Revenge of the Money Launderers

The “FinCen files” story reveals: getting caught doesn’t stop banks from taking dirty money. It may even encourage them

On December 11, 2012, U.S. Justice Department officials called a press conference in Brooklyn. The key players were once and future bank lawyer Lanny Breuer (disguised at the time as Barack Obama’s Assistant Attorney General in charge of the DOJ’s Criminal Division), and Loretta Lynch, the U.S. Attorney for the Eastern District of New York, and future Attorney General. The duo revealed that HSBC, the largest bank in Europe, had agreed to a $1.9 billion settlement for years of money-laundering offenses.

An alphabet soup of regulatory agencies was represented that day, from the Justice Department, to Immigration and Customs Enforcement (ICE), the U.S. Treasury, the New York County District Attorney, and the Office of the Comptroller of the Currency, among others.

The regulators outlined a slew of admissions, with HSBC’s headline offense being the laundering of $881 million for Central and South American drug outfits, including the infamous Sinaloa cartel.

The laundering was so brazen, regulators said, the bank’s Mexican subsidiary had developed “specially shaped boxes” for cartels to pack with cash and slide through teller windows. The seemingly massive fine reflected serious offenses, including violations of the Bank Secrecy Act (BSA), the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA).

The next years would follow up with a flurry of similar settlements extracting sizable-sounding fees from other transnational banks for laundering money on behalf of terrorists, sanctioned businesses, mobsters, drug dealers, and other malefactors. Firms like JP Morgan Chase ($1.7 billion), Standard Chartered ($300 million), and Deutsche Bank ($258 million) were soon announcing settlements either for laundering, sanctions violations, or both.

Even seasoned financial reporters accustomed to seeing soft-touch settlements scratched their heads at some of the deals. In the case of HSBC, the stiffest penalty doled out to any individual for the biggest drug-money-laundering case in history — during which time HSBC had become the “preferred financial institution” of drug traffickers, according to the Justice Department — involved an agreement to “partially defer bonus compensation for its most senior executives.” If bankers can’t get time for washing money for people who put torture videos on the internet, what can they get time for?

When I did a story on the case in early 2013, I found the HSBC settlement was the latest step in a dizzying, decade-plus cycle of offenses and ignored reprimands, involving multiple regulatory bodies. The number of times HSBC had blown off compliance orders seemed too absurd to be real. In one stretch between 2005 and 2006, the bank received (and, apparently, ignored) 30 formal warnings just from the Office of the Comptroller of the Currency.

Prosecutors insisted the deferred prosecution settlements slapped on companies like HSBC, Standard Chartered, and JP Morgan Chase were tougher than jail terms. The deals would place banks in a permanent state of quasi-arrest, with regulators granted enormous supervisory power and serious charges pre-filed and hanging over the firms going forward.

As one federal investigator put it to me back then, “This way, we have them by the short ones.”

Fast-forward eight years. On September 20th, a combination of Buzzfeed and the International Consortium of Investigative Journalists (ICIJ) published the details of a major document leak highlighting a decade of money-laundering incidents, involving hundreds of billions of dollars and a number of the world’s biggest banks. The leak centered on a cache of over two thousand “suspicious activity reports,” or SARs, filed by those banks to the Financial Crimes Enforcement Network, a regulatory arm of the U.S. Treasury.

Though the ICIJ was also behind the release of the Panama Papers, investigative editor Michael Hudson told me he believes the FinCen leak is “the most important” project they’ve worked on. Instead of being about one group of actors, or one jurisdiction, these revelations span the banking sector as a whole.

“It shows the widest set of problems,” he says.

The story has been covered around the world, but some press accounts particularly here in the States seem to have missed the punchline, i.e. that the banks figuring most prominently in the FinCen leak are exactly the same institutions paraded before the public as subjects of “message-sending” punishments back in 2012-2014.

HSBC, for instance, continued to take in questionable money through 2012 and beyond, including $30 million from Hong Kong accounts related to a Ponzi scheme called World Capital Market. WCM was suspected of bilking “investors” — most of them ordinary people scraping together five or ten thousand dollars and throwing them at false promises of guaranteed returns — of nearly $80 million.

The leaked records show HSBC flagged the account as suspicious as early as 2013, but continued to take the money from this and a wide variety of other dicey accounts. Although regulators saw all of this information, the Department of Justice not only didn’t take action, it announced in 2017 that HSBC had “lived up to all of its commitments” and agreed to file a motion to lift the deferred prosecution deal.

A similar pattern held with JP Morgan Chase, which in 2013 was hit with a cease and desist order over “systemic deficiencies” in its money-laundering controls, yet continued to do business with rogue accounts, including some infamous and obvious ones. To give some sense of the sums involved, JPM made roughly a half-billion dollars just servicing the accounts for con artist Bernie Madoff.

As far back as 2006, JP Morgan Chase knew enough to pull its own money out of investments in hedge funds tied to Madoff, but never told investors, and continued to manage his accounts for years. The bank ultimately settled with the government over the Madoff episode in 2014, after the 2013 “cease and desist” order, while continuing to manage money for other malodorous accounts — including, according to the ICIJ, more than $1 billion for Jho Low, the fugitive financier behind Malaysia’s infamous 1MDB fund.

In a detail that should infuriate the #Resistance crowd, Jamie Dimon’s bank also continued to do business in huge sums for former Trump campaign manager Paul Manafort even after Manafort stepped down in scandal, and even after the bank flagged Manafort’s accounts. From the ICIJ report:

JPMorgan also processed more than $50 million in payments over a decade, the records show, for Paul Manafort, the former campaign manager for President Donald Trump. The bank shuttled at least $6.9 million in Manafort transactions in the 14 months after he resigned from the campaign amid a swirl of money laundering and corruption allegations spawning from his work with a pro-Russian political party in Ukraine.

“If you look at the cases where they tried to punish and deter the big banks, the headline-making efforts just haven’t worked,” says Hudson. “In the aftermath of these supposed crackdowns, the banks continued to move money in staggering amounts, for powerful and dangerous characters.”

“The big takeaway is, the system just doesn’t work,” adds former federal prosecutor Paul Pelletier. “I think these SARs represent about $2 trillion in suspicious transactions, and nearly all of it went through. And this is just a small fraction of the overall amount of money.”

According to Hudson, the FinCen files represent about two-tenths of one percent of the suspicious activity reports filed between 2011 and 2017.

In the aftermath of the HSBC deal in 2012, money laundering cases began to attract a fair amount of press attention. HSBC’s case even became one of the subjects for Oscar-winning documentarian Alex Gibney’s “Dirty Money” series:

At the time, there was an expectation that these stories could be told in the past tense, because firms like HSBC had been busted. The FinCen leaks show the opposite. The settlements may actually have been an accelerant, allowing for the appearance of regulation, while alerting banks to broader weaknesses that encouraged more brazen behavior going forward. We may have to change the way we think about “dirty money,” from being an outside contaminant, to endemic to the system at its core.


Public legend about movement of ill-gotten cash usually centers on crooks sitting under ceiling fans in tropical locales, receiving mysterious wire transfers in places outside the physical reach of American regulators, like VanuatuPanama, or the British Virgin Islands. The FinCen leaks make clear the real hub of money laundering is in what Hudson calls the “choke point” of New York, where the world’s largest financial institutions have streamlined the process of moving shady money.

SARs don’t always indicate a crime. They’re the regulatory equivalent of a call to police to check something out that doesn’t add up. Bank monitors who compile them might be spotting something in their account rolls like high numbers of cash transactions, large numbers of wire transfers to a country where the customer doesn’t do business, etc.

The requirement to produce these reports creates a cat-and-mouse game for banks. Every time compliance officers discover derogatory information that leads to an account being closed, it’s a direct hit to a bank’s revenues. On the other hand, to keep regulators off their backs, banks have to be seen to be doing all they can to sniff out illegalities. Therefore there’s an incentive for banks to cycle through creative ways of looking like they’re engaging in compliance, without actually doing so.

A bank might create sizable AML departments, but pad them with inexperienced, entry-level employees incapable of spotting problems (see here for the HSBC example I wrote about years ago). A firm may hire a top-of-the-line department head, but not give him or her real resources. Required hiring boxes may be checked, but the company may non-report or under-report problems. Companies may even generate huge numbers of suspicious activity reports while leaving key data like names or addresses missing.

In a different scenario, reports are filed too late for action to be taken. SARs are supposed to be filed within 30 days, for instance, but the FinCen documents were filed to the government an average of 166 days after the initial detection of a potential problem.

In another stalling method, banks informally agree not to close suspicious accounts until a certain number of SARs have accrued. When the Senate Permanent Subcommittee on Investigations looked at HSBC in 2012, for instance, they found internal emails from bank executives suggesting that HSBC’s Mexico operations had settled on a policy of not closing accounts until four SARs had been filed.

When the company’s chief compliance officer found out about its subsidiary HMEX’s standard, he wrote, in a bemused tone, “4 SARs seems awfully indulgent, even by local standards.” HMEX later cut the standard to two SARs, which seems to be the exception rather than the rule. In the FinCen leaks, companies are seen repeatedly filing reports about the same actor, each time implying they’ve dug just enough to write a report, but never quite enough to actually close the account.

Of course, in banking, size matters. “Maybe the bank looks at a wire transfer and says, ‘This smells.’ Do that in a $12,000 transaction, and they’ll kick you out of the bank,” says Pelletier. “Do it at $12 million, and they’ll let it go.”

What’s unique about this leak it shows bad behavior the banks actually reported. As one former investigator put it this week, “This is the stuff they actually have a suspicious activity report for!” That banks keep taking the money is bad, but the fact that regulators keep receiving the reports and letting shady transactions slide makes the dirty-money problem a bizarre symbiosis of private rapaciousness and (at best) governmental apathy.

While credit card companies are able to detect fraud and banks are able to detect suspicious activity thanks to technological advances, the government lacks the same capability, in part perhaps because the reporting system is not automated. Since it’s a crime to leak a “SAR” — you “literally have to steal one” to make one public, as one former investigator puts it — they’ve rarely been seen by the public. The ICIJ has now put them on display:

The government receives millions of these written reports, which often appear to reflect a fair amount of person-hours of research by the bank. However, the government lacks what one investigator described to me as an “AI-type test” for passive review of this material, and lacks the personnel to go through it all individually.

At best, a federal investigator may go through the SAR database to check an individual or company already targeted in another probe. This particular batch of SARs seems to have been gathered as part of a congressional investigation into Russian interference, for instance. The rest of the reports are fated to be memory-holed by overwhelmed regulators.

What do you get in this seeming worst-case scenario, when banks pretend to monitor, and regulators pretend to collect the monitoring? A short list of some of the messes found in the FinCen docs:

— In one ridiculous case, Deutsche Bank’s New York branch processed $2.6 billion and $700 million, respectively, for a pair of companies called Ergoinvest and Chadborg trade. Both companies declared annual incomes of $35,000, and the statements for both firms bear the signature of the same obscure dentist in Belgium, who claims he doesn’t even own a car. Yet the money kept rolling through! The companies earned British registrations through “formation agencies” located in the Baltics, where investigators have found a rat’s nest of problems in recent years. Deutsche Bank, the originator of 62% of the leaked SARs (perhaps reflecting the focus of the Russia investigation that produced the FinCen docs), moved at least $150 billion just from one small Tallinn-based bank, Danske Estonia, for instance.

