Is Uzbekistan’s Economy Going into a Tailspin?

February 11, 2013 by

Global Geopolitics & Political Economy / IPS

Kitty Stapp

TASHKENT, Feb 11 (EurasiaNet) – Uzbekistan has introduced sweeping new banking and import regulations that appear designed to keep hard currency from leaving the country.Observers say residents and entrepreneurs should expect a bumpy ride in the coming months, as the cumbersome new measures are expected to drive up prices for basic goods and encourage an expansion of the shadow economy.

At the beginning of February, new rules regulating foreign currency exchange basically made it impossible for Uzbeks to get their hands, legally, on hard currency. Under the new rules, residents can only trade Uzbek sums for virtual hard currency loaded onto plastic banking cards for use abroad or online, not cash.

At the same time, authorities began arresting the currency traders who operate in a thriving black market, where the U.S. dollar fetches approximately 40 percent more than banks offer in exchange for sums.

While the exchange regulations received widespread attention, on Jan. 30 customs authorities also quietly introduced new import rules requiring mountains of paperwork. According to the State Customs Committee, importers must now submit "preliminary" customs declarations for all imported goods 30 days in advance.

Along with the preliminary declaration, importers are also required to procure certificates showing goods’ compliance with Uzbekistan’s strict and oft-changing hygienic, conformity and veterinary standards. The new steps add more paperwork to an already burdensome process.

And in Uzbekistan – routinely classified as one of the most corrupt countries on the planet; Transparency International ranks it tied for 170th out of 174 countries surveyed in its most recent Corruption Perceptions Index – paperwork often gives authorities a chance to find errors, perceived or real, and solicit bribes.

Officially, the new customs regulations stated aim is to "further fundamentally improve the business environment and provide greater freedom to entrepreneurship" and to "liberalize" foreign trade. But with the regulations announced so suddenly, after no public discussion, few are taking authorities at their word.

Instead, some regional media outlets have suggested authorities are trying to keep hard currency from leaving the country; others speculate that authorities are protecting the business interests of a well-connected individual or family (not unheard of in Uzbekistan).

Either way, analysts say it is difficult to imagine Uzbekistan’s limited domestic manufacturing base offering substitutes of sufficient quantity and quality to offset the expected price fluctuations as goods disappear from store shelves.

Import restrictions in Uzbekistan are hardly news: In 2000, Tashkent banned individuals from importing goods for resale. In 2009, the maximum value of goods that could be imported duty-free for personal consumption was reduced to 10 dollars per person.

These rules turned travel abroad for the average Uzbek into a troublesome experience. Long lines are now routine at border crossings, as customs officers sift through bags to identify items subject to customs duties or seizure (or another chance to solicit a bribe).

Because high import tariffs already make consumer goods in Uzbekistan expensive, many Uzbeks have long preferred to shop in neighbouring countries such as Kazakhstan and Kyrgyzstan. This practice is growing increasingly difficult under the existing regulations.

Unsurprisingly, when it comes to facilitating cross-border trading, the World Bank recently ranked Uzbekistan as the worst performer out of 185 countries surveyed in its Doing Business report for 2013.

Coupled with the latest foreign currency restrictions, analysts believe the new import regulations aim to prevent Uzbekistan’s foreign exchange and gold reserves from dwindling. (By limiting imports, the idea is the authorities are limiting the outflow of precious foreign cash and gold. Most analysts consider current account statistics unreliable).

Tashkent does not publish data on its reserves, or what share of its export earnings are channeled into replenishing reserves. But given the government’s reluctance to borrow, the restrictions on the circulation of hard cash suggest Tashkent is having trouble balancing the books.

"Coming on the back of the recent changes to currency regulations, one reason for the import restrictions is likely to be that the government is seeking to protect the country’s foreign-exchange reserves," Anna Walker, a Central Asia analyst at the London-based Control Risks consultancy, told EurasiaNet.org.

"It also probably reflects a long-standing policy of encouraging import-substituting industrialization, though this policy has failed to foster a dynamic, domestic industrial sector that produces goods capable of competing with imports."

Walker doubts the Uzbek government can achieve its economic goals by administrative fiat alone.

"Given the prevalence of imported goods in most sectors, it is highly unlikely that domestically produced goods will be able to substitute for imports. The government’s attempts to attract foreign investment in sectors other than natural resources have been largely unsuccessful, and the domestic manufacturing sector does not have the capacity to fill the gap left by the new import restrictions," Walker added.

The stifling import and currency regulations often force Uzbek entrepreneurs to operate in the shadows. Privately, many confess they can only survive by bribing tax and customs officials.

One entrepreneur, a jeweler, who agreed to talk to EurasiaNet.org on condition of anonymity, said he thought any new import restrictions were done for one reason only: “To prevent the outflow of foreign currency from the country."

The new restrictions are likely to backfire, driving up prices and pushing more entrepreneurs into the shadow economy, Walker said: "The immediate result is likely to be an increase in prices, as the availability of goods diminishes, as well as growth in the shadow economy as consumers and retailers attempt to get round the restrictions.”

While there has not yet been a visible impact on the prices for essentials in the capital, Tashkent, the restrictions have started hurting supplies. One shopkeeper told EurasiaNet.org that he was having trouble sourcing chocolate and candy. While other items were still in stock, he explained, his local suppliers have stopped accepting and delivering orders.

Editor’s note: Murat Sadykov is the pseudonym for a journalist specialising in Central Asian affairs.

This story was originally published by EurasiaNet.org.

All rights reserved, IPS – Inter Press Service, 2013.

This article may not be republished, broadcast, framed, or redistributed without the written permission of IPS – Inter Press Service. Republication of this material without permission from IPS, the copyright holder, constitutes a violation of United States and international copyright laws and may result in legal action.


Filed Under: Analysis, Economic Policy, Economy, Finance, Transparency Tagged With: , , ,

Corruption Muddies the Waters in Argentina

February 11, 2013 by

Global Geopolitics & Political Economy / IPS

Marcela Valente

BUENOS AIRES, Feb 08 (IPS) – Two corruption scandals – one homegrown and the other originating in Spain – are again highlighting the connections in Argentina between irregular investments, the misuse of environmental remediation projects for private gain, and plans that contribute to the degradation of natural resources.

pollution_400

Pollution levels in the Matanza-Riachuelo basin have not dropped despite a Supreme Court ruling ordering its clean-up. Credit: Malena Bystrowicz /IPS

For the organisation Transparency International, climate change and forest and water management are areas that are particularly vulnerable to corruption, especially in developing countries where natural resources are plentiful and economic resources are scarce.

A Spanish court is currently investigating a case of corruption involving the former treasurer and head of Spain’s governing People’s Party (PP), Luis Bárcenas (1993-2009). That scandal has an Argentine chapter, closely linked to the destruction of native forests that should be protected.

