BRICS hypocrisy on offshore reform

Andrea Binder is a Freigeist fellow and research group leader at the Otto Suhr Institute of Political Science at Freie Universität Berlin and the author of “Offshore Finance and State Power.” Ricardo Soares de Oliveira is professor of the International Politics of Africa at Oxford University and is currently writing a monograph titled “Africa Offshore.”

Of all the challenges in global governance discussed at the latest BRICS summit in Johannesburg, the role of offshore financial centers should have loomed large. Instead, the issue barely got a noncommittal half paragraph on page eight of the summit’s 26-page declaration.

In an example of breathtaking hypocrisy, BRICS countries rail against the global financial architecture but offer no collective action on offshore banking, and they also continue to be among its major users themselves.

Data leaks such as the Pandora Papers and Panama Papers have shown just how vast amounts of cash end up in jurisdictions that cater to wealthy nonresidents by offering secrecy, asset protection and tax exemption. And according to economist Gabriel Zucman $7.8 trillion — or about 8 percent of global wealth (and 40 percent of corporate profits) — are currently hidden in such tax havens.

What’s interesting is that a considerable share of this originates from BRICS and other developing countries. The U.N. Conference on Trade and Development, for instance, estimates that $88.6 billion leave Africa every year in the form of illicit capital flight, much of it ending up offshore.

The fact that this offshore world is underpinned by the interests of the rich world and also a majorly exacerbates global inequality should fire up BRICS countries.

And certainly, they are quite vocal in denouncing the role of offshore finance: In the 2020 Moscow Summit declaration, for instance, BRICS member countries reiterated their “commitment to combating illicit financial flows, money laundering and financing of terrorism and to closely cooperating within the Financial Action Task Force (FATF) and the FATF-style regional bodies […], as well as other multilateral, regional and bilateral fora.” They have also rightly called out the West for setting up these mechanisms decades ago.

In practice, however, whatever global multilateral action is currently being taken is at the level of the G7 and the Organisation for Economic Co-operation and Development — even if these ambivalent reforms are often protective of the West’s offshore interests. BRICS countries, meanwhile, do almost nothing, despite being the largest global source of capital flight, according to a 2014 report by Global Financial Integrity.

And this lack of multilateral action perfectly aligns with the way individual BRICS countries have engaged with the offshore world thus far.

Brazil currently stands as the world’s second largest borrower from offshore financial markets. India long accepted a double-taxation agreement with Mauritius, which enabled significant foreign direct investment and tax avoidance by the wealthy until 2016. The country also created of an offshore financial center in Gujarat. Meanwhile, Russia’s hydrocarbons are traded through opaque offshore jurisdictions, and its elites have notoriously thrived in such systems. Then, there’s perhaps the most significant — and counterintuitive — stakeholder in the offshore world, which is China. Its state-owned enterprises are major users of jurisdictions like the British Virgin Islands, where they register secretive subsidiaries.

In short, BRICS countries are just as implicated in the offshore world as the Western economies they lambast. The reality is that their governments and political elites both benefit from and need the offshore financial world — and there are four reasons for this:

First, these countries engage in institutional arbitrage by accessing more efficient institutions — and, sometimes, institutions that don’t exist domestically, like credible contracts or a non-political judiciary — offshore.

They also seek access to cheaper and less constrained financing in offshore money markets, where they get access to the U.S. dollar and international investors that are unavailable onshore.

Heavily hit by sanctions — as in the case of Russia since 2022 — the offshore world is also a lifeline for BRICS countries, allowing for the circumvention of punitive measures.

And finally, BRICS elites frequently use such facilities for their own personal purposes, including hiding illicit money and assets.

Thus, closing these discretionary offshore avenues may well have implications for their personal survival — or the survival of their regimes.

This is why multilateral action from BRICS members remains rhetorical at best. And unilaterally, they either do nothing, or selectively implement anti-offshore measures as political tools of regime consolidation and to punish rivals. While continuing to criticize the West, they also voice few qualms regarding the thriving offshore roles of Hong Kong, the United Arab Emirates or Singapore.

