Air-India's Pee Gate Controversy! Shankar Mishra's lawyer speaks

 

The Challenges to Justice in India

As HSBC shows, we’ve been timid and pathetic in dealing with tax dodgers

Prem Sikka in The Guardian

The parliamentary hearing on HSBC, chaired by Margaret Hodge this week has further exposed the cosy arrangements between big business and those who are supposed to be collecting its taxes. Revelations of organised tax avoidance and even evasion don’t lead to any investigations, prosecutions and fines, it appears. And Lin Homer, the chief executive of HMRC, faced angry questioning from MPs who accused her department of failing to serve taxpayers’ interests.

While the UK dithers, other countries, notably the US, are taking meaningful action against the tax avoidance industry. In 2013 Ernst & Young was fined $123m for its past misdemeanours after admitting “wrongful conduct” over the sale of tax avoidance schemes. Some staff also received prison sentences. In 2005 KPMG was fined $456m after it admitted to a fraud that generated at least $11bn in phoney tax losses for clients. A number of the firm’s former senior personnel were jailed.

And US regulators have targeted lawyers: a former Jenkens & Gilchrist employee received an eight-year sentence and a $190m fine for promoting fraudulent tax avoidance schemes. Another was jailed for 15 years.

There have been other massive fines for tax-dodging schemes: Credit Suisse was made to pay $2.6bn; UBS $780m, and Deutsche Bank $554m. All these illustrate how the US, the supposed home of deregulation and light-touch regulation, deals with organised tax avoidance. Periodic hearings by its Senate committees have led to action by the tax authorities and the department of justice. One programme rewards individuals who expose tax problems at their workplace. Whistleblowers can receive up to 30% of the tax proceeds resulting from their information. In 2013 122 whistleblowers shared awards totalling $53m.

Britain’s efforts to recoup taxes are pathetic by comparison. As Hodge said to Homer yesterday: “One of my feelings of anger with you is that you sit there waiting for people to come. You don’t go out and police in the way other authorities are doing.”

No doubt all those addicted to tax avoidance, in whatever country, are able to game the rules and play cat-and-mouse with the tax authorities. These practices are deeply embedded in contemporary entrepreneurial culture. That’s why strong measures are needed to counter them.

But Britain lacks effective institutions and the political will to deal with the tax-avoidance industry. Hodge’s public accounts committee hearings have not been followed up with action by any government department.

The UK has a fragmented regulatory system. HMRC, the Serious Fraud Office, the Treasury, the Crown Prosecution Service, the Department of Justice, professional bodies and others are all keen to pass the buck. The overlapping structures result in duplication and waste. With an annual budget of about £35m, the SFO is incapable of fighting banks and giant law and accountancy firms.

Tax courts and tribunals have often declared avoidance schemes to be unlawful, but this has not been followed by investigations, fines or prosecutions. Despite winning some cases, HMRC has not even sought to recover legal costs from any of the parties.

One reason for HMRC’s timidity is the lack of personnel and resources. The economic case for investment to check tax avoidance is unanswerable: evidence suggests that for every £1 spent in 2013/14 by HMRC’s large business service – which deals with the UK’s largest and most complex businesses – an additional £97 was recovered. The local compliance unit, which handles smaller businesses and wealthy individuals, collected an additional £18 for every £1 spent the same year.

But it seems the government is not listening. It has cut HMRC funding, badly denting its efforts to expose wrongdoing. This leads to false economies, such as the HMRC relying on professional bodies to deal with the tax avoidance schemes promoted by big accountancy firms. This has to stop. No such firm has ever been disciplined or fined for peddling abusive tax avoidance schemes, even after the courts declared them unlawful.

We’ve heard ministers announce proposals, but these are rarely fully implemented. For example, in April 2013 the government introduced rules to ban companies and individuals who took part in failed tax avoidance schemes from being awarded government contracts. In practice, no such business has been barred.

This week’s revelations in the Guardian and the House of Commons show how flawed is our policing of tax dodgers. It’s clear these abuses will continue until, like others countries, we send out a tough signal that tax evaders will be caught – and punished severely.

Do Ched Evans or Amir have an automatic right to rehab in sport?

 Kamran Abbasi in Cricinfo

The Pakistan board's unseemly haste to bring Amir back reflects poorly on it  © AFP

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Ched Evans is a footballer trying to resurrect his career. He is also a convicted rapist. Evans says he is innocent and since his release from prison he is looking for a new football team. First, he made plans to train with his old club, Sheffield United, but the public outcry was such that Sheffield United distanced themselves from him. Any subsequent opportunities with other clubs have ended abruptly following protests and threats by sponsors to end deals. Evans and his supporters argue that he deserves a chance at rehabilitation.

