I’m sure I’m not the only person who secretly likes a one-star review. It’s awful to get one yourself (and I have, several times), but I have to admit that there is a nasty kind of pleasure to be had from reading at length how someone else’s restaurant, film, album or book is awful. So, if you’re that kind of person too, I recommend you dive into “How Well Does the Money Laundering Control System Work?”, a spectacularly critical if scrupulously academic article by Mirko Nazzari and Peter Reuter.

At the risk of giving away the punchline: the short answer to the question in the title is “it doesn’t”. Although, there are also additional details about how the anti-money laundering (AML) system acts as a moat around big banks to protect them from competition, while raising the costs of banking for everyone, excluding vulnerable and marginalised people from the financial system altogether, and doing nothing to stop criminals from keeping their wealth. So perhaps the answer is more like “not only does it not work, but it actively makes the problem it’s purporting to solve significantly worse”.

Of many damning examples that Nazzari and Reuter pick out, perhaps the most striking is how the Financial Action Task Force “grey-listed” South Sudan in 2021 for its failure to meet the FATF’s standards, at a time when the country’s very existence was threatened by civil war and humanitarian crisis. The idea that anyone would choose to launder significant amounts of money through a state without any effective government or legal apparatus is absurd, yet the FATF went ahead and imposed limitations on its ability to access banking services anyway, thus further crippling an already fragile economy and worsening a humanitarian catastrophe.

“It is hard for anyone to defend the current system with enthusiasm. Its failure to reduce either the predicate crimes that generate large criminal revenues or the volume of money laundering is uncontested. Even though specific estimates of costs are lacking, no one doubts that those costs are in the hundreds of billions of dollars globally,” Reuter and Nazzari write. “Government claims of success often appear ritualistic and are seldom scrutinized in detail. Yet, for all that, there is hardly any discussion of fundamental reforms in any country.” 

I have been, as regular readers will know, writing a book on this precise topic and it is very pleasing that two distinguished researchers have come to exactly the same conclusions that I came to. I have also recently published an article about how the cryptocurrency tether is a dream tool for criminals looking to evade restrictions, and it is just one of many similar financial innovations that are rendering the AML system an ever-deader duck. 

TURNING A BLIND EYE

On one level this is bad, because anything that makes it easier and cheaper for criminals to keep their money is awful. But on another level, if it was already easy and cheap for criminals to keep their money, perhaps the existential threat to the tattered remnants of the AML system that is posed by crypto gives us an opportunity to design a new system that does better. It is after all a very important challenge.

“All elements of our security are supported by our ability to tackle illicit finance – the flows of funds from criminal activity that underpin threats to the U.K. including terrorist networks, serious and organised crime groups, and hostile state actors,” claims the government’s brand new national security strategy.

Part of the difficulty of trying to persuade politicians of the urgency of improving the AML system is the sheer volume of jargon involved. But you don’t need acronyms to explain why this matters: money buys power; the more money criminals, terrorists and spies have, the more powerful they will be; powerful criminals, terrorists and spies are bad; so do something about it; the end. Of course, taking on the rich and powerful requires political determination and a belief in democracy, which is a whole different challenge.

“Foreign agents are watching as America’s anti-corruption regime crumbles. They see an extraordinary window of opportunity, and they know they’ll have to act quickly to take full advantage,” writes Casey Michel in this hugely alarming article (there’s something about seeing everything put together in one place). “Foreign regimes are beginning to see just how far their money can go in Trump’s America.”

FRIENDS IN HIGH PLACES

Of course, having an effective AML system also relies on banks abiding by the rules that are imposed upon them, which is tricky because there’s money to be made if you welcome in customers that other institutions are excluding. And that brings us to Monzo, an online bank which gained a full British license in April 2017, and now has around 12 million customers and is valued at several billion pounds. It appeared to have some pretty high-prestige customers, considering some of them registered their addresses as “Buckingham Palace” and “10, Downing Street”, but it appears they were not being entirely truthful. Monzo was not providing bank services to the king or the prime minister, but was instead not doing basic checks on the veracity of its clients’ information. 

“Monzo’s failure to gather sufficient customer data meant that the Firm was unable effectively to assess whether transactions were consistent with expected activity or were suspicious. In addition, there were weaknesses in Monzo’s transaction monitoring processes,” noted the Financial Conduct Authority last week, as it fined the bank 21 million pounds. Monzo is a small bank, with a tiny fraction of the assets of an HSBC or a Barclays, but I’m going to go out on a limb and say it has almost certainly laundered more money internationally than South Sudan. 

Yet, the chances of Britain being grey-listed are nil. Perhaps the biggest flaw in the world’s AML system is that it’s a cosy club of rich countries who are all very forgiving of each other’s slips and foibles, but very willing to condemn others. Somewhere that’s perhaps deserving of more condemnation is Liechtenstein, which has an unfortunately-named zombie trust crisis, caused by suddenly imposing sanctions on a financial system that had previously been very happy to provide services to wealthy Russians if not, as far as I know, to actual zombies.

A version of this story was published in this week’s Oligarchy newsletter. Sign up here.

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I am a regular listener to Ezra Klein’s podcast, and I’m a fan. There should be more podcasts that treat serious issues seriously, but there’s something he said back in April when talking about the root cause of problems on the Left of politics that has concerned me since I heard it. “It’s not just the fault of money in politics, because there’s money on all sides of the issues. There’s something else going on,” he said.

That concerned me because it encapsulated a mistake that’s often made about why political funding is problematic. It’s often assumed that the only problem is that rich people can buy support for an issue they care about, so it’s therefore often missed – as Klein did – that a far bigger problem is that they define what is considered an issue in the first place.

You could look at the fact that billionaires supported both Republicans and Democrats in last year’s presidential election (although far more money went to Republicans), and conclude that – since both sides got money – it’s not a big deal. Or you could wonder which issues don’t get attention because no one with money is interested in them being discussed.

Five years ago, when I’d just started writing this newsletter, I made a big thing out of the fact that three people owned more than $100 billion. Centi-billionaires were new back then, but they’re old hat these days. Some 18 people have passed that threshold now, and more will be along to join them very soon. Oxfam predicts there will be five trillionaires by the end of the decade, and that was before Donald Trump’s tax cuts were passed by Congress.

Last year, here in the U.K., it looked like Keir Starmer actually understood the importance of protecting politics from the corrupting effect of money, but he’s failed to actually follow through. “Time and again, Labour’s warm words about cleaning up politics have not translated into action. Rather than rebuilding faith in democracy, Starmer’s listlessness risks eroding it even further,” wrote the journalist Peter Geoghegan last week.

Meanwhile, over in France, billionaire wealth has already nosed its way into politics and is helping to raise the profile of the Far Right. 

“Media groups, at the hands of a few powerful men,” wrote one observer late last year, “are actively shaping the political discourse in a way that normalises far-right narratives and talking points. By giving disproportionate airtime to far-right figures and framing their extremist positions as legitimate responses to France’s social and economic challenges, these media outlets are gradually shifting public opinion.”

It's a sign of this shift in opinion that the asset manager Aberdeen (fresh from cancelling a rebrand to ‘abrdn’, which cost an estimated £500,000) has decided to sack the independent board of the Financial Fairness Trust, which has supported organisations researching the effects of inequality. A few years ago, that kind of philanthropy was a cheap way to look like the kind face of capitalism. These days, I’m not sure anyone cares.

Back when I was a cub reporter, an old-timer gave me some advice: “don’t write about process, nobody cares about process, write about results”. It’s good advice for someone trying to write articles, but it’s bad advice more broadly, because process is important. The process of drafting regulation is when laws get defined; the process of crafting the rules that will guide the implementation of laws is when questions get resolved. The power of billionaires is that they can afford to employ people to monitor that process, and to make suggestions. If the rest of us don’t care, the world will be stolen from us without any of us noticing.

And once it’s stolen, it’ll stay stolen. Thanks to impenetrable financial structures like a trust registered in South Dakota, the super-rich can keep their wealth safe in perpetuity. When I first wrote about South Dakotan trusts, back in 2019, there was around $350 billion squirreled away in the Mount Rushmore State. That total has now hit $815 billion, having risen by $100 billion in the last year alone.

“It’s going to go on for—the estimates vary — 10 to 15 more years. But, there’s a huge transfer underway from the boomer generation to the next generation," said Bret Afdahl, the director of the state’s Banking Division.

Sometimes it can be hard to stay optimistic.

THE IMAGINARY BANKER

Here’s a weird story: “meet Barbarat Giuseppe, the world’s most prolific banker. He’s run most of the world’s largest banks … Mr Giuseppe’s spectacular career is spoilt only by the small detail that it’s all fraudulent”.

Guiseppe may not actually exist, but he’s been able to create a series of U.K.-registered companies with the same name as major financial institutions: UBS, Goldman Sachs, and so on. When he’s been caught, he’s just created new familiar-sounding companies, perhaps as part of a money laundering scheme, though it’s not immediately clear how it would help.

“We need to see prosecutions. Skip the hard stuff of finding victims of fraud. Do an “Al Capone” and prosecute the easy offences instead,” writes Dan Neidle’s Tax Policy Associates. Amen to that.

It’s a story that shows that, despite attempted reforms, there are still major problems with many aspects of the U.K.’s company formation system. “The foundations for a successful regime are now in place, however it will take a concerted effort from across the economic crime architecture to deliver results,” wrote Transparency International’s Ben Cowdock.

RUSSIA’S BLOCKCHAIN BET

Last week, I wrote about how Russia was moving money via crypto and Kyrgyzstan to evade Western restrictions on its financial sector, and here’s an interesting analysis of the phenomenon. “Russia is building a parallel financial system using blockchain as its backbone,” writes analysts from Astraea. “This network presents a growing challenge for regulators and underscores the urgency of developing coordinated international responses to crypto-based sanctions evasion.” 

A version of this story was published in this week’s Oligarchy newsletter. Sign up here.

The post The Men Who Bought the World appeared first on Coda Story.

When I lived in Bishkek 25 years ago, then-president Askar Akayev was so effusive in expressing his desire for Kyrgyzstan to become the Switzerland of Central Asia that the Swiss ambassador once joked that Akayev liked his homeland better than he did. 

It was a pretty understandable hope - who wouldn’t want their poor ex-Soviet republic to become as prosperous and stable as Switzerland? – but it was a forlorn one. Both countries are multilingual and mountainous, but have little else in common. In the end, Akayev fled to Russia, his fall precipitated by the Tulip Revolution. He was the first of three presidents to be chased out of office, only for each new government to be every bit as corrupt and incompetent as those that were overthrown. 

But will it be sanctions-dodging that finally brings Kyrgyzstan and Switzerland together? There is already substantial transhipment of physical goods via Kyrgyz companies to help Russians access goods they’re supposedly barred from purchasing, including luxury cars, but the business appears to be becoming more elaborate.

A GOLDEN OPPORTUNITY

Back in April, the former Binance CEO Changpeng “CZ” Zhao (he stepped down after being jailed in the US, but still owns most of the company) announced that he was advising Kyrgyzstan on crypto reforms. “Such initiatives are crucial for the sustainable growth of the economy and the security of virtual assets, ultimately generating new opportunities for businesses and society as a whole,” said current president Sadyr Zhaparov at the time.

In May, we heard that Kyrgyzstan plans to launch a dollar-pegged stablecoin called USDKG which, fascinatingly, will be backed not – as it is at Tether (USDT) or Circle – with dollar assets, but with $500 million worth of gold from the Kyrgyz government.

“Anyone holding USDKG can redeem it for physical gold in Kyrgyzstan, exchange it for crypto like USDT, or withdraw it as fiat through the traditional banking system,” said William Campbell, who is advising the government in Bishkek on the venture. 

Apparently, the aim is for the cryptocurrency to be used for remittances back to Kyrgyzstan from citizens abroad, as well as legal tender inside the country, but it also looks like an open invitation to money laundering and sanctions dodging. If USDKG works the way he says it will, it will be a state-approved backdoor linking the gold market, the traditional financial system, and the crypto world. It would be in short a 21st-century version of what Switzerland used to be for Nazis, dictators, mafiosi, spies and tax-dodgers, before the rest of the world forced it to go straight (ish).

Last week, the FT published a fascinating investigation into how a fugitive Moldovan oligarch and a Russian bank have created a rouble-backed stablecoin called A7A5, which they are trading in Kyrgyzstan, effectively to gain access to USDT, which they lost when the Garantex exchange was shut under U.S. pressure in March.

“(It is a) friendly jurisdiction that is not so subject to sanctions”, said A7A5’s director Leonid Shumakov. “It is no secret that this jurisdiction is currently helping a lot to cope with the pressure [Russia] is under.”

Earlier this year, the United States sanctioned a Kyrgyz bank that it suspected was trying “to create a sanctions evasion hub for Russia to pay for imports and receive payment for exports”. But it’s not clear what it can do about a stablecoin if it has no connection to the U.S. financial system and therefore no reason to fear the Department of the Treasury.

History shows that when a sufficiently large number of rich people or companies become discontented by government restrictions on what they can do with their money, they will find a jurisdiction willing to earn fees by helping them evade those obstacles. This is how places as varied as Hong Kong, Dubai, the Cayman Islands and Delaware earn a living, and it would not be a surprise if Kyrgyzstan were to join them.

SHEDDING LIGHT ON THE DARK ECONOMY

Britain of course is the granddaddy of all the tax havens, so it’s heartening to see evidence that reforms to try to clean up its rotten financial system are starting to have some effect. In 2023, parliament passed a law to prevent British companies from being quite so perfect a vehicle for the committing of financial crimes, and the corporate registry has issued a progress report.

Highlights include the fact that tens of thousands of fraudulent companies have been struck off the register, many other companies have been forced to update their information to make it accurate, and attempts to create companies with false information have been prevented. Applicants are going to have to verify their identity before they file information, but will also have the right to prevent that information becoming public if it would pose a risk to themselves.

It wasn’t long ago that Companies House was the preferred source for cheap, reliable shell companies used in money laundering scandals globally. And it is genuinely brilliant that efforts are being made to prevent that from happening again (although there is still a long way to go).

It’s interesting as well that UK law enforcement agencies are trying to build ties with foreign counterparts in order to tackle corruption and financial crime, not least since they appear to be trying to encourage American agencies not to retreat from the fight. It will of course take more than a few nice words from the Brits to enthuse Donald Trump’s White House about the merits of fighting corruption, particularly considering the number of attorneys tackling investigations under the Foreign Corrupt Practices Act appears to have been halved.

