that the experience in their lives as slaves. they seem glad that they were no longer slaves, but you almost nostalgic atmosphere and that's very hard and troubling and fascinating to understand why he would articulate his life story in such a way and to make sense of that. so what i hope readers come away from is south care less later across the state was different for each individual. these are voices of people that wanted to be read, general interviews later on. these were people who took time to write their life stories, to make sure their stories got out in the way they wanted to frame them. it's beautiful and it's troubling, and frightening in some ways, some of them. but i think they all speak to a new way we can learn a lesson to people's stories perhaps. >> thank you very much. >> sure thing. >> next on booktv, nicholas

shaxson takes a critical look at offshore tax havens which cost the u.s. about $100 billion in lost tax revenue each year. this is about an hour and 20 minutes. >> thank you for coming. my name is sarah and on behalf of the open society foundation and the coalition, i would like to welcome you this morning. as you likely noted, the event is being filmed i c-span. it is live webcast and also filmed for booktv. so for those of you who don't know the open society foundations is a global grantmaking advocacy organization locus on good governance and human rights. the coalition which is just launched this week is the financial accountability and corporate transparency coalition. and it promotes greater accountability and transparency within financial institutions, corporations and governments. so the fact coalition focuses in

the closing tax loopholes, requiring ownership information, strengthening anti-money-laundering laws, and making corporate tax contributions more transparent. so allow me to just briefly outline the problem that rebecca and nicholas are going to discuss today. the senate permanent subcommittee on investigations estimated in 2008 at the u.s. lost $100 billion in tax revenue due to offshore tax abuse. that's ever year. the citizens for tax justice estimates u.s. companies are housing 1.2 trillion of fund repatriated foreign profits offshore. and that means the u.s. lost $400 billion in estimated tax revenue on these profits. that's pretty staggering. but why should we care? the first reason comes a thing from a place of fairness. you might've seen on jon stewart recently that not only did general electric not pay any

income tax in the past three years, they actually got a 3 billion-dollar tax credit. so in this current political and economic climate of slashing budgets and austerity rhetoric, this offends the logical mind. and, of course, ge is not alone. the news media is beginning to report about how us-based multinational companies like transocean, xerox, pfizer and others benefit from the offshore financial system and country in as little as possible to the government of the united states. one of the of the main reasons that the open society foundations and the fact coalition care so much about this is because of the exceptionally affects it has on developing countries. the global financial, the organization global financial integrity estimates between 2000-2008, $810 billion of illicit funds flowed out of developing countries. in the opening chapter of

"treasure islands" nick talks about the smear plays out in an oil-rich but dirt poor country in central africa. and a negative impact it has on the population. the wildest days enhance of the powerful elite with the rest suffer. as nick says this store is hardly unique. he has seen in many other countries. with that are lighter and it is our panels. first, nicholas shaxson, author of "treasure islands: uncovering the damage of offshore banking and tax havens." the book is for sale outside the room. he is a british writer, journalist and investigate. and the author of "poisoned wells: the dirty politics of african oil." he's an associate fellow of the chatham house and a writer and researcher for the tax justice network, an expert led group focus on tax and tax havens. since 1993 has written extensively on global business and politics for the financial times, reuters, the economist and its sister publication, the economist intelligence unit. among many others.

"treasure islands" which will discuss today takes us through the very colorful and often very seedy world that created what we now refer to as the offshore banking world. one fema running through the book is the offshore financial system was created in a manner that deliberately avoided political oversight at almost every turn. it is critical our democratically elected leaders take a good hard look at it and how it functions now. rebecca wilkins is senior counsel on federal tax policy at citizens for tax justice, a nonprofit organization that has been working for a fair and sustainable tax system for more than 30 years. she was a cpa for 20 years, specializing in tax at kpmg and her own accounting firm. rebecca understand inside and out how offshore financial system lets companies and wealthy individuals sure paying taxes that the rest of us have to pay in order to keep this country running.

so with that i would like to turn it over to nicholas shaxson. and thank you once again for coming. >> thank you very much. thank you. i want to really make three main points today. first is that the offshore system of tax havens is much bigger and much more important of much more central to the global economy that almost anybody knows. i think the figures of $100 billion of lost taxes is very important to the united states but i'll argue the damage is much, much greater than that. there are all sorts of different areas matches any of tax for the u.s. and developing countries are harmed by the system, i will also make the point about you cannot really understand this without understanding that there is a connection. connections between the united states and the developing

countries. the offshore system connects the two in very unusual and surprising ways, and we need to reconsider what tax havens are and where they are. most people think of them as small islands in the caribbean, but i'll argue that they're much, this is as much bigger and much more important than that wasn't very surprising results of where the biggest tax havens in the world are. the third element i want to touch on is that tax havens were very fundamentally part of the root cause of the latest global financial crisis and the ensuing economic crisis. those are my three main points for today. but i want to start telling a little bit of a story which sarah touched on that comes from the beginning of "treasure islands," my new book. when i was in, i went in 1996, 1997, and i wanted to research was going on in this strange

african country because of oil produced, small population, quite rich run by what was, who became for me is my favorite dictator, omar. fare in a sense that he was i think one of the smartest rooms that i've ever come across. now, as i prepared to go, i received a cell phone call from someone in person ever to sing to hear you're going and would like to be. and isa limit, i thought of course this is interesting. i will see what he has to say. and he said when you arrive didn't go pick it turns when i arrived that he and an assistant had flown out from paris first class air france tickets and the mission was to look after me and to make sure that i spoke to the right people and spoke to them in the right way. and his job was to fill up my calendar essentially is what i later discovered.

what i didn't know then, i had stumbled into something that later became known as the elf affair which was something uncovered by some investigative magistrates in paris, and turned out to be the biggest corruption investigation in european postwar history. and i had arrived in gabon at a very sensitive time. why was gabon significant? essentially held aquitaine was the french oil company and they have created a system that connected of the political elite of france or the political elites of gabon in a giant system of corruption. and what they wanted was a system of financing that was not happening in france that was overseas in a sense offshore. and they would do it using african oil, specifically using african oil, not just african

oil but that was kind of a linchpin of it. so you had a secret financing system that was used in financing political parties, both on the right and the left in france. this financing system, the money was flying out of gabon and other oil-rich after countries where they had operations, the congo. it was a giant offshore slush fund and its all thanks to the persistence of, in the beginni beginning, that the system was ever uncovered. it was kind of an open secret among the french believes that there was a system that nobody had ever really brought it up to the light of day. this was used for paying bribes on behalf of french companies try and win contracts. to corruption spread around the world. the magistrates uncovered huge deals in venezuela, in taiwan, in germany, all over the place.

