(RNS) — In response to the Russian invasion of Ukraine, the United States and Europe have imposed economic sanctions on Russian oligarchs close to their country’s president, Vladimir Putin, but these sanctions will have no effect if the oligarchs’ money remains hidden.
There is a whole industry of lawyers, accountants and investment advisers in the West who facilitate the hiding of dirty money for oligarchs, crooked politicians and other criminals. And incredibly, most of the strategies for hiding money are legal.
To hide money you need a country with laws that shield the identity of investors from law enforcement and tax authorities. Traditionally, that has included tax-haven countries like Cyprus, Cayman Islands, Luxembourg, Switzerland, Bahamas, Panama and the British Virgin Islands. A few states like Delaware and South Dakota have laws that make it easy for Americans and foreigners to hide their money.
Lawyers create shell companies or secretive trusts to hold assets and receive income. These companies are frequently owned by other shell companies (and they by others) so that layers of shell companies make tracing the true owners impossible. The companies’ registration documents, if you can get them, name frontmen and proxies rather than the true owners.
Pope Francis refers to such tax havens as structures of sin.
These shell companies can then buy yachts, art, real estate and luxury items from dealers who are concerned only about being paid and not where the money comes from. The actual owners remain hidden.
It is not only oligarchs hiding money. Drug dealers, human traffickers, gun runners and other organized criminals as well as corrupt politicians and terrorists use these schemes. They can also be used by spouses hiding money from a divorce court.
The International Consortium of Investigative Journalists has extensively reported on this system in stories about the Panama Papers (11.5 million confidential documents leaked from an offshore Panamanian law firm in 2016) and the Pandora Papers (11.9 million documents from 14 financial service companies leaked in 2021). These papers revealed how hundreds of current and former presidents and prime ministers, billionaires, business leaders and celebrities hide their money.
Despite these exposés, no significant legal action was taken to limit the ability of these people to hide their money. Too many political and financial interests benefit from this system, and they oppose reforms to crack down on the system. Even when there are laws that would apply, adequate resources are not given to enforce the laws.
Allowing government officials to hide their assets is especially problematic because it enables corruption — making it possible to accept bribes and steal from their nations with impunity.
Because of fears that terrorists were using international banking to fund their operations, Europe created Moneyval to assess compliance with international standards to counter money laundering and the financing of terrorism. Last year, Congress enacted the Corporate Transparency Act, which included due diligence rules for those dealing with large amounts of cash where money laundering is possible.
These are important steps, but much more needs to be done to shine a bright light on this corrupt system and its enablers. Laws permitting shell companies must be repealed. Economic sanctions should be applied to tax-haven countries. Bar associations should set standards forbidding lawyers from facilitating the hiding of assets from law enforcement and tax authorities.
We should also encourage the CIA to use all of its tools to expose this corruption, which hurts our national security and our legitimate businesses.
Pope Francis in a June 2021 talk to the Christian Association of Business Leaders called on them to make investments that create jobs and support the common good rather than “hiding money in tax havens,” according to America magazine.
“One hides when one’s conscience is not clear,” said the pope. “When we hide it is because something is going wrong.” What is needed, he said, is “clarity, transparency and production.” This will “gradually build social trust.”
Earlier in February 2020, at a seminar of the Pontifical Academy of Social Sciences, Pope Francis identified tax havens for private and corporate wealth as one of the structures of sin today.
“Every year $100 billion, which should be paid in taxes to finance health care and education, accumulate in tax haven accounts, thus preventing the possibility of dignified and sustainable development” for everyone, he said.
Pope Francis called for “a new ethic,” one where everyone works together “to eliminate tax havens, avoid tax evasion and money laundering that rob society, as well as to tell countries the importance of defending justice and the common good over the interests of the most powerful companies and multinationals, which end up suffocating and hindering local production.”
Tax havens should be eliminated to promote our national security and reduce crime and corruption both here and abroad.
It is time for government officials to deal with this structure of sin if they really want to be tough on crime and promote national security.