"It is difficult at this stage to numerically estimate the possible damage,” Junko Nakagawa, chief financial officer of Nomura. “All we want to do is make efforts to regain trust."
In 2010 Nomura underwrote new share offerings for Inpex (an oil and natural gas exploration company), Mizuho Financial Group (one of Japan’s largest banks) and Tokyo Electric Power Company. Such offerings typically have an impact on share prices, so any advance knowledge of such plans allows traders to cash in.
Nomura employees allegedly secretly told a First New York Securities fund manager about the plans for the Tokyo Electric Power Company allowing the manager to take out a “short position” days before the utility company made a share offering in September 2010. First New York Securities made 7.2 million yen ($85,000 at the time) profit as a result.
Likewise Nomura employees gave out nonpublic information on Mizuho and Inpex to fund managers at Chuo Mitsui Asset Trust (now called Sumitomo Mitsui Trust Bank, Japan's biggest trust bank). Chuo sold Inpex holdings a higher price on behalf of foreign investors and bought them back a lower price to make a profit of ¥10 million ($119,000).
In March 2012, Japanese regulators handed out a fine of 8,000 yen (about $600). “The amount was so tiny—it would cover the cost of a fancy dinner for four in a Tokyo restaurant—that some critics questioned whether it would have any deterrent effect,” scoffed the Wall Street Journal at the time.
Despite the small fines, the scandal has had a huge impact on Nomura. The Journal reports that Nomura has been dropped from underwriting deals for at least eight Japanese companies including one to act as joint global coordinator for a $6 billion share issue by Japan Airlines, expected to the biggest deal of the year. The company also says its profits for the second quarter have plunged 90 percent.
The scandal on insider trading in Japan may widen, as the SESC is investigating several other firms. Tadahiro Matsushita, the Japanese financial services minister, has asked 12 top brokers in Japan to submit reports by early August on how they handled nonpublic information.
Posted by Pratap Chatterjee on July 20th, 2012 CorpWatch Blog
HSBC protest in Hong Kong. Photo by twak. Used under Creative Commons license. Photo of David Bagley testifying at the Permanent Subcommittee on Investigations taken from official video feed.
HSBC, one of the world’s largest banks, has been accused of laundering money for Mexican drug cartels. At a hearing conducted by the U.S. Senate earlier this week, David Bagley, HSBC's head of compliance, apologized and resigned.
"I recognize that there have been some significant areas of failure. Despite the best efforts and intentions of many dedicated professionals, HSBC has fallen short of our own expectations and the expectations of our regulators," Bagley told the U.S. Senate Permanent Subcommittee on Investigations.
HSBC traces its origins back to the Hong Kong Shanghai Banking Corporation that was set up in 1865. Today it is one of the largest financial institutions in the world, with over $2.5 trillion in assets, 89 million customers, 300,000 employees, and 2011 profits of nearly $22 billion. The CEO is still based in Hong Kong but the bank is run out of London.
In 2002, HSBC bought up a Mexican bank named Banco Internacional, S.A. from Grupo Financiero Bital, S.A. de C.V. “A pre-purchase review disclosed that the bank had no functioning compliance program, despite operating in a country confronting both drug trafficking and money laundering,” noted a report prepared for the U.S. Senate. “It opened accounts for high risk clients, including Mexican casas de cambios and U.S. money service businesses, such as Casa de Cambio Puebla and Sigue Corporation which later legal proceedings showed had laundered funds from illegal drug sales in the United States.”
HSBC officials, however, treated the new Mexican unit as low risk. Paul Thurston, chief executive of retail banking and wealth management, who was dispatched to Mexico in 2007 to look into the matter, told Congress that he was "horrified" by what he found. "I should add that the external environment in Mexico was as challenging as any I had ever experienced. Bank employees faced very real risks of being targeted for bribery, extortion, and kidnapping – in fact, multiple kidnappings occurred throughout my tenure," he said.
Other HSBC staff also raised the alarm. “The AML (anti-money laundering) Committee just can’t keep rubber-stamping unacceptable risks merely because someone on the business side writes a nice letter. It needs to take a firmer stand. It needs some cojones. We have seen this movie before, and it ends badly,” wrote John Root, a senior HSBC Group Compliance expert, wrote in an email to Ramon Garcia, the compliance director in Mexico, on July 17, 2007.
All told, the Senate report estimates that HSBC’s Mexican affiliate transported $7 billion in physical dollars to the U.S. between 2007 and 2008 alone, outstripping other Mexican banks, even one twice its size. One Cayman islands subsidiary set up by the Mexican division of HSBC handled 50,000 client accounts and $2.1 billion in deposits, but neither staff nor offices. (Pro-Publica has a nice annotated summary of the 335 page report here.)
While Bagley was taking the bullet, his former boss, Lord Stephen Green, who was chief executive of HSBC between 2003 and 2006 and chairman until 2010, has been avoiding calls to testify. An ordained priest and the author of a book titled "Serving God? Serving Mammon?" he is now the UK Trade minister.
A record £290 million ($450 million) fine for fixing rates at which banks lend to each other has been levied on Barclays bank in the UK by U.S. and U.K. authorities. The scandal has forced Bob Diamond, the Barclays CEO who had ignored activist protests over his sky-high $28 million salary, to resign on Tuesday.
Perhaps even more importantly, the scandal has shone a light into how banks set – and manipulate - rates at which $360 trillion in international deposits are loaned out every day. While most of these loans are overnight transfers between banks, they affect the price of consumer loans like mortgages, car loans and credit card loans.
Minos Zombanakis, a Greek banker who worked at Manufacturers Hanover Trust, invented a system in 1969 to estimate “market” rates for lending money when he was asked to work on a $80 million loan to Iran. “We had to fix a rate, so I called up all the banks and asked them to send to me by 11 a.m. their cost of money,” he told the New York Times. “We got the rates, I made an average of them all and I named it the London interbank offer rate.”
In subsequent years, the British Bankers Association took on the daily task of setting “LIBOR” rates for as many as 150 different kinds of loans. These BBA-determined rates are now considered the global benchmark says Donald MacKenzie, a sociologist at the University of Edinburgh, who wrote a fascinating article in 2008 about how they are set.
“This can now be done on-screen, but – especially if large sums are involved or market conditions are tricky and changing rapidly – it’s often better to use the ‘voicebox’. This is a combination of microphone, speaker and switches that instantly connects each broker by a dedicated phone line to each of his clients in banks’ dealing rooms.”
“A broker needs to pass information to his clients as well as to receive it: that’s a major part of what they want from him, and a good reason to use the voicebox rather than the screen. The brokers’ code of conduct prohibits passing on private knowledge of what a named bank is trying to do (unless a client is about to borrow from it or lend to it), but that restriction leaves plenty of room for brokers to tell traders what has just happened and to convey the ‘feel’ of the market.”
Matthews goes on to add: “The direct effect for consumers here was to make loans cheaper, but the indirect effect, or the intended one at least, was to lessen chances of government action against the banks.”
For example, one trader is reported to have told a Barclays employee: "Coffees will be coming your way either way, just to say thank you for your help in the past few weeks". The reply came back: "Done, for you big boy."
Public speculation that the rates were being fixed date back to at least 2007. Libor rates could “be manipulated if contributor banks collude or if a sufficient number change their behaviour” concluded a 2008 study by the Bank for International Settlements. So did a paper published on the Social Science Research Network which found evidence of “questionable patterns.”
Heads are continuing to roll. Marcus Agius, the chairman of the British Bankers’ Association, resigned Monday over the scandal. By coincidence, or perhaps not, Agius was also chairman of Barclays.
But that may not be enough, say some. “(T)oday’s leaders must be for finance but against banking behemoths. The instruments of finance, from risk models to derivatives, are useful when used responsibly,” concludes Sebastian Mallaby in the Financial Times. “But the structure of modern finance – vast institutions that borrow cheaply because taxpayers are on the hook to save them – is an abomination that must stop.”
Wonderful sentiments, but what about when these banks make huge profits? Are they supporting the economy then? Or are they also taking money from some one else on those occasions?
Certainly hedge funds – a secretive group of financiers – often make a killing, though sometimes they lose their shirts. Much of the money is made in ways that are very hard to understand, but in simple words: by stealing legally from the rich like the investment banks, but also from the working class and the poor. (They don’t discriminate)
Here’s a more common example: Splunk, a data company, recently went public at $17 a share. A month later the stock had doubled to $35. The banks and hedge funds who bought the shares initially are happy because they can sell now and make a tidy profit, but it means that the company raised only half the money it wanted. Still that’s the way the world works and the financial community loves it. (Thanks, Joe Nocera, for that example)
Wall Street was not as happy when Facebook also recently went public at $38 and then the price dropped. Facebook walked off with extra money but many of the institutional buyers were the ones who lost out. (Perhaps Wall Street should have been less critical of a 28 year old with a hoodie who outsmarted them. He didn’t need a sharp suit to take their money away from them)
Now back to the hedge funds robbing the banks. Weinstein noticed that Iksil (known as the London Whale) was making large bets on credit derivatives that didn’t make sense and he bet against him. Weinstein, according to a recent New York Times profile who had himself lost $2 billion at Deutsche Bank when doing whale-sized bets, recognized the problem and moved quickly to profit out of it.