The latest summit declaration’s vague language of “international cooperation” and “mutual legal assistance” simply highlighted all this once more, and it even eschewed the previous declaration’s references to the FATF or anything smacking of coordination with the West.

And while de-dollarization was again bandied about, BRICS countries remain keen on access to offshore dollars. Moreover, several of the bloc’s newly admitted states have deeply problematic records when it comes to money laundering and illicit financial flows. This is especially true of the UAE — an aggressively growing offshore financial center with dense layers of secrecy, and which the FATF placed on its “grey list” due to “strategic deficiencies” in its efforts to counter money laundering.

Given all this, what are the chances of BRICS-initiated reform in this area? Realistically, the only reason they would take action is because they care about their own regime stability. Though offshore mechanisms may seem like useful short-term levers, their long-term impact is likely to have troubling consequences for their economies. In time, offshore finance supercharges inequality and begets financial instability, which can lead to the toppling of regimes. Brazil experienced this first-hand in the 1982 financial crisis, which had a significant offshore component.

Of course, Russia’s dependence on offshore financial facilities to circumvent sanctions means it can be written off as reformer. But one would hope that some of the others might belatedly come to see an enlightened self-interest in going beyond their rhetoric.

For now, however, even this seems highly unlikely as, in the immediate future, the availability of offshore services continues to come in handy, while their negative impact on domestic inequality remain largely hidden from public view.

Besides, fighting domestic inequality isn’t really a major concern for many of these governments anyway.

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Here’s The Story Of The Billionaire Founder Behind Hindenburg Research’s Latest Short Selling Target

The short seller Hindenburg has accused Kazakhstan-based brokerage Freedom Holding of fraudulent practices. Former employees who spoke with Forbes have their own beef with the company.

The short seller Hindenburg Research published its latest report on Tuesday, accusing Freedom Holding Corp., a Nasdaq-listed financial services company headquartered in Kazakhstan, of a litany of fraudulent and illegal activity.

One thing Hindenburg didn’t mention: the founder of Freedom Holding, Timur Turlov, 35, has been on Forbes’ billionaires list since 2021, worth an estimated $3.2 billion as of Tuesday’s market close, down more than $100 million in a day. In 2021, Forbes highlighted the seemingly inexplicable runup in Freedom Holdings share price and some concerning issues about the way part of the brokerage was set up.

According to Hindenburg Research, Freedom Finance, the company’s stock brokerage, has allegedly been evading U.S. and European sanctions since Russia’s invasion of Ukraine by continuing to offer its services to Russia-based customers, including clients of firms targeted specifically for sanctions enforcement measures. (The company admitted to providing “brokerage services to certain individuals and entities who are subject to sanctions” in its annual report earlier this month.)

Hindenburg Research also accuses Freedom Holding Corp. of “fabricating revenue,” of manipulating its own stock price, and of commingling customer funds. “All told, Freedom Holding has exhibited a startling array of red flags relating to virtually every category of financial malfeasance worthy of investigation,” writes Hindenburg Research, which has entered a short position on the company’s stock.

The company’s shares closed Tuesday’s market down 3.2%, leaving it with a market capitalization of nearly $4.4 billion. Turlov owns over 70% of the stock, which means the company’s shares prices are less susceptible to general investor sentiment.

“The allegations in the Hindenburg report are without merit,” a company spokesperson told Forbes in an emailed statement. “Freedom Holding and its subsidiaries continue to provide all required disclosures to regulators and investors, who can review our recently filed form 10-K and and [sic] audited financial statements on our website.”

Freedom Holding Corp., as those who’ve followed it well know, has had its share of challenges in the past year. The company’s previous auditors, a small Utah-based firm called WSRP LLC, was sanctioned last December by the Public Company Accounting Oversight Board for failing to “inquire about the business purpose of…related party transactions.” Freedom also had to restate its 2022 earnings and three different quarterly reports (the fourth quarter of 2021, as well as Q2 and Q3 of last year). Nasdaq has been threatening to delist the company since June 15 this year.