i began to realize that i think we've always seen the problem of corruption in africa as an african fema. and when people analyze corruption, they look at each individual country and say, you know, nigeria, theirs is awful corruption going on, what are going to do about? it was when i stumbled on the elf affair that i began to understand that it really is interconnected. the rich countries and poor countries are connected. gabon is not known as a tax haven is not on any list but it was very much in a sense offshore, this wasn't offshore structure. with the elites in france are going to another country where they were no longer bound by french laws and do things they were not allowed to do things at home. this is one of the essential points that needs to be understood about what a tax

haven is and what offshore means. there is no general agreement as to what tax havens are, and there's another term which is becoming popular and i like you sometimes, secrecy jurisdiction. one of the reasons i like it is tax havens are about so much more than tax. it's $100 billion being lost to united states is just one part of the damage that u.s. is suffering. tax havens ultimately what they are about his escape. they are about escape from your rules, local rules, where you live, where you do business. you take your money somewhere else and you're no longer bound by those rules. and a particular offerings, of course loopholes, whatever is one part of it. secrecy is another huge part of it. and opt out from criminal laws, you can go somewhere else and

you can do things you're not allowed to do at home. the elf affair is a classic example of that. all of these forms of escape, these are forms of escape that are almost exclusively used by wealthy elites in these countries. so if we are looking at the problem of corruption in africa, we cannot understand it without looking at where the money goes. one of the most famous corruption indices, country rankings of corruption is transparency international corruption perceptions index. you will find ranked at the top of these indices the world's most corrupt countries are very much african countries, developing countries, and the least corrupt countries will be rich countries. now, the current index has at the top of was the so-called clean these countries. there are three, first equal,

singapore and new zealand are two of those three, and singapore and new zealand are both tax havens. singapore is a particularly dirty sinkhole for global money. there has been a ubs candle in the u.s. that has, and the u.s. has taken some action against swiss banks, and as result of this wealthy individuals from around the world are putting their money into asia because they think they're going to get less scrutiny there. fortunately, it seems with the latest case where the u.s. has discovered u.s. department of justice have started probing hsbc accounts in india. the focus is shifting. but the point is there something wrong when we have one of the 36 and calls for global money at the top of the cleaners, one of

the cleanest countries. we need to understand the system. we need to look at it from a global perspective. after i left gabon, i have been researching oil and politics in west africa from menus. i started as the reuters, i'm in all this money being from the oil industry and i was wondering what went and i knew vaguely that with these tax havens and every suspected it was being dumped offshore but i never understood the system. it was many years later, my first real awakening was when i met someone called david spencer in new york, we were talking about corruption. is an attorney in new york. he started talking to me about tax exemptions on bonding coat and things like that. so i was trying to work out what this has to do with corruption. and he became, he made it clear

that the united states had been using, setting itself up, itself, as a tax haven offering secrecy to foreigners, offering taxers loopholes as a means to financing its deficit. we are talking absolute huge sums of money. that's when it began to click with me that this global system is not what i thought it was. the system is something bigger and better than i ever imagined. it's not just a few exotic irons out there taking money from wealthy people. this is something much more central to the global economy. as sarah mentioned, research the global financial integrity, the figure she mentioned was actually an annual figure. their latest report which came out in january estimated that in 2008 there were $1.2 trillion, trillion, in illicit financial outflows from developing

countries. if you compare the two figures for foreign aid, that is, as raymond baker, the head of global financial integrity like to point out, that is for every 1 dollar of foreign aid you put into a developing country, $10 come out under the table. and a lot of it flows into the united states. recently there was a group of 25 florida senators who stood up and they were lobbying on behalf of the florida banking industry. and they were complaining about efforts to make the united states a more transparent place, a place to cooperate with other countries to try and help those countries tax citizens, prevent the citizens committee triggered these senators didn't want that. they came up with a figure, this is a lobbyist figure indeed, so if make of it what you will. but they said that just because of the pregnancy loss of the united states, in other words, the secrecy laws there are

$3 trillion of money sitting in u.s. banks. they say this is good for the message that they say this is good stuff. and i'm going to argue later this is extremely harmful stuff. this is harmed ordinary americans and what a great cause causes a financial crisis as i will explain. but before i get onto that, i want to touch on something else that relates to my own country, britain. we in britain i think are now starting to wake up, that we have the same problem as the unites states has which is that we are a tax haven, also. and we have done something that is absolutely extraordinary. the united kingdom in particular the city of london as i argued and explain in train 10 in itself as many tax havens, has many offshore characteristics that attract money. what the city of london does is

to offer escape routes. if you offer these escape routes, foreigners will bring their money to you. you can bring them into london and you can escape financial regulation. you can escape taxes. you can escape all sorts of things. but that's just a part of the picture. me and a couple of researchers went into the archives at the historic archives in the u.k. and look at what happened after independence. look at what the discussions were about what was happening to the so-called overseas territories, the british overseas territories. they include places like the cayman islands, bermuda, gibraltar, which are all tax havens today. the cayman islands issues. it's the world by some measures the world's fifth biggest financial center. these overseas territories never became independent from britain. they are partly independent from

britain, but britain plays a very careful behind the role hands off but reassuring controlling role behind the scenes. these overseas territories, the governor is appointed by the queen, and if you go there, british influence is everywhere. these are british tax havens and this is the city of london playing a very powerful game. and what they do, these places, we uncovered a kind of division within the british government as these jurisdictions were starting to become independent and starting to become semi-independent and there was a general decolonization going on. there was a division between people in the u.k. treasury, particularly the revenue authority, particularly worried

about we are going to lose money to these tax haven. will get our wealthy british people putting their money offshore. but on the other side of the fence you have two bodies. one is the bank of england supporting the default of tax havens. and i've got here a quote from the bank of england, a doctor from the archives from the 11th of april, 1969. it says we need therefore to be quite sure the possible proliferation of trust congress, banks et cetera which in most cases would be no more than brass plates many going assets outside the audience doesn't get out of hand. there is of course no objection to their providing bold holds for nonresidents. that for me sums up the attitude, that's the attitude and you find going through the archives, the bank of england again and again. we don't care what happens to other countries. we don't want to lose control of the situation. we don't want to lose too much revenue but as a way safe, screw everybody else as long as they

bring their money. one of the points about these is the bank of england had learned, this is still the case today, these places became channels, conduits, conduits for business, for assets and for the business of handling assets towards the city of london. so the city has its network of havens around the world bring in business. so not only does come is a tax haven in its own right but it also has cast this web around the world bring in money. and this attitude, this kind of screw you attitude, has pervaded the whole system ever since. bring us your money, you can do what you like, we don't care. so it's a very nasty picture that i found out as i was researching this book. you know, i have found that in some senses, researching and i have found myself becoming increasingly disappointed with my own country, and perhaps the human race, that this kind of

system can grow up. one of my great disappointments is this has stayed so low under the radar for such a long time. why hasn't anyone noticed this? why has it taken just a few people in the last two years to start digging into this stuff. this is one of the messages i want to get out. now, there is -- two years ago on april 2, 2009, the g20 leaders issued a statement and they said that you of banking secrecy is over. and they mandated the oecd, the club of rich-- rich countries to set up kind of a black, white and gray the system to control the tax havens into shaping up and cleaning up and being less secretive. that was april the second, 2009.

