Transcriber: Annet Johnson Reviewer: Emma Gon
The secrecy world isn't much of a secret anymore.
The system that facilitates crime and tax evasion via money laundering
has been exposed, at least temporarily.
We can seize this opportunity for reform
or something far worse than secrecy will befall us.
What is the secrecy world?
It’s the hidden financial system
through which trillions of dollars in ill-gotten gains flow;
illegal drug cartel cash,
bribery,
child sex rings,
the big spending of sanctioned oligarchs,
the looting of public treasuries by corrupt government officials,
tax evasion by the mega wealthy.
The United Nations has estimated that the amount of money laundered globally
could be as high as 1.5 trillion dollars a year.
And the equivalent of close to 10% of the world’s GDP
is believed to be stashed in tax havens.
Hiding and laundering money is big business.
And yet, until quite recently,
we didn’t know much about this subterranean financial system.
Sure, we knew about tax havens and anonymous companies.
The tax havens were thought to exist in sunny places
with palm trees and sandy beaches somewhere in the Caribbean.
And amoral Swiss bankers have been caricatured
in books and movies, seemingly forever.
But we didn’t know the details, the mechanics of this secrecy world,
how exactly it functioned, the names of participants,
and who was hiding what where.
Most importantly, since it was concealed from public view,
we didn’t fully grasp the cost of this corruption, particularly to the West,
how it perverts our institutions, compromises our politicians,
and undermines the rule of law.
That’s not as true in the so-called developing world,
where the connection between tax havens, corruption, resource stripping,
and civil conflict is more immediate.
But now, increasingly, the contours of the secrecy world can be seen by all.
Thanks to global investigative reporting of leaks
spearheaded by the non-profit ICIJ,
the International Consortium of Investigative Journalists,
there’s been a cascade of news reports detailing this hidden financial system.
The Panama Papers on which I worked with ICIJ,
the Paradise Papers, Pandora Papers, Offshore Leaks, Swiss leaks, Lux Leaks,
Football Leaks, you get the idea.
The ICIJ even has a database
of information from leak investigations that they’ve called.
It's available to the public.
You can download more than 800,000 anonymous companies and trusts
and foundations covering 200 countries and territories for free.
All right,
perhaps you’re not the type of person who likes to download databases
or crunch numbers for fun.
I get it.
Maybe you don’t even follow the news that closely, but Hollywood does.
You’ve probably absorbed a fair amount of information
about this secret financial system without even realizing it
from popular movies and series like Ozark, Narcos, and The Laundromat.
This drumbeat of revelation has only grown stronger
in the wake of Putin’s invasion of Ukraine and the global effort to sanction
the Russian oligarchs that underpin his regime.
It seems like every day there’s a new story
about a yacht seized or assets in a tax haven frozen.
So what has all this reporting shown us?
The largest tax haven is not, in fact in the Caribbean,
it’s in the United States,
where Delaware, and Nevada, Wyoming,
and South Dakota mint anonymous companies
and trusts by the thousands.
Companies based in these states
have been used by criminals and tax evaders the world over.
United Kingdom’s Crown Dependencies, Guernsey and Jersey,
are also prominent culprits.
Today, illicit money is as likely to be banked in Singapore or Dubai
rather than Switzerland.
The money is converted into real estate, art, and other assets
in the United States and Europe,
where the crooked are attracted to the stability
and, ironically, the rule of law.
Leaks detailing the tax filings and tax haven use of billionaires
have pushed the mega wealthy from the shadows.
They use this hidden financial system mostly to avoid paying taxes.
Much of it is perfectly legal.
A well-trodden path through tax havens and offshore banks
kept open by multinational corporations and exploited by outright criminals.
We now know the enablers who service this hidden financial system,
the bankers and lawyers and accountants.
Thanks to excellent investigative reporting and government inquiries,
we even know many of their names.
These details are as close as the click of a mouse.
After the release of the Panama Papers in April 2016,
then US President Barack Obama remarked,
“There’s always going to be some illicit movement of funds around the world,
but we shouldn’t make it easy.”
The leak investigations have shown that we’ve made it very easy indeed.
In America, delegating company incorporations to the states
prompted a race to the bottom that began more than a century ago.
States outbid each other to market tax avoidance and anonymity
with little effort to identify who was behind the companies they sold.