— Ukrainian Ihor Kolomoisky was the subject of raids by federal investigators earlier this summer, and has been profiled in colorful news reports that read like movie scripts. In one piece, he allegedly dropped crayfish meat by remote control into a tank to be devoured by sharks in the middle of a meeting, as a Dr. Evil-style intimidation tactic.

ICIJ @ICIJorg

Learn about the 22 properties Kolomoisky and his associates purchased between 2006 and 2015 – with this interactive map made by @pirhoo. #FinCENFiles

Michael Sallah @MikeSallah7

The Oligarch Who Ate Cleveland: Untold story of how Deutsche Bank helped Igor Kolomoisky acquire an empire in real estate in America’s heartland — the money siphoned from Ukraine’s largest bank. @TanyaKozyreva and me and team from @ICIJorg https://t.co/2aWlZGtPQt via @ICIJorg

The crux of accusations by prosecutors is that Kolomoisky employed gangland tactics at home (including using “armed goons” to take over an oil company), then funneled the money to places like the States, to be invested in legit vehicles like real estate. This is exactly the kind of person the SAR process is designed to identify and disqualify quickly. Nonetheless, the FinCen files show Deutsche Bank, which had entered into a settlement deal in 2015 for moving over $11 billion in suspicious transactions, moved at least $240 million for a Kolomoisky-connected account at exactly that time, between 2015 and 2016.

— Even as Russian aluminum baron Oleg Deripaska garnered enormous media attention in recent years, including during the Russiagate furor, he continued to move money freely through the American banking system. The FinCen files contain a total of 58 SARs related to Deripaska, issued between 1997 and 2017, covering an amazing $12.41 billion in transactions. The Bank of New York Mellon flagged 16 transactions involving a Deripaska subsidiary company called Mallow Capital, but apparently kept doing business. To quote the ICIJ, “Mellon said Mallow Capital appeared to be a shell company operating in a high-risk area with no known legitimate business purpose. In 2012 and 2013, Mallow sent itself nearly $420 million using different British Virgin Islands addresses and different banks…”

The FinCen leaks highlight two major weaknesses of the regulatory system. One is the longstanding absence of a requirement that anyone opening a U.S. account name a “beneficial owner,” i.e. who is really controlling the account. The other is correspondent banking. Banks in the U.S. are required to “know your customer” in addition to monitoring and reporting domestic accounts. Still, any foreign bank with a license may open “correspondent” accounts in those same regulated Western banks. A lot of the worst instances catalogued in the FinCen leaks involve these correspondent accounts, opened in Asia, Eastern Europe, the Middle East, etc.

In the long run, the regulatory system ends up serving as a de facto partner for banks that all but admit they’re taking in money from Ponzi schemers, mobsters, drug lords, and rogue states.

This is a “feature, not a bug” problem. Going back to the years after the crash, regulators spoke often about the need to carefully construct settlements, so that even repeat offenders might remain viable.

In late 2012, for instance, at a press conference announcing a market manipulation settlement for the Swiss Bank UBS, Breuer told reporters, “Our goal here is not to destroy a major financial institution.”

This is a bank that has broken the law before,” a reporter said that day. “So why not be tougher?”

“I don’t know what tougher means,” Breuer answered.

Some time later, then-Attorney General Eric Holder gave a video message on the theme, “There is no such thing as Too Big to Jail.” While insisting “no one is above the law,” Holder pointed out that some criminal charges carried automatic regulatory penalties that “may even trigger the loss of that institution’s charter.” This, he implied, is not always a good thing.

This issue had come up at the HSBC press conference the previous year, when Breuer said, “had the US authorities decided to press criminal charges, HSBC would almost certainly have lost its banking license in the US.”

For that reason, Holder insisted, regulators often “must go the extra mile to coordinate closely with the regulators who oversee these institutions’ day-to-day operations.”

Translated, this meant the Justice Department was crafting punishments to make sure banks landed on their feet and remained functional as American businesses, even in the face of public reprimand.

A typical settlement involved a fine that sounded large but was really equal to months or weeks of profit, with penalties in some cases also being deductible, so taxpayers could share in the joys of paying a bank’s debt to society. In other words, settlements were designed not to hurt too much, but just the right amount.

Even a “record” harsh settlement doled out to the French bank BNP-Paribas in 2014 for sanctions violations, which included a rare plea to a real criminal charge in addition to a $9 billion penalty, only incurred a one-year exile from U.S. dollar transactions. Even when throwing the proverbial book at firms, regulators made sure to pave clear roads to redemption.

This was not necessarily a bad thing. There’s no reason why anyone should want systemically-important institutions (who are often major employers) to be wiped off the face of the earth, willy-nilly. The problem is that if you completely remove the threat of a lost charter, it signals to everyone that regulators will tolerate even open repeat violations. In this light, even a “tough” public punishment becomes a license to steal.

Hudson, for instance, notes that announcements of many of the biggest money laundering settlements involving the firms in the FinCen files were accompanied by jumps in the company’s share prices. HSBC’s shares rose in London and Hong Kong after the 2012 settlement, and even BNP’s criminal plea deal prompted a 3.6% jump in share price. Markets see the settlements as seals of approval going forward, and “send the signal that the regulators are looking to do a deal,” Hudson says.

The irony of all this is that the Trump era has seen much gnashing of teeth over America’s withdrawal from global bureaucracies like the Paris Agreement, the “Open Skies” arms control treaty, the Iran deal, and other conventions. Meanwhile, in the one place we want an isolationist-style wall, around the Federal Reserve-connected American banking system, barriers are wearing away. Only in crime, it seems, is America becoming more global in outlook.

The Doctor Versus the Denier

Anthony Fauci’s at the pool, but Donald Trump’s in deep.

Never mind Johnny Depp and Amber Heard.

You want to see a real can’t-look-away train wreck of a relationship? Look to the nation’s capital, where a messy falling out is chronicled everywhere from the tabloids to a glossy fashion magazine, replete with a photo shoot by a swimming pool.

The saga has enough betrayal, backstabbing, recrimination, indignation and ostracization to impress Edith Wharton.

The press breathlessly covers how much time has passed since the pair last spoke, whether they’re headed for splitsville, and if they can ever agree on what’s best for the children.

It was always bound to be tempestuous because they are the ultimate odd couple, the doctor and the president.

  • One is a champion of truth and facts. The other is a master of deceit and denial.
  • One is highly disciplined, working 18-hour days. The other can’t be bothered to do his homework and golfs instead.
  • One is driven by science and the public good. The other is a public menace, driven by greed and ego.
  • One is a Washington institution. The other was sent here to destroy Washington institutions.
  • One is incorruptible. The other corrupts.
  • One is apolitical. The other politicizes everything he touches — toilets, windows, beans and, most fatally, masks.

After a fractious week, when the former reality-show star in the White House retweeted a former game-show host saying that we shouldn’t trust doctors about Covid-19, Donald Trump and Anthony Fauci are gritting their teeth.

What’s so scary is that the bumpy course of their relationship has life-or-death consequences for Americans.

Who could even dream up a scenario where a president and a White House drop oppo research on the esteemed scientist charged with keeping us safe in a worsening pandemic?

The administration acted like Peter Navarro, Trump’s wacko-bird trade adviser, had gone rogue when he assailed Dr. Fauci for being Dr. Wrong, in a USA Today op-ed. But does anyone believe that? And if he did, would he still have his job?

No doubt it was a case of Trump murmuring: Will no one rid me of this meddlesome infectious disease specialist?

Republicans on Capitol Hill privately confessed they were baffled by the whole thing, saying they couldn’t understand why Trump would undermine Fauci, especially now with the virus resurgent. They think it’s not only hurting Trump’s re-election chances, but theirs, too.

As though it couldn’t get more absurd, Kellyanne Conway told Fox News on Friday that she thinks it would help Trump’s poll numbers for him to start giving public briefings on the virus again — even though that exercise went off the rails when the president began suggesting people inject themselves with bleach.

How did we get to a situation in our country where the public health official most known for honesty and hard work is most vilified for it?” marvels Michael Specter, a science writer for The New Yorker who began covering Fauci during the AIDs crisis. “And as Team Trump trashes him, the numbers keep horrifyingly proving him right.”

When Dr. Fauci began treating AIDs patients, nearly every one of them died. “It was the darkest time of my life,” he told Specter. In an open letter, Larry Kramer called Fauci a “murderer.”

Then, as Specter writes, he started listening to activists and made a rare admission: His approach wasn’t working. He threw his caution to the winds and became a public-health activist. Through rigorous research and commitment to clinical studies, the death rate from AIDs has plummeted over the years.

Now Fauci struggles to drive the data bus as the White House throws nails under his tires. It seems emblematic of a deeper, existential problem: America has lost its can-do spirit. We were always Bugs Bunny, faster, smarter, more wily than everybody else. Now we’re Slugs Bunny.

Can our country be any more pathetic than this: The Georgia governor suing the Atlanta mayor and City Council to block their mandate for city residents to wear masks?

Trump promised the A team, but he has surrounded himself with losers and kiss-ups and second-raters. Just your basic Ayn Rand nightmare.

Certainly, Dr. Fauci has had to adjust some of his early positions as he learned about this confounding virus. (“When the facts change, I change my mind. What do you do, sir?” John Maynard Keynes wisely observed.)

Medicine is not an exact art,” Jerome Groopman, the best-selling author and professor at Harvard Medical School, put it. “There’s lots of uncertainty, always evolving information, much room for doubt. The most dangerous people are the ones who speak with total authority and no room for error.”

Sound like someone you know?

Medical schools,” Dr. Groopman continued, “have curricula now to teach students the imperative of admitting when something went wrong, taking responsibility, and committing to righting it.”

Some are saying the 79-year-old Dr. Fauci should say to hell with it and quit. But we need his voice of reason in this nuthouse of a White House.

Despite Dr. Fauci’s best efforts to stay apolitical, he has been sucked into the demented political kaleidoscope through which we view everything now. Consider the shoot by his pool, photographed by Frankie Alduino, for a digital cover story by Norah O’Donnell for InStyle magazine.

From the left, the picture represented an unflappable hero, exhausted and desperately in need of some R & R, chilling poolside, not letting the White House’s slime campaign get him down or silence him. And on the right, some saw a liberal media darling, high on his own supply in the midst of a deadly pandemic. “While America burns, Fauci does fashion mag photo shoots,” tweeted Sean Davis, co-founder of the right-wing website The Federalist.

It’s no coincidence that the QAnon-adjacent cultists on the right began circulating a new conspiracy theory in the fever swamps of Facebook that Dr. Fauci’s wife of three and a half decades, a bioethicist, is Ghislane Maxwell’s sister. (Do I need to tell you she isn’t?)

Worryingly, new polls show that the smear from Trumpworld may be starting to stick; fewer Republicans trust the doctor now than in the spring.

Forget Mueller, Sessions, Comey, Canada, his niece, Mika Brzezinski. Of the many quarrels, scrapes and scraps Trump has instigated in his time in office, surely this will be remembered not only as the most needless and perverse, but as the most dangerous.

As Dr. Fauci told The Atlantic, it’s “a bit bizarre.”

More than a bit, actually.

The Roger Stone Commutation Is Even More Corrupt Than It Seems

President Trump’s commutation of the prison sentence of his longtime confidante Roger Stone is wholly unsurprising. Indeed, given Trump’s repeated teasing of the matter over the life of the case against Stone, it would have been something of a surprise had he not intervened so that his felonious friend was spared time behind bars.

