The History, Reality and Future of Off-Shore Finance w/ Alex Golubitsky

Transcript

foreign [Music] hello and welcome back to the strangewater podcast thank you for tuning in today's episode is a little bit different it's already a little on the lengthy side so I'll keep this intro short Alex galobinski is a veteran attorney who these days has shifted most of his time and energy to crypto before he found himself sucked into the ethereum black hole he earned his stripes as an attorney focused in offshore Finance

before vitalik had captured our hearts Alex was living in the U.S Virgin Islands building expertise in the more mysterious side of global Finance during this conversation you'll learn what offshore Finance is you'll learn the history of how we got here and we'll leave you some starting points on where to learn more one more thing before we begin please do not take Financial advice from this or any other podcast ethereum will change the world one day but you can easily lose all of your money between now and then long ago I told Alex that my experiences at a multinational conglomerate gave me

absolute certainty defy will replace traditional Finance his response maybe I'm not sure but I don't think that Defy is coming for traditional Finance I think that Defy is a real threat to Offshore Finance time to find out why Alex thank you so much for joining us on the strangewater podcast yeah thanks for having me Rex it's uh it's really exciting to be here I love the podcast and I'm and I'm just stoked to be here as a guest thank you and I'm really excited to uh to to have the conversation so before we get into anything at all like I really believe

that like the important part of every conversation is like the people in it and so um I would love to just like begin this this call with like who are you and like more specifically like how did you find yourself in this like incredibly Niche corner of um not only like a highly specialized uh profession but uh yeah just a very specialized part of a very specialized profession sure yeah so so I'm an attorney I've been practicing law um for 16 years 17 years since since 2006 and um I uh I basically I found my way into offshore Finance first and then the defy kind of uh ancillary from my experience

as an optional Finance but the but the two expertise is somewhat merged so I started working in offshore Finance in um uh 2013 when I started working with a law firm in the U.S Virgin Islands um that specializes in in U.S territorial tax incentives so that's in the U.S Virgin Islands in Puerto Rico and through that I got a lot of exposure to other you know varieties of offshore Finance you know suspension like other jurisdictions in the Caribbean uh kind of how the those you know you have the territorial jurisdictions which are kind of like quasi-foreign and then you have truly foreign jurisdictions from the U.S and then you get into

um from the perspective of the rest of the world the US is offshore and so how kind of the U.S plays into offshore Finance from the perspective of like Europe and Russia and China and the Middle East and then um you know through through that experience I started working with um a couple different investment Banks um in Europe that do uh what's called citizenship planning so I started to learn about how uh different countries have what's called citizenship by investment programs so you can basically I think the crass way to put it is you can buy a passport it's crass but it's not too far off the Mark um and so you know I kind of view my experience in in offshore finances sort of twofold one is you know how to

leverage um offshore or foreign juridical entities I.E non-human being entities uh to get sort of Financial and tax benefits and then um how to leverage uh passports in order to get benefits for natural persons and uh you know I I will take a uh a very a very non-sentimental view of citizenship and I don't want anybody to feel like uh that's my professional view that's not how I feel about any particular country um emotionally that is and then um you know sort of through that through my experience of just representing different types of companies in different tax and Center programs I got exposed to a lot of what I'll say are like early adopters of

crypto and kind of got exposed mostly to ethereum less less less sort of Bitcoin but uh uh you know a really like uh saw the power of ethereum kind of from the outset um didn't believe in it enough that I'm retired right now but you know I was there on the sidelines um and uh and and uh and then I started working actually for a um a hedge fund and a family office for uh for about three years which is based in in the Virgin Islands a company called um scholar Capital which is a natural gas derivatives hedge fund and um you know uh

it was it was also another interesting um insight into into offshore finance and how offshore entities uh kind of provide a certain level of lubrication for the entire Global Financial system so you know in order to transact in something as like important as like natural gas derivatives which is like a you know a sort of necessary Insurance Market to make sure that that uh natural gas is actually delivered around the world to people who need it you sort of have to use these series of um opportunities and so you end up with a Global Financial system uh that's kind of dependent on the existence of what we

think of as offshore entities but at the same time antagonistic towards those entities to it to a certain level and so um you know once I rolled out of that position uh I was kind of looking for stuff to do I'd move back to the States moved out of St Thomas and uh decided I'll jump in we'll get to that mistake that you made whether that's leaving the Virgin Islands or D5 but um I I like before we like kind of move on to the meat and potatoes of this conversation like I really want to drill into like what what happened in 2013 that you got you interested in this whole world right like because especially for us non-lawyers and like the people that are still like romantic about everything from like

citizenship to money to like a lot of things like just the words officer offshore Finance like start with like kind of a CD connotation and I think that both you and I like understand that it has a role and that's the wrong way to look at it but what brings like a young lawyer who's like looking for his like role in the world to um I guess the Caribbean yeah so it's it was uh it was kind of asked backwards to be to be totally honest like I uh so if my heart hurts I'm a trial attorney although I don't do much trial work anymore and uh I always uh in the early part of my career I did a lot of work in U.S Tax Court which is sort of an odd Court

um and there is this tax incentive program in the Virgin Islands not very many people know about it probably more people know about the program in Puerto Rico uh especially people who are in crypto or adjacent to crypto as Puerto Rico has done a very good job of uh courting that industry in the U.S versions hasn't but um in in the early part of this Century so Circa like 2000 to 2004 the IRS did a really aggressive investigation of the Virgin Islands tax program to where uh they brought some criminal charges against some people some accountants and no attorneys got they tried to do criminal charges against sometimes and get showed up but a lot of investors and Then followed by

this massive civil audit program that a lot of those cases worked their way up into Tax Court and I actually got interested in this program not because it had anything to do with offshore Finance but because um I really love uh the idea of these complicated Tax Court trials right because normally tax Court's vanity like accounting kind of oriented so you sort of stipulate with the IRS like this these numbers mean this and you know it's it's very like there's not a lot of like cross-examination and all the fun court and stuff and that's how these cases is like oh wow these people are like in Tax Court trying to prove that they lived in a place which is this like

