117 | Moneyland

We talk to Oliver Bullough about his acclaimed new book Moneyland: Why Thieves and Crooks Now Rule the World and How to Take it Back.  Where is Moneyland?  How did London become its capital?  And will Brexit, or a Corbyn government, or another financial crash change how it operates?  A conversation about tax havens, money-laundering, the politics of corruption and the corruption of politics.  With Jason Sharman, author of The Despot's Guide to Wealth Management, and Helen Thompson.

DAVID: Hello, my name's David Runciman and this is Talking Politics. Last week Helen was telling us about the tendency of all political systems to corrupt. And today we're going to talk about a very 21st century form of corruption: tax havens, money laundering, and how the rich get away with it.


DAVID: This week we have with us Oliver Bullough who is the author of the new book, I'm going to give it its full title, Moneyland: Why Thieves and Crooks Now Rule the World and How to Take it Back, which is one of those excellent subtitles that tells you what's in the book. It's had some fantastic reviews. Jason Sharman is here. Among his many books is one with an equally good, clear title: The Despot’s Guide to Wealth Management. And Helen Thompson is with us too to talk about corruption among other things. So Moneyland isn't a real place, but it is a real place. So we'll just start by—and Jason can join in too because Jason knows a lot about what tax havens are actually like when you visit them. Just sketch out for us, Oliver, where it is and how you know when you visited it.


OLIVER: Actually the idea of Moneyland came to me sort of whole. It wasn't quite on the toilet, but I was in a toilet in President Viktor Yanukovych’s hunting lodge outside Kiev in Ukraine. And what was particularly amazing about this toilet—in fact there were two of them and they were the same—is that they both had televisions at sitting down height opposite the toilet. And this was… I don’t know why, but it was this particular detail that really impressed upon me the fact that this was a guy who really really stopped at nothing to ensure his own personal comfort. This was at a time, this is in 2014, when Ukraine was a real mess, and it’s a mess now, but it was a real mess back then, you know. The roads were in tatters, the universities were falling apart, the health system was falling apart, and they had a president who had stolen hundreds of millions of dollars from his people and spent some of it at least on top-end Western televisions at sitting down height in the toilet. I was with a guy called Anton who was an activist who had the keys to the president's hunting lodge because it was at that kind of time after the revolution. And I said ‘How could you not have known? This is so egregious what's happening. How could you not have known?’ And he sort of exploded at me in a very kind of gentle way but still exploded saying ‘Look we couldn't have known. Just look at how this place was owned.’ And if you looked at the ownership of the hunting lodge it was owned by a Ukrainian company that was owned by a British company that was owned by another British company that was owned by a foundation in Liechtenstein, and it was actually impossible to figure out who owned it.

DAVID: So Moneyland is not the Ukrainian hunting lodge. Moneyland starts there but it takes you somewhere else.


OLIVER: Moneyland is the place where this hunting lodge was owned, which is nowhere. And the astonishing thing is if you look at the amount of assets—of property, financial wealth—which is held nowhere like the hunting lodge was, it’s sort of between 8 and 10 percent according to Gabriel Zucman, who's looked at these things from the University of California. Between 8 and 10 percent of all the assets in the world. And that makes it, I think, the third biggest economy in the world after America and China. And if you start looking at offshore not as a facility or a structure but as a place that controls things and influences things in its own interests in the way that any country does, it becomes a very alarming prospect. So I invented Moneyland, in the toilet, as this way of explaining why it was impossible for them to know what their president had owned. And then I realized it's sort of it kind of explains everything. If you look at the way that the rich and the powerful from all over the world behave, whether that's people investing money in super places in America or whether that's Nigerian governors hiding their property in west London owned by shell companies in the British Virgin Islands. Then you realize that, yeah, there's a third country, a third powerful super-economy in the world and it's not the EU and it's not any of the BRICS, it’s Moneyland. And that’s what the book’s about.


DAVID: Jason, when you when you hear the phrase Moneyland, where do you… because you know these places quite well… give us some of the other places that are part of this mythical superpower.

JASON: I think, as Oliver says, it's money lenders sort of nowhere, in many places. And often is there’s the source of where the money comes from, is taken from—in this case Ukraine—and the places where it ends up. But it's also the way stations where it transits through, and some of those are very strange places; indeed Oliver talks about some of those in his book. In the South Pacific—and some of the islands there are as close to being nowhere as you can be while actually being somewhere—I remember going to Nauru, a very very small place measuring maybe two miles by three miles in the South Pacific, a sovereign country, and seeing a small shed where you had hundreds and hundreds of shell banks registered. Banks that ostensibly had hundreds of millions of dollars but whose only presence was this small series of plastic plaques on a wall of a pretty decrepit shed. And the one sort of bored looking individual supposedly looking after them. So it's really the mismatch of incredible sums of wealth and really fleeting, if any, tangible signs of that wealth


DAVID: And yet would it be fair to say that the capital of Moneyland is the City of London?


