Dismantle the global system that lets the rich hide their wealth

Scandal after scandal involving secret wealth has grabbed attention in recent years, then faded from public view. But the system for hiding vast sums of money still remains in place.

It is a global system of financial secrecy, estimated to hold over $50 trillion across more than 70 jurisdictions in millions of hidden accounts, secret trusts and anonymous corporations. It is used to conceal wealth and avoid taxes. It should be dismantled entirely.

Multinational corporations, including such leading brands as Apple, Nike and Uber, have dodged taxes by shuffling profits around different offshore tax havens. Billionaires have done the same. They enjoy the benefits of national governments — legal protections, infrastructure, educated workforces and more — but skip out on the bill. They play by their own set of rules, while salaried employees and wage earners have to pay their fair share. Financial secrecy thus undermines democracy.

Leaders from around the world have hidden their wealth offshore, including former or then-serving prime ministers of Argentina, Australia, the Czech Republic, Iceland and the United Kingdom; finance ministers of Brazil, France and the Netherlands; and a U.S. Secretary of Commerce. They take part in a system that benefits wealthy elites at the expense of the rest.

No wonder frustration with democracy globally has reached an all-time high, with majorities in the U.S. and elsewhere dissatisfied with the way democracy is working in their country.

Moreover, our adversaries use our financial secrecy against us. Sanctioned Russian oligarchs hide their assets in Europe and the U.S. behind opaque trusts, and Chinese entities rely on shell companies to mask their theft of intellectual property. Russia, China and other adversaries spend money covertly to interfere in political processes and influence government decisions in democratic countries.

The global system of financial secrecy was created by past policymakers. Today’s leaders can take it down. They should, as I detailed in a recent policy proposal, end corporate anonymity, eliminate secret financial instruments, make enablers liable for complicity in corruption and insulate our financial system from secrecy jurisdictions.

The U.S. needs to take the lead, because it is the world’s greatest enabler of financial secrecy — think Delaware shell companies, South Dakota secret trusts and luxury real estate in New York and Los Angeles. The U.S. is also best positioned to persuade fellow democracies to follow suit. Together with the European Union, U.K. and Japan, America can dismantle the global financial secrecy system.

Corporate transparency is starting to become the norm. The U.S., UK and EU now require companies to disclose who their actual “beneficial” owners are, but public access to registries of beneficial owners in many places is denied or restricted, and the island tax havens under British rule have yet to establish such registries.

Moreover, the U.S. beneficial ownership registry leaves big gaps: Private equity, venture capital and hedge funds are exempt, as are most trusts and digital assets (such as cryptocurrencies). These gaps are significant enough to make the registry futile, because illicit funds will flow to wherever secrecy remains. We need to plug these gaps.

We also need to rein in the professionals — lawyers, accountants, company service providers and more — who enable dirty money to enter the financial system. They should be made to follow anti-money laundering rules to know their customers and report suspicious activity and should be subject to harsh penalties if they break these rules.

To curb tax avoidance, multinational corporations should report their income, profits and economic activity by country, so that governments can tax them based on where their sales and employees are. This reform would minimize the benefits and thus the use of tax havens.

After these dominant financial systems are made transparent, they should be insulated from secrecy jurisdictions. Foreign banks should conduct due diligence on the beneficial owners of money they bring in, and if they fail to do so, they should be barred from our financial systems. Funds coming from or going to secrecy jurisdictions, such as Dubai and Turkey, should draw added scrutiny.

The global system of financial secrecy is designed to hide money, including dirty money, and to dodge taxes. It has no economic benefit, but is rather a drag on economic development, a driver of social tensions, a contributor to conflict and a threat to democracy. The time has come to dismantle this system.

Daniel Calingaert is dean for global programs at Bard College.