A Different Kind of Border Wall

To slow mass migration, stop the illicit capital flight from poor to rich countries.

An asset manager called ____ Capital recently sent out this email seeking referrals:

The US Investor visa program allows one to invest $500,000 U.S. in a government licensed fund for a period of about five years and in around 18 months, a conditional green card is attained for the investor and their immediate family. The investor and their family can live, work and study anywhere in the United States and there are no educational, age or English language requirements.

Most experts report that on September 30th the investment amount will increase from $500k to $1.3m, a significant jump that will price out many potential investors.

There is still time to file before September 30th if you start your process with ____ Capital now.

Others can comment on the practice of selling green cards (and ultimately US citizenships) to wealthy foreigners while millions of other applicants, some of whom would be greater contributors to the United States, continue to wait in line for years. Our concern is one step removed and has to do with the legality of this money.

Give me your rich, but no huddled masses. (photo: populyst)

It would be unfortunate if foreign money inflows into the US, whether green card-related or not, benefited only a small number of American fund managers and real estate developers while they lowered the standard of living of larger numbers of Americans, for example by crowding them out of some cities because of rising home prices. But it would be doubly unfortunate if some of this money was also illicit, in other words stolen or obtained through dubious maneuvers by corrupt or crony foreign government officials and corporate executives.

Indeed, to use just one example, the fact that the identity of many buyers in New York’s newest condominiums is cloaked by the use of shell companies is unhelpful to anyone claiming that these vast incoming sums are mostly clean money. For more on this, see Manhattan Ultra-Luxury ‘Battling the Serpent of Chaos’.

Why Mass Migration

Before we loop and close this circle, let us examine a very related issue: the mass migration of people from poor countries towards Europe, North America and other wealthy nations.

When considering the migrant crisis, from the Middle East, Asia and Africa into Europe, or from Asia and Latin America into the United States, the question among policy makers has been on whether and on how to allow or to stop the inflow of people: when, where, how and how many?

But an antecedent question should be: what in the first place is causing these people to migrate thousands of miles, often at the risk of their own lives? Clearly the answer resides in the poor economies of their home countries. But then what accounts for this poor state of their economies?

Capital flight must be one of the most important reasons. Modern economics and globalization encourage the free flow of capital. But what if this capital leaving poor countries was ill-obtained? What if it was stolen by corrupt government officials or corrupt corporate executives, or diverted unethically by cronies operating on the margin of legality?

We do know that wealth and opportunity in many of these countries are hoarded by a small, insecure and often corrupt governing elite. Indeed it is the insecurity that accompanies such hoarding that naturally leads to a significant share of this capital being exported towards jurisdictions where the risk of seizure is deemed to be minimal.

Yet rich country economies are already awash in capital due to extremely accommodative central bank monetary policy while at the same time poor countries are in dire need of capital to improve their own infrastructure and economy. Simply put, their economies need this money a lot more than ours do. If anything, our own economies may be suffering from too much capital because of extremely low interest rates.

Closing the Loop

This then is the reality of today. Rich countries have been on the one hand accepting with open arms the capital coming from poor countries and profiting from it handsomely, and on the other hand balking, to put it euphemistically, at accepting the people from these poor countries who are emigrating in part as a result of this large capital flight.

The Honest Accounts report estimates that illicit capital outflows from sub-Saharan Africa alone totaled $67.6 billion in a single recent year and that the continent is a net creditor to the world to the tune of $41.3 billion per year.

One way to think about it then is that migrants are coming to our shores after their country’s money has already come to our shores. As with your typical human being, their search for better living conditions are forcing them to follow the money, some of which happens to be their money. This is not to justify illegal immigration but to explain that it is at least partially a result of our open and undiscriminating stance towards incoming wealth.

If, as Pope Francis recently stated, corruption steals from the poor, then its younger brother, cronyism, steals from the middle class. Of course, most poor countries don’t have a middle class and their elites therefore often don’t even bother to become cronies. With a weak judiciary, they go directly into corruption, usually with impunity until the levers of power change hands, which is not all that often.

Parenthetically, it stands to reason that elites in poor countries would not love democracy at home because it reconfigures the power structure every few years in a way that threatens their standing and prosperity. These same elites however do love the democracy and fair play of rich countries because they are the conditions that allow them to safeguard their assets.

