Extra episode: Tom Burgis (investigative journalist and author) (transcript)

Transcript: Tom Burgis

This is Leaders in Finance, a podcast where we find out more about the people behind their successful career. We speak with the leaders of today and tomorrow to discuss their motivations, their organizations and their personal lives. Why? Because the financial sector could use a little more honest conversation. We’d like to thank our partners for their ongoing support. They are: KayakEYOdgers Berndtson executive search and Roland Berger. The Leaders in Finance AML Europe event in Brussels is always loaded to the brim with interesting people in a world of finance crime control and compliance. Jeroen had the pleasure of meeting none other than renowned investigative reporter and award-winning author Tom Burgis. Our host took his chance and invited him to an interview in a very special episode of Leaders in Finance, with Jeroen Broekema.

Jeroen: Welcome to an extra episode of Leaders in Finance. I’m delighted to have Tom Burgis with me, a very famous journalist. We’re speaking today live from the Leaders in Finance AML conference here in Brussels. Welcome, Tom!

Tom: Thanks for having me.

Jeroen: I’m really happy you’re taking the time. Just as an introduction, Tom Burgis is an investigative journalist, previously for the Financial Times and currently with The Guardian. Also, he’s the author of books like The Looting Machine and Kleptopia, subtitled ‘How dirty money is conquering the world‘, about which we will mainly talk today, live from the Leaders in Finance event in Brussels. What I’d like to ask you first, Tom, is: if I wanted to be – which I clearly don’t – a really good successful global kleptocrat, how could I become one? I don’t want to be funny because this is a very serious topic. But I just wanted to ask you, one or two, what should I do?

Tom: I’m not sure you have the required ruthless cruelty, but leaving that aside for a moment, I think you need three things. One aspect of it is geology, one comes from the Nazis and one comes from the quirk of global finance. To start with the geology, that’s the role of the natural dice. Overwhelmingly, kleptocrats have access to oil, gas or natural resources. Essentially, there are a handful of developed democracies and practically every other country is more or less a kleptocracy. Which is to say that the main purpose of political power is to enrich those who hold it. In the Netherlands, there is a contract between the rulers and the ruled that comes from the tax system. There is no representation without taxation. So if the people of the Netherlands were to decide tomorrow that they have no faith in their political class, they could collectively cease to fund the government and the government would stop working. They have that power to withdraw their consent. In Nigeria, where I used to live, it’s the other way around. The vast majority of its foreign income, its hard currency, comes from selling oil. Oil licences are given by whoever holds power. There is no need for the people who rule Nigeria to have any sort of contract with the 180 million who are addressed to the Nigerians. There is no tax system to speak of, not one that functions anyway. It’s just a case of gaining hold of that pot of oil money that comes in in royalties and bribes from multinational oil companies. So the system of accountability in politics is completely upside-down. You look at Congo, you look at Russia, you look at Kazakhstan, Uzbekistan, Azerbaijan, Venezuela, Iran, Iraq and so on. That’s the model. Now, in order to be a world-class kleptocrat, you need to have access to that, you need to have physical control over some natural resources that the global industrialised economy would bribe you for personally and would pay your government for in royalties. That’s number one. Number two, you need something that’s discovered by a brilliant man called Ernst Fraenkel during the early thirties in Nazi Germany. He was a Jewish lawyer who got out just in time in the end and smuggled out with him a copy of the book he’d been working on, called The Dual State. What he realised was that there were two parallel systems in Nazi Germany. Before the point it turned into a full-on totalitarian system, there was an outward phase that looked pretty normal. Functioning courts that could take decisions, and it could rule on matters of commerce. The idea was to let capitalism keep going to fund their rearmament. But you had to have rules of the game, you wanted to invest their money, all the stuff the World Bank goes around the world saying these days. And that, by large, was allowed to continue. That’s what Fraenkel called the normative state, it’s got norms and rules. Hidden in the background, you had the prerogative state, which is essentially the Nazi machinery and the SS and the Gestapo. And at any minute, the prerogative state can reach into the normative state and grab you. So if there is a judgment about businesses that suddenly impinges on the corrupt interest of someone in the Gestapo, they can use their arbitrary power to do whatever they want to, and you are off to a concentration camp. So if you want to be a dictator today, the Kazakh dictator Nursultan Nazarbayev was a very good example of this, you have to have this dual system. Where on the one hand, you can have an interface with the global economy which likes to think of itself as being very legitimate, it’s actually a legitimate business. So you can deal with big oil companies and big mining companies and big banks and things like this. And everyone can keep a straight face and convince themselves this is all legitimate commerce.

