Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Odd Lots Podcast.
Speaker 3: I'm joll Wisenthal and I'm Tracy Alloway.
Speaker 2: Tracy, did you see that story a few weeks ago
Speaker 2: about Andresen Horowitz, the big VC firm closing its Miami office.
Speaker 3: Who I did partially because you tweeted about it.
Speaker 2: See, my tweeting serves a purpose. It allows us to
Speaker 2: coordinate and be on the same page on topics.
Speaker 3: It gives us shared content.
Speaker 2: Sure, that's right. But I found that story to be
Speaker 2: really fascinating because in twenty twenty or I think, yeah,
Speaker 2: around twenty twenty, and obviously with COVID and people frustrated
Speaker 2: about things going on in San Francisco, it felt like
Speaker 2: there was this big effort to sort of manufacture an
Speaker 2: environment in a new city. So it's like, Okay, Miami's nice,
Speaker 2: and the standard of living if you have a lot
Speaker 2: of money, it seems pretty good. Let's just see if
Speaker 2: by a sheer force of will and money and tweets, etc.
Speaker 2: Whether we can relocate everything there. And there has been
Speaker 2: a lot and we've talked a little bit about Miami
Speaker 2: and Citadel has obviously brought a ton of money to
Speaker 2: the city. But this sort of impulse to sort of
Speaker 2: manufacture cities and manufacture new physical networks is a very
Speaker 2: interesting phenomenon.
Speaker 3: To me, right, and I always find it's sort of
Speaker 3: the strongest whenever you see a city talk about becoming
Speaker 3: a crypto hub or something like that. And there have
Speaker 3: been so many, right, so Miami was one of them
Speaker 3: at certain points. Eric Adams in New York has talked
Speaker 3: about it. Malta wants to be a crypto hub, Dubai
Speaker 3: wants to be a crypto hub. It's neighbor, Abu Dhabi
Speaker 3: wants to be a crypto hub. And it kind of
Speaker 3: raises the question can everyone basically repeat the same economic
Speaker 3: or financial model and become these sort of offshore wealth
Speaker 3: centers that foster, you know, new business and innovation. It
Speaker 3: seems like there are multiple cities where countries or locations
Speaker 3: that are trying to do the same thing.
Speaker 2: By the way, well, you lived in Abu Dhabi.
Speaker 3: I did, what do they do?
Speaker 2: What's the business there? What does everyone do?
Speaker 4: Uh No, I'm seriously, I I don't know what Dubai
Speaker 4: I mean, I know there's a ton of money there,
Speaker 4: but I don't actually know what the big industries are
Speaker 4: there in these places, so you must know.
Speaker 3: I'm trying to word this very diplomatically. I would say
Speaker 3: light touch regulatory environment. I mean, that's what's basically it
Speaker 3: to start companies, yeah, and payload taxes and be able
Speaker 3: to do it in a fairly quick way. But the
Speaker 3: interesting thing about Abu Dhabi, and again going back to
Speaker 3: the point of all these cities basically trying to do
Speaker 3: the same thing, is Abu Dhabi very very almost explicitly
Speaker 3: was trying to follow the model of Singapore. In fact,
Speaker 3: they even hired Richard Tang, who used to run the
Speaker 3: Singapore Monetary Authority, to come behead of ADGM. Like it
Speaker 3: was that explicit. It's very obvious what a lot of
Speaker 3: these places are trying to do.
Speaker 2: It seems to be working well. I mean, I know
Speaker 2: people always think like there's a bubble, it's all real
Speaker 2: estate and speculation or whatever is going to crash. But
Speaker 2: for the most part, I mean, there was something that
Speaker 2: happened in late two thousand and nine and one of
Speaker 2: them on bankrupt or something, But for the most part,
Speaker 2: seems like it's been working.
Speaker 3: For certain countries. Certainly I mean Singapore again is the
Speaker 3: big example of this. But I guess the more people
Speaker 3: and places try to imitate these particular business models, you know,
Speaker 3: not everywhere in the world can be an offshore financial
Speaker 3: center for obvious reasons. And I think like one man's
Speaker 3: loophole might be another country's comparative advantage. But there's a
Speaker 3: limit to how far you can push.
Speaker 2: That, you think, So I wonder how far we are
Speaker 2: from Milmot. Anyway, We're in an age clearly where there's
Speaker 2: just a l lot of interest in cities and people
Speaker 2: want to talk about, you know, on Twitter. They're like
Speaker 2: what city should I move to? And where people have
Speaker 2: a ton of money and option. Some people have a
Speaker 2: ton of money and they go to somewhere for some reason,
Speaker 2: maybe because regulation is low, or taxes are low, et cetera,
Speaker 2: and essentially kind of be I don't know, rootless. I
Speaker 2: remember during the pandemic when ostensibly I thought all of
Speaker 2: the borders were closed and you couldn't travel, seeing you know,
Speaker 2: friends on Instagram and stuff all over the world and
Speaker 2: places where they didn't seem to be any restrictions at all,
Speaker 2: and on beaches. I'm very fascinated by this sort of
Speaker 2: parallel world that seems to be emerging and still growing,
Speaker 2: where the ultra wealthy push up real estate prices, build
Speaker 2: giant towers branded by various brands like Porsche, et cetera.
Speaker 2: It seemed to live in a sort of just separate world.
Speaker 3: Than what I live in in New York City, right,
Speaker 3: And we've talked about this primarily from a real estate perspective,
Speaker 3: but we haven't really gotten into these separate world world
Speaker 3: of light touch regulatory and tax regimes.
Speaker 2: So I'm excited the separate legal world. Well, I'm very excited.
Speaker 2: We are going to be speaking with truly the perfect guest.
Speaker 2: We're going to be speaking with a Tusa Eroxia Abrahemian.
Speaker 2: She is the author of the brand new book The
Speaker 2: Hidden Globe, How Wealth Hacks the World, talking about all
Speaker 2: of these different cities and legal regimes and the sort
Speaker 2: of separate, parallel world that exists here on Earth for
Speaker 2: the ultra rich. Sotusa, thank you so much for coming
Speaker 2: on Odd Lots.