OLIVER (TK): Moneyland was invented by the City of London. There’s this very famous line from Dean Acheson—in fact pretty much the only thing I know about Dean Acheson apart from that he used to be Secretary of State—which is “Britain has lost an empire and has yet to find a role.” And what's particularly amusing and ironic about this is he said that in a speech at West Point in December 1962. At that precise time in the City of London, a group of bankers from Wargburg was inventing the Eurobond, the first essentially, retail offshore instrument, which is what broke the post-war capital controls and the Bretton Woods system, which set capital free and made it very very profitable not only to dodge taxes or to be a kleptocrat.


DAVID: Who wants to take on this task in three sentences to explain how the Eurobond works.

OLIVER: Well I mean the Eurobond essentially took money from Switzerland, packaged it up in London, and lent it out to people anywhere—in this case people in Italy, but they didn't have to be, they could be anywhere. But the point was, at the time it was very very hard to move money from one country to another. It was supposed to be essentially impossible to do this, to have this retail product that united buyers and organizers and sellers in lots and lots of different countries, and yet Warburg managed to find this very clever way of sort of… I call it a jurisdictional twister… of basically pointing different aspects of the bond in different jurisdictions of Luxembourg and Holland and Switzerland and the UK and various other places. So it's Moneyland because it wasn't anywhere; it was everywhere, and nowhere.


HELEN: Can I just have one point on that? I think the crucial thing in terms of the way it works in relation to Bretton Woods was they were eurodollars to begin with. Basically, they were dollars that were issued outside the United States, actually, effectively, without the Federal Reserve Board having any knowledge of what was going on. So the whole principle of Bretton Woods, which was that every dollar was backed by gold, completely goes out the window once you have eurodollars because you have these dollars floating around outside the United States that aren't backed by gold.


DAVID: And is what then happens that—I mean you talk about this in your book—that the American banks, the Wall Street banks, are kind of chafing under the restrictions of the Bretton Woods arrangements and see the City of London as their way out, as their escape route. They can do stuff with dollars that they can't do back in the States.


OLIVER: This is the takeover of the City of London by American banks. It’s often seen as a kind of almost a loss of British sovereignty, a loss of British control. But it actually you can see it the other way round because essentially their banks took over the City of London, but our authorities took over regulating their banks, or not regulating their banks. So it's a concurrent loss of sovereignty on both sides of the Atlantic. You had this pooling of Anglo-American financial systems into this one overarching system that wasn't really regulated anywhere, which was offshore. And eurodollars were an instrument used by banks to lend to each other. Then the joy of Eurobonds is that sort of pleasure of the offshore is extended to the individual. The rich individuals with their money in Switzerland or Luxembourg or wherever it was could suddenly access this very profitable money making machine. And that's what sort of broke free. And it allowed people like Sani Abacha to suddenly hide all this money and steal as much money as they wanted. 08:43

HELEN: I think there is a distinction to be drawn between the way it works in terms of, if you like, offshore banking and the way it works in terms of offshore tax havens. And I think in terms of the way it works in offshore banking in the 50s and into the 60s, it does actually have some rationale in relation to trade because one of the other contradictions of the Bretton Woods system was that all these dollars had to be backed by gold and the United States was supposed to have the world's reserve currency in which a lot of trade was going to be conducted, not least the purchase of oil. And at a certain point there wasn't going to be enough gold for all the dollars that are required to keep international trade functioning. So these offshore eurodollars actually were making some kind of positive contribution to facilitating international trade, but then at the same time they started to develop both as something that the banks used in order to engage in all kinds of activities that they hadn't previously engaged in and weren't able to engage in, new ways of making money. And at the same time they opened up possibilities for tax—basically for hiding money. So you have something that makes some kind of structural sense within Bretton Woods. It's problematic, at the same time, for Bretton Woods. It's eventually going to contribute to its destruction. And then it has all these other consequences that bring all these other problems and all these opportunities for crime into play.


DAVID: And we're going to bring this story up to the present soon, but in that sequence, as Bretton Woods breaks down and, as you say, you could frame it that these banks then come under the jurisdiction of the British authorities if the British authorities choose to use their jurisdiction, and on the whole, they don’t. So in that story are there points along the way where there are opportunities for this to come out differently? Were there moments where something, for want of a better phrase, could have been done that wasn't done?


OLIVER: It would have been down to the Bank of England in sort of 1962-3 to say actually—


DAVID: Okay, so that would have stopped the beginning…

OLIVER: But the problem is that once one jurisdiction allows offshore, so that it actually declines to regulate something, then everyone kind of had to follow suit because all the business immediately goes to the jurisdiction that allows what's happening. So you end up with this ratchet which always moves in the same direction. You know America had to actually deregulate in order to catch up with London. And then everyone else had to deregulate to catch up with America. So you end up with this constant loosening of the regulations in order to try and attract the capital that's flowing to the least regulated jurisdictions. 11:02

DAVID: Maybe I'm being stupid. Maybe one of you can answer this but, if the banks open off these offshoots in the City of London. But if the City of London had clamped down the banks aren't going to just move around the world looking for… I mean is it that easy for…


HELEN: I think the player that could have stopped things or things could have possibly turned out differently is the Federal Reserve Board because really of what was going on in London. Because basically the Federal Reserve Board were allowing all these dollars to be created offshore. And to begin with they didn’t even understand that it was happening. So I think it's something like 1962 at the time this has been going some time really some years before there's even the word used or appears in the Federal Reserve board minutes. By the end of the 60s they’re kind of obsessed with it and they realise it's a huge problem for them in terms of making Bretton Woods work, but they just don't understand what to do about it because I mean the whole concept of how the banking system is working around this is just in some sense mind boggling from their point of view. I think in some sense you can say that that problem continues all the way for the Federal Reserve Board until 2008. Now if they got to grips with the offshore banking side of it there may have been scope for getting to grips with the other side of it as well, but that doesn't necessarily follow.


