Hi, welcome to Oligarchy, where we are tracking how the super rich are changing the world for the rest of us.
BURISMA
I have mixed feelings about Hunter Biden, whose unwise decision to join the board of a Ukrainian gas company shortly after Ukraine’s 2014 revolution ended up causing political turmoil in the United States. I had written an article about the gas company long before Donald Trump tried to manufacture a scandal out of it, and as a result ended up fielding so many calls from American journalists that I got rather grumpy.
While researching that article, I spent hours trying to reach Hunter Biden so I could ask him why on earth he would decide to hitch his star to that of Mykola Zlochevsky, a shaven-headed former Ukrainian minister of natural resource whose anonymously-owned company – Burisma – had done very well in the natural resources sector during his time in office. Sadly, Hunter Biden never replied, and I had to wait until this morning to hear from him, when his book popped onto my kindle.
Beautiful Things is a memoir, but I’m afraid I skipped through the sections that dealt with his addiction, his grief and his difficulties and – seeking enlightenment – headed straight for the part where he joined Burisma.
He was apparently persuaded to join the board by Aleksander Kwasniewski, who served as president of Poland for the decade prior to 2005, but by 2014 was already working for Zlochevsky. Kwasniewski’s pitch to Hunter Biden was that Ukraine was the front line of Vladimir Putin’s assault on democracy, that Zlochevsky’s company was critical to maintaining Ukraine’s independence, and that Hunter Biden could help secure the company’s future by improving its corporate governance.
Logically the argument makes little if any sense (why would Putin, who controls Gazprom, care about competition from a small Ukrainian gas firm?) but it worked for Hunter Biden, perhaps because it was backed up with the promise of much cash.
- “It was inspiring. It was consequential. And, to be honest, the pay was good. There’s no question that the board fee, five figures a month, appealed to me,” writes Hunter Biden.
He acknowledges that the fact that Zlochevsky-the-businessman had won licenses from Zlochevsky-the-government-minister (“that’s the kind of situation where things can get gray”) was questionable, and admits that he “did not drill down to determine whether or not Zlochevsky acquired his wealth fairly,” but none of that stopped him from accepting the position. And it is here that the book gets most interesting, if perhaps only accidentally, because it reveals the thought process someone like him follows in persuading himself to take a job like this. He is more than intelligent enough to realize he was largely being offered a five-figure monthly retainer because his dad was vice-president of the United States, and yet he still tries to transform this into something noble.
- “Having a Biden on Burisma’s board was a loud and unmistakable fuck-you to Putin,” he claims. “Burisma was opposed to the direct interests of the most dangerous person in the world – Vladimir Putin. If I was going to pick a side – and if I was going to get paid to pick a side – I’d choose the same way again.”
So, just in case you read the book, and find any parts of his argument persuasive, here’s a summary with the bullshit stripped away. Burisma paid Hunter Biden paid north of $120,000 a year. His duties consisted of attending two meetings annually, held in places like Monaco or a luxury fishing lodge in northern Norway, and, occasionally, replying to emails. His qualification for this lucrative position was – more or less – that his father was vice-president of the United States. And he persuaded himself that, by doing so, he was standing up to Vladimir Putin.
You don’t have to be Donald Trump to think that’s morally dodgy.
So why do I have mixed feelings about him, rather than entirely negative ones? Somehow I can’t help appreciating the role he played as the extremist exemplar yet of a certain kind of westerner in the former Soviet Union. There have been dozens of men (and they are, almost invariably, men) like Hunter Biden – whether that’s Paul Manafort, Tony Blair, Gerhard Schroder – who have headed east pledging to improve governance, and returned westwards significantly richer.
Despite all of their highly remunerated efforts, governance doesn’t seem to improve, but there’s no mystery about that. If you’re in the government-improvement business, the last thing you want to do is to actually improve governance. You might put yourself out of a job.
Thanks to Hunter Biden, that particular grift is blown wide open, and I doubt we’ll see so many well-networked drones commuting to Kyiv, Moscow or Almaty again.
I am not of course saying there was anything criminal or illegal about the Burisma affair, by the way. Hunter Biden acted entirely lawfully, and both Zlochevsky and Burisma have consistently denied any connection to criminal activities.
However, the situation in Kyiv is heating up. In June last year, investigators from the National Anti-Corruption Bureau detained three people who they claimed were delivering a $6 million bribe to the head of the country’s specialized anti-corruption prosecutors’ office, and issued an arrest warrant for Zlochevsky. Last week, the case was submitted to the High Anti-Corruption Court. We may well not have heard the last of Hunter Biden’s decision to improve the corporate governance of a Ukrainian oligarch.
A THREAT TO TAX HAVENS?
And so enough about Ukraine and Hunter Biden, and onto Hunter’s dad, and his administration’s intriguing plan to impose a minimum tax rate of 21 percent on American corporations, and to push for all countries to stop seeking to under-cut each other’s tax levels.
- “Another consequence of an interconnected world has been a thirty-year race to the bottom on corporate tax rates. Competitiveness is about more than how U.S.-headquartered companies fare against other companies in global merger and acquisition bids. It is about making sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods and respond to crises, and that all citizens fairly share the burden of financing government,” said Treasury Secretary Janet Yellen in a speech in Chicago.
At present, some countries – Ireland, the Netherlands, Luxembourg, as well as all the traditional Caribbean “tax havens” – do very well by charging low, or otherwise preferential tax rates to encourage companies to relocate to their territory. As a result, all countries have to cut their rates too, so as to prevent the departure of their big employers.
There has been a general recognition for years that the resulting downward pressure on corporate tax rates (and, hence, on the taxes paid by their shareholders, who are largely drawn from the wealthier segments of society) has helped drive inequality, and starved governments of the resources they need. However, without American leadership, efforts to do something about this have been generally feeble. Put simply: since the biggest multinationals are American, it’s impossible to tax big multinationals if the United States isn’t on board.
It is too early to know if Biden’s plan will have a massive impact or not; or, indeed, whether the administration can get it passed in Congress. However, it is potentially significant.
My concern, however, is whether the desire to crack down on multinationals that abuse tax havens will fall into the same trap as President Obama’s campaign after the last financial crisis against wealthy individuals who hid their wealth offshore. In forcing Swiss (and other) notorious banks to reveal the details of Americans who held assets in their vaults, but without creating a reciprocal obligation on American banks, the White House inadvertently created an incentive for wealthy foreigners to hide their money in U.S. institutions.
As a result, many of the world’s best tax havens are now on U.S. soil: South Dakota, Nevada and, of course, Joe Biden’s very own Delaware. Will the new administration crack down on the problem jurisdictions on U.S. soil? That is the question I am most keen to see answered.
BILLIONAIRES
I’m always going on about billionaires, so I didn’t want to lead with this, but it’s worth checking out the brand new Forbes list to appreciate why they suddenly seem so much more important than before. There are more of them, they’re richer, and they’re getting richer faster.
In the last year alone, total wealth held by billionaires has increased by a whopping $5.1 trillion, to a grand total of $13.1 trillion. There’s been lots written about it, including this piece about whether billionaires face a public backlash, which I thought was interesting.
WHAT I’M LISTENING TO
I’ve recommended the Suspicious Transaction Report podcast before, but I’m doing so again because it’s deep into Series Three and still going extremely well. Made by the London think tank RUSI, it’s nerdy and well-made and timely, which is just about all that I want from a podcast. I found Episode 4 on the illegal wildlife trade particularly interesting.
If you have any podcast recommendations by the way, please send them over.
See you next Wednesday,
Oliver