The Hidden Private Wealth Behind Everything that Sucks

Transcribed from the 22 July 2017 episode of This is Hell! Radio (Chicago) and printed with permission. Edited for space and readability. Listen to the whole interview:

In some ways you’ve got to hand it to the guys who founded Renaissance Technologies. They are a group of scientists who came out of MIT; these are not finance guys. They are kind of data geniuses. They have been able to create what I call a very complicated card-counting system.

Chuck Mertz: Dark money isn’t just about what happens within political campaigns. No, the world’s wealthiest families hide their money away from the prying eyes of all outsiders. They hide it within private firms that are often linked to laundering money for some of the world’s most evil people.

Here to explain dark dollars and how they fit into both the Trump administration and organization, Adele Stan is a weekly columnist at the American Prospect, winner of the 2017 Hillman prize for opinion and analysis, and author of the recent Baffler article, “What We Do Is Secret.”

Welcome back to This is Hell!, Adele.

Adele Stan: So great to be with you again, Chuck.

CM: It’s really great to have you on the show. Now, we have had difficulty finding people who are writing about the Mercers, let alone the way in which you discuss dark dollars, which is a far more expansive version; you’re not just focusing on the Mercers. To you, what explains why this dark wealth has stayed under the media’s radar?

AS: I think that it’s kind of under everybody’s radar because of the very nature of private companies, privately-held entities, LLCs—limited liability companies. There’s no public reporting by these companies; it’s not required of them. And they are not being covered by the business press because nobody is buying shares in them on the New York stock exchange. The very nature of these companies is that they are not traded publicly.

The other reason is that people don’t understand this whole murky universe. It is really hard to understand in large part because it’s so hidden, but also because it involves all sorts of crazy entanglements and shell companies—I don’t even pretend to understand it. I wrote 4500 words about this stuff in the Baffler and I will not claim to truly understand what goes on with these companies.

CM: How little do we know about the ways in which the wealthy make money and keep their wealth? And if we knew—would there be some kind of uprising if all of the sudden we found out exactly how, say, the Trump organization makes money?

AS: I would hope so. I mean, the Occupy movement was just focused on Wall Street—which consists largely of publicly-traded entities, hedge funds notwithstanding—and the New York stock exchange. If that much of an uprising, which took place in pockets all over the country, could be generated by companies we do know stuff about, imagine if we understood the billions and billions in unaccountable wealth that falls into the hands of these extremely wealthy people that you and I are not permitted to know anything about. These people do not have to release any kind of tax filings publicly for these companies. They don’t even need to make public who their shareholders are, who the stakeholders in their companies are (it is frequently just a few family members).

And when we’re talking about people like Robert Mercer, who is the money behind the Steve Bannon enterprises, Breitbart and this BS non-profit called the Government Accountability Institute (which is such an ironic name)—if people understood what these guys do and how they make their money, and that it accounts for such a huge amount of wealth and percentage of the economy (we don’t even know what the real percentage is!), and that they’re accountable to absolutely no one, I would hope that there would be a public uprising about this.

CM: You write, “Robert Mercer [is] a Trump donor and patron of white house strategist Stephen K. Bannon. Mercer’s daughter Rebekah is said to have great influence in the west wing. The source of Mercer’s wealth is Renaissance Technologies LLC, a privately owned firm known as a hedge fund sponsor, which was built by scientists who learned how to run algorithms that identify signals emanating from great masses of data in order to generate profitable financial trades.”

How fair is the playing field that the Mercers play on? I’m told by people running smaller hedge funds that it is difficult to compete in a system that favors these much larger hedge funds.

AS: I think that’s probably true, and in some ways you’ve got to hand it to the guys who founded Renaissance Technologies. They are a group of scientists who came out of MIT; these are not finance guys. They figured out a way to use algorithms to detect what, in dataspeak, is called signals. They take great masses of data from all sectors of the economy, and great masses of socio-demographic information—all kinds of information—then they create algorithms from which they can derive certain signals to conduct automatic trades. These guys are kind of data geniuses—they know things that you and I might not be able to ever understand. They have been able to create what I call a very complicated card-counting system.

Renaissance Technologies is considered to be the top-performing hedge fund in the US (and perhaps globally). They yield a twenty percent return for their investors, which is just unheard of. But the coup de grâce is the self-dealing: within Renaissance Technologies there is another fund that only employees of Renaissance Technologies may belong to, and in fact they pretty much have to belong to it if they want to actualize their compensation package. It is called the Medallion fund. Bloomberg has described this as the blackest black box of all hedge funds. Nobody knows how the Medallion fund works, but it yields an even bigger return for those employees than the investors in Renaissance Technologies funds.

CM: Are hedge funds, then, the home of dark dollars?

AS: There are many homes for dark dollars. That’s the thing. There’s not just one form. There are hedge funds—which are usually actually small companies, in terms of staff size; they can qualify as small businesses; it’s usually just a handful of people. But they’re privately held—and of course they are trading in vast quantities of wealth. But because they themselves are private, they don’t have to reveal very much to government regulators.

And I should say that private companies are not regulated by the Securities and Exchange Commission (as if the SEC is much of a regulator to begin with), so they don’t even have to subscribe to those kinds of regulations.