So who cares? One rich bank lost money to a rich hedge fund. Surely that is a zero sum game: They swap mansions and yachts, their partners swap diamonds and butlers, and it makes no difference to the rest of us. Or does it?
One of the biggest problems is that the world of finance is that it is actually awash in cash. And the owners of that cash want to make even more cash. “(C)orporate money has been flooding into JPMorgan, as companies pull their money out of eurozone banks,” notes Gillian Tett at the Financial Times who says that roughly $2 trillion is available for investment at any given time. “Somehow you have to stash that money in an incredibly safe place, but also produce some returns. So where do you put it? In Treasuries, which carry negative real returns and are becoming riskier by the day? In eurozone bonds or corporate credit? Or can you find something else, without creating new risk?”
Where did this money come from if the world economy is in a recession?
Well, the simple answer is that every day, both the banks and the hedge funds are taking little chunks of our money, although not in the extreme way that Soros did in Indonesia back in 1997. Higher interest rates; lower wages by moving factories; buying up farmland etc. etc.
Dimon’s remarks are being used to roast him now and it’s high time. We need better regulation of both banks and hedge funds. One important reform is to make sure that investment banks and regular banks are separated. If the rich want to trade mansions, they can do so. But the investment banks and hedge funds should not be bailed out. And if they want to take money from the rest of us, they need to be kept in check.
Unfortunately that may be the opposite of what happens. As the Washington Post’s Dana Milbank notes: “The trading scandal at JPMorgan highlighted the urgent need for tougher regulation of Wall Street, but (Alabama Congressman’s) Shelby’s harangue was part of a larger effort to use the scandal as justification to repeal regulations.”
Posted by Pratap Chatterjee on May 28th, 2012 CorpWatch Blog
Translation: The Rich Get Richer. Stop Poverty Wages! (Photo of Blocupy poster: linkskreativ. Photo of Euro: Slolee. Used under Creative Commons license)
The sudden economic crash in several southern European countries: Greece, Italy, Portugal and Spain as well as Ireland (sometime called the PIIGS, a rather dubious and perjorative name); is commonly blamed on lazy workers, a bloated social security system and unwise borrowings by greedy governments. This is why lenders like the European Central Bank (ECB) and the International Monetary Fund (IMF) are now asking these governments to cut social spending (austerity measures) and pay ever higher interest rates, despite the fact that only serves to make the situation worse.
"As far as Athens is concerned, I … think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax," Christian Lagarde, the French head of the IMF told the Guardian.
In reality, a large chunk of the bailouts are for debts created by private banks in Greece, Ireland, Italy, Portugal and Spain borrowing abroad – for speculative real estate schemes and such like - not by shopkeepers, small entrepreneurs and ordinary citizens. And a surprisingly big chunk of the rash loans were handed out by private (and some public) banks in just four countries: France, Germany, the UK and Belgium (in that order).
Peter Böfinger, an economic advisor to the German government, put his finger on it when he told Der Spiegel last year: “[The bailouts] are first and foremost not about the problem countries but about our own banks, which hold high amounts of credit there.”
Let’s dig a little deeper. First were all the borrowing countries wildly spendthrift? Here are some very instructive numbers: before 2008, the Irish and Spanish governments had borrowed less than Belgium, France, Germany and the UK. The Irish owed owed roughly 25 percent of gross domestic product (GDP) in 2007, the Spaniards owed 36 percent. Meanwhile the Belgians had borrowed 84 percent, the French and German government had taken out 65 percent while the UK was at 44 percent. The Portugese were at about 65 percent – same as the Germans – and Greece and Italy admittedly were at over 100 percent.
Second, who was lending the money that is now so difficult to pay back? After all it takes two to tango, as they say. Borrowers and lenders share in the risk and the blame.
How much of these loans were to the government? The Economist has some interesting numbers – just $36 billion went to the governments of Greece, Portugal and Spain. The rest was loaned out by banks like Munich based Hypo Real Estate that distributed over $104 billion for property schemes.
(For more details the BBC has an excellent graphic tool that shows which country was borrowing from whom: Spain’s biggest creditor is Germany at €131.7 billion ($171.2 billion) and Portugal’s biggest creditor is also Germany €26.6 billion ($34.6 billion). The Greeks owed most to France at €41.4 billion ($53.8 billion).
Finally, who profits out of this? Well, the German banks have since taken their money out: Bloomberg estimates that $590 billion was taken back after December 2009. But the debt remains so that is why the borrowing countries are forced to go to lenders like the ECB which in turn is getting it from the Bundesbank (the German central bank). The German government only has to pay an interest rate of 1.42 percent to borrow money for 10 year bonds, apparently the lowest they have ever paid. (The French are also doing fine at 2.42 percent)
The ECB money comes with strings attached – severe austerity. It is true the borrowing countries don’t have to take these conditional loans, they can also borrow at market rates but this can be very expensive: they have to pay between 5.5 percent (Italy) to an astronomical 30 percent (Greece) in interest for 10 year bonds.
In reality this crisis is at least partly (perhaps mostly) the fault of the banks in the wealthy countries like France and Germany and it is these banks that have really been bailed out by the ECB and the IMF.
The Indignados in Madrid, Blockupy in Frankfurt and Occupy Wall Street have it right.
Posted by Pratap Chatterjee on May 16th, 2012 CorpWatch Blog
Jean-Luc Deheane. Photo: European Movement Belgium. Used under Creative Commons license
“This Bud’s for you,” is a popular Budweiser ad jingle. Apparently Jean-Luc Dehaene, a Member of the European Parliament from Belgium, takes it personally, since he recently accepted shares worth $4.2 million in the company that makes the beer. What’s remarkable is that he forgot to mention this as a potential conflict of interest.
Dehaene is a former prime minister of Belgium and now a Member of the European Parliament. In this position, he has the ability to vote on regulations on the European food and drink industry, including the brewery sector.
When Dehaene served on the board of Anheuser Busch InBev – a Belgian company which manufactured and sold $39 billion worth of goods last year including Budweiser, Stella Artois and Beck’s beer – he was given stock options worth as much as €3 million. He left the board in March 2011 and as of April 30th is now able to cash in.
Yet Dehaene has failed to mention the shares in his official declaration of interests which he filed on February 12 of this year, despite the official rules that state that “a conflict of interest exists where a Member of the European Parliament has a personal interest that could improperly influence the performance of his or her duties as a Member.”
In a letter issued Tuesday and addressed to Martin Schulz, the president of the European Parliament, four activist groups – Corporate Europe Observatory, Friends of the Earth Europe, Lobby Control and SpinWatch – drew attention to this discrepancy. They write: “How will the parliamentary authorities guarantee that proper safeguards are put in place to avoid potential situations of conflict of interest in this particular case?”
“Jean-Luc Dehaene and Pierre Mariani, the chief executive officer, are responsible for the fiasco at Dexia,” Paul de Grauwe, a member of the economic advisory group to Jose Manuel Barroso, president of the European Commission, told the Mail on Sunday. “It is dangerous to speculate, to gamble with the money of ordinary citizens. The big problem is that Dexia abandoned traditional banking and started speculating to earn more. That ended miserably.”
“Known as ‘the plumber’ during his time as Prime Minister of Belgium, due to his ability to resolve crises, this time he appears to have drilled through the main standpipe,” commented the Mail.
A number of MEPs have recently come under close scrutiny for conflicts of interest after four of their number agreed to put forward “amendments” for fictitous clients in exchange for cash, by a team of reporters at the Sunday Times newspaper.
“You send me the amendment and what your client wants to change. Yes?” Ernst Strasser, former Austrian interior minister, told the reporters. “Of course I’m a lobbyist, yes, and I’m open for that, yes?” Strasser was forced to resign after the report was published.
Under a new code of conduct, approved last December, the politicians are now expected to list potential conflicts of interest that amount to over €5,000 a year. There is no law against such conflicts, however, and several have been discovered.
For example EuroPolitics notes that Klaus-Heiner Lehne, earns over €10,000 as a lawyer and partner at international law firm Taylor Wessing, while he chairs the Committee on Legal Affairs. Elmar Brok, who earns between €5,001 and €10,000 per month as an advisor at Bertelsmann AG, the media conglomerate, is chair of the Committee on Foreign Affairs.