OLIVER: I think there is this very lovely irony at the beginning of the eurodollar market that the first dollars supposedly originated from the Soviet Union, which was very reluctant to bank in the U.S. because didn't want its dollars confiscated. So it earned money from selling oil in London and Paris and those were then packaged up by the Midland and used for trade financing. And so you have this sort of strange alliance between the City of London and the Soviet Union against who exactly it’s not really sure, but what it did do was essentially break the straightjacket of Bretton Woods and set the money free.

DAVID: Jason, do you think that there are points along the way that there were missed opportunities. There's a sense of inevitability about this. You start the ball rolling with eurodollars and eurobonds and you end up in 2018 with 10 percent of the world's wealth having disappeared.

JASON: Yeah I mean I think it's important to distinguish between different bits of offshore. Some parts of offshore were created by banks which had the money legitimately looking to escape regulations in a way that was not illegal if you'll pardon the double negative. Whereas a lot of the money that's now hidden offshore that Oliver referenced earlier is by no means from legitimate sources. And there, rather than seeking nonregulated spaces, this is money that's of criminal origins.


DAVID: These are the crooks in the subtitle of the book.


JASON: Yes, so again there are different origin stories. Are we looking for U.S. bankers who are looking to step outside of the U.S. regulatory sphere, or out-and-out crooks like the despots in Ukraine or the Middle East or wherever else who might be out there? 13:43

OLIVER: The argument I make is that essentially these instruments were invented for tax evasion purposes. And you have to remember, in the 60s and early 70s in Britain the marginal tax rate were 97 percent. It's not surprising people were really looking for ways to avoid that tax. And we all know Taxman by the Beatles. The taxman got 19 shillings for every one George Harrison got to keep. The tax rate… was very very high and so there was a significant market for anyone who could invent a tax dodging instrument. But the problem is the instrument they invented wasn't just useful for dodging taxes; it was useful for avoiding scrutiny of any kind. So those same instruments then become useful for the Marcoses, the Abachas, the sort of kleptocrats from all over the world, and then essentially eventually the Putins then… in Kazakhstan the elites in Azerbaijan… It becomes a network that's available to anyone who wants to evade scrutiny. So originally it’s naughty money, but then it becomes evil money


DAVID: And in a way, the irony of it is not tax evasion. It becomes the vehicle for the rulers of states often where there is very little or no tax being paid, but who want to essentially strip those states of their assets and move it into their personal domain. So the examples you were giving, I mean these are the people, as it were, whose job is meant to be collecting taxes. They've given up on that. What they're doing is asset stripping their own countries. 15:00


OLIVER: In the memoir of the man who invented the eurobond, a man called Ian Fraser—really interesting guy and a great memoir—he says that the money that paid for the first issue of eurobonds was 80 percent what he called ‘Belgian dentists,’ ordinary European tax evaders, and 20 percent fallen South American dictators. So that alliance between the naughty money and the evil money was baked in at the very beginning. It’s everyone who was evading scrutiny, whoever they were. It’s a totally morals free instrument. If you want to evade scrutiny this is what you want.

DAVID: I love the thought that the Belgian dentists and the South American dictators—that’s the alliance you need to watch out for.


OLIVER: Yeah. That’s the alliance that broke the world.


DAVID: So let's bring it up to date. One question I wanted to ask—and you talk about this a bit in the book and various people are quoted, for instance people who talk about citizenship, which becomes, you know, for some of these countries where you can avoid or evade taxes… to become a citizen of these countries… It used to be much harder to get a physical passport and so on, and the digital revolution has made some things much easier. Someone your book sort of says ‘Imagine trying to control this in a world where at the click of a button you can change nationality.’ So how much has this been turbocharged by the information revolution.

JASON: I tend to be a bit of a skeptic about the information revolution there. I mean in one sense if you think 100 years ago you didn't need a passport to travel and reside places, so to that extent, technology has actually reduced mobility rather than enhancing it. And in some ways the investigation of these things is rendered much easier by the fact of Information Technology. If you think about leaks like the Panama Papers and the Paradise Papers, if that was all in hard-copy paper you would have needed huge amounts of lorry-loads to get this stuff out instead of just—whatever it was—a stick drive or a portable hard drive or so on. So I think the technological advances cut both ways and by no means is it just a story of technology driving globalization, which makes life easier for the sort of crooks that Oliver’s talking about.


