Follow the (Dirty) Money

money laundering

mic Listen to the podcast:

A new book from investigative journalist Oliver Bullough paints a bleak picture of rampant corruption, showing how the world’s rich and powerful conspire to stay that way.

Corruption isn’t something that happens only in hardscrabble countries led by dictators and plagued by instability. It happens everywhere. A new book by British investigative journalist Oliver Bullough shines light into the dark world of money laundering to show how the rich and powerful stay that way. Public money is stolen and siphoned away from poor countries at the expense of citizens, while private money is invested in wealthy nations where the well-heeled bask in luxury. Bullough even runs Kleptocracy Tours in London, pointing out high-end homes owned by some of the world’s elite. Bullough spoke from his office in Wales to the Knowledge@Wharton radio show on SiriusXM about his book, Moneyland: The Inside Story of the Crooks and Kleptocrats Who Rule the World. (Listen to the podcast at the top of this page.)

An edited transcript of the conversation follows.

Knowledge@Wharton: What was it about this topic that first drew your interest?

Oliver Bullough: I’m a Russian-ist, or rather possibly a former Soviet Union-ist. I lived in Moscow for a long time. I travel a lot in that part of the world. And it became increasingly clear to me that the big problem, the reason why democracy failed to appear after communism fell, as I supposed we all hoped it would, was because of this pervasive corruption, this growing kleptocracy. I started looking into how that works, just trying to understand the mechanism of how money is stolen, how it’s hidden and how it’s spent.

Lots of people knew that it existed, but I stumbled over this global industry of money laundering. It became increasingly clear that the problem I was looking into was not a Russian problem or a Ukrainian problem or a Kazakhstan problem. It was a global problem, a problem whereby the money is stolen in Russia, laundered offshore somewhere in the British Virgin Islands or in Switzerland or wherever, and then it’s spent in London or in New York.

“The reason why democracy failed to appear after communism fell, as I supposed we all hoped it would, was because of this pervasive corruption, this growing kleptocracy.”

The reason that I wrote this book was to expose the complicity of Western countries in the looting of so much of the world. It became my mission. I think corruption is something we think about that happens overseas. Corruption is an issue in Afghanistan or in Malaysia or in Venezuela or in Russia. It isn’t. Corruption is something that happens here, too, whether in my country or in yours.

Knowledge@Wharton: What enables the super-wealthy to engage in these activities?

Bullough: There are many answers to that question. I try to explain it by looking at supermarkets. Supermarkets have brought in these automated machines, so you don’t have to buy from a person anymore. You just scan your produce with a machine, pay for it, and then you walk out without anyone actually checking whether you’ve paid for what you’ve walked out with. They’ve done studies. This system increases theft from supermarkets by about 100%. It doubles the amount that gets stolen from supermarkets because it’s so easy to steal now.

What has made it so widespread for very rich and powerful people, particularly from places like Russia or Nigeria, to steal so much money is that it has just become so easy. They can walk out of the supermarket without having to check their products with anyone. The global financial system, the international financial system, these offshore centers of finance essentially provide an open door from their countries to the world, which means that they can just walk out of their countries with as much money as they like, stash that money offshore, then spend it without anyone realizing that it’s them.

Globalization money has become international money. It’s transnational. It exists everywhere and nowhere, and that’s what the problem is. Governance has not caught up with money. Money moves freely from country to country; law and law enforcement can’t. It becomes very easy if you’re very wealthy to just put your money wherever you like. That means you put your money where it will be treated best, where you will get less scrutiny for it.

Knowledge@Wharton: Do you think this problem will get worse before it gets better?

Bullough: Yes, I think so. I like your optimism — the idea that it will get better. I’m not sure, sadly, that that’s necessarily a given. There have been occasional sporadic attempts to coordinate global efforts to combat this wave of money, but that requires international cooperation. We need your country, my country, all the countries in the world — but particularly the wealthy countries — to cooperate, to harmonize their regulations, to agree to deny this dirty money, the holes that it finds in our property markets and so on. But at the moment it’s very difficult to see any sign of that happening. The various political changes that have happened just in the U.K. and the U.S. over the last four or five years make it significantly less likely that it will happen now than it would have been, say, five years ago.

I’m not currently feeling optimistic. You’ve got to try to see the hopeful side of everything, but it’s difficult to see at the moment where any kind of global movement would come from that would make any difference in battling this kind of money. Obviously, it’s annoying if you’re from Los Angeles or New York or London and you can’t afford to buy a house because so much foreign money has come in and pushed prices out of the reach of ordinary people. But the true victims are in places like Afghanistan, Nigeria, Russia or Venezuela, where so much money has been stolen that the entire mechanism of states has been transformed into a looting machine. There is no longer any kind of honest government at all.

Knowledge@Wharton: What about here in the United States? How are some states structured so that individuals and entities can hide money rather easily?

