Odd Lots - The Ultra-Rich Are Building a Separate World Here on Earth

Episode Date: October 10, 2024

In recent years, we've seen the emergence of cities whose main industry is that they're a great place to live if you're rich. Dubai would be the ultimate example of this dynamic. But it's not just Dubai. Lots of cities, all around the world, exist to cater to the wealthy, with a set of laws and taxation schemes that act like a magnet for global wealth. So how do these cities work? How big are they? And what exactly do they offer the global rich? On this episode of the podcast, we speak with Atossa Araxia Abrahamian, author of The Hidden Globe: How Wealth Hacks The World. She talks about these booming types of cities, how they emerged, and where they are going. Read more: Miami Wealth Boom Fuels $13 Billion Firm Serving the Ultra RichOnly Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Bloomberg Audio Studios. Podcasts Radio News. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthall. And I'm Tracy Allaway. Tracy, did you see that story a few weeks ago about Andresen Horowitz, the big VC firm closing its Miami office? Oh, I did. Partially because you tweeted about it. See, my tweeting serves a purpose. It allows us to coordinate and be on the same page on topics. It gives us shared content, sure.

That's right. But I found that story to be really fascinating because in 2020 or I think, yeah, around 2020 and obviously with COVID and people frustrated about things going on in San Francisco, it felt like there was this big effort to sort of manufacture an environment. in a new city. So it's like, okay, Miami's nice and the standard of living, if you have a lot of money, it seems pretty good. Let's just see if by sheer force of will and money and tweets, etc., like whether we can relocate everything there. And there has been a lot. And we've talked a little bit about Miami and Citadel has obviously brought a ton of money to the city. But this sort of impulse to sort of manufacture cities and manufacture new physical networks is a very interesting phenomenon to me. Right. And I always find it's sort of the strongest. Whenever you see a city talk about becoming a crypto hub or something like that. And there have been so many, right? So Miami was one of

them at certain points. Eric Adams and New York has talked about it. Malta wants to be a crypto hub. Dubai wants to be a crypto hub. Its neighbor, Abu Dhabi wants to be a crypto hub. And it kind of raises the question, can everyone basically repeat the same economic or financial model and become these sort of offshore wealth centers that foster, you know, new business and innovation? It seems like there are multiple cities or countries or locations that are trying to do the same thing. By the way, well, you lived in Abu Dhabi. I did. What do they do? What's the business there? What does everyone do? No, I'm serious. I don't know what Dubai. I'm sorry. I don't know what Dubai. I'm I mean, I know there's a ton of money there, but I don't actually know what the big industries are there in these places. So you must know.

I'm trying to word this very diplomatically. I would say light touch regulatory environment. I mean, that's basically it. To start companies and pay low taxes and be able to do it in a fairly quick way. But the interesting thing about Abu Dhabi, and again, going back to the point of all these cities basically trying to do the same thing is Abu Dhabi very. very almost explicitly was trying to follow the model of Singapore. In fact, they even hired Richard Tang, who used to run the Singapore Monetary Authority, to come be head of ADGM. It was that explicit. It's very obvious what a lot of these places are trying to do. It seems to be working well. I mean, I know people always think like, oh, there's a bubble. It's all real estate and speculation or whatever it's going to crash. But for the most part, I mean, there was something that happened in late 2009. One of them went bankrupt or something. But for

for the most part, it seems like it's been working. For certain countries, certainly. I mean, Singapore, again, is the big example of this. But I guess the more people and places try to imitate these particular business models, you know, not everywhere in the world can be an offshore financial center for obvious reasons. And I think, like, one man's loophole might be another country's comparative advantage, but there's a limit to how far you can push that. You think so.

I wonder how far we are from the limit. Anyway, we're in an age clearly where there's just a lot of interest in cities. And people talk about, you know, on Twitter, they're like, what city should I move to? And where people have a ton of money and some people have a ton of money and they go to somewhere for some reason, maybe because regulation is low or taxes are low, et cetera. And essentially kind of be, I don't know, rootless. I remember during the pandemic when ostensibly I thought all of the borders were closed and you couldn't travel seeing. you know, friends on Instagram and stuff all over the world and places where there didn't seem to be any restrictions at all and on beaches. I'm very fascinated by the sort of parallel world that

seems to be emerging and still growing where the ultra wealthy push up real estate prices, build giant towers branded by various brands like Porsche, et cetera, it seemed to live in a sort of just separate world than what I live in in New York City. Right. And we've talked about this primarily from a real estate perspective. But we haven't really gotten into the separate world of light touch, regulatory, and tax regimes. So I'm excited. The separate legal world. Well, I'm very excited.

