moneyland remainder

PLUTOS LIKE TO HANG OUT TOGETHER

Ajay Kapur is someone who thinks a lot about money, and how to make it. In autumn 2005, he started thinking about why the rise in oil prices was not affecting the US equity market in the way that conventional thinking predicted that it should. Oil was yet to hit its record highs of 2008, when Brent crude exceeded $140 a barrel, but the price had still doubled in three years, which was startling enough. Since US taxes on fuel are low, increases in the crude oil price were passing quickly into matching increases in the pump price, with an inevitable effect on consumers’ disposable income. Drivers were angry; politicians were asking questions; the government was fretting. And, yet, there had been no apparent knock-on effect on the stock market. It was puzzling, and it was the sort of puzzle that analysts love to unpick.
At the time, Kapur worked for Citigroup as director of Global Strategy Research, and his job was to find assets for his clients to invest in, which meant it was important for him to understand what was going on. He and his colleagues looked into the situation, and concluded that it was too early to be concerned. And then they thought some more, and read some more, and inspiration came: which they revealed to the world in an October 2005 report entitled ‘Plutonomy, Buying Luxury, Explaining Global Imbalances’. The footnotes to the report are packed full of works by academics who were then or who have since become heroes to the political left – particularly Thomas Piketty and Emmanuel Saez – but the bank’s analysts brought them into the service of the very wealthy. The report’s message was a simple one: the rich are getting richer, and that can make you rich.
Kapur’s insight was that, if the majority of a country is owned by very few people, it doesn’t necessarily matter what the oil price does. The oil price is important to people who are on a budget. If the cost of a daily commute doubles in the space of a couple of months, then inevitably that will reduce the amount of money you have to spend on other things: holidays, trips to the cinema, even food. But if you are very wealthy, then the proportion of your income that you spend on travel is very low, so your spending will barely be affected at all. If your customary purchases are Birkin bags, Sunseeker yachts, or a fourth home, perhaps in Miami, then changes to the oil price don’t matter, which has important consequences for the profitability of the companies that make those products.
Kapur thought too many of his fellow analysts were looking at the average consumer, when, in an age of inequality, the average consumer’s role in the economy was increasingly marginal. He used the word ‘plutonomy’ to describe economies where the wealthy have a disproportionate share of the assets (he claimed to have invented it, although it dates back to at least the mid-nineteenth century, when it was used as a synonym for economics), places like Britain, America or Canada. His analysis was original, and provided a fascinating insight into how the kind of luxury spending detailed in the previous two chapters is affecting the world.
‘In a plutonomy there is no such thing as “the US consumer” or “the UK consumer’”, or indeed “the Russian consumer”,’ Kapur wrote. ‘There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the “non-rich”, the multitudinous many, but only accounting for surprisingly small bites of the national pie.’ According to the Citigroup analysts’ research, the top million households in the United States had approximately the same wealth as the bottom 60 million households. And rich people have relatively little of their wealth tied up in their homes, meaning that a far higher proportion of that wealth is disposable. If you looked at just financial assets, and exclude housing from the calculation, the top million households held more of the sum total of American wealth than the bottom 95 million households put together. This was a new phenomenon, and one with lucrative possibilities for a canny investor. If you could find a way to invest in the companies that produce the kind of products favoured by Naulila Diogo (the newlywed Angolan princess with the $200,000 dresses) or Dmitry Firtash (the Ukrainian tycoon with the London Tube station), then you could profit from inequality, and perhaps with time become a plutonomist yourself.
Not all of Kapur’s analysis has stood the test of time. He speculated that the reason the United States, Canada and Great Britain have greater inequality than continental Europe and Japan is because of their immigrant heritage, and suggested this might be because immigrants have higher levels of dopamine (‘a pleasure-inducing brain chemical … linked with curiosity, adventure, entrepreneurship’) than those whose forebears happily stayed in their ancestral villages. But his economic approach was rigorous. He identified a basket of stocks that have benefited from the kind of purchases favoured by Moneylanders: companies like Julius Baer, Bulgari, Burberry, Richemont, Kuoni and Toll Brothers. His report traced the prices of the shares of the companies in the basket back to 1985, and showed they cumulatively yielded an annual rate of return of 17.8 per cent, far higher than the stock market as a whole. That outsized return had only accelerated with time, particularly since 1994, when wealthy Russians and others began to develop their taste for Western luxuries.
‘The emerging market entrepreneur/plutocrats (Russian oligarchs, Chinese real estate/manufacturing tycoons, Indian software moguls, Latin American oil/agriculture barons), benefiting disproportionately from globalisation are logically diversifying into the asset markets of the developed plutonomies,’ he wrote. ‘Just as misery loves company, we posit that the “plutos” like to hang out together … the emerging markets’ elites often do their spending and investment in developed plutonomies rather than at home.’
It was an obvious point to make. Two years previously, Russian billionaire Roman Abramovich had sensationally bought Chelsea football club, so it should have come as no surprise that the world’s wealthy like to spend their money in just a handful of cities. But the consequences of this behaviour had not been teased out before.
Kapur credited the key insight into what this all meant to his ‘fashion-loving colleague Priscilla’, who apparently told him: ‘Wow, I can get rich by owning the plutonomy stocks, and then spend my money on these products.’ Priscilla was arguing that, if inequality keeps increasing, rich people will buy more luxury goods, so shares in companies producing luxury goods will keep outperforming the broader market. If Kapur’s clients keep investing in those shares, they can keep making money out of the rise in inequality, which they can spend on luxury goods, which will boost those shares, which will increase inequality further, so more luxury goods will get bought, which will boost those shares, and so on. It was a virtuous circle, for anyone clever enough to invest in it. The basic message was the same one as that learned by Pnina Tornai’s wedding dress boutique, or by the estate agents of west London: there’s a lot of money to be made from those who don’t ask too many questions about where money comes from.
Kapur stuck with the subject, producing several more investigations into his theme. In March 2006 came a report called The Rich Getting Richer, and in September he hosted a London symposium called Rising Tides Lifting Yachts, in which he summarised his investment advice with the short but memorable formulation ‘Binge on Bling’. The website for the symposium is still live and, although the links to its presentations are no longer working, the report paraphrases the words of some of its participants, who had unrivalled insight into what the citizens of Moneyland like to buy.
‘The general message was that the rich wanted great service, uniqueness, quality and that the traditional concept of cost was far less than value. Time is of great value, rather than money. The rich value personal attention and uniqueness,’ the report’s authors concluded. ‘Our own view is that the rich are likely to keep getting even richer, and enjoy an even greater share of the wealth pie over the coming years.’
In this aspect of the research, they were not entirely correct. The financial crisis that began in 2007 and engulfed the world economy wiped out the fortunes of some very rich people. But they were not entirely wrong either. After the crisis, banks were reluctant to lend money as freely as before, meaning those with spare cash were in an even better position than before; which is why developers in places like London, Miami and New York were so keen to build properties for wealthy foreigners to invest in. If cash buyers are dominating the market, it’s natural to build the properties that cash buyers want. And if cash buyers want a dog-walking area on the thirty-second floor, then that’s what they must have.
As Kapur and his team of analysts said back in 2006, in what now sounds like a perfect description of the citizens of Moneyland: ‘the ultra-rich plutonomists, they don’t tend to be part of a specific geography, but tend to be very global, hanging out in plutonomy destinations with fellow plutonomists. For example, in London 60 percent of houses costing over four million pounds are now sold to non-Brits.’ After the financial crisis, these nomadic Moneylanders inherited the earth.
There are a lot of banks like Citigroup, and those banks employ a lot of analysts, and those analysts produce a lot of reports, and those reports describe a lot of asset classes – stocks, bonds, commodities, land, anything else that can yield a profit. The vast majority of the reports vanish after a couple of days, having served their rather limited purpose. Kapur’s plutonomy papers have lasted longer, however. Reuters ran a long article based on his first report within a week of its publication, and was followed by most of the world’s most prestigious media outlets. Follow-up papers found their way into articles in the Economist, Barron’s, the Financial Times and the Atlantic. His insights made their way into books, including Michael Gross’ engrossing tale of 15CPW, and into a 2009 film by the polemical documentary maker Michael Moore, who cast Kapur as one of the bad guys in Capitalism – A Love Story.
This is unfair. Kapur has never exulted in the situation he and his analysts described, and explicitly stated in the plutonomy paper that he took no moral position on the matter at all (‘our analysis here is based on the facts, not what we want society to look like’). He was just doing his job of seeking profitable investment opportunities for his clients. He primarily focused his macroeconomic analysis on developed countries, particularly the United States, and mentioned the wealth coming out of corrupt kleptocracies largely in passing, so he can’t be criticised for conniving in the kind of egregious theft that led the Obiangs to buy so many supercars from Californian dealerships, or the diminutive ex-president of Zambia to buy bespoke suits and shoes with lift heels.
In fact, his analysis of poor countries is perhaps the least convincing part of his work, since it largely boils down to a belief that their economies will become increasingly law-abiding, more like the United States. In reality, the rule of law is deteriorating in many of the countries he mentioned, so they are developing in precisely the opposite direction. Be that as it may, Kapur and his team do not deserve the reputation they have earned in some of the shadowier reaches of the internet, which casts them as a sort of morals-free cabal of high priests to the kleptocrats.
If there is criticism, it should not be directed at them, but rather at the structure of the Moneyland ratchet, which inspires highly intelligent people like these analysts to restlessly scan the world for ways the very rich can get very much richer. In a world dominated by the wealthy, whether you call them plutonomists or Moneylanders, no ambitious businessperson can afford to ignore the financial might of the very rich, even if their fortunes are of dubious origins.
This has curious consequences for once-staid concerns. In 2015, the accountancy firm Deloitte published a study of Swiss watches headlined Uncertain Times, which described how leading manufacturers of exclusive timepieces were gloomy about the future. The reason for the misery came not from a recession, or from any problem with the products, but rather from the fact that the government in China was cracking down on corruption, which was harming sales of the kind of lavish gifts that crooked officials had previously accepted in return for favourable decisions. ‘The pessimism about China and Hong Kong can be explained by the lower rates of growth in the economies of many emerging markets, and also the anti-corruption and anti-kickback legislation in China: these developments have led to a fall in the sales of luxury products,’ Deloitte’s analysts wrote. ‘81% of watch executives indicated that demand in China has fallen over the past 12 months due to anti-corruption legislation.’
Luxury watches are popular among officials, since they provide a discreet but effective way of advertising their power. In 2009, the Russian newspaper Vedomosti mischievously published a compilation of photographs of the watches worn by top officials at public events, noting each one’s price and contrasting that with the declared income of the official in question. The cheapest watch belonged to the head of the Audit Chamber, costing a mere 1,800 Swiss francs. The majority were in the $10–50,000 range, beyond which a handful of officials had really splashed out. The deputy mayor of Moscow won both first and second place, with watches costing $1.04 million and $360,000; while Chechen president Ramzan Kadyrov’s watch came third, with an estimated price of $300,000. The article caused some embarrassment to top officials, which is perhaps why the official photographer photoshopped a $30,000 Breguet timepiece off the wrist of the Patriarch of Moscow, as he sat at a highly polished table in 2012. The photographer neglected to remove the watch’s reflection, however, which both made the Patriarch look ridiculous and also rather undermined his attempts to argue for a return to asceticism and traditional values under the moral leadership of himself.