That’s small beer compared to what Dehaene might make from selling his Anheuser Busch InBev stock.
Posted by Pratap Chatterjee on May 7th, 2012 CorpWatch Blog
$100 bills. Photo: Adam Kuban. Used under Creative Commons license
Hedge funds, a publicity-shy sector of the financial industry where the super wealthy invest their money in the hope of making above-average profits, were just handed an opportunity to make even more money under a new law signed by President Barack Obama. Consumer advocates say that unsophisticated investors may be at risk as a result.
Most U.S. investment funds are regulated under the Securities Exchange Act of 1934 and the Investment Company Act of 1940 which restrict how much the fund managers are paid and what they do in order to protect naïve investors. Many hedge funds are designed to get around these restrictions by raising money from a select few sophisticated investors.
For example, big hedge funds seek “qualified purchasers” – who have at least $5 million in money – who are exempt from these restrictions under section 3(c)(7) of the 1940 Securities Exchange Act. Smaller hedge funds seek as many as 100 “accredited investors” - those with a net worth of over $1 million (not including their houses) or a minimum annual income of $200,000 (or $300,000 for married couples) – under the 3(c)(1) of the Investment Company Act of 1940.
Like any other exclusive club for the wealthy, hedge funds tend to be very secretive. Some of this is the law: “private placements” of securities are banned from advertising publicly but also because companies with less than 500 shareholders are exempt from publishing annual reports under the Securities Exchange Act of 1934.
In “More Money Than God: Hedge Funds and the Making of a New Elite” Sebastian Mallaby estimates that the hedge funds make some 11 percent profit, more than double other investment vehicles. This allows fund managers to ask for higher fees than regular bankers – typically they take between one and four percent of the investment every year as well as between 10 and 50 percent of profits in return for attempting to beat the stock market.
Some hedge fund managers mint money: Raymond Dalio of Bridgewater Associates was paid an estimated $3 billion in 2011, Carl Icahn of Icahn Capital Management earned $2 billion. The top European hedge fund manager in 2011 was Alan Howard of Brevan Howard Asset Management, who earned $400 million last year. All told, the 40 highest paid hedge fund managers were paid a combined $13.2 billion in 2011, according to a Forbes magazine survey.
Under the Jumpstart Our Business Startups (JOBS) Act, signed into law by Obama on April 5, 2012, the threshold for publishing annual reports has been raised to 2,000. It also allows hedge funds to conduct “general advertising” although specifics will have to be spelt out by the Securities and Exchange Commission (SEC) within 90 days.
Barbara Roper, director of investor protection at Consumer Federation of America told Reuters that she was worried that hedge funds might exploit unwary people. “Accredited investors are not necessarily sophisticated investors,” she said. “It will do more harm than good.”
Writing in the Financial Times Robert Pozen, a senior lecturer at Harvard Business School and Theresa Hamacher, president of the National Investment Company Service Association, recommend that the SEC should take two specific steps to protect these smaller investors. “First, it should update the definition of accredited investor, which was established 30 years ago, in 1982. To be a realistic proxy for sophistication in the present age, accredited investors should have an annual income of $600,000 and net worth of at least $3m, again excluding their home.
“Second, the SEC should establish uniform standards for reporting performance by hedge funds. Because reporting hedge fund returns is voluntary, managers can hide the performance of a poorly performing fund—either by not reporting it or by closing down the fund. As a result, the average reported return of hedge funds is overstated by more than three percentage points per year, according to several studies.”
The SEC, for its part, says it is intent on cleaning up the industry with the help of data that hedge funds have to provide under new disclosure rules enacted into law by the Dodd-Frank Act of 2010. "Pick your fraud of the day and the question is, 'Can we extract information from this data system together with the other databases we have access to and home in on problems before they do damage?'" Robert Plaze, deputy director in the division of investment management for the Securities and Exchange Commission, told the Wall Street Journal.
Posted by Pratap Chatterjee on April 21st, 2012 CorpWatch Blog
Wal-Mart: The High Cost of Low Price movie poster
Eduardo Castro-Wright, the former CEO of Walmart Stores USA, has been accused of leading a $24 million scheme to pay off Mexican city governments in return for permission to open supermarkets around the country.
Walmart, based in Bentonville, Arkansas, runs giant discount retail stores that sell consumer goods at rock bottom prices. It has grown to become the world’s largest private employer with 2011 sales of $421.85 billion.
Company bosses turned a blind eye to the scheme of Mexican bribes (called “gestores” in Mexico) when informed about it in 2005, according to an investigation just published in the New York Times. Michael T. Duke, now Walmart’s CEO, was also informed at the time but did nothing.
Castro-Wright was described by Forbes magazine at the time as “one of the sharpest executives in the land watching over his 3,250 U.S. stores” in a fawning write-up in January 2006.
The Texas A&M graduate took over the Mexico operations in 2002. Over the next four years, Forbes cited his ability to grow Walmart’s Mexican business by slashing “prices and expenses, squeez(ing) suppliers” and a “knack for public relations … when merchants protested the construction of a Wal-Mex store near an archaeological site.”
The magazine did not mention bribes.
In reality, the company grew quickly mostly because of a bribery scheme that was run by Sergio Cicero Zapata, a former executive, according to the New York Times investigation. Cicero, who was in charge of obtaining construction permits for the new stores, called the scheme “the dark side of the moon.”
The money was typically paid out to local governments via two of Cicero’s friends from law school: Pablo Alegria Con Alonso and Jose Manuel Aguirre Juarez. These bribes “bought zoning approvals, reductions in environmental impact fees and the allegiance of neighborhood leaders” according to the New York Times. “Permits that typically took months to process magically materialized in days.” The “gestores” helped catapult Walmart into becoming the largest employer in the country with 209,000 workers.
Cicero blew the whistle in September 2005 when he felt he was not promoted fast enough. When H. Lee Scott Jr. - then Walmart’s CEO - was informed, he covered up the matter and “rebuked internal investigators for being overly aggressive.”
José Luis Rodríguezmacedo Rivera, the general counsel of Wal-Mart de Mexico, who allegedly authorized the bribes, was hired to investigate the matter. Not surprisingly he found his colleagues innocent.
Castro-Wright left Mexico in late 2005 and returned to the U.S. The bribes stopped. But instead of being suspended or fired, Castro-Wright was promoted to vice-chairman of Walmart in 2008.
Paying bribes anywhere in the world is illegal for U.S. companies under the Foreign Corrupt Practices Act and Walmart is required to inform the Department of Justice of any violation. Walmart did not do this until December 2011, six years later, when it learned of the New York Times investigation
Walmart has not denied the charges. In a press release issued as soon as the New York Times article came out, David Tovar, Walmart's vice president of corporate communications says: "Many of the alleged activities in The New York Times article are more
than six years old. If these allegations are true, it is not a
reflection of who we are or what we stand for. We are deeply concerned
by these allegations and are working aggressively to determine what
happened."
None of Walmart’s aggressive expansion tactics in Mexico will come as a total surprise to activists in the U.S. like Food & Water Watch and the Institute for Local Self-Reliance (ILSR). The two groups issued a new report last week titled “Top 10 Ways Walmart Fails on Sustainability.”
“Walmart … forces smaller farmers and companies to get big or get out of business,” said Wenonah Hauter, executive director of Food & Water Watch. The activists noted that the company added 1,100 new stores in the U.S. since 2005, ignoring environmental objections, such as paving over land with endangered species.
Walmart has also been accused of “greenwashing” – a tactic by which companies “preserve and expand their markets by posing as friends of the environment and enemies of poverty.”
In 2005 Walmart hired public relations advisers and teamed up with the Environmental Defense Fund (EDF) in 2005, an NGO that has a history of working with big business.
With the help of EDF, the company released a report last week that touted numbers such as a claim that Walmart had kept “80.9 percent of all waste generated by our U.S. operations out of landfills. This has the potential to prevent 11.8 million metric tons of CO2 emissions annually.”
In reality, the company’s energy use has increased greenhouse gas emissions by 14 percent since 2005. In fact Food & Water Watch and ILSR note that barely one percent of Walmart’s Chinese suppliers have actually implemented waste reduction programs; that most of its products are so shoddy that they actually increase waste; that the company only sources four percent of its energy from renewable sources (other retailers like Whole Foods are already at 100 percent)
Bribery and greenwashing do make a business grow more quickly, after all.
