Inside the Industry Where the Uber-Rich Pay Millions to Hide Trillions - Rolling Stone
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Inside the Shadowy Industry Where the Uber-Rich Pay Millions to Hide Trillions

A recent exposé showed how billionaires dodge taxes on their wealth. The bigger scandal is how the rich pay an army of lawyers, accountants, and more to hide trillions from any government

Steven Mnuchin, a super rich guy who got his job as Trump's Treasury Secretary because he was super rich and then helped the super rich get even more super rich, and his wife, actor Louise LintonSteven Mnuchin, a super rich guy who got his job as Trump's Treasury Secretary because he was super rich and then helped the super rich get even more super rich, and his wife, actor Louise Linton

Steven Mnuchin, a super-rich guy who got his job as Trump's Treasury secretary because he was super-rich and then helped the super-rich get even more super rich, and his wife, actor Louise Linton

Jacquelyn Martin/AP

Chuck Collins has the rare distinction of becoming a member of the 0.01 percent and then leaving the ranks of the uber-wealthy — by choice. An heir to the Oscar Mayer fortune, he came into a substantial sum of money in his 20s and decided to give almost all of it away. But he didn’t stop there: Collins has devoted most of his life to chronicling income and wealth inequality in America, documenting how the fortunes of a tiny slice of Americans have soared while wages stagnate for most of us.

Collins says he was heartened that a whistleblower — still anonymous to the public — leaked to ProPublica the private tax records of super-rich Americans such as Jeff Bezos and Warren Buffett. But he wasn’t surprised in the least by what those documents revealed, namely, how the 0.01 percenters escape taxes as their vast fortunes grow. “What’s new is there are names attached to it,” Collins says, “and somebody took the personal risk to leak that information, and journalists understood it was in the public interest to breach the privacy of these individuals to reveal just how these systems work.”

In a recent interview, Collins told Rolling Stone that there’s a bigger problem than untaxed wealth. That problem is the trillions of dollars that don’t show up on any tax return or financial statement, the “hidden” wealth of world’s wealthiest people. Helping those people hiding their fortunes is an army of lawyers, consultants, accountants, and more who get paid millions to help their clients hide trillions. Social scientists call this the “wealth defense industry,” and it’s a focus of Collins’ latest book, titled The Wealth Hoarders.

Collins spoke by phone about the hidden trillions stashed on- and offshore around the world, the lack of transparency or oversight of all that dark capital and the people who get paid to hide, and why a wealth tax like the one proposed by Senator Elizabeth Warren isn’t enough to crack down on the wealth defense industry and drag all those trillions back into the sunlight.   

In your book, you cite researchers who estimated that in 2014, about $7.6 trillion — with a T — of the world’s private wealth was hidden. You go on to write that the real number closer to the present day could be north of 20 trillion. When you say wealth is hidden, what do you mean?
This is what ProPublica didn’t cover. There’s a lot of wealth that I would describe as hidden or sequestered. It’s not showing up on the billionaire balance sheet because it’s in some form of ownership limbo — it’s in a trust or partnership or an offshore tax haven in an anonymous form of ownership. There’s trillions of dollars in wealth that isn’t even being measured in our current understanding of inequality and tax avoidance.

Let’s say, Andy, you have $2 billion, but you put a billion dollars of that into a dynasty trust in South Dakota. It technically isn’t in your name anymore. You may be the beneficiary someday, but from a tax and ownership point of view, you don’t own it.

So the figures cited in the ProPublica reporting, as jaw-dropping as those are, are not even the full picture, potentially, of the wealth of someone like Jeff Bezos or Warren Buffett or Bill Gates or Carl Icahn. For people like that, there could be millions or billions of dollars elsewhere that isn’t even part of the picture when these people are filing their taxes.
Yes. A lot of the hidden wealth activity takes place in the 2nd and 3rd generations. So someone like Bezos, we know that most of his wealth is in Amazon stock. Those numbers that ProPublica uses come from Forbes. Forbes is kind of tracking, say, Jeff Bezos’ ownership over the last 20 years, really. So it’s probably harder for him to make a couple billion disappear.

