That works only because demand is typically so steady

Sunday, April 5th, 2020

The shelves are bare, because the toilet paper industry is split into two, largely separate markets, commercial and consumer:

Georgia-Pacific, a leading toilet paper manufacturer based in Atlanta, estimates that the average household will use 40% more toilet paper than usual if all of its members are staying home around the clock. That’s a huge leap in demand for a product whose supply chain is predicated on the assumption that demand is essentially constant. It’s one that won’t fully subside even when people stop hoarding or panic-buying.


Talk to anyone in the industry, and they’ll tell you the toilet paper made for the commercial market is a fundamentally different product from the toilet paper you buy in the store. It comes in huge rolls, too big to fit on most home dispensers. The paper itself is thinner and more utilitarian. It comes individually wrapped and is shipped on huge pallets, rather than in brightly branded packs of six or 12.


Because toilet paper is high volume but low value, the industry runs on extreme efficiency, with mills built to work at full capacity around the clock even in normal times. That works only because demand is typically so steady. If toilet paper manufacturers spend a bunch of money now to refocus on the retail channel, they’ll face the same problem in reverse once people head back to work again.

Other industries face similar challenges:

The CEO of a fruit and vegetable supplier told NPR’s Weekend Edition that schools and restaurants are canceling their banana orders, while grocery stores are selling out and want more. The problem is that the bananas he sells to schools and restaurants are “petite” and sold loose in boxes of 150, whereas grocery store bananas are larger and sold in bunches. Beer companies face a similar challenge converting commercial keg sales to retail cans and bottles.

Amazon is opening 100,000 new full and part-time positions across the U.S.

Tuesday, March 17th, 2020

Amazon is opening 100,000 new full and part-time positions across the U.S. in their fulfillment centers and delivery network:

We also know many people have been economically impacted as jobs in areas like hospitality, restaurants, and travel are lost or furloughed as part of this crisis. We want those people to know we welcome them on our teams until things return to normal and their past employer is able to bring them back.

In addition to the 100,000 new roles we’re creating, we want to recognize our employees who are playing an essential role for people at a time when many of the services that might normally be there to support them are closed. In the U.S., we will be adding an additional $2 USD per hour worked through April from our current rate of $15/hour or more, depending on the region, C$2 in Canada, £2 per hour in the UK, and approximately €2 per hour in many EU countries. This commitment to increased pay through the end of April represents an investment of over $350 million in increased compensation for hourly employees across the U.S., Europe, and Canada.

Find corroborating evidence

Friday, March 13th, 2020

In The Catalyst Jonah Berger explains how to change anyone’s mindreduce reactance, ease endowment, shrink distance, alleviate uncertainty, and find corroborating evidence:

For big changes, sometimes hearing from one person isn’t enough. You can follow up multiple times with new information, but the listener is still faced with a translation problem. Sure, you think something is the right course of action, but you’re just one person. How do they know what you’re saying is right?

There’s strength in numbers. That’s why substance-abuse counselors use group interventions. Hearing from multiple loved ones at the same time often provides enough proof to drive action. Corporate boards wait to adopt new practices until they’ve been adopted by several peer institutions. Doctors wait to adopt new drugs until multiple colleagues start using them. And companies wait to adopt supply chain technologies and management strategies until they’ve been piloted by a number of other firms.

In my own research, I found that the incidence of people signing up to use a new website was almost directly proportional to the number of Facebook invitations they received. Invites from two people led to almost double the sign-ups from a single invite; sign-ups were even more likely when multiple invites came in quick succession. As the adage goes, “if one person says you have a tail, you laugh and think they’re crazy. But if three people say it, you turn around to look.”

Whether you’re trying to convince a client, change an organization, disrupt a whole industry or just get someone to adopt a puppy, the same rules apply. It’s not about pushing harder or exerting more energy. It’s about reducing barriers to action. Once you understand that, you can change anything.

