Financial secrecy makes the impact inevitable

Beneath the surface of our financial system lies an unseen world worth trillions of dollars. This vast and expansive realm, both offshore and onshore, is undermining capitalism and democracy from the inside. Raymond Baker calls it the financial-secrecy system, and among today’s grave threats to democracy it is one of the least acknowledged.1 Made up of millions of hidden accounts, secret trusts, disguised entities, artificial trades, opaque ownerships, and more, this parallel world could not differ more starkly from what the average citizen of a Western democracy experiences as the financial system. Rather than being a space under intense scrutiny and observation, monitored by everything from the latest banking algorithms to the beady eyes of tax officials, this hidden dimension is where those wealthy enough to gain access to it go to hide their wealth and avoid taxes. Rather than serving as an asset to Western capitalism and democracy, this secret world and its covert dealings are acting on both as a quiet poison.

Or perhaps the poison is no longer so quiet: This parallel world has now grown so large that it is visibly cracking the political order from which it sprang. Financial secrecy has swollen in recent years as elites have abandoned their duty to pay their fair share. A metastasizing culture of tax avoidance by corporations and the wealthy has weakened national values, institutions, and goals across the West while fueling levels of inequality that wreck national cohesion, drive spiraling resentment, and stoke anger. This is empowering the enemies of democracy at home and abroad, be they domestic populists who vow to crush the abusive system, or authoritarian kleptocrats and criminals who manipulate the system to cover their own misdeeds.