Jeroen: Like for example in your book, you describe that he is going to the UK, to one of the famous universities. Maybe Cambridge or something, and he gives a speech. You feel like he was prepared by Tony Blair, if I’m not mistaken, if that was that one?

Tom: Correct. So he has to be able to maintain his outward face so that the rules-based world, the western-led world, can maintain the pretext it needs to do business with him. Which is essentially to get access to Kazakhstan’s raw materials. But at the same time, he had to have this prerogative state. So if you cross him, you’ll be tortured in the most monstrous ways. So that’s the second part of what you need. You need access to your raw materials, you need to construct a dual state, and the third bit is this quirk of the financial system. No one has ever voted for financial secrecy, there has never been a political party in the Netherlands or the US, or for that matter, in Russia, that put itself forward in an open election and said, “I think the solution to our problems is to allow people to operate in our economy anonymously through companies whose owners are obscured.” No one has ever made the case for that. It’s a weird mutation of the British Empire, initially. And tax evasion by various rich Brits and the development of a financial secrecy industry in the outposts of the old British Empire, which used to serve the City of London’s colonial interest, and now it just serves private interests. So this is the British Virgin Islands, Gibraltar, the Isle of Man, Cayman Islands, and so on. All supplying different bits of camouflage that you can bolt together to use as camouflage to operate in the global economy in secret. So that’s what you need if you’re a kleptocrat in order to do the crucial thing you need to achieve, which is to take your illegitimate wealth that you’ve pillaged using the power you secured through violence and turn it into legitimate looking wealth. So put it into the financial secrecy system, let’s say the income of a bribe that some American oil companies paid you for access to your oil field, and it comes out the other side as let’s say an illegitimate property investment in Miami. That’s because, and this is the great paradox of dictatorship, a home you have to maintain lawlessness. You are the law. But you know that because you live in that system, and you’ve helped to create it, at any minute, you could be a target, things could change very quickly in dictatorships, ask Nazarbayev, ask Robert Mugabe, ask Mobutu, ask Putin after this weekend with the Wagner uprising. So what you want, if you’re a kleptocrat, is the safety and security that you deny your own people. So you want to change your personal image from dictator to statesman, and you want to change the image of your wealth, from loot to the proceeds of legitimate business.

Jeroen: So you’re using the best of both worlds. Here you use violence and dictatorship and on the other side of the dual state you use the legislative systems to work for you, ultimately?

Tom: Completely. I’m in danger here of falling into a trap of what you see happening so often, which is that we think that kleptocracy is something that’s generated in Kazakhstan, Nigeria, Venezuela and then visited on poor unsuspecting innocents in the west. For me, kleptocracy isn’t something that happens in nation states, these are transnational networks much more like organised crime, like mafias. The Wall Street banker who is constructing the financial camouflage for the son-in-law of the Kazakh dictator is just as much a kleptocrat as the Kazakh dictator.

Jeroen: But smaller. Or is that not true?

Tom: How do you measure these things? In terms of personal wealth?

Jeroen: It’s rotten, but they’re still enablers to someone else.

Tom: Actually, I have a bit of a problem with that term. I know it’s useful, and it’s excellent in the last few years, we’ve had this focus on this idea of enablers. Because it really has demonstrated the extent to which influential people in the west are critical to enabling this system of kleptocracy. The victims of which, let’s not forget, are on the battlefields of Ukraine and the torture chambers of Kazakhstan and in the militarised hellholes of the Zimbabwean diamond fields. But the idea of an enabler suggests a secondary role, but who’s the tail, and who’s the dog? Look at 90s Russia, the western management consulters and the bankers and the lawyers piled in there and actively created a kleptocracy, from which they benefited and in which there were some of the most influential people. London, where I live now, has a huge private intelligence industry, some of whom do very good work. But some of whom do really, really nefarious works, averting the rule of law. These are people who were often trained in the UK military intelligence services, by the state, taxpayers’ expense. And they are giving their tons to the service of hostile dictators.

