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It’s time to treat dirty money like speeding cars

There can be no more excuses for laundering cash

Tom Burgis
28 September 2020
Britain's Cayman Islands are a key secrecy jurisdiction
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Sometimes, you have to feel for the bankers. 

Contrary to what the subprime crisis, the Libor scandal and the periodic tax-dodging outrages might lead us to believe, they are not venal megalomaniacs. Not all of them, anyway. A lot of bankers are perfectly decent souls trying to work within a system that, by a mixture of accident and design, facilitates some of humanity’s worst impulses. 

The saddest ones – the ones despised even by their own colleagues – work in compliance. Their job is to try to stop dirty money passing through their bank’s accounts. If they come across something fishy, they are supposed to file a Suspicious Activity Report to the banking regulator wherever they happen to be. Essentially these say: this transaction seems iffy, but we’re going to do it anyway, and if it transpires that it was indeed iffy, well, we warned you. Regulators receive insane quantities of these reports, far too many for their overstretched staff to handle in any meaningful way. 

Some 2,000 such reports sent to the US Treasury’s financial intelligence unit then leaked to Buzzfeed News comprise the FinCEN files published last week. They show compliance officers at banks struggling to assess mysterious clients. There are the JPMorgan people in Ohio attempting to figure out if a company for which the bank moved a billion dollars was controlled by Semyon Mogilevich, a Moscow businessman better known as perhaps the world’s most dangerous gangster. There is the Western Union agent who noticed that the name on a money transfer matched one he had read in a news story about a Congolese warlord. And there is the compliance team at the Miami branch of a Portuguese bank wondering if the justifications a wealthy Venezuelan family with government contracts gave for their transactions were “artificial”. 

Of course, there will be plenty of cases where bankers actually knew full well who they were dealing with, but have filed Suspicious Activity Reports as a get-out-of-jail card in case the regulators come asking questions later. However, a lot of the doubt and confusion is genuine. There is one main reason for that. It is the lie at the heart of the financial secrecy system. 

In the real world, all exchanges of goods and services ultimately take place between people. In the money world, a lot of them happen between ideas we call companies. These have the status of legal persons. A particular category of them, registered more often than not in some erstwhile outpost of the British empire now devoted to the secrecy industry, can be formed without the identities of the human beings who own them being published. We call these front companies because that’s all you can see: the front. They are the sleeper cells of an emerging global kleptocracy, mechanisms through which illegitimate power is turned into money and smuggled into democracies to buy influence over legitimate power. This is the shadow world I have traversed the globe to understand and which I have tried to map in my new book Kleptopia. 

Take any big corruption case and ask how the money was actually transported from briber to bribee. The tens of millions of dollars that passed from Mobil through a middleman to the Kazakh dictator’s bank accounts when the American oil company was granted rights to Caspian crude back in the 1990s? Those accounts were controlled in reality by the flesh-and-blood Nursultan Nazarbayev, president of Kazakhstan, but on paper by a British Virgin Islands corporation owned by a Liechtenstein foundation. The payments that the British arms-dealers of BAE Systems made to Saudi officials? They tried to keep them secret using “shell entities”, another term for front companies. More recently, according to American prosecutors, the scheme to drain billions from the Malaysian state fund 1MDB involved a constellation of front companies in the British Virgin Islands (ever a favourite), the Seychelles, Hong Kong, the United Arab Emirates, Curaçao, the Cayman Islands, Luxembourg and the increasingly notorious purveyor of secrecy that is the US itself. Before he was poisoned, the principal way in which Alexei Navalny infuriated Putin and his cronies was by unmasking their front companies. 

And these are only the cases we happen to have discovered. Schemes like these are what condemns generations to lives that are shorter, harder and sicker because they are lived in kleptocracies. How, then, could we neutralise the nefarious power of the front company? There is a way that is as straightforward as the financial world is presently complex. You just treat dirty money like you treat speeding cars. 

