Discovering the Early Modern Offshore World: Smuggling and the Long History of Tax Havens

by Dr. David Chan Smith (Wilfrid Laurier University)

There is in an old British entrepreneurial tradition for those keen to escape regulation: find an ancient liberty, preferably an island (or an abandoned Maunsell Fort in the North Sea), and declare it free. Richard Score seized the opportunity in 1716 when he leased the island of Lundy and claimed that it was beyond British taxes and duties ‘like the Isles of Man, Guernsey etc’. Stretching just three miles long in the Bristol Channel, Lundy was ideally poised to serve the bustling smuggling economy on the coasts of southern Wales and southwest England. Score knew this business well because he had been a Customs officer in Penzance. He had succumbed, as contemporaries often said, to the ‘temptation’ of smuggling. During this period of high duties fortunes were made on islands such as Jersey and Guernsey that served as entrepots in the running trade. And now Score had his very own – at least for a time.

The real cause of the present high price of provisions, or, a view on the sea coast of England, with French agents, smuggling away supplies for France by James Gillray

Smuggling has long been a form of economic warfare… “The real cause of the present high price of provisions, or, a view on the sea coast of England, with French agents, smuggling away supplies for France” by James Gillray, Public domain, via Wikimedia Commons

His story is part of the long history of tax havens and hidden economies, spaces and structures that continue to shape the global economy. Through the lens of early modern smuggling, my research explores the offshore network of places such as Lundy found in close proximity to Britain. This was a world of many shades of grey and not straightforwardly a struggle between officers enforcing the law against an underground of smugglers. Instead, as “Fair Trade and the Political Economy of Brandy Smuggling in Early Eighteenth-Century Britain” my recent publication in Past & Present examines, when merchants or traders illegally or fraudulently landed contraband in Britain they often took advantage of a network of liberties and free ports. The legal status of these places, derived from ancient rights or more recent royal grants, positioned them as conduits into a low-tax global trade network. Ports such as Dunkirk provided safe havens for contraband, services such as storage and relabelling, and spaces to exchange information to discover new opportunities for arbitrage and profit among the tariff regimes of emerging nation-states. Dunkirk, as my article demonstrates, was responsible for one of the largest frauds of the period and the sudden legal import into Britain of relabelled French brandy during the 1720s.

New research is now illuminating the activity of this intermediating network of havens, free ports, and conduits. These islands were deeply integrated into European and global trade networks. Merchants regularly shuttled from them to major East India company towns, including Gothenburg and Nantes, to trade Asian goods. The Channel Islands also moved contraband directly to the Americas. The port records and archives of the islands are windows into the European smuggling economy.

They demonstrate that this network was intentional and reveal the creativity of the many actors within it. Not every island or port took advantage of old customs and exemptions to become a haven. It took some work. Thus Sark was typically described as free from smugglers because the proprietors were more interested in agriculture. The lords of Man, however, transformed the island into an entrepot that provided advantages to Liverpool as it competed in the Atlantic slave trade. Traders within these networks constantly combined ‘self-organizing’ information to discover arbitrage opportunities as tariffs changed and new schemes were attempted. Dunkirk wasn’t always the leading centre for brandy transshipment, but by 1725 the port had surged ahead. By the mid-1730s once duties were changed, the business flagged.

These processes underscore that these havens did not simply resist or oppose centralizing legal regimes. They took advantage of that centralization. Their business was arbitrage and they depended on the possibilities created by their control over their own duties and their proximity to high-tax regions. This history brings to view aspects of the legal pluralism of empires and what Lauren Benton and Richard Ross have described as their ‘layered and composite legal arrangements… characterized by continual restructuring… in part from the strategies of often litigious and legally sophisticated imperial subjects’. Score and his fellow entrepreneurs were cunning risk-takers, and their most effective strategies were either to play different groups within governments against each other, or better yet, convince the government to sanction their favourable tax status.

This invites the question of why such havens were tolerated so close to Britain. The Board of Customs, despite its modern reputation, was neither lazy nor disinterested. They could act and how they acted sheds light on emerging administrative practices and law. When Score attempted to set up his entrepot on Lundy, the Customs machinery clicked into action. The Board first sought to bolster the service’s legal warrant to act. They consulted with the attorney general to inquire whether Lundy was in fact exempt from British duties (it was not). Obtaining these legal opinions had become routine practice for the Customs. Through them we can discern the making of administrative law as the bureaucracy wrestled with questions of jurisdiction, enforcement, and every fraud imaginable. In Score’s case they then proceeded to dispatch officers to investigate. Score’s men, busy with an illicit shipment of wine, threatened the officers with violence when they landed on Lundy if they attempted to search buildings on the island. Prosecutions followed and Lundy was shut down, but only briefly.

Score was a small operator and the Customs faced much greater challenges in Man and the Channel Islands. From the Restoration to the 1760s these islands successfully resisted determined campaigns by the Customs to situate officers on them with enforcement powers. They relied on claims about their ancient rights and privileges with arguments that anticipated those used by the American colonists (who were also known for wide-spread smuggling).

This strategy depended on some parts of the government having different priorities from those of the Customs. The Channel Islands were well-versed in playing divide-and-conquer. At opportune times their agents reminded officials of the islands’ proximity to France while insisting – with great emphasis – on their loyalty. The government received the not-so-subtle message and restrained the Customs. At other times there were vested metropolitan interests, such as powerful patrons or trading partners like Liverpool, who could work to protect convenient havens. Finally, governments occasionally used these havens for strategic and clandestine reasons. Free ports such as Dunkirk were advantageous to the commercial policies of the French crown as British critics of the smuggling trade often reminded their readers.

The life of this network had an arc beginning with the Restoration and the rise in customs duties. The 1760s was the end of this first period. The decade brought stricter enforcement imposed on the Channel Islands along with the American colonies, and the revestment of Man (1765). Man and the Channel Islands had found their niche, however, and by the late twentieth century were again some of the largest tax havens in the world. Thus the story of Score is not only about a British entrepreneurial tradition. Although the emerging literature on the history of tax havens describes them as a modern phenomenon, this research discovers a much longer-term phenomenon of easing and obscuring the movement of capital around the world.

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