Private equity is a money laundering loophole
And core to the NBA's strategy
BY HENRY ABBOTT
And yet that series has developed a bit of a cult following—mostly among people who work in sports. They know NBA billionaires. They want to know who they’re working for.
And over the last week, they are paying more attention than ever. Now that Russia has upended the world order, readers are finding years-old TrueHoop posts about Putin and Mikhail Prokhorov. (In case you missed it, here’s the Prokhorov series—which still has chapters to be written: Part 1.Part 2.Part 3.Part 4.Part 5.Part 6.Part 7.Part 8.) Now the whole world is interested in identifying, tracking down, and freezing Putin’s dirty money, which shines a light on “black cash networks” that in some cases are a century old and use techniques pioneered by Meyer Lansky.
Rhode Island Senator Sheldon Whitehouse has been standing on the floor of the Senate talking about interrupting some of the world’s biggest sources of cash for years. Now people are really paying attention.
Just in the last few days I’ve heard impassioned talk from several NBA lifers. This is stuff sportswriters should cover!
I take no joy in this, but the “keep politics out of sports” idea is helpful to kleptocrats. When I was at PutinCon four years ago, the crowd was mostly dissidents, spooks, National Security reporters … and my old ESPN colleague T.J. Quinn!
I think we both wondered what the other was doing there. He did incredible Putin reporting in 2018 with Mark Fainaru-Wada, which he explains beautifully on a new podcast with Pablo Torre. It’s the essential primer on how Putin uses sports to accrue power and money for himself and his cronies. It’s that money that the world is focused on now.
Outside of the Russian banks and oligarch-owned companies you have seen on sanction lists, there are many ways that kleptocrats and their allies get their dollars into stable investment environments. They go to the very center of the U.S. economy—Wall Street, banks, U.S. tech stocks, real estate.
Now I’d like to add one more layer to what many others are saying: private equity. It’s at the very core of the NBA’s present and an even bigger part of the NBA’s future.
A recent Athletic headline over a Mike Vorkunov article:
Adam Silver and the league office work for the billionaire investors in the NBA’s 30 teams. Increasingly, they are from this particular slice of the business world. What is private equity? Here’s an explainer.
It’s a subset of the “alternative” category of Wall Street investment that has exploded in the era of offshoring.
It’s how several current NBA billionaires got rich, including the current owners of the 76ers and the Hawks—who made their fortunes at Apollo Global, whose founder, Leon Black, funded Jeffrey Epstein.
It’s an industry that has received many billions from the United Arab Emirates, which has deep ties to Putin and a global reputation for money laundering.
It has often been an incredible source of political influence, through donations, dark money, and—critically—the giant legal budgets that sustain the world’s best-connected law firms. Leon Black, founder of Apollo Global, donates to essentially every politician.
Private equity has political influence in a subtler way: It’s an essential source of cash for plugged in law firms like Kirkland & Ellis, which represented Jeffrey Epstein, and reportedly various Russian clients. The same firm also enriched a list of powerbrokers that includes former Attorney General Bill Barr, the prosecutor who cut Epstein a sweetheart deal (Alexander Acosta), Epstein’s attorney Ken Starr, Supreme Court justice Brett Kavanaugh, Trump attorney Jay Lefkowitz—and John C. Eastman and Jeffrey Clark of the January 6 drama.
And the private equity industry is enormous. (The GDP of China is reportedly 13.4 trillion dollars.)
Private investment funds are worth about eleven trillion dollars. You can hide a lot of mischief in eleven trillion dollars. An FBI intelligence bulletin leaked in 2020 warned that threat actors used those funds to launder their money into rule-of-law financial systems. That’s a vulnerability we need to close.
So here’s a huge industry with ties to all kinds of deep pockets overseas, with the most incredible Washington D.C. connections. Note that when Congress wrote tough money laundering rules in recent years, this industry avoided scrutiny.
Private equity and hedge funds manage trillions of dollars without any anti-money-laundering safeguards—that’s an obvious problem to address.
—Julia Rock and David Sirota in the Daily Poster
Reportedly, criminals have seized the opportunity.
The U.S. private investment industry, unfortunately, offers a perfect confluence of factors that make it an ideal place to hide and launder the proceeds of corrupt and criminal activity. … A growing body of evidence suggests that this gap–the absence of requirements that investment funds and investment advisers establish anti-money laundering programs and conduct reviews to understand with whom they are doing business–is a significant vulnerability that negatively impacts U.S. national security and the lives of ordinary Americans.
That December 2021 Global Financial Integrity report cites examples, including what they call possibly the largest scam in history (involving cryptocurrency), a private equity firm helping an oligarch purchase a firm core to U.S. election security, as well as pooled investment vehicles for drug cartels, Russian organized crime, and sanctioned countries. ‘
The election security example is about Mikhail Prokhorov’s former partner Vladimir Potanin, who reportedly has had a vibrant U.S. based investment operation (which invests in, among other things, Ford Models). Apollo Global purchased it in 2011. Apollo Global’s then-head was also on the board of Putin’s Russia Direct Investment Fund. And reportedly the most successful deal in Wall Street history was Apollo Global in conjunction with oligarch Len Blavatnik.
Is it possible to tease out which Apollo Global dollars are Putin-connected and which are not? Is anyone trying?
It’s time to ask harder questions about where those Putin-connected dollars might be, and who they might be influencing.
Anyone who has read the economist Gabriel Zucman’s short-but-mighty book The Hidden Wealth of Nations, or his academic papers, or indeed any of the previous newsletters when I have referenced his work, will know that the Russian elite is unusual because it holds so much of its wealth offshore (indeed Zucman writes that the “vast majority” of the elite’s wealth is owned outside Russia).
As such, the ruble is largely irrelevant to these people, because their assets are priced in dollars, euros, pounds or Swiss francs. In fact, if the Russian currency collapses further, they can just bring some of their money home and buy up even more of the country at fire sale prices. …
In order to influence the elite, we need to target their wealth, which means hitting it offshore. To find it, therefore, we must think like oligarchs.
We need transparency of offshore-owned property. The UK has FINALLY moved ahead with this, which is good, and it needs to close the loopholes in committee. The U.S. needs to get a move on and implement its Corporate Transparency Bill. This will reveal what oligarchs own.
—Oliver Bullough, author of Moneyland, in his “Oligarchy” newsletter for Coda. (Here’s Oliver on BRING IT IN)
The work is to understand the dollars that fund the things around us, including the NBA. There have been many comparisons between Putin and Hitler this week. Hitler’s rise was assisted by allies in the elite circles of American business.
“Sadly, we are treading back through old historical patterns that we said that we would never permit to happen again,” Hill told me. Those old historical patterns include Western businesses who fail to see how they help build a tyrant’s war chest.
—Fiona Hill—unflappable Russia expert from Trump’s second impeachment trial—in a must-read conversation with Politico’s Maura Reynolds
Thank you for reading TrueHoop!
I'm from England and the UK is incredibly weak on oligarchs. Oligarchs have donated millions to the Conservative Party (UK's Republicans), Boris Johnson the Prime Minister elected Evgeny Lebvedev (Lebvedev's father was a former KGB agent) to the House of Lords, the upper chamber of our government, under the title of Baron Lebedev, of Hampton in the London Borough of Richmond upon Thames and of Siberia in the Russian Federation. Like a Senator in Congress being the Representative of Staten Island and Siberia.
It's murky as fuck. That's one of many threads to be pulled just in the UK, never mind the rest of the world.