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Developments in Global Tax Transparency and the Need for Effective Dialogue Part 2

 

By Philip Marcovici

This is Part Two of the article. Part One introduced the topic of tax transparency, and the global move towards automatic information exchange. Part One discussed some of the many abuses of bank secrecy by legacy private banks and others that has led to tax compliance properly becoming the norm, but in a way that may not be in the interests of any of relevant governments, wealth owners and the wealth management industry. Part One ended with a reference to a reality that not every country is actually ready for automatic information exchange.

Philip Marcovici explores alternatives that might be considered to address the reality that not all countries are ready for full transparency and the automatic exchange of information. This Part Two of the article highlights role of the wealth management industry and other stakeholders in encouraging effective dialogue.

Can We Have a Non-Governmental Approach to Evaluating Whether Countries are Ready for Full Automatic Exchange of Information? And Should Countries that are Not Ready for Automatic Exchange of Information Be the subject of an Alternative Tax Compliance Approach?

 

An approach that could address the needs of both the home country and the individual taxpayer would involve having a suitable non-governmental organisation, perhaps one like Transparency International, evaluate the tax systems of countries, measuring levels of corruption, misuse of taxpayer information and other characteristics relevant to the determination of the countries that are ready for full tax transparency.

Where countries are not ready for full transparency, financial centres and their banks and trust companies could agree to ensuring tax compliance by identifying the relevant owners of assets and income, and agreeing to withhold tax on initial capital and annual income, say at a figure of 10%. The proceeds of the withholding tax would be maintained in a fund that would be made available to the home country involved under certain conditions. Because the taxpayer would be considered tax compliant in the financial centre involved, no anti-money laundering or other reports would need to be filed. This would be very different from Switzerland’s failed “Rubik” strategy – not a complex system of withholding requiring the input of mathematicians, but a simple and transparent approach that is attractive to taxpayers and which reflects the reality of tax collections rather than headline tax rates. Should there be withholding at 40% if the effective tax collections in the relevant country are at 10%?

Most importantly, unlike the Swiss “Rubik” strategy, which initially focused on the UK and Germany, two examples of first world tax systems fully ready for automatic exchange of information, the withholding approach would be used for countries that are not ready for automatic exchange of information – countries that do not properly protect taxpayer information, where tax proceeds are corruptly converted to incorrect use or where the system is otherwise defective.

On agreeing to accept the funds held for it as settlement of tax due in relation to assets subject to withholding, the withheld amounts would be paid over to the home country. It would also be possible to have withheld amounts be the subject of disbursement with international oversight, something that may be particularly appropriate for countries where tax revenues are improperly applied. In some cases, the tax withholdings might have a role in repayments of outstanding international loans or otherwise.

The objective of the withholding arrangements implemented would be to be temporary – at such time as the country involved adapts its laws and practices such as to be considered ready for full tax transparency, automatic exchange of information would be implemented, making the withholding approach unnecessary.

Short term – immediate revenues that can be applied as they need to be given the circumstances of the country involved. Medium and long term – an influence on what the country needs to do to establish an effective and fair tax system that can operate in the interests of the country and its taxpayers.

Even better than forcing countries into withholding would be negotiated deals between the country whose taxpayers would opt for withholding and the financial centre that would facilitate the withholding and adapt its laws and procedures to provide the relevant assurances of confidentiality.

But will issues relevant to countries not ready for automatic information exchange be smoothly addressed in the years to come? Or will the industry and relevant financial centres again fail to take leadership?

Should Tax be the Driver in Asset Protection and Estate Planning?

Historically, there has been an over-emphasis on taxation in asset and succession planning, something fuelled by advisors focused more on bank secrecy than understanding the real needs of their clients. These real needs are varied, and include needs that are particular to the family involved, such as where there is a child needing special protection, as well as needs that are driven by the laws and structure of the home country and countries of investment. On the latter, issues such as forced heirship, political risk, and many others come into the mix.

The over-emphasis on taxation notwithstanding, it is critical that wealth owners and their families understand their tax position, learning from advisors and being guided by them, but not allowing them to “kidnap” the family’s wealth, keeping the family in the dark about how their own structures really work.  If the wealth owner understands the tax systems of their countries of residence, citizenship and investment, he or she is in a better position to guide advisors and make the right decisions in the succession process.  The industry generally can do more to help educate wealth owners to be better consumers of legal, tax and estate planning services.

An important overlay to how tax systems and planning work is to also understand the changing world of tax enforcement, and the reality that the luxury product offered by the private banking industry in the past – secrecy without much more – is fast falling away. This has real importance not only for families connected to countries at the forefront of tax enforcement, such as the US. In some ways the issue is of even greater importance to families connected to countries whose tax systems are just developing, and where corruption and misuse of tax information is rife. The combination of anti-money laundering rules and heightened institutional risk is driving advisors and intermediaries, such as banks, insurance companies, accountants and others to turn their clients in to the authorities. A wealth owner needs to understand these developing risks. And in a world where disparities of wealth are increasingly at the forefront of the political and social agenda, is “hiding the money” either an option or the right thing to do?

Was the older generation right in believing that they were doing the younger generation a favour by salting the money away in secret accounts and opaque structures?

I have worked with many wealth owners who are in the younger generation, and who on inheriting assets from their parents have negotiated “voluntary disclosure” arrangements with tax authorities, essentially coming clean on the past tax evasion undertaken by earlier generations. Costs for this are often higher than the costs would have been to the older generation had they paid their taxes, and undertaken legitimate and legal ways to reduce exposures. Was the older generation right in believing that they were doing the younger generation a favour by salting the money away in secret accounts and opaque structures?

The move to tax transparency also brings with it the question of privacy, and whether privacy of one’s financial affairs can be legally achieved. I am a believer that privacy is a human right, and that privacy and tax compliance can go hand-in-hand. But it is not always straight forward, and the approaches open to wealth owners very much depends on their countries of citizenship and residence. Importantly, the failures of the industry to take leadership on the issue of undeclared funds has resulted in bank secrecy, and its ability to deliver on the human right to privacy, being tied to tax evasion. While the misuse of bank secrecy needs to be addressed, bank secrecy should remain available to those who need it – but the industry and the jurisdictions involved, looking to the past, have gone pretty far towards throwing the baby out with the bathwater – allowing bank secrecy and related privacy rights to be compromised as part of growing tax transparency.

We are in times of enormous change, and in times where headline tax rates are probably much higher than they should or need to be – in a world of full tax compliance, governments would be collecting enough revenue to permit tax rates to decline substantially – but we are likely several decades away from this being able to happen. We are also decades away from all governments having tax systems that can be trusted; tax systems free of corruption and of political misuse of tax information; tax systems where information the tax authorities hold is truly kept confidential. We are also many decades away from a global tax system – despite the efforts of some countries – meaning that tax competition is alive and well. Countries compete for investment and business on the basis of their tax systems, and as the world moves to greater tax transparency, the role of mobility in tax and privacy planning becomes increasingly important. Interestingly, the world is also getting smaller, with wealth owning families becoming more and more international – with either investments in various countries or with family members living in various countries, and holding various citizenships.  Mobility therefore becomes an important element of planning – carefully choosing where to be resident and how to manage time spent between different countries. Citizenship can also be an issue here, and one that in the years to come may be more and more important.

We are also many decades away from a global tax system meaning that tax competition is alive and well.

While tax is important, and in succession and asset protection planning is a key issue to be managed and minimised, it is critical to keep tax in its place – and to not allow tax planning to drive the succession plan and to distract the family into allowing tax advisors and tax objectives to kidnap the family’s asset holding and succession structures, something that in my experience is too often the case. I have come across a remarkable number of situations where the older generation has worked hard to achieve secrecy, managing to leave their assets in a messy labyrinth of secret structures facilitating theft and abuse and leaving a legacy of mistrust and unresolved tax liabilities to their family to sort out.

Tax laws are difficult for anyone to understand. Even the most sophisticated tax advisor will not have all the answers. Today’s wealth owning families are international families. Different family members may live in different countries, the family is likely to invest in a number of places, and citizenship can sometimes play a critical role in the tax picture. Where grandchildren are born and the citizenships of sons and daughters-in-law, can all have an impact. And the only certainty in the tax world is one:  the laws will change, and constantly do. The wealth owning family does not need to become expert in the tax laws of every country that affects them and their investments. Rather, the wealth owning family needs to be able to understand the advice they receive from experts, and needs to be able to challenge that advice, and ask the right questions. Being aware of how tax systems work can help families stay in control of the succession and asset protection planning put in place for their families.

 

The Role of the Industry in Encouraging Dialogue with All Stakeholders  

The sometimes rough road to tax transparency can be smoothed out through dialogue and proactivity.

As governments grapple with reporting and taxpaying requirements associated with trusts, for example, an important role for industry is to help governments understand how their tax collection and enforcement objectives can be met while respecting the legitimate privacy and other reasons families may choose to use trusts. There are many countries, including Canada, the US and others, who have relatively clear tax laws regarding the taxpaying and reporting responsibilities of trustees, beneficiaries, settlers and others interested in trust structures. Over years, the relevant tax rules have developed in a way that reflects the ongoing need of governments to close loopholes, and to ensure that taxes are effectively collected. But in the case of the US and other regimes, this has been done in a way that supports the legitimate and appropriate use of trusts. Broad tax neutrality in the use of trusts is a positive, as is clarity in the tax results of using trusts.

There are other countries, such as France, that have taken a heavy-handed and destructive approach to trusts, demonstrating the consequences of a government failing to understand how trusts work, and how their legitimate use to address the needs of families can be entirely consistent with full tax compliance and transparency. But it is industry that should be showing leadership in helping onshore governments address their legitimate taxing needs – proactive dialogue designed to address the needs of all stakeholders.

The failure of offshore governments and the wealth management industry to proactively address issues in and around taxation has fuelled the relative success enjoyed by the US in its efforts to crackdown on offshore tax evasion. The provocative practices of the offshore world and the wealth management industry triggered a series of steps taken by the US that have opened the door to global changes in exchange of information and tax enforcement in relation to offshore activities. But the lack of cooperative strategies has come at a significant cost for not only the industry and the families it serves, but for the US itself, which despite much in the way of effort and noise, is still at an early stage of truly addressing the issue of offshore tax evasion by US residents and, importantly, citizens (with the latter being subject to global taxation whether or not resident in the US, meaning that there remain large numbers of US taxpayers globally whose tax affairs remain to be sorted out).

 

The US and Switzerland: Failed Strategies by Switzerland, but Has the US Achieved All that It Could?

The US took its first major step towards addressing offshore tax evasion when it introduced its Qualified Intermediary system in 2001. The US, through the QI system, successfully encouraged banks around the world to become their contractual partners in tax enforcement, with virtually every meaningful private bank having become a qualified intermediary, required to identify and document US interests in bank accounts, whether directly owned or through, in certain cases, structures. To avoid punitive withholding taxes on investments in US securities, even the most die-hard secrecy based private banks signed on for a complex system that required banks globally to learn the nuances of US international tax rules. Backed up by independent audits, qualified intermediaries made many promises to the US under the qualified intermediary system, and all under agreements that were written by the US, that could not be negotiated, and that could even be changed by the US without the consent of the other contracting party, the bank involved.

Interestingly, rather than entering into negotiation and dialogue over the request of the US to introduce the QI system, virtually every offshore centre and private bank took the defensive approach of simply agreeing to move forward with the QI system hoping that it would be the last step in tax enforcement. Meanwhile, had there been a clear and reasonable request by Switzerland or other countries that whatever system the US would seek to implement would have to be reciprocal, this would have delayed the QI system by years – the reality being that the US would have been unable to deliver reciprocity given the operation of its own bank secrecy rules and accompanying tax laws severely restricting information available to the US tax authorities on non-US owners of bank accounts and structures in the US.

Sadly for many, the QI system was not recognised for what it was – a first step in tax transparency…not a last step. As can now be seen from the highly successful US attacks on private banks, particularly in Switzerland,  the reaction of some banks to the QI rules was to circumvent the efforts of the US to stamp out foreign tax evasion by passively or actively working with American taxpayers to find ways to avoid reporting under the QI system. This was not a huge challenge given the clear limits under the QI reporting system in and around the question of “beneficial ownership” which was determined under US. tax principles rather than under local know-your-client or other rules.

