Latest / Book Club with Jeffrey Sachs / Season 2, Episode 3: Casey Michel: American Kleptocracy

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Season 2, Episode 3: Casey Michel: American Kleptocracy · Book Club with Jeffrey Sachs

0:00
SPEAKER_04: Hello, I'm Jeffrey Sachs.
0:02
SPEAKER_04: Welcome to Book Club, a monthly conversation with world-leading authors who have written scintillating, inspiring, and remarkably important books about history, social justices, and the challenges of building a decent world.
0:16
SPEAKER_04: In this episode, I'll be speaking with Casey Michelle to discuss his debut book, American Kleptocracy: How the U.S.
0:24
SPEAKER_04: Created the World's Greatest Money Laundering Scheme in History.
0:28
SPEAKER_04: An investigative journalist, Michelle writes on illicit finance and kleptocracy for a range of media, including foreign policy, foreign affairs, the Atlantic, and the New Republic.
0:39
SPEAKER_04: Michelle offers a deep investigation into how the United States built the largest illicit offshore finance system the world has ever known.
0:48
SPEAKER_04: American Kleptocracy examines how the United States transformed into a vast global tax and secrecy haven and what that means for the rest of the world and for preserving open societies and the rule of law.
1:02
SPEAKER_04: Welcome to the book club, Casey, and congratulations on this wonderful book.
1:07
SPEAKER_04: So, the world's greatest money laundering scheme.
1:11
SPEAKER_04: Get us started describing why that is an accurate picture for the United States.
1:16
SPEAKER_04: Obviously, a very unsettling one for Americans to know about and learn about.
1:22
SPEAKER_04: We think about tax havens abroad.
1:25
SPEAKER_04: We don't generally think about the United States as being the biggest of them all, but you really take us through why we have to think about the United States as this giant tax and secrecy haven.
1:37
SPEAKER_03: Thanks so much, Chef.
1:38
SPEAKER_03: Obviously, it's an honor to be here with you today, and thanks so much for that generous introduction.
1:42
SPEAKER_03: The book, in and of itself, really has kind of one core argument pushing it forward, and that is that the United States of America, and again, speaking as an American, obviously for broadly American audiences, that the United States of America has transformed into one of, if not the world's largest, offshore and financial secrecy havens.
2:00
SPEAKER_03: Now there's a whole range of policy developments, a whole range of pieces of legislation and exemptions and loopholes that I write about in the book that led us to where we are right now.
2:09
SPEAKER_03: Obviously, write about a number of figures, a number of oligarchs, a number of dictatorial regimes, a number of policies and jurisdictions that have taken advantage of this.
2:17
SPEAKER_03: But really, at the end of the day, this is what the book is about.
2:20
SPEAKER_03: It's looking at how it is the United States of America that has become the go-to source for all manner of and all number of money laundering needs.
2:28
SPEAKER_03: For those who have just a little bit of dirty money burning holes in their pockets, the United States of America has been for years their best friend when it comes to hiding and laundering those funds.
2:39
SPEAKER_03: And I just used a term a moment ago, offshoring, you know, offshore jurisdictions.
2:43
SPEAKER_03: And I think audiences and listeners and viewers might have some kind of a general idea of what offshoring means.
2:50
SPEAKER_04: Yeah, we we would think it's the Cayman Islands, which we hear about, or Jersey Island, or some place in the world, or Switzerland, but the United States.
3:00
SPEAKER_04: Yeah, exactly.
3:00
SPEAKER_03: We still have this image of offshoring existing, as it traditionally did, literally offshore.
3:06
SPEAKER_03: You know, Bermuda, the Bahamas, places in the Caribbean, the Mediterranean, the South Pacific, these small island jurisdictions that 40, 50, 60 years ago really did serve as these central nodes of what we grew to describe as offshoring.
3:19
SPEAKER_03: The problem is that term is now so outdated, or at least the imagery that is associated with it is so outdated because it is the United States of America that spent years and years pulling so many of those offshoring services back on shore, back into the United States.
3:33
SPEAKER_03: So you have this kind of bizarre tension, this almost kind of schizophrenic reality where all these offshoring services are what we describe as offshore, all the financial secrecy, all the laundering services, they no longer exist only in the Panamas or the Belize's or the Maltas or the Cypresses or the Cayman Islands of the world.
3:49
SPEAKER_03: Now they're in places like Delaware.
3:51
SPEAKER_03: Now they're in places like Nevada, Wyoming, South Dakota, right here in the United States that we would never otherwise associate with modern offshoring.
3:59
SPEAKER_03: So I don't know what new terminology we're going to come up with, but I just wanted to highlight that that term is, at least in terms of the imagery that it uh kind of whips up, uh, is a little bit outdated at this point.
4:10
SPEAKER_04: So every few years somebody sneaks out some records from a law firm or someplace else.
4:16
SPEAKER_04: And we've had the Panama papers, we have the Pandora papers.
4:21
SPEAKER_04: You are a part of that investigative scene.
4:24
SPEAKER_04: And I believe that the Pandora Papers were part of exposing that money is in the Dakotas?
4:31
SPEAKER_04: Are you kidding me?
4:32
SPEAKER_04: What are you talking about?
4:33
SPEAKER_04: I I thought the Badlands and Mount Rushmore were there, but uh I didn't think that they were featuring in global financial intrigue.
4:41
SPEAKER_04: Yeah.
4:41
SPEAKER_04: So could you describe a little bit about what the Panama Papers and the Pandora Papers were about and what they showed thematically about the United States, and then we'll turn to the fascinating history that you give us about how this happened in the U.S.
4:58
SPEAKER_03: Sure, Jeff.
4:59
SPEAKER_03: You know, there's a reason that we've been talking about this issue of kleptocracy, transnational money laundering so much in the past few years, and that's because of exactly what you just mentioned.
5:07
SPEAKER_03: Things like the Panama Papers, the Paradise Papers, and then most recently the Pandora Papers.
5:12
SPEAKER_03: All this wonderful alliteration, we're gonna run out of peas at some point.
5:15
SPEAKER_03: But what those doc those leaks, again, millions and millions and millions of corporate documents leaked uh around the world about networks that have emerged around the world taking advantage of all these offshoring services.
5:26
SPEAKER_03: What it showed is just how widespread this phenomenon truly is.
5:29
SPEAKER_03: Now, the first one was the Panama Papers back in 2016.
5:32
SPEAKER_03: That actually didn't cause that much of a stir in the United States because it didn't have a lot of Americans involved.
5:37
SPEAKER_03: We saw governments toppled in Iceland and Pakistan around the world, but in the U.S.
5:42
SPEAKER_03: it didn't really cause much of a stir.
5:43
SPEAKER_04: And that was, if I remember correctly, Fonseca or a law firm based in Panama.
5:50
SPEAKER_04: Uh somebody got the files of all their clients, and it basically showed how this law firm, a known, named law firm, was moving money surreptitiously or anonymously around the world.
6:04
SPEAKER_05: Tonight we have a rare look at how the rich and powerful hide money.
6:08
SPEAKER_05: A group of reporters has gotten a hold of 40 years' worth of files from the computers of a law firm in Panama that specializes in stashing money in shell companies offshore.
6:23
SPEAKER_06: Some of the names reveal this documents are a rogue gallery of dictators and cruels, which also includes our twelve leaders who allegedly evaded taxes in offshore counts.
6:34
SPEAKER_06: The unprecedented leaks had immediate.
6:38
SPEAKER_06: In Iceland, the Prime Minister walked out of an interview after he was asked to explain how he and his wife used an offshore company to allegedly hide a four million dollar investment.
6:48
SPEAKER_06: Huge crowds gathered today to demand his resignation.
6:51
SPEAKER_06: In Ukraine, while his country was at war, the lease documents indicate that President Petro Porchenko moved his business fortune to the British Virgin Islands to avoid paying taxes.