In Nevada, one prominent company incorporator
guaranteed its customers would, “control everything, but own nothing.”
Let’s unpack that for a second,
“Control everything, own nothing.”
The promise inherent in that statement
is that you can escape responsibility for your actions.
If you don’t own it, you don’t have to pay taxes on it.
If your company harms other people, you’re not liable.
If your company breaks the law, your fingerprints will not be found.
It’s the promise of two different systems,
one for those in the secrecy world and another for the rest of us.
Enablers in Europe, as in America,
have feasted off this hidden financial system.
London, in particular, has become a hub for crooked cash.
So much Russian oligarch money has flooded the city,
people have taken to calling it “Londongrad.”
In Los Angeles, one can tour the homes of movie stars.
In London, they offer Kleptocracy Tours,
where you can go and gawk at the mansions of foreign officials
and oligarchs from places like Russia, Kazakhstan, and Nigeria.
The kleptocrats buy up homes and houses and apartments,
not necessarily to live in, but as safety deposit boxes
a way to store value and clean dirty money.
These anonymous purchases, usually all in cash,
drive up the cost of housing for local residents.
The numbers involved are staggering.
Global Financial Integrity recently tallied more than 100 publicly reported
real estate money laundering cases in the US over five years
and arrived at the figure of $2.3 billion worth of transactions.
The BBC discovered that a dozen sanctioned Russian oligarchs alone
owned more than 1 billion dollars worth of property in the UK,
much of it purchased through anonymous companies.
In its capacity as a well-tailored concierge for dirty money,
the United Kingdom provides not only real estate,
but also citizenship for sale and reputation laundering.
While the Brits have distinguished themselves
for their extreme moral flexibility, they’re far from alone.
Malta and Cyprus are also prominent entry points
into the European Union for crooked cash.
The shifting of tax wealth into the secrecy world legally
has been particularly pronounced in America.
US billionaires have nearly twice as much combined wealth
as the bottom half of Americans.
And yet, their tax burden over the past 40 years,
has dropped by 79%.
This despite polling that shows
that two thirds of Americans believe the wealthy should pay more taxes.
Why the disconnect?
The same people who benefit from and enable the secrecy world
pay for the political campaigns and write the laws that govern the system.
This hidden financial system allows for dishonesty on a global scale;
control everything, own nothing.
And it’s not only the mega wealthy and money launderers who are implicated.
An estimated 20 million people used cocaine in 2019,
mostly in North America and Europe.
The world has an appetite for illegal drugs.
Rather than confront this as a public health crisis,
we criminalize the behavior and shunt the profit to the secrecy world
which obscures the scale of the policy failure from public view.
Here’s a more prosaic example that might resonate.
Let’s say you’re a prosperous businessman, but you live in a country
where the likelihood the government will waste or steal your tax money is high.
Your neighbor in your gated community routes his money
through tax havens to escape paying taxes,
knowing that it’s unlikely he’ll be caught.
In that situation, would you pay your taxes?
Or would you join your neighbor?
(Chuckles)
The secrecy world facilitates the self-interested choice
and our institutions weaken in the process.
Hiding financial activity bridges a multitude of societal problems,
a workaround that allows us to avoid hard truths.
One of the few legitimate arguments for anonymous companies
is that they may shield assets from kidnappers.
It’s a significant problem in countries
as diverse as Mexico, Venezuela and the Philippines.
The criminals may know that you’re rich, but thanks to anonymous companies,
they won’t know exactly how much you have or where it’s invested.
This may lessen the risk of abduction,
or at least minimize the amount of the extortion.
Of course, a functioning police and criminal justice system
would also remedy this problem.
But that seems unlikely, due in no small part,
to the refusal of elites to contribute their taxes.
But now that this vast money laundering machine is out in the open,
it’s impossible to ignore.
The awareness puts us at a crossroads.
Where do we go from here?
As a young journalist in Guatemala, I witnessed one direction we could take.
I used to ride the public buses
that crisscross the country’s highways at breakneck speeds.
These repurposed American school buses
serve as a primary form of transportation for most Guatemalans.
They’re often crammed with people, their goods, even their animals.
Americans call them chicken buses, but I never heard the Mayan farmers
who make up most of the ridership refer to them as such.