the blacklist was empty by april the seventh, 2009, five days later. but the world's media hadn't put out this message. that's kind of how the image state, but, and if you uncover what actually happened, i don't have time to go into a today. i had an article in the financial times, an op-ed last week if you want to read some more details about that. but were essentially that has been the appearance of a crackdown on tax havens but pretty much it's business as usual. there have been little pinpricks and bank secrecy, but the image i like to use is the oecd was given a mandate to drain a swamp and it's been hanging out drinking straws. and that's kind of what it's all about. so we have, it begins to look very ugly when you see the whole system in this light.

now, the united states, and i just want to say one other thing about secrecy. consider how many nigerians will have bank accounts in london. lots of them. how many venezuelans love bank accounts in miami? lots of them. how many british people have stashed the money and lycos are coming americans will stash their money and brokers are should begin to realize this is a one way flow we're talking about. this is my vessel and from developing countries on a net basis into developed countries. when you begin to see the scale of what's going on when we talk about this 1.2 trillion, it begins to look even uglier. all this money coming in, and secrecy is a protector of this one way flow. the secrecy is a big driver. it is not the only driver. tax-free treatment is another huge driver of these flows. the u.s., the u.k. and other

havens that most people don't consider havens, ireland is a big one, the netherlands, luxembourg is huge. switzerland of course, these are the worlds biggest tax havens, and the cayman islands is, in fact, group of the worlds biggest tax havens. but again, you have to consider, the cayman islands kind of a condo, a british thing. so, we have these florida senator saying this stuff is so good, and all this money flowing into the united states must agree. i was always suspicious of this argument from the beginning. i spent many years in africa looking at these countries, nigeria, angola, and seeing these types of mining, oil money flooding into these countries. and i was always come everyone was saying how come the people are not getting rich? how come the people are poor? there's this thing called the resource curse which it is quite demonstrable that in these countries all this money flowing in does not seem to have made

lives better for ordinary citizens. and there's a parallel here with what's happening in the u.s. and the u.k. in the u.k., it is very hard for us to make an argument that leaves trillions of dollars, ordinary people of britain any good at all. in fact, if you look at the statistics for human indicators, infant mortality, all these different things, britain schools -- scores are very less than others, britain, germany, our college. we are worse off. i argue in my book i don't have time to go into great detail, i argue in my book that this is the finance, mine has been fluent interfaces before the crisis. this has harmed our country. and i think it's a very similar picture in the united states. this money is flowing into real

estate, in miami or wherever, new york, huge amounts of money. that has been one factor behind the crisis. it has also hugely boosted wall street. the financial flows are huge underpinning for wall street. that too big to fail problem for wall street banks, the offshore system is a huge part of that. not just because the united states in its own right is a tax haven and there is money being sucked in is causing all these problems, but also because wall street has an escape route offshore and other tax havens where they can shake off all the regulations they don't like since the 1960s. we've had banks going to london and london has allowed them to do all sorts of things they have not been allowed to do at home. shake off the glass-steagall act i was put in place as result of the great depression.

separating the kind of utility banks, the real banks that are doing, the stuff that people need to get investment from the investment banking, sometimes called the casino banking. well, wall street banks can do at home so they went to london and he went to the offshore satellites. interest rate caps shake them off. also caps are put in place for good democratic reasons. the trappings of democracy, trying to curb too much finance was shaken off offshore. and offshore has been one of the great reasons why wall street is for powerful today. we have to understand what a tax haven is. we have to understand the city of london is a tax haven before we can really understand this. and that has been hugely hugely damaging to the united states. and then, of course, we have to at all the damage to developing countries. the money flowing into unisys has damaged u.s. and developing countries but also this money is

being lost offshore to foreign tax havens. there's the $100 billion plus, and i believe it's more than that annually be just in terms of taxes, but of the damage as well that we see in the form of bailouts for wall street and economic crisis that we're all facing today. so in short, my book, i don't have time to get into this very strange institution called the city of london corporation. i will leave you to read the book about that, but that's what of the most bizarre things i've ever come across in my whole life. so take a look at that. ..

>> two ways that it impacts you directly. one is that rev lieu lost -- revenue lost to governments around the world, um, the estimate is that the united states leases about $100 billion a year to tax evasion that's facilitated by tax havens. that's more than the spending cuts that were done last week in the budget deal. i think what we could do if we had that extra 100 billion every year. um, you also care about the revenue lost to other governments around the world and to governments in developing countries. and then, of course, the capital outflow of developing countries. i think, um, a point that nick makes really well in his book is that tax havens aren't just a

sideshow, they are the show. they didn't just contribute to the financial meltdown, they made it possible. the problem of tax havens is huge. now, what is a tax haven? a lot of people think it's just an island in the sun, right? where you can hide your money. typically, we've thought of tax havens as having one or all of three characteristics, one, they have bank secrecy, they have zero or very low tax rates, and they have a history of noncollaboration with other governments. so they don't generally have tax information exchange agreements. but mixed up in this in the book is, i think -- nick's definition in the book is, i think, much better. his definition is a place that seeks to attract business by offering stable facilities to help people or entities get around the rules, laws and regulations and jurisdictions

elsewhere. um, the tax justice network in 2005 estimated that wealthy individuals are holding about $12 trillion in assets offshore. the tjn report estimated that governments worldwide lose $225 billion a year just from tax evasion by wealthy individuals. not corporations, just wealthy individuals. the global financial integrity report that sarah alluded to, developing countries are seeing capital outflows in the range of a trillion dollars a year. now, let's talk a little bit about what's happening in the u.s. and since i assume that most of you aren't tax people and, in fact, tax is one of your least

favorite subjects today having just done your return -- [laughter] you guys all have your returns done, don't you? [laughter] just a little bit of background about how u.s. taxes its citizens and its multi-national corporations. if you are a u.s. citizen or resident or if you are a company head quartered or formed under the laws of the united states, your tax on your worldwide income, your tax on all your income no matter where you live, no matter where you earn it. but you do get to offset your u.s. taxes with foreign taxes that you pay to other jurisdictions. so if you have income that's also taxed in germany, that german tax is deducted from your u.s. tax. in addition to that, multi-national corporations have something that we call deferral. their foreign profits can be deferred, and they don't pay u.s. tax on it until they repatriate those profits, until they bring them back to the u.s.

when we talk about tax havens, you'll hear two terms that some people tend to use interchangeably but mean different things, and that's tax evasion and tax avoidance. tax evasion is something that's clearly illegal. if a u.s. individual has assets offshore and those assets are earning income and the individual doesn't report that income on their tax return, that's clearly illegal, that's tax evasion. tax avoidance, on the other hand, is a multi-national corporation, um, shifting profits offshore through aggressive transfer pricing or other methods, shifting intangibles offshore, for example. tax avoidance techniques are, technically, legal under the code. if you walk me through the code, you can show me how you get there. but they violate the spirit of the law. and in a lot of cases the line between tax evasion and tax avoidance is very thin.