Speaker 5: Joe Tracy, thanks so much for having me.
Speaker 2: Absolutely. What's your book about?
Speaker 1: So?
Speaker 5: My book is about this parallel world of loopholes. It's
Speaker 5: hiding in plain sight. It's all around us, and once
Speaker 5: you see it, you can't unsee it. So I hope
Speaker 5: that when you read the book, you'll start to see
Speaker 5: it and you will just see it at every turn.
Speaker 5: This world, much of it is territorial, some of it isn't.
Speaker 5: So I start with my hometown of Geneva. I grew
Speaker 5: up in a very sort of stateless environment in Geneva, Switzerland.
Speaker 5: My parents were un employees. I went to international schools
Speaker 5: for the most part, and it was just this big
Speaker 5: mix of people from all over the world who were
Speaker 5: always moving.
Speaker 6: I wasn't moving.
Speaker 5: I lived eighteen years in Geneva and I still don't
Speaker 5: feel like I know the place. It is the most
Speaker 5: mysterious place to me, even though my mother still lives there.
Speaker 5: And I started thinking about why that was. How can
Speaker 5: you live somewhere and still not really grasp it. And
Speaker 5: part of it is, yes, I was in this kind
Speaker 5: of international community, didn't really learn a lot about Swiss history.
Speaker 5: I have a Swiss passport, but I don't speak German,
Speaker 5: I don't speak Italian. I actually don't have a lot
Speaker 5: of Swiss friends, so that was definitely part of it.
Speaker 5: But the other side, when I kind of zoomed out,
Speaker 5: and I thought of the legal topography of the place
Speaker 5: that I grew up in. It's like Swiss cheese. Geneva
Speaker 5: is this historic, beautiful city with an old town and
Speaker 5: old walls that are, you know, more ancient than like
Speaker 5: most of the things in the United States. At the
Speaker 5: same time, it has all of these pock marks and
Speaker 5: black holes and mysteries. An example of that is the
Speaker 5: Geneva Freeport. You might have heard of that.
Speaker 3: I was going to say. You mentioned once you see
Speaker 3: these things, you can't unsee them. And I remember I
Speaker 3: read a book called Unruly Places and they had a
Speaker 3: chapter on freeports, and that was the first time I'd
Speaker 3: have heard of them, and ever since then, I haven't
Speaker 3: forgotten them. I can't get them out of my mind.
Speaker 2: Yeah, what's the Geneva Freeport. What do you get to
Speaker 2: do there?
Speaker 5: Uh?
Speaker 6: The Genia?
Speaker 5: Well, I have never been inside, Okay, and it is
Speaker 5: not for lack of trying, trust me.
Speaker 6: The Geneva Freeport is a warehouse.
Speaker 5: It was built a long time ago, in the late
Speaker 5: eighteen hundreds, and it was originally built to store things
Speaker 5: like grain, things like supplies for wartime, and it was
Speaker 5: used for that, and the idea was that merchants could
Speaker 5: put their goods there, have them sort of hang out
Speaker 5: without declaring them to customs, without paying for taxes or
Speaker 5: tariffs or what have you, and then move them to
Speaker 5: their next destination. So for something like sacks of oats,
Speaker 5: there's a shelf life. You can't keep them there forever.
Speaker 5: They got to move otherwise everyone's interest.
Speaker 2: To be clear, it serves a very specific purpose because
Speaker 2: if you want Geneva, if Switzerland wants to be a
Speaker 2: hub of trading, they don't want merchants to have to
Speaker 2: pay a tax or a tear of just if they're
Speaker 2: like stopping by.
Speaker 6: You got it.
Speaker 5: If you want you want a place to be an entropo,
Speaker 5: you want to make it as easy as possible to
Speaker 5: be an entropo to leave your things there temporarily and
Speaker 5: then move on. Geneva was also a crossroads for trade.
Speaker 5: They had a big market, so it made sense. But
Speaker 5: as time went on, and as you know, the economy evolved,
Speaker 5: and as Switzerland evolved, this became a place to store
Speaker 5: things like gold, things likes, and eventually things like very
Speaker 5: expensive paintings. And today it's estimated that billions of dollars
Speaker 5: worth of paintings and cars and wine and luxury goods
Speaker 5: are being stored there.
Speaker 4: Now.
Speaker 5: The difference between a sack of oats and a DaVinci,
Speaker 5: apart from how expensive it is, is that now these
Speaker 5: places are super climate controlled, like humidity is monitored. Everything
Speaker 5: is very very very tightly controlled, and so there's no
Speaker 5: there's no rotting, things don't go bad. Things can stay
Speaker 5: there perhaps forever. And it's a completely different game because
Speaker 5: if you're someone who wants to hide something or to
Speaker 5: just sit on something for a very long time without
Speaker 5: incurring tax or maybe declaring it to your ex spouse,
Speaker 5: you can do that in the Geneva Freeport.
Speaker 3: So you touched on this when you were talking about
Speaker 3: the evolution of the freeport. But one thing I often
Speaker 3: wonder with these sort of loophole liminal places is how
Speaker 3: deliberate are the choices to create them. So the freeport
Speaker 3: started out as a place where you could store green
Speaker 3: because it wasn't meant to stay there forever and you
Speaker 3: wanted to be a hub for trade, and then it
Speaker 3: gradually evolved to a place where you could stash things
Speaker 3: potentially forever. How did that decision come about? What were
Speaker 3: the choices that went into that outcome.
Speaker 5: In the case of Geneva, there's a somewhat organic or
Speaker 5: natural progression of things. I don't know that you know,
Speaker 5: in like eighteen eighty you necessarily would have anticipated the
Speaker 5: art market being just unbelievably full of speculation and using
Speaker 5: these places to enable that. So for one of these
Speaker 5: entrepose that's been around for a long time, the decisions
Speaker 5: are more in the lack of involvement of the states.