highly fact intensive um uh set you know you know set of proofs to do in a trial and I never really seen anything like it in um in in tax work before so I started I was living in La at the time I started working with a firm in the Virgin Islands uh just remotely and then that started to be like I was doing more and more of it and they were finally like well hey why don't you move to St Thomas and I was like okay Victory replaced in Los Angeles but uh uh no regrets and then so then once I got into the firm started doing more of the trial work um you know one of the things about doing what they call controversy work in

tax is that you really see how things go wrong and so I think that gave me a pretty good perspective into how do you set things up correctly and I started working more and more on the planning side to make sure that people taking advantage of these incentives uh don't have these problems that you know for their uh principles to spend you know millions of dollars defending themselves from the IRS although sometimes unavoidable so is it fair to say that you um kind of like stumbled into this world just based on like this this uh Coincidence of the US case but you found yourself staying because like it hit all the right buttons in terms of like complexity and like intricacy and like craziness but

um you know still is like squarely on the line of um like solving legal problems as opposed to like solving human problems like under the cloak of the the legal system yeah so so definitely that but also the um you know when I was an undergrad I studied political science I think as a lot of people who go to law school do but I was always very interested in issues of like power and sovereignty and sort of like what that means in the global political system and uh you know one of the things I found fascinating about working in the U.S territory and dealing with territorial law is I was actually I thought like I was right up on the front lines of

like actual like theoretical political science issues as they're implemented in the law so like you have like what makes it I think what makes a territory different from a state right um You can answer that question strictly legally but there's also like a highly theoretical answer to that question that has to do with sovereignty and the federal system and how power sort of emanates and ultimately I think ties into um the colonial system that the U.S was created out of right and then sort of took up the mantle of in the in the 20th century and um and then I started to see as I started to work more uh because one of the very interesting things about living in the

Caribbean is that um you have a lot of different cultures that are actually quite proximate to each cultures and political systems that are very proximate to each other geographically so the U.S Virgin Islands and Puerto Rico you know separated by about 40 miles as the crow flies completely different cultures somewhat similar political systems but then you go to the British Virgin Islands uh which is maybe 10 miles from the U.S Virgin Islands uh very similar cultures but very different political systems and then look if you look at like the French departments that are in the Caribbean compared to like Saint Barts compared to the how the the former Dutch colonies are treated like St Martin which is only

about 100 miles from from the U.S Virgin Islands um you have this real sort of mashup of all of these different political systems and it really you know I think it's romantic it's like overly romanticized a lot of times but there's a long period of of sort of world history where the Caribbean was really the crossroads of global civilization and it's not really the case anymore but the vestiges of that I think I think are really interesting and so you know when I started to like compare okay I had a good opportunity I guess to compare like this is how laws and colonialism are manifest in the U.S Virgin Islands compared to how they're manifested in the British Virgin Islands compared to Saint Martin or or whatever and

um it to me it was it was endlessly fascinating to just sort of pick apart these different systems and how they fit together yeah well I I must be paying you to segue us perfectly into our discussion because um that was beautiful and I think like what we're here to really like pick apart and understand is like the meat behind what you just said and like I think for me like the biggest shame of Youth and like is that we're forced to teach history in these moments where like they actually are irrelevant to kids and like you do experience it as just like facts you have to memorize so you can move on and I think like one of the at least for me like one of the best

parts about like becoming adult and like gaining interest is like realizing that like everything exists especially in 2023 like everything exists because somebody did something to make it that way and um like the more you learn the more you realize like everything is complex and nuanced and like especially in something like the Caribbean where you know like for example like something that almost no one knows is like what is the most profitable Colony that ever existed it's Haiti what is currently known as Haiti and like a reflection of why Haiti is so screwed up is because of that history and so I think

when we say offshore Finance what we think of today is like the Panama papers and Jeffrey Epstein and uh like Saudi people and like Saudi oligarchs and Russian oligarchs and Yachts and all this stuff but like the right way to understand what this is is like just the current result of like hundreds and hundreds of years of history and so I think like why I why we're here is to like really understand like what is offshore finance and so like I know it's a huge topic with a lot to say about it but I guess like my ass to you would be like where do we start yeah sure so I think that like I think that actually trying to Define what we're talking about when we're talking about offshore Finance is a great starting point

um and it's difficult right oftentimes oftenham's the hardest questions I find are like defining kind of basic concepts um but so I think that you know when people refer to Offshore Finance in the U.S right actually I think this is true in in in Europe as well in other parts of the world you know what they're talking about is the use of um juridical entities and when I say juridical entities I mean uh a person right there's two types of persons natural persons and juridical persons uh natural persons like you and me somebody with Flesh and Bones a juridical person is a legal Fiction it's a a company right something that uh a person that exists only in the law but

does not have a Corporal body and uh and so we talk about officer Finance I think what we're talking about is the use of uh juridical entities to escape the um reach uh either from a taxation or regulatory standpoint of a government right so if you talk about offshore Finance your the implication is an existence of onshore right and so what is offshore is a question of perspective right where you stand and so uh especially it's very interesting from the perspective of the U.S right because we have a As Americans we sort of think okay offshore finance that means you know especially in crypto like Cayman Island

foundations foundations BVI corporations you know I think in the hedge fund world it's more Cayman Island limited Partnerships that that you know some European entities but that's very uh American right because from the perspective of a European the U.S is offshore Finance right so so like if you can you the way that we think of you know a BVI Corporation as as uh you know being beneficial and and I'll take a sort of step back from that the reason a BVI Corporation or any of these entities would be beneficial is because they are not by default taxed in the U.S in a foreign corporation is

only taxed in certain circumstances in the United States and they do not by default uh give the entities uh give the identities of their beneficial owners to the U.S government so there's so there's sort of a two-fold benefit to using something like a bvn corporation um but those same benefits exist let's say for a British person using a Delaware LLC right and so and so you have um uh you you the idea of of what is offshore Finance is is fully dependent on what is onshore finance which is depending on where you are in in where you're from so to really like drill in on that point that you're making I think

