Feb. 3, 2023

674: The Shocking Truth Behind Invisible Trillions - The Price of Secrecy in Capitalism

Discover the Hidden Costs of Financial Secrecy with @Raymond_Baker from @IllicitFlows

Are you ready to uncover the world of financial secrecy and corruption? Join Brian Nichols and guest , Raymond Baker, as they dive into the world of "Invisible Trillions" in this eye-opening episode of The Brian Nichols Show. Raymond, an expert with 35 years in the business world and author of "Capitalism's Achilles Heel", argues that the separation of capitalism and democracy could lead to the downfall of our democratic capitalist system.

But it's not all doom and gloom. Raymond suggests the solution lies in transparency and accountability, which can come from both the government and private sector. With Brian, they explore the role of both entities in solving this problem and the importance of leading by example.

Don't miss this chance to gain insight from Raymond's new book, "Invisible Trillions", and learn how you can play a part in promoting fairness and transparency in the business world.

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Brian Nichols  0:12  
Invisible trillions, financial secrecy, is it the doom and gloom of capitalism or government, or both? Yeah, let's talk about that. Instead of focusing on winning arguments, we're teaching the basic fundamentals of sales and marketing and how we can use them to win in the world of politics, teaching you how to meet people where they're at on the issues they care about. Welcome to The Brian Nichols Show. Well, happy Friday to Brian Nichols here on The Brian Nichols Show. And thank you for joining us on of course, another phone that filled episode and as always, your humble host joining you live from our Stratus ip studio. You're in lovely Eastern Indiana. Don't let cyber attacks are outdated Business Technology. Put your company at risk. Learn more at Brian Nichols show.com. Now let's go on to today's episode where yes, we are digging into the topic of some of financial secrecy and the invisible trillions that may cripple the idea of capitalism. So joining us today to talk about those invisible trillions and yes, his brand new book titled The visible trilliums Raymond Baker joining us on the show Raman. Thanks for joining us.

Raymond Baker  1:18  
My pleasure. Thank you. Absolutely. Thank

Brian Nichols  1:20  
you for joining the program. And I'm very much looking forward to this conversation. Yes, into the world of hidden money and yes, the invisible trillions. But first, Raymond, do us a favor, introduce yourself to The Brian Nichols Show audience and specifically why you got into this world of financial secrecy.

Raymond Baker  1:37  
I was in the business world for 35 years, done business all over the world owned a number of companies. And doing business all over the world. I think I probably saw more corruption and more money laundering and more financial skullduggery than anyone should see in a lifetime. And I knew that this was not being adequately addressed, whether by governments or development economists or the World Bank or whatever. So I segwayed into the think tank world. In 1997, became a guest scholar at the Brookings Institution, wrote my first book called capitalism's Achilles heel, and have continued to work on issues surrounding financial integrity, or the lack thereof.

Brian Nichols  2:39  
Gotcha. So let's dig into them today, the topic of conversation, your brand new book, invisible trillions, which is tackling the idea of Yes, corruption, hidden money. So let's start things off. What's the premise behind the book, what was the inspiration between between you seeing things in the real world and then where you are today, authoring this new new book, after my

Raymond Baker  3:02  
first book was published capitalism's Achilles heel, we formed an organization called Global Financial Integrity. A number of other organizations around the world grew out of the book, all of us have spent 15 1617 years trying to drive forward the issue of the need for greater transparency and accountability in in business operations. And frankly, we have not been making as much success as we wanted. And so I realized several years ago that I had to elevate these issues, above the particular things that we were trying to solve, and make it make it clear that we are in fact dealing with a systemic problem. We're dealing with the the separation of our two fundamental pillars, capitalism and democracy. We're dealing with a systemic issue, and we have to approach this from a systemic point of view.