Speaker 5: So you have this rule for grain, maybe you're not
Speaker 5: going to change it too much and have it apply
Speaker 5: for gold bars. But there are more freeports than just
Speaker 5: the Geneva freeport. There are brand new ones that were
Speaker 5: built in the past, you know, twenty thirty years in Luxembourg,
Speaker 5: in Singapore there was talk of creating when in Russia,
Speaker 5: And for the new ones that are being built, it's
Speaker 5: very clear what the intention here is. Right, we're not
Speaker 5: talking about oats or salt or any food stuff, so
Speaker 5: we're really talking about high end goods that you know,
Speaker 5: increasingly are one of the only ways to get around
Speaker 5: financial controls as well.
Speaker 2: For country or a city like Singapore, what do they
Speaker 2: get from it from the existence of a freeport that
Speaker 2: explicitly is there so that people can have our not
Speaker 2: declare it.
Speaker 5: I'm trying to figure this out. I'm not sure there's
Speaker 5: one exact answer, to be honest, I think a big
Speaker 5: part of it is branding.
Speaker 6: It looks good.
Speaker 5: It looks good to say that you have, you know,
Speaker 5: stashes of picassos, And the people involved in these enterprises
Speaker 5: will say, well, we are creating a huh. And when
Speaker 5: the paintings come, then the artists come, and the dealers come,
Speaker 5: and the bankers come, and so it creates a sort
Speaker 5: of a little ecosystem of.
Speaker 6: Art and art art markets.
Speaker 5: I think that there's a more cynical way of putting it,
Speaker 5: which is that these types of places, freeports and so on,
Speaker 5: are ways to launder money when it's much harder to
Speaker 5: launder money through the banks. So you can have many
Speaker 5: reasons for this, and a country would be interested probably
Speaker 5: in both sides of this, if the ultimate goal is
Speaker 5: to bring money to its territory.
Speaker 3: In researching and writing this book, did you observe any
Speaker 3: interesting examples of either freeports or other types of offshore
Speaker 3: centers competing with each other and what happens when everyone
Speaker 3: is trying to do a similar thing, and you have
Speaker 3: a freeport here and a freeport here and a freeport there.
Speaker 5: Yeah, these places are always one uping each other. I mean,
Speaker 5: how many you guys work at Bloomberg. How many times
Speaker 5: have you read the headline X is the new Switzerland?
Speaker 1: Right?
Speaker 5: I think Singapore has been the new Switzerland, Dubai has
Speaker 5: been the new Switzerland. Luxembourg has been the new Switzerland,
Speaker 5: although that was a while ago.
Speaker 3: One day Switzerland will be the new Switzerland.
Speaker 5: Well, and then Switzerland is always trying to be the
Speaker 5: new Switzerland. Right. They were also trying to do this
Speaker 5: crypto valley thing in the Canton of Zug.
Speaker 2: Yeah.
Speaker 5: So yes, there's always competition and they're always trying to
Speaker 5: one up each other. It's relentless. And that's why. Also
Speaker 5: for regulators who might want to crack down on this,
Speaker 5: it's like whackam mol. One jurisdiction might say, Okay, we're
Speaker 5: going to put tighter controls on our freeport or on
Speaker 5: our crypto market. Another one is going to pop up
Speaker 5: tomorrow to fill that void.
Speaker 2: I asked Tracy this, but maybe I should just ask you.
Speaker 2: When Abu Dhabi in Dubai, what goes on.
Speaker 5: There, Abu Dhabi and Dubai. I can speak to Dubai.
Speaker 5: I've not been to Abu Dhabi. Dubai has, for its
Speaker 5: recent I guess the past two twenty or so years,
Speaker 5: made really really concerted efforts to attract millionaires and billionaires.
Speaker 5: There is the real estate play here. Obviously, You've talked
Speaker 5: about this a lot. There's a lot of There are
Speaker 5: a lot of articles about these wacky things that they
Speaker 5: build and the developments and whatnot, the ski slopes in
Speaker 5: the malls. At the same time, there have been many
Speaker 5: reports that show from the think tanks and the OCCRP
Speaker 5: and the ICJ, the show that Dubai is really the
Speaker 5: center of the world of money laundering, criminality and those
Speaker 5: types of offshore theatrics. So they are up to that too.
Speaker 5: Before Dubai was what we think of today as Dubai,
Speaker 5: this place with tall buildings and and crazy stuff going on,
Speaker 5: there was a lot of smuggling and pearl smuggling and
Speaker 5: gold smuggling going on. It has a sort of long
Speaker 5: tradition of this that this did not occur overnight. When
Speaker 5: the shakes past a bunch of laws that said For
Speaker 5: the past twenty or so years, Dubai has made a
Speaker 5: concerted effort to create laws to attract businesses and people.
Speaker 5: Some of these laws involve carving out free zones within
Speaker 5: the territory of Dubai that cater very specifically to certain sectors.
Speaker 5: So you have a media city where ostensibly there's more
Speaker 5: freedom of speech and expression. There is an internet city
Speaker 5: that has world class infrastructure. I think there's a medical one,
Speaker 5: and there's one for commodities, and all of these little zones, clusters, hubs,
Speaker 5: whatever you want to call them, have a kind of
Speaker 5: a bespoke legal regime. A lot of that is spin,
Speaker 5: a lot of that. They're sort of interchangeable, but by
Speaker 5: virtue of appealing to a certain type of business, I
Speaker 5: think there's something to be said for proximity and exchange,
Speaker 5: and that's real. This is why we like to go
Speaker 5: back to the office, because you can talk to people anyway.
Speaker 6: All of these zones.
Speaker 5: Also have very preferable tax regimes. They make it easier
Speaker 5: to import workers, so the immigration side of things is
Speaker 5: a little more streamlined, and overall, I think now Dubai
Speaker 5: is on a big kick of reducing bureaucracy. We can
Speaker 5: all appreciate the idea of reducing bureaucracy, and I think
Speaker 5: that they actually do it, So that's another part of
Speaker 5: their play.