actually, i think in nick's book he says it's the thickness of a prison wall. [laughter] now, in addition to being taxed on their worldwide income, u.s. individuals and u.s. multi-national corporations are required to report their assets in foreign countries. so an individual on your schedule b if you have interest and dividend income you mark a little box that says, yes, i have bank accounts in a foreign country. and in addition you have to file what's called an f bar. it's a report of foreign bank accounts. the penalties for not filing f bars are incredibly high and, of course, any tax due on any income you didn't report, um, includes -- excuse me -- interest and penalties. so what is the irs, what is the u.s. government trying to do about the rob of tax havens? -- the problem of tax havens?

you probably all saw some of the news around the ubs case and the fact that they were able to get ubs to identify 4500 of its estimated 52,000 u.s. customers. just last week the department of justice issued, um, a subpoena or asked the court to issue a subpoena, a john doe summons, to hsbc. hsbc says it has 9,000 u.s. premier customers which means they have an account that's over at least $100,000. but according to the irs records, only 1900 of those accounts were reported last year on f bar reports. yesterday the first guilty plea in the hsbc case, a new york woman pleaded guilty to filing a false return. she told the irs on her f bar report that she had $49,000 in her offshore bank accounts, and

she missed it by a little. it was $8.3 million. [laughter] now, sarah mentioned in the introduction that i used to work for kpmg. i was a cpa doing tax returns for a living for about 20 years. that's the period of my life i refer to as working for the dark side. [laughter] i didn't have any clients that had accounts offshore that i knew of, but i figure if they were lying to the irs, they were probably lying to me too. um, the irs in 2009 had a voluntary compliance initiative to allow u.s. citizens that had foreign bank accounts that had not been reported to come forward and to pay reduced penalties and to avoid the chance of going to jail. 15,000 u.s. citizens came forward and fessed up to having offshore accounts. of the cases from that initiative that have been closed, the average amount of

tax interest and penalties collected is $200,000 per case. in february of this year, the irs, um, announced a new offshore voluntary disclosure initiative, and that closes august 31st. so if you've got those foreign accounts, be sure and fess up with the irs before august 31st. the terms of this offshore initiative are worse for taxpayers than the last one. the irs, clearly, they're not going to reward people for not coming in last time. um, the big, biggest incentive, though, is that coming forward under the voluntary disclosure program will make sure that you don't go to prison. the irs is also really -- has also really increased the number of audits on high income taxpayers trying to ferret some of this out. the hsbc case actually came out of the 2009 initiative as

taxpayers came in and fessed up to their foreign accounts, they told of, told stories of hsbc, private bankers courting them and telling them we'll never report your account to the u.s. government. um, so the irs in if its voluntary initiative has gotten thousands of leads on banks, bankers, attorneys, accountants, company formation agents that are, um, facilitating the offshore transfer of funds and the irs is going after them. well, here in the u.s. legislation to help combat tax havens last year as part of the hire act, we got the foreign account tax compliance act or fatca as we like to refer to it or fat cats. it had some good provisions in the it, but it wasn't as broad as we'd have liked to seen.

senator levin had a bill called the stop tax haven abuse act that had much broader provision. they're trying to reintroduce this with this congress with some changes. it had some really important measures in it. it allowed treasury, for example, to prohibit banks that were that facilitating, foreign banks that were facilitating tax cheating, and it would allow treasury to keep them from doing business, um, in the u.s. it would give the irs some great enforcement tools like expanding their use of john doe summons which is when they go in and say, well, we know somebody's cheating, we just don't know his name. and it also has a really important expansion of the anti-money laundering rules. another provision that we'd really like to see is that it really increases the penalties on aiders and abettors. um, the big accounting firms, the big banks, the big law firms, a lot of them are

participating in these deals. and the penalties they can face are fairly small. for an accounting firm it's $10,000 per violation. um, the irs was able to get hold of an internal memo at one of the big firms analyzing a particular deal where they said, you know, our average fees per transaction are 360,000, our maximum penalty is 31,000. well, i can do that math, right? the levin bill would increase the penalties to 150% of the gross income that the accountants and lawyers get from doing these kind of deals. so we think that's critical. um, representative doggett's also introduced a bill called the international tax competitiveness act which has some important provisions on multi-nationals. and also has introduced a bill

to cut down on treaty shopping. so that's the problem from the perspective of u.s. as losing revenue to people who are using tax havens. but what about the u.s. as a tax haven? um, the financial secrecy index ranks secrecy jurisdictions based on 12 key financial indicators, and it weights those based on the level or the magnitude of the cross-border financial flows. when the last secrecy index came out, guess who was at the top? delaware. >> the u.s. >> the u.s. >> composite material. >> which is mostly in delaware, nevada, wyoming, places where you can open or you can form a company and not disclose who the beneficial owners are, not disclose who owns the stock. your, um, agent can be a nominee. the permanent subcommittee on investigations in the senate has

done some really good work in this area, and they found some things like this. a utah company was, um, involved in about $150 million of suspicious wire transfers. and so the international, or the immigrations and customs enforcement agency was, you know, trying to figure out where this money was coming from and what it was being used for. they found out that it was involved in a massive shell game involving hundreds of u.s. companies. the utah company had been opened by a delaware shell company. so they hit a dead end. they were never able to figure out who was actually moving all this money around. and then the, um, famous victor boot example, the guy who inspired the movie "merchant of death" used florida, texas and delaware companies to move money and arms around the globe.

u.s. states form about two million companies a year, and most of those they don't collect information on who the beneficial owners are. senator levin, um, introduced a bill last congress called the incorporation transparency and law enforcement assistance act. he said tuesday when he spoke he wished he'd thought of a catchier name. but it would require states to obtain a list of beneficial owners for each corporation or limited liability company that is formed under their laws and make sure that that's updated annually. and make that available to law enforcement upon the service of a subpoena or summons. and if those beneficial owners were foreign persons, the formation agent here in the u.s. would have to verify the identity of those owners. so those pieces of legislation are really important, and to the

extent that you do advocacy on the hill, we hope that you will help us support those. >> thanks, rebecca. and thank you both. i think we'll turn it over to question and answer. i wanted to maybe start with a question for each of you. um, so, nick, maybe to start with you. um, much of the book, "treasure islands," talks about the enabling policy environment that allowed this offshore system, tax havens, to flourish. um, i'm wondering if you could speculate on how we can go about changing this, you know? is this a case where nobody wants to act fist? you know -- first? you know, a sort of competitive disadvantage argument. so do we need to take a multilateral approach? you've mentioned the g20, you mentioned the oecd. what is going to be the catalyst for actually starting a change in this? >> well, you put your finger on a very important question. i think there are two questions that we need to focus on.

