I was a little surprised that Queen Elizabeth would take the risk of using offshore structures. I would have thought that patriotism and duty to country would have precluded that, but it does reinforce my observation since the Panama Papers that above a certain level of wealth, everybody does this.

Yeah. I was so struck after the Panama Papers by the photos, the images that the International Consortium of Investigative Journalists put up online, because it was Lionel Messi right next to Jackie Chan right next to Vladimir Putin and Assad of Syria and the prime minister of Iceland. What do those people actually have in common? Apparently what they have in common is that they’re part of this global class of people who are above the law.

Happily enough, there’s just been a new study from some economists, including a guy here in Copenhagen, at Copenhagen University. They say it’s the .01 percent who are the major users of these offshore facilities. So the 1 percent we would just call affluent, but it’s the .01 percent who really start to get into the kind of money where you can afford to pay a wealth manager, because it’s not cheap to have someone to create and manage offshore structures for you.

I asked this question to as many wealth managers as I could, and part of the answer I got is first of all, most of the people who do wealth management for a living live in places where there’s low to zero taxation, so those hundreds of thousands of dollars they’re getting in their salaries, that’s not just gross, it’s net.

Second of all, for a lot of people who do this for a living, it’s a lifestyle choice. They could be doubling their salary working in corporate law or corporate finance, but they’d be working eighty to hundred hour weeks, whereas a lot of them told me explicitly, “I make a really good living working a nine to five job. Plus I get taken on private planes. I get taken on vacation and leisure activities with my ultra-wealthy clients. I have many of the benefits of being an ultra-wealthy person, but I get to have a normal job that isn’t going to keep me away from my family and having fun in life. And I get to live in paradise, like the Cayman Islands.”

That’s right. Compliance is very important to wealth managers. I have a hard time explaining this to some of my colleagues in sociology who say, “Well of course wealth managers are doing illegal things.” And I said, “Not if they have a brain in their head,” and for the most part, they’re extremely intelligent people because what they have to do is very complex technically and also from a socio-emotional intelligence point of view.

They would never willingly do something that they know to be illegal because that’s going to put them at huge risk. Not just of professional sanctions, but of losing their whole livelihood because no client wants to get dragged into court.

Even if they get off on whatever charges are laid against them, just the fact of being exposed by being charged with something is a disaster because the whole name of the game is secrecy. And as soon as you get charged with a crime, your name is in the paper and you’re faced with potential exposure of all your private financial dealings. That’s apocalyptic for many of these people.

It is. One of the people I interviewed, when I asked him what he liked best about his job, he said, “I love playing cat and mouse with the law.” It’s a game for him to spend 24/7, every day of the year, figuring out how to get right up to the edge of legality, but not cross the line.

If you live in, say, continental Europe, you’d probably be introduced by your banker to someone who can manage your affairs offshore. Most of the work that needs to be done would not be legal in continental Europe or the US, at least if you were a passport holder of any of the countries in that region. You’d have to get stuff offshore.

In all likelihood, your billion dollars of assets wouldn’t be just one thing. They’d be a bunch of different things, like vacation properties, yachts, financial instruments, a family business. And each of those would have to be treated separately because all these tax havens compete with each other to form a little niche. So Switzerland doesn’t go head-to-head with the Cayman Islands. Cayman creates its own special niche laws to, say, be the best place to put your family business, whereas, say, the Cook Islands is the place where you might want to put your art collection.

It might need to be said for people who don’t know, the business itself and the art collection don’t literally get migrated to those offshore centers. They’re just sort of booked there for legal purposes. It’s a little bit weird to think of having stuff booked almost in an imaginary way in an offshore center, but it’s perfectly legal to do that. What that gets you is that you can put the asset under the protection of the law that allows you the most freedom to do what you want with that asset.

For example, if you want to avoid the United Nations convention on trade in certain kinds of very precious and rare art, you’ll put your art collection in a Cook Islands trust because then you’re sort of immune to that United Nations convention. You can sell the art. You can rent it out to museums without being constrained by those international laws. You can also reap profits from trading in violation of international trade embargoes, and not get in trouble. You can hide money from relatives that you want to disinherit or divorce without giving them a penny. Certain jurisdictions specialize in allowing wealthy people to do that.

The wealth manager would have to have a long conversation with you in which you laid out a lot of very personal information about what your concerns were, what your goals were, and exactly what kinds of assets and liabilities you had.