Brian Nichols  4:12  
Could you talk a little bit about So you mentioned the two pillars capitalism and democracy now? And this just might be my misunderstanding. But I was always under the impression that capitalism is more so the separation from the markets from the overlying government entities so that how do the two pillars stand, I guess, in conjunction together do Do you see any conflict with the idea, I guess, of capitalism being inherently away from government entities and oversight, and it's supposed to inherently self regulate with the idea of democracy, I guess, trying to use some type of government oversight to hold capitalism to some type of standard making sense of that question.

Raymond Baker  4:54  
I don't see these as competing ideologies. I see them as ideologies that should be working in sync with each other. Now, let me again tell you where I'm coming from. And when I graduated from business school in 1960, that that, that date 1960 marked the end of a 15 year period following World War Two. In 1960, a 15 year period, when capitalism, in, in my judgment operated at a very high level of responsibility, the linkage between democracy and capitalism was working extremely effectively. That began to change in the 1960s. And has continued to change as capitalism has drawn away from democracy and capitalism is attempting increasingly to operate in secret outside of the framework of democracy. And I think that the danger of this is that it could pull down the whole of the Democratic capitalist system, if we're not very, very careful going forward. What

Brian Nichols  6:11  
do you think is the the root cause of this this schism that you're seeing right now is? Is it a matter of capitalism just being unfettered capitalism? Or are there nefarious actors that are being able to manipulate capitalism through other means?

Raymond Baker  6:27  
Something very fundamental has happened in the capitalist system, since it was created in the late 1700s. At at that time, and going forward for a couple of 100 years, almost. Capitalism was devoted to generating public goods earning and profit operating with a measure of of community involvement. And I think that we're fairly well, beginning in the 1960s, capitalism, decided that it needed to operate in secrecy, apart from the oversights that are exercised by regulators and legislators. So over the last half century, we've created a financial secrecy system, to cater to a new motivation in capitalism, the desire to operate in in secret, the determination to function in secret, this was not a motivation of the capitalist system, during the first 150 years, it is a motivation in the capitalist system today. It represents a fundamental change in the way that capitalism operates, and therefore a change in the relationship between democracy and capitalism.

Brian Nichols  8:02  
So what would you say enables capitalism in this system to act in secret like it is? Beyond I guess what I would consider more traditional market forces? I mean, I, I think everybody agrees that sunlight is always the best disinfectant. And you see, a lot of times whenever something nefarious comes out, you know, whether it's terrible working conditions or awful, you know, production environments, or look at the TV shows showing how terrible the food making environments can be that usually that inspires some type of change. So I guess what your thought is the reason right now that we're seeing this enablement of secrecy in capitalism.

Raymond Baker  8:42  
Given the motivation for secrecy, we in the richer Western countries have created an entire financial secrecy system. It comprises tax havens, secrecy jurisdictions, disguised corporations in the millions and millions around the world, more of them created in the United States than in any other country. Fake foundations are part of this structure. Anonymous trust accounts are part of the structure. The practice of pricing in international trade, with invoice amounts differing from real values, the mispricing of trade across borders has been a fundamental part of this system. And then finally, Brian, our our governments leave holes in the laws of our western countries to facilitate the movement of illicitly generated money through this financial secrecy system, and ultimately, into our own economies. One of the basic points that I make in talking about the financial secrecy system them is that every single element of it has been created by us in the Western world. Not a single piece of this was done by drug dealers or counterfeiters, or criminal syndicates, or terrorist financiers, or so forth, none of that. They did none of this, we created every piece of this. And after we created it, it then became used by the criminals and the corrupt and counterfeiters and the traffickers and so forth, but we created the system.

Brian Nichols  10:37  
So do you see the solution then, coming from government? Or do you see this solution coming from the market itself? And let me preface this question with a little bit of maybe some context behind my question, because it sounds like in crummy if I'm wrong, but a lot of the problems that we're identifying today are loopholes or our favors, they've been put in place, by a lot of politicians in government, to then help their friends in corporations, which, by definition, doesn't sound like capitalism. Right. So I guess then to my question, again, is, do we see this being solved by adding more government to help air quote, solve the problem? Or do we start enabling and hopefully holding more of the free markets, feet to the fire and corporations feet to the fire, by cutting away the government, holding them up and propping them up, and then having to stand their own merits?

