Book Excerpt March 11, 2010, 5:00PM EST

How I Got the Goods on Madoff, and Why No One Would Listen

(page 4 of 4)

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It was said with a proverbial wink and a nod—we know what he's doing. And if the American Madoff got caught, well, c'est la vie. They believed that the worst that could happen was that he could get caught and go to prison for a long, long time; but they would get to keep their ill-gotten returns and would get their principals back because they were offshore investors and the U.S. courts have no legal hold on them.

But for me, the most chilling discovery of this trip was the fact that many of these funds were operating offshore. It was not something that was spoken about; it was just something I picked up in conversation. Offshore funds are known as tax havens, places for people to quietly hide money so governments won't know about it. They're particularly popular in nations with high tax brackets, like France. While offshore funds certainly can be legitimate, to me it indicated that at least some of these funds were handling dirty money.

An offshore fund allows investors from a high-tax jurisdiction to pretend their income is coming from a low- or no-tax jurisdiction. While I have no direct knowledge, I definitely don't believe that all income from offshore tax havens is eventually declared to the proper government. But what was more frightening to me was the fact that offshore investments are used by some very dangerous people to launder a lot of money. It is common knowledge that offshore funds are used by members of organized crime and the drug cartels that have billions of dollars and no legitimate place to invest them.

For me, that suddenly added a frightening new perspective. It wasn't just the people in these luxurious offices who were going to be destroyed when Madoff went down; it also was some of the worst people in the world. I was pretty certain the Russian mafia had to be investing through one of those funds. I didn't know about the Latin American drug cartels, but I knew they went offshore and were probably into Madoff in a big way. Obviously Bernie had to be worried about a lot more than going to jail. These were men who had their own way of dealing with people who zero out their accounts. Maybe Bernie was close to being a billionaire—we had no idea how much of the money he was keeping for himself—but we knew that even he couldn't afford that.