While on the subject of international cooperation, here’s an interesting paper about the effect on a bank in the Isle of Man of the automatic exchange of information, which was brought in after the 2007-8 financial crisis to make it harder for people to dodge tax. Its analysis is based on leaked data and only covers one relatively small bank in one relatively small jurisdiction, but appears to reveal some pretty significant flaws in the regulations, which may make them less effective than we’d hoped.

And while on the subject of tax havens, the British Virgin Islands has issued proposals for how it might make its corporate registry less opaque, and they are not great. “Most alarmingly,” said Transparency International’s Margot Mollat, “the policy of notifying company owners when their information is accessed puts journalists and civil society actors at serious risk of retaliation and legal intimidation.” This isn’t transparency, Mollat added, “it’s a system that will frustrate scrutiny and protect dirty money”. 

A version of this story was published in this week’s Oligarchy newsletter. Sign up here.

The post Crypto’s backdoor through Bishkek appeared first on Coda Story.

Years of sanctions have substantially weakened the Iranian economy, as evidenced by Iran’s keenness to have them cancelled, with sanctions removal a key sticking point in negotiations with the U.S. before Israel began bombing Iranian nuclear sites on June 13. But anyone who thinks sanctions are an all-powerful tool should spend some time speaking to Tehran businessmen. The exchange houses in the bazaar in Tehran can arrange money transfers to and from anywhere you like, no matter what the Office of Foreign Assets Control says.

It’s all coordinated via encrypted messaging apps and, as long as you’re transacting with a major centre like London, Paris or New York, your cash will be ready for collection within a couple of hours. “You can get paid electronically if you have a bank account. You need to be a bit careful about having lots of random payments coming into your account, but otherwise it’s straightforward,” one Iranian told me.

The trick is the same one used at various times and on various continents in Chinese Underground Banking, hawala transfers, or the Black Market Peso Exchange, all of which also exist to provide financial services outside the Western-dominated financial system. Instead of moving money electronically through bank accounts, they transfer value through the trade network, something that Western policy makers really struggle to get a grip of, not least because they often don’t understand what’s going on.

A DIGITAL ACT OF WAR

Cryptocurrencies have really supercharged these networks because, instead of moving value in a shipload of used cars or a container of designer handbags, which take weeks to reach their final destination and are cumbersome to buy, move and sell, they can be shifted quickly, easily and with minimal time delay. Hawaladars can now shift value between countries with their phones, and the sarafis in Tehran are all using Tether, despite the fact they’re not supposed to (I mean, neither are Venezuelans, but that hasn’t stopped the national oil company).

This is why last week’s hack by the Israel-linked group Predatory Sparrow (who are presumably unrelated to calypso king Mighty Sparrow, but I’ll take any excuse to link to this banger) is so interesting. By raiding $90 million from Tehran’s Nobitex crypto exchange it was striking a blow against the informal financial ties between Iranians and the rest of the world. The lost cryptocurrencies included, according to Chainalysis, “Bitcoin, Ethereum, Dogecoin, Ripple, Solana, Tron, and Ton” although the hackers didn’t actually steal them but instead sent them to addresses from which they could not be retrieved, which is a bit like raiding a bank and burning all the currency in its vaults. Elliptic, however, noted that dollar-backed stablecoins may be among the stolen crypto.

Stablecoins are different to other cryptocurrencies in that their value rests on something other than the forces of supply and demand – in Tether’s case, that is the dollar – and the companies that issue them own large stocks of real-world assets to protect the price peg. The strange consequence of this is that while America’s allies use stablecoins to escape the dollar financial system, they are in effect supporting that system by maintaining demand for U.S. Treasuries.

ALL THAT GLITTERS IS CRYPTO

They are not entirely happy about this, which is why they have been investing so heavily in the other great reserve asset: gold, the price of which has hit high after high after high this year. And this raises the fascinating prospect of a gold-backed stablecoin taking off, giving all the advantages of Tether but without having to support the U.S. government.

“The rise of gold-backed currencies that circumvent the US banking system, coupled with sanctioned regimes’ growing interest in the adoption of alternative currencies and payment systems, could create a massive blind spot for US financial intelligence and sanctions enforcement efforts,” argues the Atlantic Council in an acute analysis. It suggests that Western countries should stop spraying sanctions around like they’re antibiotics on a pig farm, or such a future will come to pass sooner than anyone would think possible.

It's a warning that seems to be falling on deaf ears in Washington, where congresspeople are busy debating ever-higher sanctions, and where businesspeople are busy riding the crypto wave. The latest deal is the appearance of Tron on Nasdaq via a reverse merger, which is good news for the company’s Chinese-born founder Justin Sun. As you may remember, a probe by US regulators into Sun’s activities was paused after he made a $75 million investment into the Trump family’s crypto firm World Liberty Financial last year.

This was not the only Trump dividend from the family partnership with Tron, a blockchain blamed for 58 percent of all illicit activity in the crypto world, since two of the president’s sons in February joined the advisory board of the bank that organised the reverse merger. On top of that, Tron has started minting the Trump family’s own stablecoin USD1, which will help increase the first family’s already large crypto dividend.

In case you’re concerned that the business ties between Sun and the Trump family might lead to a conflict between the president’s personal and public interests, however, there is no need to be. “President Trump is dedicated to making America the crypto capital of the world,” White House spokesperson Anna Kelly has said. “His assets are in a trust managed by his children, and there are no conflicts of interest.”  I don’t remember everyone being quite so accepting that Hunter Biden’s business interests were separate to those of his father, but of course that was a very long time ago.

A version of this story was published in this week’s Oligarchy newsletter. Sign up here.

The post Crypto Warfare and a New Gold Standard appeared first on Coda Story.

Coda’s ZEG storytelling festival in Tbilisi has come to an end, and I am both overloaded with information and exhausted by drinking too much wine. My take-home message was that oligarchy is spreading ever wider, and that we need to take its threat to democracy far more seriously than anyone is doing at the moment.

I shared a stage with Ed Caesar, author and journalist from The New Yorker- magazine, who has written some great pieces on oligarchs (as well as much else), with Paul Caruana Galizia, who made this excellent podcast on Londongrad, and with Hans Gutbrod, whose piece on Georgia’s own Bidzina Ivanishvili is very much worth reading. And if you like surreal, ethereal documentaries, I highly recommend Salome Jashi’s ‘Taming the Garden’, which tackles oligarchy and its implications through the story of Georgian trees. 

The joy of the festival is in the incidental meetings, of which few were more joyful for me than sitting next to Joseph Stiglitz at dinner and getting to hear his views on inequality, oligarchy, and the age of Trump. Where else would I ever get to do that? 

Moral of the story: you too should find time to come to Tbilisi next year for ZEG. If you do, you can also make a side-trip to the market to stock up on one of the world’s best condiments.

SHOW US THE MONEY

Victoria Cleland, the Bank of England’s Chief Cashier, has announced that worried Brits are hoarding cash. “At a time of uncertainty, at a time of crisis people do move to cash. They want to make sure they have literally got something under the mattress,” she said at a conference in London.

This, she said, helps to explain why the value of all the banknotes in circulation keeps going up – indeed, it hit a new all-time high of 85.872 billion pounds this year – despite the fact that people use less cash all the time. The Bank of England has previously estimated that between 20 and 24 percent of banknotes at any one time are being used in transactions, and the rest are unaccounted for (or, according to Cleland, hoarded). 

So, if we do the sums and we accept Cleland’s logic, we can say that around 1,000 pounds worth of banknotes is being hoarded by every single person in the UK, up from around 920 pounds last year. I have to say that, with all due respect to Cleland, I am very dubious about that figure, not least because someone is getting a double share to make up for the fact that I don’t have even a fraction of that.

The most recent survey I can find, which is from 2022, suggests I am not alone. The average Brit had just 113.82 pounds at home back then, and it’s hard to see why that total would have increased ninefold in the last three years.

This is not a UK-specific situation. The last survey conducted for the Federal Reserve shows that the average American had $373 either in their wallet or at home in 2024, down $70 from the year before. So cash hoarding in the US is going down, but the value of banknotes in circulation keeps going up –  indeed, it hit a new all-time high of $2.835 trillion in the most recent data release, which is around $7,000 for every person in the United States. So either Brits and Americans alike are spectacularly under-reporting how much cash they’re keeping at home, or someone else is using all that cash for something else.

Considering that barely a week goes by without news of major money laundering gangs being busted with bags full of banknotes, I personally would like it if central bank officials put a little bit of thought into asking whether the extremely healthy demand for their products is not in fact coming from organised criminals. And if it is, whether central banks ought to do something about that.

Five years ago, the House of Commons’ Public Accounts Committee scolded the Bank of England for not caring about where its banknotes go. “The Bank needs to get a better handle on the national currency it controls,” its chair, MP Meg Hillier, said. It still does.

TRACKING ‘ENDANGERED’ MILLIONAIRES

Regular readers will know how much I admire the ability of Henley & Partners, the world’s foremost passport vendor, to turn almost any piece of news into an advertisement for buying a new passport and/or visa.

In recent times, the alarm is being sounded by changes to British tax policy which, basically, make it more expensive for very rich people to live and to die in the UK. And Henley responded in the way that it always does – “provisional estimates for 2024 are even more concerning, with a massive net outflow of 9,500 millionaires projected for this year alone,” it reported last year about the “wealth exodus”. All was not lost, however. If only the UK would scrap taxes on capital gains and inheritance and privatise its healthcare system, millionaires might be persuaded to stay.

The ‘research’ was picked up very widely, with few media outlets questioning its methodology, its publisher’s motivations, how representative its purported database of 150,000 people was of the millions of millionaires in the world, or indeed how exactly anyone knows where they’re all going. The Tax Justice Network has now delved into the report, and its findings are worth a read, not least the headline conclusion that there was no exodus. The correct policy response, it argues, would therefore not be tax cuts at all but higher taxes on wealth.

So, what should we think? Are millionaires leaving the sinking ship, or are they clinging on to help rebuild? Should we lower taxes or raise them? The obvious solution is surely to use satellite tags so millionaires can be tracked like wildebeest as they migrate from the watering holes of Chamonix to the rich, grazing pastures of Mayfair via the rutting grounds of St Barts. Only then can we know for sure if they’re being chased into extinction.

CALLING OUT MONACO

The European Union’s regularly updated “list of high-risk jurisdictions presenting strategic deficiencies in their national anti-money laundering and countering the financing of terrorism (AML/CFT) regimes” has done something worthwhile for the first time I can remember by singling out Monaco.

Normally, the list is made up of a random selection of irrelevant places and third-order tax havens. And there’s plenty of the usual on display: why anyone would worry that Côte d'Ivoire, Namibia and Nepal, for example, are supposedly big centres for financial crime, I have no idea. And normally, the list will avoid pointing a finger at any country that is closely allied or aligned with any EU member, which means the U.S. and U.K. never get singled out even though they’re clearly far more problematic than, say, Algeria.

This time, however, the list does single out Monaco. The principality is a major problem, with deep ties to deeply unsavoury people and a fast-developing financial scandal.

A version of this story was published in this week’s Oligarchy newsletter. Sign up here.

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There are two options for criminals in a democracy who don’t want to go to jail. The first is to launch a large-scale campaign to legalise whatever crime it is that you want to commit. This is hard, slow, laborious and, in most cases, impossible. The second is to not get caught. This is not necessarily easy either, but it’s a lot easier when law enforcement agencies are small, embattled and under-funded.

The 300,000 or so financial institutions subject to regulations in the United States have to report any suspicions they have about transactions, as well as reports of large cash payments, to the Financial Crimes Enforcement Network, or FinCEN. The idea is that their reports will alert investigators to crimes while they’re going on, and help the goodies catch the baddies.

DEFUNDING THE COPS

Sadly, however, FinCEN’s computer system is so clunky it’s like, as a former prosecutor once said, trying to plug AI into a Betamax. Investigators often have to create their own programmes to trawl a database that gains more than 25 million entries every year, or else just pick through them in the hope of finding something interesting. It effectively means that this vast and priceless resource is hardly ever used.

And now FinCEN’s budget looks like it will be slashed even further. “The pittance allocated to FinCEN in the current budget has been reduced even further,” wrote compliance expert Jim Richards, with a link to the 1,200-page supplement to the White House’s proposed 2026 budget with details about the cut. The reduction would take spending back to 2023 levels, which is worrying for anyone keen on seeing criminals stopped. And that’s even before you take into account the effect of workforce disillusionment at regulators such as the Securities and Exchange Commission, resulting from the cuts imposed by DOGE.

“I experienced some dark times during my SEC career, including the 2008-09 financial crisis and the Enron and Madoff scandals,” wrote Martin Kimel in a passionate column in Barron’s. “ But morale at the Commission is the worst I have ever seen, by far. No job is secure. Nobody knows what will become of the agency or its independence.” So, he added, “when the SEC offered early retirement and an incentive payment for people to voluntarily resign, I and hundreds of others reluctantly accepted.”

If you lose experienced personnel, and you lack the resources to invest in the latest technology, you will always lose ground against entrepreneurial and skilled financial criminals. That is the inevitable consequence of what is happening in the United States, which will be devastating for the victims of fraudsters, crooks, hackers and more.

THE UK PRECEDENT

There is, however, a cycle to this kind of thing. Governments that are determined to unleash the private sector always cut enforcement of regulations, but then they become embarrassed by the inevitable revelations of corruption, sleaze and incompetence that result. This is what happened in Britain, where years of news headlines about London being the favourite playground of oligarchs finally led to government action.

Three years ago, the British authorities imposed a special levy on financial institutions to fund the bodies that fight crime, and last month it published a report on the first year of spending. More than 40 million pounds has been invested in new technology to tackle Suspicious Activity Reports (so no more Betamax in London), and almost 400 people have been hired to do the work, including some of them finally beginning to try to drain the swamp that is the U.K.’s corporate registry. This is good news. 

It is inevitable that, just like in the U.K., the United States will eventually become so appalled by the rampant criminality that will result from the cuts to FinCEN, the SEC and other bodies, that politicians will start building a decent system to stop it. I just wish everyone would get on with it, so millions of people don’t have to lose out first.

THE EU GETS INTO GEAR?

You can accuse the European Union of many things, but you can’t say that it acts hastily. Several months after the last progress update from the Anti-Money-Laundering Agency (AMLA), it has appointed its four permanent board members. They represent an interesting cross-section of European expertise. 

There’s Simonas Krėpšta who, at the Bank of Lithuania, has overseen the country’s booming fintech sector and, therefore, has a good insight into the country’s booming money laundering sector, which has seen quite a lot of firms get fined, including arguably Europe’s most valuable startup Revolut. 

