CRIMINAL CAPITALI$M

Dark Offshore Money Threatens Democracy

Dark offshore money, stashed in tax havens and countries with favorable financial secrecy laws, makes it easier to support candidates surreptitiously and manipulate public opinion. Clamping down on these jurisdictions would strengthen tax collection in democracies and reduce the resources available to authoritarian regimes.

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Jan 2, 2024

SIMON JOHNSON and DARON ACEMOGLU

WASHINGTON, DC/CAMBRIDGE – Democracies around the world face two major threats: a crisis of legitimacy, and increasingly aggressive authoritarian regimes. What links both and makes them much more dangerous is the pernicious effect of dark-money transfers, particularly those that pass through offshore tax havens and jurisdictions with excessive financial secrecy. Restricting these tax havens and requiring more transparency on cross-border financial flows should become a major policy priority for all G7 countries in 2024.

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The internal threat to democracy is an erosion of legitimacy. In industrial economies such as the United States and Europe, new technologies, rising cross-border capital flows, and lower barriers to trade increased average productivity and created economic growth over the last half-century, but the benefits of this growth were not widely shared. Inequality within these countries has increased dramatically since the mid-1970s, with millions of people now feeling they have been left behind.

Support for democracy is undermined by the belief that the economic game is “rigged,” with people who are already powerful and privileged gaining the most – sometimes at the expense of the rest. While this belief may be exaggerated, it accords with the reality of tax evasion.

Tax havens allow rich people not only to build their wealth essentially tax-free, but also to exercise economic and political power away from prying eyes and without any accountability. One list of tax havens includes among its top ten both small Caribbean states and widely-respected countries such as British overseas territories (British Virgin Islands, Bermuda, and the Cayman Islands), the Netherlands, Switzerland, Luxembourg, Singapore, and the United Arab Emirates.

The US and the United Kingdom are also complicit. Their financial secrecy rules allow an extraordinary amount of foreign (and illicit) money to find shelter (the US tops this Financial Secrecy Index).

A multibillion-dollar industry has emerged, employing some of the world’s brightest lawyers, accountants, and consultants, focused on helping the wealthy and the unscrupulous. Tax havens are particularly useful for people who have ill-begotten wealth derived from bribes, theft, and other forms of corruption. Being able to hide the identity of parties in any financial transaction is a key requirement to operating a successful haven.

This form of financial engineering corrupts democracy. Even worse, it exacerbates the second major threat we face: the strengthening of authoritarian regimes. Dark offshore money makes it easier to support candidates, manipulate public opinion, and persuade people to vote for a dictator.

The dark money of the Russian oligarchs has long been a mainstay of the country’s economy and political system. President Vladimir Putin’s close relationships with sources of dark money has been well documented.

Less widely appreciated is the way that non-transparent transactions have allowed the Chinese government to construct a vast global empire of influence. We are only now beginning to see how much low-income countries, especially in Africa, owe to various Chinese-backed entities. Relatedly, the Communist Party of China has reportedly “invested billions of dollars” in global disinformation around the world. This includes efforts focused on recent (and likely future) US elections.

It has also become painfully apparent that a large amount of money flows from Iran to organizations such as Hamas in Gaza, Hezbollah in Lebanon, and the Houthi forces in Yemen that are now raining down missiles on commercial ships in the Red Sea. Almost all this Iranian funding moves through dark channels, including (according to US authorities) entities in Turkey and Yemen.

Shutting down these channels would be difficult, but the most effective way to fight dark money – and its financing of authoritarianism, criminality, and terrorism – would be to clamp down on the dozens of tax havens that exist around the world. Doing so would strengthen tax collection in democracies and reduce the resources available to authoritarian regimes.

Ironically, several of these tax havens are at risk from climate change and are demanding international assistance to deal with potential sea-level rise and more damaging storms. If these island states and other jurisdictions wish to participate in fair and reasonable adjustment mechanisms (such as climate-related finance or debt relief), funded in part by the G7, they need to comply with increased transparency requirements.

One key element must be an extension of “know your customer” rules to all these jurisdictions, backed up by appropriate criminal penalties. Specifically, there needs to be full disclosure to G7 tax authorities regarding who owns what assets and who makes which payments to whom.

Alas, some tax evasion is legal, owing solely to the lobbying power of the ultra-wealthy and powerful consultants and accountants, who will no doubt argue that productive businesses will move elsewhere if loopholes are closed. This should be countered with a simple principle that should be shared across the G7: business profits are taxed in proportion to where sales occur.

For example, if you move your headquarters (or ownership of intellectual property) to another country, you should still pay tax in the US based on your business activities in the US. The G7 agreement on a global minimum corporate tax was a step in the right direction here, but there is a lot more to be done.

In the age of artificial intelligence, we should expect many of the rich to become considerably richer. They will also presumably use AI tools to dodge taxes more effectively. Under current international arrangements, this will be easy to do. However, AI can also help uncover tax evasion and avoidance, as well as unusual money flows, which are often illicit.

For tech barons who continuously talk about using AI for good, here is a challenge: support the quick rollout of new AI-based tools for clamping down on tax evasion and tax havens.

SIMON JOHNSON
Writing for PS since 2007
Simon Johnson, a former chief economist at the International Monetary Fund, is a professor at the MIT Sloan School of Management, a co-chair of the COVID-19 Policy Alliance, and a co-chair of the CFA Institute Systemic Risk Council. He is the co-author (with Daron Acemoglu) of Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity (PublicAffairs, 2023).