A few weeks ago, Ramiz Raja questioned the rush to return Mohammad Amir to professional cricket. The crimes of Amir and his fellow spot-fixers are different to that of Evans, of course, but the principle championed by Amir's supporters is the same, that he deserves a chance at rehabilitation. Ramiz spoke from the heart, of how it would feel for other players to welcome back a cheat. Pakistan's linguistic innovator has also worked as chief executive of the Pakistan Cricket Board. He speaks from board and broad experience.

Rehabilitation of offenders is an important principle that has benefits for individuals and society. No doubt that Evans and Amir and other sportsmen who commit a crime during their sporting careers have every right to be rehabilitated, but the question is whether or not they have an automatic right to be rehabilitated back into the sport they have dishonoured?

Some professions take criminal conduct so seriously that practitioners can be disbarred or struck off. The medical and legal professions are prime examples. Decisions to end careers are difficult. Professional bodies, for example the General Medical Council and the Bar Council in the United Kingdom, are responsible for making judgements on whether or not individuals are fit to practise. Hence, a barrister who has committed rape or a doctor who has made fraudulent financial claims for patient treatments will probably be judged by the relevant professional council to be unfit to remain in the profession. A doctor or barrister can be rehabilitated into society, find alternative work, but any career as a doctor or barrister will be finished.

Some professions take criminal conduct so seriously that practitioners can be disbarred or struck off. The medical and legal professions are prime examples

Society rightly demands high standards of doctors and barristers since they hold positions of influence and power. A professional sportsman is influential too, even powerful, especially in a privileged position as a role model to thousands and millions of adoring fans. Why then should a sportsman have an automatic right to return to a profession? Why shouldn't he be judged by high standards too? Role models are immensely powerful in sport and brushing over serious misdemeanours risks diminishing the gravity of the crimes. Rehabilitation back into the sport might cause offence to team-mates, fans and victims. Being disqualified from a sport might be the most powerful deterrent to future spot-fixers and rapists.

None of this reduces the onus on society and professions to support the rehabilitation of offenders. Each case requires careful consideration by a suitably qualified governing body equipped to make judgements on the seriousness of offences. But just like other professions of influence and power, rehabilitation shouldn't necessarily mean rehabilitation back into a sport. Unlike medicine and law, sport isn't geared up to make such sensitive and profound decisions. The ICC, FIFA, and national bodies like the PCB and the FA, must ensure that codes of conduct for standards of behaviour are in place and that they are enforceable.

Ramiz began to articulate that Amir and other fixers from Pakistan and elsewhere should not be rehabilitated back into professional cricket. Dissenters in England argue that Evans should not be rehabilitated back into professional football. The governing bodies of cricket and football must consider mechanisms to put the honour, reputation and values of their sports before individual and corporate gain.

This will be an unpopular view for fans who have an emotional attachment to a tainted star. Amir's case is a perfect example, tugging at our heartstrings. His role in the spot-fixing of 2010 might be judged to be too minor to bar him from cricket? But the unseemly haste to return him to international cricket reflects poorly on the PCB and ICC. A code of conduct panel for cricket might judge that other spot-fixers and match-fixers should never return to the sport. It might even decide the same for Amir?

Either way, the current systems and processes of the ICC and PCB, like the governing bodies of other sports, seem to miss the point on rehabilitation. Sport, as we are reminded each time a great player retires or moves on, is far bigger than any individual.

Failed by the lawyer

NICK ROBINSON in The Hindu

  

 

The judicial system is looking the other way as unscrupulous professional behaviour by advocates is causing distress to litigants and affecting their cases

Lawyers have an illustrious pedigree in India to emulate. Nehru, Ambedkar, and many of the country’s most pre-eminent leaders were trained as lawyers. Yet today, ask a typical litigant what he thinks of the profession and he is likely to regale you with stories of being tied up in court for years and facing unscrupulousness and exasperation.

The plot lines of these stories become predictably repetitive. Lawyers do not show up at scheduled hearings. When they do appear, they are often not prepared. Litigants complain that their lawyers do not keep them informed about their case and that they are charged for hearings where nothing of substance happens.

Double fees

Ironically, complaints become even more pronounced about high-profile lawyers who commonly overbook their schedules, expecting everyone else to be accommodative. A prestigious law firm employs an associate to follow a well-known senior advocate at the Supreme Court to try to ensure that the senior turns up for scheduled hearings of their client. Double fees have reportedly become accepted practice among many of the biggest names in litigation — one fee to argue a case, another fee to guarantee they will actually show up.

