Tag: finance

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Barclays: why no criminal prosecutions?

After the credit crunch, it was very natural to think that surely someone somewhere ought to be punished for what happened.

But I was open to the argument that what had happened was a combination of incompetence, greed, systemic failure and macro-economic forces, rather than actual fraud — or at least that fraud was a small part of the story. And so it was not a matter for the criminal law.

And then this Barclays case comes along. And we have what, as far as I understand it, is a straightforward case of people conspiring to lie about important financial information in order to manipulate the market… and still no one is apparently facing criminal prosecution.

It’s not just that it would be satisfying to see a few City wide boys up before a judge. It’s that it makes you wonder how much other potential criminality has been left uninvestigated or unprosecuted for some reason. Because it’s easier to let sleeping dogs lie? Because fraud cases are expensive to investigate and prosecute? Because the authorities are still so worried about the fragility of the financial system that they’re scared of rocking the boat? Because of the same combination of cosiness and intimidation that stopped the police from investigating phone hacking properly?

The whole thing stinks.

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The weird existence of tax havens

Tax avoidance/evasion is in the news again, and once again I find my mind drifting back to that book Treasure Islands, which I read a year ago and stuck with me since. Because a lot of these issues of tax policy are inevitably messy and complicated, both ethically and as a matter of pragmatic policy; but there is one particular point I keep returning to.

Which is this: when you think about it, it’s a bit weird that tax havens are allowed to exist. Because all those ‘companies’ which are just a pigeonhole in a lawyer’s office in the Cayman Islands? The only reason they exist is for the explicit purpose of escaping the laws and regulations of another country.

That’s not intended to be a rhetorical flourish; it is, as far as I can tell, a simple statement of fact.

If a company does its business in the UK but has part of its corporate structure registered in the Cayman Islands*: they are trying to avoid laws passed by a legitimate democratic government. To get pompous for a moment, they are rejecting the democratically expressed will of the British people.

They might be doing it to avoid tax, they might be looking for lax financial regulation, they might be trying to disguise corporate fraud or launder the proceeds of organised crime. All you know for certain is that they intend  to avoid the law.

So why do we put up with this crap? The Caymans, the British Virgin Islands, the Turks and Caicos, Jersey, Bermuda, Guernsey, the Isle of Man, Luxembourg: it’s not a list of great global powers that we need to tread carefully around because of their terrifying military and economic influence.

The EU and the US could simply† refuse to recognise the legal validity of companies and trusts registered in these countries. No doubt clever accountants and lawyers would still find ways to avoid paying tax, and to launder money, including of course the most direct way of avoiding tax: lobbying politicians to change the tax code in your favour. But I don’t see why we should make it any easier for them than necessary.

* or a trust in the Turks and Caicos, or Guernsey, or whatever it might be.

† Well, OK, it might not actually be ‘simple’. But I’m sure we could come up with something.

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My Prime Minister went to Europe and all I got was this lousy veto

So, David Cameron went off to Europe, with the continent in desperate need of an agreement that might stave off financial catastrophe. And it was always going to be difficult to come to a deal which was acceptable to all the various countries, which was why the wrangling has been going on for months. But this was, everyone agreed, a moment of crisis, when domestic political concerns had to be weighed against the appalling consequences should the worst happen.

As it turned out, Cameron wasn’t able to sign a deal. His conscience simply wouldn’t let him. And what was his line in the sand? What was the principle that he was willing to alienate the whole of Europe over, and risk economic catastrophe for? It was (drumroll please)… he didn’t want to upset the bankers.

You know, when the whole financial system initially went tits-up, I wasn’t particularly inclined to be angry at the banks. Sure, where there is actual evidence of fraud and deception it’s a different matter. But mostly it doesn’t seem to have been illegality, it was just greed, recklessness and incompetence. And it’s hard to apportion blame when the whole world goes mad together. After all, banks, insurance companies, hedge funds, central bankers, rating agencies, governments and regulators all failed in one way or another.

But when the global economy went off the rails, that was the opportunity for everyone involved to pause, take stock, and think about what they’d done. All the stupid things the banks did to get us into this mess — that didn’t make me angry. Their miserable failure to take any responsibility for what they’ve done, the lack of contrition, the lack of gratitude for the fact that mountains of taxpayers’ money has been shovelled at them to save them from the consequences of their own incompetence — that is teeth-grindingly infuriating.

And these are the people the Prime Minister is bending over backwards to protect. Fucking marvellous.

» The picture is of David Cameron with David Cameron’s eyes.

» Incidentally, I’m not at all convinced that the European treaty is going to do anything to save the Euro anyway, with or without the UK, as it seems to be designed to solve the wrong problem. But I’ve demoted that point to a footnote because it only would have complicated a perfectly good rant.

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Needling camels

I think it’s fascinating the way that, quite accidentally, the Church of England has been drawn into a debate about the state of capitalism. Because the protestors were not targeting the church; it was a pure accident of geography that a protest aimed at the Stock Exchange should end up camped around St Paul’s.

But that was how it turned out, and the church has been forced to take a position, and lots of commentators have been cheerfully picking out their favourite bible verses about camels going through the eye of a needle, and money-changers in the temple, and arguing about whether or not it makes any sense to call Jesus a socialist. And a lot of people who would not normally have any interest in the opinions of the Dean of St Paul’s or the Bishop of London are suddenly watching them very carefully and asking serious questions about the kind of relationship the church should have to wealth and power: always awkward ground for an established church which has the Queen as its head and an archbishop chosen by the Prime Minister.