But the predictable nature of Trump’s action should not obscure its rank corruption. In fact, the predictability makes the commutation all the more corrupt, the capstone of an all-but-open attempt on the president’s part to obstruct justice in a self-protective fashion over a protracted period of time. That may sound like hyperbole, but it’s actually not. Trump publicly encouraged Stone not to cooperate with Robert Mueller’s investigation, he publicly dangled clemency as a reward for silence, and he has now delivered. The act is predictable precisely because the corrupt action is so naked.

In a normal world, this pattern of conduct would constitute an almost prototypical impeachable offense. But this is not a normal world. Congress is unlikely to bestir itself to do anything about what Trump has done—just as it has previously done nothing about the obstruction allegations detailed in the Mueller report. Indeed, in the midst of a presidential campaign, a second impeachment would surely be ill advised. The only remedy for this behavior, at least while Trump remains in office, has to lie in accountability in the context of Trump’s campaign for reelection.

That is why it is so important to understand the history that led to the Stone commutation, just how corrupt it is, and why the predictability of the president’s action actually inflames public outrage—not inures the public to what Trump has done here.

Roger Stone isn’t just Trump’s confidante or friend. According to newly unsealed material in the Mueller report, he’s also a person who had the power to reveal to investigators that Trump likely lied to Mueller—and to whom Trump publicly dangled rewards if Stone refused to provide Mueller with that information. Now, it seems, the president is making good on that promise.

When the report first became public in April 2019, it described how Stone reached out to WikiLeaks during the 2016 campaign and represented himself to the Trump campaign as having inside information on upcoming releases of information damaging to Hillary Clinton. But a significant portion of the material on Stone was redacted because of ongoing criminal proceedings against him. Recently, however, following the guilty verdict against Stone, a court unsealed that hidden material thanks to litigation by BuzzFeed News and the Electronic Privacy Information Center (EPIC). The newly unredacted information—some but not all of which was revealed over the course of Stone’s trial, but some of which was not previously public—is highly revealing of Stone’s relationship with the president.

During the 2016 campaign, Mueller writes, Stone “made several attempts to contact WikiLeaks founder Assange, boasted of his access to Assange, and was in regular contact with Campaign officials about the releases that Assange made and was believed to be planning.” He spoke repeatedly about his connections to Assange, witnesses told Mueller, and his ability to find out what new releases of information WikiLeaks was planning. Crucially, the unredacted information includes testimony from multiple witnesses who described Stone’s conversations about upcoming WikiLeaks releases with high-level campaign officials—including Trump’s campaign chairman, Paul Manafort—and even Trump himself.

According to Manafort, Trump personally told the chairman that he should keep in touch with Stone about WikiLeaks. Another campaign official, Rick Gates, recalled an incident during the campaign in which Trump spoke by phone with Stone and then told Gates that, as Mueller paraphrases, “more releases of damaging information would be coming.” Trump’s former lawyer Michael Cohen told Mueller about overhearing a phone call in which Stone told Trump that “he had just gotten off the phone with Julian Assange and in a couple of days WikiLeaks would release information.” Then, Mueller writes, once WikiLeaks began dumping material damaging to Clinton in July 2016, Trump “said to Cohen something to the effect of, ‘I guess Roger was right.’”

So Trump clearly knew about and encouraged Stone’s outreach to WikiLeaks, the unredacted report shows. Yet in written answers the president provided to Mueller’s office in the course of the special counsel’s investigation, Trump insisted that he did not recall “the specifics of any call [he] had” with Stone during the campaign or any discussions with Stone of WikiLeaks. And shortly after he submitted those answers, the unredacted report states, Trump began tweeting publicly in support of Stone—calling him “brave” and congratulating his “guts” for refusing to testify.

Trump’s tweets were always suspicious, to say the least. And his answers to Mueller seemed less than entirely credible even when the redacted report was first released. But the newly revealed text makes clear Mueller’s suspicions that Trump lied in his written answers—and then pushed Stone not to testify in order to prevent Mueller from discovering that lie. As Mueller put it dryly: “[T]he President’s conduct could also be viewed as reflecting his awareness that Stone could provide evidence that would run counter to the President’s denials and would link the President to Stone’s efforts to reach out to WikiLeaks.” The special counsel also writes that Trump’s tweets to Stone—along with his tweets criticizing Cohen, who was by then cooperating with investigators—“support the inference that the President intended to communicate a message that witnesses could be rewarded for refusing to provide testimony adverse to the President and disparaged if they chose to cooperate.”

Stone did, indeed, refuse to provide testimony adverse to Trump. And while his precise relationship to WikiLeaks and Assange was never fully explained, he stood trial for lies to Congress denying his efforts to contact WikiLeaks, and for intimidating another witness who could have contradicted those lies. As the judge in Stone’s case put it: “He was prosecuted for covering up for the President.”

Now, with Trump’s commutation, Stone has received the precise reward Trump dangled at the time his possible testimony was at issue.

“Roger Stone is a victim of the Russia Hoax that the Left and its allies in the media perpetuated for years in an attempt to undermine the Trump Presidency,” the White House said Friday evening. In the White House’s telling, Stone was targeted by out-of-control Mueller prosecutors for mere “process” crimes when their “collusion delusion” fell apart. He was subject to needless humiliation in his arrest, and he did not get a fair trial. “[P]articularly in light of the egregious facts and circumstances surrounding his unfair prosecution, arrest, and trial, the President has determined to commute his sentence. Roger Stone has already suffered greatly. He was treated very unfairly, as were many others in this case. Roger Stone is now a free man!”

Indeed he is. But the story may not be over.

Time to put Roger Stone in the grand jury to find out what he knows about Trump but would not tell. Commutation can’t stop that,” tweeted Andrew Weissman, one of Mueller’s top prosecutors, following the president’s action.

That’s most unlikely while the Justice Department remains in the hands of Attorney General William Barr. But it’s far from unthinkable should Trump leave office in January. What’s more, the commutation means that the story Mueller tells about potential obstruction vis-a-vis Stone did not end with the activity described by the Mueller report. It is a continuing pattern of conduct up until the present day. That potentially makes it easier for a future Justice Department to revive at least one of the obstruction questions that Barr squelched when he closed the cases Mueller intentionally did not resolve. In addition to all the facts reported by Mueller, including facts that have been redacted until recently, Trump has now consummated the deal he dangled before Stone.

That’s something the Justice Department may want to examine anew—someday.

Just because the Swamp is “Normal” doesn’t mean it is OK

Saagar Enjeti blasts Biden’s potential administration after reports from The American Prospect detail how strategic consultants will define Biden’s cabinet.