Jeroen: So it’s a more symbiotic relationship, they both need one another?

Tom: I’d say these are just networks of power that extend from Kazakh dictatorships, through big banking houses, through big law firms and so on. It’s a mistake to think that there are a handful of dictators calling the tune and that the lawyers, bankers and so on are just bumbling sidekicks. They’re very influential in creating this corruption.

Jeroen: Right. When I was reading through your book, which I by the way very much enjoyed, all this stuff you read is terrible, but it’s very important that people read it. It’s a great segue what you were just discussing to this big theme, at least what I think is one of the big themes in your book, which is around power and getting that power and using it to get more money. So a quote from your book is, “The thieves had used power to steal money, then used that power to steal more money.” First of all, if I’m mistaken, correct me, but I think it’s power and money all the time.

Tom: You’re correct.

Jeroen: How exactly does the dynamic work? I think I understand the dynamic that you use power in the 90s to grab all these companies and suckle the money out of it just for your own sake. And then get the money across the world to hide it from anyone, basically. But what I’d love to hear you speak to is to give a couple of very concrete examples of how power was used to get money and then use the money again to get more power.

Tom: A lot of this book is about Kazakhstan, so maybe that is a good place to look at. It’s a fantastic example of how this machine works. There was that extraordinary moment in the 90s where one of the great empires, the Soviet Empire, fell apart. A lot of the powerful figures in that Empire retained power, but the currency was different. The currency was capitalism now. So someone like Nazarbayev, who was a communist party boss, is a son of a herdsman, a perfect ordinary Kazakh upbringing. He made it to the top of the communist party at the end of the Soviet period, and then he converted himself into capitalism. What he instantly did was to realise that there was this thing coming, being installed from outside, called a market economy. And it was installed with zealous pride in its properties of delivering prosperity to one and all. And he just gave himself control over every aspect of that economy. So whether it was formal control through political institutions like the courts and the privatisation agencies or by developing these networks of oligarchs, of trusted businessmen whose assets are kind of their own and kind of his. Several of whom registered are in his own family. Nazarbayev very early on started to auction off Kazakhstan’s oil under the Caspian Sea. Mobil paid enormous amounts of money for this oil, but it paid several million into Swiss bank accounts. Which were later found out to be controlled by Nazarbayev. So in Kazakhstan, we have a very clear example of the monetisation of power. You can see him in those early years converting his authority into Swiss bank balances. What that gives you – and this is the subtle and ingenious way that a kleptocracy develops – that early generation of black money, is the beginning of a patronage system. So Nazarbayev’s family begins to grow very rich. Groups of oligarchs around him begin to grow very rich. Interestingly, the ones who grow the richest are often ones who are not ethnic Kazakh, they’re from the south.

Jeroen: Why is that?

Tom: Because it prevents them from seeking political office. It’s a very good area for them to become ambitious, like Khodorkovsky.

Jeroen: An insurance they’re not going to go against you?

Tom: Right. When a Khodorkovsky figure and another guy called Mukhtar Ablyazov, does challenge Nazarbayev – and there are also questions how he made his own fortune – the whole might of the Kazakh state is devoted for years and years at massive expense to crushing him and to enlisting foreign law enforcement agencies along the way. But what Nazarbayev is building, and the way he has turned power into money and now turning money back into power, is that through this patronage system, like a futile king, is able to give access to the iron ore industry or the telecoms’ industry, whatever it may be, and build an oligarchy which is corrupt. And his corrupt secrets he knows. It’s also very important, maybe add a fourth on my list of what you need to be the uber dictator, you need a well-functioning intelligence agency, that’s mainly devoted to knowing the corrupt secrets of your own elite. Very much again like a mafia, so that you have them controlled. What Nazarbayev built – and it’s wobbled a bit lately, and he’s out to retire upstairs a bit – was essentially a futile patronage system where he enriched himself massively to begin with from the big bribes at the early privatisations and the early natural resource licences. Then he built this wider system and occasionally, he had to throw someone out to cancel their political ambitions or as a warning to others. But there you see in a really striking way, and it’s repeated again and again in North America and Africa and Eastern Europe, this model of turning power into money and then using that money to magnify your power. The troubling thing I’d say now, just one last thought on this question, in the west – and especially in the UK – we tend to use euphemisms to talk about corruption. So when it emerged in the UK, massive quantities, billions of pounds worth of Covid contracts, protective closing contracts and things like that, had been dawned out to incredible dubious companies connected to MPs and ministers. This term emerged, chumocracy, a very UK kind of term. If that same fact pattern was described in Nigeria, you’d have people standing up in the parliament in the UK saying, “This is a terrible example of corruption, and we must redraw it”, and so on. And I think there is a boomerang effect that is happening now. After so many years of especially in the UK, but this goes for all of Western Europe, the financial system, the legal system, the political system is absorbing so much kleptocratic wealth. Whether it is in the form of Russian companies listing on the London Stock Exchange, oligarchs using the London courts or the European courts, investing in energy and so on. After all this, that is starting to have an institutional effect where politics in western countries is starting to become more kleptocratic. The norms are shifting where it’s okay to use politics for personal enrichment. The taboo on that is breaking down in all sorts of little ways. And I think that’s the result of this enmeshing of the democracies and the kleptocracies.

