The Importance of Transparency Amongst Shadows: A Review of Moneyland by Oliver Bullough

“Evil money follows naughty money” (Bullough). A Ukrainian president was able to smuggle his stolen wealth into offshore accounts. Nazi officers who escaped persecution relied on underground banking systems to maintain access to their assets. Moneyland by ​​Oliver Bullough is a revolutionary glimpse into the sordid details of what he calls Moneyland, the financial system for the ultra-wealthy and well-connected. I believe the information contained within this text must become common knowledge. Bullough describes how the upper class utilizes various methods to protect and move their money beyond the purview of individual nations. Despite efforts to prevent it, there is a whole facet of the financial system dedicated to helping people break the rules. Overall, Bullough provides a solid analysis of Moneyland’s dangers, but I believe a different approach is required to begin reform. First global awareness must be increased and then an international directive to close the doors of Moneyland should be formed.

Shell corporations represent the first bastion of Moneyland. Financial companies across the world specialize in creating LLCs on behalf of their clients and have employees who act as presidents or CEOs, sometimes presiding over more than 50 companies. These shells allow a person to move their dirty money into an anonymous account. This obscurity is the key to opening the gates of Moneyland. Bullough demonstrates the power of shell corporations with a case study of Ukraine under former president Yanukovych (2010–2014). Throughout his four-year tenure, he systematically stole from his people and amassed a vast personal fortune. He spent this money frivolously and tastelessly, spitting on the sacrifices his people were forced to make.

Yanukovych’s private palace was so garish that it became a museum for citizens to gawk at after he fled the country. “The spreading grounds of his palace at Mezhyhirya included water gardens, a golf course, a nouveau-Greek temple, a marble horse painted with a Tuscan landscape, an ostrich collection, and an enclosure for shooting wild boars, as well as the five-story log cabin where he indulged his tastes for the overblown and the vulgar” (Bullough, 14). It was the palace of a man who cared not for the beauty of these elements, but only that they were a means for him to spend his misappropriated wealth. One Ukrinaninan’s reaction to seeing his private hunting lodge is particularly telling: “How much can one man need? Horror. I feel nauseous” (Bullough, 17). His depraved spending knew no bounds. Yanukovych spent much of his day in the bathroom and had his toilets gold plated. Massive flat screens were mounted at eye level so his ponderous bathroom breaks would not interfere with his daily programs. His palace was owned by British shell cooperation, showing their role in enabling corrupt leaders.

Far from being limited to Yanukovych and his circle, corruption was widespread in Ukraine during this period. For instance, Bullough documents the rot present in the healthcare system. Hospital supervisors found every available avenue to skim resources from the budget. They inflated the number of patients who needed insulin and pocketed the extra funds. Sometimes they would even give their patients less Tuberculosis medicine to make supplies last longer. This meant that the treatments did not work, and more dangerous forms of Tuberculosis emerged. In addition, “the health ministry ended up paying more than double what it needed to for … the drug needed to control HIV … despite Ukraine’s having Europe’s fastest-growing epidemic” (Bullough, 33). When the international community began purchasing these same drugs on Ukraine’s behalf, the price dropped by well over 40% instantaneously. These corruptions were facilitated by shell corporations. Their widespread use normalized and enabled illegal behavior throughout the country, stemming from president Yanukovych’s example. Health ministers and other officials who were skimming funds required shell services to launder the money, enabling it to be spent internationally.

Shell Corporations also allow their clients to save millions of dollars and increase their net worth more rapidly when utilized together with tax havens. Tax havens are locations that intentionally create favorable tax codes to encourage foreigners to hold their money there instead of in their home countries. A company is created for a client, and a bank account is founded in one of these locales. The client can then use this account for the majority of their expenses, and to store the bulk of their wealth. The person displays minimal assets to their home country, reducing the taxes that need to be paid there. In this way not only are the sums of their fortunes obscured but their tax burden is also minimized. Many of these locations are small island nations that have few other means to generate revenue. Examining the island of Nevis provides a powerful example of a normal island becoming ensconced in the inner workings of Moneyland.