One of the owners of La Moraleja, a 30,000-hectare plantation in the northwestern province of Salta, is the Spanish politician Ángel Sanchís, who served as PP treasurer from 1982 to 1987 and has been under investigation in his country due to his close ties to Bárcenas.

The Spanish courts informed in January that Bárcenas had at least one account with 29.8 million dollars in Switzerland, from which – according to leaks in the investigation – funds were diverted to a company connected with La Moraleja and it is suspected that they were invested in the agricultural establishment itself, although the Sanchís family has denied it.

Also last month, Miguel Ángel Soto, head of Greenpeace Spain’s forest campaign, reported that in 2004 Sanchís offering “a compensation” in exchange for the environmental watchdog’s support for a non-native species planting project he was planning to implement in Salta.

According to Soto, Sanchís explained that his plantation in Argentina had only 12,000 productive hectares and that, therefore, he wanted to deforest the non-productive areas and replace the indigenous vegetation with “noble” wood species, such as cherry, teak and mahogany. But the organisation says the area he planned to replant is a high conservation value forest.

At the time, Greenpeace Argentina was conducting a strong campaign for the preservation of native forests in Salta, where the expansion of soybean and other cash crops was wiping out forests and threatening the survival of the area’s indigenous communities.

The organisation began its campaign by denouncing the auctioning off of the General Pizarro nature reserve, located near La Moraleja. Then Governor of Salta Juan Carlos Romero, who visited La Moraleja often, justified the sale with the argument that the reserve was already degraded.

Every law has a loophole

As a result of these anti-logging protests, in November 2007 a Minimum Standards for the Environmental Protection of Native Forests Act (Law 26,331 or Forest Act) was passed, stipulating that high, medium and low conservation areas had to be identified in every province. These would be categorised, respectively, as red, yellow and green zones under a land-use management scheme.

Hernán Giardini, head of the Greenpeace Argentina campaign, told IPS that La Moraleja is located in a transition zone between the Chaco forest to the east and the Yungas jungle to the west, and is home to species from both regions.

“There’s very little left of the transition forest in Salta and, just as (the Romero) provincial administration was nearing the end of its term and after the (forest) law had been passed, logging permits increased five-fold,” even in La Moraleja, which is in a red category zone, Giardini said.

According to the information obtained by Greenpeace, the owners of this agricultural establishment were granted permits to clear 5,900 hectares of forest in December 2007, just days after the law banning such activity was passed. That same year logging permits were issued for a total of 435,000 hectares in Salta.

These figures were taken from a deforestation monitoring report (“Monitoreo de Deforestación de Bosques Nativos de la Región Chaqueña Argentina”) released in late 2012 by the non-governmental organisation Red Agroforestal Chaco Argentina, which assessed the native forests of the Argentine Chaco region. The study further reveals that from 1976 to 2012 two million hectares of Salta’s native forest were cleared.

“The information gathered indicates that the Forest Act had little impact in terms of reducing the rate of deforestation in Salta in the years immediately following the enactment of this law,” the report concludes. It also highlights that the most affected area is Salta’s Anta region, where La Moraleja is located, and which accounts for 40 percent of the province’s deforested territory.

Giardini told IPS that he was never able to confirm the rumours that accused Romero of issuing permits in exchange for money, but that he did find evidence that permit applications were hurried through when it was evident that the law would have the necessary votes.

Romero served as governor of Salta for three consecutive terms (1995-2007) and currently holds a seat in the national senate. He was elected under the governing Justicialista Party ticket but belongs to a right-wing faction that opposes President Cristina Fernández, who heads the central-left faction Frente para la Victoria.

A basin contaminated by justice

Another emblematic case of environmental degradation driven by corruption is the project to clean up the basin of a river that runs 64 kilometres from the northeast of the Buenos Aires province, where it is called Matanza, to the southern border of the Argentine capital, where its name changes to Riachuelo.

“Corruption must be considered an additional source of pollution of the Matanza-Riachuelo basin,” activist Andrés Nápoli, of the Environment and Natural Resource Foundation, told IPS.

In 2006, Argentina’s Supreme Court of Justice issued a ruling ordering a clean-up plan for this basin – the country’s most polluted waterway, which covers 2,240 sq km and includes 232 streams-, as well as the mitigation of environmental damage and the improvement of the quality of life of the people living along the banks of this river that flows into the Río de la Plata estuary.

A Matanza-Riachuelo Basin Authority (ACUMAR) was created to implement this plan, formed by representatives of the government of the city of Buenos Aires, 14 Buenos Aires province municipalities, and the federal government, which are the jurisdictions involved.

Environmental groups say that while many measures stipulated by the court ruling have not yet been implemented, the plan has achieved general improvements.

In late 2012, however, the newspaper Página/12 denounced acts of corruption allegedly committed by Luis Armella, the judge responsible for enforcing the court sentence.

The paper claimed that relatives of the judge created companies that were awarded contracts for clean-up works without going through bidding channels, with the excuse that the works needed to be completed urgently.

The court took Armella off the case and conferred jurisdiction on two other judges: Sergio Torres and Jorge Rodríguez. Following an independent investigation, the National Auditing Office confirmed the accusations, and the Council of the Judiciary is currently assessing whether Armella should be removed from the bench.

“It came as a shock to us and it was a great blow to the credibility achieved with the Court’s intervention. The basin is tainted by the stigma of pollution, apathy and corruption, and now Armella’s misconduct seems to confirm that fate,” Nápoli said.

Nápoli recalled, for example, that in the 1990s the Inter-American Development Bank (IADB) granted a 250-million-dollar to finance an earlier clean-up plan for the Riachuelo and that “the only thing (that money) was good for” was to increase Argentina’s public debt.

Greenpeace Argentina rubbed salt into the wound when it announced on Sunday, Feb. 3 that contamination levels in the Matanza-Riachuelo basin were exactly the same as five years ago and that the water’s toxicity was still very high.

All rights reserved, IPS – Inter Press Service, 2013.

This article may not be republished, broadcast, framed, or redistributed without the written permission of IPS – Inter Press Service. Republication of this material without permission from IPS, the copyright holder, constitutes a violation of United States and international copyright laws and may result in legal action.


Filed Under: Environment, Latin America, Report, Transparency Tagged With: ,

Poor Countries Robbed Of 6 Trillion Dollars

February 6, 2013 by

Global Geopolitics & Political Economy / IDN

By Jaya Ramachandran | IDN-InDepth NewsReport

BERLIN (IDN) – Crime, corruption, and tax evasion recorded near-historic highs in 2010, with illicit financial outflows costing the developing world $859 billion in 2010, just below the all-time high of $871.3 billion in 2008, the year preceding the global financial crisis. Besides, nearly $6 trillion (6000 000 000 000 000 000 U.S. dollars) were stolen from poor countries in the decade between 2001 and 2010, says a new report and urges world leaders to increase transparency in the international financial system.

"Astronomical sums of dirty money continue to flow out of the developing world and into offshore tax havens and developed country banks," said Raymond Baker, Director of the Washington-based advocacy organization, Global Financial Integrity (GFI).

