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Showing posts with label opaque. Show all posts
Showing posts with label opaque. Show all posts

Thursday 2 May 2019

The mess in India’s higher judiciary is, sadly, of its own making

The judiciary has become cocooned while being the supreme force for transparency elsewhere. The complainant against CJI Gogoi has laid bare this hypocrisy writes Shekhar Gupta in The Print


Most of today’s judges on the Supreme Court bench were in their thirties on 7 May 1997 when, famously, the full court sat and issued a 16-point declaration called Restatement of Values of Judicial Life. That year was the 50th anniversary of our Independence. You can find the full text here.

Twenty years on, we should check if our most hallowed institution has lived up to it.

You might begin with the question: Why is it that the Supreme Court of India has been making headlines for controversies than for good news? The current Chief Justice of India, Ranjan Gogoi, as his two immediate predecessors, Justices Dipak Misra and J.S. Khehar, have faced crippling controversies. The two before them cadged convenient sarkari sinecures. One of these, regrettably, in a Raj Bhavan.

Khehar was “mentioned” in the diaries of dead Arunachal chief minister Kalikho Pul. Dipak Misra first faced an unprecedented joint press conference by his four senior-most colleagues, protesting what they saw as his high-handedness and lack of institutional democracy, and then an impeachment threat by the opposition. The ‘sexual harassment’ crisis facing Justice Gogoi now is the gravest.

Let’s presume that each of these was spotless and targeted by interested parties. But we simply cannot defend none of them facing any scrutiny. Mostly, it happened because there was no procedure, mechanism or institution for such an inquiry. And where there is one, the Internal Complaints Committee for Sexual Harassment under the Vishakha Guidelines laid down by the highest court, the matter has been referred to a specially constituted committee of SC judges first, which the complainant has rejected.

Here are the three key reasons our judiciary has dug itself into a deep hole. First, its insistence on ducking inconvenient questions by invoking stature and reputation. This means there’s never closure on any issue. Second, that while the court lectures us on transparency, it remains India’s most opaque institution. And third, there is no mechanism, even a council of respected elders, which could step in when a crisis of credibility or internal distrust became evident.

Parliament had tried to create the National Judicial Accountability Commission exactly for such situations, but the court struck it down 4-1 as unconstitutional. Three of the judges who served on that bench (including Chelameswar, the lone dissenter) figured in the four-judge press conference in Gogoi’s company. 

Since Gogoi was the most senior among the four and the only one still in the chair, he needs to reflect on how his institution ended up here. Why is his Supreme Court looking like a big, flailing body oozing blood from a dozen, mostly self-inflicted cuts? And piranhas of various kinds are lurking.

It’s a tragedy when Supreme Court judges complain that they are victims of conspiracies. How did this most powerful institution, which is supposed to protect us and give us justice, become so vulnerable that busybody conspirators can threaten it? If it is so weak, where will we citizens go for justice?

The CJI’s office is a most exalted one. It is also possible that, as he and his brother judges in that most avoidable Saturday morning outburst indicated, there indeed is a conspiracy to undermine him. The Chief Justice of India deserves the fullest protection against interested parties throwing muck at him. But exactly the same principle should also apply to the complainant and the underdog.

Justice Gogoi and colleagues erred gravely in holding that peremptory Saturday morning sitting and pre-judging her case. Subsequent repairwork is now lost in the thickening murkiness, with an activist lawyer popping up with conspiracy theories. What these precisely are, we don’t know, because he has submitted them in a sealed cover

The sealed cover has now become a defining metaphor for the last of the three big mistakes the court has made: Making itself the most opaque institution while preaching transparency from the Republic’s highest pulpit. Here is an indicative list. In the Rafale case, the government’s evidence is in a sealed envelope, as indeed are all the reports of the officer in-charge of the NRC process in Assam. In former CBI chief Alok Verma’s case the CVC report remains in a sealed cover, as do NIA’s reports in the Hadiya ‘conversion’ case.
The SC order to political parties to submit details of their donors to the EC is the latest example of this quaint judicial doctrine of the sealed cover. You might understand need for secrecy in a rare case. But if even the compensation for the assorted retirees heading the court-appointed Committee of Administrators of Indian cricket remains in a sealed cover for three years, it’s fair to ask why the court should be hiding behind secrecy when its entire BCCI excursion was about transparency.