DAVID: Is it a kind of, as in so many of things, an arms race? The people trying to detect it and the people trying to avoid being detected are both using the technology and try and stay one step ahead of the other.

JASON: If only. I think that gives too much credit for the effectiveness of the system we have to stop these things. We're not even catching the stupid, low-tech criminals. So it's not like we're being outwitted by criminal masterminds and the sorts of financial geniuses that set up these products. If you're a drug dealer and you have a bag of cash you can probably take it to a bank and deposit it and launder it in there without getting into trouble. You don’t need cryptocurrency. You don’t even need an internet connection. Even the basic sort of financial crime we don’t do a very good job of catching.

OLIVER: I was talking to a guy called John Tobin who’s an investigator in Florida, which is very much on the front line of sort of kleptocratic cash from Venezuela and Brazil and the countries of South America, and enthusiastically welcomes it. But there are federal agents who try and reject it. The big problem for him is that 20 years ago if you wanted to set up a shell company in, say, the South Pacific, you kind of had to get somewhere near the South Pacific to do it. You didn’t necessarily have to go to Nauru, but you probably had to be in New Zealand. Now you can do it over the Internet from Miami in half an hour. But he still has to go to Nauru to figure this stuff out. The Internet has leveled that; it’s made it much easier to sell the enabling products, the shell companies from the Marshall Islands, Nevis, wherever, that makes it difficult to crack these crimes, but the law enforcement has remained analog. You still have to go through the same procedures they had to go through 20 years ago to get the information out of Nauru or wherever. I mean no offense to Nauru, just an example. And that is the real problem for me is that the money is increasingly borderless money, it flows where it wants, and ever more borderless. But the laws remain stuck in national borders. You cannot go from Florida without some kind of permission to Nevis to get the information out of Nevis. But the money just goes back and forth in an afternoon. And that’s the problem for governments is this tension between sovereignty, nationally defined laws, and totally transnational money.

HELEN: I kind of buy half of that, but I think we also shouldn't get carried away with some idea that this kind of money laundering crime and moving money in these illicit ways suddenly appears in the 1950s. If you go back to like the 1930s and the Second World War and the ways in which the Nazis were able to sell their looted gold, a good part to the Bank for International Settlements, and it was just kind of like they sat in their offices in Switzerland and moved things around between accounts. It was pretty easy to do. So it doesn't require technology to make it possible to take illegally gained money and move it, including to extraordinarily awful regimes.

OLIVER: Of course that's right, but if you stole, say gold, and sold it in Switzerland in 1930s, your money was still in Switzerland, whereas now, because of the way that the Internet, or before that Telex, enabled finance, you can steal it launder it in Switzerland and spend it in New York in the same day.


HELEN: You know the spending bit I agree, but not all that Nazi money stayed in Switzerland.


OLIVER: But that's the joy of Moneyland and the way that technology has enabled this: the stealing it, the hiding it, and the spending have become very very simple. If you look at whole chunks of west London, we run these things called kleptocracy tours where people in buses drive around west London and point out houses, ‘That belongs to a Ukrainian oligarch, that's their son-in-law the president of Kazakhstan, that's the Russian deputy prime minister, that's a Bahraini royal family, that's the son of the former president of Egypt.’ You know this stuff is hiding in plain sight, but it's incredibly difficult, as Jason said, for law enforcement to do anything about this because we're still stuck in this age when you have to try and get information out of the Marshall Islands. You know, no one's ever broken into a Marshall Islands trust. It can't really be done. So what do you do? And that's the problem in that it's so easy to hide money. And once hidden, it's very enjoyable to spend it. 20:32


DAVID: So given that there aren’t more wicked people in the world than there used to be, I assume. And, as you said, you know historically there have been these kinds of patterns of behaviour in these forms of evasion and so on. The thing that there is more of now is, what? Just the range of opportunity? That's the space that's opened up?

OLIVER: It's a crime of opportunity I think. People steal stuff if they can get away with stealing stuff. I mean, I hope I wouldn't. But it's difficult to say. If you suddenly have the opportunity to loot 100 million dollars from the state treasury and you’ve basically got a 99.99 percent chance of getting away with it… I don't know. Maybe I wouldn't be all that moral. I mean it's a lot of money right? But if it's a billion I mean that's the problem. If you look at how crude some of these crimes are and how easy it was to steal money from, say the Nigerian central bank. Just write a letter, ‘Give me 30 million dollars,’ and take it away in a truck. It's that simple. Would I be able to resist that if that meant I could buy a nice house in west London and keep it forever? I'm not sure I would.