7:02
SPEAKER_06: And British Prime Minister David Cameron is facing questions about his father's offshore investment.
7:08
SPEAKER_04: Anonymity is obviously the underlying single theme of all of this because if you're anonymous, you don't have to pay taxes, you don't have to be responsible when a business that you run has created some disaster someplace.
7:22
SPEAKER_04: You don't get found out when you've stolen your government's funds.
7:26
SPEAKER_04: So anonymity, that's the real key to all of that.
7:30
SPEAKER_03: That is the key tool that the United States of America has really perfected above all.
7:34
SPEAKER_03: It's the provision of anonymity for anyone who wants it, and in many ways, in perpetuity.
7:38
SPEAKER_03: And again, this is for Americans and non-Americans alike.
7:41
SPEAKER_03: And this is what brings us to the Pandora papers from just a few months ago.
7:44
SPEAKER_03: Because unlike the Panama papers of a few years ago, the new Pandora papers really reveals this transformation that I write about in the book.
7:51
SPEAKER_03: I know Jeff, you just mentioned the state of South Dakota.
7:54
SPEAKER_03: Even for most Americans, we don't really have much imagery associated with South Dakota.
7:58
SPEAKER_03: Maybe we think of Mount Rushmore, maybe we go to the Badlands.
8:01
SPEAKER_03: You know, I had the opportunity to go to South Dakota just a few years ago.
8:03
SPEAKER_03: It has a wonderful state history museum right there in the Capitol.
8:06
SPEAKER_03: I mean, it's a beautiful state.
8:08
SPEAKER_04: But what the Pandora Paper that's that's how I know it from my trips as a youth.
8:12
SPEAKER_04: Yeah, absolutely.
8:13
SPEAKER_03: But what the Pandora papers revealed is that this state, this one American state, has transformed into this brand new miniature offshore empire of its own.
8:21
SPEAKER_03: It did so through a specific tool called an anonymous trust or a perpetual trust, which provides many of the same provisions as things like anonymous shell companies.
8:30
SPEAKER_03: It strips any identifying information from the original source of the money, who was controlling it, where did it come from?
8:36
SPEAKER_03: Is it the proceeds of corporate success or corporate espionage or white-collar crime?
8:42
SPEAKER_03: It doesn't matter where the money came from.
8:44
SPEAKER_03: And by the way, we have no idea what that money ends up going to afterward.
8:48
SPEAKER_03: Hundreds and hundreds of billions of dollars have stampeded into of all places South Dakota over the past few years.
8:55
SPEAKER_03: No regulatory oversight, pure anonymity.
8:57
SPEAKER_03: And oh, by the way, you know, when we think of trust, these things generally expire after about a century or so.
9:03
SPEAKER_03: What South Dakota perfected is that they created trust that will last until the sun burns out of the sky, will last for effectively forever.
9:11
SPEAKER_03: Um and this is again taking place right here in the United States of America, and this is really what the Pandora Papers revealed, in addition to so much else.
9:18
SPEAKER_00: An unprecedented leak of financial records known as the Pandora Papers revealed the offshore assets of dozens of current and former world leaders.
9:27
SPEAKER_00: A group of investigative journalists obtained almost 12 million confidential documents from legal and financial service firms.
9:34
SPEAKER_00: Among the highlights, the papers detail how Jordan's King Abdullah II secretly purchased 14 luxury homes worth$106 million.
9:45
SPEAKER_04: So let's uh take a step back.
9:47
SPEAKER_04: You introduced lots of concepts, trusts, anonymous uh shell corporations, and so on.
9:53
SPEAKER_04: I thought a while ago, I think it was maybe 20 years ago or so, that bank transactions were going to be monitored so that millions or billions of dollars couldn't really move.
10:06
SPEAKER_04: Maybe it could move outside the United States, but inside the United States, if you moved money, someone would see it.
10:14
SPEAKER_04: And there was the know your customer regulations banks are supposed to report on strange transactions, even just over$10,000, not 10 million or 10 billion.
10:27
SPEAKER_04: So I thought for a while that our rich people in the United States had their ways not to pay taxes because of a generous tax code, but I thought that moving money around inside the US would have some constraint.
10:43
SPEAKER_04: So how could South Dakota do this?
10:46
SPEAKER_04: And where did the banks come in?
10:48
SPEAKER_04: And how do you actually move money?
10:49
SPEAKER_04: Not that we want to give a how-to guide to the listeners, but how does this work actually?
10:54
SPEAKER_03: Well, as my editor asked me, he said, you know, you're not actually making a playbook for the kleptocrats, right?
10:59
SPEAKER_03: We want to avoid that.
10:59
SPEAKER_03: And I said, no, there might be more money in that, but that's not what I'm interested in at this point.
11:03
SPEAKER_03: I mean, Jeff, to make a long story short, you're you are exactly right.
11:06
SPEAKER_03: 20, 21 years ago, the U.S.
11:08
SPEAKER_03: passed a piece of legislation, which I'm sure you remember the Patriot Act, which obviously had all kinds of concerns about civil liberties violations, but within the Patriot Act, it was a really progressive piece of legislation implementing these brand new anti-money laundering policies on American banks.
11:21
SPEAKER_03: I mean, I think this is really one of the key revelations for me on my end.
11:25
SPEAKER_03: You know, I was just a kid back in the 1990s, but reading through the kinds of policies and stories involved in the American banking sector, it was really the Wild West back then, 1980s, 1990s, bringing in duffel bags of cash, no questions asked.
11:37
SPEAKER_03: And then in 2001, 2002, the Patriot Act is passed.
11:41
SPEAKER_03: And it really was one of these relative success stories.
11:44
SPEAKER_04: Just to remind people, that was after 9-11.
11:47
SPEAKER_04: And so the Bush administration said we have to choke off money going to terrorists.
11:52
SPEAKER_04: And part of the argument was well, we better know uh how money is being transferred in our banking sector.
12:00
SPEAKER_04: And the hero of that provision of the know your customer, if I remember correctly, was Senator Carl Levin of Michigan, who was a very close uh friend of my family, by the way.
12:10
SPEAKER_04: A wonderful man.
12:11
SPEAKER_04: So when I was reading your book, I was so happy to hear that because I hadn't realized the decisive role that he had played in that.
12:20
SPEAKER_04: But uh, as you describe it, he was trying to crack down on corruption for a long time and not finding the resonance uh in the government.
12:29
SPEAKER_04: But then with the terrorist attacks, this could be linked to anti-terrorist action.
12:35
SPEAKER_04: It happened also to be linked to anti-corruption, which sometimes our government has less interest in.
12:40
SPEAKER_04: But this went into effect.
12:42
SPEAKER_04: Okay, great.
12:44
SPEAKER_04: And so you say, wonderful, okay, now uh there's control.
12:47
SPEAKER_04: It didn't quite finish the work though.
12:50
SPEAKER_04: So what happened?
12:50
SPEAKER_03: Unfortunately, it didn't.
12:51
SPEAKER_03: I mean, I want to say, Jeff, I'm so happy that you knew Senator Levin.
12:54
SPEAKER_03: One of the honors in putting this book together was getting the chance to speak with him about his work.
12:58
SPEAKER_03: Obviously, he unfortunately passed away last year, but if there is a hero of the story, it's absolutely Senator Levin.
13:03
SPEAKER_03: So the Patriot Act is passed, the American banking sector is at least nominally cleaned up, but then there are a few things that happen afterward.
13:10
SPEAKER_03: One is just basic enforcement, basic funding.
13:13
SPEAKER_03: As you just mentioned, the United States government isn't always as focused on anti-corruption policies as it could be, as it should be.
13:19
SPEAKER_03: And we know that that has applied to the lack of funding, the lack of enforcement in these new regulations in the banking sector.
