Thursday, March 19, 2009 

A depressing pyrrhic victory.

The only possible way you can describe Barclays' depressing legal victory over the Guardian, Mr Justice Blake ruling that the paper cannot republish the memos detailing the workings of Barclays' Structured Capital Markets team is as a pyrrhic one. The Guardian, in its own editorial, more than sums it up when it states that all that Barclays has achieved is to shut the stable door after the horse has not just bolted, but completely disappeared from view. This is thanks to the documents being immediately mirrored by Wikileaks, where they still reside and where they can be downloaded from a server in this country, in defiance of the injunction. The terms of the injunction mean that the Guardian cannot even point people in the direction of where they can find them or "incite" others to publish; all they will have to do instead is Google for them, where they'll quickly find them.

Part of Justice Blake's justification for ruling against the Guardian was that he didn't believe that the documents had spread far enough for their confidentiality to have completely broken down. This is clearly nonsense: all those that Barclays wanted to hide these documents from have not only got them, they've been poring over them now since Tuesday, whether they be HMRC, Barclays' rivals, or anyone else with the slightest grudge against the bank. The Grauniad refers to the House of Lords ruling on Spycatcher, that you cannot put the melting ice cube back into the freezer. That is more than apt: through the ban the only people who are being denied from being allowed to see what everyone else has is those who are either without the internet or those that have never heard of Wikileaks and can't properly use a search engine.

Equally weak was Blake's second argument. He agreed that the Guardian can report on the contents of the documents, as that is in the public interest; not in the public interest is the unexpurgated publication of the documents in full, containing legally sensitive matters and other confidential information. There are some obvious flaws in this: how is the paper meant to know firstly what is considered legally sensitive and confidential and what isn't? Their lawyers' might come to predictability different conclusions from those of Barclays'. This appears to have the potential to be a slippery slope; how else can a paper know what is sensitive unless they first consult the people they are preparing to expose and give them the opportunity to halt publication in its entirety? Ideally, journalists should do this anyway, but there are certain situations where if they did on an incredibly important story, undoubtedly in the public interest, they could end up not being able to publish anyway. In cases such of that as Max Mosley, there ought to be no question of the person being informed beforehand; when it involves politicians being accused of corruption or corporations being accused of blatant and artifical tax avoidance, there is a good argument for not doing so. Furthermore, why shouldn't the general public be able to view the source material for such exposes and be able to make their own minds up where it is possible for the hacks to provide such a service? Journalists cannot always be relied upon to report accurately what is in things which they either come across, investigate or are handed to them, especially when it comes to such incredibly complex and difficult to understand matters as tax avoidance. The Guardian itself is has an example of this, having misinterpreted how Tesco was operating a tax avoidance scheme and wrongly claiming that they were avoiding corporation tax to the tune of £1bn when they were in fact avoiding stamp duty land tax on a much lesser scale.

Blake also suggested that "if the debate can flourish without the publication of the full documents, that is a highly material factor". But none of the articles in either the Graun or the Sunday Times begins to cover in anything approaching forensic detail just what is discussed and proposed in these documents; they just give a broad summary. Debate can flourish without them being freely available, but that is not truly informed debate. The best summation of what they contain was made by Alan Rusbridger in his statement to the court:

"I considered these documents to be of the highest significance in the debate about tax avoidance.

"They revealed at first hand the processes involved in structuring extremely complex and artificial tax avoidance vehicles; how lawyers and accountants worked together to exploit loopholes in government legislation; and the degree to which they are sanctioned at the highest levels within Barclays."


Only by examining the documents first hand do you fully understand just how Barclays' SCM team operated and operates. Blake's decision has slammed the door on one source of light, but the others remain wide open.

Labels: , , , , , , , ,

Share |

3/19/2009 11:18:00 PM | | | links to this post

Tuesday, March 17, 2009 

The smartest guys in the room get hot under the collar.

It would be nice to think that with various tax havens having to promise to be rather more transparent in their operations than they have been previously, threatened with being "named and shamed" by the OECD, that the actual businesses which exploit such havens would be following a similar trajectory. The sad reality is that both will continue to get away with it just as they have in the past: they'll wait for the current mood to slowly wither away, as it will when the economy eventually recovers, and then the same old lawyers and same bean-counters will be back to doing what they do best, letting the rich and powerful get away it while castigating the scum at the bottom who dare to fiddle their benefits.

Barclays however hasn't even bothered with letting it all blow other. Despite being in negotiations with the Treasury, threatened by its toxic assets, which it wants the government to insure, it still succeeded in gaining an injunction against the Guardian, stopping it from hosting documents detailing "Project Knight", a tax avoidance scheme devised in Feburary 2007 which could have seen the bank save between £40m to £60m in a single year. This is despite the fact the scheme is not illegal, and that Barclays even says that it fully informed Her Majesty's Revenue and Customs of what it was doing. Why then is it so desperate for the documents not to enter the public domain? Is it ashamed of what it was doing, legal though it was? Barclays' lawyers Freshfields argued that the documents were property of the bank, and that could only have been acquired by someone who had breached confidentiality agreements.