"Regardless of the methodology, it’s clear: developing economies are hemorrhaging more and more money at a time when rich and poor nations alike are struggling to spur economic growth. This report should be a wake-up call to world leaders that more must be done to address these harmful outflow," he adds.

Co-authored by GFI’s lead economist Dr Dev Kar and economist Sarah Freitas, the study, Illicit Financial Flows from Developing Countries: 2001-2010 points out that as developing countries begin to relax capital controls, the possibility exists that the methodology utilized in previous GFI reports – known as the World Bank Residual Plus Trade Mispricing method – could increasingly pick-up some licit capital flows.

The methodology introduced in this report – the Hot Money Narrow Plus Trade Mispricing method – ensures that all flow estimates are strictly illicit moving forward, but may omit some illicit financial flows detected in the previous methodology, the study’s authors say.

"The estimates provided . . . are still likely to be extremely conservative as they do not include trade mispricing in services, same-invoice trade mispricing, hawala transactions, and dealings conducted in bulk cash," explained Dr Kar, who previously served as a senior economist at the International Monetary Fund.

“This means that much of the proceeds of drug trafficking, human smuggling, and other criminal activities, which are often settled in cash, are not included in these estimates,” he added.

The study, released on December 17, 2012, finds that the $858.8 billion of illicit outflows lost in 2010 is "a significant uptick" from 2009, which saw developing countries lose $776.0 billion under the new methodology. It estimates the developing world lost a total of $5.86 trillion over the decade spanning 2001 through 2010.

"This has very big consequences for developing economies," explained the report’s co-author Freitas. "Poor countries lost nearly a trillion dollars that could have been used to invest in healthcare, education, and infrastructure. It’s nearly a trillion dollars that could have been used to pull people out of poverty and save lives."

The authors’ research tracks the amount of illegal capital flowing out of 150 different developing countries from 2001 through 2010, and it ranks the countries by magnitude of illicit outflows. According to the report, among the 20 biggest exporters of illicit financial flows over the decade are:

China recording unlawful outflows of $274 billion average ($2.74 trillion cumulative); Mexico ($47.6 billion average and $476 billion cumulative); Malaysia ($28.5 billion average and $285 billion cumulative); Saudi Arabia ($21.0 billion avg. and $210 billion cum.); Russia ($15.2 billion avg. and $152 billion cum.); Philippines ($13.8 billion avg. and $138 billion cum.); Nigeria ($12.9 billion avg. and $129 billion cum.); India ($12.3 billion avg. and $123 billion cum.); Indonesia ($10.9 billion avg. and $109 billion cum.); and United Arab Emirates ($10.7 billion avg. and $107 billion cum.)

Others include: Iraq ($10.6 billion avg. and $63.6 billion cum.); South Africa ($8.39 billion avg. and $83.9 billion cum.); Thailand ($6.43 billion avg. and $64.3 billion cum.); Costa Rica ($6.37 billion avg. $63.7 billion cum.); Qatar ($5.61 billion avg. and $56.1 billion cum.); Serbia ($5.14 billion avg. and $51.4 billion cum.); Poland ($4.08 billion avg. and $40.8 billion cum.); Panama ($3.99 billion avg. and $39.9 billion cum.); Venezuela ($3.79 billion avg. and $37.9 billion cum.); and Brunei ($3.70 billion avg. $37.0 billion cum.).

The report, funded by the Ford Foundation, also reveals the top exporters of illegal capital in 2010: China ($420.36 billion); Malaysia ($64.38 billion); Mexico .($51.17 billion); Russia ($43.64 billion); Saudi Arabia ($38.30 billion); Iraq ($22.21 billion); Nigeria ($19.66 billion); Costa Rica ($17.51 billion); Philippines ($16.62 billion); Thailand ($12.37 billion); Qatar ($12.36 billion); Poland ($10.46 billion); Sudan ($8.58 billion); United Arab Emirates ($7.60 billion); Ethiopia ($5.64 billion); Panama ($5.34 billion); Indonesia ($5.21 billion); Dominican Republic ($5.03 billion); Trinidad and Tobago ($4.33 billion); and Brazil ($4.29 billion).

Connections to previous reports

China, the largest cumulative exporter of illegal capital flight, as well as the largest victim in 2010, was the topic of an October 2012 country-specific report by Dr Kar and Freitas. Using the older methodology, ‘Illicit Financial Flows from China and the Role of Trade Misinvoicing,’ found that the Chinese economy suffered $3.79 trillion in illicit financial outflows between 2000 and 2011.

"Our reports continue to demonstrate that the Chinese economy is a ticking time bomb," said Dr Kar. "The social, political, and economic order in that country is not sustainable in the long-run given such massive illicit outflows."

Mexico, the second-largest cumulative exporter of illicit capital over the decade, was also the topic of a January 2011 GFI report by Dr. Kar. The study, ‘Mexico: Illicit Financial Flows, Macroeconomic Imbalances, and the Underground Economy’, found that the country lost a total of $872 billion in illicit financial flows over the 41-year period from 1970 to 2010. Furthermore, illicit outflows were found to drive Mexico’s domestic underground economy, which includes – among other things – drug smuggling, arms trafficking and human trafficking.

Possible solutions

Global Financial Integrity report urges world leaders to increase the transparency in the international financial system as a means to curtail the illicit flow of money highlighted by the organization’s research.

In particular it stresses the need for addressing the problems posed by anonymous shell companies, foundations, and trusts by requiring confirmation of beneficial ownership in all banking and securities accounts, and demanding that information on the true, human owner of all corporations, trusts, and foundations be disclosed upon formation and be available to law enforcement.

The report also calls for reforming customs and trade protocols to detect and curtail trade mispricing; requiring the country-by-country reporting of sales, profits and taxes paid by multinational corporations; requiring the automatic cross-border exchange of tax information on personal and business accounts; harmonizing predicate offenses under anti-money laundering laws across all Financial Action Task Force cooperating countries; and ensuring that the anti-money laundering regulations already on the books are strongly enforced. [IDN-InDepthNews – February 2, 2013]

2013 IDN-InDepthNews | Analysis That Matters

This article should not be republished or redistributed without the permission of the original author or copyright holder.


Filed Under: Crime, Report, Transparency Tagged With:

Corruption Case Raises Iran Domestic Tensions

February 4, 2013 by

Global Geopolitics & Political Economy / IPS

AJ Correspondents

DOHA, Qatar, Feb 04 (Al Jazeera) – Iran’s president has accused the brother of the speaker of parliament of corruption, increasing tensions between two of the country’s most powerful political figures in the run-up to presidential elections in the country.

Mahmoud Ahmadinejad and his cabinet were in parliament on Sunday for the impeachment hearing of Abdolreza Sheikholeslami, the labour minister, when he levelled the accusations against Fazel Larijani, the speaker’s brother.