When Forbes first reported on Freedom over two years ago, the company’s meteoric stock market gains had vaulted its founder and CEO Turlov, a Russian-born millennial fond of wearing black turtlenecks and speaking with the U.S. press, into the billionaire ranks. The company, which had previously traded over-the-counter in the U.S., listed on the Nasdaq in October 2019. As Turlov told Forbes in a two-hour interview from his home in Almaty, Kazakhstan: “I had become determined to become a public company that would be good enough to be traded on [U.S. exchanges.] Because that’s the top of this business.”

In recent weeks, former Freedom Finance employees and analysts have spoken to Forbes about their impressions of and experiences working at Freedom Finance. Some corroborated claims recently made by Hindenburg Research, while others have brought fresh revelations on the firm’s working culture and toxic environment.

“They came in like cowboys, wild cowboys,” a former Freedom executive working in Dubai told Forbes a few weeks ago. “They were primarily looking for black funds, dark funds, unreported funds, to siphon them off into stock markets like they’d previously done very successfully in Russia” added the individual, who asked to remain anonymous in order to speak openly. “Once you go into unreported funds, that could be anything, especially in a market like Dubai. It could be terrorist money, it could be criminal syndicate money. It’s all kind of mixed up.”

This same employee also says that Freedom stiffed him out of money he was owed. “They would say, ‘As soon as the license is in place, we’ll be able to open our bank accounts in Dubai and you’ll get what is owed by us,’” the employee recalls. “They paid me a total of about $5,000 in six months whereas they were supposed to give me about [that much] a month,” added the employee, whose employment contract Forbes reviewed. “They still owe me salary for like eight months.”

A second former Freedom Finance employee who worked in the company’s Cyprus office, which employs about 300 people, did not have any insight or knowledge of the company’s allegedly dubious financials or Know Your Customer (KYC) requirements, but had plenty to say about a toxic work environment.

“I was abused many times by my management and gasli[t] and it was very, very difficult for me to go on,” says the former employee, who worked in finance and says he received double the amount of work that his colleagues did, yet was belittled by his managers. “They wanted to prove to me that I’m the worst one; that I’m not worth working there,” recalls the employee, who left after six months. “It was a terrible experience.”

Other employees had a better time at the company. “I will tell you, it was one of the nicest places that I’ve worked,” says a former senior executive who worked in the Cyprus office. “The nicest people.” Did they sense that anything was off about the company? Absolutely not: “It was straightforward. I didn’t see anything strange,” the person added. “I’m quite a skeptical person, but no, everything was good. Everything was good.”

Perhaps, however, a grain of salt or two are warranted. Since leaving Freedom Finance, this individual (who asked that Forbes not use his name) has worked for the equity market investment arm of Alfa Bank, Russia’s largest private bank, which has been sanctioned by the EU and the US. Alfa Bank is cited extensively in Hindenburg’s report; Freedom “continues to publicly offer clients ways to circumvent sanctions through Alfa Bank,” Hindenburg says.

A spokesperson for Freedom Holding has not yet replied regarding comments from former employees.

Turlov got his start in finance nearly two decades ago. In 2003, at age 16, he applied to a Moscow trading firm as a part-time junior trader, before moving to another bank two years later with the goal of investing in U.S. markets, he told Forbes in 2021. When the great recession hit and Turlov lost his job, he and about a half dozen of his fellow traders started a new company that would become Freedom, Turlov told Forbes.

The group set up shop in Almaty, Kazakhstan, and from there, expanded the business to other Eastern European countries. Turlov’s entree to U.S. markets came in 2015, when the company completed a reverse merger with Bmb Munai, a Nevada-incorporated company that formerly owned Kazakh oil and gas assets. Bmb President Askar Tashtitov stayed on as Freedom’s president.

For Turlov, Freedom’s 2019 IPO was a dream come true. “Never in my first days of my career would [I have been] able to expect that we will become a stock trading a million shares in a day,” he told Forbes.