Alleviate uncertainty

Thursday, March 12th, 2020

In The Catalyst Jonah Berger explains how to change anyone’s mindreduce reactance, ease endowment, shrink distance, and alleviate uncertainty:

Change usually involves some level of risk. Will a new product be better than the old one? Will a new initiative really save money? Research published in the Quarterly Journal of Economics by three University of Chicago researchers in 2006 found that there is an “uncertainty tax.” People in the study were willing to pay $26 for a $50 gift certificate, but when they were asked how much they’d pay for a lottery ticket that would win them either that same $50 gift card or a $100 one, they were only willing to pay $16, a 40% drop. The uncertainty made them undervalue something that was objectively worth more.

To ease uncertainty, lower the barrier to trial. Don’t just tell people that something is better; allow them to experience it themselves. In the mid-2000s, people didn’t understand cloud storage and worried that it would be difficult to use or that they would lose their work. So Dropbox became part of a vanguard of app firms giving away a version of their service for free. The appetizer helped people to resolve their uncertainty and encouraged them to pay to upgrade to a better version. It helped Dropbox to build a billion-dollar business.

Honda Motor Co.’s Acura division took a similar step in 2008. The luxury brand wasn’t as trusted or well-known as its rivals, so Acura partnered with the high-end W Hotel chain to offer guests a free ride anywhere in town in an Acura. Guests might not have known about or liked Acura, but if they needed a ride somewhere, why not get one for free? The rides removed uncertainty and, according to the company, resulted in tens of thousands of new Acura buyers.

Uncertainty can also be reduced by making things reversible. A few years ago, my girlfriend and I were considering getting a dog. A local shelter had an adorable pit mix puppy, but we weren’t sure we were ready. Would we be home enough? Could we give her enough exercise? There were too many unanswered questions. We started to leave, but then a nice volunteer interjected: “In case it helps, we have a two-week trial period.” Today that girlfriend is my wife, and our dog Zoë is an integral part of our family. The trial didn’t reduce the upfront costs of taking Zoë home—food, shots, a crate, etc.—but it did remove the uncertainty.

Shrink distance

Wednesday, March 11th, 2020

Jonah Berger explains how to change anyone’s mind in his new book The Catalystreduce reactance, ease endowment, and shrink distance:

When new information comes in, people tend to compare it to their existing views to see if it is a close enough match to consider. Psychological experiments going back 50 years have found a “zone of acceptance,” an area close enough to people’s existing beliefs that they’ll consider new information. Incoming content that is too far away from their current perspective falls into a region of rejection and gets discounted.

Doctors deal with this issue when trying to get patients to change to healthier behavior. Sure, an overweight person should walk a mile every day, but for someone who hasn’t worked out in months, that’s a big ask. One solution is to start by asking for less or breaking the change down into chunks.

A doctor I spoke with a few years ago was dealing with an obese truck driver who drank three liters of Mountain Dew a day. She knew that telling him to quit cold turkey would fail, so she asked him to try just two liters a day. He grumbled but made the switch. Then, on the next visit, she asked him to cut it down to one liter a day, and only after that succeeded did she suggest cutting the soda out entirely. The trucker still drinks a can of Mountain Dew now and then, but he’s lost more than 25 pounds.

Product designers talk about such gradual shifts in behavior as stepping stones—a way to make a big shift feel less daunting. Uber’s initial model didn’t depend on persuading people to take a ride in a random stranger’s car. That’s exactly what Mom told you not to do. The company started instead by making high-end black-car service more accessible. Only after that gained acceptance did they move down-market to UberX, a cheaper nonluxury option. If Uber had asked people to make such a big change from the beginning, they probably would have failed. It was too far from what people were used to.

Ease endowment

Tuesday, March 10th, 2020

Jonah Berger explains how to change anyone’s mind in his new book The Catalyst, starting with the advice to reduce reactance and then moving on to his second piece of advice, ease endowment:

Research on everything from investment choices to political incumbency demonstrates that people are over-attached to the status quo, what social scientists call the “endowment effect.” We tend to stick with things we know and have used for a long time. Most of us eat the same food we’ve always eaten, buy the same brands we’ve always bought and donate to the same causes we’ve always supported.