Under US tax principles, for example, the beneficial owner of a bank account, where the account was owned by a properly established and managed offshore company, was the company itself rather than its shareholders, even if those shareholders were US persons. While this did not change any other US tax principles associated with the tax and reporting requirements of Americans owning offshore companies or rules in and around aiding and abetting tax evasion or otherwise, the limits of what the QI rules required banks to technically document were misinterpreted (or taken advantage of) by what appears to be many banks who used the QI system as a roadmap for how to perpetuate offshore tax evasion by Americans.

The abuse of the QI system became clear in and around the US attack on UBS, facilitated by the information the US was able to obtain from whistle blowers and others. After US$780 million in fines, and the turning over of thousands of US depositors, the US scored further tax collection successes with its various voluntary disclosure programs directed towards both taxpayers and banks. But were these voluntary disclosure programs real wins for all stakeholders, including banks, families and interested governments? Could dialogue amongst stakeholders have led to more effective results, and perhaps results that were less destructive of lives and businesses?

Information obtained by the US through the UBS case played a big part in the next steps taken by the US, including its successful rollout of the next step in global tax enforcement, the heavy-handed FATCA – broadly, a reaction to the abuses discovered in and around the QI rules.  FATCA was then the basis for the development of the Common Reporting Standard as the new global standard in automatic exchange of information between countries. Interestingly, as with the QI system, the US is still unable to deliver real reciprocity, despite reciprocity having now been documented in bilateral agreements that the US has entered into.

Information obtained by the US also led to further attacks on private banks, again primarily in Switzerland, leading to the destruction of Switzerland’s oldest private bank, Bank Wegelin, and significant financial, criminal and other challenges for a long list of Swiss banks, including Credit Suisse and others.

Along the road, the US Department of Justice introduced, in effect, a voluntary disclosure program for Swiss banks, and itself was surprised at the significant sign-on to this, with over 100 Swiss banks (pretty much one third of the Swiss banking community) applying for non-prosecution agreements in exchange for disclosures of activities and data in and around undeclared accounts and the payment of significant penalties based on the value of accounts not disclosed to the US on certain key dates linked to the UBS case. Penalties were reduced for clients of the relevant bank who applied for voluntary disclosure, meaning that the arrangement had the effect of banks encouraging their undeclared US clients to come clean with the tax authorities.

But with penalties of between 20% and 50% of account balances, was the Department of Justice “agreement” with Switzerland a fair one for the private banks involved?  Was the agreement ever really negotiated between the U.S. Department of Justice and the financial services community? Will some private banks fail as a result of the costs of the arrangement? And what of the precedent the arrangement has set in terms of penalty levels when countries like Germany, the Netherlands, France and others consider the figures and begin to ask themselves what their fair share should be given the volume of undeclared assets and income in Switzerland and other offshore centres?

The fact that the US is the only major country in the world that is not part of the new world order of reciprocal automatic information exchange by virtue of the US having opted out of the Common Reporting Standard is attracting many to promote the US as a new haven for undeclared money – dangerous for the taxpayers involved and for the US and the intermediaries involved, this abuse is a sad and growing reality.

Dialogue and negotiation, with a view to coming to approaches that benefit all stakeholders may have brought a different result, and maybe there remains room for approaches that recognise that undeclared money is a global problem and not a Swiss problem. There is significant undeclared money around the world, and the financial centres involved extend geographically from Europe to the Middle East, to the Carribbean to Singapore and Hong Kong,  and to the US itself, where Miami, New York and other centres provide international private banking services to clients from Latin America and around the world, and often without meaningful checks on whether the relevant earnings are declared in the home countries of beneficial owners.  The fact that the US is the only major country in the world that is not part of the new world order of reciprocal automatic information exchange by virtue of the US having opted out of the Common Reporting Standard is attracting many to promote the US as a new haven for undeclared money – dangerous for the taxpayers involved and for the US and the intermediaries involved, this abuse is a sad and growing reality. And one which the policies of President Trump seem to support.

Lack of strategy and cooperation has resulted in other lost opportunities for Switzerland and the wealth management industry as a whole. Switzerland sought to address some of its difficulties in view of growing attention to the levels of undeclared funds within the wealth management industry by introducing its “Rubik” strategy. A failure from the outset, even the name of the strategy apparently came under challenge from the owners of the rights to Rubik’s Cube.  What Switzerland attempted to do, was to introduce a very complex (and costly) withholding system designed to allow it to provide confidentiality to account holders while accommodating the tax demands of the countries of residence of the account holders involved. Among the weaknesses of this poorly thought-out strategy was Switzerland’s approach to Germany and the UK as first-takers (with Austria, a bank secrecy centre itself, an easier party to negotiate with).

At this period in history, with governments focusing on their legitimate rights to tax residents and address income inequality, it is hugely provocative to propose a solution to undeclared money that keeps secret the names of taxpayers – particularly in the case of countries, like Germany and the UK, whose tax laws are well-developed, and reflect a first world system of protections of taxpayer interests. In simple terms, while some may not like the UK and German tax systems, the reality is that both are generally free from corruption, are fair and provide significant taxpayer protections in relation to release of information and otherwise.

The deal with Germany eventually never came to pass because of resistance within the German political system, and in relation to the UK, which had gone forward with the agreement with Switzerland with a view to enjoying short-term tax revenues, Switzerland guaranteed CHF500 million in taxes to the UK. Ultimately, the ambitious tax collection estimates of the UK were not met, and even the guarantee figure was not covered by tax withholdings, meaning that the Swiss bank community, which had shared in the responsibility of meeting the guarantee, is bearing the cost. How many more mistakes can the Swiss private banking community afford?

A complex, costly and failed system, the “Rubik” approach evidences yet another lost opportunity for Switzerland to have shown global leadership on a global issue – undeclared funds. Switzerland’s provocation of the UK through its insistence on maintaining confidentiality for UK taxpayers, led to an expensive and unattractive deal for taxpayers and, ultimately, for Swiss banks.

Open, strategic dialogue between stakeholders may be a more effective way of addressing the changing world. This dialogue is urgent, but despite what some may think given the rapid move to transparency, there remain many, many issues to resolve, meaning that the opportunity for industry to take leadership remains.

 

The Liechtenstein – UK Example: The Possibilities of Strategy and Dialogue

An example of the positive effects of open dialogue is the Liechtenstein Disclosure Facility (“LDF”) and the accompanying Taxpayer Assistance and Compliance Program (“TACP”) put in place between the UK and Liechtenstein governments. Acting for the Liechtenstein government, I was able to initiate the LDF and TACP, with the help of the OECD, and eventually a team of advisors to Liechtenstein and the UK.

As was stated in the Liechtenstein Declaration of 2009, Liechtenstein committed itself to acting as a responsible member of the global community, contributing to the global effort to help foster long-term economic prosperity and the social well-being of everybody. As a member state of the European Economic Area and part of the European single market for financial services, Liechtenstein, with its solid and modern bank secrecy laws, was uniquely placed to go beyond current standards of exchange of information and approaches designed to address tax fraud, tax evasion and double taxation without compromising its commitment to privacy.

Liechtenstein’s ground-breaking arrangements with the United Kingdom, which came into effect in September of 2009, have proved to be a  success for clients of Liechtenstein’s financial centre, for the United Kingdom and for Liechtenstein. These arrangements, which do not in any way compromise Liechtenstein’s focus on the legitimate privacy rights of clients of its financial centre, recognise that countries whose tax and legal systems respect the human right to privacy are entitled to ensure that the integrity of their tax systems remains intact.

The United Kingdom achieved, through the LDF, tax recoveries in the region of £1.5 billion. The two countries entered into a full tax treaty, something relatively uncommon for the UK to do with a country like Liechtenstein. Most importantly, more than 6,000 United Kingdom taxpayers resolved their tax affairs favourably using the unique approach of the LDF, which then became a model for further disclosure facilities developed by the UK.

 

The Main Elements of the Liechtenstein Disclosure Facility and Related Arrangements

The arrangements negotiated with the UK were based on Liechtenstein’s evaluation of the UK’s approach to respecting taxpayer privacy and its commitment to putting the interests of its taxpayers at the forefront. Based on these factors, Liechtenstein agreed to full transparency in relation to UK taxpayers, and to an approach designed to respect the UK’s legitimate right to have access to the names of those taxpayers using the Liechtenstein financial centre. As Liechtenstein committed to the UK the objective of ensuring that no UK connected taxpayer would be able to use the Liechtenstein financial centre without being fully tax compliant, the arrangements ensured that any taxpayers not wishing to avail themselves of the many benefits of the arrangements would exit Liechtenstein.

Among others, the relevant arrangements provided for:

• The TACP, providing, among others, a comprehensive commitment from Liechtenstein to ensure that UK taxpayers using the Liechtenstein financial centre are compliant with their UK tax and reporting obligations. Critically, this commitment, backed by agreed review, notice and audit procedures, covered not only banks, but a wide range of service providers in Liechtenstein, including trust companies. Specifically covered by the TACP were all forms of trusts, foundations, companies and certain other vehicles, the objective of the arrangements being that “grey areas” be addressed upfront and pragmatically.

• Documentation of the arrangements with the UK included a Memorandum of Understanding, a Joint Declaration (which was then followed by supplementary Joint Declarations clarifying issues remaining to be addressed) and a Tax Information Exchange Agreement designed to facilitate the terms of the arrangements between the two countries and to encourage the use of the Liechtenstein financial centre by those considering the benefits of voluntary disclosure.

• The LDF agreed with the United Kingdom provided UK taxpayers needing to regularise their tax affairs with an attractive, simplified approach to voluntary disclosure. Among others, the LDF provided for assurance against criminal prosecution, very favourable penalty and time limitations, simplified calculations of tax payable where complex structures are in place, a “bespoke” service from HMRC, the UK tax authority, for those considering use of the LDF and for their advisors, and a number of other benefits.

• Recognising that success of the TACP and LDF would require the full cooperation of Liechtenstein’s banks, trust companies and other intermediaries, the arrangements with the UK included assurances against prosecution for past practices, as well as training and other support designed to assist Liechtenstein’s financial intermediaries to adapt and thrive in a tax transparent world while preserving and enhancing the privacy rights of clients of its financial centre.

• Recognition and clarity on the treatment of Liechtenstein vehicles, such as insurance structures, foundations, Anstalts, trusts and others, and a commitment by the UK to assist Liechtenstein in the development of new products designed to address the needs of the clients of its financial centre in a manner that provides tax transparent privacy – the full protection of privacy rights while tax compliance in the home country was assured.

• In recognition of Liechtenstein’s objective of becoming the financial centre of choice for tax compliant clients, the United Kingdom agreed to extending the benefits of the LDF to wealth owners with no previous connection to Liechtenstein, thereby allowing Liechtenstein’s financial centre to expand its client base, and the United Kingdom to ensure that the maximum number of taxpayers could regularise their tax affairs. Most importantly, the interests of UK taxpayers being at the forefront, the arrangements were designed to be inclusive of all seeking to regularise their tax affairs on the most attractive terms possible. Broadly, more than half of regularisations came from taxpayers who had no previous connection to Liechtenstein, meaning that new business and new relationships for Liechtenstein intermediaries resulted in a meaningful way.

It is interesting to contrast the approach of the LDF/TACP and its results for all stakeholders to the failed Rubik effort of Switzerland and to the approach of the US in its attacks on offshore tax evasion. For the UK, the LDF/TACP provided a full assurance against the misuse of Liechtenstein bank secrecy, with a guarantee that the Liechtenstein financial centre would not be used to shelter undeclared UK taxpayers. For the families involved, a sympathetic approach to voluntary disclosure and the choice of leaving the jurisdiction encouraged many to do the right thing and come clean. For Liechtenstein and its banks and trust companies, liabilities for past practices were dramatically reduced, and the system introduced encouragement of new relationships with UK connected families to be developed, as well as clarity on the treatment of Liechtenstein trusts, foundations and other wealth planning tools.

