237 | Brooke Harrington on Offshore Wealth as a Complex System

0:00:00.6 Sean Carroll: Hello everyone, and welcome to The Mindscape Podcast. I'm your host, Sean Carroll. The thing about complex systems, which is a frequent focus of our attention here, is that by definition they are complicated, they can be very different from each other, you can be complicated in different ways, simple things are kind of alike. The complicated things are all complicated in their own particular way, the galaxy is a complex system, our brains are complex systems, the US economy is a complex system, the ecology of the Amazon rainforest is a complex system, but all of these systems are obviously wildly different from each other. So how do you even say that there is a field called complex systems, but the nice thing is by thinking about it hard and by looking at data, especially people have come to realize that complex systems very often, maybe not always, this is the nature of the beast in this kind of science, but very often share certain features, they have hierarchical structure that could be characterized as a network kind of structure, scale-free networks in particular are a kind of network structure that shows up over and over again, so I'm very interested in this stuff.

0:01:14.9 SC: And one of our former Mindscape guests, Henry Farrell, my new colleague now that I'm at Johns Hopkins, Henry is at the SNF Agora Institute here at Hopkins. He pointed me to a paper by a sociologist Brooke Harrington and her collaborators, that is about a new... Well, discovering that a system that had been studied quite a bit can be thought of as a complex system and a scale-free network, and the system we're talking about is offshore wealth managers, so these are the people who will... If you're a billionaire in that realm of Financial Happiness, you need people to manage your money, and some people want to in particular, save themselves from being taxed or being sued, right? Or going to jail and having their wealth confiscated being subject to sanctions if you're a Russian oligarch or something like that.

0:02:13.8 SC: So there's a whole ecosystem of wealth managers that store people's wealth in offshore accounts and hide it from other people who are trying to get it. Okay? And Brooke Harrington actually is a sociologist who has studied these people, and she has a wonderful story of how do you study wealth managers because they're notoriously secretive, they're not there to spill their guts to nosey sociologists, so she actually got the training.

0:02:40.9 SC: She took a two-year course in becoming a wealth manager and talked to everyone who was her fellow student as well as people who were managers at the time, and on the basis of that wrote a book, Capital without Borders: Wealth Management and the One Percent and more recently, she became aware of the fact that it could be helpful to think of this system as a complex system, there's enormous number of questions here, politically, economically, morally, and just personal or financially, but she wanted to think about the network structure and how that could help us understand and perhaps deal with this complex system, especially because there's absolutely benign reasons to have wealth managers managing your retirement or doing your taxes or whatever, but there's also less benign reasons hiding from the rules that you're supposed to be obeying.

0:03:36.7 SC: So sometimes if you want to enforce those rules, understanding the structure of this kind of network is very important. And not only is it a sort of scale free network, but it's a different scale free network, depending on what kind of oligarchs we're talking about the US, the UK, Hong Kong, Russia, China, all have slightly different perspectives on how this works. So I thought this is a fun podcast to do because it's Sociology, it's human behavior en masse in a group context. But looked at through the lens of complex system research with an eye to understanding issues that are very, very relevant to public policy and how we do things going forward. So I think it's a fun one. Let's go.

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0:04:39.3 SC: Brooke Harrington, welcome to the Mindscape Podcast.

0:04:41.2 Brooke Harrington: Thank you for having me. I'm so excited to speak with you.

0:04:44.0 SC: The reason we're here, in some sense, the sort of intellectual draw is that you've written a paper that talks about of all things, offshore Wealth Management Systems as a complex system, and the words complex system get me very excited and so forth, but I think there's a lot of ground work to lay before we get to the complex system side of things, so tell us what is a wealth manager? I don't have one myself, I probably don't need one. Probably not many professors do.

0:05:13.9 BH: Well, I'm a wealth manager.

0:05:15.7 SC: Congratulations.

0:05:17.3 BH: And you could be a wealth manager if you wanted to be, it's a profession that has existed for centuries, but it wasn't professionalized until recently. So until maybe a decade ago, you couldn't go to college to study to be one. People just did it. And now you can get a credential, which is what I did after about two years of study, it's like one year of an MBA program plus one year of law school, but very specialized to needs and interests of people who have like 50 million or more in investable assets so one of the people I interviewed for the eight-year study I conducted of offshore wealth managers said it's one of the most complex professions in the world because the technical requirements to do it well combine Law and Finance and Accounting, and a certain amount of what you might call political science, just sussing out what the likely political atmosphere in different offshore centers might be, and if it's gonna be stable, 'cause you don't wanna put your client's fortune in a country whose regime my toppled any minute, you don't want their assets to be confiscated or nationalized in some way.

0:06:37.4 BH: But also there's a non-negotiable element of emotional intelligence that goes into it too, and you can't really teach that, but independently, two wealth managers I worked with said, I'm a social worker for the rich meaning themselves.

0:06:55.7 BH: And these were highly credentialed professionals who have law degrees or MBAs, and they said, well, ultimately money is just very emotional. What they meant by that is that when you're a wealth manager, your job is to protect the client's fortune to grow it somewhat, but when you're wealthy enough to afford a wealth manager and to use offshore finance, often what you really want is simply to protect what you have from the various forces that might diminish your assets, which include taxation, debts.

0:07:35.3 BH: So the same people who don't like to pay their taxes also don't like to pay their debts, and there are high-end bounty hunters who chase these people around wealthy folks who don't like paying their debts. Also have a bad habit of bragging about their locations on Instagram. So a few years ago, the Wall Street Journal ran a really article and a friend of mine who is a very high-powered lawyer, who was based in London at the time, and basically all he did was follow the Instagram accounts of oligarchs, and as soon as they came to the UK or particularly to London, they would post some photo of themselves at Claridge's or something, and he'd be like, right.

0:08:15.7 SC: Bang.

0:08:16.4 BH: To his team and he'd send them to Claridge's to the smoking room to serve these individuals with the legal papers necessary to start the lawsuits, to reclaim whatever it was they owed to my friend's clients. So taxes and debts threaten a person's fortune, so do disgruntled heirs, divorcing spouses, any kind of inquiring press coverage can be a threat.

0:08:45.8 BH: So your job as a wealth manager is sort of be the bodyguard for the money, not so much the client. The client brings you the money and you have to protect it from being chipped away at by those various forces I've mentioned, and it's surprisingly complex. Like you never ever put all the fortune in one place, you spread it out like confetti across different countries, often for a good reason, like different countries compete with each other to have laws that protect specific kinds of assets or do certain kinds of things like some countries specialize in protecting assets like yachts, others specialize in allowing you to register your private jet without tax, others like the Cook Islands, they don't provide tax avoidance at all, they provide debt avoidance.

0:09:40.6 BH: One person I talked to, a wealth manager had a client who had taken a half a million dollar loan from Bank of America, sucked it away at a Cook Islands asset protection trust, declared bankruptcy and said, "Oh, sorry, Bank of America, I can't pay you back." And Bank of America, knowing what was up in the Cook Islands, which is to say that that country has established what's called firewall legislation, saying that if you're a foreigner who comes there claiming any right to assets in a trust under Cook Islands Law, you face extremely hostile legislation that puts all the burden of proof on you and that disfavors you in the eyes of the law.