Speaker 3: You mentioned the legal regimes and the financial centers in
Speaker 3: Dubai and Abu Dhabi, DIFC and ADGM. They're really interesting
Speaker 3: to me because they essentially got to craft a whole
Speaker 3: new body of law and kind of cherry pick what
Speaker 3: they wanted to include in order to attract financial businesses.
Speaker 3: And they're obviously influenced by English law. It's an English
Speaker 3: law regime, but their systems are still different in various ways.
Speaker 3: What's the process that these types of new jurisdictions go
Speaker 3: through when they're crafting laws and how much input do
Speaker 3: you think is overtly had by people who are perhaps
Speaker 3: looking to preserve loopholes.
Speaker 5: So I'll tell you about this story of the Dubai
Speaker 5: International Financial Center and more specifically the Dubai International Financial
Speaker 5: Center's courts, which are within the Dubai International Financial Center
Speaker 5: but their own things. So, the DIFC was established as
Speaker 5: one of these free zones that was going to be
Speaker 5: the center for finance, banks, traders, et cetera. As companies
Speaker 5: started to express interest in moving there, and as Dubai
Speaker 5: was making their pitch, come here, you're going to pay
Speaker 5: less tax, et cetera, et cetera, they ran into an issue,
Speaker 5: which was that the lawyers and the councils and all
Speaker 5: the sort of legal infrastructure of the companies that they
Speaker 5: were trying to bring in were balking at the idea
Speaker 5: of having to deal with a whole new legal system,
Speaker 5: namely the Arabic language is law influenced courts. Maybe they
Speaker 5: did this out of racism, Maybe they did this because
Speaker 5: they truly had no idea how these courts worked.
Speaker 6: We should talk a little bit about the history here.
Speaker 5: So the emirates were previously protectorates of the UK of
Speaker 5: England and they had two systems of law. There were
Speaker 5: laws for Muslims for natives, and then there were laws
Speaker 5: for Brits and expats. So that's the context out of
Speaker 5: which this is all coming. So the DIFC sets up
Speaker 5: in the early two thousands and they decide, well, we
Speaker 5: need to have another set of laws because we don't
Speaker 5: want to scare away the big companies. And so they
Speaker 5: get to work thinking, well, how are we going to
Speaker 5: come up with this parallel legal regime on the one hand,
Speaker 5: it's kind of a throwback to the battle days where
Speaker 5: the Brits had their laws for themselves and locals had
Speaker 5: their own laws. Right. This is colonialism, to put it bluntly.
Speaker 5: So instead of just taking the old laws or just
Speaker 5: imposing their own court system, they.
Speaker 6: Came up with a kind of a hybrid. And this
Speaker 6: is in the book.
Speaker 5: But there was one man who was really instrumental in
Speaker 5: building the system. His name was Mark Bier. He was
Speaker 5: he is an Englishman, really clever, clever guy, and they
Speaker 5: kind of cobbled together a bunch of laws based in
Speaker 5: common law, which the multinationals are comfortable with, which the
Speaker 5: big banks are comfortable with, and essentially created a court
Speaker 5: that was sitting inside the DIFC that would serve the
Speaker 5: tenants of the DIFC, and that eventually expanded its reach
Speaker 5: to be this kind of opt in jurisdiction, so anyone
Speaker 5: could say in their contracts, shouldn't disputarize, We're gonna have
Speaker 5: our day in court at the DIFC. The term at
Speaker 5: is doing a lot of work here because it is
Speaker 5: a place. There is a court house, there was a
Speaker 5: court room, but the judges don't all live in Dubai.
Speaker 5: They don't all show up for hearings at the DIFC.
Speaker 5: A lot of this was taking place remotely even before
Speaker 5: Zoom came to consume our lives during the pandemic, and
Speaker 5: so the notion that the law and the land are
Speaker 5: in any way tied together just doesn't make sense here anymore.
Speaker 5: It's a really new way of thinking about law.
Speaker 2: It's a little bit like Delaware in that sense, right
Speaker 2: where it's like everyone is like, okay, we want to
Speaker 2: be incorporated under Delaware law, but the company and the
Speaker 2: judges are prayed there. But by and large the companies
Speaker 2: have no meaningful.
Speaker 3: I'm sure Dubai will appreciate it being called the Delaware
Speaker 3: of the.
Speaker 2: World, the Delaware the world in your book. I don't
Speaker 2: know what the grouping is Dubai, Abu Dhabi, Singapore, Geneva like,
Speaker 2: but when you in your mind, when you sort of
Speaker 2: think about these cities around the world, like how big
Speaker 2: are we talking about? How much money, how much wealth,
Speaker 2: or however you want to quantify it has flowed into
Speaker 2: these sort of preferential locations.
Speaker 6: Oh, that's a good question.
Speaker 5: I can't really put a number on it, but I
Speaker 5: can tell you that the oceans are another jurisdiction that
Speaker 5: I write about in the book, and something like ninety
Speaker 5: percent of all goods are shipped through the ocean, And
Speaker 5: so that'll just give you a sense of scale. Things
Speaker 5: do not just happen on the national level. That doesn't
Speaker 5: make any sense. Things are always moving and moving between places.
Speaker 3: So one thing you often hear when people are talking
Speaker 3: about establishing these new hubs or centers or whatever they
Speaker 3: want to call them sandboxes. Maybe people often talk in
Speaker 3: terms of innovation and creating new business opportunities and startups
Speaker 3: and maybe not falling behind in the brand new thing.
Speaker 3: And so I'm curious, how do you think governments or
Speaker 3: localities looking to set up these types of things are
Speaker 3: balancing the need for rules and regulation with that innovation impulse.
Speaker 3: Because no one ever says explicitly this is just a
Speaker 3: money grab and we want lots of income coming into
Speaker 3: the country. It's always about, you know, we're going to
Speaker 3: create this creative place where small businesses can flourish and
Speaker 3: things like that.