13:26
SPEAKER_03: Just a few years ago, there was another similar leak called the FinCEN files out of the Department of Treasury that showed really how difficult it has been for regulators just to keep up with the paperwork that has been filed by the American banking sector.
13:38
SPEAKER_03: You know, at the end of the day, it's it's one thing to have laws on the book.
13:41
SPEAKER_03: That's great.
13:42
SPEAKER_03: But if they're not enforced, if that funding personnel and oversight isn't there, those laws aren't going to be worth much.
13:47
SPEAKER_03: And that's certainly one issue that we've seen in the banking sector.
13:50
SPEAKER_04: And by the way, not to make a long digression, but right now the IRS has basically stopped doing audits and is so understaffed, it's not an accident exactly, because a lot of Congress, especially the Republican Party, has tried to starve the regulators of the capacity to follow up.
14:10
SPEAKER_04: And so you put the regulations on the books, but if there's big money at play, there are ways to frustrate even the decent and what should be straightforward regulations.
14:21
SPEAKER_03: Yeah, Jeff, much of my book looks at how foreign regimes, foreign dictators, foreign oligarchs take advantage of these systems, but you cannot disentangle the explosion, the entrenchment of these systems, and isolate those as a purely foreign phenomenon because the exact same thing has been happening on the domestic side.
14:37
SPEAKER_03: You know, I'm so happy you brought up the IRS because that agency has been effectively gutted.
14:41
SPEAKER_03: It is a shadow of its former self from what it was even just a decade ago.
14:45
SPEAKER_03: I mean, the budget cuts after budget cuts after budget cuts, we're only just now beginning to see a potential reversal of that under the Biden administration.
14:52
SPEAKER_04: And only potential because the Republicans are blocking funding for enforcement, not even for tax increases, just enforcing the code.
15:01
SPEAKER_04: And I heard a couple of days ago, by the way, that because of all the complexities uh during the pandemic and and transfers, the IRS just on a routine basis is completely overwhelmed with Collins asking for clarifications and things, and they're starved for money.
15:20
SPEAKER_04: And it's not an accident because if you don't want to pay taxes, you starve the tax collector.
15:26
SPEAKER_03: Exactly, exactly.
15:26
SPEAKER_03: This is all part of this broader deregulatory anti-government ethos, you know, starving the beast as the phrase goes, and allowing the inflow and outflow of money of any kinds of funds, regardless of the source, regardless of whether they should be taxed, whether they should be checked in the first place, the ease of access to any and all money has really been the driving source for this, and which is why we see not only the explosion of modern kleptocracy itself, but the complete entangling of that with the phenomenon of things like wealth inequality right here in the United States of America, rising housing prices, declining economic opportunities.
15:59
SPEAKER_03: I mean, it's all part of one broader story that my book is addressing one element of, but again, that you can't disentangle from the broader phenomenon therein.
16:08
SPEAKER_04: I just checked before we got online together, the richest nine Americans uh as of this morning, because Bloomberg does a good service if you go up looking on Bloomberg.com for billionaires, they give it the daily account.
16:21
SPEAKER_04: So I'm kind of a billionaire voyeur uh in this regard.
16:24
SPEAKER_04: And the nine richest Americans uh as of our discussion today have$1.2 trillion of wealth.
16:31
SPEAKER_04: It's it's a number that is unimaginable for nine people.
16:36
SPEAKER_04: And 20 years ago you were saying, that's crazy, that's funny science fiction, but that's what we're facing in general, which is this massive wealth inequality.
16:44
SPEAKER_04: Now we know even for legal tax reasons, these people don't pay taxes on their wealth as it accumulates.
16:51
SPEAKER_04: It's basically non-taxable.
16:53
SPEAKER_04: They don't pay anything in in some cases.
16:55
SPEAKER_04: But let's uh stick with the flow of money you were describing.
16:59
SPEAKER_04: Know your customer,$10,000, Carl Levin had done a great thing, but then implementation.
17:05
SPEAKER_04: So we started first problem with implementation was just being swamped or maybe not really following the corruption per se.
17:14
SPEAKER_04: But there are other problems that you point out.
17:15
SPEAKER_03: Yes, exactly.
17:16
SPEAKER_03: It wasn't just the lack of enforcement, it wasn't just the lack of funding because it's a few months after the passage of the Patriot Act, which again really went a long way to at least creating a kind of legal architecture for cleaning up the banking sector.
17:27
SPEAKER_03: It didn't target only the American banking sector.
17:29
SPEAKER_03: It also targeted a range of other industries.
17:31
SPEAKER_03: It targeted American real estate, it targeted American private equity and hedge funds, it targeted American art and auction houses, it targeted all of these other industries that we knew even by the turn of the century were profiting from all of these inflows of questionable suspect illicit money coming in.
17:48
SPEAKER_03: The problem was the Treasury Department, the Bush Treasury Department, just a few months after the Patriot Act was passed, issued what it described as a series of exemptions for these industries, not banks themselves, but for real estate, for private equity and hedge funds, and for a number of others.
18:02
SPEAKER_03: And looking back through the literature of the time, through the comments of the time, you you see the logic of this.
18:07
SPEAKER_03: The argument was we don't want to smother these industries with new regulations.
18:11
SPEAKER_03: We don't want to throw the baby out with the bathwater.
18:13
SPEAKER_03: We want to understand what these new regulations are going to do.
18:15
SPEAKER_03: And so what they did was issue a series of what they called temporary exemptions to exempt these industries from these new anti-money laundering policies.
18:22
SPEAKER_03: Now, now, Jeff.
18:23
SPEAKER_03: Twenty years ago in the day.
18:24
SPEAKER_03: In early 2022, I don't quite know of temporary as I understand it fits in a decade after decade mold, but these exemptions are still in place.
18:32
SPEAKER_03: So what you see happening is on the banking side, you have a lack of actual funding and enforcement.
18:36
SPEAKER_03: And then for all these other industries, you have this exemption that's effectively a perpetual exemption.
18:41
SPEAKER_03: So those two things, those are the two primary prongs that really undercut the success of the Patriot Act in and of itself.
18:49
SPEAKER_03: And it's no surprise that these other industries, real estate, private equity, hedge funds, art and auction houses, et cetera, have ballooned into sources of kleptocratic services, sources of money laundering writ large over and over and over again, right here in the United States.
19:04
SPEAKER_03: And I know, Jeff, you just did ask about what the best way to go around making the creating these kinds of money laundering systems.
19:11
SPEAKER_03: And I did want to just drop in one other element of this that ties back to the Pandora papers.
19:15
SPEAKER_03: And that is the role of not real estate agents themselves or private equity managers themselves, who are obviously profiting from this, but American lawyers and American legal firms.
19:25
SPEAKER_03: The book Hey, that's our city, New York City, is going to say.
19:29
SPEAKER_03: Absolutely.
19:29
SPEAKER_03: The book goes into further detail about this, but I know you mentioned what's the best way to go around really creating one of these offshoring systems right here in the United States.
19:37
SPEAKER_03: Boy, just get yourself a good lawyer.
19:39
SPEAKER_03: Hire a good legal firm because those are going to be the best friends that you have for so many reasons, one of which being lawyers and law firms maintain their own attorney client accounts, their own trust accounts in banks that are not subject to any anti-money laundering requirements whatsoever.
19:54
SPEAKER_03: All of which is to say you can still freely use American banks.
19:58
SPEAKER_03: You probably don't have to worry about any real oversight, any real personnel looking at the paperwork.
20:02
SPEAKER_03: But if you are worried about that, just get a lawyer.
20:04
SPEAKER_03: You can use their accounts perfectly freely, perfectly legally, without any kind of oversight.
20:10
SPEAKER_03: There's no legal questions that are required to be asked whatsoever.
20:13
SPEAKER_03: And again, this is one of the uh elements we see time and again.
