The French Economist Who Helped Invent Elizabeth Warren’s Wealth Tax

To trace the progress of the wealth tax from a fringe academic idea to the center of the Democratic Presidential primary, it is helpful to begin a bit off-center. On September 15, 2008, the day that Lehman Brothers filed for bankruptcy, a twenty-one-year-old student of Thomas Piketty, Gabriel Zucman, started work as a trainee economic analyst in the offices of a Paris brokerage house called Exane. Zucman felt obviously underequipped for the task before him: to write memos to the brokerage house’s clients and traders helping to explain why the very durable and minutely engineered global financial system appeared to be on the verge of collapse. Poring over some of the data he was given, which concerned the international flows of investments, Zucman noticed some strange patterns. The amount of money that had been moving through a handful of very small economies (Luxembourg, the Cayman Islands, the tiny Channel Islands of Jersey and Guernsey) was staggering. “Hundreds of billions of dollars,” Zucman recalled recently, making the “B” in “billions” especially emphatic. Eventually, he would calculate that half of all foreign direct investment—half of the risk-seeking bets, placed from overseas in India, China, Brazil, and Silicon Valley, and of the safety-seeking investments, placed in the United States and Europe and stock indexes—was moving through offshore hubs like these.

Before the financial crisis, the rise of offshore tax havens hadn’t been ignored—one element of the Enron scandal of 2001, for instance, was the eight hundred and eighty-one overseas subsidiaries the company had created, which had helped it avoid paying federal taxes for three years—but those stories took place within a more confined and more frankly moral framework: it was a cat-and-mouse plot, about the mobility of wealth, and the fruitless efforts to pursue it. Zucman’s intuition was that these arrangements did not describe a moral or a legal drama but a macroeconomic one. That much wealth, poorly documented or regulated, might have helped to destabilize the global economy. It also seemed that, if economists were not attuned to the amount of wealth stored in offshore havens, they might also have missed the extent of global inequality, since it was billionaires who stored money in the Cayman Islands, not retirees. “You know, the way we study inequality is we use survey data, state-tax data,” Zucman told me, “and that’s not going to capture these Swiss bank accounts.” After half a year at Exane, Zucman was back in graduate school, working with Piketty on the study of wealth inequality in the United States and Europe that became Piketty’s landmark book, from 2013, “Capital in the Twenty-First Century,” as well as on his own fixation—on how big the island-shaped loopholes in the global economy would turn out to be.

For the next several years, Zucman followed two tracks. The first led deeper into the mists of offshore banking systems. In obscure monthly reports of the Swiss central bank he discovered that foreigners held $2.5 trillion in wealth there (Zucman would eventually calculate that $7.6 trillion, or eight per cent of global household wealth, was held in tax havens, three-quarters of it undeclared) and that these immense sums were mostly being diverted to mutual funds incorporated in Luxembourg, the Cayman Islands, and Ireland. The second track—the work he did first with Piketty and then with the Piketty collaborator and Berkeley economist Emmanuel Saez—mapped the acceleration of inequality around the world and in the United States. The American story was of a snowball effect, as Zucman described it, in which the very high top incomes of the nineteen-eighties and nineties were saved and invested, “and that creates a spiral which is potentially very powerful and leads to very, very high rates of wealth inequality.” The two stories were in fact one. The concentration of wealth in secretive tax havens was an expression of the broader wealth imbalance—the laissez-faire spirit of the Reagan era working its way through the country and then the world. “One thing that became clear in my mind when I did the study of the U.S. wealth inequality is how hard it is to stop the rise of wealth inequality if you don’t have progressive taxation and, in particular, progressive wealth taxation,” Zucman told me. Without it, the snowball just keeps growing.

This work took place during Obama’s Presidency, a period in which, a bit paradoxically, the global populist reaction to accumulated wealth was consolidating even as liberal institutions, belatedly, began to get a handle on the problem. In 2010, early in Zucman’s doctoral work, Congress had passed the Foreign Account Tax Compliance Act (fatca), which required tax havens to share banking information with the United States or suffer significant economic sanctions. The program worked, and, by the middle of the decade, European regulators had compelled tax havens to share the same information with them. “That actually had a very big impact on my thinking, because it showed that new forms of international coöperation can emerge very quickly,” Zucman told me. “In particular, sometimes we have this view that, ‘Oh, we can’t do anything about tax havens. Countries are entitled to their own laws, and, if they want to have a zero-per-cent corporate-tax rate of bank secrecy, that’s their own right.’ ” Bufatca had demonstrated that tax havens were not autonomous zones. “At the beginning of my Ph.D., whenever I or N.G.O.s would talk about having some automatic exchange of banking information, policymakers would say, ‘Oh, that’s a pipe dream.’ And so I witnessed the transition from pipe dream to now everybody does it.” He went on, “It can happen very fast.

