3-1-1999 When hammer and sickle gave way to
Russia's tricolor in 1991 Russians believed themselves destined for democracy and a free-market economy, the two key constituents of what they called simply a "normal society." They also exhibited admiration for the United States unequaled by any other of America's adversaries after the great conflicts of this century. Such attitudes are now hardly perceptible. They have been replaced by hostility toward what has been foisted on them in the name of democracy and capitalism, and toward the United States, which most believe to have been in some degree responsible for the failures and perversions of “reform.”…
The revolution of 1991 was not as revolutionary as it seemed. The termites had long been chewing away within, even before the wrecking balls of glasnost and perestroika assailed from without. The Soviet system collapsed because a large portion of the nomenklatura, those with hands directly on state property, deserted the CPSU and the Soviet state to pursue business interests and nationalist political agendas. This had been going on sub rosa for years; the events of late 1991 only unveiled and accelerated the process. As a result the post-Soviet scene in Russia is dominated by the people, relationships habits of the late Soviet era, particularly in the nexus of property and power….Elections are generally freer and fairer than in Belarus or Kazakhstan. It is more apt to call them free-for-all and fair-or-foul, since money, manipulation and political violence continue to play a large role. There is freedom of the press, in that ideologically diverse media host lively commentary on Russia’s affairs. But Russia's media are controlled by the politico-business clans who dominate national and regional politics. …the “new Russians", working with organized crime and corrupt officialdomextract wealth as quickly as possible and send abroad what they don’t ostentatiously consume. The most powerful actors in this sector are deeply invested in phony banking, controlled media and patronage politics….
But should the U.S. government render such help (return stolen funds) to Russia? For a policy decision the late Ed Hewitt, then running Soviet affairs on the National Security Council, assembled officials from State, Treasury, Defense and the intelligence community. The answer was no. Some worried about risk to intelligence sources. But the main rationale was the following: capital flight is capital flight. We can no more help Russia retrieve such money than we can help Brazil or Argentina. If they get the economic fundamentals right, the money will return. I cannot remember whether anybody put it so explicitly, but the implication was clear: it doesn't matter who has the money or how it was acquired, even if by theft; so long as it is private it will return to do good things if there is a market.
-Fritz Ermarth https://nationalinterest.org/print/article/seeing-russia-plain-839
………………………………….......................................................….
For two years in the early 1990s Richard Palmer served as the CIA station chief in the United States’ Moscow embassy. The events unfolding around him—the dissolution of the Soviet Union and the rise of Russia—were so chaotic, so traumatic and exhilarating that they mostly eluded clearheaded analysis. But from all the intelligence that washed over his desk Palmer acquired a crystalline understanding of the deeper narrative of those times. In the fall of 1999 he testified before a congressional committee to disabuse members of Congress of their optimism and to warn them of what was to come.
American officialdom, Palmer believed, had badly misjudged Russia. Washington had placed its faith in the new regime’s elites; it took them at their word when they professed their commitment to democratic capitalism. But Palmer had seen up close how the world’s growing interconnectedness—and global finance in particular—could be deployed for ill. During the Cold War the KGB had developed an expert understanding of the banking byways of the West, and spymasters had become adept at dispensing cash to agents abroad. That proficiency facilitated the amassing of new fortunes. In the dying days of the U.S.S.R. Palmer had watched as his old adversaries in Soviet intelligence shoveled billions from the state treasury into private accounts across Europe and the U.S. It was one of history’s greatest heists.
Washington told itself a comforting story that minimized the importance of this outbreak of kleptomania: these were criminal outliers and rogue profiteers rushing to exploit the weakness of the new state. This narrative infuriated Palmer. He wanted to shake Congress into recognizing that the thieves were the very elites who presided over every corner of the system. “For the U.S. to be like Russia is today,” he explained to the House committee, “it would be necessary to have massive corruption by the majority of the members at Congress as well as by the Departments of Justice and Treasury and agents of the FBI, CIA, DIA, IRS, Marshal Service, Border Patrol; state and local police officers; the Federal Reserve Bank; Supreme Court justices …”
The United States, Palmer made clear, had allowed itself to become an accomplice in this plunder. His assessment was unsparing. The West could have turned away this stolen cash, it could have stanched the outflow to shell companies and tax havens. Instead Western banks waved Russian loot into their vaults. Palmer’s anger was intended to provoke a bout of introspection—and to fuel anxiety about the risk that rising kleptocracy posed to the West itself….Russian values might infect and then weaken the moral defense systems of American politics and business.
