Friday, October 18, 2024

The Corporate Vehicles Changing International Commerce

October 18, 2024
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Photograph by Nathaniel St. Clair

On September 17, 2024, thousands of pagers belonging to Hezbollah members simultaneously exploded across Lebanon, killing dozens and wounding thousands, including civilians. The pagers were licensed by Taiwanese company Gold Apollo from the manufacturer BAC Consulting, a Hungary-based company registered in 2022. BAC Consulting is suspected of being an Israeli front company, working alongside Israeli shell companies that facilitated transactions with Gold Apollo and Hezbollah entities. The operation shows Israel’s use of “corporate vehicles” to launch the attack and obscure responsibility.

After growing in use during the Cold War, the rise of the internet and global finance has made corporate vehicles easier to establish and operate. Though some serve legitimate purposes, the massive growth in new companies over the past two decades has masked the growing use of entities used for questionable purposes. Governments, corporations, ultra-wealthy individuals, organized crime, and militant groups use them to obscure their activities and assets. Their sophistication continues to evolve in an increasingly interconnected ecosystem.

The success of a front company hinges on its ability to appear legitimate. They engage in genuine business activities to blend in, making them particularly useful for intelligence operations. In the 1980s, for instance, Israeli intelligence established a resort and scuba business on the Sudanese coast to secretly smuggle Ethiopian Jews to Israel. But while this was a rare case with a humanitarian goal, intelligence agencies more often rely on corporate vehicles for less altruistic reasons.

In the 1960s, the CIA created several front companies to acquire Soviet titanium for the SR-71 Blackbird program. Later, in the 1980s, it used front companies to hide its role in the Iran-Contra affair, during which the U.S. sold weapons to Iran and funneled the profits to Nicaraguan rebels. The CIA then used a front company to quietly purchase the screen rights to the scandal to prevent a movie from being made about it. The role of CIA front companies in building black sites in Europe in the aftermath of 9/11 also raised concerns.

In 2020, Swiss authorities launched an investigation into the Swiss-based global encryption company Crypto AG after it was revealed that U.S. and (West) German intelligence had operated it for 50 yearsMore than 120 governments were spied on. The U.S. sold its remaining shares in 2018.

Other front companies are created for more short-term operations. In 2018, the FBI and the Australian police launched an encrypted messaging platform, AN0M. Marketed to criminal groups, it allowed international law enforcement to monitor communications and arrest 800 people across more than a dozen countries before being dismantled in 2021.

Conversely, criminal groups frequently establish front companies of their own to launder money and evade law enforcement. Common examples include construction companies, dock-loading enterprises, casinos, restaurants, and car washes. Throughout 2024, for example, thousands of pounds of cocaine have been discovered hidden in shipments of bananas throughout Europe.

U.S. adversaries also utilize front companies, with China increasingly employing them to access sensitive technologies and intellectual property in sectors like computers, aerospace, AI, semiconductors, and telecommunications. These front companies can also gather economic and industrial data and embed themselves into critical supply chains.

Western sanctions have also increased the use of front companies. Since 2022, Russian front companies have been used to transport natural resourcesand obtain Western technologies, similar to strategies long used by countries like North Korea, Syria, and Iran. Iran’s and Hezbollah’s use of front companies has often come with assistance from major Western financial institutions. Reports from 2024 indicated that two of the UK’s largest lenders, Santander UK and Lloyds Banking Group, provided bank accounts for Iranian front companies.

Front companies are commonly used by other companies as well. The Coca-Cola Company has employed front companies such as the Center for Consumer Freedom (CCF) and Global Energy Balance Network (GEBN) to lobby for its interests while minimizing the appearance of any connections. Pharmaceutical companies have similarly set up front companies to pressure health care providers and legislators to adopt their products.

In contrast to the more open nature of front companies, shell companies thrive on their subtlety. Typically registered in tax havens like the British Virgin Islands, Cyprus, or U.S. states like Delaware, these entities lack any assets or operations and exist solely on paper to store wealth and facilitate financial transactions. They can be established in lawyers’ names, with figureheads serving in official positions to mask true ownership.

Shell companies are easy and inexpensive to create, and are useful tools for tax evasion, generating false invoices and consultancy fees, and money laundering. Non-publicly traded companies often serve as shell companies, but the introduction of limited liability companies (LLCs) in the U.S. in 1977 expanded their use by offering greater anonymity, limited liability, and fewer regulatory burdens. Similar entities exist in Europe, and according to 2024 data from Moody’s, the UK leads globally, with nearly 5 million “suspect companies.” Meanwhile, the EU accounts for 4 million, largely in France and Cyprus.

