The Pandora Papers leak exposed some of the shadowy offshore finances the world’s wealthiest and most powerful people use to hide vast fortunes. But it only scratched the surface of an entrenched global financial system rife with loopholes. So what must be done to combat the illicit practices helping drive massive inequities and shake liberal democracies around the globe? Karen Greenaway, who investigated financial crimes at the FBI, and Drew Sullivan, founder of the Organized Crime and Corruption Reporting Project (OCCRP), join The Cable to explain.
The Cable is a production of ICWA and the Transatlantic Democracy Working Group.
Former Supervisory Special Agent, Federal Bureau of Investigation International Corruption Unit
Co-founder and publisher, Organized Crime and Corruption Reporting Project
Executive Director, Institute of Current World Affairs
Journalist, author of Russians: The People Behind the Power
Senior Fellow and Director of Democracy Initiatives, The German Marshall Fund of the United States
Former Deputy Assistant Administrator, Europe and Eurasia Bureau, US Agency for International Development
The Cable is produced by Glenn Kates. Alexandra Wasielak provided research. Audio mastering by Danil Komar.
Read the transcript:
Gregory Feifer: It’s been five and a half years since the Panama Papers leak of financial and legal documents blew the lid off some of the shadowy offshore finances the world’s wealthiest and most powerful people used to launder profits or otherwise conceal their wealth and avoid taxes. Four years since the Paradise Papers and a month since the International Consortium of Investigative Journalists (ICIJ) published its largest investigation into a leak of almost 12 million documents from companies hired by wealthy clients to exploit tax havens in Switzerland, the Cayman Islands, the United States and elsewhere. Each time those investigations have shaken us ordinary people around the world. Each time a few bad actors have been forced down from their pedestals, but each time it seems the world has mostly just moved on, allowing such activities to continue mounting. Avoiding anything like the systemic changes needed to address what’s driving massive inequities around the globe that are helping splinter societies and shake liberal democracies. Or is something changing? I’m Gregory Feifer, and this is the Cable, the transatlantic discussion about the front lines of democracy. Produced in Washington by the Transatlantic Democracy Working Group and the Institute of Current World Affairs. I’m joined by my co-host Jonathan Katz of the German Marshall Fund, also in Washington.
Jonathan Katz: Thanks, Greg. We have two outstanding guests to answer questions about the Pandora papers. Joining us from Washington is Karen Greenaway. She’s a former FBI official who investigated complex financial crimes and international corruption. And from Barcelona, is Drew Sullivan, co-founder and publisher of the investigative powerhouse group the Organized Crime and Corruption Reporting Project (OCCRP), which took part exposing the Panama Papers and Paradise Papers. Karen and Drew I want to welcome you to the cable.
Let’s start with the question that Greg asked at the top. Karen, beginning with you, I wanted to ask—when we hear about the Panama Papers, Paradise Papers and now Pandora papers, I know that you spent several decades working in the space of addressing corruption, money laundering in some pretty challenging geographic locations —can you tell us, has there been progress at a minimum, at least in disclosing some of this information and holding the bad guys responsible?
Karen Greenaway: So from the release of the Panama Papers to today, there have been some good changes. Most people at this point are familiar with the law that the U.S. finally passed under the National Defense Reauthorization Act not quite two years ago, which requires that we must now have the ultimate beneficial owner of shell companies identified, at least to our financial intelligence unit in the United States, which is called FinCEN. And that was a huge change. That change is very recent, obviously. It’s still in the process of implementation. It doesn’t address the past yet. We’re only talking about newly created companies, and there are 33 million companies in the United States. So this will cover only a small percentage of them. But it’s a change, and it’s certainly a change that was driven in part by the reporting that we’ve been seeing coming out in the last several years.
Gregory Feifer: So, Drew, you’re on the front lines investigating what’s going on. Based on what you’ve learned over the course of the last five years, can you describe some of the practical and maybe political hurdles Western democracies face right now addressing the shadow financial industry? You’ve called the offshore system rotten to the core.
