Organized by the Department of Sociology at the University of Massachusetts, the Distinguished Rossi Lecture 2022-2023 bring Dr. Kimberly Kay Hoang to talk about it book, “Spiderweb Capitalism: How Global Elites Exploit Frontier Markets.” The book is a deep dive into the networks of “lawyers, accountants, corporate secretaries and fixers who facilitate the illicit movement of wealth across borders and around the world”.
Hoang’s research saw her travel “more than 350,000 miles”, where she “conducted hundreds of in-depth interviews with private wealth managers, fund managers, entrepreneurs, senior executives, bankers, auditors and other finance professionals,” according to the event’s website.
Hoang’s research examines international financial networks, particularly around 1Malaysia Development Berhad, a strategic financial bank that has helped spark illegal financial movements. She began her research with the question, “How do global elites capitalize on risky frontier markets?” »
Frontier markets are an economic term used to describe the market in developing countries that are still considered investable. Hoang’s research focused on Southeast Asia, where financial growth was unprecedented. Hoang noted that the Asian stock market accounts for 32% of global accounts – ahead of the United States and Europe.
Asia recorded growth rates more than double those of advanced economies. Moreover, many of these countries lack transparency. Subsequently, Southeast Asia attracted the attention of bankers, lawyers and investors.
Hoang explained how many ultra-high network individuals, “play[ed] in the grey. These individuals act as “big spiders” who then employ agents to help build the structure of the web. These highly paid agents perform the footwork.
Hoang’s presentation examined how global capital flows through Southeast Asia. Capital is initially staged in the form of offshore partners and funds in places such as the Cayman Islands, British Virgin Islands and Panama.
It passes through “special investment vehicles” such as Hong Kong and Singapore, before arriving at holding companies in Vietnam and Myanmar. His study of capital movements analyzed around 300 financial elites with deals ranging from $200,000 to $450 million and across many industries including real estate, agriculture, mining and technology.
Hoang used ethnographic research, interviewing many financial elites across Southeast Asia. She found that many of these elites exemplified the diversity of financial networks, with one explaining, “I’m Korean, American-educated, living in Hong Kong, my business is domiciled in Samoa, and my investments are in Vietnam”.
His work has served as a “behind-the-scenes look at how the rich and powerful use offshore shell companies to hide their wealth and enrich themselves.” His research follows his first book“Dealing in Desire: Asian Ascendancy, Western Decline, and the Hidden Currencies of Global Sex Work”, which took “an in-depth and often personal look at sex workers and their clients to show how high finance and giving caring are intertwined with intimacy in Vietnam’s informal economy.
From this network, Hoang was able to gain high-level access to Southeast Asian financial elites under the trust of anonymity. It required “a lot of confidence in my ability to tell a nuanced story while anonymizing,” Hoang said.
She explained that she began her research as a personal assistant to two CEOs, before realizing that attending financial meetings could implicate her in criminal activity. From there, she conducted interviews in informal settings.
An elite went into the details of how their financial network works. They started by noting that they had lost track of the number of companies in the structure but likened it to a maze. Their network started in Guernsey, where there are no capital taxes. From there, the network moved to the Cayman Islands (which offered tax-exempt status) before moving on to Singapore, then Vietnam, Cambodia and Myanmar.
Hoang found that many elites employ “offshore foundations,” which mask donations to government officials as gifts to “women-led” or “environmentally focused” businesses. These gifts were immense; an elite explained that their company offered about “10 dollars [meaning $10 million]…small, so small that no one would notice what is happening to the fund.
Very high-networked individuals would employ CEOs or Fixers, who would be the ones to take care of business, but who would also be the ones to face consequences if caught.
The book examined “heterogeneous state-market relations,” where firms exhibit rent-seeking behavior to be more competitive. An elite explained, “it’s all about relationships and who you know in this country [Vietnam].”
“The winners are those who know how to play the local game. Here, you have to pay to play.
The elite explained the basic process. “You pay a bribe to get the land…then you pay ‘taxes’ to keep it every time they come in for an ‘inspection’. The payments were usually for high-value goods, such as handbags or watches. These payments were made by a “nominee” who served as the anonymous “paper owner”.
“Most people list the names of their drivers and cleaners. But we can trace the real owner if something goes wrong with the investment and [if] there is no sort of investigation into the company for wrongdoing,” they said.
Elites also use theft and fraud to gain capital before shipping it overseas. Hoang explains how elites can invest in companies that don’t even exist, a company that can “invest” in imaginary shrimp farms in a mountainous region of Vietnam.
They also participate in tax evasion or avoidance. Many companies can transfer their profits with “manufactured” prices without paying taxes on them. An elite explained that “most funds in the world…are domiciled in a building where there are lawyers and everyone uses the same address. Nobody breaks the law here. We all pay taxes, but there is a double taxation agreement between Singapore and Vietnam where you only pay 5% tax on all capital gains made overseas.
Companies can also dispose of assets onshore by selling shares overseas, which allows the sale of shares without changing the ownership of the structure. As one elite said: “In this business you have to play in the gray or they’ll say that guy doesn’t play ball… Players who didn’t go to jail, you weren’t really into the shot.”
Hoang points out that this problem is not only based in underdeveloped countries. She pointed to Penny Pritzker, the former Commerce Secretary in the Obama administration. Pritzker’s net worth, as of October 2022, was valued around $3 billion.
According to Hoang, Pritzker owned numerous front companies in Bermuda which, once she was appointed to a cabinet position, transferred to a Delaware-based LCC. Hoang also noted another LCC based in Delaware, which helped channel Russian funds to US campaigns.
Hoang noted, “there are consequences to this [research].” She explained that because of her research on Pritzker, she was denied a job at another institution of higher learning. However, she stressed that she sees how important her work is. “It’s my responsibility.”
Alex Genovese can be contacted at [email protected]. Follow him on Twitter @alex_genovese1.