As WikiLeaks oriented international relations around a central tension, between transparency and secrecy, similar themes and patterns were emerging in the area of wealth. To parse them required the tools of an investigative journalist, of discovery and cajoling. Zucman is an economist, but he also had some of the qualities—youth and fervency—that investigative reporters often have, and that made him someone people would go to when they thought something was very wrong. A leaked trove of foreign wealth data from the Swiss subsidiary of the banking giant H.S.B.C. made its way to various national tax authorities, and Scandinavian government officials shared it with Danish and Norweigan academics who were collaborating with Zucman. There were limits to what he could see in the H.S.B.C. trove, but it provided a suggestion of how much wealth from Scandinavian countries was being stored away in offshore hubs like Switzerland. In 2015, when the Panama Papers leaked, detailing the evasion efforts of the law firm Mossack Fonseca, it was possible to see the business of tax evasion in action—the lawyers, the pitch decks, the business analysts. Shrouding fortunes was the work of meticulous professionals; when Zucman and colleagues traced this wealth through tax shelters, they found it often was finally invested in ordinary stocks and bonds. “It was very mundane,” Zucman said.

Gradually, Zucman came to see tax evasion differently. “It’s not a psychological thing,” he said. There was a market. The key player wasn’t the billionaire, but the bankers and lawyers who Zucman came to think of as the tax-evasion industry. The professionals in this industry had bosses, and partners or shareholders; they worked within a regulated system. “If you have banks that feel that they are too big to indict then they will continue to commit some form of financial crimes,” Zucman said. “They will budget costs for fines.” In 2009, tax havens seemed like black holes, sucking out so much wealth that it warped the global economy. By 2019, they seemed dependent on the continued dormancy of the great liberal apparatus of international banking regulation, which could be quickly revived. “And the U.S.,” Zucman said, “you know, if there is a U.S. President that is serious about fighting global oligarchy, he or she has a ton of power.”

Zucman works in a small, spare office next door to Saez’s, on the sixth floor of Evans Hall at U.C. Berkeley. The cinder-block walls are undecorated, and the only personal touch I could see, when we met there a few weeks ago, was a small espresso machine. Zucman is fair-skinned, with round cheeks, light brown hair, and a longish nose, and he was wearing a black V-neck T-shirt and jeans. (The next morning, when we met again, he would be wearing a different black V-neck T-shirt and a different pair of jeans.) The scene seemed a bit unadorned for someone who had, this year, been named by Prospect magazine, in the U.K., as one of the fifty most influential thinkers on the planet. He speaks with a French accent and has an outsider’s sweeping, offhand way of talking. For all of Piketty’s fame—and his own, and Saez’s—Zucman mentioned several times that the economics profession had been slow to recognize inequality as a legitimate topic. He still seemed to have the outlook of a less powerful person than he now is.

Saez and Zucman have written a book, published this month, called “The Triumph of Injustice,” which assembles their research into a policy plan. (Its subtitle is the instruction-manual-like “How the Rich Dodge Taxes and How to Make Them Pay.”) One way to understand the book is as marking a new phase in the project that Piketty, Saez, and Zucman share. Having done more than just about any other economists to describe the powerful effect that accumulated wealth has on global inequality, they are now advocating for a solution: a highly progressive annual tax on wealth, an idea that has been adopted by Elizabeth Warren and Bernie Sanders. Zucman is the junior partner in the enterprise, but he has also been its chief propagandist, duelling on Twitter with economists who raise objections or philosophical gripes, and so the wealth-tax cause has come to reflect some of his own attributes: his tremendous explanatory power, his comfort with being an outsider to the establishment, and his great optimism in what government can know and do about the concentration of wealth.

A few weeks ago, Saez and Zucman flew to Washington for a pair of panels at the Brookings Institution presenting their ideas—one closed to reporters, and the other open to them—and at the open session Zucman gave a ten-minute presentation of the book, which, with admirable concision, boiled the essential story of wealth and the tax code down to two slides. The first displayed the results of their study of the aggregate burden of all federal, state, and local taxes after the 2017 Trump tax cuts, which concluded that the United States no longer has a progressive tax system—statistically, the Trump cuts dealt it a death blow. Most Americans now pay about the same portion of their income to the government (the upper-middle class pays very slightly more), and the wealthiest pay less. The slide is titled “A Giant Flat Tax Which Is Regressive at the Top End.”

To explain how this could be, Zucman likes to use the example of Warren Buffett. Forbes had estimated Buffett’s wealth to be sixty billion dollars, which suggested that his wealth was growing by about three billion dollars per year. But Buffett reported to the I.R.S. capital gains of about ten million—based on his sales of some shares in his own company, Berkshire Hathaway. For many years, Buffett has been pointing out that his tax rate is too low—the line has often been that he pays a lower effective rate than his secretary—and urging politicians to turn the screws a bit tighter on the ultra-wealthy. In response, Barack Obama proposed the Buffett Rule, a principle adopted by Hillary Clinton, in which people making more than a million dollars a year would have a minimum federal tax rate of thirty per cent. As of a couple of years ago, this was the frontier of mainstream Democratic tax policy, but, to Zucman, it was outlandishly inadequate. Raising the rate on the ten million dollars that was accessible to the I.R.S. made no statistical difference at all. The issue was the $59,990,000,000 that they could not touch. Apply the Buffett Rule, don’t apply the Buffett Rule; it didn’t much matter. “Functionally, his tax rate is zero per cent,” Zucman said.

