How to Deal With Countries Where Ruling Families Hide Cash Offshore?


Re-posting my July, 2013 piece on post-Soviet oligarchs` offshore secrets: Azerbaijan’s example. This interview was originally published by TURAN News Agency.

The rich, famous politicians, from presidents to plutocrats and third world dictators, who have a vast amount of cash hidden in secret offshore accounts in the British Virgin Islands, Switzerland or Singapore, probably haven’t had any sleep in weeks, since the International Consortium of Investigative Journalists (ICIJ), a project of the Washington-DC based Center for Public Integrity, in April released mass leaks that reveal their secret world…

dictatorsoffIn Azerbaijan, President Ilham Aliyev and his family members’ namehave been identified in the records from offshore tax havens, along with government officials associates in countries like Russia, Pakistan, the Philippines, Thailand, Mongolia and others, who have embraced the use of covert companies and bank accounts.

As Michael Hudson, ICIJ’s Senior Editor puts it, the mega-wealthy have lots of choices about how they organize their financial lives and the average citizens of the world have very few choices:

The question is though, what to do with a county where the president family hides cash offshore?

I’ve interviewed Mr. Hudson regarding the ICIJ report and Azeri oligarchs` offshore secrets.

Question: There is a belief in Central Asia & the Caucasus that the rich-poor gap is much wider than it was previously seen…The latest ICIJ offshore leaks, as well as last year’s report of the Tax Justice Network discredited the concept of trickle-down economics mentioning that in Azerbaijan, citizens have an estimated dozens of billion dollars hidden offshore.  The question is how do you think those who are behind these offshore operations have managed to take the money out of the country? Is there any way to prevent this in future? 

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Michael Hudson

A. Because of the secrecy of the offshore system, it’s not possible to determine whether all of the money that has been moved out of any country has been stolen or otherwise involved in illegal activities. However, our investigation of offshore transactions in countries around the world has provided evidence that a large proportion of money that has been move offshore can be traced to money laundering, political graft, financial fraud, tax evasion and other illicit activities.

Individuals and organizations are able to quietly move money across borders because of the secrecy that the offshore system provides. Offshore secrecy is a product that is bought and sold. Like other products, it’s subject to the laws of supply and demand: The more secrecy you want, the more money you pay. People who have great sums of money to hide will pay large fees to secure the most secretive offshore structures.

The offshore system is operated by a well-paid industry of middlemen and enablers who are paid to guard their clients’ secrets. These lawyers, accountants, bankers and other intermediaries and fixers make offshore secrecy possible.

It is important note that dirty money no longer travels as stacks of bills stuffed into suitcases. It moves by wire transfer — by the click of a computer key. This makes big banks crucial gatekeepers in the financial system, giving them the power to cut off the flow of corrupt cash or allow it to roam free. Money laundering experts say the offshore system can’t be reformed without cooperation and compliance from major banks, especially institutions in Europe and U.S. Several of the largest U.S. and UK banks have been the subject of government investigations that concluded that they had failed to live up to their responsibilities to fight the flow of dirty money.

Q. While commenting on the latest leaks, Azeri President’s spokesman asserted there was nothing unusual about the information in the leak – which showed tha his two daughters were shareholders of three offshore companies. The statement said the President’s daughters “are grown up and have the right to do business.”  What is your take from that? Is there any estimated data?

A. We cannot comment on the spokesman’s response, except to say that we believe the business activities of government leaders and their families merit scrutiny from lawmakers, media and citizens: offshore1

Q. The Azeri government discloses very little information about the budget, as a result of which, according to several international organizations, ranking the country below many African and Middle Eastern countries. There is a belief that countries that are rich in petroleum have less democracy, less economic stability, and more frequent civil wars than countries without oil. How would you describe Azerbaijan, its image in the West, from this point?

A. Azerbaijan has signed international agreements on transparency and corruption, but international anti-corruption groups still question the country’s commitment to fighting official misconduct. Transparency International, for example, ranked Azerbaijan 139th among the 176 countries on its 2012 Corruption Perception Index.

It’s worth noting that the group Reporters Without Borders listed Azerbaijan 162nd out of 179 countries on its 2011-2012 Press Freedom Index. Freedom of the press and freedom of information are key components of any healthy political system. Without media watchdogs who are free to report “without fear or favor,” corruption tends to flourish. Strong media watchdogs help create an atmosphere in which honest law enforcement officers and public officials can do their jobs and fight for open and clean government.

Q. For many years, analysts in Azerbaijan and around the world have been mentioning the construction boom in Baku and other cities as a sign of money laundering or, if we phrase it in a soft way, improper use of money.  Recently, however, we’ve witnessed a new tendency of the Azeri government — buying property for the state abroad. Later last year, the state oil company SOCAR has paid $12 million for the Heldref Publications Building near Dupont Circle in Washington, DC.  In its part, the SOFAZ – State Oil Fund of Azerbaijan also bought office complexes in London, Paris, Moscow, etc.  So, what,  in your opinion,  explains the tendency of buying real estate all around the world? How can it be justified from the economic point of view, taking into consideration that the owner has to pay tax and other expenses for the estate? What should the Azeri people know about this, you think?

A. This wave of real estate acquisitions wasn’t something we looked at in our investigation. From a transparency standpoint, citizens should be given all details of these transactions – how much money was spent, what the rationale for the acquisition is, how much income is collected in rent, where do these profits from these investments go?

Q. And to sum up the latest leaks, what should the West do to prevent the regimes’ stealing money from its citizens? Is there any way for Azeri people to return offshore money back? Any precedents? (Iranian shah, etc)

A. This also isn’t a question we have delved into: We can say that the latest moves by international groups and Western nations regarding offshore secrecy indicates that global economic leaders are becoming more serious about shining a light on the offshore system and raising questions about the money that flows in and out of offshore havens. That may make it easier for citizens to recover any money that may have been moved offshore illicitly.

LISTEN: Inside the global offshore money maze: How to Use the ICIJ Offshore Leaks Database

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