The prosecutor who quit over the Roger Stone sentencing is sending a powerful message about political weaponization.
The resignation of a Justice Department prosecutor over the sentencing of Roger Stone is a major event. The prosecutor, Jonathan Kravis, apparently concluded that he could not, in good conscience, remain in his post if the department leadership appeared to buckle under White House pressure to abandon a sentencing recommendation in the case of Mr. Stone, the associate of President Trump who was convicted of obstructing a congressional inquiry into Russian meddling in the 2016 election.
Three of his colleagues quit the Stone case but remain with the department: Mr. Kravis left altogether. Even though the president for years has derided federal law enforcement officials, accusing them variously of conflicts of interest and criminality and weakness in not pursuing prosecution of his political opposition, Mr. Kravis’s is the first resignation in the face of these assaults.
Dramatically forceful responses to Mr. Trump’s assaults on rule-of-law norms have been all too rare. A resignation can set off an alarm bell for an institution whose failings an official might be unable to bring to light in no other way, or as effectively. It upholds rule of law norms in the very act of signaling that they are failing. It makes its point with power and transparency, and stands a chance of rallying support from those who remain in place and compelling other institutions like the press and Congress to take close notice.
The government official who resigns for these reasons is, paradoxically, doing his or her job by leaving it.
Why did the Stone matter so clearly warrant resignation? The president has used Twitter to denounce and pressure department officials, senior administration lawyers and the Mueller team. When he did that to Attorney General Jeff Sessions, his deputy attorney general, Rod Rosenstein, and the special counsel Robert Mueller, they stuck it out. They must have thought that the best way to serve the rule of law was to hold off or humor the president, maintaining regular order as much as possible even as Mr. Trump raged that he could not fully control his department.
And there is a case to make for their choice. Mr. Sessions stood up to the president and adhered to his decision to recuse himself from the Russia investigation. Mr. Mueller was not fired and completed his investigation in the Russia matter.
But this time, the president got what he wanted. Mr. Trump attacked the department sentencing recommendation as an unacceptable “miscarriage of justice” that was “horrible and unfair.” And then the department did switch positions on the sentencing, criticizing its own prosecutors for failing to be “reasonable” in their recommendation to the court.
This, then, could be seen as the extreme case, whereas normally a lawyer might decide that “working from the inside” is the best, most responsible answer to the president’s behavior.
Still, if resignation had been seen earlier as viable, even necessary option, it’s possible that we would not have arrived at this point. Mr. Sessions could have resigned over the president’s public calls for him to ignore his recusal requirements or prosecute Hillary Clinton. If Mr. Mueller had resigned over the president’s attacks on him and refusal to sit for an interview, he might not have completed his report but he would have rendered a devastating and unequivocal judgment. And, without a report he felt compelled to rely on, Mr. Mueller might have felt himself more at liberty to testify in detail to Congress.
Resignation, while an act of professional conscience, can be effective in pushing back against violations of norms of impartial, professional law enforcement insulated from political pressure. According to the Mueller report, having been finally pushed too far, the White House counsel Don McGahn threatened to resign in June 2017 over Mr. Trump’s directive to fire Mr. Mueller. What did the president do? He backed down.
That was then. Mr. Trump has established a new normal at the senior legal leadership of his administration. The rhetoric of Mr. Sessions’s successor, William Barr, suggests that he accepts, to a disturbing degree, the president’s desire for a politically responsive Justice Department. Mr. McGahn’s successor, Pat Cipollone, defended the president in the impeachment proceeding with arguments of the kind, in tone and variance from the factual record, you would expect to hear from Trump surrogates on Fox News.
We can’t know if a wave of resignations early in this administration would have made a difference in preventing or tempering the unfortunate appearance, and perhaps increasing reality, that the administration of justice is being politicized. During the Watergate scandal, the Saturday Night Massacre resignations by Justice Department leaders certainly made an impression on President Richard Nixon, who then appointed an effective independent prosecutor, Leon Jaworski.