Raymond Baker  11:35  
The answer to the financial secrecy system is transparency and accountability. Now, a lot of that needs to be required by governments. But by the same token, a lot of it needs to be implemented within the private sector itself. I don't know whether there will be enough impetus within the private sector to bring about change, or whether it will, it will fundamentally have to be done by governments the unclear on the answer, the answer is transparency and accountability. In the operations of capitalism, I mentioned to you disguise corporations a moment ago, shell companies, there are 10s of millions of shell companies around the world, there's no excuse for a shell company, I never had a shell company. There's no reason why every company's ownership should not be known. We ought to know who owns the businesses with which, with which we're dealing, who owns the businesses. Knowledge of beneficial owners of businesses is a is a fundamental step that needs to be taken in addressing issues of transparency and accountability. Does that make sense? Brian?

Brian Nichols  12:58  
Absolutely. does. Yeah. And I definitely see the point you're making and I guess, my, my general, kind of not concern so much as my overall thought process here has been, I guess, you just look a lot of the problems we see. It seems like a lot of good intention, folks in government have tried to solve these problems. And you look, a lot of the yesteryear policies that were put in place, and now are being subverted. And you'd mentioned the loopholes, right, that are in place. So I guess then I'm like, well, it's like, it's like you're playing a game of football. And the, you know, the, the Cowboys are playing with one set of referees that are playing their own set of rules. And then the Packers are playing with another team, you know, another set of referees that are playing by, like the real rules of football. And it's like, you're seeing two NFL teams, but they're playing the same game, but by different rules. And I guess my thought process is instead of saying instead of add more referees to the game, remove the referee start to bring it back to make it so it just, it's less messy, it's less cooks in the kitchen, and opens up less opportunity for the exploitation it stops the quid pro quo, the CEO, the shell corporation CEO saying, hey, government, bureaucrat, or hey, government politician, I'm gonna go ahead and you know, maybe donate a couple with 1000 million dollars, you know, what's it say to a pack of some sort that supports your campaign or will support an entity of yours that you're friendly with? And that might might find its way back to you? I don't know. But with that being said, if you would be so kind to help me make it so I can keep doing what I'm doing behind the scenes that normally no other entity would let me do in a truly free market, because they would say, Dude, what are you doing? But because we're playing this game, and everybody else is trying to play this game, now it does matter who can play the game the best. Does that make sense?

Raymond Baker  14:52  
Sure, it does, and you raise a very fundamental question. This the solution of these problems Rise primarily in the ranks of the government or the ranks of the private sector. Let me give you some background a long time ago. My father was the most honest person I have ever known, most honest businessman I have ever known. He was known as such. And during his career, he was an independent entrepreneur in the in the town where we lived Shreveport, Louisiana, in that, in that environment, my father had a reputation for being totally aboveboard in his dealings to the point that in mid career for him, the biggest bank in town came and asked him to be president. He'd never been president of a bank before, he'd been a director on a bank board. But it was because he had a reputation for absolute honesty in his dealings, and everybody wanted to do business with him. And I never heard my father tried to maximize his profit on a transaction. What he tried to do was to arrive at a fair price in every transaction, he was involved in fair to him fair to the other person, he didn't need a mountain of regulations to tell him that that was the right thing to do. He did it. I'll ask you, Brian, how many people bring that kind of attitude to their work? Today?

