Inside the Tax-Avoidance Racket of “Wealth Management”

A sociologist’s new book reveals how the ultra-rich starve public coffers and undermine democracy.

Chris Lehmann September 12, 2016

Brooke Harrington’s exposé of the wealth management profession shows it to be a full-fledged tax-avoidance racket. (Shutterstock/Underworld)

To lend human agency to abstrac­tions like finan­cial­iza­tion,” cap­i­tal flight” and glob­al­iza­tion,” soci­ol­o­gist Brooke Har­ring­ton set out to be cer­ti­fied as a pro­fes­sion­al wealth man­ag­er — i.e., a mem­ber of the shad­owy cadre of mon­ey concierges devot­ed to spir­it­ing enor­mous for­tunes into exot­ic off­shore juris­dic­tions, beyond the grasp­ing reach of tax­es. Har­ring­ton didn’t take on any ultra-ultra-high-net-worth clients, or UUH­N­Ws, as the pro­fes­sion­al jar­gon has it, but she did inter­view more than 80 wealth man­agers across the globe (all quot­ed pseu­do­ny­mous­ly) while dogged­ly unearthing the insti­tu­tion­al his­to­ry of wealth man­age­ment in all its fleet-foot­ed, influ­ence-ped­dling glory.

As wealth managers entered the modern age, the possessors of great wealth were graced with a new array of clever financial instruments to banish the dread specter of tax liability.

The result is Cap­i­tal With­out Bor­ders: Wealth Man­agers and the One Per­cent (Har­vard), an edi­fy­ing snap­shot of a brave new world of cap­i­tal­ist impuni­ty. Wealth man­age­ment has its roots in the ven­er­a­ble Anglo-Sax­on legal inno­va­tion of the trust — basi­cal­ly, a dum­my own­er­ship scheme that medieval cru­saders devel­oped to pro­tect their feu­dal estates from hos­tile takeover while pil­lag­ing the Holy Land. Befit­ting­ly, the mod­ern pro­fes­sion of wealth man­age­ment clings to a roman­ti­cized self-image akin to knight­hood. Wealth man­agers com­mand com­par­a­tive­ly mod­est salaries for finan­cial pro­fes­sion­als (though still firm­ly six-fig­ure). They typ­i­cal­ly pledge their fidu­cia­ry devo­tion to a hand­ful of pelf-laden fam­i­lies (as opposed to cor­po­rate boards). Some of the vet­er­an wealth man­agers Har­ring­ton inter­views are shab­by-gen­teel Euro­pean aris­to­crats (e.g., a Ger­man count); oth­ers fell into the job while they tend­ed the yachts and social ambi­tions of the old-mon­ey set.

As wealth man­agers entered the mod­ern age, the pos­ses­sors of great wealth were graced with a new array of clever finan­cial instru­ments to ban­ish the dread specter of tax lia­bil­i­ty. In addi­tion to the hardy trust, there were fam­i­ly-admin­is­tered foun­da­tions and dum­my cor­po­ra­tions, with wealth man­agers assid­u­ous­ly keep­ing the own­ers at arm’s length from all the drea­ry incor­po­rat­ing, nota­riz­ing and law-abiding.

Last spring’s leak of doc­u­ments from Mos­sack Fon­se­ca, Panama’s one-stop shop for tax scofflaws, laid bare the race­to-the-reg­u­la­to­ry-bot­tom that fuels today’s fre­net­ic wealth-man­age­ment rack­et. Small sov­er­eign coun­tries — many of them for­mer British colonies — per­mit the ultra­wealthy to park mon­ey with­in their bor­ders on obscene­ly favor­able terms. In the island nation of Jer­sey, for exam­ple, wealth man­agers actu­al­ly bid down the mar­gin­al tax rate for their clients, even though the island’s offi­cial tax rate tops out at a mea­ger 20 per­cent. It’s com­mon prac­tice for for­eign wealth man­agers to draft tax-and-trust leg­is­la­tion out­right in oblig­ing host countries.

As Har­ring­ton notes, while local gov­ern­ing elites make out hand­some­ly through glo­ri­fied bribery, hid­den costs are abun­dant. The loss of tax rev­enue starves out the already belea­guered insti­tu­tions of social democ­ra­cy and direct­ly stokes the plague of wealth inequal­i­ty, both in the home juris­dic­tions from which the rich have fled and with­in the cor­rupt local economies. In order to recoup their trea­sury short­falls, the beg­gared gov­ern­ments at each end must either increase tax­es on those least able to avoid them or cut pub­lic ser­vices that might off­set the impact of inequal­i­ty on life chances,” Har­ring­ton explains.

Polit­i­cal dis­af­fec­tion rapid­ly ensues. In Jer­sey, rough­ly half the pop­u­la­tion has fled, while the remain­der increas­ing­ly doesn’t both­er to vote. In debt-strapped host coun­tries that have suf­fered such mas­sive hem­or­rhag­ing of tax rev­enues, the most able and tal­ent­ed cit­i­zens often leave, and those left behind are ripe to be tempt­ed by nation­al­ist solu­tions, eth­nic divi­sions, and the pol­i­tics of hatred,’ ” Har­ring­ton writes. Thus tax avoid­ance and ris­ing inequal­i­ty cre­ate a threat to democ­ra­cy itself.”

Words to pon­der as we flirt with the ele­va­tion of a Caligu­lan bil­lion­aire to the sum­mit of exec­u­tive pow­er (as opposed to his major-par­ty oppo­nent, a mere mul­ti­mil­lion­aire). Don­ald Trump, who rou­tine­ly rails against state­side tax flight, has invest­ed wide­ly in com­pa­nies that are prime offend­ers. (It’s also rea­son­able to sur­mise that a tax-avoidant plan to shel­ter Trump fam­i­ly assets is why the GOP nom­i­nee will nev­er dis­gorge his returns.) Maybe if we all plan a post-elec­tion island get­away to Jer­sey, the long-suf­fer­ing native pop­u­la­tion will join us in a des­per­ate­ly need­ed drink. 

Chris Lehmann, is edi­tor-in-chief at The Baf­fler and a for­mer man­ag­ing edi­tor of In These Times. He is the author of The Mon­ey Cult: Cap­i­tal­ism, Chris­tian­i­ty, and the Unmak­ing of the Amer­i­can Dream (Melville House, 2016).
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