Where we start to see the wealth leave the system is once those folks have made their initial pile, then they start doing the planning for transferring to the next generation, and that’s where the big shell games really kick in. When you’re the Kochs and the DuPonts and the Waltons, the dynastic wealthy families, that’s where the wealth is vanishing, if you will.

The focus of your latest book is that slice of the American population and what you call the “wealth defense industry.” You describe that industry as the “private army of bankers, lawyers, accounting firms, consulting companies, family offices and other specialists” that help those wealthy families and wealthy individuals protect and in some cases hide their wealth. What spurred you to write about the wealth defense industry?
These are people who basically get up every morning and say, “How do I help the richest people and the most powerful corporations in the country minimize their taxes, avoid taxes?” They’ll tell you, “We’re just using legal mechanisms to do this. Everything we do is legal.” But they’re actually very much involved in rigging the rules, writing the laws, creating the transactions and loopholes and trusts. They are paid millions to hide trillions.

I estimated that there’s about 90,000 people who work with those ultra-high net worth individuals on the individual level. And then there’s probably another 200,000 people who work with the 1,000 or so global companies, both inside and outside those companies, in the accounting departments and the legal departments and the tax planning.

How do they do it? What are the tools and tricks and loopholes they use to get paid millions to hide trillions, as you put it?
They will use trusts as a whole category of activity. They will create transactions that are supposed to look like business transactions, say, between one subsidiary and another or one partnership and another, but they are essentially ways to minimize taxes, create paper losses. They will be focused both on reducing income taxes, but also a lot of their focus is on eliminating transfer taxes, estate taxes, which is our national inheritance tax, or gift taxes, or capital gains transfer taxes.

They will use the whole set of offshore tools — offshore banking, offshore corporations, offshore trusts. They have a set of relationships with people in the 60 or so secrecy jurisdictions, whether it’s the Cayman Islands or the British Virgin Islands or Panama or Luxembourg or any one of these secrecy jurisdictions.

Even onshore, they will use anonymous, limited liability companies incorporated in Delaware. And often what they’ll do is just use a bunch of these devices and kind of layer things to create both confidentiality and to kind of bulletproof the system.

It’s like a daisy chain effect.
When the Panama Papers leaked five years ago and all this trove of data came from one law firm in Panama, these journalists had to essentially hire forensic accountants to go through these layers and try to understand what was happening, to unravel the daisy chain.

You write about another technique that’s gotten increasingly popular in the last 20 or 30 years. These are called family offices. What is a family office?
It’s helpful to think of the family office not so much as a mechanism but instead as where a wealthy family will bring all the wealth defense services and techniques in-house. Typically, you need about a quarter of a billion dollars of wealth to make it worth your trouble to have a single family office. It’s where you bring all those people in-house, or as I would say, in-mansion.

I would estimate there were more like a thousand in the 1980s in the U.S. and England. Now globally, there’s an estimated 10,000. And they have fended off any kind of oversight and regulation. When (the) Dodd-Frank (financial regulation bill) tried to address the excesses of the 2008-2009 financial meltdown, people were looking for the dark pools that were unregulated. The family office professionals in the U.S. got together and created a lobbying group to fend off any kind of oversight and regulation. They basically said, Look, we’re just managing private money for one family. These are all what they call accredited investors, meaning they’re rich enough to take risks and lose money, and so leave us alone.

So what happened after 2010, 2011 is a lot of hedge funds revamped themselves to call themselves family offices. They became family offices. At the same time, a lot of family offices that were mostly thinking of multigenerational preservation got excited about the more high-risk, adventurous end of finance. Both those trends meant that family offices started to do more high-risk investing. Even if 80 percent, 90 percent of their investments are in really boring, traditional secure investments, 10 percent of their money is going to be chasing high returns.

One of these family offices, Archegos Capital, did make the news for suffering huge losses and blowing a hole in the balance sheet of a major international financial institution, Credit Suisse. What happened? And what does that tell us about this whole family office scheme and the regulation or lack thereof?
As I understand it, for Credit Suisse and Morgan Stanley, there was no transparency for them to know just how highly leveraged Archegos was. They were lending money so that Archegos could buy more, invest in more stock, allow them to be even more further leveraged.