The second chart examines the share of wealth held by the Forbes 400, which has mushroomed from one per cent of total wealth, at the outset of the Reagan era, to well over three per cent today. Had Warren’s wealth tax been in place all along, the Forbes 400’s share would now be about two per cent. Zucman and Saez propose a stricter wealth tax (ten per cent annually), which they say would have held the Forbes 400’s share constant, around one per cent. If you wanted something like the more equal pre-Reagan America for which Democratic politicians often grow nostalgic, they suggest, it would take a tax like that.

At the end of last year, Saez got an e-mail from Bharat Ramamurti, a longtime economic policy adviser of Elizabeth Warren’s, who said that Warren was interested in proposing a tax on wealth in some form. Zucman and Saez created a spreadsheet, using their own estimates of wealth, that allowed the Warren campaign to play around with different thresholds and rates for the tax. At first, Ramamurti sketched out a plan that taxed fortunes of twenty million dollars or more at one per cent. But in Saez and Zucman’s analysis—on the spreadsheet—wealth was so concentrated at the highest end that a more radically progressive tax, one which targeted a relatively small number of households, could still generate trillions in revenue. Eventually, the Warren campaign settled on a plan that would tax fortunes over fifty million dollars at two per cent annually, and those over one billion at three per cent, which Saez and Zucman estimated would raise the astonishing sum of $2.75 trillion over the course of ten years. (The entire revenue of the federal government, in the current budget year, is $3.4 trillion.) To Zucman, the choice had the added effect of averting a political problem that had bedevilled European wealth taxes, which tended to start with much smaller fortunes. “Above fifty million, you can’t really argue that these people can’t afford to pay,” Zucman told me.

Something quietly revolutionary was happening in these conversations, in January, between Ramamurti and the Berkeley economists, and between Ramamurti and his boss. For Democratic politicians and policymakers, taxes have generally served as a tool, to fund a program that they believe the people want. When Barack Obama proposed a broad expansion of public health insurance, his advisers developed an intricate, progressive system of taxes to pay for it, but the rates and thresholds for those taxes had been determined by the cost of the program. Ramamurti and Warren wanted to maximize revenue, and they also wanted to reduce inequality, which meant that they wanted a way to make the wealthy give up more of their fortunes. It wasn’t an ideological change so much as a conceptual one—about how pervasive and controlling the effects of inequality are. Taxing wealth to limit fortunes became a goal in itself.

Elizabeth Warren wasn’t the first candidate to consider tackling American wealth in this way. During the 2016 Presidential primaries, Zucman and Saez had an extended conversation with Warren Gunnels, Bernie Sanders’s longtime economic adviser, after Sanders had expressed interest in the idea of a wealth tax. The Berkeley economists scored various versions of the plan, estimating the revenue and economic effects, and eventually Gunnels brought a proposal to Sanders and the campaign. The reaction among his advisers was mixed, and, among the many other policy ideas the Sanders campaign was considering, this one simply drifted away. Sanders was already asking Americans to dream of a socialist society like Denmark’s or Sweden’s, and the wealth tax, which had not succeeded even in Europe, might have seemed especially exotic, and likely to trigger another round of denunciations in the American press.

After Hillary Clinton won the Democratic Presidential nomination, her advisers also spent several weeks considering whether to propose a wealth tax. As a matter of framing, one of her advisers explained to me, “There’s huge merit in the wealth tax—it does bring into sharp focus the inequity in our tax code as it relates to how you treat taxing income to wealth.” The campaign’s policy officials would evaluate how prone it might be to legal challenges, or to the wealthy avoiding or evading it—but it had an intuitive appeal. Because of the concentrations of wealth, the adviser said, “the sheer amount of money you can raise off a wealth tax is staggering.” Clinton herself was intrigued by the idea, and legal experts prepared memos about its constitutional viability, while Saez and Zucman helped Clinton’s tax advisers measure the revenue and economic impacts. But, as with the Sanders campaign, it was never formally proposed. The adviser went on, “It was a pretty exotic proposal. Given the way the election was shaping up, it didn’t seem like the proposal was going to alter the overarching narrative of the race. The reason I keep coming back to is inertia.”

But in 2016 not even the socialists had made the conceptual leap: that a wealth tax could have political appeal separate from, even exceeding, the appeal of the programs it funded. In September, eight months after Warren formally announced her proposal, Sanders introduced a wealth tax that was more extreme still: it starts at a one-per-cent marginal annual rate for households worth more than thirty-two million, and increases steeply, to eight per cent, on households worth more than ten billion. “What we are trying to do,” Sanders told reporters in September, “is demand and implement a policy which significantly reduces income and wealth inequality in America by telling the wealthiest families in this country they cannot have so much wealth.”