The watch controversy has not led to any concerted anti-corruption campaigns in Russia (perhaps to the relief of the manufacturers of luxury products), but a serious Chinese anti-corruption campaign began in 2012, with tens of thousands of people indicted, including members of previously untouchable classes – leading figures in the military, central government and provincial administrations. Officials stopped flaunting their wealth almost instantly, with dramatic consequences for the kind of businesses that Kapur had suggested his clients invest in, including businesses that produce luxury food and drink. France’s Bordeaux region had exported a mere 12,000 hectolitres of wine to China in 2005 but, within seven years, that had increased almost fiftyfold, to 538,000 hectolitres, with the ostentatious buying patterns of wealthy Chinese people utterly transforming the economics of French wine production. When the anti-corruption campaign started, and Chinese officials were no longer quite so willing to publicly imbibe bottles of Château Lafite, the region’s exports dropped by a quarter in two years. ‘Certainly, we are seeing fewer wealthy Chinese arriving on private planes and buying up €50,000 of wine in one go,’ a wine merchant rather laconically told a trade publication.
The same thing happened to other Western manufacturers who had profited from booming sales of the kind of prestigious products popular among China’s Moneylanders. In 2014 the Scotch Whisky Association blamed what it euphemistically referred to as the ‘Chinese government’s austerity campaign’ for the fact sales to China and Singapore (which often re-exported to China) had dropped. By the end of 2016, sales to these two Far Eastern markets were down by almost 50 per cent. Any investors who had bought into wine or spirits producers in the hope of riding Kapur’s plutonomy wave would have had a very rude shock.
Kapur had warned his clients about this risk, however. He might not have analysed the ways that politicians and businessmen in emerging markets exploit the rules to get rich, and he might have mistakenly predicted that places like Russia would become more, rather than less, law-driven; but he did at least recognise the danger to his basket of plutonomy stocks posed by anti-corruption campaigns. ‘High income inequality, projected to get worse and associated corruption perceptions, often centred around [state-owned enterprises], is likely to bring about a strong anti-corruption policy,’ he wrote in a follow-up paper for Merrill Lynch Bank of America (his new employer) in 2014. ‘Luxury sales with a strong Emerging Market angle, or with high visibility (watches, wine, cars, jewellery, etc.) are likely to be at risk in the short term.’
He took the opportunity to re-examine his calculations from a decade earlier, but saw no reason to revise them: ‘in Russia, Malaysia, Israel, the Philippines, Taiwan and Chile, the uber-plutonomists account for a much larger share of their economies than their compatriots in the US. Given that larger fortunes enjoy larger pre-tax returns, we expect this wealth concentration to grow.’
Note his use of the word ‘compatriots’ there. It was presumably supposed to be something like ‘comrades’, since very rich people from around the world do not actually share citizenship. But it’s a psychologically telling slip none the less. The subtext is that Kapur’s plutonomists are all citizens of the same country, whatever passport they hold.
Anti-corruption campaigns by governments are not the only risks to the profitability of Kapur’s plutonomy investment strategy, however. Since his very first paper in 2005 – and he has kept publishing them, through a series of different employers – he has highlighted the fact that, in its essence, plutonomy is about inequality. His investment strategy will only keep yielding outsize profits if the wealthy can keep gaining an outsize share of the world economy. If the societies where they live and spend their money decide to stop that excessive accumulation of wealth, then the situation could be reversed. ‘A backlash against plutonomy is probable at some point,’ he concluded back in 2005. And that is what happened, under the leadership of the United States.

UN-WRITE-ABOUT-ABLE

In 2014, after Vladimir Putin annexed Crimea and undermined Kiev’s control of eastern Ukraine, Western powers began sanctioning officials and businessmen from the two countries. Anyone deemed to have undermined Ukraine’s territorial integrity, or to have abused their power to steal the state’s assets, had their bank accounts and property frozen in the United States, the European Union, Australia, Japan and their smaller allies.
Many of the individuals and companies on the sanctions lists were well known. Chechnya’s thuggish ruler Ramzan Kadyrov, for example, was tangentially inconvenienced by the fact his thoroughbred horses were barred from prestigious Western competitions, and their winnings frozen. Other individuals had obscured their assets in Moneyland, owning them via shell companies or anonymous bank accounts, making the tracing process very hard. But there is one trick available to the persistent investigator: oligarchs have children. Actual people leave a trace, particularly if they are wealthy and young and like to use social media. Find the children, and you find the money.
One evening in 2014 I found a pair of (grown-up) children, whose social media habits allowed me to follow their father’s money backwards in just this way. The pictures and words these children were putting online gave me insights into their father’s assets, his physical location, and the financial tricks he was using. It was an extraordinary case study into how one crook is able to abuse the structures provided in Moneyland to get away with what might almost be called Grand Theft Nation.
Over the course of the next two years, I travelled widely to check every aspect of the story, to make sure I had it completely airtight. I visited the city where his primary asset is based and tracked down two of the shareholders who had lost their stakes in the company to him. I then found the company documents that confirmed the ex-shareholders’ stories and spoke to company officials to make sure I had not misinterpreted them. Then I visited two of the jurisdictions that hosted the shell companies that obscured his ownership of the stolen asset, and – thanks to a fortuitous leak – obtained company documents showing how he had responded to his addition to the Western sanctions list by burying his property deeper into Moneyland. I badgered his lawyer, both at her office and her home, until she confirmed their provenance.
The man in question refused to talk to me, but the evidence was utterly convincing: he had stolen a highly profitable company, stashed it offshore, and got away with it, thanks to willing conspirators in Western law firms, accommodating business partners and the lax legal systems of various tax havens.
He had sent his children to live in a Western country shortly after the collapse of the Soviet Union, so they had gained an excellent education in schools the likes of which their compatriots could never have enjoyed. When the children came of age, their father used them as cut-outs on his corporate holdings, registering them as the nominal shareholders, even though they were 18-year-olds with no relevant business experience. The older child seemed to lack interest in the family firm, and instead pursued a career as a socialite, hiring a succession of famous Americans to follow them around. Sadly, despite what must have been a substantial outlay on this project, fame did not follow, perhaps because of a lack of talent. Judging by a handful of interviews given to small-circulation celebrity-focused YouTube channels, the child lacked charisma of even the most basic kind.
The second child’s career may have been more to their father’s liking, since this one came to head a number of companies through which the family empire diversified into commercial real estate, entertainment, finance and transport across Europe and into the Middle East. In partnership with a famous European investor (you might not recognise the investor’s name, but you’d know the companies), this second child was expanding the family business empire at great speed, as attested to by boasts on social media about the pace of sales and the speed of construction.
The reason I was so excited by this story was that it encapsulated the Moneyland pathway – steal–hide–spend – in one remarkable whole. It started with an oligarch stealing a fortune; then that fortune being obscured via complicated corporate structures in various jurisdictions; then that fortune being spent in the West as if it were legally acquired, including on celebrities sufficiently famous to grab the attention of the average reader. It was the quintessential example of how legal tricks and stratagems are available only to those rich enough to afford them, right down to the purchasing of residency in the European country in which the children grew up.
When the father was added to one of the Western sanctions lists (there were several updates to the lists in the months and years after the revolution), his assets were supposed to be frozen, yet that did not happen. His obscuring devices were so successful that law enforcement agencies didn’t notice that he owned this rapidly expanding business empire, and therefore didn’t know it existed. This was one of those moments when an article could make a real difference. Telling stories like this is what makes being a journalist so exciting, and I was delighted when I found a publication happy to publish it.
And then, just days before it was due to be printed and two years of work would pay off, came a highly unwelcome email: ‘the editor considers the piece, even with legal changes along the lines the lawyer is suggesting, too high a legal risk to publish at the moment’. The words ‘at the moment’ were unnecessary. That email meant the story was dead.
I was free, of course, to take it to other publications, and I approached a succession of editors with whom I had previously worked and who I knew would trust the quality of my work. Sadly, however, trying to interest a new editor in a story that has been killed by a lawyer is like trying to interest someone in a dog that has killed its owner. I received a series of polite and sympathetic refusals, until finally I gave up. The story really was dead; the oligarch had got away with it. He and his family had almost no connection to the United Kingdom, yet the simple fear of being sued by them in the British courts led the publication (quite a prestigious one) to jettison a story that revealed how offshore finance and all the Moneyland paraphernalia was neutering Western attempts to impose sanctions on those responsible for undermining Ukraine. It was the kind of infuriating irony that Joseph Heller might have identified if Catch-22 had been written about today’s globalised economy, rather than the US army in the Second World War: the nature of Moneyland prevents the exposure of the nature of Moneyland.
This is why I have had to tell the story above in such general terms, and leave out any specifics, such as the gender of the children or the location of the stolen company. If I have done it right, it should be impossible for anyone reading this to identify the corrupt oligarch involved, even if they are experts in the area. For this I apologise. I appreciate that it is not polite to tell others that you know a secret and then refuse to say what it is, but I do not wish to be sued into bankruptcy. And this is one aspect of Moneyland’s defence mechanism that gets very little attention, partly because we thought it was solved: libel tourism.
Britain became so notorious for allowing rich foreigners with almost no ties to the country to sue foreign journalists for articles that had not even been published in the UK that parliament changed the laws around defamation in 2013. Before that, billionaires like Russian Boris Berezovsky (who sued Forbes magazine in 1997 in a British court, even though only 2,000 copies of its 785,000 worldwide distribution had been sold in the UK), and Saudi citizen Maan al-Sanea, had used the UK to settle defamation cases despite having only a minimal connection to the country. In one particularly extreme case, a Tunisian businessman sued the Arabic-language television station Al Arabiya and won: the court accepted jurisdiction because the channel is available on satellite packages in the UK, despite clear evidence that almost no one in Britain watched it.
Under the 2013 reform, claimants were obliged to prove they had suffered harm from the publication, and to show a connection to the UK, before they could win damages. But the reform failed to address a significant problem with the whole structure of defamation law, which is that a Moneylander will always have more money to throw at a speculative case than a publication will have to defend it. This is not a case of publications being censored by over-zealous courts, but of publications censoring themselves in a legal process of second-guesswork. It is not that they are scared of losing in court; the risk is of their being bankrupted before they get there. It is impossible to know how many stories – like the one I described above – have failed to appear because of worries over a potential legal action, but I know several other journalists with experiences equivalent to mine. In fact, it’s not even the only time it’s happened to me.
Shortly after the Ukrainian revolution, a television production company asked me to work on a film about corruption, which would expose the way the country’s elite had benefited, while ordinary people had suffered. The film we made focused on a woman called Nina Asta-forova-Yatsenko, and her daughter Nonna, who suffered from a rare form of haemophilia. Haemophiliacs lack a crucial chemical in their blood, which means it does not clot in the way it is supposed to. This makes them highly vulnerable to nose bleeds, cuts and bruises, as well as liable to bleeding into their joints or their brain, with long-term consequences for their health. It is a nasty genetic condition that was once almost invariably fatal. Happily, it is now easy to control with injections of clotting factor, and it is no longer a major concern for anyone who lives in a developed country with an efficient health system. Sadly, Ukraine is not such a country.
Nonna, when we filmed her, was a 7-year-old girl with a mischievous bounce to her, and a passion for appearing on camera. Nina was the kind of mother anyone would dream of having, and was managing to keep her daughter alive in the most terrible of circumstances while maintaining a sense of humour. Thanks to the corruption that has sucked the money out of Ukraine’s hospitals, the clotting factor Nonna needed (and which was her constitutionally guaranteed right) was simply not available, forcing Nina to turn to the black market and to friends.
‘We love Ukraine, but somehow, Ukraine doesn’t love us,’ she told us, while stroking Nonna’s dark hair off her forehead.
In the film, interviews with Nina and footage of Nonna on a swing were interspersed with the story of a court case that took place in London concerning a bank account belonging to a Ukrainian businessman and ex-government minister called Mykola Zlochevsky. The idea behind the film was to show the complexity of mending a country after it has been comprehensively looted. The Zlochevsky subplot was comparatively minor, and at no point did we suggest he was guilty, but it served as a counterpoint to the emotional weight of seeing a mother trying to keep her daughter alive. Court proceedings drag on, justice is slow, lawyers make money, and ordinary people continue to suffer.