Part of the challenge is that the status quo usually isn’t that bad, or else people would have made a change. An analogy can be made to injuries. Which do you think causes more pain: breaking a finger or spraining a finger? The answer might surprise you. It turns out that milder injuries may inflict greater pain overall, because unlike serious injuries, people are less likely to take active steps, such as surgery, to speed recovery. Milder injuries thus don’t get addressed and become nagging injuries that never quite go away.

Change agents combat this phenomenon by bringing the costs of inaction to the surface, helping people to realize that sticking with the status quo isn’t as cost-free as it seems. A financial adviser I know tried everything to convince one middle-aged client that keeping large amounts of money in a low-interest savings account instead of investing it more ambitiously for retirement wouldn’t benefit him in the long term. He liked things as they were and refused to see the upside of change. Finally, she started giving him regular updates on how much he was losing monthly compared with inflation and higher-return investments. That worked.

Similarly, IT consultants often resort to encouraging employees to upgrade to new machines by saying that they will no longer support the old ones, leaving employees to fix their own problems. The technique doesn’t force people to switch, but makes it easier for them to see the cost of doing nothing.

A sizable fraction consistently took home products that bombed

Monday, March 9th, 2020

When Steve Sailer was in the marketing research business, his wife suggested that he start own product testing firm, because it would have the competitive advantage of needing just one single tester:

P&G and Frito-Lay could hire me to take home a case of their planned product. If I really liked their innovation, then they would immediately bury all existing samples in a landfill, burn the recipes, and fire the executives responsible.

It turns out he’s just one of many such harbingers of failure:

What do Crystal Pepsi, Watermelon Oreos, Frito-Lay Lemonade, Coors Rocky Mountain Sparkling Water, Colgate Kitchen Entrees and Cheetos Lip Balm all have in common?

The obvious answer is they are all failed products. What is less obvious is that they may also share a fan base — a quirky subgroup of consumers who are systemically drawn to flops and whose reliably contrarian tastes can be used to forecast bad bets in retail sales, real estate and even politics. These people are known as “harbingers of failure.”

The study of harbingers emerged from a 2015 analysis of purchasing patterns at a national convenience store chain. (In exchange for the data, the researchers agreed not to reveal the identity of the chain.) Drawing on six years’ worth of data from the chain’s loyalty card program, a team of marketing professors led by Eric Anderson of Northwestern University classified customers according to their affinity for buying new products that were later pulled from the shelves because of weak demand. Of the roughly 130,000 customers whose purchases were logged, a sizable fraction (about 25 percent) consistently took home products that bombed.

Reduce reactance

Monday, March 9th, 2020

Jonah Berger explains how to change anyone’s mind, the subject of his new book The Catalyst, starting with the advice to reduce reactance:

People like to feel like they’re in control — in the drivers’ seat. When we try to get them to do something, they feel disempowered. Rather than feeling like they made the choice, they feel like we made it for them. So they say no or do something else, even when they might have originally been happy to go along. Psychologists call this negative response “reactance.”

Decades of consumer behavior research shows that people have an innate anti-persuasion radar. They’re constantly scanning the environment for attempts to influence them, and when they detect one, they deploy a set of countermeasures.

To avoid getting shot down, allow for agency. Guide the path but make sure people feel like they’re still in control. Smart consultants do this when presenting work to clients. If you share just one solution, the clients spend the meeting trying to poke holes in it. To shift this mind-set, good presenters often share multiple options. That way, rather than focusing on flaws, the clients focus on which option they prefer, which makes them much more likely to support moving forward.

Another way to reduce reactance is to highlight a gap between someone’s thoughts and actions, or between what they would recommend to others and what they themselves are doing. A clever pharmaceutical executive in one of my courses told me about a colleague who was wedded to a failing project. She asked him what he would recommend if someone at a different company was considering doing something similar. Given all the information we have now, he acknowledged, it wouldn’t make sense. Then why are we still doing it? she asked. The colleague shuttered the project a month later.