Drew Sullivan: Yeah, I think we’ve kind of lost the battle in one sense in that this is now an integral part of the world economy and a tremendous amount of trade out there is phantom trade that’s really not happening. It’s literally just paperwork going around the world describing, you know, steel and flower deals that just aren’t there. And so, in the United States, we kind of see it from the standpoint of a small industry that occasionally breaches on our shores. But the problem is we’re affected by the whole industry. And so consequently, dirty money, opaque money is really opaque power. And this kind of opaque power is getting into all of our systems, and then getting into hedge funds and other places where it’s really well protected. As James Henry, the American economist, said, there’s really no interest group more rich and powerful than the rich and powerful, and that is supported on the US side by laws that basically don’t regulate things like hedge funds. So the hose is out there and the spigot is out there and we’ve got the nozzle in the United States that we’re tightening down a little bit, but it’s not going to solve the general problem.
Jonathan Katz: Karen, I wanted to come back to you just following up on Drew. I mean, it seems like this is a bit of a game of whack a mole. And of course, even Paradise, Panama and Pandora papers aren’t exposing everything. I wanted to ask you if you see a sort of a common approach forming globally?
Karen Greenaway: So Drew is absolutely right. I mean, what I’m talking about is not going to solve any large, massive problems because there are too many people and too many leaders in government, particularly in foreign governments, who are absolutely not just contributors and supporters, but dependent on that system to stay in power and to facilitate their basically raping and pillaging of the resources of their countries for their own interests. But on the other hand, I do see that there are, and have worked myself in coordinating with, other law enforcement agencies around the world trying to at least address this problem from the enforcement perspective. And there are a lot of challenges in that. Challenge number one is a capacity issue. Law enforcement in many of these countries that are suffering the most don’t have law enforcement capacity to be able to address the problem. But it doesn’t mean that there isn’t interest and there aren’t investigators and even law enforcement leaders who are at least motivated and trying to find a way to address the problem. But of course, the second part of it is to address the problem. There is poor standing sometimes in countries who are led by political leaders who are beneficiaries of the system and who have no interest in changing it. And what do they do from the bottom up? And the answer is they can’t do much. And so, what ends up happening is they end up turning to the United States or Switzerland or the United Kingdom, Singapore, or some other choke point, to help them address it from US laws or UK laws or sanctions because they just don’t have the ability to address it in their own country.
Gregory Feifer: Karen, I want to follow up by asking, because of course, you were an investigator dealing with financial crimes. Could you describe in terms that we would understand what you were looking for and what you were up against?
Karen Greenaway: So I’ve told this story a couple of times when I teach, but I think it bears repeating. When I was a young agent, we had just started to expand money laundering laws to go beyond looking at money laundering from narcotics trafficking. And this is back in the mid-90s and I had an investigation where we knew money was coming in from likely an illegal source. In fact, we were quite positive it was an illegal source. It was a foreign government official, and he was literally signing checks that he was using to deposit in the United States to purchase real estate in the United States from the treasury of the country that he was the president of. And I had my open investigation and my enthusiasm. So we start trying to get evidence to support the fact that basically this man was stealing from his own country to buy real estate in the United States. But to do that—it’s by the way, the same today—I can’t go and I could not go, and we still can’t go to a foreign country to collect the evidence. I’ve got to rely on the local law enforcement agency to collect that evidence. And in this particular case, they did. They went in. They did a search warrant. They collected a whole bunch of records. But they had to transport those records to another location to secure them so that hopefully eventually I’d get some sort of a way to see those records here in the United States. I never did see those records. I actually had to close my case because the law enforcement officers who were transporting those records were blown up, along with the records. Four vehicles blown up. That sounds like, oh my God, something that happened 25 years ago now. Well 10 years ago or 15 years ago in Kosovo, there was an organized crime group that threw a bomb into the records retention portion of the police department. And it actually was a magnetic bomb and destroyed all of the electronic files that were being held in the department. Those are extreme examples of the difficulties you face in doing a case. You know, the other end of the spectrum is sending your request to collect evidence, which we call a treaty request to a foreign jurisdiction, asking them to collect financial records for you. And I can tell you that there are certain jurisdictions you just will not get an answer. You can call them. You can politely ask them, you can beg them, you can have meetings with them, and they’ll just look at you and say, I’m sorry, I don’t know what you’re talking about. And of course, without that evidence, without being able to prove that the money, the illegal proceeds of a crime, were put into the international financial system and laundered either into or through the United States financial system, I don’t have a case. I can’t charge anybody with the crime.
