How the crooks clean up

Exposé shows the world is awash with money launderers, says Alan Wheatley

The World Today Published 3 August 2018 Updated 25 January 2019 3 minute READ

Alan Wheatley

Former Associate Fellow, Global Economy and Finance Programme

Oliver Bullough
Profile, £20.00

How can the son of the president of Equatorial Guinea afford a $35 million mansion in Malibu on a salary of $4,000 a month? Why was the Kremlin’s propaganda chief allowed to buy property in Beverly Hills on a bureaucrat’s pay? How did the daughter of Angola’s former president accumulate a fortune estimated at
$3 billion?

To try to answer questions like these, Oliver Bullough visits Harley Street. One of the houses down this prestigious London road, best known for its very expensive doctors, was home in 2016 to no fewer that 2,159 shell companies, including ones sheltering the immense wealth, gained through ‘industrial scale corruption’, of former Ukrainian President Viktor Yanukovych.

Setting up anonymous front companies abroad is only one of many ways that corrupt officials in usually poor countries can magically make dirty money clean. In Moneyland, Bullough has written a brisk, illuminating account of the ‘steal, hide, spend’ kleptocratic model and how it is run by pliant financiers, lawyers, accountants and myriad other enablers in places such as Monaco and Miami.

The subtitle of the book makes no bones about the author’s leanings: Why Thieves & Crooks Now Rule The World & How to Take It Back.

But so what if a small minority is squirrelling money abroad? The practice is hardly new. As long ago as 1937, US Treasury Secretary Henry Morgenthau complained that Newfoundland, then a tax haven, was allowing Americans to hide behind its corporate structures.

Bullough argues persuasively, however, that the problem has become immeasurably worse since the collapse in the early 1970s of the post-war Bretton Woods system of semi-fixed exchange rates, which restricted capital flows.

Today, money can be spirited away to the farthest corners of the world at the touch of a button. Hidden behind multiple facades in multiple jurisdictions, illicit wealth is fiendishly difficult to trace, meaning that there is no limit on how much corrupt officials and their cronies can steal.

‘This undermines democratic legitimacy, and angers the people who live under such governments. For people who believe in a liberal world order, there is no upside to this,’ Bullough writes.

Just how much cash is sloshing round Moneyland has to be guesswork. Analysts at the Global Financial Integrity think-tank estimated illicit flows in 2013 at $1.1 trillion and growing fast. Deutsche Bank, from examining balance of payments data, reckons £133 billion has entered Britain undetected since the mid-1970s. The US Treasury could be losing $100 billion in tax revenues each year, according to an official investigation.

One of the strengths of Bullough’s book is to show the ingenuity of Moneyland’s gatekeepers. When one entrance is slammed shut – by, say, the dismantling of Swiss bank secrecy – clever lawyers and financiers quickly find others means of ‘de-embarrassing’ assets.

Bullough travels to the Caribbean country of St Kitts and Nevis, one of a growing number of states – including Cyprus and Malta – that will sell passports to foreigners who agree to invest a certain sum in the local economy. Jho Low, a Malaysian being pursued by the US government for $540 million allegedly defrauded from his country’s 1MDB sovereign wealth fund, has a St Kitts passport.

The scheme, designed by American lawyers, is particularly appealing to holders of dirty money because the companies registered in the dual-island nation are cloaked in absolute secrecy. Yanukovych hid his ownership of Ukrainian coal mines behind Nevis companies. Bullough wryly describes his fruitless attempts to get officials to comment on the State Department’s finding that Nevis is a ‘desirable’ money-laundering haven. Incidentally, the International Monetary Fund noted approvingly in 2015 that the Economic Citizenship Programme had enabled the St Kitts and Nevis government to chalk up a budget surplus of 12 per cent of GDP.

Another way of protecting your money by tunnelling into Moneyland, to use Bullough’s phrase, is to claim diplomatic immunity – as Boris Becker is trying to do. Lawyers for the former tennis champion, who is seeking to avoid bankruptcy, say he has been named by the Central African Republic as its sporting and cultural attaché to the European Union.

Wealthy Chinese officials have reportedly gone so far as to fertilize eggs extracted from their wives then have them implanted in women in Japan. Japanese law lists the surrogate as mother on the child’s birth certificate, thus making it eligible for Japanese citizenship.

A corrupt official can then transfer his wealth to an apparently unrelated Japanese child and conceal the money in unrelated accounts and companies of people who are ostensibly Japanese.

And then there is dusty Nevada, where lawyers have taken advantage of a legal loophole to set up generation-skipping trusts that enable their beneficiaries to avoid tax.

Bullough acknowledges that some people have legitimate reasons to disguise their identity, for example political refugees or film stars at risk of being stalked. Otherwise, financial transparency should be the norm; the simple fact is that offshore finance exists only to allow people to do things they can’t do onshore, he contends.

Remarkably, 703 out of 2,044 units in seven different Trump-branded developments in Florida are registered to corporate vehicles, completely obscuring their ultimate ownership. Likewise, in London, 86 properties in Eaton Square are in the name of anonymous structures, usually registered offshore in places such as the British Virgin Islands, Jersey and Guernsey.

Touching on suspicions of Russian interference in the US presidential campaign and the UK referendum on EU membership in 2016, Bullough frets about ‘the profusion of anonymous money, which is nosing into our politics, our economies and our major institutions’.

For Bullough, this is the dark side of globalization: ‘The widespread acceptance of this anonymous money into politics is contributing to a broad loss of trust in democratic processes.’

What is to be done? The answer is closer international cooperation, so that law enforcement agencies can swap information as quickly and easily as the money flows they are trying to track. But Bullough shows how this is easier said than done. For a start, because corruption remains entrenched in some of the states from which money has been looted, western governments are wary of sharing information with them.

Nor can the press be counted on to expose corruption. Bullough provides first-hand evidence of how bullying by law firms succeeds in cowing journalists, publishers and NGOs into self-censorship; the risk of being caught up in lengthy, expensive court proceedings is often too great to take.

As a result, the sums of looted money discovered and returned are tiny. According to the World Bank, the wealthiest countries returned only $423.5 million in the six years to 2012 – less than a cent for every $1,000 that Global Financial Integrity estimates has been stolen.

‘As with almost all the troubling aspects of Moneyland, this near impossibility of retrieving assets once they have vanished offshore is driven by the basic rule that money can travel where it wishes, while law enforcement stops at a country’s borders,’ he concludes.

Bullough has written a valuable book. Corruption is a scourge that is helping to fuel the rise of populism. So is the growing inequality of wealth, fostered by the sort of practices documented in Moneyland. We ignore both at our peril.