Luxembourg Takes a Leak

The ICIJ has obtained a trove of leaked documents detailing the nefarious tactics of massive multi-nationals to evade taxes all over the world using the "squeaky clean on the outside, corporate friendly on the inside" Grand Duchy of Luxembourg and their secret tax agreements.  See this video from the ICIJ to see how it all works.  The Corporate cast of villains includes a cast of usual suspects including AIG, Deutchse Bank, IKEA and more.  According to Wikipedia:

In March 2010, the Sunday Telegraph reported that most of Kim Jong-Il's $4bn in secret accounts is in Luxembourg banks.^[45] Amazon.co.uk also benefits from Luxembourg tax loopholes by channeling substantial UK revenues as reported by The Guardian in April 2012.^[46] Luxembourg ranked third on the Tax Justice Network's 2011 Financial Secrecy Index of the world's major tax havens, scoring only slightly behind the Cayman Islands.^[47] In 2013, Luxembourg is ranked as the 2nd safest tax haven in the world, behind Switzerland.

 Additional ICIJ background is here and here.

Has Too Big to Jail Finally Been Overcome?

We finally have a felony conviction, aiding and abetting tax evasion, for the major bank Credit Suisse, but what are the penalties?  For starters the bank will be fined $2.6 billion, a fair hunk of change to be sure, but the CEO Brady Dougan said this in a press statement, so where's the beef?

Dougan said the settlement had had little impact on business. “We have found no instances where clients cannot do business with us,” he said. “Our discussions with clients have been very reassuring and we haven’t seen very many issues at all.”

So much for feeling too much pain, now does he go to jail?  Not a chance in my opinion, even if Switzerland extradited him which they won't. Then there's the matter of the tax evaders, Credit Suisse hasn't been required to reveal who they are so the IRS can collect taxes from them, as well as prosecute them.  That has Senators Carl Levin and John McCain puzzled too after they did all the investigative work that led to the conviction.

Senators Carl Levin and John McCain welcomed the $2.6bn fine of the bank announced Monday but said more needed to be done. Levin and McCain led the permanent subcommittee on investigations team that uncovered much of the wrongdoing at the bank.

In a statement, Levin said it was “appropriate” that Credit Suisse had been held criminally liable for aiding and abetting tax evasion – the first bank of this scale to held criminally liable for 20 years.

He said the fine struck “an important blow against tax evasion through bank secrecy”.

“But it is a mystery to me why the US government didn’t require as part of the agreement that the bank cough up some of the names of the US clients with secret Swiss bank accounts. More than 20,000 Americans were Credit Suisse account holders in Switzerland, the vast majority of whom never disclosed their accounts as required by US law. This leaves their identities undisclosed, with no accountability for taxes owed. The changes Credit Suisse has agreed to make to its practices are long overdue and welcome, but must be carefully monitored,” he said.

McCain said he was “gratified” by the Justice Department’s decision to require Credit Suisse to plead guilty to criminal wrongdoing. “In such cases, it is vitally important for all Americans to know that no financial institution is ‘too big to prosecute,’” he said. But he added that questions remained.

“Over the next few days, I look forward to reviewing this guilty plea closely to see whether it appropriately holds officers, directors and key executives individually accountable and whether the plea will be sufficient to help deter similar misconduct in the future,” he said.

In The Guardian story, they interviewed  John Coffee, Adolf A Berle professor of law at Columbia Law School, and he said.

“It is less than a severe sanction when no officers are indicted, when the settlement does not require the dismissal of any employees and where they do not get the names of these US customers,” he said. He said other regulators could take further action, the SEC could bar it from being a money manager, but that was not going to happen.

“Mary Jo White [chair of the SEC] does not want to inconvenience a major bank over a little thing like a federal felony conviction,” he said.

Credit Suisse and Tax Evasion

Ahh, how wonderful to have the Swiss banks, and the Swiss government looking out for you if you're a maligned US millionaire sheltering a few mil from taxes, but the winds of change may be blowing in an different direction, maybe jail.  The Swiss bankers claim they can't under Swiss law disclose the names of rich tax dodgers in hearings conducted by the Senate Permanent Subcommittee on Investigations chaired by Senator Carl Levin.  The General Counsel Romeo Cerutti said they could go to jail under Swiss law if they divulged their clients.

An angry Sen. Carl Levin (D-Mich.), who has led a six-year crusade against offshore tax evasion, told four Credit Suisse executives that their regrets and promises of changed ways were hollow if they did not help U.S. authorities track down the tax cheats.
"You hide behind the Swiss law even though you're operating here, and that's just simply not going to cut it," he said
On Tuesday, the Senate's Permanent Subcommittee on Investigations released a report accusing Credit Suisse, Switzerland's second-largest bank, of actively helping U.S. citizens hide up to $12 billion in assets in 22,000 accounts at the bank from 2001 to 2008.

Republicans piled on too, with a couple of zingers of their own.

"Where would you like to spend time?" Sen. Tom Coburn (R-Okla.) asked Cerutti. And Sen. John McCain (R-Ariz.) said the bank "must answer for decades of ill-gotten profits."

 So why are these criminals still at large?  They're really rich.