If you drive your car at 100mph, that’s a crime. It doesn’t matter if you’re late for a job interview or your daughter’s birthday party; the law does not accept mitigating circumstances. And for good reason. If it did, everyone would speed all the time and the roads would be a bloodbath. This is a good example of the social contract, the personal freedoms we sacrifice for the collective good. 

Apologists for the financial secrecy system are the equivalent of those who oppose speed limits. They say, no one has the right to restrict what I do with my money, or even to know I have it or ask how I got it. They say, the rich need special privacy to stay safe from the rest of us – just as they might need to speed away if they detected another driver covetously eyeing their Bentley. 

Those who oversee the financial secrecy system perennially promise to reform. We have waited long enough now to conclude that they are insincere. 

This fallacy is the core of our dirty money problem. Because money is not private. Money is social. It is, as Richard Dawkins wrote in The Selfish Gene, a “token of delayed reciprocal altruism”. I give you a haircut, you give me an altruism token with which I can buy a fish from a fisherman, who can pay the painter to paint his home, and so on. These tokens enable large numbers of strangers to cooperate. In other words, they enable societies. But, like a laundered fortune scrubbed of its past, money has become detached from its purpose. 

Money embezzled from the commonwealth – through a kickback on the sale of a nation’s diamond fields, say, or a public contract quietly awarded to a minister’s crony – is filtered through front companies so it can come out the other side looking like normal money, tokens that entitle the bearer to the altruism of a stranger. Those who oversee the financial secrecy system from its twin capitals – Switzerland and the City of London – perennially promise to reform. We have waited long enough now to conclude that they are insincere. 

What about if we hurried matters along by treating dirty money like we treat speeding? The legal term is “strict liability”, a doctrine whereby there is no need to prove fault or negligence, simply that you committed the act in question. Like if you fail to declare some of your income on a tax return: the tax office don’t have to show that you were deviously trying to welch, just that, as a matter of fact, you did not declare all your income. How would this apply to dirty money? If I conducted a business transaction with a company the owners of which were identified, and if that transaction were subsequently found to have improperly benefitted a public servant in a position to advance my interests, I would be held liable for corruption. 

At the moment, just like Big Brother said, ignorance is strength. When a Goldman Sachs-backed oil firm was discovered to have won an Angolan concession by cutting in a partner in which three of the most powerful men in the regime held concealed stakes, its executives protested that they had not known who was behind the front company. The US authorities investigated for a while then dropped the case. If we had strict liability, it would have been clear: regardless of what the executives could be shown to have known, the oil company would have corruptly enriched foreign officials to win business and would have faced the consequences. 

The plausible deniability that front companies permit – the false unconsciousness, if you like – is what lets kleptocrats monetise their power through deals with multinationals that are subject to the rule of law at home. This same false unconsciousness underpins the industrial laundering of dirty money in the West. The US real estate developer who sustained his fortune by renting out his famous name to adorn buildings built with money from ex-Soviet and other kleptocracies maintained what one person involved with the deals called “wilful obliviousness”. 

The famous name in question was Donald J Trump. Now he holds the highest office in the free world, he has both failed to divest his businesses – any passing kleptocrat can essentially bribe him by taking a suite in his Washington hotel – and refused to publish tax returns that would allow proper scrutiny of whether those businesses distort his duty to the people. He is seeking to deny a basic truth about money: that it is, like clean water, roads or schools, a public utility, in the oversight of which we all have a legitimate interest. Now the New York Times has got hold of some of those tax returns, they depict a man stretching the truth to the bounds of credibility in order to minimise his contribution to society. 

Shortly before David Cameron held a summit on corruption in London in 2016, I went to Downing Street and discussed this strict liability idea with one of his advisers. It got chewed over in a few policy circles but went no further – perhaps in part because Cameron’s anti-corruption agenda, like his premiership, ended soon thereafter with the Brexit referendum. Four years on and dirty money has penetrated far deeper into our societies. Kleptopia is my attempt to show the terrifying consequences. As Italian investigative journalist Roberto Saviano, a man who has risked his life to expose dirty money, says: “There is no time to lose.” 

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