20:16
SPEAKER_04: I was wondering just purely mechanics, although the we don't want to do a how-to-door, but Donald Trump is gonna sell an apartment to a foreign anonymous interest.
20:29
SPEAKER_04: You pay for that through the banking sector, but doesn't the bank have to check?
20:34
SPEAKER_04: So what happens?
20:34
SPEAKER_03: Well, absolutely.
20:35
SPEAKER_03: The bank is supposed to check, it has to check, and to the banking industry's credit, they are routinely filing these suspicious activity reports.
20:43
SPEAKER_03: Maybe they're too late, maybe they take a little bit to get in, but we haven't seen this kind of broader scandal of American banks, especially just ignoring these regulations outright.
20:51
SPEAKER_03: What you often see are questionable foreign banking partners that are nominally supposed to be monitoring, nominally supposed to be checking inflows from foreign clients, from foreign companies themselves, hiding behind other accounts attached to especially American shell company accounts.
21:08
SPEAKER_03: Again, we're talking about these elements of anonymity that are often bundled through American lawyers and American law firms.
21:15
SPEAKER_04: So if a big transfer comes from a shell company, that's basically the end of it.
21:21
SPEAKER_04: That just passes for okay, I don't see anything uh suspicious.
21:26
SPEAKER_04: It's 10 million, 20 million dollars for some luxury flat, and it's ABC corporation coming out of Switzerland or wherever or South Dakota.
21:37
SPEAKER_04: But I don't have to actually know more about that.
21:41
SPEAKER_03: No, you don't have to know more about it.
21:43
SPEAKER_03: Again, you can file one of these suspicious activity reports with the federal government, but that doesn't prevent you from processing the uh the actual funding itself.
21:51
SPEAKER_03: You can keep working with that client.
21:52
SPEAKER_03: You don't have to pierce that veil of anonymity just to get back to your example of this is uh amazing.
21:59
SPEAKER_04: Oh, it is it absolutely
22:00
SPEAKER_03: I mean, look, this is the thing that's so breathtaking about putting this book together is not only how widespread and prevalent it is, but just how easy it is.
22:08
SPEAKER_03: Take Delaware, for example.
22:09
SPEAKER_03: If you have 15 minutes and$100, you can set up an anonymous shell company yourself.
22:15
SPEAKER_03: Uh I would recommend going through, again, a lawyer or a law firm to do so because you have that extra veil of anonymity on top of that.
22:21
SPEAKER_03: But to bring it back to the Trump example itself, there's a reason that so many of the, I guess few that we know about thus far, foreign entanglements, foreign investments, you know, kleptocrat, oligarch, dictatorial linked investments in Trump properties.
22:35
SPEAKER_03: There's a reason so many of those have hidden behind anonymous shell companies that only after the fact we have a series of leaks or there's some internal investigation where the identifying information comes out.
22:44
SPEAKER_03: Again, these anonymous shell companies, anonymous trusts in places like South Dakota, anonymous shell companies in places like Delaware have really been the key bedrock of so much of this American transformation, so much of this American anonymity.
22:58
SPEAKER_03: Because at the end of the day, the banking sector doesn't need to look behind who's actually controlling, who's actually steering these shell companies.
23:04
SPEAKER_03: Now, this is saying everything aside from even if you just want to purchase in cash, which we know plenty of these clients actually do, because within the real estate sector, it's enjoyed that two decade-long supposedly temporary exemption from asking any questions about who might be coming in and purchasing this mansion, this commercial real estate building, this steel plant, this port facility, this agricultural or timberland property, et cetera, et cetera.
23:30
SPEAKER_03: I mean, it has just been just this wide, wide open field.
23:33
SPEAKER_04: I am naive, relentlessly, and I can't really imagine uh bringing in$20 million of cash, but you can do that.
23:40
SPEAKER_04: You absolutely can.
23:41
SPEAKER_04: It's probably much more common than I imagine.
23:44
SPEAKER_03: It is not the most easy to transport system, but there's nothing stopping you.
23:47
SPEAKER_03: There's nothing stopping that transfer of cash flow to purchase, you know, between these parties, to purchase again perfectly anonymously and perfectly easily for all of these figures that are looking to plow so much of their money into especially the American real estate sector.
24:02
SPEAKER_04: One of the really wonderful parts of your book is actually the history of Delaware and how all of this came about for non-American listeners and for American listeners for that matter, an incredible proportion of our corporate world is actually incorporated in the state of Delaware.
24:24
SPEAKER_04: And it's so natural because you hear all the time such and such company, some giant uh Fortune 500 incorporated in Delaware.
24:33
SPEAKER_04: And I always thought growing up, well, that's nice, that's just where companies incorporate.
24:38
SPEAKER_04: And I never really gave it too much thought, or, well, the Supreme Court of Delaware is just a specialist in this, so there's good economies of scale.
24:46
SPEAKER_04: But you explain what happened, and I think it's really a great story.
24:50
SPEAKER_04: And I'd like you to describe why Delaware, how did that happen?
24:54
SPEAKER_04: Yeah.
24:54
SPEAKER_04: And why will the next generation say South Dakota?
24:57
SPEAKER_03: Yeah, sure.
24:58
SPEAKER_03: I think I was of the same vantage as you before I came into this.
25:01
SPEAKER_03: You know, if there's one figure we really have to think about the transformation of the state of Delaware into, again, this miniature offshore empire of its own, it's of all people, Woodrow Wilson.
25:10
SPEAKER_04: I know, unbelievable.
25:11
SPEAKER_03: And not Woodrow Wilson as American president, but before that, Woodrow Wilson as governor of New Jersey.
25:16
SPEAKER_03: And as far as I can tell, a pretty successful one at that, because it was actually New Jersey that through the late uh 19th and into the early 20th century was this pro-corporate haven, this really pro-corporate secrecy, pro-corporate anonymity, any kind of corporate services these burgeoning titans of industry through the Gilded Age and through the early 20th century needed.
25:36
SPEAKER_03: They go to New Jersey.
25:37
SPEAKER_03: And then Woodrow Wilson stepped in and he realized what a rotten system had developed in the state.
25:43
SPEAKER_03: No taxes were being paid, no questions were being asked.
25:46
SPEAKER_03: There was pressure from all other state governors saying, you need to clean up this own mess because you are sucking up all this otherwise taxable revenue for us.
25:54
SPEAKER_03: And what Woodrow Wilson did, you know, of this great reformist bent is he really cleaned up the state of New Jersey.
25:59
SPEAKER_03: He required new oversight, he required new regulations and stepped in and cleaned up the state.
26:05
SPEAKER_03: And that's all well and good.
26:06
SPEAKER_03: The problem is that all of a sudden that corporate money was looking for a new home.
26:11
SPEAKER_03: It wasn't just gonna go back to the New Yorks or the Texas's or the Pennsylvanias of the world.
26:16
SPEAKER_03: It was looking for those same services.
26:18
SPEAKER_03: And into the breach steps this tiny little state that nobody ever really thinks otherwise of.
26:30
SPEAKER_03: But again, Delaware, right, it doesn't have a broader economic base.
26:33
SPEAKER_03: It doesn't have much of the way of natural resources.
26:36
SPEAKER_03: What the state government of Delaware realizes it could step in, provide those same services that New Jersey was providing, and then take a slice of the pie as well.
26:44
SPEAKER_03: The state government would be better off.
26:46
SPEAKER_03: They'd be able to reduce taxes for Delaware constituents, and oh, by the way, these new corporate clients would be happy.
26:52
SPEAKER_04: And the service, we should uh explain again, is not a public service.
26:58
SPEAKER_04: It's very much a private service.
27:00
SPEAKER_04: The services we let you incorporate have the privileges of limited liability with anonymity, with protection of your assets.
27:12
SPEAKER_04: We don't ask questions.