The film had some heavyweight supporters – TED, Sundance, Vice – and was due to be screened for the first time in May 2016, on the eve of an anti-corruption summit hosted by the British government. The screening was to be at the Frontline Club, a private members’ institution popular with journalists, on a Monday evening. We released a trailer a few days before, to drum up a little interest. We were pretty excited, to be honest. It was a strong film, making some good points, and hitting at just the right time for the maximum attention and impact. We called it ‘Bloody Money’.
Then came a letter from Peters & Peters, a London law firm, to Vaughan Smith, who runs the Frontline Club. It was headed ‘pre-action protocol for defamation – letter of claim’ and, even by the standards of letters sent to journalists by the lawyers of wealthy men keen to avoid embarrassment, it was hard-hitting. The lawyers admitted that they had not actually seen the film, but insisted that ‘it appears to contain false and defamatory allegations about our clients, including that they are criminals guilty of money laundering on a massive scale and that they have acquired their assets at the expense of the lives of others’. It warned Smith and the club that, should they go ahead with the screening, then Zlochevsky would have no choice but to pursue it for damages.
‘We and specialist defamation counsel have advised our clients that, should you show the film, they will be entitled to bring High Court proceedings against you for libel for an award of substantial damages and an injunction preventing further publication,’ the letter concluded.
The film was nothing like what the lawyers thought it was, and the word ‘bloody’ in the title was intended as a reference to Nonna’s haemophilia, rather than – as the lawyer’s letter assumed – an allegation that there was blood on their client’s hands. But the letter seriously perturbed Smith, and for good reason. Although Zlochevsky had no reputation in the UK to defend, and his claim should have been inadmissible under the revised 2013 law on defamation, it would still prove expensive to fight. The Frontline Club is a charity and, although it is committed to free speech as part of its mission, it cannot afford to get into protracted legal battles with multi-millionaires. The club would have won, but that victory would have been worse than pyrrhic; long before legal vindication arrived, the club would have run out of money and been forced to shut down. The screening was cancelled and, as it turned out, the letter terrified pretty much everyone else, too: the film has never been shown. The story that Nina and Nonna spent so long telling us has never been revealed. Instead, that Monday of the cancelled premiere, I had to sit through the real-life anxiety dream of telling a room full of people about a film I wasn’t allowed to show them.
But if that was disappointing for me, imagine how Professor Karen Dawisha must have felt in March 2014 when she received a letter from Cambridge University Press (CUP), the publisher of her previous seven books, about her latest manuscript. She had written an academically rigorous and fascinating investigation into the links between Vladimir Putin and organised crime. The manuscript reached back even beyond the earliest days of Putin’s time in the St Petersburg city administration, and connected him forensically to the mafia clans that divided up Russia in the immediate post-communist years. It was particularly important since many of the insiders mentioned in the book were – at precisely that time – being included on those same sanctions lists as the oligarch I mentioned at the beginning of this chapter.
Nevertheless, CUP decided not to publish the book. ‘The decision has nothing to do with the quality of your research or your scholarly credibility,’ the company’s Executive Publisher John Haslam wrote to her (according to copies of the letters that she provided to the Economist). ‘It’s simply a question of our risk tolerance in light of our limited resources.’
Haslam explained that the nature of English libel law obliged the writer and publisher to prove the truth of what they were saying, which would be extremely difficult, adding that this was one reason why English courts are so favoured by the world’s rich. He pointed out – in almost exactly the same words as I was told in legal comments about my article about the oligarch – that since Putin and his associates had never been convicted of a crime, it was impossible to say whether the allegations were true or not. This is one of the most frustrating aspects of trying to research and write about the activities that underpin Moneyland. The reason that Putin has not been convicted for any of the crimes that Dawisha describes is that the Russian legal system is corrupt and politically controlled, not that Putin is honest. Russian courts would no more convict Putin of committing a crime than the Chicago mob would have condemned Al Capone. But none the less, many of these people cannot be written about until they have been convicted, at which point they will have fallen from political grace and will no longer be in a position to commit the crimes.
‘We believe the risk is high that those implicated in the premise of the book – that Putin has a close circle of criminal oligarchs at his disposal and has spent his career cultivating this circle – would be motivated to sue and could afford to do so,’ wrote Haslam, before unloading the really dispiriting legal payload. ‘Even if the Press was ultimately successful in defending such a lawsuit, the disruption and expense would be more than we could afford, given our charitable and academic mission.’
Dawisha, who is American, sought and found a US publisher instead and her book, entitled Putin’s Kleptocracy: Who Owns Russia?, was published by Simon & Schuster in September 2014, to justifiably excellent reviews. But her response to CUP deserves quoting, since it is full of concern about how wealthy foreigners are able to abuse the British legal system to stifle debate about the origins of their fortunes. She laid out how Russian insiders (in common with other wealthy foreigners) were investing heavily in British real estate, settling their legal disputes in British courts, sending their children to study in British schools, and yet British people were barred from knowing where their money came from. ‘The real issue is the rather disturbing conclusion that no matter what was done, the book would not have been publishable because of its subject matter,’ she wrote. ‘We can only hope that British libel laws will indeed be “modernised” and thoroughly tested so many authors can once again turn to CUP with the knowledge that it is indeed devoted to publishing “all manner of books” and not just those that won’t awaken the ire of corrupt Russian oligarchs out to make a further mockery of British institutions.’
The nature of this threat prevents it being public knowledge. Naturally, we are unable to read things that people are not allowed to publish, and often people only become aware of the problem when they themselves get caught up in it. Robert Barrington, executive director of the British chapter of Transparency International (TI-UK), is one such example. Under his direction, TI-UK has become significantly more outspoken, and has published ground-breaking reports into the penetration of dirty money into British property, British visas and more. It was one of these reports that provoked a firm letter in early 2015.
‘I was sitting here at my desk one day, a courier arrives with this letter and, you know, it felt like I’d been kicked in the stomach by a horse, like the whole edifice was going to come crashing down. Even if we’d won, we couldn’t have afforded it,’ he told me. Could he tell me the name of the wealthy person the lawyers were working for? ‘I think, under the terms of our settlement I’m not allowed to. So that gives you a sense of what a chilling effect it has on a group like TI.’
Transparency International has chapters all over the world, and he said even his overseas colleagues are not safe from the reach of British libel complaints. One chapter wanted to launch a report in London, since they felt it would have international resonance and wanted to attract media attention. That plan was scrapped after an oligarch’s law firm somehow found out about it, and they decided to move the launch to Geneva. ‘But then we were informed by this very aggressive law firm, including if we put it on our website, that they were going to sue us,’ he said. ‘It is a real problem, actually. These people are bullies, and they’re using London law firms to bully for them. They want to protect their reputations that they have built up over a number of years, putting a positive gloss on people who are doing very bad things.’
This remains largely a British problem. American publications are protected by the free speech provisions of the US constitution, which prevents these speculative libel cases being brought in the first place. Indeed, in 2008, the state of New York passed a law making foreign defamation judgments unenforceable on US soil, if the jurisdiction in question lacks free speech protection equivalent to the First Amendment. That was a direct response to Khalid Bin Mahfouz, a Saudi businessman who sued or threatened to sue thirty-six times in British courts when journalists accused him of funding terrorists, notably against the American author Rachel Ehrenfeld (some twenty-three copies of her 2003 book Funding Evil had been sold in the UK, so a British court accepted jurisdiction). The law was welcomed at the time, but it does not give the protection you might hope for against the pre-emptive self-censorship caused by the fear of having to defend against a case. An editor from one major American publication, which has a worldwide presence and a significant readership in the UK, told me that it essentially followed British libel law to avoid expensive unpleasantness.
And US publications are also aware of the expense involved in defending a defamation case, even if it’s thrown out at the first opportunity. When I tried to take the story about the oligarch and his free-spending children to a US publication, its lawyers came back with the same response as I’d heard in the UK. ‘The salient issue is: will an oligarch spend lots of money to go after you and Oliver if he or she feels insulted? Our experience tells us the answer is yes,’ the lawyer wrote in his advice to the editor. ‘As can be inferred from the article, the oligarch is quite resourceful, and one of the ways of retaliation could be hindering your future activities in geographic regions where the oligarch has his influence.’ The editor, having been keen, reluctantly sent me and my story on our way.
This isn’t just worrying because you, the reader, don’t get to find out what’s going on in the world – though that would be concerning enough. It’s also a problem because media reports are an enduring source for criminal investigations. Police officers around the world rely on journalists to alert them to suspicious behaviour and, when journalists are silenced, that denies law enforcement agencies the information they need. And that leads to another unfortunate feedback loop: journalists struggle to make accusations of wrong-doing against wealthy litigious people if those people haven’t been convicted of a crime; while police officers don’t know anything wrong is happening, because journalists can’t write about it, so those people don’t get convicted of a crime. Private investigatory agencies also rely on the media for information when asked to check someone’s background – for example, if that person has applied for a passport in a place like Malta – so this system of soft censorship hampers their work as well.
There is a whole industry in the UK of PR agencies, law firms and consultancies which maintains this loop, by creating reputations for wealthy foreigners so as to give them the protective force field that the British courts can provide. One employee of this industry agreed to meet me in 2016 at a central London pub, which was thronged with City workers having boozy lunches after long mornings at their screens, and to lay out the secrets of his business so long as I kept lining up the pints. The employee asked not to be identified in any way, or to have any of his clients and ex-clients mentioned, which was entirely understandable when he started describing the people he had worked for.
There is, he said, an established pathway for rich foreigners to take when they wish to launder their reputations in the UK. They start by buying property, somewhere large and impressive where they can host expansive dinners for important people, and they hire a PR agency. The PR agency puts them in touch with biddable members of parliament, either MPs or lords, or often both, who are prepared to put their names to the billionaire’s charitable foundation. The foundation then launches itself at a fashionable London event space – a gallery is ideal – and promises to do something uncontroversial: educate children; promote cultural understanding; support sports among people with little access to facilities. An alternative is to fund an all-party parliamentary group linked to their home country, which brings with it the possibility of taking politicians to a foreign capital, away from the prurient eyes of the British tabloid press, where they can be treated to the goodies their hard work as earned.
That’s not enough, though. The billionaire needs to establish a connection of some kind, particularly if he’s still in business in his home country. If he owns a gas company, then the PR advisers will push hard on energy security, boost him as an independent supplier of the vital resources that the West needs. If he has interests in agriculture, that’s an easy one: food security is crucial to any country, and providing enduring sources of cheap, good-quality food is vital. There’s always a connection that can be made, and once that has been done, he can host conferences to which he can invite famous ex-politicians. Perhaps a minor royal will agree to head some appropriately named organisation. There are a lot of minor royals out there, and many of them are surprisingly short of cash.
Ideally, the billionaire wants to get his name on an institution, or become so closely associated with one that it may as well be. What institution that is depends on the billionaire’s personal tastes: football clubs are popular, and good fun places to entertain influential friends. Endowing a university is also a favourite: Oxford, Cambridge and the London colleges are all aware that they have less cash than their American rivals, and have been consistently happy to ignore warnings about the origins of a donor’s money if the cheque is large enough. This kind of up-scale philanthropy then opens the door to parties full of the real A-listers: senior members of the royal family, cabinet ministers. Perhaps the billionaire can invite some of these people to stay on his superyacht? Hospitality is given, and that creates useful webs of obligation that begin to really embed the billionaire into his adopted home.
‘There are two aims. The first is to make him too famous to kill. He’s probably from somewhere pretty ropey, right? Somewhere violent, perhaps the government will come after him. It’s happened. But if he’s a famous philanthropist’ – here he made air quotes around the word ‘philanthropist’ (he was on to his third pint) – ‘then it adds an air of protection around him, a shield. There aren’t many dictators who want to knock off someone who hangs out with the British government, right? That’s aim one, to make him un-killable. The second one is to make him un-write-about-able. You try writing about one of my clients, seriously, we’d take you to the fucking cleaners.’