what you're saying is it is not fair to like think that there is this separate distinct Financial system that is called offshore finance that like this the the same way that an American would be like I want to do something um that like my government doesn't like for whatever reason like I would access this system like there's like a British person or a Chinese person would not have the same thought and go into the same system I think what you're saying is that like offshore is always a perspective shift and is always about like how like we live in a globalized world and how can we basically use like the you know uh permeable like

globalized world to achieve a goal with that that my specific domain uh wouldn't otherwise allow is that kind of what yeah absolutely absolutely and I think that the idea of permeability is critical um to analysis uh and you can almost think about it as like a system of Arbitrage right and not necessarily Financial Arbitrage but uh Regulatory and tax Arbitrage right and so any Arbitrage opportunity you have to like gauge it from from from your starting point right and so there are benefits in certain jurisdictions to people from other specific jurisdictions that may not be there for somebody who

has a different starting point right and so um that has always been a facet of the Global Financial system right so I think it is really important to not and there is a very strong tendency to somewhat like demonize offshore finance and be like well that those that's like the sort of gray area like quasi-legal way of going about uh Global Finance but it's actually it's always been uh like part and parcel right it's always it's always been uh part of our Global Financial markets just like it's almost like if you look at people want to draw a line right between uh legal markets and illegal markets

because we have those two terms I think we have a sort of intrinsic understanding of what legality and illegality is but in fact just like there's a sort of gradation between offshore and onshore finance there's a gradation between legal and illegal markets as well which sort of maps on not one-to-one but but you know it maps on to this idea of like what is onshore I.E legitimate and what is offshore I.E I illegitimate and then you find out well there's like Shades of Gray of legitimacy kind of all the way down yeah I mean I think your point exactly is like if like we have to acknowledge that whatever was going on with Jeffrey Epstein is the same offshore finance that like what happens when all of the

Apple's profits are repatriated to Ireland I don't know if that's the right word but like it's the same idea and like that at very different levels of like morality let's say legality aside yeah well it's it's like one of the reasons apple is I think really really interesting cogent and so Amazon all the big tech companies you know their involvement with offshore Finance Ireland's a big locus of it there's sort of other jurisdictions that play into these large multinationals and and what their offshore plays are but a lot of it ties into um intellectual property right and and this is like intellect especially in

Tech um intellectual property really drives profitability of companies and the whole point of intellectual property is it doesn't exist anywhere right it's not tangible so the idea that um intellectual property exists in Ireland in Seychelles in wherever is just as legitimate as saying that it exists in the United States because it doesn't exist it doesn't have a corporate reality so so we can kind of just decide where where we want its Locus to be and again it comes down to this kind of Arbitrage right where you have Ireland saying

we see a role for ourselves as we can bring tax revenue into Ireland in effect by charging less right so like so it's almost like rent right rent for intellectual property like if we charge less than Ireland we will get more and then on the other the pressure on the other side is you have well Ireland still has to exist in the world right so if they say they're going to charge it zero percent uh tax on on royalties that get paid to you know tech companies that are headquartered in Ireland they're going to have a bunch of pushback right from the from the UK on down right and being like hey you can't do that and so uh there's pressure there's pressure on both sides uh in in in that sense and

you know I mean I think that uh and so that's like that's one part of it right but like there's there's one thing that's not present when you talk about like apple and Amazon right is there's not a real desire uh maybe on the market just a little bit but there's not a real desire to like um Shield ownership of apple or Amazon they're publicly traded companies I could be an owner you could be an owner sort of move in and out of that right there is a um a driving purpose of offshore Finance which is simply to conceal actual beneficial ownership and and I think that that's a um uh obviously in

crypto and D5 like in our industry let's be candid right that is a like drive that is a a factor that is driving people into offshore Finance because there's regulatory uncertainty in the US people don't want to get in trouble so it's like okay if we if we do these same activities the the sort of legality of the activities is uncertain in a way that uh the actual uh people who are profiting from these activities occluded through the use of an entity um that that's like very um useful for for people in sought after but uh that's another form of Arbitrage right so it's like if the BBI says um yeah for you know four thousand

dollars a year or whatever the price is you can have a corporation organizing the British Virgin Islands and nobody's going to be able to find out nobody that's always a little bit of losing his term he's gonna be able to find out who the ultimate beneficial owner is um that's great and like and like that's very impactful in the BVI in a way that like it's not in California right California doesn't really care if you're willing to pay California three thousand dollars a year to have a corporation in California because they don't really make their money from that and and you know and meaningful source of Revenue but compared to Delaware or Wyoming right where there is that does become a meaningful source of Revenue um you know in the U.S

man there's so much to be said about this topic it's crazy we're I'm now scheduling you for multiple uh podcasts but I think on the heels of us just mudding the waters on what even offshore Finance is like let's let's uh like tighten the scope a little bit because look like it's easy to say this concept of offshore finances basically like putting money in places that are outside of like your sovereign country right and like that concept goes all the way back to like I don't know like I mean I can come up with like Roman examples I can come up with like ancient Egyptian examples Sumerian examples like everyone has wanted to do that since taxes were

invented right but like there is something special here and like we can talk about why like basically the Genesis of like the European takeover of the world and like the European system that we all live under right but like there is a system that like was forged as you were saying through the Caribbean and like specifically and please push back on any of these pieces right um but specifically through like the organic growth of what the British Empire began as as this like territorial hungry monster and then over time was like sophisticated into like a basically like uh

an island hopping or like a islands around the world of like everything from military bases to um like special jurisdictions and like that that is like the underpinning of the um offshore or really the Global Financial system um and then it's something that we as Americans inherited um in exchange for like allowing Britain to survive World War II um and so like all let's just say is like um offshore Finance is this like in infinitely expansive thing but like there is a system right like there is something that exists that is concrete that like we should talk about yeah absolutely I mean I think that um and and just to touch a little bit more on

the history of it before kind of bringing us to like how the system works today it's it's really the whole Colonial um system one of the underpinnings of it is this concept of limited liability right because these uh Colonial undertakings we think of the successful ones right we think of the ones that were like continue to sort of manifest to this day but there was a lot of unsuccessful ones and the whole idea behind it was well if we want to encourage people to take risks in the form of like these uh offer conquests then we need to limit their downside risk right to the to the amount of capital that they put at risk in the uh and so just because like that concept