As a political matter, those eight months will be hard for Sanders to make up. The tax itself is now Warren’s signature proposal, and she has refined her campaign message around it. At rallies, she asks the crowd how many people own their own homes, and, once hands are in the air, points out that most Americans already pay a wealth tax on their biggest asset, they just call it a property tax. (“Great line,” the Clinton adviser told me. “We didn’t have that.”) “Your first fifty million is free and clear,” Warren likes to say on the campaign trail. “But your fifty millionth and first dollar, you gotta pitch in two cents, and two cents for every dollar after that.” By the time Warren held a rally before the brilliant edifice of the Washington Square arch last month, the crowds had begun to anticipate the line, and, as her speech wound toward the wealth tax, they chanted back at her, “Two cents! Two cents!” In 2016, Donald Trump would test out new lines at his rallies, little lures dropped into the depths of the crowd. Was there a bite? “Build the wall” and “Lock her up” came back at him, and eventually they became the substance of the campaign. Shout a slogan back to a candidate, and you have explained the campaign to itself.

The real resonance between Zucman and Saez’s proposals and the Presidential campaign of Elizabeth Warren, the champion of the Consumer Financial Protection Bureau, may be in their shared optimism about what the modern American administrative state can accomplish. When I asked William Gale, the co-director of the Urban-Brookings Tax Policy Center, what distinguished Saez and Zucman from the center-left policymakers who had preceded them, he mentioned two elements. First, he said, they wanted steeper taxes on the wealthy than even most progressives in Washingtonthey were left, not center-left. The second difference, Gale said, was more pronounced. “What I would describe as the previous center-left consensus is that we ought to raise taxes on the very rich, but that’s really hard to do,” Gale said. “Saez and Zucman come in and say, ‘In fact, it’s quite possible; it’s just a matter of enforcement and getting the taxes right—pushing on both fronts.’ Their policy optimism is very different from the conversations that people had in the Obama Administration, where it was often about how the wealthy had these tax-avoidance strategies, these armies of lawyers, that the administrative problems were extreme.”

As Saez and Zucman’s ideas moved to Washington, they met points of resistance, small and big. Jason Furman, who chaired President Obama’s Council of Economic Advisers, recently suggested on Twitter that the rich paid slightly more in taxes than Zucman and Saez’s graphs suggested. But the broader critiques took aim at their administrative optimism. Since the spring, the former Treasury Secretary Larry Summers and his colleague Natasha Sarin, a law professor at the University of Pennsylvania, have been arguing that Zucman and Saez have radically overestimated how much revenue a wealth tax would generate, and that the more realistic return, based on what the I.R.S. had been able to recoup from the estate tax, might be as little as one-eighth of their projections. Sarin told me, “The excitement around the Warren proposal is that, by taxing seventy-five thousand households and imposing a relatively minor additional tax burden on them, we can pay for just about everything we want. If that sounds a little unbelievable, I think that’s because it is a little unbelievable.”

Zucman and Saez published a full response in June, pointing out that, in several European countries that had tried a wealth tax, as well as Colombia, the average avoidance rate was about fifteen per cent; Summers and Sarin, they argued, assumed tax-avoidance rates of between eighty and ninety per cent. “They start from the premise that the rich cannot be taxed, to arrive at the conclusion that a tax on the rich would not collect much,” Zucman and Saez wrote. Their more colloquial argument was that there was nothing mysterious about wealth. Seventy per cent of the wealth of the top 0.1 per cent, Zucman argued, was in the form of stocks, bonds, and real estate—it was easily valued. More portable forms of wealth, like art or jewelry, could be assessed through insurance estimates. The trickiest form of wealth for tax authorities to value is privately held businesses; Saez and Zucman propose in their book that the I.R.S. could make an assessment, and if anyone disagreed they could simply transfer two per cent of their shares in the business to the government, which would then sell them at auction. Zucman’s deeper theory seemed to be that no strong wealth tax had ever been tried. The European models had very low thresholds (often starting around a million dollars), which made them vulnerable to political attack and legislative exemptions. Enforcement was often nonexistent. The largest economy to tax wealth in recent years is France’s, and that levy, Zucman pointed out, relied on self-reporting. “There was a box on the return for wealth, and you wrote a number in the box. That was all.”

Liberals have been agitating, for many years, for an end to the Reagan regime. Now, in Elizabeth Warren, the Democrats have a leading Presidential candidate who intends to unwind that era, and the question—the anxiety—is about how much might come undone. Natasha Sarin, Summers’s co-author, told me, “There’s another conceptual point that I find interesting. Bill Clinton, when he was running for President, said the world would be better if there were more millionaires. I was kind of stunned when I heard Bernie Sanders say that billionaires should not exist. There is something about that view that seems deeply alien to what many progressives, I think, believe. And, economically, I worry, it is deeply inefficient.” Zucman, by contrast, said at the Brookings conference that Piketty’s next book, due out next spring, would advocate a wealth tax of ninety per cent for billionaires. “Really,” Zucman told me, “you could abolish billionaires if you wanted to.”