Opacity is comforting. You can so easily get used to it. The SC protects RTI for us, but claims immunity for itself. Only seven of 27 SC judges have disclosed their assets. There is no transparency or disclosure of the collegium proceedings, or even explanation when it changes its mind on an appointment. Shouldn’t you have the right to know exactly how many special and empowered committees the court has set up, mostly as a result of PILs, their members—especially retirees—and compensations? If the executive hid such information from you, you’d go to the courts. Where do you go against the Supreme Court?
Judges are wise people. It follows that top judges should be among the wisest of all. They must reflect on the consequences of their making the judiciary an insulated and cocooned institution while being the supreme force for transparency and disclosure elsewhere. It is this contradiction and hypocrisy that the complainant against the CJI has laid bare. That’s why the court is looking unsure.

Read that 16th and last point in that 1997 Restatement of Values of Judicial Life: ‘Every judge must at all times be conscious that he is under the public gaze and there should be no act or omission by him which is unbecoming of the high office he occupies and the public esteem in which that office is held.’

The Supreme Court’s refuge in opacity does not live up to this principle. An institutional reset and retreat are called for here. Of course, while both the complainant and the CJI get justice.

Tuesday 3 April 2018

Oligarchs hide billions in shell companies. Here's how we stop them

The Panama Papers have helped tax authorities recover over $500m around the world. Property registries could ensure that even more is recovered

Frederik Obermaier and Bastian Obermayer in The Guardian 

 
According to Navi Pillay, the former UN high commissioner for human rights, ‘The money stolen through corruption every year is enough to feed the world’s hungry 80 times over.’ Photograph: Arnulfo Franco/AP


Two years ago we published the Panama Papers after an anonymous source provided 2.6 terabytes of internal data from the dubious Panamanian law firm of Mossack Fonseca. We shared the data with 400 journalists worldwide and together revealed how the wealthy and powerful use shell companies to hide their assets. Such companies are exploited by dictators, drug cartels, mafia clans, fraudsters, weapons dealers and regimes like North Korea and Iran to hide their shady business transactions.


As a consequence, Sigmundur Davíð Gunnlaugsson, the prime minister of Iceland, resigned. Pakistani prime minister Nawaz Sharif did the same, and in the United Kingdom even David Cameron’s father was implicated. So far, the Panama Papers have helped tax authorities around the world to recover more than $500m in unpaid taxes and penalties. It could be far more if lawmakers finally take action.

After publishing the Panama Papers, we have heard a lot of promises from politicians around the world. They have talked about the need for transparency, and while the discussion is warm, the details are complicated: a multilateral exchange of information and stronger anti-money laundering regulations are as difficult to implement and control as they sound.

But why bother? There is a far less bureaucratic and more powerful measure: public beneficial ownership registries. Databases in which citizens can easily access and explore the owners of companies. Not the nominee director, not the fake shareholder – the real owner. The person at the center of the matryoshka-like corporate structures, or, as experts refer to them: the ultimate beneficial owner of a company.

A database of actual owners would enable companies to check with whom they are actually doing business with. It would enable activists, journalists and skeptical citizens to investigate the individuals running dubious companies which earn millions in alleged “consulting contracts”, which are in many cases nothing more than concealed payments of corruption money. It would also give prosecutors the opportunity to follow dark money without having to rely on nerve-racking, time-consuming legal maneuvers with foreign governments.

Searchable by company and by individual names, it would enable investigators to see if Dictator X or Autocrat Y owns companies in Country Z. Combined with a public property register, it would narrow, if not close, loopholes which allow oligarchs and their relatives to betray their own citizens and stash plundered money across the globe.

Creating beneficial ownership registries will not be easy. Recently, the UK House of Lords rejected an attempt to force overseas territories under British control to create said registries. And in the United States, where some states make it more difficult to vote than to start a company, there has yet to be any reasonable public discussion about creating these transparent registries, making America a willing accomplice in global corruption. The treasury department in 2015 estimated that approximately $300bn in illicit proceeds are generated in the US per year!