Then there’s Derville Rowland of the Central Bank of Ireland, who will bring inside knowledge of Europe’s most aggressive tax haven. And Rikke-Louise Ørum Petersen, who joined Denmark’s Financial Supervisory Authority in 2015, just when the money laundering spree by Danske Bank was about to explode into public view. Finally, there’s Juan Manuel Vega Serrano, who was previously head of the Financial Action Task Force, which gives him plenty of experience of working at an ineffective, slow-moving, superficially apolitical, supranational anti-money laundering organisation. 

All told, I’d say this is a pretty perfect group of people for the job. The European Union works slowly, but it works thoroughly. Of course, AMLA won’t actually be doing anything until 2028, and it probably won’t do much after that either. But you can’t have everything.

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The post Creating a culture of corruption appeared first on Coda Story.

The Corporate Transparency Act was passed by Congress at the very end of Donald Trump’s first term, with bipartisan support and an important mission to protect national security, expose wrongdoing and complicate the committing of financial crime by forcing companies to declare the names of their owners. 

This was at the time not a controversial piece of legislation, not least because American politicians – as part of the Financial Action Task Force – have been pressuring other countries to pass similar laws since the late twentieth century. But it has proved messy to implement. FinCEN, the United States’ financial crimes enforcement network, only finished making the necessary rules to file what it calls “beneficial ownership information” last year – just in time for judges in Alabama and Texas to declare them illegal, and then for the second Trump administration to basically ditch them altogether by saying they don’t apply to 99.9 percent of corporations that are registered in the U.S.

The consultation period over this decision to ditch the filing requirement is now over. (So, if you feel strongly but didn’t get round to writing in, I’m sorry to say you’ve missed your chance.) It is now possible to browse through the several-dozen submissions from concerned citizens and organisations, which is an enlightening experience.

MAKING COMPANIES OPAQUE AGAIN

In the pro-rules camp, you can find comments from law enforcement agencies, anti-corruption organisations, environmental campaigners, credit unions and others who are concerned that the Trump administration’s decision to maintain the previous lax standards is damaging and unwise.

“Without this data,” stated the National District Attorneys’ Association, in a fairly typical submission, “prosecutors are left blind when investigating shell companies used by fentanyl and human traffickers, cybercriminals, and corrupt foreign actors.” These, they added, “are not abstract concerns –these are real threats to American families and communities.”

In the other camp are the small business owners, or associations representing them, who are delighted that the requirements to file their details with FinCEN are now history, and want all beneficial ownership information already filed to be deleted. 

“For many of us, the original BOI requirements felt like an unfair assumption of guilt, treating hard working entrepreneurs as potential criminals rather than the backbone of our economy,” wrote Stephen McKissen, the owner of a video production company in Denver, Colorado. Removing the requirement, he argued, “for US companies and US persons to report BOI lifts a significant weight off our shoulders.” 

Ever since the world’s first piece of anti-money laundering legislation was passed in 1970, businesses have complained about the compliance burdens it imposed upon them. Criminals hide by pretending to be legitimate businesspeople, and the only way they can be exposed is by imposing rules on everyone, thus obliging honest folk to undergo paperwork and inconvenience, which is not popular with the honest folk (or, I suppose, the dishonest ones).

It's crucial to the way the legislation is implemented therefore to minimise that inconvenience, to make sure it does not cause so much irritation that it becomes a political issue. This appears to be where the U.S. efforts ran aground. I had a look at the FinCEN portal through which company ownership is registered and which the small businesses were complaining about. It didn’t look too bad to me, but if the registration process is anything like the comment-reading process, I can see why people are annoyed about having to do it.

Every single comment on the proposed rule changes has the same headline, so it’s impossible to tell which are interesting and which are utterly banal, without opening a new page, then opening a new attachment. When you return to the main page, the list of them rearranges itself unexpectedly, so it’s hard to know which ones you’ve already read. It is in short a very poorly designed piece of software, and you’d think a country that created Google, Apple, Facebook and the rest might have been able to find some better programmers.

Back, though, to America’s notoriously lax shell company legislation. It is the result of it being devolved to state level, so that some states – Delaware and Nevada are stand-out examples – end up competing with each other to attract more incorporation, thus sparking a race to the bottom. 

Perhaps there’s nothing that could have been done to make American business owners appreciate the need to file information about beneficial ownership, but the lesson for bureaucrats is that you have to make compliance easy. Having to file information at both state and federal level was never going to be popular, particularly if the web portal involved was also clunky and annoying. 

However, what’s left of the Corporate Transparency Act will nicely align with the White House’s wider agenda, since it now only applies to foreign companies that have registered to do business in the United States. If criminals currently using offshore-incorporated corporations want to avoid having to report their identity to the authorities, they’ll now need to set up a domestic shell company, which will I suppose be a small win for USA Inc.  

It’s too early to say whether Trump’s tariffs and threats will bring businesses and manufacturing back to America, but he is at least making onshore shell companies great again.

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The post How Trump is bringing shell companies back onshore appeared first on Coda Story.

I’ve been thinking a lot about the apocalypse in the last few days, and wondering what options oligarchs believe are available to help them escape it. In Mark Lynas’s new book about atomic weapons, he helpfully provides a table showing what percentage of each country’s population would die during or immediately after a nuclear war. The sheer number of places that have 100 or a number in the high 90s in the right-hand column is a bit bleak, but if you think like an enabler you can see opportunity.

New Zealand is often touted as the go-to destination for riding out the apocalypse. Vivos has apparently built a 300-place luxury bunker on the South Island, and Rising S Bunkers, an American company that specializes in the building of doomsday shelters, have been busy too. Peter Thiel obtained New Zealand citizenship, though tragically was not able to build his own mega-bunker after he failed to get planning permission. But that has not stopped other billionaires from planning their escapes to the land of the long white cloud.

BILLIONAIRE BOLTHOLES

Politicians in Wellington are only too happy to help. In April, they eased up on the rules around the country’s golden visa programme to attract more of this sweet flight capital, removing a requirement that applicants speak English, and reducing the cost. You now only need to spend 21 days in the country to establish residency, down from three years, which is good news for tech barons keen not to have to pay tax or make friends or stuff like that.

“In the past, the vast majority of applicants were looking for tax havens,” former immigrant minister Stuart Nash told the FT. “Now they’re looking for safe havens.” Nash is a man for the snappy catch phrase. Since leaving government, he has set up Nash Kelly Global, a relocation company, which has the distinctly yuk for an ex-politician but very on-brand tagline: ‘What they don’t tell you about New Zealand. It’s not what you know. It’s who you know.’

But I’m afraid New Zealand is not quite the safe option it’s been cracked up to be. For a start, how safe is New Zealand? Lynas’ deaths table shows that in the event of war, 68 percent of New Zealanders would be dead after two years of nuclear winter. Okay, that’s better than Russia (98 percent), the United States, China, the United Kingdom, Canada, France, Germany (99 percent) or Switzerland and the United Arab Emirates (100 percent), but it’s still not great. And expensive fortifications wouldn’t help: billionaires would not be able to hide forever from gangs of survivors and would be, Lynas writes, “winkled out of their bunkers and hiding places like fat grubs”. 

So, which countries do offer the best survival prospects in the event of Trump or Putin getting an itchy trigger finger? Iceland, Argentina, Paraguay, Uruguay, Costa Rica, Haiti and – painfully no doubt for Kiwis – Australia all have a 0 percent death rate. At present, Iceland does not sell visas, and Australia closed its investor visa programme last year, so it’s no good to you even if you have the cash to flash. But there are plenty of options among the others: Uruguay’s is a bit pricey, but Costa Rica will sell you residency for just $150,000, and Argentina is practically giving it away.

I’m surprised no one’s started marketing these countries to rich people worried about nuclear war: ‘If life sends you nuclear winter, enjoy the fresh powder.’ Mr Nash, you can have that one for free.

ESCAPE TO MARS

Of course, everywhere on Earth is going to be impacted a bit by nuclear war, so why not abandon our planet altogether? Elon Musk’s current plan is for a first unmanned mission to take off for Mars next year, with people due to land on the red planet in 2028, and for a self-sustaining colony to exist within 20 years.

SpaceX has released a handy new video simulation of the journey, though I hope for the Muskonauts’ sake that they won’t have to listen to that dreadful music for the entire eight-month trip. If I was as rich as Musk, I’d have licensed Queen’s ‘Don’t Stop Me Now’ at least. The upside to living on Mars of course is that you wouldn’t be on a planet that could be rendered uninhabitable by a nuclear bomb. The downside though would be that you’d be on a planet that’s already uninhabitable. So, perhaps it would be better to focus on securing the future of Earth instead? 

“Surely the best way to protect the human species in coming decades is to focus on resolving the tensions we face at home, from unbridled nuclear proliferation to strategic global competition and realignment,” wrote noted physicist Lawrence Krauss.

Predictably enough, Musk dismissed Strauss’ argument by tagging @IfindRetards in reply (such a hilarious guy!). But Strauss raises an interesting point. Cold War-era treaties, negotiated to prevent an extraterrestrial arms race, declare that there is no sovereign territory or territorial appropriation in space. Yet, according to Starlink’s terms of service, Mars is “a free planet”, and no Earth-based powers have authority there: “Disputes will be settled through self-governing principles, established in good faith, at the time of Martian settlement.” 

That looks a lot like Musk is claiming the right to govern Mars as its settlers see fit. Of course, it’s not impossible that the new settlers (who will have been chosen by Musk, trained by Musk, brought to Mars by Musk’s rocket, and who will be entirely dependent on Musk for future resupply) might set up a genuinely democratic system of self-government. But it’s also possible that Musk might want to claim Mars for himself. That would be in violation of Earth’s treaties, and therefore bad. It would also – considering the havoc wreaked by Musk in his brief stint in government – be a pretty grim prospect on its own terms. 

Of course, you don’t need to go to Mars to set up your own government. Right here on earth we have Eleutheria, which is now aiming to negotiate a 99-year lease for a bit of Tuvalu to build a “free private city”, having given up on the idea of building a state in a Bir Tawil, an isolated, unclaimed bit of desert between Egypt and Sudan. It is indeed easier to imagine the end of the world than the end of capitalism.

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The post The oligarch’s guide to sitting out a nuclear winter appeared first on Coda Story.

Since Donald Trump returned to the White House in January, some 31 percent of “revenue agents” (the people tasked with conducting tax audits) have lost their jobs. This is supposed to save the government money, but it’s a bit like trying to reduce the cost of crime by sacking police officers. 

“This administration is clearly running the risk of losing hundreds of billions of dollars -- in fact, likely over $1 trillion -- through its destruction of the IRS. “At a time when deficits are high and rising, that seems a baffling policy choice,” said Larry Summers, noted economist, former treasury secretary, and former president of Harvard University.

The policy is indeed baffling if its aim is to collect taxes; it’s not baffling at all, though, if the intention is to help rich people dodge them.

An early announcement from Trump’s Department of Justice was to pause enforcement of the Foreign Corrupt Practices Act, which has been central to global efforts against bribery since the 1970s. Trump has long argued that prosecuting American businesses for bribing foreign officials makes it harder for U.S. companies to compete. A new DoJ memo shows that it has now thought about what it wants to do, and how to do it in a way that prioritises American interests.

There have long been suspicions that U.S. authorities reserve their biggest fines for non-US companies (a French bank getting fined almost $9 billion, for example), and suggesting that prosecutions will be “America first” is unlikely to help with that perception. “Enforcement of the Foreign Corrupt Practices Act ("FCPA") will now be focused on conduct that harms U.S. interests and affects the competitiveness of U.S. businesses, further suggesting that future FCPA enforcement will be focused on non-U.S. companies,” noted lawyers from White&Case in this assessment.

There is already widespread global concern that the Trump administration will exploit the U.S. dollar’s dominant position in finance to force foreigners to do what it wants. Suggestions that corruption laws are not equally enforced will only further that suspicion. The fewer foreigners who rely on dollars, the less impact US sanctions will have, so it would be good if officials would consider that before implementing their policies.

MINDING THE TAX GAP

Readers old enough to remember the financial crisis of 2007-8 will also remember the wave of popular anger against tax-dodgers that followed it. American prosecutors investigated Swiss banks (good times!); protesters occupied branches of Starbucks (fun!); almost all countries agreed to exchange information with each other about their citizens’ tax affairs to uncover cheats (massive!).

According to the EU Tax Observatory, this information exchange has been a triumph, and cut wealthy people’s misuse of offshore trickery by two-thirds. I have always been a little suspicious of these declarations of victory, however, despite them coming from such a good source, and find grounds for my doubts in this new report from the UK’s National Audit Office.

British tax authorities every year estimate a tax gap – the difference between what the country’s exchequer should receive, and what it actually gets – and politicians regularly talk about reducing it. If the Trump administration seems uninterested in clamping down on tax evasion, and financial chicanery in general, the British government has pledged additional resources for technology and investigators to try to understand what’s happening and whether its tax gap estimate is close to being accurate, so we may learn more about this in future years. Fingers crossed.  

But the NAO report suggests that the way it’s calculated may be a bit questionable. According to the standard estimate, wealthy individuals pay around 1.9 billion pounds less than they should. But, according to a different estimate (“compliance yield”), the tax authorities have successfully brought in an extra 3 billion pounds from wealthy people that would not have been collected without their efforts.

It is a little hard to understand how it is possible to increase tax compliance by 1.1 billion more pounds than the entire deficit that wealthy people are supposedly underpaying. It’s like losing two pounds down the back of an armchair, reaching beneath the cushion and finding three. Except with billions. Something else is very definitely going on. “The large increase in compliance yield raises the possibility that underlying levels of non-compliance among the wealthy population were much greater than previously thought,” notes the NAO.

I am, I admit, someone who fixates on offshore skulduggery, but I can’t help noticing the report states that a mere five percent of the UK tax authorities’ investigative efforts were looking into “offshore non-compliance”. Tax advisers are clever, well-paid people, and they’ll know very well about the best places to hide their clients’ money, and there’s even a suggestion for them in the report: if your client holds wealth in properties abroad, or owns shares in her own name rather than through an institution, her home government will never know about her income she earns from them. Happy days.

A POSTER CITY FOR ILLICIT FINANCE

And speaking of offshore skullduggery. The city of Mariupol has long been central to the war in Ukraine. Enveloped early by Russian forces, its defenders held out for months in an epic battle in the ruins of the Azovstal steel plant, before surrendering in May 2022. Moscow has since made it the poster city for the supposedly prosperous future available in a Russia-ruled Ukraine, but a new report makes clear how hollow such claims are.