Posted by Pratap Chatterjee on April 19th, 2012 CorpWatch Blog
EFSA Cartoon. Source: Corporate Europe Observatory
Should lobbyists for biotech and food companies be allowed to make the rules on scientifically questionable products sold in the supermarket and - by default - your kitchen? The companies like the idea because they stand to make a huge profit. Yet the European Food Safety Agency (EFSA) appears to have failed to properly regulate such conflicts
of interest.
EFSA, based in Parma, Italy, investigates food and feed safety, nutrition, animal welfare, plant protection and health. The agency’s assessments – which are conducted by expert panels - are used by the European Commission in Brussels to decide whether to authorize products on the European market.
Meet Mella Frewen, our exhibit #1. She was a food lobbyist for Monsanto, the U.S. biotechnology giant and Cerestar, then Europe’s biggest starch producer. Then she moved to become director general of the Confederation of the Food and Drink Industries of the EU and now EFSA wants to appoint her to their management board.
Would that be a conflict of interest? Nina Holland from the Corporate Europe Observatory (CEO) thinks so. “The EU Commission is not doing ESFA any favours by nominating a food lobbyist as candidate for the agency’s management board. If EFSA is to regain its independence in the future, people with ties to industry should be excluded from the (expert) panels as well as from the management board,” she says.
This revolving door works both ways. The men and woman at EFSA know that they can get good jobs in industry if they quit, to help lobby their former colleagues to weaken regulations.
Meet exhibit #2: Suzy Renckens, who ran EFSA´s GMO (genetically modified organisms) unit from 2003 to 2008. In 2008, Suzy Renckens was hired by biotechnology corporation Syngenta, which produces and markets genetically engineered plants, to become a lobbying for the company in Brussels.
Catherine Geslain-Lanéelle, the executive director of EFSA, recently admitted to European Union Ombudsman in Strasbourg that the agency had “regrettably” made a mistake by not properly examining the potential conflicst of interest. “Before leaving EFSA, Ms Renckens did not provide substantial details about her new employment. EFSA was still unfamiliar with this kind of occurrences and no specific processes were in place at the time,” wrote Geslain-Lanéelle in a letter that was released to the public yesterday.
Now for exhibit #3: Harry Kuiper was the chair of the so-called GMO panel at EFSA for nearly ten years. In that time, EFSA moved from a ban on genetically modified organisms, to approving two and eventually 38. Throughout that period, Kuiper had strong ties with the International Life Sciences Institute (ILSI), which is funded by agrochemical companies and the food industry.
“We urgently need more clarity. Harry Kuiper has been involved in each and every case of risk assessment of genetically engineered plants since the start of EFSA,” says Christoph Then of Testbiotech in Munich, Germany, who brought a complaint against Kuiper to the EU Ombudsman in March. “The public has a right to know if consumers and the environment were really protected in the best possible way.”
Testbiotech and CEO says the Renckens case also want further action by EFSA to show that they are serious about banning conflicts of interests. “EFSA should have admitted its problems much earlier. (I)t is still not clear if EFSA will stop such a move to industry in the future,” says Then. (Full disclosure: This writer serves on the advisory board of the Corporate Europe Observatory)
Posted by Pratap Chatterjee on April 13th, 2012 CorpWatch Blog
Vampire Squid puppet. Photo: M.V. Jantzen. Used under Creative Commons license
In U.S. sports jargon, a “huddle” is the term used to describe players gathering in a tight circle to plan game strategy. When the Securities and Exchange Commission (SEC) discovered that Goldman Sachs researchers had weekly “huddles” with investment bankers and traders to provide them with stock tips, however, they called foul.
“From 2006 to 2011, Goldman held weekly huddles sometimes attended by sales personnel in which analysts discussed their top short-term trading ideas and traders discussed their views on the markets,” said the SEC in a press release issued earlier this week. “In 2007, Goldman began a program known as the Asymmetric Service Initiative (ASI) in which analysts shared information and trading ideas from the huddles with select clients.”
Insider trading – as we have noted before – is the practice of cashing in on information that is not known to the general public. Although it is not illegal in many other countries, the U.S. takes it very seriously and will jail violators and sometimes ban them from trading. Bigger companies – like Goldman Sachs – will typically pay out large sums in order to avoid such punishment.
This is not the first time that Goldman Sachs has been accused of insider trading. In 2003, the investment bank paid out $110 million as part of a $1.4 billion settlement with the New York state attorney general Eliot Spitzer to resolve claims of conflicts of interest. Business Week magazine’s Robert Kuttner described it thus: “(R)esearch analysts" were acting as stock touts for the firms' investment banking business instead of providing objective, independent analysis to investors.”
Three years later, it appears that the company was doing much the same thing. In 2009, the Wall Street Journal uncovered evidence: Susanne Craig published an article in which she gave specific example of a Goldman analyst named Marc Irizarry who rated mutual-fund manager Janus Capital Group Inc. as a "neutral" in early April 2008. Later that month, at an internal huddle, Irizarry said that he expected Janus to climb. The following day Goldman staff called some 50 preferred clients like Citadel Investment Group and SAC Capital Advisors, both hedge fund groups, to give them the tip. Less powerful clients had to wait six days for Irizarry’s bullish report, by which time the stock had already gained 5.8 percent.
In June 2011, Goldman Sachs paid state regulators in Massachusetts a $10 million fine to resolve the allegations of huddles. “We verified that there was a preference of some customers at the expense of others,” William F. Galvin, the state’s chief financial regulator, told the New York Times.
More details followed: An internal e-mail, written in November 2008, noted that over half of 115 accounts that were contacted by Goldman Sachs staff reported an increase in revenue. “The commercial value of these calls in the form of more revenue to GS … (is) substantial,” the complaint recorded one business manager saying. “In general we have seen about a 50 percent rise in revenue.”
This week’s settlement with the SEC requires Goldman Sachs to pay a fine of $22 million. “Despite being on notice from the SEC about the importance of (higher-order) controls, Goldman failed to implement policies and procedures that adequately controlled the risk that research analysts could preview upcoming ratings changes with select traders and clients,” said Robert S. Khuzami, the SEC’s enforcement director in a press release.
Goldman issued a statement saying that it “neither admitted or denied the charges.”
Given this history, it is hardly a surprise that Goldman Sach’s business model was recently caricatured by Matt Taibbi in Rolling Stone thus: “The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”
Posted by Pratap Chatterjee on April 5th, 2012 CorpWatch Blog
Ian Hannam, a senior JP Morgan banker and ex-soldier, who helped finance a number of flamboyant and controversial mineral extraction projects over the last couple of decades, has resigned, after being fined $720,000 for insider trading by the UK Financial Services Authority (FSA).
Among the projects Hannam helped bankroll were multinational comglomerates digging for gold in Afghanistan and Tanzania, drilling for oil in Kurdistan, digging for bauxite in India, copper in Kazakhstan, gold and silver in Mexico and iron in the Ukraine.
In India, Hannam financed Vedanta Resources, a UK company, that is threatening to despoil the Niyamgiri Hills in Orissa, home to the Dongria Kondh tribal people. In Tanzania, Hamman raised money for African Barrick Gold, where local police have killed local scavengers. In Kurdistan, Hannam helped Tony Buckingham, chairman of Heritage Oil and a former partner in Executive Outcomes, the now defunct South African mercenary operation.
Hannam raised tens of millions for each of these operations as JPMorgan’s global chairman of equity capital markets, attracting fawning attention from the world’s business elites. “In his wake, mountains are razed, villages electrified, schools built, and fortunes made,” wrote Fortune magazine last May in a glowing tribute to his plans to dig for gold in northern Baghlan province, Afghanistan. “If anyone can wrest a fortune from Afghanistan's rubble, it is this man, Ian Hannam.” Others were a little more critical. “There are those who feel he’s an unguided missile,” a South African banker told the Financial Times last September. “But the thing about missiles is they can be very effective.”
Hannam came unstuck when he fired off two emails to a business associate in Kurdistan in September 2008. The first suggest that Heritage Oil shares would soon be worth as much as £4 ($6.40) almost twice as much as the price at the time. The second email read: “PS - Tony has just found oil and it is looking good.” (Hamman was referring to a Heritage project in Uganda which later proved to be correct)
This is classic insider trading, giving out information that is not known to the general public, which allows the recipient to cash in quickly. Although it is not illegal in many countries, the U.S. frowns heavily on this and the U.K is starting to crack down on such violations.
The person Hamman emailed did not cash in on Heritage but was sufficiently impressed to hire the JP Morgan banker to set up a Kurdish investment fund.
Hannam told the FSA that the emails were an "honest error or errors of judgment” that he made "at a time of extreme turbulence in the financial markets, when he was under extreme pressure at work.”