The role of shell companies has been increasingly exposed over the last decade through leaks and whistleblowers. The Panama Papers, released by the International Consortium of Investigative Journalists in 2016, unveiled years of records from Panamanian law firm Mossack Fonseca, which created shell companies for various clients. Little attention was paid to who its clients were, which included Mexican drug cartels.

Politicians lack the will to combat this issue, as many are complicit. The fallout from the Panama Papers led to the resignation of Icelandic Prime Minister Sigmundur Davíð Gunnlaugsson, who had hidden millions of dollars in an offshore shell company despite campaigning on financial justice. The Paradise Papers, released in 2017 and primarily sourced from Bermuda law firm Appleby, similarly implicated corporations, government officials, and other high-profile individuals from around the world.

This data highlights only two firms, but the globalization of finance has spread the issue worldwide. Former Pakistani Prime Minister Nawaz Sharifalso resigned due to revelations from the Panama Papers. The Pandora Papers, published in 2021, meanwhile exposed secret offshore accounts held by dozens of former and current world leaders. Additionally, an ongoing scandal in India has revealed how the current Chairperson for the Securities and Exchange Board of India (SEBI) and her husband had hidden assets in Bermuda and Mauritius. These funds were also used by Vinod Adani, India’s richest person, raising concerns over a conflict of interest in the prosecution of Adani Group for financial crimes.

While personal use of shell companies is common, corporations remain the main driver behind them. A 2017 report by the U.S. PIRG advocacy group revealed that 366 of the Fortune 500 companies have subsidiaries in offshore tax havens, largely in the form of shell companies. These corporations held over $2.6 trillion in offshore profits and owed an estimated $752 billion in back federal taxes.

Fearing financial and legal repercussions stemming from its role in the opioid crisis, Purdue Pharma family members began shifting billions of dollars out of the U.S. in 2007, much of it funneled through shell companies to hide the money’s trail. Many of these funds were then placed into trusts, another corporate vehicle where assets are held by a trustee, making them harder to seize as they are no longer considered part of the settlor’s personal estate. A trial began in 2019, and by 2022, they were ordered to pay $6 billion, though legal battles continue.

Financial misconduct aided by shell companies can be difficult to prove. A 2019 whistleblower report by Harry Markopolos, who previously had exposed Bernie Madoff’s Ponzi scheme, claimed that General Electric has underfunded its long-term care insurance reserves and established shell companies to take on its losses and lie about its true financial health. The year before, British defense company BAE Systems was reported to have used shell companies in the British Virgin Islands to send more than £135 million in bribes to public officials in Saudi Arabia and elsewhere. Both companies denied the allegations.

The 2020 FinCEN files meanwhile exposed how banks globally have been complicit in enabling the abuse of shell companies, despite consistent warnings and red flags. Political action targeting this problem is likely to remain slow—in 2023, Representative James Comer, who led an investigation into Hunter Biden’s alleged financial irregularities, including the use of shell companies, was himself implicated in using a shell company.

Front and shell companies are often set up quickly for specific purposes, but growing scrutiny has increased the appeal of shelf companies. These pre-registered, inactive companies can be sold or used immediately, allowing owners to bypass the registration process. Some even come with bank accounts, websites, and credit cards. Shelf companies can also be “warmed up” by conducting business with other shelf companies, building a transaction and credit history, and can function as both front and shell companies.

Though available globally, the UK and the U.S. lead in shelf company offerings. Ownership transfer can happen in a day, allowing immediate movement of money or assets. Selling shelf companies in itself is a huge business—new shelf corporations can sell for a few hundred dollars, while “aged corporations” can cost up to $10,000. In September 2024, a U.S. man was fined $75,000 for creating nearly 16,000 shelf companies in Colorado, exploiting the state’s discounted filing fees.

The long-term use of front companies, often in tandem with other corporate vehicles has become evident in high profile cases. In 1998, Nigeria’s oil minister, Dan Etete, awarded the rights to a large offshore oil block, OPL 245, to a shelf company he owned called Malabu. In 2011, Western energy firms Shell and Eni purchased the rights for $1.3 billion from Malabu, sparking a major anti-corruption investigation.

The case gained further attention in 2018, when Drumcliffe Partners, a Delaware-incorporated investment fund based in Washington, D.C., became involved. Through its shell company, Poplar Falls LLC, Drumcliffe Partners was poised to receive 35 percent of recovered assets, well above Nigeria’s traditional 5 percent limit. The fallout from the deal remains ongoing.