So what happens when someone ignores the fear of being sued and presses ahead with publication regardless? The fund manager turned campaigner Bill Browder has shown us, and it isn’t reassuring.
Browder is a wealthy US-born British citizen who moved to Russia in the mid-1990s, convinced that it was the best place in the world to make his fortune. So it proved. For anyone who knew him in Moscow in the early 2000s, he was an energetic fund manager famous for three things: always having time for journalists; accusing Russian companies of entrenched corruption; and defending the record of President Putin. The justification for the first two aspects of his approach was straightforward and rather elegant: if the companies cleaned up their corruption, then they would become more valuable, and his fund’s shares would rise in price, thus making a profit. He made time for journalists because he wanted his allegations to be spread as broadly as possible. It was a little harder to understand why he was always so keen to defend Putin, particularly after Putin began jailing political enemies in rigged judicial proceedings. It may be that Browder just took a little longer than most to realise that Putin was not as devoted to the rule of law as he claimed to be. (‘I naively thought that Putin was acting in the national interest and was genuinely trying to clean up Russia,’ is the way Browder explained it in his 2015 memoir, Red Notice.)
Then, in 2005, Browder was barred from entering Russia. That did not stop his fund making a large profit on the liberalisation of trading in Gazprom shares (which had previously been restricted), but it was a clear sign that trouble was on its way, so he pulled his money out. A group of corrupt police officers then took over the (now empty) companies through which he had traded, faked the accounts and claimed back the huge $230 million tax bill he had paid, keeping the proceeds. Browder could have ignored this, since the money was stolen from the Russian budget rather than from him, but he isn’t the kind of person who ignores things. He asked his law firm to investigate, and they assigned an auditor called Sergei Magnitsky to the task.
Magnitsky forensically uncovered the full details of the fraud. Then police officers arrested him, held him in detention, and denied him medical attention until he died, on 16 November 2009. It was a grotesque example of police officers abusing their powers, and Browder has put the quest for justice at the heart of the second half of his life. He has campaigned ceaselessly for the culprits to be barred from travelling to the West (and succeeded; there are ‘Magnitsky laws’ in both Canada and the United States, which do precisely this), and kept the crime at the forefront of public consciousness with all the publicity skills he previously employed in the service of his investment fund.
Among his efforts has been a series of films released on to the internet explaining the nature of the crimes that were committed. And the films accused, among others, Pavel Karpov, an investigating officer at the Moscow police at the time of the crime, and subsequently part of the Interior Ministry’s investigative committee. According to the films, Karpov was a key figure in the conspiracy that defrauded the Russian budget, then harassed Magnitsky until he died.
In 2012, Karpov hired a PR agency and started legal proceedings against Browder in London through the legal firm Olswang, claiming substantial damages. Browder’s response was typically combative. Via his lawyers, he told Olswang that he welcomed ‘the opportunity to engage with your client in relation to his role in these matters and the source of the funds which he uses to support his extravagant lifestyle (and expensive legal representation)’. And so the case proceeded to the High Court, where it was heard over two days in July 2013, with both sides represented by two barristers, each team including a Queen’s Counsel.
It would have been an expensive experience for a wealthy businessman, not to mention for an ordinary Russian policeman, and the source of Karpov’s funds was investigated by the court, which declared itself satisfied that a friend had agreed to lend him the money for the case. The court did not, however, uphold Karpov’s complaint, ruling that he had no connection to the United Kingdom and thus that the judge had no jurisdiction. It was a landmark case in the battle against libel tourism, and is often now cited by media lawyers.
The follow-up to it is less well remarked, however. Far from being a sign that British courts will prevent speculative libel cases being used to bully people trying to investigate corruption into silence, it is a confirmation of the very concerns that CUP showed in relation to Karen Dawisha’s book, or the Frontline Club showed in relation to my film about Ukraine. Karpov, having failed in his court case against Browder, was then ordered to pay the former fund manager’s costs – some £850,000, of which only a fraction had been placed in an escrow account. Karpov simply vanished, leaving the bill unpaid, and Browder £660,000 out of pocket.
The British legal system has tried to wrestle the money out of Karpov: a judge ordered him to be jailed for three months in September 2016; and a warrant was issued for his arrest in May 2017. But this won’t worry the Russian as long as he stays at home. Russian institutions have consistently defended Magnitsky’s tormentors, rather than pursued those who committed the crime he revealed. A Russian court convicted Browder in his absence and, in 2013, Magnitsky himself was found guilty of tax evasion, despite being dead and thus – by all normal standards of justice – outside earthly jurisdiction. In short, there is no prospect of Browder wringing justice out of Russia, or getting his money back. On the contrary, he faces near ceaseless legal assaults.
‘If I hadn’t built a sizeable personal wealth before this happened, I would never have been able to defend myself against any of this stuff,’ Browder told me in the conference room of his offices in central London in 2017. ‘When we got the cost order against him, he disappeared and there’s nothing we can do. There’s an arrest warrant in the UK for him, for contempt of court, but it’s not international. And it’s not a very demanding arrest warrant, it’s just that the court doesn’t want people to be in contempt.’
This was only one front in the global legal assault that Karpov and other Russian officials have fought against Browder, who somehow – despite it all – remains as ebullient a man as he was back in 2003, when all he had to complain about was mismanagement at Gazprom.
‘If you look at it more broadly, all of the strengths of our system, the adversarial legal system, the democracy system, the freedom of speech system, they try to abuse in every way possible. Wherever there are openings in liberal democracies, they’ll try to abuse those openings,’ he said. Money crosses borders, laws do not, and Moneyland protects its own.
Few campaigners, and few media outlets, could be like Browder and cover a loss of £660,000, on top of the ongoing costs of multiple legal procedures in other jurisdictions. So they choose to be cautious about what they publish, even if they are sure of the truth of their statements. This means that a letter from a London libel specialist remains a useful tool for anyone looking to shut down discussion of the origin of their funds, whether or not there is any British connection. The industry described to me in the London pub does its job very well indeed.

HIGH-END PROPERTY

The cities chosen by the super-rich vary according to all sorts of factors – tax rates, immigration rules, language, legal system, time zone – but two cities always top the premier league: London and New York. One reason why London often edges ahead of its American rival is that it lacks co-ops, the New York apartment buildings where residents can veto would-be neighbours. This means cliquey old money New Yorkers have long been able to deliberately block the flashy Moneylanders from moving into their buildings.
It was to side step this problem that 15 Central Park West, perhaps the swankiest apartment block in the world, was built. Completed in 2008, its developers shrugged off the nadir of the financial crisis, selling condos off-plan to tech and finance billionaires, oligarchs, sheikhs and the usual representatives of the global elite. It looks like a co-op, but it has none of the boring rules.
15CPW (as it’s known) was built in deliberate imitation of the old money mansions of uptown Manhattan. It is clad in limestone, with huge windows and high ceilings, and has two towers, the second one taller than the first so its residents can see over the top of its twenty-storey twin and into Central Park. It redefined luxury property in the United States, and created such a buzz that in 2014 journalist Michael Gross wrote a whole book about it, in which he echoed the over-excited society publication prose of a previous era. ‘Fifteen Central Park West is more than an apartment building. It is the most outrageously successful, insanely expensive, titanically tycoon-stuffed real estate development of the twenty-first century … it represents the resurrection and the life of our era’s aristocracy of wealth,’ he wrote in House of Outrageous Fortune, which is a cracking read. ‘No longer dignified, unified, well-born, or even well-bred, they enjoy unheard-of incomes and the most extraordinary standard of living in history.
‘The success of 15CPW consecrated a new, somewhat suspect, Global Super-Society,’ he went on. ‘Like them or not, these are individuals who have only one thing in common, staggering net worth, and have become the world’s new ruling class. Typically in their first generation of wealth, they’ve made huge money in new ways … the newest of the new rich come from emerging markets such as the so-called BRIC nations of Brazil, Russia, India, and China.’
Of course, most of the apartments are owned via anonymous corporate vehicles, so the precise identity of these aristocrats remains largely hidden, but Gross still identifies properties belonging to Israelis and Koreans, as well as to Russians, Greeks, Indians, South Americans, Italians and a Senegalese mobile phone tycoon. What Gross describes as ‘the looniest episode in 15CPW’s short history’ came in 2013 when Citigroup’s ex-CEO Sandy Weill sold a penthouse for $88 million, having bought it for precisely half that just six years previously. The purchaser was the Russian fertiliser tycoon Dmitry Rybolovlev, who was at the time going through a messy divorce (which ended up costing him $6 billion) and who apparently decided that his daughter needed somewhere to stay in New York whenever she was taking a break from her studies in Massachusetts. It has four bedrooms, including a master suite with views over the park, as well as a library, a living room, a gallery, a dining room, a den, and en suite bathrooms for everyone. On top of that, there’s a wraparound terrace extending around three of the flat’s four sides.
Rybolovlev made his money from Uralkali, a fertiliser business in Russia, specifically from its potash mines on the edge of Siberia. It is hard to imagine anywhere less like the grand edifices of uptown Manhattan than the towns of Berezniki and Solikamsk, where those mines are located. They are ringed by enormous ruddy slag heaps that look like something from the surface of Mars, and which stretch for miles along the highway between the two towns. You reach them by a two-and-a-half-hour drive from the city of Perm, the kind of Russian journey that appears illusory, since you keep moving while seeming to stay in the same place: the same forests of birch trees, the same straight road, with only the occasional spiky conifer sticking out as a sign of progress.
The population of Berezniki has dropped by a quarter since the 1980s, and is housed in the same shoddy five-storey apartment blocks thrown up by the Soviet government everywhere from Central Asia to the Arctic Circle. One school has a smart plaque on it testifying to the fact that ex-President Boris Yeltsin studied there, although that appears to be the only new thing added to the school in decades. A caretaker allowed me to take a picture of it, but not of the rotting brickwork or dirty windows. ‘The government treats us like we’re livestock,’ she said.
Berezniki is built directly on top of the salt mines that made Rybolovlev’s fortune, which is a problem because salt is soluble. When water flows into abandoned workings, it dissolves the pillars that support the tunnel roofs; the tunnels collapse; and sinkholes open up, taking houses, roads, trees, railway tracks, cars and factories with them. A hole that opened in 2007 – nicknamed ‘The Grandfather’ – is fifty storeys deep and may be the largest sinkhole in the world. Much of Berezniki has therefore been evacuated, which gives it an even more woebegone air than provincial Russian towns normally have. Uralkali exports its fertilisers to dozens of countries, but precious little of the export earnings appear to stay here, and few ambitious locals stay either. Rybolovlev left long ago, and sold his stake in Uralkali to another billionaire in 2010. He bought a $95 million Florida mansion from Donald Trump in 2008, AS Monaco football club in 2011, and then the penthouse overlooking Central Park.
Jonathan Miller, a legendarily knowledgeable New York real estate consultant, said Rybolovlev’s new penthouse was quite simply the best apartment in America. ‘I’ve been in probably 8,000 apartments in my life. I can’t remember the names of people at cocktail parties, but I can remember the colour of brick on the outside of a building and what the inside looked like,’ he told me in 2017, while sitting in an office lined with dozens of newspaper articles quoting him as an authority on the city’s property market. ‘This building in my view, in my thirty years on the market, is the best condo ever built.’
