Hosted by the University of Massachusetts Department of Sociology, the 2022-2023 Distinguished Rossi Lecture brought Dr. Kimberly Kay Hoang to discuss her book, “Spiderweb Capitalism: How Global Elites Exploit Frontier Markets.” The book is a deep dive into the networks of “lawyers, accountants, company secretaries, and fixers who facilitate the illicit movement of wealth across borders and around the globe.”

Hoang’s research saw her travel “more than 350,000 miles,” where she “conducted hundreds of in-depth interviews with private wealth managers, fund managers, entrepreneurs, C-suite executives, bankers, auditors, and other financial professionals,” according to the event website.

Hoang’s research examines international financial networks, specifically surrounding 1Malaysia Development Berhad, a strategic financial bank that helped to elicit illegal financial movements. She began her research with the question: “How do global elites capitalize on risky frontier markets?”

Frontier markets is an economic term used to describe the market of developing countries that are still considered investible. Hoang’s research focused on Southeast Asia, where financial growth was unprecedented. Hoang noted that Asia’s stock market accounts for 32% of world accounts — ahead of both the United States and Europe.

Asia saw growth rates over double of advanced economies. Additionally, many of these nations lack transparency. Subsequently, Southeast Asia brought high attention from bankers, lawyers and investors.

Hoang explained how many ultra-high network individuals, “play[ed] in the gray.” These individuals act as “big spiders” who then employ agents to help build the structure of the web. These highly compensated agents carry out the footwork.

Hoang’s presentation examined how global capital flows across Southeast Asia. Capital is initially staged as offshore partners and funds in places such as Cayman Islands, British Virgin Islands and Panama.

It travels through “investment special purpose vehicles” such as Hong Kong and Singapore, before arriving in portfolio companies in Vietnam and Myanmar. Her study of capital movement analyzed around 300 financial elites with deals ranging from $200,000 to $450 million and across numerous sectors such as real estate, agriculture, mining and technology.

Hoang employed ethnographic research, interviewing many financial elites across Southeast Asia. She found that many of these elites exemplified the diversity of financial networks, with one explaining, “I am Korean, educated in America, living in Hong Kong, my company is domiciled in Samoa and my investments are in Vietnam.”

Her work served as “a behind-the-scenes look at how the rich and powerful use offshore shell corporations to conceal their wealth and make themselves richer.” Her research exists as a sequel to her first book, “Dealing in Desire: Asian Ascendancy, Western Decline, and the Hidden Currencies of Global Sex Work,” which took “an in-depth and often personal look at both sex workers and their clients to show how high finance and benevolent giving are intertwined with intimacy in Vietnam’s informal economy.”

From that network, Hoang was able to gain high-level access to financial elites in Southeast Asia under the trust of anonymity. It required, “a lot of trust about my ability to tell a nuanced story while anonymizing,” Hoang said.

She explained that she initially started her research as a personal assistant to two CEOs, before realizing that sitting in on financial meetings could implicate her in criminal activity. From there, she proceeded to perform interviews in informal settings.

One elite went into detail about how their financial network operates. They began by noting that they had lost track of the number of firms in the structure but compared it to a maze. Their network began in Guernsey, where there are no capital taxes. From there, the network moved to the Cayman Islands (which provided tax-exempt status) before traveling to Singapore and then to Vietnam, Cambodia and Myanmar.

Hoang found that many elites employ “offshore foundations,” which mask donations to government agents as gifts to “woman-led” or “environmentally-focused” firms. These gifts were immense; one elite explained that their firm gifted around “10 bucks [meaning $10 million]…small, so small no one would notice what is happening to the fund.”

Ultra-high network individuals would employ CEOs or fixers, who would be the ones who carry out business affairs but would also be the ones who would face consequences if caught.

The book examined “heterogeneous state-market relations,” where firms exhibit rent-seeking behavior to be more competitive. One elite explained, “everything is about relationships and who you know in this country [Vietnam].”

“The winners are the ones who know how to play the local game. Here you have to pay to play.”

The elite explained the basic process. “You pay a bribe to get the land…then you pay ‘taxes’ to keep it every time they come by for an ‘inspection.’” Payments were typically high-value goods, such as handbags or watches. These payments were done by a “nominee” who served as an anonymous “paper owner.”

“Most people put the names of their drivers and maids. But we can trace the true owner if something goes wrong with the investment and [if] there is any kind of investigation on the firm for wrongdoing,” they said.

Elites also use theft and fraud to gain capital before shipping it overseas. Hoang explains how elites can invest in firms that do not even exist, with one firm being able to “invest” in imaginary shrimp farms in a mountainous area in Vietnam.

They also participate in tax evasion or avoidance. Many firms can shift profits with “made-up” prices without paying taxes on them. One elite explained that, “most of the funds in the world… are domiciled in one building where lawyers are and everyone uses the same address. No one is breaking the law here. We are all paying taxes but there is a dual tax agreement between Singapore and Vietnam where you only pay 5 percent tax on all capital gains made offshore.”

Firms can also dispose of assets onshore by disposing of shares offshore, which allows for the sale of shares without changing the ownership of the structure. As one elite said, “In this business, you gotta play in the gray otherwise they’ll say this guy doesn’t play ball… Players who didn’t go to jail, you weren’t really in the game.”

Hoang emphasizes that this issue is not solely based in underdeveloped nations. She highlighted Penny Pritzker, the former Secretary of Commerce for the Obama administration. Pritzker’s net worth, as of October 2022, was estimated to be around $3 billion.

According to Hoang, Pritzker possessed numerous shell companies in Bermuda which, once she was nominated for a cabinet position, were transferred to a Delaware-based LCC. Hoang also noted another Delaware-based LCC, which helped funnel Russian funds to U.S. campaigns.

Hoang noted, “there are consequences to this [research].” She explained that due to her research into Pritzker, she had been denied a job at another higher education institution. However, she emphasized that she saw how important her work was. “This is my responsibility.”

Alex Genovese can be reached at [email protected]. Follow him on Twitter @alex_genovese1.