Speaker 5: I don't haven't heard the small business pitch so much,
Speaker 5: at least not in the jurisdictions that I've been covering.
Speaker 5: Balancing the sort of wild West aspect with the regulatory
Speaker 5: aspect is obviously pretty tough. If we look at how
Speaker 5: crypto has played out and continues to play out, you'll
Speaker 5: see that the regulatory side has not been as strong
Speaker 5: as the more free wheeling, you know, quote unquote innovation
Speaker 5: side of things. I think this really depends on the jurisdiction.
Speaker 5: Some have much higher tolerance for risks, some don't. I
Speaker 5: don't know that like Sweden is doing crazy things, but
Speaker 5: maybe you know a place like Palau, which is smaller
Speaker 5: and maybe a bit more niche can do crazier things.
Speaker 5: I mentioned Palau because it comes up twice in the book,
Speaker 5: once because they have been offering e residency, but geared
Speaker 5: at people who want to transact in cryptocurrencies but come
Speaker 5: from a country that doesn't allow it. Huh So it's
Speaker 5: almost like a crypto passport. To be clear, you don't
Speaker 5: have right to live there, you don't have an address there.
Speaker 5: It's really just digital and virtual.
Speaker 2: Wait what do you get?
Speaker 5: You get an identification card and number that you can
Speaker 5: sign up for crypto services with.
Speaker 2: Huh oh. I see if you're in a country that
Speaker 2: has high restrictions on cryptoactivity, but you want to set
Speaker 2: up a fund that can trade and stuff like that,
Speaker 2: you basically incorporate there and your money is housed there
Speaker 2: and you can then legally transact from there. Is that
Speaker 2: kind of the idea.
Speaker 5: I don't even know that your money would be housed there.
Speaker 5: It's that you as that you can have a kind
Speaker 5: of a second flag that you can and fly under
Speaker 5: for the purposes of your blog.
Speaker 2: Is an island country in Micronesia. I didn't know where
Speaker 2: it was.
Speaker 3: I had to look it up on the thriving Crypto Center.
Speaker 6: They're trying, They're trying.
Speaker 5: Palau also has had some adventures in the maritime flagging industry,
Speaker 5: which is actually very analogous to these crypto passports or
Speaker 5: second passports. So most of the ships in the world
Speaker 5: do not fly the flag of their owner or of
Speaker 5: their parent company, or of where their home port is.
Speaker 5: They're flying flags of convenience places like Marshall Islands, Liberia, Panama,
Speaker 5: and Palao. Is a really interesting case because it's a
Speaker 5: relatively new flag. It's still relatively small, but it's growing
Speaker 5: tremendously because it is providing a service that more and
Speaker 5: more shipowners want, which is a deregulated way for the
Speaker 5: ship to die. Ship breaking is increasingly regulated by European countries,
Speaker 5: by the US and more. It's very dirty business, and
Speaker 5: it's a very expensive business. To take a ship apart
Speaker 5: in a way that does not pull the environment, harm workers,
Speaker 5: et cetera. Is quite expensive and often the ships are
Speaker 5: not even worth the money it takes to take them apart,
Speaker 5: and so jurisdictions like Palau, but also Kumoro Islands and
Speaker 5: Cameroon have stepped in to offer a flag under which
Speaker 5: the ship can fly for its final journey to the
Speaker 5: ship breaking yard. That helps them sort of evade these rules.
Speaker 5: There's a bit more to it than that. You have
Speaker 5: to have shell companies and cash buyers and all of
Speaker 5: these transactions.
Speaker 6: That will help you hide.
Speaker 5: But it's pretty wild that a tiny country like Palau
Speaker 5: can pull this off and create its own kind of
Speaker 5: offshore economy.
Speaker 3: I'm just going to be hyperbolic. What's the point of
Speaker 3: like passports and regulations and restrictions on taking apart ships
Speaker 3: If for two hundred and forty eight dollars, I can
Speaker 3: buy a crypto residency in Palau, or I can find
Speaker 3: a flag of convenience and evade environmental restrictions and stuff.
Speaker 3: Why have them at all when there seem to be
Speaker 3: loopholes everywhere.
Speaker 5: The loopholes apply mainly to people who have the time
Speaker 5: and money and know how to figure them out. These
Speaker 5: are not equal opportunity loopholes. You have to know where
Speaker 5: they are. Often you have to have lawyers arrangement for you.
Speaker 5: Often you have to pay that. You know, two hundred
Speaker 5: and fifty bucks for the crypto passport is one thing.
Speaker 5: But if you are actually in the market for a
Speaker 5: real passport, a second passport that might help you do
Speaker 5: some of these things, it's going to cost you hundreds
Speaker 5: of thousands of dollars. So it's a great question, why
Speaker 5: do we have these things at all if they're so
Speaker 5: easy to get around? But the answer is that getting
Speaker 5: around them is hardly democratic, and for the vast majority,
Speaker 5: the vast vast majority of people and companies and institutions,
Speaker 5: they are still subject to the rules of their state.
Speaker 2: Your previous book was about the market for passports. I
Speaker 2: believe what's the easiest passport to get? I don't think
Speaker 2: I'm going anywhere, but you know, everyone's in a wat
Speaker 2: turn on the TV. Things are kind of weird here,
Speaker 2: where's the easiest passport to get where I can get
Speaker 2: it and also live somewhere, so it's not just a
Speaker 2: virtual like a digital passport.
Speaker 5: The easiest passports to get or the most straightforward, time
Speaker 5: tested ones, those are mainly in the Caribbean. Saint Kitts
Speaker 5: and Davis was a pioneer in the passport industry Dominica Antiga.
Speaker 5: So there's a number of islands in the Caribbean that
Speaker 5: will offer their passport for money. Until recently you didn't
Speaker 5: even have to go there. You could do your citizenship
Speaker 5: interview remotely. They're starting to crack down on that a
Speaker 5: little bit more, but there are options. There were more
Speaker 5: options in Europe. Those have basically been reduced down to Malta,
Speaker 5: and Malta is being challenged at the European Court of Justice.