Cited Piece

The American Prospect: How Biden’s Foreign-Policy Team Got Rich

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all right Sagar what’s on your radar
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well the RealClearPolitics average has
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Joe Biden up 8.7% Achon average over the
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last three weeks nationally and in every
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single battleground state and yesterday
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we featured this map on the show it
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shows that the upper bound of what is
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electoral possibility in November is a
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massive electoral landslide none of this
00:21
is a guarantee as we learned in 2016 but
00:24
what does it mean is that we have to
00:26
start taking very seriously what it
00:29
actually means for Joe Biden to become
00:31
President of the United States and
00:33
commander-in-chief this is especially
00:35
relevant after the most recent deep
00:37
state plot to derail Afghan peace
00:39
negotiations and the bipartisan push to
00:41
keep thousands of troops in Afghanistan
00:43
for no reason our friends over at the
00:45
American Prospect gave us a distressing
00:47
look into what exactly we’re dealing
00:49
with here on the national security front
00:51
if Biden ever ascends to the Oval Office
00:54
and just how deep the swamp will extend
00:57
inside the prospect details how to close
01:00
Biden associates Anthony blinken and
01:02
Michele Flournoy decided to start a
01:04
boutique consulting firm for defense
01:06
contractors and fortune 100 companies
01:09
after they unexpectedly found themselves
01:11
without a job in here with Hillary
01:13
Clinton’s administration blinken and
01:15
flora Noyes practice entails helping
01:17
tech companies try to get Pentagon
01:19
contracts helping defense contractors
01:21
get more contracts and basically
01:23
advertising itself as a one-stop
01:25
consulting shop for any massive
01:27
corporation that wants help influencing
01:29
the national security or diplomatic
01:31
swamp now in a particularly galling
01:33
section of their website the pair
01:35
literally advertise that they can help
01:37
major companies quote develop a strategy
01:39
for expanding market access in China
01:42
blinken and Flournoy are not going to be
01:45
low-level aides in a Biden
01:46
administration floor annoy was well
01:49
known in Washington to be the next
01:51
Secretary of Defense in waiting under
01:53
hillary clinton administration i
01:54
personally attended an event with her
01:57
and biden in 2016 in which biden
02:00
jokingly called her Madame secretary and
02:02
which she jokingly referred to Biden as
02:04
mr. president blinken on the other hand
02:06
was deputy national security adviser
02:08
under Obama and a Deputy Secretary of
02:11
State
02:12
recent Biden campaign event he was
02:15
introduced as quote senior foreign
02:17
policy advisor and the rest of Biden’s
02:19
foreign policy team is exactly the same
02:21
as the prospect lists including Nicholas
02:23
burns of the Coen Group Kurt Campbell of
02:26
the Asia group Tom Donilon of Blackrock
02:29
Investment Institute Wendy Sherman of
02:32
the Albright Stonebridge group and
02:34
former Hillary adviser Jake Sherman of
02:36
macro advisory partners you beginning to
02:39
sense a theme here former very high
02:41
ranking national security officials now
02:43
working as outright consultants for
02:45
finance Sears and Chinese companies and
02:47
defense contract or companies who take
02:49
those people on as clients does any of
02:52
this bother Joe Biden
02:53
well when the prospect asked his
02:55
campaign for comment this is what they
02:57
had to say quote there’s a difference
03:00
between consulting and lobbying and that
03:03
here’s a pretty strong line there so
03:05
presumably we don’t have to have a ban
03:07
on people who were consultants at one
03:09
time on another since I am one myself it
03:12
is just too good to be true
03:14
what’s disgusting about this is the pure
03:17
nakedness of it all Michele Flournoy as
03:20
they point out literally serves on the
03:21
presidential intelligence advisory on
03:23
the CIA directors external advisory
03:26
board on the Pentagon’s defense policy
03:28
board she has access to very classified
03:30
and important information who knows what
03:32
she is and isn’t using to influence her
03:35
advice to the most powerful corporations
03:37
in the world under Biden they will this
03:40
is only going to ramp up a member of the
03:42
firm that floor annoyin blinken found it
03:44
even admitted to the prospect that Biden
03:46
would be great for business saying quote
03:48
think about it if Biden were to win we
03:50
do think that companies will start
03:52
coming to West exec for hey what is the
03:55
Commerce Secretary thinking the clear
03:57
picture we’re getting here Biden and his
03:59
team is that they’re not rigidly
04:01
ideological if they were outright
04:03
neo-cons
04:04
in a way I would respect it more but
04:06
worse they are transactional neo
04:08
liberals who will tell you with a
04:10
straight face that they believe in
04:12
making the country a better place while
04:13
enriching themselves off perpetuating
04:16
the status quo that can’t afford to get
04:18
out of Afghanistan because it would hurt
04:20
their clients they can’t afford to pull
04:23
back from Europe because it would hurt
04:24
their a bit
04:25
consult companies who want to do
04:27
business with NATO the grifting list is
04:30
on and on and on and the wholesale
04:33
ownership of Biden’s foreign policy team
04:34
by this system and his inability to push
04:37
back against it is a signature of some
04:40
very troubled times to come in the next
04:42
four years if he ever ascends to the
04:45
presidency and crystal I mean I don’t
04:47
know if you read this piece but it is
04:48
stunning because it’s not just blinking
04:50
and floran wise he points out every
04:52
single person works for some consultancy
04:55
group and then not even that it’s just
04:57
it’s the naked lack of reporting why
04:59
does this have to come from a
05:01
progressive left outlet you should in
05:03
the new york times be investigating this
05:05
is manna ford stone level stuff right
05:07
yeah they don’t care because it’s just
05:09
normal it’s like a normal grift of
05:11
washout yet that everybody is just like
05:13
oh yeah you know she made a couple
05:14
million bucks here a couple million
05:16
bucks they’re gonna be the next defense
05:17
secretary who knows how many contracts
05:19
gonna steer their way to somebody’s
05:21
friend oh good just normal now they’re
05:23
like the fish swimmin in the ocean they
05:25
can’t see the water this is just like
05:26
the way things are done indeed I mean it
05:29
reminds me a lot of you know when we
05:31
were talking about hunter Biden
05:35
congressman Ted Louise like people serve
05:37
on boards right make money the fact that
05:41
is normal doesn’t mean it’s okay that
05:43
actually makes it so much worse and I
05:46
really encourage people to go read this
05:48
piece it’s it’s such an important look
05:50
inside the way that policy is actually
05:53
made and the human beings who are at the
05:56
table and the interest sometimes that
05:58
are secret by the way they’re not
06:00
upfront about life they don’t have I’m
06:03
also you know I’m also working with
06:04
Northrop Grumman just so you know so
06:06
when I’m advocating for like this
06:07
missile system that they have to make
06:09
you might want to know that piece of
06:11
information I mean that is literally
06:12
laid out in this piece and it is
06:15
completely common operating procedure in
06:17
this town so on the one hand it’s just
06:19
like it’s so normal that they don’t even
06:21
think to report on it and look into who
06:24
the individuals are who they represent
06:26
how that might influence their policy
06:28
and on the other hand the other piece of
06:30
this is like so much of our political
06:32
coverage I touched on this yesterday
06:34
when we were talking about Susan Rice’s
06:35
potential VP
06:37
or any of the other potential VP picks
06:39
it’s all just treated as horserace yes
06:42
and personality driven and like
06:44
demographic driven like what boxes do
06:46
they check rather than actually digging
06:49
into the substance and the policy and
06:51
what that might mean for an
06:52
administration especially when you do
06:54
have someone like Joe Biden that’s the
06:55
other piece that’s interesting here is
06:57
they talk about the way that he’s a
06:58
perch for the policy it sounds actually
07:00
a lot like Trump yeah it’s very
07:02
personality driven he has this like
07:03
glad-hand approach he he believes in
07:06
these personal relationships many of
07:08
which have gotten him into a lot of
07:09
trouble in terms of his decision-making
07:11
trusting people and leaders that he
07:13
really has arrested one of the best
07:15
parts of the piece yeah about I forgot
07:17
actually this because this is my
07:18
background he was the guy who backed
07:21
Nuri al-maliki right Iran who is the
07:24
person who started a sectarian civil war
07:26
gave rise to Isis Andrew into the
07:29
country after he was like his but yeah
07:33
and it was like fighting walked into
07:34
Iraq thinking he was dealing with to
07:36
Delaware political bosses is like yeah
07:38
it turns out the sunni-shia conflict is
07:40
a lot more complicated right and then
07:42
maybe we should apply a little bit more
07:43
intellectual rigor there that is
07:45
actually the piece that worries the most
07:47
because you can see it right now on
07:48
Afghanistan because Biden and his team
07:51
are like Oh Trump wants to get out of
07:52
Afghanistan they’re gonna abandon Biden
07:55
has a record of pushing restraint in
07:57
Afghanistan his entire record was saying
07:59
hey don’t do this let’s do the
08:00
counterterrorism thing even in 2006-2007
08:03
he was writing op-eds against the surge
08:05
which is a long history of being anti
08:08
intervention whenever that was the
08:09
politically convenient kind of
08:11
contrarian thing to do right but this
08:12
goes to show with Susan Rice doing the
08:15
Afghanistan thing and I played his
08:17
comments here over last week we talked
08:18
about dereliction of duty for Trump and
08:20
all of that about how we have to stand
08:22
up to the Russians I just that’s when
08:23
you really knew this is a truly
08:25
transactional non-ideological figure who
08:28
will go wherever the winds blow that is
08:30
a disaster that is how you got Libya
08:33
Libya was the politically convenient
08:35
thing to do how did it work out for
08:37
everybody right maybe it would’ve been
08:38
better to have somebody hot saying yeah
08:40
nobody talks about that one well and
08:42
here’s something too exactly like what
08:44
you’re saying when you
08:45
have someone who doesn’t have like a
08:47
fixed ideology that they’re committed to
08:50
or an agenda overseas that they’re
08:52
committed to then the people that you’re
08:54
talking about here blink it in Flournoy
08:55
and all the rest they’re the ones that
08:57
fill in the gaps they’re the ones that
08:59
actually drive the policy then once it’s
09:00
set the range of options that are
09:02
available so just like we’ve seen with
09:04
Trump where he’s like I want to get out
09:06
of out get it like that’s just not even
09:07
an option that’s put in on the table
09:09
they’re like your options are you can
09:10
increase by five thousand ten thousand
09:12
or seventy-five thousand right it’s like
09:13
but I want to get out I don’t understand
09:15
that’s how they get you that’s what they
09:17
do every single time it’s and it’s not
09:19
just and some of these people are
09:21
ideological and then some of them just
09:23
have you know personal professional and
09:25
monetary direct monetary interests in
09:28
serving this particular role because
09:30
yeah why that well look if they go in
09:32
the administration they’ll cut all the
09:33
ties specifically those industries
09:35
they’ve got all those connections still
09:37
they know where their breads gonna be
09:38
buttered after they exit the
09:40
administration so don’t think that just
09:42
because they technically cut ties at
09:44
that point means that they have really
09:46
like the independence of thought doesn’t
09:48
even matter they admit it they’re on off
09:50
basically on background to this prospect
09:52
reporter being like yeah you know if
09:54
Biden being the president that’d be
09:55
great for us great for people we’ll call
09:57
for us and be like what is the former
09:58
West deck partner who’s now the Commerce
10:01
Secretary think about X that is worth
10:03
billions to companies right if they’re
10:05
like hey we need to know which way the
10:07
administration is probably going to
10:08
swing on the new Chinese tariffs that is
10:10
literally worth hundreds of billions of
10:12
dollars same on the defense secretary if
10:14
they’re gonna on Yemen that was the
10:15
example that was given there whenever
10:17
she was talking about how Michele
10:18
Flournoy was advocating I think of more
10:21
Patriot missiles for for Saudi Arabia
10:23
she failed to disclose we’re not
10:25
disclosed nobody knows she won’t even
10:27
admit which defense contractor she works
10:29
for and wouldn’t deny that Raytheon who
10:32
manufactures these Patriot missiles was
10:34
one of her company the only thing they
10:36
would say is quote one of the defense
10:38
primes which is one of the five largest
10:40
defense codes and they said like it’s
10:41
one of their contracts it’s in the
10:43
ballpark
10:43
know if you really want to understand
10:45
why we have the foreign policy that we
10:48
have why we keep getting into these
10:49
conflicts overseas that we can that’s
10:51
what once we get in that you can never
10:53
ever get yourself out of this piece
10:55
really lays
10:57
like the nitty-gritty of how that works
10:59
and look it is the norm basically almost
11:02
without exception with a few outlier
11:05
exceptions almost anyone who ended up in
11:07
the presidency these the type of people
11:09
who would come in and it’s by partisan I
11:12
mean the same ideology the same monetary
11:15
interest pervades both parties we saw it
11:17
with the Afghanistan peace that we
11:19
covered yesterday the amount of support
11:21
in Congress bipartisan support to
11:24
prevent the president from drawing down
11:26
troops in Afghanistan a place that we
11:28
have been for years and years and years
11:30
and where American lives are still being
11:32
put at risk for what for what this piece
11:37
really lays out like the internal
11:39
details of how exactly that girl highly
11:41
recommend everybody read it and I’m
11:43
looking forward to your raid our next
11:44
crystal

This Treasury Official Is Running the Bailout. It’s Been Great for His Family.

Deputy Treasury Secretary Justin Muzinich has an increasingly prominent role. He still has ties to his family’s investment firm, which is a major beneficiary of the Treasury’s bailout actions.

Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven Mnuchin have become the public faces of the $3 trillion federal coronavirus bailout. Behind the scenes, however, the Treasury’s responsibilities have fallen largely to the 42-year-old deputy secretary, Justin Muzinich.

A major beneficiary of that bailout so far: Muzinich & Co., the asset manager founded by his father where Justin served as president before joining the administration. He reported owning a stake worth at least $60 million when he entered government in 2017.

Today, Muzinich retains financial ties to the firm through an opaque transaction in which he transferred his shares in the privately held company to his father. Ethics experts say the arrangement is troubling because his father received the shares for no money up front, and it appears possible that Muzinich can simply get his stake back after leaving government.

When lockdowns crippled the economy in March, the Treasury and the Fed launched an unprecedented effort to buy up corporate debt to avert a freeze in lending at the exact moment businesses needed to borrow to keep running. That effort has succeeded, at least temporarily, with credit continuing to flow to companies over the last several weeks. This policy also allowed those who were heavily invested in corporate loans to recoup huge losses.

Muzinich & Co. has long specialized in precisely this market, managing approximately $38 billion of clients’ money, including in riskier instruments known as junk, or high-yield, bonds. Since the Fed and the Treasury’s actions in late March, the bond market has roared back. Muzinich & Co. has reversed billions in losses, according to a review of its holdings, with 28 of the 29 funds tracked by the investor research service Morningstar Direct rising in that period. The firm doesn’t publicly detail all of its holdings, so a precise figure can’t be calculated.

The Treasury is understaffed, and Muzinich was overseeing two-thirds of the department before the crisis hit. He spent his first year as the Trump administration’s point man on its only major legislative achievement, the landmark $1.9 trillion tax cut that mainly benefited the wealthy and corporations.

As the markets panicked about the economic impact of the coronavirus, Muzinich’s responsibilities expanded. The Treasury worked with the Fed on the emergency lending programs, and the agency has ultimate power to sign off. Muzinich was personally involved in crafting the programs, including the effort to bail out the junk bond market, The Wall Street Journal reported in April. He communicates with Fed officials daily by phone, email or text, the paper said.

That effort has many skeptics. The Fed has never bought corporate debt in its more than 100 years of existence, much less that of the indebted and fragile companies that raise money through the sale of junk bonds. Private equity firms, hedge funds and specialty investment firms like Muzinich & Co. dominate the market for junk-rated debt. In effect, the Fed has swooped in to protect the most sophisticated investors from losses on some of their riskiest bets.

Muzinich & Co. Profited From the Government’s Actions

Muzinich & Co.’s largest fund, with over $10 billion in assets, jumped in value when the Treasury and the Federal Reserve announced plans to buy bonds.