about the whole offshore system and tax havens. and treat them separately. first of all, is this stuff good or bad, and i come at it in my book unequivocally this is a bad thing that's happening here. the second question is, what can be done about it? it's pretty difficult to do something about it. that's a more nuanced answer. i think there is no magic bullet that is going to solve this problem. this is a problem that is not just about people in countries deciding to do certain things, although there's a lot of that. there is a kind of internal dynamic where countries compete with each other to undercut other countries in order to attract the hot money. there's all this money floating around, and there are people in tax havens saying what do we do, how do we get that money? let's create a stronger form of secrecy, or let's create a new tax loophole, and we'll suck some of that money in for ourselves. and once one country does that, then another country will say, ah, well, they've just done that. we've got to do something even better.

and they create something even cleverer. so there's this kind of competition on tax financial regulation secrecy. but there's, one of the problems here is that people seize on this word, "competition," and they think, well, competition's a good thing. now, there are different kinds of competition. companies in markets, competition between companies in markets is, on balance, a very good thing. it results in companies producing better and cheaper goods and services for us. it creates efficiencies. competition between countries on things like tax and financial regulation bears no economic relationship whatsoever to the beneficial kind of competition. instead it's a race to the bottom. this is something we have to understand, and when people talk about competitiveness, always call them out and say what kind of competitiveness are you talking about? are you talking about the beneficial kind of

competitiveness and competition, or are you talking about the harmful kind? and what we're talking about here is the harmful stuff. a race to the bottom. so there is this problem, there's an internal dynamic to the whole system. countries competing with each other x. that is, arguably, the most difficult thing to deal with. in terms of the countries and policies that are the problem, in general terms people think that the tax havens are a bunch of isolated, sovereign countries all working, you know, it'd be like herding cats trying to get them to do anything. you know, if we don't crack down here -- if we crack down here, the money will all go to singapore or hong kong, whatever. there's always that argument. and people often use that argument to say, well then, we shouldn't do anything about it. and that's, obviously, an entirely bogus argument. but the other thing to consider is that when you realize that most of the big tax havens in the world are under just a few

countries, half of the global offshore system, those tax havens, are british in one way or another. so if you work it -- yeah. that's no exaggeration at all, and there's plenty of evidence in the book that lays this out. the united states is another huge player. and then there's a third player, the oecd, which i mentioned earlier which has been given the mandate, effectively, the club of rich country has been given the mandate to oversee international tax rules in be particular. so we have really three players who if you could get them, you could put pressure on them, these are focus areas where pressure can be put. you can achieve an awful lot. so i think the united states is a very interesting case. i think my country is kind of at the moment it's rather lost. we've got a conservative, a right-wing conservative government that effectively

loves tax havens. there's a building in the cayman islands called uglin house which barack obama mentioned in his campaign speech saying there's a tax haven in the cayman islands, a building that contains 13,000 companies. ask that sounds rather -- and that sounds rather strange to me. well, the cayman islands pointed right back and said you guys, you think that's bad, how about looking at there's a building on orange street in delaware that has 200,000 companies in it. [laughter] and i think people here kind of shuffled in their shoes and muttered a bit. so there is this problem. but the thing about the united states, sorry, the point i was going to make about uglin house is that maples and caulder is the company that runs that 13,000-company building. john maples, one of the people

who set it up, is a british conservative politician. um, so we have this political problem in britain. we are a captured state in a sense. there are people fighting against tax havenry, but we are steadily, this tax haven thing is getting steadily stronger in the u.k. and at least now in the past year or so it's changing public consciousness. the united states has always been a more conflicted country than britain. the united states there has been a lot more resistance to the idea, there has been a lot more fight against foreign tax havens and also fight by people like senator levin against the u.s. as a tax haven offering secrecy and saying, welcoming the world's dirty money, and we don't care if it's criminal money, whatever. so this is, you know, a powerful democracy having a lot of trouble at the moment. but this is an issue where i think there is a huge potential if people begin to understand the importance of this and how

dangerous it is. i think we can, we can get change. and then we can really get real change in the offshore system. and the oecd is another organization that, i think, is susceptible to pressure. all of these things are very difficult, indeed, and long-term programs are required to address this stuff. but it was certainly, um, plenty we can do. and i can get into more specifics later if you, if we have time. >> sure, great. thank you. rebecca, my question is one, i guess, on messaging. um, we've heard lots of policymakers go on and on about the 30% corporate tax rate and be how that's harmful for u.s. businesses, and yet you're painting quite a different picture of, you know, pretty successful tax avoidance practices. um, so how do we change the debate, so to speak, and what are the messages that you think will resonate? is it one of revenue generation, is it one of fairness? >> well, the revenue message, certainly, is getting listened

to now. um, with the budget discussions that we're having. i think it goes back to what nick just said about competitiveness. when you go in to talk about the u.s. corporate tax rate, um, you get this pushback about, well, you know, how can our corporations compete when we have a 35% corporate tax rate and be ireland only has 12.5% and cayman islands has 0%? and i think we need to push back just like nick said and say, well, what do you mean by competition, and what kind of competition is good, and what kind of competition is just a race to the bottom? i think in the u.s. people have began to recognize how much revenue the u.s. government is losing to tax havens, and they're starting to find ways to curtail that activity. um, the harder question is to convince people that u.s. should not be a tax haven it.

itself. >> can i add something to that? i think when companies want to invest in another country, the things they really, that really interest them generally say you want to site a car plant or something somewhere. you're going to be looking at has this country got a healthy and educated work force, has this country got good infrastructure, has it got the rule of law, has it got all the markets we need? tax will very off come kind of fifth or sixth on this list, whatever. it depends on the industry. but tax is very rarely the top consideration for an industry. all of these good things that companies are looking for when they come to invest in a country, what do they need? good infrastructure, tax, the rule of law needs good, strong government. so to argue that if you just cut taxes on corporations

everything's going to be fine is crazy. it's a whole complicated mix of things that require, that companies are looking for. and tax, taxes is just a part of it. and then you get the problem if the you start cutting taxes too far on corporations, then you'll get wealthy folk increasingly shifting their income into corporate forms and dodging their own tax systems. dodging their own taxes or cutting their own tax bills. so you have this competitive race that is forcing tax rates on mobile capital ever downwards. that's also come pressing our own tax systems, and it's making them less able to function as voters want. so this is democracy being undermined when voters say we want a tax system where the wealthy pay a decent whack of the taxes. this is being undermined by what's going on, tax rates on capital are falling. and this problem of tax rates on the wealthy falling and other people having to pay, to take up the slack to pay their taxes for

them, effectively, is a huge part of the problem. and it's not recognized in this $100 billion figure. the actual damage is much greater, but this is the hidden damage that people don't talk about it. the $100 billion plus is just the very direct damage. but the hidden damage is, has been happening. it's been part of the whole process of globalization since the 1970s. this has been happening for be many years, and the cost of this is huge. >> thanks. so we'll open it up to the audience for questions. if you could, um, state your name and organization. and just so you know, the microphone is for c-span and won't amplify. so it's on, though, i promise. ken? >> [inaudible] with the open society. oh, sorry. still ken horowitz. [laughter] on the question of the race to the bottom and the maligned competition, um, i, you point out that there's maybe two, three, four players that really

control the game as it is now constituted, and so it may not be such a scary landscape for taking on as it might aear at first glance -- appear at first glance. but i'm not sure you really do fairly respond to the concerns people raise about those who are outside the system and growing in asia. you mentioned that earlier with regard to hsbc, for example, but, of course, hsbc is a western institution operating in asia. singapore is, obviously, right sort of on the fault line. china is in a different mode. i wonder if you could talk a little bit, oecd doesn't have much influence in the many of those areas, i would suspect. and the u.k. may be a very strong ally, in effect, for those players. but even if u.k. was somehow captured for the side of the good, you still have a large part of the world that isn't really subject to the forces you're talking about, question mark. >> >> yes, indeed.

