Close up on Research

“You Can Open A Shell Company in Five Minutes”

Brooke Harrington’s research took her into a world few people ever get to see: she studied wealth managers, who help the rich to hide their money. She spoke to people who only seldom give interviews, let alone divulge tax tricks. In order to get to the heart of the matter, the economic sociologist decided to join them.

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Als Offshore-Sparschwein für Reiche dienen Steuerparadiese wie die Bahamas. Die echten Bahamas-Schweine wurden dort vor 200 Jahren ausgesetzt und belustigen heute Badegäste.
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Professor Dr Brooke Harrington has been an Associate Professor for Sociology at Copenhagen Business School in Denmark since 2010. After studying English Literature at Stanford University, she read Sociology at Harvard. A Humboldt Research Fellowship took her to the Max Planck Institute for the Study of Societies in Cologne. Her research into the offshore world informed her book “Capital without Borders: Wealth Managers and the One Percent” which was published by Harvard University Press in 2016.

Kosmos: You spent eight years investigating the offshore world. What did you discover?
When you have the specific knowledge, you can hide your money nearly everywhere you want. You just need to be able to use the loopholes in the financial systems. That is where wealth managers come into play: it is their business to help the rich to hide their money.

Why do rich people hide their money?
The main reason is some combination of tax avoidance, creditor avoidance and the avoidance of legal judgments related to family, like alimony payments or inheritances.

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Are their motives always bad?
In the case of people who live in unstable countries you can understand that they don’t want themselves or their families to be kidnapped and blackmailed, so it is in their interest to conceal as much as possible to not get targeted.

In order to study the work of wealth managers, you decided to become one yourself. Why?
There wasn’t any way to learn enough about the profession without entering the training programme. Their work changes so rapidly because the laws about taxes change very quickly.

Can anyone do the training programme?
Yes, if you are willing to invest £25,000 for the two years of training, including the travel costs to visit workshops, in which you learn the laws of trusts, foundations and corporations: where they come from and how you can use them to hide assets.

How come they were willing to allow a researcher to listen in on their secrets?
I think because from the beginning they knew who was financing me. I wore a name badge at all times, just like all the other course participants, but mine made clear that I was a member of a research institution. The Max Planck Institute and the Alexander von Humboldt Foundation paid me a salary for the first two years of my study; without that support I couldn’t have done this research. In total, I did 65 interviews with wealth managers in 18 countries.

What is your impression? Do wealth managers have a guilty conscience about helping the rich to avoid taxation?
Some people believe very strongly in the notion of free markets and they see the freedom to get rich. I asked everyone I interviewed, what is good about your job? And the majority said, I enjoy helping families.

Rich families who get richer whilst the poor get poorer.
Only a few have considered that consequence and for them it was a struggle. I interviewed an accountant who worked for Greenpeace before becoming a wealth manager. She said she was troubled by the amount of privileges her clients had.

What kind of privileges?
The whole system of western states wasn’t relevant to them. They could just buy their way out of the system. These people don’t even need a passport to travel internationally. There is this private air system, no passport check, no luggage check, you go where you want, when you want.

So is there always a way for rich people to avoid the law?
If you are rich enough, probably. There have been notable cases where people have been convicted of crimes. Allen Stanford, for example, who was a very wealthy hedge fund manager in the Caribbean. He got caught; he went to jail for defrauding his clients. But for every conviction I assume there are many more cases where wealthy people can avoid jail. Although tax avoidance gets all the headlines, it is generally more a question of law avoidance.

How do rich people actually go about avoiding the law?
At the extreme, you can just buy a different passport and that happens so often that now there is a market for boutique companies that help wealthy people change citizenship.

Jonathan Ostry, the Deputy Director of the Research Department at the International Monetary Fund, once said that inequality and growth are linked. A society in which wealth is distributed more equally grows faster because inequality reduces the chances of the poor..
Wealth managers play into that in the following way: by helping people avoid taxes they are depriving states of their resources to provide things like public education, health care and transportation. And if you are a poor person you need public transportation, you need health care so that you don’t use all your savings when you get sick; you need good education to get a good job one day. States have less money to finance all these things under conditions of mass tax avoidance by the rich.

The rich shift the burden downwards.
Everyone has to pay more because states need a basic minimum amount to function. So the burden gets shifted to those of us who can’t pay wealth managers to avoid taxes. You and me.

How much extra do we have to pay because of the rich hiding their assets?
In the US and other places that amount has been estimated to be 15 per cent. That’s annoying for a middle-class person like me, but for a poor person that’s the difference between being able to save up and start a business or not. The countries that suffer the most under prosperity austerity are the ones that had the highest rates of tax avoidance before the crisis: Greece, Spain, Portugal.

You conducted more than 60 interviews with people all over the world, on the Cook Islands, in South America, on the Seychelles. What was your impression of these places?
Many of the offshore tax havens are kind of scary places. Often I felt quite unsafe and that is unusual for me, because I’d travelled a lot by myself before, including the Middle East, and never felt unsafe. There is this idea that when small countries develop things like offshore financial structures everything starts to go wrong: the democracy starts to fall apart, crime rates go up, and there is a general kind of moral corruption that goes on.

What do you mean by moral corruption?
In my first night on the Cook Islands, for example, I was robbed by someone while I was sleeping with my five-yearold son in the hotel. He took my tablet phone, my only way of communicating with the world. And then the people who were in charge of the accommodation said: too bad, you can’t have your $3,000 back you paid in advance to stay here for a week. Too bad, if you can’t deal with being robbed; there is something wrong with you.

What did you do?
I looked for flights but it was too expensive, so I moved to another hotel. The rest of my stay I was looking over my shoulder the whole time. I was very scared. In the course of walking around after the robbery I met a fisherman who said, “Ah, you know, that is why they call us the ‘Crook Islands’.”

The Cook Islands are also known for shell companies. It’s very easy to set up a company online. Why do rich people bother to employ wealth managers?
You can open a shell company in five minutes, but in order to use it to your advantage you have to have some specialised knowledge. If you make a mistake you might go to jail. Rich people pay wealth managers to take those risks for them. Wealth managers know exactly how to keep you just one centimetre on the right side of the law. They can help you to hide your money, even in countries like the UK or Germany.

Did you interview a German wealth manager?
Actually, one of the most interesting people I interviewed was German, a man who had a “von” in his last name. During the Second World War his family lost all their land holdings, he had little money. This guy didn’t even go to university, but he was still able to make a great thirty years’ career for himself managing people’s money.

How did he do it?
He had the right kind of manners and what sociologists call social capital to make wealthy people want to work with him. He would play polo, go skiing, he would go to the opera and drink champagne. He knew how to behave, one of the things he said was, “You never ever approach a client directly about money, you wait for them to raise that topic.”

Is there anywhere in the world that doesn’t have offshore finance?
As far as I learned, Greenland is free from offshore finance. It is sort of a mystery. Why does an island that has nothing except whaling not become an offshore tax haven? No one seems to have a good answer to this question. Maybe it hasn’t occurred to them yet.

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