Other corporate structures have also become common. Holding companies, for example, own shares of assets of other businesses. The International Holding Company (IHC), based in the United Arab Emirates, saw its market capitalization grow from $215 million in 2018 to $240 billion by 2023. While rapid growth isn’t inherently controversial, the lack of transparency around IHC’s financial practices and its political connections to the Abu Dhabi royal family have brought attention to how holding companies can quickly accumulate value and serve as a vehicle for market manipulation and potential corruption. Charities and other types of nonprofits are also convenient vehicles for money laundering, hiding assets, and political influence, all while maintaining an air of legitimacy and goodwill.

International finance is now characterized by corporate vehicles, used by powerful individuals and corporations in ways that most can’t. The problem is institutional, with politicians often looking the other way or directly benefiting from these entities. Previous legislation, such as the U.S. Foreign Account Tax Compliance Act, the Corporate Transparency Act, and the EU’s 5th Anti-Money Laundering Directive have all failed to stem the problem. The United States’ refusal to sign the OECD Common Reporting Standard, designed to give automatic exchange of tax data, highlights the lack of real political commitment. Until that changes, corporate vehicles will remain an increasingly useful tool for hiding wealth, wielding influence, and dodging accountability.

This article was produced by Economy for All, a project of the Independent Media Institute.

John P. Ruehl is an Australian-American journalist living in Washington, D.C. He is a contributing editor to Strategic Policy and a contributor to several other foreign affairs publications. He is currently finishing a book on Russia to be published in 2022.

Billionaires Are Not Going to Save Us


 October 18, 2024
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Image by Li-An Lim.

It was William Shakespeare who, in Troilus and Cressidawrote, “One touch of nature makes the whole world kin.” And yet, in the polarized news cycle since Hurricane Helene ravaged the southeastern United States and the hurricanes have kept coming, we’ve heard a tale not of shared humanity, but of ruin, discord, and political polarization.

Hundreds are dead from that storm — the deadliest to hit the mainland U.S. since Hurricane Katrina in 2005 — hundreds more are missing, and hundreds of thousands of residences are still without power or clean water. And in addition to the staggering human loss and physical damage, a hurricane of misinformation and division has continued to pummel the region.

There’s Elon Musk’s politicized deployment of Starlink satellite internet access, which he’s used to credit Donald Trump less than one month before the November election, while undermining the legitimacy of federal recovery efforts. Indeed, listen to Fox News or read Musk’s claims on his social media platform X, and there’s no mention of the pre-arrangements the federal government made with Starlink through the Federal Emergency Management Agency (FEMA) to provide internet access — for local governments and the Eastern Band of the Cherokee Nation.

Then, of course, there’s Donald Trump falsely claiming that the federal government’s response to Helene was delayed and insufficient because the funds that might have gone to hurricane victims are instead being used to house undocumented immigrants. (FEMA does spend some money on migrant housing, but through an entirely different program.) With this outrageous fearmongering, he’s fanning the flames of anti-immigrant hate that are already raging during this election season. His racist and xenophobic rhetoric has also forced FEMA and the White House to spend precious time and energy trying to counter his lies, rather than focusing their full attention on saving lives and rebuilding broken communities.

And don’t forget Congresswoman Marjorie Taylor Greene, who insisted that the government actually controls the weather. This ludicrous claim is taken from conspiracy theorist Alex Jones (notorious for arguing that the Sandy Hook school shooting was a hoax), who suggested that the government directed Helene towards North Carolina “to force people out of the region so it could mine the state’s large reserves of lithium, a key component in the batteries that power electric vehicles and store renewable energy.”

Such hateful lies and conspiracy theories (and there are more like them!) conveniently ignore the fact that conservative Republican lawmakers passed a funding bill that failed to allocate additional money to FEMA just days before Helene hit, even though the country was entering peak hurricane season in a time when the weather is growing ever more extreme. And it’s no surprise that these lawmakers are backed by billionaires who own some of the very companies most responsible for climate change. Through their scare tactics and anti-government misdirection, they have also provided rhetorical cover for the Christian nationalists and other extremists who were some of the first responders after the hurricane. The Southern Poverty Law Center confirms reports I’ve heard from local sources that “far-right militias and white supremacist organizations are moving into the region to provide assistance — and, if past disasters are any indication, drum up sympathy for their cause.”

Those Who Are Hit First and Worst

Hurricane Helene (like Hurricane Milton that followed it in a devastating fashion) should be a brutal reminder that none of us are truly safe from the worsening effects of the climate crisis. For years, local officials and real estate developers marketed Asheville, North Carolina, as a “climate haven.” With its temperate weather and mountain vistas 300 miles from the ocean, many falsely believed the area would be shielded from storms like Helene. No such luck.