Data from Morningstar Direct for the Muzinich Enhanced Yield Short-Term Fund

Justin Muzinich’s ongoing ties to the family firm present a thicket of potential conflicts of interest, ethics lawyers said. Instead of immediately divesting his stake in the firm when he joined the Trump administration in early 2017, Muzinich retained it until the end of that year. But even then, he did not sell his stake and use the proceeds to buy broad-based securities such as index funds, as is common practice. Instead, he transferred his piece of the company to his father, who owns Muzinich & Co. In exchange, he received what amounts to an IOU — a written agreement in which his father agreed to pay him for the shares, with interest, but with no principal due for nine years.

“This is something akin to a fake divestiture,” said Kathleen Clark, a law professor and ethics specialist at Washington University in St. Louis. “It sure looks like he is simply parking this asset with a relative, and he will likely get it back after he leaves the government.”

A Treasury spokeswoman declined to say whether Muzinich has pledged not to take back the stake in the family firm once his public service ends. Muzinich “takes his ethics obligations very seriously” and “any suggestion to the contrary is completely baseless,” she said.

She added the arrangement with his family firm was approved by the Office of Government Ethics and agency ethics lawyers, who recently reexamined the setup given Muzinich’s role in the economic crisis response. They concluded that there is no currently envisaged scenario in which Muzinich would make decisions as a government official that would affect his father’s ability to repay the money he owes under the IOU.

“Treasury’s career Designated Agency Ethics Official has determined that there is no such conflict of interest, as there are no current or reasonably anticipated matters in which Deputy Secretary Muzinich would participate that would affect the note obligor’s ability or willingness to satisfy its financial obligations under the note,” she said in a statement. (The note obligor is Muzinich’s father.)

Muzinich & Co. did not respond to multiple requests for comment.

Muzinich’s relationship with the family firm also creates potential conflicts related to Muzinich & Co.’s clients. The firm makes money by charging investment management fees to several dozen wealthy individuals, insurance companies, pension funds, as well as what filings describe as a “quasi foreign government corporation.” The client list is not public and it’s unclear whether Muzinich would know about clients that came on board since he left. But any large investor has much to gain, or lose, from decisions being made by the Treasury about the bailout policies.

The clients of this firm, I imagine, must be thrilled that Muzinich has this vitally important, powerful position with a huge amount of discretion and authority,” Clark said.

The Treasury spokeswoman declined to answer a question about the firm’s clients.

Even as Justin Muzinich has presided over bailout policies criticized by some observers, Muzinich & Co. executives have praised the government’s actions in recent briefings for investors. One described the interventions “as providing somewhat of a floor underneath the high yield market.”

Another Muzinich executive, David Bowen, who manages one of the firm’s high-yield bond portfolios, said during a May 20 webinar, “The Fed has been about as supportive, helpful, accommodative — whatever word you want to use — as anyone could imagine.”

Untangling the Financial Relationship

When Treasury Secretary Steven Mnuchin hired Justin Muzinich as counselor in early 2017, in many ways he was selecting a younger version of himself.

Like Mnuchin, Muzinich grew up in New York City, the son of a wealthy finance executive. Also like his boss, Muzinich spent years collecting a series of elite credentials: He attended Groton and holds degrees from Harvard College, the London School of Economics, Yale Law School and Harvard Business School. He worked at Morgan Stanley and spent a few months at a hedge fund associated with billionaire Steven A. Cohen, followed by a few years at EMS Capital, which invests the money of the wealthy Safra family.

Colleagues praise Muzinich as hardworking and serious, and Democrats have expressed relief that he isn’t as inflammatory as many other Trump appointees. Powell, the Fed chair, called Muzinich “creative and extremely capable” in a statement to The Wall Street Journal in April.

In 2010, he joined the family firm and became its president. His father, George, founded the company in 1988, specializing in handling portfolios of American high-yield bonds for European pension funds. The company expanded to offer funds to other institutional investors and wealthy individuals, but it stuck to its focus on corporate creditparticularly the riskier type that pays higher interest rates. Headquartered in New York and London, the firm has eight offices across Europe and one in Singapore.

“Talking about credit all the time might sound boring, I’m sure it does,” Justin Muzinich said in a 2014 interview, “but that is what makes you good.”

As he rose in the family business, Muzinich also launched himself into GOP policy circles, advising the presidential campaigns of Mitt Romney in 2012 and Jeb Bush in 2016. He owns a $20 million ultramodern beachfront house in the Hamptons and a $4.5 million Park Avenue apartment and commutes from New York City to work in Washington.

When Muzinich entered the Trump administration, he reported owning stock and stock options in the family firm collectively worth at least $60 million. The true value could be much higher, but disclosure rules don’t require officials to give a specific figure for any asset worth more than $50 million.

The Treasury’s ethics officers are frequently called on to rule on complex questions, given that the department tends to attract people from careers on Wall Street who have large, complicated financial holdings — from ex-Goldman Sachs Chairman Hank Paulson to banker and Hollywood financier Mnuchin.

But government ethics officials did not require Muzinich to sell his stake in the family firm through his first year in office as counselor to Mnuchin.

According to ethics filings, Muzinich said that he did not divest it until December 2017, the month the tax law was signed. (Several months later, in April 2018, Trump nominated him to be deputy secretary.)

Muzinich did not receive cash for most of his stake in the family firm. Instead, his more recent financial disclosures show that the stake, held in a family trust, was replaced with an opaque asset described as a “receivable from family,” valued at over $50 million.

Muzinich’s disclosure filings don’t reveal much about this asset at all. They don’t say who the family member is or explain the arrangement. They don’t say how the terms were negotiated, or even if the valuation of the deal was vetted by an independent third party.

It turns out that Muzinich transferred his stake to his father. But his father didn’t have to pay him right away. According to a Senate Finance Committee memo obtained by ProPublica, Justin received two promissory notes from his father in return for the shares. The notes pay Justin between $1 million and $5 million in interest over a year, at a rate of 2.11%. Moreover, his father does not have to pay any principal on the loan for nine years.

Neither the financial disclosure forms nor the Senate memo say how long the agreement is supposed to last. Neither addresses the possibility of his getting the shares back after he leaves the government. The Treasury says the transaction is “not reversible” but did not elaborate.

In other words, Justin still has an ongoing long-term stake in the financial well-being of Muzinich & Co., since his father now owes him more than $50 million. If the company were to plummet in value or even go under, it could cost Justin. Actions the Treasury and the Fed take can either enhance the chances he gets his money back or lower them.

The Treasury defended the IOU transaction as an appropriate remedy for any conflicts of interest. The agency provided a statement from Elizabeth Horton, an ethics attorney who left the agency in 2019 and who worked with Muzinich on the divestiture from his family business. Horton said that when Muzinich first joined the agency, “the Treasury ethics office correctly advised him that he did not need to divest his holdings in his family business because of the generalized nature of his work on tax reform legislation.” She said that when his duties changed, “I advised Mr. Muzinich that an exchange for a fixed value note was an appropriate way to divest.”

Horton said that advice was “consistent with practice in previous administrations” — though the Treasury declined to cite similar cases. “Muzinich worked very closely with the ethics office and was extremely attentive to his ethics obligations,” Horton said.

ProPublica reached out to four ethics officials, including two former Treasury ethics lawyers. None could recall a similar divestment transaction. Three of the four disagreed that it resolved Muzinich’s conflicts, while one said that turning it into an asset with a value that doesn’t fluctuate with future developments should shield him from any allegations of impropriety.

The deal does not look like an arms-length transaction, said Virginia Canter, who served as a career ethics attorney at Treasury during the George W. Bush administration and is now at the watchdog group Citizens for Responsibility and Ethics in Washington.

“The terms of the loan suggest something less than a bona fide transaction,” she said. “Once he leaves office, nothing in the arrangement appears to preclude Muzinich from forgiving the debt owed to him by his father so they can amicably agree on returning to Muzinich the interest in the Muzinich family business.”

As ranking member of the Finance Committee, Sen. Ron Wyden opposed Muzinich’s nomination as deputy secretary because of his role in crafting the tax bill. Although he would have preferred a cash sale of the Muzinich & Co. stock, Wyden said in a statement that in July 2018 Muzinich had agreed to “strengthen his recusal commitments to include matters where his family’s company is a party.”

That satisfied Wyden at the time, but it is a very narrow restriction. A vast range of issues before the Treasury could affect Muzinich & Co. regardless of whether the firm was directly a party to any of them.

How Justin Muzinich treated the transaction for tax purposes could reveal whether it was a true and final sale or not.

Ordinarily, a sale of an asset such as equity in a company would trigger a capital gains tax bill. In Muzinich’s case, that could run into the tens of millions of dollars, even though his father paid him no cash upfront. But there is an exception if the asset in question is merely transferred with a commitment to have it returned, said Steve Rosenthal, a tax law expert at the Urban-Brookings Tax Policy Center.

If you are merely parking or pledging securities, and you are going to get them back, that’s not viewed as a taxable transaction,” he said.

It is not clear how he reported the transaction to the IRS, and whether he was left with a huge tax bill. The Treasury declined to comment on the tax issues.

Tax Reform — for Friends and Family

Through his first year in the administration, even as Muzinich continued to own his stake in the family firm, he met with a wide range of business executives to hash out major tax provisions that would affect them, according to his 2017 calendars that ProPublica obtained after suing the Treasury last year under the Freedom of Information Act. Others were obtained by the watchdog group American Oversight. The Treasury redacted large sections of the calendars, saying that they required consultation with the White House before they could be released.

One of the most important principles in the federal government ethics rules covers whether an official is dealing with a “particular matter” that would affect a discrete group of people with specific interests or a “general matter” that affects a larger and more diverse group.

The Treasury spokeswoman said the tax reform bill was to affect a very large and diverse group, so ethics rules did not prevent Muzinich from working on it. He was allowed to keep his equity in the company while working on the tax bill because his “duties did not include particular matters that required divestiture of certain assets.”

But many industries had specific interests in the tax bill that they lobbied on — industries that may include clients of Muzinich & Co. Insurance companies, for example, featured prominently. Muzinich met with trade groups representing insurers as well as Liberty Mutual, The Hartford, Zurich and Blue Cross Blue Shield. In the final tax bill, property and casualty insurers fared particularly well by dodging new limitations on deductions that applied to other companies.

Insurance companies invest their premiums in order to increase their profits. In its regulatory filings, Muzinich & Co. reports that 17 of its 89 clients are insurance companies, which have given the firm more than $1.4 billion to invest. Muzinich & Co. did not provide a list of its clients.

Some of the companies Muzinich & Co. has stakes in also have been lobbying the Treasury on their own behalf. For example, Muzinich & Co. helps its clients invest in business development companies, a type of investment fund that enjoys lower taxes in exchange for providing capital to medium-sized companies. The firm itself owns stock in BDCs, many of them run by private equity companies such as Ares Capital Corporation, which has paid millions of dollars to lobby for looser rules governing the BDC industry.

Even beyond any overlap with the family firm’s interests, Muzinich’s calendars, which cover the period from February to September of 2017, reflect the administration’s priorities in negotiating the tax deal. Muzinich spent long days in meetings with private equity titans, energy company CEOs and heavy-hitting interest groups like the Business Roundtable and the anti-tax group Americans for Prosperity. His calendar shows no meetings with labor unions or progressive groups.

Muzinich did meet often with the Treasury’s in-house tax experts but frequently didn’t follow their recommendations. Richard Prisinzano, who served in the agency’s tax analysis office until August 2017, recalled trying to tell Mnuchin and Muzinich that drastically lowering corporate tax rates would likely prompt businesses to transform into C corporations, which often pay lower rates under the new law.