Jonathan Katz: I wanted to ask, maybe this could go to both of you too, because we keep coming back to enablers or enabling environments like the United States. Karen, you mentioned Switzerland. And I want to talk to you about what democracy and democracies are doing?
Drew Sullivan: Yeah, I mean, I think it is a bit of a whack-a-mole situation. I think the best you can really hope for a particular country is to verify that any offshore doing business in your borders is properly identified with an ultimate beneficial owner, and that that ultimate beneficial owner has been properly vetted to make sure they are not a proxy or somebody standing in for the real owner. Customer laws are applied to banks, but that’s only one of the typical types of asset classes that are out there. It could also be applied to real estate agents and company registration agents and a whole other set of asset classes. And so, you can lock down your country to some extent, you’re not going to stop the world and there will always be ways to get money into any country. All you can do is really make it harder. You can make it more expensive for people to do the types of things that they’re currently doing. And it’s an arms race. It’ll be an arms race for a long time. Criminals are incredibly inventive. You see countries that have basically created a criminal system like Russia, like China. It is in their interest to undermine things like the U.S. dollar and to create environments where it’s just very difficult to trace this money. And that’s going to be a continuous battle, and you have to get a group of countries that kind of resist that. And the good news is that a Russian oligarch wants to own a Wall Street apartment. He doesn’t want to own something in Moscow. He’s going to put his big money in Paris or London or New York because there is rule of law and there’s operating court systems and everything. So you still have a desirable asset. It’s not like your money. The money’s going to leave. We all just need to do a better job of just locking down. The ability for this money to move so easily right now, I mean, in New York City, there are literally skyscrapers filled with money laundered apartments that are owned by nasty people offshore, and they’re just building these for the sake of building them so that people can stick their money somewhere. Meanwhile, typical New Yorkers are priced out of the market and nobody’s building middle class apartments for anybody because there’s too much money being made. It’s something that’s corrupting our political system, our financial system, our real estate system.
Jonathan Katz: Karen, do you want to respond, too?
Karen Greenaway: Absolutely. The United States has focused a lot on the financial institution reporting and not focused hardly at all on the enablers. But the United States is also, in a lot of cases, far ahead of other countries in what they are doing. You know, when I look at the way the system exists today, the challenge is that we still have not been able to communicate to people, the average person, why dirty money is a problem, why having dirty money coming into our financial system is a problem. It is. It is devastating communities in the United States. We have seen that in the purchase of properties not just in New York City, but in the heartland of the United States, where it’s bought by dirty money. No additional money comes in and the property just goes into ruin, destroying not just the value of that property, potentially the tax base, as well as the community employment, because it is a business that has been operating in that community and employing people. And now it’s bankrupt because it really was just a vehicle for money laundering purchased by somebody who’s never actually seen the place but wanted a place to put his or her money in the United States.
Gregory Feifer: Drew, you’ve talked about and written about all of those people who are facilitating the movement of trillions of dollars from these authoritarian countries to the West. Do you feel that we’re in any position to be able to do what’s needed to be done just in terms of the numbers of people who are dealing with this in our regulatory agencies and elsewhere in government?