This unillusioned spook was a prophet, and he spoke out at a hinge moment in the history of global corruption. America could not afford to delude itself into assuming that it would serve as the virtuous model, much less emerge as an untainted bystander. Yet when Yegor Gaidar, a reformist Russian prime minister in the earliest post-Communist days, asked the United States for help hunting down the billions that the KGB had carted away, the White House refused. “Capital flight is capital flight” was how one former CIA official summed up the American rationale for idly standing by. But this was capital flight on an unprecedented scale and mere prologue to an era of rampant theft. When the Berkeley economist Gabriel Zucman studied the problem in 2015 he found that 52 percent of Russia’s wealth resided outside the country.
The collapse of Communism in the other post-Soviet states along with China’s turn toward capitalism only added to the kleptocratic fortunes that were hustled abroad for secret safekeeping. Officials around the world have always looted their countries’ coffers and accumulated bribes. But the globalization of banking made the export of their ill-gotten money far more convenient than it had been—which, of course, inspired more theft. By one estimate more than $1 trillion now exits the world’s developing countries each year in the forms of laundered money and evaded taxes.
As in the Russian case much of this plundered wealth finds its way to the United States. New York, Los Angeles and Miami have joined London as the world’s most desired destinations for laundered money. This boom has enriched the American elites who have enabled it—and it has degraded the nation’s political and social mores in the process. While everyone else was heralding an emergent globalist world that would take on the best values of America, Palmer had glimpsed the dire risk of the opposite: that the values of the kleptocrats would become America’s own. This grim vision is now nearing fruition.
The contagion has spread remarkably quickly which is not to say steadily, in a country haunted since its founding by the perils of corruption. The United States has had seizures of conscience en route to the top of the new global order surveyed by the British journalist Oliver Bullough in his excellent book Moneyland: Why Thieves and Crooks Now Rule the World and How to Take It Back. In the months following Palmer’s testimony the zeitgeist swerved in the direction he urged, at least momentarily. Newspaper articles in the fall of 1999 showed how billions in Russian money, some of it seemingly tied to an alleged crime boss, had landed in the Bank of New York. These sums startled Bill Clinton’s administration which readied tough new anti-money-laundering bills designed to stiffen banking regulations. But the administration was in its last year, and passing any new law would have required a legislative slog and bull-rushing obstreperous lobbyists, so plans stalled….
Title III of the Patriot Act, the International Money Laundering Abatement and Anti-terrorist Financing Act, was signed into law little more than a month after September 11. This section of the bill was a monumental legislative achievement. Undeterred by the smoke clouds of crisis, representatives of the big banks had stalked the Senate, trying to quash the measure. Citibank officials reportedly got into shouting matches with congressional staffers in the hall. This anger reflected the force of the Patriot Act. If a bank came across suspicious money transferred from abroad, it was now required to report the transfer to the government. A bank could face criminal charges for failing to establish sufficient safeguards against the flow of corrupt cash. Little wonder that banks fought fiercely against the imposition of so many new rules, which required them to bulk up their compliance divisions—and, more to the point, subjected them to expensive penalties for laxity.
Much of what Palmer had urged was suddenly the law of the land. But nestled in the Patriot Act lay the handiwork of another industry’s lobbyists. Every House district in the country has real estate, and lobbyists for that business had pleaded for relief from the Patriot Act’s monitoring of dubious foreign transactions. They all but conjured up images of suburban moms staking for sale signs on lawns, ill-equipped to vet every buyer. And they persuaded Congress to grant the industry a temporary exemption from having to enforce the new law.
The exemption was a gaping loophole—and an extraordinary growth opportunity for high-end real estate. For all the new fastidiousness of the financial system foreigners could still buy penthouse apartments or mansions anonymously and with ease by hiding behind shell companies set up in states such as Delaware and Nevada. Those states along with a few others had turned the registration of shell companies into a hugely lucrative racket—and it was stunningly simple to arrange such a Potemkin front on behalf of a dictator, a drug dealer or an oligarch. According to Global Witness, a London-based anti-corruption NGO founded in 1993, procuring a library card requires more identification in many states than does creating an anonymous shell company.