0:10:23.9 BH: So no force on earth, even the US government has been able to break through a Cook Islands Asset Protection Trust. So Bank of America kind of went, forget it, Jake it's Chinatown, and they just...

0:10:35.1 SC: What are we gonna do.

0:10:36.8 BH: Walked away from it.

0:10:36.9 SC: Holy smokes. Okay, good. That gives us a flavor, I like that. Presumably, look, I know some people think that there shouldn't be any such thing as wealthy people, and that is absolutely an attitude to have. My attitude is I'm very in favor of wealthy people, I wish I were one myself, I just want them to pay taxes and to pay their debts, and then we can use those resources, but if you think that wealthy people existing is not bad, then I imagine there is a benign side to wealth management, right? Retirement planning or investment planning or whatever, but then there's also clearly the shady side, it's a very unfair question, but is there a fraction that you can give to sort of how much of this is just responsible money management and how much of it is trying to sneak around the rules?

0:11:24.0 BH: Well, I'd say a lot of it now has just become a very elaborate form of cheating, cheating on capitalism cheating on the rule of law. So the problem isn't wealthy people, wealthy people have existed long before there was an offshore financial system. So the existence of wealthy people isn't a problem that I'm pointing out, the problem is that some people can buy their way out of the basic mutual responsibilities that keep society functioning, and they're what sociologists call free riders. Are you familiar with that phrase?

0:12:03.1 SC: Very much, yes.

0:12:05.0 BH: Everyone who's ever done a group project, knows what a free rider is. And everyone hates the free rider. There are like a certain group of people in a group project who actually do all the work, and then the free riders, their real skill is figuring out how to game the group project so that they get maximum reward for as little effort as possible. Another way of describing what offshore does is it permits people to... Certain people to sort of dine and dash on society, you know that phrase from... If you ever worked in a restaurant, Dine and dash is when people... Customers come in and they eat, and then they just skip out on the bill, common in large parties, a group who comes into a restaurant and then racks up a couple of thousand dollars in charges, and then one or two people just sneak off to the powder room and never come back, leaving others to pay their share. I think that's pretty universally frowned upon, and that is essentially what the offshore system allows certain people to do.

0:13:11.3 SC: Okay.

0:13:12.6 BH: Yes, there are benign uses for it. For example, when I was going around the world interviewing wealth managers in places like Mauritius, which is an island in the middle of the Indian ocean, some of the wealth managers I spoke to there said, well, there really wouldn't be any foreign direct investment in Africa without us like virtually all the wealth that goes from India to Africa passes through Mauritius at some point, why? Because Indian investors don't wanna plunk their money down in like Mozambique where they may not speak Portuguese, they may not be confident that the regime there is stable, they wanna protect their assets by putting them in, say, Mauritius trusts or Mauritius corporations because they understand this English Common Law, which was in Mauritius as well as it was in India, and there's a sense of security.

0:14:14.7 BH: They can deal with us, they're not so sure they can deal with some of the governments other countries that they would be investing in, so that is an argument that one hears that foreign direct investment is dependent upon the offshore system. You also hear from people who are developing countries, "Well, I can't trust the government of my own country because if there's regime change, if there's any kind of instability like a political assassination, I don't know what happens to my assets in this country. The safest thing for me and my family is to get them offshore."

0:14:47.0 BH: So often it's an individually rational decision to wanna get your own wealth offshore. The Russian oligarchs that we studied to have this dilemma too. On the one hand, many of them looted and pillaged their own society, on the other hand, maybe some of them made their fortunes in honest ways, but Russia is also a country where if you say the wrong combination of words at the wrong time, you might find yourself facing a 10-year sentence in the Gulag like Mikhail Khodorkovsky did. So there's a very real possibility of assets being confiscated, you being jailed, your family being faced with reprisals, so for many people from autocratic societies putting their assets offshore is their insurance policy. And by the way, they also get themselves offshore by getting themselves and their family members foreign passports.

0:15:45.2 SC: Or even the whole new yeah, nationality, right?

0:15:47.9 BH: Oh yeah, it's very common for people in this echelon of society to have two, three, four nationalities.

0:15:55.9 SC: And then you pick the one that has the law that is best suited to your present purposes.

0:16:00.3 BH: That's exactly right. So for example, last, a year ago, one of the ways that Roman Abramovich was able to avoid some EU sanctions on himself was that the EU cannot sanction its own citizens or citizens in its member states, weeks before then Abramovich had secured himself a Portuguese passport.

0:16:22.8 SC: There you go. And the case of Mauritius and the Cook Islands and so forth is an interesting one, where small countries have intentionally chosen to make themselves into favorable locations for this offshore wealth management, it's a little bit... It's kind of a venue shopping. There are states in the United States where the tax laws are looser, corporate protections are great or whatever, what is the thought process behind being the Cook Islands or whatever, and saying, "Yes, we're gonna be a haven for a lot of wealth passing through."

0:16:55.4 BH: It's the easiest way to pump up a struggling economy 'cause it requires almost zero infrastructure investment, all you have to have is working telephone lines and internet connection, electricity and hopefully, generally an English-speaking population helps, but there are whole offshore centers like Panama that cater specifically to Spanish speaking populations, or traditionally Hong Kong catered to Chinese-speaking populations. The story of how countries become offshore financial centers, or even how American states become offshore centers like South Dakota, and Wyoming and Nevada and Delaware is one of places that are economically fragile.

0:17:43.6 BH: They're generally small. They may not have a lot going for them. Like South Dakota used to be fairly prosperous just on its agricultural production, but it can't be now, and so it needs some way to pump up its tax base and keep the lights on in the State of South Dakota, and so they just borrowed the strategy that lots of de-colonizing countries adopted 50 years ago and in fact it was pushed on a lot of de-colonizing countries because the what are called The Colonial metropole, the centers of colonialism, like London or Paris, they didn't wanna have to financially support these ancient colonies.

0:18:28.9 BH: They were like kids who failed to launch. It was like, okay, you wanna be independent, that's great, but if you wanna live with us, you've gotta pay rent or go get a job. And so these former colonial powers said to their former colonies, get a job. And what are you gonna do if you're a little mosquito infested spit of sand in the middle of the Caribbean, as the Cayman Islands were?

0:18:53.5 BH: I mean, literally no one wanted to go there because the mosquito problem was so bad, it was a disaster. And most of the men, able bodied men, they left to be in the fishing industry. And they were sailing all over the world. So there wasn't much left there except women and children and mosquitoes. And now it's one of the biggest tax havens in the world. Because some enterprising people from other colonies like Canada or in the case of the Cayman Islands, it was a guy named William Walker, who was born in what used to be called British Guiana. And he was sort of a colonial elite who went and took another post-colonial place and brought it into the financial world.