He played an inaudible audio recording in which Fazel allegedly says he used his family’s status for economic gains, but both brothers dismissed the allegations made by Ahmadinejad.

“Our problem is that our president does not observe the basics of proper behaviour,” Ali Larjani, the speaker, said, retorting to the president’s comments, adding that it had nothing to do with Sheikholeslami’s impeachment process.

“Actually it’s a good thing that you played this tape today, so that the people better understand your character.”

Al Jazeera’s Soraya Lennie, reporting from Tehran, said: “Most of (the reactions) have been quite negative and critical of the president . One parliamentarian said ‘the president is not acting in the manner befitting his post’.”

Request denied

During Sunday’s impeachment hearing, Ali Larijani told Ahmadinejad that parliament was not the proper place for the corruption discussion and that he should take it any accusation to the relevant authorities.

He also denied a request by Ahmadinejad to speak again.

Ahmadinejad claims that the audio recording of a conversation between Saeed Mortazavi, an associate of Ahmadinejad, and Fazel Larijani was proof of Fazel implying that he could use his brothers’ influence to remove obstacles in return for involvement in business endeavours.

The Larijani family is one of the country’s most influential poltical families. Sadeq Larjani, Iran’s judiciary chief, is a brother of Fazel and Ali.

Fazel told Iran’s Fars news agency that he would file a legal complaint against Ahmadinejad and Mortazavi for “spreading lies and disturbing public opinion”.

“This was a conspiratorial step and hypocritical action taken so that Mortazavi could use it as leverage,” he said. “I’m not the first person to be attacked by these Mafia-like individuals.”

*Published under an agreement with Al Jazeera.

All rights reserved, IPS – Inter Press Service, 2013.

This article may not be republished, broadcast, framed, or redistributed without the written permission of IPS – Inter Press Service. Republication of this material without permission from IPS, the copyright holder, constitutes a violation of United States and international copyright laws and may result in legal action.


Filed Under: Middle East, Politics, Report, Transparency Tagged With: ,

U.S. Firms Stash Tens of Billions in Tax Havens, Govt Says

February 3, 2013 by

Global Geopolitics & Political Economy / IPS

Carey L. Biron

WASHINGTON, Jan 31 (IPS) – The research arm of the U.S. Congress is warning that U.S. corporations’ use of tax havens has risen substantially in recent years, with companies offering massively inflated profit reports from small countries with loose tax regulations.“Ample evidence of a significant amount of profit shifting exists, but the revenue cost estimates vary from about 10 billion to 60 billion (dollars) per year,” Jane G. Gravelle, a senior specialist in economic policy, writes in a new report for the nonpartisan Congressional Research Service (CRS).

Elsewhere, Gravelle suggests that the revenue losses from this “profit shifting” could reach as high as 90 billion dollars a year, while the cost of evasion on the part of individuals could be as high as 70 billion dollars a year. (Although CRS reports are not publicly released, a copy can be found here.)

Further, these numbers appear to be growing. Extrapolation from the new CRS statistics suggests that U.S. corporate profits reported from, for instance, Bermuda grew by five times during the decade leading up to 2008, the last year for which data is available.

Perhaps the most striking part of the new findings is simply the brazenness with which U.S. corporations appear to have become accustomed to misreporting their overseas earnings. To run her analysis, Gravelle chose five relatively small but well-known tax havens – Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland – and then looked at the percentage of profits U.S. companies reported as having come from those countries in 2008.

Incredibly, notes Citizens for Tax Justice, an advocacy group here in Washington, these countries were found to have accounted for 43 percent of the 940 billion dollars of overseas profits reported by U.S. multinational corporations, despite having made just seven percent of their foreign investments in those same countries.

On the other hand, the five countries where U.S. corporations do much of their overseas business (the United Kingdom, Germany, etc) were reported to tax authorities as having accounted for just 14 percent of overseas profits.

“Obviously they aren’t making their money in these countries – their economies are nowhere near large enough,” Robert S. McIntyre, the director of Citizens for Tax Justice (CTJ), told IPS. He points out, for instance, that U.S. multinationals’ reported profits in Bermuda amounted to 1,000 percent of the island’s economic output.

“This is just more significant proof that we have a really serious problem, both in the United States and in Western Europe,” McIntyre says, noting that the trend has almost certainly continued, if not increased, since 2008.

Food from the hungry

A December report by Global Financial Integrity, a Washington watchdog, found that the developing world lost nearly a trillion dollars in 2010 due to tax evasion, corruption and other financial crimes. That figure is 10 times larger than the 88 billion dollars provided as development assistance to developing countries that year – and, the researchers warned, this figure was almost certainly an underestimate.

“Whether you’re a big, developed country like the United States or a smaller developing country in Africa,” McIntyre says, “if you can’t get tax money out of the businesses operating in your territory, how are you going to pay for infrastructure, health, education and all of the other things you need to maintain and grow an economy?”

On Wednesday, Oxfam International, a humanitarian aid organisation, called for global policymakers to close off loopholes that have allowed for the recent increase in tax evasion. The group is suggesting that just a quarter of the revenue that could accrue from taxing misreported profits would be able to “lay the foundation for ending global hunger”.

“Governments should agree to end global hunger by 2025 and an end to tax havens, which could help pay for this and much more. Tax-dodging effectively takes food from hungry mouths,” Stephen Hale, advocacy head for Oxfam, said in a statement on Wednesday.

The group offers an estimate of 32 trillion dollars currently sitting in tax havens around the world, and notes that taxes on this lump sum could raise nearly 190 billion dollars a year. On the contrary, Oxfam states, “Just 50.2 billion (dollars) a year is estimated to be the level of additional investment needed, combined with other policy measures, to end global hunger.”

Dutch funnel

While the United States’ ability to impose taxes is supposed to span worldwide, that system includes a significant exception, in that foreign profits are not taxed until companies bring their earnings back into the country.

On the ground, the result has been more and more companies looking to keep their profits overseas – or claiming that the money was made in countries that have either strict privacy regulations or lax reporting requirements.

Due to legalities and bilateral treaties, the Netherlands has become a significant transit point for unreported earnings for companies across the world. According to recent estimates, the Netherlands is allowing some 13 trillion dollars to funnel through its financial system en route to classic tax havens such as the Cayman Islands.

Particularly given the current fiscal crunch in Europe, such figures have caught the attention of E.U. policymakers; in December, the European Commission warned that tax avoidance was costing the regional bloc a trillion euros every year. The E.U. is currently trying to put in place a system that would divide up corporate profits among member states before it could, say, end up in the Netherlands and then leave the continent.

Last week, the Dutch legislature took up the issue in what appears to be a broad-based attempt to tweak the country’s laws. Also last week, U.K. Prime Minister David Cameron stated that, when his country takes over the rotating presidency of the Group of 8 (G8) rich countries this year, corporate tax evasion will be one of his central priorities.

In Washington, much of the effort is currently revolving around attempts to lower the U.S. corporate tax rate – at 35 percent, the highest among all developed countries. Beyond this, though, CTJ’s McIntyre warns that there are few allies for any major legislative push.