Resignations can be a shock to the system, just what is needed to clarify the issues, force Congress to pay attention and alter a president’s behavior.
What government lawyers are prepared to accept, the conditions under which they are willing to work, still matters. Institutions can be severely damaged in one huge blow or whittled away.
Of course, resignation as an act of protest is not a choice to be lightly made by those who join an administration and find themselves in disagreement with the president. It is not justified by policy decisions that a subordinate official would have made differently.
But the president should not be able to command this loyalty when the conflict concerns something as fundamental as the professionalism and independence of the Justice Department — and involves a case in which the president has a direct personal interest and the defendant is a political associate.
For senior administration lawyers to just manage these kinds of conflict — ignoring Mr. Trump’s tweets and disregarding his inappropriate if not unlawful presidential orders — allows the abnormal to become normal and professional standards to crumble.
The prosecutor who resigns rather than remain in a decaying institution is upholding crucial norms. To his credit, at least one lawyer has chosen to do this, even if it is the rare case and it may have come too late to protect the Department of Justice from Mr. Trump’s demands and Attorney General Barr’s apparent willingness to accommodate them.
Trump the Intimidator Fails Again
Because he’s just a bully with delusions of grandeur.
International crises often lead, at least initially, to surging support for a country’s leadership. And that’s clearly happening now. Just weeks ago the nation’s leader faced public discontent so intense that his grip on power seemed at risk. Now the assassination of Qassim Suleimani has transformed the situation, generating a wave of patriotism that has greatly bolstered the people in charge.
Unfortunately, this patriotic rallying around the flag is happening not in America, where many are (with good reason) deeply suspicious of Donald Trump’s motives, but in Iran.
In other words, Trump’s latest attempt to bully another country has backfired — just like all his previous attempts.
From his first days in office, Trump has acted on the apparent belief that he could easily intimidate foreign governments — that they would quickly fold and allow themselves to be humiliated. That is, he imagined that he faced a world of Lindsey Grahams, willing to abandon all dignity at the first hint of a challenge.
But this strategy keeps failing; the regimes he threatens are strengthened rather than weakened, and Trump is the one who ends up making humiliating concessions.
Remember, for example, when Trump promised “fire and fury” unless North Korea halted its nuclear weapons program? He claimed triumph after a 2018 summit meeting with Kim Jong-un, North Korea’s leader. But Kim made no real concessions, and North Korea recently announced that it might resume tests of nuclear weapons and long-range missiles.
Or consider the trade war with China, which was supposed to bring the Chinese to their knees. A deal has supposedly been reached, although details remain scarce; what’s clear is that it falls far short of U.S. aims, and that Chinese officials are jubilant about their success in facing Trump down.
Why does Trump’s international strategy, which might be described as winning through intimidation, keep failing? And why does he keep pursuing it anyway?
One answer, I suspect, is that like all too many Americans, Trump has a hard time grasping the fact that other countries are real — that is, that we’re not the only country whose citizens would rather pay a heavy price, in money and even in blood, than make what they see as humiliating concessions.
Ask yourself, how would Americans have reacted if a foreign power had assassinated Dick Cheney, claiming that he had the blood of hundreds of thousands of Iraqis on his hands? Don’t answer that Suleimani was worse. That’s beside the point. The point is that we don’t accept the right of foreign governments to kill our officials. Why imagine that other countries are different?
Of course, we have many people in the diplomatic corps with a deep knowledge of other nations and their motivations, who understand the limits of intimidation. But anyone with that kind of understanding has been excluded from Trump’s inner circle.
Now, it’s true that for many years America did have a special leadership position, one that sometimes involved playing a role in reshaping other countries’ political systems. But here’s where Trump’s second error comes in: He has never shown any sign of understanding why America used to be special.
Part of the explanation, of course, was raw economic and military power: America used to be just much bigger than everyone else. That is, however, no longer true. For example, by some key measures China’s economy is significantly bigger than that of the United States.