0:19:41.5 BH: So the people like Walker built those places up by establishing very basic things like pest control, phone lines, office buildings. And he brought over some people from the UK and from Canada, and he trained locals and out of those rather humble beginnings, almost like a garage band or like HP starting up in their garage on Page Mill Road. He built this thing that became a juggernaut in the financial world. And that became a model for a lot of other small, struggling post-colonial countries. Because places like the Cayman Islands and the British Virgin Islands have some of the highest standards of living in the world, largely because they are these conduits for billions, probably trillions of corporate and private wealth now. And other small countries like Mauritius or the Seychelles or the Cook Islands, they see that and they're like, we need that. And it's not that difficult to do in terms of investment to get started.

0:20:48.2 SC: Just as a little personal color, I do want the audience members to hear the story of how you became an embedded journalist on the thought that maybe the wealth managers of the world who are doing some shady things for secretive people wouldn't wanna talk to a sociologist. You came up with an unusual strategy.

0:21:03.6 BH: So I wasn't a journalist. I have been a journalist before, like before I went to graduate school, I was, but this is different. I was what's called an ethnographer, which is a technique that comes from anthropology, and it has been adopted by other fields. Basically, what you do is you go live among the population you wanna study. You stay with them long term, and you observe them and you see what you can find. And this is a very important technique for groups of people who don't wish to be studied [laughter], who are either very remote or very secretive and suspicious or all of the above.

0:21:44.2 BH: So my previous work was on American investors in a domestic context. If anyone listening remembers the Beardstown ladies or investment clubs from the 1990s, I studied investment clubs. 'Cause there was a point in the late 90s, early 2000s when 11% of non-incarcerated American adults belonged to an investment club, which is just a mind boggling number.

0:22:11.6 BH: So that actually... Studying how individuals who are not finance experts decide to invest their money as a collective turned out to be pretty interesting. And that was actually the first sort of complex system work that I ever did. And that's what got me to SFI way back. I think it was 2003 or 2004. But in the course of doing that research I discovered that like beyond the middle class echelon that I had been investigating, there were these further echelons that I could just barely see were people who really had a lot of money. They weren't messing around like the Beardstown ladies. They had a more bespoke solution to the problem of doing something with their wealth, protecting it, growing it, et cetera.

0:23:00.2 BH: And I knew a little bit about that because I happened to grow up in a wealthy suburb of Chicago where the kind of people who had wealth managers lived and sent their kids to public schools. And they ended up sitting next to middle class me in French class. So I know these people existed and I started thinking, how can I study this? Because while all these middle class folks are puttering away in their investment clubs, there's this whole other world they don't even know about, where you can make a lot more money. You have access to much more profitable investments and also a lot more protection against downside risk. How do I get funding to study that? How would I even get in there?

0:23:42.1 BH: So for years, I turned over in my head, how I can persuade the National Science Foundation to fund me to like go live among the ultra rich and study their ways. And I thought, they're never gonna buy this. I probably could do it. I'm a sailor. And I thought if I just turn up at the harbor in Monte Carlo or something [laughter] when they're showing off their yachts maybe I could crew or maybe if I got a fancy enough dress, I could just walk on there and like show up at a cocktail party and fake it till I made it.

0:24:17.1 SC: Exactly.

0:24:18.2 BH: But I couldn't figure out a way to pitch that to the NSF or any American funding organization with a straight face. But fortunately, I was invited in 2006 to do a sabbatical year at one of the Max Planck Institutes in Germany. So I thought I was just going for a year to do some research and not have to teach or do administrative work. I got there and found out that the guy who ran that particular Max Planck Institute had just published a big book on inherited wealth.

0:24:51.7 BH: He was interested in the same things I was. He got why I wanted to study the ultra wealthy, and best of all, he was in charge of a 2 million Euro budget annually that he could sprinkle like fairy dust on anyone who wrote him a plausible three to five page memo. And I'm like, this is the promised land. So being young and un-indebted and not having a family to support at the time I was like, you know what, I'm staying.

0:25:23.6 BH: So I stayed instead of going back to Brown where I was an assistant professor or going back to the US at all. I just stayed in Europe and I found that European funding agencies are much more open-minded about funding truly high risk research. And I built on the money that the Max Planck Institute gave me to get some more funding from other German institutions.

0:25:47.3 BH: But the real sort of moment of breakthrough was sort of thinking about what Max Weber had said about the role of expertise and how so much of the world really depends on experts. Like there are people who benefit from the expertise, like the clients of wealth managers, but even I knew that ultra wealthy people, they're not sitting around on their yachts boning up on the tax code of the Cayman Islands. They have people to do that just like they have people to pick up their dry cleaning and clean their houses. And I thought, well, the Weber-ian strategy here is study the experts because they're the ones who are really making the offshore world happen. If you wanna look at wealth inequality, which is what interested me, don't look at the people who just benefit from it. Look at the people who make it, with their own two hands.

0:26:38.3 BH: So I thought, I wonder if there is a place where I could go study the experts. And I knew there was a professor at MIT named John Van Maanen, whose work is sort of a must read for sociology grad students, because he's a god of qualitative methodology. He made his name as a graduate student in Southern California in the late 60s, right after the Watts riots. Not all listeners may know what that was, but it was a racially motivated police brutality riot that tore apart Los Angeles and Southern California and became a touchstone for civil unrest based on racism and police brutality.

0:27:25.0 BH: So John Van Maanen was a graduate student in Southern California right around that time. And he decided he wanted to study the police. So he wrote a series of polite letters as one was supposed to do to local police departments saying, hi, I'm a graduate student in sociology and I would like to shadow your officers to study how the police work.

0:27:43.1 BH: And every single door was slammed in his face because the suspicion between police on the one hand and civilians on the other, especially like allegedly long-haired hippie graduate students in sociology, it just was never gonna work. And a normal person would've given up at that point and found something else to do their dissertation on. But John Van Maanen was dogged and he was like, you know what? I've got time. I'm a graduate student. I'm just gonna walk down to the police academy and enroll and they can't stop me. So he did, and then he went through the police academy. He went around on patrol, armed with other police. He didn't lie to anyone. He didn't say, I'm really... I really wanna be a police officer. He didn't use a fake name. He told everyone that he encountered who he was and why he was there.

0:28:33.7 BH: And the idea was the hope was that he would gain enough of their respect by trying to put his feet in their shoes, that they would at least consent to talk with him or to let him see what the world was like. And it worked and it yielded some really legendary publications and the rest is history. So I realized I could do that too. And pretty much for the same reason, wealth managers are not just bound by a professional norm of discretion in many places like Switzerland, if you're a wealth manager and you're found to have disclosed any identifying information about one of your clients, even by accident or in passing, you face not only civil charges, but criminal charges. So there are very strong incentives for people like that never, ever to talk to people like me. So really my only option was to join them.