is so ingrained to Modern people like can you talk about what life was before that well and there's there's actually like a key shift in the 19th century as well because like when you had so so when you had something like uh let's say like the British East India Company right which is the famous one right or one of the famous ones uh uh you know you you had the the British crown right said hey we want to give um an incentive to people who are like not directly related to the crown to go out and you know colonize India I don't think it was that straightforward but that in in one that is actually that

straightforward is like literally Christopher Columbus was like one guy who like on the day the Catholic monarchs beat the the Muslims and expelled them from Spain walked up and was like I'm an Italian I'm a sailor but like I'm gonna do this for you and like it's literally that clear yeah yeah and so and so part of the sort of crown sanctioning of that is the creation of these Charter companies right where it's like now this is and this is where this is a very like key development I think in in the in the global capitalist system that manifests to this day right where you create this idea of corporate person in it so but in the 17th century um it's very tied into the monarchy

right like I cannot say I'm doing British East India Company two in the in the 7th Century because like that's up to the crown whether whether or not that Charter exists and all of that whole scope of limited liability derives from the sovereignty of the state um what the shift that happens in the 19th century is that uh this idea of Charter companies uh which can be sort of formed uh on a person's own initiative again with the permission of the state right um really takes off and becomes a key factor in the development of uh U.S industrialism kind of for the same

reason of limiting risk that that the the initial more narrow concept was was developed in colonial expansion well so sorry again I I just think I missed um like that like but because again this is just like default to the way that modern people understand like Ventures like in a world where you don't have limited liability like let's say Christopher Columbus goes out and like like we don't know what's about to happen but if I don't have limited liability and I may be contributed to that um that expedition like what am I putting at risk if I don't have limited liability well everything right because because especially like well especially in Europe right where there's this

concept like everything in the sense of your Liberty right because we in the U.S one of the big differences between the U.S and and the the monarchy and and England was that the U.S did away with debtors prison right and so the idea that I can take some risk I can take risks where I'm taking on more debt or potential debt than the assets that I have was critical to to you you creating a shield around that was critical to getting anybody to do it because before you had that Shield right before you had the crown saying yes we will make this a company that that is sort of ring fenced internally like if you were just doing

it on your own right if you're just like I'm gonna hire you know a bunch of sailors and I'm gonna buy a boat or I'm going to take a loan for a boat and I'm going to send it around the world and it all fails and the boat sinks and I owe a bunch of money to people then like without that limit of liability I'm going to debtors prison you know I'm I'm actually like losing my Liberty as a result of that and so obviously um we did away with the sort of Liberty somewhat of with the Liberty aspect in the U.S but yeah yeah um but but the uh the idea of of limited liability I think as we think of it today right really started in the 19th century where like I can create a corporation and I can contribute ten

thousand dollars to that Corporation so that it goes and like does stuff and like maybe I have a hundred thousand dollars that I didn't contribute to the corporation the whole point is that if whatever I'm using this Corporation for goes out and Falls flat on its face and I end up owing a million dollars to a bunch of different people because it was a dumb idea and I managed poorly um all I have at risk is the ten thousand dollars that I put into it it creates a shield for the for the rest of my assets and I think that it's really difficult to overstate how critical that is to the development of American industrialism because you have

um there is without it once you um accrue a fortune you have very little incentive to take any risk if you can't limit your liability right because it's like well I don't want to lose everything to gain a little bit so you kind of have to have this and and and that's how that's really where the modern idea of the corporation comes from so in a certain sense as we think of offshore Finance today this is really funny right the first offshore jurisdiction was New Jersey or the oh yeah yeah right because like there was throughout the 19th century this um it was Arbitrage opportunity right

you had New York City developing and uh a robust administrative apparatus that went around doing business in New York City and then across the Hudson River in New Jersey they said we see an opportunity here um to create allow people to create corporations in New Jersey that can then really do business in New York and sort of sidestep the regulatory apparatus of the New York state of New York State and so that starts to develop in the mid 19th century with uh New Jersey kind of being this like they call it offshore it's just just a river right but it's over there and um and that's really the first like jury as we think of like the BVI or came in today like it's really

like kind of like New Jersey in the 19th century is like where that sort of started and then you know in the 20th century um it Delaware kind of inherited that mantle from New Jersey which is why uh you everybody sort of thinks that the Delaware LLC Delaware Corporation um today as as like sort of the go-to place and then you know Wyoming and Nevada and Montana kind of group up for like I think reasons similar to why you have uh offshore jurisdictions in places like the BVI and so but one of the things one of the distinctions right between New Jersey and the BVI besides the

quality of beaches um is uh uh that that New Jersey is obviously a state right so there's there's an Arbitrage opportunity between different states in the U.S that's Ring fenced by the US government um and every state has their own administrative apparatus uh that is they're nominally Sovereign right so they get to well um you know with like the BVI for example in lots of other jurisdictions is what's known as the British overseas territory um and so that means that like the BVI is a uh part of the crown like the head of state in the BVI is King Charles III

and and there then there is a sort of government apparatus that's like administered in like various different Fashions locally versus uh from the UK in the BVI but one thing that happens as the BVI gains sort of this nominal Independence um and the same thing is true and came in actually much older much older process and came in is they get to have their own administrative apparatus right that they've kind of inherited from the crown and including the ability to designate juridical entities and so uh you see this with the U.S territories as well right if um with most of the tax systems right so the U.S has sort of decreed that Puerto

Rico and the U.S Virgin Islands can have their own tax system right it wasn't it's not a feature of the sovereignty of of the US Virgin Islands or Puerto Rico that they can set their own tax rates right that's a decision that's made by the US government that emanates from the sovereignty of the U.S to its territories which really colonies um and they're allowed to administer their own tax systems the same thing is true in the sort of remnants of the British Empire right which is where a lot of offshore Finance lives today that it's just kind of inherited the mantle of of the what is in essence the British government to create entities have tax systems Etc

yeah so let's fast forward or let's finish up but fast forward through the rest of the history like so you you brought us to understanding what was going on before we had limited liability Like We Now understand that the first like creation of this offshore concept happened in the American colony slash the American new world of um like New Jersey New York like can you like Fast Forward us to um like I don't know let's yeah let's just say like World War II like while things are still very Colonial things are very Imperial and like before we start talking about like really the modern Financial system sure yeah I mean I think that like you you going I think