Critics of public beneficial ownership registries often say that exposing company owners could put them in danger of blackmail or even kidnapping. However, no data supports such claims and there will likely never be any. As it is, the financial elite often surround themselves with the symbols and spoils of wealth, such as big cars, yachts and villas. There is no desire to hide their treasure; in fact, they often flaunt it.

Corruption is a scourge. It hits the poor first and hits them hard. Whole continents are plundered, the proceeds of human trafficking are laundered, wars are financed and violent religious extremism is supported.

The word “corruption” comes from the Latin “corrumpere”, which can mean “to destroy”. Corruption destroys democracy. Corruption costs citizens extraordinary amounts of money. According to estimates, corruption consumes more than 5% of the global gross domestic product.

Developing regions lose more than 10 times the money they receive in foreign aid to illicit financial schemes. Without corruption and the shell companies that make it possible, there might be no need for aid to Africa or Asia. Most importantly, corruption kills. According to Navi Pillay, the former United Nations high commissioner for human rights, “The money stolen through corruption every year is enough to feed the world’s hungry 80 times over”.

As Louis Brandeis, the late associate justice of the supreme court of the United States, once pointed out sunlight is the best disinfectant. Hence let the sunshine in! Lawmakers must make public beneficial ownership registries a priority to ensure that institutions remain transparent and democratic.

There is no legitimate reason to allow individuals to own anonymous companies or to help new “entrepreneurs” to create them. Lava Jato in Brazil, the Fifa scandal and nearly every other major corruption case have involved opaque company structures created to bribe, receive bribes or to hide dirty money.

Financial crimes rely on exploiting anonymous companies and trusts, and secrecy jurisdictions like the British Virgin Islands, the Cayman Islands and the states of Delaware and Nevada are partners in those crimes. They must be held accountable.

Waiting for a global solution means waiting a long time, if not forever. The only way to draw the corporate curtain back and expose corruption is for lawmakers to work in the public interest and create public beneficial ownership registries and public property registries now. The more countries that adopt these measures, the less places dictators, human traffickers, weapons dealers and oligarchs can hide.

Lawmakers that claim to stand against corruption should do so by fighting for these kinds of registries now, or forever hold their peace.

Wednesday 30 November 2016

Frightened by Donald Trump? You don’t know the half of it

George Monbiot in The Guardian

Yes, Donald Trump’s politics are incoherent. But those who surround him know just what they want, and his lack of clarity enhances their power. To understand what is coming, we need to understand who they are. I know all too well, because I have spent the past 15 years fighting them.

Over this time, I have watched as tobacco, coal, oil, chemicals and biotech companies have poured billions of dollars into an international misinformation machine composed of thinktanks, bloggers and fake citizens’ groups. Its purpose is to portray the interests of billionaires as the interests of the common people, to wage war against trade unions and beat down attempts to regulate business and tax the very rich. Now the people who helped run this machine are shaping the government.

I first encountered the machine when writing about climate change. The fury and loathing directed at climate scientists and campaigners seemed incomprehensible until I realised they were fake: the hatred had been paid for. The bloggers and institutes whipping up this anger were funded by oil and coal companies.

Among those I clashed with was Myron Ebell of the Competitive Enterprise Institute (CEI). The CEI calls itself a thinktank, but looks to me like a corporate lobbying group. It is not transparent about its funding, but we now know it has received $2m from ExxonMobil, more than $4m from a group called the Donors Trust (which represents various corporations and billionaires), $800,000 from groups set up by the tycoons Charles and David Koch, and substantial sums from coal, tobacco and pharmaceutical companies.

For years, Ebell and the CEI have attacked efforts to limit climate change, through lobbying, lawsuits and campaigns. An advertisement released by the institute had the punchline “Carbon dioxide: they call it pollution. We call it life.”