0:29:26.9 BH: So I did what Van Maanen did. I found the place you go to get a credential in wealth management. And luckily for me, there's really only one place you could do it that's globally recognized. An organization called STEP in London is sort of the, the Global Professional Society for Wealth Managers. And they offer the most globally recognized credential, which is this two year thing I mentioned to you. So I enrolled and I got the money to do it from German funding sources. And even they were kind of skeptical, [laughter] I didn't know if I could get these people to talk to me, but I figured I'm gonna show up and try. I've got nothing to lose and I'm never gonna get this chance again. So I'm going for it.

0:30:11.2 BH: And lo and behold, once I was in these five day a week, 9:00 to 5:00 classes with practicing wealth managers, anywhere between like a dozen and 50 other people, they did talk to me, they talked to each other and I listened in when I approached them and asked them if they would be willing to speak to me on condition of anonymity.

0:30:32.0 BH: Like, in other words, I wouldn't even write down their names. Much less whom they worked for. And that I was gonna ask them questions that wouldn't get them in trouble, like nothing about individual clients, for example. Many of them were very willing to speak to me because this is my theory. A couple if things. One is I looked enough like them that I didn't trigger any sort of knee-jerk distrust or fear. Most wealth managers are still, I would say at least 70% are white, upper middle class English speaking people. Most are men. But I blended in well enough. There are many, many situations where I couldn't have just parachuted in and studied a group. I just would've looked too different to not arouse suspicion or to engender enough trust that people would be willing to speak to me.

0:31:22.7 BH: But this was a haute bourgeois professional group. So, I could just kind of slide on in there. I could walk the walk. The other thing was that I didn't realize how much people in the wealth management industry as well compensated as they are, they feel very aggrieved and misunderstood, but they don't have any outlets to express that or defend themselves because of these norms of confidentiality. So they've got all this pent up anger about being portrayed as the bad guys of the international financial world. And their families have probably had an earful about it and are bored to death. So have their colleagues. So who's left? I come along. I'm not a colleague, I'm not a family member. I'm credentialed. So I know enough about what they're talking about that they don't have to explain every third word. I can ask intelligent questions. So it turned out that when people were willing to speak to me, the biggest problem I faced oftentimes was getting them to stop talking.

0:32:25.6 BH: One guy only, we only ended our interview because the cafe we were sitting in closed after three and a half hours.

0:32:33.6 SC: Wow.

0:32:33.7 BH: I mean, that is the level of sort of confessional or unloading that I was experiencing. So it was awesome from a data perspective.

0:32:41.3 SC: And I think there's probably many things... Let's tell the audience that you wrote a book. So tell them what the title of your book was. 'Cause I don't have it in front of me.

0:32:50.5 BH: So after about eight years of this immersive field research called ethnography where I went all over the world, I got my credential to be a wealth manager and then I used that, that was my ticket to go to professional society meetings in wealth management. 'Cause you can't just go to them, you have to prove that you're one of them first, then you pay the fee and you go. So I ended up going to 18 offshore financial centers all over the world and speaking with and observing 65 wealth managers at work. So for a qualitative study of a secretive group, that's a lot. It took about eight years partly because getting the funding together to go to crazy remote places like the Cook Islands, which is roughly between Fiji and Tahiti.

0:33:37.7 SC: Not easy.

0:33:38.9 BH: It's hard, it's very time consuming. Anyways, after about eight years of that, I published a book in 2016 called Capital Without Borders. And that came out roughly six months after the Panama Papers broke, which was like one of the biggest strokes of luck I've ever experienced in my entire life. It was like the ultimate PR campaign. It put offshore finance and offshore cheating on everybody's radar. So I had no idea it was coming. And when I was reviewing the galleys for Capital Without Borders, kaboom [laughter], it just dropped, it dropped like a happy bomb into the news. And ever since then, there've just been more leaks and things like the sanctions on Russian oligarchs continually keeping offshore finance relevant and timely.

0:34:33.5 SC: And there's... Like I was gonna say, there's a whole bunch of interesting things in the book we could talk about, but I just wanna... 'Cause I wanna get to the complex systems business, but the one thing I can't let go of is the attitude that wealth managers have toward their clients, which is, which is divided. Right? Like there are some who are very resentful that they're doing all this work for these wealthy people, but there's others who are cheerleaders, apologists for the people that they're working for.

0:35:01.4 BH: Yeah. I think this must be a more general phenomenon. It's not just that everybody, every job has people who love the job and are, meh, about the job and some group who hate it. The people I interviewed, I would divide into three main categories. Probably about one fourth of the wealth managers I spoke with were what you might call hardcore libertarian, anarcho-capitalists who honestly believed that taxes theft... That basically government in general is a dubious proposition except insofar as government enforces the contracts and protects the private property of their clients. Otherwise. Meh. And those are the people who would tell me, I protect my clients who are wealth creators from the rapacious and illegitimate confiscation of out of control welfare states.

0:36:04.0 BH: And they would say it with an absolutely straight face. They weren't having me on. It was they believed it. And so my job as a sociologist was just to sit and nod politely and let them explain their views. About 50% of the people I interviewed, they kind of... They made a not very satisfying moral compromise in which they said, what I love about my job is that I help families. [laughter] Now that's... Exactly, well, that's true. They do help families. It's just a partial truth and it's a very carefully crafted partial truth, which they knew and I knew and they knew that I knew. The partial truth, what they were excluding was they were helping a small group of families at the expense of all other families.

0:36:56.8 BH: And I'm not even wagging a finger at these folks far from it. Everybody. No, not everybody. Many people make moral compromises in the work that they do. You know, I do. I went from eight years of teaching at Copenhagen Business School, which is one of Denmark's eight public universities. There are no private universities in Denmark. And when I was teaching there, I knew for sure that every single student I saw was there because of their merit, because there is no such thing as a tuition fee.

0:37:28.0 BH: So I wasn't part of reproducing an elite that had unfair advantages over anyone else. I really was helping to build a country in a way, like I was training the best and the brightest of this country. It just wasn't my country. So I come back to this wonderful job at Dartmouth and it feels a little weird even though I am a product of the Ivy League system, Stanford and Harvard and Brown. So, I know it's just very obvious from looking around there are... Money plays a big role in who gets into a place like Dartmouth. It doesn't play the only role. And I'm not saying the students that I teach don't have any merit at all. They do, many of them are brilliant. But there's a distortion happening because of the fact that tuition at Dartmouth is just north of $70,000 a year. That creates a different dynamic than I experience at a tuition-free public university, and I know that I'm part of it.

0:38:33.6 BH: As a sociologist, it would be very dishonest for me to avoid confronting that. So I make moral compromises with that fact, just the way wealth managers who have mortgages and kids, school fees and careers that they've invested decades in, they make their moral compromises. So I'm not putting this out there as my standing and judgment of them, I'm just trying to observe and analyze what they're telling me.