Ultra Rich and the Rest of Us

A new report has been published by Oxfam, an international organization that works to eradicate the sources of poverty, showing that the richest 85 people in the world control the same wealth as the poorest 3.5 Billion people throughout the world, and the inequality is still increasing.  Titled "Working for the Few", it examines the consequences of extreme wealth inequality.

Some economic inequality is essential to drive growth and progress,

rewarding those with talent, hard earned skills, and the ambition to

innovate and take entrepreneurial risks. However, the extreme levels of

wealth concentration occurring today threaten to exclude hundreds of

millions of people from realizing the benefits of their talents and hard

work.

Extreme economic inequality is damaging and worrying for many

reasons: it is morally questionable; it can have negative impacts on

economic growth and poverty reduction; and it can multiply social

problems. It compounds other inequalities, such as those between

women and men. In many countries, extreme economic inequality is

worrying because of the pernicious impact that wealth concentrations can

have on equal political representation. When wealth captures

government policymaking, the rules bend to favor the rich, often to the

detriment of everyone else. The consequences include the erosion of

democratic governance, the pulling apart of social cohesion, and

the vanishing of equal opportunities for all.

Given the scale of rising wealth concentrations, opportunity capture and

unequal political representation are a serious and worrying trend. For

instance:

•

Almost half of the world’s wealth is now owned by just one percent of

the population.

•

The wealth of the one percent richest people in the world amounts to

$110 trillion. That’s 65 times the total wealth of the bottom half of the

world’s population.

•

The bottom half of the world’s population owns the same as the

richest 85 people in the world.

Tax, Welfare, Wal-Mart and McDonald's

I have blogged before about Oregon tax policy that rewards the big fat cats Nike and Intel, which is a huge transfer of tax responsibility from highly profitable corporations to me and you, and continuing that train of thought we might consider Wal-Mart and McDonald's, as well as the entire food service industry, where non-union minimum wage workers are in a majority.  According to a Bloomberg article,

The two biggest welfare queens in America today are Wal-Mart and McDonald's.  According to one study, American fast food workers receive more than $7 billion dollars in public assistance. As it turns out, McDonald's has a “McResource” line that helps employees and their families enroll in various state and local assistance programs. It exploded into the public when a recording of the McResource line advocated that full-time employees sign up for food stamps and welfare. 

Wal-Mart however stands in a category by itself, being the largest private-sector employer in the U.S. and according to a study last May by the Democratic staff of the U.S. House Committee on Education and the Workforce, Wal-Mart forces its employees to use public assistance to survive, resulting in hidden taxpayer subsidies of their profits.  The study reports:

Accurate and timely data on Wal-Mart’s wage and employment practices is not always readily available.  However, occasional releases of demographic data from public assistance programs can provide useful windows into the scope of taxpayer subsidization of Wal-Mart.

After analyzing data released by Wisconsin’s Medicaid program, the Democratic staff of the U.S. House Committee on Education and the Workforce estimates that a single 300-person Wal-Mart Supercenter store in Wisconsin likely costs taxpayers at least $904,542 per year and could cost taxpayers up to $1,744,590 per year – about $5,815 per employee.  Wal-Mart’s size is nothing short of impressive. It employs more than 2 million workers worldwide. It is the nation’s largest private employer; one out of every ten retail workers in America is employed by Wal-Mart. Approximately 1.4 million Americans work at Wal-Mart.  Its workforce is double that of the U.S. Postal Service and outnumbers the populations of 96 countries. In 2012, its total revenue exceeded $469 billion, more than the gross domestic product of oil-rich Norway.  Wal-Mart reported an 8.6 percent increase in profit in the fourth quarter of 2012 and a profit margin of 4.38 percent.  In 2012, it earned $17 billion in profits.

 Wal-Mart says thank you very much as they pocket those hidden subsidies in their profits. 

Greed, Poverty, Unfettered Capitalism, Pope Francis and Sarah Palin

Pope Francis has stunned the world, and shook up Sarah Palin, with his statements on homosexuality, abortion and birth control, but that ain't all.  The Pope has gone from being suspiciously liberal to outright radical with his views on "Unfettered Capitalism". 

I almost never even think about Sarah Palin, but she occasionally provides comic relief.  “He’s had some statements that to me sound kind of liberal, has taken me aback, has kind of surprised me,” Palin told CNN in a recent interview.

OK enough of the comic relief.  I also have probably spent less than an hour or two in my lifetime pondering the words of this, or any other Pope until today when Pope Francis released his "apostolic exhortation," a lengthy and detailed exposition of how the Catholic Church should focus its energies.  Pope Francis might just shake things up a lot.  Here is a summary of his words on greed, income inequality, poverty and unfettered capitalism.

Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.  To all this we can add widespread corruption and self-serving tax evasion, which have taken on worldwide dimensions. The thirst for power and possessions knows no limits. In this system, which tends to devour everything which stands in the way of increased profits, whatever is fragile, like the environment, is defenseless before the interests of a deified market, which become the only rule.  I exhort you to generous solidarity and a return of economics and finance to an ethical approach which favors human beings.  Today in many places we hear a call for greater security. But until exclusion and inequality in society and between peoples is reversed, it will be impossible to eliminate violence. The poor and the poorer peoples are accused of violence, yet without equal opportunities the different forms of aggression and conflict will find a fertile terrain for growth and eventually explode.

The Washington Post did an excellent story assembling graphs to illustrate many points the Pope made, it is well worth reading.