Speaker 5: In fact, by the time this podcast comes out, it
Speaker 5: will have been decided. So you know, the future of
Speaker 5: the European programs because these countries are part of the
Speaker 5: EU is a little more dicey that you has been
Speaker 5: very critical of them, But yeah, I think depending on
Speaker 5: your budget, probably the Caribbean is the way to go.
Speaker 3: Is there any example from your book of someone either
Speaker 3: a person or a corporation who you think was particularly
Speaker 3: adept at using loopholes or favorable regimes to their advantage.
Speaker 5: I actually have a piece coming out in New York
Speaker 5: Times magazine about a man who, to me just embodies
Speaker 5: every aspect of offshore. He unfortunately died in an accident
Speaker 5: on the sea. He was living on a barge twenty
Speaker 5: seven miles offshore from Dubai, and his name was Samuel Landi.
Speaker 3: Truly offshore, truly offshore.
Speaker 5: I mean, you don't get more offshore than this. So
Speaker 5: this man, Samuel Landi, was an Italian guy from Tuscany.
Speaker 5: His first company was arbitraging phone numbers. So Italy was
Speaker 5: deregulating its telecoms industry, and he bought up a bunch
Speaker 5: of those easy to remember phone numbers and sold them
Speaker 5: to weather reports and phone sex and all of the
Speaker 5: numbers that you dial in for services, and you know,
Speaker 5: he take cut off the difference between the prices. Then
Speaker 5: he went on to be a telecom's entrepreneur. He had
Speaker 5: a big telecom's company that went bust, and it later
Speaker 5: came out that much of the money of this company
Speaker 5: made was sent to some really remote offshore jurisdictions, the
Speaker 5: island of Niui.
Speaker 6: He thought Paulau was remote, This is really pretty Niche obviously.
Speaker 5: Switzerland, a couple of Swiss banks who have a record
Speaker 5: of this, you know, et cetera.
Speaker 6: That was his corporate stuff.
Speaker 5: As soon as the law came for him, he decamped
Speaker 5: to Dubai set up a company in one of these
Speaker 5: special economic zones. He had an encrypted cell phone company.
Speaker 5: And not only did he move to Dubai, a place
Speaker 5: with no extradition agreement with his home country of Italy,
Speaker 5: but he then obtained diplomatic immunity via a Liberian diplomatic appointment.
Speaker 5: He became the Liberian Honorary Consul General to Dubai. What
Speaker 5: this meant is that there is a guy on the run.
Speaker 5: He goes to a place with no extradition treaty and
Speaker 5: on top of that, he gets diplomatic immunity, so he's
Speaker 5: kind of untouchable.
Speaker 6: And you'll have to read this story.
Speaker 5: But long story short, he starts to run out of
Speaker 5: options and he moves to a barge that he anchors
Speaker 5: between Dubai and Iran, and he lives there for an
Speaker 5: entire year until a wave comes and you know that
Speaker 5: was the end. Once you develop a mind for these
Speaker 5: kinds of offshore structures, like I said, it's hard to
Speaker 5: unsee them, and just this whole world of opportunity arises
Speaker 5: for you if you have the right mindset.
Speaker 2: First of all, there's a wild story, looking forward to
Speaker 2: reading it. By the way, Tracy, you know who I
Speaker 2: just remembered, Justin the Son. Yeah, he served as the
Speaker 2: permanent representative of Granada to the World Trade Organization, which
Speaker 2: apparently isn't anymore. But this Chinese crypto entrepreneur, I remember
Speaker 2: one day he was suddenly the honorable Justin Sun.
Speaker 5: Anyway, did he buy the passport?
Speaker 6: Grenada was in this business.
Speaker 2: I don't know if you bought the passport, and I
Speaker 2: don't want to insinuate anything, but he became an official
Speaker 2: ambassador of Granada to the WTO. So good for him. Okay,
Speaker 2: So we know the Dubais and Nabu Dhabi's, and then
Speaker 2: we get a little more out there in the world,
Speaker 2: the Pulaos and what was the other one, Neo Ni Niwi.
Speaker 2: I don't know where that is. I'll have to look
Speaker 2: it up. The other thing that's going on in this
Speaker 2: new world of like cities. Is these various attempts to
Speaker 2: like create startup cities. I once went to a party
Speaker 2: at the offices of Praxis, which is this thing which
Speaker 2: is a bunch of like crypto people who like talk
Speaker 2: about like we were going to set up a crypto
Speaker 2: city and like Albania or Montenegro.
Speaker 5: To be clear, practice does not exist.
Speaker 2: Right, yes, but but they talk about exist.
Speaker 6: They do talk about it.
Speaker 2: Any of these real have any of them broken ground anywhere?
Speaker 2: Like what's going on in the world of like sort
Speaker 2: of just creating a new city whole cloth for rich
Speaker 2: crypto people to hang out in.
Speaker 5: Creating new cities from scratches pretty hard, as you can imagine.