Highlighting such dissonance encourages people to try to resolve it. In the 1990s, researchers at the University of California campuses at Berkeley and Santa Cruz used this idea to get students to save water during a shortage. They asked some students to encourage their peers to take shorter showers, while completing a survey on what water-saving steps they themselves were taking. Then they timed the student volunteers’ showers. Exposing the gap between students’ attitudes and actions reduced their water use by more than 25%.

IQ score is a better predictor of job performance than a résumé, evaluation through a job interview, assessment centers, or work samples

Friday, March 6th, 2020

One of the most common assertions about IQ, Charles Murray reminds us (in Human Diversity: The Biology of Gender, Race, and Class), is that it doesn’t predict performance in the real world of work:

The truth is the opposite. It’s not just that IQ predicts job performance for people with cognitively demanding jobs; IQ predicts job performance to some degree for people across the entire range of jobs. People who are responsible for new hires at a workplace should know that an IQ score is a better predictor of job performance than a résumé, evaluation through a job interview, assessment centers, or work samples.

All the rigidity and strength the pickup needs comes from everything you’re looking at

Monday, January 27th, 2020

Lean-design guru Sandy Munro suggests that the Tesla Cybertruck may only need $30 million in capital expenditures to tool up for production of 50,000 units per year:

Tesla’s secret sauce is the fact it appears the truck’s exoskeleton also act as its body panels. So, all the rigidity and strength the pickup needs comes from everything you’re looking at, and it just needs welding and assembly. The fact there’s no painting involved, just plain stainless steel, is also a tremendous cost-saver, per Munro.

Every time a reader reads to the end of a 3,000-page book, the author earns almost 14 dollars

Friday, January 17th, 2020

Self-published romance is no joke:

A genre that mostly features shiny, shirtless men on its covers and sells ebooks for 99 cents a pop might seem unserious. But at stake are revenues sometimes amounting to a million dollars a year, with some authors easily netting six figures a month. The top authors can drop $50,000 on a single ad campaign that will keep them in the charts — and see a worthwhile return on that investment.

This has led to some unscrupulous practices:

Book stuffing is a term that encompasses a wide range of methods for taking advantage of the Kindle Unlimited revenue structure. In Kindle Unlimited, readers pay $9.99 a month to read as many books as they want that are available through the KU program. This includes both popular mainstream titles like the Harry Potter series and self-published romances put out by authors like Crescent and Hopkins. Authors are paid according to pages read, creating incentives to produce massively inflated and strangely structured books. The more pages Amazon thinks have been read, the more money an author receives.

The per-page payment model was actually an attempt to crack down on a previous strategy of capitalizing on Kindle mechanics. When Kindle Unlimited was first introduced, authors were paid a flat fee per book that readers “borrowed” through the program. “Those of a kind of a black hat mindset saw the opportunity,” says David Gaughran, a blogger who has been following the phenomenon of book stuffing since 2016. “They started producing these eight-page books … very short, like recipe books, how to lose weight, no-carb diet, whatever.”

Readers, as it turned out, hated checking out books and later finding out that the books were really pamphlets. Shortly thereafter, Amazon rolled out the next iteration of Kindle Unlimited — authors would now be paid per page read.

Many self-publishers, says Gaughran, moved on to producing books that were thousands of pages long. Some of the books would include multiple translations into several languages — all run through Google Translate. Others would include junk HTML code. These methods — blatant violations of the terms of services — weren’t tolerated. Books were removed and authors were banned.

It’s not clear if these early book-stuffers moved onto the self-publishing romance scene, or if some of the self-publishing romance authors began to pick up on these tricks. Either way, book stuffing plagues the romance genre on Kindle Unlimited, with titles that come in at 2000 or even 3000 pages (the maximum page length for a Kindle Unlimited book). That’s approximately the length of Atlas Shrugged or War and Peace.

