Book review: Invisible Trillions: How Financial Secrecy is Imperilling Capitalism and Democracy – and the Way to Renew Our Broken System

Héctor Sbert
Ecija, Barcelona
hsbert@ecijalegal.com

Drawing on his extensive experience and expertise as a businessman and a founder of Global Financial Integrity, Baker reveals how trillions of dollars, euros, pounds and other forms of wealth are moving invisibly, beyond the reach of central banks, law enforcement and international institutions. With a whole system of financial secrecy dominating capitalist operations, wealth flows inexorably upwards and accelerates economic inequality. This growing inequality is endangering, weakening, hindering and degrading democracy. This book is not an indictment of capitalism, but a call for capitalism to return to its roots, reactivating its synergies with democracy. Baker writes: ‘Democratic capitalism is, in my view, the best system that has been devised in political economy, but dysfunctions within its capitalist component are undermining the two-part system’.

The book is divided into four parts: the first describes the features and origins of the financial secrecy system; the second analyses its impacts on the economy, politics, society and the environment; the third proposes a series of reforms to create transparency and accountability in the financial system; and the fourth offers a vision of hope and action for the future. The book is written in a clear, accessible and persuasive style, and is supported by data, examples and testimonies. The book is an essential read for anyone interested in saving democracy from the depredations of kleptocracy and plutocracy.

The first part of the book explains how the financial secrecy system works and how it evolved over time. Baker defines financial secrecy as ‘the ability to move money and other forms of wealth across borders, convert one currency into another, and hold accounts in foreign jurisdictions, all without those movements being recorded, reported, or disclosed to the authorities of the countries involved’. He identifies the main actors and enablers of this system, such as tax havens, offshore financial centres, shell companies, trusts, foundations, anonymous accounts, lawyers (!), accountants (!!), bankers (!!!) and intermediaries (!!!!). He traces the historical development of this system, from its origins in the colonial era, to its expansion in the post-war period, to its consolidation in the era of globalisation and digitalisation. He also shows how this system has been used and abused by various actors, such as corrupt politicians, criminals, terrorists, tax evaders and multinational corporations.

The second part of the book examines the consequences of the financial secrecy system for the world. Baker argues that this system has distorted the functioning of the market, the state, and the society, and has created a series of problems and challenges, such as:

• Economic problems: tax evasion, tax avoidance, illicit financial flows, capital flight, trade misinvoicing, transfer pricing, profit shifting, base erosion and profit erosion. These practices deprive governments of vital revenues, distort the allocation of resources, undermine fair competition, and increase inequality and poverty.
• Political problems: corruption, bribery, kleptocracy, plutocracy, state capture, patronage, clientelism and cronyism. These practices erode the legitimacy, accountability and responsiveness of governments, weaken the rule of law, and undermine democratic institutions and processes.
• Social problems: human rights violations, human trafficking, drug trafficking, arms trafficking, wildlife trafficking, environmental degradation, climate change and public health crises. These practices harm the dignity, security and wellbeing of people, especially the most vulnerable and marginalised groups, and threaten the sustainability of the planet.

The third part of the book proposes a set of solutions to address the financial secrecy system and its negative impacts. Baker advocates for a comprehensive and coordinated approach that involves multiple actors and levels, such as:

• International organisations such as the United Nations, the World Bank, the International Monetary Fund, the Organisation for Economic Cooperation and Development, the Financial Action Task Force and the G20. These organisations should set global standards and norms, monitor and evaluate compliance, and provide technical assistance and capacity building.
• National governments such as the United States, the European Union, the United Kingdom, China, India and others. These governments should implement and enforce domestic laws and regulations, cooperate and exchange information with other jurisdictions, and provide leadership and support to the global efforts.
• Civil society such as non-governmental organisations, media, academia, think tanks, and activists. These actors should raise awareness and mobilise public opinion, monitor and expose wrongdoing, advocate and campaign for change, and hold governments and corporations accountable.

The fourth part of the book offers a vision of hope and action for the future. Baker argues that the financial secrecy system is not inevitable or irreversible, but rather a human-made construct that can be changed and improved. He cites examples of successful reforms and initiatives that have been achieved in the past, such as the Foreign Corrupt Practices Act, the Dodd-Frank Act, Automatic Exchange of Information, the Common Reporting Standard, Country-by-Country Reporting, the Extractive Industries Transparency Initiative and the Open Government Partnership. He also highlights the role of whistleblowers, journalists and activists who have exposed and challenged the financial secrecy system, such as Edward Snowden, Julian Assange, Chelsea Manning, the Panama Papers, the Paradise Papers and the FinCEN Files. He concludes by calling for a global movement of citizens who demand and create a more transparent and accountable financial system that serves the common good and the public interest.

Invisible Trillions is a book that sheds light on one of the most important and urgent issues of our time: how financial secrecy is endangering democracy and the rule of law. It is a book that combines rigorous analysis, compelling storytelling and passionate advocacy. It is a book that challenges us to think critically, act boldly and hope realistically. It is a book that deserves to be read, discussed and acted upon by anyone who cares about the future of capitalism and democracy.