Bullough: It’s funny you should say that. I’m sitting here at my desk in Wales in the U.K., and I’ve got a folder labeled The South Dakota Trust Association. Inside is a whole series of promotional literature for the South Dakota trust industry. This is one of the most fascinating examples to me of the way that U.S. states are competing with each other in order to attract this money from around the world. South Dakota has been extremely successful in doing so, particularly in attracting money from China into its trust industries. Florida has put a lot of money into its banks, and New York and California a lot of money into their real estate, and Nevada, the same.

“It’s difficult to see where any kind of global movement would come from that would make any difference in battling this kind of money.”

Essentially, the U.S. states are all competing with each other. Inevitably, you end up with what might be termed “a race to the bottom,” whereby they undercut each other frantically to prevent someone getting one up and getting more of this money than they’d like. The consequence is that you have fewer checks than there should be on the origin of money. You have a willingness to pass laws that treat this money more generously than it would otherwise be treated.

In the long run, you have people from China, from Russia, from Afghanistan, from South America, from wherever, who are stealing fortunes and are being able to stash this money via financial structures in places like South Dakota, and then invest it in the U.S. economy to the detriment of almost everybody. Apart from a few lawyers in Sioux Falls or a few bankers in Miami, no one benefits from this at all. And it’s the ability of those lawyers and those bankers to bend the ears of their local and state legislatures and get laws passed that benefit them and harm everyone else that’s legendary. It’s really troubling, and we need to start doing something about it.

Knowledge@Wharton: Is the offshore account still a centerpiece of this scheme?

Bullough: This is one of the most fascinating developments of the last 10 years or so, which is that after the global financial crisis, the federal government in Washington worked very hard to crack down on the offshore financial industry. They put a lot of effort into bullying Switzerland into opening up its very opaque banking system, into bullying the traditional tax havens — places like the Bahamas or the Cayman Islands — to stop offering the kind of holes for money that allowed so many Americans to dodge taxes.

The federal government was actually very successful in doing this. They managed to shut down a lot of the holes where Americans were able to dodge taxes. But the unfortunate and ironic side effect was that in forcing these countries to reveal so much information about their own financial systems to the U.S., they provided an incentive for all that money that had been hidden in Switzerland and in the Bahamas or elsewhere to come to the U.S. instead. Now, if you want to hide your money and make sure that your own government doesn’t find out about it, if you’re American, I’m afraid that’s going to be difficult. But if you are anyone else, the best place to do it is in the U.S.

There is a strong trend of anonymously owned money from overseas, from traditional offshore centers, to come to what might be called onshore or midshore — in places like Nevada or Wyoming, South Dakota, Alaska, Delaware, and so on — in order to gain the kind of secrecy that used to only be available in places like Switzerland. It’s no exaggeration to say that the U.S. is the world’s new tax haven. In fact, it’s increasingly shaping up to be a super tax haven, with the kind of potential and reach and that the previous tax havens could only really dream of.

Knowledge@Wharton: Let’s use the example of Venezuela to talk about corruption. So many people are losing their health and lives because of some of the actions of government there.

Bullough: When a democracy is transformed into a kleptocracy, into a country where the government and the officials have their positions only to steal as much as they can, it’s on the way to being a failed state. People will just keep stealing more and more and more. They will steal as much as they can get away with, and that inevitably starves public infrastructure and public services of the resources they need to do their job.

“It’s no exaggeration to say that the U.S. is the world’s new tax haven.”

Then you have governments lose control of their territory. They lose control of the processes that are happening. You can see this happening in the Ukraine, where it lost a lot of territory to Russian-backed separatists. It’s happened in Afghanistan, where the Taliban is on the march. It’s happened in Nigeria, where whole chunks in the north of the country are in the hands of terrorist groups. This has happened in Libya. It has happened in Syria. It’s happening very widely. These kleptocratic regimes have stolen so much money that they’re no longer able to function as a government anymore.

Venezuela is a perfect example of that. I think that Venezuela demonstrates a second point rather nicely, which is beneath the layer of politics, beneath the layer of rhetoric, we see a deeper form of business going on that really undermines a lot of what people say is happening. There’s been a war of words between Venezuela and the United States for a long time, with the Venezuelan government accusing the U.S. government of being evil, the source of all imperialism, and so on.

But if you look at where the Venezuelan elite likes to put their money, they invest their money in Florida real estate. With one hand, they’re saying that the U.S. is the source of all evil in the world, and with the other hand, they’re putting all their money in the U.S.