Despite its “win-win-win” approach, the LDF/TACP was not pursued by Liechtenstein or other offshore centres early on as a model… it was been used by the UK and its dependent territories in more recent disclosure facilities offering fewer advantages to taxpayers and the financial centres involved. Clearly, Liechtenstein and others may have missed the chance to take leadership. This reflects the continuing reality that industry players have been more focused on preserving the past than on shaping the future.

 

The Way Forward

What the world needs is a proactive rather than defensive approach to tax transparency designed to provide significant long-term benefits to affected families, offshore centres, the wealth management industry and to countries seeking to enforce their legitimate right to tax revenues.

There are many open issues as the world moves to tax transparency, and the challenges to rights to privacy and personal security will increasingly come to the forefront. How trusts should be reported and taxed is high on the agenda of countries worldwide, and a failure of the industry to take leadership here will result in the adoption of policies that not only discourage the use of trusts, but which may compromise the interests of the governments that are themselves seeking to address their use. An important practical area associated with the inclusion of tax crimes as a predicate offence in anti-money laundering rules relates to what happens when a bank or trust company files a suspicious transaction report relating to undeclared funds that are linked to the tax system of a country that misuses tax information or where corruption and instability otherwise puts the taxpayer at risk. Is it right that anti-money laundering rules should put individuals and their families at personal risk in terms of kidnapping, political oppression and corruption? Will transparency result in an increase in poverty and inequality as entrepreneurs flee their countries?

Is it right that anti-money laundering rules should put individuals and their families at personal risk in terms of kidnapping, political oppression and corruption? Will transparency result in an increase in poverty and inequality as entrepreneurs flee their countries?

Perhaps the right way forward is for countries deserving of full tax transparency to be given MORE than they ask for in relation to exchange of information in exchange for a number of benefits, such as was the case for the LDF/TACP. But for countries not yet ready for full transparency, full automatic exchange and other promises should really only be offered if and when legal and tax systems protect privacy and the legitimate rights and interests of taxpayers. For these countries, a simple and confidential withholding tax approach as outlined above could be the offer. As countries implement anti-money laundering rules that include tax offences, the demand for a confidential and safe way to be compliant will increase – simply put, taxpayers from countries with corrupt legal and/or tax systems will fear having their assets and structures in countries where suspicious activity reports may find their way to their home country. A simple withholding system (including the voluntary elements of this) could provide an ideal solution for many.

But are offshore centres and the wealth management industry ready to take proactive leadership? Or will we see more in the way of defensive and backward looking approaches to the global issue of undeclared funds?

This article was first published in Developing a Global Agenda, edited by Richard Pease and Published by the Society of Trust and Estate Practitioners, STEP, and Bloomsbury Professional as a companion publication to STEP’s inaugural Global Congress, which took place in Miami in November 2014. The Article was then reprinted in the December 2014 edition of The Trust Quarterly Review, a publication of STEP (www.step.org/journal ).

This updated version of the Article is published by the World Financial Review with the permission of the Society of Trust and Estate Practitioners whose support is acknowledged and appreciated

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About the Author 

Philip Marcovici is retired from the practice of law and consults with governments, financial institutions and global families in relation to tax, wealth management and other matters. Philip was a partner of Baker & McKenzie, a firm he joined in 1982, and practiced in the area of international taxation throughout his legal career. Philip retired from Baker & McKenzie at the end of 2009. In 2013, Philip received a Lifetime Achievement Award from the Society of Estate and Trust Practitioners. In 2016, Philip had his latest book, The Destructive Power of Family Wealth, published by John Wiley & Sons.

North Korea’s Concern for Self-Defense

By Stephen Lendman

As world peace hangs by a thread, Stephen Lendman tackles the realities behind nuclear political drama involving Washington, its allies, and North Korea.

 

North Korea’s geopolitical policies and America’s are world’s apart. Pyongyang never attacked another country, threatens none now.

America wages permanent wars, raping and destroying one nation after another, threatening all sovereign independent countries with regime change. Its agenda is humanity’s greatest threat. The DPRK has just cause for concern about another US launched devastating war on the Korean peninsula. Its nuclear and ballistic missile programmes are for defense, not offense, deterrents to possible US aggression. Without them, the survival of the state is jeopardised.

If Washington recognised its government, normalised relations, and ended decades of hostility, Pyongyang would have no need for powerful weapons.

It’s unclear where Trump stands, saying one thing, then another, while delegating foreign policy to administration hawks, especially warmaking.

Instead, US policymakers since the Truman era have been confrontational with Pyongyang. Hawkish Trump administration generals risk possible nuclear war on the peninsula, madness if launched. New South Korean President Moon Jae-In is amenable to improved relations with Pyongyang, a sensible policy, the only way to defuse tensions.

Neocons infesting Washington strongly oppose the idea. It’s unclear where Trump stands, saying one thing, then another, while delegating foreign policy to administration hawks, especially warmaking. 

World peace hangs by a thread because of rogue elements Washington – in Congress and close to Trump, making him resemble a potted plant on major geopolitical issues, going in the directions he’s shoved. It’s unclear if he understands the danger his lack of strong leadership on the international stage poses. Nuclear war could be launched behind his back, neocon generals and advisors informing him after the fact.

On Sunday, South Korea’s Yonyap news agency reported another Pyongyang missile test, “believed to be a ballistic missile”, it said. According to Japan’s Kyodo news agency, “(t)he missile reached an altitude higher than 1,000 kilometers during its flight, raising the possibility that it was launched at a steep “lofted” trajectory. Deliberately firing the missile at such an angle could allow North Korea to test its capabilities without it landing closer to Japan.”

Reportedly it covered a distance of about 700 km before splashdown in the Sea of Japan. An unnamed Japanese government source believes it could be a new type longer-range ballistic missile.

US Pacific Command spokesman Rob Shuford said its flight pattern “was not consistent with an” ICBM. It was airborne for about 30 minutes.

South Korea’s Moon called the test a “reckless provocation”. Japan’s Shinzo Abe said it was “absolutely unacceptable”. When America and key NATO allies test powerful weapons, including nuclear ones and ICBMs, the deafening sound of silence follows, no criticism from Western capitals, other US allies, and media scoundrels. The double standard is self-explanatory.

On Saturday, a White House statement called the DPRK “a flagrant menace for far too long… The United States maintains our ironclad commitment to stand with our allies in the face of the serious threat posed by North Korea” – a deplorable perversion of truth.

Washington and its rogue allies alone pose a “serious threat”, the DPRK perhaps the next target of US aggression. Its KCNA news agency said America’s aim is “maximum pressure and engagement (to) stifle” Pyongyang, compelling it to “strengthen our nuclear deterrent (and ballistic missile capability) at maximum speed”.

Washington’s rage for war should give pause to all nations seeking peace and stability, unattainable as long as US belligerence continues.

Separately, Moon’s press secretary Yoon Young-chan said “while (Seoul) remains open to the possibility of dialogue with North Korea, it is only possible when (it) shows a change in attitude.”

China’s Foreign Ministry said “(t)he situation on the peninsula is complex and sensitive, and all relevant parties should exercise restraint and do nothing to further worsen regional tensions.”

Washington’s rage for war should give pause to all nations seeking peace and stability, unattainable as long as US belligerence continues.

The article was originally posted at SteveLendmanBlog on May 14, 2017 at http://sjlendman.blogspot.com/2017/05/north-koreas-concern-for-self-defense.html.

Featured Image: Missiles are paraded across Kim II Sung Square during the military parade. © AP

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About the Author

Stephen Lendman received a BA from Harvard University in 1956. Two years of US Army service followed, then an MBA from the Wharton School at the University of Pennsylvania in 1960. After working seven years as a Marketing Research Analyst, he joined the Lendman Group family business in 1967. He remained there until retiring at year end 1999. Writing on major world and national issues began in summer 2005. His new book as Editor and Contributor is titled “Flashpoint in Ukraine: How the US Drive for Hegemony Risks WW III.” Visit his blog site at sjlendman.blogspot.com

Manchester Bombing: The Papers, The Speculation, the Click-Baiting, “ISIS Responsible”

By Graham Vanbergen

The awful bombing at the Ariana Grande concert in Manchester was clearly an attack on girls and women – this was the demographic of the audience. Grande’s live concerts are largely populated by teenage girls and their mums. By attacking these young girls, the perpetrators, whoever they turn out to be, knew exactly what the result was going to be.

 

The incident happened exactly to the day, four years after British army soldier Fusilier Lee Rigby was murdered by two Islamic lunatics in London. Rigby was a native of Manchester – growing up just a few miles from this same arena. American officials are making much of this point by saying this was no coincidence.

US officials have stated within a few hours that the perpetrator was a suicide bomber. What evidence they have for that considering that Britain is the most heavily surveilled state in the world, one can only ponder.

One newspaper has already gone with the headline: “Masked jihadi claims ISIS responsible for Manchester terror attack” and stated with some confidence that “A WARPED masked jihadi has claimed the Manchester terror attack is “only the beginning” of ISIS attacks.”  Pure speculation of course. Click-baiting on the back of murdered teens out for some fun at a concert.

The Mail Online just about surpasses anything that can be remotely called factual. “ISIS supporters celebrate Manchester terror attack as Twitter user ‘predicts’ the blast FOUR HOURS before the explosion.” Click-baiting’s finest hour arrives where the Mail produces evidence – and here it is described as “A Twitter account – which was unverified – posted this four hours before the attack.”

 

 

Business Insider reported with some degree of worry that corporate profits might be lost – “Some capital flows are moving into safe haven trades amid reports of the bombing in Manchester.”  Oh dear!

The Daily Star thought it would be a great idea to show the badly bleeding leg of a victim at the event along with the top 12 hottest pictures of Ariana Grande – slightly less classy click-baiting one would have to say.

The Manchester Evening News pops up on search results and they thought it would be a good idea to make comparisons with the 1996 bombing in Manchester to add a positive spin on the outcome of terrorism:

“The devastation it (1996 bombing) left across the city centre triggered one of the most ambitious and successful urban regeneration projects of its time”

– I’m not sure this is quite the right time to tell that to Mancunians amid the blood, smoke and dust. That last bombing was huge and by some miraculous force killed no-one. This time, it was much worse.

MSNBC’s All In host Chris Hayes was speaking to NBC News foreign correspondent Kelly Cobiella when he thought that it was appropriate to more than just speculate with a possible connection between the attack and the June 8 Parliamentary election.

“We should also say the context here, which may or may not be germane, but just so folks know what’s going on, the background, of course, is an election. There’s political election coming up. We know that in France, in the run-up to the election there there was an attack. A believed-claim by ISIS on the Champs-Elysees. The timing, it seemed not coincidental to the election that’s happening there. They’re gearing up for a big election in the UK right now.”

David Leavitt, a reporter for CBS decided this was a great time to make sick jokes about the Manchester bombing. And many of his American followers thought this was funny too, looking at the ‘LIKES’ and ‘RETWEETS’. There is nothing remotely amusing about the murder of citizens at the hand of terrorists no matter where they are.

 

 

Reddit are off the blocks quickly with a load of youngsters kicking off the usual conspiracy theories.

TMZ  speculates with some certainty that “the explosive device was a nail bomb in a backpack and it might have been a suicide mission” and that “the bomber was waiting around the exit area as people were streaming out of the building.” How they know this is anyone’s guess.

Counter IED Expert Jeff Parks told CNN that explosive devices such as nail bombs first came onto the scene in the early-2000s in Iraq, claiming it was a “very common appliance in the Middle East” and “very handy to place a large amount of explosives and shrapnel”. Nothing suspicious in that comment at all is there.

“It was definitely a bomb, the whole building shook. Body parts were everywhere, a torso, an ear. It was the worst thing I have ever seen. Bodies were everywhere”, a woman in Manchester, identified only as Emma, told BBC Radio.

In the end, one should not forget some real hard facts about this awful, devastating and very sad event. Someone planted a bomb either on themselves or otherwise with intent to kill children and teenagers in an environment where there were few adults.

The response to a British government, who with Machiavellian intent has brought terrorism to our shores from afar by sowing the seeds of hatred should be a strong one. The British people have been forced to pay billions to indiscriminately kill hundreds of thousands of innocent people forcing many to flee the eventual political vacuums that spawned the likes of ISIS. Some arrive with deadly vengeance in their hearts. The disaffected, disenfranchised and frankly some plain old psychopaths use the excuse. How we stop hate filled actions such as this, one can only speculate. One thing is for sure, the politician’s have little or no idea.