And unexpectedly, the support for the protest by at least some of the staff of the Cathedral has given the protesters extra credibility. Because, after all, the protestors who turn up to these things are easy to mock, and their specific political aims, insofar as they have been articulated at all, are often a bit dubious; but the ham-fisted and divided way that the church handled the situation helped frame the debate as a moral question about inequalities of wealth and power.

But the next confrontation could be even more interesting. Now that the church has had a change of heart, the legal challenge to the protests comes from that strange entity called the City of London Corporation. At its most mundane level the Corporation is the local government for the ancient City of London, the ‘Square Mile’. But it is also a very weird historical anomaly. The Corporation has been around for a very long time — the oldest recorded charter, in 1067, confirmed rights and privileges that already existed — and over the centuries it has carved out a semi-detached relationship to the rest of the country; mainly because a succession of kings and governments were willing to make concessions in return for the financial support of the City.

And so, in the middle of what is nominally a modern democracy, we have a borough where corporations still have the vote, and the votes of actual human individuals are vastly outnumbered by the votes cast by businesses. That anachronism wouldn’t be particularly sinister if the Corporation confined itself to organising street-sweepers and mending the roads. But it is also a very wealthy organisation explicitly committed to lobbying for the interests of business, and particularly for the financial industry. It even has its own representative inside Parliament, the ‘City Remembrancer‘.

In other words, it is the perfect symbol for the influence of money over politics. Over many centuries, time and again, from autocratic kings to democratic governments, everyone has flinched in the face of the City’s power. The anomalous existence of the City of London is the result of a thousand years of regulatory capture.

That makes them an excellent focus for protests. If the protestors do manage to turn the spotlight on the Corporation, it could be interesting to watch.

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Treasure Islands by Nicholas Shaxson

Of course no non-fiction book these days is published without a subtitle; this one is Treasure Islands: Tax Havens and the Men Who Stole the World.

It is a book with a particular argument to make, that tax havens are a Bad Thing. And it does a good job of making it engaging and readable, considering that it is, in the end, a book about international tax law and accountancy practices. It traces the historical development of the current system and illustrates it with plenty of colourful anecdotes about individuals along the way to keep it interesting.

Among the notable points it makes:

Tax avoidance is just one part of the problem. Offshore jurisdictions also allow businesses to avoid regulations and other legal obligations. And perhaps most significant, they provide layers of secrecy.

And of course it’s not just multinational businesses and wealthy individuals that benefit: it is also central to the workings of organised crime and government corruption. The secrecy in particular allows huge amounts of money to flow out of the developing world via the bank accounts of corrupt officials — amounts of money which apparently completely dwarf the aid moving in the other direction.

Not all of these jurisdictions are literally ‘offshore’. There is a single building in Delaware which is officially the corporate headquarters of 217,000 businesses, including Ford, GM, Coca-Cola, Google and so on. In the case of Delaware, the appeal is the very corporate-friendly legal environment. The City of London and Manhattan have also worked hard to turn themselves into tax havens in their own right.

The City of London is central to all this — it’s not a coincidence that so many of the key tax havens are parts of the old British empire: Jersey, Guernsey, the Caymans, the Turks and Caicos, Hong Kong, Singapore and so on. And the Bank of England, which I always thought of as a rather staid, conservative body whose main concern was economic simplicity, turns out to have been the most significant lobbying arm of the the City to the British government.

Interesting stuff, generally. The only reservation is that this is a very one-sided account about a subject I know nothing about, so I can’t easily assess how fair or accurate it is. And there are times it suffers from when-your-only-tool-is-a-hammer-everything-looks-like-a-nail syndrome; suggesting that financial secrecy doesn’t just contribute to but more or less causes ALL the world’s problems.  You get the feeling that if you asked him why your soufflés kept collapsing, he would say it was because of the laxness of trust law in the Cayman Islands.

Nonetheless, he does make a pretty convincing case that lack of financial transparency is an important contributor to many of the world’s problems; it may not cause them, but it certainly enables them.

» As seen on Google street view, that is 1209 North Orange St, Wilmington, Delaware. The legal home of 217,000 companies, including Google itself.

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Financial pandemic

During the most dramatic paroxysms of the banking sector last autumn, they kept saying, in the media, that this was the worst financial crisis since the Great Depression. But I think a lot of people (like me, initially) heard that as: the worst economic crisis since the Great Depression.

And the thing is, they were using the terminology correctly. It was a very serious crisis of the financial system — that is, a banking crisis. And it was the worst one since the Depression. But it was not then and is still not (yet) the worst economic crisis since the Depression. So, assuming I was not the only one who misunderstood, there was a disconnect between what they were saying and what their audience were hearing.

swine-flu

I think the same thing is going on with the swine flu. The WHO have just raised the alert level to five on their scaring-the-shit-out-of-everyone scale, meaning that they fear a pandemic is ‘imminent’. The trouble is that when I hear the word ‘pandemic’ I think ‘Spanish Flu!’ or indeed ‘Black Death!!’. Death and devastation on a vast scale. Tens of millions dead.

Whereas what the WHO means by pandemic is something like ‘international outbreak of serious infectious disease’. A major public health event, but not necessarily with quite the overtones of The End Of Days. For example, I was surprised to learn that there have been two serious flu pandemics since 1918 — the Asian flu in 1957-8 and the Hong Kong flu in 1968-9. They both killed about a million people, so I don’t want to downplay them too much, but it’s not exactly the Black Death. Apparently something like 34,000 die from flu in the US in a normal year, and the Hong Kong flu killed about 34,000, so it was effectively an extra flu season.