I think the the next step is like looking at post-world War II really uh I mean you get granular but then World War II but you have a new world order at that point where the U.S centered the U.S and the USSR is centered and like the feature of of the new world order at that time is like capitalism versus communism right and and embedded in this concept of capitalism is this concept of the corporation and so part of how the and part of what the cold war was in terms of the it was a cultural battle largely between the US and the USSR as well as the Battle of economic systems and part of that is this embracing of the corporation and so the U.S for you know

the second half of the 20th century had this like very strong incentive to like go to the other parts of the world and say adopt our economic system right which involves this concept of using juridical entities to limit personal liability and so there's very much a feature of uh the colonial world in the second half of the 20th century because it's a feature of American capitalism and we wanted to see uh countries uh emulate that and I think that like actually fast forward into the late 80s and early 90s um where the idea of an LLC comes around right and so uh you know I don't want to get like too technical into like legal jargon but like I think LLC is like the

distinction between an LLC and a corporation is like uh historically very important I understand uh offshore Finance because the idea of an LLC is we want to be able to make it super user friendly to create uh juridical entities to limit liability so corporations all these formalities you have to have a board you have to say bylaws you have to have shares you just have to share a certificate is like a very involved process right and so where we get to how do we get to today where literally in the time that I've been rambling about this stuff I could have formed a Delaware LLC for you right but like literally in in that period of time and and the the reason for that is like uh

we've become very dependent on these sort of like one-off I'm going to create a limited liability entity for like a very specific purpose when we think of companies now what we think of is a network of juridical entities like Pepsi right there's not one entity right there's hundreds of entities that make up Pepsi same thing with apples same thing and even much smaller companies that have that have a global reach especially it's it's a network of of companies and that kind of and that's the system that we have today really um and and once you have this idea of these sort of capitalist hegemons as like this network of juridical entities

it becomes very easy to see the necessity of kind of you can think about these quote-unquote offshore jurisdictions is almost like neutral jurisdictions right where there's not a baseline level of tax and so what and so a big part of our financial system now is just kind of like Sovereign nations of the world collectively like hashing out well to what extent are we going to allow businesses to operate in no tax jurisdictions right and then the for the note the the it's interesting because the no tax jurisdictions themselves have a very limited seat at the table in this conversation because that's a conversation that's going on between like the US and Russia in in the UK and the global superpowers well the British

Virgin Islands little country of 11 000 people is not actually invited to that conversation but their ability to generate Revenue by creating corporations is like dictated by that conversation and so they're very much still hate to say it but they're very much still a colony in that sense it's just not in the sense that it not in in the sort of since it was 200 years ago well okay this might be a little even too big too big brain but what does it mean to be a colony today versus a colony in the past and like do you think that our understanding of like the colonial system as this like very extractive like take their resources like um very like mercantilist system is like

Fair I guess I guess like in my head it is really hard to understand colonialism through like the textbook way of like this is the thing that happened probably bad definitely a lot of suffering but like it's something that we've moved on from and I guess there's no question here it's just no no no actually no but I think it's like you're making a critical point right especially the point you're making about what is inherent to colonialism is this sort of idea of extraction right an exception of resources of capital and of Labor right that is like classically what what makes a colony and we don't

have that now in the same way right I think that if you talk to somebody who's like heavily focused on say Africa or South Asia you know there there may well be more like remnants of that type of colonial system in those in those geographical parts of the world but there it is still a system of extraction in these offshore jurisdictions right because what what you're doing is like in the aftermath of of the sort of colonialism of the of the 19th and early 20th century that kind of ended with World War II where in a formal sense you

had colonies being quote unquote granted sovereignty right so you know the BVI I keep picking on the BVI but it's fine the the BVI becomes a Sovereign Nation and uh and again part of that is like this inheritance of the administrative state from the colonizer well you can actually think of the use of offshore entities in the bvr or any of these small jurisdictions as a system of extraction right because what what is happening is that um people and entities who are not from those places are extracting the benefits of having a independent uh

administrative state to especially to like Shield identities in terms of like ownership of entities and one of the interesting things right is is uh there's limits to it and and and we have and some of the limits are like um defined clearly in the law and some are uh you kind of implied so but like there is a reason right where that it's easier to go out and um or I shouldn't say easier the consequences of forming an offshore entity in the BVI to hide your identity as to some economic activity or completely different from

the consequences of um bringing a speed boat full of cocaine from Venezuela to the BBI right and uh and I don't say this glibly because we have decided that we as in like the sort of Global Financial hegemons have decided there are certain markets and certain economic activities that are simply forbid right regardless of your corporate form so like I cannot form an LLC to sell cocaine like the governor the DEA is not going to be like oh he's got an LLC you can't get him limited liability yeah yeah it's it's not and and that's like a very intentional decision right so if we decided that we wanted to

um enforce uh like Bank secrecy laws in this in the in the BVI in the same way reinforce cocaine trafficking laws the bvr would look very different and and it's not it's not that we cannot make that decision it's that we have not made that decision and that I think has to do with the entrenchment of these offshore jurisdictions in in the Global Financial system that we don't want to like knock them off that pedestal yeah I mean I guess like whenever you frame things in like the context of extraction like at least more My head goes is like okay who's the victim right and I guess my the the frame here or the the the

victim here would be like the people of BVI or let's say Ireland right just to be even like as concrete as possible like the people of Ireland like should be getting like Fair modern taxes of on corporations right like based on the amount of economic activity that on paper flows through Ireland like they should be making like incredible amounts of like tax revenue which could create like a futuristic society and welfare states and like all of these things that would make like real people's lives better and like maybe this like it is that kind of if if we're calling this like system still today like such a remnant of colonialism that

maybe it's still colonialism like that is how we would say are like the negative externalities that are like being felt by the people yeah I think so I mean I think that it's it's a um it's a little bit of a different analysis now right because you have and it gets to this like a question that I don't have the answer to right which is like it sounds like a dumb question but I think it's actually important right like what is a fair corporate tax rate you know I don't I don't really know I don't really know the answer to that question in the U.S we have an answer to it in in the EU they have an answer to it um and in the BVI they've decided the answer is zero percent right or in