After Nevis won independence from Great Britain in 1983, its economic prospects looked grim. “There were not,” former president Simeon Daniel said, “many opportunities to earn a decent living” (Bullough, 164). Then, an American lawyer named Bill Bernard arrived on the island. In his mind, Nevis could improve its financial prospects by hosting Moneyland services. The first shot over the bow was creating “flags of convenience” for ships to avoid regulations in more developed countries. This entire process was designed by Bernard: “Mr. Barnard and his team set up the entire infrastructure, they drafted and prepared the text for the relevant legislation which we then passed in the Nevis House of Assembly” (Bullough, 165). When he discovered how pliable the government was, the sky became the limit. For decades to come American lawyers would advise the government in Nevis through a series of changes to their financial system to encourage an influx of shady foreign capital. These operations served to make this tiny island nation “a formidable fortress for anyone seeking to protect their assets” (Bullough, 167). International investors were quick to take advantage, funneling capital into the tiny island.

Nevis struggles no longer. Today, it flourishes as an “everything haven, a miniature exemplar of the dozens of jurisdictions that have sprung up to service Moneyland, to shelter the assets of anyone rich enough to afford their services” (Bullough, 170). This tale is a cautionary one. The structure and reputation of this nation were changed forever by a few enterprising lawyers. When natural resources are limited and citizens are suffering, governments will look for any means to generate revenue. Can these nations be faulted for taking the options offered to them? The runoff effect is that under this current system, even small islands can have a major impact on the global financial system. Any lawyer, in partnership with these countries, can rewrite laws to their clients’ whims. Finally, these tax havens are not just limited to islands in the Caribbean. Many exist even in the continental United States, such as states like New Jersey, Delaware, and South Dakota. It is a trap all too easy to fall into, even in a nation that is already successful and wealthy.

The offerings of Moneyland are evolving. Over time, lawyers and governments have searched for new services they can offer to their clients to generate more revenue. Some agencies specialize in overhauling the public reputation of their clients, essentially acting as a PR firm for an individual. They start by purchasing a high-end apartment in an area that has a lot of visibility (Paris, Venice, etc.) and hosting parties for a non-controversial cause. In this way, they can begin to build up the reputation of their client. Public perception and respect are just another form of currency for the ultra-wealthy.

The most extreme and concerning the offering of Moneyland is immunity, from the law and all persecution. It’s common knowledge that with enough resources it is largely trivial to buy a passport from a country other than one’s home. Small islands, even members of the EU, and numerous other nations are willing to sell citizenship equivalent documents to anyone willing to pay a high enough price. As of 2017, Dominica was offering passports for as little as $100,000 while St Kitts sold citizenship for between 250,000 and 400,000 (60 Minutes Spotlights, 2017). Some small countries have taken it one step further, selling papers to legally classify a person as a diplomat. When this occurs, the person becomes immune to all persecution, regardless of where the crime is committed. Bullough described a case that unfolded during the divorce proceedings of a wealthy businessman. When his wife began taking legal action to be granted half of his assets, they discovered he was recognized as a diplomat to St Lucia. After a lengthy trial, the judge ruled that he had never actually performed diplomatic duties and thus should not be protected from prosecution. However, after this was announced, the British government arrived and pressured the judge to overturn the decision. Britain needed to protect the security of its diplomats. While the judge was able to make the charges stick using a legal loophole, the trial represents a concerning new paradigm. Overall, Bullough did an excellent job presenting the diverse and devious offerings of Moneyland. The question then becomes, what should be done about these institutions?

A few would argue that Moneyland institutions have beneficial aspects in addition to their drawbacks. For example, an article by Desai and colleagues shows that the presence of tax havens does not divert economic activity away from non-haven countries as might be expected. Instead, “the empirical evidence indicates that firms facing reduced costs of establishing tax haven operations respond in part by expanding their foreign activities in nearby high-tax countries” (Desai et al., 2005). The increased activity and business created by the tax havens also create indirect benefits for countries with harsher tax laws. Some would invariably argue that tax havens should be permitted to exist for this reason, that their benefits outweigh the harms. However, to me, this completely misses what authors like Bullough are arguing. Tax avoidance is somewhat harmless, and the business it generates can be beneficial. However, as Bullough says, “the evil money follows the naughty money”. These same institutions are also used by criminals, dictators, and others with malicious intent to carry out truly abhorrent schemes. They are what allow corrupt leaders to swindle wealth from their people, what allowed Nazis to access the wealth they gained by stealing from the Jewish people. The anonymity granted by shell corporations permits thousands of criminals to keep their activities secret, preventing arrest by authorities. Allowing these systems to continue operating for mere economic gain is essentially making a deal with the devil. Maintaining the status quo is not an option that should be seriously considered.