From Zucman’s office window in Berkeley, it is possible to see clear across the bay to San Francisco, where the escalating forces of inequality had sent housing prices sky-high and pushed working-class people to the periphery of urban life, as they had in Paris. The formative political event in Zucman’s life was the 2002 French Presidential election, when he was fifteen, in which the nationalist Jean-Marie Le Pen won nearly five million votes in the first round, making it into the runoff, in part because of the sense that all of the gains of society were being hoarded by élites.

“You know,” Zucman said, “when you have the fall of the U.S.S.R., the fall of the Berlin Wall, some people say it’s the triumph of the free-market economy, the end of history, you won’t do better than that. And, especially now, in a globalized, integrated world, there’s no viable progressive platform that’s possible. And the left became discouraged, as it does—you know, ‘This is all a messy failure. It’s game over,’ ” Zucman said. “And now, thirty years later, people are realizing that there are all kinds of contradictions in the way our economies work, and we can do better.” The United States is only four per cent of the global population, he went on, but much of the rest of the world had remade itself in our image thirty years ago, and—if a progressive administration in Washington could implement a wealth tax, and strengthen international coöperation for higher corporate tax rates against tax evasion and offshore havens—maybe it would do so again. “You could change the U.S., but you could also change the world,” Zucman said. “Actually, you could be much more radical.”

How Bill Browder Became Russia’s Most Wanted Man

The hedge-fund manager has offered a fable for why the West should confront Putin.

.. Putin did not speak of what is surely the true source of his animus: Browder’s decade-long campaign against Russian corruption. In 2009, Browder’s tax adviser Sergei Magnitsky testified that the Russian police and tax authorities had attempted to steal two hundred and thirty million dollars in Russian taxes paid by Browder’s Moscow-based investment firm, Hermitage Capital.
.. Since the Magnitsky Act passed, the Russian government has charged Browder with myriad crimes, and has periodically tried to lodge warrants for his arrest via Interpol. “Their main objective is to get me back to Russia,” Browder has said. “And they only have to get lucky once. I have to be lucky every time.”
.. In 2012, in Surrey, England, Alexander Perepilichny, one of Browder’s chief sources of information on the movement of the stolen funds, collapsed while jogging near his home and died. The case is still under investigation. Browder, who has taken to relating to as large an audience as possible the danger he faces, has called this “a perfect example of why you don’t want to be an anonymous guy who drops dead.”
.. Browder, who is fifty-four, with a dusting of silver hair and rimless eyeglasses, has a forceful yet understated authority and a talent for telling a coolly suspenseful tale.
.. As an anti-corruption activist, Browder has spoken out against the exploitation of offshore tax havens—for example, the ones detailed in the documents that were leaked from the Panamanian law firm Mossack Fonseca, in 2016. Many companies listed in the so-called Panama Papers were entirely legal. Still, Browder tends not to mention that Mossack Fonseca set up at least three firms for him and Hermitage.
.. His singling out of Browder in Helsinki, McFaul told me, “only gives Bill a bigger global platform—it was a huge public-relations coup, which of course Bill will use.”
.. His grandfather Earl Browder became active in socialist politics during the First World War and lived in the Soviet Union for five years before becoming the secretary-general of the Communist Party of America. Earl’s son Felix was a noted mathematician. William Browder took an interest in business while in boarding school in the seventies. “I would put on a suit and tie and become a capitalist. Nothing would piss my family off more than that,” he writes in “Red Notice.”
.. This was the peak of the chaotic post-Soviet “Wild East,” a time of lawlessness and speculation. Over the next two years, Hermitage’s portfolio grew to more than a billion dollars, but it was nearly wiped out in August, 1998, when Russia defaulted on its sovereign debt, causing widespread panic. Browder was one of the few Western financiers who chose to remain in the country. Between 1998 and 2005, the price of oil quadrupled and the Russian stock index went up by nearly three thousand per cent... Browder gained attention for publicly criticizing the management of companies in which his fund had invested as a minority shareholder, in an effort to goad them into being more efficient and transparent. He held combative press conferences outlining Russian corporate malpractice and passed along to journalists dossiers that described the way venal oligarchs engaged in asset stripping, wasteful spending, and share dilutions.

.. “I don’t think Bill started out with a passion for corporate governance. He found it to be an instrument that helped him and his investors make a lot of money. Ultimately, it became a sincere crusade.”

.. Steven Dashevsky, then the head of research at a Russian investment bank, Browder’s anti-corruption stance was a kind of “free marketing” for Hermitage.

.. Regulators had instituted a dual price structure for the company’s shares: one class of shares, priced relatively cheaply, could be held only by Russian citizens and firms; the second class, priced much higher, could be purchased by anyone. Hermitage got the cheaper price by buying Gazprom stock through companies it registered in Russia. It was a work-around used by a number of Moscow-based investment funds that, as Dashevsky put it to me, “fell into a gray zone: it was clearly against the spirit of the law, but never prosecuted or pursued.”