In Miller’s analysis, luxury real estate has become in effect a new global currency, with very wealthy people using housing in the world’s premier league of cities as a store of wealth, with the great advantage that they can then use their apartments as storehouses for all their other expensive stuff: their Monets, their Modiglianis, that kind of thing. ‘I don’t want to stereotype and say they’re all flight capital, because they’re not, but the growth in their presence is flight capital. They’re preserving capital. They’re just getting it into something for an extended period of time because they want to preserve it.’ Some 30 per cent of condo sales in large-scale Manhattan developments since 2008 have gone to foreign-based buyers, with the vast majority of them paying the full sum up front. It is a remarkable change, and one that accelerated in the early 1990s, when the collapse of communism created flight capital on a previously unknown scale – particularly in London.
The early 1990s was a tough time to be in the British property business. A bubble had inflated over the previous decade, then it was dramatically popped by a tax reform, interest rate rises and a recession. Where estate agents had previously epitomised the big-money 1980s culture of shiny suits and brick-sized mobile phones, now they sat and wondered where the next sale was coming from. The average London house price rose almost two-thirds in the second half of the 1980s, then the market dried up. The Daily Mail called it ‘the worst housing slump for 60 years’, and prices were lower in 1993 than they had been four years earlier.
‘The market at the bottom end stopped overnight,’ remembered one estate agent, who was working at the time in the toney west London borough of Kensington and Chelsea, which features some of London’s most distinctive landmarks: the Albert Hall, the Natural History Museum, Harrods, the King’s Road, the Saatchi Gallery.
‘There were a lot of repossessions, even round here. I spent a lot of time doing repossessions in Kensington. I’d been working for ten years by then. In those days, I suppose our clients were mainly British, particularly in Kensington. It was a very residential British area,’ he recalled. Princess Diana and Prince Charles lived in Kensington Palace, which helped boost the borough, and gave its richer inhabitants a distinct identity; they were nicknamed ‘Sloane Rangers’, after their favoured haunt of Sloane Square, and Diana was their exemplar. They were said to be defiantly anti-intellectual, to love country sports, and to spend their money on Hermès scarves and Range Rovers. But even these wealthy Brits had stopped buying by late 1992, which is when a completely unexpected client walked into the estate agent’s office.
‘I’m trying to remember his name; it was Alex something-or-other. It turned out that he had two business partners; I think they had a bank,’ the estate agent told me. The three men bought a flat each, at prices ranging from £200,000 to £320,000, cash. The fact of the sale was unusual in those depressed times, but that wasn’t what made him phone the papers to tell them about it; it was the clients’ nationality that was newsworthy. They were Russians. ‘It’s bugging me I can’t remember his surname, but he’s gone on to greater things. He’s probably a billionaire by now.’
This appears to have been the first sale of London property to private buyers from the former USSR in modern British history, and it opened the gate to many more. Within three months, the Evening Standard was reporting an oil tycoon had picked up a house in Hampstead for £1.1 million, while an Armenian had bought two properties nearby for £3.2 million. The paper quoted the estate agent as saying: ‘[We] will be seeing an increasing number of purchasers who recognise London as a safe haven for their money.’ Rarely has a prediction been proven quite so triumphantly correct, and the estate agent was delighted to be reminded of it, though he asked me not to use his name in the light of recent tensions between Russia and the UK.
‘I had lunch with the Russian desk, which deals with the Russian market, earlier this week and I showed them the press release you showed me, and they were staggered,’ he said. The estate agent is pink-skinned, upper middle class and open-faced, like a jovial party guest from Four Weddings and a Funeral, and he laughed out loud at the memory. ‘What they were staggered by was the value of the property: £200,000. You’d probably add a nought to that now, literally, it’s probably ten times the price. What they did say was that £200,000 was an extraordinary amount for a Russian to be spending.’
Now, of course, it seems positively quaint. Between January 1995 and May 2017, the average price for a property bought in Kensington and Chelsea rose from £180,000 to more than £1.5 million. The average detached property in the borough now comes in at £3.8 million, and in March 2017 a run-down one-up/one-down house originally built as accommodation for gravediggers went for £713,823. That means every square foot of its diminutive footprint cost £1,717, even before its new owner renovated it.
The headline on that January 1992 Evening Standard article about the estate agent’s pioneering deal was ‘Property – A Haven for Rich Refugees’. In reality, however, it was more than that. Alex and his two business partners ended up not only finding a safe haven for their money in one of London’s swankiest neighbourhoods, but also earned a tenfold return on their original investment while doing so. Like a classic pyramid scheme, the earliest investors have earned sensational returns at the expense of their late-joining brethren. Meanwhile, wealthy foreigners like them have transformed much of west London into a place few Brits could ever afford to live in, as they spend their riches on the kind of luxuries only they can afford.
‘It’s an extraordinary market,’ said that lucky estate agent. ‘I always think of London as its own island which to some extent has sailed off from the rest of the UK. It’s a truly international city, like no other city in the world, more so than anywhere. Why London? The time zone, the language, the legal system, the people, the food’s improved enormously, and culture’s another reason, the fact it’s the financial capital of the world, on a par with New York, all of those reasons.’
Savills, a London-listed company, publishes research into the spending habits of its clients, which provides fascinating insights into the kind of people that can afford to drop millions of pounds on a house in a city they don’t even live in. In 2014 it published a paper showing how top-end London property had outperformed housing in the rest of the UK by 250 per cent over the previous three decades. ‘With money the weapon of choice among those competing for space in the metropolis, it is hardly surprising house price growth has been so strong,’ Savills concluded. As cash has poured into Moneyland, its wealthy citizens have competed to buy a limited range of real world assets in a limited number of locations, with inevitable results: staggering price inflation, which has in turn made them even wealthier.
In early 2014, Ukrainian oligarch Dmitry Firtash spent £53 million on an old Tube station, which had previously been used as offices by the Ministry of Defence, and which happened to abut his £60 million mansion. The mansion, which has a swimming pool in its second basement and was designed by mega-developer Mike Spink, is just a five-minute walk from Harrods. A minute or two from Harrods in the other direction is the four-part modernist edifice of One Hyde Park, Britain’s smartest apartment block, built as a joint venture between its developers, the Candy Brothers, and a firm belonging to Qatar’s former prime minister. According to one excitable media report, a penthouse in the development sold for £140 million in 2010, which would have made it the most expensive flat in the world. The development itself is owned offshore, as are most of the flats within it, so it is hard to say exactly how much living here would cost, or who the inhabitants are. However, if you walk past of an autumn evening, it’s hard not to notice that few of the lights are burning. Whoever lives here does not appear to spend much time at home.
‘More than ever before, these homes of the wealthy will be spread far and wide, across different countries and continents,’ noted a 2017 review of the global housing market jointly presented by Warburg and Barnes, two top-end US-based real estate agencies. ‘Property wealth was not always so far-flung or mobile. Three inter-related developments – all still ongoing today – have driven this change: the expansion of air travel, the technology revolution, and the globalisation of business.’
The review notes that one in ten of the ultra-wealthy (those who own more than $30 million in assets) has five or more homes, often in places handy for their business, as well as for their chosen leisure activities. The authors of the review become so excited by the earning potential inherent in a situation where a swelling number of very rich people buys multiple houses that they can’t possibly ever need, that their metaphors get hopelessly confused. ‘For these individuals, the world is their oyster, and they regard real estate as one of the pearls in their crown.’ And, this being Moneyland, a class of enablers has emerged to help them get what they want: people like Gennady Perepada.
Perepada is stocky and ebullient, his dark hair slicked straight back to reveal a pronounced widow’s peak. He arrived in New York from Ukraine in 1990, and hustled like a true New Yorker, eventually finding a role as a fixer – he prefers to be known as a ‘Luxury Real Estate Broker and International Investment Consultant’ – for wealthy Russian speakers looking to diversify into US property. His office on West 48th Street, in Midtown, is packed with souvenirs and memorabilia from all over the old USSR, as well as from further afield: China, Israel, the Gulf. He speaks good, if accented, English but when we met, on discovering that I speak Russian, switched into a unique and bewildering hybrid that flipped backwards and forwards between the two languages, sometimes three or four times in a single sentence. (In the following quotations, italics represent when he was speaking Russian.)
‘I never condemn these people for the fact that they are travelling in a handmade Maybach. Or he’s travelling in a handmade Rolls-Royce, handmade. Anyway, I’m not sure it’s handmade, but handmade with ostrich inside, or with a TV, or with a special something, you know. But these are the same kind of people as you and me,’ he told me. ‘It is all down to personal contacts. I don’t know how you live with people, but I live by a very important understanding, you can’t have too many friends or too much money. Money and friends never enough. Therefore, criteria of my life my friends. You have to befriend people, do you know what I mean? You have to be able to befriend people. My profession, do you know what it is, it is to befriend people.’
Taking out his iPhone, he displayed the call record for the day. The first call had come in from Baku, the capital of Azerbaijan, at 1.24 a.m.; then others at 3.06 a.m.; 5.15 a.m.; 6.15 a.m.; 6.46 a.m.; 6.48 a.m.; 7.20 a.m.; 7.21 a.m. ‘Every phone call is worth something, it could be a phone call of something or a call of nothing. But this something call could be worth a lot. My phone is never off. Ever.’
He scrolled through the promotional materials for apartment blocks he was marketing, with their views over Central Park, panelled walls, multiple bathrooms, underground car parks. Among them was 520 Park Avenue, a limestone-clad needle on the Upper East Side still under construction, whose residents will be able to look over the world’s head, directly across the park towards their comrades in 15CPW. ‘They are starting from $16 million, one six. And the penthouse, $130 million, one thirty. Fifty per cent of it is sold. I represent this building, the whole building.’
It was impossible to tell how much of his fast-paced monologue was marketing patter, and how much was a reflection of what truly was happening, but you couldn’t argue with the photographs. Luxury goods companies had sent him pictures of their products to check which would appeal to his clients, and he scrolled through multiple Rolex watches on his phone, picking out the ones he thought were most desirable. Finally, he ran out of Rolexes, and the next picture showed a party where guests were helping themselves to sushi from the body of a naked woman.
‘This is art, art. You see how rich people live. You fancy some sushi? She has sushi everywhere, all over,’ he said, with a grin even wider than usual. It was the grin of an insider, because it is astonishingly difficult to see how rich people live; unless you are a rich person, which most of us are not.
Take Indian Creek, for example. It is a village in Miami-Dade County, Florida, which you approach through a quiet and pleasant residential neighbourhood, all groomed lawns and bungalows; where the streets lack sidewalks, but where there is so little traffic that walking on the road feels fine. Eventually, there is a bridge, with cream guard towers on either side of it, and a wrought-iron gate between them. If you try to step on to the bridge, a voice booms out of an intercom, asking your business. If you have no business there, or if your business is (like mine) idle curiosity, then you will be told it is a private island and that you must go elsewhere.
To emphasise the point, there is a heavy police presence. At the last census, in 2010, Indian Creek had a population of eighty-six, which included four of America’s 500 richest people, as well as the singer Julio Iglesias, Colombian billionaire Jaime Galinski (whose base is London, but who also has homes in New York and a couple of other places), and various others, all with a combined net worth – according to the Miami Herald – of $37 billion. That sum is approximately equal to the annual economic output of Serbia, which has a population of more than 7 million people. Indian Creek’s police force employs ten full-time officers, plus four reserves, and four civilian public service aides, giving the community a police officer to resident ratio of around 1:5, which is significantly higher even than that of East Germany at its most paranoid. The village is an island, so cannot be approached except by the bridge, but the police are taking no chances in protecting what their website calls ‘America’s most exclusive municipality’, and they run a marine patrol unit day and night, seven days a week. It is, in short, a moated community, where Moneyland can become real. In 2012, one ten-bedroom, fourteen-bathroom house on the island sold for $47 million, making it south Florida’s most expensive ever property, according to the agents who closed the deal. The local press reported that the purchaser was a Russian billionaire.
