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