“Republicans like the fact that these companies are successfully avoiding taxes, while the Democrats are afraid that if they do anything strong, corporate money will go against them in the next election,” he says. “Companies are hoping that they’ll get away with these practices, and currently they have the (tax authorities) outgunned.”

All rights reserved, IPS – Inter Press Service, 2012.

This article may not be republished, broadcast, framed, or redistributed without the written permission of IPS – Inter Press Service. Republication of this material without permission from IPS, the copyright holder, constitutes a violation of United States and international copyright laws and may result in legal action.


Filed Under: Budget, Economy, Report, Transparency, United States Tagged With:

Bankers, Swindlers

November 9, 2012 by

Global Geopolitics & Political Economy / IPS

Ignacio Ramonet

PARIS, Nov 09 (IPS) – For anyone who might not have realised it yet, the current crisis is demonstrating beyond a shadow of a doubt that the financial markets are the lead players in the current economic situation in Europe. Power has passed from the politicians to speculators and crooked bankers. This is a fundamental change.

Every single day a staggering quantity of money floods through the markets – for example, seven billion euros worth of eurozone governments’ debt alone, according to the European Central Bank. The daily collective decisions of these markets can now topple governments, dictate policies, and subjugate entire populations.

Moreover, these new "lords of the earth" have no concern whatsoever for the common good. Solidarity is not their problem, much less the preservation of the welfare state. Greed is the only motive for their actions. Speculators and bankers, driven by a hunger for profits, behave with total impunity, diving like birds of prey on target after target.

Since the crisis broke in 2008 no serious reform has been imposed to either regulate the markets or rein in the bankers. It is apparent that banks play a clear role in the economic system and that their traditional activities ­ encouraging savings, providing families with credit, financing businesses, spurring commerce ­ are constructive.

However, since the dawn in the 1980s of the "universal bank", which added speculation and investment to the above mix of functions, risks to customers’ savings shot up dramatically along with deceit, scandals, and fraud.

One of the most shameless acts was carried out by Goldman Sachs, which now dominates the financial universe. In 2001 it helped Greece to cook its books so that Athens would meet the conditions to join the euro.

In under seven years, this scam was discovered and the reality exploded like a bomb. The consequence: a debt crisis engulfed almost an entire continent; Greece was sacked and forced onto its knees; recession struck, with massive unemployment and plummeting buying power of workers; restructuring and drastic cuts in social services followed, with widespread misery and the imposition of structural adjustment programmes.

How were the perpetrators of this devastating swindle punished? Mario Draghi, the ex-vice president of Goldman Sachs for Europe who was aware of most of the fraud, was named president of the European Central Bank. Meanwhile, for its crooked window-dressing for Greece, Goldman charged 600 million euros. The story has a clear moral: when it comes to major rip-offs by the banks, impunity is the rule.

For confirmation look no further than the thousands of Spanish depositors who bought stocks in Bankia the day it was listed on the stock market. It was known that the bank had no credibility and that according to the ratings agencies its stock was just a step above junk.

But the depositors trusted Rodrigo Rato, then president of Bankia and ex-managing director of the International Monetary Fund, who proclaimed on May 2, 2012 (five days before resigning in response to market pressure and just before the Spanish government had to inject 23.5 billion euros to keep it out of bankruptcy): "In terms of both liquidity and solvency, we are in a very robust position."

It is known that a year earlier, in July 2011, Bankia apparently passed the "stress test" imposed by the European Banking Authority (EBA) on the 91 largest financial businesses in Europe. This should give an idea of the incompetence and ineptitude of the EBA, the European agency charged with guaranteeing the health of our banks.

But that wasn’t the end of the scandals. Indeed, new bank frauds have come to light in recent months. HSBC was accused of money laundering for Mexican narco-traffickers. J.P. Morgan engaged in massive speculation and unprecedented risk-taking that led to losses of 7.5 billion euros and ruined dozens of clients. The same happened at Knight Capital, which lost over 323 million euros in a single night because of a mistake by its automatic trading programme.

But the scandal that is most infuriating on a global scale is the Libor. The Association of British Bankers issues each day what is called the "London Interbank Offered Rate", an average calculated by Reuters financial news agency of the interest rates obtained by the 16 largest banks for borrowing.

As the rate at which the major banks lend money to each other, Libor constitutes a fundamental benchmark for the entire world financial system. In particular, it is used to calculate mortgage rates for homeowners. Worldwide, Libor influences some 350 trillion euros in credit and any variation in it can have a colossal effect.

How did this scam work? Some of the 91 Libor banks colluded in lying about the rates they were obtaining, thus manipulating not only Libor but all derivative contracts and the credit rates for businesses and families alike. This went on for years.

Investigations have shown that about ten major international banks ­ Barclays, Citigroup, JP Morgan Chase, Bank of America, Deutsche Bank, HSBC, Credit Suisse, UBS, Societe Generale, Credit Agricole and the Royal Bank of Scotland ­ participated in the racket.

What we see from the Libor disaster is that criminal behaviour has infected the very heart of the financial industry, and that probably millions of families were issued mortgages at incorrect rates. Many had to leave their homes. Others were evicted because they couldn’t pay artificially-manipulated interest rates. And once again the authorities charged with overseeing the operation of the markets turned a blind eye to this crime. No one has been punished beyond four schemers.

How long can democracies continue to allow such impunity? In 1932 in the United States, Ferdinand Pecora, son of Italian immigrants who became a prosecutor in New York, was named by president Herbert Hoover to investigate the responsibility of the banks for the crash of 1929. His report was overwhelming. It was he who coined the term "banksters" (out of "bankers’" and "gangsters").

On the basis of this report, president Franklin D. Roosevelt acted to protect the American people from the risks of speculation. He passed the "Glass-Stegall Act" which (until it was repealed in 1999) required the separation of commercial banking from investment banking. What government of the eurozone would dare pass similar legislation today? (END/COPYRIGHT IPS)

* Ignacio Ramonet is editor of Le Monde diplomatique en español.

All rights reserved, IPS – Inter Press Service, 2012.

This article may not be republished, broadcast, framed, or redistributed without the written permission of IPS – Inter Press Service. Republication of this material without permission from IPS, the copyright holder, constitutes a violation of United States and international copyright laws and may result in legal action.


Filed Under: Budget, Economic Crisis, Europe, Featured, Finance, Politics, Social Justice, Transparency, Unrest Tagged With: ,

Treating Doctors for Corruption

August 20, 2012 by

Pavol Stracancsky

BRATISLAVA, Aug 19 (IPS) – Slovak doctors have launched an unprecedented campaign to rid their own profession of what is widely perceived as endemic bribery.Launching the ‘Thank You, We Don’t Take Bribes’ campaign, officials from the Medical Trade Unions Association (LOZ) said the move would reassure the public of medics’ integrity and increase transparency in the healthcare system.