Ireland it's 11 you know and and uh and so the you know in terms of like what's fair and what's extractive like is it extractive to like say that I have a company that's headquartered in the BVI but it's got nothing to do with the BVI and there's not any real benefit besides the three thousand dollars a year that's paid into uh the the government of the British Virgin Islands of course it is right because like if that company is making hundreds of millions of dollars elsewhere in escaping taxation by virtue of having been organized in in the British Virgin Islands in various different jurisdictions then like they're kind of getting one over on on the BVI but from the perspective of the BVI I think they would say well no like

we have this really nice Hospital in Tortola that's like basically paid for by the fact that we can get all of these um you know registration fees every year from these different companies so we don't really know what they're doing and we don't really care um so so I don't know there's like uh from a moral standpoint like a right answer to that question like who's on the right and who's in the wrong I think it's just there's like a competing system of of incentives and like this is the part I think that gets really challenging right is if we decide as the U.S or as Europe or whomever really the oecd a fair corporate tax rate is 20 let's just say that right then like what are we doing then we're going to go to the

BVI and we're going to say you have to charge corporations 20 tax rate that's colonism right that's that's the same that's the same idea as being like you're not really a sovereign you can't really set your own taxes and create your own laws this is what you have to do and and so it's not it's not clear to me that that's better yeah no I mean I think I think the um the answer to me is clear right like this we can still call this colonialism we can still call this extractive about like the frame has to turn or like realistically always is um the victims are the people of America where that like like or or the countries

where this stuff is actually made or whatever right where essentially like the result of like the BVI or Ireland or whatever is that like the shareholders of Apple are able to retain like so much more value through these systems because essentially they're not paying taxes right and like and we yeah from the bvis perspective it's like the choices either we allow this service and get our nominal fees or we don't and like it goes away and it this is not in our frame at all including the money like they're gaining from this but like the people that are losing are like the taxes right and I think especially too once you you like really start to internalize like why people want privacy there's a

lot of good reasons to want privacy there's like a lot of really really bad reasons to want privacy no it's it's uh sure I mean like it and when you get into like the nitty-gritty of like why people want to use offshore Finance it becomes really ugly right and like I mean you mentioned it at the top of the show like the Panama papers which is I think like how um a lot of people it kind of open a lot of people's eyes to like the actual like breadth of offshore Finance in the sort of shadow of chopinians in the Global Financial system well what what was the cause like what the Panama papers actually were is like Malta it actually

ties into citizenship by investment right the Malta um has uh is part of the EU very small country in the EU for people who don't know small island in the Mediterranean beautiful um and super nice uh and and so uh and so the um you know there is a citizenship by investment program in Malta that is very relatively inexpensive compared to other European countries and um when you take away the sentimentality of citizenship right what is citizenship actually get you it gets you a passport right and what does a passport mean like my U.S passport does not mean very much um

actually U.S is a bad example because of our immigration politics but like the the like let's say I'm going to use a different country if I'm a Canadian passport like that passport means like relatively little to me in the country of Canada right where I am but it means a tremendous amount when I travel so like if I am going to if I want to go to uh let's say France right the uh my ability to get to France is totally different if I have a U.S passport versus a Russian passport versus a French passport right and and like and so the value

there's a tremendous value especially uh for uh people who are from authoritarian countries right so China and the in Russia primarily in having passports that are not issued by your country of origin because it is in fact a critical a critical piece of personal sovereignty in fact to have that passport because it puts you out of the reach of the authoritarian regime in some sense and so what Malta was offering to people from Russia um was a was a was a way a relatively inexpensive I mean order of a half million dollars which is like not nothing but you know there's higher

numbers um way to get a passport that allows you to leave Russia and enter the EU so um this is like critically important but there is there was there's a need uh within Malta to cover the flow of funds that is coming into Malta from these people who are acquiring Maltese passports because a lot of the people who want to get a multis passport have been involved in things which are sort of like very frowned upon in in in Europe and the U.S right that you know we have sanctions of places to sort of

stop people from from doing this or maybe people who are associated with like state-run um uh companies in in in Russia et cetera and so the Panama papers come about because there's actually a Maltese journalist in Malta who's like I think that there's like this source of like government corruption right where they're using offshore entities in Panama that's why it's Panama papers like specifically a law firm called mosac Fonseca um to uh hide the identities of uh not so much had the identities that people are getting passports because you can see the passport but hide where their money came from you know to actually acquire um you you know that that passport and that's like

um I think that people were like uh justifiably kind of repulsed by the by like how much and like all these famous people who have these offshore right who are like kind of doing the same thing that we associate with kind of like gangsters and drug dealers right before that period of time um and so you you know when you have um but you know what she uncovered uh her name's Daphne Caruso what what she uncovered was really just like the tip of the iceberg right and and so you'd have all these other like subsequent leaks that are kind of like organized by this group called The International Consortium the international Consortium of

international journalists the icij um and they keep this database of basically leaked information about about offshore entities and um and so you know it is like uh very easy to be like oh man we should really put a stop to that that sounds terrible like all these guys Russian gangsters or whatever using these entities to get European passports so like we just have them like stumbling around Europe like that sounds really bad but it's the same system right it's the same system that like apple is using and and you know all these other people all these other entities that were like kind of accept and so um it's been uh it's it's like it's very difficult to figure out like uh where we want to draw the liner if we

want to draw the line at all and you know I think that we've kind of settled on we're not really going to draw a line um for the most part for for using this type of of official entity it just I know we're running to enough times is kind of like tie everything um back into uh into into D5 and into crypto like it's the same concept right I mean I mean I hate to say it I feel like I'm kind of like uh throwing salt here but like uh it's it's uh you know it's it's actually like we have a system in D5 right where it's like very unclear how it's going to be regulated very unclear like which sovereignty entity can extract taxes