Even more important, however, was the fact that America was something more than a big country throwing its weight around. We always stood for something larger.
That doesn’t mean that we were always a force for good; America did many terrible things during its reign as global hegemon. But we clearly stood for global rule of law, for a system that imposed common rules on everyone, ourselves included. The United States may have been the dominant partner in alliances like NATO and bodies like the World Trade Organization, but we always tried to behave as no more than first among equals.
Oh, and because we were committed to enforcing rules, we were also relatively trustworthy; an alliance with America was meaningful, because we weren’t the kind of country that would betray an ally for the sake of short-term political convenience.
Trump, however, has turned his back on everything that used to make America great. Under his leadership, we’ve become nothing more than a big, self-interested bully — a bully with delusions of grandeur, who isn’t nearly as tough as he thinks. We abruptly
- abandon allies like the Kurds;
- we honor war criminals; we
- slap punitive tariffs on friendly nations like Canada for no good reason. And, of course,
- after more than 15,000 lies, nothing our leader and his minions say can be trusted.
Trump officials seem taken aback by the uniformly negative consequences of the Suleimani killing: The Iranian regime is empowered, Iraq has turned hostile and nobody has stepped up in our support. But that’s what happens when you betray all your friends and squander all your credibility.
If Wealth Is Justified, so Is a Wealth Tax
Not surprisingly, American billionaires have dismissed recent wealth-tax proposals as an affront to the entrepreneurial spirit to which they attribute their massive wealth. But the ultra-rich never would have their great wealth without legal subsidies from the state and reliable enforcement by the courts.
How two Soviet-born emigres made it into elite Trump circles — and the center of the impeachment storm
The contribution helped propel Parnas and his business partner, Belarus-born Igor Fruman, on an extraordinarily rapid rise into the upper echelon of Trump allies — before they became central figures in the presidential impeachment inquiry.
By spring 2018, the two men had
- dined with Trump,
- breakfasted with his son and
- attended exclusive events at Mar-a-Lago and the White House, all while
- jetting around the world and spending lavishly, particularly at Trump hotels in New York and Washington. That May, a pro-Trump super PAC reported receiving a $325,000 donation from an energy company the duo had recently formed.
Where Parnas and Fruman got their money remains a mystery. When they were arrested Wednesday on allegations of campaign finance violations, prosecutors alleged that Parnas and Fruman were backed in part by an unnamed Russian national who used them to funnel donations to state and federal candidates.
This summer, Parnas had begun working as a translator for the legal team of Dmytro Firtash, an Ukrainian gas tycoon who faces bribery charges in the United States, according to Victoria Toensing, one of Firtash’s lawyers. The energy magnate has been accused by federal prosecutors of having ties to Russian organized crime and has been fighting extradition to the United States from Austria. Firtash has denied wrongdoing.
As they scaled the ranks of Trump’s Washington, Parnas and Fruman demonstrated a remarkable facility for capitalizing on their newfound connections, according to people who observed them. They also appeared to be constantly in pursuit of new business ventures — “always hustling,” in the words of one Trump ally who interacted with them.
In 2018, they hired the president’s personal attorney, Rudolph W. Giuliani, to serve as a consultant as they launched a security business — and then helped Giuliani, in turn, reach Ukrainian officials in his quest to find information damaging to Democrats.
During a visit to Israel last summer sponsored by a pro-Israel charity, Parnas and Fruman were “mega-dropping Rudy’s name” as they snapped photos with well-known figures, according to former White House communications director Anthony Scaramucci, who was also on the trip.
“ ‘We’re best friends with Rudy Giuliani,’ ” Scaramucci said the two men told him. “ ‘We work with him on everything.’ ”
Giuliani’s ties to the duo are now under scrutiny by both federal prosecutors and congressional investigators seeking to unravel how two businessmen trailed by creditors and failed past ventures came to be at the center of an expanding international drama.
