Will Fitzgibbon, with the International Consortium of Investigative Journalists, on how the largest investigation in journalism history exposed a shadow financial system in Wyoming.
On January 16, 1920, alcohol became illegal across the U.S., ushering in, paradoxically, a golden age for cocktails.
For the next 13 years, until Prohibition ended, secret speakeasies became the height of fashion. Bootleg booze flowed, whipped into contraband concoctions for the upper-class who considered themselves above the law. Among the creative cocktails on offer in the nation’s discreet drinking dens was the Cowboy Cocktail, a mix of scotch and cream. Today, the Cowboy Cocktail is seeing a revival — with a twist (not of the citrus variety).
The term “Cowboy Cocktail” now refers to trust laws in Wyoming that allow the world’s wealthy to move and spend money in extraordinary secrecy, protected by some of the strongest privacy laws in the world. The Cowboy Cocktail is essentially a financial sleight of hand. For a few hundred or a few thousand dollars, money managers can set up a company whose real owners remain hidden. For a slightly higher price point, they can set up a trust that allows its beneficiaries to control their money while embracing the legal fiction that they don’t control it, shielding assets from pesky creditors, law enforcement, and ex-spouses.
How did the U.S., a longtime critic of international centers of money laundering, become the favorite destination for billions in suspect cash?
The U.S. government has long condemned offshore financial centers, where loose rules and tight lips have drawn oligarchs, business tycoons, and kleptocrats.
According to the U.S. State Department, “Denying corrupt individuals access to the United States and global financial systems sends a strong message about our values, and it demonstrates in meaningful ways that there are consequences for those who engage in corruption.”
In 2018, the U.S. successfully pressured the Bahamas to pass sweeping legislation requiring companies and certain trusts to declare ownership to a centralized government register. Just last year, the U.S. State Department named and shamed a list of 353 “Corrupt and Undemocratic Actors” from Guatemala, Honduras, and El Salvador.
But over the years, as the U.S. pressured the Bahamas, Switzerland, and Nauru to clean up their act, Wyoming’s leaders, hopeful they could generate jobs and increase government revenue, sensed a business opportunity. They passed legislation to open the door to suspect money. And so the Cowboy Cocktail was reborn — as a financial secrecy tool offered to the world’s wealthy seeking to hide, invest, and spend their money with a level of anonymity found in few other tax havens.
Cash from millionaires and billionaires around the world has poured in. Trust companies in Wyoming now manage at least US$31.5 billion in assets, according to the state.
Other states, including South Dakota and Delaware, soon followed Wyoming’s lead and have since eclipsed the state as a tax haven. Today, trust companies in South Dakota, now dubbed “The Grand Cayman of the Great Plains” thanks to state laws that similarly facilitate secrecy, manage US$360 billion. In fact, by 2020, 17 of the world’s 20 least-restrictive jurisdictions for trusts were American states, according to a study by Israeli academic Adam Hofri-Winogradow.
I spent more than two years relentlessly working on documenting and telling this story of trusts and money laundering in Wyoming, South Dakota, Delaware, and the usual offshore financial centers such as the British Virgin Islands, Panama, and Switzerland. My colleagues and I at the International Consortium of Investigative Journalists led more than 600 journalists from 150 news outlets around the world sifting through a trove of more than 11.9 million confidential files leaked from 14 offshore services firms.
In journalism, there is an old expression: “Follow the money.” We did and were surprised where it led us.
We followed the paper trail as the family of the Dominican Republic’s former Vice President Carlos Morales Troncoso moved their riches from the Bahamas, months after the Islands enacted legislation cracking down on secret trusts, to their new haven in South Dakota, 1,600 miles away.
I remember one “aha!” moment when I came across the U.S.-based trust of a Colombian millionaire, José “Pepe” Douer Ambar, known to the U.S. Department of Justice for his involvement in a narcotics-related money laundering scheme.
We found the U.S.-based trust of Federico Kong Vielman, whose family is one of Guatemala’s economic powerhouses and was a key ally of the dictator General Carlos Manuel Arana Osorio known as the “Jackal of Zacapa.”
And we found a U.S.-based trust for a Brazilian billionaire whose companies had been investigated for bribery. Trusts for Ecuadorians previously found guilty of embezzlement, an oligarch, a dictator’s aid — they all stashed their secret cash in U.S. trusts. The more I read and researched, the more unbelievable it all seemed. The cases kept piling up.
We tracked down hard-to-find sources and dug into court records and other public documents from dozens of countries. Together, as the biggest journalism partnership in history, we told the story of how people move and hide money in the U.S. and beyond. The characters in this tragedy include 35 current and former world leaders; more than 330 politicians and public officials in 91 countries and territories; and a global lineup of fugitives, con artists, and murderers.
The results of our massive investigation illustrate several principles about corruption and ill-gotten gains:
Addressing this challenge has transformative potential given the staggering sums involved. The United Nations estimates that US$2.6 trillion is stolen through corruption and more than US$1 trillion is paid in bribes — annually. To put that in perspective, the annual foreign aid budget of the U.S. is a fraction of that number, at about US$50 billion.
The price tag is even steeper when you consider the collateral costs.
Money laundering allows kleptocratic officials to solidify their power and makes their governments less vulnerable to sanctions, extending the reign of brutal dictatorships and dangerous pariah states. From the Democratic Republic of Congo to Guatemala to Russia and Venezuela, successive efforts at democratic reforms have been stymied by oligarchs and/or corrupt officials with the cash on hand to thwart democracy and bend the rule of law.
What’s more, kleptocrats also leave their countries cash-poor and unable to deliver basic services such as education, health care, and infrastructure. These conditions often drive extremism and unrest.
Often the people who engage in money laundering are the same people who are tasked with stopping such behavior. For example, Juan Andres Donato Bautista served from 2010 to 2015 as the chairman of the Philippines’ Presidential Commission on Good Government — the panel established to track down former Philippines kleptocrat Ferdinand Marcos’ billions. A month after Bautista was appointed to lead the commission, he created his own shell company. Bautista, who has denied wrongdoing, was eventually impeached after his wife claimed he’d hoarded millions of dollars in undeclared domestic and foreign accounts.
This sort of corruption cannot be addressed unless it is exposed. Until all countries have implemented laws that prevent money laundering and enforce those laws evenly and robustly, we will need to rely on investigative journalists like those I work with to do the heavy lifting.
As a result of our reporting, which ran simultaneously in newspapers around the world, U.S. President Joe Biden has called for sweeping new strategies for fighting corruption. Calling the effort a core national security interest, the administration said it would work with Congress to bring more scrutiny to trust companies, lawyers, and other financial gatekeepers.
The European Commission will present new legislative proposals to tackle tax avoidance and tax evasion by the end of the year, and authorities in Ireland have pledged to close tax loopholes. Chile, Ecuador, and Montenegro have launched investigations into alleged wrongdoing by their heads of state among others.
In March, the European Union and lawmakers in U.S. Congress credited ICIJ’s Pandora Papers and Panama Papers investigations for helping reveal the hidden fortunes of Russian oligarchs now sanctioned for their role in underpinning the Kremlin’s invasion of Ukraine.
This sort of impact is the result of unprecedented global partnerships across newsrooms around the world. Together, more than 600 journalists have told stories of global consequence that would not otherwise be possible, to hold the powerful accountable to the laws they have so artfully penned to their own advantage.
Which reminds me of a keen observation by the British writer Gilbert Keith Chesterton who traveled to the U.S. in the 1920s and wrote about prohibition, “No steps are taken to stop the drinking of the rich, chiefly because the rich now make all the rules and therefore all the exceptions …”