The 2022-2023 Distinguished Rossi Lecture, hosted by the University of Massachusetts Department of Sociology, brought Dr. Kimberly Kay Hoang to discuss her book Spiderweb Capitalism: How Global Elites Exploit Frontier Markets. The book is an in-depth look at the networks of “lawyers, accountants, company secretaries and fixers who facilitate the illicit movement of wealth across borders and around the globe”.
Hoang’s research took her back “more than 350,000 miles,” where she conducted “hundreds of in-depth interviews with private wealth managers, fund managers, entrepreneurs, C-suite executives, bankers, accountants and other finance professionals,” according to the event website.
Hoang’s research examines international financial networks, specifically around 1Malaysia Development Berhad, a strategic financial bank that has helped spawn illicit financial movements. She began her research by asking, “How do global elites benefit from risky frontier markets?”
Frontier Markets is an economic term used to describe the market of developing countries that are still considered investable. Hoang’s research focused on Southeast Asia, where financial growth was unprecedented. Hoang noted that the Asian stock market accounts for 32% of global accounts — ahead of the United States and Europe.
Asia recorded growth rates twice as high as those of the advanced economies. In addition, many of these nations lack transparency. As a result, Southeast Asia attracted a lot of attention from bankers, lawyers and investors.
Hoang explained how many ultra-high network individuals “gamble[ed] in the gray.” These individuals act as “big spiders” who then deploy agents to help build the structure of the web. These highly compensated agents do the footwork.
Hoang’s presentation examined how global capital flows through Southeast Asia. Capital is initially provided as offshore partners and funds in locations such as the Cayman Islands, British Virgin Islands and Panama.
It travels through “investment special purpose vehicles” like Hong Kong and Singapore before arriving at portfolio companies in Vietnam and Myanmar. Their study of capital movements analyzed around 300 financial elites with transactions ranging from $200,000 to $450 million and across numerous sectors including real estate, agriculture, mining and technology.
Hoang engaged in ethnographic research and interviewed many financial elites across Southeast Asia. She noted that many of these elites exemplified the diversity of financial networks, with one declaring, “I’m Korean, American-educated, live in Hong Kong, my company is based in Samoa, and my investments are in Vietnam.”
Her work served as “a behind-the-scenes look at how the rich and powerful use offshore shell companies to hide their wealth and enrich themselves.” Her research exists as a follow-up to her first book, Dealing in Desire: Asian Ascendancy, Western Decline, and the Hidden Currencies of Global Sex Work, which “takes an in-depth and often personal look at sex workers and their clients to show how high finances and benevolent giving are intertwined with intimacy in Vietnam’s informal economy.”
Through this network, Hoang was able to gain high-level access to financial elites in Southeast Asia under the confidence of anonymity. It required “a lot of confidence in my ability to tell a nuanced story while anonymizing,” Hoang said.
She explained that she first started her research as a personal assistant to two CEOs before realizing that attending financial meetings could get her involved in criminal activities. From there, she conducted interviews in informal settings.
An elite detailed how their financial network works. They initially found that they had lost track of the number of firms in the structure, but compared it to a maze. Their network started in Guernsey, which has no capital taxes. From there the network moved to the Cayman Islands (which granted tax exempt status) before traveling to Singapore and then Vietnam, Cambodia and Myanmar.
Hoang noted that many elites use “offshore foundations” that disguise donations to government agents as gifts to “women-run” or “green” companies. These gifts were immense; One elite explained that their company donated around “$10.” [meaning $10 million]… small, so small that no one would know what was happening to the fund.”
Ultra-high network individuals would hire CEOs or fixers, who would be the ones to handle business matters but would also be the ones who would face consequences if caught.
The book examined “heterogeneous state-market relationships” in which firms exhibit rent-seeking behavior in order to be more competitive. One elite explained: “This country is all about relationships and who you know [Vietnam].”
“The winners are those who know how to play the local game. Here you have to pay to be able to play.”
The elite explained the basic process. “You pay bribes to get the land… and then you pay ‘taxes’ to keep it every time they come in for an ‘inspection.'” The payments tended to be for high-value items like handbags or watches. These payments were made by a “nominee” who acted as an anonymous “paper owner”.
“Most people give the names of their drivers and maids. But we can track down the true owner if something goes wrong with the investment and [if] There’s every sort of investigation against the company for wrongdoing,” they said.
Elites also use theft and fraud to gain capital before shipping it overseas. Hoang explains how elites can invest in companies that don’t even exist, with a company “investing” in imaginary shrimp farms in a mountainous region of Vietnam.
They also engage in tax evasion or avoidance. Many companies can shift profits with “made up” prices without paying taxes on them. One elite explained: “Most of the funds in the world … are housed in a building where lawyers sit and they all use the same address. Nobody breaks the law here. We all pay taxes, but there is a double tax treaty between Singapore and Vietnam where you only pay 5 percent tax on any offshore capital gains.”
Companies can also dispose of assets onshore by selling shares offshore, allowing for the sale of shares without changing ownership of the structure. As one elite said, “In this business you gotta play in the gray numbers or they say this guy doesn’t play ball… Players who didn’t go to jail, they weren’t really in the game.”
Hoang stresses that this problem is not unique to underdeveloped countries. She singled out Penny Pritzker, the former Secretary of Commerce in the Obama administration. Pritzker’s net worth was estimated to be around $3 billion as of October 2022.
According to Hoang, Pritzker owned numerous shell companies in Bermuda, which were transferred to a Delaware-based LCC after she was nominated for a cabinet position. Hoang also noted another Delaware-based LCC that helped channel Russian funds for US campaigns.
Hoang noted, “There are consequences to this [research].” She explained that because of her research on Pritzker, she had been refused a position at another university. However, she stressed that she saw how important her work was. “That is my responsibility.”
Alex Genovese can be reached at [email protected]. Follow him on Twitter @alex_genovese1.