We're going to be speaking with truly the perfect guest. We're going to be speaking with Atusa Aroxia Abrahamian. She is the author of the brand new book, The Hidden Globe, How Wealth Hacks the World, talking about all of these different cities and legal regimes and the sort of separate parallel world that exists here on Earth for the ultra-rich. So, Atusa, thank you so much for coming on oddlots. Joe Tracy, thanks so much for having me. Absolutely. What's your book about?

So my book is about this parallel world of loopholes. It's hiding in plain sight. It's all around us. And once you see it, you can't unsee it. So I hope that when you read the book, you'll start to see it, and you will just see it at every turn. This world, much of it is territorial. Some of it isn't.

So I start with my hometown of Geneva. I grew up in a very sort of stateless environment in Geneva, Switzerland. My parents were UN employees. I went to international schools for the most part. And it was just this big mix of people from all over the world who were always moving. I wasn't moving. I lived 18 years in Geneva, and I still don't feel like I know the place. It is the most mysterious place to me, even though my mother still lives there.

And I started thinking about why that was. How can you live somewhere and still not really grasp it? And part of it is, yes, I was in this kind of international community, didn't really learn a lot about Swiss history. I have a Swiss passport, but I don't speak German, I don't speak Italian. I actually don't have a lot of Swiss friends. So that was definitely part of it. But the other side, when I kind of zoomed out and I thought of the legal topography of the place that I grew up in, it's like Swiss cheese. Geneva is this historic, beautiful city with an old town and old walls that are, you know, more ancient than like most of the things in the United States. At the same time, it has all of these pockmarks and black holes and

mysteries. An example of that is the Geneva Freeport. You might have heard of that. I was going to say, you mentioned once you see these things, you can't unsee them. And I remember I read a book called Unruly Places and they had a chapter on Freeports. That was the first time I'd heard of them and ever since then I haven't forgotten them. I can't get them out of my mind. Yeah. What's the Geneva Freeport? What do you get to do there? The Geneva, well, I have never been inside and is not for lack of trying, trust me. The Geneva Freeport is a warehouse. It was built a long time ago in the late 1800s and it was originally built to store things like grain, things like supplies for wartime. And it was used for that.

And the idea was that merchants could put their goods there, have them sort of hang out without declaring them to customs, without paying for taxes or tariffs or what have you, and then move them to their next destination. So for something like sacks of oats, there's a shelf life. You can't keep them there forever. They got to move. Otherwise, everyone's in trouble. But just to be clear, it serves a very specific purpose because if you want Geneva or Switzerland wants to be a hub of. trading. They don't want merchants to have to pay a tax or a tariff just if they're like stopping by. You got it. If you want a place to be an entrepreneur, you want to make it as easy as possible

to be an entrepreneur to leave your things there temporarily and then move on. Geneva was also a crossroads for trade. They had a big market. So it made sense. But as time went on and as, you know, the economy evolved and as Switzerland evolved, this became a place to store things like gold, things like jewels. Da Vinci paintings. And eventually things like very expensive paintings. And today, it's estimated that billions of dollars worth of paintings and cars and wine and luxury goods are being stored there. Now, the difference between a sack of oats and a da Vinci, apart from how expensive it is, is that now these places are super climate controlled, like humidity is monitored. Everything is very, very, very, very tightly controlled.