Meanwhile, the last few weeks have also served as a stark reminder that the climate devastation increasingly coming for all of us is experienced most intensely by poor and low-income communities. Just look at the (lack of) full-scale evacuation plans for Hurricane Milton in Florida and it’s clear that those who cannot afford a $2,400 flight or have access to a car and enough gas money to wait out the massive traffic jams of those fleeing such storms may just be out of luck.

In western North Carolina, as rising waters from Helene consumed entire communities, many had nowhere to evacuate. Poor people living in rural areas, often with pre-existing health conditions and without health insurance, skipped hospital visits in the chaotic days immediately after the storm. Thankfully, some hospitals opened up beds for patients whose homes were destroyed. But those who don’t have flood insurance — and the residents of the areas hit hardest by Helene were the least likely to have such insurance — and can’t afford to rebuild may soon find themselves joining the many others who have been displaced and made homeless by the storm.

Truly, as the experiences of Hurricane Helene — and now Hurricane Milton, Nadine, and potentially others, too — have proven, the economic disparities that are laid bare and intensified by the climate crisis are absent from the supposed “economic populism” of climate-change deniers like Donald Trump and J.D. Vance. In fact, it was Vance who called the study and analysis of climate change “weird science” during the vice-presidential debate. He has also praised the lead author of the Heritage Foundation’s Project 2025, which proposes gutting FEMA, making it harder for states to get disaster relief, and blocking federal agencies from fighting climate change (not to mention 400 pages of other suggested cuts to this country’s social safety net).

And although they claim that the Harris-Walz ticket is looking after the interests and profits of the wealthy, it’s Vance and Trump who have regularly belittled the poor and cozied up to venture capitalists, tech billionaires, and others among the nation’s corporate elite. In fact, the decades-old abandonment of rural Appalachian communities destroyed by Helene has long been justified by the patronizing and classist “culture of poverty” arguments that Vance himself helped keep alive with his memoir, Hillbilly Elegy.

Storms like Hurricane Helene are a force amplifier of deep societal inequities that will worsen if Trump and Vance are elected in November, but in truth the issue runs deeper than just one political party. Indeed, over the last few years, extreme weather events, pandemics, and other public emergencies have exposed a deep societal disease that has only grown worse after decades of neoliberal policies. Worsening poverty and widening economic inequality should be considered pre-existing conditions that are only magnified during moments of crisis. Manoochehr Shirzaei, an associate professor of geophysics at Virginia Tech, recently put it this way: “The tragic flood event in the southeast U.S. is a poignant example of the confluence of multiple factors, including development in floodplains, inadequate infrastructure maintenance and management, and the specter of climate change, whose compounding effect can amplify the disaster.”

From Mutual Aid to Community Power

In the face of so much loss and destruction, the heroism of impacted communities, which have joined together in extraordinary acts of solidarity, has been tragically underreported in mainstream media outlets. Much of the mutual aid and community support for those affected by the hurricane has come from community members themselves, who are working tirelessly to ensure that everyone in need is cared for. The streets of Asheville and neighboring towns have been filled with cars with out-of-state license plates, as everyday people with various skills have driven in from all over the country to lend a hand. On social media, it’s been heartening to see all of the love and support that has poured into these communities.

In Asheville, the stories of this local solidarity are many. There is the Asheville Tool Library, which, while officially closed, is supporting repair projects, including the fixing of generators and chainsaws. There are medics and doctors running free clinics. There are local breweries that are using their equipment to make sure desperate communities still have clean and safe water. There are young people passing out free gasoline to anyone who needs it and others who are writing out instructions in English and Spanish on how to make dry toilets.

These examples of grassroots leadership offer hope in hard times. After all, this is how bottom-up movements have so often begun throughout American history. In pre-Civil War America, hundreds of thousands of enslaved people smuggled themselves to freedom on the Underground Railroad, forcing the nation to confront the horrors of slavery and igniting a movement to end it. In the 1930s, the hungry and out-of-work began organizing unemployment councils and tenant-farmer unions even before President Franklin Roosevelt launched the New Deal. In the decades before the Civil Rights Movement, Black communities organized themselves to oppose lynch mobs and other forms of state-sanctioned (or state-complicit) violence. And no one can deny the powerful example of the carpools and other community projects of the Montgomery, Alabama, freedom struggle during the 1950s.