the sort of three players i identified deal with a large part of the offshore system. however, the oecd on the blacklist system you do have the asian players, and they do have incentives to -- sanctions have been threatened against countries. they've never been put in place. and the actual, what's happened has been very weak. but if oecd really started getting some real teeth, this would have an effect on these players. it's true that you're not going to capture the whole system, and there is still this competitive problem, and asian players will be harder to control, harder to influence. than, say, the british territories. but still there is, there is some, you know, there is traction. the oecd brings traction. and as, you know, this is about globalization. this is, for me, the greatest fault line in the whole global economic, the whole program of globalization. and we are now seeing, we're

just beginning to see countries as they start to understand this stuff better look at ways of finding solutions to this fault line. and i think countries at the moment, the actual sums of money in asia if you compare what's in singapore to the cayman islands, we're talking only about a tenth the size of singapore, i believe, in terms of the international financial services industry is only about a tenth the size of what's going on in the cayman islands. so at this stage they're not, they're important players, and they will become more important. but at this stage they are still relatively small. and they're not beyond -- it's not impossible to influence them. and i think part of, part of the issue is the recognition of how harmful this stuff can be, and i think that will, you know, that has not happened until very recently, the beginnings of that recognition. and i think that's the stage we're at now where this recognition, this understanding that the issue is harmful is

just beginning to really start to spread. particularly in europe. i think in the united states there's still some way to go. but it's, you're right, it is a difficult problem. it's not something where these three players cover the whole world, but they will have an awful lot of influence, and you can get a long way with pushing on, in this area. >> hi, good morning. tamara gau with transafrica forum, and i really wanted to thank you both for your commentary on this, especially for advancing -- >> it comes from the u.s., that term, originally. there was a, i think, one of the senate permanent subcommittees informations. sorry -- investigations, sorry. >> thank you for co-opting it and then giving it back to me. [laughter] i appreciate that. a lot of our work on economic justice issues on the african

continent has focused on the vulture funds issue. we're seeing that with the resource curse that i certainly think applies to the drc which is currently, as you commented, is getting attacked in jersey right now because jersey has chosen not to go along with the vulture funds act in the u.k. so i just wondered if you could make comments on the vulture funds issue and how the offshore and secrecy jurisdiction issues apply. >> okay. yeah. the vulture funds, so-called vulture funds which i think they prefer to call themselves distressed debt investors or something like that. [laughter] but they will go to a country and buy up its debt at pennies on the dollar or huge discount, and then they hope they can, through political changes, get that, the value of that debt to increase. there is an example in my book

where a fund manager who is now actually an economic commentator, michael hudson -- but he was a fund manager once -- and be he discovered that what was happening was the people who are investing in the these funds were people from the, were the elite this those countries who were able to pull strings and make sure that the central bank did pay. but they'd initially be investors in the fund. the fund would come in, say you guys come and invest with us, we'll buy this debt for ten cents on the dollar, and then you who are working in the central bank either can forecast what's going to happen, or you can actually pull the strings to make sure all the money gets paid, and everybody wins. but secrecy was absolutely fundamental in this to make sure nobody knew who was actually invest anything this stuff. and it's a very different thing to investigate. but that, that story of his illustrates one of the great problems of things that's

happening. and you have, this is a generalized problem of corruption. you will have in countries in a new telecoms venture or whatever in africa, there are lots of cases where you will have a big western company will be investing, but alongside them will be an investor with some company name that will take 5%, 10% of the venture. you'll never find out who it is. but one of the key problems there is that this will be a player in the local politics who is not only able to profit from what's going on, but is able to insure that the market is rigged, that the market in the telecoms or whatever is rigged. so you will have, you know, you may have two or three telecoms companies in the market. but there are these secret players all agreeing with each other, and it may with the same players -- it may be the same players investing in each company. and so prices for everybody else will be much higher. and this is something that it

would be great if there could be some really serious research into this. but this is one of the great problems that happened. there is an awful lot of market rigging that goes on offshore. and one of the people i quote a lot in my book is john christianson who was a private sector practitioner in jersey and went on to become the island's economic adviser. he was always interested in development issues, but he became aware of lot of market rigging going on of various forms, market rigging going on in the offshore sector. people were able to manipulate markets in these kinds of ways, but they needed secrecy to do it, and they always went offshore. and that's what happened. >> [inaudible] >> [inaudible] open society foundations. thank you both. that was extraordinarily interest and can -- interesting and alarming. you used the language too big to fail early on in the presentation and talked about the importance of this pattern

to the maintenance of the u.s. deficit. and i'm just kind of wondering, you say there's lots that can be done, but i wonder to what extent it's, the u.s. can afford to clean up this problem and the extent to which there, therefore, is anies prospect of the political decision being made that would give you a real chance of seeing change. i mean, i don't want to be sort of a doom monger, but, you know, i find myself doubting that really there is such a lot that can be done without much more international coherence than we could normally hope to expect. >> that is an excellent question. um, and in short the answer to that is it is a question of timing. it's one of the first things when i was speaking to david spencer and a couple other people when i was beginning to understand this is how the u.s. finances its deficits, that's one of the things that i asked. and the answer has to be it's a question of timing. deficit financing is a drug.

it's, it feels good at the time, but the u.s. has now got itself into a terrible situation. and it's very difficult to wean yourself off the drug. and this money has been financed, what's been going on, the money that specifically comes in search of tax-free treatment of secrecy. so it is a big problem, and you're quite right. it's, you know, right now it's a very difficult political problem to address. but over time with awareness of how dangerous this stuff is and how dangerous this is what is a drug is to the country, um, and all these other problems that it causes, it is, people, you know, it is quite possible that people begin to see that something need to change. and i believe it will. but it'll take some time. the deficit needs to, you know, the deficit picture needs to change, i think, before the political will can be summoned

to really start doing something about this. but i think it will happen. >> perhaps i could throw one in, um, before we go back to the audience. nick, i'm wondering what you wouldn't mind talking a little bit about switzerland. the chapter in your book on switzerland was incredibly interest anything that it -- interesting in that it, um, erases a lot of conceptions that have been previously held about switzerland. i'm sure many be people have heard the same story i had heard which is that those secrecy laws were actually created in order to help jewish people fleeing, trying to hide their assets from the nazis. and, in fact, it's almost completely the opposite. so i'm wondering, nick, if you wouldn't mind -- >> yes. first of all, the, um, there is a lot more in the u.k. edition. you may have read the u.k. edition in the book, the u.s. edition is a little shorter than the u.k. edition. but, yes, there has been -- you see it in the newspapers quite frequently that switzerland put

in place its bank secrecy laws making it a crime to break bank secrecy in 1934, and they put it in place in order to protect jewish money against the nazis. in fact, historical research reveals that this story first started circulating i think it was about 1966. a swiss bank started putting this story out, and journalists started writing about it. in fact, the real story behind why bank secrecy was put in place -- switzerland has long had bank secrecy, but it hadn't had its secrecy law criminalizing the giving out of information. switzerland for centuries has been a kind of neutral turntable where countries at war, people wanted to do business with each other have come to switzerland to do it, and people put their money there. they know that geneva bankers, zurich bankers have always kept their secrets hidden. so it's always been a problem. but in 1934 that's when the actual law came in. the real reason was a tax evasion scandal in france.