Speaker 5: There have been a number of attempts. The ones that
Speaker 5: come to mind are mostly in Africa. I think there
Speaker 5: is one someone in Nigeria. I think the rapper Akon
Speaker 5: was involved in one. Yeah, so these things exist. There
Speaker 5: are there are cities that are being built. Unclear what
Speaker 5: the result is because it takes quite a while to
Speaker 5: build a city. I think what you're alluding to, Joe
Speaker 5: is there is a startup city ecosystem, and then there's
Speaker 5: also this idea of a charter city, and I mean,
Speaker 5: there's a lot of overlap in these two things. A
Speaker 5: startup city, I guess that it's most basic. It's just
Speaker 5: a new city that you know. Some of them have
Speaker 5: smart city elements, some of them have different kinds of
Speaker 5: zoning laws than make it easier to build. That's one
Speaker 5: set of things, and then the charter city universe is
Speaker 5: maybe a little bit more political and a little bit
Speaker 5: less like urban planning. The original concept of the charter
Speaker 5: city was an idea from the economist Paul Romer and
Speaker 5: his kind of his papers and his writing about this
Speaker 5: essentially said, there are poor countries that have land, and
Speaker 5: there are rich countries that don't have land, but they
Speaker 5: have good laws. So why don't we take a piece
Speaker 5: of land from country X, which may have not so
Speaker 5: great economy, applied the rules and regulations and sort of
Speaker 5: way of doing business from country Z, and you know,
Speaker 5: together they can create a thriving new place for people
Speaker 5: to go. Romer got a lot of flak for this
Speaker 5: because that too sounds an awful lot like colonialism. Well,
Speaker 5: you have a lot of economists on this show. Economists
Speaker 5: have a very particular way of coming to their ideas.
Speaker 5: I thought about this a lot, and I think that
Speaker 5: Roma came to his honestly not sort of reverse engineering colonialism,
Speaker 5: but actually just working from his previous ideas about how
Speaker 5: economies benefit from foreign foreign influence. So let's give them
Speaker 5: that to counter a lot of the pretty vicious criticism.
Speaker 5: And so the idea of a charter city is that
Speaker 5: you can if you bring in the right kinds of
Speaker 5: laws and incentives in business environment, the economy will follow
Speaker 5: and people will thrive, and then that will have an
Speaker 5: impact on the country that is around this city or zone,
Speaker 5: so it will lift all boats. Do any of these exist, Well,
Speaker 5: there is one in particular that is maybe a little
Speaker 5: more advanced than a praxis, which is mostly a praxice
Speaker 5: of the mind, and that's an Honduras It's called Prospera,
Speaker 5: and it is really contentious because it was initiated and
Speaker 5: built by some pretty ideological people. They will tell you
Speaker 5: they are not libertarians, that they don't have these ideologies,
Speaker 5: but you know it's pretty clear that they do, and not.
Speaker 6: Everyone likes it.
Speaker 5: Prospera is a more or less deregulated zone on the
Speaker 5: island of Roatan, which used to be British. Sort of
Speaker 5: interesting history there of foreign influence as well, And for
Speaker 5: now there's a real estate angle they're selling. They're going
Speaker 5: to sell condos they purport to putting Hondurance, giving Hondurance
Speaker 5: work opportunities.
Speaker 6: I don't know. I haven't been there.
Speaker 5: I was supposed to go there during COVID, but then
Speaker 5: it didn't work out, not because of COVID, but because
Speaker 5: a left wing government was elected in Honduras and the
Speaker 5: kind of the people I was going to be called
Speaker 5: the whole thing off. Anyhow, Prospera exists in so far
Speaker 5: that they have broken ground, they have built things, and
Speaker 5: that they have a system of law and regulation for
Speaker 5: their zone. But the future of Prospera is a little
Speaker 5: up for grabs because since this new left wing government
Speaker 5: has come in in Honduras and there have been various
Speaker 5: regulatory moves to curb the autonomy of Prospera, Prospera has
Speaker 5: hit back and actually issuing the State of Honduras for
Speaker 5: like a third of third GDP in international court. So
Speaker 5: we don't know how that's going to play out yet.
Speaker 5: I'm not sure that they're going to be successful because
Speaker 5: the sum of money is so astronomical and a couple
Speaker 5: of lawyers I've spoken to think it's a little ridiculous,
Speaker 5: but who knows what's going to happen, So there is
Speaker 5: a charter city. They were very clearly inspired by Romer's ideas.
Speaker 5: Romer was even involved in an early version of the
Speaker 5: legislation in Honduras until.
Speaker 6: He got out of it.
Speaker 5: But the future of Prospera is not entirely clear to me.
Speaker 3: Can you talk a little bit more about the downsides
Speaker 3: of these types of offshore centers or regimes? And also
Speaker 3: is there anything that can be done to maybe crack
Speaker 3: down on them or at least limit their growth. And
Speaker 3: it seems difficult in the sense that perhaps you need
Speaker 3: international coordination and has been a lack of that recently.
Speaker 3: But on the other hand, you know, you have seen
Speaker 3: some things happen, like with Swiss banking and the Secrecy
Speaker 3: Act and all of that. So what are the downsides
Speaker 3: and what can be done to limit those downsides.
Speaker 5: The classic argument against these types of offshore jurisdictions is
Speaker 5: that they create a race to the bottom. Country A
Speaker 5: cuts taxes, country beak cuts taxes even more, country cuts
Speaker 5: taxes even more. New Switzerland, newer Switzerland, even newer Switzerland, right,
Speaker 5: when does it end? And the impact of that is,
Speaker 5: as argument goes, it takes money away from the state.
Speaker 5: There's less money to spend on social services and education.
Speaker 6: And healthcare and so on. And that's real.
Speaker 5: I mean, that's happening. There's been a lot of economic
Speaker 5: research into the impact of offshore, the billions of not
Speaker 5: trillions of dollars that are just not accounted for and
Speaker 5: not being taken by governments in the form of taxes,
Speaker 5: and that's convincing. The second issue with offshore is that
Speaker 5: offshore is much bigger than just money. Offshore can have
Speaker 5: really serious human rights repercussions. To use an example, for
Speaker 5: more than a decade, Australia was using two offshore sites
Speaker 5: to send refugees who who were trying to arrive in
Speaker 5: Australia by boat and actually just warehoused people on Manus
Speaker 5: Island and Nouru for years and years and years. They
Speaker 5: were never told when they were getting out. They were
Speaker 5: just in limbo. And if the fiscal stuff has big
Speaker 5: picture impact on state budgets, this has really tangible and
Speaker 5: traumatic effect on individuals. So I think we need to
Speaker 5: talk about offshore both as a money thing and as
Speaker 5: a human rights thing. And these are two sides of
Speaker 5: the same coin. If you think of offshore as a
Speaker 5: legal mechanism to send responsibility elsewhere, you can see that
Speaker 5: it can affect people as well as balance sheets.