Giuliani has denied knowledge of any wrongdoing. He said Friday that he had seen the two men “quite often.”
“I have no reason to believe that they are anything other than decent guys,” he said.
Parnas and Fruman, who made a brief court appearance Thursday in Alexandria, have not entered a plea to the charges against them.
Their new lawyer, John Dowd — who also previously served as a personal attorney for Trump — declined to respond to a number of questions about the two men, writing only in an email, “You publish at your peril.”
Elite Trump circles
Parnas, 47, was born in Ukraine but moved with his family to the U.S. as a child and grew up in Brooklyn. He told The Washington Post in an interview conducted before his arrest that he got his start in real estate, selling Trump condos for Donald Trump’s father, Fred, then worked in shipping in the former Soviet Union before becoming a securities trader. He moved to Florida in the mid-1990s.
ADPeople who encountered the two men in recent years said that Parnas did most of the talking and seemed to be the public face of their U.S. partnership. But Parnas told The Post that Fruman was the one with especially deep connections in Ukraine.
Born in Belarus, Fruman, 53, owns a luxury jewelry business, a luxury car dealership and a hotel in Odessa, the port city on the Black Sea. He also owns an import-export business based in New York.
Both men have been trailed by financial problems, including a lawsuit filed against them earlier this year claiming they had failed to repay a $100,000 loan in 2018. The suit has been settled.
Parnas told The Post that he got involved in the Trump campaign because he admired the real estate developer, whom he said he had met several times before the election.
“I was really passionate about the president,” he said. “I started really believing that he could really make a change and make it happen. Then I jumped on the campaign, donated money and became a really big believer.”
Now, Parnas said, “I think he’s going to go down as one of the greatest presidents ever, even with all this negativity.”
As for Giuliani, Parnas said he had met the former New York mayor during the campaign but that the relationship “bonded and built over time.”
“We’re just very close,” he said, calling Giuliani “a very good friend.”
Giuliani said Friday that he recalls first meeting Parnas and Fruman in “mid-to-late 2018” after a lawyer who is a friend referred them to him.
At the time, Giuliani said, the men were ramping up a company called Fraud Guarantee, which would use specialized software to identify possible fraud in companies.
AD“I know a lot about cybersecurity,” he said. “So they wanted my advice.”
Giuliani said his security consulting firm did “intense” work for the two men in 2018 and 2019, providing paid advice on how to structure their company.
Around the same time, the two men began to appear regularly at elite Trump-related events and started to track their travels on Facebook and Instagram. Their posts have now been deleted, but were captured by BuzzFeed and other news organizations before they were taken down.
Fruman posted photos of himself at a Republican National Committee fundraiser at Trump’s estate Mar-a-Lago in March 2018. In one, he was standing in front of a Florida flag next to Trump, who offered two thumbs up for the camera.
That May, Parnas posted photos and videos on Facebook that he wrote were taken at the White House, including one of him beaming as he stood next to the president between two American flags, giving a thumbs-up. “Thank you President Trump !!!” he wrote, adding, “incredible dinner and even better conversation.”
Ten days later, Fruman told the Brooklyn-based Russian-language publication Jewish World that the two men had been part of a group of just eight people who met privately with the president and discussed the upcoming midterm elections. Fruman said he also had discussed Ukraine-U.S. relations at the dinner.
White House officials declined to comment on the event.
Later that month, Parnas posted a photo of himself and Fruman breakfasting at the Beverly Hills Hotel Polo Lounge with Donald Trump Jr. and Tommy Hicks Jr., a close friend of the president’s son and top RNC official. “#Trump2020,” he captioned the photo.
An attorney for Trump Jr. declined to comment. Hicks did not respond to requests for comment.
In an exchange with reporters outside the White House on Thursday, Trump said he doesn’t know Parnas and Fruman, dismissing the photos of himself with the two men.