For better or for worse, things are different now due to demographics and technology. For decades, all the power players – government officials, foreign corporations, safe-haven banks – have extracted a large share of wealth because the poor in underdeveloped nations were few, disorganized and largely uninformed. But now they are far more numerous, goaded by smugglers to emigrate, and better informed through the internet. See Working Age Population Around the World to understand the potential magnitude of the migrant issue.

Where the Money Goes

The image of the elite from poor countries living in the lap of luxury, jetting to their homes in New York, Miami and London, visiting their financial advisors in Zurich and Cayman, and educating their children at tony private colleges while the masses of their countries subsist in abject poverty, often without sanitation, water or electricity, is so widespread and so real that it has almost become an accepted cliche to most people.

But to the European and American business and financial elite, the moneyed foreign elite is irresistibly cool, usually not because it is foreign but because it is moneyed and often free-spending. For every American consumer whose appetite for luxury goods is flagging, there may be two or three new wealthy consumers in emerging nations who are eager to collect luxury status symbols. If Louis Vuitton and BMW revenues were  to stall in the United States, these firms would merely intensify their focus on new customers in the Middle East, Africa and Asia.

Foreign elites are also big investors in the United States and Europe. The destination of flight capital is usually one of the following:

  • Banks or financial institutions that offer some secrecy and safety. Historically, this has been private banks domiciled in Switzerland but more recently, it has become any financial institution in an offshore financial center such as the Cayman Islands, Bermuda, Panama, Cyprus, the Channel Islands or other. The Tax Justice Network estimated in 2016 that $12 trillion from developing countries were parked in offshore havens.
  • This capital is then funneled by these banks to asset management firms, be they stock and bond funds, private equity funds or other, to be put to productive use through investments in the public or private markets (see footnotes 1 and 2).
  • Real estate projects in New York, Miami, London, Vancouver and many other places. In 2015, a report by the New York Times estimated that in six of Manhattan’s most expensive buildings, shell companies owned between 57 and 77 percent of the condominiums. (see footnote 3).
  • Other asset classes such as art where funds can be parked safely.

So, here today, we are faced with this question: is it right to accept into our country another people’s money but to turn away the people themselves? And if we cannot, due to their sheer numbers, accept the people themselves without risking a disruption of our own politics and economics, shouldn’t we then at least turn away the illicit capital that is fleeing their countries? Shouldn’t that capital remain in their countries where it can help them build a better economy and thus remove or reduce their need to emigrate across the sea?

Given that the number of working-age Africans and Asians is about to swell by hundreds of millions of additional job seekers, it would be prudent for us to encourage the capital  originating in their countries to stay at home rather than come to rich countries where it is distorting prices in real estate and other markets. We may not be able to enforce a barrier against all such capital but it behooves us to try and limit the migration of illicit wealth, or to face the inevitable blowback, a human wave of tens of millions of migrants banging on the door to enter the rich world.

Cruelty plays its hand artfully. Some large beneficiaries of foreign money inflows are also vociferous proponents of greater limits on immigration. These two positions can coexist harmoniously within the same brain only until the connection between the trillions in capital flight and the millions of migrants is exposed in full relief.


1. Most of the returns on this capital underperform the major stock indices but custodians seem indifferent while they extract their own hefty fees. Meanwhile the owners of the capital don’t worry about a few percentage points of underperformance when their main motive is the safety of the principal. This is the real reason why hedge funds continue to thrive despite delivering poor performance. Their investors are more tolerant of subpar returns because the main alternative is to keep their money in their home countries where they could lose some or all of it in an unfriendly crackdown.

2. In theory, the Patriot Act required financial institutions to investigate the sources of funds that they receive from foreign countries. But in practice, depositors with no suspected connection to terrorism are ostensibly granted the all clear. Finance firms are simply not staffed or equipped to differentiate between ill-gotten funds and clean funds.

3. Here too, investors are relatively indifferent to the return they obtain and are merely looking to garage their wealth. Some of New York’s new high-rise condominiums have been called “safety deposit boxes with a view”.

This article was also featured at National Review and New Geography.