A Web of Hidden Wealth

A Web of Hidden Wealth

The ultra-rich depend on a global network of lawyers, accountants, administrators, and other fixers to protect their wealth from taxation.

Garden spider print by Gerrit Willem Dijsselhof (Rijksmuseum/Rawpixel)

Spiderweb Capitalism: How Global Elites Exploit Frontier Markets
by Kimberly Kay Hoang
Princeton University Press, 2022, 288 pp.

Some conspiracy theorists swear there’s a tiny spider in the top-right corner of the one-dollar bill. The fine lines around the border of the banknote certainly look like a tightly spun web. But you don’t have to believe that U.S. currency contains hidden iconography to see value in the metaphor. Kimberly Kay Hoang’s recent book, Spiderweb Capitalism, uses the image of a spiderweb to evoke the shadowy global network of lawyers, accountants, administrators, and other “fixers” who help illicitly move wealth around the world in order to help the ultra-rich avoid paying taxes.

Hoang’s book, published last year, comes in the wake of the release, in 2016, of the Panama Papers (followed by the Paradise and Pandora Papers in subsequent years). The leak comprised more than 11 million financial and legal documents associated with the offshore financial sector, painting a clear picture of how the rich hide their wealth by depositing money into distant tax havens. The documents identified more than 140 individuals who engaged in these practices, including heads of states and their associates, media personalities, businesspeople, and members of organized crime syndicates. They hailed from fifty countries and were sending their money to more than twenty tax havens, including the Cayman Islands, Panama, and the British Virgin Islands. The leaks contained revelations about the cream of society: Queen Elizabeth II, Obama’s Secretary of Commerce Penny Pritzker, Trump’s soon-to-be Secretary of State Rex Tillerson, U2 singer Bono, and Stephen Bronfman, the Canadian prime minister’s chief fundraiser, among many others.

Hoang writes that the leaks laid bare a “black hole” in international financial structures, within which the political and economic elite can manage their money with few restrictions. The system is held up by what former Secretary of Labor Robert Reich calls “paper entrepreneurialism”: shell companies that are set up for the sole purpose of conducting another entity’s financial transactions, thereby legally reducing tax liabilities and obfuscating the actual owners of assets.

In her exploration of international tax havens, Hoang focuses on Vietnam and Myanmar, where she conducted hundreds of interviews with people in the paper entrepreneurialism business. They, in turn, led her to countries like Hong Kong and Singapore, where she spoke with lawyers, bankers, company secretaries, accountants, private wealth managers, entrepreneurs, C-suite executives, auditors, and other financial professionals—the vast pool of people who help the world’s elite hide their wealth from tax collectors. They see countries like Vietnam and Myanmar as “frontier markets”—a term coined by the International Finance Corporation in 1992 to describe politically unstable states in the developing world with unregulated capital markets that will carry more risk than better-moored “emerging markets.”

Wealthy investors often find these markets desirable because the substandard regulations work in their interest. One of Hoang’s big-name sources—the CEO of the largest asset-management firm in Vietnam—tells her that business students should abandon conventional business models and instead take up the more lucrative practice of “playing in the gray.” He recommends that they learn to operate in the area between the legal and the illegal, serving as enablers and go-betweens for the ultra-wealthy.

Hoang’s book isn’t the first to describe this system of deceit and unequal tax burdens. For her 2016 book Capital without Borders: Wealth Managers and the One Percent, the sociologist Brooke Harrington went through a training program for certified wealth managers and used the experience to provide a lucid, in-depth look into the industry. Over the course of seven years, Harrington interviewed dozens of wealth managers to unravel the networks of shell corporations that protect the obscenely rich. In the book, she examines how these elite professionals (whose services are largely inaccessible to all but the very wealthy) play a commanding role in orchestrating offshore tax schemes. Much like Hoang, Harrington demonstrates how these shadowy systems both increase wealth inequality and undermine government legitimacy. Hoang, however, also identifies a much broader set of people involved in maintaining the prevailing order of tax avoidance for the global elite. And while the wealth managers in Capital Without Borders believe they play “a vital and very positive role in the economic development of former colonies,” as Harrington writes, the financial professionals Hoang interviews see themselves as faceless cogs in a system whose primary purpose is to keep private financial flows moving.