It’s pretty clear that they’re using the U.S. rhetorically as something to scare their enemies with and to whip up their support. Actually, they don’t believe any of it. When it comes to their own personal material interests, they think the U.S. is absolutely fine. This is something that you see more broadly in plutocracies everywhere. In Russia, Vladimir Putin claims to be a new anti-Western power, but all of his friends put all their money in London or in New York or in France. They’re very integrated into the global financial system, into the Western-dominated financial system, but politically they claim to be some kind of alternative to it. Again, that’s just part of the way kleptocracies work: the populous messages, this whipping up of hatred towards foreigners and so on, while secretly engaging with business as usual.

Knowledge@Wharton: Is it harder now to measure how much money is being laundered globally, especially with digital technology?

Bullough: It has always been hard. I think it gets harder and harder. You’re right — because of the use of cryptocurrencies. They’re not really being used on a massive scale yet, but I’m sure they will become so, and that will make it harder, still. But if you’re rich enough, any currency is a cryptocurrency. If you’re rich enough, you can hide almost unlimited quantities of money, provided you can hire the right people to do it for you.

In terms of how much money is being hidden, Gabriel Zucman, who is an economist at the University of California, Berkeley, estimates it’s somewhere between 11% and 12% of all the money in the world. That’s quite a conservative estimate. Some people say it’s rather more than that. But it’s an incredible amount of money, and that amount keeps growing all the time. Hundreds of billions of dollars, or perhaps as much as a trillion dollars, is stolen from the world’s poorest countries every year and stashed in the place that I call Moneyland, this secret country of the very rich and powerful.

Knowledge@Wharton: Tell us about these Kleptocracy Tours that you give.

Bullough: In London, like most cities with a lot of tourists, you get these bus tours and they drive around. “There’s Buckingham Palace, and there’s the Houses of Parliament, and there’s Baker Street, where Sherlock Holmes lived,” and so on, all the usual nonsense. We hijacked that idea. We have a bus, and instead of showing off famous tourist landmarks that we like to think are the main adornments of London, we show the houses that belong to kleptocrats in plain sight — where the world’s biggest crooks are hiding their money and getting to enjoy it very nicely.

“If you’re rich enough, you can hide almost unlimited quantities of money, provided you can hire the right people to do it for you.”

We start off on the bank of the Thames, just downriver from Parliament, where the Russian deputy prime minister has a very luxurious duplex apartment. Where we go next is kind of depending on how we feel on the day. We’ve got Nigerian regional governors. We’ve got a lot of Ukrainians, a lot of Kazakhs, a lot of Azeris, Angolans, Egyptians, Libyans, Bahrainis, Pakistanis. London and New York are probably the twin capitals of Moneyland. This is the place where the world’s most discerning and most powerful crooks like to come and bring their cash. And when they bring their cash to London, they like to buy luxury property, and they like to fill their luxury property with luxury things — art and top-end hi-fis and so on.

The Kleptocracy Tour is a bit of fun. People enjoy doing them. But they also have a serious point. The idea is to demonstrate that corruption is not something that happens overseas. Corruption is something that happens everywhere. When money is stolen from somewhere, that place is corrupt. But if the money is spent somewhere else, then the place where it’s spent is also corrupt. Money doesn’t stop being corrupt just because it has passed through the financial system. It’s the same money.

The tours have been successful. We’ve had a lot of people on them, and a lot of politicians. There’s been a lot of media interest, a lot of NGOs. I think we have succeeded in changing the terms of the debate, that there is a much greater recognition in Britain now that London’s role in laundering the world’s money is a real problem. We’d like to bring them into the U.S., too. We’d like to do them in New York and in Miami and in Los Angeles. One of these days, we’ll get around to it.

Knowledge@Wharton: There’s something to be said about the fact that money laundered in years past was kept hidden. Now, you really don’t even have to hide it.

Bullough: There are pluses and minuses. In some ways, London is getting to be a less comfortable place for people with money. We’ve got new legal instruments to try and drive some of the money away. But the world’s kleptocrats are still voting with their feet. They’re still coming here. They’re still buying property. They’re still buying yachts and fine arts and so on. We’ve got a lot more to do. We’re not done yet.

Citing Knowledge@Wharton

Close


For Personal use:

Please use the following citations to quote for personal use:

MLA

"Follow the (Dirty) Money." Knowledge@Wharton. The Wharton School, University of Pennsylvania, 24 July, 2019. Web. 11 December, 2019 <https://knowledge.wharton.upenn.edu/article/klepotcracy-money-laundering-book/>

APA

Follow the (Dirty) Money. Knowledge@Wharton (2019, July 24). Retrieved from https://knowledge.wharton.upenn.edu/article/klepotcracy-money-laundering-book/

Chicago

"Follow the (Dirty) Money" Knowledge@Wharton, July 24, 2019,
accessed December 11, 2019. https://knowledge.wharton.upenn.edu/article/klepotcracy-money-laundering-book/


For Educational/Business use:

Please contact us for repurposing articles, podcasts, or videos using our content licensing contact form.