An investigative economist, Jim Henry, has made startling revelations on how kleptocrats plunder economies of nations to enrich themselves and store up wealth for their generations yet unborn.
Henry’s investigation spanned 45 years of research into 150 poor nations whose funds were stolen and stored in shell companies away from the prying eyes of citizens of such nations. Henry’s investigation was analyzed by David Cay Johnston.
Henry, the chief economist at McKinsey & Co., the world’s most influential business consultancy, worked directly under Jack Welch at General Electric. A Harvard-educated economist and lawyer, Henry is an investigative economist.
From his home in Sag Harbor, near the tip of Long Island, Henry painstakingly built massive spreadsheets to reveal massive capital flight from poor underdeveloped of the world. To make his data well understood, he interviewed bankers and bank regulators, government economists, law enforcement officials and even some of the retainers who help kleptocrats loot the countries they rule.
Henry’s 45 years investigation revealed how the dictators and the economics thieves stole $12.1 trillion from 150 poor nations and store away in offshore companies. This, according to Henry, reveals why there is abject poverty in such countries even where their per capita income is above world average.
The $12.1 trillion represents two third of America’s annual GDP which is being stolen from the poor nations of the world. The wealth has being in building since 1970.
In 2014, Henry reveals, the net worth of planet earth was about $240 trillion, which means about 15 percent of global wealth is in hiding, significantly reducing the capital available to spur world economic growth.
That $12.1 trillion figure for money looted from poorer countries has been hiding in plain sight. It comes from numbers in the global economic data, derived by comparing statistics from the International Monetary Fund, (IMF) and the World Bank, supplemented by some figures from the United Nations and the US Central Intelligence Agency (CIA) that do not match up, but which until now no one had bothered to analyze.
Ordinarily, one would have expected that with their vast staff of economists and analysts at the IMF and World Bank, the institutions should have published these money stashed away in shell companies, rather a single individual spent 45 years browsing through official statistics from around the world to calculate the flight money from nearly 200 countries.
Henry, a rising corporate star took time to document illicit flows of money and the damage they do to billions of people most especially in poor economies of the world.
Henry has been ahead of these issues for decades. In 1976, the year he graduated from Harvard Law School, he wrote a cover story for The Washington Monthly, urging the elimination of the world’s most popular paper currency, the $100 bill. He argued that large paper bills helped drug dealers, tax evaders, and other criminals while honest people use cheques and other bank services. His proposal, however, failed to scale through. But his week, the European Central Bank is expected to vote to eliminate its €500 note, which Henry recommended for years before others took up the cause.
The 150 poorer nations, all have weak tax systems, which means that tax evasion, the driving force for Americans and Europeans hiding wealth offshore, is a minor factor in the levels of flight wealth from those countries.
Collectively, the 150 poorer countries whose economic data Henry scrutinized owe $8.1 trillion of foreign debt. Statistically, that means that all of the money these nations borrowed externally, much of it from the United States and Europe, has been sent offshore by dictators and other economic thieves from those countries. In addition, corrupt rulers looted $4 trillion from the national treasuries they control.
Almost a third of the $12.1 trillion of poorer country flight wealth comes from Russia, China, Malaysia, Mexico and Venezuela. Those countries are all major oil exporters, except for China.
Henry argued that if all the flight capital were returned and invested smartly in the nations, it would reduce human misery by raising living standards, especially by reducing child mortality while increasing both health status and life expectancy.
Kleptocrats and their retainers are not the only sources of flight wealth. A small portion belongs to business people who keep some of their wealth offshore for fear it will be confiscated. The weaker the laws to protect property, the greater the share of honest wealth taken offshore.
There are only “inadequate protection of assets in these countries,” Henry said. Those who earned their wealth in business shield some of it from predatory rulers, which has the negative effect of reinforcing poverty.
While lawlessness enables kleptocrats, they put much of their ill-got money in Switzerland, the United States, and British protectorates such as Bermuda and the Cayman Islands “where the rule of law is strong because you don’t want to get deposed and then show up to get your money and discover that it’s been stolen from you.”
Many kleptocrats, Henry said, use shell companies to store wealth in economically unproductive assets. They buy beachfront homes in Honolulu, Malibu, and Miami; sprawling apartments with Central Park views in Manhattan and bay views in San Francisco and mega-yachts tied up in Monaco and St. Kitts.
Even though some of this flight wealth was stolen decades ago, only a small portion of it represents investments gains. That’s because kleptocrats value secrecy and security far more than market gains. When they want more they can just steal more.
Switzerland, Henry explains, has the highest cost banking services among major countries because many of its customers are indifferent to price. They are willing to pay to ensure their hidden fortunes will ensure a luxurious exile if they are deposed from power.
Flight wealth is mostly stashed with the world’s major banks in accounts paying little to no interest, Henry said. A growing share is also in huge storage vaults, known as free ports, where gold, art, jewelry, and other physical wealth can be kept safe and out of sight.
The purchase of art by kleptocrats who store it in vaults has contributed to the rapid rise in art prices in recent decades, as well as to keeping many of the greatest creations of mankind unavailable for viewing.
Henry identifies numerous big international banks as favored choices of kleptocrats.
“We need fundamental reform of banking,” he says, “so the kleptocrats do not sleep well at night.”
Hattip to Daily Beast