0:39:02.1 BH: There's another quarter of the group I interviewed, and I have no way of knowing in a sample size of 65 how representative this is of the whole population of wealth managers. But in the group that I interviewed, 25% were these sort of hardcore libertarians, about 50% were the people who made this, I help families compromise. But then to me, very interesting, other 25% were people who are very out and explicit about their discomfort with the nature of their own work. And they were struggling, they were telling me about the struggle that they had with it.

0:39:43.9 BH: So one fellow I interviewed who was actually at Mossack Fonseca in Panama City several years before the Panama Papers broke. He said to me, "Look, I used to be involved in social justice causes, I didn't get into the law to serve rich people, quite the contrary. I got into the law to serve indigenous people and poor people, and basically my employer tapped me for a project that got me sucked into working with some of the company's wealthiest clients. And I turned out to be good at it, so they just kept me on. And it bothers me because here I am talking to some of the world's wealthiest people, but a mile away, there are people living under bridges in cardboard boxes. So what do I do with that? I want my son to be able to look at me and feel some respect the way I could look at my own father."

0:40:37.6 BH: So he says, "This is what I do. I figure... I've got the ear of these people, nobody else talks to them about poverty and inequality. I'm gonna take the risk, and if they fire me, they fire me." So he said, "I talk to them about the people living under bridges in cardboard boxes, and I urge them to think about what they might do with their wealth to help those people, or other people similarly situated elsewhere in the world." And often they look at me like I have three heads, but no one's fired me yet, so I'm gonna keep doing it. So there were several people like that who they had a plan, and I wonder sometimes when a new leak comes out, was that someone I interviewed.

0:41:19.5 SC: Yeah.

0:41:21.5 BH: If not, they're part of this cohort of wealth managers or insiders who have similar qualms about the nature of their work and its effect on the world. And this is the way they deal with it. They leverage the fact that they are on the inside, either to try and persuade clients one person at a time, or to make these big anonymous leaks that pull the lid off the whole thing.

0:41:44.0 SC: I think that's legit. I think you need all kinds of people. You need the people protesting on the outside, you need the people on the inside trying to make things a little bit better. I'm also not gonna judge anybody that way one way or the other. But let me be clear, let's clarify one thing, 'cause we've been talking about wealth managers, and we've been talking about the offshore wealth management system, are they synonymous? I presume there's just onshore wealth managers as well, but we're in particular today talking about the offshore system, is that right?

0:42:14.5 BH: Yes. So what led you to invite me on the show is this article that I produced with colleagues at Brown and... I'm sorry, Dartmouth. Two mathematics professors, Dan Rockmore and Feng Fu, and our first author, Herbert Cheng, who is just finishing up his dissertation at USC Annenberg and is about to join us as a professor of Quantitative Social Science at Dartmouth. So what we worked on is the system, the complex system created by wealth managers. So wealth managers are the experts, but they designed and they manage and they keep up and running, this complex system that's built on the ashes of mostly British colonialism.

0:43:11.6 SC: I was very interested when you dropped in into the paper, the fact that so much of this is a colonial legacy. Like the ex colonies really, are what you need if you wanna have an efficient offshore Wealth Management System.

0:43:23.4 BH: Yes, and that's mostly because of the legal system that the British left behind. Because there are things you can do in the common law tradition that you can't do in other legal traditions. And that you need those things in order to play what legal scholars call the shell game of ownership, where you know those little shell games that people play with walnut shells and ball bearings on street corners. So a lot of what happens offshore is instead of walnut shells, you have structures like trusts or corporations or foundations, and then you move the ball bearing which is the client's fortune or a particular asset. You move that asset around under those different legal structures, and you make it very difficult to ascertain, well, who really owns that structure. If it's in a trust, the trustee owns it. That's usually the wealth manager.

0:44:20.9 BH: If it's in a company, well, that company can be owned by a trust and a foundation, this is what Ingvar Kamprad the creator of IKEA did. He didn't wanna pay Swedish taxes, so he used the law of the Netherlands to create an offshore financial structure that basically envelops IKEA in what is ostensibly a charitable foundation, except it doesn't really ever give away any money. [chuckle] It just enables him to control the firm and pay his kids a salary without paying normal corporate tax.

0:44:55.2 SC: So what fraction... If I am a person, I'm not. If we're a person that had 50 million dollars or more to invest, does most of that go offshore or only the uber elites that really dominate that market?

0:45:12.2 BH: Well, to get a wealth manager even to give you the time of day, you'd have to have at least 5 million US in investable assets. And that means not just your net worth, but your net worth, not including your primary residence.

0:45:27.9 SC: Right.

0:45:28.0 BH: So when you narrow it down like that, you're talking about a couple of million people worldwide, but that's sort of the absolute bottom of the barrel. That's when it would be you and maybe nine other people sharing a wealth manager.

0:45:41.6 SC: Yeah.

0:45:43.0 BH: And as you have more wealth to invest, you're more and more likely to get the bespoke services from a wealth manager. It's kind of like... The analogy I would use is for clothing. There's off-the-rack clothing that you could buy at Target or Saks Fifth Avenue, and then there's haute couture which is what you see walking down the runway in Paris and that say, Christian Dior will make on your body specific to your measurements for $20,000 for a ball gown or something. And in between, there's a kind of clothing called Pret-a-Porter, which are these very special designer lines that you wouldn't find for sale at Target. They're not bespoke to your body, but they're much closer to the runway.

0:46:28.7 BH: So if you're coming in with 5 million dollars in investable assets, you're essentially buying wealth management off the rack from Target. A lot better than nothing, but that's a very entry level. If you're the kind of person who has 50 million dollars or more, you're getting the wealth management equivalent of couture. You probably have what's called a family office, which is not just a wealth manager, but several wealth managers who do nothing but work for you and your family.

0:46:57.1 SC: Yeah.

0:46:57.9 BH: And then in between in that gray area between 5 and 50, you have the finance equivalent of Pret-a-Porter where maybe you share a wealth manager with three or four other people. But it's very personalized and in Capital Without Borders, I talk about these crazy stories where wealth managers would tell me, "Yeah. My client called me from Zurich, I was in London," and she said, "I've lost my bracelet outside of this restaurant in Zurich. Help me find it." And as a wealth manager, they can't say, "What? Are you insane? Find it yourself. Call the police. How could I find something in a different country?" No, if you're a wealth manager, you just...

0:47:38.4 SC: It's your job.

0:47:39.5 BH: You work it out.

0:47:41.5 SC: Yeah.

0:47:43.2 BH: And that's the kind of personalization I'm talking about.

0:47:43.8 SC: Must be frustrating to be the person with 10 million dollars in extra money and still not really be at the upper level of what you can get in this business.

0:47:52.1 BH: Well, that is a super interesting point Sean, I'm really glad you raised this, because a lot of what I see in popular discourse is people asking about the rich, why do they never have enough? Why do people like Bezos and Musk and Branson have to get their rocket projects and compete with each other over who launches first? What is their problem? Why can't they just go get themselves some cocktail with a little umbrella in it and lay back on their yacht and enjoy themselves? Why are they always fighting with each other to have more and more and more? This is the reason because no group of people competes with the entire universe of other people for status.