The Financial Times has both praised and lamented the fines on Hamman. “City is right to crack whip on market abuse,” writes John Gapper. “The curse of the rainmaker strikes. Ian Hannam is the investment banker who helped turn London into the go-to financial centre for mining companies,” writes the Lex column. “(F)inancial centres such as London need to make sure that relationship banking continues to find a home.”
We agree with Gapper. But we are not so sure that the Lex column’s suggestion that “relationship banking” (read borderline insider trading) is such a good thing, especially when its purpose is to enrich a few at the expense of many, such as farmers and scavengers in Tanzania, as well as that of the sacred lands and environment of indigenous communities like the Dongria Kondh.
Posted by Pratap Chatterjee on March 8th, 2012 CorpWatch Blog
Poker Winnings. Photo: dcJohn. Used under Creative Commons license
Sherkhan Farnood, the founder of Kabul Bank in Afghanistan, is the focus of a front page New York Times article today. The 51 year old international poker player is held up as a symbol of the “pervasive graft (that) has badly undercut the American war strategy” noting that he owes the bank $467 million. But in reality, the powerful men behind the bank - Mahmoud Karzai, brother to the Afghan president, Hamid Karzai, and Abdul Hasin Fahim, brother to the vice-president, General Qasim Fahim – are the real symbols of corruption in the country.
Zahid Walid was started by Hasin Fahim with the help of his warlord brother who had been a key ally of the U.S. during the 2001 invasion. The company won a series of lucrative contracts to pour concrete for a NATO base, as well as portions of the U.S. embassy being rebuilt in Kabul and the city's airport, which was in a state of disrepair.
Next the company started importing Russian gas, and not long after that, Abdul Hasin set up the Gas Group, which markets bottled gas to households and small businesses. More lucrative deals followed - beginning in the winter of 2006, Zahid Walid won over $90 million in contracts from the Afghan ministry of energy and water to supply fuel to the diesel power plants in Kabul.
In 2007, Fahim and his fellow shareholders at Kabul Bank, approached Mahmoud Karzai with an offer – they would lend him $5 million to take an ownership stake in the bank. “The only way to get contracts and protection is to have support in the political system … That was political survivalism. They knew they needed a Karzai,” an Afghan political leader told the New York Times.
In early 2009, Hasin Fahim and Mahmoud Karzai approached the president with a suggestion – why not take on General Fahim as vice-president? After Hamid Karzai agreed, Kabul Bank, together with another politically connected bank, Ghazanfar, donated millions to his re-election campaign.
Mahmoud Karzai soon tired of Farnood. "The thing is, he's not sophisticated enough for today's global economy,” he told the Daily Telegraph.
It is true that Farnood was not a sophisticated jet-setter like Karzai (who has run restaurants from Boston to San Francisco) nor related to warlords or senior politicians. Born into a poor family in Kunduz, he made his money running money lending operations in Moscow and gambling on the side. He made rash business judgements – his airline acquired planes with forged documents – leading to a fatal crash.
But it isn’t the only time that the U.S. government and its political allies have entrusted large sums of money to neophytes willing to do their bidding in the War on Terror. In Iraq, the U.S. hired Ziad Cattan, a Polish Iraqi used-car dealer, to work at the Ministry of Defense where he spent $1.3 billion on military equipment that was “shoddy, overpriced or never delivered” such as aging Russian helicopters and underpowered Polish transport vehicles. "Before, I sold water, flowers, shoes, cars — but not weapons," Cattan told the Los Angeles Times. "We didn't know anything about weapons."
"He was somebody we recruited, and we were taking a chance on him just like on everybody else," said Frederick Smith, a former Defense Department official told the newspaper. "Ziad is not a choirboy. But he was willing to serve."
The same goes for 21 year old Efraim Diveroli, who was awarded a $300 million contract in 2007 to supply weapons to the Afghan security forces. Diveroli and his partner David Packouz sent decades-old Kalashnikov ammunition in corroded packaging to the war, and repackaging and obscuring the origins of Chinese cartridges procured from Albania. "I didn't know anything about the situation in that part of the world. But I was a central player in the Afghan war — and if our delivery didn't make it to Kabul, the entire strategy of building up the Afghanistan army was going to fail,” Packouz later told Rolling Stone. “Here I was dealing with matters of international security, and I was half-baked (high on marijuana). It was totally killing my buzz.”
Handing over millions to flower sellers, stoners, poker players – who gamble the money away - is it that surprising that the money for the War on Terror isn’t going very well
Posted by Pratap Chatterjee on March 2nd, 2012 CorpWatch Blog
Michael Douglas video for the FBI
The Federal Bureau of Investigation (FBI) has just released a public service advertisement featuring Michael Douglas, the Hollywood star who plays the fictional character Gordon Gekko in the “Wall Street” films to target insider trading in the financial industries.
“In the movie ‘Wall Street’ I played Gordon Gekko, who cheated to profit while innocent investors lost their savings. The movie was fiction but the problem is real,” says Douglas in the ad. “Our economy is increasingly dependent on the success and integrity of the financial markets. If a deal looks too good to be true, it probably is.”
Increasingly, however, it seems that the UK needs a similar campaign for the City of London, which has become the center for the mantra “Greed is Good.”
Why is London so attractive to wealthy traders? One of the reasons is the relative lack of enforcement against criminal activity. New York authorities have prosecuted 66 people for insider trading, with 57 convictions or guilty pleas since 2009.
The UK has relied on fines to push the envelope a little against financial services abuse. Philippe Jabre, a former managing director of hedge fund manager GLG Partners, was told to pay £750,000 in August 2006 for illegally dealing in securities of Sumitomo Mitsui Financial Group. JP Morgan was fined £33.3million in June 2010 by the FSA for failing to segregate client money in overnight accounts. Last month, David Einhorn and his fund Greenlight Capital, were fined £7.2m for insider trading about a planned 2009 equity fundraising by Punch Taverns.
“It has been far slower going in London, where many hedge funds operate, let alone in Geneva,” writes John Gapper of the Financial Times. “The small minority that breaks the rules has a much lower chance of either being caught or, when caught, jailed.”
One of the reasons is that the FBI has been more effective is its ability to monitor mobile phone calls and conference calls. The UK, however, does not allow phone-tapping to convict traders.
Although the UK convictions may seem paltry – they are still a sea change from the past, as a result of a crackdown initiated by Margaret Cole, the interim FSA director. She was recently placed on leave and is to be replaced by Martin Wheatley, who will head a new body called the Consumer Protection and Markets Authority.
Wheatley comes to the job from Hong Kong where he secured 171 convictions in the past three years as head of the Hong Kong Securities and Futures Commission (SFC), representing over two thirds of the cases in the last 23 years. Will he finally be able to crack down on the Gordon Geckos in the City of London?
The bracing reality that America has two sets of rules -- one for the
corporate class and another for the middle class -- has never been more
indisputable.
The middle class, by and large, plays by the rules, then watches as
its jobs disappear -- and the Senate takes a break instead of extending
unemployment benefits. The corporate class games the system -- making
sure its license to break the rules is built into the rules themselves.
One of the most glaring examples of this continues to be the ability
of corporations to cheat the public out of tens of billions of dollars a
year by using offshore tax havens. Indeed, it's estimated that
companies and wealthy individuals funneling money through offshore tax
havens are evading around $100 billion a year in taxes -- leaving the rest of
us to pick up the tab. And with cash-strapped states all across the
country cutting vital services to the bone, it's not like we don't need
the money.
You want Exhibit A of two sets of rules? According to the White
House, in 2004, the last year data on this was compiled, U.S.
multinational corporations paid roughly $16 billion in taxes on $700 billion
in foreign active earnings -- putting their tax rate at around 2.3
percent. Know many middle class Americans getting off that easy at tax
time?
In December 2008, the Government Accounting Office reported
that 83 of the 100 largest publicly-traded companies in the country --
including AT&T, Chevron, IBM, American Express, GE, Boeing, Dow, and
AIG -- had subsidiaries in tax havens -- or, as the corporate class
comically calls them, "financial privacy jurisdictions."
Even more egregiously, of those 83 companies, 74 received government
contracts in 2007. GM, for instance, got more than $517 million from the
government -- i.e. the taxpayers -- that year, while shielding profits
in tax-friendly places like Bermuda and the Cayman Islands. And Boeing,
which received over $23 billion in federal contracts that year, had 38
subsidiaries in tax havens, including six in Bermuda.
And while it's as easy as opening up an island P.O. Box, not every
big company uses the dodge. For instance, Boeing's competitor Lockheed
Martin had no offshore subsidiaries. But far too many do -- another GAO
study found
that over 18,000 companies are registered at a single address in the
Cayman Islands, a country with no corporate or capital gains taxes.