But experts believe it will do little to stop corruption in the sector.

Roman Muzik, an analyst at the Health Policy Institute (HPI) think-tank in Bratislava, told IPS: “It is an interesting and atypical measure, but it won’t significantly decrease corruption in the healthcare system. More effective measures are needed.”

The campaign – which will see hospital doctors wearing the stickers when treating patients and a special website set up showing which doctors have joined – comes amid a continuing overwhelming public perception of the country’s healthcare sector as having, as in many other Eastern European nations, a serious problem with bribery.

According to a 2010 study by Transparency International, Slovakia’s healthcare system was perceived to be the 18th most corrupt out of 88 countries surveyed. Another study released this year showed one in four families in Slovakia had personal experience of bribery involving a doctor.

Patients often say that even when not directly asked for a bribe, they feel they must offer one to guarantee at least reasonable healthcare.

Interviews with patients have shown that payments of anywhere from tens of euros to thousands of euros are handed in return for priority on operation waiting lists or above-standard service.

The situation is the same, or worse, in other Central and Eastern European (CEE) countries, with healthcare in the Ukraine, Moldova, Romania and Hungary perceived as having particularly severe problems with medical workers taking bribes.

Healthcare in many countries in the region is grossly underfunded compared to the European average and very low pay and poor working conditions – which have caused mass strikes by medical workers in Hungary, the Czech Republic and Slovakia in the last two years – are often cited as reasons for medics taking bribes.

But a recent research paper from HPI has dismissed this, instead suggesting doctors’ greed and the fact that “circumstances allow them” to demand bribes as more likely reasons for flourishing corruption.

A lack of clarity on patient rights and entitlements is also thought to contribute to the problem.

Gabriel Sipos, head of Transparency International Slovakia, told the local Sme newspaper: “It’s important that a basic package is defined showing what a patient is entitled to. If this is not clear, it creates room for ‘under the table’ negotiation.”

But others say that the causes of problems with corrupt doctors are more complex and date back to the communist regimes in place across the region until just over 20 years ago.

Handing over money and gifts in return for preferential treatment or access to certain products and services was regular and a normal way of life at all levels of society.

This created a culture and general acceptance of bribery which remains entrenched in some sectors today.

The World Bank has estimated that, in Romania alone, as much as 750,000 euros per day is received or offered in bribes. Local media have reported that staff at hospitals will demand from hundreds to hundreds of thousands of euros for anything from ensuring bed sheets are changed to approving operations abroad.

Romanian health minister Ladislau Ritli admitted to media earlier this year: "Corruption is so deeply rooted in our system that it’s really difficult to eliminate."

HPI’s Muzik told IPS: “One of the reasons behind problems with bribery in healthcare is that corruption in general is deeply rooted in people’s behaviour. They used bribes before 1989, under the communist regime, and so they continue to use them now.”

He added that patients themselves also needed to play their part in stamping out bribery.

“Patients need to stop following the idea that ‘everybody is doing it, so why not me?’ and giving bribes.”

Patients have also been called on to make sure they report doctors who ask for bribes and along with its new campaign, LOZ has called for the Health Ministry to set up a special hotline where patients can report bribery.

While some doctors have been caught taking bribes after patients went to the police, prosecutions for corruption in the sector have been rare.

Many patients admit to being reluctant to report medics who demand bribes, fearing what some term as a “white-coat mafia” could do to them on an operating table.

Within the profession, few doctors ever speak openly of corruption or colleagues accepting bribes. But some will admit privately that it is not uncommon.

Sylvia Kucharova, a psychiatrist from Zilina in northern Slovakia, told IPS that although she did not take bribes she was aware that the practice went on.

She said: “There are plenty of people looking for, and offering, ‘sweeteners’. It’s always been there.”

There is little expectation that the problem is likely to be resolved in the immediate future. But despite the doubts about the overall effectiveness of the campaign, the fact that it has been launched at all is a positive step.

Muzik said: “It has to be said that although the campaign is not likely to have much effect on corruption it is good that Slovak doctors are admitting there is corruption in the system, that they feel it is widespread and that they want to do something about it.”


Filed Under: Europe, Health, Report, Transparency Tagged With: ,

Tangled Web of Corruption Debilitates Mexico

May 10, 2012 by

Global Geopolitics & Political Economy / IPS

By Emilio Godoy

MEXICO CITY, May 10, 2012 (IPS) – Although Mexico has signed several multilateral anti-corruption agreements, so far these instruments have yielded few concrete results in combating the rampant bribery, extortion and embezzlement, according to experts.

"We have the necessary legal instruments, but they are rarely used. More laws will not reduce the risk of corruption," Eduardo Bojórquez, head of Transparencia Mexicana, the national chapter of the Berlin-based watchdog Transparency International, told IPS.

"We are concerned that there are companies that are larger and more powerful than many nation states, which confront governments at different levels of institutional development," Bojórquez said.

The most notorious recent scandal in Mexico involves U.S. retail giant Walmart, which has been under investigation by the U.S. Department of Justice and the U.S. Securities and Exchange Commission (SEC) since December 2011.

Walmart’s Mexico branch was the subject of a report published in April by The New York Times, which alleged the company paid 24 million dollars in bribes to facilitate the construction of new stores, in violation of the Foreign Corrupt Practices Act.

The report said that the company had engaged in widespread and systematic bribery in this country. But the Mexican Attorney-General’s Office only opened an investigation after it was published.

Mexico has ratified the United Nations Convention against Corruption and the Inter-American Convention against Corruption, as well as the Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention).

It is also a member of the U.N. Global Compact (UNGC), the world’s largest corporate responsibility initiative. Launched in 2000, the UNGC has over 8,000 participants, most of them businesses, in more than 135 countries, and local networks in over 90 nations. The 10 universal principles it upholds relate to human rights, labour law, environmental standards and the fight against corruption.

The UNGC is a voluntary agreement which in Mexico has 302 members, counting companies, NGOs, foundations and academic institutions.

"It is important to use these mechanisms to expose human rights violations committed by companies, and to demonstrate that regulations need to be stricter," Valeria Scorza, head of the Economic, Social and Cultural Rights Project (ProDESC), a Mexican NGO, told IPS.

But "we criticise the lack of mechanisms to sanction member companies for non-compliance, or to secure reparations for damage. The principles should be reformulated to pack more punch, although this is a fairly difficult collective process and companies usually have no interest in it," she said.

ProDESC has persistently denounced violations of labour rights at Walmart, which was founded in the United States in 1962 and entered the Mexican market in 1991, originally in alliance with a local company.

But Walmart is not the only company to have been involved in corruption scandals. Various studies in the past few years have revealed the tangled web that is debilitating Mexico with enormous economic and social costs.

Transparency International’s Corruption Perceptions Index for 2011 ranks Mexico in 100th place out of 183 countries – the worst result among the 34 member countries of the OECD, known as the "rich nations club".