0:48:36.3 BH: In sociology, we call this a problem of reference groups, we choose or are given in life, certain reference groups against which we compare ourselves. Family, neighborhood, school friends, and now because of social media, we have lots of other groups we can choose as our reference groups. Like fans of Kim Kardashian, so those are the yard sticks we use to measure our status. And so while we may be I don't know, compared to the universe of people in the world, well paid, well off, we're not gonna feel well paid, well off, or high status unless we're doing well compared to our reference group.

0:49:19.2 BH: So the reference group for people with 10 million dollars is other people with 10 million dollars or more. And it's the or more that eats away at them at night.

0:49:30.0 SC: Yeah. [chuckle] Academia could tell exactly the same story, couldn't it?

0:49:34.3 BH: Exactly.

[chuckle]

0:49:35.7 BH: Yes. It's like, "Oh, I'm a full-time year professor, but I don't have an endowed chair."

0:49:41.5 SC: Right. Yes. That's how we are, it's all human beings all the way down. But okay, let's put ourselves in the world of the very tiny tip of the iceberg where they all have their bespoke offshore wealth managers, what you did in the new paper is think about that system as a complex network. So there are nodes and there are connections. So let's bring it down to earth. What are the nodes? And what are the connections? What is the network that we're talking about here?

0:50:06.4 BH: The network is this complex structure that wealth managers have created in the offshore world. So what we were able to look at using the leaked data that has come to light through the 2016 Panama Papers, the 2017 Panama Papers. Let me backtrack a bit. So the Panama Papers in 2016 was a cache of data from one company, it was 40 years of data from the company called Mossack Fonseca. It was a law firm in Panama City, Panama. So somebody on the inside there dumped a ton of data, and that was followed in 2017 by the Paradise Papers, which came from a company called Appleby's in Bermuda, which is also a law firm, a Wealth Management Law Firm. And then I believe Asia City Trust, which I can't remember where that is, but it was two countries.

0:51:02.0 BH: And then you may remember in 2020, there was the Pandora papers, which involved... I'm gonna get the strong. Is it 14 companies or 14 countries, I think there was at least a dozen countries. So it was much more spread out than either the Panama or Paradise Papers, but still very incomplete. We have no idea how representative any of these leaks are of the whole universe of wealth management offshore activity. But they're all that we've got, because otherwise this data is completely held in secret, there's no way to know who holds what off-shore.

0:51:38.2 BH: All of this information went to an organization called the International Consortium of Investigative Journalists. And they strip out a lot of identifying information like in these leaks where things like images of the passports of the clients, their home addresses, really really sensitive identifying stuff. So ICIJ goes in, they strip out all of that identifying stuff, and they make the rest publicly available online, anyone can find it. We took this data, me, Herbert, Dan and Feng, and we tried to figure out, okay, knowing that this is very incomplete and patchy, is there anything that we can make of this that would be useful? So I had a bunch of ideas I wanted to test and here was the quantitative data to test it with. I reached out to them because I don't have the skills to do this level of network analysis. I've done quantitative work before, I publish a lot of laboratory experiments using econometric methods, but network science of complexity, that's a whole different animal.

0:52:43.3 SC: Yeah. There's some specialized knowledge there.

0:52:44.9 BH: So I called in the experts.

0:52:46.8 SC: Good.

0:52:47.0 BH: And they're mathematicians and computer scientists. And luckily for me, they were willing to climb this very steep learning curve to learn enough about offshore finance that we could have a conversation about what the data were in these ICIJ publicly available sets. 'Cause you can't just open up what the ICIJ makes available and instantly grasp what they're showing you.

0:53:12.8 SC: Oh no. [chuckle]

0:53:14.2 BH: And I think that's one of the reasons there hasn't been as much research based on offshore leaks as there might have been, 'cause it's an incredibly deep, rich resource. I think something like a total of 10 terabytes worth of data, just enormous. The problem is to make head or tail of it, you have to be able to look at it and know what... What's an intermediary? What's a beneficiary? What's a trust? And just getting there is... It's a big leap. So I have that information and I had a series of testable propositions derived from my qualitative research. Here was the data, here were people who could work with the data, and we had to meet in the middle to learn to speak each other's language across disciplines, well enough that we could make something of it.

0:54:03.6 BH: And as I was telling you at the top of this podcast, just this morning, I ran across an article on nature by my old grad school, how... James Evans, who's a sociologist at the University of Chicago, talking about how the most high impact research tends to be when scholars cross the streams of disciplines, disciplines that normally are not in conversation with each other at all. And that's definitely the case with sociology and math and network science, although there are plenty of quantitative sociologists. The level of what Herbert and Dan and Feng can do is far beyond what most sociologists except people like James Evans actually do.

0:54:50.2 BH: So what we were able to do in the PNAS Nexus paper was to use this frustratingly incomplete data to map out the relationships or the web of relationships between clients of offshore, that is the wealthy people and their wealth managers, and the structures that those wealth managers create for them in different places. And from that, we began to observe some very interesting and unexpected patterns like, "Wow, this seems to behave like a scale free network." And, "Huh, wealthy people from different parts of the world such as Russia and China and the United States and Hong Kong, they have very different patterns of relationship to both wealth managers and offshore structures." Now, this was very gratifying to me because that's exactly what my qualitative research suggested we would find, but I'd never been able to test that until we did laborious work of coming through this data and testing it.

0:55:58.8 SC: It's a good feeling. [chuckle]

0:56:01.1 BH: It's a great feeling. Similarly, I've received a pretty good quantity of anecdotal data from wealth managers working with Russian and Chinese clients saying, "Look, they're really different. What they want is different. They have different needs because of the political environment they come from, they need different things from us and from the offshore system in general, than clients from Europe or the Americans might need." And here are some specific...

0:56:30.2 SC: Tell us something...

0:56:30.8 BH: Oh go ahead.

0:56:31.0 SC: Could you just tell us in very simple terms, I'm sure that most of the listeners here know what a scale-free network is, but let's assume that they don't... Like what does it mean to say that this network that you've drawn between clients and managers and structures is scale-free?

0:56:48.6 BH: I think if I were explaining this to some of my undergraduate students I'd say, "Well, some networks are very easy to break down, but others are robust kind of like like fabrics," like the netting that you see on a wedding veil, you can tear that with your finger tips really easily, that's not a robust fabric, you can see it's a little network of threads or fibers that connect to one another, but it's not robust. There are fabrics like ripstop or gore Tex where not only could you tear it with your fingers, but you could take a relatively sharp object and try and tear away at it without succeeding. There are certain networks that are composed more like that, that's really hard to tear them apart or break the connections.

0:57:41.6 BH: A scale-free network comes across like a piece of ripstop or gore Tex. It seems unbreakable, but if you know about the properties of the fiber, you can find ways to break it. The World Wide Web is composed like this, it's very robust, but if you know where to attack, you can make it break down. There's some gene editing networks in animals that work the same way.