Former campaign manager Corey Lewandowski, like other members of Trump’s team, came from a group called Americans for Prosperity. Photograph: UPI/Barcroft Images

It has sought to eliminate funding for environmental education, lobbied against the Endangered Species Act, harried climate scientists and campaigned in favour of mountaintop removal by coal companies. In 2004, Ebell sent a memo to one of George W Bush’s staffers calling for the head of the Environmental Protection Agency to be sacked. Where is Ebell now? Oh – leading Trump’s transition team for the Environmental Protection Agency.

Charles and David Koch – who for years have funded extreme pro-corporate politics – might not have been enthusiasts for Trump’s candidacy, but their people were all over his campaign. Until June, Trump’s campaign manager was Corey Lewandowski, who like other members of Trump’s team came from a group called Americans for Prosperity (AFP).

This purports to be a grassroots campaign, but it was founded and funded by the Koch brothers. It set up the first Tea Party Facebook page and organised the first Tea Party events. With a budget of hundreds of millions of dollars, AFP has campaigned ferociously on issues that coincide with the Koch brothers’ commercial interests in oil, gas, minerals, timber and chemicals.
In Michigan, it helped force through the “right to work bill”, in pursuit of what AFP’s local director called “taking the unions out at the knees”. It has campaigned nationwide against action on climate change. It has poured hundreds of millions of dollars into unseating the politicians who won’t do its bidding and replacing them with those who will.

I could fill this newspaper with the names of Trump staffers who have emerged from such groups: people such as Doug Domenech, from the Texas Public Policy Foundation, funded among others by the Koch brothers, Exxon and the Donors Trust; Barry Bennett, whose Alliance for America’s Future (now called One Nation) refused to disclose its donors when challenged; and Thomas Pyle, president of the American Energy Alliance, funded by Exxon and others. This is to say nothing of Trump’s own crashing conflicts of interest. Trump promised to “drain the swamp” of the lobbyists and corporate stooges working in Washington. But it looks as if the only swamps he’ll drain will be real ones, as his team launches its war on the natural world.

Understandably, there has been plenty of coverage of the racists and white supremacists empowered by Trump’s victory. But, gruesome as they are, they’re peripheral to the policies his team will develop. It’s almost comforting, though, to focus on them, for at least we know who they are and what they stand for. By contrast, to penetrate the corporate misinformation machine is to enter a world of mirrors. Spend too long trying to understand it, and the hyporeality vortex will inflict serious damage on your state of mind.

Don’t imagine that other parts of the world are immune. Corporate-funded thinktanks and fake grassroots groups are now everywhere. The fake news we should be worried about is not stories invented by Macedonian teenagers about Hillary Clinton selling arms to Islamic State, but the constant feed of confected scares about unions, tax and regulation drummed up by groups that won’t reveal their interests.

The less transparent they are, the more airtime they receive. The organisation Transparify runs an annual survey of thinktanks. This year’s survey reveals that in the UK only four thinktanks – the Adam Smith Institute, Centre for Policy Studies, Institute of Economic Affairs and Policy Exchange – “still consider it acceptable to take money from hidden hands behind closed doors”. And these are the ones that are all over the media.

When the Institute of Economic Affairs, as it so often does, appears on the BBC to argue against regulating tobacco, shouldn’t we be told that it has been funded by tobacco companies since 1963? There’s a similar pattern in the US: the most vocal groups tend to be the most opaque.

As usual, the left and centre (myself included) are beating ourselves up about where we went wrong. There are plenty of answers, but one of them is that we have simply been outspent. Not by a little, but by orders of magnitude. A few billion dollars spent on persuasion buys you all the politics you want. Genuine campaigners, working in their free time, simply cannot match a professional network staffed by thousands of well-paid, unscrupulous people.

You cannot confront a power until you know what it is. Our first task in this struggle is to understand what we face. Only then can we work out what to do,

Friday 12 August 2016

Trusts keep wealth in the hands of the few. It’s time to stop this tax abuse

Richard Murphy in The Guardian

If there is a name that is synonymous with tax avoidance in the UK, it is that of the Duke of Westminster. The duke in question was, admittedly, the second duke, who in 1936 won an infamous tax case that permitted him to pay his gardeners in a way that avoided a tax liability. He achieved abiding fame as a consequence of the opinion of Lord Tomlin, who in his judgment on that case said: “Every man is entitled if he can to order his affairs so that the tax attracted under the appropriate act is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.”