Their response will be to make political capital out of it and squander many more millions upon a domestic security system such as GCHQ, continue to strip us of our freedoms and civil liberties and treat us like the enemy, whilst our own die on the streets of Britain whilst a vile media takes full advantage.

In the meantime, our public services will take the strain with heroic effort and concern for those youngsters and their families to help pick up the pieces of this carnage, the devastation of which, will never leave them.

Featured image: True Publica

The original source of this article is True Publica
 
Copyright © Graham Vanbergen, True Publica, 2017
 
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About the Author

graham-webGraham Vanbergen is the contributing editor of TruePublica.org.uk. He is also a featured permanent columnist for The European Financial Review and more recently The World Financial Review and regularly contributes to internationally recognised organisations such as; Global Research, Centre for Research on Globalization in Canada, Dissident Voice in the USA and expat driven Russia Insider, to name a few.

He specialises in explaining the failing and damaging systems that seeks to dismantle real democracy and capitalism. He is motivated by challenging extreme neoliberal thinking that is causing a wave of disruption as western countries move from one political, social, geopolitical and economic crisis to another and is inspired by the writing styles of such luminaries as Chris Hedges and John Pilger who are award winning authors and activists.

Previously, Graham worked within the residential investment industry for over two decades at senior executive and board level for some of the worlds biggest financial, property and insurance institutions such as Nationwide Building Society, General Accident Insurance, Hambros Bank and Countrywide plc.

Developments in Global Tax Transparency and the Need for Effective Dialogue Part 1

By Philip Marcovici

This is Part One of the article, and Part Two will be published in the next edition of the World Financial Review

Tax compliance is one of the many challenges different nations are facing. When we think of wealth owners “hiding” their wealth to evade taxation, Switzerland and the “Swiss Banks” immediately come into mind as key players, but Philip Marcovici sheds light on the fact that the issue is not a Swiss issue, but a global one.

 

The tax landscape for wealth owning families has been fast changing. Transparency and tax compliance are moving towards becoming the norm. This is a positive development given the financial challenges faced by governments seeking to address the needs of their populations and the growing inequality of wealth. But the road to transparency is not a smooth one.

For many years, the wealth management industry has directly or indirectly supported the misuse of bank secrecy to the detriment of both interested governments and wealth owning families who are increasingly realising that apart from being the right thing, tax compliance can be far cheaper and safer than tax evasion. There have, of course, been a number of voices pushing for transparency and compliance over the years, but the approach of too many in the industry has been to resist change and to perpetuate the ways of the past – which ways are inappropriate in today’s world.

Wealth owning families need to hear the truth, and to be guided by their advisors as to how to best navigate a fast-changing and increasingly transparent landscape.

In the case of the private banking and trust world, secrecy all too often was the basis for planning, with aggressive or outright evasive approaches being adopted on the logic that “no one would ever find out”.  Indeed, private banks and trust companies in a number of jurisdictions marketed bank secrecy and, in effect, tax evasion, as a luxury product, available to those with the wealth and contacts needed to attract them offshore. In this regard, it is easy to think of Switzerland as the dominant player, but it would be a mistake to fail to recognise that the issues of abuse of bank secrecy and tax evasion are not Swiss issues – they are and will continue to be global issues. Interestingly, the US, in a time of increased information exchange, is emerging as a hotspot of undeclared money seeking a new home.

Indeed, private banks and trust companies in a number of jurisdictions marketed bank secrecy and, in effect, tax evasion, as a luxury product, available to those with the wealth and contacts needed to attract them offshore. In this regard, it is easy to think of Switzerland as the dominant player, but it would be a mistake to fail to recognise that the issues of abuse of bank secrecy and tax evasion are not Swiss issues – they are and will continue to be global issues.

The wealth management industry has not done a good job of proactively leading on developments in and around growing transparency. To a large extent, the industry has been reactive, defending the past rather than working out how best to cooperatively address the needs of all stakeholders. This lack of strategy has resulted in the future of the industry being dictated not by the industry itself, but by others, including onshore governments, which themselves are not necessarily achieving their real objectives.

For many years, arguments on behalf of offshore centres seeking to preserve the past have focused on the notion of a “level playing field,” pointing to bank secrecy and the use of opaque structure in countries such as the US as a rationale for continuing past practices. The reality, however, is that onshore countries have every right to tax their residents (and sometimes citizens) as well as foreigners who invest in their countries. But onshore governments need help from those who really understand the world of trusts and other tools used by wealth owners to arrive at ways to balance the need for information with proper privacy protection. The industry failing to recognise this reality has led to a tsunami of over-reaction to the detriment of the industry and the families it serves.

Over-reaction by governments has ranged from punitive and overly-intrusive reporting and taxpaying requirements associated with the use of trusts to aggressive attacks on private banks and others for past practices.

Professionals and the associations that represent them have a special and important role to play in not only educating themselves and their members on global change, but to help educate onshore and offshore governments and to help smooth out the rough road to transparency ahead. To date, the industry has not done enough.

It is time to be far more proactive, to the benefit of all stakeholders.

Tax Evasion and the Misuse of Bank Secrecy is a Global Problem – Advisors Need to Look Beyond Their Own Borders

Many things have been happening to help move the world into transparency, and the Swiss landscape in particular has been changing fast and in a very public way. These changes are also happening on a global basis, but with somewhat less effect in some places over others. The reality, again, is that the issue of misuse of bank secrecy and tax evasion is a global one.

Interestingly, but not surprisingly, respect of tax laws seems to have carried greater sway when the laws involved were those of the jurisdiction or advisor involved rather than those of another country. For example, it is not unusual to see American private banks having evidenced a history of being far more careful about US tax evasion than the evasion of taxes of other countries by their clients. Similarly, UK, Dutch, French and other banks seem to have evidenced greater sensitivity to what they do with clients from their own countries as opposed to others. Typical private banking centres like Switzerland developed an attitude that the laws of other countries were simply not relevant, with Swiss bank secrecy and related rules being the only ones to pay attention to.

The adoption of varying standards of ethics on the issue of tax compliance has also extended to the community of professional advisors and others involved in the industry. In my experience, even top tax lawyers in Miami and New York tend to pay far more attention to the question of US tax compliance than the tax compliance of global families in their home countries. Today’s advisor (and, frankly, yesterday’s should have also done this) must look at tax compliance as a global issue, meaning that when a Venezuelan or Mexican invests in the US and is guided by a US tax lawyer, that lawyer must properly liaise with Venezuelan or Mexican advisors to ensure that the overall approach adopted is tax compliant – not only in the US but in all relevant jurisdictions of residence and investment.

Interestingly, but not surprisingly, respect of tax laws seems to have carried greater sway when the laws involved were those of the jurisdiction or advisor involved rather than those of another country.

Undeclared funds are a global problem, and measurement of the amounts involved is very difficult. The Tax Justice Network has reported the figures involved to be as high as over US$30 trillion. Oxfam has estimated that if taxes were properly paid by those earning the income involved, global poverty would be eliminated twice over.

 

The Express Train to Automatic Exchange of Information Backed Up by Effective Anti-Money Laundering Rules  – But Will it Always Work?

There is now rapid progress towards the adoption of global approaches to automatic information exchange, a dramatic departure from the methods of information exchange of the past, such as information exchange upon request. This progress is based on work of, among others, the US, the UK, the OECD and the EU.

The US has made great progress in implementing its Foreign Account Tax Compliance Act (“FATCA”) approach to tax compliance, and this has, in turn, made it easier for the OECD, with the support of the UK and others, to use FATCA as a basis for the development of a global standard (the Common Report Standard, or CRS) for automatic information exchange. The EU has been successful in moving forward with implementing automatic information exchange between its members, replacing its loophole ridden European Savings Directive. Automatic exchange of information using the CRS, which focuses on the role of banks and other financial intermediaries in documenting the ultimate beneficial ownership of vehicles such as companies and trusts, represents a sea change and the full involvement of the financial services industry in tax compliance and enforcement.

The ability of automatic information exchange to address the global issue of undeclared funds is substantial. An important, but sometimes overlooked, element of tax enforcement relates to the move to have anti-money laundering rules include tax crimes as predicate offences, something that has already been introduced in many countries, including the UK, Singapore and Hong Kong. Through changes to EU anti-money laundering rules and initiatives of the Financial Action Task Force, we increasingly close to comprehensive anti-money laundering rules in key financial centres that include tax offences as anti-money laundering offences.

Combining the impact of anti-money laundering rules that are effectively enforced (today, they are not) with bi-lateral and multi-lateral automatic information exchange arrangements, undeclared money should be significantly reduced. A bank, for example, in a traditional bank secrecy country (of which there are many, such as Switzerland, Singapore and others), will, where the anti-money laundering rules so provide, have to be comfortable that monies on deposit are tax declared in the home country, failing which anti-money laundering reports will need to be made. Connected to this will be automatic exchange of information agreements, whether or not part of comprehensive tax treaties, that require information to be automatically exchanged regarding the earnings of taxpayers connected to countries that have entered into automatic exchange agreements. Important to note is that anti-money laundering rules will apply even where there is no automatic exchange of information yet agreed with the relevant home country – but what happens in these cases is not yet clear.

Developments towards global transparency include initiatives to require the creation of public registers on beneficial ownership. While the debate continues, there are moves towards this for companies, trusts and other investment and asset holding vehicles. This links closely to automatic exchange of information, but some of the proposals are clear over-reactions to the abuses of the past that are increasingly coming to light and may carry with them many problems over and above the challenge to the human right to privacy.

Where countries have the economic and other power to be early on the list for automatic exchange of information, these countries will benefit their tax systems early on. This is already happening in relation to the U.S., with its rollout of FATCA, and will be the case for many European financial centres, and others of developed countries in particular, as part of OECD and EU initiatives.

Two realities, however, among many:

First, countries will only have capacity to negotiate and enter into a limited number of automatic information exchange agreements in the short and medium term, and the priority will clearly be to do so with countries, like the US and certain Western European countries, that are pushing this on their agenda, and who have the negotiating power to force counterparts into such arrangements, such as where a comprehensive tax treaty can be threatened if automatic exchange is not agreed to.

Second, many financial centres are adopting strategies designed to “go slow” in the sense of allowing loopholes in anti-money laundering rules (this through the requirement of “double criminality”, among others, which means that if something would not be a tax offence in both countries involved, no reporting arises) and through a selective (and sometimes conditional) approach to entering into bilateral exchange of information agreements. Broadly, the financial services industry and financial centres are focusing on the developed world and counterpart financial centres as the first countries to automatically exchange information with…low on the priority scale are countries most in need of tax revenues, those that are developing and which may have other problems with their tax systems. These countries that are most in need will be the least likely to gain in the short or medium term.

 

Are All Countries Ready for Automatic Exchange of Information?

While for the moment, anti-money laundering rules are generally not being overly enforced when it comes to taxpayers from many developing countries, as such rules do become better known and focused on, the risks to wealth owners from fragile countries will increase. The reality is that not all countries are actually ready for the full tax transparency that the world is working towards. What happens where a taxpayer is a resident of a developing country the tax system of which does not respect privacy, meaning that information the tax authorities have is improperly made available to journalists and others, perhaps including kidnappers interested in knowing who has what? What if there is corruption in the tax system, and tax proceeds are, in part, diverted improperly? What if information on an individual’s assets and income lead to a corrupt approach to a bribe to avoid a full tax audit? And what of countries that use tax information to attack the political enemies of the state?

The reality is that not all countries are actually ready for the full tax transparency that the world is working towards.

Taxpayers connected to countries whose tax systems are not ready for full transparency will be forced into finding ways to avoid new reporting and compliance systems, in part relying on the insufficiency of the home country tax system to fairly tax income. In some cases, taxpayers may be encouraged to abandon their residence to avoid being taxpayers, something that contributes little to the local economy. In other cases, untaxed assets might be converted into investments that do not attract the tax compliance that passive investment portfolios with banks attract – commodities in safe deposit boxes, opaque business and real estate investments and otherwise. Again, not something that encourages investment into the home country which needs it most. Sadly, it is the entrepreneurs who can hugely benefit a home economy with their knowledge and experience of the country that are encouraged to invest abroad and find ways to distance themselves economically and otherwise from the place they know best. Meeting the tax laws of many developing countries is simply not an option given the practicalities of how the tax system operates.