Some would argue that the first step should be cracking down on small tax haven countries, shuttering this access point to Moneyland. At first glance, this seems an appealing course of action. The United States could bring its diplomatic and regulatory power to bear and force small nations to change their regulations and close these loopholes. However, this course of action is both dangerous and disingenuous. Rich nations, even the United States, have also enjoyed the benefits of business generated through favorable tax laws. The economies of several states are bolstered every year through incentivized foreign investment. Such a hard stance would likely only lead to resistance, bitterness, and finding workarounds to continue enjoying the revenue from offering these services. These tax loopholes need to be closed eventually, but consideration should be made as to what these small nations will lose, and how to ensure entire economies are not destabilized when these changes occur.

Bullough suggests that countries crackdown on their financial loopholes. Powerful countries can have a strong impact, as seen when the United States began enforcing stronger regulations on the Swiss banking system. By creating these new hardline initiatives the American government forced assets stored in these accounts to be reported, and use by American citizens dropped to near zero. Similar processes have occurred in other nations. Norway implemented a successful effort, “fighting tax evasion can be an effective way to collect more tax revenue from the wealthy, increase the progressivity of the tax system — and ultimately reduce inequality” (Alstadsæter et al, 2021). The caveat is that efforts such as these require international cooperation. When the US implemented those new changes, no regulations were created to report poor behavior in their own country. The United States’ refusal to fully participate in the international undertaking left the door to Moneyland wide open, with some states becoming the new major hubs. It will take the cooperation and leadership of all major economic powers to truly overcome the system as it operates now.

However, I think Bullough slightly misses the mark in addressing Moneyland. I disagree that an international collective should be the first step. Instead, the effort to overcome the activities of Moneyland must start with transparency and awareness. Normal citizens should be informed of exactly where the rich are putting their money and what the implications are. Corporations with ties to Moneyland should have their activities exposed and made public. This methodology has proven effective in the past. A 2021 empirical study by Fabian Schmal and his colleagues showed that when records have emerged tying corporate accounts to tax havens, “affected firms report higher tax expenses in the period after the leak”(Schmal et al, 2021). Their use of these Moneyland services naturally decreases when their behavior is exposed to the public. Transparency is especially important when it comes to political leaders. They should not be allowed to take power unless they are free from connections to Moneyland and are unbeholden to foreign powers. These mechanics should be common knowledge, and popular support would provide a stronger framework for sustained efforts to enact change. With this accountability and cooperation, the steps mentioned by the author can begin to be implemented more effectively.

Overall, Moneyland: The Inside Story of the Crooks and Kleptocrats Who Rule the World offers a compelling look into the world of upper-class finance. Moneyland exists as one of the greatest threats to current international economic health. However, its effects reach far beyond the economy and can influence every element of society. These systems allow the rich to pay lower tax rates than the poor. This unequal taxation allows the upper class to grow their resources at an accelerated rate while normal citizens are left to foot the tax bill. These systems are a major factor driving the recent increase in inequality. Economic striation creates frustration and tension, as well as a greater sense of economic division. In this way, Moneyland is reshaping the fabric of society. Even politics and legislation are affected, especially apparent in the last two American elections. The implications of our leaders being connected and controlled by corrupt states like Russia are terrifying to consider, and generate all the more urgency for change.

References:

“60 Minutes Spotlights on Caribbean Passports for Sale.” Dominica News Online, Newsamericas.com, 3 Jan. 2017, https://dominicanewsonline.com/news/homepage/news/general/60-minutes-spotlights-on-caribbean-passports-for-sale/.

(This is a summary of a 60 minutes segment from 2017 called passports for sale)

Annette Alstadsæter, Niels Johannesen, Ségal Le Guern Herry, Gabriel Zucman, Tax evasion, and tax avoidance, Journal of Public Economics, Volume 206,2022,104587, ISSN 0047–2727,https://doi.org/10.1016/j.jpubeco.2021.104587.(https://www.sciencedirect.com/science/article/pii/S0047272721002231)

Bullough, Oliver. Moneyland: Why Thieves and Crooks Now Rule the World and How to Take It Back. Profile Books Ltd, 2019.

Mihir A. Desai, C. Fritz Foley, James R. Hines, Do tax havens divert economic activity?Economics Letters,Volume 90, Issue 2,2006,Pages 219–224,ISSN 0165–1765,https://doi.org/10.1016/j.econlet.2005.08.007.(https://www.sciencedirect.com/science/article/pii/S0165176505002843)

Schmal F, Schulte Sasse K, Watrin C. Trouble in Paradise? Disclosure After-Tax Haven Leaks. Journal of Accounting, Auditing & Finance. April 2021.doi:10.1177/0148558X20986348