0:58:10.7 BH: So scale-free network has this really interesting property that it's robust to random attacks. So if you just start tearing at it randomly, it's not gonna break, but if you know where the vulnerabilities are, which are these highly connected nodes like hubs, like an airport hub and spoke system, and if you strike there, yeah, then you can make either the whole thing fall apart or big parts of it, so everyone who is trying to fly through Chicago or Newark during winter storm season or summer thunderstorm season knows how this works. If your hub gets attacked or it gets pulled out of out of service, everyone's flights are disrupted. That's the kind of network that we're seeing in the offshore world, except instead of the hubs being Chicago or Newark, the hubs are certain wealth managers who have a lot of very wealthy clients who all cluster their business around this or that person.

0:59:15.5 SC: I really like the combination of the two metaphors of fabric and the airline network because it drives home the difference between a scale-free network and something like a lattice, like if the airline network in the United States were like a fabric where everything is just connected nearby, to get 3000 miles, you might have to take 30 trips of 100 miles each. But because it is scale-free and then there's long-range connections, you can get there in two trips. And so you're saying that the offshore financial network is that kind of thing, there are some hubs that are really super-duper connected, and then there are some smaller hubs and then below that, even smaller hubs.

0:59:53.9 BH: Yeah, I alluded to the fact that my informants in the qualitative study had told me that although wealthy people, ultra wealthy people from all over the world have a lot in common with each other, sometimes more in common with each other than with the people of their own countries, there remain very significant national differences that are driven both by culture and by politics. And so for example, apparently with Chinese clients, you cannot speak to them about death, it's just a taboo topic, which is very awkward because a lot of what a wealth manager does is plan for things like succession.

1:00:33.2 SC: I was gonna say. Yeah.

1:00:33.3 BH: What happens if you have a client as it's common a Chinese client who has created a very wealthy family business, how do you have the conversation about, okay, so who do you want to take over? And who gets your stuff? Now, imagine trying to have that conversation if you can't say words like, death or die. Tricky, huh? Similarly, clients from autocratic societies tend to be understandably, extremely distrustful, and when they find someone, usually through word of mouth whom they regard as trustworthy, everyone wants to work with that person. You see this a little bit, if you read a magazine to the grocery store checkout line, like People or In Touch, all the celebs like to go to the same hairdresser or the same plastic surgeon, why? 'Cause the person is not just competent at their job, they may also have a reputation for having the best bedside manner or the most reliable discretion or whatever.

1:01:41.8 BH: The people who go to wealth managers for offshore financial services are no different. They use word of mouth, they don't go to yellow pages to find a wealth manager, they use whoever their friends use, and if they come from autocratic societies, they tend to have very few people whose opinion and word of mouth they can trust. And so that creates these hub-and-spoke effects where lots of, say, Russian oligarch, or Chinese oligarchs end up using the same wealth managers.

1:02:12.2 SC: And this makes?

1:02:14.3 BH: And that creates the vulnerability in the system 'cause if you can take that hub out of commission by say, sanctioning the wealth managers, so they can't work with sanctioned oligarchs, that disrupts the system as a whole.

1:02:25.9 SC: And this makes perfect sense in terms of why you would want to borrow expertise from Complex Systems studies, because that makes perfect sense to someone who studies networks and complex systems when you see scale-free behavior, 'cause not all networks are scale-free, but you wanna understand what is the mechanism, why does it have the scale-free behavior? And one of the most obvious ones is preferential attachment, the rich get richer. And so the good wealth managers get their word of mouth shared around and they're gonna get more clients that way.

1:02:58.2 BH: Exactly.

1:02:58.3 SC: And it's clear from your paper that a lot of the motivation here is very policy-driven. So even though it's complex systems and fun academic intellectual ideas at the end of the day, how does this tell us what better policies to implement in particular, you are motivated by the fact that some of these people are from regimes which can be bad actors and we might wanna sanction them someday and how do we do that effectively?

1:03:24.7 BH: Well, there's this long tradition of sanctioning the transfer of information and people who can transfer it. And it started at least in the 1940s with the nuclear program and then extended to things like bio-weapons and so forth. So if you happen to work in any of those areas where you might be privy to nuclear secrets or to information about how to manufacture or use chemical weapons, you're subject to a lot of restrictions on who you can talk to, what you can say and so forth. And if you break those rules, you can be sanctioned not just professionally, but by the government for improperly sharing secrets pertaining to national security.

1:04:08.9 BH: So the logic of that is we're suggesting apply that to wealth managers, and even as we're writing this paper for PNAS Nexus, they were... Governments of the UK and the European Union and the US were starting to do this with wealth managers saying. Of course, you can continue to practice your profession, but you cannot serve clients whom we have sanctioned, so do your jobs, knock yourselves out, but you can't serve sanctioned Russian oligarchs, and if you do, you will be subject to civil and/or criminal penalties.

1:04:48.2 SC: And did that work?

1:04:51.3 BH: I think it's too early to say, it only just started even being suggested last June 2022 right now, in fact, it's kind of an exciting time to be talking about this because the Swiss, for example, they are actually prosecuting some Swiss wealth managers who were serving Russian oligarchs.

1:05:14.5 SC: Well.

1:05:16.2 BH: So they're implementing this theory and taking these guys to court right now. The Department of Justice here in the United States is doing the same thing to wealth managers that they're prosecuting wealth managers who served sanctioned Russian oligarchs. So this is very much a situation that is unfolding as we speak.

1:05:36.8 SC: It makes me think very much of something that I've often thought about and is probably just too handwavy to be anything very definite, but the very idea that a wealthy person even like a little wealthy person, like an average middle class person in the modern world, they're not carrying around gold bullion in an App stack, they're not actually in possession of their wealth, the idea of wealth is very much based on a network of trust.

1:06:01.8 BH: Yes.

1:06:02.5 SC: That when I log on to Bank of America's website, I can move zeros and ones around and suddenly a package appears at my door, and I imagine at the level of super-duper wealthy people, that network is wider and the trust is even more important.

1:06:20.2 BH: One of the things I would really like to learn more about in the domain of Network Science and complex systems is how to conceptualize and measure trust as a mechanism, because I'd like to take research findings from the domain of mafia studies, which are very informative on the dynamics, we're seeing, but they're qualitative. I need to be able to translate those into terms that can make sense within a complex systems analysis, because you're absolutely right, the whole concept of fiat currency, those little bills that say In God, We Trust are about trust. Trust in the full faith and credit of the US government or whichever government is issuing the currency, and then that's just accentuated.

1:07:13.1 BH: The more you go up the wealth ladder, you need to be able to trust the people who know where all the bodies are buried, who know about the true extent of your fortune, how you got it, what the threats to it really are. It's very, very sensitive information. So how oligarchs establish these trusting relationships? I understand a little bit about that from my qualitative research, but I haven't developed yet an understanding of how to conceptualize and test that as a mechanism, but I think it's very important in addition to... What was the other mechanism you were speaking of? A preferential attachment. So I think underlying the preferential attachment is this dynamic of trust.