Drew Sullivan: You know, we’re not able to deal with it, but it is a resource issue. I mean there should be a lot more invested in white collar crime. There really aren’t enough people looking at this. Law enforcement has relied somewhat on journalism. I think Karen once told me that 50 percent of her cases when she was at the FBI came from tips that they got from journalism stories or things that they saw in journalism stories. Journalists — it’s a dying industry, unfortunately. And so, they’re suffering at the same time. Law enforcement is suffering because there’s been less infrastructure investment in these social needs. And consequently, it is a problem just in terms of resources, but it’s also a political problem. I mean, certain areas of the Department of Justice have not done well under certain administrations. They’ve been de-emphasized. We were part of the FinCEN Files Program project, which is run by BuzzFeed and ICIJ. And there’s a robust system for suspicious activity reports. But then very little happens with those suspicious activity reports. There’s not enough emphasis on analyzing what they’re saying, and there’s surprisingly little action on them. And there’s surprisingly little follow through with law enforcement on banks and other scofflaws. Banks have found that they can make billions of dollars a year off dirty money, and they may pay millions of dollars a year in fines. And so, it’s still a productive business to be in, and there’s no discouragement to these types of actors.
Jonathan Katz: Karen, I wanted to ask, what was the reception to the Panama Papers and Paradise Papers inside the FBI. You have investigative journalists and you have law enforcement. What’s the interaction and relationship between these two sides?
Karen Greenaway: I was working in the FBI in 2015, 2016 and 2017 when the papers came out, and I can tell you that the first thing we did was reach out and say, is there a way that we could find a way to get access to the original source material. And the journalists were like, no. And then the second response was even if we had access, we couldn’t look at it anyway, because even with the current leak of the Pandora Papers, a lot of that goes back to my point about attorney client privilege. That’s law firm communications with their clients. So in the case of the Panama Papers, that’s the Mossack Fonseca law firm. And so that is considered privileged. And so we, the FBI investigator, cannot look at that material because it’s privileged. So the challenge for law enforcement is that we can’t even look. I’ve looked, of course, now in retirement, but we can’t even look at that material. A few years after the Panama Papers, we were going to have one of the journalists who had done the original reporting come in and explain their methodology, not even give specific cases. And we couldn’t listen to them because of the concern that it would have tainted the investigation because they would have reference material that was privileged. I should add it’s not just the FBI. It’s other agencies in the United States as well. We’ve got to go back to where it starts. And that is, you know, if that’s the legal proceeds from corruption out of Russia that we have to go to Russia to get the evidence. That never happens. Now, of course.
Drew Sullivan: Yeah, I mean, it’s a bit of a golden age in the nonprofit investigative reporting world. But we often feel like turtles—we’re hardened in our shell and we take abuse from every angle, you know, physical abuse. I know four people who are dead, who were good reporters and paid the ultimate price. I think this year I’ve already worked with about 40 different lawyers defending us and our partner centers against various legal attacks—slap type suits that are occurring from all directions. Once you kind of go after that nexus of the business side of organized crime and corruption that is particularly aggressive using lawsuits to try to put out journalists. The model for journalism insurance is disappearing around the world. A lot of insurance companies have dropped their media insurance. And so many of these companies or many of these organizations that do this work are uninsurable to begin with. The advantage is that you get down to kind of a pure, hard news organization that is used to being in the midst of conflict and is used to being beaten on and harassed and slandered. I’ve had more stories written about me being everything from a CIA spy to an FSB spy to a Mossad agent to an organized crime figure. And that’s happened to all of our journalists. You get to the point where you can deal with this. But the problem is, is it’s not really always sustainable for developing young journalists to do this. And so consequently, what organizations need is understanding donors who support this kind of work, which is difficult for donors because it’s litigious. It’s ugly. People die. But if you want to take these people on, you have to take those risks. You have to deal with those issues. And some donors don’t want to do that because it’s ugly. But there are enough donors out there and it’s been a growing industry. It’s been a growing field. We’re very thankful a number of governments are increasing the support. The Biden administration is very supportive of this kind of work around the world. So I think you will see that there’s more money poured into this. But it’s not always about money. It’s about being able to keep a sane, stable, safe group of people who do every single time they do equivalent to what the FBI does, they do an in-depth six or seven month investigation to try to figure out what’s going on. And it takes a certain kind of person, a certain kind of intelligence, a certain kind of absence of understanding of what the risks are. It’s not almost bravery. It’s more of being not quite clear what the risks may be sometimes.