But then there are also huge conglomerates such as Koch Industries. It is a huge conglomerate: it owns multiple companies. It owns Georgia Pacific, which itself owns vast tracts of timber land. It owns Stainmaster carpets, the lycra fiber people. Its legacy industry is fossil fuel extraction and natural gas pipelines and all of that. It’s a really big corporation. And it is privately held, so they don’t have to disclose much of anything.

Amway—Amway, which is virtually a pyramid scheme—is the 29th-largest private company in the United States (Koch Industries is the second-largest). It can be these very large corporations where the wealth is generally kept within the family (and I should say that Betsy DeVos, the present secretary of education, is of course an heir to the Amway fortune through marriage).

Or take somebody like Trump: Trump’s organization isn’t one company, it’s a bunch of these small limited liability companies (many of which are what are known as shell companies) that are registered in what are called “secrecy jurisdictions.” Those jurisdictions can be in the United States, in places like Nebraska or Delaware, or they can be overseas, in places like Seychelles or Lichtenstein or even Scotland. Those shell companies really only exist to receive and disburse money. They are a lot like what we call “pass-through groups” in the nonprofit world—which is, interestingly, also a great gambit of the Koch donor network. It’s a way of creating greater layers of obfuscation, to avoid showing where money goes to and fro.

In Russia, you don’t get to be an oligarch unless you’re in cahoots with the dictator Vladimir Putin (I think it’s fair to call him a dictator; I’m reserving that right to myself).

It’s used to launder money. It can be any kind of money. It can be the money of oligarchies; it can be drug money; it can be terrorist dollars. It can be any kind of ill-gotten gains. This is not to say all shell companies are laundering money (some are simply tax-avoidance schemes…) but nonetheless, they are great vehicles for laundering money.

CM: How do you feel about this moral equivalency that you’ll hear sometimes, where people will say, “Well, sure, the Kochs are using all these private firms to hide all their money, and they’re having an impact on politics…but the left has George Soros!”

How do you feel about that kind of moral equivalency that says everything is fair and it’s fine that these people are hiding their money, because the left has their own person who’s hiding their money?

AS: You’re right, Soros’s wealth is derived from private entities too, and he was even a co-investor with Steve Mnuchin in IndyMac bank, which got a sweet deal on the crisis: after it defaulted, having taken a lot of bad loans, they were able to rename it, and they started foreclosing on a lot of people who had mortgages that went sour. But unlike Steve Mnuchin, nobody’s appointing George Soros to be secretary of the treasury. And by and large the preponderance of the kind of wealth flowing through the Koch network and Republican circles is private wealth. It’s probably fair to say that a significant portion of the Democratic Party is captive to Wall Street, but that is largely through publicly-traded entities that there are at least some ways to fight. You know when they’re having a shareholder meeting. You know who owns the shares. On the other side? We don’t know.

CM: You cite Wall Street Journal reporters, Jean Eaglesham, Mark Maremont, and Lisa Schwartz, writing in a December 8 [2016] article: “Nearly all of Trump’s assets are encased in similar webs comprising Trump’s many privately-held entities. So-called shell companies, such as Trump’s Delaware LLCs, exist for no other reason than the receipt and movement of money; both publicly-traded and privately held companies make free use of such protections, but when used by private entities, the effect is not simply to avoid taxes, but to obscure the sources of capital used by a company that is already exempt from making the most basic disclosures.”

Is this why, in your opinion, Trump will not release his tax return and why he’s so concerned about the Mueller investigation going into his family’s wealth? Because those returns and his family wealth would reveal all of his shell companies?

AS: Hell, yeah. And it’s not necessarily even that those tax returns or those investigations will reveal the source of his wealth; it’s the question that they will raise. The investigators may not even be able to find the root of all of this. What they will find is a lot of investment by people with questionable backgrounds, maybe links to Vladimir Putin and Russian oligarchs. But they can obscure money coming from all kinds of bad actors in the world.

In Russia, you don’t get to be an oligarch unless you’re in cahoots with the dictator Vladimir Putin (I think it’s fair to call him a dictator; I’m reserving that right to myself). These companies in Russia were formerly all state entities, right? Somebody had to disburse them among the wealthy—and Putin famously purged the oligarchs he didn’t like, some of the ones who had gotten their dough in the Yeltsin era.

It’s very likely that a lot of the financing of Trump’s projects goes back to unsavory characters. Not only Putin, but he probably has tight relationships to the United Arab Emirates, and friends in Saudi Arabia—who knows where the money that has financed all these questionable real estate deals come from?

CM: The final question that I have for you as always is the Question from Hell: the question we hate to ask, you might hate to answer, or our audience is going to hate the response. So here are all these families—the Kochs, the Mercers, the DeVoses—who are are involved in the Trump administration. How much power do these families have over US politics?

I remember back in the 1980s how everyone was so concerned about El Salvador and how it was only run by fourteen families, los Catorce, and how we just couldn’t imagine such a thing happening here in the US. In 2017, is the US becoming El Salvador?

AS: Yeah, they own the store. They are looting the resources of your country. Trump is the vehicle for Project Plunder.

CM: Thank you so much for being on our show, Adele.

AS: Great talking to you.

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