Brian Nichols  16:34  
That's a great question. And I'll tell you, though, I will say I see it a lot in the entrepreneur space where there is so much vested interest in truly how you perform and how you act in the day to day environment, because you are the face of your company, you might not just be a salesperson, and accounting person, you know, HR person, but you're playing every single role. And with that, you have to bring it every day, you can't say that's not my job, because it has to be your job because it's your company. And, you know, I guess maybe that's also goes to where we see a lot of the deferment, right? And that you see this in bureaucracies across the board. When you have a person from a person from a person who's handling the paperwork, you're like, okay, and you see this with multinational corporations, where it's just like, it's a faceless entity where that CEO doesn't really have any, any connection to where the product comes from. There's a scene in the office, it's it's funny, it's an old TV show there. For folks who aren't familiar, back in the late 2000s, early 2010s, or Michael Scott, of course, he's He's the great, great boss there at Dunder Mifflin. And he's complaining about the brand new boss that was just hired, who was hired from the steel industry. Dunder Mifflin is a paper company. And he's freaking out. And he like, you don't even know probably how papers made, you can't put it in a furnace, it'll burn. And it's like that mentality, right? He had the passion, because he cared about it now that he's a paper maker, but he cared about the product versus the person coming from the steel company, that the company that melt stuff, right, burn paper. So I say that that silly connection there to make the point, I guess is that you see a lack of this, like the connection not just to the product also, but then with that directly to the consumer, because you're not seeing the direct impact, if I mess up as the business owner or to your point is if your dad next step as the business owner to the customer, they will face that direct reaction and consequence in the customer saying I will take my dollars elsewhere. Whereas you don't see that right away. When you're a CEO, you know, 1000s of miles away or countries and countries away. It's either, you know, the the line items change a little bit, you know, the the numbers change a little bit on the reports. That's That's what that turns into.

Raymond Baker  18:51  
I agree with you. There are a lot of senior executives in multinational corporations, as you describe, that are separated from the people that work for them separated from the other countries where they do business. Yeah, they're there, their focus is on the bottom line, and on making as much money as possible. I repeat to you something that I often say I've never known a multinational multibillion dollar Multi Product corporation that did not use the financial secrecy system to move some part of its money across borders or and that can be state borders or national borders or what have you. Use of the financial secrecy system has become utterly normalized and international business, whether it breaks laws are not. I don't know how you do that, except that you internally occupy in your own mind, a position that is just separated from you The people that you serve the people that you supply the people with whom you do business, the larger, I don't know how you do that, except by separating your mind from the broader environment within which you're working. Does that make sense?

Brian Nichols  20:15  
Oh, it absolutely does. And I think to that point as we go towards final thoughts here for today's episode, and I'll kick things off for my final thought it speaks to just the importance right of us, not just leading by example, but also by holding others accountable. Now, there's, there's a big debate, right? What's canceled culture, what's, you know, what's the accountability and action, whatever the debate is, but we do see that people will vote with their dollars, I voted with my my dollars in respect to I moved out of Philadelphia, I didn't like what was taking place in Philadelphia, I thought that the policies taking place in Philadelphia in the past three years, weren't that great. So I moved, and I took my, my dollars, I moved, I voted with my feet in that in that instance, right. So you can see in that example, but also when you talk about we're talking about today, right? So providing a quality service to your customers. It's it's indicative on you not just to do a good job, but when you see someone going out of their way to cause harm to do the opposite of what should be done. When you're trying to bring value to the marketplace, call it out, raise up the awareness, because otherwise, it will go unchecked. And then there will be people saying Hey, Mr. Government, please step in and fix this. And then we have to worry about all these loopholes being made. That's my final thoughts. Right. What do you have for your final thoughts today?

Raymond Baker  21:39  
I like where you're coming from Brian, I would love to see businessmen embody a stronger sense of internal integrity. In their work, I don't see a lot of that now. And it's, it's it's so vivid to me, because as I told you, I watched my father operate with an entirely different approach. And it served him very well. And I still think it can serve very well today.

Brian Nichols  22:12  
Absolutely. All right. Well, with that being said, we are unfortunately at the end of our show, which means it's time for us to go ahead and make sure we direct folks to number one, where they can go ahead and continue the conversation with you. But number two, where can they go ahead and find the brand new copy of indivisible trillions?