Book stuffing is particularly controversial because Amazon pays authors from a single communal pot. In other words, Kindle Unlimited is a zero-sum game. The more one author gets from Kindle Unlimited, the less the other authors get.

The romance authors Willink was discovering didn’t go in for clumsy stuffings of automatic translations or HTML cruft; rather, they stuffed their books with ghostwritten content or repackaged, previously published material. In the latter case, the author will bait readers with promises of fresh content, like a new novella, at the end of the book.

Every time a reader reads to the end of a 3,000-page book, the author earns almost 14 dollars. For titles that break into the top of the Kindle Unlimited charts, this trick can generate a fortune.

Of course, you might be wondering if any readers actually read through all 3000 pages. But authors deploy a host of tricks in service of gathering page reads — from big fonts and wide spacing to a “link back.” Some authors would place a link at the very front of the book, to sign up to a mailing list. The link would take them to the back of the book, thus counting all pages read. It’s not clear whether any of this actually works. A spokesperson for Amazon told The Verge that Amazon uses a standardized page count that won’t take big fonts or wide spacing into account. A June blog post by the Kindle Direct Publishing Team assured authors that the KENPC system (Kindle Edition Normalized Page Count) recorded pages read with “high precision” and that the company was constantly working to improve its “fidelity.”

Almost any change led to increased productivity

Friday, January 10th, 2020

The term Hawthorne effect was coined in 1958 by Henry A. Landsberger when he was analyzing earlier experiments from 1924–32 at the Hawthorne Works (a Western Electric factory outside Chicago) to describe the surprising finding of the numerous productivity studies:

The original purpose of the Hawthorne studies was to examine how different aspects of the work environment, such as lighting, the timing of breaks, and the length of the workday, had on worker productivity.

In the most famous of the experiments, the focus of the study was to determine if increasing or decreasing the amount of light that workers received would have an effect on how productive workers were during their shifts. Employee productivity seemed to increase due to the changes but then decreased once the experiment was over.

What the researchers in the original studies found was that almost any change to the experimental conditions led to increases in productivity. When illumination was decreased to the levels of candlelight, production increased. In other variations of the experiments, the production also improved when breaks were eliminated entirely and when the workday was lengthened.

The results were surprising and the researchers concluded at the time that workers were actually responding to the increased attention from their supervisors. Researchers suggested that productivity increased due to attention and not because of changes in the experimental variables. Landsberger defined the Hawthorne effect as a short-term improvement in performance caused by observing workers.

Sometimes it feels like Amazon is trying to make the publishers look ridiculous

Thursday, January 9th, 2020

The 2010s were supposed to bring the ebook revolution, but it never quite arrived:

Instead, at the other end of the decade, ebook sales seem to have stabilized at around 20 percent of total book sales, with print sales making up the remaining 80 percent. “Five or 10 years ago,” says Andrew Albanese, a senior writer at trade magazine Publishers Weekly and the author of The Battle of $9.99, “you would have thought those numbers would have been reversed.”

And in part, Albanese tells Vox in a phone interview, that’s because the digital natives of Gen Z and the millennial generation have very little interest in buying ebooks. “They’re glued to their phones, they love social media, but when it comes to reading a book, they want John Green in print,” he says. The people who are actually buying ebooks? Mostly boomers. “Older readers are glued to their e-readers,” says Albanese. “They don’t have to go to the bookstore. They can make the font bigger. It’s convenient.”

Ebooks aren’t only selling less than everyone predicted they would at the beginning of the decade. They also cost more than everyone predicted they would — and consistently, they cost more than their print equivalents.


Printing and binding and shipping — the costs that ebooks eliminated — accounted for only two dollars of the cost of a hardcover, publishers argued. So the ebook for a $20 hardcover book should cost no less than $18. And according to publishers, by setting the price of an ebook at $9.99, Amazon was training readers to undervalue books.