Jonathan Katz: I wanted to go back to the Biden administration. They have established the fight against corruption as a core national security interest. It’s a top priority for the upcoming summit for Democracy that the White House is leading and will take place in a little under two months. Have you seen any signs of what this means in terms of real practical terms?
Drew Sullivan: I think you will see strong support for investigative reporting. I think there will be a couple of packages that are designed to help journalism in general in many of these countries and investigative reporting in particular. That’s my hope. I know there are a number of ideas being discussed about this. But again, it’s also not just about money. It’s about long-term support. There’s been a lot thrown on the back of journalists. We’re supposed to deal with propaganda. We’re supposed to deal with corruption. We’re supposed to deal with dark money flowing into countries. And that’s an unrealistic expectation for what is really a shell of its former self. We need to really decide if we want journalism in our in our society. And I think it’s fundamental to a democratic society to have journalism. You need to find models that support it. Russia spends two to $3 billion a year on Sputnik and RT and all its various propaganda channels that are operating around the world, which are quite destructive in many cultures. And then you’ve got Hungary who’s putting tens of millions of dollars into their systems. They’re trying to export Hungarian media into other countries in the region. So, you really have an ongoing fight over the information flow in many of these countries. And the Russians are putting billions and the West is putting millions. And so consequently, Russia doesn’t spend a whole lot of money on paying for things. Bribery and propaganda is kind of their number one foreign policy. And the West is really not countering it in a really sustainable way. And so, I think it’s up to the journalists to come up with models. I’m not asking for somebody to tell us, to save us, but you know it. I think it’s in everybody’s interest to have strong journalism. And when you don’t have it, you get places like Hungary and you get places like Poland. And that’s an effective model that works to swallow up all the independent media and present one voice as to what’s really happening. It’s effective, it’s worked. So my hope is that that there’s a longer term perspective as to what is really necessary to get the truth in society. And I think we need to be more innovative as to what needs to be done to kind of solve some of these problems. It’s not going to work the way we’re working it now. Just having a few small independent organizations reaching a very small audience is not a solution. We need to think much bigger, and we need to think on much vaster scales if we want to successfully tackle this.
Jonathan Katz: Karen, when you look at the strategy that the White House rolled out earlier this year on anti-corruption steps and then also look at this summit, and of course, there’ll be a second summit a year from December and 2022 possibly in person. What do you think the priority should be?
Karen Greenaway: So I know that one of the things that the Biden administration has really been pressing since they announced back at the end of May that they considered international corruption a national security threat to the United States is civil activist engagement. So, at the same time as they’re trying to find ways to ramp up and find investigative journalists, they’re also funding particularly civil activists and non-governmental organizations, NGOs who are involved in anti-corruption work around the world. And I know that particularly USAID, for example, has been very forward about trying to provide training through a number of organizations to empower civil activists, particularly to start being more engaged in doing their own types of financial crimes investigations to trace the money in their own countries. So the key is going to be focusing on those watchdogs and the third rail to put pressure on those people who are supposedly those countries and leaders who are supposedly committed to implementing the United Nations Anti-Corruption Convention and the FATF recommendations to start honoring their commitments. And then following through in the next year, in 2022, with, okay, where are we now. It’s this focus on the watchdogs and trying to enforce accountability, making the changes that we want to see. And of course, in 2022, we will have an election in the United States so that that might be an interesting time to see whether or not that type of support for anti-corruption around the world is something that resonates with the American people when they go to the polls.
Gregory Feifer: Karen Greenaway Andrew Sullivan, good luck to you both. Thanks so much for joining The Cable. Thank you very much.
Karen Greenaway: Thank you.
Drew Sullivan: Thank you for having us.
Top photo: New York City’s Hudson Yards skyline, October 2. 2021 (Jdforrester)