Raymond Baker  22:34  
You can you can buy it online at Amazon or some of the bookstores or what have you, but it is available right now.

Brian Nichols  22:42  
Awesome. And where can folks go ahead and find you if they want to reach out?

Raymond Baker  22:46  
I'm Google my name. It'll it'll come up. Maker, it'll come up.

Brian Nichols  22:52  
Perfect. Well, how about this too, we have some links here in the show notes, folks, we'll make it super easy for you guys. You can Google it. Or you can click your artwork in your podcast catcher to bring you over to the Brian Nichols show.com where you can find today's episode, you will find all 674 other episodes of the program. You will also find the entire transcript from today's episode, including all the links Affer mentioned including the link both to Raymond as well as to invisible trillions. Otherwise, if you enjoy the episode, please do me a favor. Let people know go ahead and share today's episode when you do tag yours truly at be Nichols liberty. Otherwise, if you want to go ahead and support the show you can do so $1.99 a month become an audience insider. You can find a link over on the homepage at Brian Nichols show.com. Otherwise, that's all we have for you. Brian Nichols signing off here on The Brian Nichols Show. We'll see you tomorrow. Thank you

Transcribed by https://otter.ai

Raymond BakerProfile Photo

Raymond Baker

Author / Founding President

Raymond Baker is the Founding President of Global Financial Integrity and the author of Capitalism’s Achilles Heel: Dirty Money and How to Renew the Free-Market System, published by John Wiley & Sons and cited by the Financial Times as one of the “best business books of 2005.” He has for many years been an internationally respected authority on corruption, money laundering, growth, and foreign policy issues, particularly as they concern emerging market and developing countries and impact western economic and foreign interests. He has written and spoken extensively, testified often before legislative committees in the United States, Canada, the European Union, and the United Kingdom, been quoted worldwide, and has commented frequently on television and radio in the the United States, Europe, Africa, Latin America, and Asia on legislative matters and policy questions, including appearances on ABC News’ Nightline, Al Jazeera, BBC, Bloomberg TV, the CBS Evening News, CNN, NPR, PBS, and Four Corners (ABC1 in Australia), among others.

Mr. Baker founded Global Financial Integrity in 2006, and the GFI team has produced more than 25 economic analyses of resource transfers affecting countries, regions, and the world. GFI has led in securing the terminology and the reality of illicit financial flows onto the global political-economy agenda. He also serves on the Policy Advisory Board of Transparency International-USA and on the Advisory Board of the Ethical Research Institute.

In 1996 he received a grant from the John D. and Catherine T. MacArthur Foundation for a project entitled, “Flight Capital, Poverty and Free-Market Economics.” He serves on the World Economic Forum’s Meta-Council on the Illicit Economy. He traveled to 23 countries to interview 335 central bankers, commercial bankers, government officials, economists, lawyers, tax collectors, security officers, and sociologists on the relationships between bribery, commercial tax evasion, money laundering, and economic growth. From 1985 to 1996 Mr. Baker provided confidential economic advisory services at the presidential level for developing country governments. Activities focused principally on issues surrounding anti-corruption strategies, international terms of trade, and developing country debt. Research was conducted with 550 business owners and managers in eleven countries, concerning import and export mispricing and movement of tax-evading capital, and money laundering.

From 1976 to 1985 Mr. Baker conducted extensive trading activities throughout Latin America and in ten Asian countries including the People’s Republic of China. An affiliated company in London handled transactions in Europe. From 1961 to 1976 he lived in Nigeria and established and managed an investment company which set up and acquired manufacturing and financing ventures, the subject of two Harvard Business School case studies. Educated at Harvard Business School and Georgia Institute of Technology, Mr. Baker is the author of “The Biggest Loophole in the Free-Market System,” “Illegal Flight Capital; Dangers for Global Stability,” “How Dirty Money Binds the Poor,” and other works published in the United States, Europe, Africa, and Latin America.