And so there's no rotting. Things don't go bad. Things can stay there perhaps forever. And it's a completely different game because if you're someone who wants to hide something or to just sit on something for a very long time without incurring tax or maybe declaring it to your ex-spouse, you can do that in the Geneva Freeport. So you touched on this when you were talking about the evolution of the Freeport. But one thing I often wonder with these sort of loophole. whole liminal places is how deliberate are the choices to create them? So the Freeport started out as a place where you could store grain because it wasn't meant to stay there forever and you wanted to be a hub for trade and then it gradually evolved to a place where you could stash things potentially forever. How did that decision come about? What were the choices that went into that outcome? In the case of Geneva, there is a somewhat organic or natural progression of things. I don't know that, you know, in like 1880, you necessarily would have anticipated

the art market being just unbelievably full of speculation and using these places to enable that. So for one of these entrepos that's been around for a long time, the decisions are more in the lack of involvement of the state. So you have this rule for grain. Maybe you're not going to change it too much and have it apply for gold bars. But there are more free ports than just the Geneva Freeport. There are brand new ones that were built in the past 20, 30 years in Luxembourg, in Singapore. There was talk of creating one in Russia. And for the new ones that are being built, it's very clear what the intention here is, right? We're not talking about oats or salt or any food stuff. We're really talking about high-end goods that, you know, increasingly are one of the only ways

to get around financial controls as well. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gurra. Join us every Saturday and Sunday for the new Bloomberg this weekend. I'm Christina Rafini. We'll bring you the latest headlines, in-depth analysis, and big interviews.

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I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to leading by example, executives making an impact on the IHeart radio app, Apple Podcast, or wherever you get your podcasts. For country or a city like Singapore, what do they get from it from the existence of a free port that explicitly is there so that people can have art and not declare it? I'm trying to figure this out. I'm not sure there's one exact answer. To be honest, I think a big part of it is branding. It looks good. It looks good to say that you have stashes. of Picasso's and the people involved in these enterprises will say, well, we are creating a hub. And when the paintings come, then the artists come and the dealers come and the bankers come. And so it creates a sort of a little ecosystem of art and art markets.

I think that there's a more cynical way of putting it, which is that these types of places, free ports and so on, are ways to launder money. it's much harder to launder money through the banks. So you can have many reasons for this, and a country would be interested probably in both sides of this if the ultimate goal is to bring money to its territory. In researching and writing this book, did you observe any interesting examples of either free ports or other types of offshore centers competing with each other? And what happens when everyone is, you know, trying to do a similar thing and you have a free port here and a free port here and a free port there? Yeah, these places are always one-offing each other. I mean, how many, you guys work at Bloomberg, how many times have you read the headline, X is the new Switzerland?

Yeah. Right. I think Singapore has been the new Switzerland. Dubai has been the new Switzerland. Luxembourg has been the new Switzerland, although that was a while ago. One day, Switzerland will be the new Switzerland. Well, and then Switzerland is always trying to be the new Switzerland, right? They were also trying to do this cryptosnberg. Valley thing in the canton of Zug. What's happening with that? Eh. So, yes, there is always competition and they're always trying to one up each other. It's relentless.

And that's why also for regulators who might want to crack down on this, it's like whackamol. One jurisdiction might say, okay, we're going to put tighter controls on our free port or on our crypto market. Another one is going to pop up tomorrow to fill that void. I asked Tracy this, but maybe I should just ask you, when Abu Dabwe, in Dubai. What goes on there? Abu Dhabi and Dubai. I can speak to Dubai. I've not, I've not been to Abu Dhabi. Dubai has for its recent, I guess the past 20 or so years, made really, really concerted efforts to attract millionaires and billionaires. There is the real estate play here. Obviously,

you've talked about this a lot. There's a lot of, there are a lot of articles about these wacky things that they build and the developments and whatnot, the ski slopes and the malls. At the same time, there have been many reports that show from the think tanks and the OCCRP and the ICIJ that show that Dubai is really the center of the world of money laundering criminality and, you know, those types of offshore theatrics. So they are up to that too. Before Dubai was what we think of today as Dubai, this place with tall buildings and crazy stuff going on. There was a lot of smuggling and pearl smuggling and gold smuggling going on. It has a sort of a long tradition of this, that this did not occur overnight when the shakes passed a bunch of laws. That said for the

past 20 or so years, Dubai has made a concerted effort to create laws to attract businesses and people. Some of these laws involve carving out free zones within the territory. of Dubai that cater very specifically to certain sectors. So you have a media city where ostensibly there's more freedom of speech and expression. There's an internet city that has world-class infrastructure. I think there's a medical one and there's one for commodities. And all of these little zones, clusters, hubs, whatever you want to call them, have a kind of a bespoke legal regime. A lot of that is spin. A lot of that, they're sort of interchangeable, but by virtue of appealing to a certain type of business, I think there's something to be said for proximity and exchange,