Jeroen: That’s scary.

Tom: It’s really scary.

Jeroen: For me, at least.

Tom: Right, but since the invasion of Ukraine, we started to wake up to this. Because we started to see the connection between kleptocracy and security because we’ve realised that we’re still on both sides of this war. The extent to which we fathom Putin’s regime and being complicit in it. And I think, as with Trump in the US, we’ve had a moment now when we started to see that kleptocracy isn’t just about some guy who probably shouldn’t have a yacht having a yacht. It’s a direct threat to freedom.

Jeroen: Yes, and it undermines everything of where we stand for as democratic countries with legal structures that actually work for people.

Tom: The rule of law is the thing.

Jeroen: The rule of law is the right word, not democracy.

Tom: Yes, absolutely. The rule of law over several hundred years has become what keeps a few hundred million people in the world, mainly Western Europe and North America, relatively free in the genuine sense of free to live their lives without horrendous constraint and the threat of arbitrary and violence. And that is what is being undermined.

You’re listening to Leaders in Finance with Jeroen Broekema.

Jeroen: I want to ask you about legal structures.

Tom: By the way, I happen to know about them when I got sued. So I’ve had some experience of legal structures.

Jeroen: You can take it wherever you’d like to take it. Having read your book and a number of other books of other journalists and other people–

Tom: There are some really good ones, Oliver Bullough’s book, and Catherine Belton’s Putin’s People is a masterpiece.

Jeroen: Exactly.

Tom: Nick Shaxson’s book, Treasure Island. There are some really good ones.

Jeroen: And everywhere, you read how important these very complex legal structures are. That really enables people to move money around and tax offices can’t find the money. Nobody basically can find the money. And nobody knows who the UBOs are, who the actual owners are of those businesses. But what do you think is the reason that we’re not attacking this more in the economies we live in? Why are we not able to tackle this? Because also here at the event today, it’s very often a topic. These structures make it hard for banks to follow cash, they don’t know where it’s going. To me, it seems difficult to tackle this, but not impossible. Why is it not happening? In other words, I think in terms of power, who is benefitting? Who is making sure that this is apparently not changing? Or is it changing?

Tom: This is a big and important question. I have a couple of thoughts. When we had that first big leap, the Panama Papers, something like 140 world leaders were in there. And that was one sliver of data from one Panamanian law firm over one period of time. What that said to me was – and subsequently in my own years of reporting this stuff – that that has essentially become routine for those who hold political power everywhere to have secret financial interests. And in many cases, it seems that those are used to profit illicitly from that public trust they have been given. Which would suggest – it’s important not to be too cynical – that kleptocracies are becoming pretty routine. The conversion of wealth, conversion of public trust into personal wealth has become more routine than maybe we already fear. So that would give you one good reason for a lack of political wealth to counter it. But I also know that there are absolutely brilliant people, there are superb people in Tanzania, in Kazakhstan, in Russia, fighting this fight. But also in the law enforcement agencies in the UK who are fighting very hard, but it’s a question of a massive mismatch of resources.

