New book examines the hidden world of wealth managers to the ultra-rich driving today’s offshore tax sheltering.
When Donald Trump boasts that he hasn’t paid taxes in years –and that makes him “smart” – he is actually revealing that he deploys a cadre of “wealth defense” advisors.
These accountants, lawyers and wealth managers specialize in using trusts, tax loopholes, off-shore corporations, and foundations to help not only reduce taxes, but protect the wealthy from paying their debts, avoiding regulation, and ducking obligations to ex-spouses and disgruntled heirs.
In recent decades a whole class of “stateless rich” have emerged, delinking their wealth from national loyalties. Alongside the growth of the system of offshore tax havens, exposed in the “Panama Papers,” trillions of wealth is now beyond the reach of national accountability. How is this possible? And who are these “wealth escape artists” that enable the planet’s most wealthy residents to dodge taxes, creditors, regulation and transparency?
Many studies of inequality focus on the various policy drivers, such as low wages and tax policies, that have fueled the rise of income and wealth inequality. Sociologist Brooke Harrington writes this is important, “but there remains an irreducible element of agency in these developments that has not been explored: we still lack a coherent account of the key actors involved, as well as their methods and motives.”
In a new book, Harrington shines a light onto one set of key actors, the world of professional wealth managers. She spent several years and considerable resources (provided by several European foundations) to be trained as a wealth manager in order to gain first-hand insight into the cautious and secretive profession. By getting professional certification, Harrington built trust and access to interview over 65 wealth advisors around the world. To conduct interviews, she traveled to 18 countries, including exotic and notorious off-shore centers, including the Cook Islands and the Seychelles Islands.
Her book, Capital Without Borders: Wealth Management and the One Percent, is a “must read” to understand how wealth managers are agents of inequality. A shorter version of her insights, “Inside the Secretive World of Tax-Avoidance Experts,” was published in The Atlantic in 2015. (And a complimentary “must read” is a fine piece of narrative journalism by New York Times journalist Nicholas Confessore, “How to Hide $400 Million” about how a wealthy businessman hides his wealth from his divorcing spouse. ).
The expansion and formalization of wealth management has corresponded with the rapid acceleration of wealth inequality since the 1980s. While the practice of establishing “fiduciary trusts” and “trustees” dates back to feudal times, the first professional association, the London-based Society of Trust and Estate Practitioners (STEP), was only founded in 1990. Reflecting the globalization of wealth, STEP has 22,000 members in 95 countries. They consider themselves “wealth managers,” though others have labeled them “wealth defense providers,” “transaction planners,” and “financial alchemists.” [pullquote]The expansion and formalization of wealth management has corresponded with the rapid acceleration of wealth inequality since the 1980s. [/pullquote]
The primary task of wealth managers, Harrington explains, is to “detach assets from states that wish to tax and regulate them, creating a form of capital that is, like its owners, ‘transnational’ and ‘hypermobile.’” By artificially manipulating transactions of money across borders, wealth managers create not only asset-holding and tax-avoidance structures but a new body of transnational institutions that are expanding outside of any democratic accountability and oversight. The rise of “off shore centers” would not happen without the lubrication provided by these wealth defense actors.
As a profession, STEP members assist families to provide for family members with disabilities and special needs, a legitimate use of trusts. They justify the tax avoidance aspect of their work with hazy set of pronouncements about defending virtuous capitalists against the depredations of confiscatory states. In practice, many of them serve as accomplices in the legalized theft of treasure out of nation states across the globe, including the pillaging of Africa and other nations of the global south.
Wealth accumulation and dissipation, left on their own, have their own life cycles. Most cultures have their equivalent to the saying, “shirtsleeves to shirtsleeves in three generations.” The Chinese version is “sandals to sandals,” or the more poetic Italian version, “from the stables to the stars and back in three generations.”
The role of the wealth manager is, in Harrington’s words, to “arrest this process.” Through techniques such as trusts and off-shore corporations, they “seek to slow or halt the dissipation of family fortunes. Ultimately, this means shoring up a larger system of inequality: by keeping private wealth intact within families and thwarting the usual processes through which assets get redistributed, wealth managers contribute to enduring patterns of stratification. Using legal and financial tools, they can turn one generation’s surplus into dynastic privilege.”
As we move toward, in the words of Thomas Piketty, a “hereditary aristocracy of wealth and power,” it is time to take note of the agents that make this concentration possible. These wealth managers are the engineers on the inequality express train. Without the off shore tax havens, unbreakable trusts in foreign lands, and self-dealing foundations, these wealthy individuals would be accountable to national authorities for their taxes, debts, and familial obligations, such as divorce decrees.
Chuck Collins is a senior scholar at the Institute for Policy Studies and a co-editor of Inequality.org. He’s the author of the recent book Born on Third Base.