“I don’t know those gentlemen,” Trump said. “Now, it’s possible I have a picture with them, because I have a picture with everybody. . . . I don’t know about them; I don’t know what they do. I don’t know, maybe they were clients of Rudy. You’d have to ask Rudy.”
Parnas and Fruman were also patrons of the president’s hotel.
In one five-week period between September 2018 and October 2018, the two men racked up more than $13,000 in charges at the Trump hotels in New York and Washington, according to a person familiar with their finances, who spoke on the condition of anonymity to share private information.
In December, they attended a White House Hanukkah party, posting a photo on social media that includes Giuliani, Trump and Vice President Pence. A White House aide said the event was attended by hundreds of people.
The two men also began donating liberally to federal and state political committees, including a $325,000 contribution in May 2018 to the pro-Trump super PAC America First Action.
All told, the two and their energy firm contributed at least $630,000 to federal GOP candidates and PACs since 2016, campaign finance filings show.
The money also flowed to candidates in Nevada, Texas, West Virginia and Florida. Prosecutors now allege the campaign contributions were part of an illegal scheme to funnel foreign money to “buy potential influence with candidates, campaigns and the candidates’ governments,” according to the indictment.
The two men, along with two other associates, are charged with laundering money through corporate bank accounts and using straw donors to obscure the source of their funds, including illegal foreign contributions.
Kelly Sadler, a spokeswoman for America First Action, said the super PAC is placing the contribution it received in a segregated bank account “until these matters are resolved. We take our legal obligations seriously and scrupulously comply with the law.”
Jay Sekulow, an attorney for Trump, said: “As the indictment states, neither the President nor the [Trump] campaign were aware of the allegations.”
Pitching a gas deal
Over the same period that they were cultivating political ties, Parnas and Fruman were involved with a dizzying array of business pursuits.
Apart from Fraud Guarantee, they planned to launch a recreational marijuana business in states such as Nevada with the Russian national, according to the indictment.
Parnas also received tens of thousands of dollars last year from the firm of Brian Ballard, a longtime Florida lobbyist who is close to Trump, according to a person familiar with Parnas’s finances. Another person familiar with the arrangement said Parnas was paid to refer possible clients, but none were connected to Ukraine.
In April 2018, the two men incorporated their new company, Global Energy Producers, which purportedly intended to sell liquefied natural gas. Quickly, the two began an effort to export American gas into Ukraine through Poland.
Efforts to bring more U.S. gas to Europe — particularly Ukraine, to reduce its dependence on Russian energy — have been a priority for the Trump administration.
Neither Parnas nor Fruman had any particular experience in the energy world, but at an energy conference in Houston in March, they made a pitch to Ukrainian state oil and gas giant Naftogaz.
Parnas and Fruman approached a top official at Naftogaz, Andrew Favorov, regarding their venture, according Dale W. Perry, an American businessman close to Favorov, as well as another a person familiar with the matter who spoke on the condition on anonymity to describe the private conversation.
Then, in a conversation first reported by the Associated Press, Parnas and Fruman pitched their LNG business and their hope to soon see new leadership at Naftogaz that would be receptive to their proposal. They asserted that U.S. Ambassador to Ukraine Marie Yovanovitch, who opposed replacing the company’s chief executive, would soon be gone.
By May, Yovanovitch had been abruptly recalled from her post on Trump’s orders.
The implication, according to the person familiar with the meeting, was that the men would help Favorov take the top job at Naftogaz and then begin selling LNG to the Ukrainian state gas conglomerate.
Favorov declined the offer, Perry said. He said the Naftogaz official, a former business partner, contacted him soon afterward and described the encounter, which Favorov told Perry made him deeply uncomfortable.
Favorov and Perry were particularly concerned by the efforts of private businessmen with personal motivations to push for the ouster of Yovanovitch, who they view as a conscientious public servant, Perry said.
“If she can be removed, then anything is possible now,” Perry said. “Where is the rule of law? Where is the stability?” Favorov could not be reached for comment.