and that's real. This is why we like to go back to the office because you can talk to people. Anyway, all of these zones also have very preferable tax regimes. They make it easier to import workers, so the immigration side of things is a little more streamlined. And overall, I think now Dubai is on a big kick of reducing bureaucracy, we can all appreciate the idea of reducing bureaucracy. And I think that they actually do it. So that's another part of their play. You mentioned the legal regimes and the financial centers in Dubai and Abu D-D-D-GM. They're really interesting to me because they essentially got to craft a whole new body of law and kind of cherry pick what they wanted to include in order to attract financial businesses. And they're obviously influenced by English law. It's an English law

regime, but their systems are still different in various ways. What's the process that these types of new jurisdictions go through when they're crafting laws? And how much input do you think is overtly had by people who are perhaps looking to preserve loopholes? So I'll tell you about the story of the Dubai International Financial Center. And more specifically, the Dubai International Financial financial centers courts, which are within the Dubai International Financial Center, but their own things. So the DIFC was established as one of these free zones that was going to be the Center for Finance, banks, traders, et cetera. As companies started to express interest in moving there and as Dubai was, you know, making their pitch, come here, you're going to pay less tax, et cetera, et cetera,

they ran into an issue, which was that the lawyers and the councils and all the, the of legal infrastructure of the companies that they were trying to bring in were balking at the idea of having to deal with a whole new legal system, namely the Arabic language, Islam-influenced courts. Maybe they did this out of racism. Maybe they did this because they truly had no idea how these courts worked. We should talk a little bit about the history here. So the Emirates were previously protectorates of the UK of England. And they had two, systems of law. There were laws for Muslims, for natives, and then there were laws for Brits and expats. So that's the context out of which this is all coming. So the DIFC sets up in the early

2000s, and they decide, well, we need to have another set of laws because we don't want to scare away the big companies. And so they get to work thinking, well, how are we going to come up with this parallel legal regime. On the one hand, it's kind of a throwback to the bad old days where the Brits had their laws for themselves and locals had their own laws, right? This is colonialism, to put it bluntly. So instead of just taking the old laws or just imposing their own native court system, they came up with a kind of a hybrid. And this is in the book, but there was one man who was really instrumental in building the system. His name was Mark Beer. He is an Englishman, really clever, clever guy. And they kind of cobbled together a bunch of laws based in common law,

which the multinationals are comfortable with, which the big banks are comfortable with, and essentially created a court that was sitting inside the DIFC that would serve the tenants of the DIFC and that eventually expanded its reach to be this kind of opt-in jurisdiction. So anyone could say in their contracts, shouldn't or disputer rise, we're going to have our day in court at the DIFC. The term at is doing a lot of work here because it is a place. There is a courthouse. There is a courtroom.

But the judges don't all live in Dubai. They don't all show up for hearings at the DIFC. A lot of this was taking place remotely, even before Zoom came to consume our lives during the pandemic. And so the notion that the law and the land are in any way tied together just doesn't make sense here anymore. It's a really new way of thinking about law. It's a little bit like Delaware in that sense, right? Where it's like, you, everyone is like, okay, we want to be incorporated under Delaware law, but the company and the judges are right there. But by and large, the companies have no meaningful.

I'm sure Dubai will appreciate being called the Delaware of the world. Delaware of the world. In your book, I don't know what the grouping is, Dubai, Abu Dhabi, Singapore, Geneva. But in your mind, when you sort of think about these cities around the world, like, how big are we talking about? How much money, how much wealth or however you want to quantify it has flowed into these sort of preferential locations? Oh, that's a good question. I can't really put a number on it. but I can tell you that the oceans are another jurisdiction that I write about in the book

and something like 90% of all goods are shipped through the ocean. And so that'll just give you a sense of scale. Things do not just happen on the national level. That doesn't make any sense. Things are always moving and moving between places. So one thing you often hear when people are talking about establishing these new hubs or centers or whatever they want to call them sandboxes maybe. People often talk in terms of innovation

and creating new business opportunities and startups and maybe not falling behind in the brand new thing. And so I'm curious, how do you think governments or localities looking to set up these types of things are balancing the need for rules and regulation with that innovation impulse? Because no one ever says explicitly, this is just a money grab and we want lots of income coming into the country. It's always about, you know, we're going to create this creative place where small businesses can flourish and things like that.