Jeroen: That’s also very important. What I would also add is just the political will to stop these structures. Because ultimately, if you really always need to have UBOs for every entity, it won’t happen, right?

Tom: Right.

Jeroen: But maybe it’s too simplistic what I’m saying.

Tom: No, I think you’re completely right.

Jeroen: Would MPs in the Netherlands really be against this stuff? I know addresses in the Netherlands where you have a few thousand entities on one single building, the same thing in the UK. Why is this still happening? In other words, do you think this is potentially going to change?

Tom: I think it gets conflated off the privacy. There are enormous vested interests, which filters out from those who actually hold these structures. So it tends to be rich families, crooks, gangsters, and so on. But also hedge funds typically organised through the Cayman Islands. Multinational corporations are typically organised like this to have thousands and thousands of internal offshore companies through which they can avoid tax. The typical oil major is actually a sort of nest of 7000–8000 companies, all shuffling revenues around to minimise the tax they pay. So that creates a huge incentive to maintain these structures. The same structures are also used not for their tax evasion properties, but for their secrecy properties. You’ve got these various interests, all wanting to maintain that system. And they hire the best law firms, and they hire the best PR firms, and they hire retired politicians to sit on their boards, the Gerhard Schröders and so on. So there is a massive lobby, essentially, for offshore finance. But I completely agree with you, so much of the tinkering and the legislation and the celebrated reforms, we can have a register of beneficial ownership in such and such a place, and it will be opened to journalists who’ve got a good reason to look at it and maybe some investigators. And this is triumphed as a massive breakthrough. Whereas, the basic point is that the secrecy’s illegitimate to begin with. There has never been consent for this. If you had an actual marketplace, and you’re working store to store buying your veggies, and one of the stores was run by someone in a cloak and hood and a mask, you’re not going to buy their veggies, are you? The whole basis of trust in society is based on knowledge of your counterparty. Like being able to judge someone’s character and someone’s reputation. That’s how societies function. So the insidious effects of this financial secrecy system are absolutely devastating.

Jeroen: Here at the event, approximately 80% of the people are from banks, I wanted to talk with you about banks. To what extent you have an opinion about them and what they do. What I find very interesting, earlier this morning there was this question around, “Are banks really fighting financial crime or are they just satisfying regulators and satisfying other people who want to make sure they’re compliant with the law?” I think around 80% of people said, “No, we’re really focusing on being compliant, not on actually fighting financial crime.” So my first question, with the Netherlands as an example, we have around 13,000 people for a relatively small country, 17 million people or something, alone in the major banks working on AML compliance. Do you think what they are doing actually helps to prevent lower level kleptocrats, criminal activity, to prevent that from happening with all the efforts they are taking to look for money laundering in their systems?

Tom: Sadly, I think no. I think the evidence suggests, even though a lot of this is very well-intentioned and some of it is well-designed and thought through, I don’t think it has a meaningful effect in countering the rise of kleptocracy. For several reasons, one of which we’ve touched on, which is that it’s an impossible job. Trying to police the financial system when people are allowed to use it in secret is an impossibly difficult task. Also, the premise here, we got so used it, but it’s bizarre. You wouldn’t have tax inspectors working for multinational oil companies, would you? We certainly wouldn’t have environmental inspectors working for environmental corperations. But with banks, we’ve transferred a law enforcement job, a really important one, which is the prevention of money laundering, to the private sector.

Jeroen: Shouldn’t that be the case, in your view?

Tom: Why would it be the case? The laws are enforced by law enforcement agencies. It’s very odd to ask an entire industry to police itself. And that’s essentially happening because it’s too complicated, and law enforcement agencies are too understaffed to take it on. The massive development that we’ve seen in the past twenty years is that money has gone global, the law enforcement has stayed national. And the solution has been, “We can’t think of anything to do, so we’ll just try to force the banks to do it.” And the result is absolutely massive numbers of suspicious activity reports going to those same woefully understaffed agencies. You’re in no position to really act on that intelligence. As you say, thousands and thousands and thousands of people working in banks identifying suspicious activity on transactions that they then proceed to do anyway. And they file a report, and I’m sure – obviously, I’m not oversimplifying this – there are massive amounts of transactions that get blocked, for sure. So it is probably harder to be a kleptocrat than it used to be.