the, so very senior officials in france, a general, the owner of a newspaper, i think a priest and various other, very high-profile seem in france were discovered on a police raid in paris to have stashed huge amounts of money in switzerland. and that was what led to the bank secrecy law. so that's something, i think, that is important to correct. so when journalists write that this is the reason why the money was put in, it wasn't out of concern for the victims of the nazis. and if you, if you look at what actually happened in the second world war, there was a -- the swiss population had always been very hostile to the nazis, but the banking industry took a very different view, and can there was a very significant collaboration going on there. so it's a very ugly picture in switzerland. so that's an important myth to dispel when you see it written.

>> scott clinger with business and investors against tax haven abuse. thanks so much for your presentation. one of the things you mentioned was that there's over a trillion dollars of u.s. corporate profits offshore, and the u.s. congress is now considering bringing that money, allowing that money to come home with another tax holiday similar to the one they did in the 2005. um, is that linked to tax havens? >> absolutely. i mean, i think rebecca's organization has done a lot of specific work on this, so if you want to -- i mean, i can answer if you want. >> tax havens made that possible. um, you know, we talked about how, um, multi-national corporations will try to shift their profits offshore, and the u.s. tax system doesn't tax those foreign profits until they repatriate them, until they bring them back to the u.s. well, as long as, um, that's not getting taxed they have an incredible incentive to keep

shifting more profits offshore, especially if they shift it into a jurisdiction that doesn't have a corporate tax. so, um, there's a big lobby push going on right now by a group called win america campaign -- [laughter] that is trying to get congress to enact a repatriation holiday that would allow multi-nationals to bring that money back to the u.s. and instead of paying a 35% tax rate on it, pay only a five and can a quarter percent tax rate on it. now, this is bad for all kinds of reasons. um, one of which is, of course, that it's going to continue to encourage a multi-national to shift profits offshore if they think that every five or six or seven years congress is going to give them a repatriation holiday. but the other thing is that it, um, benefits the worst corporate actors. um, if you're investing overseas and making real investments, if the you have oil wells or buildings or a plant, it's not

all that easy to repatriate the profits back to the u.s. it might involve selling some assets. but if you're just shifting profits on paper by putting your brand in another country or your patent in the cayman islands, then it's real easy to bring that cash back when congress gives a repatriation holiday. and the other thing we mentioned earlier is, um, corporations get a credit for any foreign taxes they've paid on that income. um, well, even in the ireland the tax rate is more than five and a quarter percent, it's 12.5%. so if you make the rate as low as five and a quarter percent, the only people that really benefits are the ones that are paying zero tax on those foreign profits somewhere. ask now they can bring all -- and now they can bring all that back to the u.s. and only pay fife and a quarter instead of 35%. it's really just a horrible idea. it has a lot of traction on the hill, and it has very powerful lobby working towards it. >> can i, can i add, i think

it's important when we talk about corporations avoiding tax, we are talking about big, multi-national corporations which are the main users of tax havens. and as a result of being able to use tax havens to be able to cut their tax bills, they are able to outcompete smaller businesses but for reasons that have absolutely nothing whatsoever to do with efficient be si, being productive. and it's simply about the transfer of wealth. and if you look at your high street and the dominance by multi-national corporations on your high street -- >> main street. >> main street, sorry. [laughter] i'm british. so main street. there are many reasons why multi-nationals can outcompete small businesses, economies of scale and things like that. but this factor, tax, is a very important one, and a lot of small businesses have been killed by this. and for no good reason. this is not, this is not because the multi-nationals are

producing better products or better services. it's because they're getting the effective tax subsidy. in the u.k., in my country on our high streets we have the death of the little record stores. one of my favorite films is a film called "high fidelity" with john cusack. i don't know how many of you have seen it, but that kind of little store, community store, these places are getting killed because big online retailers can go off to jersey and ship their goods from jersey and not pay the vat on it. and loads and loads of these little high fidelity stores just disappeared because -- and just for that reason, not for any other. so it's a big problem, and this is, this is not, you know, i don't see this as an issue really of left and right, you know? this is an issue about the corruption of markets, distortions in the markets. i think this is an agenda that

can be taken on by both sides of the political debate, and it should be. this is bad stuff that's happening, and it's getting worse. >> another question? last words? leave us on a high note, come on. [laughter] >> okay. well, on a high note i think as i touched on earlier, we have had this problem, the offshore system, tax havens seen for so many years as an exotic sideshow to the global economy. here's a bunch of behalf quos si and a few criminals doing stuff in the cayman islands or wherever. we are now beginning to see the offshore system for what it really is and how important it is. it has been ignored. we are now in a phase of education, and i think that phase has got a little way to run. and it's absolutely essential that word gets out that we've really got to pay attention.

almost the entire economics profession has paid no attention to this issue. where there have been reports, usually it's partisan reports often funded by corporate interests. thankfully, now there are some groups putting the other side of the picture. i think "treasure islands" fits into that side of things, and we are beginning to see globally -- in europe been a big growth in consciousness. i think in the united states we still need to go a long way. but i think now with all the problems of the deficit and all the arguments that are going on about tax this is kind of a slam dunk. this is something that people need to look at. and it's a political issue, it's an economic issue, and can it's a great moral issue. and i think once we can show people how important this is and how bad the system and dangerous the system has become, we can really make progress. >> i have to say, um, nick's book is incredibly fascinating. i mean, it's something you will get into and just be, um, pulled

into it. and it's depressing though. [laughter] because you realize, you know, you get the history, you get the sense of the power and the magnitude of the problem, and, um, you wonder if there's anything that can be done. but, thankfully, he ends the book with nine suggestions. and, um, they're very good ones. and a lot of it is about just getting people to be aware of the problem, first of all, but to change the mindset of how people talk about these issues. and instead of calling it, um, healthy tax competition, um, you know, we can call them the tax cheaters lobby on the other side. >> you raise a good point, and it reminds me that in nick's last book, "poisoned wells," is last chapter -- the last chapter