.. Browder also minimized how much Hermitage paid in Russian taxes. The government, in an effort to stimulate regional investment, had established a special zone in Kalmykia, a republic north of the Caucasus, that offered a lower tax rate. The rate went down even more if disabled workers made up a majority of a company’s employees. To take advantage of this, Hermitage hired disabled people for its companies in Kalmykia. A banker who managed a number of Russian funds said, “We’re not generally disciples of Mother Teresa, but Bill was singularly bottom-line focussed.” Other investors, the banker said, considered tax-avoidance measures like Hermitage’s hiring of disabled people “too risky, and borderline illegal, with the possibility of too much danger if revealed.”

.. Browder received a British passport in 1998 and, rather than become a dual citizen, renounced his U.S. citizenship. He has explained that he had been motivated by the discrimination that his grandparents faced in America during the McCarthy era as a result of their political activism for the Communist Party: his grandfather was forced to testify in front of the House Un-American Activities Committee, and his grandmother was threatened with deportation to Russia. “This type of thing could never happen in Britain, and that was the basis of my decision to become British,” he recently told an audience in Colorado. But those I talked to who knew Browder in the nineties assumed that the reasons were financial

.. “If there has been a consistent passion in Bill’s life over the last twenty or thirty years, it is not wanting to pay taxes.”

.. Vladimir Putin assumed the Presidency in 2000, and at first Browder was an ardent supporter

.. In 2003, when the billionaire head of the Yukos oil company, Mikhail Khodorkovsky, was arrested and charged for fraud and tax evasion, many saw it as evidence that Putin was becoming uncompromisingly authoritarian. But Browder welcomed the prosecution of Khodorkovsky, with whom he had clashed in the past. In 2004, he told the Times, “We want an authoritarian—one who is exercising authority over mafia and oligarchs.” He added that Putin “has turned out to be my biggest ally in Russia.”

.. He was told that his Russian visa had been annulled on national-security grounds.

.. “Logic dictates that it’s not in the national interest to ban the biggest investor in Russia and one of the biggest supporters of the government’s policy.”

.. In July, 2006, Putin was asked at a press conference about Browder. Putin said that he didn’t know the particulars of the case, but added, “I can imagine this person has broken the laws of our country, and if others do the same we’ll refuse them entry, too.” Browder instructed his Hermitage colleagues to sell off the firm’s Russian assets and moved key staff to London.

.. Actually, Magnitsky, then thirty-five, was a tax adviser who worked for the firm that had advised Hermitage for a decade.

.. police had used the impounded seals and stamps to reregister Hermitage’s companies in the name of low-level criminals, and those companies then applied for tax refunds totalling two hundred and thirty million dollars, the amount that Hermitage had paid in capital-gains tax. Two state tax offices in Moscow appeared to have approved the refunds the next day.

.. Magnitsky testified to Russian state investigators in June, 2008, after which his lawyer advised him to leave the country. He refused, and gave further testimony that October. Several weeks later, he was arrested on charges of abetting tax evasion through Hermitage, and held in pretrial detention.

.. In 2010, Browder went to Washington with a list of Russian officials he said were to blame. The Obama Administration placed sanctions on some of them, a routine procedure that barred them from entering the United States. McFaul, then in charge of Russia policy at the National Security Council, recalls, “Bill, to his credit, said, ‘That’s not enough. You didn’t make it public. You didn’t seize any assets.’ ” In “Red Notice,” Browder calls the Russia policy of the Obama Administration at the time “appeasement.”

.. “But what was unique here was Bill Browder,” he said—in particular, Browder’s ability to tell the story of Magnitsky’s suffering. “We were as outraged as he was,”

..  Browder gave testimony, said, “I think it boils down to one phrase I heard him use numerous times: ‘They killed my guy.’ He feels a responsibility and obligation to make sure Sergei didn’t die in vain, and it’s hard to argue with that.”

.. Even so, the Magnitsky Act might have languished had it not been for the fact that, in 2012, Russia was about to become a member of the World Trade Organization. In order to grant Russia what the group calls “permanent normal trade relations” status, Congress would have to repeal the Jackson-Vanik amendment, a 1975 measure aimed at the Soviet Union that penalized trade with countries that had restrictive emigration policies. Legislators did not want to rescind the law without sending the Kremlin a message about American toughness on human rights.

.. “the real question was whether Congress and the White House could find any substitute for Jackson-Vanik other than Magnitsky. The answer turned out to be no, they couldn’t.”

.. “It means his krysha doesn’t work,” Celeste Wallander explained. Krysha is Russian for “roof,” and in criminal jargon means the protection that a powerful figure can offer others. “It screws up his social contract with those inside the system,” she said.

.. But Canada, the Baltic states, and the U.K. have passed their own Magnitsky-style bills, and, last year, Congress passed the Global Magnitsky Act, which targets human-rights abusers worldwide. McFaul told me it had long struck him that “the spectre of the Magnitsky law and the noise around it are much more important than the law itself.”

.. The main evidence that the law is having an effect is how obsessed Putin is with it. I don’t get why he’s so obsessed, but the fact remains that he is, and that suggests it’s had a tremendous impact.