[AD] 22:25


DAVID: So the last bit of your subtitle is ‘How To Take It Back.’ So let's just talk about what we could do. I want to ask a specific question then a general question. If part of this is about the City of London and British authorities and how they behave, is Brexit likely to make a difference? There is one version of Brexit, which is it’s going to turn us into the ultimate offshore island. That's the only way we'll survive. The other version of Brexit is that we will take back control and presumably that means we could take back control of some of this too—the British sovereign authorities might be feel more empowered to do something about this. I’m sure there are other options, including that Brexit doesn't happen, but…


OLIVER: I mean there's that Gandhi line isn't there: what do you think about British enforcement of money laundering? It would be a good idea. I mean we are so far away from being anywhere near satisfactory at the moment. There was this massive scandal in Denmark last week with Danske Bank. The Estonian branch laundered 200 billion euros which is an almost unimaginable amount of money. The biggest group of account holders were British shell companies, LLPs. There hasn't been a response to that from the government as far as I know. It's astonishing. We are way worse than British Virgin Islands in that regard. The British Virgin Islands were in third place. We were first. You know we are so far behind achieving anything that, to be honest, Brexit, it’s sort of irrelevant. I think. I mean the EU isn't stopping us from doing anything now in terms of fighting money laundering because we're not. And the EU, if we left it, wouldn't help us fight money laundering. I mean the EU has done good stuff; its anti money laundering directives are good, but it's all about enforcement and we're just not enforcing the laws.

DAVID: So are you saying that, as it were, the fear that we will become a bargain basement offshore… that's not a real fear because we’re there already.




DAVID: Great. So why? What are the incentives at work here? Are we just in too deep? It's not great for London. I'm sort of struggling… it's not great for the London property market. We don't benefit from these Kazakh playboys buying houses.


OLIVER: But it's this line about Britain losing an empire and finding a role. We found a role. I mean the City of London's role was being the best international financial center. And this was how we stole Wall Street’s business was by being cheaper and less well-regulated than them. We were very good at it. And how do you reverse 50 years of progress in that direction?


DAVID: Jason, give us an Australian view of Britain's incentives.

JASON: I think I really agree with what Oliver said. I think that there's a large class of intermediaries in Britain, but not just in Britain, who do handsomely out of this trade as Oliver talks about in the book. You know the people of Ukraine, or whatever the victim country is, may suffer, and the money may briefly pass through places like the British Virgin Islands or Mauritius or Nauru, but the place that it comes to rest is disproportionately London. And it makes a big positive difference for a certain class of intermediaries: for lawyers, for accountants, for investment managers…


DAVID: For politicians? Members of the House of Lords.

HELEN: I mean I would say that, on the City, that it is part of the explanation why London's a premier international financial center in the world. It’s not the only explanation why London's the premier international financial center in the world. It does do certain things, legal things, significantly better than others do. It has a time zone advantage. It has common law… the English language, you know there is more to the City’s position.

JASON: It is a little bit of a compliment vice pays to virtue. Criminals like property rights. Once they've stolen things, they don’t like having their stuff stolen. They prefer efficient financial centres to inefficient.


DAVID: They speak English too.

HELEN: Yes, what I should say as well though, is that if you look at our politics, we haven't had a massive scandal around the corruption of politicians and big businesses in terms of using offshore accounts. And I'm thinking of the European cases, there’s the German case with Kohl. What brought Kohl down is all about the use of offshore accounts basically to fund the slush fund which the Christian Democrats ran for a very long time. In the French case Elf Aquitaine, the state-owned oil company, which is probably the biggest corporate scandal in post-war European history, I would say. I mean literally they were running a foreign policy for France in parts of Africa. They were paying off mistresses of various French politicians. They were being used to buy up dilapidated oil companies in eastern Germany to help Kohl out. They probably give donations to help Kohl win elections in 1994. I mean there's a lot of lot of stuff there. Now I'm not saying there is nothing like that in British politics, but we haven't had a huge scandal like what those two scandals represent for France in Germany in terms of the way offshore has fed back into our politics.

DAVID: So if Brexit won't change it, could a different government change it? Could a Corbyn government change it?

OLIVER: Yeah, I mean they could do. And to be fair, the Labour Party has got some… Annaliese Dodds, who’s in their shadow Treasury team has come up some really good ideas for stuff that would get us from sort of 5 percent to 10 percent in terms of what we should be doing. For example when a British company is registered, checking the information that's provided—that's one policy they've suggested. That doesn't happen at the moment. You just can create a company. And I mean there's one very amusing one with the guy… the directors are Leonardo DiCaprio, Daniel what's his name? James Bond… what's his what's his surname? Daniel Craig, and Robin Williams. They're not actually directors but he just put them down there and no one checks. You know, it’s funny. There's another one with Stalin; another one with Mubarak and Osama bin Laden. You can just chuck these things into a company’s house. It costs 13 pounds for a laugh. It's an absolute farce. So if a Labour, Corbyn government came in hopefully they would change that. That would be good. But it still would still be a long way behind where we should be.


But I'd just like to say I mean in defense of Britain, and it's not a very good defense, America is actually just as bad. You know I had this amazing encounter with a company formation agent about 40 miles east of Reno in Nevada, and he creates companies. And I said to him, ‘Well do you check if bonafide is the people creating your company for you.’ And he said ‘No. I mean if they told me they were from the mafia I probably wouldn't do it.’ But people don't say that because there's not a lot of money in asking questions. And this is in America. I’ve spoken to people in the FBI who say that they cannot find out who owns a company in Delaware. It's not just I can't find out or we can't find out. The FBI can’t find out. America is up to its knees in this stuff as well, so if London has a rival in terms of the global magnet for kleptocratic cash it's New York, and if it's not New York, it's Miami or Los Angeles. You know, we are we're in good company.