Jeroen: One of the major banks here on the stage said, not literally quoted, “We catch all the stupid criminals or many more stupid criminals, but the really big networks, we’re not able to catch.”

Tom: That’s a very good point. Leaving aside the fact that the really biggest criminals give speeches to Cambridge, and they need to hide. But I feel for them because unless you are a moron, it’s not that hard to continue to game the system. Because it’s become so global and so complex that the law enforcement and the regulator side of this is nowhere near catching up.

Jeroen: There are so many other things we could discuss, but I do want to end this last part of the episode with a couple of somewhat personal questions, if that’s okay?

Tom: Fire away.

Jeroen: You’ve lived in many, many countries, I don’t know how many, or been in many countries?

Tom: I’ve lived in half a dozen, and I’ve been in 17 or 18.

Jeroen: Can you just name a number that you know quite well?

Tom: I started off in South America, I lived in Santiago de Chile. And then I spent a bit of time here in Brussels, actually. Then South Africa and a couple of years in Nigeria. Those are my main places.

Jeroen: But you seem to be someone who is not really afraid, right? Because you’ve been in crazy places and met crazy people. You’re not afraid of going there, you’re not scared sometimes?

Tom: Yeah, sometimes. I guess I’m slightly uncomfortable without question because the people who were taking much bigger risks than me are my sources.

Jeroen: But still, you write about these people, and I’m sure they don’t like it, or the people around them?

Tom: What was pretty unsettling was last year when we got sued by some oligarchs. We discovered that they were using surveillance on us in central London. I went to meet a contact, and it was later confirmed that we were being watched in a car park in the middle of London. Those are the kinds of touches that I learned to avoid in West Africa or Kazakhstan and now being deployed in central London. There are various things, sometimes you’re in a place where there is physical risk, obviously. There is a risk to your head. I really struggled with some of the violence I’ve covered over the years. But then there is the subtler risk of when you’re going after a particular target, an oligarch or whatever, how they might try to counter you. I could be a very rich man, I’m constantly being told that such and such a guy would pay a huge amount of money for me not to write such and such a thing. But the thing that bugs me the most are the people who trust me as sources, wherever that may be, meeting in a car park in Nigeria to be given a brown envelope about ethnic cleansing, or it’s getting a train somewhere in Europe to meet someone who knows about a kickback to the Kremlin. I’ve been working on some stories about witnesses in a corruption case who’ve been turning up dead. The people who trust you with that information, these people are real heroes. Everyone is motivated in complex ways to do anything, but often there is real bravery there. And the industry thinks that journalists would also need their name in the paper and all sorts of things. But these guys are never going to get any recognition. If their role was ever discovered, it would be really bad news for them. They live with the anxiety that that causes. But they just do it out of a moral sense or a sense of an injustice that they need to do their bit. It just falls to them to their bit. Those are the people who take the most laudable risks.

Jeroen: Still, I think what you’re doing, I’m not sure if I would be courageous enough to do that. The last question, Tom, given we are in a place where we will have a heated discussion in a few minutes, people coming in here for the next half of this conference, but I have read your book called Looting Machine and I find Kleptopia really interesting. They are very good books. Apart from the fact that I can read articles from you in The Guardian, is there going to be another book?

Tom: Yes, I’m working on it now. It’s quite well advanced, and it will be coming out next year. I can’t really say that much more about it.

Jeroen: It is for people that are interested in anti-money laundering?

Tom: It’s very much for people who are interested in all the things we’ve been talking about, and it’s also about how corruption is destroying reality itself.

Jeroen: Thank you so much for taking the time and going back to my initial question, which were first three points and then it became four. I’m not sure I’m in a right position to be a kleptocrat.

Tom: Best of luck with it!

Jeroen: Tom, thank you so much for taking the time, and I’m looking forward to your speech later today. Thank you so much.

Tom: Thanks, Jeroen.

You’ve been listening to Leaders in Finance, we hope you’ve enjoyed the episode and we’d love to hear from you. What’s on your mind, who would you like to hear next? Tell us in an Apple or Google review, via e-mail or our social media channels. We’d greatly appreciate it! Finally, we’d like to thank our partners for their ongoing support. They are: KayakEYOdgers Berndtson executive search and Roland Berger. Thank you for listening!

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