27:13
SPEAKER_04: And so what New Jersey had been doing that Woodrow Wilson clamped down on, this was a classic example of the so-called race to the bottom, when you have governments that are competing with each other not to do right, not to do good, but to capitalize on dirty money, for example, or to capitalize on capital mobility between political jurisdictions.
27:38
SPEAKER_04: So Delaware stepped in and said, uh, we're gonna be your home.
27:42
SPEAKER_04: Yes, absolutely.
27:43
SPEAKER_04: We're gonna love you.
27:44
SPEAKER_03: And the corporate clients were only too happy to have that.
27:47
SPEAKER_03: What we ended up seeing was exactly what you saw, Jeff, this race to the bottom.
27:50
SPEAKER_03: We're talking about a transition that took place a century ago.
27:54
SPEAKER_03: This wasn't something that we saw only in the late 20th, early 21st century.
27:57
SPEAKER_03: This has been the case for now a full century.
28:00
SPEAKER_03: And Delaware still to this day has not given up that pole position, that leadership position, as it pertains to providing those kinds of corporate services.
28:08
SPEAKER_03: Now, other states, states like Nevada, states like Wyoming, states like South Dakota, have begun challenging Delaware for that kind of pro-corporate crown for all those anonymous services, all those protections that the state of Delaware provides.
28:21
SPEAKER_03: But no state has yet taken it down.
28:23
SPEAKER_03: We haven't seen a Woodrow Wilson-like figure emerge out of the state of Delaware.
28:27
SPEAKER_03: And I will say, it is of, I suppose, ongoing irony that it's the very first president from the state of Delaware, that is to say, Joe Biden, who we have now in the White House, who has actually made more progress in tackling this issue of corporate secrecy, corporate anonymity, broader kleptocratic services than any president we've seen in years and years and in decades and decades.
28:48
SPEAKER_03: I mean, it is really one of these ongoing ironies.
28:50
SPEAKER_03: I really haven't kind of wrapped my mind around.
28:52
SPEAKER_03: I would love to know what his conversations are like when he goes back to the state of Delaware.
28:56
SPEAKER_03: But really, you know, that is what we think of.
28:58
SPEAKER_03: It's these smaller states that don't have other economic opportunities, economic resource bases that have realized they can create and perfect these kinds of anonymous financial corporate secrecy vehicles that both Americans and non-Americans love.
29:12
SPEAKER_04: And it's basically the case that corporate law in the United States is overwhelmingly at the state level.
29:18
SPEAKER_04: That's the point.
29:19
SPEAKER_04: Absolutely.
29:20
SPEAKER_04: Which is also a bit surprising when you think about it that we don't have a uniform corporate code for the United States.
29:27
SPEAKER_04: But this was a state-level action, and it has remained that way so that it's open to any state that wants to make that race to the bottom.
29:36
SPEAKER_03: Yeah, which is exactly why Delaware, again, one of the smallest states in the Union, has been able to create this empire of anonymity, empire of pro-corporate secrecy services for itself.
29:45
SPEAKER_03: I know I wrote the book about the United States, obviously, as an American for American audiences, arguing about the United States itself.
29:51
SPEAKER_03: But that argument doesn't center only on the federal government.
29:55
SPEAKER_03: It doesn't center only on congressional legislation or actions out of the White House.
29:59
SPEAKER_03: We do have this tension in the United States.
30:02
SPEAKER_03: It's a federal polity, it's a federal country between the American federal government and these state-level governments in places like Delaware, Nevada, Wyoming, South Dakota, that, as you just mentioned, Jeff, have the sovereign right to create these financial secrecy tools, to create these corporate, offshoring anonymous empires themselves, with the federal government able to do very little about it.
30:23
SPEAKER_03: They can ham and hon, they can certainly whine, they can certainly pressure it.
30:26
SPEAKER_03: But at the end of the day, those corporate rights, those corporate responsibilities are at the state level.
30:30
SPEAKER_03: And so you see this tension, and hopefully this comes through in the book, existing between federal efforts at clamping down on some of these corrupt networks, kleptocratic networks, and at the same token, these American states really undercutting these efforts time and time and time again.
30:44
SPEAKER_04: Come here, come here, we're here for you.
30:47
SPEAKER_04: Absolutely, absolutely.
30:49
SPEAKER_04: So can you explain what is a shell corporation?
30:52
SPEAKER_04: What is an anonymous shell corporation?
30:55
SPEAKER_04: How was this invented?
30:56
SPEAKER_04: And then you tell a fascinating story about how it was reinvented, so it's constantly being improved, then how it's turned into an anonymous trust, and then a perpetual anonymous trust.
31:07
SPEAKER_04: So could you walk us through mechanically all of these great innovations, which are basically ways to hide wealth?
31:16
SPEAKER_04: Sure.
31:16
SPEAKER_03: It's a pretty short story, it's a pretty easy story.
31:18
SPEAKER_03: Right?
31:18
SPEAKER_03: We think about the broader American capitalistic system.
31:21
SPEAKER_03: The basic ingredients are corporations, our companies, the elements of the free market enterprise system that are selling goods, that are making profits, that have corporate oversight, that have boards, that have CEOs, et cetera, et cetera.
31:34
SPEAKER_03: Again, the basic building blocks of corporate America.
31:37
SPEAKER_04: And by the way, if I may just interrupt, we kind of think about that as well since at least the Great Depression and the 1930s and the Securities and Exchange Commission as something regulated, actually.
31:50
SPEAKER_04: That you if you have a corporation, you have to file reports, but it's not so much like that.
31:56
SPEAKER_04: That's uh for traded companies, it's for certain subset of corporations.
32:02
SPEAKER_04: And what you're talking about is a mechanism that completely gets around all of that regulatory apparatus.
32:10
SPEAKER_03: Exactly.
32:10
SPEAKER_03: Obviously, for Fortune 500, the major companies and corporations of the world, you can identify who is behind them, what products are they selling, where are they located, what does their corporate structure look like, et cetera, et cetera.
32:19
SPEAKER_03: But these shell companies that emerge in the United States, and again, think of places like Delaware, think of places like Nevada and Wyoming, these are a specific subset that are effectively legal fictions.
32:31
SPEAKER_03: Again, we're talking about companies with things that exist at the very basic building block on paper itself, as it pertains to shell companies.
32:38
SPEAKER_03: These are companies and corporations that don't have any physical presence.
32:42
SPEAKER_03: They don't have any identifiable boards of governors or presidents or CEOs.
32:46
SPEAKER_03: They don't have any identifiable products or profit-generating motives thereafter.
32:52
SPEAKER_03: These are things that, again, are these kind of legal fictions.
32:54
SPEAKER_03: You can't even hold it in your hand or locate it on a map.
32:57
SPEAKER_03: They exist only in name alone.
33:00
SPEAKER_03: And what we saw in the United States, especially in the late 20th century, was this creation of, this expansion of, and beyond that, the realization of just what these anonymous shell companies could do.
33:10
SPEAKER_03: Now, again, I just mentioned anonymous shell companies, because all too often what you have with these shell companies is pure unadulterated anonymity within that.
33:19
SPEAKER_03: You can't identify who's behind them.
33:21
SPEAKER_03: You can't identify who's controlling them.
33:23
SPEAKER_03: You can't identify even what they are for.
33:25
SPEAKER_03: You can maybe identify which jurisdiction they're in, again, Delaware or Nevada or Wyoming or other American states.
33:30
SPEAKER_03: But beyond that, you have no idea what they're doing, how they exist, for whose benefit they exist, and then beyond that, how they might be moving or potentially laundering money or offshoring money itself.
33:42
SPEAKER_03: I mean, this is again, as I mentioned earlier, one of the key bedrocks of this broader American transformation.
33:48
SPEAKER_04: One of the amazing things, as you know very well, as you know best, if you spend all your time trying to pierce the corporate veil of this ABC corporation, you will find out that the owner is the DEF Corporation.