The wealth management industry has a key role to play in helping the world address the issue of undeclared money.  Given the abuses of the past, and the need for society to focus on the reality of income and wealth inequality, this role is actually a responsibility…not only of the wealth management industry, but of wealth owners and all who advise them.

A continuation of the industry’s historical reactive approach to change will serve both the industry and wealth owning families badly. There is a need for leadership and dialogue, with a focus on outcomes that can benefit all stakeholders.

This article was first published in Developing a Global Agenda, edited by Richard Pease and Published by the Society of Trust and Estate Practitioners, STEP, and Bloomsbury Professional as a companion publication to STEP’s inaugural Global Congress, which took place in Miami in November 2014. The Article was then reprinted in the December 2014 edition of The Trust Quarterly Review, a publication of STEP (www.step.org/journal ).

This updated version of the Article is published by the World Financial Review with the permission of the Society of Trust and Estate Practitioners whose support is acknowledged and appreciated.

In the next edition of the World Financial Review, Part Two of this article will explore alternatives that might be considered to address the reality that not all countries are ready for full transparency and the automatic exchange of information. Switzerland’s failed strategies will feature, as will the role of the wealth management industry and other stakeholders in encouraging effective dialogue.

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About the Author 

Philip Marcovici is retired from the practice of law and consults with governments, financial institutions and global families in relation to tax, wealth management and other matters. Philip was a partner of Baker & McKenzie, a firm he joined in 1982, and practiced in the area of international taxation throughout his legal career. Philip retired from Baker & McKenzie at the end of 2009. In 2013, Philip received a Lifetime Achievement Award from the Society of Estate and Trust Practitioners. In 2016, Philip had his latest book, The Destructive Power of Family Wealth, published by John Wiley & Sons.

How the Belt and Road Could Change the 21st Century

By Dan Steinbock                                        

Until recently, globalisation was led by the West and benefitted only a few advanced economies. After China’s three decades of rapid growth, the Belt and Road initiatives hold potential for more inclusive globalisation.

 

During the weekend, the Belt and Road Forum for International Cooperation flooded Beijing with almost 30 heads of state and government leaders, 1,500 delegates from over 130 nations, and over 70 international organisations.

As the forces of globalisation are lingering in the advanced world, the Forum reflected new commitment to more inclusive globalisation, particularly by emerging and developing economies. By 2050, their contribution to global GDP growth is expected to climb from 68 percent to 80 percent.

The investment in infrastructure is likely to accelerate industrialisation and growth opportunities in nations where living standards remain low but growth potential is high.

The Forum precipitates huge investments in new roads, railways and ports while facilitating access to vital capital, goods and services, especially to those economies, that benefitted so little from the postwar globalisation. The investment in infrastructure is likely to accelerate industrialisation and growth opportunities in nations where living standards remain low but growth potential is high.

 

Focus on Economic Development

In the West, the One Belt One Road (OBOR) is still portrayed as a new plan. Yet, President Xi Jinping raised the initiative of jointly building the Silk Road Economic Belt and the 21st Century Maritime Silk Road already in fall 2013.

If the original belt reflected the ancient world economy until the Italian Renaissance, the OBOR includes countries on the original Silk Road through Central Asia, West Asia, the Middle East and Europe. It also features a maritime road that links China’s port facilities with African coast, through the Suez Canal into the Mediterranean. 

The OBOR has potential to redirect domestic overcapacity and capital for regional infrastructure development to improve trade and relations with Southeast Asia, Central Asia and Europe – and over time across Americas and Sub-Saharan Africa.

The OBOR has been compared with the postwar Marshall Plan, which was designed to support the European recovery and to insulate the Soviet Union. There are parallels, but also major differences.

Presumably, the Marshall Plan was created to help rebuild economies in Western Europe for four years beginning in April 1948. While there is no consensus on exact amounts, the cumulative aid may have totalled $13 billion (some $130 billion in 2016 dollar value). These efforts pale in comparison with the OBOR, which involves far greater cumulative investments, which are currently anticipated at $4 trillion to $8 trillion, depending on timeline and scenario estimates (Figure 1).

 

Figure 1: OBOR and Marshall Plan Expenditures ($ billions)

 

Unlike Marshall Plan, the OBOR does not predicate participation on membership or tacit support of military alliances. It is focussed on 21st century economic development – not on 20th century Cold War.

 

Huge Expenses of Geopolitics

The Marshall Plan was predicated on participation in the US-led North American Treaty Organization (NATO). Historically, almost 75 percent of the total aid went to just five countries: the UK, France, West Germany, Italy, and the Netherlands, which became the NATO’s core members over time. 

Today, the NATO still accounts for over 70 percent of all military spending in the world (US 38%, non-US NATO: 32%), although friction about NATO financing by members reflects underlying pressures among the founding members.

While much is made about the humanitarian aid by the West, particularly the US and Europe, it should be seen in context. In 2016, world military expenditure is estimated to have been $1,686 billion, according to SIPRI research. In turn, international humanitarian assistance reached a record high of $28 billion in 2015, according to most recent Global Humanitarian Assistance Report (Figure 2).

 

Figure 2: World Military and Humanitarian Expenditures, 2015 ($ billions)

 

In brief, the West-led humanitarian assistance is less than 2 percent of world military expenditures, which is led by the NATO. That’s untenable over time, especially as more than 90 percent of global humanitarian aid goes to long- and medium-term recipients.

 

Need for Global Cooperation

Unlike advanced economies, emerging and developing nations have neither the ability nor willingness to over-invest in military spending. In per capita terms, China ($156), India ($42), and even Russia ($481) invest a lot less than the US ($1,885), or major European economies ($500-$860) in military spending.

Moreover, China does not predicate entry to the OBOR on membership in military alliances, as the US once did. That is vital. When NATO’s rearmament replaced economic development as the West’s primary goal in the postwar era and when the Cold War divided the world, instability and economic volatility surpassed stability and economic growth in the global agenda. That benefitted mainly a few advanced economies but not the decolonising nations, which were penalised by costly conflicts that were exported to the Third World as the direct result from the Cold War.

The Belt and Road has the potential to change the 21st century – for the better.

It is these historical failures in economic development that the OBOR has potential to alleviate over time – through renewed global cooperation, the rise of more inclusive multilateral inter-governmental development banks, and new and massive infrastructure initiatives in a number of pivotal emerging and developing economies that are still amid industrialisation or the drive to industrial maturity.

The Belt and Road has the potential to change the 21st century – for the better.

Image courtesy of VOA news

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About the Author

Dan Steinbock is the Founder of Difference Group and has served as Research Director of International Business at the India China and America Institute (US) and a Visiting Fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see http://www.differencegroup.net

 

Puerto Rico Declares Bankruptcy

By Stephen Lendman

Puerto Rico faces a long, painful struggle ahead. Stephen Lendman elaborates on how it has come to this and what could the future hold for its citizens.

 

Colonised and exploited by America since 1898, its people, governor and other officials are powerless – ruled by US administrations and Congress.

Islanders have no control over their lives, welfare and destiny, no say over foreign relations, commerce, trade, air space, land and offshore waters, immigration and emigration, nationality and citizenship, currency, maritime laws, military service, US bases on its territory, constitutionality of its laws, jurisdictions and legal procedures, treaties, radio and television, communications, agriculture, natural resources and more.

For nearly 120 years, it’s been victimised by US imperial rapaciousness. Things finally came to head financially. Puerto Rico is bankrupt, though can’t declare it under US law.

Islanders are US citizens without enfranchisement on the mainland. They pay federal taxes, getting back pathetically little in return.

It’s a wasteland of high unemployment, poverty and deprivation. Force-fed austerity exacerbates dire economic conditions. Islanders are US citizens without enfranchisement on the mainland. They pay federal taxes, getting back pathetically little in return. They suffer from mismanagement, political greed, widespread corruption, deplorable social services, and monied interests exploiting them, enforced by police state harshness.

Debt-entrapped, it’s been forced to pay bankers and other large creditors at the expense of responsibly serving its residents. Its debt is crushing, unrepayable at around $123 billion – $74 billion owed creditors, another $49 billion in unfunded pension obligations.

Historically Puerto Rico was barred from declaring bankruptcy. Legislation enacted last year allows bankruptcy-like proceedings. Creditors were unwilling to grant concessions. Now they’ll be forced to take big haircuts. Government pensioners and workers nearing retirement may lose out altogether.

Mass exodus to the mainland, including the island’s best and brightest, complicated things further. Puerto Rico is a zombie economy, unable to function without help – not forthcoming after Congress refused bailout help. So did Trump, saying no “bailout” for Puerto Rico, just generous handouts he wants for Wall Street, war-profiteers, other corporate predators, and America’s super-rich.

An 11th hour effort to avoid bankruptcy failed. Creditors refused a restructuring deal to take a 23% haircut on their general obligation bonds, and a 42% loss on their Cofina sales tax-backed debt, according to the Municipal Securities Rulemaking Board web site. Now they’ll incur bigger hits.

Last summer, Congress passed the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA), giving a federally appointed committee control over the island’s finances, along with creating a Title III bankruptcy process. 

PROMESA gives the federal committee authority to consolidate island agencies, privatise government assets, fire public workers, restructure Puerto Rico’s balance sheet, and retroactively stay bondholder lawsuits.

Puerto Rico faces a long, painful struggle ahead, debt-entrapped by creditors, ill-served by uncaring Washington, mismanaged by corrupt officials, a deplorable situation, affecting its poor and most vulnerable hardest.

A Supreme Court-appointed judge will handle proceedings, bankruptcy without formally declaring it. Unlike US counties, cities and other municipalities, states and US territories can’t declare Chapter 9 bankruptcy, allowing them to restructure debt.

Puerto Rico faces a long, painful struggle ahead, debt-entrapped by creditors, ill-served by uncaring Washington, mismanaged by corrupt officials, a deplorable situation, affecting its poor and most vulnerable hardest.

The article was originally posted at SteveLendmanBlog on May 7, 2017 at http://sjlendman.blogspot.com/2017/05/puerto-rico-declares-bankruptcy.html.

Featured Image: The makeshift shelter of a homeless person in downtown Ponce, a city on Puerto Rico’s southern coast © Alvin Baez/Reuters.

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About the Author

Stephen Lendman received a BA from Harvard University in 1956. Two years of US Army service followed, then an MBA from the Wharton School at the University of Pennsylvania in 1960. After working seven years as a Marketing Research Analyst, he joined the Lendman Group family business in 1967. He remained there until retiring at year end 1999. Writing on major world and national issues began in summer 2005. His new book as Editor and Contributor is titled “Flashpoint in Ukraine: How the US Drive for Hegemony Risks WW III.” 

From State of Exception to Anti-Coup Dictatorship in Erdoğan’s Turkey  

By Volga Can Ozben and Richard Westra

Volga Can Ozben and Richard Westra maintain Turkey under Recep Tayyip Erdoğan as a poster case for the modern state of exception. This is a condition where constitutional and legal provisions in democracies, designed to temporarily empower rulers with absolute authority to defend the state in the face of perceived threats against it, are paradoxically deployed in perpetuity to abrogate both constitutionality and the rule of law in a drive to impose dictatorship beyond law itself.

 

It was the political theorist Carl Schmitt in his examination of conditions such as those which enabled Hitler’s instituting of Nazi totalitarianism in the ostensibly democratic German Weimar Republic who first touched on the notion of a state of exception. At the time of his writing, when constitutional government and the rule of law were at a nascent stage of development even within the European heartland of democracy, Schmitt essentially conceived of constitutionality as something “decided” by sovereign power which could also decide the “exceptions” to it.1 For Schmitt, democracy was thus saddled with an intractable ambivalence and his own personal turn to support Nazism demonstrated how he believed that problem is best resolved.