That statement has, to a large degree, been both the foundation of and justification for all tax avoidance activity in the UK since. That this activity continues is evidenced by the fact that the sixth duke is said to have left an estate worth £9.9bn upon his death this week to his son and yet, despite the fact that inheritance tax is supposedly payable on all estates on death worth more than £325,000, it has been widely reported that very little tax will be due in this case. It seems that the sixth duke has put the second to shame: his forebear saved a few pounds on his wages bill while the sixth has avoided something approaching £4bn. He may in the process have even outdone the fifth duke, who argued the fourth duke died of a war wound 232 years after he suffered it to escape all charges on the estate in the 1960s.

His likely motives for doing so can be easily summarised: there may be greed involved; a belief that the duke’s heirs are better entitled to this property than anyone else; and a hostility to any claim that the state might make on property that has been apparent in the UK aristocracy since the time of the Crusades.


The English legal concept of a trust is believed to have been developed during that era, when knights departing the country with no certainty of returning wanted to ensure that their land passed to those who they thought to be their rightful heirs without interference from the Crown. Trusts achieved that goal and the concept has remained in existence ever since, representing the continual struggle of those with wealth to subvert the rule of law that may apply to others but that they believe should not apply to them.

Recent political challenges have not ended the resulting abuse. Labour tried to introduce effective tax charges on inheritance in the 1970s, the Conservatives undermined them a decade later, and every subsequent attempt to tackle tax abuse using trusts (and Gordon Brown made many), has by and large left existing arrangements intact, only seeking to prevent abuse in new arrangements. As if to add insult to injury, the 2013 general anti-abuse rule, which was introduced by the coalition government and supposedly negated the decision by Lord Tomlin noted above, cannot be applied retrospectively: anything done by a duke before that date is outside of its scope.

So why has this tax avoidance been allowed to continue? First, it’s because no one in the UK has, since 1980, had the political will to tackle the use and abuse of trusts – even though continental Europe has shown it is perfectly possible to run an economy without them. Second, it’s down to the continuing power of the aristocracy and their chosen professional agents (lawyers, accountants, bankers and wealth managers) who have been willing to compromise themselves in exchange for fees to perpetuate the situation. And third, it’s because the Conservatives, in particular, have been keen to let the situation continue unchanged as they support the largely unfettered inheritance of substantial wealth. 

Another issue is that we know so little about trusts even when they are at least as powerful as companies and are even more commonly used for tax abuse. This is because of a mistaken perception of privacy, which should only be due to individuals and not artificial arrangements created by law, which trusts are. This can be corrected: we need transparency and that means a full register of trusts and their accounts on public record above modest financial limited, as for companies.

What can be done about this? In addition to the points already noted, the obvious solution is to abolish the inheritance tax reliefs that permit this tax avoidance, whether that be for trusts themselves or for those who own private companies and agricultural land. Inheritance tax assumes that the children of the wealthy are the rightful best next generation of managers of these assets and so lets them be passed on to them tax free, perpetuating wealth concentration in the process.

To put it another way, 800 years of claims by an elite to be above the law applicable to everyone else so that wealth can remain in the hands of the few has to be brought to an end. And if now is not the time to do it, I am really not sure when it will be.

