Paid Millions to Hide Trillions: Meet Crime Enablers In Traditional Finance

*Marc Tassé, Professor of Accounting, L’Université d’Ottawa/University of Ottawa

The investigation of the Pandora Papers by the International Consortium of Investigative Journalists (ICIJ), a non-profit news agency and network of journalists based in Washington, D.C., HAS shown that there are still some places to go for those who want to hide illicit wealth.

However, the people not often mentioned in media coverage of the Pandora Papers are the enablers who help the world’s richest people get even richer and pass on their wealth by avoiding or evading taxes. These enablers help criminals and kleptocrats launder their ill-gotten gains.

They may not be as rich as their clients, but they get millions for hiding trillions.

The asset defense industry

For many years, there has been a well-established "asset defense industry" consisting of a coalition of professionals – from consultants and bankers to lawyers, accountants, notaries and real estate agents – who use anonymous shell companies, family offices, offshore accounts and trusts to help the world’s wealthiest people protect their assets from tax collectors.

These highly paid "enablers" support oligarchs, dictators and criminals around the world.

Much has been reported in the media about the actual crimes, abuses and financial misdeeds of malicious foreign states and wealthy individuals. But what about the middlemen of the financial system who take care of the details and provide the means of escape for the criminals?

Kenyans read a statement from President Uhuru Kenyatta in the morning papers after it was revealed that he is among more than 330 current and former politicians named in the Pandora Papers as beneficiaries of secret financial accounts. (AP Photo/Brian Inganga)

Some elites pay respected professionals and companies to open political doors, lobby against sanctions, engage in litigation and launder money and reputations. In this way, these institutions and individuals overstep the bounds of the law and undermine the principles of our democracy.

According to the 2020 Deloitte Anti-Money Laundering Preparedness Survey Report, the amount of money laundered in a year is estimated to be between two and five percent of global GDP, or $800 to $2 trillion annually.

The ICIJ’s FinCEN files offer unprecedented insights into a secret world of international banking, anonymous customers, and, in many cases, financial crime.

They show how banks blindly funnel cash through their accounts for individuals they cannot identify, report transactions that have all the hallmarks of money laundering years after the fact, and even do business with customers implicated in financial fraud and public corruption scandals.

The insidiousness of "dark money"

Corruption and financial misconduct are inherently secretive and often very complex. Dark money – essentially spending to influence political outcomes without revealing the source of the money – buys access to courts and politicians, making society less fair and more unjust.

What often distinguishes ordinary rich people from oligarchy is that all oligarchs invest in defending their wealth. They use their power and wealth to accumulate even more power and wealth, lobby, and manipulate the rules around them.

One of the challenges in combating financial crime is the global race to the bottom between tax havens that seek to lure clients with more lucrative incentives and higher levels of secrecy for companies. Enablers that are part of the asset protection industry develop and market strategies, structures and systems to avoid tax liabilities and regulatory scrutiny.

Beneficial ownership databases aimed at combating money laundering have become an increasingly popular reform worldwide in the wake of the Panama Papers, which focused international attention on how corporate anonymity can enable a range of social ills.
As this trend continues, the hope is that with the introduction of larger beneficial ownership and tax transparency initiatives in more and more countries, the remaining "outlier" offshore destinations such as Bermuda, the Cayman Islands and Malta will be forced into compliance by the threat of exclusion from the global financial system.

Tourists walk along Seven Mile Beach on Grand Cayman Island. (AP Photo/David McFadden)

Promising signs

Meanwhile, many jurisdictions continue to elude law enforcement agencies tracking the secret money trails of tax evaders and criminals.

Because of all the apparent gaps in regulation and enforcement, and the seeming lack of political will to actively and practically address these gaps, there are some encouraging signs that governments around the world are being forced to act.

There is now a growing global demand for greater transparency and accountability, coupled with calls to address growing wealth inequality, as well as demands from investors to adopt ESG (environmental, social and governance) principles.

While these factors play a role in attracting the attention of high-level policymakers, the cynical reality is that the likely primary motivation of these policymakers is the serious and alarming trend of declining tax revenues. The fact that G7 leaders endorsed the concept of a 15 percent global minimum tax rate at their June 2021 summit is a clear sign that the winds of change are blowing.

G7 leaders pose for a photo in Cornwall, England, in June 2021. (Leon Neal/Pool Photo via AP)

The current model is not sustainable. Fiscal realities, political pressure and necessity will force political leaders to act. They will soon have to do much more than pay lip service to the wealth inequality and power imbalances that allow the asset protection industry and its clients to subvert the system and not pay their fair share.

We need more transparency and accountability to expose the perpetrators and close the loopholes that allow wealthy individuals and criminals and corporations to operate with impunity.

This article was republished from The Conversation under a Creative Commons license. Read the original article.