The photos of the house released by the agents show an airy, high-ceilinged mansion, modest yet enormous, with an infinity pool looking out on to Biscayne Bay, towards the sunrise. It has a dock with water deep enough for a superyacht, and is surrounded on the other three sides by the lush lawns of the island’s golf course. It bears about as much resemblance to an ordinary person’s house as a Bengal tiger does to a tabby cat, but it is simultaneously both tasteful and restrained. ‘Air flows in and out of the home like a deep, cleansing breath. In this open plan, where the line is eternally blurred between inside and out, entire walls part to allow the embrace of the refreshing bay breezes. Ceilings soar to incredible heights,’ the agents’ brief declares. But the closest you or me will get to it is standing at the end of the bridge, looking at a photo of it on your phone, while being intensely eyeballed by a policeman in mirrored sunglasses.
Miami is not yet jostling for a play-off position in the premier league of global property hot spots, but it is pushing hard, alongside Sydney, Vancouver, Los Angeles, Tokyo and a handful of other places that have become magnets for the world’s hot money, and which aim to supplant London and New York at the top of the table. The city’s association of realtors publishes figures showing where its clients come from and, though the information should be treated with caution since so many purchasers hide their identity behind shell companies, the pattern is one of a constant gush of foreign investment pumping up prices all along the sunny coastline of southern Florida. In early 2017, two-fifths of all the money invested in Miami property came from abroad, overwhelmingly at the top end of the market, with almost half of that originating in just four countries: Venezuela, Argentina, Brazil and Colombia. Venezuela had been the biggest foreign source of funds every year since at least 2011, despite the raging financial and economic crises in the country.
‘That’s suggestive of kleptocratic behaviour,’ John Tobon, deputy special agent in charge of the Miami office at Homeland Security Investigations, told me in February 2017. He explained that even legal investment from Venezuela must have gone through the black market, thanks to restrictions on the export of dollars from the country. ‘The real kicker is that these legitimate individuals that have legitimate wealth that are trying to escape the political situation there, are giving their bolivares to buy dollars and those dollars actually come from kleptocrats, who are using this market to embezzle money.’
And is Miami as bad as its reputation suggests?
‘If you have some time off, go to Bayside, get on one of those boat rides and you can actually see Al Capone’s home, it’s still there, it’s still advertised: this is a monument. I was on a money laundering panel the other day: “Oh, there’s money laundering in real estate in Miami?” And I was like, have you not seen the house, the Al Capone house? This is where it started, this isn’t new.’
Of course, a majority of the investment in Miami still originates in the United States, and much of the foreign money is legal. The trouble is that, thanks to the obscuring effect of the non-transparent companies used to hold the property, we have no way of knowing what is legal and what isn’t. In the early hysteria over President Donald Trump’s Russia ties, a Reuters investigation into Russian investment in the Trump Organization found sixty-three Russians among the owners of 2,044 units in seven different Trump-branded developments in Florida. Far more remarkable was the fact that fully 703 of the units were owned via corporate vehicles, meaning there were no real people attached to their title deeds at all, and their ownership was completely obscure. They might have belonged to Vladimir Putin, for all anyone else could know.
Six of those seven developments were in the Sunny Isles Beach area, which lies to the north of Indian Creek, and is famous for its relatively high number of residents of Russian origin. The seafront is lined with towers packed full of condos that were once marketed to retirees from New England, but which now are more likely to be bought by wealthy Moneylanders keen to put their cash somewhere it can’t be taken away from them. Just off Collins Avenue, which runs up the spine of Miami’s biggest barrier island, is the showroom for a new tower being constructed on the beachfront. Visitors to the showroom have to fill in a questionnaire to ascertain what kind of property they are interested in, and my attempt to pass myself off as a legitimate investor didn’t last long: the lowest option on the ‘amount to spend’ box was $3–5 million, and I didn’t have a thousandth of that. Thankfully, they were having a slow morning and a saleswoman called Monica, who was in her mid-fifties, lovely, warm and friendly, agreed to show me around as if I was something other than a rubbernecking intruder.
The Turnberry Ocean Club is a development of the Soffer family, which has built malls, hotels, clubs and more all across this section of Miami. Donald Soffer arrived from Pittsburgh in the 1960s and transformed a stretch of swamp into the city of Aventura, which is home to America’s fifth largest shopping mall, as well as tens of thousands of people. His children are now developers in their own rights, and legitimate members of the global elite, with daughter Jackie married to Craig Robins, who brought Art Basel to Miami. Son Jeffrey, at the time of Monica’s and my conversation, was married to supermodel Elle Macpherson, although they split up shortly thereafter, amid a welter of tabloid speculation. Both Jackie and Jeffrey have homes in Indian Creek village.
The tower they are building in Sunny Isles Beach will have 154 residences over fifty-four floors, with swimming pools cantilevered out on both sides halfway up, as well as a pool at the ground floor level for swimmers with vertigo. There will be a board room, and a conference room, and a stock trading room, and a children’s play room, and a theatre, and more, including an outdoor dog-walking area on the thirty-second floor, for those who can’t be bothered to take their dog all the way down in the elevator. ‘You have a very nice sense of arrival. There’ll be a Rolls-Royce or a Bentley, we haven’t decided yet, a private car. We also have private aviation,’ said Monica, with a smile, to see how I was taking it. ‘We start as low as $3.9 million, on a lower floor. And you can go all the way up to $35 million, but the bulk of our business is in the fours and fives.’
She walked me through a replica of one of those standard apartments – which will stretch all the way through the building, giving them both sunset and sunrise views – pointing out the bedrooms, bathrooms, terrace, the kitchen features and more. When it was time to go, I felt as if she had genuinely liked me and was sorry I was leaving, which is why she’s a top-class salesperson and I’m not.
Some of the wealthy foreigners who buy properties in Western cities can afford – like the residents of London’s One Hyde Park – to leave them empty, but many like to see a return on their investment, and to rent them out. That is a daunting proposition, however. If you’re based in, say, Malaysia, and your tenant is in New York, you’re barely going to be awake at the same time as each other, let alone able to communicate conveniently about any problems with the apartment. How will you know who to bring in to fix the dishwasher? And how will you know how to pay the local property taxes?
This is where Dylan Pichulik comes in. A young, lean, personable New Yorker, Pichulik worked in property development until 2012, when he noticed that foreign owners kept asking him to recommend someone who could manage their newly acquired properties for them, and he realised that person should be him. ‘We do literally everything from soup to nuts,’ he said. ‘We invoice for rent every month, we collect the rental income from the tenant. We pay the expenses: real estate taxes, insurance, we deal with maintenance and repair. So when the dishwasher breaks or there’s a leak from above, the tenant calls us and we get it taken care of.’
He uses his knowledge of the market to advise clients on renovating their apartments (‘Don’t worry, send me 400 grand and I’ll do it for you’), to renting them out, to helping their children move house. It’s a trust game: the clients trust him, so they ask him to do things for them, and then they recommend him to other rich people, and that’s a lucrative business. He told a story about one client – a wealthy Israeli woman – for whom he did everything while she remained holed up in her hotel room, up to and including buying her cigarettes, nine packs at a time. Her son had trouble with his visa, and so was unable to accompany her on the flight back to Ben Gurion airport. She paid for Pichulik to sit up in first class with her, which was a weird experience.
‘She wears a diaper, because she can’t be bothered to go to the bathroom,’ he told me, with a grimace, as he remembered getting on to the plane. ‘It was all well and good until three hours later I look over and hear this “ding”. The stewardess comes over: “I need you to change my diaper.” So they look at me, you like, like, “Let your son do it.” I’m, like, “That’s not my mother.” They made the flight attendant do it. So, yeah, we go above and beyond.’
That was, however, an outlying case. Most of his clients are ordinary wealthy people – ‘Fortune 500 CEOs, former presidents, really big name people’. One Russian client owns a $14 million condo to stay in for the two weekends a year when she comes to New York to do her shopping; one time he picked up a magazine at the hairdresser’s and saw one of his clients on the cover. The biggest share of the investment comes from China, with significant chunks from South America, the Gulf states, and, of course, the countries of the former Soviet Union. The wave of foreign investment has transformed the city. ‘Five years ago, if you wanted to spend 20 or 30 grand a month, you had a handful of options,’ he said. ‘Now I have a whole portfolio of $20–30–40,000 a month apartments, and I have hundreds of apartments for $15–20,000 and rental values will go all the way up to $110,000 a month. You can spend $80,000 a month easily and still be kind of under the radar.’
Pichulik was funny and thoughtful about his curious career, and clearly concerned by the kind of inequality he has witnessed. That gave him sufficient insight to realise that spending his days looking at apartments worth $50, $60 or $70 million was doing strange things to his mind, and to wonder about the mind set of people who live their lives surrounded by that kind of luxury: ‘You wake up in an apartment like that when you pretty much command the city, and you have this sort of castle to yourself. What does that do to your life on a daily basis, just waking up with that feeling and seeing that?’
And, more importantly, what is it doing to our world, to have whole chunks of our most important cities annexed by Moneyland? Some of the world’s cleverest financial analysts have been mulling over this same question for more than a decade, and their conclusions are startling. We need to talk about plutonomy.

TAX HAVEN USA

If you’re arriving on the bus from San Francisco on a snowy February day, Reno looks like a scene from the 1970s. The cars are huge, the roads are wide, the casinos are concrete edifices with square corners and negative charm. If you walk into the gambling halls, you are confronted by ranks upon ranks of slot machines, positioned on tired-looking carpets, illuminated by energy-sapping fluorescent lights. Punters are few and unenthusiastic. On the streets outside, pawn shops offer you loans secured on your jewellery; and sell off the guns of those who’ve been unlucky at the tables.
My only previous knowledge of Reno had come from Johnny Cash, who sang about murdering someone there just to watch him die. After a day or two wandering through the place, I began to see how it might have that effect.
Nevada’s state motto is ‘Battle Born’, which reflects the fact that it gained statehood during the American Civil War, as part of a rushed effort by the Union to conjure new states into existence and thus gain extra votes for Abraham Lincoln. It was, at the time, the third largest state in the Union (after California and Texas), and yet had only 40,000 inhabitants. It therefore struggled to pay for itself, particularly when output from its silver mines started to decline a decade or so after the war ended, which is why it has been constantly casting around for new sources of revenue ever since. One lucrative vein of business has been undercutting the regulations of California, its larger, more populous and much richer neighbour. Las Vegas has long made a handsome living by offering services to residents of nearby Los Angeles that they couldn’t get at home, and Reno has done the same for its neighbours in San Francisco: quickie divorces, shotgun weddings, gambling, low taxes, marijuana. Even prostitution is legal in Nevada, which makes it unique in the United States.
This Nevadan form of deregulation came to affect Moneyland in 1986, when Congress set out rules for the taxation of ‘generation-skipping transfers’. The precise details of the rules (it involves grandparents passing assets to their grandchildren) don’t matter; what is important is that they had loopholes. One loophole affected trusts, the legal structure created when you give property away to a professional trustee, who then follows the instructions you agreed at the time of the gift. If you owned an oil company, and put it in trust for your grandchildren, the 1986 rules were supposed to ensure that they would pay tax on the generation-skipping transfer that occurred when the trust ended. So far, so good. But Congress made a crucial mistake. It left it up to individual states to decide when trusts ended, rather than setting a single standard itself, with predictable results. Thanks to the Moneyland ratchet, states began to compete with each other, to the benefit of wealthy people and to the detriment of everyone else.
Under the common law which America inherited from England, you could not put property in trust for ever, but were limited to a period equal to twenty-one years after the death of anyone alive at the time you created the trust (in practice, this works out at about a century). This was based on the principle that it’s wrong for future generations to be bound indefinitely by the wishes of dead people. The whims of capricious ancestors might have made for good plots in nineteenth-century novels, but the judges who shaped the common law thought they would be disastrous if followed slavishly in real life.