“Powerful Moscow-based networks are controlling much of the reconstruction programme. Well-connected companies are benefiting from Russian spending that involves the widespread use of illicit finance and corrupt practices,” note its authors, David Lewis and Olivia Allison. They have specific policy recommendations, of which I think the most important ones relate to my old bugbear of sanctions, which should be better targeted and more strategically deployed. Russia’s crimes in Ukraine include the looting and economic exploitation of cities like Mariupol. 

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The post Making America corrupt again? appeared first on Coda Story.

Apparently, the word “deadline” was first coined in a notoriously brutal Confederacy-run prison during the American Civil War: any prisoners that crossed the line got killed. The point of a deadline is that, if you don’t stick to it, there are severe consequences. So what do you call a line that, should you cross it, brings zero consequences? A shrug-line? A meh-line? A British-Overseas-Territories-line?

“Anguilla, Bermuda, the British Virgin Islands (BVI), the Cayman Islands and the Turks and Caicos Islands will have legislation on registers of beneficial ownership approved through their respective legislatures by April 2025, with implementation by June 2025 or earlier,” was the unequivocal deadline in a joint communiqué agreed by the British government and the leaders of these five of its Overseas Territories (OTs) in November last year.

It's now May and, well, that has not come to pass. The deadline has been crossed. So what will happen now that all of them (except the Cayman Islands) have failed to approve laws to open up their corporate registries? Will someone get shot? Or will everyone just shuffle about a bit and hope no one’s noticed?

These five jurisdictions are leftover bits of the British Empire which, for various reasons, never became independent. London wasn’t particularly keen on keeping them, mainly because doing so was expensive, so back in the 1960s, ‘70s and ‘80s, they were encouraged to find ways to fund themselves, with no one particularly caring how they went about it. 

Each of these territories, to varying extents, discovered that there was profit to be made from helping foreigners to move money, and not asking too many questions about where the money came from. As a result, these places are often referred to as tax havens, but that’s misleading since they offer far more than just tax advantages to their clients. 

Shell companies, particularly those of the BVI, became notorious for hiding money for gangsters, tax dodgers, cartels, kleptocrats and other crooks, and the British government struggled to do anything about it. Then, in 2018, a group of backbench MPs seized on the post-Brexit collapse in political coherence and passed a law forcing the OTs to open up their corporate registries so everyone could see who actually owned their companies.

The law came with a deadline: the end of 2020. But no one obeyed it, so it was extended by the British government to 2023. No one obeyed that deadline either, so it was extended again to April 2025. And now? It’s all just a bit embarrassing.

“We must stop the dither and delay of recent years and pierce the veil of anonymity that protects criminals and kleptocrats,” said Margaret Hodge and Andrew Mitchell, architects of the 2018 legislation, back in November last year. But dither and delay persist.

The debate gets caught up in allegations of ignorance, colonialism, arrogance and so on, but it really comes down to one important point: no one in power in Britain cares enough about stopping corruption to take the political and financial hit of overruling the OTs’ own politicians and paying their bills. More than half of the BVI’s budget comes directly from company incorporation fees. What money do you replace that with, if you change the rules so that no one wants to set up shell companies there anymore?

In the case of Anguilla, a surprising amount of money – around $50 million this year, apparently, which is about a third of all its revenues – comes from its domain name, which is the fortuitous .ai. But that’s not an option open to the other OTs, and if they ask too many questions about who’s doing business with them, that business will go elsewhere.

TETHERED TO EL SALVADOR

One business that already has gone elsewhere is Tether, the crypto company that runs the world’s most popular stablecoin USDT, which has almost $150 billion worth in circulation, and incidentally has a domain name -- .io – derived from yet another random imperial fragment, the British Indian Ocean Territory. Previously registered in the BVI, Tether relocated to El Salvador earlier this year after it obtained a license from President Nayib Bukele’s government.

Bukele, whose in his X bio currently describes himself as a “philosopher king”, is much caressed by the American right, who love him for his willingness to indefinitely lock up not just Salvadorans but anyone the U.S. wants to imprison without bothering first to check if they’re guilty or not. Bukele’s methods, the American right says, has made El Salvador safer. But, thanks to journalists from El Faro, we have yet more evidence that the decline in crime that he boasts of may be at least as much to do with secret negotiations with gangsters as it is to do with arresting them. 

“Gangs turned Bukele into a relevant politician,” said El Faro’s editor-in-chief Óscar Martínez. “It is impossible to understand Bukele’s rise to total power without his association with gangs.”

So how does a man who’s previously called himself the “world’s coolest dictator” respond to press reports like these? By threatening to lock up the journalists involved of course, allegedly with investigations under criminal statutes often used against gangsters.

“Treating journalism as a criminal act deprives Salvadorans of essential information,” said Cristina Zahar, Latin America programme coordinator at the Committee to Protect Journalists. “Prosecutors should abandon these cases now and ensure ‘El Faro’ journalists can safely report on matters of public interest.”

Tether has no problems with El Salvador’s political atmosphere and complexities. It plans to build a 70-storey tower in the capital, San Salvador, which will serve both as its headquarters and as a location for other finance companies. “It is the country of the future,” says Tether CEO Paolo Ardoino. 

The fact that the stablecoin issuer is bedding so comfortably into a place like El Salvador is bad news for people who worry about Tether’s outsized role in enabling global money laundering, but potentially good news for Bukele, who has made crypto a key part of his development plan for his chronically-indebted nation. It’s too early to say whether this has worked – although it’s also too early, no matter what “The Economist” might think, to say that it hasn’t --  but it’s an interesting echo of the British OTs’ twentieth-century model: undercut everyone else’s regulations, enable crime overseas, and make a good living out of it.

It's too much to hope that, as a civilisation, we’d have learned from our mistake sufficiently not to repeat it, but I do hope we’re not still going to be arguing about how to solve the resulting problems in 50 years time.

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The post How do you solve a problem like the BVI? appeared first on Coda Story.

Pretty much everyone in Brussels has had it in for Malta’s “Citizenship by Investment programme ever since it launched a decade ago, but it took the European Court of Justice to finally kill it, on the basis that it’s illegal to make acquisition of a passport a “mere commercial transaction”. “Such ‘commercialisation’ of citizenship is incompatible with the basic concept of Union citizenship,” the court declared.

On one level, I am fully onboard with the widespread rejoicing that has followed the decision, and anything that annoys ex-Maltese prime minister Joseph Muscat is clearly an unalloyed good. I’m also not persuaded by the argument from passport vendors Henley & Partners (who helped design the programme) that this decision was an infringement of national sovereignty. A Maltese passport gives its holder rights to live, work, and travel anywhere in the European Union, so European authorities should have a say, not least considering some of the questionable people who’ve obtained, or rather bought, citizenship in the past.

However, at the risk of being one of those people, I want to point out that this is not the knockout victory that it looks like. 

It’s a basic principle of the offshore world that I called “Moneyland” in a previous book that if rich people perceive something as onerous – taxes, transparency, democratic oversight, legal accountability, alimony -- they’ll find a way to get out of it. I have little to no sympathy for any of this, with the one partial exception of citizenship. 

It is undeniably unfair that someone like me – born in Britain, with one Canadian parent – has access to two super useful passports, whereas someone born in, say, Palestine, Nigeria or Bangladesh is stuck queuing for visas from countries that charge a fortune for the application, and may not provide them anyway.

The golden passport schemes of countries like St Kitts and Nevis, Turkey and, er, Nauru all sprang up in response to demand from people rich enough to travel the world but inconvenienced by borders (or by law enforcement), and that demand isn’t going away just because formal schemes like that in Malta are abolished. Instead, it will become informal.

So, I would like European authorities to now pay attention to places like Italy, Romania and Poland, which award citizenship to people with an ancestral link to the country, or to people from places that were once within the borders of the country. In Romania’s case, that includes parts of modern-day Bulgaria, Moldova, Hungary and Ukraine. How scrupulous are they being about the authenticity of the documents being provided? How sure can we be that cash isn’t changing hands? I hear an awful lot of rumours. 

Malta’s problem may have been that it made the commercial aspect too obvious, and the lessons its politicians will learn is that they should just put the word out that proving Maltese descent will be easy if you pay enough money to the right people. Also, Vienna still sells passports to people who make exceptional contributions to Austria, why isn’t the European Commission going after them?

A FREE PASS FOR THE PIG BUTCHERS?

The latest iteration of anti-corruption measures in the United States seems to go like this: Prolonged discussion in Washington, with extensive stakeholder consideration; an injunction from a judge in Texas at the request of some random business which doesn’t like having to do paperwork; the federal government deciding to give up on regulation. 

We saw this earlier this year with a judge blocking the implementation of the Corporate Transparency Act, and may be seeing it again with attempts to regulate all-cash property purchases being stymied. We now await word from the administration to see if they’ll give up on this too.

In some ways, this is good. Anti-money-laundering regulations can be extremely intrusive and often lack democratic oversight, so a bit more discussion can help legitimacy. But in other ways this is bad, not least in how it plays into a growing perception that the United States is retreating from any efforts to enforce rules around financial crime. It’s even been told off by the U.K. about violating a global anti-bribery treaty, which must have raised some eyebrows.

I hope though that the U.S. authorities will stay the course with their designation of Cambodia’s Huione Group as being of “primary money laundering concern”. As successive studies by Elliptic have shown, Huione is the largest illicit marketplace of all time, and central to much of the cyber-enabled wave of fraud given the nasty name of “pig butchering”. According to Elliptic, Huione group companies have taken in at least $98 billion in crypto assets to date, and anything that prevents them from operating freely is good.

HITTING RUSSIA WHERE IT HURTS

When Donald Trump did not include Russia in his big chart of which countries would face tariffs, it looked pretty odd, particularly given the fury with which he went after penguins and seals. However, the economic turmoil unleashed by “liberation day” does appear to be hitting Russia hard nonetheless, since lower oil prices threaten to undermine its state budget.

It’s a good time therefore to read this excellent article by Tom Keatinge about Western sanctions on Russia’s oil industry, how Moscow has responded to them, and what should now be done. With its shadow fleet of aged tankers insured – if at all – by under-capitalised companies, Russia has found new customers, above all in India and China, and managed to keep earning the petrodollars it needs to keep its war going. Now, it not only continues to pose a strategic threat to the West, but also a very significant environmental threat as well.

“Yet despite these risks and Russia’s disregard for conventions and norms related to safety on the high seas, the West’s unwillingness to act decisively in the face of the Kremlin’s flouting of international maritime conventions means that Russia is able to operate with impunity,” Keatinge writes. His injunction is to “Remember the Original Mission”, and that applies to all sanctions. 

Western countries imposed restrictions on hundreds of individuals and companies in the months after Russia’s full-scale invasion of Ukraine with the aim of crippling the Kremlin’s war effort. This clearly hasn’t worked. I would like to see a discussion – with the same urgency as the initial sanctions were discussed – about what to do next. Ukrainians are dying every day, and the mission is to save their lives. We need to remember it.

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The post Gaming the passport lottery appeared first on Coda Story.

According to Oxfam, In its annual survey of inequality, “there’s never been a better time to be a billionaire.” The rise in monopolies, inheritances, and soaring asset prices means global inequality, Oxfam argues, is now close to where it was at the peak of Western imperialism.  

But this is not the impression you receive from interviews with individual billionaires, such as Egypt’s Nassef Sawiris. He told the FT that while he would always be in Britain’s debt for having given him a home when he was threatened by the Muslim Brotherhood, he was now leaving for Italy because British taxes had become too onerous. It’s a stance that reminds me of this unimprovable scene from “The Simpsons Movie”. Sawiris too is a rich man who wants to give something back – just not the money.

A ROMAN TAX HOLIDAY

“I don’t know any person in my circle,” Sawiris says, “who is not moving this April, or next April if [their children] have a school year or something like that.” 

His net worth has increased from $3.7 billion in 2016 to $9.6 billion now, which means he has a lot of worldwide income. Fortunately his new residency in Italy means he won’t have to pay tax on any of it. People who are resident in Italy only pay tax on income they earn in the country, with taxes on income earned elsewhere being replaced by a flat payment of 200,000 euros. If your tax bill is likely to be substantially higher, it’s an attractive option. Attractive enough to persuade some senior bankers from the City of London to move to Milan.

 It is a “non-dom” system copied from a centuries-old British approach that is finally being abolished at the end of this month, hence the panicked reports about an “exodus” of the ultra wealthy from Britain. 

Tax policy tends to go in waves, with governments offering tax breaks to rich people, then abolishing them – as Spain has recently done -- when the ensuing influx drives up house prices and becomes electorally unsustainable. All this new money pouring into Italy will presumably have the same effect, and the same consequences. So there’s a definite advantage for a government that does not have to worry about elections, like that of Abu Dhabi, which has – in the words of Sawiris, who has residency in the emirate as well as in Italy -- “English law without English weather”.

That isn’t entirely true. Yes, the Abu Dhabi Global Market is governed by English common law, with a wonderful selection of foreign judges, but it is a system that is only accessible to people who can afford it. For others who live in the emirate – including the 132,000 people estimated in 2021 to be living in conditions of slavery, one of the highest rates in the world – English common law very much does not apply. Perhaps the place could be better described as allowing the rich to enjoy English rights without English responsibilities, and you can see why that might be a popular prospect.

But why should the United Arab Emirates get all the fun, with dollar millionaires flocking to its sands? Vying for the attention of the wealthy, Donald Trump launched a “gold card” visa, to facilitate the entry of the only immigrants he approves of – wealthy ones. A gold card offers residency and an accelerated path to citizenship for about $5 million. Commerce Secretary Howard Lutnick claims he sold 1,000 of them in short order, apparently raising $5 billion in a single day even though there is no official application process in place. Incidentally, buyers of Trump’s gold card visas will, as in Italy, reportedly only have to pay tax on their U.S. earnings, not their international income.

But experts are sceptical. For starters, the U.S. president can’t just create new immigration routes. That’s Congress’s job. Trump will also struggle to provide the tax breaks available in countries such as Italy (and which used to attract people to the U.K). And the United States is very much not offering the kind of stability that Abu Dhabi is right now.

“Ever since the US election and especially since the inauguration and flood of executive orders, I have seen a dramatic uptick in the number of wealthy American families who have retained me to secure second residences/citizenships,” said David Lesperance, a global tax and immigration expert. He wrote an analysis of the gold card and concluded that the only major group of wealthy people likely to use it would be American citizens who could renounce their citizenship then apply for a card as a way out of future tax liability. Even that would depend on legislation getting through Congress. “The Trump card is dead on arrival because there is no viable market,” he told me.

