The U.S. Shouldn’t Be a ‘Sleazy Offshore Principality’

The U.S. Shouldn’t Be a ‘Sleazy Offshore Principality’

Instead of asking questions of Amy Coney Barrett at the first meeting of the Senate Judiciary Committee, Senator Sheldon Whitehouse gave a brief lecture—with charts—on dark money, political-influence campaigns, and the unknown millionaires who have long sought to shape America’s courts. Anyone surprised by this performance shouldn’t have been. Whitehouse, a Democrat, previously served as the United States attorney in Rhode Island and then as that state’s attorney general. He has long campaigned against the massive legal and financial apparatus that has been designed to hide money around the world—using shell companies, anonymous ownership, tax havens. He has introduced several pieces of legislation designed to curb money laundering, including a bill, co-sponsored by the Iowa Republican Charles Grassley, that would require states to obtain information on the true owners of corporations and limited liability companies formed within their borders.

Whitehouse argues that dark money is not only an underrated national-security problem for the United States—hidden money funds crime, terror, drug trafficking—but also a distorting force in domestic politics. During Barrett’s confirmation hearing, Whitehouse portrayed her nomination as, among other things, a triumph for business interests that hide their identities behind conservative legal organizations. Not everyone liked the performance: The Wall Street Journal dismissed Whitehouse as “Sheldon the Vampire Slayer,” and said he was trying to “delegitimize the current Supreme Court in the eyes of the public.” But the lack of transparency about the funding of lobbyists in Washington and political campaigns more broadly is not delegitimizing just the court, but Congress itself. In no other Western democracy does hidden money play such a decisive role. Refusing to talk about it will not solve the problem.

[Brooke Harrington: Trump’s very ordinary indifference to the common good]

Having watched the transformation of Russia into a dark-money superpower over the past 20 years, I had noticed Whitehouse’s campaign against domestic and international kleptocracy well before he made it an issue at Barrett’s hearing. Few in Congress have taken the time to focus on these issues, so I called Whitehouse this summer to talk about his work on them. Here is an edited and condensed version of that conversation:

Anne Applebaum: My past work on Russia drew me to the subject of dark money. How did you get interested?

Sheldon Whitehouse: I’m the son, grandson, nephew, and cousin of Foreign Service officers. And my father didn’t exactly enjoy the champagne circuits of the Foreign Service. He was posted to a lot of contentious and difficult places, where he could see what can happen after a country is looted by its rulers. Then I went into law enforcement and saw firsthand how the ability to hide ill-gotten gains is a huge incentive for organized criminals, whether kleptocrats, money launderers, drug dealers, or international terrorists. I’m also an American exceptionalist. So it angered me that we should have allowed our country to become a money-laundering haven, like some sleazy offshore principality. That is not a good look for the city on a hill.

Applebaum: People sometimes talk about tax havens and shell companies as if they were just part of the landscape, something we can’t do anything about because that’s just how money works. And yet these entities are all made possible by the law, and they can be removed by the law. Why did we allow this shadow world to come into being, and why don’t we put an end to it?

Whitehouse: The history of this begins with small, broke countries finding that they could cater to individuals wishing to hide income from taxing authorities, and then scrape off small fees and enjoy the little banking and legal opportunities that this opened up. That trickle became a flood as more organized criminal actors realized how important it was to hide money. A cohort of professionals then began to make a lot of money facilitating this, and those professionals respond very urgently to any efforts to cut off what is their unfortunate livelihood. Some American states also got into the act, facilitating the creation of shell companies. Now it degrades our foreign policy; it degrades our national security; it degrades our national reputation. It’s like a septic organ in the body creating illness and symptoms everywhere.

Applebaum: Why hasn’t the proliferation of money laundering made people angry? Is it because it’s so complicated?

Whitehouse: Partly because it’s complicated, yes. Secondly, it’s because of the cheering section, the people lobbying to keep it all going. Thirdly, many of those who make money are cynical. As long as this is going to happen, we might as well go along, they say. And fourthly, you have the benefit of all that money flowing in. You don’t have to be the Cayman Islands or the Turks and Caicos to enjoy this benefit. Look at London and the number of big London houses and townhouses that are in effect full-sized safe-deposit boxes for offshore kleptocrats and criminals and oligarchs to maintain a hidey-hole if things go bad.