Speaker 2: Talk more like whether it's the US, US or Europe,
Speaker 2: or places or maybe places in Asia, places that are
Speaker 2: the net where money is being drained from. And we
Speaker 2: always see angry alter rich people wanting to you know,
Speaker 2: lower taxes, etc. A threaten to move, etc. What is
Speaker 2: being done respond fight? Is there a pushback in any way?
Speaker 5: There's been some pushback the Swiss banks that maybe you
Speaker 5: want to call it ground zero of all this stuff
Speaker 5: have reformed somewhat. There is going to be as global
Speaker 5: corporate minimum tax. How many loopholes there will be to
Speaker 5: get around that is another question. But I do feel
Speaker 5: like there has been a broad agreement that this is
Speaker 5: not great. The only way that anything is going to
Speaker 5: be done is to get every single country on board
Speaker 5: with whatever agreement is made. Right, if you have any
Speaker 5: jurisdiction that decides to become the outlier, the international community
Speaker 5: can ice them out by putting them on financial blacklist,
Speaker 5: cutting them off from swift you know, typical sanctions regimes,
Speaker 5: but they'll still be there and they'll still always be
Speaker 5: ways around it. I think another thing that can be
Speaker 5: done is to think of ways that offshore can be positive.
Speaker 5: And that might sound really contradictory, but the reason that this,
Speaker 5: I think kept my attention for so long is that these.
Speaker 6: Hacks are so clever.
Speaker 5: They're ingenious, and what if they were dreamed up not
Speaker 5: by people who were just trying to make more money,
Speaker 5: but people who were trying to create new types of
Speaker 5: places for people to live. This idea of offshoring refugees
Speaker 5: is horrendous and horrible, but what if there was a
Speaker 5: way to create places that were safe, temporary zones for
Speaker 5: people who were fleeing war that were not prisons. So
Speaker 5: I think you can regulate, and states know how to
Speaker 5: do this. They just have to want to and they
Speaker 5: have to get it together to do it, because ultimately
Speaker 5: all of this is in many ways in under the
Speaker 5: state's control.
Speaker 6: But I think you also want to come up.
Speaker 5: With new solutions by using this way of thinking, because they're.
Speaker 2: Something to ITTUSA. Thank you so much for coming on outlocked.
Speaker 6: Thanks for having me.
Speaker 2: This is really fun, Tracy, I really enjoyed that conversation.
Speaker 2: We've talked a little bit about the real estate side
Speaker 2: in the past with Hitten, some Tani and some others.
Speaker 2: You know, when they're crypto or I guess, like condos
Speaker 2: in a high rise somewhere in Miami or Dubai, et cetera.
Speaker 2: You know, the common thread to all of it, to
Speaker 2: me is people finding ways to store a lot of
Speaker 2: high dollar value in a small container. Like to me,
Speaker 2: that's like the common thread here, and that basically what
Speaker 2: these countries or jurisdictions offer is that ability kind of
Speaker 2: like jewels and jewelry, et cetera. Basically to find a
Speaker 2: way to put a lot of wealth in a small place.
Speaker 3: Yeah, it's sort of a modern version of I don't know,
Speaker 3: stashing a bunch of gold coins under a stone wall
Speaker 3: in like Roman times or something.
Speaker 1: You know.
Speaker 3: What's interesting to me is the sort of tension between
Speaker 3: globalization and nationalism there. And it comes up in a
Speaker 3: lot of different ways. But I remember one of my
Speaker 3: favorite examples of this is do you remember a brage
Speaker 3: and RIFKNOCKVI?
Speaker 1: No?
Speaker 3: Okay, So abrage once upon a time was like the
Speaker 3: world's biggest private equity emerging markets investor, and it was
Speaker 3: very much about globalized investing. And then the whole thing
Speaker 3: collapsed and turned out to be a fraud and Rfnovi,
Speaker 3: the founder, was arrested, and it turned out, you know,
Speaker 3: there were all these profiles of him and how did
Speaker 3: he become a billionaire while running this fraud? And it
Speaker 3: turned out he lived in a place in Dubai called
Speaker 3: Emirates Hills. And when you looked up who else lived
Speaker 3: in Emirates Hills, it was like a roster of particular character,
Speaker 3: let's put it that way. But it was like Robert
Speaker 3: mcgabi's son, the Gupta family who were friends with Jacob Zuma.
Speaker 3: It was like those types of people living in offshore
Speaker 3: centers while sometimes espousing a particular brand of nationalism.
Speaker 2: I love these like destinations where it's like the gangs
Speaker 2: all here, so to speak. I have no real connection
Speaker 2: to any of this, but when I was nine, I
Speaker 2: did live in Malaysia for a year. My dad was
Speaker 2: a professor, he taught there. I went to an international school.
Speaker 2: It is a fun environment, like being around all of
Speaker 2: these people who are like children of ambassadors and heads
Speaker 2: of state. As far as I know, there are no
Speaker 2: like war, criminals on the land there, or you know,
Speaker 2: children of dictators or whatever.
Speaker 3: But es, I went to mostly international schools, and it
Speaker 3: is a very particular space, and it often feels like
Speaker 3: you're not actually living in that particular country, but living
Speaker 3: in like a yeah, compound version of it. But anyway,
Speaker 3: without getting too much into my high school experience, shall.
Speaker 6: We leave it there.
Speaker 2: Let's leave it there.
Speaker 3: This has been another episode of the All Thoughts podcast.
Speaker 3: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 2: And I'm Jill Wisenthal. You can follow me at the Stalwart.
Speaker 2: Follow our guest atusa Eroxia Abrahemian. She's at atusa Eroxia,
Speaker 2: and check out her brand new book, The Hidden Globe,
Speaker 2: How Wealth Hecks the World. Follow our producers Carmen Rodriguez
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