DAVID: To go back to the point Jason made—and you say it up at the start of your book and you come back to it at the end—that fundamental mismatch between how people in different parts of the world experience this phenomenon. So if you're in the Ukraine someone’s stolen all your money and built gold toilets with TVs at toilet height, and the money’s then come out and wound up, some of it, in the UK and some of it’s then spread to other places… The pain is felt in one place and that pain is not even known about or understood in the place that has the jurisdiction and the control. Isn't that still... I mean it’s the basic tension of globalisation at some level. People are suffering in one place and their suffering is not felt in the place where something could be done about.

OLIVER: That's right. I mean what's interesting is the poisoning of Sergei and Yulia Skripal in Salisbury has focused minds in Whitehall in a way that I've never seen them focused before. Politicians are talking about this issue because I think they have finally understood that Putin and the greater Putin—the sort of clan around Putin—are the masters of the offshore game. They've essentially weaponized offshore. It's another Gabriel Zucman statistic that 52 percent of all Russian household wealth is offshore, more than half the money in the country. And the Russian elites are the masters of the offshore game. And we are intensely vulnerable to pressure because of that. So I think that finally that Salisbury attack has focused minds in a way that they should have been focused long ago and I sincerely hope that that leads to something sensible sort of emerging from politics this autumn because you know we’re very late and we should have done something a long time ago. 30:17

DAVID: But that in itself is amazing. It takes the poisoning of an ex-spy to focus people's attention on this.


OLIVER: Yeah, I mean let's face it, we had a poisoning of an ex-spy 10 years ago with polonium 210 and apparently that's fine. It took the poisoning of a second one with another exotic Russian-made poison for it to finally focus attention.


DAVID: So you have to poison two spies?


HELEN: It could have become clear pretty quickly after Putin came to power that all the oligarchs came, all the oligarchs with whom he fell out I should say, came to London, and some fashionable Russian Civil War took place in the city of London. When I say the city of London I mean London as a city not the financial center.

DAVID: The other thing that's going on here, as you said, it's our reputation laundering too. Abramovich is the classic case. If you buy Chelsea Football Club and what you're doing is laundering your reputation…

OLIVER: His reputation was impeccable to begin with. I say. And I’ve long maintained.


DAVID: Okay, I feel nervous that I’ve said something that I shouldn’t. But I actually can't remember the sequence. At what point recently did the British government deny Abramovich his visa? Was that post-Skripal?

OLIVER: Yeah, it was. We don't actually know exactly what happened.


DAVID: Are we allowed to say anything on the subject?


OLIVER: We do know that he has gone and got an Israeli passport or applied for one, which means he no longer needs to get a visa because Israelis can come here without a visa.


HELEN: And he's now trying to sell Chelsea, but he wants 3 billion and nobody wants to pay.


OLIVER: The idea that there is a hostile environment for wealthy Russians in London is a sort of widely trailed policy in the pages of The Telegraph. And I would love it to be true, but you know, it’s a sort of one in, one out. For legal purposes I'm not going to mention them… but Abramovich goes to Israel. Far more objectionable people have come the other way over the same period, so it's more of a press release than a policy, put it that way.

DAVID: Jason, if you could wave your magic wand and get the British or the American government to do one thing that it's not currently doing, what would it be in this space, this Moneyland space?

JASON: I think tracking down the outright criminal money and proceeds of corruption and so would be frankly harking back to the days of the old west, engaging kind of bounty-hunter outfits of people who would be able to track this money and seize it using civil law remedies that are already available and keep some portion of the funds they recover, as has been the case in one of the examples that’s been mentioned of the former Nigerian dictator Sani Abacha. I think that there is a limit to what states are prepared to do for diplomatic reasons and can do for reasons of lack of resources or austerity.

DAVID: So just tell us a bit about the Abacha case. What actually happened there?

JASON: So the dictator of Nigeria until 1998, as Oliver mentioned, stole lots of money through such subtle intricacies as backing up a truck to the central bank and loading it full of cash and then wiring it to places and then dying while cavorting with two prostitutes. And thereby, afterwards, a long search for his money. And one of the ways that the biggest chunk of it was found was a certain enterprising Swiss lawyer… and the Nigerian government said to him, ‘Go look for this money. We know it's out there in Moneyland somewhere. We're not sure where. We're not going to pay you anything. If you recover the money you get to keep 29 million dollars of it. If you don't recover anything you don’t get any money.’ And, as it turned out, he was an enterprising lawyer, found the money, and is 29 million dollars richer as a result. He found about 600 million dollars. So in some sense Nigeria got whatever it is, 571 million dollars, and the enterprising Swiss lawyer got 29 million dollars


OLIVER: That recovery effort is one of the best ones there’s been, but asset recovery remains around 25 cents for every thousand dollars that's been stolen over the last 20-odd years. It's still essentially a one-way bet if you steal a lot of money from a poor country and stash it in a rich one. So for my mind, and wave my magic wand at Britain and America, I want Britain to have American enforcement and I want America to have greater transparency, and if we could combine the two, then you would end up with something quite extraordinary. Because America enforcement is great, but they can't really do anything because they can't tell what's going on. And British transparency is great, but you can't do anything about it because we don't give any money to the NCA or the City of London police or Serious Fraud Office. So combine the two and actually you'd end up making a big difference.