But being a public company has exposed Freedom Finance’s curious design to investors. One of its most head-scratching features: the Belize-based brokerage firm, FFIN Belize, a third-party entity that routes all U.S. stock trades by Freedom customers, and which is wholly owned by Timur Turlov himself. In 2021, Turlov explained away the offshore connection as stemming from a regulatory hangup in Kazakhstan. In reality, Hindenburg claims, citing former company executives, FFIN Belize has been used to “funnel money out of Russia, often in cash, with no regard for KYC and AML [anti-money laundering] protocols.”

Another curiosity of Freedom involves one of its chief selling points to international customers—the firm’s supposed access to hot U.S. IPO stocks. The secret, Freedom told Bloomberg and others, was an unidentified hedge fund that bought shares directly from stock IPO underwriters, and then passed along the stock to Freedom via its Belize affiliate to the firm’s customers.

But that hedge fund may not exist at all, Hindenburg reports, citing individuals from the company. Jay Ritter, a professor at the University of Washington, is also skeptical about the existence of this investment vehicle. “Allocations to hedge funds aren’t being hidden. There aren’t pre-IPO investments. It’s all done transparently, it’s above the table,” Ritter, who researches IPOs, told Forbes a few weeks ago. “I find it very fishy.”

With additional reporting by Lisette Voytko.

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‘BRICS bank’ looks to local currencies as Russia sanctions bite

Hobbled by the impact of sanctions against founding shareholder Russia, the New Development Bank (NDB) set up by the BRICS countries needs to increase its local currency fundraising and lending, South Africa’s Finance Minister told Reuters.

South Africa will host leaders of the other BRICS nations – Brazil, Russia, India and China – as the bloc aims to widen its influence at a Johannesburg summit later this month.

Finance Minister Enoch Godongwana said boosting local currency usage among the NDB’s members will also be on the agenda, with the aim of de-risking the impact of foreign exchange fluctuations rather than de-dollarisation.

The greenback has gained against emerging market currencies since Russia invaded Ukraine and the Federal Reserve began raising interest rates to fight inflation in early 2022, making dollar debt more costly for those countries to service.

“Most countries that are members of the NDB have been encouraging (it) to provide loans in local currencies,” Mr. Godongwana said.

Established in 2015 as the flagship financial project of the bloc, the NDB’s ambition to serve emerging economies and de-dollarise finance have been curbed by economic realities and Moscow’s invasion of Ukraine.

“(It is) not doing as much as member countries require, but that is the strategic direction we are pushing the bank (in),” Mr. Godongwana said in a telephone interview last week.

Increasing local currency fundraising and raising capital from new members could help the NDB in tough times, cutting its dependence on U.S. capital markets where sanctions against Russia have driven up its borrowing costs, analysts said.

The NDB has expanded from its original core of five to eight and only makes loans in member countries.

Chief Financial Officer Leslie Maasdorp told Reuters in an interview at the NDB headquarters in Shanghai that the bank aims to increase local currency lending from about 22% to 30% by 2026, but that there were limits to de-dollarisation.

“The bank’s operating currency is dollars for a very specific reason, U.S. dollars are where the largest pools of liquidity are,” he said.

The bank is responsive to its members and will decide the mix of currencies it lends in based on their demands, Mr. Maasdorp said in emailed comments.


Of more than $30 billion in loans approved by the NDB, two-thirds were in dollars, an April investor presentation showed.

That dependence became a liability when the United States imposed sanctions on Russia last year.

The NDB stopped loans to Russia, but this did not prevent a Fitch downgrade in July 2022 and its dollar borrowing costs have spiked by more than others.

Coronavirus | BRICS’ New Development Bank provides $1 billion loan to India to fight COVID-19

A five-year $1.5 billion bond the NDB issued in April 2021 had a 1.125% coupon. Two years later, a $1.25 billion five-year bond had a 5.125% coupon. That is more expensive than other multilateral development banks with similar credit ratings, S&P Global Ratings analyst Alexander Ekbom said.

As a result of this risk premium, which Mr. Maasdorp put at about 25 basis points, the NDB has had to rein in new lending.

“Because of the capital market challenges of 2022, and in an endeavour to preserve the bank’s core financial ratios, there was indeed a slowdown,” Mr. Maasdorp said.