He argued that such a change would further reduce tax revenues. Muzinich disagreed, Prisinzano said, protesting that businesses wouldn’t change their corporate form just to lower their taxes. “He really pushed back,” Prisinzano recalled. “He said to me, ‘The secretary is a numbers person, and the numbers don’t make sense to him.’”

“‘I’m a numbers person, and they make perfect sense to me,’” Prisinzano said he responded. “That was not an answer that they liked.”

In the following two years, many large businesses did indeed convert into C corporations, including private equity giants Ares, Blackstone and KKR. The government hasn’t produced an estimate of how big a hit taxpayers took from these conversions.

During his confirmation hearing as deputy secretary in July 2018, Democratic senators pressed Muzinich on whether he agreed with the White House that the tax bill would “pay for itself,” despite the dire projections of independent forecasters such as the nonpartisan Congressional Budget Office. “Yes,” Muzinich responded.

It has not come close, as corporate tax collections plunged and left the national debt at historic levels on the eve of the pandemic.

Muzinich Takes on the COVID-19 Crisis

As the economic response to the novel coronavirus consumed Washington in March, Mnuchin turned again to Muzinich to negotiate with Congress over the shape of a bailout intended to sustain companies as they weathered the worst part of the crisis.

Ultimately, Trump administration officials and lawmakers settled on a package worth more than $2 trillion, divided into aid regimens for different sectors of the economy. While setting general parameters, the Coronavirus Aid, Relief and Economic Security Act gives the Treasury wide latitude over how the money is to be distributed. It calls for $50 billion in grants and loans for the airline industry, for example, with few rules on who should get what. (In another potential intersection with Muzinich’s Treasury work, Muzinich & Co. started a new business line to loan money to airlines to buy planes in February.)

Perhaps the greatest power the Treasury now has is the authority to sign off on Fed loan programs funded with CARES Act money. The Fed has said it will leverage that money to lend up to several trillion dollars.

Among their biggest decisions: Which firms to include in the $600 billion Main Street Lending Program, which will lend directly to mid-sized businesses, and how to structure two programs that will purchase up to $750 billion in corporate bonds.

The Main Street program, which has yet to launch, changed substantially after it was first announced to sweep in bigger companies and those with heavier debt loads. Offering a glimpse into how the Treasury directly shaped the Fed programs, Energy Secretary Dan Brouillette told Bloomberg the change was made in part to make sure beleaguered oil companies had access to the program’s favorable terms. Muzinich & Co.’s U.S.-based funds include dozens of energy companies.

Mnuchin also deputized Muzinich to fix problems that arose during the first round of funding for the Paycheck Protection Program, which offers forgivable loans to small businesses. The government hasn’t said who got money through the program, but Muzinich & Co.’s portfolio includes many companies that are small enough to be eligible.

The Fed’s bond purchasing programs will go even further to help companies with poorly rated credit.

On March 23, the Fed and the Treasury announced a sweeping stimulus program that would involve buying hundreds of billions of dollars of investment-grade bonds. Selling bonds is a way for large companies like Boeing or PepsiCo to raise money for new investments, to fund day-to-day operations or to pay back older loans. Companies that are strong and profitable are expected to be able to pay back the borrowed money. Their bonds are deemed “investment grade” and come with lower interest rates. The news of the Fed program on its own heralded a dramatic recovery in the bond market, which in three weeks recovered nearly all of the 13.6% it had lost since the plunge began on March 6, according to one index.

Then, on April 9, the Fed announced, with the Treasury’s approval, that it would expand its efforts to buy some junk bonds. These carry higher interest rates because the borrowing companies are viewed as riskier and may already be heavily in debt. One index tracking that market segment surged nearly 8% on the news, the most in a decade. This risker category of bonds has expanded dramatically in recent years as companies took on higher debt burdens to do things like acquire competitors and buy back stock. These are the bonds in which Muzinich & Co. has long specialized.

At the end of 2019, Muzinich & Co. reported it had $2.8 billion of assets under management in its U.S. high-yield bond strategy. A Muzinich fund that focuses specifically on those bonds took significant losses in March, as companies like oilfield services provider Targa Resources and Caesars Entertainment saw the price of their bonds fall 30% and 35% respectively.

The government’s announcement buoyed Muzinich & Co.’s high-yield holdings along with everyone else’s. The portfolio manager for the firm’s U.S. high-yield offering also praised CARES Act’s tax provisions that would “help high yield companies.”

In a separate development in May, the Fed expanded another Treasury-backed lending program in a way that could help Muzinich & Co.’s portfolio. The central bank said May 12 it would support “syndicated loans,” another form of corporate debt often in which riskier firms borrow money from multiple lenders. Muzinich & Co. had more than $3 billion in assets under management in U.S. and European syndicated loans at the end of last year.

The good news for Muzinich & Co. keeps coming. As the firm’s head of investment strategy, Erick Muller, told investors in a May 13 webcast about the junk bond market: “The recovery is pretty spectacular.”

The Best Documentary on Havens, the Banking system & UK Uncut – Nicholas Shaxson on Tax

Nicholas Shaxson, journalist, writer, consultant, and author of Treasure Islands: Tax Havens and the Men Who Stole the World, gives an insight into his book, .

With more than 20 millionaires in the UK cabinet, reporter Antony Barnett examines the financial affairs of some ministers and others who have helped the .

Subscribe to our channel A new report has now revealed that some of the world’s richest people have more than $30 trillion stashed in .