America's big banks -- including those that pocketed billions from
the taxpayers in bailout dollars -- seem particularly fond of the Cayman
Islands. At the time of the GAO report,
Morgan Stanley had 273 subsidiaries in tax havens, 158 of them in the
Cayman Islands. Citigroup had 427, with 90 in the Caymans. Bank of
America had 115, with 59 in the Caymans. Goldman Sachs had 29 offshore
havens, including 15 in the Caymans. JPMorgan had 50, with seven in the
Caymans. And Wells Fargo had 18, with nine in the Caymans.
Perhaps no company exemplifies the corporate class/middle class
double standard more than KBR/Halliburton. The company got billions from
U.S. taxpayers, then turned around and used a Cayman Island tax dodge
to pump up its bottom line. As the Boston Globe's Farah
Stockman reported, KBR, until 2007 a unit of Halliburton,
"has avoided paying hundreds of millions of dollars in federal Medicare
and Social Security taxes by hiring workers through shell companies
based in this tropical tax haven."
In 2008, the company listed 10,500 Americans as being officially
employed by two companies that, as Stockman wrote, "exist in a computer
file on the fourth floor of a building on a palm-studded boulevard here
in the Caribbean." Aside from the tax advantages, Stockman points out
another benefit of this dodge: Americans who officially work for a
company whose headquarters is a computer file in the Caymans are not
eligible for unemployment insurance or other benefits when they get laid
off -- something many of them found out the hard way.
This kind of sun-kissed thievery is nothing new. Indeed, back in
2002, to call attention to the outrage of the sleazy accounting trick, I
wrote a column announcing I was thinking of moving my
syndicated newspaper column to Bermuda:
I'll still live in America, earn my living here, and enjoy
the protection, technology, infrastructure, and all the other myriad
benefits of the land of the free and the home of the brave. I'm just
changing my business address. Because if I do that, I won't have to pay
for those benefits -- I'll get them for free!
Washington has been trying to address the issue for close to 50 years
-- JFK gave it a go in 1961. But time and again Corporate
America's game fixers -- aka lobbyists -- and water carriers in
Congress have managed to keep the loopholes open.
The battle is once again afoot. On Friday, the House passed the American
Jobs and Closing Tax Loopholes Act. The bill, in addition to
extending unemployment benefits, clamps down on some of they ways
corporations hide their income offshore to avoid paying U.S. taxes. Even
though practically every House Republican voted against it, the bill passed 215 to 204.
The bill's passage in the Senate, however, remains in doubt, with
lobbyists gearing up for a furious fight to make sure America's
corporate class can continue to profitably enjoy the largess of
government services and contracts without the responsibility of paying
its fair share.
The bill is far from perfect -- it leaves open a number of loopholes
and would only recoup a very small fraction of the $100 billion
corporations and wealthy individuals are siphoning off from the U.S.
Treasury. And it wouldn't ban companies using offshore tax havens from
receiving government contracts, which is stunning given the hard times
we are in and the populist groundswell at the way average Americans are
getting the short end of the stick.
But the bill would end one of the more egregious examples of the
double standard between the corporate class and the middle class,
finally forcing hedge fund managers to pay taxes at the same rate as
everybody else. As the law stands now, their income is considered
"carried interest," and is accordingly taxed at the capital gains rate
of 15 percent.
The issue was famously brought up in 2007 by Warren Buffett when he noted that his receptionist paid 30 percent of her
income in taxes, while he paid only 17.7 percent on his taxable income
of $46 million dollars.
As Robert Reich points out, the 25 most successful hedge fund
managers earned $1 billion each. The top earner clocked in at $4
billion. And all of them paid taxes at about half the rate of Buffett's
receptionist.
Closing this outrageous loophole would bring in close to $20 billion
dollars in revenue -- money desperately needed at a time when teachers
and nurses and firemen are being laid off all around the country.
Hedge fund lobbyists are currently hacking away at the Senate's
resolve with, not surprisingly, some success. And it's not just
Republicans who are willing to do their bidding, but a number of
Democrats as well. Indeed, it was a Democrat -- Chuck Schumer -- who led the fight against closing the loophole in
2007.
"I don't know how members of Congress can return home and look an
office manager, a nurse, a court clerk in the eye and say 'I chose hedge
fund managers instead of you and your family'," said Lori Lodes of the SEIU.
Nicole Tichon, of the U.S. Public Interest Research Group, framed the debate in similar terms:
It's hard to imagine anyone campaigning on protecting hedge
fund managers, Wall Street banks and companies that ship jobs and
profits overseas. It's hard to imagine telling constituents that somehow
they should continue to subsidize these industries. We're anxious to
see whose side the Senate is on and what story they want to tell the
American people.
Up until now, the story has been a familiar narrative of Two
Americas, with one set of rules for those who can afford to hire a fleet
of K Street lobbyists and a different set for everybody else. It's time
to give this infuriating tale a different -- and far more just and
satisfying -- ending.
In July 2006, CorpWatch exposed evidence that a Dutch shipbuilding company, selling military equipment to Chile, was offering bribes to officials there. CorpWatch’s reporting is now fueling calls by anti-corruption activists and opposition politicians for a formal parliamentary investigation into the operations of the company, Rotterdamse Droogdok Maatschappij (RDM).
The RDM case may become the first test for the Netherlands’ new anti-corruption legislation and for its will and ability to prosecute corporations for making foreign bribes.
The RDM bribery scandal dates back to 1998 when the company sold 202 Leopard tanks to the Chilean army. The Rotterdam-based company had purchased the tanks as scrap metal from the Dutch Department of Defense and rebuilt them. It then paid bribes to Chilean army officials facilitating the sale.
Joep van den Nieuwenhuyzen, the Dutch businessman, and officials of his company—who offered and facilitated the bribes—have never been prosecuted in relation to this case. The Dutch Public Prosecutor’s Office told CorpWatch that at the time of RDM’s bribes, the Netherlands had no laws against offering bribes to officials overseas. Legislation to make these practices illegal was introduced in 2001. Further muddying the waters, RDM went bankrupt in 2006, and Joep van den Nieuwenhuyzen, its owner, was jailed for fraud. He was released two years ago.
The current Dutch government investigation will delve further into the extent and mechanics of the bribery scheme, and interview key politicians active at the time. A Dutch parliamentary team is following up on the case in the Netherlands and in Chile. Key targets of the investigation include Edmundo Perez Yoma, Chile’s former minister of defense and currently its interior minister, along with his then deputy Mario Fernandez, now member of the Constitutional Court. Both are suspected of facilitating the bribery. Chile has announced similar investigations.
One Dutch official at the time of the tank sales, then Minister of Defense Joris Voorhoeve, joined the call for parliament to undertake a broad investigation into RDM’s bribes. He defended his own role. While Voorhoeve acknowledges that he issued an export license for the 202 Dutch Leopard tanks, he maintains he is appalled and shocked by the allegations of bribery. “The Netherlands government would never agree to pay bribes to get a deal closed,” he said, “nor participate in any other form of corruption.” The sales were justified, he said, because when they took place in 1998, Chile had become a democracy and General Augusto Pinochet, who had ruled from 1973 to 1990, was no longer president. But in fact, the former dictator still wielded considerable influence as senator for life and commander-in-chief of the armed forces, positions he retained until his death in 2006.
The parliamentary investigation, while welcomed by many, is late in coming. For years politicians ignored requests by the Netherlands Socialist Party for a formal investigation—again, sparked in part by CorpWatch’s reporting on the money RDM paid to the former dictator and his entourage.
According to a Swiss newspaper, van den Nieuwenhuyzen, currently a Swiss resident, said that he was not aware that the company he once owned was under investigation for payments to Chilean army officials.
But former RDM workers and associates charged that the company paid millions to Chilean colonels and brigadier generals through a third party, with $1.6 million going to a private consultant to the late general Pinochet. RDM said the $1.6 million was a donation to the Pinochet Foundation, a Santiago-based organization that promotes the general’s legacy.
Chilean and cooperating Dutch private investigators that examined the Pinochet’s overseas bank accounts have found that the dictator had stashed almost $28 million overseas, mainly in European bank accounts. Dutch investigators will look for links between that money, the two recently jailed Chilean army officers, and Pinochet.
The spokesperson of the Dutch Socialist Party in Rotterdam told CorpWatch that there have been no successful prosecutions of corporations in the Netherlands for foreign bribes, because it is extremely difficult to secure evidence in foreign countries. Of the scores of cases under consideration, none have yet reached the courts. If RDM is charged, it will be the first time Dutch officials or businesspeople are prosecuted under the new regulations.
Before his execution, Socrates was visited in prison by his friend
Crito, who told him the bribes for the guards were ready and Socrates
could escape whenever he wished. Socrates refused to go.