The cost of such behaviour is high not just to clients, but for everyone. When a hearing is rescheduled to accommodate a lawyer, the other side still has to pay its counsel. The public has to pay for the courtroom and the judge. With so much time being wasted, cases take longer, a backlog ensues, and economic efficiency and justice suffer.

Fears

The poor are in the worst position to navigate this mess. Take the example of a single mother who was acquitted by a Delhi court earlier this year. She had been detained by the police in 2009 when they (mistakenly) thought she was connected to accused drug dealers in her neighbourhood. With the money she had, she hired a popular, if modestly priced, private lawyer. The lawyer kept missing hearings, which meant that the judge could not decide her case. Frustrated by these delays, distraught from being separated from her epileptic daughter, and unable to get in touch with her lawyer, she sank into depression in jail and attempted suicide. She survived and was eventually freed, albeit traumatised by the four year ordeal.

Why is such behaviour by lawyers tolerated? In private, judges will admit that it is difficult for them to discipline members of the bar. Although lawyers may make their arguments to judges in grovelling terms, it is the lawyers who often have the power in the relationship. Judges fear that if they try to discipline lawyers in their courtroom they will be spoken ill of by the bar: a powerful constituency which could impact their chances of a promotion or post-retirement appointments.

Others fear the possibility of lawyers boycotting the courtroom. Still others think it is simply not worth the trouble of going against a group of which they were once a part of.

Independent boards

Meanwhile, the Bar Council of India has done far too little to rein in errant advocates. Although the Bar Council releases no publicly available annual report, in the little information that is available for 2010-11 their disciplinary committee reportedly suspended only 14 members of the bar in the entire country (by comparison, about 800 lawyers are disbarred and 3,000 suspended each year in the United States).

Part of the problem is that lawyers in India largely police themselves, creating few incentives for them to vigorously enforce high standards. India might learn from the experiences of the United Kingdom or Australia where independent boards, which include non-lawyers, now oversee the profession and attempt to put litigants’ interests first.

Beyond restructuring and reinvigorating the means through which lawyers are disciplined, other steps are needed to curb lawyer misbehaviour. A litigant bill of rights should be widely publicised informing litigants of what to expect from their lawyer and what redress they have available if mistreated. For example, when litigants try to switch advocates, many find their original lawyer refuses to give them back the files related to their case, making it all but impossible to go to a new counsel. Such self-serving tactics should be swiftly punished.

Allow advertising

Given the opacity of the judicial system, most litigants find lawyers through personal contacts. As a result, their choice is often based on anecdotes and misunderstandings about what they really need. To help litigants better choose their lawyer, the Bar Council should consider repealing the current ban on advertising for legal services and allow carefully restricted advertising to provide better information to litigants about their options. Similarly, the judiciary could help the public better compare lawyer performance by creating a type of lawyer report card that would detail how often a lawyer missed a hearing or was so unprepared that a hearing needed to be rescheduled.

The legal profession rightly values its independence, but when it fails to self-regulate it makes itself vulnerable to government interference and public condemnation. Many honest and industrious lawyers lament the unprincipled practices of their peers and the time they end up wasting in undisciplined court rooms. It is time for everyone — the bar, the bench, the government, and the public — to demand more from the profession.

It's time for a global companies to pay a Global Profit Tax

Ben Chu

The cascade of revelations in recent months showing multinational companies doing a huge amount of business here and yet paying virtually no corporation tax has provoked widespread public demands for something to be done. But people tend to be rather hazier on what that "something" should be.

To define a solution we first need to grasp the nature of the problem: a global tax loophole. In our age of liberalised cross-border trade and free capital flows, multinational companies find themselves with a considerable level of freedom to choose where they pay tax on profits.

With some sophisticated planning from their accountants, many of these corporations (especially those whose commercial value is derived from a piece of intangible intellectual property such as a search engine algorithm or a drug patent) are able to register their profits in tax havens.

Here's how it works. A multinational typically registers its intellectual property in a subsidiary company based somewhere like Bermuda or the Cayman Islands. This subsidiary then charges another subsidiary operating in a big customer market, such as Britain, a massive fee for the right to use that intellectual property. So any trading surplus resulting from activities in the large market is offset by the cost of the fee. And then the profits accumulate in the tax haven.

National governments could and should try to put a stop to this egregious "profit shifting" on their own. But a unilateral approach is plainly second best.

The natural solution is to secure an agreement by all the world's governments to tax the profits of multinational firms collectively and to divide up the revenues fairly between them. This division could be based on the amount of business done by the multinational in their various territories as revealed by their turnover and number of employees.