On one memorable trip, I counted four species along for the ride;
men, women and children, of course, plus chickens cradled in laps,
strands of live crabs hanging from the racks, and sheep riding on top.
As you can imagine, it was a most uncomfortable ride.
Guatemala has a sensible law on the books forbidding the overcrowding of buses.
Garitas, police guard posts, are stationed along the highway,
presumably to enforce this, among other laws.
But Guatemala’s need for transportation is such that the law is routinely ignored.
Packed buses with people standing in the aisles are commonplace.
Typically, as the bus would approach a police post,
the fare collector would yell to those standing in the aisles,
“¡Agáchense! ¡Agáchense!”
“Crouch down! Crouch down!”
The passengers would crouch,
and sometimes the fare collector would throw a few quetzales,
the local currency, in the direction of the guard post.
Everybody in the entire country knew what was occurring.
I was on buses with police officers standing in the aisles,
and when the fare collector would yell, “¡Agáchense!” they too would crouch down.
Faced with an unenforceable law and the inability or unwillingness
to invest in a better transportation system,
Guatemala adopted a workaround
with a side of corruption to sweeten the fiction.
Unfortunately, uncomfortable rides are not the only result of this accommodation.
Guatemalans regularly experience horrific traffic accidents,
due in no small part to the failure to enforce the law
and maintain an adequate transportation system.
Now, I don't mean to pick on Guatemala.
Corruption is endemic in the developing world,
and as the leak investigations show,
it’s all too prevalent in the United States and Europe as well.
But this is what awaits us in the West, in one form or another,
if we allow the secrecy world to remain open.
Unchallenged,
the gulf between reality and what’s legal will grow to a chasm,
one that can be only bridged by great wealth and power for the few
or resigned accommodation for the rest of us.
The rule of law will increasingly become something we only pretend to follow.
Thankfully, it need not be this way.
The public exposure of this secret financial system
has galvanized activists, journalists, and lawmakers.
There’s a global movement to permanently drag it into the open,
to stop making it easy,
and indeed positive steps in that direction,
while halting and incomplete, are accelerating.
England created a public registry of the beneficial owners of UK companies.
The government doesn’t yet ensure its accuracy,
but at least it exists for public consumption.
The UK also passed an economic crimes bill
that makes it easier for law enforcement to penetrate this hidden financial system.
Soon, in the United States for the very first time,
states will be required to collect ownership information for companies.
Again, it won't be public, but at least the federal government will have access.
And Putin’s invasion of Ukraine has added fresh urgency to reform efforts.
For years, the Russians were among the most masterful manipulators
of the secrecy world.
This dates back to the Cold War
and the use of the offshore system by the KGB and the Russian mafia,
which formed pillars of Putin’s kleptocratic regime.
The offshore schemes we uncovered in the Panama Papers
by Putin’s inner circle rivalled the complexity
of any exotic financial engineering concocted by Wall Street.
Believe me, I know.
I won a Pulitzer Prize writing about collateralized debt obligations.
(Applause)
The global hunt for the assets of sanctioned Russian oligarchs
has exposed the lawyers, accountants, and bankers
who cater to the secrecy world, as never before.
The pursuit by American and European law enforcement
changes the calculation for these enablers of what is acceptable risk.
And the bodies of dead Ukrainians lying in the streets of Bucha and Mariupol
add a piercing moral dimension
to the cost of helping Russian oligarchs hide and spend their fortunes.
It's impossible to truly fix a problem until it's out in the open
and one can see its dimensions.
We owe a debt of gratitude to the public spirited individuals
who leak data from dozens of global law firms in accountancy,
to the ICIJ, and other journalists.
They made these leaks at great personal risk.
Governments must protect these whistleblowers.
Their data have helped people around the world...
connect the dots.
But as the crouching bus passengers in Guatemala demonstrate
the knowing is only the beginning.
Change requires engaged citizens and a willingness to confront hard truths
rather than bury them in anonymous companies and tax havens.
Increasingly, people in the United States and in Europe
are recognizing the dangers from this hidden financial system,
be it corruption or missing tax money.
And they’re mobilizing, mobilizing as never before,
to demand openness in their financial system
and reform from their political leaders.
The time for pretending is over.
(Applause)