Crito, angered, argued Socrates would a) leave his children orphans
and b) bring shame on his friends, because people would assume they
were too cheap to finance his escape. (Apparently, this sort of thing
was common in Athens in those days.)
Socrates replied that in his imagination, he hears the Laws of
Athens saying, “What do you mean by trying to escape but to destroy us,
the Laws, and the whole city so far as in you lies? Do you think a
state can exist and not be overthrown in which the decisions of law are
of no force and are disregarded and set at naught by private
individuals?”
In short, either Socrates or the rule of law had to die. Socrates
chose to die rather than diminish his city. Now, as then, he’d be a
lonely guy. His notion that the city lay within him – that he was the city of Athens – is striking.
All failure to enforce law – or to work
around it – is bad. This applies equally to speed limits, armed robbery
and banking regulations. Failure to enforce our agreed-upon standards
weakens our social bonds and undermines faith in both our justice
system and our government. If the police will not apprehend or the
courts will not prosecute or the legislatures draw protective circles
around certain elements in society, then society as a whole suffers.
There is within all of us an affinity for justice. The majority of
citizens have no training in law or political science, but we possess
intuitive notions of right and wrong. We’re willing to tolerate some
discrepancy on either margin of the page, but when things are pushed
too far out of balance on either side, then the door to vigilantism,
riot and revolution is opened.
This great imbalance – and we’re getting strong whiffs of it now –
is a failure by our institutions to enforce the terms of the American
social contract.
“America is a classless society.” “All citizens stand equal before
the law.” Blah, blah, blah. It’s illegal to rob a convenience store.
It’s illegal to defraud investors. The accused robber, who flashed a
knife and made off with eighty or a hundred bucks, sits behind steel
bars and waits for his overburdened public defender to get around to
speaking with him.
The accused fraudulent investment fund manager, who flashed a phony
set of books and made off with eight or fifty billion dollars, sits in
his cosmopolitan penthouse and consults a million-dollar legal team,
which he pays with ill-gotten dosh.
If we vigorously enforce laws on the working class and make only
half-hearted attempts to do so with the managing class, then the class
warfare Republican politician are always whining about comes closer to
reality.
Worse, by allowing Ken Lays, Bernie Madoffs and Allen Stanfords to
get off easy, it destroys real opportunity for people in the working
classes to realize the American dream for themselves and their
children. The crimes of the managing class – unlike the convenience
store robber – have the real effect of depriving millions – both here
and abroad - of their livelihoods and homes when the financial system
crashes.
In the news and before Congressional committee, we hear that
regulators were specifically warned for years that Bernie Madoff and
Allen Stanford were violating regulations.
While the beltway talkers argue over whether Wall Street bankers
should be allowed to keep their bonuses and exorbitant salaries, the
discussion that had yet to start is: why were these highly leveraged
instruments and securitized debt transactions legal in the first place?
We’re told incessantly that the Wall Street banking transactions were
so complicated that “no one really understands them.” There is,
however, the easily understood principle that one’s debts should be
balanced by one’s assets. Or one’s at least one’s assets should be
within shouting distance of one’s debts.
We have speed limits not because driving 110 is inherently evil, but
because it is unsafe and anyone who does shows reckless disregard for
themselves and others. And yet, a legion of reckless drivers loosed on
the interstate for a decade could not have wrought as much misery as
this handful of bankers, brokers and hedge fund managers.
We will now suffer for years. These will be hard times, but within
this hardship will be opportunities to rediscover the extent to which
our society lives within in us, as Socrates would have said.
For the past eight years, the oil giant formerly known as British
Petroleum has tried to convince the world that its initials stand for
“Beyond Petroleum.” An announcement just issued by the U.S.
Environmental Protection Agency may suggest that the real meaning of BP
is Brazen Polluter.
The EPA revealed
that BP Products North America will pay nearly $180 million to settle
charges that it has failed to comply with a 2001 consent decree under
which it was supposed to implement strict controls on benzene and
benzene-tainted waste generated by the company’s vast oil refining
complex in Texas City, Texas, located south of Houston. Since the
1920s, benzene has been known to cause cancer.
Among BP’s self-proclaimed corporate values
is to be “environmentally responsible with the aspiration of ‘no damage
to the environment’” and to ensure that “no one is subject to
unnecessary risk while working for the group.” Somehow, that message
did not seem to make its way to BP’s operation in Texas City, which has
a dismal performance record.
The benzene problem in Texas City was supposed to be addressed as part of the $650 million agreement
BP reached in January 2001 with the EPA and the Justice Department
covering eight refineries around the country. Yet environmental
officials in Texas later found that benzene emissions at the plant
remained high. BP refused to accept that finding and tried to stonewall
the state, which later imposed a fine of $225,000.
In March 2005 a huge explosion (photo) at the refinery killed 15
workers and injured more than 170. The blast blew a hole in a benzene
storage tank, contaminating the air so seriously that safety
investigators could not enter the site for a week after the incident.
BP was later cited for egregious safety violations and paid a record fine of $21.4 million. Subsequently, a blue-ribbon panel chaired by former secretary of state James Baker III found
that BP had failed to spend enough money on safety and failed to take
other steps that could have prevented the disaster in Texas City. Still
later, the company paid a $50 million fine as part of a plea agreement on related criminal charges.
In an apparent effort to repair its image, BP has tried to associate
itself with positive environmental initiatives. The company was, for
instance, one of the primary sponsors
of the big Good Jobs/Green Jobs conference held in Washington earlier
this month. Yet as long as BP operates dirty facilities such as the
Texas City refinery, the company’s sunburst logo, its purported
earth-friendly values and its claim of going beyond petroleum will be
nothing more than blatant greenwashing.
It was only a few years ago that a group of offshore outsourcing
companies based in India seemed poised to take over a large portion of
the U.S. economy. Business propagandists insisted that work ranging
from low-level data input to skilled professional work such as
financial analysis could be done faster and much cheaper by workers
hunched over computer terminals in cities such as Bangalore. The New York Times once described one of these offshoring companies as “a maquiladora of the mind.”
Among the most aggressive of the Indian firms was Satyam Computer
Services Ltd., which signed up blue-chip clients such as Ford Motor,
Merrill Lynch, Texas Instruments and Yahoo. In a 2004 report
I wrote for the U.S. high-tech workers organization WashTech, I found
that Satyam was also among the offshoring companies that were doing
work for state government agencies. It was hired, for example, as a
subcontractor by the U.S. company Healthaxis to develop a system for
handling applications for medical insurance services provided by the
Washington State Health Care Authority. As it turned out, Healthaxis’s
contract was terminated, allegedly because of late delivery and poor
quality in the work done by Satyam.
The Washington State fiasco may have been an early omen of things to come. Satyam has just admitted that for years it cooked its books and engaged in widespread financial wrongdoing. The revelation came in a letter
sent to the company’s board of directors by Satyam founder and chairman
B. Ramalinga Raju (photo), who simultaneously tendered his resignation.
Raju wrote that what started as “a marginal gap between actual
operating profit and the one reflected in the books” eventually
“attained unmanageable proportions” as the company grew. The fictitious
cash balance grew to more than US$1 billion. “It was like riding a
tiger,” Raju colorfully wrote, “not knowing how to get off without
being eaten.”
While admitting that he engaged in very creative accounting, Raju
insisted he did not personally benefit from the fraud, denying for
instance that he had sold any of his shares in the company. I guess it
is meant to be some consolation that among his sins Raju is not guilty
of insider trading.
Apart from Raju, the party most on the hot seat is the company’s
auditor, PriceWaterhouseCoopers, whose Indian unit gave Satyam’s
financial reports a clean bill of health.
The Satyam scandal is being called India’s Enron. It should probably
also be called India’s Arthur Andersen as this seems to be another case
in which an auditor was either oblivious to widespread accounting
misconduct by one of its clients or complicit in it.
Some soul-searching is probably also in order for the many large
U.S. corporations that have not hesitated to take jobs away from
American workers and ship the work off to Indian companies such as
Satyam. The revelation that much of the work has been going to a
crooked company is all the more galling.
Why would "criminals" set fire to millions worth in mine equipment?
How was it that these "intruders" had an estimated 3,000 - 4,000 people backing them up?
In what appears to be a spontaneous civilian movement against Barrick Gold, the world's largest gold miner, thousands of people invaded Barrick`s
North Mara Gold Mine this week in Tarime District and destroyed equipment worth
$15 million. Locals say that the uprising was sparked by the killing of a local, identified as Mang'weina Mwita Mang'weina. According to a Barrick Public Relations officer (as reported by the Tanzanian Guardian newspaper), "the intruders stoned the security personnel relentlessly until they
overpowered them. The guards abandoned their posts and retreated to
safety."