“You cannot step outside of the dollar universe and operate in a parallel universe.”

While the NDB has approved loans worth $32.8 billion for projects ranging from Mumbai metro lines to solar lighting in Brasilia, the loans on its balance sheet were worth less than half that amount at end-March.

In 2022, the bank disbursed only about $1 billion of loans.

So far, China is by far the NDB’s most successful local currency market. It issued 13 billion yuan ($1.8 billion) across three “panda bonds” last year and more than half of its lending there has been in yuan.

“The renminbi market has increased in significance,” said Ekbom of S&P Global Ratings, which rates the NDB “AA+”. “But that has been more because raising money in the U.S. dollar market has been unfavourable for them.”

Also Read | The paradox of BRICS, its new pathway 

Other markets have lagged behind, though the bank is hoping to raise up to 1.5 billion rand ($81 million) in debut bonds in South Africa on Aug. 15. It is also aiming to issue its first rupee bond in India by the end of 2023.


Nevertheless, the NDB, established with $10 billion in paid-in share capital from each BRICS country, wants to expand.

Bangladesh, the United Arab Emirates and Egypt have joined since 2021, bringing its membership to eight. Uruguay is part way through the process of joining, while Algeria, Honduras, Zimbabwe and Saudi Arabia have expressed interest.

By comparison, the Asian Infrastructure Investment Bank, which is backed by China and began operating in 2016, has 106 members, including 23 European countries and 45 outside of Asia.

Also Read | BRICS group may soon expand, says China

Mr. Maasdorp said bringing in capital from new members is “very, very important” and would help the NDB realise its aspiration of becoming a leading emerging market institution, with the BRICS summit “a key platform” for talks with potential new members.

Attracting the large emerging market countries that would lend the NDB more clout and shore up its financial health could require governance changes, Chris Humphrey, a development finance researcher at the Overseas Development Institute, said.

Current bank statutes ensure that, even as it expands, its five founding shareholders will together retain senior leadership positions and majority voting power.

“From the point of view of some other developing countries, that might not be very attractive. They might… say, ok, is that not just another G7 with a different name?,” Mr. Humphrey said.

Mr. Maasdorp said that the NDB has a “unique” shareholder structure and the aim was to have as much consensus as possible within the bank on decisions but that a majority would prevail.

The voting structure had not been an obstacle to new members so far, he said, adding that they took comfort from the fact that the NDB was “very highly capitalised”. ($1 = 18.6877 rand) ($1 = 7.2132 Chinese yuan renminbi)

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The West still doesn’t know what winning looks like in Ukraine

Jamie Dettmer is opinion editor at POLITICO Europe. 

More than anything else, the Munich Security Conference was founded to foster dialogue between adversaries. Yet, this year’s three-day gabfest was focused on exchanges between allies and friends rather than foes, and in formal sessions, there were earnest colloquies about Russia’s war on Ukraine and what next steps should be taken to help Kyiv.

Ahead of the gathering, some had warned that Munich would thus likely turn into an echo chamber of the like-minded this year. But it didn’t — certainly not in the margins or informal meetings. And it still remains unclear whether Ukraine’s partners are, in fact, singing the same song of unity.

Munich gave us the “chance to sense the mood, especially on the most important questions like how the war is going, and how our support is going, and how long support is going to last,” Lithuanian Foreign Minister Gabrielius Landsbergis told POLITICO in an exclusive interview.

But, at the same time, the conference reinforced rather than eased some of his anxieties — as well as those of his Baltic compatriots — about the staying power of all Ukraine’s Western partners. And this is because ever since Russian President Vladimir Putin launched his invasion — despite unprecedented Western sanctions and massive arms supplies — the allies haven’t really agreed on any clear war aims.

Ukraine, of course, has been consistent about theirs — namely, the restoration of all sovereign territory including Crimea, Russian war reparations and security guarantees. But in April and May, French President Emmanuel Macron, German Chancellor Olaf Scholz and then Italian Prime Minister Mario Draghi all floated ceasefire balloons.