Much of the money that might have snuck into banks before the Patriot Act became law was now used to purchase property. The New York Times described the phenomenon in a series of exposés published in 2015 called “Towers of Secrecy.” Reporters discovered that condos in the ultra-luxe Time Warner Center at Columbus Circle in Manhattan were owned by a constellation of kleptocrats….If foreign plutocrats remained mostly unscathed as they made themselves at home in the U.S., American plutocrats eager to hide their fortunes abroad faced fresh trouble. In 2007 the United States experienced one of its bouts of moral clarity, jolted by the confessions of a banker named Bradley Birkenfeld, who came clean to the Department of Justice. (He would later tell his story in a book called Lucifer’s Banker.) What he freely divulged to prosecutors were his client-recruiting efforts on behalf of UBS, the Swiss banking behemoth. Birkenfeld described how he had ensconced himself in the gilded heart of the American plutocracy, attending yacht regattas and patronizing art galleries. He would mingle with the wealthy and strike up conversation. “What I can do for you is zero,” he would say and then pause before the punch line: “Actually it’s three zeroes—zero income tax, zero capital-gains tax and zero inheritance tax.” Birkenfeld’s unsubtle approach succeeded wildly as did his bank. As part of an agreement with the Justice Department, UBS admitted to hiding assets totaling some $20 billion in American money.
The scale of the hidden cash spun Congress into a fury.
In 2010 it passed the Foreign Account Tax Compliance Act (fatca), legislation with moral clout that belies its stodgy name. Never again would a foreign bank be able to hold American cash without notifying the IRS—or without risking a walloping fine….In 2011 the Obama administration sought to collect more information about foreigners’ bank accounts and to share it with the relevant home countries. But banks—along with their lobbyists and intellectual mouthpieces—worked furiously to prevent the expansion. A fellow at the Heritage Foundation denounced the proposed standards as “fiscal imperialism.” The president of the Florida Bankers Association said “At a time when we are trying to create jobs and reduce the burden on businesses this is the wrong issue.” Bankers’ associations in Texas, California and New York followed suit. The effort went nowhere in Congress.
The pattern repeated itself when the Organization for Economic Cooperation and Development, following the original fatca example, took the congressional template and extended it: each year banks would report foreign accounts to the tax authorities in the account holders’ home country. If every nation had signed on to the OECD standards, the effect would have been a hammer-blow to tax havens, shattering the vital infrastructure that allows kleptocratic money to flow unnoticed. In the end the United States was alone in refusing to join the OECD agreement, finalized in 2014.
This obstinacy stood to subvert everything the country had done to lead the fight against dirty money: while the U.S. can ask almost any other nation’s banks for financial information about American citizens, it has no obligation to provide other countries with the same. “The United States had bullied the rest of the world into scrapping financial secrecy,” Bullough writes, “but hadn’t applied the same standards to itself.” A Zurich-based lawyer vividly spelled out the consequences to Bloomberg: “How ironic—no, how perverse—that the USA, which has been so sanctimonious in its condemnation of Swiss banks, has become the banking secrecy jurisdiction du jour … That ‘giant sucking sound’ you hear? It is the sound of money rushing to the USA.”
Not long before the U.S. declined to sign on to the OECD standards, a branch office of the baronial Rothschild bank opened on the 12th floor of a building in Reno, Nevada, far away in miles and spirit from the home office in Paris. The bank’s name wasn’t announced on the exterior of the building or even listed in the lobby directory. Soon after the Reno outpost opened one of the bank’s managing directors introduced the new branch’s services to potential clients in San Francisco. What made the presentation so memorable were the ideas included in a draft procured by Bloomberg. The script laid bare the reasons for wealthy foreigners to funnel money through Nevada: the state is the ideal place to hide money from governments and avoid paying U.S. taxes. The draft acknowledged a truth that bankers don’t usually admit in public which is that the United States has “little appetite” for helping foreign governments retrieve money laundered within its borders. In fact it has grown into “the biggest tax haven in the world.”
What changed wasn’t just regulatory structure. The behavior of the American elite changed too. Members of the professional classes competed to sell their services to kleptocrats. In the course of that competition they breezed past old ethical prohibitions….The defining document of our era is the Supreme Court’s Citizens United decision in 2010. The ruling didn’t just legalize anonymous expenditures on political campaigns. It redefined our very idea of what constitutes corruption, limiting it to its most blatant forms: the bribe and the explicit quid pro quo. Justice Anthony Kennedy’s majority opinion crystallized an ever more prevalent ethos of indifference—the collective shrug in response to tax avoidance by the rich and by large corporations, the yawn that now greets the millions in dark money spent by invisible billionaires to influence elections. -F. Fhttps://www.theatlantic.com/magazine/archive/2019/03/how-kleptocracy-came-to-america/580471/oer
No comments:
Post a Comment