from these transactions and like regulate how the transactions function and like don't get me wrong with all of the theories and arguments about how like smart contracts like represent a way uh to like Escape any type of Regulation interesting and I I think that ultimately they're like not gonna they're kind of non-starters but like it is interesting discussion to have but like the reality is is like there's nothing like what probably the most popular entity right now uh for use in D5 is the Cayman Islands Foundation you know all these protocols want to use the Kingman Islands foundation and kind of get into why that is I don't think it's particularly interesting the details but like that's that's like what's designed desirable the point is

it's had nothing to do with Cayman Islands right nobody's going to go to Cayman to like run a server like your smart contract's not located and came in and it has everything to do with the fact that like you can use a Cayman Island Foundation to sort of like not have a beneficial owner right in the sense of a shareholder and distribute that to uh to token holders right and so you know it's very much like okay we're just gonna like lean into this system that exists for this purpose and like when you're there you know you're sort of Leaning it a bunch of other people are going to lean into that same system for like maybe purposes that are much more nefarious from our perspective than running a you know lending platform or whatever yeah

no for sure I mean I think you're hitting on like a lot of good things here and I think um I've got some books to share at the end of this uh that for people that want to like learn more about this uh like yeah like that's the crazy thing like you can totally learn more about this stuff um so I encourage you to like read books and like understand how it works but yeah I think like with our last kind of like chunk here our last slug like I would love if you help us understand like kind of this is this obviously the same question but two tracks right is one how do you understand this offshore Financial system as it is today changing based on everything from like the

Russian sanctions and like how that is and like we've entered a new paradigm of weaponizing the financial system to like just a more Internet connected world and like both what that allows citizens to do and also governments to track so one how is offshore Finance changing but two like where do you see defy um and and let's just be more generic like where do you see cryptocurrency as a um as fitting into the like the puzzle that we have today which is essentially onshore Finance which as we've discussed is really just each individual um like countries like you know existing

within their bubble and then offshore Finance as like the substrate which makes all the bubbles flow amongst each other like how do you understand D5 in the pre-etherium world or sorry I'm using D5 crypto theorem but yeah I'm actually really excited to talk about that because I think that um it's very easy to look at ethereum as as defy as a system of financial organizations and also I think it's very compelling as you talked about with other guests to look at ethereum is like a world computer right to look as like and and these are both important um facets but I think the other way to look at ethereum is it presents New Frontiers

in terms of human organization right and uh abstraction of of human efforts and so one thing I mean dials have kind of become a meme right this idea of like oh I have a Dao it's not real okay if you have it how is it decentralized and how is it autonomous but like this idea that you can have um systems that operate autonomously on chain with with either without or with limited human input is actually like a huge step forward that that ethereum has and I think that like set aside the the sort of How bastardized It's become in a lot of ways especially in the last

couple of years that there's a lot of doubts that don't need to be gals Etc but like at the heart of it you actually have a way of like if I create a smart contract that's uh permissionless right and immutable then that is just going to exist perpetually right as long as ethereum exists that smart contract exists so as long as it's validators then then it goes on in the world and I think that um what offshore Finance right presents is there's going to be a new frontier I hope there's going to be a new frontier in in Arbitrage right so we talked about there's tax Arbitrage there's Arbitrage and beneficial ownership well I think this is going to be and that came out and and other

foundations kind of represent this the nation step forward um there's going to be actually I think there's going to be Arbitrage in human control of entities right and so the I think that what we're going to start to see is there's going to be jurisdictions that really want to embrace um what crypto and I would say more specifically what ethereum had to offer in terms of like I said human organization but it's really just it's kind of like anti-human organization organization without humans and so if we can create uh where we're not at yet but where we need to be is we need to have the ability to create um autonomous systems that have their

own limited liability right and that I think is like the next stage in the Arbitrage of offshore Finance to where certain jurisdictions are going to start to create and you have U.S states trying to do it they've all fallen on the face but they're trying um to have uh entities that can be fully embodied by smart contracts that are not controlled by anybody they were created and put in the world by people but are no longer controlled by people and I have those functions actually represented by juridical entities uh I think is is where things are headed and personally I'll welcome it I think that that's actually going to be a critical step forward in human development yeah I mean I we can

like clear like the idea that like nation state is like something permanent it like it just laughs in the face of History right and like the the concept of what we live in is like such a new idea and like we're watching it fail in front of our eyes like on a global scale and so like do I think that for like pretends the end of humanity like of course not like what I think it pretends is like the the beginning of a new era and I think like part of that era is that like we're gonna figure out like which parts of like Mass governance are great that if all this stuff like in the U.S democracy of blah blah is so like

clearly inherited from the sovereigns of Europe and like absolute monarchs and stuff and um yeah man I guess oh oh like let you roll out on the answer to this question but like if you look at the world today especially if you read the news today like it looks like a world that's becoming more isolated right like whether that's the Russia sanction and you know I have a thing in my heart for Russia as you know my fiance is Russian and like say what you will about Putin but like there's hundreds of millions of people there and like there's like mothers and grandmothers and kids and like um

I just so anyway like if you read the news we're entering a more closed off space whether it's like what's happening between the US and China or um Russia or whatever and like whether we're talking about offshore Finance or crypto like those are both like huge like their technologies that like tell sovereigns like we really don't give a at all like what you want to do in your house like we are going to facilitate like the transfer of money and power and people like despite whatever you want to do in your little like like do you do you see

a world that um like these two forces are like clashing and fighting and like One's Gonna Win out or do you do you see like the the per do you see that like despite how like crazy governments are getting like we are still like moving towards this in a way like together yeah I mean I think that there's like tension and and it's it's going to become like more and more exacerbated between um censorship resistant money and sovereignty right and and like I use the phrase censorship resistant money because I think that the people who listen to this show like have an idea of like that those words mean something right I

actually think that um conceptually it's it's it goes a step farther than that it's actually anti-sovereign money and and the idea of having uh stores of value which are uh cannot be uh revoked right by by the government and are not controlled by a government I should say so um you know in in and it gets like I think well beyond the scope of this of this conversation to talk about like how sovereignty and money uh relate but I do think that there is like a strong desire um for a lot of different people for a lot of different reasons to have money which is detached from any Sovereign