Transcript

00:00
why do you think tax havens are such an
00:03
important issue right now and why do you
00:07
think it’s a subject that hasn’t really
00:09
come to light until recently tax havens
00:13
have been completely under the radar
00:15
under the radar screen for such a long
00:17
time partly because there has been this
00:20
perception that I think is deliberately
00:22
encouraged that this is these are just
00:24
places for a few kind of mafiosi and you
00:27
know celebrity tax dodgers and and you
00:29
know if you go spits and and just people
00:33
who you know misfits but the fact is
00:37
that these are now the heart of the
00:40
global economy depending on how you
00:42
measure it
the figures are absolutely
00:44
staggering I mean half of world trade in
a way passes through through tax havens
huge huge amounts of money are involved
every multinational corporation pretty
much these days will have offshore
subsidiaries that they will use for
various reasons tax cutting down on
their tax bills
is usually top of the
reasons banks are recently the Mail on
Sunday they did a great little
investigation about how many offshore
cysts offshore subsidiaries you know the
UK banks have and the top three Lloyd’s
Barclays an RBS had 550 offshore
subsidiaries between them
and in every
survey in fact where they look at you
know what are the top companies that
have sub city that have top ranking
companies in terms a number of
subsidiaries in tax havens it’s always
the banks the banks are right in there
so this is the heart of the financial
system
and when you consider the City of
London is you know as it is an offshore
system center in its own right then you
01:42
realize that this is this is absolutely
01:45
central so why hasn’t it I am still a
01:48
little bit mystified as to why it hasn’t
01:50
been so hasn’t it why it has been so far
01:53
under the radar screen I think you know
01:55
there are many different reasons I’m
01:56
still not satisfied with any of them I
01:58
mean it’s the complexity is obviously
02:00
part of it people can only ever see a
02:02
little bit of it at a time and but I
02:05
think now we are at a phase where this
02:07
is starting I know I think my book is
02:09
part of that but there are others who
02:10
are also putting this thing in a hole
02:13
takes a global context and we in Britain
02:15
must understand that this is something
02:16
that is a is a global problem and we are
02:19
right at the center of it if you work
02:22
out what a tax haven is tax haven offers
02:25
people and entities elsewhere
02:27
opportunities to escape – escape taxes
02:29
in their own jurisdictions to escape
02:31
financial regulations or whatever if you
02:34
start doing the analysis you will
02:35
quickly find that the jurisdictions that
02:37
are most effective in offering these
02:39
forms of escape our places like the UK
02:42
the the only objective ranking of in
02:46
terms of secrecy secrecy in a very
02:48
important part of it there and in
02:50
objective ranking was created by the Tax
02:52
Justice Network called the financial
02:54
secrecy index where they took a measure
02:58
they look to how opaque jurisdictions
03:01
were they looked at although they use 12
03:03
indicators to work out how a paper just
03:05
jurisdiction work was and then they
03:07
waited it according to the size of the
03:10
cross-border financial services activity
03:12
and the ranking was very clear the
03:14
United States was was top and you have
03:16
at the top of this ranking you have big
03:19
oacd countries United States Luxembourg
03:21
a great dark horse of the offshore
03:23
system that most people don’t really
03:24
know about the Netherlands Switzerland
03:27
of course the Cayman Islands is very big
03:29
United Kingdom right up there
03:32
Ireland these are the big offshore
03:34
jurisdictions if you’re talking about
03:36
offshore finance this is where it this
03:38
is where it happens and this is the
03:40
result of a process particularly since
03:41
the 1970s of the offshore system
03:43
steadily pushing its way onshore the
03:46
United States didn’t used to be a tax
03:48
haven in this way and it has steadily
03:50
become more so become gained more and
03:52
more and more offshore characteristics
03:58
[Applause]
04:10
[Applause]
04:19
there’s a very specific issue about the
04:22
UK and the UK has this network of havens
04:26
around the world such as the Crown
04:28
Dependencies Jersey Guernsey the Isle of
04:30
Man the overseas territories which are
04:33
kind of the you know the remnants of the
04:35
British Empire such as the cayman
04:37
islands such as bermuda such as
04:39
gibraltar such as the turks and caicos
04:41
islands these are all tax havens and
04:44
they are partly controlled by Britain
04:46
they are half in half out of Britain
04:49
these if you look at their flags you’ll
04:51
see a little British flag in the corner
04:52
you’ll see you know the governor is
04:54
appointed by the Queen so they’re all
04:56
these Britain is supporting these places
04:58
very much but they do have their own
04:59
independent politics so it’s a kind of
05:01
ambiguous relationship but what happens
05:04
with these jurisdictions is that they
05:05
are in my book I describe it as being
05:07
like a spider’s web so and I think that
05:11
is probably the best analogy so this is
05:12
a network of havens around the world and
05:14
you’ll have in the Caribbean for example
05:16
they’ll be focusing on business in the
05:18
Americas North and South America the
05:20
Crown Dependencies
05:21
Jersey Guernsey the Isle of Man will be
05:23
looking mostly at Europe you know out in
05:26
the Pacific they’ll be looking at Asia
05:28
and and Australasia and what these
05:32
things do they attract money into into
05:36
the havens or the business into the
05:38
havens into the into individual havens
05:40
and that business gets fed up to the
05:42
City of London so there is this sort of
05:44
capture of money from all around the
05:46
world and the business of handling this
05:47
money is constantly constantly fed up to
05:50
the City of London
05:51
I mean Jersey alone was the biggest
05:53
single source of bank deposits being up
05:56
streamed up to the city during the
05:57
during that during the crisis and that’s
05:59
just Jersey that’s just one tax haven so
06:01
we’re talking about hundreds and
06:03
hundreds of billions trillions of
06:04
dollars running through the city of
06:06
London as a result of it having this
06:09
network of havens this kind of spider’s
06:11
web bringing in business and that is the
06:13
offshore system that brings all this
06:16
money to the system is one of the most
06:18
fundamental if not the most important
06:20
under
06:21
for the financial power of the City of
06:22
London so if we’re worried about the
06:23
city and its power in the stranglehold
06:25
it has on our governments and our
06:27
societies this is this is this is where
06:31
it where so much of it comes from this
06:32
is where probably the biggest part of it
06:34
comes from this at this offshore system
06:36
that brings in business that’s one sided
06:40
but also the city in its own right the
06:41
City of London Corporation which is the
06:43
local government authority for the city
06:46
of London is in itself a slightly alien
06:50
political entity in Britain it is not
06:53
just another municipal authority it has
06:55
all of its own rules that are very
06:58
different from what apply in the rest of
07:00
written I mean voting rights in the city
07:02
it’s not just humans who vote there are
07:04
corporations corporate management
07:07
effectively can vote in the local
07:09
elections in the city of London it’s a
07:12
bizarre thing that most people in
07:13
Britain don’t know about but I’ve you
07:14
know I write about it in some detail in
07:16
my book you know when the Queen comes to
07:19
the city she stops at the city gates and
07:21
it’s it’s a kind of ceremony but she has
07:22
to meet the Lord Mayor and touch his
07:24
sword and there’s all this kind of
07:26
colourful you know ermine robes and
07:28
stuff Arizona but it’s a real marker
07:31
that there is a political discontinuity
07:33
at the boundaries of the city and it is
07:35
a very different political entity that
07:37
has them it submits to many of the rules
07:39
of this country but it’s also carved
07:42
itself out from them so it is kind of an
07:43
offshore island in a very very real
07:45
sense
07:54
there have been reformers over centuries
07:58
trying to trying to particularly merge
08:02
the City of London with the rest of
08:04
London and it’s bizarre that London
08:05
London is A Tale of Two Cities I mean
08:08
there is London has a mayor currently
08:09
Boris Johnson and it has a Lord Mayor
08:12
who’s sitting in the guild hall this
08:15
really is a Tale of Two Cities and there
08:17
have been reformers in the past who have
08:19
tried to say what we need is one
08:22
government for London we need to expand
08:25
the city to cover instead of 9,000
08:28
residents to cover whatever the
08:31
population is 8 million or so
08:33
Londoners and you have one single London
08:35
government the Labour Party for much of
08:38
the last century had a had a or for a
08:41
large part of it had a pledge in its
08:42
manifesto to abolish the City of London
08:44
Corporation and merged into the rest of
08:47
London and Tony Blair when he in 1996 as
08:51
part of his bid bid for power he he
08:54
decreed that he either that pledge would
08:56
be abolished and he made a deal with the
08:58
city and he made a promise to reform it
09:00
instead and that reform ended up being
09:02
an expansion of the corporate vote it’s
09:04
a totally bizarre story and I mean how
09:06
many people in Britain really know about
09:08
this I think it’s something that we need
09:10
to understand much much better and I
09:13
went to see them the other day because
09:15
I’m quite horrible about them right and
09:17
in a way um but I really felt like you
09:21
know naughty schoolboy going in front of
09:23
headmaster okay yes I did actually yes
09:29
yes
09:31
[Music]
09:34
settle down everybody settle down now
09:37
one thing we forgot when we came in what
09:39
did we forget past we did not take their
09:42
registar Jenkins Jenkins Jenkins very
09:52
good now anybody who isn’t here right
09:57
now the next class is may be unsurprised
10:02
to find out double banking this morning
10:07
is the eh-2-zed of modern banking
10:11
otherwise known as a last Atomics so
10:16
there will be a test at the end so keep
10:19
quiet pay attention and do feel free to
10:21
take notes so a what is a for
10:26
accountants yes a for accountants what
10:30
is the definition of an accountant
10:33
that is one definition account is not
10:38
the one I thought written unfriended me
10:39
so detention an accountant is someone
10:44
who is when asked add two plus two but
10:48
over the answer and what would you like
10:51
that to add up to they considering pay
10:54
professional in Ferris budget the only
10:56
answer that you’ll find is for B what is
11:00
B for it’s bloody obvious they’re very
11:06
clever institutions who somehow make it
11:09
seem that they are doing you a favor
11:11
when you lend them your hard earned cash
11:14
and who are allowed by government to
11:16
create money virtually out of nothing
11:18
which they then make you pay a lot for
11:21
right you hear that argument all the
11:24
time if it’s not there’s nothing
11:26
companies can do and in a narrow sense
11:28
that’s true
11:29
companies will they are in a competitive
11:32
marketplace and if they feel they need
11:33
to compete by dodging taxes more
11:35
aggressively than the next one then then
11:38
they will do that but you must have
11:41
forget the golden rule who has the gold
11:43
makes the rules in other words the rules
11:47
the tax laws of this country are very
11:50
substantially crafted by big
11:51
corporations that want those tax laws
11:53
right now as we speak there’s the at
11:56
some tax green paper has been floated
12:01
which has got some horrible concessions
12:03
huge concessions to multinational
12:05
corporations and this is the result of a
12:09
lot of consultations and committees
12:11
where you know the tax directors of many
12:14
of the biggest multinationals are
12:15
sitting on this saying basically this is
12:17
the tax system we want and and and so
12:19
corporations are punching holes in our
12:21
legislation all the time it’s a constant
12:23
process of creating loopholes lobbying
12:26
to lobbying in Parliament and elsewhere
12:28
to to make sure that they get what they
12:30
want so companies are not bystanders in
12:33
this they’re active players in this and
12:34
we have to hold their feet to the fire
12:36
so you can cut is quite right to do that
12:38
the other thing that UK Uncut has done
12:40
is to generate all sorts of new debate
12:43
this is a demo
12:44
pratik process we’re talking about here
12:46
has not been properly debated before and
12:48
they have by by taking on very high
12:51
profile targets quite legitimately they
12:55
have highlighted something that is
12:56
profoundly wrong in our society this is
12:58
a huge fault line in global capitalism
13:00
this is a distortion of markets and they
13:03
have identified it and they are focusing
13:07
on companies is absolutely the right the
13:08
right thing to do of course governments
13:10
need to be pressured as well no question
13:12
about it well there’s there’s there’s
13:25
the so-called yeah but there’s that
13:26
there’s that difference they always they
13:28
always make their say yes we pay lots of
13:29
taxes and but the question is do you do
13:32
you pay the taxes you should the urban
13:34
myth thing is always wheeled out and and
13:37
there is what some of us call the philip
13:39
green defense which is no tax was
13:43
avoided because no tax was due but what
13:47
he doesn’t say is that no tax was due
13:49
because i put a lot of work into making
13:51
sure that no tax was due so it’s a whole
13:53
slippery game that’s going on here and
13:55
this urban myth thing is quite wrong
13:57
that this is they will say that because
14:00
what you have when multinational
14:03
corporations use aggressive offshore
14:05
strategies to cut their tax bills you
14:08
have at the far extreme of it tax
14:11
evasion which is illegal activity and on
14:13
the other end tax avoidance which is by
14:16
definition legal but also by definition
14:18
avoidance it is guessing around the
14:20
spirit of legislation but in between
14:22
these two poles you have this huge grey
14:24
area and the level of aggression that
14:27
companies use in in in terms of avoiding
14:29
taxes and puts them somewhere on this on
14:32
this spectrum so when they say it’s an
14:37
urban myth they can make they can
14:39
construct an argument that technically
14:41
we have not broken any laws here look at
14:43
what we’ve done so it’s an urban myth
14:45
that we’ve avoided any money but in real
14:47
fact if you look at what they should pay
14:49
according to what democratic society
14:50
wants then you get a very very different
14:53
picture indeed so it’s not an urban myth
14:57
and the Vodafone story for example the
15:00
research was done by one of a former top
15:04
HM Revenue customs corporate tax
15:07
official who really you know he’s one of
15:09
the best in the business there’s no
15:10
question that that this is this is money
15:12
this is serious money that we’re talking
15:13
about and when they say it’s an urban
15:15
myth it’s just these are just word games
15:16
they’re they’re using to work to try and
15:19
justify what they’re doing this is money
15:27
given by the rich and the government to
15:30
their friends and the people of causes
15:32
that they like and considered a good
15:34
thing which is not to be confused with
15:37
money that goes to people and causes
15:38
they don’t like which they call subsidy
15:42
you can cut wasn’t a new phase and for
15:47
me it’s a something that kind of
15:48
exploded onto the streets which is
15:50
absolutely fantastic and so I see this
15:54
is we’re just at a fairly early stage of
15:56