DARON ACEMOGLU
Writing for PS since 2012
Daron Acemoglu, Institute Professor of Economics at MIT, is a co-author (with James A. Robinson) of Why Nations Fail: The Origins of Power, Prosperity and Poverty (Profile, 2019) and a co-author (with Simon Johnson) of Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity (PublicAffairs, 2023).

 

How banned terror outfits TRF, Al-Qaeda & IS exploit secret internet forums

The Resistance Force (TRF) – an offshoot of Pakistan’s Lashkar-e-Taiba (LeT) which has been behind a spree of targeted killings and attacks in Kashmir – has shifted its digital operations to less regulated platforms and forums.

In an investigation, India Today’s Open Source Intelligence (OSINT) team found several groups and channels of al-Qaeda and the Islamic States (IS) spreading their propaganda and imparting training.

Aakash Sharma

Subham Tiwari

New Delhi,UPDATED: Jan 2, 2024 

Posted By: Vadapalli Nithin Kumar

Pushed to the margins on mainstream social media sites by repeated bans, The Resistance Force (TRF) – an offshoot of Pakistan’s Lashkar-e-Taiba (LeT) which has been behind a spree of targeted killings and attacks in Kashmir – has shifted its digital operations to less regulated platforms and forums.

But the TRF is not alone. In an investigation, India Today’s Open Source Intelligence (OSINT) team found several groups and channels of al-Qaeda and the Islamic States (IS) spreading their propaganda and imparting training.

These groups are active on platforms such as Rocket Chat and Matrix, which are decentralised in nature. This means their source code can be modified by any developer, and they can be hosted on a server chosen by the user. This common characteristic makes these apps an ideal digital destination for bad actors intending to execute their nefarious designs, disrupt peace, and challenge nation states.

Inside TRF’s secret digital space

India Today gained access to TRF’s secret chat rooms and groups on Matrix and monitored their conversations for several days. The TRF chat room has a total of 65 members and the conversations are regulated by two admins, who periodically post threats to the Indian state, government officials and vocal pro-India Kashmiris, issue statements, and release video clips and photos of the attacks they claim to have carried out in the Valley.

In a message on December 9, the group admin who goes by the name ‘Kashmir Fight’ claimed that terrorists belonging to the ‘Falcon Squad’ of their outfit had targeted a constable, Hafiz Mohammed Chad, in Srinagar’s Bemina. The user claimed that the police officer was “warned” by TRF terrorists in the past.

Since its inception in 2019, the TRF has claimed several attacks targeting Kashmiri Pandits, police officers, and security forces. In 2022, the group intensified its activities, primarily using small arms, causing concern among security agencies in Kashmir and aiming to expand its operations into the Pir Panjal region. In April, TRF terrorists ambushed an army truck in Poonch, killing five and gravely injuring another. The attack, which included setting the truck on fire, was later published on the Telegram messenger app.

TRF and other smaller groups had previously used Telegram extensively. However, as their attacks increased, they faced frequent bans, with new channels being barred within days or weeks of their creation.

Online terror training & Ghazwa-e-Hind plan

We also found the presence of al-Qaeda on Matrix with a channel of 59 members. Some of these members operate another channel named ‘Curriculum Book’ where “guidebooks” on different subjects for radicalising gullible Muslims, provoking their religious emotions, imparting training for attacks, and launching guerilla war are distributes frequently.

Some of the online guide books are titled ‘Physical exercise before jihad,’ ‘How to confront and deal with intelligence,’ ‘Military training for mujahid,’ and ‘Explosive engineering course.’

Some of them provide alarmingly sophisticated guidance on terrorist activities. One such PDF document reviewed by India Today gives details of highly-destructive explosives like TNT, cautions while handling them, step-by-step tutorial for making different types of bombs along with necessary safety measures during the process.

Another document extolled the role of the media in waging jihad, or the so-called sacred war – apparently to encourage the intended audience to exploit different digital mediums to spread IS propaganda.

Similarly, a channel affiliated with IS on Rocket chat, featured pro-IS material and calls for Ghazwa-e-Hind, a term used to refer to the armed struggle to establish an Islamic rule guided by the principle of Sharia.

The Rocket chat channel also carried a pro-IS web propaganda magazine with references against India.

Migration to less-regulated platforms

For a better part of this decade, terrorist outfits have managed to find loopholes to bypass checks put in place by large social media companies like Facebook, X (Twitter), Instagram, WhatsApp, and YouTube. However, their survival on these platforms became extremely difficult in face of mounting scrutiny and pressure from governments globally.

Though a 2020 report claimed the IS was still finding ways to evade detection on Facebook, the presence of terror outfits is believed to be nearly extinct on major sites, forcing them to explore safer options. Then Telegram emerged as their safe haven but it also launched a crackdown in 2018.

Though some of these outfits are still spotted on Telegram, the messaging app’s vigil and reporting mechanism, and resultant mass removals have made matters worse for terrorists. On December 27 alone, Telegram banned 390 terrorist bots and channels, taking such removals to 6361 this month. The app has banned more than 1.29 lakh bots and channels linked to the IS in 2023.

In a 2019 report, the European Union’s information center said terror groups are looking to migrate to decentralised platforms in search for a “stable base”. Decentralisation refers to a mechanism where control is not concentrated to a single authority which makes detection of illegal content difficult.

Unlike mainstream social media platforms that are operated by large

 corporations, apps like Matrix are open source and offer transparency and control. Their focus on strong encryption and minimal data collection provides secure space for extremist activity.

Published By:

Vadapalli Nithin Kumar

\Published On:

Jan 2, 2024