Moneyland

1. The birth of Moneyland: Offshore finance and the erosion of financial borders

Money flows ceaselessly between countries, nosing out investment opportunities in China, or Brazil, or Russia, or wherever. If a currency is overvalued, investors sense the weakness and gang up on it like sharks around a sickly whale.

The origins of Moneyland can be traced back to the 1960s when bankers in London discovered a loophole in the Bretton Woods system. This loophole allowed them to create "eurodollars" - dollars held outside the United States that were beyond the reach of American regulators.

The erosion of financial borders accelerated with the invention of the eurobond market, which allowed wealthy individuals and corporations to move money across borders without scrutiny. This development led to the creation of a parallel financial system where:

• Money could flow freely across borders while laws remained constrained by national boundaries
• Wealthy individuals could exploit differences in national regulations to their advantage
• Tax havens and secrecy jurisdictions flourished, offering services to hide wealth and avoid taxes

2. The rise of kleptocracy: How corrupt leaders exploit global financial systems

Moneyland set wealth free, and it didn't care where that wealth came from: steal, hide, spend, in perpetuity.

Kleptocracy thrives in Moneyland because it allows corrupt leaders to steal from their countries, hide the proceeds offshore, and spend them with impunity. This system has become increasingly sophisticated over time.

The mechanisms of kleptocracy include:

• Using shell companies and trusts to obscure ownership of assets
• Exploiting weak governance in developing countries to siphon off state resources
• Laundering stolen funds through legitimate businesses and real estate investments
• Employing Western professionals (lawyers, accountants, bankers) to facilitate and legitimize their activities

The consequences of kleptocracy are severe, leading to:

• Underdevelopment and poverty in kleptocrats' home countries
• Erosion of democratic institutions and the rule of law
• Widening global inequality as wealth is concentrated in the hands of a few

3. Shell companies and trusts: The building blocks of financial secrecy

If you own that property in Mauritius, you do not. It will cost you money to structure your holdings that way, but if you can afford it, you have access to a privacy denied to everyone else in the country.

Shell companies and trusts are the fundamental tools used in Moneyland to obscure ownership and avoid scrutiny. They provide a veil of secrecy that makes it extremely difficult for authorities to trace assets and prosecute financial crimes.

Key features of shell companies and trusts:

• Can be set up quickly and cheaply in many jurisdictions
• Often have no real business activities or assets beyond holding money or property
• Can be layered in complex structures across multiple jurisdictions
• Beneficial ownership is often hidden through nominee directors and shareholders

The impact of shell companies and trusts:

• Facilitate tax evasion, money laundering, and other financial crimes
• Make it nearly impossible for law enforcement to trace illicit funds
• Allow corrupt officials and criminals to operate with impunity in the global financial system

4. Passport-for-sale schemes: Citizenship as a commodity in Moneyland

Until 2007, there was basically no due diligence, they just checked Interpol, and that's it.

Citizenship-by-investment programs have become a lucrative industry, allowing wealthy individuals to essentially buy passports from countries offering such schemes. These programs are particularly attractive to those seeking to escape scrutiny in their home countries or gain visa-free access to more jurisdictions.

Key aspects of passport-for-sale schemes:

• Offered by various countries, including small Caribbean nations and some European Union member states
• Typically require a significant investment in real estate or government bonds
• Often involve minimal residency requirements or physical presence in the country

The implications of these programs:

• Create a two-tiered system of citizenship, where the wealthy can buy privileges denied to others
• Potentially compromise national security by allowing individuals with questionable backgrounds to obtain citizenship
• Erode the concept of citizenship as a bond between an individual and a state

5. The role of Western enablers in facilitating global corruption

It's a big problem, and they're part of it.

Western professionals play a crucial role in enabling the operations of Moneyland. Lawyers, accountants, bankers, and real estate agents provide the expertise and services necessary for corrupt individuals to hide and legitimize their ill-gotten gains.

Key roles of Western enablers:

• Creating complex corporate structures to obscure ownership
• Providing legal and financial advice on tax avoidance and asset protection
• Facilitating real estate purchases and other investments in Western countries
• Lobbying for favorable regulations and opposing transparency measures

The ethical dilemma:

• Many professionals claim they are simply providing legal services to clients
• However, their actions often facilitate corruption and undermine the rule of law
• There is a growing debate about the responsibility of professionals in combating financial crime

6. The impact of wealth inequality and plutonomy on global economics

In a plutonomy there is no such thing as "the US consumer" or "the UK consumer'", or indeed "the Russian consumer". There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take.

The concept of plutonomy describes economies where a small wealthy elite drives a disproportionate share of economic activity. This phenomenon has significant implications for how we understand economic trends and make investment decisions.

Key features of plutonomy:

• Extreme concentration of wealth in the hands of a few
• Economic indicators driven by the spending habits of the ultra-wealthy
• Traditional economic models becoming less relevant as inequality increases

The consequences of plutonomy:

• Growing political and social instability as inequality widens
• Distortion of markets, particularly in luxury goods and high-end real estate
• Challenges for policymakers in addressing economic issues that affect the majority of the population

7. Efforts to combat offshore finance and their limitations

Moneyland does not give up its riches easily, the money piles up faster than you can count it, and it keeps moving around the world, sliding across frontiers; one, two, three, a million steps ahead of the people supposed to monitor it.

Global efforts to combat offshore finance have intensified in recent years, with initiatives like the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). However, these efforts face significant challenges and limitations.

Key initiatives and their impacts:

• FATCA: Forced foreign banks to report on US account holders
• CRS: Established automatic exchange of financial information between countries
• Beneficial ownership registers: Some countries now require disclosure of true owners of companies

Limitations and challenges:

• Lack of global coordination and uniformity in regulations
• Resource constraints in developing countries to implement and enforce new rules
• Continuous innovation by wealth managers to find new loopholes
• Political resistance from jurisdictions benefiting from offshore finance

8. The United States as the new tax haven: Exploiting loopholes in global regulations

The United States had bullied the rest of the world into scrapping financial secrecy, but hadn't applied the same standards to itself.

The United States has emerged as a surprising new player in the offshore finance world. While pressuring other countries to increase transparency, the US has maintained its own secrecy provisions, attracting wealth from around the globe.

Key factors making the US attractive for offshore wealth:

• Refusal to participate in the Common Reporting Standard
• Strong legal protections for trusts in states like South Dakota and Nevada
• Ability to set up anonymous shell companies in some states

The implications of this development:

• Undermines global efforts to combat tax evasion and money laundering
• Creates a double standard in international financial regulations
• Attracts potentially illicit funds from around the world into the US financial system

Last updated: October 10, 2024