.. I met Veselnitskaya last fall in Moscow, at a café in the center of town; she is an imposing, glamorous woman with an exhaustive memory for dates and facts. She doesn’t speak English, is not licensed to practice law in New York, and, at the time the charges were filed, had never been to the United States.

.. She and the Baker Hostetler lawyers wanted Browder deposed as part of pretrial discovery. This would require a court subpoena; Browder had not voluntarily agreed to testify and, having given up his U.S. citizenship, was not immediately liable to the jurisdiction of a U.S. court.

.. According to multiple sources familiar with the Katsyv family’s legal strategy, the legal work on the Prevezon case and Veselnitskaya’s related lobbying carried costs of up to forty million dollars—a vast sum, considering that the U.S. government was trying to seize, at most, fourteen million dollars’ worth of property.

.. Veselnitskaya downplayed any ties she had to Yuri Chaika, Russia’s general prosecutor, but a researcher on the Prevezon case told me that she often took his calls.


Rick Gates Delivers a Public Lesson on Money Laundering and Political Corruption

.. his time on the witness stand provided an invaluable public lesson in how tax evasion, money laundering, and political corruption work.

.. The ability of rich people such as Manafort and his oligarchic clients to shuffle money across borders, beyond the purview of tax collectors and law-enforcement authorities, is a huge and intractable problem. In many places, these practices are

  • denuding tax bases,
  • corrupting a large class of professional enablers, and
  • undermining public confidence in the political and financial systems.

.. roughly $7.6 trillion, or eight per cent of the world’s financial wealth, was held in offshore tax havens. In some countries, the proportion is much higher; in the case of Russia, it is more than half.

.. . In the United States, he has estimated, the annual tax loss is about thirty-five billion dollars.

.. It is only when there is a prominent court case or a leak—such as the 2016 Panama Papers, which exposed the dealings of the law firm Mossack Fonseca—that a light is shined on this system’s hidden mechanics. What Gates provided this week was a firsthand account of how the illicit game is played.

.. Manafort’s consulting firm was paid by Ukrainian businessmen close to Viktor Yanukovych, who was elected President in 2010. Many of these figures already had bank accounts in Cyprus

..  Gates described how he and Manafort used a Cypriot law firm to establish bank accounts in the name of shell companies that they controlled but weren’t publicly associated with.

“Did these companies sell a product?” Andres asked Gates.

“No,” he replied.

“Did they have any employees?” Andres asked.

“No,” Gates repeated. “The purpose of the companies was to accept payments and to make payments.”

.. The Cypriot law firm Chrysostomides “handled everything,” Gates said, including listing the names of locals, rather than the two Americans, as the directors of the shell firms into which the fees from Ukraine flowed.

.. he arranged to have money wired from the Cypriot accounts to vendors in the United States from whom Manafort had bought expensive clothes

.. problems arose, Gates said. So, again using the Cypriot law firm, he and Manafort transferred some money to bank accounts in the Grenadines, a chain of small islands in the Lesser Antilles. But, when the banks in the Grenadines were asked to transfer money to companies in the United States, they demanded invoices for the payments—something that the Cypriot banks hadn’t bothered with. At Manafort’s direction, Gates said, he created “modified invoices” and gave them to the banks.

.. “About 50% of the wealth held in tax havens belongs to households with more than $50m in net wealth,” Zucman, of Berkeley, noted in an article last year. “These ultra-rich represent about 0.01% of the population of advanced economies.”
These were the type of people whom Manafort was working for in Ukraine, and it’s pretty clear from the life style he adopted that he wanted to join their ranks.
.. he allegedly resorted to bank fraud rather than modify his spending patterns.
Gates described how, in 2015, together with Manafort’s accountants, he helped put together bogus financial documents that Manafort then used to obtain bank loans.

.. toward the end of Andres’s questioning of Gates, the prosecutor showed the witness an e-mail that Manafort wrote to Gates in November, 2016, shortly after Trump was elected. By that stage, Gates was working for Trump’s Presidential transition team. “We need to discuss Steve Calk for Sec of the Army,” Manafort’s e-mail said. “I hear the list is being considered this weekend.”

.. When he joined the Trump campaign, he’d long been known as the ultimate swamp creature. Thanks to Mueller and Gates, we now know more about how that swamp operates.




Panama Papers: Mossack Fonseca was unable to identify company owners (

There’s a reason New York and London continue to be world leaders in processing financial transactions–the governments have been intentionally tolerant of shady characters, shady businesses, and shady nations as long as the transactions nominally followed the law. Among other benefits, that puts you in a good position to keep track of the bad guys and, when it really counts, to take them down. If you police too heavily all that activity goes somewhere else.

.. Like so much with the War on Terror, the better approach would be to improve HUMINT and investigatory resources, rather than pushing the activity further underground and playing a game of whack-a-mole.

How Corporations and the Wealthy Avoid Taxes (and How to Stop Them)

The United States loses, according to my estimates, close to $70 billion a year in tax revenue due to the shifting of corporate profits to tax havens. That’s close to 20 percent of the corporate tax revenue that is collected each year. This is legal.