Wednesday 14 November 2012

Energy pricing: the market is manipulation



As an oil industry whistleblower, I know the energy sector is even more flawed than this week's exposé of gas prices reveals
north sea oil
'The real problem lies not with gas, but crude oil – which is suffering perhaps the greatest market manipulation the world has seen.' Photograph: Getty Images
The Guardian's investigation into the alleged "Libor-like" fixing of UK gas prices was doubly ironic for me. The first irony is that, as director of compliance and market supervision of the International Petroleum Exchange (now ICE Futures Europe) in the 1990s, I was heavily involved in the development and legal architecture of the gas-market contract that has now allegedly been manipulated.
The second painful irony is that in 2000 the Guardian published detailed allegations made by me on very similar micro-manipulation of the International Petroleum Exchange's Brent futures contract-settlement prices. This systemic manipulation was so pervasive that traders referred to the on-exchange profits they made at the expense of the manipulators – who profited "off-exchange" – as "grab a grand".
Unfortunately, I described the manipulation as "systematic" – taken to mean that some of the players were routinely manipulating the price most of the time – rather than "systemic", where most of the players manipulate the market some of the time. On this basis the commissioner appointed to investigate my allegations rejected them, and in finest whistleblower tradition my reputation was destroyed: I lost my livelihood, home and marriage. Had the crude oil market been properly investigated at that time, subsequent oil market history would probably have been very different.
One thing I have come to realise since my failed attempt at whistleblowing is that the short-term trading exposed this week is only part of the problem. The malaise runs much deeper. If you want to find out who really has an interest in rigging the market, ask who benefits from medium- and long-term high commodity prices: it's the producers, stupid. From De Beers' diamond hoarding to coffee-grower cartels, if the history of commodity markets tells us anything it's that if producers can find leverage to support commodity prices, they will.
The real problem in the energy market lies not with gas, but crude oil – which is suffering perhaps the greatest market manipulation the world has seen. This is due to financialisation of markets which began in crude oil about 12 years ago, but only became significant from around 2005 onwards. From the mid-90s, a new type of investor entered the markets as investment banks created new vehicles – index funds, exchange traded funds and so on – which enabled investors to invest directly in equities, precious metals; commodities generally and above all, in energy, with a view to "hedging inflation". Rather than speculatively taking a risk in search of a profit, they sought only the return of their capital, and the preservation of the value of their investment relative to dollars, sterling and so on.
To understand what happened to oil, we just need to look at the Enron scandal. The fundamental scam perpetrated here was based on an ancient financing method known as "prepay". Quite simply, this occurs when producers sell their product at a discount for cash now, with delivery later. So via intermediary banks such as JP Morgan and Citigroup, Enron were able to opaquely obtain "off-balance sheet" financing disguised as commodity trades of which Enron's investors and creditors were blithely unaware.Essentially, Enron was borrowing dollars and lending commodities.
A similarly opaque prepay technique has been responsible since 2005 for the inflation of two oil market bubbles. The first – a private sector bubble – culminated in July 2008 in a spike to $147 a barrel, and then a collapse to $35, causing great pain to producers used to high prices. At this point key producers – facilitated by friendly investment banks – resorted to prepay to finance themselves, and a public sector bubble was rapidly inflated during 2009.
In my analysis, the US and Saudis then hit upon a strategy that loosely "pegged" the oil price against the dollar within an agreed trading range, keeping prices relatively stable. But this trick only worked until early 2011, after which Fukushima and supply shocks in Libya and Iran have caused more turmoil.
I believe that there is now virtually nothing holding the oil market up, and that when (not if) Iran reaches an accommodation with the US on terms similar to those spurned by Dick Cheney in 2003, we will see the oil market price fall, possibly dramatically.
I have been warning for some time that risk-averse investors – whose very presence in the market causes the inflation they wish to avoid – are taking a much higher level of market risk than they appreciate. If I am correct, this will – sooner rather than later – give rise to the next Great Regulatory Disaster.
Perhaps worse than this, and particularly relevant to my work on financial market resilience, there is a significant risk of the sort of discontinuity in market price that took place in the tin market in 1985 when the market price collapsed overnight, from the price level supported by producer cartel stockpiling of $8,000 a tonne to the much lower price of $4000 a tonne, which reflected the influx of new low-cost tin supply.
The presence in the market of middlemen who have an interest in volatility and opacity means that we have now reached a stage where market manipulation is no longer an aberration: the market is the manipulation.
So what can be done? In the long term, crude oil prices can only go up, and many would argue that for the sake of the environment it is essential that carbon fuel prices are set at levels at which demand is low. The problem then is how best to distribute interationally and domestically the surplus value thereby created, in particular in investment in renewable energy, and above all in the cheapest energy of all – energy savings.
This will require a new (in fact very old) – and non-toxic – type of market architecture, and the good news is that this are already emerging as the current market paradigm approaches its end.