DAVID: So can I read you something that John Lanchester wrote in The London Review of Books a couple of months ago in a very interesting piece (we will tweet the link to it) about the aftermath of 2008. But he ends by making a similar point that you've been making, drawing on some of the same statistics, including Zucman, about the money having gone missing, and he says, “When it comes to the question of paying their taxes, the rich have seceded from the rest of humanity.” Then he says, “A crackdown on international evasion is difficult because it requires international coordination but common sense tells us this would be by no means impossible. Effective legal instruments to prevent offshore tax evasion are incredibly simple and could be enacted overnight as the U.S. has shown with its crackdown on oligarchs linked to Putin's regime. All you have to do is make it illegal for banks to enact transactions with territories that don’t comply with rules on tax transparency. That closes them down instantly. Then you have a transparent register of assets, a crackdown on trust structures (which incidentally can’t be set up in France, and the French economy functions fine without them), and job done.” He then says politically it's hard but it's not impossible. 35:41


OLIVER: Brilliant. I mean it involves diplomatically going to war with the United States. But, I mean, other than that it's a great idea. I think it would be lovely and while I'm dreaming, I’d also like a pony, but it's not going to happen. The problem is after the financial crisis, the world came up with two solutions to the problem of tax evasion: one was in America, which was FATCA, the Foreign Accounts Tax Compliance Act, and the other wars in the rest of the world, the income reporting standard, which both kind of do the same thing: you have to tell the foreign tax authority of assets held in your country. But the problem is the two systems don't talk to each other. So inevitably where two systems don't talk to each other, there's a loophole. And in this case, it's created an amazing loophole that has… I mean the South Dakotan trust industry has risen from 40 billion U.S. to 260 billion U.S. over that period basically because of this loophole. Now you're going to somehow persuade the South Dakotan administration that they need to get rid of that industry. There's nothing in South Dakota; this is brilliant for them. The problem is everyone always benefits from loopholes, and somehow imposing that kind of global system on a jurisdiction that doesn't want it is impossible without defeating it, which isn't going to happen.


DAVID: I mean, to be fair, John Lanchester says it’s politically hard, but you say politically impossible.


OLIVER: Politically impossible without involving the United States. And the United States is not very good at imposing the federal will on states, obviously. So places like Nevada, Wyoming, South Dakota, which are doing very very well out of the post financial crisis tax haven industry, how do you persuade them—leaving aside Deleware—how do you persuade them to stop doing it?

HELEN: Yeah the United States is very good at shutting other states out of its banking system when it wants to. It’s proven that over any number of issues and it's the basis of the whole Iran sanctions thing and rises from that. But for the United States to deal with its own issues in this respect is a whole other matter and it's no reason, I don't think it would make any difference who is in the White House, as to why that they're going to do that. Not least because, as Oliver said, there are some individual states in United States, South Dakota, Deleware, that you mentioned earlier, where this is just like essential to the business model of the state. What would the Delaware economy be without this?


OLIVER: I had a congressman in the local House of Representatives in Nevada who said to me—they were chatting about foreign competitors to Nevada for the trust industry—he said, ‘Well you can put your money in Cyprus.’ And they laughed and said ‘Yeah but if it's in Cyprus it's not safe from the Department of Treasury but it is here.’ How do you get past that?


I end the book—the second to last chapter is called ‘Tax Haven USA’—and it is how this mismatch between the CRS and FATCA has created this astonishing tax haven industry in places like Wyoming and South Dakota and Nevada that didn't used to have this industry and they absolutely love it for it. For them these are high value, high tax-paying jobs in places that really need the revenue. How do you persuade these states to stop accepting the money? It's far harder to persuade them to do it than to persuade someone like Nevis because Nevis or Nauru you can bully into doing what you like really if you want, but you can’t bully Nevada.

DAVID: So one last question… is a big question and it touches on what Helen was saying before about… so we haven't had the scandal that maybe would bring this to the forefront of our political consciousness, but we have had a crisis, the crisis that we keep coming back to, the 2008 crisis, which had many causes. But one cause in conventional accounts—Helen may tell me this is wrong—is that Moneyland is also shadowland. It's dark this money. What did you say, 8 to 9 percent of the world's total wealth is missing. As John Lanchester says, it's just not on the balance sheets, which makes a very interconnected, very fast-moving, very precariously poised global economy, I would assume, much harder to control, as far as anyone control it, but also much much more vulnerable to systemic crises. Things that can happen in the dark might trigger things that come into the light. So to pass this question, are we more at risk of another massive crash because of this, but also is there some financial event, not some scandal but some crisis, that would make people think this is intolerable.