government right and like you know one of the things that's quite Difficult about crypto very difficult about crypto is like when you talk about privacy and about censorship resistance and and this type of thing it's like you're walking into a room right where like the point of being in the room is that it's either impossible or very difficult for the governments of the world to touch you in that room and like the problem that we face that like tension like the internal tension that I think we face as an industry is like we don't necessarily like everybody who's in that room with us

like there's there's definitely you know like nobody who's in crypto right now support I don't think at least supports like the government of North Korea you know well Lazarus might be the biggest user of crypto so you're wrong on that one so so yeah I mean I mean it's like if we have censorship resistant money private money if I have that if you have that that means the government in North Korea has it and the government of the United States has it and the government of the United States and yeah exactly it means it means it's available to everybody and uh and and you know I think that it's like that's a tough pill to swallow right and it's very difficult I don't

like you know nobody who's Pro privacy I consider myself in that camp wants to go out and like make a full-throated defense of Kim Kim Young you know it's like it's like no that's not my guy I don't I don't want to do that but I'm like the best I can do is be like well I don't want the Global Financial rails to necessarily be the weight of the attacking and I think even that is very controversial you know and and uh and so you know it's um but like it's becoming more necessary for the reasons that you stayed I feel because we do we are sort of seeing a a fraying if not a breakdown of like the nation-state system where for

Generations we've had either a bipolar or unipolar world and we don't have that anymore right we're sort of fracturing into this multiple polar world and um I think that it will alter it will be painful but it'll ultimately be beneficial to everybody in the world if uh part of that multiple polar world is that nobody controls money no no fair and I do I I mean you know that my thesis of ethereum is like bring it on Gary bring it on any of you people like it's inevitable like that that is the technology that we're creating and I guess that was basically what I was trying to bait out of you right here is that in a world where the old men in

Washington and the old men in Beijing are deciding like we want multiple spheres and closed off and whatever like the point of this technology whether it's crypto or offshore Finance is that there's so many more people than the old men sitting in those buildings and like those people have sovereignty and agency and a lot of them are really really really really rich and have create and like are not around well right and I think that one mistake that we've made especially in the crypto legal community in the U.S is this idea thinking about decentralization as a as like a legal um endpoint right where like at some point we will be decentralized in that

decentralization will be recognized in the eyes of the US government and you get some you get a pony or whatever for being um but it's like this is totally corny but I think it's it's accurate like there's not actually a way to decentralization right like you just have to be decentralized and through being decentralized you can escape the grasp of uh of of governments and uh and and and like you know I think that like um I don't necessarily view um as this conversation probably indicates I don't necessarily view like offshore Finance is a good thing or a bad thing it's just a thing um but I think that like one of the

facets of uh or one way that we can become more decentralized and have systems that are more decentralized is by embracing offshore finals right is by embracing uh Nations that are sovereign that have the ability to create entities types of entities that have different parameters so that we can get to a point where um we can actually have create like persons like persons who are not persons and who are not controlled by persons that like literally just exist um on chain and uh and and like that is going to become a uh a sort of I think function of the of the self-sovereignty

of of money I don't I think that like it's the way that I see ethereum the idea that it's going to be a series of like Cayman foundations interacting with each other like no I don't that's not where we're going but I think that that's an intermediate step yeah man well we could go on forever so I will force us to stop but um so again I've got a couple books that I think are would be helpful to understand this whole um world but do you have any like advice or thoughts on people that are just like interested in figuring out like what what is this system what does it mean how did we get here like if someone's interested where would you send them so yeah I think that it's um I think that like one uh there's like a

lot as you said there's there's been a lot of great writing on this um I think that the uh that there is uh a guy an author a piece of professor at Brown he's a guy named Peter Andreas he's written a lot of books I'd say his general area of focus is like illegal markets um and I think his writing he was he writes about um everyone's written a bunch of different books somewhere about immigration somewhere about the Global Financial system but like um he does a really good job I think of like historically breaking down what illegality actually means when you talk about markets and control and I would just give him a huge fog he's got you know it probably I think he started writing in the 90s and his work

increasingly interesting awesome yeah cool and I just have one recommendation that's directly relevant it's a book called world for sale and it is it's a story of um like how like huge scale commodity trading actually works and like it is so much more like wild than cowboy and like just like people like needing to get on Jets to show up to Nigeria to yell at a customs agent to like get like oil through but like what you realize is like all of our phones everything like the entire world Works through this like very weird like kind of janky feeling system that um you know that I think you could argue that offshore Finance was like directly

created to support and so um I think it's just like really useful to understand like some of the whys that are like Beyond like I don't want to pay taxes like I want I earn my money doing Shady things or I want to use my money for shady things so world for sale is one and then if you enjoyed the historical part of this conversation um there's a book called The Verge and it's the thesis is by Patrick Wyman the thesis is like modern Finance was invented very specifically between 1492 and like 1540 and it's basically he traces through the 1492 as I said when the SP the Spaniards kicked the Moors out of Spain and like through that they

developed this like the state realize that they could concentrate wealth and then once you concentrate wealth you're able to take these Moon shots and which is what created Columbus which created like Empire which created industrialization created the printing press they'll teach you like that Martin Luther was just the first troll on a new Communications technology it's like the same stuff that we're going through right now and like it really that is the single most book that like leads me to like scream at you like everything on this planet exists because someone set it up this way and so um it's worth understanding like who set it up and why they set it up that way so

those are my that's uh not Financial advice but that's Blick advice and um Alex man just thank you so much for for sharing your story for sharing the real truths about the way the world works and um yeah man I hope we can continue doing this and like figuring it out how it all works together yeah man I'd love to come back and I just really want to uh just not just you thank you for the opportunity but um to me it's really it's I really enjoy coming on and being able to talk about the more theoretical stuff because I feel like a lot of the conversations I have people just want to like how can I do this how can I do that and that's interesting but I think the need of it is that we got an angel today it's a really interesting

part so I just really appreciate the opportunity well when we hang up I need to talk to you about my new purp exchange that I need for my to hide behind a bunch of and on pfps so buy like buy audience thank you