The Oracle of Omaha once wrote, “It has been far safer to steal large sums with a pen than small sums with a gun” (1988 Chairman’s Letter to Shareholders).

This statement rings loud and clear in an era where entrepreneurs have amassed humongous amounts of illicit wealth by siphoning off shareholders’ money or diverting proceeds from lenders for personal purposes, leaving no distinction between corporate net worth and their own. 

The greed for a lavish life, the desire to meet analysts’ quarterly expectations, to drive up the stock price (they benefit from stock options) makes corporate frauds an endless battle to fight against.

Howard Schilit in his book, ‘Financial Shenanigans’ has very well illuminated the multiple ways by which it is highly possible to dress the financial results and manipulate numbers and stock price.

Let’s look closely, what these “Moneylanders” (that’s what I will call these thieves and crooks) do after they have amassed huge sums of wealth from the businesses they run. 

It all dates back to the years after World War II, where money flowed across continents seamlessly, destabilising their currencies and economies. 

Hence, the Allies, at a meeting at Bretton Woods resort in New Hampshire in 1944, agreed upon a System where the US dollar would be backed by gold. This encouraged the smuggling of gold, pretty much like the Bond film, “Goldfinger”. Smuggle the gold to a location where the demand exceeds supply, commanding higher prices than a location where the demand is low.

However, growing evidence that USA was according preferential treatment to some countries over others, while discharging its commitments, fuelled discontent among other member countries. This, in turn, damaged the US’ credibility and fostered the emergence of the ‘Eurodollar’ market  a practice of raising dollars outside the US. These unregulated dollars (termed as the ‘Offshore Market’) were used to facilitate transactions outside its jurisdiction. 

This popularity of Eurodollars (and subsequently, Eurobonds) encouraged Swiss Banks to use the abundant cash (received by tax evaders, Jews fleeing from their country, crooked money etc.) to lend, using Eurobonds. 

This, in turn, had a multiplier effect on the supply of US Dollars, thereby ‘de-stabilising’ the dollar/gold price, with money flowing out of US. 

These Eurobonds carried lower interest rates, tax advantages and also gave Swiss Banks an additional income on the funds which otherwise lying idle. 

Still curious to know how money lands in these Swiss Bank Accounts? Simple…

The game is all about, steal – hide – spend. 

Crooked businessmen, tax evaders and the like, siphon money off. One way is by creating shell companies, foundations, trusts, partnerships, special purpose vehicles, etc… a complicated and mind-boggling web of companies, through which the funds are routed. 

Every grand corruption or tax avoidance shows how crucial shell companies are to the process of ‘de-embarrassing’ assets. The creation of these long nested chains of corporate structures across multiple jurisdictions (tax havens), is an effective way of hiding the origin of assets and their ownership. 

The more plastic bags you wrap around a dog turd, the harder it is for outsiders to realise what’s inside, even if the last bag says Tiffany & Co. on it, no one will realise its full of shit, as quoted by ‘Oliver Bullough’ in his book titled ‘Moneyland’

The last step is to circulate this money, by spending it. 

What better way than to spend on real estate, paintings and art, yachts and other luxuries? Who can forget Mr.Jho Low, the Asian who orchestrated a fraud of billions of dollars, using sovereign wealth (1MDB, Malaysia) to fulfill his whims and fancies. We wouldn’t fall short of naming people involved in such grand schemes. 

Kal Pen, on “this giant beast called global economy” accurately describes how easy is it to create shell companies and launder money at the click of a button.

There are disquieting signs that the dirty money sloshing around the world seeking safe investments across the world is beginning to damage the places that have been so happy to provide it with a haven. A revenue source for these tax haven islands, are obliged to sign up to FATCA declarations, slowing down the lucrative prospects, where for every company registration and commoners from the island earned a fee. These fees were enough to run their economy. 

With the leak of ‘Panama Papers’, the tax havens where the offshore entities were located were made to increase the transparency in their dealings. 

A simple fact is: ‘Offshore’ allows people to do and get away with acts they cannot  easily undertake ‘onshore’.  

Efforts are undertaken to address these problems, in some parts of the world. For instance, Ukraine requires that companies identify their real owner or publishing their ‘beneficial owners’. Britain requires companies to report a ‘person with significant control’ which side steps the complicated ownership structures; also the British Parliament has voted to force its offshore territories to open up their registries of company ownership to public scrutiny, meaning we should eventually be able to see behind the veil of secrecy erected by tax havens. Besides, we have the FATCA & CRS declaration to curb tax evasion. 

However all efforts have been partial and do not address the root cause, which is money is international while laws are not. The fight against corruption & frauds continues. The leak of Panama Papers which contained details of financial and attorney client information for many offshore entities sparked an uproar. The world responded with tightening of laws, emphasising on the need for greater corporate transparency, targeting the enablers (the banks and financial institutions).

More than $1.2 billion has been recouped in 22 countries & the impact continues……

Benign neglect, in the name of ‘supporting globalization’ and a dogmatic fixation on ‘unfettered capital flows’, may unwittingly end up nourishing the shadowy world of fraudulent entities and providing further momentum to the flywheel facilitating the circulation of ‘tainted money’. This is something we should all guard against.