I haven't heard the small business pitch so much, at least not in the jurisdictions that I've been covering. Balancing the sort of Wild West aspect with the regulatory aspect is obviously pretty tough. If we look at how crypto has played out and continues to play out, you'll see that the, regulatory side has not been as strong as the more freewheeling, you know, quote unquote, innovation side of things. I think this really depends on the jurisdiction. Some have much higher tolerance for risks. Some don't. I don't know that like Sweden is doing crazy things, but maybe, you know, a place like Palau, which is smaller and maybe a bit more niche can do crazier things. I mentioned Palau because it comes up twice in the book, once because they have

been offering e-residency but geared at people who want to transact in cryptocurrencies but come from a country that doesn't allow it. So it's almost like a crypto passport. To be clear, you don't have right to live there. You don't have an address there. It's really just digital and virtual. What do you get? You get an identification card and number that you can sign up for crypto services. with. Oh, I see. If you're in a country that has high restrictions on crypto activity, but you want to set up a fund that can trade and stuff like that, you basically incorporate there and your money is housed there and you can then legally transact from there. Is that kind of the idea? I don't even know that your money would be housed there. It's that you is that you can have a kind of a second flag that you

can fly under for the purposes of your, you know, crypto. Is an island country in Micronesia. didn't know where it was. I had to look it up on the thriving crypto center of Palau. It's kind of, yeah. They're trying. They're trying. Palau also has had some adventures in the maritime flagging industry, which is actually very analogous to these crypto passports or second passports. So most of the ships in the world do not fly the flag of their owner or if their parent company or of where their home port is. They're flying flags of convenience, places like Marshall Island. Liberia, Panama. And Palau is a really interesting case because it's a relatively new flag.

It's still relatively small, but it's growing tremendously because it is providing a service that more and more ship owners want, which is a deregulated way for the ship to die. Shipbreaking is increasingly regulated by European countries, by the U.S. and more. It's very dirty business, and it's very expensive. of business. To take a ship apart in a way that does not pollute the environment, harm workers, etc., is quite expensive. And often the ships are not even worth the money it takes to take them apart. And so jurisdictions like Palau, but also Comoro Islands and Cameroon have stepped in to offer a flag under which the ship can fly for its final journey to the shipbreaking yard

that helps them sort of evade these rules. There's a bit more to it than that. You have to have Shell companies and cash buyers and all of these transactions that will help you hide. But it's pretty wild that a tiny country like Palau can pull this off and create its own kind of offshore economy. I'm just going to be hyperbolic. What's the point of like passports and regulations and restrictions on taking apart ships if for $248 I can buy a crypto residency in Palau or I can find a flag of convenience and evade environmental restrictions and stuff. Why have them at all when there seem to be loopholes everywhere? The loopholes apply mainly to people who have the time and money and know how to figure them out. These are not equal opportunity loopholes. You have to know where they are.

Often you have to have lawyers arrange it for you. Often you have to pay the, you know, $250 for the crypto passport is one thing. But if you are actually in the market for a real passport, a second passport that might help you do some of these things, it's going to cost you hundreds of thousands of dollars. So it's a great question. Why do we have these things at all if they're so easy to get around? But the answer is that getting around them is hardly democratic. And for the vast majority, the vast, vast majority of people and companies and institutions, they are still subject to the rules of their state. Your previous book was about the market for passports, I believe. What's the easiest passport to get? I don't think I'm

going anywhere, but, you know, everyone's in a while I turn on the TV. I'm like, oh, things are kind of weird here. What's the easiest passport to get where I can get it and also live somewhere, so it's not just a virtual, like a digital passport? The easiest passports to get, or the most straightforward, time-tested ones, those are mainly in the Caribbean. St. Kittsenivas was a pioneer in the passport industry. Dominica, Antigua. So there's a number of violence. in the Caribbean that will offer their passport for money. Until recently, you didn't even have to go there. You could do your citizenship interview remotely. They're starting to crack down on that a little bit more. But there are options. There were more options in Europe. Those have basically

been reduced down to Malta. And Malta is being challenged at the European Court of Justice. In fact, by the time this podcast comes out, it will have been decided. So, you know, the future of the European programs because these countries are part of the EU is a little more dicey. The EU has been very critical of them. But yeah, I think depending on your budget, probably the Caribbean is the way to go. Is there any example from your book of someone, either a person or a corporation, who you think was particularly adept at using loopholes or favorable regimes to their advantage? I actually have a piece coming out in the New York Times Magazine. about a man who, to me, just embodies every aspect of offshore.