Hoang’s portrayal of spiderweb capitalism represents a useful challenge to common assumptions about the divisions between developed and undeveloped economies. She demonstrates that financial markets are interconnected in large, complex ecosystems that span numerous sovereign governments. But the goal of Hoang’s book isn’t just to depict the scale of this system; it is to “give global capital a face” by showing the real people at the banks, law firms, accounting firms, and corporate service providers that spin this financial web of deception. These spiderwebs are so enormous and involve so many different people that that there is “no one villain to go after,” Hoang writes. And while many of the people she interviewed recognized the problem of global inequality not one felt responsible for helping to perpetuate it. Hoang further argues that this inequality contributes to crime, competition for scarce resources, climate change, environmental damage, and mass migration—socioeconomic issues that further entrench global networks of wealth protection.

Spiderweb capitalism isn’t found only in tropical climates. Hoang makes a point of describing how tax havens in frontier markets connect back to wealthy countries that tout their transparency and devotion to the rule of law. As one of Hoang’s sources tells her, the United States is one of “the biggest gangsters on the block.” She cites scholar Hal Weitzman, who argues that the United States itself essentially functions as a tax haven for American companies and rich individuals, owing to its structure of corporate anonymity.

Clark Gascoigne, the former director of the Financial Accountability and Corporate Transparency Coalition, argues that “the United States is the easiest place in the world to set up an anonymous shell company.” It acts as an “offshore jurisdiction” for many foreign companies and individuals, even though it is one of the most aggressive international tax regulators in the world. The United States subjects foreign financial institutions to hefty fines if they violate the Foreign Account Tax Compliance Act, which requires them to report on overseas assets held by American citizens—yet it does not allow other countries to do the same when foreign nationals keep money within its borders. Delaware, Wyoming, and Nevada in particular have long been homes for foreign-owned shell companies, and Florida, Texas, and South Dakota are all moving in the same direction.

As the International Consortium of Investigative Journalists reports, a number of global financial webs can be connected to the Office of the President. Donald Trump’s attorney Michael Cohen used a shell company registered in Delaware to receive payments from a foreign oligarch. Penny Pritzker, the secretary of commerce under Obama, also had shell companies offshore: her two Bermuda-based firms were mentioned in a federal ethics filing in which Pritzker promised to sell her investments to avoid any conflicts of interest. In June 2013, Pritzker transferred shares from the firms to DRBIT Investors LLC, which is registered in Delaware and is owned by trusts meant to benefit her children.

However, the need for renewed attention to how the United States functions within this network of inequality shouldn’t distract us from the larger picture: spiderweb capitalism is a fundamentally global system, relying not on any single country’s legal regime but on the ability of the ultra-wealthy and their brokers to exploit different legal zones to move money across the world, with very few obstacles to stop them.

Hoang’s work was inspired by the sociologist C. Wright Mills’s landmark 1956 book The Power Elite, which described an exclusive, socially integrated upper-class circle whose members were familiar with one another’s exploits. At the time, Mills’s critics denigrated The Power Elite as a pessimistic caricature, but its image of an insulated and self-perpetuating elite (what Hoang calls a “Klasse für sich”) has continuing value as a means of understanding contemporary structures of wealth and power. Spiderweb Capitalism suggests, however, that the power elite has changed in an important way since Mills was writing: the members of this class now “keep their actions secret not only from the public, but also from each other.” And they rely on well-paid vassals to conceal the evidence of their tax avoidance.

“The more we understand what is happening in the world,” Mills said in a speech in 1954, “the more frustrated we often become, for our knowledge leads to feelings of powerlessness. We feel that we are living in a world in which the citizen has become a mere spectator or a forced actor and that our personal experience is politically useless and our political will a minor illusion.” Hoang is similarly doubtful about easy fixes to spiderweb capitalism. The path forward will likely require nothing less than a colossal effort by civil society to establish what Joseph E. Stiglitz calls a “new social contract.”

The economist Gabriel Zucman has advanced an ambitious solution to the problem: by implementing a global asset registry, government decision-makers could gather the information they need to combat tax evasion. Establishing such a registry would, however, require the cooperation of regulators from all parts of the world, and that kind of geopolitical coordination seems highly unlikely at any time in the near future.

Spiderweb Capitalism is, nonetheless, part of a necessary first step: to even consider the possibility of reining in this system, we need to understand how it works. By offering a complex picture of the networks that help the global power elite get rich and stay rich, Hoang reveals the monumental scale of the task ahead.

Ruqaiyah Zarook is a writer based in New York.

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