34:06
SPEAKER_04: And if you pierce that, it's the GHI corporation.
34:10
SPEAKER_04: So you set a whole chain of anonymity that can be six or eight steps long of one anonymous company owning another anonymous company owning, so that it's completely, you have no idea.
34:23
SPEAKER_04: And that's the whole point.
34:25
SPEAKER_04: And this is seen as normal, legal.
34:28
SPEAKER_03: One of the things that I didn't get into in the book, and who knows, maybe this will be fodder for another book, is that the United States of America is not the only jurisdiction that offers these tools.
34:36
SPEAKER_03: You know, this is a similar dynamic, a similar setup we see in places like Canada, the United Kingdom, or Australia, as well as again, these traditional offshore havens of yore.
34:44
SPEAKER_03: And one thing that has been fascinating to me, and again, I might be might be a fodder for further research, is that time and time and time again, as we see the industries emerge in other jurisdictions, it's often Americans at the core, American businessmen, that are setting up, that are drafting the legislation, and then beyond that, that are setting up the corporate entities to profit from that.
35:03
SPEAKER_03: Whether it's in Panama or St.
35:04
SPEAKER_03: Kitts and Nevis, other smaller jurisdictions that have their own offshoring empires themselves, all too often you can track it back to an American that visited, that moved there, that set up these systems themselves.
35:15
SPEAKER_03: That again, as you just mentioned, Jeff, you create this kind of nesting doll situation.
35:19
SPEAKER_03: Shell companies inside of shell companies inside of shell companies.
35:21
SPEAKER_03: And if you're smart about it, you're gonna hop jurisdictions so that they're not all in Delaware or all in South Dakota, that some are in the US, some are in the Cayman Islands, some are in the United Kingdom, some are in Switzerland.
35:33
SPEAKER_03: Because then if you're trying to investigate, you're gonna be spending months and months, if not years and years, just trying to disentangle all these different regulatory bodies, different elements of oversight and information, just to get to that one person who's behind this entire shell company empire at the end of the day.
35:49
SPEAKER_03: This is really the bedrock of this American transformation is the anonymity within things like shell companies, and then beyond that, in places like South Dakota with trusts and perpetual trusts, which provide again many of the same services, all of the anonymity to boot.
36:02
SPEAKER_04: It's a terrible thing how so much goes to rock for this reason.
36:07
SPEAKER_04: But in economic history, of course, the idea of a corporation was a very clever breakthrough.
36:13
SPEAKER_04: And the modern joint stock company, which goes back about four centuries, was a way to pull capital for ventures.
36:21
SPEAKER_04: But for hundreds of years to do it, it was under a royal charter, basically.
36:26
SPEAKER_04: In other words, it was a specific activity with specific permission.
36:30
SPEAKER_04: And then in the 19th century, when we tell the story of the great breakthrough of the modern market economy, what used to have to be signed by the king or queen of England, for example, was democratized so that you could make companies, and that's supposed to be a glorious thing.
36:47
SPEAKER_04: And for many years, uh, when I was advising market reforms in Eastern Europe, I just would emphasize how important it is to be able to form companies and not to make it so bureaucratically onerous that entrepreneurs could not function and so forth, then there's truth to it.
37:04
SPEAKER_04: But how everything gets wrecked in the end by the extremes, by the greed, by the tax evasion, and all the rest, is the idea now that in 15 minutes not only can you open a company, but nobody will ask you anything about who are the owners, who's responsible, where the money came from, nothing.
37:28
SPEAKER_04: You're never gonna have to report.
37:30
SPEAKER_04: You're never gonna have to say who's really behind this.
37:33
SPEAKER_04: This is so pitely disgusting, by the way.
37:37
SPEAKER_04: Your book does a fantastic job explaining it.
37:40
SPEAKER_04: I see it, of course, in developing countries where company, some jumble of initials that is incorporated often in in the Caribbean island, is doing oil drilling or something else.
37:55
SPEAKER_04: And if there is an accident, if there's a spill, if there's an abuse of the community, if some terrible crime is committed, they just disappear.
38:04
SPEAKER_04: Untraceable.
38:05
SPEAKER_04: Absolutely.
38:06
SPEAKER_04: And it's unbelievable how this is a creation of irresponsibility.
38:12
SPEAKER_03: Jeff, it's one of those things, when I was putting this book together, and I echo everything that you just said, and we haven't even touched on the kind of environmental degradation that's happened because of all this anonymity.
38:20
SPEAKER_03: But as I've been researching these systems, finding this history, examining all the policies that flowed thereafter, so much of it was, I suppose, not that surprising.
38:29
SPEAKER_03: And I say that insofar as because, for instance, the state of Delaware saw that there was a demand for, whether it's those who are looking for anonymity, those who were looking for the ability to uh work around any kind of corporate regulations, corporate oversight, and then beyond that, the lack of oversight for a state like Delaware to have to implement any kind of basic know-your customer checks, you know, you see these incentive structures developing.
38:51
SPEAKER_03: You know, the term you used earlier in race to the bottom.
38:54
SPEAKER_03: The demand was absolutely there.
38:56
SPEAKER_03: And because there wasn't the kind of legal architecture requiring, in this case, American states, to even ask basic information about who's profiting, who's behind these shell companies.
39:06
SPEAKER_03: At the end of the day, I really wasn't surprised that some of these systems developed, and as you said, were taken to their extreme because there was that wide open space for maneuverability.
39:15
SPEAKER_03: And at the end of the day, the state of Delaware realized that if they weren't gonna do it, other American states were gonna do it, other jurisdictions elsewhere were going to do it.
39:23
SPEAKER_03: These elements of dirty money or questionable money or even offshore money, they're always looking for a home.
39:30
SPEAKER_03: They're always looking for a place to be kept safe and as whole as possible.
39:34
SPEAKER_03: And if the state of Delaware is not gonna do it, somebody else is, which is why this is such a global issue and such a massive issue that we are facing right now.
39:42
SPEAKER_04: And what's interesting also is, which again you describe so vividly, it's not that South Dakota actually got into this to commit great crimes.
39:52
SPEAKER_04: South Dakota got into it because there would be a hundred dollar fee attached to it, and it's easy, and you get a whole lineup of people, and each one takes 15 minutes.
40:01
SPEAKER_04: And so it's not that it's some grand larceny against the world.
40:06
SPEAKER_04: It's hey, why not?
40:08
SPEAKER_04: And it's legal, and we can do this and we can make some money on the way.
40:12
SPEAKER_04: And then within that very superficial motivation, or you know, we won't have to have a state income tax, we'll collect revenues on incorporating thousands and thousands of anonymous trusts and so forth.
40:26
SPEAKER_04: Not that we care about the trust, but we care about the hundred dollar fee each time.
40:30
SPEAKER_04: It opens up to billions or trillions of dollars, actually.
40:35
SPEAKER_04: Absolutely.
40:35
SPEAKER_04: It is somehow so perverse, but once you make the piping, then the amounts that can flow are astounding.
40:43
SPEAKER_03: And Jeff, I want to make one point.
40:45
SPEAKER_03: I know as we're kind of near the end here of our conversation today, get toward the end.
40:48
SPEAKER_03: What I write about of the book are especially the foreign forces, the foreign oligarchs, the foreign regimes, the foreign dictators, even the Vladimir Putin's of the world, the Nicholas Maduros of the world, even the Nursultan Nazarbayev's out of Kazakhstan of the world taking advantage of this.
41:01
SPEAKER_03: Because, as I'm sure you understand, in the US, if you want to get legislation moving, national security is a really great way to do it.
41:08
SPEAKER_03: But one of the key points that I wanted to make today is that you know, these kleptocrats didn't invent these systems.
41:13
SPEAKER_03: They weren't the ones in Delaware setting these up.
41:16
SPEAKER_03: And even the folks in Delaware and South Dakota weren't thinking of dictatorial families in Kazakhstan or Azerbaijan or elsewhere as their clients.