The index is based on 17 surveys covering topics like enforcement of anti-corruption laws, access to information and conflicts of interest. Countries are assigned a numerical index of perceived levels of corruption on a scale from 10 (very clean) to 0 (highly corrupt). Mexico was given a grade of 3 in 2011.

The 2011 Bribe Payers Index, also produced by Transparency International, found a particularly strong culture of bribery and illegal commissions in Mexico, China and Russia.

Based on a survey of 3,000 members of the business community in industrialised and developing countries, the index ranks 28 of the world’s largest exporting countries according to the likelihood of firms from these countries using bribes to obtain commissions and contracts when doing business abroad.

In order to compile an independent report on the implementation of the Inter-American Convention against Corruption in Mexico, in December 2011 Transparencia Mexicana asked for information from the comptroller’s offices of the 32 Mexican states, and only 10 replied.

"The institutional capacity of anti-corruption bodies is vital for controlling corruption, so that further analysis of the capabilities of these bodies at sub-national level in federal countries such as Mexico is essential," says the report, released in January.

Due to the proliferation of free trade agreements in the past two decades, like the North American Free Trade Agreement (NAFTA) between Canada, the United States and Mexico, dozens of foreign companies have ventured into new markets, coming into contact with the institutional weaknesses they may find there.

Paradoxically, the most serious cases of corruption linked to Mexico have come to light as a result of investigations by authorities in the United States, as companies listed on U.S. stock exchanges are required to meet stringent accounting and reporting provisions designed to prevent concealment of improper transactions.

In late April, the Mexican Congress approved the Federal Anti-Corruption Law, which created a special prosecution service and established fines for businesses found guilty of wrongfully procuring a contract. The fines can total up to 35 percent of the value of the contract. Reduced punishments were approved for persons cooperating with investigations.

"We have reached the point where corruption can no longer be covered up or overlooked as a minor problem. What we need to see now is how to articulate the national oversight and regulatory system with internal and external public administration bodies, the judicial branch and state parliaments," said Bojórquez.

All rights reserved, IPS – Inter Press Service, 2012.

This article may not be republished, broadcast, framed, or redistributed without the written permission of IPS – Inter Press Service. Republication of this material without permission from IPS, the copyright holder, constitutes a violation of United States and international copyright laws and may result in legal action.


Filed Under: Featured, Human Rights, Latin America, Politics, Transparency Tagged With: ,

CHINA IS CHANGING

August 15, 2011 by

Global Geopolitics & Political Economy

B.RAMAN

Recent events in the port city of Dalian in north-east China where public protests forced the local Government to accept a  demand for closing down a chemical plant following an accident and for re-locating it elsewhere  show a new style of political management. This  new style is  marked by sensitivity to public opinion and a willingness to respond to reasonable public pressure instead of trying to suppress it as used to be done in the past.

2. The plant produces paraxylene (PX), a  petrochemical used  for the production of polyester film and fabrics. Last week, huge waves caused by a storm breached a dike built to protect the plant from floodwaters. Residents were concerned that a flood could damage the plant and cause it to release toxic chemicals.

3.Details of the breach and the dangers that could be  posed to the environment of the city and the lives of its residents by any damage to the plant were disseminated by many netizens through Weibo, a Chinese microblog service similar to the Twitter. This led to a large number of residents —about 12,000 according to one estimate— demonstrating in the streets and outside the local municipal office on August 14, demanding that the plant should be immediately shut down and re-located elsewhere.

4. Instead of seeking to suppress the demonstration as they would have normally done, the local authorities accepted the public demand for shutting down the plant to prevent any damage and eventually re-locating it elsewhere. Initially, the authorities did try to prevent the dissemination of the information about the breach and the call for demonstrations through  Weibo, but subsequently gave up the attempt.

5. In a refreshing departure from past practices, the Government-controlled Xinhua news agency itself disseminated details of the breach and the demonstrations in an apparent attempt to prevent the circulation of exaggerated rumours. There was a greater transparency in the coverage of the incident and the public demonstrations and a greater willingness on the part of the authorities to accept the reasonableness of the public expression of concern and to respond to it.

6. Commenting on the way the local authorities dealt with the incident, the Party-controlled “Global Times” wrote as follows on August 15:

“The Dalian incident indicates social progress, as it shows the public has more opportunities to be heard. In Dalian, their opinion was treated with respect. But it is worth mentioning that while there are more channels for individuals and groups to express their opinions, it is essential that a distinction be made for rational opinion. There should also be channels for other voices to prevent a single opinion from being regarded as the mainstream.

“The incident showed that the demands of the public are taken seriously by the Chinese government. The pace of information disclosure and releasing of the official statement may not have been quick enough, but the adjustments that the government made were swift. Both the public and the government have begun adapting both their language and actions to a more democratic time.

“It should not be simply seen as a victory of a "protest." In fact, in China, reasonable public appeals will eventually be accepted by the government. New technological tools, such as Weibo, have strengthened communication between the public and the government. Protest, as a means of expressing opinions, will not likely become the main way Chinese people will make their voices heard.

“China’s reform is being advanced by various minor incidents, and this reform has, in turn, created more room for understanding and tolerance.

“What the Dalian incident has shown is China’s adaptability and problem-solving capability, not the risk that it may flounder over an emergency.”

7. In a report on the increasing role of microblogs in mobilising public opinion in China disseminated on August 14, the Xinhua said:

“ A decade ago, the most favoured medium for Chinese people to air their complaints was perhaps through the state-owned China Central Television network.

“However, the Internet has superseded television as the most popular means for the airing of discontent, with microblogs leading the charge.

“Microblogs came to prominence in China just two years ago, but have exploded in popularity. Sina Weibo, one of the country’s most popular microblog providers, has allowed the country’s citizens to supervise – and criticize – China’s government in ways that were never thought possible before.

“In comparison to microblogs, traditional media entities face technical and systematic restrictions in their efforts to observe and supervise the government. The Internet and its vast number of microbloggers are now able to make up for this deficiency, according to Zhan Jiang, a professor of journalism at the Beijing Foreign Studies University.

“Microblogs make it easy for people to speak their thoughts in real-time, essentially making their public voices louder, according to Professor Zhan.

“Sina Weibo was launched in August 2009. Since then, it has attracted more than 140 million registered users, with the number expected to exceed 200 million by the end of this year, according to the company.

“Microblogging services enjoyed "explosive growth" in the first six months of this year, with the number of registered microblog users surging by 208.9 per cent to reach 195 million, according to the China Internet Network Information Center.

“A 2010 report quoted by the Beijing-based newspaper International Herald Leader said that more than one-fifth of the 50 most-discussed public events in 2010 were first reported on by microbloggers.

“Traditional media outlets have blind spots in performing their role as "society’s watchdog." However, microblogs have allowed ordinary citizens to fill in these gaps.

“The general offices of the State Council, or China’s Cabinet, and the Communist Party of China (CPC) Central Committee have issued a circular stating that information on major emergencies and items of public concern, such as government efforts and the results of official investigations, should be released to the public in an "objective and timely manner."