It sounds complicated, but American states have long operated a system designed along these lines known as "apportionment". Another name used is "unitary taxation". Those names are a bit of a turn-off to the layperson. What's required is a reform banner that the general public can easily understand. I suggest: "Global Profit Tax". After all, doesn't it make sense that global companies should be compelled to pay global taxes?

Big UK tax avoiders will easily get round new government policy

These new proposals to beat tax avoidance won't work, as they expect opaque corporations to come clean

• 
• • Prem Sikka
  • guardian.co.uk, Friday 15 February 2013 12.48 GMT

'Starbucks, Google, Amazon, Microsoft and others can continue to route transactions through offshore subsidiaries and suck out profits through loans, royalties and management fee programmes and thus reduce their taxable profits in the UK.' Photograph: Kerim Okten/EPA

The UK government has finally responded to public anger about organised tax avoidance. The key policy is that from April 2013, potential suppliers to central government for contracts of £2m or more will have to declare whether they indulged in tax avoidance. Those with a history of indulgence in aggressive tax avoidance schemes during the previous 10 years, as evidenced by negative tax tribunal decisions and court cases, could be barred from contracts. Their existing contracts could also be terminated. The policy is high on gimmicks and empty gestures, and short on substance.

The proposed policy only applies to bidders for central government contracts. Thus tax avoiders can continue to make profits from local government, government agencies and other government-funded organisations – including universities, hospitals, schools and public bodies. Banks, railway companies, gas, electricity, water, steel, biotechnology, motor vehicle and arms companies receive taxpayer-funded loans, guarantees and subsidies, but their addiction to tax avoidance will not be touched by the proposed policy.

The policy will apply to one bidder, or a company, at a time and not to all members of a group of companies even though they will share the profits. Thus, one subsidiary in a group can secure a government contract by claiming to be clean, while other affiliates and subsidiaries can continue to rob the public purse through tax avoidance. There is nothing to prevent a company from forming another subsidiary for the sole purpose of bidding for a contract while continuing with nefarious practices elsewhere.

Starbucks, Google, Amazon, Microsoft and others can continue to route transactions through offshore subsidiaries and suck out profits through loans, royalties and management fee programmes and thus reduce their taxable profits in the UK. Such strategies are not covered by the government policy and these companies can continue to receive taxpayer-funded contracts.

The policy will not apply to the tax avoidance industry, consisting of accountants, lawyers and finance experts devising new dodges. Earlier this week, a US court declared that an avoidance scheme jointly developed and marketed by UK-based Barclays Bank and accountancy firm KPMG was unlawful. The scheme, codenamed Stars – or Structured Trust Advantaged Repackaged Securities – enabled its participants to manufacture artificial tax credits on loans. This scheme was sold to the US-based Bank of New York Mellon (BNYM). The US tax authorities launched a test case and a court rejected BNYM's claim for tax credits of $900m. The presiding judge said that that avoidance scheme "was an elaborate series of pre-arranged steps designed as a subterfuge for generating, monetising and transferring the value of foreign tax credits among the Stars participants" (page 25). It "lacked economic substance" (page 53) and was a "sham" transaction (page 54). Whether equivalent schemes have been used by UK corporations is not yet known.

The above case highlights a number of issues. The UK-based organisations causing havoc in the US, Africa, Asia and elsewhere will not be restrained. They can still secure taxpayer-funded contracts in the UK. Now suppose that the Bank of New York Mellon scheme was applied by Barclays Bank to its own affairs and declared to be unlawful by a UK court. If so, possibly Barclays may be deterred from bidding for a central government contract, but there will be no penalties for KPMG as accountancy firms are not covered by the proposed rules.

The recent inquiry by the public accounts committee into the operations of PricewaterhouseCoopers, Deloitte, KPMG and Ernst & Young noted that the firms are the centre of a global tax avoidance industry. Even though a US court has declared one of these schemes to be unlawful, the UK government does not investigate them, close them, or recover legal costs of fighting the schemes devised by them. No accountancy firm has ever been disciplined by any professional accountancy body for peddling avoidance schemes, even when they have been shown to be unlawful. The firms continue to act as advisers to government departments, make profits from taxpayers through private finance initiative, information technology and consultancy contracts. There is clearly no business like accountancy business.

The proposed government policy will not work. It expects corporations who can construct opaque corporate structures and sham transactions to come clean. That will not happen. In addition, a government loth to invest in public regulation will not have the sufficient manpower to police any self-certifications by big business.

An effective policy should prevent tax avoiders and their advisers from making any profit from taxpayers. It should apply to all the players in the tax avoidance industry, regardless of whether their schemes are peddled at home or abroad.