41:24
SPEAKER_03: These were set up for Americans, wealthy Americans, ultra-high net worth Americans, to offshore their money, to take part in as much anonymity as they could and evade as many taxes as they could.
41:35
SPEAKER_03: These systems were already in place by the 1990s, by the 2000s, when again, you saw these emergent dictatorial kleptocratic regimes who then began also taking advantage.
41:46
SPEAKER_03: The paradigm was already there.
41:48
SPEAKER_03: And I don't blame these kleptocratic figures elsewhere for taking advantage.
41:51
SPEAKER_03: But at the end of the day, it was the Americans that created this.
41:54
SPEAKER_04: Am I correct to understand also that sometime at the beginning of this century, the US started asking other countries, tell us about American accounts abroad, but we would not reciprocate to say when others said about us, we said no, no, no, no, that's anonymous.
42:10
SPEAKER_04: Yeah, I've Is that right?
42:11
SPEAKER_03: Yeah, you're you're exactly right, Jeff.
42:13
SPEAKER_03: I've written about this elsewhere.
42:14
SPEAKER_03: This didn't end up making it into the book, but back in late 2000s, early 2010s, you know, there was scandal after scandal after scandal of Americans effectively offshoring, hiding their finances in especially Swiss banks.
42:24
SPEAKER_03: And at a certain point, the Obama administration said, enough is enough, cracked down on, really cracked open the Swiss banking sector.
42:31
SPEAKER_03: I mean, Swiss banking secrecy is not nearly what it once was.
42:35
SPEAKER_03: And the U.S.
42:36
SPEAKER_03: passed what it called the Foreign Accounts Tax Compliance Act, or FATCA as the acronym goes, that required foreign banks holding American assets to disclose what those assets were or face a 30% withholding tax.
42:48
SPEAKER_03: And again, in and of itself, that's a phenomenal piece of pro-transparency legislation.
42:54
SPEAKER_03: You're requiring all these traditional offshore havens, all these traditional secret banking sectors to reveal the Americans that are in it.
43:00
SPEAKER_03: It really sparked comparable legislation, especially in the European Union as well.
43:04
SPEAKER_03: But as you just mentioned, Jeff, when European partners came to the US and said, boy, this is a great idea.
43:09
SPEAKER_03: We'd love to have the same thing on your end.
43:11
SPEAKER_03: Would you mind telling us about European nationals that are hiding their finances in American banks?
43:16
SPEAKER_03: American authorities said, yeah, that's all right.
43:19
SPEAKER_03: We're happy to have them here, and we don't feel like there's any need for us to disclose and share that information.
43:24
SPEAKER_03: So you have this imbalance.
43:26
SPEAKER_03: Unbelievable.
43:27
SPEAKER_03: It absolutely is.
43:27
SPEAKER_03: I mean, it is unbelievable, but at the end of the day, it's also not surprising to me.
43:31
SPEAKER_03: Because it's not unbelievable.
43:32
SPEAKER_03: It's just disgusting.
43:33
SPEAKER_03: It's the Americans that are profiting over and again, and especially states like South Dakota that do not have to disclose which European nationals or other nationals, in addition to the Americans, are taking part in these anonymous trusts in states like South Dakota.
43:47
unknown: Trevor Burrus, Jr.
43:47
SPEAKER_04: Because that was one more accelerator for these gushing money to flow in.
43:51
SPEAKER_04: Absolutely during the 2010s was that uh the U.S.
43:55
SPEAKER_04: was ensuring at the also the federal level we're not disclosing.
44:00
SPEAKER_04: Secrecy at the federal level, and we have all these wonderful states ready to service you.
44:05
SPEAKER_04: Absolutely.
44:05
SPEAKER_04: Just tell us for uh two minutes what did happen in South Dakota, uh, because it's a fascinating story.
44:11
SPEAKER_03: We have to go back to the 1980s.
44:12
SPEAKER_03: There's this wonderfully colorful character, Bill Janclo, Wild Bill, as they called him, who was the governor of the state.
44:17
SPEAKER_03: It's a similar story to Delaware, Nevada, and elsewhere.
44:20
SPEAKER_03: The state of South Dakota had fallen on hard economic times, and state leadership was looking for a new economic lifeline.
44:26
SPEAKER_03: And what they realized in South Dakota, because it doesn't have any income taxes, it doesn't have any broader corporate taxes, what they decided was to create not a new shell company industry in and of itself, but they decided to do something a little bit different, go on a parallel track, and that's in the trust industry.
44:41
SPEAKER_03: Now, what they ended up doing was removing a few things, any kind of taxation, any kind of identifying information for anyone who wants to set up a trust in South Dakota.
44:50
SPEAKER_03: But as I mentioned earlier in the conversation, trusts have been around since the Middle Ages, and they're usually relatively perfunctory things just to pass generational wealth from grandparents to grandkids or to use for education.
45:01
SPEAKER_03: But what South Dakota realized, similar to Delaware with shell companies, is that there's no reason that that had to be the actual structure for South Dakota Trust.
45:10
SPEAKER_03: There's no laws on the book, especially at the federal level, that says that has to be the case.
45:13
SPEAKER_03: And so what they ended up doing was creating what were called and still are called, perpetual or dynasty trusts.
45:20
SPEAKER_03: These aren't just kleptocrats taking advantage.
45:22
SPEAKER_03: These are Americans.
45:23
SPEAKER_03: These are the Rothschilds, these are the Wrigley family, over and over and over again.
45:26
SPEAKER_03: Hundreds and hundreds of billions of dollars have poured into South Dakota again anonymously to be kept there.
45:32
SPEAKER_03: I mean, it's creating this feudal society where the money compounds upon itself, no taxes are ever paid, nobody knows the money is actually there.
45:40
SPEAKER_03: And you can go through generation after generation after generation for centuries, frankly, for millennia, of South Dakota still having this.
45:48
SPEAKER_03: Until the federal government steps in, or until, I don't know, North Dakota launches an invasion.
45:53
SPEAKER_03: I don't know why South Dakota would ever change this.
45:55
SPEAKER_03: And again, this is only one state with only one industry that has been taking place right here in the United States of America.
46:01
SPEAKER_04: Casey, you were telling me just before we started that there's actually glimmers of some positive news, which is we all need it these days, that something at least looks like it's starting on some piece of this.
46:17
SPEAKER_04: So let's end uh on the positive note.
46:20
SPEAKER_04: You mentioned we have our first ever president from the state of Delaware.
46:24
SPEAKER_04: So maybe he knows.
46:26
SPEAKER_04: What is the Biden administration proposing?
46:28
SPEAKER_04: Because it's sounded, though we always have to be cautious in this because of all the all the ways around that money flows.
46:34
SPEAKER_04: What are they proposing to do?
46:35
SPEAKER_03: Yeah, just last month, Jeff, the Biden administration, again, Joe Biden being the very first president we've ever had from the great state of Delaware, they put forth the U.S.'s very first anti-corruption strategy document.
46:46
SPEAKER_01: Earlier this week, I released the first U.S.
46:48
SPEAKER_01: government strategy on countering corruption, which elevates our fight against transnational corruption, a crime that drains public resources and hollows out the ability of governments to deliver for the people and just evaporates confidence that the people much need to have in their government.
47:05
SPEAKER_01: The strategy includes working with other partners, all of you around the world to improve transparency, hold corrupt actors accountable, reduce their ability to use the United States international financial system to hide assets and to launder money.
47:21
SPEAKER_03: I don't want to undersell this document.
47:23
SPEAKER_03: It was really what anti-corruption, pro-transparency, counter-kleptocracy campaigners have been pushing for for years and years.
47:30
SPEAKER_03: And this was a document, it's about 40 pages long, that didn't pull any punches whatsoever.