While
Barrick implies that "high levels of crime" are the cause of this
recent outbreak, recent reports suggest a different picture.
Allan Cedillo Lissner, a photojournalist who recently documented mine life near the North Mara mine, explains:
Ongoing conflict between the mine
and local communities has created a climate of fear for those who live
nearby. Since the mine opened in 2002, the Mwita family say that they
live in a state of constant anxiety because they have been repeatedly
harassed and intimidated by the mine's private security forces and by
government police. There have been several deadly confrontations in
the area and every time there are problems at the mine, the Mwita
family say their compound is the first place the police come looking.
During police operations the family scatters in fear to hide in the
bush, "like fugitives," for weeks at a time waiting for the situation
to calm down. They used to farm and raise livestock, "but now there are
no pastures because the mine has almost taken the whole land ... we
have no sources of income and we are living only through God's wishes.
... We had never experienced poverty before the mine came here." They
say they would like to be relocated, but the application process has
been complicated, and they feel the amount of compensation they have
been offered is "candy."
Evans Rubara, an investigative journalist from
Tanzania, blames this action on angry locals from the North Mara area
who are opposed to Barrick's presence there. "This comes one week after
Barrick threatened to leave the country based on claims that they
weren't making profit," comments Evans after explaining that Barrick
does not report profit to avoid taxes in the country. "This is a sign
to both the government of Tanzania and the International community
(especially Canada) that poor and marginalized people also get tired of
oppression, and that they would like Barrick to leave."
Only one week prior, Barrick's African Region Vice President, Gareth Taylor threatened
to leave Tanzania due to high operating costs, claiming that the company did not make profits there. Barrick's Toronto office
quickly denied this report, stating that "the company will work with
the government to ensure
the country's legislation remains 'competitive with other
jurisdictions so that Tanzanians can continue to benefit from
mining.'"
Interestingly, Taylors threat came shortly after he attended a workshop to launch the Extractive Industries Transparency Initiative (EITI) in Dar es Salaam.
One thing is clear, though; these reports of hundreds, backed by thousands, of villagers attacking mine infrastructure reflects a resentment that goes beyond mere criminal
action. And this surge in violence should be examined in the context of
the on-going exploitation and repressive environment surrounding the
mine.
As the Federal Reserve and
Treasury Department careen from one financial meltdown to another,
desperately trying to hold together the financial system -- and with
it, the U.S. and global economy -- there are few voices denying that
Wall Street has suffered from "excesses" over the past several years.
The current crisis is the culmination of a quarter century's
deregulation. Even as the Fed and Treasury scramble to contain the
damage, there must be a simultaneous effort to reconstruct a regulatory
system to prevent future disasters.
There is more urgency to such an effort than immediately apparent. If
the Fed and Treasury succeed in controlling the situation and avoiding
a collapse of the global financial system, then it is a near certainty
that Big Finance -- albeit a financial sector that will look very
different than it appeared a year ago -- will rally itself to oppose
new regulatory standards. And the longer the lag between the end (or
tailing off) of the financial crisis and the imposition of new
legislative and regulatory rules, the harder it will be to impose
meaningful rules on the financial titans.
The
hyper-complexity of the existing financial system makes it hard to get
a handle on how to reform the financial sector. (And, by the way,
beware of generic calls for "reform" -- for Wall Street itself taken up
this banner over the past couple years. For the financial mavens,
"reform" still means removing the few regulatory and legal requirements they currently face.)
But the complexity of the system also itself suggests the most
important reform efforts: require better disclosure about what's going
on, make it harder to engage in complicated transactions, prohibit some
financial innovations altogether, and require that financial
institutions properly fulfill their core responsibilities of providing
credit to individuals and communities.
(For more detailed discussion of these issues -- all in plain, easy-to-understand language, see these comments from Damon Silvers of the AFL-CIO, The American Prospect editor Robert Kuttner, author of the The Squandering of America and Obama's Challenge, and Richard Bookstaber, author of A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation.)
Here are a dozen steps to restrain and redirect Wall Street and Big Finance:
1. Expand the scope of financial regulation. Investment banks and hedge
funds have been able to escape the minimal regulatory standards imposed
on other financial institutions. Especially with the government safety
net -- including access to Federal Reserve funds -- extended beyond the
traditional banking sector, this regulatory black hole must be
eliminated.
2. Impose much more robust standards for disclosure and transparency.
Hedge funds, investment banks and the off-the-books affiliates of
traditional banks have engaged in complicated and intertwined
transactions, such that no one can track who owes what, to whom.
Without this transparency, it is impossible to understand what is going
on, and where intervention is necessary before things spin out of
control.
3. Prohibit off-the-books transactions. What's the purpose of
accounting standards, or banking controls, if you can evade them by
simply by creating off-the-books entities?
4. Impose regulatory standards to limit the use of leverage (borrowed
money) in investments. High flyers like leveraged investments because
they offer the possibility of very high returns. But they also enable
extremely risky investments -- since they can vastly exceed an
investor's actual assets -- that can threaten not just the investor
but, if replicated sufficiently, the entire financial system.
5. Prohibit entire categories of exotic new financial instruments.
So-called financial "innovation" has vastly outstripped the ability of
regulators or even market participants to track what is going on, let
alone control it. Internal company controls routinely fail to take into
account the possibility of overall system failure -- i.e., that other
firms will suffer the same worst case scenario -- and thus do not
recognize the extent of the risks inherent in new instruments.
6. Subject commodities trading to much more extensive regulation.
Commodities trading has become progressively deregulated. As
speculators have flooded into the commodities markets, the trading
markets have become increasingly divorced from the movement of actual
commodities, and from their proper role in helping farmers and other
commodities producers hedge against future price fluctuations.
7. Tax rules should be changed so as to remove the benefits to
corporate reliance on debt. "Payments on corporate debt are tax
deductible, whereas payments to equity are not," explains Damon Silvers
of the AFL-CIO. "This means that, once you take the tax effect into
account, any given company can support much more debt than it can
equity." This tax arrangement has fueled the growth of private equity
firms that rely on borrowed money to buy corporations. Many are now
going bankrupt.
8. Impose a financial transactions tax.
A small financial transactions tax would curb the turbulence in the
markets, and, generally, slow things down. It would give real-economy
businesses more space to operate without worrying about how today's
decisions will affect their stock price tomorrow, or the next hour. And
it would be a steeply progressive tax that could raise substantial sums
for useful public purposes.
9. Impose restraints on executive and top-level compensation. The top
pay for financial impresarios is more than obscene. Executive pay and
bonus schedules tied to short-term performance played an important role in driving the worst abuses on Wall Street.
10. Revive competition policy. The repeal of the Glass-Steagall Act,
separating traditional banks from investment banks, was the culmination
of a progressive deregulation of the banking sector. In the current
environment, banks are gobbling up the investment banks. But this
arrangement is paving the way for future problems. When the investment
banks return to high-risk activity at scale (and over time they will,
unless prohibited by regulators), they will directly endanger the banks
of which they are a part. Meanwhile, further financial conglomeration
worsens the "too big to fail" problem -- with the possible failure of
the largest institutions viewed as too dangerous to the financial
system to be tolerated -- that Treasury Secretary Hank Paulson cannot
now avoid despite his best efforts. In this time of crisis, it may not
be obvious how to respect and extend competition principles. But it is
a safe bet that concentration and conglomeration will pose new problems
in the future.
11. Adopt a financial consumer protection agenda that cracks down on abusive lending practices.
Macroeconomic conditions made banks interested in predatory subprime
loans, but it was regulatory failures that permitted them to occur. And
it's not just mortgage and home equity loans. Credit card and student
loan companies have engaged in very similar practices -- pushing
unsustainable debt on unreasonable terms, with crushing effect on
individuals, and ticking timebomb effects on lenders.
12. Support governmental, nonprofit, and community institutions to
provide basic financial services. The effective governmental takeover
of Fannie Mae, Freddie Mac and AIG means the U.S. government is going
to have a massive, direct stake in the global financial system for some
time to come. What needs to be emphasized as a policy measure, though,
is a back-to-basics approach. There is a role for the government in
helping families get mortgages on reasonable terms, and it should make
sure Fannie and Freddie, and other agencies, serve this function.
Government student loan services offer a much better deal than private
lender alternatives. Credit unions can deliver the basic banking
services that people need, but they need back-up institutional support
to spread and flourish.
What is needed, in short, is to reverse the financial deregulatory wave
of the last quarter century. As Big Finance mutated and escaped from
the modest public controls to which it had been subjected, it demanded
that the economy serve the financial sector. Now it's time to make sure
the equation is reversed.