HOW NOT TO RETURN STOLEN MONEY

I’ve written before about the difficulties that Texan lawyer Jim Kingman has faced in trying to prosecute corruption cases in the Commonwealth of the Northern Mariana Islands (CNMI), a far flung US territory with a penchant for baroque money laundering schemes. but this week there’s good news.

“I really hope this puts to bed the idea that people of the CNMI do not care about corruption, do not care about how public money is spent,” said Kingman, “because they do, and the attentiveness demonstrated by this jury shows they do regardless of the outcome.”

 There’s less happy news from Belgium, however, despite the positive announcement that it had seized two hundred million corruptly-obtained dollars. The cash was the fruit of bribes paid to Gulnara Karimova, daughter of the former president of Uzbekistan, to approve telecoms schemes. It is always hard to find a way to return such cash to its rightful owners, because you don’t want it just to be stolen by senior officials again, but Belgium seems to have chosen a particularly bad way to do it.

“There is a significant risk that the Uzbek authorities will use the repatriated funds to serve the personal interests of the ruling elite and their associates. Despite some reforms under President Shavkat Mirziyoyev, state corruption, nepotism, conflicts of interest, favouritism and rent seeking remain systemic and widespread,” note the Uzbek Forum for Human Rights and Central Asia Due Diligence in a joint statement.

Considering the very large amount of seized Russian funds currently held in Belgium, it is important that Brussels ups its game before any of that is confiscated, and potentially “returned” to the very people who stole it in the first place.
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Regular readers will know I dislike Transparency International’s flagship Corruption Perceptions Index, but my only objection to TI’s interesting new Opacity in Real Estate Ownership index is the acronym. Honestly, who thought OREO was appropriate here? Own up. 

Kleptocrats love buying property, partly because it’s a good way to get rid of a lot of money at once, but mainly because it tends to be both a good investment and gives one a nice place to live. So kudos to the authors of this report for showing which countries aren’t doing enough to keep the kleptocrats out. 

“Real estate has long been known as the go-to avenue for criminals and the corrupt for laundering their ill-gotten gains. Seeking security for their investments, they often target the world’s most attractive markets to place their dirty money,” the report states.

Many countries can be a bit lax about cracking down on these purchases, because they see them as useful investment into their economies. In fact, they have a bad habit of offering golden visas alongside the property to further incentivise purchases, although some countries – including, earlier this month, Spain – have begun to realise these are not the convenient source of free money they were presented as, precipitating as they do housing shortages and rising rents.

TI divided its analysis into two halves, highlighting not just flaws in the anti-money laundering architecture, but also in the availability of data. If journalists, analysts or activists can’t see who owns what, then no one can tell if kleptocrats have been allowed to sneak through the net. It’s worth reading in full, particularly because of the way it shows that these two halves of the problem feed off each other, for good and ill. 

South Africa, Singapore and France get singled out for praise, with the worst performers – Australia, the United States and South Korea – losing out because they were marked down dramatically on the weakness of their anti-money-laundering protections. When it came to the opacity of ownership information, the worst offenders were Japan, India and the United Arab Emirates (surprise! Okay, not at all a surprise).

I hope that this report informs national and international discussions about fighting kleptocracy. But I also hope someone points out that TI needs a better acronym before OREO becomes entrenched. My suggestion for a new name, after literally minutes of intense thought, would be Lax Ownership Of Property Hurts Ordinary Law-Abiding Entities (LOOPHOLE). 

Although I concede that “entities” isn’t a great word at the end there. Neither is “lax” at the beginning, to be honest. 

WITH ‘FRIENDS’ LIKE THESE

While on the subject of acronyms, thank you to a reader for alerting me to the existence of the “Mobilizing and Enhancing Georgia’s Options for Building Accountability,
Resilience, and Independence” bill, which has been put forward by a bipartisan group of US congresspeople. I am a sucker for a daft acronym, and suspect this is the first time a Georgian word has featured in a proposed piece of American legislation. “Megobari” being, of course, Georgian for “friend”.

Georgia has been suffering from political turbulence for some time, with the Georgian Dream political party – backed by the country’s richest man, the Russophile oligarch Bidzina Ivanishvili -- cementing control over the country. Transparency International’s Georgian branch has been publishing a list of high-level officials who hold what it considers to be questionable wealth. There are worrying signs that Western companies are happily enabling what’s happening in the South Caucasus. Georgia used to be a rare success story when it came to combating corruption, as well as a staunch Western ally in a difficult part of the world.

We would be fools to let it slip back to its bad old ways, without at least trying to arrest the slide a little, so I hope the Megobari bill makes some progress. “This bill provides Georgian Dream officials with a choice to abandon the would-be dictator Ivanishvili or face sanctions,” said Congressman Joe Wilson, Republican of South Carolina. With the “MEGOBARI” Act now being approved, it marks at least legislative support for Georgia’s EU-leaning democratic aspirations.

WHO NEEDS ENEMIES?

And sticking with acronyms, the House and Senate bills put forward to (under-)regulate the stablecoin industry, and which Donald Trump wants rushed through by August, have the acronyms STABLE and GENIUS, which is witty if you like that kind of thing. 

Back in the latter days of Trump’s first term, Representative Brendan Boyle (Democrat of Pennsylvania) introduced the STABLE GENIUS bill, to try to force the president to undergo a mental acuity test. There’s probably some deep lesson in the fact that an acronym that was intended to mock Trump in his first term is being used to flatter him in his second. But frankly it’s all too depressing to contemplate, so let’s move on.

Though onto a topic that’s also depressing. Here’s an interesting column about how Russian oligarchs are apparently back in the market for New York real estate. It’s been a tough few years for rich Russians, since sanctions have forced them to stay away from their traditional playgrounds in London, Manhattan and the south of France.

But, according to real estate brokers in New York at least, they’re back. “We’re seeing a lot of Russian nationals,” a broker said. “I’ve had five Russians look at properties in the $10 million to $20 million range in the past few weeks -- condos and townhouses.” Over the last couple of years, the broker confirmed, “oligarchs couldn’t buy anything in the U.S., and Putin put pressure on Russians not to buy here or in Europe.”

I’m a little bit suspicious of the claim that Russians are once more hunting for NYC real estate, since I think it would be a foolish oligarch who trusted a large amount of money to there being any stability in U.S. policy towards Russia. But if it is the case, it does highlight some of the issues raised by the OREO (ugh!) index, particularly in the light of the Trump White House’s decisions to scrap much of the anti-corruption architecture. 

That said, I wouldn’t expect much dirty money to be coming from Russians at the moment. Russian buyers have been drying up in Turkey and the UAE, which suggest the Russian economy is not generating the kind of cash that leads to property splurges, not least with U.S. tariffs leading to potentially lower oil prices. In my view, real estate brokers might do better to look more towards the old faithful klepto-gushers of South America and China.

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I visited the Commonwealth of the Northern Mariana Islands a couple of years ago, intrigued by its curious bad luck in repeatedly being struck by massive gaming and money laundering scandals, like this one and this one. In case you’re not au fait with the CNMI, it’s a US territory north of Guam, which is best known as the place the Enola Gay and the Bockscar departed from on their way to drop atomic bombs on Hiroshima and Nagasaki.

It's also the current home of Jim Kingman, a Texan lawyer who was invited to the commonwealth in 2023 to act as special prosecutor in a baroque corruption scandal featuring former ex-Governor Ralph Torres, who had been acquitted along party lines in impeachment proceedings in the islands’ senate the year before.

A LESSON FROM SAIPAN

And for Kingman, it’s been basically downhill from there. His attempts to investigate, subpoena or prosecute have been frustrated at every turn by a local elite that’s decided it doesn’t really want him to make any progress. “Where are the feds? Where is the oversight? Where are the ethics committees? Where is the bar? What are we even doing out here?” he asked in a fed-up Facebook post, a year into the corruption trial, with almost no progress made.

With the change in government in Washington, DC, Kingman is clearly concerned about the future of his mission on the islands, and has given an interview to a local journalist who also described the sheer extent of obstruction that Kingman has faced. It’s a bitter read, but it has a defiant tone, a commitment to fighting corruption, that leaves an optimistic aftertaste.

“One promise that I can make is that I won’t quit,” Kingman said. “I can’t promise the desired results in a process I don’t have control over. There is a fundamental change that needs to happen to set up a more sustainable government and that will have to come from the people here. The forces that I have been facing have made it clear that these changes will not be received from an outsider.”

Kingman is just doing his job as a lawyer, but the reason I single him out is that he’s looking pretty unusual among American lawyers at the moment. Faced with hostile politicians, Kingman is choosing to fight. Far better paid, better networked and more powerful lawyers than him are choosing to take a different route and roll over when threatened. 

I’m glad Kingman is sticking to his principles, and wish him luck. If anyone hasn’t read about what Pakistani lawyers did over a decade ago to preserve judicial independence in the face of an interfering autocrat, I highly recommend this piece. Faced with far tougher circumstances than those confronting New York’s white-shoe firms, Pakistan’s lawyers and judges took their struggle to the streets and found that most people are sympathetic to the idea of an independent judiciary that can act as a constraint on a dictatorial, power-hungry executive.

SLOW PROGRESS

Of course, lawyers can take to the streets. But the authorities’ chronic neglect of offices that investigate and prosecute corruption and financial crime has critically hampered their effectiveness. 

The U.K. non-profit “Spotlight on Corruption” has produced a really useful dashboard to track how the British authorities have fared in their efforts against financial crime. Long story short – it’s been pretty bad. If anyone needed proof that underfunding investigative agencies for years and years was an ineffective way to tackle complex criminality, then here it is.

And more evidence has been provided by Transparency International UK’s Ben Cowdock who has produced a fascinating summary of the progress the British authorities are making in reforming its corporate registry. Long story short – it’s not going very quickly. 

With an assessment by the Financial Action Task Force (FATF) on the horizon, the “pressure is on to get Companies House reform right,” Cowdock notes. The FATF sets international standards for tackling money laundering and runs mutual assessments of its members on a regular timetable, and the UK is due to be assessed in December 2027. Before that, however, in February 2026, will be the assessment of the United States and there could be fireworks.

MADE EVEN SLOWER

Donald Trump has just pardoned a corporation for the first time. He decided to cancel the judgement against the founders of a crypto trading company that was fined $100 million last year. Authorities said the fine reflected the expectation that the digital assets industry “takes seriously its responsibilities in the regulated financial industry and its duties to develop and adhere to a culture of compliance.” But Trump appears to have given up on enforcing corporate transparency, which is a central pillar of the FATF’s approach to tackling illicit finance.

“What the getaway car is to a bank heist, the anonymous company often is to a fraud scheme,” said Transparency International U.S. in this useful factsheet of cases in which American shell companies have enabled fraud and financial crime. The Trump administration’s response to this has been to not only do nothing, but to stop what was already being done. There has not yet been a time when the American government has so egregiously flouted the FATF’s core principles. And the U.S. was central to crafting FATF back in the late 1980s, so we are drifting into uncharted and rocky waters. It's hard to imagine the FATF approving of what’s happening, and harder to imagine this White House reacting well to being criticised, so you’d hope the FATF is preparing for the fallout. 

If it is, however, it’s not showing any sign of being ready for battle. Its most recent publication is almost aggressively dull. And the latest public pronouncement from its president suggests that, while she might have some thoughts about the arrangement of the deckchairs, she’s not got much to say about the iceberg up ahead.

I am personally not a huge fan of the FATF, which has been very good at producing documents and very bad at stopping money laundering. In fact, I sometimes wonder if money laundering experts aren’t the modern day equivalent of the self-perpetuating lawyers lampooned by Charles Dickens in “Bleak House”. “The one great principle of the English law is,” Dickens wrote, “to make business for itself.” Still, we might find we’ll miss the FATF if it’s gone. 

AND FINALLY, WHAT IS A KLEPTOCRACY?

I was in Oxford last Thursday to chair an event for Professor John Heathershaw and Tom Mayne, two of the authors of Indulging Kleptocracy, a book about how British professionals have helped foreign thieves and crooks to steal, keep, protect and spend their fortunes. The week before I was in Washington and had lunch with Jodi Vittori, professor at Georgetown University, and author of this recent piece in Foreign Policy headlined “Is America a kleptocracy?”.

These are noted experts on kleptocracy, with lots of very interesting things to say, but they have different definitions of what the word means. In the U.K., Heathershaw and Mayne use it to describe the multinational networks that allow corrupt officials to steal money from places like Nigeria or Kazakhstan, launder it offshore, and spend it in London, the French Riviera or Miami. In the United States, however, Vittori and Casey Michel use it to describe a system of government (like a corrupt version of autocracy, democracy or any other -cracy).

I think these two definitions are the sign of something quite interesting. The United States has so much diversity in terms of how wealth is treated between individual states that crooks and thieves are able to build a kleptocracy within just one country. And the task just became easier, with a specialized team at the Justice Department investigating kleptocrats’ deals and assets now deemed unnecessary by the Trump administration. Not entirely surprisingly, the team’s investigations had irritated some of Trump’s closest advisors and allies.

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Last week I attended a crypto conference in Washington, D.C., and can report back that things are changing fast. New regulations look certain to come through in a hurry and – judging by the heinous quantity of lawyers in the venue – a lot of people are very serious about making a lot of money from them. This is, in my opinion, not good.

Crypto people complained bitterly under the Biden administration that regulators were treating them unfairly, by restricting their ability to do business. Many observers pointed out that crypto people were being regulated exactly the same way as everyone else, and that the reason they were struggling was that their product only makes money if it can break the rules, but the crypto people didn’t agree and responded by spending over $119 million on political donations before the 2024 elections.

MONEY WELL SPENT

The lobbying has paid off. Victorious (and well-funded) Republicans have responded to the crypto industry with a degree of enthusiasm that is positively overwhelming. Supposedly dead under the Biden administration, crypto has been brought back to rude health. “I'm so excited for all of us,” said House Majority Whip Tom Emmer. “This has been a long road to get here. We are on the precipice of actually making this happen. And guess what? That's only the beginning.”

He said Congressmen and senators were determined to get a bill onto President Trump’s desk by August that would regulate the stablecoin industry, thus providing the kind of legal certainty that would allow these “digital dollars” to explode even more dramatically than they already have. A lot of this will be overseen by the Office for the Comptroller of the Currency, which has already moved to scrap the cautious approach of the old days (i.e. last year).

“I’m creating a bright future for banks in America to use digital assets. Financial inclusion is the civil rights issue of our generation,” Rodney Hood, Acting Comptroller of the Currency, told a side session at the conference. “I have removed the sword of Damocles that was hanging over the head of the financial services industry.”