47:35
SPEAKER_03: It talked about specific American industries, specific American jurisdictions that have allowed these networks of kleptocracy and corruption to develop.
47:43
SPEAKER_03: It specifically talked about American real estate, American private equity and hedge funds, American lawyers, American escrow agents, American financial services elsewhere as profiting over and again at the expense of the rest of us.
47:55
SPEAKER_03: And when it was released, I have this quote here from Treasury Secretary Janet Yellen.
47:59
SPEAKER_02: Treasury Secretary Janet Yellen calls the US the best place to launder dirty money.
48:06
SPEAKER_02: Switzerland or the Cayman Islands have long been the focus of dysregulators looking to find hidden cash.
48:12
SPEAKER_02: But in a speech during the summit on democracy, Yellen said enormous amounts of illicit funds actually end up in the US financial system, challenging the view that proceeds of corruption or illegal activity are sent only to countries with loose and secretive financial laws.
48:28
SPEAKER_02: Yellen now says if the US wants to promote anti-corruption efforts throughout the world, it must also fight domestic money laundering and tax evasion.
48:37
SPEAKER_03: Speaking frankly, as the obviously the author of this book, but someone who's worked in this space for years, I couldn't have said it better.
48:42
SPEAKER_04: Bravo, Secretary Yellen.
48:43
SPEAKER_04: And I have to say she's my favorite uh Secretary of Treasury, but was my teacher of macroeconomics, and I met her a while ago.
48:53
SPEAKER_04: So wonderful and well trained.
48:54
SPEAKER_04: So I'm not surprised that she is leading this effort.
48:58
SPEAKER_04: What can they do?
48:59
SPEAKER_04: What can the feds do?
49:01
SPEAKER_03: So there's a few things they can do.
49:02
SPEAKER_03: One, they can certainly remove those exemptions that have been in place for 20 years now.
49:06
SPEAKER_03: Again, this is things for real estate, this is things for private equity and hedge funds, art and auction houses, luxury goods dealers, et cetera, et cetera.
49:13
SPEAKER_03: All of these industries that have been profiting from and by the lack of anti-money laundering oversight.
49:19
SPEAKER_03: That's certainly one area that's relative low-hanging fruit, and they've already begun making noise about moving in that direction.
49:25
SPEAKER_03: You know, the other element that they can do is really get on board with some of the legislative momentum we have seen out of Congress.
49:31
SPEAKER_03: Or speaking in early 2022, I don't need to discuss all the partisan rancor that we've seen in Washington.
49:36
SPEAKER_03: But it's been remarkable to see the bipartisan consensus on some of these policies out of Congress.
49:42
SPEAKER_03: Just last year, we saw the formation of the counter-kleptocracy caucus, which was the first, again, not only in the US, but globally, an equal number of Democrats and Republicans, which have been launching bill after bill after bill with very little fanfare, very little attention.
49:56
SPEAKER_03: That's really interesting.
49:57
SPEAKER_03: It is.
50:27
SPEAKER_04: I like that.
50:28
SPEAKER_04: I the same way.
50:29
SPEAKER_04: Yeah, because we have seen this momentum.
50:32
SPEAKER_03: I know.
50:32
SPEAKER_03: At the end of the day, sometimes the optimism is is all we have, but we really have seen unprecedented momentum in just the last year alone in Washington.
50:39
SPEAKER_03: And I I am frankly excited about where things are going moving forward.
50:43
SPEAKER_04: Is part of this a direct attack on the anonymity itself that the anonymous shell corporation, in some sense, has to have minimum standards that it doesn't have right now?
50:53
SPEAKER_03: So the very first day of last year, 2021, Congress passed a bill that effectively outlawed the formation of anonymous shell companies in the United States of America.
51:03
SPEAKER_03: Now, this bill was passed over the veto of uh former President Trump.
51:07
SPEAKER_03: He could have been the president to sign it into law and elected not to be.
51:10
SPEAKER_03: We haven't seen what those rules and regulations are actually going to look like.
51:13
SPEAKER_03: They're still formalizing those.
51:15
SPEAKER_03: And obviously, as we know, we need to keep an eye out for especially exemptions, which corporate structures do not have to report.
51:21
SPEAKER_03: But on the very first day last year, the United States Congress took this significant step forward to finally, finally, finally ending anonymity on the shell company side.
51:30
SPEAKER_03: Now, again, this doesn't address trusts, it doesn't address even things like these new kinds of foundations.
51:35
SPEAKER_04: That could be a huge thing.
51:36
SPEAKER_03: Yes.
51:36
SPEAKER_03: Again, I don't want to undersell just how important that was.
51:39
SPEAKER_03: It was really an indicator of how far the U.S.
51:42
SPEAKER_03: has come.
51:42
SPEAKER_03: Other jurisdictions have done so in the past.
51:44
SPEAKER_03: The U.S.
51:44
SPEAKER_03: was very much a laggard in this space.
51:47
SPEAKER_03: But we've finally gotten to that space where this legislation has been enacted into law.
51:51
SPEAKER_03: And again, we're still watching the kinds of language and terminology for the actual rules and regulations, but it was a wonderful way to uh to start that year and really jumpstart so much of the momentum that we have uh have seen since.
52:03
SPEAKER_04: So the regulations are still on their way from is it the Treasury or is it SEC?
52:09
SPEAKER_03: It's gonna be the Treasury Department that we're gonna see the uh the new regulatory language come from.
52:13
SPEAKER_03: We're still not sure exactly what the reporting requirements are going to be.
52:17
SPEAKER_03: Hopefully, by the time this podcast airs, we were supposed to have a better idea by January of this year what this is actually going to look like and again, what kinds of exemptions may actually exist.
52:26
SPEAKER_03: Now, I will say that the catch, I suppose, is that other jurisdictions have made these registries public so journalists like myself can actually navigate.
52:33
SPEAKER_03: In the U.S.
52:34
SPEAKER_03: case, they will be private.
52:35
SPEAKER_03: So only authorities and federal partners will uh look through.
52:38
SPEAKER_03: So I won't be able to actually look through who's behind ABC Shell Company.
52:42
SPEAKER_03: But I do think at some point in the not too distant future, we'll have a public registry as well in the U.S.
52:47
SPEAKER_03: And uh it's gonna be a wonderful day when we do.
52:49
SPEAKER_04: And when we do, it will be uh in no small part because you are uh helping to make it happen.
52:55
SPEAKER_04: Casey, thank you so much for uh joining Book Club with Jeff Sachs and the book we've been discussing, American Kleptocracy, how the U.S.
53:05
SPEAKER_04: created the world's greatest money laundering scheme in history, and uh Casey has been telling us how we might get it under control.
53:13
SPEAKER_04: Casey, thank you so much.
53:14
SPEAKER_04: It's been wonderful to be with you and congratulations.
53:16
SPEAKER_03: Thanks so much, Jeff.
53:17
SPEAKER_03: It's been wonderful to be here too.
53:20
SPEAKER_04: Next time I will be speaking with Dr.
53:22
SPEAKER_04: Peter Lindert, distinguished professor of economics at the University of California, Davis, and research associate at the National Bureau of Economic Research.
53:31
SPEAKER_04: He will be discussing his latest book, Making Social Spending Work.
53:35
SPEAKER_04: In our conversation, Lindert will discuss how social spending relates to economic growth, and he will offer insightful lessons from countries across the globe to reveal what has worked, what needs changing, and who are the winners and losers under different fiscal and economic systems.
53:54
SPEAKER_04: Together, we will address key questions around intergenerational inequality, fiscal redistribution, and the best approaches for public spending on education, healthcare, and an aging population.
54:08
SPEAKER_04: Thank you for joining in the conversation.
54:11
SPEAKER_04: Please subscribe, rate, and write a review on whatever platform you listen for your podcast.
54:18
SPEAKER_04: I would love to hear your thoughts as we continue to develop the series.