Parnas, speaking to The Post before his arrest, said nothing ultimately came of his efforts to launch the LNG venture in Ukraine, in part because of the attention he and Fruman received for their political activities with Giuliani.
“Now everybody is scared to do business with us,” Parnas said.
Backing Giuliani’s efforts
The campaign against Yovanovitch was embraced by Giuliani as part of his broader effort to pressure Ukraine to launch investigations into Trump’s political rivals. Parnas and Fruman assisted him in that project.
“They were helping me a lot in Ukraine,” Giuliani said Friday.
According to Parnas, he was sitting at lunch with Giuliani in late 2018 when the former New York mayor was approached by an American with information about Ukraine. On learning of Giuliani’s interest in Ukraine, Parnas said he then worked to connect Giuliani with people in Ukraine who had information he believed could assist the effort.
“Me just being next to him, me being Russian speaking and having business there and knowing the culture and also knowing a lot of individuals and having a lot of relationships somehow just basically steamrolled into me taking an active role as a patriotic duty,” Parnas said. “And here we are now.”
Parnas has said he helped set up a call for Giuliani in January 2019 with Viktor Shokin, a former Ukrainian prosecutor who has alleged that he was fired in 2016 for investigating a company whose board included former vice president Biden’s son Hunter. Parnas said he and Fruman also connected Giuliani with Yuriy Lutsenko, who served as Ukraine’s top prosecutor until August.
“We took it upon ourselves as our patriotic duty, basically, whatever information we could get, to pass it on and to basically validate it as best as we could,” Parnas said.
Among other topics, Parnas has said he and Giuliani discussed Yovanovich, who was removed from her position in May on Trump’s orders after a whisper campaign that she was disloyal to the president.
Prosecutors said Thursday that Parnas’s efforts to remove Yovanovich came “at least in part at the request of one or more Ukrainian government officials.”
In recent months, Parnas has become even more financially entangled with Giuliani and his allies.
In an interview, Toensing said she and her husband, attorney Joe diGenova, retained Parnas this summer to work as a translator as they represent Firtash, who has been charged in Illinois with bribing Indian officials related to mining interests in that country. He is fighting extradition to the U.S. from Austria.
Firtash, who U.S. prosecutors have alleged in court documents is an “upper-echelon” associate of Russian organized crime, has denied wrongdoing. Earlier this year, he hired Toensing and diGenova, who appear frequently on Fox News and are close to Giuliani.
Toensing said she was “outraged” by the Justice Department charges against her client, adding that “the Indian government has investigated” the bribery claim and filed no charges in the case. She said Firtash’s Austrian extradition case included testimony from investigators who found that he had “no ties to organized crime.”
Toensing said she met Parnas through Giuliani and tapped him “to be our translator to review documents and to help with Ukraine,” noting that “he speaks Russian and our client does not speak English.”
Parnas and Fruman’s myriad political and business ventures came to an abrupt halt Wednesday.
The duo had lunched that day with Giuliani at the Trump International Hotel in Washington, according to the Wall Street Journal.
Hours later, they were at Dulles Airport, about to board a plane to Europe, when authorities in the hallway stopped them and asked to see their passports, according to a person who saw the encounter who spoke on the condition of anonymity because of the ongoing investigation.
Soon, the person said, about a dozen plainclothes investigators converged on the scene, and the two men were led away.
NEW YORK – Economic inequality has moved to the top of the political agenda in many countries, including free-market poster children like the United States and the United Kingdom. The issue is mobilizing the left and causing headaches on the right, where wealth has long been viewed as worthy of celebration, not as demanding justification.
But today’s concentrations of wealth do demand justification. In 2018, Forbes listed three billionaires among its top ten most powerful people in the world. Next to the heads of states of Chinese President Xi Jinping, Russian President Vladimir Putin, US President Donald Trump, and German Chancellor Angela Merkel, one finds not only the Pope, but also Amazon founder Jeff Bezos, Microsoft co-founder Bill Gates, and Google co-founder Larry Page. All three owe their power not to public position or spiritual influence but to private wealth.