With the consolidation of constitutional democracy across Western Europe in the aftermath of the Second World War and the impetus to the spread of democracy throughout the “free world” this engendered, Schmitt’s ideas were largely relegated to specialised debate among a narrow coterie of academic experts in political philosophy. But, following the much dramatised events of 9/11, when a band composed mostly of Saudi Arabian national’s crashed hijacked planes into the World Trade Centre in New York,2 Schmitt’s thinking about democracy would work itself back into the forefront of policy circles. To be sure, significant segments of the global elite in Western democracies had never been completely committed to constitutionality and due process of law and had supported piecemeal legislation promulgated under the political radar to chip away at it. However 9/11 would open the floodgates for what effectively constitutes a “war on liberty” within what ostensibly were the world’s staunchest democracies.3

Quite simply, invoking the state of exception within even those states where constitutional government and the rule of law are perceived to be most entrenched follows not upon any overt imposition of dictatorial power such as occurs with a military coup. Rather, the state of exception resembles, in form, circumstances such as foreign attacks launched against sovereign states, civil war, armed insurrection against the state, and so forth, in response to which democratic constitutions enable executive power in the hands of prime ministers, presidents or chancellors to bypass legislatures, judiciaries and the rule of law itself to meet the “emergency”.4 Crucially, it was always understood to be a cornerstone of constitutionality that to the extent “exceptional” powers are concentrated in the hands of executive authority this would be of limited duration to deal with the immediate “threat”.

Bush’s words effectively sanctioned the position that the world as a whole, led by the United States, had entered a long emergency justifying extraordinary measures where democratic citizens would give up their constitutional protections to preserve “freedom” and brutal authoritarian and apartheid regimes that joined the “war on terrorism” were automatically pencilled onto the roster of the “good”.

But, as exemplified by his address to the nation just two months following 9/11, President George W. Bush of the United States set a new, foreboding tone which would be imbibed with great fervour throughout the democratic world. Bush claimed America and the “freedom” cherishing world were pushed into a new “war to save civilisation”. It was a war against those who “commit evil” waged by the “good”; a “different war” fought on “many fronts”; a “war against terrorists who operate in more than 60 countries”.5 With few critical voices heard amidst the patriotic din, Bush’s words effectively sanctioned the position that the world as a whole, led by the United States, had entered a long emergency justifying extraordinary measures where democratic citizens would give up their constitutional protections to preserve “freedom” and brutal authoritarian and apartheid regimes that joined the “war on terrorism” were automatically pencilled onto the roster of the “good”. This process in turn saw all manner of political opposition groups across the globe “criminalised” and marked as “terrorist organisations”.6

Yet, most insidious in all this, is the way the state of exception invoked within even democratic stalwarts forged a new “paradigm of government”. Therein, the state of exception fastens itself onto the rule of law and constitutionality in order, paradoxically, to suspend both. Through its justifications for infinite detention, rendition of “evil doers” to secret torture sites, denial of habeas corpus, unlimited surveillance of citizenry, secret Star Chamber-like courts, the law is appealed to in order to effectively create “spaces” within democratic societies devoid of law. And, with a “war” and subsequent emergency of unlimited duration and geospatial scope, the constitutionally mandated “exception” becomes the rule which abrogates both constitutionality and the rule of law over wider areas of the erstwhile democratic order.7

 

Erdoğan and the Gezi Park Exception

In 2002, Recep Tayyip Erdoğan ascended to power in Turkey, a constitutional democracy which had a “mixed” political system with prime minister as head of government and president as head of state. Initially, his seemingly moderate Islamist stance and supportive approach towards democracy was lauded by the European Union and United States, while his neoliberal economic policies facilitated short-term economic growth notwithstanding the economic crisis he inherited. Though his ruling Justice and Development Party (AKP) party handily won re-election in 2007, Erdoğan began to show his authoritarian hand against Kemalist military officials and intellectuals who were critical of his creeping Islamist agenda.

Yet the sort of emergency that would allow Erdoğan to curtail constitutionality and the rule of law in furtherance of his aims proved elusive until the advent of Gezi Park protests in May 2013. It all began rather innocuously with the attempted night time removal of trees in the park to make way for reconstruction of Topçu Kışlası (a landmark historical building from Ottoman era of great importance to Islamists) as a residence and shopping mall under the rubric of urban transformation. The few activists that had gotten wind of this and camped within the perimeter of the park to prevent further removal of trees were violently ejected by police. Incensed, thousands of people soon marched on Taksim Square near the park. AKP’s subsequent branding of the protest as a threat to national security only further galvanised countrywide anti-government resistance.8

Gezi Park, instructively, tapped into the mounting discontent of citizens feeling increasingly oppressed under Erdoğan’s “new Turkey” distinguished by culturally conservative infringement upon daily life (ban on certain media, internet, alcohol, abortion, and so forth). In response to this “threat”, police were vested with arbitrary powers freeing them to use disproportionate violence on protesters, engage in long term extra-legal detention of protesters, conduct “pre-emptive” raids on those suspected of protest sympathies, and so on.9 Such provisional measures were soon bolstered by legal changes authorising mass surveillance, phone taps without court authorisation, arbitrary identity checks and endowing police with powers previously reserved for the judiciary.10 Vigilante squads, operating outside of the constitutional order, were even mobilised to assist and support the police.11

Deploying the classic state of exception playbook Erdoğan invoked the language of “terrorism” to legitimise the coercive measures and violence that was undertaken at Gezi. Protestors were stigmatised as “çapulcu” (looters), “vandals” and “terrorists” which effectively converted them into enemies of the state. Erdoğan, however, did not stop here. New, hitherto unknown internal and external “enemies” were conjured up. “Faiz lobisi” (interest lobby) was blamed for negative economic outcomes. “Dış mihraklar” (foreign forces) were alleged to be responsible for infiltrating and influencing domestic political affairs.12 Erdoğan in effect fostered an “empire of fear” where anyone could be blamed for government failings and labelled a “terrorist” for any reason.13

 

The Exception of the 2015 General Elections and the Failed Coup Attempt

Having served two constitutionally mandated terms as Prime Minister, Erdoğan stood for election and won the presidency position as head of state in 2014. However, in the general elections of June 7th 2015, a new left-wing Kurdish party called Halkların Demokratik Partisi (HDP), mobilised festering discontent over Gezi to end thirteen years of AKP majority in parliament. Soon after, Suruç, a prominently Kurdish town, was bombed by a suicide attacker affiliated with so-called Islamic State (IS). Though the bombing was carried out by IS, Erdoğan now marshalling the previously ceremonial presidential role in an executive capacity used the attack as a ruse to halt peace and reconciliation talks with the Kurdish minority. Simultaneously, Erdoğan ramped up air assaults and interventions in Syria. Yet his efforts here not only failed to deal with the supposed “enemy” of IS, but further antagonised the Kurds in a monumental policy mess.14

Erdoğan’s security apparatus had its eye trained on dissenting journalists and academics critical of the way Turkey was actually dealing with IS when it suited Erdoğan’s interests.

Erdoğan’s disastrous Syria policy was followed by a surge in actual IS terrorist activities across Turkey which spread paranoia throughout society. Surprisingly, though police and intelligence agencies had been endowed with extraordinary powers of citizen monitoring and surveillance, they proved incompetent in the face of real terrorist threats. Rather, Erdoğan’s security apparatus had its eye trained on dissenting journalists and academics critical of the way Turkey was actually dealing with IS when it suited Erdoğan’s interests. Again, the language of the “war on terror” was turned toward competing political voices in Turkey, this time against the head of the HDP party Selahattin Demirtaş who was portrayed as a supporter of terrorism for his critique of government policy relating to the Suruç attack.15 Mayors of major Kurdish towns were then arbitrarily removed from power and replaced by lackeys assigned by the government and vested with extralegal executive powers. A state of emergency was then imposed on the predominately Kurdish towns which effectively abrogated constitutionality and the rule of law for eight months.16

The penultimate step in Erdoğan’s imposition of a permanent state of exception in Turkey was the failed coup attempt of July 15th 2016. The plotters were allegedly Gülenists (FETO) who had infiltrated the high ranks of the army and bureaucracy from 1980’s. A legal basis was provided by the coup attempt for invocation of the Turkish state of emergency law which contained provision for renewal on reasoned grounds every three months. On the basis of the law the government set about issuing decrees on a daily basis with no parliamentary discussion. Ostensibly, the target of the emergency law was Gülenist coup supporters, yet the whole process devolved into a mass “purge” of political opposition.17 Virtually anyone was subject to arbitrary arrest according to the decrees and marked as a terrorist or Gülenist. The Economist puts it starkly: “Roughly 50,000 people have been arrested; 100,000 more have been sacked. Only a fraction of them were involved in the coup. Anyone Mr. Erdoğan sees as a threat is vulnerable: ordinary folk who went to a Gülenist school or saved with a Gülenist bank; academics, journalists and politicians who betray any sympathy for the Kurdish cause; anybody, including children, who mocks the president on social media”.18 Further, newspapers, television stations and radio programmes were summarily shut down with 90 percent of the remaining media spectrum ultimately falling under direct or indirect government control.19

 

Presidential Referendum Where the Exception Becomes the Rule

On April 16th 2017, Turkish citizens were called to the ballot boxes under the darkening cloud of the emergency law to vote in a referendum for seismic transformation of the political system from its “mixed” parliamentary form with prime minister as head of government to a “Turkish style presidential system” that ensures Recep Tayyip Erdoğan permanent, untrammelled executive power. Multifarious questions have been raised over the referendum ranging from those pointing to it taking place under a state of emergency which essentially banned opposition, to the aforementioned government control of the media, even to outright voting fraud. Yet, the characterising of the referendum as the “use of democracy to end democracy” through de jure institutionalising of single-person dictatorial rule captures what the state of exception is all about.20

Yet, the characterising of the referendum as the “use of democracy to end democracy” through de jure institutionalising of single-person dictatorial rule captures what the state of exception is all about.

Just as unfolded in the 1933 German Weimar Republic, Erdoğan’s dictatorial ambitions were not realised through a coup. Ironically, indeed, the final exorcising of democracy occurred as a response to a coup. However, the new presidency institutionalises single-person rule by gathering legislative, judicial and executive branches in a single hand. The presidency maintains power to both “dissolve” parliament at will or “bypass” it to issue decrees with no legislative oversight.21 Such, however, is precisely how the state of exception builds from the state rendering law and democratic constitutionality the condition of its own suspension. Turkey, here offers a cautionary tale to the world mesmerised by the false comfort that relinquishing freedoms in democratic societies in the face of real and manufactured “threats” is necessary to save it. 

Featured Image: Sultan Ahmed Mosque in Istanbul, Turkey © Getty Images

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About the Authors

Volga Can Ozben is Master’s candidate in the Leading Graduate Schools Program in Law and Political Science, Nagoya University, Japan. He will begin his PhD studies September 2017 in the Department of Political Science, Carleton University, Canada.