Print books are generally sold under a wholesale model, which works like this: First, the publisher will set a suggested list price for a book; say, $20. Then it will sell the book to resellers and distributors for a discount off that suggested list price. So if Simon & Schuster wants to sell a $20 book to Amazon, Amazon might negotiate a discount of 40 percent for itself and end up paying Simon & Schuster only $12 for that book.

But once Amazon owns the book, it has the right to set whatever price it would like for consumers. The $20 list price that Simon & Schuster set was just a suggestion. Under the wholesale model, Amazon is free to decide to sell the book to readers for as little as a single dollar if it chooses to.

Until 2010, ebooks were sold through the wholesale model too. So if Simon & Schuster was publishing a $20 hardcover, they could choose to set a suggested list price of $18 for the ebook — two dollars less than the hardcover — and then sell that ebook to Amazon at a 40 percent discount for $10.80. And Amazon could, in turn, feel free to sell that ebook for $9.99 and swallow a loss of 81 cents.


Apple was offering publishers an incentive to root for it over Amazon. With its App Store, Apple had established a resale model that worked differently from the wholesale model publishers were used to. It was called the agency model, and it worked like this: publishers would decide on what the list price for their book should be, and then put it up for sale at that price in the iBooks store. Apple would take a 30 percent commission on every sale.

Apple wasn’t willing to sell ebooks for $18, but it thought a cap of $14.99 was perfectly reasonable. And if publishers decided to go along with Apple’s plan, they could set a list price of $14.99 for an ebook and be sure that no one in the iBooks store would ever discount it without the publisher’s express permission. Apple, meanwhile, would pocket $4.50 from each sale.

But Apple couldn’t enter the ebook market while charging consumers five dollars more per unit than its biggest competitor was. It needed some assurance that no one would have a cheaper product than it had. So it made a deal with five of the Big Six publishers (Simon & Schuster, Penguin, HarperCollins, Hachette, and Macmillan; Random House, then the biggest trade publishing house, abstained): They could all sign on to Apple’s agency model, as long as they guaranteed that they’d also use that same agency model with every other retailer they worked with. That way, Amazon, too, would be forced to sell its ebooks for $14.99 — and if it refused, publishers could withhold their ebooks from Amazon and make them exclusive to Apple.


“Amazon can still discount whatever they like on the print side,” explains Jane Friedman, a publishing consultant and the author of The Business of Being a Writer. On the ebook side, however, Amazon now lists publisher-mandated prices, often with the petulant italic addition “Price set by seller.” “So the market is very weird, and often the ebook costs more than the print,” Friedman says. “Sometimes it feels like Amazon is trying to make the publishers look ridiculous.”

It all gets lost in the crowd

Monday, December 16th, 2019

I expected The Roman Guide to Slave Management to include more tips like this:

Gang labour makes slaves work faster, harder and better. You should form them into groups of about ten. This is a particularly easy number of men to keep watch over. Larger gangs can be difficult for an overseer to control on his own. So, on your estate, you should assign these groups to different sections of it, and the work should be distributed in such a way that the men will not be on their own or in pairs, since they cannot be supervised properly if they are scattered all over the place. The other problem with larger groups is that the individuals within the group will not feel that the work has anything to do with them personally. It all gets lost in the crowd.

The super-rich love South Dakota

Friday, December 6th, 2019

Money has poured out of traditional offshore jurisdictions, such as Switzerland and Jersey, and into a small number of American states, such as Delaware, Nevada, Wyoming, and, above all, South Dakota:

A South Dakotan trust changes all that: it protects assets from claims from ex-spouses, disgruntled business partners, creditors, litigious clients and pretty much anyone else. It won’t protect you from criminal prosecution, but it does prevent information on your assets from leaking out in a way that might spark interest from the police. And it shields your wealth from the government, since South Dakota has no income tax, no inheritance tax and no capital gains tax.