In America, the states could decide for themselves how long a trust could last, and some of them – Wisconsin, South Dakota, Idaho – had already diverged from the common law and abolished this so-called limit on perpetuities before 1986, but with little effect. There was at the time no tax advantage to a trust that lasted longer than the traditional duration, which would at any rate long outlast the grantor herself. As soon as there was a tax on generation-skipping transfers, however, the incentives changed completely. Congress had, inadvertently, created an advantage for trusts that could last for ever and thus never be taxed, meaning the desires and wishes of dead people will go on binding future generations for centuries, if not until the end of time.
By 2003, at least $100 billion (and probably much, much more) had poured into states with these long-lasting so-called ‘dynasty trusts’, creating a powerful incentive for other states to change their laws to abolish their own limits. This is a new phenomenon, in historical terms, but it is likely to have profound consequences, because for ever is an extremely long time. If a trust persists for just 350 years, its beneficiaries could be fifteen generations removed from the original grantor, and there could easily be more than 100,000 of them. Every one of these beneficiaries will have the right to bring a law suit against the trustees and, were they to want to hold a meeting, they would have to rent a stadium to do it in. These distant cousins will be essentially as unrelated to each other as they would be to anyone else in the general population, yet they will be linked together by the zombie wishes of their common ancestor.
Thanks to some Massachusetts genealogists, we have some great examples of quite how distant those cousins can be. If George Allen, who died in the state in 1648, had been able to establish a perpetual trust for the benefit of his descendants, those would have included both Barack Obama and Winston Churchill. If Samuel Hinckley, who died in Massachusetts fourteen years later, had done the same, both Obama and George W. Bush would have been beneficiaries. No one has really thought through what this is likely to mean for future wealth distribution. Instead, perpetual trusts are a curious and under-explored consequence of a small and apparently inconsequential quirk in tax law.
And that is not the only way that US states have attempted to tweak their law to undercut each other and attract the wealthy to their law firms. Nevada does not have perpetual trusts, but in 2005 it passed a law deeming that they can extend for 365 years, which is still a remarkably long time (that is approximately how long ago New York City was founded; imagine if someone had put Manhattan in trust for their descendants when it was just a swampy island).
Nevada is also particularly proud of its asset protection ordinances, which mean that – providing two years have passed since you put your property in trust – your creditors have no way of getting hold of it, just like in Nevis. If a man owns a company, puts it in trust, then gets divorced, his ex-wife has no claim on those assets at all, and nor do his children. And, thanks to the generosity of Nevadan law, you can even be a beneficiary of your own trust, which means you’ve given your property away, so it can’t be taken away from you, and yet you retain all the benefits of owning it. ‘The theory behind an asset protection trust is to provide the client with an extra layer of protection between the client and his/her future predators and creditors. We use the example of a bullet proof vest. You could get shot/sued, and it will hurt, but you will walk away’ is how Premier Trust, which has offices in both Las Vegas and Reno, puts it on its website. There has not been a single case of a creditor ever managing to pierce a Nevada trust.
This has long been a potentially attractive prospect. Even so, for decades, it wasn’t enough to bring in the kind of wealthy foreigners who kept their money in Switzerland, not least because of the proactive approach of US law enforcement. Putting your money in America looked worryingly like keeping your honey in a cave inhabited by a large bear. This means Moneyland in America was largely the preserve of Americans; foreigners preferred to keep their money out of the reach of the Internal Revenue Service. ‘Look, I used to work for an English investment bank, and no one who wasn’t a US person wanted to deal with the US at all, because of the IRS and the complexity, they just didn’t want to be next to the US,’ said Greg Crawford, president of the Alliance Trust Company in Reno. ‘That has all kind of changed … We have money from overseas now, we have significant money from overseas.’
Crawford’s office is on the ground floor of 100 West Liberty Street, a smart building a few blocks from Reno’s rather depressing cluster of casinos, and which used to house the US headquarters of Porsche. Alliance Trust arrived here in late 2016, having outgrown its previous home, thanks to the surge in demand. ‘Alliance Trust has seen a rise in interest around Nevada trusts from international families. While more countries are taking measures to decrease privacy, Nevada is one of the few locations left in the world where the privacy of families is still respected and protected,’ said his company’s press release at the time of the move. With Switzerland knocked out of the secrecy game by FATCA, Nevada (and several other states) is rushing to take up the slack.
Upstairs from Alliance Trust, on the twelfth floor, is the office of Rothschild & Co., one of the world’s most venerable financial institutions. Rothschild arrived here in 2013, but it does not advertise its presence on the board in the lobby (the section for the twelfth floor is entirely blank). This may be a result of a small furore that followed a Bloomberg article published in 2016, which recounted how wealthy clients were moving money into Nevada from traditional tax havens like Bermuda and the Bahamas. That article quoted a draft presentation by Rothschild managing director Andrew Penney (which he insists he amended before he delivered it), which referred to the United States as ‘effectively the biggest tax haven in the world’, and which attracted considerably more attention than anyone was comfortable with.
He was telling the truth, though. What we are seeing in Reno, and we could just as easily see in other states like South Dakota, Delaware and Wyoming, which also have thriving trust businesses of their own, are the perverse results of the world’s failure to agree consistent standards. These are the visible signs of wealth slipping out of democratic supervision, just at the moment when governments thought they had the upper hand – and of US financial institutions getting rich from it.
Peter Cotorceanu has seen this up close. He joined UBS in January 2007, as part of the bank’s wealth structuring department. A New Zealand-born lawyer, he advised anyone with more than $50 million in liquid assets how they might want to invest them, although he insists he only worked with money that had been declared to the relevant authorities, which made him something of an outlier. ‘I was actually mocked at the bank for that, because it was all about undeclared money,’ he told me by telephone from his home in Pennsylvania in 2017. ‘At the time, at the bank, the number that was floating around was 70 per cent undeclared money, and if you didn’t deal with undeclared money, then what the hell were you doing at UBS?’
Then the Bradley Birkenfeld scandal broke, and everything changed. Suddenly, UBS needed to find clever ways for its clients to manage their money that didn’t offend the American authorities, and the straight-laced Cotorceanu was the man to find them. He assessed the relative merits of forty different jurisdictions, and created the templates for an entirely new way of doing business. As such, he became an expert in the relative merits of FATCA and CRS, and that’s when he made the same discovery made by a handful of other clever lawyers. The United States had bullied the rest of the world into scrapping financial secrecy, but hadn’t applied the same standards to itself.
‘When people ask, “What did the US do to become the new secrecy jurisdiction?” I say they didn’t do anything, that’s the point. They always were a secrecy jurisdiction, but everyone else was as well,’ Cotorceanu told me. ‘I liken it to Warren Buffett’s expression: “You only know who’s not wearing a bathing suit when the tide goes out.” There were lots of people not wearing bathing suits at the time, the US amongst them. The tide went out, and everyone else scurried to put on bathing suits. The US is the only one without a bathing suit on. It’s always been without a bathing suit, but now it’s alone by itself.’
The reasons for why this happened are complicated, and partly stem from differences in the ways different countries administer taxes. US authorities only collect information on interest and dividends, meaning that this is the only information they can share with foreign counterparts, whereas CRS regulations require other countries to share information on the actual assets that are earning the income. But there is more to it than that – and this reflects a tension at the heart of offshore wealth that goes back to the very beginning of Moneyland, and which was reflected in the creation of the first eurobond, the transaction that circumvented the official plumbing of the oil tanker of the world economy.
As you will recall, back in the 1960s, Swiss banks held money for Nazi war criminals, but they also held money for tax dodgers and for refugees. These groups of people all sought secrecy/privacy/confidentiality (delete as applicable), meaning the evil money washed around with the naughty money, which washed around with the scared money. All three groups of people benefited from those first eurobonds, because they provided an income on money that had previously been static, but not all three were advertised equally prominently.
Swiss banks loved to claim that their bank secrecy had been designed to protect Jewish wealth from Nazi confiscation, and kept quiet about all the dictators whose money they also hoarded, or the tax dodging they facilitated. In effect, the refugees were being used to run interference for the others, and to make the Swiss banks look high-minded, rather than like the criminogenic institutions that they were.
Swiss banks insisted that the reason they didn’t want to reveal the details on their clients was because that would endanger the legitimate interests of people seeking protection from rapacious governments. That excuse died for Switzerland with the revelations about diamonds in toothpaste tubes that resulted from the Birkenfeld scandal, meaning the tax dodgers and the kleptocrats finally got exposed. But it hasn’t died for the United States, where bankers still like to claim they’re acting as a refuge for the money of the world’s huddled masses, rather than for the wealth of greedy businessmen and crooked officials.
In 2011, the Obama administration was seeking to expand the information it collected on foreigners’ bank accounts, so it could exchange it with those foreigners’ home governments. This was a crucial plank of the anti-tax evasion agenda, since the United States looked hypocritical if it demanded services from foreigners and provided nothing in return. The response from bankers, however, was furious. ‘At a time when we are trying to create jobs and reduce the burden on businesses, this is the wrong issue at the wrong time,’ fumed Alex Sanchez, president of the Florida Bankers Association, in testimony to Congress. ‘This proposal could result in the flight of tens to hundreds of billions of dollars of capital.’
All twenty-five members of Florida’s House of Representatives backed the association with letters of their own, using an argument familiar to anyone who’s followed Swiss banking over the years. Sanchez admitted that the owners of the $60–100 billion of foreign-owned deposits in Florida banks paid no tax, but said that was not why they kept their money in the state. They banked in Florida, he claimed, because they were worried about their safety. ‘Their personal bank account information could be leaked by unauthorized persons in their home country governments to criminal or terrorist groups,’ Sanchez argued. ‘Which could result in kidnappings or other terrorist actions being taken against them and their family members in their home countries, a scary scenario that is very real.’ Similar letters came in from bankers’ associations in Texas, California and New York, all insisting that they were providing a safe haven for people who feared for their lives, if information about their wealth leaked.
If you believed these associations, their member banks were almost charitable institutions. It may well have been true that their account holders were scared of their governments, but that was of minimal importance compared to the Florida banks’ real concern. If they weren’t allowed to sell secrecy any more, and all the Latin American money found a new home, just as the undeclared money fled Switzerland when Birkenfeld broke UBS open, then they would go bust, just like Wegelin, Switzerland’s oldest bank, did. Some Florida banks relied on foreign deposits for up to 90 per cent of their capital, which meant almost none of the banks’ clients were paying tax on their interest at all.
The bankers’ publicity offensive was joined by right-wing think tanks like the Heritage Foundation, which was at least more honest in its reasons for opposing the attempt to expose foreign tax dodgers hiding their cash in the United States. Daniel Mitchell, a Heritage senior fellow, insisted that the proposals to exchange information between countries were ‘fiscal imperialism … our government has no obligation to help enforce the bad tax laws of other nations’. Since the United States was at the time obliging other nations to help it enforce its own tax laws, this argument did not persuade the Obama administration, but it did ensure that the passage of this rather technical amendment became much trickier than it might otherwise have been. There is now no political appetite to expand FATCA’s requirements to mesh with those of the rest of the world, which means the mismatch that has brought all that money to Reno is here to stay.
‘Until the Democrats control both houses of congress, and the presidency, I don’t see it changing. Stranger things have happened, but I do think – for the near- to mid-term – we’re stuck with it,’ Cotorceanu said. ‘I don’t see who’s got the leverage to put on the US to make them comply.’
So, how does this loophole work? ‘It’s extremely straightforward,’ Cotorceanu assured me, before launching into an explanation that was extremely complex. Essentially, it comes down to where a trust is based, for tax purposes. Since a trust – unlike a company – is not registered with the authorities, and instead exists as an agreement between a settlor and her lawyers, its jurisdiction is not a straightforward matter, and interpretations differ from country to country. The lawyer’s goal is to exploit those mismatches, to create a trust that exists in the gap between the regulations.