 

Richard Westra is Designated Professor in the Graduate School of Law, Nagoya University, Japan. His most recent books are Unleashing Usury: How Finance Opened the Door to Capitalism Then Swallowed It Whole (Clarity Press, 2016); Exit from Globalization (Routledge, 2015); and The Political Economy of Emerging Markets: Varieties of BRICS in the Age of Global Crises and Austerity (ed.) (Routledge, 2017) https://www.routledge.com/The-Political-Economy-of-Emerging-Markets-Varieties-of-BRICS-in-the-Age/Westra/p/book/9781138121225

 

References

1. Schmitt, C. Political Theology, University of Chicago Press, 2006, pp 10-13.
2. http://edition.cnn.com/2013/07/27/us/september-11th-hijackers-fast-facts/index.html
3. Paye, J-C. Global War on Liberty, Telos Press, 2007, pp. 1-3.
4. Agamben, G. State of Exception, University of Chicago Press, 2005, p. 2.
5. https://2001-2009.state.gov/s/ct/rls/rm/2001/5998.htm.
6. Paye, Global War on Liberty, pp. 3ff.
7. Agamben, State of Exception, pp. 2-5, 50-1.
8. Oğuz, Ş. Yeni Türkiye’nin Siyasal Rejimi, p. 97
9. Milliyet, “İstanbul’da Gezi baskını: 30 kişi gözaltında”, http://www.milliyet.com.tr/istanbul-da-gezi-baskini-30 kisi/gundem/detay/1737418/default.htm
10. T24, “İşte tartışılan ‘iç güvenlik paketi’nin’ tam metni”, http://t24.com.tr/haberler/iste-tartisilan-ic-guvenlik-paketinin-tam-metni,287681
11. Cnnturk.com, “Erdoğan: Esnaf gerektiğinde asker, polis ve hakimdir”, www.cnnturk.com/haber/turkiye/erdogan-esnaf-gerektiginde-asker-polis-ve-hakimdir
12. NTV, “Erdoğan: Faiz lobisinin neferi oldular”, http://www.ntv.com.tr/turkiye/erdogan-faiz-lobisinin-neferi-oldular,hRBnD9YIYkehfPQCWqTF4g
13. Kongar E. and Küçükkaya A. Gezi Direnişi: Türkiye’yi Sarsan Otuz Gün Artık Hiçbirşey Eskisi Gibi Olmayacak, Cumhuriyet, pp. 22-23
14. Kazim H., Popp M. and Shafy S. “The Rise and Fall of Erdogan’s Turkey”, http://www.spiegel.de/international/europe/turkeyundererdoganisbecomingpoliticallyrivena1054359.html
15. NTV, Selahattın Demirtaş’tan Suruç Açıklaması, http://www.ntv.com.tr/turkiye/selahattin-demirtastan-suruc-aciklamasi,goDSajMioE2qv9RfIHjlGw.
16. TIHV, 16 Ağustos 2015-16 Ağustos 2016 Tarihleri Arasında Sokağa Çıkma Yasakları ve Yaşamını Yitiren Siviller Bilgi Notu, http://tihv.org.tr/16-agustos-2015-16-agustos-2016-tarihleri-arasinda-sokaga-cikma-yasaklari-ve-yasamini-yitiren-siviller-bilgi-notu/.
17. Filkins D. “The Purge Begins in Turkey”, http://www.newyorker.com/news/newsdesk/thepurgebeginsinturkey
18. http://www.economist.com/news/leaders/21720590-recep-tayyip-erdogan-carrying-out-harshest-crackdown-decades-west-must-not-abandon.
19. Cruciati C., “Turkey holds half of the journalists arrested in the world”, https://global.ilmanifesto.it/turkeyholdshalfofthejournalistsarrestedintheworld/
20. Gumus T. “Turkey is about to use democracy to end its democracy”, https://qz.com/950313/turkeyispreparingtovoteonaconstitutionalreferendumthatgivespresidentreceptayyiperdoganunprecedentedpower/
21. Ibid.

French Election Fraud?

By Peter Koenig

Peter Koenig delivers us a bold analysis on the recently held French elections. Now that Macron holds the French presidency, Koenig reminds us that the game is not over – with the two rounds of legislative elections coming this June, what will the youngest French president do with the possibility of a government deadlock?

 

The final tally is Emmanuel Macron 66% against 34% of Marine Le Pen, a historic landslide never seen in France’s recent past. Many have voted for Macron because it meant a vote against Le Pen. They were scared. The massive fear-mongering propaganda against her was successful. The choice was clearly between the Devil and Lucifer, and the vast majority voted for Lucifer. He is slyer. He is killing slowly with a smile, vs. Le Pen’s outspoken, confrontational approach. He does it by continuously administering small doses of poison. Taking over the economy from the 99% for the 1%. It’s the old salami tactic, in new clothes. It’s a fascist economy. People don’t notice until it’s too late.

Voter participation has drastically declined since the two previous times, with 65% compared to 72% in 2012 and 75% in 2007. It shows that many disenchanted French have abstained. Intentional abstentions and non-voters accounted for 35%, a record in over 50 years. With 66% of actual voters casting their ballot for Macron, he has actually obtained just slightly above 40% of the eligible voters’ approval, not discounting all those whose vote was a vote against Le Pen. Some estimates conclude it could be as high as 15% – which would leave Macron with a mere 25% of real votes, as compared to the total of eligible French voters. If that’s the making of a President in a key European country, then we are headed for deep dark trouble.

Some estimates conclude it could be as high as 15% – which would leave Macron with a mere 25% of real votes, as compared to the total of eligible French voters. If that’s the making of a President in a key European country, then we are headed for deep dark trouble.

One of the key phrases Macron voiced in his victory speech was that France will be first in line in fighting “terrorism” – in clear text, the militarisation of France and by extension of Europe, will continue.

This will bode well with the semi-clandestine effort underway by Germany’s Bundeswehr to train German and NATO troops for war-like offensives against western cities. The project, largely unreported, has been going on since at least 2012. It involves building in Germany’s north-eastern federal state of Saxony-Anhalt an entire ghost town, where German and NATO troops will train to fight and suppress possible social upheavals in western European cities. The camp, budgeted at several hundred million euros, is expected to be ready for training by 2018. The idea is not new. It’s a copy of what’s already going on for years in the US. Clandestine military hubs around “vulnerable” cities, like Chicago, New York, Los Angeles – and more, are in full swing.

Election fraud is difficult to prove. But circumstantial evidence clearly points to electoral “irregularities”. First, the traditional two-party system was purposefully eviscerated and the country was divided into four groups. There were the old-style Republicans and Socialists, represented by François Fillon and Benoît Hamon. Until a few weeks ago, Marine Le Pen from the extreme right-wing National Front was leading all polls. Mr. Fillon came in second. Then a suddenly floated scandal about his wife’s cashing in huge amounts of public money in the form of remunerations for work she had not done, decimated his popularity. Was this part of the game plan?

Both candidates, Fillon and Le Pen, had politically similar positions, except that Le Pen, whom the media called demeaningly a populist, campaigned for FREXIT, exit from the euro and from NATO. All very popular ideas. Let’s face it, 80% of the French want a referendum on FREXIT. Jean-Luc Mélenchon of “France insoumise”, had and has a terrific programme for a socially and politically independent France, regaining sovereignty from Brussels and exiting NATO, and a France with a direct Democracy. He calls it the 6th Republic. He consistently ran on the left, but didn’t break ground in 2012. In the last few months, his quick wit and modern campaign technology (hologram speeches at several locations simultaneously) suddenly attracted a lot of followers, especially among the young and students, as well as those disenchanted with the socialist party. He ascended quickly to the top, outranking François Fillon, second only to Le Pen. But a run-off Mélenchon – Le Pen was unthinkable for the powers in Washington and Brussels. The dangers of a Mélenchon win were real.

Then came the meteoric rise out of nowhere by the youthful, 39-year-old Emmanuel Macron, with his non-party political movement “En Marche” (On the Move). The former Rothschild investment banker, never held any elected office, was catapulted in 2014 into the post of Minister of Economy, where he pushed through the controversial and unpopular “Macron Law”, largely a deregulation of industry and service sectors against the interests of labour. Mr. Macron, despite his self-given label of a “centrist”, represents the interests of the banksters and of Big Business. He is also a staunch friend of Washington and Brussels, defending the un-defendable euro and European Union. That’s what the elite, the world’s Deep State, wants.

Going into the first round of elections on 23 April, the country was divided into four voter segments, with the front runners Le Pen, Macron, Mélenchon and Fillon clustered closely together. This reminds of the 2015 / 2016 Spanish elections – “divide to conquer” – a division from an essentially two-party system into four parties. The Spanish “election” eventually ended up in a parliamentary coup to make sure Mariano Rajoy, the neoliberal right-winger, would continue the Spanish austerity oppression of the working class, despite a vast majority of Spaniards, with a 23% unemployment rate, being against Rajoy – see http://www.globalresearch.ca/spain-the-dice-are-cast-another-parliamentary-coup-instigated-from-outside/5553699.

To avoid a similar fiasco, the French election had to be “decided” in the first round, in as much as Fillon and Mélenchon needed to be discarded from the second round, to make sure Macron would confront Le Pen. This was the easiest gamble to have Macron win.

And so it happened. With a massive and well targeted media campaign, very likely using the Cambridge Analytica model of mind manipulation, as was applied to make Trump President – see http://www.globalresearch.ca/mind-manipulations-to-influence-election-results/5566894 – and to bring about Brexit, Macron became a front runner, barely outranking Le Pen in the first round, with Fillon and Mélenchon coming in third and fourth on 23 April. That Mélenchon after the first round ended up fourth, with a paper-thin margin behind the scandal-plagued Fillon, is not an accident. Ballot fraud is very likely and has, in fact, been detected by Mélenchon’s people. Had he come in as third, he might have contested the thin margin between him and Macron and asked for a recount. So, he had to be “pushed” back to number four. As such, a recount was not likely.

Macron has now 5 years to continue – and speed up – the work of his predecessor, Hollande: more austerity for the average French, more tax breaks for the Corporate Lords and the rich, more militarisation of France and Europe – and especially keep following Brussels’ and Washington’s dictates.

Whoever would like to understand how elections are made these days, not only in developing countries, but also in our wester so-called democracies should read this – https://www.theguardian.com/technology/2017/may/07/the-great-british-brexit-robbery-hijacked-democracy?CMP=share_btn_tw. It provides a deep look into who is running the world and with what intent. There is not a shred left of DEMOCRACY. It’s mind control and mind manipulation to the extreme. It is very likely that France did not escape this soft, but super-sharp behind the scene technology.

Macron has now 5 years to continue – and speed up – the work of his predecessor, Hollande: more austerity for the average French, more tax breaks for the Corporate Lords and the rich, more militarisation of France and Europe – and especially keep following Brussels’ and Washington’s dictates.

Without arbitrating whether Macron or Le Pen should have won the elections – is this massive media – and Silicone Valley – manipulation for the candidate that clearly defends Big Business, the corrupt EU Brussels construct and the unsustainable, fraudulent European currency, the euro – and membership in NATO – ethically correct? All of it serves the interests of giant corporations and the war mongering on Russia’s borders, against the interests of the people. With today’s neoliberal laws that defy any moral standards as long as they benefit the rich and powerful, it is difficult to say whether the method is legal. Is it legitimate to lie and use mind control tactics to attain a socially indefensible and unjust objective? Or is it an outright criminal act? Let our conscience be the judge.

However, the game is not over yet. There will be two rounds of legislative elections in June. At this point, Mr. Macron will have a hard time forming a government. His movement (not a party), “En Marche”, is new and not established well-enough to gain necessarily enough parliamentary seats to govern. Therefore, a coalition, or as the French call it, a “Cohabitation”, is a possibility. With whom? With Le Pen’s Front National, with Fillon’s traditional right wing Republicans? – Or with Mélenchon’s “France insoumise”? Le Pen and Mélenchon will likely increase their seats in Parliament. A three-way fairly even split – Macron-Mélenchon-Le Pen – has been suggested by several analysts.

With whom Macron will “cohabitate” is anybody’s guess. The three-way split scenario might leave Macron in a deadlock, unable to form a government. Would that bring about new elections à la Spain? – And if mind control doesn’t work well-enough, end up in a Parliamentary coup, where votes and alliances may be traded, not to say “bought” – to eventually propel the Luciferian Deep State’s darling, Macron, into the Presidency?

Image courtesy of Allili Mourad / SIPA

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About the Author

koenig-webPeter Koenig is an economist and geopolitical analyst. He is also a former World Bank staff and worked extensively around the world in the fields of environment and water resources. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research, ICH, RT, Sputnik, PressTV, The 4th Media, TeleSUR, TruePublica, The Vineyard of The Saker Blog, and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance.

Emmanuel Macron Victory and the Fragility of the European Union

En Marche Candidate Prevails with Support of World Financial System

By Abayomi Azikiwe

French politics has captured the eyes of the world for the past months. Now that conclusions have been made, Abayomi Azikiwe tackles what Macron’s victory brings and its implications to the European Union and the global economy.

 

Leading European Union (EU) politicians expressed their jubilation in the wake of the substantial victory of Emmanuel Macron over National Front candidate Marine Le Pen.

This episode in French politics was hailed as a major defeat of “populism” in Europe and the Western capitalist world where in the last year right-wing parties and political initiatives have made headway.

There was the vote to leave the EU by the British voters in June 2016. Later in the November presidential elections in the United States billionaire right-wing demagogue Donald J. Trump landed in the White House through a sweeping Electoral College victory over Democratic Party stalwart Hillary Clinton.