No one really understood the level of risk that was involved, and they got overly leveraged and then it started to unravel. And it was kind of like the credit default swaps from 2008, 2009, where people didn’t understand what they were. They were opaque.

Someone said to me years ago that millionaires and billionaires translate their financial capital into political capital. How do they game the political system or the regulatory system in their favor?
I write about one example in New Hampshire in 2017 where one small trust company — they’re always small states with citizen legislatures where they can easily capture them, if you will. One company goes to the New Hampshire legislature and says we want to create a new ownership entity, a civil law foundation, that doesn’t have to report who its real beneficial owners are. And if you do that, we’ll get some business for the state of New Hampshire. So the state legislature dutifully does what this little industry group wants and now they can market their new product globally for billionaires around the world who are looking to sequester money outside their home countries.

So it’s a combination of finding ways around or to defeat new laws or oversight. But also, in some cases, creating new tools, new legal entities that help protect and hide wealth.
The power is in stopping things, usually — stopping regulation, stopping oversight, making sure the IRS is decimated with budget cuts. And then there’s the innovation in creating trusts, new ownership entities and transactions. There is a whole alphabet soup of types of trusts and transactions that the super-wealthy use and that are so complicated that the IRS makes decisions like, “Well, we just don’t have the capacity to oversee these things. So we’re just going to let them all sail through.” For more than 10 years, their ability to enforce and follow the money, follow the shell games, has been really weakened.

Part of what makes this industry what it is is its secrecy and keeping a low profile. You did talk to a couple of people, though, at least one of which with a pseudonym. You call him C. Dalton Thompson, which strikes the right sort of aristocratic note there. Why do you think he spoke to you? Why do you think others, albeit in small numbers, are coming forward about either the wealth defense industry or just how little the wealthy pay in taxes?
These are people who are at the end of their professional careers, who are now looking back over what they’ve done and are saying, “Jeez, what have I done here? All I’ve done is help the richest people in society get a larger share of the pie.” These are folks who are tuned into inequality; they’re seeing what’s happening to the larger society. They’ve been the facilitators. In the words of one person, they’ve been agents of inequality.

I have one person who quit (the industry) and became an associate fellow in my program. A guy named Bob Lord, who was a lifelong estate tax attorney and he’s like, “That’s it. I just can’t do this anymore.” He’s changed sides. He is helping Senator Bernie Sanders write the provisions of the new estate-tax reform bill to shut down a bunch of these hidden wealth systems.

I keep talking to some of the biggies in the industry. One of them just confidentially said to me, “If I had to do it over again, I would have done something different.” You’re feeling that level of regret in your mid-60s about the work that you’ve done over your whole life. That’s why I end the book with a mock commencement address. I think there’s a lot of young people who think, “Oh, yeah, I’ve gone to business school and I’m just going to work for the devil for 10 years, make a lot of money, and then I’ll get to do the good work.” My argument to them is: “Don’t work for the devil at all. Don’t work for the billionaires. Do something else to help society.”

Do you think the wealth tax that Senator Warren proposed during the 2020 campaign would be effective in taxing and dragging some of this wealth, these trillions of wealth, into the sunlight?
I don’t think that tax would work unless we shut down the hidden wealth system. Over the last year, I’ve watched the chatter in the wealth defense industry. They’re very tuned into the wealth tax debate; even the more modest Biden tax proposal has them on high alert, and they are working rapidly to move more money to the shadows. And these laws aren’t even close to passing.

To fix the problem that ProPublica has exposed, a wealth tax, taxing capital gains at the same rate as income from work, is a really important way to make the system fairer. But basically, it’s kind of like putting more water in the bucket when there’s all these holes in the bucket.

We need to deal with the holes in the bucket. That’s enforcement. Outlawing certain kinds of trusts and other transactions that have nothing to do with legitimate business activity. Requiring transparency of ownership. Eliminating the anonymous shell companies.

And then it’s international cooperation and treaties. The good news is the rest of the world is ready for us to step up and be part of fixing things. The United States is the weak link in the system right now. If you’re a Russian oligarch or a Chinese billionaire or you’ve stolen money from your own people from Latin America, you’re bringing it to the United States because London isn’t as porous as it used to be.

In This Article: Income Inequality, Inequality, Taxes


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