The Hidden-in-Plain-Sight Mechanism of the Super-Wealthy: Money-Laundering 2.0

We all know the rich are getting richer, and the super-rich are getting super-richer. This reality is illustrated in the chart of income gains, the vast majority of which have flowed to the top .01%–not the top 1%, or the top .1% — to the very tippy top of the wealth-power pyramid:

Though all sorts of reasons have been offered to explain this trend–I’ve described the mechanisms of financialization here for years–two that don’t attract much mainstream media attention are money laundering and control fraud, i.e. changing the rules of what’s legal so what was illegal yesterday is legal today–presto-magico, illegally skimmed wealth is now “legal.”

Correspondent JD recently submitted an excellent summary of the progression from Money Laundering 1.0 to Money Laundering 2.0:

Money laundering 1.0 is making dirty money legal, control fraud is manipulating the ‘legal’ options, and money laundering 2.0 is making sure that ‘legal’ fortunes are not taxed and cannot be clawed back.”

Conventional money laundering works by shifting ill-gotten gains into legitimate banks and/or assets. Ill-gotten gains can be laundered quite easily by buying homes or businesses (in the U.S., Europe, etc.) with cash. The home or enterprises can then be sold and the net is now legit.

Another kind of money laundering opens shell accounts in U.S. states with no income tax or offshore tax havens and then transfers intellectual property or other income-producing assets into the shell accounts.

As JD pointed out in his email to me, control fraud is a profoundly insightful concept presented by author William K. Black (Wikipedia), the essence of which is that those with control/ power in centralized institutions can defraud the institutions and their users/citizenry by modifying the rules of what’s legal/allowable, and do so legally, i.e. within the letter of the law if not the intent of the law.

Black is the author of the book The Best Way to Rob a Bank is to Own One: How Corporate Executives and Politicians Looted the S&L Industry.

Control fraud ranges from juicing the financials of companies to “legally” stripmining entire nations. In my view, borrowing billions of dollars to buy back shares in a company and thereby boosting the value of the stock options held by top management is an excellent example of fully legal control fraud: the top managers essentially transfer enormous wealth from the enterprise to their private pockets, under the guise of “building shareholder value.”

In other words, control fraud ranges from masking fraud to bringing fraud (however shakily) into the circle of quasi-compliance to fully legal fraud (i.e. much of what enriched the few at the expense of the many in 2002-2008 housing/mortgage bubble.)

The ultimate form of control fraud is our auction-to-the-highest-bidder “democracy” in which wealth casts the only votes that count. Just transfer enough wealth to the political class via campiagn contributions, “donations” to their foundations, etc., and then have a juicy targeted tax break inserted into a complex legislative bill.

The structure of JD’s money laundering 2.0 has been exposed by The Panama Papers and the Paradise Papers. If you’re not familar with the enormous offshore tax avoidance industry, here are a few sources to start with:

Giant Leak of Offshore Financial Records Exposes Global Array of Crime and Corruption(a.k.a. The Panama Papers)

The Paradise Papers: A new mass data leak, this time from an elite law firm with elite clients, shows how deeply offshoring is embedded in the global financial system.

How Corporations and the Wealthy Avoid Taxes (NYT) 
An estimated $8.7 trillion, 11.5 percent of the entire world’s G.D.P., is held offshore by ultrawealthy households in a handful of tax shelters, and most of it isn’t being reported to the relevant tax authorities

Wealth doesn’t trickle down – it just floods offshore, research reveals (The Guardian)

Why we are shining a light on the world of tax havens again (The Guardian) 
After explosive leaks from an offshore firm last year, others in the sector insisted it was a bad apple. Now that claim can be tested.

How to stop the super-rich looting our wealth: make it illegal (The Guardian) 
The Paradise Papers expose a business model that lets the few asset-strip the many. Governments have powerful tools to stop this – but do they have the will?

Of course they don’t, because the political class is a direct beneficiary of Money laundering 2.0: the primary coin of trade between the super-wealthy/corporatocracy and the political class is is the granting of what amounts to control fraud: tax breaks and loopholes that are tailored specifically to the super-wealthy and global corporations.

The Hidden Wealth of Nations: The Scourge of Tax Havens (book)

Just remember two things: JD’s definition of money laundering 2.0: “making sure that ‘legal’ fortunes are not taxed and cannot be clawed back”

there is only one elite class at the top of the wealth-power pyramid: Financial and political power are two sides of one coin. 

I’m offering my new book Money and Work Unchained at a 10% discount ($8.95 for the Kindle ebook and $18 for the print edition) through December, after which the price goes up to retail ($9.95 and $20).

Read the first section for free in PDF format. 

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via

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  • ICFubar

    Great article. I believe the last graph depicting the richest ‘household’s’ share of their respective nation’s wealth is off by orders of magnitude. The Russian and American oligarchy share of national wealth has been estimated at slightly over 70% and slightly under 60% respectively.

    This interview with Greg Palast outlines how once illegal financial constructs are now legal. Parts 1 and 2.