A decade ago, South Dakotan trust companies held $57.3bn in assets. By the end of 2020, that total will have risen to $355.2bn. Those hundreds of billions of dollars are being regulated by a state with a population smaller than Norfolk, a part-time legislature heavily lobbied by trust lawyers, and an administration committed to welcoming as much of the world’s money as it can.


At the heart of South Dakota’s business success is a crucial but overlooked fact: globalisation is incomplete. In our modern financial system, money travels where its owners like, but laws are still made at a local level. So money inevitably flows to the places where governments offer the lowest taxes and the highest security.


When Citibank based its credit card business in Sioux Falls, it could charge borrowers any interest rate it liked, and credit cards could become profitable. Thanks to Janklow, Citibank and other major companies came to South Dakota to dodge the restrictions imposed by the other 49 states. And so followed the explosion in consumer finance that has transformed the US and the world. Thanks to Janklow, South Dakota has a financial services industry, and the US has a trillion-dollar credit card debt.

Fresh from having freed wealthy corporations from onerous regulations, Janklow looked around for a way to free wealthy individuals too, and thus came to the decision that would eventually turn South Dakota into a Switzerland for the 21st century. He decided to deregulate trusts.

Trusts are ancient and complex financial instruments that are used to own assets, such as real estate or company stock. Unlike a person, a trust is immortal, which was an attractive prospect for English aristocrats of the Middle Ages who wished to make sure their property remained in their families for ever, and would be secure from any confiscation by the crown. This caused a problem, however. More and more property risked being locked up in trusts, subject to the wishes of long-dead people, which no one could alter. So, in the 17th century, judges fought back by creating the “rule against perpetuities”, which limited the duration of trusts to around a century, and prevented aristocratic families turning their local areas into mini-kingdoms.


Then Governor Janklow came along. In 1983, he abolished the rule against perpetuities and, from that moment on, property placed in trust in South Dakota would stay there for ever.


In most jurisdictions, trusts have to benefit someone other than the benefactor – your children, say, or your favourite charity – but in South Dakota, clients can create a trust for the benefit of themselves (indeed, Sun Hongbin is a beneficiary of his own trust). Once two years have passed, the trust is immune from any creditor claiming a share of the assets it contains, no matter the nature of their claim. A South Dakotan trust is secret, too. Court documents relating to it are kept private for ever, to prevent knowledge of its existence from leaking out. (It also has the useful side effect of making it all but impossible for journalists to find out who is using South Dakotan trusts, or what legal challenges to them have been filed.)


When a whistleblower exposed how his Swiss employer, the banking giant UBS, had hidden billions of dollars for its wealthy clients, the conclusion was explosive: banks were not just exploiting poor people, they were helping rich people dodge taxes, too.

Congress responded with the Financial Assets Tax Compliance Act (Fatca), forcing foreign financial institutions to tell the US government about any American-owned assets on their books. Department of Justice investigations were savage: UBS paid a $780m fine, and its rival Credit Suisse paid $2.6bn, while Wegelin, Switzerland’s oldest bank, collapsed altogether under the strain. The amount of US-owned money in the country plunged, with Credit Suisse losing 85% of its American customers.

The rest of the world, inspired by this example, created a global agreement called the Common Reporting Standard (CRS). Under CRS, countries agreed to exchange information on the assets of each other’s citizens kept in each other’s banks. The tax-evading appeal of places like Jersey, the Bahamas and Liechtenstein evaporated almost immediately, since you could no longer hide your wealth there.


But the US was not part of CRS, and its own system — Fatca — only gathers information from foreign countries; it does not send information back to them. This loophole was unintentional, but vast: keep your money in Switzerland, and the world knows about it; put it in the US and, if you were clever about it, no one need ever find out. The US was on its way to becoming a truly world-class tax haven.

The Tax Justice Network (TJN) still ranks Switzerland as the most pernicious tax haven in the world in its Financial Secrecy Index, but the US is now in second place and climbing fast, having overtaken the Cayman Islands, Hong Kong and Luxembourg since Fatca was introduced.