Macron and Scholz have since hardened their talk. Last week in Munich, Macron said the time isn’t right for dialogue, and he hasn’t spoken with Putin since September. Meanwhile, Germany’s chancellor quipped in his speech on Friday about how laggardly the allies have been in supplying Leopard tanks. “Those who can send such battle tanks should really do so now,” Scholz said, relishing the cheeky role reversal.

Yet peace balloons still continue to be floated, even more surreptitiously than China’s spy blimps.

Did CIA Director William Burns waft one up at the Ankara meeting with his Russian counterpart Sergey Naryshkin in November? Two Ukrainian officials say he did. Asking not to be identified for this article, as they haven’t been authorized to discuss the issue with the media, the officials also confirmed a report that in January, Burns had urged Ukrainian President Volodymyr Zelenskyy to make as much battlefield headway as quickly as he could, because the scale of military support could start falling off.

Burns’ warning came after predictions that the Republican-controlled U.S. House of Congress would soon set out to reduce support. And a Zelenskyy adviser told POLITICO, Kyiv is worried that some in President Joe Biden’s administration would be happy to use Congress as an excuse to wind down military aid and encourage Ukraine to agree to pare down its war aims.

“I think both on Capitol Hill and in the administration, there are people who are looking to calibrate security assistance to incentivize the Ukrainians to cut some sort of deal, I’m afraid,” the adviser said.

Of course, that may go against Biden’s promise during his surprise visit to Kyiv on Monday that the U.S. will continue to back Ukraine for “as long as it takes” — but without defined war aims, even that presidential pledge could be blown off course, the adviser confided.

Meanwhile, for Landsbergis, the failure to not just clearly define Western partners’ war aims but even debate them in earnest has been a crucial omission. And this failure to discuss outcomes and objectives is leaving room for those who waver to waver even more.

“My main question is why haven’t we ever had a conversation about the end goal? The only discussions or ideas that get floated around are about negotiations and peace processes — and all that makes a lot of people in my part of Europe quite nervous. Okay, so we talk about victory, and we talk about standing with Ukraine to the very end — but let’s also talk about this.”

According to Landsbergis, military experts know exactly what’s needed to finish the job. “It’s mathematics,” he said.

But without having agreed on objectives, everything is ad hoc — without a real attempt to match equipment and munitions, missiles and armor — and it’s left to Ukraine to push for whatever it can secure. “So, we ambiguously commit to Ukrainian victory, but do not go into detail,” he added.

Interestingly, during a similarly fateful February in 1941, Britain’s Winston Churchill gave a take-stock speech to the House of Commons, noting that “In wartime, there is a lot to be said for the motto: ‘Deeds, not words.’ All the same, it is a good thing to look around from time to time and take stock, and certainly our affairs have prospered in several directions during these last four or five months, far better than most of us would have ventured to hope.”

Britain had been receiving some military aid from the U.S. at the time, and much like Ukraine today, it was on a just-in-time basis at best.

Landsbergis sees the current situation as similar.

“We’re approaching a very important period,” he said. Without defined war aims, he and other Baltic and Central European leaders are eager to at least secure defined arms and resupply commitments for the months ahead. “Let’s commit for the summer. Let’s commit for the next wave. Let’s commit for ammunition, let’s commit for additional tanks, let’s commit for additional howitzers,” he called.

The foreign minister also said that there are “people saying, look, ‘Russia has already lost, has lost strategically,’ and on this, I would completely disagree.” For him, a strategic loss means Russia undergoing a historic change and being “unable to continue the way that it has been for decades,” even if that means it creates the conditions for the breakup of the Russian Federation — although Landsbergis isn’t advocating for that as a war aim.

Rather, his point is that back when the Soviet Union broke up, there were leaders in the West urging the Baltic states and Ukraine not to declare independence, as they were fearful of all the instability and repercussions it might trigger. “People were so afraid, they couldn’t imagine a world without the Soviet Union,” he said.

And likewise, some now worry about the repercussions of the war leading to turbulence inside Russia and even its breakup. “So, should we stop? Should we ask the Ukrainians to put a moratorium on the regaining of their territory?” Landsbergis asked.

“That’s impossible.”

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