1:07:58.4 SC: It makes me think... There's also a political version of this, if you're a dictator, what does it mean to say that you have power over a huge number of people, ultimately it means that a small number of people will listen to your orders and carry them out, and then the large number of people will listen to their orders and it strikes me more that it works at all, than the fact... I'm not surprised that it fails sometimes, I'm not surprised that so often people will go along with it.

1:08:24.7 BH: There's a historian named Ruth Ben-Ghiat at NYU who wrote a wonderful book called Strong Man, and it's all about the psychodynamic of what you're talking about, and also relevant to Mafia studies in that the way to become a strong man is that you project an image almost like the Wizard of Oz of invincibility, and you make sure that no one can look behind the curtain to the extent that autocrats or would be autocrats can be successful in surrounding themselves with yes, men and with people who are willing to commit violence to enforce this illusion of invincibility, they'll stay in power, and Putin has done an incredible job of that over the last 20 plus years, but one of the objects, the ultimate objects of using sanctions on wealth managers as a non-military strategy to counter the Russian invasion of Ukraine is to begin to make some of Putin's closest allies feel some pain not because we think they can advise him or change his mind about anything, that's not how they relate to Putin.

1:09:38.5 BH: He tamed the oligarchs in the early 2000s, and they don't tell him what to do, but if they stop publicly supporting him or if they are willing to countenance other people being disobedient to Putin, that weakens the strong man image and emboldens others to try to depose him and this worked to bring down Pinochet's regime in Chile and it worked to bring down the apartheid regime in South Africa, peeling away the elites.

1:10:14.0 SC: Well, so you've said this already, I don't know how to simplify it, but this analysis suggests a way for policy makers thinking about who to sanction, so include wealth managers as well as the actual oligarchs and also target the hubs, target the ones who are most widely connected. Is this a broader paradigm for social science research? It makes me think a little bit... I did a podcast a few months ago with Andrew Papachristos, who is a sociologist who studies street violence on the streets of Chicago, so a very different scale, but the same network studies give you pointers to say like, look, this person is very likely to... Not necessarily do something bad, but be the target of something bad, you don't know, but thinking of it in that way can help us target our resources for things that we think are bad and want to prevent.

1:11:07.7 BH: I think you're absolutely right, and it's interesting that you bring up the analogy of street crime in Chicago, because one of the things we talk about in this PNAS Nexus article is that the earliest theorizing in sociology about secrecy, and that's ultimately what the offshore system is about, is secrecy, without secrecy it doesn't work at all. Georg Simmel the German sociologist, who wrote the sort of foundational text on how secrecy works in human societies, he explicitly made this connection between groups of the nobility who had the secrets that protected their wealth and power, and groups of assassins and criminals who also use secrecy to protect themselves from the law or from accountability.

1:11:55.0 BH: So an obvious extension of what we're doing here is to investigate, say, terrorists or other criminal networks, because especially the international ones, they work, as far as we know or as far as I've seen, on this hub-and-spoke kind of system. So they're robust to certain kinds of attacks, but they're very fragile if you can find the hubs. The trick of it all is figuring out what are the hubs.

1:12:23.7 BH: That's the information that's often guarded with the greatest amount of secrecy, because the people who organize these networks know, that if anyone knows what the real hub of the system is, they're in big trouble.

1:12:36.3 SC: Is there a flip side? I don't wanna think about necessarily the offshore financial network, but are there lessons for people who want to build robust networks rather than people who want to attack semi robust network.

1:12:50.3 BH: Yeah, I guess don't put all your eggs in one basket, try to avoid having hubs or if you can't avoid having hubs, find decoys or other ways to keep the nature or location of those hubs invisible to inquiring others.

1:13:10.7 SC: Okay, maybe you could... Last question here is, 'cause we've pretty explicitly touched on not only sociology, but Network Science, Complex Systems, occasional analogies with physics and things like that, how do we make that kind of cross-disciplinary interaction more real and tangible and useful, there's sort of lip service given to... Yeah, sure. Interdisciplinarity is great, but then when departments hire people, they hire people in their disciplines, 'cause their hiring is done by departments. Do you have any words of wisdom for how to make this... How to lower the barriers to this, how to make it natural and commonplace rather than the exception?

1:13:50.5 BH: Yeah, I've thought about this a lot. The other thing in addition to hiring is funding, you know?

1:13:56.8 SC: Yes, I do know.

1:13:56.9 BH: A lot of funding agencies talk a good game about, we like to fund high risk interdisciplinary research, but when it comes right down to it, unless the research is mostly done, they're not gonna touch it with a ten-foot pole because it's too risky. They don't understand it or just getting reviewers who are knowledgeable enough about what you're doing to evaluate the cross-disciplinary work, it's like... It's a huge uphill battle. So I think this has to come... This has to be led from the top. One of the things I promised myself is when I became a tenured full professor, instead of sitting back and resting on my laurels, I would use my position to take bigger risks than I'd ever taken before, so that's one thing, and there are lots of other similarly physician scholars who can use their position at the top of the hierarchy to do things that would have maybe jeopardized their careers in earlier stage.

1:14:55.7 BH: The second thing is to try to... In addition to taking those risks, to specifically try to build institutions and training that will help bring in younger people, postdocs, junior faculty, even undergrad and grad students to normalize this kind of work, that's part of the next step that Herbert and Dan and Feng and I are going for here to start building some institutional infrastructure to support this.

1:15:25.7 BH: Dartmouth itself, much like the Santa Fe institute provides a nice incubator for this kind of work, because if I worked at maybe Ohio State or Michigan or some giant university, I think it would be harder for me to walk across the street and talk to someone I didn't know in a completely different field of inquiry. They'd have too many people competing for their time, but Dartmouth is really small, and for some people, that's a huge drawback. But the silver lining in it, for me at least, is that I can go talk to the chair of math department and say, "Yes, hi, I'm a random sociologist, and I have this idea. And would you give me the time of day?"

1:16:11.2 BH: And he's got enough experience of mingling with people from different disciplines because it's a small place and it's unavoidable, you can't silo yourself, kind of the way people end up around the lunch table at SFI, talking to folks who are in completely different fields of work. Great stuff comes from that. So not everyone is lucky enough to work in a small institutional environment where they can just walk across the street or walk across campus and get someone in a completely different field to talk to them, but I think those of us who can do that, should leverage those opportunities and build places, research centers, or gather funding using the fact that we are tenured full professors, using our reputations and our networks to gain the funding to bring in other people. So not just to sponsor our own research, but to become like mini funding agencies for other people so that we can take a chance on their wild ideas, just the way somebody took a chance on my wild idea 15 years ago.

1:17:25.1 SC: Well, from your lips to God's ears. I hope this is exactly a great paradigm. We're trying to do similar things at my own edu institution, so Brooke Harrington thanks so much for being on the Mindscape podcast.

1:17:34.6 BH: Thank you. It was a pleasure.

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