Applebaum: And what happens when you talk about these issues in the Senate? Can you get colleagues on board? Is there any bipartisan support?

Whitehouse: Yes. Chuck Grassley has been happy to be involved on these issues, Lindsey Graham has spoken positively about my bill and has helped us with hearings. So there is some bipartisan support.

The problem as I see it—and I cannot prove this, but I deduce it from the rustling of the leaves and the shadows in the jungle—is that the interests who make money off of these schemes fight back quite hard, often through traditional lobbying groups. Some of them got the Chamber of Commerce to oppose our bill. Later, after the chamber backed off, the American Bar Association took a position opposed to the bill. Now we are hearing from the National Federation of Independent Businesses. They talk about the catastrophic burden on small businesses of having to disclose the name, address, and Social Security number of the owner. It takes, like, 30 seconds to fill in that information on a form.

Applebaum: What about the public? Can you get your constituents interested?

Whitehouse: I think constituents have a general sense that there is bad behavior lurking behind creepy shell corporations. They get that criminal activity, terrorist activity, kleptocratic activity, all can be facilitated by having these shell corporations available and other vehicles designed to hide money. But it’s not top of anyone’s mind, particularly in the environment we are facing right now.

Also, most people, including both colleagues and constituents, are not aware of the scale of what we are facing. I think that a real clash of civilizations is going on, and I think the clash is essentially binary—between rule-of-law land and anti-rule-of-law land, between states where the law is still enforced, on the one hand, and the kleptocrats, oligarchs, criminal regimes on the other.

But if you are one of the great thieves and barons of anti-rule-of-law land, you live in fear that a bigger thief and a bigger baron can come and steal everything that you’ve stolen. So you need to take your wealth and hide it somewhere safe, like Britain or the U.S. Rule-of-law land is indulging and facilitating its rival and its enemy. That’s obviously simplistic, but I think it’s very real.

Applebaum: Donald Trump and his company have been living for a long time in what you call “anti-rule-of-law land.” I have worried, ever since he first appeared as a political figure in 2014–15, that he was going to be a vehicle to bring even more people from this world into U.S. politics.

Whitehouse: I think he’s very comfortable with the world of shell corporations and tax avoidance. So not just him, but the other American business interests that operate comfortably in or along the fringes of anti-rule-of-law land have been very unhelpful in our efforts to solve this problem.

The other problem, though, is that the same techniques of concealment used to facilitate offshore thugs and criminal activities also facilitate the political activities of domestic special interests. So when you start connecting dollars to beneficial owners or dollars to true spenders, you run pretty quickly into big groups such as the fossil-fuel industry. They and others run a massive, anonymously funded network designed to influence U.S. policy. The last thing they want is for their front groups to have to disclose the sources of their funds.

Applebaum: Is it just the fossil-fuel industry, or do others do the same?

Whitehouse: I think it’s primarily the fossil-fuel industry now, because they have the most at stake: protecting their multibillion-dollar subsidies from Congress, despite the pressure of climate change. But if you look at, for instance, the U.S. Chamber of Commerce, which does not disclose its donors, they’ll lobby on behalf of whichever part of their membership is concerned about an issue.

Applebaum: Where are your other allies in this cause?

Whitehouse: I would hope this would be a top foreign-policy priority of a Biden administration, and I’m certainly going to do everything in my power to make it so. The Democratic national-security establishment understands this problem. But there is also considerable bipartisanship, with groups like the Hudson Institute and its Kleptocracy Initiative and others supporting reform. I’ve spoken on this jointly with David Petraeus; he reflects a very bipartisan understanding of the damage done by this sepsis. I should also say—whatever the president’s business interests might suggest—Treasury Secretary Steve Mnuchin and his team have been stalwart about trying to fix this problem and trying to put political effort behind fixing this problem. They have been genuine allies, I believe. And that should not be overlooked.

I’m always looking for ways to raise this issue in a bipartisan fashion. Let me know if you hear of an opportunity to do that.

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