HELEN: I’ll just say on the first, on the question of the 2008 crash, I do think that offshore banking is actually quite an important part of the story of 2007-2008 and that this essentially offshore dollar credit creation that went on… basically, international banking was so tied up with that when that stopped working, as it did in the August of 2007, that we ended up with a financial crisis. But I do think on that side that you could then say ‘Well it broke down, offshore dollar credit creation broke down 2007. It has never recovered and that the Fed in some sense took over with dollar credit creation and that's kind of like what QE has been about at the global level.’ So on that side of it I say we're moving to a different potential crisis because we still haven't really dealt with what happened in 2007, 2008. We just had the Fed and the other central banks try and mop it up in this way that’s had all kinds of consequences including, it must be said, giving more opportunities for extremely rich people to own assets that are now worth even more than they were and spend their money in London and other internationalized cities. So in some sense we're still living with the first version of the crisis, I guess. 40:55


DAVID: I've learnt enough from you to know that bringing it into the light by making it QE doesn't mean that we control it anymore than when it was in the dark.

HELEN: No it doesn't…


DAVID: Or at least control the consequences of what may happen next.


HELEN: No we don’t… it’s very controlled because the Fed is making deliberate decisions about it and now before the Fed…


DAVID: But we're not in Kansas anymore.


HELEN: No, but the consequences of it are completely unknown. That's what I’m saying. So that's the difference. I don't think, as far as I can understand these things, the Fed understood what was going on with offshore banking in 2007. I'm not entirely sure it is understood even retrospectively, but it has put something in place of it. The problem is even if it understands the mechanisms by which it does QE, or did QE because it stopped, it does not understand what the consequences of what it has done and that is where the great unknown is.

DAVID: Jason, do you think re more vulnerable to the big one, as it were, because so much money is…we don't know where it is.

JASON: I think we are more vulnerable to a financial crisis, but for me that doesn't really have much to do with offshore unless offshore becomes an infinitely elastic term for any form of financing that you disapprove of. I think that both for the last crash and possibly for the one to come, it wasn't really a problem of secret money stashed in places where people couldn't see it. I think there was a problem of ignorance and people not understanding that the various obligations and liabilities they'd taken on. But for me that's not quite the same thing as offshore, or arguably the sort of Moneyland that we've been talking about.

OLIVER: To my mind the threat is that this dark money, the 10 percent of the global economy which is out there somewhere, is a bit like a sort of malevolent Poltergeist. We can’t see it and we can’t touch it but it can see us and it can touch us. There’s this great line in Harry Potter and the Chamber of Secrets, which I’m sure you’ve all read intensely, when Mr. Weasley scolds his daughter Ginny at the end because she’s been possessed by a diary which was sort of inhabited by the spirit of Lord Voldemort. And he says ‘How many times do I have to tell you. Never trust anything that can think for itself if you can’t see where it keeps its brain.’ And that’s the thing about dark money, offshore money, is it’s acting, it’s influencing our politics. It’s buying assets. It’s buying houses. It’s paying for the media. It’s paying for, you know, political campaigns, but we can’t see where it keeps its brain. And I think this is a problem because obviously the owners of dark money are many and they are various and they are all over the world, but they all have one interest in common which is they don’t want to be exposed because if they get exposed they might have the money taken away from them. And that is a threat to democracy because the core function of a democratic government is to tax its citizens. And if a democratic government can’t tax its citizens then is it a democratic government anymore. So I do think that this dark money is a threat to democracy I think it’s a growing threat to democracy and I think that it will be never easier to do something about it than it is right now because the amount of money is growing and the more money there is the bigger threat this malevolent poltergeist is.


DAVID: I was really struck by that Harry Potter line in your book and it made me think.
But one of the things it made me think is that you can apply that to lots of things, including democracy. Things that can think for themselves but you can’t see their brain—The British government, Facebook. Actually we live in a world which is made up of these monsters. That’s our world. Some of it is dark and some of it, like we were saying, is in the light. The Federal Reserve can think for itself. Can you see its brain?


OLIVER: Yes you can because you can see its decision-making process. You know there is a transparency inherent in that and I think this is what was so brilliant about the Bretton Woods agreement that Harry Dexter White and John Maynard Keynes came up with in that they had been confronted with this problem of a global economy in crisis and the response to that, populism and war that resulted from it. And they thought about it systemically and they thought about it hard and they said ‘No we are going to restrain and restrict the interests of the owners of capital in the interests of democracy’ because they realise that there is a tension inherent between them and they said we're going to come down on the side of democracy and not on the side of the owners of money, of wealthy and powerful people, and that debate is something we're not having at the moment. And in places like Russia and Ukraine, the battle has been lost. The wealthy have won. But in Europe, particularly, inequality isn't that bad. So that debate is still worth having and I don’t think we're having it at the moment and we should be.


DAVID: Moneyland is available pretty much everywhere. John Lanchester we mentioned is on the LRB website and we'll tweet the link to that. We also tweet the link to an episode we did a while back with Ha-Joon Chang, the economist who's talking about tax in a somewhat different way. If you'd like to record a question for us, we would love to hear from you at our website. If you go to contact you can find a really simple way to do that. And we will answer one next week. We're at Talkingpoliticspodcast.com and next week we are going to get back to talking about Brexit. My name is David Runciman and we've been talking politics.