‘The simplest way to do it, and there are lots of others, is just to give one foreign person, a non-US person, one of a laundry list of powers: for example, give a foreign protector the right to remove and replace the trustee. Bang, that’s a foreign trust,’ Cotorceanu said. ‘It doesn’t matter that the trustee is in the US, that it’s governed by Nevada law, that all the assets are in the US, that all the investments are in the US, that the bank account is in the US. If one power on the laundry list is held by a non-US person, that makes it a foreign trust for tax purposes.’ If it’s a foreign trust for US tax purposes, then the United States cannot give information about it to foreign governments even if it decides it wants to, so that’s good.
But here’s the better bit. If it has a US trustee – such as Alliance Trust Company of Reno, Nevada, for example – then it is American for the purposes of the CRS, and thus immune to its provisions. That means it doesn’t have to exchange information with foreign governments under CRS, which means a rich Chinese businessman, or a Russian, or whoever, can park their money here with no fear that information about it will drift back to his home country’s authorities. The trust is American under foreign law, and foreign under American law: it doesn’t exist anywhere. Nevada’s magical trusts have played jurisdictional Twister in a way that would have warmed Siegmund Warburg’s heart: it’s American when it wants to be; and foreign when it doesn’t. ‘It’s incredibly useful,’ said Cotorceanu.
So who’s taking advantage of it? ‘Latin Americans, Russians, Saudis, these people aren’t worried about taxes. Saudi doesn’t have an income tax, but information about wealth can be used against people, and if you’ve got a regime that’s not to be trusted then you want to keep that data confidential. You’ve got a lot of people from the Middle East and these sort of oppressive regimes that want privacy as well,’ Cotorceanu continued. ‘I require that the clients be declared, because I don’t want to assist in hiding undeclared money. For me, it’s all about privacy for declared money. However, a lot of people are using these structures now for undeclared money. The old offshore world has been brought onshore to the US.’
Nevada does not appear to publish data on the amount of assets held by its trust companies, but its rival South Dakota does. In 2006, before the UBS storm hit, the state’s trustees held an already impressive $32.8 billion – that’s around $42 million per head for every South Dakotan. By 2015, that total had reached $175.1 billion; and then rose by almost a third in just the next twelve months. In 2016, the state’s recorded total was $226 billion, which was $261 million for every resident of this prairie tax haven. ‘Many of the offshore jurisdictions are becoming less appealing for international families looking for secrecy. The stability of the US combined with its modern trust laws catering to international families may be more appealing to many international families than an offshore trust based in a less powerful country,’ one South Dakota trust company states on its website. Translated into normal English, that means that tax havens can be bullied into coughing up information about their clients, but the United States cannot.
‘South Dakota and Nevada are basically identical,’ said Crawford as we approached Carson City, Nevada’s capital, where the legislature was scheduled to discuss some changes to tax law and he had been asked to give evidence. ‘We copy some of their ideas, they copy ours. It’s a constant process to stay competitive.’ That’s the Moneyland ratchet.
We were zooming down the Interstate, passing through the scrubby desert landscape that has featured in thousands upon thousands of Westerns, and it was strange to think that this was now home to billions of dollars. Although Americans are only able to place a limited amount of assets in a trust – around $5 million – that does not apply to foreigners, so the boom in international business has brought in a disproportionate amount of money. ‘The influx from overseas has been fun. It’s nice to go to Zurich and Hong Kong and such, and those trusts tend to be fairly large. If you think the average trust we have in our office is, say, $8–10 million dollars; the ones that come in from overseas have been probably on average $50 million. So that is one aspect of the business that is enjoyable,’ he told me. ‘Because of the CRS, there’s a lot of money coming out of the traditional money centres: Switzerland, Singapore, Hong Kong, to a certain extent Dubai, a little bit of the Caribbean … they’ll call up and say, “My grand-dad set this up in many of those places, and now all of a sudden this information is going to be sent back to Bangladesh or Uzbekistan, so let’s move it to the States.”’
Was America being hypocritical in demanding other countries close down these schemes, while simultaneously creating some more itself? He looked troubled for a moment. ‘It’s not like there was some grand plan behind this,’ he said. ‘It truly evolved accidentally. But that is the case, you can put your money in the States and, in all honesty, we don’t know if they’ve reported things or not. We get affidavits, and we try to make sure the money is at least clean coming in, but we can’t verify.’
The Nevada State Assembly is a handsome building, with rounded arches about its windows, and broad lawns. We passed beneath the pillars around its grand entrance, and climbed the stairs to a committee room where Crawford and others gave their opinions about a rather technical point of law, which would allow companies like his to expand into other states, while allowing out-of-state trust companies to come to Nevada. They were in favour and so, it appeared, were the various representatives asking their questions. After the hearing ended, Assemblyman Al Kramer (whose district number 40 spreads from Carson City up towards Reno, and which I had just been driving through) hung back and chatted to George Burns, commissioner from the financial institutions division of Nevada’s Department of Business and Industry.
Kramer was full of enthusiasm about all the jobs that this influx of foreign money would bring to his constituents. ‘I’m looking at, what, twenty-one or twenty-five companies in Nevada, and they’ll all add five or six people over the next few years. Regardless of what you say, that’s over a hundred employees, and they’re probably with benefits and on over $100,000 each,’ he gushed. ‘If you had a hotel with a hundred employees and they were all going to make a hundred grand a year, all based on people coming to Nevada, you’d think this was the greatest success in the world, and that’s what I’m looking at. I think we’re set up; this is going to be big.’
Reno might look run-down now, but if only a few more trust companies arrive, it will gain a financial district, which will drive regeneration of the whole town. Burns – who licensed Rothschild & Co. when it opened its office there – shared his passion, and the two men gloated a little about all the jurisdictions they were outcompeting for business.
‘You’ve got the Isle of Man, you’ve got some of those places in the Caribbean, you’ve got a couple of places in the Pacific Ocean, islands and that, which have their own rules on stuff like this. Quite frankly the US government, the IRS, is quite capable of putting pressure on some of these places to change some of their rules. So, by being in Nevada, they aren’t subject to whims of what might happen,’ said Kramer.
‘Where it’s a little more volatile,’ chipped in Burns. ‘Cyprus, for example, has some pretty good rules, but who in the heck wants to put his money in Cyprus?’
They both laughed uproariously.
Who indeed? If your wealth is protected from the United States government by the United States government, then what protection can an island in the Mediterranean offer? As Cotorceanu wrote in an article in Trusts & Trustees, an industry magazine, in 2015: ‘[T]hat “giant sucking sound” you hear? It is the sound of money rushing to the USA to avoid [CRS] reporting. Unfortunately, much of that money will be undeclared.’
It is also the sound of Moneyland re-asserting itself. This is not a conspiracy – it never is – but a natural consequence of the laws of the ant hill. When the incentives are right, everyone acts in the same way. Nevada becoming a tax haven is just the natural consequence of bright people seeking ways to make money for themselves (and save money for their clients), in a world where money moves freely but laws do not. If Nevada and the other popular trust-friendly states have as much money booked in at their law firms as South Dakota does, that means more than a trillion dollars is hiding from sight, avoiding taxes and oversight, and will be able to do so until long after even our great-grandchildren are dead; until perhaps the end of time.
New York State’s department of taxation and finance estimated in 2013 that it was losing around $150 million a year in taxes because its residents were putting assets into trust in other states, but there is no estimate for how much the rest of the world is losing. CRS hasn’t even been fully implemented yet, so the consequences of the traditional wealth havens losing their secrecy haven’t played out, yet already the effects are clearly visible in official statistics. According to some recent research from Gabriel Zucman (the French economist at Berkeley), Swiss institutions’ share of the world’s offshore wealth has dipped from around 50 per cent to barely a quarter over the last decade. Asian tax havens are creeping up to join them. But is ‘offshore’ even a useful concept any more? If the best tax haven is now the United States, we may need a whole new term for the places that adapt their laws to accommodate the needs and whims of the nomadic Moneylanders.

Curiously, perhaps the person I met who best appreciated what was happening was Mark Brantley, prime minister of the little Caribbean tax haven of Nevis, who spent fully ten minutes responding to a question about the importance of financial services to his island with a full-blooded condemnation of the United States. He is a fluent and convincing speaker, and his passion was genuine, particularly when he described how Nevis had been obliged to sign up to FATCA and CRS, yet Washington had done nothing in return. ‘I once attended a conference many years ago and I recall that the speaker opened with a very explosive comment, that the most money laundering in the world occurred on an island,’ Brantley told me in early 2018. Apparently, most of the Caribbean jurisdictions were represented in the room, and they looked at each other in alarm. ‘I held my breath hoping the island was not Nevis. And he said the island of Manhattan … what is happening now is that money that was traditionally offshore is now flooding onshore, and is going to Delaware and Nevada and places like that.’
He had plenty of wrath left over for Britain, too.
‘It is no secret that the UK, and London in particular, has a disproportionate number of wealthy Russians, and wealthy oligarchs from all round the world. The question is why? It can’t be for the weather. So, why are people flocking to London?’ he asked. ‘There is clearly a deliberate policy to attract people of a certain net worth because of the added value those people can bring. So if the United Kingdom can do that, then what is the issue with other countries, not as endowed as the UK, trying to stand on their own two feet?’
Like Simeon Daniel, the prime minister at Nevis’ independence from Britain, Brantley is faced with trying to help his island earn a living, despite all the disadvantages of being small, remote and surrounded by water, and he thinks America and the European countries are being extremely hypocritical in insisting on standards that they don’t keep to themselves. ‘I think a lot of the time, the suggestion is that we operate in some murky Shangri-La,’ he said. ‘When I practised as a lawyer, we dealt with and did work with all the major law firms in London, all the big City firms, and all the major law firms in New York and Zurich, big cities such as those. It’s not as though we are somehow cut off. In fact, there is a fallacy in trying to divide us into offshore and onshore, there is no divide.’
He has a point. The same tricks played by Nevis are equally available in Nevada, yet the State Department criticises his country rather than its own; imposes rules on foreigners that it does not obey itself. ‘One wonders whether some of this zealous regulatory oversight is not really a money grab … You have this anomalous notion that’s sometimes being promoted that these rules are for the good of everyone, and I’m not convinced at all,’ he said.
Brantley recalled a speech that President Barack Obama made in 2009, in which he criticised Ugland House, an office block in the Cayman Islands that is home to thousands of companies, and which the president called either the largest building or the largest tax scam in the world. ‘I was surprised, you know, for a Harvard-educated lawyer not to know how the financial services sector works,’ he said. ‘There’s no money in Cayman, that money is in London, that money is in New York, that money is in the big money centres of the world. Cayman is not a big money centre; it is a facility.’
Brantley was elected in December 2017, and had only been in office for a few weeks when we spoke, so he is fresh from the private sector. He has a law degree from Oxford University, and has acted in some major commercial litigation processes, which gives him a strong understanding of the business he oversees. ‘A lot of time when we strip away all the furore about regulation, and “This is bad for the world”, and you pare it down to the bare minimum, you see that those making the most noise are really doing some very interesting things themselves, which kind of look like what we’re trying to do. And that is a major concern.’
Perhaps he’s right; it certainly seems a convincing argument to me. But there is only one certainty in all this, and that is that Moneyland will continue to evolve, its protections will continue to strengthen, as its imaginative and well-motivated defenders think of new ways for its citizens to hide and multiply their money, in whatever jurisdiction is most welcoming to them, whether that’s Nevis, the United Kingdom, the United States or somewhere else entirely. And this is a very worrying thought for anyone attached to the idea of democracy and the rule of law.