Guardians of the 1%

Assets are hidden and taxes dodged in an offshore world that creates ‘zones of lawlessness’ and acts as a ‘parasitic twin’ on nation-states. Aifric Campbell reviews ‘Capital Without Borders’ by Brooke Harrington.

By Aifric Campbell          


On April 3, global news outlets simultaneously released 11.5 million confidential documents from a Panama law firm that exposed how the rich and powerful conceal wealth and evade taxes. The dump, described by Edward Snowden as the “biggest leak in the history of data journalism,” name-checked politicians, plutocrats and sports stars and highlighted the urgent need for regulatory reform of the secretive offshore financial world.

“Capital Without Borders” was written before the Panama Papers leak, but it offers a timely account of how the 1% holds on to their wealth. The author is a sociologist and academic who took the unconventional step of training to become a wealth manager in order to write this book. Brooke Harrington’s immersive approach was motivated by her conviction that a two-year training program would provide access to groups that are “secretive” and “defensive.”

She directs an anthropological gaze on the methods, tactics and behaviors of the professionals who provide creative solutions to the legal and financial problems of the rich, and she particularly emphasizes the 167,669 ultra-high-net-worth individuals who have “at least $30 million in investable assets.” Ms. Harrington explains how the “feudal custom of trusteeship,” which for centuries protected the assets of the wealthy, has evolved into a “global profession” that wields “significant influence on social institutions—including families and markets.”                                             
                     
Much of the book is taken up with an examination of how assets are hidden and taxes dodged in an offshore world that, the author writes, creates “zones of lawlessness” and acts as “a parasitic twin” on nation states, extracting “resources through organized, systemic thievery.” Her book ought to keep wealth managers awake at night, since Ms. Harrington’s thesis is that they “nurture and expand wealth inequality” with consequences that include “$200 billion in lost tax revenues globally each year.”

Yet a taxonomic confusion immediately arises in her account thanks to her decision to use “wealth manager” as an umbrella term for a fragmented industry that includes, for example, fee-based trust managers who have a fiduciary relationship with their clients and private bankers and investment managers who earn commission. A failure to consistently distinguish between different roles and relationships leads Ms. Harrington to make assertions that misrepresent reality or are quite simply incorrect. At one point, she claims that “wealth management suffers from a prestige problem within financial services,” citing an organization in which “wealth managers were mocked as the ‘Business Prevention Unit’ because of the concerns they voiced about staying on the right side of the law.” In fact, this study specifically refers to compliance departments.

“Capital Without Borders” fails to deliver on its promise of insight. Much of the data and anecdote gleaned from 65 interviews in 18 different countries will be familiar in concept to professionals in finance, law and accountancy. Investigative journalists, filmmakers and novelists have successfully penetrated the closed world of finance (Joseph O’Neill’s novel “The Dog” offers an excellent portrait of a lawyer trapped in conflict with his billionaire client in Dubai.) My sense is that the author’s own steep learning curve has led her to rely excessively on the testimony of the Society of Trust & Estate Practitioners, whose training methods and journals are frequently invoked. My own sources—senior insiders in the wealth management industry—tell me that STEP certification is the “exception” and that “CFA [chartered financial analyst] training is more usual.”

More troubling is that the truly big players are absent from the narrative. Ms. Harrington’s quest to “follow the money” ought to have lead her to some of the world’s top 10 banks, such as UBS, Morgan Stanley and Bank of America Merrill Lynch, who together have a 47% market share of the $20 trillion wealth-management industry. Absent also are the voices of the rich, some of whom—including Warren Buffett and Bill Gates—have publicly expressed their concern about growing income inequality. One “ultra” I consulted called for “an aggressive redistribution of wealth—public finances are a trainwreck and unless something is done civil unrest and violence will force us into even worse solutions.” That’s not a point of view you see in “Capital Without Borders.”

But despite its flaws, Ms. Harrington’s book ought to make professionals involved in wealth management aware that they are operating in an “ethical gray area” and engage in the national discourse on inequality that has been gathering momentum since Thomas Piketty’s “Capital in the Twenty-First Century.” One new initiative, Unlimited, was recently launched by Stephen Hawking, who warns that wealth inequality represents a threat to “the long term outlook for our species.” Its elegant website, featuring a video of cute kids asking Oxford academics tricky questions, has a sleek look—perhaps not surprisingly since the enterprise is “powered” (i.e. funded) by UBS, the world’s largest wealth manager, whose innovative marketing department invites us all to an online hangout for philosophical inquiry. Unlimited predicts a future where the ultra-rich will “covet less tangible lifestyle assets such as time, health, data, reputation and wisdom.” This sounds remarkably similar to what Sir Thomas More envisioned back in 1516 for the island of Utopia, “where nobody owns anything but everyone is rich—for what greater wealth can there be than cheerfulness, peace of mind, and freedom from anxiety?”


Ms. Campbell is a former managing director at Morgan Stanley and the author of “On the Floor.”

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