This episode in French politics was hailed as a major defeat of “populism” in Europe and the Western capitalist world where in the last year right-wing parties and political initiatives have made headway.

Macron, an investment banker and former minister of economic planning in the Socialist government of departing President Francois Hollande, was favoured by the corporate media and the European banking institutions.

Official results say that Macron won 66.1 percent of the vote to 33.9 for Le Pen. However, 33 percent, one-third, of the electorate either stayed at home or turned in ballots that were uncountable indicating a strong rejection of both of the dominant tendencies in French politics. Neither party projected any viable solutions to the high unemployment rate and increasing poverty inside the country. 

The British Independent newspaper said of the results: “Mr. Macron earned over 20.8 million votes in the election, while Ms. Le Pen gained a record 10.6 million votes for Front National.

But while France had 47.5 million registered voters, a near-record 25 per cent abstained from casting their ballot in this year’s election. A further 8.6 per cent of people who did vote spoiled their ballot or left it blank. The number of people who abstained from voting totalled 12.1 million, already outnumbering the amount of people who chose to vote for Ms. Le Pen.”

Although the En Marche candidate was portrayed as a voice of reason and tolerance the programme advanced by the president-elect calls for the elimination of guarantees for working people. Similar reforms in previous years appeared to be aimed at transforming labour relations in France to more closely mirror the US.

The EU welcomed the results of the vote as an indication of the stability of the regional system of governance and economic restructuring. Le Pen had suggested that under her presidency a referendum on the future of French membership in the continental body along with the Eurozone would be put before the electorate. This could have continued the disintegration of the European monetary zone and parliament which largely serves as a barometer of what constitutes stability in the region.

Both the Conservative (Les Republicains) and Socialist parties which have dominated the French parliamentary and presidential system for the last six decades did not win enough votes in the first round to qualify for run off status on May 7. An alienation from mainstream political parties in Europe has created a huge electoral vacuum where ultra-right wing parties have made gains.

In a state election overshadowed by the events in France, Merkel’s Christian Democratic Union (CDU) party won a decisive victory in the northern Schleswig-Holstein gaining 33 percent of the electorate.

Results of the elections in France will provide some relief for the German political system where Chancellor Angela Merkel is facing re-election later in the year. In a state election overshadowed by the events in France, Merkel’s Christian Democratic Union (CDU) party won a decisive victory in the northern Schleswig-Holstein gaining 33 percent of the electorate.

The CDU performed better than what was projected in the opinion polls which indicated a greater margin of the vote going to the Social Democratic Party (SPD) and the far right-wing Alternative for Germany (AfD). The SPD won only 26 percent of the vote which will prevent it from leading the state government in Schleswig-Holstein.

Moreover, the status of the AfD continued to deteriorate with the party barely gaining enough votes to earn seats in the Schleswig-Holstein state government. AfD won 5.5 percent just above the necessary 5 percent threshold to enable its presence in the state legislative body.

At present with the weakening of the SPD and AfD, Merkel could very well win an unprecedented fourth term in office as German Chancellor. Her approval rating had declined during 2016 amid the escalating tensions over the huge influx of migrants from the Middle East, Africa and Asia fleeing the wars initiated by the US and NATO and the economic downturn due in part to instability fuelled by conflict and the decline in commodity prices particularly in the energy sector.

 

France to Maintain Globalist Model of Development

Although the electorate did reject the far right political programme of Le Pen which advocated the drastic curbing of immigration from non-European states, the erecting of trade tariffs to ostensibly enhance local production, the withdrawal of France from the Eurozone and the demonisation of Islam, many of those who cast their ballots in favour of Macron did so in order to prevent the National Front from winning the presidency.

The political platform of En Marche is a classic neo-liberal approach to the modern-day capitalist crisis. Macron wants to limit the guarantees of employment benefits for French workers, the scaling back of the pension system and large-scale tax breaks for corporations and the wealthy.

These programmes have been tried in numerous western capitalist states leaving a trail on joblessness, increasing poverty, national debt and massive bailouts of the financial institutions to prevent total economic collapse as was the situation throughout Western Europe and the US beginning in 2007. Workers are less secure in their employment prospects while real wages have been in decline for decades.

Reuters press agency reported on a survey of voters which demonstrated the lack of enthusiasm for the Macron emphasising that: “A poll of nearly 7,000 voters on Sunday by Harris Interactive found that 59 percent of Macron’s voters had chosen him primarily to stop Le Pen becoming president, reflecting the distaste that still clings to a party long considered a pariah in France for its xenophobic associations. The poll, for M6 television, also found Le Pen’s supporters to be far more convinced by their candidate’s policies and qualities: 56 percent of Le Pen voters found that she spoke to their concerns, while only 21 percent of Macron voters said the same of him.” (May 8)

Trade unions demonstrated under the banner of the “Social Front” on May 8 just one day after the presidential elections against the proposed neo-liberal and pro-banker reforms advocated by Macron. Workers are saying that the government should not be administered as if it were a corporation evoking the background of Macron as a banker and economy minister with close ties to finance capital. Similar protests occurred even prior to the elections on May Day where workers objected to the candidates of both En Marche and the National Front.

According to an article published by Local France, the General Confederation of Labor (CGT), a left-leaning union which is one of the largest in the country, led the demonstrations. The media group noted that these actions involving thousands of workers took place “not long after the news was announced on Sunday night (May 7) that the pro-free market, pro-globalisation candidate Emmanuel Macron had been elected France’s president with 66 percent of the vote.

Organisers had urged people “to take part in the first social mobilisation of Macron’s term in office”. (May 8)

Although the traditional dominant parties did not do well in the presidential races, they are hoping to play a more prominent role in the upcoming two-stage parliamentary contest on June 11 and 18. Pro-Macron candidates will change their name to La Republique en Marche for the lower house elections in an effort to appeal to the both the centre-left and centre-right constituencies.

One survey indicated that En Marche could win as many as many as 250 of the 290 seats in the overall 577-member chamber of the National Assembly. Any candidate gaining 12.5 percent of the vote will be eligible to continue to the runoff election.

Image courtesy of Yoan Valat, EPA

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About The Author

Abayomi Azikiwe is the Editor of the Pan-African News Wire, an electronic press agency that was founded in 1998. He has worked for decades in solidarity with the liberation movements and progressive governments on the African continent and the Caribbean. Azikiwe is a graduate of Wayne State University in Detroit where he earned undergraduate and graduate degrees in Political Science/Public Administration and Educational and Administrative Studies.

Who are the World’s Biggest Military Spenders, Really?

By Dan Steinbock                            

The conventional narrative is that the world is threatened by the assertive China and Russia. The inconvenient narrative is that China is modernising, while US priorities are misguided, Dan Steinbock says.

 

When China recently launched its first domestically built aircraft carrier, New York Times saw it as “a milestone in President Xi Jinping’s drive to extend China’s military reach far beyond its shores”. First reports surfaced in early 2016, when Washington Post headlined, “By 2030, South China Sea will be “virtually a Chinese lake”.”

The US Navy commissioned its first aircraft carrier in 1922. Today, it has 19 of the 36 such ships plying waters around the world. The same goes for overseas military bases. While China’s first overseas military base in Djibouti has been portrayed as a world threat, the US has almost 40 “named bases” around the world, military deployments in more than 150 countries, and over 300,000 of its personnel abroad.

What about military expenditures?

 

Conventional Narrative

The conventional narrative is that China has become assertive, while the West is ignoring its defence needs. This view is backed with the newly-released SIPRI report, which suggests that in the past decade military spending in China and Russia increased 118 percent and 87 percent, respectively. America remains the greatest military spender, but US spending plunged almost 5 percent in the past decade.

In reality, defence spending increased from the mid-1990s to the early 2010s. Then, expenditures plateaued, due to secular stagnation in advanced economies and the fall of oil prices in oil-exporting countries, many of which are major military spenders.

Yet, realities are more nuanced. After the end of the Cold War, many observers expected a “peace premium” and a significant plunge of military expenditures. In reality, defence spending increased from the mid-1990s to the early 2010s. Then, expenditures plateaued, due to secular stagnation in advanced economies and the fall of oil prices in oil-exporting countries, many of which are major military spenders.

The new list of top-10 military spenders includes the US ($611 billion), China ($215 billion), Russia ($69 billion), Saudi Arabia, India, the core EU economies, Japan and South Korea. Together, they account for three-fourths of the total. Yet, Washington spends more dollars a year on its military than the next seven biggest spenders combined – which penalises living standards in America and stability abroad.

Moreover, the US defence system is still the most innovative in the world, but that leadership is in danger of failing, due to erosion, as I argued in a major US report, The Challenges for America’s Defense Innovation (Information Technology and Innovation Foundation, November 2014).

Inconvenient Truths

Furthermore, the biggest aggregate military spenders are almost by default the most populous or largest economies, or both. Consequently, the intensity of military spending should also be assessed in per capita terms. In this narrative, Saudi Arabia and the US lead, with $2,000 and $1,900 per person, respectively. The two are followed by Europeans, South Korea, Russia and Japan. In contrast, China and India come last (with just 8% and 2% of the US level, respectively)(Figure 1).

 

(a) Aggregate Military Spending ($ Billion)

(b) Military Spending Per Capita ($ )

 

Figure 1: Aggregate and Per Capita Military Expenditures, 2017

 

But perhaps this story reflects recent realities? Maybe a longer-term view would produce a different picture? Actually, that’s precisely not the case.

If the past decade’s increases in military budgets are viewed in per capita terms, the big spender is Saudi Arabia (40%). In contrast, defence expenditures have climbed slower in China and India (less than 15% each); and even less in Russia (6%).

These relative increases of the military expenditures should be compared gains in per capita incomes. If per capita incomes rise fast, then relative increases in military budgets are to be expected, and vice versa. In the past decade, per capita incomes in China and India increased strongly (10.8% and 8%, respectively). In both, military spending has increased even faster but after a very low starting point(Figure 2).

 

 

(a) Aggregate Military Spending (%) 

(a) GDP Per Capita (%)

* Change as compound annual growth rate (CAGR)

Figure 2: Change in Expenditures, 2007-16*

 

However, in the Middle East, the gap between military spending and per capita income is steep. In the past decade, increases in Saudi defense spending have been almost 40 times faster than growth in per capita incomes.

 

Gap Between Fact and Fiction

Usually, military assertiveness as national priority is reflected by the share of defence spending as percentage of GDP. In these terms, the great spender is Saudi Arabia (10% of GDP), which invests 5 times more than China in defence.

In the past decade, Chinese defence spending as share of GDP has been 1.9 percent, lower than in India (2.3-2.5%) or Australia (2%) and at par with the UK. Historically, it is about the same as America’s in the 1920s – before US rearmament and World War II.

In turn, Russia’s relative defence spending as share of GDP has risen by almost a half, which US neoconservatives see as evidence of assertive expansionism, along with Moscow’s conduct in Georgia and Ukraine. Nevertheless, Russia’s defence spending can also be seen as belated modernisation and as a logical result of US-led NATO expansion to Russia’s regional neighbourhood.

In the past decade, US defence spending as share of GDP decreased to 3.3 percent (0.3%), due to the Great Recession, and the Obama defence sequestration. In the postwar era, that is an exception, not the rule. In fact, the Trump administration is planning a massive Reagan-style rearmament and requesting $54 billion for the next year – an almost 10 percent increase in a single year.

If the first casualty of war is truth, then the first victim of peacetime rearmament are flawed narratives that support entrenched military interests.

To summarise, there is a deep gap between current realities and perceptions of military spending. If the first casualty of war is truth, then the first victim of peacetime rearmament are flawed narratives that support entrenched military interests.

Perhaps that’s why, when China launches a new carrier, it is typically reported as the “latest display of Beijing’s growing naval power” but when US carriers dominate regional waters and exercise their hegemony internationally, it is seen as non-news.

The original version was published by South China Morning Post on May 1, 2017

Featured Image: Image courtesy of Scout.com

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About the Author

Dan Steinbock is the Founder of Difference Group and has served as Research Director of International Business at the India China and America Institute (US) and a Visiting Fellow at the Shanghai Institutes for International Studies (China) and the EU Centre (Singapore). For more, see http://www.differencegroup.net

 

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