He unfortunately died in an accident on the sea. He was living on a barge, 27 miles offshore from Dubai. And his name was Samuel Elandi. Truly offshore. Oh, truly offshore. I mean, you don't get more offshore than this. So this man, Samuel Elandi, was an Italian guy from Tuscany. His first company was arbitraging phone numbers.

So Italy was deregulating its telecoms industry, and he bought up a bunch of those easy-to-remember phone numbers and sold them to weather reports and phone sacks and all of the numbers that you dial in for services. And, you know, he'd take a cut of the difference between the prices. Then he went on to be a telecoms entrepreneur. He had a big telecoms company. That went bust, and it later came out that much of the money that this company made was sent to some business. really remote offshore jurisdictions. The island of Niuwi, you thought Palau was remote. This is really pretty niche.

Obviously, Switzerland, a couple of Swiss banks who have a record of this, you know, etc. That was his corporate stuff. As soon as the law came for him, he decamped to Dubai, set up a company in one of these special economic zones. He had an encrypted cell phone company. And not only did he move to Dubai a place with no extradition, agreement with his home country of Italy. But he then obtained diplomatic immunity via a Liberian diplomatic appointment. He became the Liberian Honorary Consul General to Dubai. What this meant is that

this is a guy on the run, he goes to a place with no extrusion treaty, and on top of that, he gets diplomatic immunity. So he's kind of untouchable. And you'll have to read this story, but long story short, he starts to run out of options and he moves to a barge that he anchors between Dubai and Iran and he lives there for an entire year until a wave comes and, you know, that was the end. Once you develop a mind for these kinds of offshore structures, like I said, it's hard to unsee them and just this whole world of opportunity arises for you if you have the right mindset. I'm Francine Lacqua, an award-winning journalist, and I've got a new podcast, leaders with Francine Lacqua from Bloomberg Podcasts.

I've interviewed everyone from heads of state to fashion icons about the news of the moment. But I've always been curious who are these people as leaders. I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow leaders with Francine Lacroix wherever you get your podcasts. What separates good leaders from transformational ones? I'm Jessica Chen and in season two of Leading By Example,

we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to Leading by Example, executives making an impact on the IHeart Radio app, Apple Podcast, or wherever you get your podcasts. First of all, that is a wild story.

Looking forward to reading it. By the way, Tracy, you know who I'm not? just remembered Justin's son. Yeah. Who served as the permanent representative of Granada to the World Trade Organization, which apparently isn't anymore, but this Chinese crypto entrepreneur, I remember one day he was suddenly the honorable Justin's son. Anyway. Did he buy the passport? Grenada was in this business. I don't know if he bought the passport and I don't want to insinuate anything, but he became an official ambassador of Grenada to the WTO. So good for him. Okay, so we know the Dubai's and Abu Dhabis, and then we get a little more out there in the world, the Poulouse.

And what was the other one, Neu? Newe. I don't know where that is. I'll have to look it up. The other thing that's going on in this new world of like cities is these various attempts to like create startup cities. I once went to a party at the offices of Praxis, which is this thing, which is a bunch of like crypto people who like talk about like maybe we're going to set up a crypto city in like Albania or Montenegro. To be clear, Praxis does not exist. Right, yes. But they talk about existing. They do talk about existing. Are any of these real? Have any of them broken ground anywhere? Like, what's going on in the world of like sort of just creating a new city whole cloth for rich crypto people to hang out in? Creating new cities from scratch is pretty hard, as you can imagine. There have been a number of attempts. The ones that come to mind are mostly in Africa. I think there is one in someone in Nigeria. I think the rapper Akon was involved in one. Yeah, so these things exist.

There are cities that are being built. Unclear what the result is because it takes quite a while to build a city. I think what you're alluding to, Joe, is there is a startup city ecosystem, and then there's also this idea of a charter city. And, I mean, there's a lot of overlap in these two things. A startup city, I guess at its most basic, it's just a new city that, you know, some of them have smart city elements. Some of them have different kinds of zoning laws that make it easier to build.