talked about transparency. poisoned wells was about, well, the dirty politics of african oil, right? as the subtitle suggests. and when that book came out, it seemed as the issue we're talking about today does, intractable, that solutions were too far in the distance to even contemplate. the opponents were too large, the folks fighting for it were too small. and yet since that book has come out there's been a huge victory in that, um, as part of the dodd-frank financial reform package there was a small little provision that now mandates that all oil, gas and mining companies publish their payments to every company, or every country in the world for their natural resource extraction. so, again, when that came out and i read it, it was great to see but also seemed a little bit of a pipe dream. and yet here we are just a few years later, and it's a reality. so i hope that in a few years' time we'll be back with your

next book saying how the tax haven problem has at least been addressed, um, in the some form be or another. but we shall see. >> but i think that's an important point that i had the similar feeling when this idea of companies reporting on a country-by-country basis first came out. so many people scoffed at it. the united states has taken a leadership position on this issue, and i think the united states because it has such a widespread democracy with so many different voices, i think it is in a good position over time to take a leadership issue -- take a leadership position on this issue. and i think it will. i live in hope at least. [laughter] >> i like that optimism. and, you know, i think the first step is changing the debate. it's not about, as you call them, you know, the palm tree islands. it is about the u.s. and the u.k. and, you know, events like this and your book will, hopefully, start changing the way that people think about tax havens. so thank you, nick and rebecca, and thank you all for coming. [applause]

[inaudible conversations] >> you're watching 48 hours of nonfiction authors and books on c-span2's booktv. khalid sheikh mohammed is about 4 years old at the time. his father dies. i search for the death records. apparently, his father died in 1969. and the kuwaitis simply didn't keep records of resident foreigners, births, deaths, marriages. it just wasn't interesting to them. so we have this account of his father's death that's very sparse, and there's really no official transcripts to back it up. his father dies, and there's no welfare state. there's no organized charity. in kuwait for foreigners at the time. so his mother takes a job of washing the bodies of the dead. female bodies of the dead and preparing them for burial.

it's a very low status, low income job, but it enables her to eke out a living. at the time she has nine children, khalid sheikh is the fourth male. years pass on, and khalid sheikh is doing very well at school. he's a good student, somewhat bookish boy. and the family decides that not, they can't -- they don't have any money at all. that they need to just back one son to get an education. and that one son, this is typical in arab families of this period of time, would support the rest of them. and that son is khalid sheikh. and they send, they -- ultimately, he applies to a school in north carolina, an historically baptist school in murfreesboro, north carolina. and either the family has saved some money or more likely the muslim brotherhood of kuwait has

agreed to sponsor him. he had joined the muslim brotherhood after two of his older brothers had joined at age 16. so he arrives in america at roughly 18 years old. and he's unprepared for what he sees. i interviewed the man who picked him up at the airport outside of virginia beach who drove him to murfreesboro. and what he remembers, this is years later, but the memory that he remembers is khalid sheikh being surprised by what he saw. firstly, he's surprised by the geography, the intense greenery. when you see trees in kuwait, they're usually behind walls, and they're privately owned. here there were just trees everywhere. but more surprising and more strange and more offputting than the trees were the people and what they were doing. they were sitting in lawn chairs on their front lawn visible from the road. they were grilling out, playing with their kids, taking a hose

to the bushes outside the front window. but what surprised him was so much of american family life happening in public. and this is not the kind of thing that would happen in the arab world. and the more time he spent in north carolina, the more he was persuaded that americans were really backward. they, they did things that should be private in public, they trusted each other very quickly, and they didn't go out at night. after dark is when most social occasions would happen in kuwait and many arab countries. but in the united states in murfreesboro at the time, 1983-'84, must have frees borrow had one pizza parlor. no bars. that pizza parlor closed at 9:00. the town was asleep. so far there the night being alive and social and friendly, it was silent as the tomb.

it was the day when americans were busy. so he became more and more alienated by america because it wasn't an arab country. now, these are, you know, very small observations, these things by themselves do not make him a terrorist. but it does set him at odds with the country. there's nothing that the university did, other than make him attend chapel service, that made him part of its larger community. and, in fact, one of the things i learned in writing "mastermind" was there's really nothing our colleges do to integrate foreign students, to explain this country to them. we take it for granted that everyone knows these things. when the fbi searched the car of the 9/11 hijackers left behind at dulles airport, they found a small notebook, and in this very careful script there was a description explaining the differences between shampoo, conditioner and body wash. we think we're easily

understood, but from another culture, another time, yeah. it's, we're puzzling. maybe an explanation is in order for foreign students. so naturally, ksm spent most of his time in college with not just other arab students, but other kuwaiti arab students. he didn't even mix with the non-kuwaiti arabs. after a semester he transfers to north carolina a and t, jesse jackson's alma mater. here he studies engineering. but, again, his social network is very limited to about 15 or 20 people. all of whom are muslim, all of whom are kuwaiti-arab. some of them transferred with him. but he merges as someone who's known on campus as a mullah. technically, he's not a mullah. but what they mean by that is he's an enforcer. he makes sure that the other students in his group do not violate these very small, very obscure ten ends of islamic law

or what they believe to be islamic law. for example, you know, the cuff of your pants can never cover your ankle. it is forbidden ever to wear shorts because they expose the knee and so on. so even when they would go to the gym and work out, they would be fully covered. enforcing all these differences kept them apart from the american college campus. i met a number of people, almost a dozen, in fact, who went to college with ksm who remember him. and, by the way, they mostly remember him fondly. he was a comedian, he was a member of an informal student troupe known as the friday tonight show where they put on plays and skits very successfully and apparently very humorously imitate various arab leaders. but his audience was those other 20 kuwaiti-arab students. i couldn't find anyone who wasn't a kuwaiti-arab, who was a muslim who knew him well in school.

his lab partner just remembers him as a person who had very broken accomplish. his professors remember him being very good in the math and science but never had a single substantive conversation with him about anything that didn't involve molecules and formulas. so he was in north carolina for almost four years, but he came into contact with americans on a very glancing basis. it's as if you are changing planes in a strange city, and you walk through the airport. have you met the people of, say, cincinnati? not really. you pass by them. that's what he did in, basically, four years. he had self-isolated himself, and he policed the borders, the perimeter, the social perimeter to limit contact with americans. but sometimes events intervene. and one of the things i learned which was a surprise to me was that he had a criminal record in the united states. i'm surprised that other investigators, the government didn't turn this up. but he liked the drive at high

speed with an expired driver's license, and he would sort of roar through the streets of greensboro and other parts of north carolina. maybe he saw too much of "the dukes of hazard" i don't know. and be he would occasionally crash. one day two women are talking in a parked car, some urgent confidence that couldn't go on in a living room, i imagine, when their car is smashed by khalid sheikh mohammed. l their injuries are so severe they sue him. i found a copy of the lawsuit. their last name, by the way, is christian. the lawsuit is christian v. mohamed. [laughter] ultimately, they win the case. he is awarded, they are awarded more than $10,000 in 1985 which is a substantial sum of money at the time. so their injuries were fairly severe. he never pays. he dodges the sheriff, he flouts