Indeed, contrary to media narratives that often paint hard-pressed communities as dangerous and their members as only looking out for themselves, the truth is that people in crisis usually do whatever they can to provide for their communities and protect those around them. Dispossessed people care for one another, share what they have, and lend a hand through mutual-aid networks. Such survival struggles may not be enough on their own, but provide fertile ground for deeper organizing among widely disparate American communities that, through the experience of increasingly common mass crisis events, are being awakened to the need for deeper, systemic change.

The Black Panthers’ Projects of Survival

Consider the free breakfast program organized by the Black Panthers in the 1960s. For many Americans, the enduring image of the Black Panther Party is of Black men in berets and leather jackets carrying guns. The self-defense tactics of the Panthers were an emphatic rebuttal to a society that regularly dehumanized and exacted violence on Black Americans. But in truth, most of their time was spent then meeting the needs of their communities and building a movement that could transform the lives of poor Black people. The Panthers bravely stepped into a void left by the government to feed, educate, and care for the poor. But their survival programs weren’t just aimed at meeting immediate needs. For one thing, they purposefully used such programs to highlight the failures of government policymaking to deal with American poverty. By feeding tens of thousands of people, they also forged community-wide relationships and developed widespread trust among the poor, not just in Black communities but in poor white and Latino communities as well. The Panthers’ survival programs were always meant to be launchpads for a wider movement to end poverty and systemic racism.

Indeed, the Panthers consciously called out the grim paradox of a nation that claimed there was never enough money to fight poverty at home, while it spent billions of dollars fighting distant wars on the poor of Vietnam, Cambodia, and Laos. (This paradox continues today, as the U.S. has been funding Israel’s wholesale destruction of Gaza, one of the poorest places on earth, and now its invasion of Lebanon). Their survival programs gave them a base of operations from which to organize new people into a human rights movement, interweaving all of their community work with political education and highly visible protest.

At the time, J. Edgar Hoover’s FBI listed the Black Panthers and their breakfast program as “the greatest threat to internal security in the country.” Government officials feared that such organizing could potentially catch fire across far wider groups of poor Americans at a moment when the War on Poverty was being dismantled and the age of neoliberal economics was already on the rise. In that context, the ability of the Panthers to put the abandonment of poor Black people under a spotlight, unite leaders within their community, and develop relationships with other poor people across racial lines was a far more dangerous threat to the oppressive status quo than the guns they carried.

Solidarity Among the Poor

The experience of the Black Panthers features prominently in the anti-poverty organizing tradition that I come from. In fact, the National Union of the Homeless and the National Welfare Rights Union, sibling poor people’s movements that I was part of in the 1990s, used to teach new organizers the “Six Panther Ps” of poor people’s organizing: 1) Program, 2) Protest, 3) Projects of survival, 4) Publicity work, 5) Political education, and 6) Plans, not personalities. When combined, these six principles form a model for the poor organizing the poor that has been responsible for creative nonviolent action that has called America to conscience and for anti-poverty policies that have impacted millions.

Much like recent beautiful acts of local solidarity in the mountains of western North Carolina and Tennessee and in low-income communities across Florida reeling from Hurricane Milton, the significance of the historic work of the Black Panther Party or of unhoused leaders and welfare-rights activists across the decades begins within poor communities themselves, where people are already engaging in life-saving actions. Out of such depths, grassroots leaders find new and creative ways to connect survival strategies and projects of the poor to a wider movement focused on building and wielding political power. From such local struggles come the very policy solutions to a community’s (and even this country’s) varied problems. This is what it means to work bottom up, not top down!

In a world whose weather is growing grimmer by the year, such examples of mutual solidarity and mutual aid are perhaps the most concrete and material form of hope in these hard times. Such scrappy and life-giving action needs more than acknowledgment and appreciation. Those facing injustice, violence, and displacement need more than thoughts and prayers. Rather, to turn the tide on division and lies, as well as deeper impoverishment and pain, heroic and creative community-building — or what I like to call “lifting from the bottom so that everyone can rise” — must be spread, scaled up, and significantly supported by the larger society. Our politicians, news agencies, and larger population must stop paying homage to billionaires who will profit off our predicaments or politicians who will try to capitalize on any crisis. It’s time to see that projects of survival and solidarity among those struggling the most are our only true hope for a future that will otherwise be ever more perilous.

This piece first appeared on TomDispatch.

Liz Theoharis, a TomDispatch regular, is a theologian, ordained minister, and anti-poverty activist. Co-chair of the Poor People’s Campaign: A National Call for Moral Revival and director of the Kairos Center for Religions, Rights and Social Justice at Union Theological Seminary in New York City, she is the author of Always With Us? What Jesus Really Said About the Poor and We Cry Justice: Reading the Bible with the Poor People’s Campaign. Follow her on Twitter at @liztheo.