes conditions which lead to heavy job losses.