That's one set of things. And then the Charter City universe is maybe a little bit more political and a little bit less urban planningy. The original concept of the Charter City was an idea from the economist Paul Romer. And his papers and his writing about this essentially said there are poor countries that have land and there are rich countries that don't have land but they have good laws. So why don't we take a piece of land from country X, which may have not so great economy, apply the rules and regulations and sort of way of doing business from country Z? And together they can create a thriving new place for people to go. Romer got a lot of flack for this because that too sounds an awful lot like colonialism.

Well, you have a lot of economists on this show. economists have a very particular way of coming to their ideas. I thought about this a lot, and I think that Romer came to his honestly, not sort of reverse engineering colonialism, but actually just working from his previous ideas about how economies benefit from foreign influence. So let's give him that to counter a lot of the pretty vicious criticism. And so the idea of a charter city is that if you bring in the right kinds of laws and incentives and business environment, the economy will follow and people will thrive and then that will have an impact on the country that is around this city or zone. So it will lift all votes. Do any of these exist? Well, there is one in particular that is maybe a little more advanced than a praxis, which is mostly

a praxis of the mind. And that's in Honduras. It's called Prospera. And it is really contentious because it was initiated and built by some pretty ideological people. They will tell you they are not libertarians, that they don't have these ideologies, but it's pretty clear that they do, and not everyone likes it. Prospera is a more or less deregulated zone on the island of Roetan, which used to be British, sort of interesting history there, of foreign influence as well. And for now, there's a real estate angle, they're going to sell condos. they purport to putting Hondurans, giving Honduran's work opportunities.

I don't know. I haven't been there. I was supposed to go there during COVID, but then it didn't work out, not because of COVID, but because a left-wing government was elected in Honduras and the people I was going to meet called the whole thing off. Anyhow, Prospera exists insofar that they have broken ground, they have built things, and that they have a system of law and regulation for their zone. But the future of Prospera is a little up for grabs because since this new left-wing government has come in in Honduras and there have been various regulatory moves to curb the autonomy of Prospera, Prospera has hit back and actually is suing the state of Honduras for like a third of their GDP in international court. So we don't know how that's going to play out yet. I'm not sure that they're going to be successful. because the sum of money is so astronomical. And a couple of lawyers I've spoken to think it's a little ridiculous, but who knows what's going to happen. So there is a charter city. They were very clearly inspired by Romer's ideas.

Romer was even involved in an early version of the legislation in Honduras until he got out of it. But the future of Prospera is not entirely clear to me. Can you talk a little bit more about the downsides of these types of offshore centers or regime? And also, is there anything that can be done to maybe crack down on them or at least limit their growth? And it seems difficult in the sense that perhaps you need international coordination and there has been a lack of that recently. But on the other hand, you know, you have seen some things happen like with Swiss banking and the Secrecy Act and all of that. So what are the downsides and what can be done to limit those downsides? The classic argument against these types of offshore jurisdictions is that they create a race to the bottom.

Country A cuts taxes, country B cuts taxes even more, country C cuts taxes even more. New Switzerland, newer Switzerland, even newer Switzerland, right? When does it end? And the impact of that is, as the argument goes, it takes money away from the state. There's less money to spend on social services and education and health care and so on. And that's real. I mean, that's happening. there's been a lot of economic research into the impact of offshore, the billions, if not trillions of dollars that are just not accounted for and not being taken by governments in the form of taxes. And that's convincing. The second issue with offshore is that offshore is much bigger than just money. Offshore can have really serious human rights repercussions. To use an example, for more than a decade, Australia was using two offshore sites to send refugees. who were trying to arrive in Australia by boat. And actually just warehouseed people on Manus Island and Noru for years and years and years.

They were never told when they were getting out. They were just in limbo. And if the fiscal stuff has big picture impact on state budgets, this has really tangible and traumatic effect on individuals. So I think we need to talk about offshore both as a money thing, and as a human rights thing. And these are two sides of the same coin. If you think of offshore as a legal mechanism

to send responsibility elsewhere, you can see that it can affect people as well as balance sheets. Talk more like whether it's the U.S. or Europe or places, or maybe places in Asia, places that are the net where money is being drained from. And we always see angry, ultra-rich people wanting to, you know, lower taxes.

etc. and threaten to move, et cetera. What is being done response by it? Is there a pushback in any way? There has been some pushback. The Swiss banks that maybe if you want to call it ground zero of all this stuff have reformed somewhat. There is going to be a global corporate minimum tax.

