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From the New York Times Magazine, May 27:
Russian oligarchs use the offshore system to shield their luxury assets. The Trump administration is ending an effort to find and seize them.
Among all the radical policy shifts carried out during President Trump’s first 100 days, perhaps the most astonishing was his reorientation of America’s posture toward Russia. Support for Ukraine in the ongoing war was long a bipartisan article of faith, but Trump shattered that consensus almost immediately, first by ending the isolation of President Vladimir V. Putin with a direct phone call, and then with high-level talks in Saudi Arabia that cut Kyiv out entirely. The gravity of the change was made clear at the Munich Security Conference, where Vice President JD Vance took the stage to lecture European allies on their suppression of far-right parties — parties that, not coincidentally, have been sympathetic to or even explicitly aligned with Russia. By the time that Trump and Vance had a made-for-TV showdown with President Volodymyr Zelensky of Ukraine in the Oval Office in late February, it was clear that Russo-American relations had entered a new and cozier era.
Amid the fracas, it would have been easy to miss two lines, buried on the fourth page of a Justice Department memo, circulated two weeks into Trump’s second term: An interagency task force, colorfully named KleptoCapture, would be disbanded. Though KleptoCapture was hardly a household name, its demise was portentous — it indicated the administration’s unwillingness to fight the financial systems that not only allow Kremlin allies to disguise their wealth but also enable international drug cartels to operate with impunity, corrupt officials to launder money from bribes into luxury real estate and the ultrawealthy to avoid paying taxes.
President Joseph R. Biden Jr. himself announced the creation of the force in his 2022 State of the Union address, just one week after Russian tanks started streaming across the border toward Kyiv. For nearly a decade, the United States had been steadily issuing sanctions against a raft of wealthy Russians with close financial and political ties to the Kremlin. Now the task force’s most ambitious goal was to confiscate their wealth, sell their assets and, whenever possible, send the profits to Ukraine. “We are joining with our European allies to find and seize your yachts, your luxury apartments, your private jets,” Biden declared, in a line that became something of an informal slogan. “We are coming for your ill-begotten gains.”
Andrew Adams, a prosecutor in the Southern District of New York who specialized in money-laundering investigations, was preparing to start a new job in the private sector when he got a call asking him if he wanted to lead the task force. He was given 90 minutes to decide. He said yes. Within 48 hours, Adams left New York for Washington, where he was handed the first of five cellphones, assigned an office and a laptop and introduced to his new colleagues in what he described as a succession of rapid-fire “‘West Wing’-style walk-and-talk” chats as he shuttled from room to room. Soon he was helping draft new laws to expand the government’s power to sell forfeited property and redirect the proceeds to Kyiv.
KleptoCapture’s basic concept was simple enough, but carrying it out would not be so straightforward. Once Adams and his team identified the yachts, luxury apartments and private jets of Russian billionaires, they would have to build cases to seize them. At a minimum, that meant proving who their owners were, which was no easy task. Practically every one of these assets existed in a byzantine realm known as the offshore financial system, where questions as simple as who owns what are obscured within labyrinths of shell companies, anonymous trusts and other legal structures. KleptoCapture was something new and ambitious, a serious effort to break through the offshore system and crack down on some of its most prolific clients.
Prosecutors would be facing off against some of the world’s wealthiest people — those with practically limitless resources at their disposal and legions of wealth managers, accountants and lawyers at their command. “As a prosecutor, you’re boxing with a blindfold on,” Adams told me. The task force’s work would show that these defenses could be breached much more quickly and efficiently than many assumed, provided that enough political will was brought to bear.
Though it’s often called a system, the offshore world is really more of an archipelago — a constellation of territories and nations operating with the same general aim of helping wealthy people move and hide their money. This world encompasses places as diverse as Hong Kong, Dubai, the Isle of Man, South Dakota and Curaçao and includes not only notorious tax havens like Switzerland and the Cayman Islands but also institutions and jurisdictions in the hearts of the countries that usually rank highest in global transparency indexes.
The system’s roots lie in the regulation-dodging behavior of banks and currency traders, particularly after World War II, as well as the innovations of mobsters and fraudsters who found in small island nations a perfect conduit for dirty cash. Wherever it exists, the offshore system’s basic mechanism is essentially the same: Set up a company — or another entity, like a trust — and then put someone else’s name on the paperwork. This company, often layered on other companies in similarly opaque jurisdictions, can then be used to avoid paying taxes, debts or fines. Even if the authorities do find out about it, getting their hands on the assets will be so time-consuming and expensive that they probably won’t bother.
Few countries have been as intimately intertwined with this system as Russia. The men who grew rich from the fire sale of state assets after the Soviet Union’s collapse saw in offshore havens a means of keeping their newfound wealth out of the reach of capricious authorities. By the late 1990s, these newly minted “oligarchs” were using shell companies to help funnel as much as $2 billion out of the country a month.
A hallmark of Putin’s early presidency was that he established his dominance over the oligarchs, targeting a number of them with criminal prosecution. But rather than sever Russia from the offshore system, he recast it as a dimension of state power. Anonymous companies have been used to disguise the fortunes of Putin’s friends and family, bankroll Europe’s far right, make payments to sympathetic journalists and funnel cash to pro-Russian politicians around the world, including in Ukraine. A 2017 paper estimated that as much as 60 percent of Russia’s gross domestic product might be held in tax havens, six times the global average.
Ukraine’s elite, it’s worth noting, are similarly prolific users of the offshore system. The Pandora Papers, a 2021 leak of nearly 12 million financial documents, showed that Zelensky himself, along with his partners in a television production company, were beneficiaries of a network of offshore firms, some of which were used to buy upscale London property.
A central paradox of the offshore system is that its services are available to essentially anyone with enough money — meaning that, even as it benefits your friends, it can also empower your enemies. A nation’s corporations and ultrawealthy citizens can use the system to minimize their tax bills and funnel dark money into campaign donations for politicians who then ensure that the system remains intact. On the other side of the ledger, rivals of that same country’s government can use the system to dodge sanctions, fund proxies and launder illicit money....
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