Millions of people lack bank accounts in the United States, and they are overwhelmingly the poorest members of society. Governments have failed to do enough to make sure everyone has access to financial services. And if crypto really could help vulnerable people access banking, then I’d be all for it, but I fear – certainly on the evidence of what I saw last week – it won’t.

Perhaps the most alarming discussion was that concerning World Liberty Financial, the Trump family’s own crypto firm. Donald Trump Jr., beamed in by videolink, appeared to be seated on what looked like a white throne. He loomed over the stage like a permatanned deity in an inadequately-buttoned shirt. He explained that he’d only realised the power of crypto after his father had come out as a Republican and the family had all been cancelled. “You put that little R next to your name,” he said, explaining the need for crypto. “And I sort of realized very quickly just how much discrimination there is in the ordinary financial markets.”

The other three founders of the firm, which was created last year, all took to the stage in person. Zachary Witkoff – the son of President Trump’s special envoy tasked with helping to negotiate a ceasefire in Ukraine – spells blockchain wrong on his LinkedIn bio, and got the dress code wrong by wearing a suit and neglecting to grow a beard. Zachary Folkman, who once ran a company called ‘Date Hotter Girls’, wore a bomber jacket and facial hair, which matched the mood more precisely. Chase Herro was the most hirsute and casual of the lot, in joggers and a white baseball cap, and he explained that they would be targeting ordinary Americans, with the aim of getting them to use crypto to buy ham sandwiches from a bodega, as well as aiming to transform the cross-border payments system with their own stablecoin – USD1. 

The idea that these four nepo man-babies would be given the keys to any kind of financial institution was alarming, but the prospect of them doing so under permissive new regulations and an administration headed by one of their dads, was terrifying. “So one of our biggest goals is to kind of bring everybody back together and realize that this is a free market and, like, let the free market dictate who survives and who doesn't, and who thrives and who doesn't,” said Herro. Trump’s sons, incidentally, have also just invested heavily in a bitcoin mining company. 

WELCOME BACK, ALL IS FORGIVEN

The pace at the conference was frenetic, and every other session seemed to have Congressmen and/or senators explaining how cryptocurrencies would do their bit to make America prosperous and grand. Even three Democrats held a side session called “keeping crypto non-partisan”. No one was listening, though, partly because all the lawyers were talking to each other in the hallway but mainly because the Republican chairs of the Senate and the House banking committees were on the main stage at the same time explaining how America would remain the world’s crypto capital. 

Crypto is Trump’s project now, and no one cares what the Democrats have to say. If you want to see how much the industry has embraced the president’s talking points, check out this comically politicized advert from the blockchain company Solana, home of the $Trump memecoin. Even on X, the backlash was so fierce that Solana had to delete it.

What does this mean for the rest of the world though? American politicians seem to have decided that cryptocurrencies – and, particularly, dollar-denominated stablecoins – are good for America, that they bring business to the country, and help find customers for the Treasury’s debt. Anything that gets in the way of crypto therefore is bad for America. With great power comes great opportunity, as Peter Parker’s Uncle Ben might have said if only he’d had more donations from a pro-crypto SuperPAC.

Bo Hines, the hatchet-faced head of Trump’s council of crypto advisers, said his message to any crypto people working offshore was: “welcome home”. 

As for Tom Emmer, even the prosecution of the founders of Tornado Cash – the software that, prosecutors say, allowed criminals including North Korean hackers to hide $1 billion of stolen wealth – was governmental overreach. “We need all that innovation, all those risk takers and creators in this country, that's what is the definition of success. From that you'll get that economic growth,” Emmer said.

There is a terrible irony that cryptocurrencies – an idea much of whose popularity stemmed from the public anger sparked by the deregulation and greed that caused the great financial crisis of 2007-2008 – are becoming a new nexus for deregulation and greed. And I worry about what the backlash will bring when this too collapses. And I worry about all the bad behaviour that will be enabled before the collapse happens.

As Corey Frayer, who served in the Securities and Exchange Commission under Joe Biden, once said: “Crypto is a machine where fraud and money laundering go in one side, and political donations come out the other end.” 

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A striking characteristic of Russian officials has long been how they combine passionate opposition to all the West professes to stand for with a marked willingness to invest, live, educate their children, party, and litigate in the West. And that brings us to Dmitry Ovsyannikov (there’ll be more on the elaborate spelling of his name in a bit), who was appointed governor of the city of Sevastopol by Vladimir Putin in 2016.

Sevastopol is the largest city on the Crimean peninsula, and was stolen from Ukraine by Putin in 2014 on the grounds that it had once belonged to Russia. “It was only when Crimea ended up as part of a different country,” Putin told the State Duma over a decade ago as justification for the annexation of Crimea, part 1 of the full-scale invasion of Ukraine in 2022, “that Russia realised that it was not simply robbed, it was plundered.” Most Western countries do not accept this logic, and have tried to punish people involved, which is why Ovsyannikov was sanctioned by the European Union, the United States, and the United Kingdom.

WESTWARD BOUND

Ovsyannikov left Crimea in 2019 for a position in Moscow, but his political career came to an abrupt end after a scandal at a regional airport. He then did that thing Russian officials do and headed to Britain. In 2023, he moved into his brother’s house in London, where his wife and children were already living and attending private school.

Private schools, however, have to be paid for, and prosecutors say that arranging those payments was tantamount to circumventing the UK’s sanctions, so he was charged along with his wife and brother, and this month they went on trial. The alleged wrongdoing is fairly small-scale, but it’s an important test case. We have a few weeks to wait for an outcome, but there are some interesting points to draw out from it already.

The first is about spelling. If you’re trying to avoid notice as a Russian (or a representative of any other nation which uses a different alphabet to ours), it’s an entry-level stratagem to play around with transliteration. It’s noticeable that in the court documents, he uses a different version of his name -- Dmitrii Ovsiannikov – to that favoured by the Kremlin in the good old days, which is a switch between two common transliteration systems. His brother, meanwhile, spells his surname Owsjanikow, which uses yet another. I’m hoping there’s a third sibling, who’s gone all pre-revolutionary with Ovsiannikoff.

The second is about his citizenship. Ovsyannikov left Russia for Turkey in August 2022, which many Russians did after Putin invaded Ukraine, though admittedly most of them had not been senior officials in the occupying administration. He then applied for a British passport, which he obtained early the next year. 

Apparently Ovsyannikov’s father was born in Bradford, in the north of England, in 1950. How did a Yorkshire lad hook up with a Soviet lady at the height of the Cold War? Did their eyes meet over a discussion of production quotas? If there are any authors of “socialist realist romance” among my readers, this could be your time to shine. Ovsyannikov himself is 48, so he must have been born in 1976 or 1977. 

The third and most important thing about his case is whether he should still have been subject to sanctions at all. The U.K. may have continued to sanction Ovsyannikov, but in 2023 he challenged his EU designation and was removed from the bloc’s sanctions list on the grounds that he was no longer in a position of power or responsibility in Russia. Some may think that’s a weak reason, but I am inclined to think sanctions lists should be adapted if people have ceased the offending behaviour. Sanctions are a foreign policy tool, not a law enforcement instrument, and if the aim of the policy has been achieved, they should be cancelled. 

There are lots of oligarchs and officials who would be willing to do quite a lot to get off the sanctions list, much of which would severely inconvenience Putin. It may feel icky, but I think our governments should be open to such deals. The point of all this is to undermine the Kremlin after all.

AND IT’S STILL ALL ABOUT THE BENJAMINS

This is not to deny that it does indeed feel icky to see sanctioned individuals try and evade those sanctions to buy Mercedes SUVs, as Ovsyannikov did. He used his brother as a proxy to buy the car. It reminded me of company owners who nominate proxies offshore to hide the real ownership structure. Since 2016, companies in the U.K. have been obliged to name a “person of significant control”. The idea of the law was to stop people hiding behind opaque shell companies to commit financial crime, but is anyone enforcing it?

Apparently not, since lawyer Dan Neidle has been able to publish a map with the location of 65,000 foreign companies that own U.K. entities, none of which are declaring who is in control of their operations. You can search on the map yourself. There are five companies in the Falkland Islands, for example, and there’s even one in American Samoa: are these remote jurisdictions making late bids to become offshore tax havens?

Just as I was thinking about the efforts of Companies House to rein in fraud, I was still thinking about the use of cash money by launderers from last week. I was reading this article, and I was struck by the claim that the US aerospace sector is due to export $125 billion this year, making it the country’s second most successful exporting industry. 

In 2023, the Bureau of Engraving and Printing produced 1,326,976,000 $100 bills. That’s not all profit, because each bill costs 9.4 cents to print, and there’s some dispute about quite how many of those go abroad, but serious estimates range from 80 percent to 70 percent. Once you’ve done the sums, you end up with profits from $100-bill exports in 2023 of somewhere between $92.8 and $106.1 billion.

We don’t have the figures for 2024 yet, but the Federal Reserve said it would be ordering between $155.8 and $160.6 billion worth of $100 bills, which would yield profits of somewhere between $109.0 and $128.4 billion. 

Look at that number again: at the top end of the range, that would nudge aerospace into third place, and establish the $100-bill-printing industry as America’s second most successful exporter. Even at the bottom end, it would be fourth, ahead of brand name pharmaceutical manufacturing ($103.3 billion), and quite a lot bigger than natural gas liquid processing ($62.9 billion). Who says the public sector can’t contribute to the economy?

Before someone writes in: yes, I know that banknotes are technically loans made to a government, rather than products sold by the government. But it’s more fun this way, so I’m going with it.

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For the first time since comparable records began, there are fewer companies on the UK’s corporate registry. It’s a sign that anti-fraud reforms are beginning to show the first signs of a provisional impact. Companies House, as Britain’s corporate registry is known, has historically been dreadful – a “fraud fiesta”, in the words of the Dark Money Files podcast. Registering British companies was for years cheap, easy, and completely unverified, meaning they were the money launderers’ getaway vehicles of choice. 

A WELCOME FALL

After Russia’s full-scale invasion of Ukraine, and subsequent public concern about kleptocratic wealth infiltrating the UK, the government pledged to improve Companies House, including by giving it powers to check information, and obliging corporate directors to provide proof of identification. These are baby steps, but they’re already having results: “the companies register shrank during the period October to December 2024, for the first time since quarterly reporting began in the period April to June 2012”.

There were 5,408,707 companies on the register at the end of 2024, which was 19,879 fewer than at the end of September. That was a decline of 0.37 percent, so not a huge deal, though that did not deter some people. “COMPANY NUMBERS CRASH IN BUDGET FALLOUT,” shrieked the tiresome rightwing blog Guido Fawkes, which attempted to claim the falling numbers were because recent tax rises were scaring entrepreneurs away from starting businesses.

There is a strange belief among supposedly pro-business people that the easier it is to create a company, the more economic growth you will get. This is true, up to a point. But after that point, companies are so easy to obtain that they’re registered for the purposes of fraud, money laundering and corruption rather than honest enterprise, which will obviously impede rather than encourage business. 

So it is good that Companies House is finally trying to keep the more obvious malefactors from hiding their identities behind what anti-money laundering expert Graham Barrow calls burner companies. “None of these companies that were got rid of,” he told me, “were contributing anything.” 

Barrow runs a compliance firm called RiskAlert247, which trawls Companies House data in the quest for fraudulent firms with a programme called “Spider Sense”, which spots signs of dodgy behaviour. A mere five-minute demonstration was enough to convince me that the number of companies registered on Companies House has a long way to fall before it starts to reflect the actual quantity of legitimate firms in the country. There are hundreds of thousands of tax-dodging and fraud-enabling vehicles still on the registry although hopefully when new powers are brought in, they too will be winnowed out.

In the meantime, if you’d like a laugh, or simply to see how bad things were before the government got round to acting, look up “JOHN SMITH 3A LIMITED” – registered address 1 Any Road, Area, Anytown, United Kingdom, ZB2 2ZZ – on Companies House, and click on the “people” tab.

ANOTHER WELCOME FALL

The value of all the euro banknotes in circulation peaked in June 2022 at €1.60 trillion, and has been trending infinitesimally downwards ever since. In January this year, it was recorded at €1.57 trillion. This is as it should be: fewer people use cash for payments, therefore people take fewer banknotes out of banks, and so there are fewer banknotes in circulation.

What’s odd, however, is that – for decades – the opposite has been happening all over the Western world. The usage of cash has been in steep decline, but demand for banknotes has remained consistently strong. Although euro printing has begun to decline, it is only a recent phenomenon. The total of euro banknotes out there is still a lot higher than the trillion euros that were in circulation a decade ago. Central bankers call it a paradox, which is their way of saying they have no idea what’s going on.

While the value of euro notes in circulation has fallen, however slightly, the value of British pounds in circulation hit £90.5 billion in the first week of March, up more than three billion from last year, which was also an all-time high. And the value of cash dollars in circulation hit an all-time high of $2.36 trillion in January, which is twice as much as there was in January 2015, and that in turn was twice the total of January 2005. 

Ruth Judson seems to be the Federal Reserve analyst tasked with trying to work out who’s using all the dollars the Bureau of Engraving and Printing keeps churning out. Her latest paper estimates that more than half of them are circulating outside the United States. 

BUT IT’S STILL ALL ABOUT THE BENJAMINS

To me, the most interesting observation Judson makes is that demand for smaller denominations is declining, so the growth is overwhelmingly coming from people wanting more and more $100 bills. My personal theory is that, as money laundering rules have become more stringent, more criminals have turned to storing and moving their wealth in cash, and they naturally prefer to do that in large denominations, because you can get more value in a smaller space. It’s the criminal economy, stupid.

But why are they choosing to use $100 bills, rather than the even more valuable €200 or €100 banknotes? That is a bit of a mystery. Or a paradox, if you will.

Considering the destruction that the White House has wreaked on U.S. anti-corruption work, I should be pleased to see the announcement of tougher anti-money laundering measures. But I’m sorry to say I’m not. The Treasury Department has decided that money service businesses along the Mexican border must now report any currency transaction over $200 in a supposed action against cartels. This is catastrophically misguided. 

At the moment, all currency transactions over $10,000 have to be reported, and that is already producing a colossal deluge of paperwork. In 2023, Fincen received almost 21 million Currency Transaction Reports. Just imagine how many they’ll get now the threshold is $200, and the policy won’t even work at stopping the cartels.