Meanwhile, an estimated $8.7 trillion, 11.5 percent of the entire world’s G.D.P., is held offshore by ultrawealthy households in a handful of tax shelters, and most of it isn’t being reported to the relevant tax authorities. This is… not so legal.

 ..  In 2015, $15.5 billion in profits made their way to Google Ireland Holdings in Bermuda even though Google employs only a handful of people there.
.. 63 percent of all the profits made outside of the United States by American multinationals are now reported in six low- or zero-tax countries:
  • the Netherlands,
  • Bermuda,
  • Luxembourg,
  • Ireland,
  • Singapore and
  • Switzerland.
.. After learning Irish authorities were going to close loopholes it had used, Apple asked a Bermuda-based law firm, Appleby, to design a similar tax shelter on the English Channel island of Jersey
Appleby duly obliged, and Jersey became the new home of the (previously Irish) companies Apple Sales International and Apple Operations International.
.. In 2015, the Swiss Leaks revealed the owners of bank accounts at HSBC Switzerland, and in 2016 the Panama Papers revealed those of the shell companies created by the Panamanian law firm Mossack Fonseca. These showed that 50 percent of the wealth held in tax havens belongs to households with more than $50 million in net wealth
.. In the Paradise Papers, we see that these are not only Russian oligarchs or Belgian dentists who use tax havens, but rich Americans too.
.. For a long time, the bulk of it was held in Switzerland, but a fast-growing fraction is now in Hong Kong, Singapore and other emerging havens.

The most compelling way to do this would be to create comprehensive registries recording the true individual owners of real estate and financial securities, including equities, bonds and mutual fund shares.
.. One common objection to financial registries is that they would impinge on privacy. Yet countries have maintained property records for land and real estate for decades.
.. comprehensive registries would make it possible to not only reduce tax evasion, but also curb money laundering, monitor international capital flows, fight the financing of terrorism and better measure inequality.

Hidden assets, hidden costs

These mostly concerned the alleged smuggling of $65 million out of Argentina on behalf of its President, Cristina Fernández de Kirchner – hardly startling news if true, given the country and the person but the documents also included what really mattered: full corporate information on the 123 name-plate-only (“shell”) companies that were used to zig-zag the money surreptitiously around the world, all of them formed by a Panamanian law firm called Mossack Fonseca.

.. Not even the ultra-formidable billionaire Paul Singer, who had bought up heavily discounted Argentine debt .. could do anything about the $65 million sitting tantalizingly close to him in Nevada – but now all the data was revealed (too late for Singer because Argentina’s new President, Mauricio Macri, also a Mossack Fonseca client as it happens, had already decided to settle and pay him off, along with all the other hold-out claimants).

.. This was the beginning of a flood of 11.5 million documents containing the records of the formation and transactions of 214,000 nameplate companies, including full documentation of their initiators (passport data page scans, etc), all of whom are, or are serving, tax avoiders – in ways legal, but unethical and duplicitous

.. this is an extremely important book – this decade’s most important rather than this year’s

.. because it offers an entirely new perspective on the greatest question of the age: why has income distribution in the more developed economies become increasingly unequal pari passu  with the advance of globalization?

.. disregarding the overwhelming evidence that much of that consists of the transfer of income from lower-income people in higher-income countries to higher-income people in lower-income countries.

.. we now know that globalization has caused rising inequality in quite another way than the transfer of higher-paying manufacturing jobs and all other such phen­omena

.. Mossack Fonseca’s 214,000 offshore companies alone (and there are many other such shell companies, formed by many other law firms) handled not millions or billions but trillions of dollars in their totality

.. When the less affluent must pay their payroll taxes and income taxes in full, while the more affluent with offshore companies do not pay their own taxes, the total effect of the taxation system is regressive

.. Once we recognize the sheer magnitude of “offshored” income flows, and once we take into account the strongly regressive effects of supposedly progressive taxation systems, the phenomenon of rising inequality in affluent societies may not need much additional explaining – and it hardly matters if those were tax-avoidance or tax-evasion trillions.

.. Much less surprising is the abundance of Mossack Fonseca clients in the leadership of UEFA and FIFA: because football earnings are so very large it stands to reason that they should be offshored rather than wasted in paying taxes.

.. If Putin wants someone’s Moscow mega-mansion, for example, he need only let the owner know whether he wants it as it is, or cleared of furniture, and the same is true of anything else in Russia: his power is limited only by his own considerable restraint.

.. it is the outright crooks, drug-traffickers and such, who are more honest fiscally at least, because most would dearly love to pay income taxes on their earnings, if only they could do so without being arrested, thereby acquiring legal wealth they could enjoy and show off

.. the same authorities that routinely identify, track and remotely kill individual terrorists in distant countries, which they occasionally bomb for one reason or another, profess themselves impotent before the blithely meretricious officials of micro-countries that contain little else but banks that conduct no local business, whose only raison d’être is very plainly to facilitate avoidance and collude in evasion.

.. only the German tax authorities seem ready to buy it from the thieves without making a fuss, thereby recovering billions for a few million