How many loopholes there will be to get around that is another question. But I do feel like there has been a broad agreement that this is not great. The only way that anything is going to be done is to get every single country on board with whatever agreement is made, right? If you have any jurisdiction that decides to become the outlier, the international community can ice them out by putting them on financial black lists, cutting them off from swift, you know, typical sanctions regimes, but they'll still be there and they'll still always be ways around it. I think another thing that can be done is to think of ways that offshore can be positive. And that might sound really contradictory. But the reason that

this I think kept my attention for so long is that these hacks are so clever. They're ingenious. And what if they were dreamed up not by people who were just trying to make more money, but people who were trying to create new types of places for people to live? This idea of offshoring refugees is horrendous and horrible. But what if there was a way to create places that were safe, temporary zones for people who were fleeing war, that were not prisons? So I think, you can regulate and states know how to do this. They just have to want to and they have to get it together to do it because ultimately all of this is in many ways and under the state's control. But I think you also want to come up with new solutions by using this way of thinking because

there's something to it. Atusa, thank you so much for coming out of luck. Thanks for having me. This is really fun. Tracy, I really enjoyed that conversation. We've talked a little bit about the real estate side in the past with Hittend, some Tani, and some others. You know, when there's crypto or I guess condos in a high rise somewhere in Miami or Dubai, et cetera, you know, the common thread to all of it to me is people finding ways to store a lot of high dollar value in a small container. Like, to me, that's like the common thread here. And that basically what these countries or jurisdictions

offer is that ability, kind of like jewels and jewelry, et cetera, basically to find a way to put a lot of wealth in a small place. Yeah, it's sort of a modern version of, I don't know, stashing a bunch of gold coins under a stone wall in like Roman times or something. You know what's interesting to me is the sort of tension between globalization and nationalism there. And it comes up in a lot of different ways. But I remember one of my favorite examples of this is, do you remember, Remember Abraj and Arafnaqvi? No. Okay, so Abrage once upon a time, was like the world's biggest private equity emerging

markets investor. And it was very much about globalized investing. And then the whole thing collapsed and turned out to be a fraud. And Arif Nockvi, the founder, was arrested. And it turned out, you know, there were all these profiles of him and how did he become a billionaire while running this fraud. And it turned out he lived in a place. in Dubai called Emirates Hills. And when you looked up who else lived in Emirates Hills, it was like

a roster of particular characters. Let's put it that way. But it was like Robert Mgobby's son, the Gupta family, who were friends with Jacob Zuma. It was like those types of people living in offshore centers while sometimes espousing a particular brand of nationalism. I love these like destinations where it's like the gang's all here, so to speak. I have no real connection to any of this, but when I was nine, I did live in Malaysia for a year. My dad was a professor. He taught there. I went to an international school. It is a fun environment, like being around all of these people who are like children of ambassadors and heads of state. As far as I know, there were no like war criminals on the lamb there or, you know, children of dictators or whatever. But fun vibes.

I went to mostly international schools, and it is a very particular space. And it often feels like you're not actually living in that particular country, but living in like a little compound version of it. But anyway, without getting too much into my high school experience, shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Allo. And I'm Joe Wisenthal. You can follow me at the stalwart. Follow our guest, Atusa Aroxia Abrahamian. She's at Atusa Aeroxia. And check out her brand new book, The Hidden Globe, How Wealth Hacks the World. Follow our producers, Carmen Rodriguez, at Carmen Armand. Dashel Bennett at Dashbot and Kale Brooks at Kail Brooks.

And thank you to our producer, Moses Ondom. For more Odd Lots content, go to Bloomberg.com slash Oddlots, where we have transcripts, a blog, and a newsletter. And you can chat about all of these topics with fellow listeners 247 in our Discord. Discord.g. slash odd lots. And if you enjoy odd lots, if you like it when we dive into the separate legal world that the ultra-rich are building for themselves,

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