a process and UK Uncut is looking at one
15:59
particular aspect of this system which
16:00
is corporate tax avoidance which is a
16:02
very important part of it but what what
16:06
is really out there is something much
16:07
bigger than that much more
16:08
all-encompassing and Britain has a
16:10
particular role in this in this global
16:12
offshore system I mean there’s no
16:15
dispute really that Britain is
16:17
responsible for about half of the tax
16:20
havens in the world and Britain is a tax
16:22
haven in its own right but you know what
16:24
companies want is when they come to a
16:27
country what they want ultimately is a
16:30
healthy and educated workforce they want
16:32
good infrastructure they want a well
16:34
governed country and that means taxes
16:37
and they don’t want you know taxes for
16:40
most corporations especially if they’re
16:42
not in the financial sector rank fairly
16:45
low there’ll be sort of four or four or
16:48
five on the list of priorities when
16:49
they’re looking at where to invest I
16:50
mean you’re not going to go you know set
16:52
up a car factory in Nigeria because it
16:55
offers you know you 0% tax on profits
16:59
and that’s not what that’s not what
17:00
drives investment decisions at the
17:02
decisions at the end of the day and so
17:04
yeah so but still politicians are
17:07
terrified
17:07
you know the this threat is made and and
17:10
they don’t know what to do and then they
17:11
say okay we’ll give you what you want
17:13
and it happens all the time and
17:14
politicians I think should call their
17:15
bluff a lot more on these sorts of
17:18
things where do you think June fits into
17:27
this picture and the disks that are
17:30
being handed over recently banking
17:33
details I think I mean I think Julian
17:37
Assange and WikiLeaks is a fascinating
17:39
story I think in this particular case
17:40
the recent handing over of two CDs by
17:43
Rudolph Alma the Swiss banker I think
17:45
it’s actually elmer story which is
17:46
perhaps the more interesting part of
17:48
this of this debate um he is a Swiss
17:51
banker who worked in the Cayman Islands
17:53
and got a very senior position with with
17:56
a big Swiss bank and he learnt a lot and
18:01
eventually decided to blow the whistle
18:03
and for whatever reasons and he is now
18:06
in prison in Switzerland for breaking
18:09
Swiss bank secrecy in the Cayman Islands
18:12
so it’s a very bizarre situation we’re
18:14
in
18:15
III don’t know what’s in what’s on the
18:19
disk I think WikiLeaks as we speak is
18:20
still analyzing them and I almost
18:23
certainly you know it is bona fide a
18:24
star from and I’ve spent time with Elmer
18:26
and he’s a fascinating guy who very
18:29
highly qualified but I think the the
18:33
aspect of it there’s a battle of ideas
18:36
going on here where jurisdictions like
18:40
Switzerland are saying it’s a crime to
18:43
steal data whereas people like Elmer and
18:47
myself would say it’s a crime to invade
18:50
billions of dollars of taxes and if if
18:55
the price is that data is is removed
18:59
through certain means then that’s a
19:01
price worth paying it’s like police
19:02
having informants you know they do that
19:05
do it all the time they they overlook
19:08
certain things in order to get you know
19:10
a bigger catch and it’s that’s what’s
19:12
going on here so that I think that’s the
19:14
story in this case and I think is this
19:16
making the world more transparent
19:18
yes there is some there is some more
19:21
transparency coming out as a result of
19:22
this it’s a good thing the release of
19:23
the release of data and general
19:25
publication of publication of data but
19:29
now countries like Switzerland with the
19:32
collusion of places like the UK are
19:34
working very hard to find ways to stop
19:37
this happening than to you know that
19:39
they’ve been very nasty indeed to Elmer
19:42
and I don’t know what’s going to happen
19:43
to him now that he’s in prison but also
19:45
they’re making it harder for you know
19:49
they’re putting in place new treaties
19:51
where they refuse to exchange any
19:52
information with anybody if there’s any
19:53
data that’s been what they call stolen
19:56
data so I think that’s it’s but I don’t
19:59
think this is good this is a game
20:00
changer that the release of information
20:02
unless we get a whole rash of new
20:04
whistleblowers but I think it’s it’s
20:05
important it’s important signal to
20:07
people that there’s something awful
20:08
going on here and I think it’s very good
20:10
from that point of view to expose what’s
20:12
really going on but these will only be
20:14
very sort of anecdotal pictures in a
20:16
much much bigger picture of crime and
20:19
abuse what places like Switzerland are
20:22
trying to do is to try and make any you
20:23
know trying to you know be very
20:26
unpleasant make it very unpleasant for
20:28
whistleblowers so I think there’s a fear
20:29
out there as well is it the start of a
20:31
trend of a strain I I trained I know
20:33
that there is I know that growing
20:35
numbers of people who work in this
20:36
sector are growing uncomfortable with it
20:38
last night I gave a talk at Chatham
20:40
House about financial secrecy and I had
20:42
somebody came up to me afterwards who
20:44
works for a private bank and was
20:46
essentially apologising for what she was
20:49
doing and saying yes you’re right this
20:51
stuff is happening and I’m doing it and
20:53
I feel really bad about it and and so I
20:55
think there is a real sense of
20:57
discomfort
20:57
whereas before a few years ago there was
20:59
not really much questioning of this
21:01
whole system it was sort of accepted
21:02
that secrecy is good and we you know the
21:05
crime is to reveal information to law
21:07
enforcement it’s a bit of a kind of
21:08
mafia code
21:15
I think now that there are a lot more
21:19
people talking about how rotten this
21:21
system is I think a lot more people are
21:23
feeling uncomfortable in in these jobs
21:25
and so I’m hopeful that there will be a
21:27
lot more revelations and people coming
21:31
forwards to explain what’s what the
21:34
system really looks like these are
21:38
salubrious retirement plans for Nobel
21:41
prize-winning mathematicians the huge
21:43
amount of money by producing absolutely
21:46
nothing of use for society and have been
21:50
known to explode unexpectedly confused
21:55
with Paige there’s no magic bullets to
22:04
all of this people often ask me this and
22:07
that the first answer I always give is
22:09
that we are still at a phase where we
22:11
don’t even have the education about the
22:13
system to know what to do about it there
22:15
needs to be widespread public
22:17
understanding and also a change there
22:21
has been a tolerance of this for such a
22:23
long time because people haven’t really
22:24
seen it people have just accepted what’s
22:27
going on and because the system is so
22:29
complicated if you’re talking about tax
22:31
when if a journalist wants to know our
22:32
pattern to write about a tax subject
22:35
there will ring up someone from KPMG or
22:38
one of the big accountancy firms these
22:40
firm their business is to design
22:42
strategies to help their clients avoid
22:44
tax and so they have got this they have
22:46
developed this worldview that tax is bad
22:48
and offshore is good and there has been
22:51
this soap so this journalist will ring
22:53
these people up and then this this
22:55
worldview gets kind of propagated into
22:57
the whole whole public consciousness and
22:59
that hasn’t really until very recently
23:02
being properly challenged and I think
23:03
that’s another it’s a very sort of vague
23:07
slightly wishy-washy thing to talk about
23:09
but but it is absolutely essential we
23:11
need to completely start to really
23:14
challenge this culture that offshore is
23:16
good and tax is bad and financial
23:19
regulation is bad and that is now
23:20
starting to happen not just as a result
23:23
of people like UK Uncut
23:24
but also wider issues such as the
23:26
financial crisis which I’ve made people
23:27
question all the assumptions that
23:30
they’ve been making before is really
23:33
difficult in a word yes and I think part
23:38
of the reason for that is that you know
23:41
we the last three years has proved has
23:44
shown to us that what we you know so
23:46
much of what we felt thought we
23:48
understood about economics is actually
23:50
rubbish but yeah I mean I think the
23:54
latest crisis you know that all these
23:56
sort of dizzying numbers coming out of
23:57
trillions and banks being supported with
24:00
these huge numbers of huge amount of
24:02
taxpayer money it’s it’s absolutely
24:06
baffling to everybody and I you know I
24:08
you know having spent a lot of time
24:10
researching the offshore system which is
24:12
a huge part of the global economy I you
24:15
know I have seen it you know it’s one of
24:17
those things where the more you know the
24:18
less you know the more you research them
24:20
all kind of you realize you don’t know
24:22
what’s going on so it is it is terribly
24:25
confusing though if you’re talking about
24:27
the offshore system it’s the essential
24:29
principles are very simple and this
24:31
these are these are places that provide
24:34
escape for mostly wealthy elite from the
24:38
rules and laws and taxes and regulations
24:41
that they don’t like leaving everyone
24:43
else to to pay their taxes for them or
24:46
all suffer the consequences of poor
24:49
financial regulation so there are very
24:50
simple principles about that but the
24:54
actual details of what’s going on is
24:56
incredibly incredibly complicated and
24:58
baffling and I think they like I think
25:01
the people who run this system or who
25:04
are big players in this system like it
25:06
that way
25:15
you
25:32
called the financial secrecy index
25:36
where they took a measure they look to
25:39
how opaque jurisdictions were they
25:41
looked at although they use 12
25:43
indicators to work out how a paper just
25:45
jurisdiction work was and then they
25:46
waited it according to the size of the
25:49
cross-border financial services activity
25:51
and the ranking was very clear the
25:53
United States was was top and you have
25:55
at the top of this ranking you have big
25:58
oacd countries the United States
26:00
Luxembourg a great dark horse of the
26:02
offshore system that most people don’t
26:04
really know about the Netherlands
26:05
Switzerland of course the Cayman Islands
26:08
is very big United Kingdom right up
26:10
there
26:11
Ireland these are the big offshore
26:14
jurisdictions if you’re talking about
26:15
offshore finance and this is where it
26:17
this is where it happens and this is the
26:19
result of a process particularly since
26:21
the 1970s of the offshore system
26:22
steadily pushing its way onshore the
26:25
United States didn’t used to be a tax
26:27
haven in this way
26:28
and it has steadily become more so
26:30
become many different reasons I’m still
26:32
not satisfied with any of them I mean
26:34
it’s the complexity is obviously part of
26:36
it people can only ever see a little bit
26:38
of it at a time and but I think now we
26:41
are at a phase where this is started I
26:43
know I think my book is part of that but
26:45
there are others who are also putting
26:47
this thing in a whole context of global
26:49
context and and we and Britain must
26:51
understand that this is something that
26:52
is a is a global problem and we are
26:55
right at the center of it if you work
26:57
out what a tax haven is tax haven offers
27:00
people and entities elsewhere
27:02
opportunities to escape – escape taxes
27:05
in their own jurisdictions to escape
27:07
financial regulations or whatever if you
27:09
start doing the analysis you will
27:11
quickly find that the jurisdictions that
27:13
are most effective in offering these
27:15
forms of escape our places like the UK
27:17
the the only objective ranking of in
27:21
terms of secrecy secrecy – in a very
27:24
important part of it there and in
27:25
objective ranking was created by the Tax
27:28
Justice Network why do you think tax
27:31
havens are such an important issue right
27:34
now and why do you think it’s a subject
27:38
that hasn’t really come to light until
27:40
recently tax havens have been completely
27:43
under the radar under the radar screen
27:46
for such a long time
27:48
partly because there has been this
27:50
perception that I think is deliberately
27:51
encouraged that this is these are just
27:53
places for a few kind of mafiosi and you
27:56
know celebrity tax dodgers and and you
27:59
know a few curves bibs and and just
28:02
people who you know misfits but the fact
28:06
is that these are now the heart of the
28:09
global economy depending on how you
28:11
measure it the figures are absolutely
28:14
staggering I mean half of world trade in
28:17
a way passes through through tax havens
28:21
huge huge amounts of money are involved
28:24
every multinational corporation pretty
28:26
much these days
28:27
gain more more and more offshore
28:29
characteristics
28:33
[Applause]
28:46
[Applause]
28:54
there’s a very specific issue about the
28:58
UK and the UK has this network of havens
29:02
around the world such as the Crown
29:03
Dependencies Jersey Guernsey the Isle of
29:06
Man the overseas territories which are
29:08
kind of the you know the remnants of the
29:10
British Empire such as the cayman
29:13
islands such as bermuda such as
29:14
Gibraltar
29:15
such as the Turks and Caicos Islands
29:17
these are all tax havens and they are
29:20
partly controlled by Britain they are
29:22
half in half out of Britain these will
29:25
have offshore subsidiaries that they
29:27
will use for various reasons tax cutting
29:30
down on their tax bills is usually top
29:33
of the reasons banks are recently The
29:36
Mail on Sunday they did a great little
29:38
investigation about how many offshore
29:39
cysts offshore subsidiaries you know the
29:42
UK banks have in the top three Lloyd’s
29:45
Barclays an RBS had 550 offshore
29:48
subsidiaries between them and in every
29:51
survey in fact where they look at you
29:53
know what are the top companies that
29:54
have sub city that have top ranking
29:56
companies in terms a number of
29:57
subsidiaries in tax havens it’s always
30:00
the banks the banks are right in there
30:02
so this is the heart of the financial
30:03
system and when you consider the City of
30:06
London is you know as an offshore system
30:08
senator in its own right then you
30:10
realize that this is this is absolutely
30:12
central so why hasn’t it I am still a
30:15
little bit mystified as to why it hasn’t
30:17
been so hasn’t it why it has been so far
30:20
under the radar screen I think you know
30:22
there are men

The Bizarre Economics of Tax Havens and Pirate Banking: James S. Henry at TEDxRadboudU 2013

James S. Henry introduces a hot topic: offshore banking. The G8 and G20 are planning meetings to discuss it. Even the Netherlands is a tax haven for certain types of companies. The huge amount of numbers and graphs tells us that we are confronted with nothing less than a global tax haven industry. For example, Apple makes 100 billion dollars a year of tax free profits because of the games private bankers know how to play.

In medieval times people couldn’t hide their wealth when tax collectors came to inventory it. Nowadays they can. It is said that 64 percent of the global profits are parked offshore, for an important part by multinationals from the first world.

The third world is the victim of this practise. An example from the banana industry: exporting a banana from the Cayman Islands costs 13 pence. When it arrives in the UK to be consumed, the costs have grown to 60 pence. All of this money goes to other parties than the Cayman Islands.

Because of the tax havens, countries from the Third World are not able to receive the tax incomes they are entitled to. Henry even concludes that the debt problem of the third world is not a debt problem, but a tax problem. Both amount to almost the same.

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