As contenders in the Democratic primary for the 2020 US presidential election, Senator Bernie Sanders of Vermont and Senator Elizabeth Warren of Massachusetts have promised to impose new taxes on the super-wealthy. Warren’s wealth-tax proposal – a levy of 2% on every dollar of net worth above $50 million, rising to 6% for fortunes greater than $1 billion – has ruffled billionaires’ feathers. According to Gates, he has paid more in taxes than almost anybody – some $10 billion. And while he would consider it “fine” if that figure had been doubled to $20 billion, he believes a much higher tax would threaten the incentive system that led him (and others) to invest in the first place.
For his part, Michael Bloomberg, the founder of the Bloomberg news empire, a former mayor of New York City, and now a Democratic presidential contender himself, argues that a wealth tax might be unconstitutional, and that it would turn the US into the likes of Venezuela. And not to be outdone, Facebook founder and CEO Mark Zuckerberg has suggested that taxing billionaires’ wealth would lead to worse outcomes than leaving it where it is, implying that the ultra-wealthy know better than the peoples’ elected representatives how tax revenues should be spent.
Note the sense of entitlement underlying each of these reactions. Each man’s billions, we are told, belong to him; he earned the money and should therefore get to decide how to spend it, be it on philanthropic projects, taxes, or neither. The billionaires tell us that they are willing to pay a fair share of taxes, but that there is some undefined threshold where the incentives to innovate and invest will be thrown into reverse. At that point, apparently, the ultra-wealthy will go on strike, leaving the rest of us worse off.
But this perspective ignores the fact that accumulated wealth is largely a product of law, and by implication of the state and the people who constitute it. As economist Thomas Piketty demonstrates in his 2014 book, Capital in the Twenty-First Century, the rich today hold most of their wealth in financial assets, which are simply legally protected promises to receive future cash flows. Take away legal enforceability, and all that remains is hope, not a secure asset.
Moreover, the private empires over which today’s billionaires preside are organized as legally chartered corporations, which makes them creatures of the law, not of nature. The corporate form shields the personal wealth of the founders and other shareholders from the corporation’s creditors. It also facilitates the diversification of risk within a company, by allowing discrete pools of assets to be created, each with its own set of creditors who are barred from making claims on another asset pool, even though the parent company’s management controls all of them.
Further, the company’s own shares can be used as currency when acquiring other companies. When Facebook bought WhatsApp, it covered $12 billion of the $16 billion purchase price with its own shares, paying only $4 billion in cash. And, as with Facebook, corporate law can be used to cement control by founders and their affiliates through dual-class share structures that grant them more votes than everyone else. As such, they need not fear elections or takeovers of any kind.
Finally, companies whose assets take the form of intellectual property (IP) and other intangibles tend to rely even more on the helping hand of the law. As of 2018, 84% of the market capitalization of the S&P 500 was held in such intangible assets. It takes a legal intervention to turn ideas, skills, and knowhow – which are free to be shared by anybody – into exclusive property rights that are enforced by the full power of the state. And in recent years, Microsoft and other US tech companies have boosted their earning power significantly by promoting US-style IP rules around the world through the World Trade Organization’s body for Trade-Related Aspects of Intellectual Property Rights (TRIPS).
To be sure, there are good reasons for states to adopt laws that empower private agents to reap the rewards of organizing businesses and developing new products and services. But let’s call a spade a spade and a (legal) subsidy a subsidy. While Bezos, Bloomberg, Gates, and Zuckerberg may well be savvy entrepreneurs, they also have benefited on a massive scale from the helping hand of legislatures and courts around the world. This hand is more contingent than the invisible one immortalized by Adam Smith, because its vitality depends on a widely shared belief in the rule of law. The erosion of that belief, not a tax, poses the greatest threat to billionaires’ wealth.