“The People’s Daily, the CPC’s flagship newspaper, has urged officials to answer questions from Internet users in a timely and accurate fashion and to brush up on their online communication skills in a recent article titled "How to Speak in the Microblog Era."

“The article encouraged officials to address public concerns through online platforms and not to shy away from answering thorny questions.  "Online performance reflects an official’s all-around capability."

8.While adapting themselves to the role of netizens as watchdogs and supervisors of the performance of the Government, the Chinese authorities have at the same time noted with concern the role played by social media networks in facilitating anti-Government mobilisation in Egypt and in helping those who violated law and order during the recent riots in the UK in exchanging information with each other in matters such as the deployment of the police.

9. The fear that the mushrooming of the netizen community  and the emergence of a new wired civil society may result in a dilution of the control of the Communist Party and its leadership role and lead to political destabilisation is palpable. How to use the microblogs in the interest of public welfare and better governance without letting them become detrimental to political stability and public order is a question that has been engaging the attention of the authorities. They still do not have a satisfactory answer to this.

10. Political and social activism by netizens is slowly changing China in ways unanticipated even a couple of years ago and could pave the way for a greater democracy through the Net instead of through the ballot box. ( 15-8-11)

( The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai, and Associate of the Chennai Centre For China Studies. E-mail: seventyone2@gmail.com and Twitter: @SORBONNE75 )

Copyright © 2011 B. Raman – South Asia Analysis Group (SAAG).

This article may not be republished, broadcast, framed, or redistributed without the permission of the original author or copyright holder.


Filed Under: Asia, Environment, Featured, Politics, Transparency Tagged With: ,

U.S. Audit Faults Fed For $16 Trillion Secret Loans

August 15, 2011 by

Global Geopolitics & Political Economy / IDN

By Jutta Wolf

IDN-InDepth NewsReport

BERLIN (IDN) – While the world held its breath in the long drawn political tug-of-war between the White House and Republican Party leaders until beginning of August 2011, Senator Bernie Sanders posted on his website startling findings of a top-to-bottom audit of the Federal Reserve (Fed): The central bank of the United States had dished out a whopping $16 trillion between December 2007 and June 2010 in interest free secret loans to “bail out” American and foreign banks and businesses.

“The Fed prefers to refer to these secret bailouts as an all-inclusive loan program, but virtually none of the money has been returned and it was loaned out at 0% interest,” says an article posted on ‘Other news’ on August 7, adding: “Why the Federal Reserve had never been public about this or even informed the United States Congress about the $16 trillion dollar bailout is obvious the American public would have been outraged to find out that the Federal Reserve bailed out foreign banks while Americans were struggling to find jobs.”

Placing $16 trillion into perspective, the article points out that GDP (Gross Domestic Product) – the market value of all final goods and services produced in the United States in a given period – is only $14.12 trillion, and the entire national debt of the United States government spanning its more that 200 year history is “only” $14.5 trillion. The budget that was being debated so heavily in Congress and the Senate was “only” $3.5 trillion.

“Take all of the outrage and debate over the $1.5 trillion deficit into consideration, and swallow this Red pill: There was no debate about whether $16,000,000,000,000 would be given to failing banks and failing corporations around the world,” says the article.

As a component of the government’s measures to address the subprime mortgage crisis, the then president George W. Bush signed into law on October 3, 2008 the TARP (Troubled Asset Relief Program). Subsequently, loans of $800 billion were given apparently to failing banks and companies.

“That was a blatant lie considering the fact that Goldman Sachs alone received $814 billion dollars. As is turns out, the Federal Reserve donated $2.5 trillion to Citigroup, while Morgan Stanley received $2.04 trillion. The Royal Bank of Scotland and Deutsche Bank, a German bank, split about a trillion and numerous other banks received hefty chunks of the $16 trillion,” says the article.

The first ever audit by the Government Accountability Office (GAO) in the history of the Federal Reserve, running into266 pages, was triggered by an amendment by Senator Sanders to the Wall Street reform law passed one year ago.

“As a result of this audit, we now know that the Federal Reserve provided more than $16 trillion in total financial assistance to some of the largest financial institutions and corporations in the United States and throughout the world,” said Sanders in a posting on the web on July 21, 2011. “This is a clear case of socialism for the rich and rugged, you’re-on-your-own individualism for everyone else,” he added.

Among the GAO report’s key findings is that the Fed unilaterally provided trillions of dollars in financial assistance to foreign banks and corporations from South Korea to Scotland. “No agency of the United States government should be allowed to bailout a foreign bank or corporation without the direct approval of Congress and the president,” Sanders said.

He went on to say: “The non-partisan, investigative arm of the U.S. Congress also determined that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse. In fact, according to the report, the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans.

“For example, the CEO of JP Morgan Chase served on the New York Fed’s board of directors at the same time that his bank received more than $390 billion in financial assistance from the Fed. Moreover, JP Morgan Chase served as one of the clearing banks for the Fed’s emergency lending programs.

“In another disturbing finding, the GAO said that on Sept. 19, 2008, William Dudley, who is now the New York Fed president, was granted a waiver to let him keep investments in AIG and General Electric at the same time AIG and GE were given bailout funds.  One reason the Fed did not make Dudley sell his holdings, according to the audit, was that it might have created the appearance of a conflict of interest.

To Sanders, the conclusion is simple. “No one who works for a firm receiving direct financial assistance from the Fed should be allowed to sit on the Fed’s board of directors or be employed by the Fed.”

The investigation also revealed that the Fed outsourced most of its emergency lending programs to private contractors, many of which also were recipients of extremely low-interest and then-secret loans.

The Fed outsourced virtually all of the operations of their emergency lending programs to private contractors like JP Morgan Chase, Morgan Stanley, and Wells Fargo.  The same firms also received trillions of dollars in Fed loans at near-zero interest rates.

Altogether some two-thirds of the contracts that the Fed awarded to manage its emergency lending programs were no-bid contracts. Morgan Stanley was given the largest no-bid contract worth $108.4 million to help manage the Fed bailout of AIG.

A more detailed GAO investigation into potential conflicts of interest at the Fed is due on Oct. 18, but Sanders said one thing already is abundantly clear. “The Federal Reserve must be reformed to serve the needs of working families, not just CEOs on Wall Street.”

The non-partisan, investigative arm of Congress also determined that the Fed lacks a comprehensive system to deal with conflicts of interest, despite the serious potential for abuse. In fact, according to the report, the Fed provided conflict of interest waivers to employees and private contractors so they could keep investments in the same financial institutions and corporations that were given emergency loans. (IDN-InDepthNews/08.08.2011)

2011 IDN-InDepthNews | Analysis That Matters

This article should not be republished or redistributed without the permission of the original author or copyright holder.


Filed Under: Economic Crisis, Economic Policy, Featured, Finance, Transparency, United States Tagged With: ,
«Older Posts