Right. And that is what makes this profession particularly fascinating. You can be a good surgeon technically, but a jerk as a person: no bedside manner, no empathy, no nothing. But people will still come to you because they trust you to be the best person to operate on their brain tumor.

But to be a good wealth manager, you not only have to be top of your game in terms of legal financial expertise, you have to have really extraordinary skills at understanding concerns of multiple cultures, often very different from your own. And you have to be a good psychologist. Several of the people I interviewed said, “I’m a social worker for the rich.” And they weren’t kidding.

No, I would say it’s not. And it’s important to realize that economic studies of all these, say, Silicon Valley entrepreneurs who’ve made new fortunes, reveal that the American belief that anybody can bootstrap themselves up and become the next Steve Jobs is actually not true. That the people who engage in entrepreneurial activity are doing so because they have inherited wealth behind them. They have a private safety net.

So that’s really what drives entrepreneurial activity, it’s inherited wealth. Not necessarily the level of wealth that would get you multiple offshore accounts, but enough so that if you fail multiple times as an entrepreneur, you’re not going to be living in a box on the street. You just get up and do it again. You have family resources to fall back on.

But to go back to the question of what spurred the growth of offshore, according to the sixty-five wealth managers that I interviewed all over the world, it had to do with a couple of things that happened simultaneously. Before I was born, there used to be things called currency controls. Some countries still have them, but what they mean is that you’re not allowed to take more than a certain fixed amount out of the country, and it’s usually rather a low amount.

One of the people who taught me in the wealth management training program was British and he said, “In the seventies, if you were in England and wanted to go on holiday, you couldn’t take more than fifty pounds sterling out of the country with you. It made going on holiday quite difficult.”

So imagine if you’re a company and you wanted to do business, because currency controls applied to you, too. Companies had to lobby for the creation of these legal financial no-man’s lands, which we now know as offshore financial centers, where currency controls didn’t apply. So, Channel Islands of Jersey and Guernsey: they’re technically still Great Britain, so you could get money there, but money could leave those places in much greater quantities than they could leave the main island, England. So people started using Jersey and Guernsey, and other crown dependencies of Great Britain, as conduits to plug into the global economy. That was one thing.

The other thing was that in the seventies, a lot of countries began to develop extensive welfare states, so taxes rose. And a lot of wealthy people didn’t want to pay those taxes. They saw the lifting of currency controls, or the availability of offshore financial centers and they said, “Ah ha. If corporations can use them, I can use them, too.” And they would employ bankers and lawyers to get their personal wealth offshore in the same way that corporations were doing.

That became this massive growth industry that multiplied on itself, like a snowball picking up snow as it rolled downhill, because wealth, as Thomas Piketty has shown, tends to multiply itself much more than other kinds of economic assets.

People who claim to love capitalism and care about capitalism thriving should be very worried about this, because what this concentration of capital in an increasingly small group of people’s hands means is that the economic system is ossifying. It’s going backwards towards feudalism, where wealth was tied up generation after generation among a very small group of families. That’s exactly what we see happening now.

You may have seen that every year, Oxfam produces a study in which they count the number of people whose wealth exceeds that of the poorest 50 percent of humanity. In 2010, that number was above three hundred. In 2017, as of January, it was eight. The number of people who could fit into an extra-large golf cart now own wealth equivalent to the bottom 50 percent of humanity. That’s neo-feudalism, and we’re already seeing the consequences in the extreme decline of upward mobility in the US.

Now when you get an inheritance in the US, that doesn’t just benefit children or grandchildren of the original rich people. It has a knock on effect to the fifth or sixth generation. Meanwhile, most Americans, especially African Americans, have nothing; nothing but debt when they die. Whereas a very tiny group of people at the very top of the socioeconomic scale have billions to distribute to their heirs when they die. We’ve essentially re-feudalized ourselves.

Well, the pessimistic answer is given by a historian who recently published a book on what has happened in cases of extreme inequality in the past. He said, “When other societies have gotten to the point where we find ourselves now, the only thing that has ever turned around this level of inequality, and really redistributed wealth has been mass death, either through disease or war.”

I hope it doesn’t come to that, but the wealthy people of the world, especially in places like the US, know that this cannot go on. There was an article in the New Yorker recently about the boom in business for luxury underground bunkers. So people, billionaires like Peter Thiel, for example, are buying themselves these high-end bomb shelters, where they can survive the coming civil war or apocalypse.

You can only hide underground for so long, I suppose. In addition, they’ve got their private jets and they bought passports for places like New Zealand. People don’t form escape plans like this without having a pretty good reason, because those things aren’t cheap.