  • Sparticus

    Naturally, the Crooks Own the Government. Wall Street Bought the US government and the US government works for them. The government gave out free money ( Trillions in Bailouts and Stock Market Welfare) so wall street could raise the cost of living on everyone. Housing is up 1000-percent in some areas; while wages have been flat for 40-years. That`s all you need to know for a Rebellion. However, Americans are happy! OR … Perhaps, they are JUST YELLOW?

    Wake up America …. Wall Street is the BIG FAT BULLY IN THE SCHOOL YARD and HE IS EATING YOUR ICE CREAM!

  • I always thought guys like Bernie Madoff and Allen Stanford were small fry, running money laundering operations for some much bigger fish. Something went sideways and they were hung out to dry. I thought Stanford was prolly laundering government drug money.

  • Tom Paine

    Sparticus raises an interesting question
    Why no rebellion? Cowards? Brain washed? Too busy watching sports and buying cheap crap?
    Clearly we are not the same people we were in 1776.
    A full scale revolution is what is needed to correct the deeply criminal embedded system. The corruption is beyond all imaginings!

    • Sparticus

      Thank-You for giving me hope!

      Only a Full Rebellion, and Total House Cleaning, will be able to fix America. Now, I am hung over –in Depression– because I am appalled that “almost 2-million people” showed up in Sub-Zero Weather to watch a Stupid Ball Drop in Times Square! One must wonder if the people are under some sort of mind control? None of this is Normal. If they ( the people) would show up in numbers like that WALL STREET and GOVERNMENT would OBEY THEM! However, because they do not “FIGHT BACK” the government despises them and will abuse them for it! The same principal applies to the Bully who owns the School Yard because nobody will fight back. Those who at least try and fight back get the bullies Respect and a Special Place in the Yard. The American people have no Respect; and thus , everything will be taken from them.

      • Keith Liberty

        V for Vendetta like revolution would overwhelm the goverment and they would bow down to our needs.

        • Sparticus

          Thank-You for your Correspondence,

          Yes, Agree, 100- percent. And, if “anyone” puts 1-million people on wall street “closing the exchanges” then entire WORLD cannot profit, every corporation, every nation, everyone, will demand that the US government OBEY the PEOPLE. This would be very easy. They Sky would be the Limit.

      • How exactly do you choose to start anything when your every move is known?

        • Sparticus

          They are so incompetent and lacking in ability to enforce that it would be cake. They want to be a Dictator, but they do not have the Balls. The US constitution is still valid and they cannot spy on you, unless YOU allow it. There are too many ways to avoid leaving evidence for the chimps!

          • This I could understand, if per chance you planned on going it Alone…

  • diogenes

    Leave it to hired-liar scuz like Zucman of UC Berkeley to come up with statistics that conceal more than they reveal, whose numbers are nine years out of date and precede the ongoing further large concentration of wealth following the crash and give-away-of-wealth-to-the wealthy of 2009 and after and whose primary statistic — that 7.8 percent of all wealth his possessed by holders of more than $50 million, which gives no clue of what proportion of the population was in this group nine years ago — about one in fifty thousand (0.005%) — and fewer now.

    What’s Mr. Smith’s agenda in constantly citing such grossly deceiving statistics, and washingtonsblog’s in publishing them?

  • Jed Grover

    The world’s real terrorists.

  • Tom Paine

    Sparticus the masses have been brainwashed starting from the cradle by the US aristocracy that control all points of cultural learning i.e. schools, media, etc. to be as the late great George Carlin put it “obedient workers” they want immigration because those slaves will work for less wages and will be even more obedient.
    Gandhi understood that tyranny can be overthrown by the masses but he at least had support and participation by millions.
    America is a shocking pathetic Brave New World; appauling actually.
    But take heart as Gandhi observed eventually through history all tyrannies die.

    • Sparticus

      Thank-You for your correspondence,

      Agree. However, Americans need to “WAKE UP AND SMELL THE COFFEE,” or they will be beaten down into a Puddle of GOO. Work is not even profitable, as the Oligarchs despise LABOR; which is why wages have been flat for 40-years; but Housing is Increased 1000%, and cost of education 2,000%, in the same time frame since 1980, or so. If Americans do not Fight, then I will have to flee because I cannot live here. I will not be a Slave of a Slave. Death is Better.

      Americans only need to put “1-million protesters” on Wall Street and Close the Exchanges. will be able to profit, until the People are Obeyed. The Government will BEG for forgiveness. Americans gathered “by 2-million” to watch a stupid ball drop “in diapers/no bs” and in sub-zero weather. There are 6-million “poor” living in NYC alone. Who ever organizes this event could make money off the Short to fund operations. This form of protest would PAY! Take back some of the Trillions in Wall Street WELFARE! We Paid for it.

      • Tom Paine

        Agreed it is impossible to work within the political system which is controlled by the enemy.
        Gandhi style civil disobedience is only resort. Call a day of national labor strike, have millions not pay income tax or mortgages something big is needed to save the country from the unholy trinity of big business, big government, big military police state and its evil agenda of greed exploitation lies thievery fraud and murder.