According to the U.S. government’s own figures, Mexican cartels make $19-29 billion a year. They are NOT transferring these profits back home $200 a time via corner stores in Maverick County, Texas. Obviously. Even at the lower end of the estimate, that would involve more than quarter of a million money transfers every day, or more than 37,000 from each of the counties that the Treasury Department is imposing new measures on. 

If they actually wanted to stop the cartels, they should look instead into who’s taking all those $100 bills off their hands, since by their own estimates $25 billion is smuggled across the southern border in cash each year.

A version of this story was published in this week’s Oligarchy newsletter. Sign up here.

The post It’s the criminal economy, stupid appeared first on Coda Story.

It’s been a big few weeks for crypto. El Salvador, the world’s biggest state-level crypto enthusiast, has apparently reverse ferreted on its agreement with the International Monetary Fund to stop buying bitcoin. Meanwhile Tether, the world’s biggest stablecoin and favourite of the most tech-savvy money launderers, seems to have finally decided to enforce Western sanctions and block a Russian cryptocurrency exchange from accessing tens of millions of dollars in USDT holdings. And U.S. crypto folks are beginning to worry that perhaps Donald Trump was exaggerating/lying when he said, back in July, “I will immediately order the Treasury Department and other federal agencies to cease and desist”.

BUKELE’S BITCOIN BET

But first to El Salvador. News of the death of its bitcoin project appears to be exaggerated, with the country buying yet more of the cryptocurrency just days after agreeing a $1.4billion deal with the IMF that seeks to “confine government engagement in Bitcoin-related economic activities.” On X, El Salvador’s president, Nayib Bukele posted: “No, it’s not stopping. If it didn’t stop when the world ostracized us and most ‘bitcoiners’ abandoned us, it won’t stop now, and it won’t stop in the future.”​​

El Salvador has many problems – not least excessively high levels of debt and a sluggish economy – to which Bukele has presented Bitcoin as the answer, including by making it legal tender in 2021 and obliging merchants to accept it for payments. Under pressure from the IMF (which says Bitcoin’s “widespread adoption could threaten macroeconomic stability and raise fiscal risks”, without elaborating), the El Salvador government has cancelled those reforms. But Bukele’s latest tweets suggest he’s not given up on his plans.

I don’t think anyone outside the IMF is nostalgic for the days when the lender used to bully the countries of Central and South America. But I doubt the IMF will take Bukele’s taunting quietly, so we’ve presumably not heard the last of this.

Personally, given my interest in financial crime, I think Bitcoin is a bit of a sideshow. It’s clunky, it’s expensive to use, and it’s wildly volatile – all of which mean it’s great for speculation, but not much good as a money laundering tool. Tether, on the other hand, now that is something to keep an eye on.

TOO LITTLE TOO LATE?

“What El Salvador has achieved, thanks to President Bukele, is truly incredible and will be narrated in history books,” posted Tether’s CEO, the emollient Paolo Ardoino, after Bukele said he would keep buying bitcoin. Tether issues the world’s biggest stablecoin, which is a cryptocurrency that’s worth the same as a dollar, but doesn’t suffer from any of the restrictions imposed by the kind of squares who comply with anti-money laundering rules at banks. Tether, incidentally, relocated its headquarters to El Salvador in January, so technically Bukele’s government is responsible for regulating it (lol).

Unlike Bitcoin, Tether is cheap, easy to use and non-volatile, which is why it’s become a funding vehicle of choice for Hamas, Hezbollah, the gangsters of the Mekong region, Russian money launderers, North Korea apparently, and almost any other baddies you can mention. Also unlike Bitcoin, Tether is a centralised operation, meaning it can freeze its currency if it wants to. The fact that it so rarely did was either a mark of its commitment to financial inclusion, or a sign that it didn’t care about enabling rampant fraud. But it looks like it may be trying to clean up its act.

Because bombshell news: almost three years after the U.S. sanctioned Garantex, a Russian cryptocurrency exchange, Tether finally got around to freezing its digital wallets. Before we get too delighted about the stablecoin’s decision to cooperate (the EU having also sanctioned Garantex last month), this was the result of the US Secret Service – in cooperation with Germany and Finland – working to cripple the exchange’s infrastructure. Tether presumably had little choice but to do what it did. 

In the meantime, sophisticated obfuscatory skills have allowed Garantex to move $60 billion worth of crypto since the US imposed sanctions. Still, there will be many annoyed Russians who will now be on the lookout for an alternative exchange. “We have bad news,” as Garantex announced on Telegram, “Tether has entered the war against the Russian crypto market… Please note that all USDT held in Russian wallets is now under threat. As always, we are the first, but not the last.”

THE CRYPTOCRATS’ LAMENT

If Russians who use crypto are struggling with sanctions, American crypto investors are increasingly annoyed by the suspicion that still shrouds the industry. “None of the federal banking agencies have actually overturned any of the anti-crypto guidance,” said Caitlin Long, CEO of crypto-friendly Custodia Bank. “It is still presumed unsafe and unsound for a bank to touch a digital asset.”

Donald Trump won substantial backing from crypto folks in last year’s election, thanks to his promises to cancel what they felt was excessive regulation of their activities. “We can't live in a world where somebody starts a company that's a completely legal thing, and then they literally get sanctioned and embargoed by the United States government,” said Marc Andreessen on the Joe Rogan podcast in November. Remarkably self-pitying, considering Andreessen’s a tech billionaire,

He and his fellows complain about widespread debanking – by which they mean that banks are closing the accounts of crypto companies and/or their owners, because of concerns about money laundering – and the fact there is no appeal process against such decisions. Crypto industry leaders insist the practice is really driven by banks’ determination to smother a competing technology in the cradle, and has unfairly targeted right-wingers. Trump promised to end the practice, but in truth this is a complex issue, and Long’s comments suggest they’re losing patience with his failure to master it.

The Senate Banking Committee held a hearing on debanking last month, which featured three representatives of the crypto industry. But the witness who impressed me most was the Brookings Institution’s Aaron Klein who made it clear that the real victims of debanking are not crypto bros, but the kind of people without the money to effectively lobby President Trump.

“Approximately one in ten Black, Hispanic, and Native American households lack a bank account, about five times higher than for whites. Being unbanked is even more likely among those with a disability, with an unbanked rate above 11 percent,” said an excellent 15-page primer he submitted as evidence, which is well worth reading (it can be downloaded at the bottom of this page.)

The core of the issue is that banks face onerous regulations, worry about being fined, and therefore can’t see the value in providing accounts to clients who are more likely to cost them money than earn it. Yes, some of those clients work in crypto, but most are poor immigrants just trying to get ahead. (Check out quite how many of the FinCEN enforcement notices relate to convenience stores that cash cheques, rather than multi-billion-dollar money laundering schemes, and you’ll see what I mean.)

There is no easy fix to this, but the roots of the problem lie in the global rules against money laundering set by the Financial Action Task Force, which is currently holding a consultation on the issue. Should you have a lot of time on your hands, and an exceptionally high boredom threshold, you can read it. Perhaps you could send in an opinion too. Everyone has known about the problem for decades, and no one has ever been bothered to do anything about it before, but perhaps this time they will. Or perhaps they won’t. 

What we’re still waiting to learn is how the Trump administration intends to regulate crypto, or if it intends to regulate at all, given the investigations being dropped, last week’s crypto industry summit at the White House, and the mooted creation of a national cryptocurrency reserve.

A version of this story was published in this week’s Oligarchy newsletter. Sign up here.

The post Cryptocrats fear regulation will stymie a new crypto era appeared first on Coda Story.

An early definition of kleptocracy, given by Singaporean journalist-turned-politician Sinnathamby Rajaratnam in a speech in 1968, was that it is a "a society of the corrupt, for the corrupt, by the corrupt". It’s a neat formulation, with its echo of Abraham Lincoln’s most famous line from the Gettysburg Address. And I’m curious about how exactly a society can change from Lincoln’s dream to Rajaratnam’s nightmare.

The first bit to go is the last part of the phrase – “by the corrupt” – because winning elections is the easiest thing for crooks to achieve in a society with well-established institutions. It’s the other stuff that gives the crooks trouble. Once corrupt people are in government, the middle part of the phrase – “for the corrupt” – does not necessarily follow. If the institutions remain run by honest people, kleptocracy not only may not take root, but the corrupt politicians may be pushed out of office by the next election.

HOW KLEPTOCRACY TAKES ROOT

So something I’ve been keeping an eye on since Donald Trump’s inauguration is how the Securities and Exchange Commission  treats Justin Sun. In case you don’t remember him, Sun is a Chinese crypto billionaire who spent $6.2 million on a banana, then ate it.

In March 2023, the SEC charged Sun and eight celebrities (including Lindsay Lohan, which I was disappointed by, being a fan of both Mean Girls and The Parent Trap) with fraudulently promoting crypto tokens. “Sun paid celebrities with millions of social media followers to tout the unregistered offerings, while specifically directing that they not disclose their compensation,” said Gurbir Grewal, head of the SEC’s enforcement division at the time. “This is the very conduct that the federal securities laws were designed to protect against.”

Six of the celebrities agreed to pay up to settle the charges at the first opportunity, another did a few months later. But Sun was in no hurry, which may have been a sensible policy. Last week, lawyers for Sun and the SEC wrote to the Manhattan judge overseeing the case asking that it be put on hold, saying they’ll come back with a status report in two months’ time. Now, this may all be procedural and above board, but it also may not be.

By September 2024, Trump began to talk about a new crypto company he was launching called World Liberty Financial. It had the admittedly clever tagline: “Be DeFiant” (DeFi of course meaning decentralized finance, the term for digital peer-to-peer transactions). But Trump’s venture struggled to hit its fund-raising target until it found a cornerstone investor: Justin Sun, who put in $75 million.

“This guy,” said World Liberty co-founder Zak Folkman at a forum in Hong Kong last month, with a gesture towards Sun, who was sitting beside him, “saw that regardless of the outcome, this project is a monumental move forward for the entire crypto community.” It is not yet clear what if anything, besides fundraising, World Liberty actually does, but at the same event, Folkman – who once set up a company called ‘Date Hotter Girls LLC’ – said its success came despite there being “no special treatment to anybody who purchased the token."

Hmmm, about that. Now, it’s clearly not true that the Trump White House is going easy on crypto just because Sun gave Liberty Financial $75 million. The SEC has already dropped a case against Coinbase, and last summer Trump was already telling a crypto conference that “when we see the attacks on crypto, it's a part of a much larger pattern that's being carried out by the same left-wing fascists who weaponize government against any threat to their power.” 

Since his inauguration, Trump has issued an Executive Order promising to make the United States the “crypto capital of the planet.” Pausing the investigation into Sun could just be part of a general reluctance to enforce regulations or crackdown on crypto. And the cryptocurrency Sun founded was not named as part of the national crypto reserve mooted by Trump.  

But the Sun case didn’t ever really have anything to do with crypto as such anyway, and the SEC was always careful to make clear it was charging him for the way he marketed his token, not for the fact of it. “We’re neutral about the technologies at issue, we’re anything but neutral when it comes to investor protection,” said Grewal.

So, from the point of view of people who don’t want the United States to tilt further towards Rajaratnam’s definition of a kleptocracy, it would be nice if the SEC maintained its case against Sun or else made very very very very clear that any decision to drop the case was in no way connected to the fact that he gave the US president’s company a nine-figure sum. It would also be nice if the Trump White House was prepared to promise action against some of the more egregious crypto frauds, but not many people are holding their breaths.

PROTECTING THE PRIVACY OF KLEPTOCRATS

On an unrelated note, it appears that Sun also shares the Trump White House’s, er, particular approach to which kinds of free speech should actually be free. Sun, reportedly, put pressure on a crypto trade publication to take down an article critical of his stunt with the banana. Spending six million dollars on a banana should, apparently, be above reproach. 

Talking of free speech and those who believe themselves to be above reproach: the authorities in the uber wealthy Swiss town of Cologny were not cool about the idea that some journalists might stage walking tours pointing out homes bought with the proceeds of some of the more egregious bits of financial crime enabled by folks nearby.

“The residential area perched above the lake is a popular refuge for certain kleptocrats, potentates and other financial pirates,” the event’s publicity announced, before it got cancelled because the local authorities wouldn’t give permission for it to go ahead. Which is to say: the world may be changing more quickly with each passing minute, but Switzerland isn’t.

A version of this story was published in this week’s Oligarchy newsletter. Sign up here.

The post Of the corrupt, for the corrupt, by the corrupt appeared first on Coda Story.

If you’d like to know how I came to write about financial crime, you can watch the keynote speech I gave at the Royal United Services Institute FinSec conference earlier this month. The short version is that I was radicalised by Ukraine. I used to write about other subjects, but the Maidan revolution of 2014, and the subsequent annexation of Crimea, revealed the true dynamics of the world to me in a way nothing had before. 

OLIGARCHS CAN’T HANDLE THE TRUTH

It was partly the revelation of how gross the fallen kleptocrats’ greed had been; it was partly the realisation of how complicit Western enablers had been in the corruption of these kleptocrats; it was partly how Russia’s bought-and-paid-for proxies used blatant lies as cover for its annexation of Ukrainian territory; and it was partly the way that corruption had crushed Ukraine’s ability to respond. Ultimately, it was the combination of all four factors working together that convinced me there was nothing more important to the future of democracy than bringing illicit finance under control.

This is why it was so appalling to see the president of the United States repeating the Kremlin’s lies about Ukraine last week. Corruption of truth plus corruption of morals plus corruption of money equals the destruction of democracy.

Now I’m not going to pretend I have any influence over supporters of Donald Trump. Let's face it, not many of them read this newsletter, and if they did, they wouldn’t listen to me anyway. But it has made me think about what needs to be done in response.

The core of Putin-style politics is what he understands winning an argument to look like. When his opponents are too scared, confused, exhausted, or dead to continue, he thinks he’s won. Sometimes he has: murdering anyone who disagreed with him in Chechnya, shattering an entire city, plus driving out hundreds of thousands of people, did indeed pacify that poor, beautiful place, though it did not work so well as a strategy in Syria.

But here’s why the truth is so troubling to oligarchs, and why Trump unleashed his inner troll when Zelensky said some anodyne but true things, because, no matter how loud you shout, no matter how many people you imprison or murder, two plus two always equals four. And “if that is granted, all else follows.”

SO LET’S CONFRONT THEM WITH THE TRUTH

No matter what the trolls say, actual free speech is not just about letting your opponents say what they like, but about creating structures in which everyone can speak, everyone can be heard, and everyone can agree that the point is to arrive at the truth, not to shout louder. A marketplace of ideas, like any marketplace, can’t function without fair regulations.

And if our rulers refuse to abide by those regulations – like Trump or Putin or, in the U.K., former Prime Minister Boris Johnson – then it is everyone’s duty to call them out. So, it was great to see that Josie Stewart, a British civil servant who lost her job for exposing falsehoods told by Johnson’s government about the withdrawal from Afghanistan in 2021, won a tribunal case for wrongful dismissal.

“We can’t have a system that says stay silent, no matter what you see, and forces dedicated public servants to choose between their conscience and their career,” she said. The usual boring people will claim she was part of the deep state or “the blob,” or whatever, but actually Stewart and people like her are a crucial safeguard against corruption.

Incidentally, in Wales, parliament is debating a new law that would mean politicians could lose their seats if they deliberately lie, which is an interesting idea.

LIKE THE TRUTH ABOUT THE DAMAGE BEING DONE BY MUSK

The good folks at Accountability Lab and Humentum have continued their work to assess the effect of Elon Musk’s decision to destroy USAID (all to save the equivalent of around three and a half days’ worth of the U.S. budget deficit). They have responses from 665 recipients of aid funding, and have broken down how much those organisations will lose and what it means.

The money was spread across many areas, but the largest group affected have been organisations that provided healthcare services, followed by those working in “governance” and “anti-corruption”, with the impact potentially catastrophic even for those who didn’t rely on USAID for all of their money.

Here’s another estimate: after one week of the freeze, almost a million women lost sexual health services; after a month, that figure will hit four million. After 90 days, the supposed length of the freeze, almost 12 million women and girls will be denied life-saving care. That means, if previous trends repeat themselves. 4.2 million women will become pregnant without wanting to, of whom 8,340 will die.

Clinics were one of the few places in rural Afghanistan where women could still work, but now that’s gone. “To be honest, it was one of the worst days of my life,” a midwife in rural Afghanistan told Service95. Imagine what other days an Afghan midwife has likely lived through, and marvel that somehow Elon Musk has managed to make it worse. The knock-on effects in terms of increased misery, increased corruption, and increased terrorism are impossible to calculate, and how any of it benefits the United States is a mystery to me.

WAITING OUT SANCTIONS

While the U.K. is talking tough on sanctions, it is unclear what the Trump administration means to do about the sanctions on Russia and its oligarchs as it continues to negotiate peace. I found this UK Financial Threat Assessment nerdily fascinating. Particularly for its description of some of the mechanisms used by sanctioned Russians to evade restrictions on the movement of their money. Take this choice sentence: “Neo-Bank fails to detect that the regular deposits it receives from Global Bank into the account of Seafarer Z are made by Manager Y, which is funded by Company X, and therefore indirectly by the (sanctioned individual).” 

The British government has promised to keep oligarchs with ties to the Kremlin out of the U.K., where they once bought their most expensive toys, including mansions, newspapers and football clubs. But the oligarchs are sitting tight. For instance, superyachts are expensive toys. And Roman Abramovich hasn’t moved his 162-metre monolith for three years. Mooring fees alone cost more than $200,000 a year. If oligarchs are prepared to go to all that trouble just to keep the crews of their yachts paid, what will they do to buy weapons?

A version of this story was published in this week’s Oligarchy newsletter. Sign up here.

The post Why the future of democracy depends on controlling illicit finance appeared first on Coda Story.

A funny thing happened to me on my way back from a financial crime conference last week. I was sitting on the train, reading a book, minding my own business, when a middle-aged Englishman at the neighbouring table started a video call with a business partner. 

Their plan was to hire a “medium sized” private jet, obtain a few shrink-wrapped pallets of banknotes, then get a friend who had been in the US Special Forces to fly them to the Democratic Republic of Congo and pick up 150-200 kilograms of gold. This would then be flown to Dubai, refined, and sold on. He was determined to keep things simple, so wouldn’t be using diplomatic immunity this time, just quickly in and out, and there’d be a few hundred thousand dollars in profit for everyone, including himself and his interlocutor, who was called Martin.

CONFLICT GOLD 

Rwandan-backed M23 rebels continue to advance in mineral-rich eastern Congo. Control of the DRC’s mines is one of the major prizes in the region. Gold is Rwanda’s biggest export, despite it having few if any mines of its own. Westerners’ willingness, for whatever reason, to buy these minerals are thus a major reason the war continues. The man on the train for example.

I did wonder for a while if the whole experience was an elaborate joke. I write about financial crime for a living and I was on my way back from a conference on that same topic. It seemed too much of a coincidence that someone would be discussing an extremely crude example of that very phenomenon two metres away from me. But the longer he went on – and he went on for a good half-hour – the more I came to understand he was just a real prick.

So-called “conflict gold” has been sanctioned by all major Western countries, and my fellow-passenger appeared aware that his trade was risky – “loose lips sink ships, Martin, let’s keep this to a tight circle” – but not sufficiently so that he didn’t broadcast his intent to an entire train carriage.

What was interesting though was the one thing he was afraid of, and the reason he wanted $10,000 from Martin – the risk of Donald Trump putting sanctions on gold while his jet was in the air, since that could upend the market and wipe out their profits.

The U.S. government’s decisions affect everyone on earth, even when they seem technical and unimportant. This is why Trump’s decision to smash the US government’s anti-corruption efforts will ripple outwards, causing misery and distress in places like Eastern Congo. 

WHY ANTI-CORRUPTION POLICIES MATTER 

Here’s an interesting new paper that shows that, if a country is targeted by US prosecutors investigating offences under the Foreign Corrupt Practices Act (which Trump ended enforcement of last week), the country’s leaders respond by burying their wealth more deeply behind further layers of shell companies. 

“When the United States investigates corruption in a foreign jurisdiction, we find that elites from that jurisdiction quickly and substantively move their money abroad. Using data on 275,000 offshore incorporations, we illustrate that flows are directed to tax havens that have uncooperative relationships with the US,” academics Lorenzo Crippa and Nikhil Kalyanpur concluded.

This may make it look like investigations are a waste of time. If the result of prosecutors’ actions is that criminals not only keep their money but also make it harder to find, then why bother? In fact, the opposite is true: this is a sign that the FCPA is doing its job. No one thinks that stopping corruption and money laundering is possible, unless we can somehow re-engineer humans so we’re not greedy. The aim of legislation is not to stop these practices, but to make them expensive and perhaps not worth the trouble. 

If a kleptocrat has to set up new shell companies, in inconvenient jurisdictions, as a result of prosecutors’ actions, that costs the kleptocrat money and – on the margin – makes some crimes unprofitable. So, Donald Trump is wrong to say the FCPA has been holding back U.S. companies. On the contrary, it has been helping companies by forcing officials to think before demanding bribes. 

Of course, criminals learn to adapt to enforcement efforts. Here’s a fun example from British lawyer Dan Neidle’s Tax Policy Associates, showing how efforts to bring transparency and verification to the UK’s corporate registry is forcing criminals to recruit proxies via Facebook to put their names on the necessary documentation. Upcoming reforms in March that will oblige people to present proof of identity when filing corporate documents will likely lead to an exponential growth in the recruitment of such proxies. 

The ability of criminals to keep finding a way around the law may make it look like the regulations are a failure. But actually the way criminals are having to hide behind ever-more complex screens is a sign of success here too. The transparency of the U.K.’s Companies House, which can be searched for free, allows sleuths like Richard Smith or Graham Barrow to spot what criminals are up to, and force them to engage in ever-more elaborate and expensive forms of deception. 

Sadly, progress on the Corporate Transparency Act, which would start the United States down the road towards an open register has been halted by yet another federal judge in Texas. Back in December, a court in Texas issued a nationwide injunction against the enforcement of the CTA. The U.S. Supreme Court stayed the injunction. 

But now another injunction has been granted, this time in response to two people called Samantha Smith and Robert Means who own property through companies. “Plaintiffs  will  be  irreparably  harmed  if  they  are  forced  to  comply  with  the  new  law,” the Texas court’s ruling said. 

It's not entirely clear what irreparable harm the law would cause them, though it is ironic that a court case they brought to stop anyone knowing they owned their companies – Sage Rental Properties LLC, and Oak Alley LLC, respectively – means that now everyone does. 

While anti-corruption is stalled in the U.S., the European Union is hurtling towards a bright future when its long-promised Anti-Money Laundering Agency will actually do something. Well, maybe not “hurtling”.  

After a year or two of discussion about where the new agency would be based, the choice of Frankfurt was made, as everyone knew it would from the very beginning. In January, AMLA gained a chairperson. And an office will, presumably, open at some point in the next few months. AMLA’s now going to consult on some “implementing rules” and should choose which entities it will supervise at some point in the next two years or so, before becoming fully operational in 2028. Tremble, criminals, the EU is coming towards you. Very, very slowly.

A version of this story was published in this week’s Oligarchy newsletter. Sign up here.

The post Trump’s gift to kleptocrats appeared first on Coda Story.

Anyone who has been a member of an internet forum will know the kind of person who always ends up taking over: he’s not just ignorant but aggressively ill-informed; he’s arrogant; he mistakes being a bully for being funny. The whole place eventually adopts his personality, decent posters slip away so you do too. You’ll miss the chat and the companionship but the thing that made the forum worthwhile is gone. It's sad, but it’s not real life. 

Except now it is. 

The president of the United States has given that person free rein to commandeer the forum but it’s not possible just to log off. Elon Musk’s tiresome jokes, gross politics, and crass ignorance are no longer confined to X, or even the Oval Office, but have been unleashed onto the world’s most vulnerable people. “Corruption is development in reverse, devastating the outcomes we seek across all sectors, eroding the rule of law, and undermining citizen trust in governing institutions and processes,” said a (now grimly ironic) mission statement from USAID, issued just two years ago. A statement that now can’t be read on its web site because Musk has shut it down.

He has used X and his status as “Special Government Employee” to dismiss the world’s most important aid agency – in words that presumably landed well with his acolytes on X but signified nothing to me – as “a radical-left political psy op.” Just from my own knowledge, I can say this vandalism will benefit no one but America’s enemies and undermine its friends.

A FORCE FOR GOOD

Take, for instance, the Anti-Corruption Action Center in Kyiv. It has done more than anyone to cement honesty in Ukraine – which, a decade ago, was arguably the most corrupt nation in Europe – and was 20% funded by USAID. Or the Journalism Development Network, which has exposed corruption and misgovernance throughout Eastern Europe and beyond, its reporting helping considerably to prevent the Kremlin from buying influence. It too was funded by USAID. These projects aren’t just important for informing curious people, banks’ compliance departments rely on news reports like these to assess whether a potential client is a crook or an entrepreneur. Without the journalism that USAID funded, the world’s anti-money-laundering guardians will be blind. 

And that’s not all. The Kurdish guards of a camp for former Islamic State fighters and their families are able to keep it safe, and its inmates fed, thanks to money from USAID. Here’s a USAID-funded programme to combat corruption in sea ports; here’s a story about a radio station in Afghanistan that also received USAID funding. USAID helped spread the practice of democracy into places it had never been. The agency’s $43 billion annual budget may sound like a lot, but it’s less than Musk paid for Twitter before he trashed it, and it’s barely a fifth of the increase in his own personal wealth in just the last twelve months.

A MATTER OF LIFE AND DEATH, NOT POLITICS 

Of course, not everything USAID has done has been ideal. But there is an incredible degree of idiocy in failing to appreciate that the cheapest and easiest way to win arguments is not to have them in the first place. USAID is the world’s single largest donor for humanitarian causes. Spending money to win friends is a good investment.

“Elon Musk is the world's wealthiest man and right now he seems to be calling the shots with decisions that are literally going to be life or death for the world's poorest people,” said Giff Johnson, the laconic and wise editor of the Marshall Islands Journal, the leading newspaper in a country that is both very aid dependent and very strategically located. Where the United States steps back, China will step forward. “It's an opening for anybody else who wants to fill the gap, I suppose, until Washington decides what it is doing."

On top of all this, the Department of Justice has disbanded Task Force KleptoCapture, which was part of an international effort to make Vladimir Putin’s corrupt allies and officials pay the cost of the Ukraine war. Oh, and it’s decided not to investigate foreign intervention in US politics. 

It is beginning to feel a little like the United States is changing sides here. Or maybe it already has?

THE COST OF HAVING PRINCIPLES

Also changing sides, have been the billionaires coalescing around Trump, particularly Jeff Bezos once described as a “woke philanthropist” for his funding of climate organisations and tuition-free preschools. 

In 1947, Time magazine reported on a 37-year-old Japanese judge called Yoshitada Yamaguchi who, too poorly-paid to live on his salary and too honourable to break the law, starved to death. “It is horrible these days to be married to an honest man,” his widow said.

I remembered that story when reading about how Bezos’ charitable foundation had cut funding for the world’s leading climate standard setter, apparently in order to avoid annoying Donald Trump. “Obviously Jeff Bezos and the tech companies have changed compared to eight years ago,” one source told the FT. It is clearly not reasonable to expect people to starve to death rather than betray the needs of the society they live in, but honestly you’d have thought a billionaire might be willing to go without his elevenses to stand up for some principles? What is the point of having all those commas on your bank statement if you roll over like a whipped dog when someone threatens to say something mean to you?

How different Bezos, and his flexible principles, are from the likes of Guatemalan lawyer Virginia Laparra Rivas, who dedicated her career to fighting corruption and organised crime. She won a prize in London last week for her work and her courage. After five years of harassment, Laparra was imprisoned for two years in 2022 after being convicted of abusing her authority as head of the Special Prosecutor’s Office Against Impunity in Quetzaltenango, in a process that was widely condemned.

“I wonder how many of us who speak about and act in support of the rule of law in the UK so confidently would have the bravery and the principles to do so in a country such as Guatemala,” asked senior judge David Neuberger in a speech at the awards ceremony. 

Or indeed in Washington DC right now?

NO FISH TOO SMALL TO FRY

And speaking of the courage required to take on the powerful. By the time you read this, Transparency International will have published its annual Corruption Perceptions Index, and there will be all the usual hoopla about how Denmark has gone up, South Sudan has gone down, and – oh dear – under Donald Trump, the United States has slipped to – I don’t know – maybe thirtieth? Whatever the actual scores, there will be a map showing Europe and North America in a friendly yellow, while Africa and Asia will be an angry red, just like last year and the year before that.

Please ignore it. The index is meaningless nonsense, in which “corrupt” is just a synonym for poor. And it does real harm, since the CPI’s metric filters into so many of the ways that aid agencies make funding decisions, and companies decide whether to make investments or not. I’m convinced the only reason TI keeps producing it is because everyone talks about it so if we stop, maybe they will too.

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