Sadly for Barclays, either the documents were up long enough for someone to mirror them, or they were also distributed to Wikileaks, increasingly becoming vital against legal threats of all varieties, where they are still fully available. Not just is the proposal for Project Knight included, but also documents detailing the setting up of a "Brazilian Investment Strategy", "Project Brontos", "Project Berry II - Investment in Index Linked Gilts", "Project Faber", "Project Valiha" and a memo detailing the minutes of a meeting of Barclays' Structured Capital Markets team concerning the setting up of an office for SCM in Luxembourg. Most interesting to do with the injunction issued against the Guardian is the involvement of Freshfields with Project Faber. Normally you would imagine that Barclays would have employed a separate legal firm to deal with the media, as Freshfields is ostensibly only involved with business law advice, but in this instance they seem to have decided not to do so. This raises a potential conflict of interest because the document on Project Faber details Freshfields' legal advice on the tax risk which the project would incur, and unlike the other documents where the risks are summarised fairly succinctly, Freshfields goes into quite some detail on five specific UK risks which Faber raises. Again, there's no suggestion here that either Barclays or Freshfields has done anything specifically illegal, but it also certainly seems to be in Freshfields' interest, as well as Barclays', to stop the documents from entering the public domain.

I won't pretend that I understand much of these documents, nor probably would 99% of the other people in the country, unless we had the likes of "Slicker" from Private Eye personally explaining them to us, but Richard Murphy is another man who does and who was asked by the Sunday Times to look at them after they were first passed them but didn't publish them in full. He described Project Valiha thusly:

It is designed so the money goes round in a big circle and comes back to Barclays so that they make £99m in tax savings without taking any risk at all. The whole thing takes three days.


As for the others:

“They work on the basis of exploiting tax regulations and the laws of different countries. They don’t generate any real profit for anyone, but they do save vast amounts of tax that they would otherwise pay.”

The Sunday Times claimed that Barclays might have been saving up to £1bn in tax through the various schemes, something the bank has vigorously denied. Murphy has though commented rather further on the schemes, of which it seems there might be even more which haven't turned up on Wikileaks:

I’ll tell you what I think is going on with Barclays. In my opinion it has constructed a series of wholly almost entirely artificial transactions undertaken through a significant number of separate legal entities, most under the control of Barclays itself, but some, inevitably, owned, or controlled (and in these deals it is always difficult to define what that might mean, deliberately) by the counterparty to the transaction - in most cases banks such as Goldman Sachs, Deutsche Bank, Credit Suisse, Fortis and so on.

Those entities have been in a number of jurisdictions, the UK and the Cayman Islands being the most common, but Luxembourg also being a participant. Some have been limited companies, some limited liability partnerships.

Some of those entities, even when incorporated elsewhere are tax resident in the UK, and some are not.

Some account under International Financial Reporting Standards. Some account under UK accounting standards.

It would seem that Barclays are trying to realise profits that they have ‘manufactured’ in most cases through these immensely complex structures by arbitraging (trading off) international taxation law, company law in various jurisdictions and even accounting standards, to achieve taxation results that mean that profits are realised or sold without taxation liabilities arising for Barclays.

The result has been a deliberate attempt to defraud – by which term I mean seeking to secure a financial advantage by deception, although not (I stress) illegally.

The deception has been on three parties. The first has been tax authorities who despite their brave statements to the contrary did not, I suspect, know the full details of some of these arrangements. It would seem that some may not have been disclosed to them.

Secondly, Barclays have sought to defraud (using the above definition) the taxpayers of the UK and maybe elsewhere who have not received the funds rightfully due to them on profits declared.

Thirdly, I think they have defrauded (using the above definition) their shareholders by declaring profits which were not, in my opinion, sustainable and which were manufactured through preconceived and structured financing deals in which the counterparties played a remarkably small part in exchange for what was, in effect, a fee to allow Barclays to record realised profits by turning the manufactured profits into third-party transactions.


This seems to be the real reason why Barclays is so desperate to keep the documents out of ordinary people's hands. They realise that they are some of the first real hard evidence to emerge of just how specialist teams within the banks sought to avoid tax, and who were subsequently incredibly richly rewarded for their work, with Murphy claiming that the head of Barclays' SCM division may well have been earning an astonishing £40m a year (other sources claim it could be £75m, for which see this revoltingly sycophantic article), about the same amount as that which one of the schemes would have saved the bank. In order to offset such huge remuneration, the profits from the avoidance would have had to have been far higher, and the £1bn a year figure no longer looks as nonsensical as Barclays claim. It somewhat puts Fred Goodwin's pension, even the £3 million lump-sum we now know he received into perspective, hence why Murphy has put up a further four posts on what should be done. At the very least we need to stop apologising for and excusing tax avoidance and demand that companies, in the words of Alistair Darling, don't just adhere to the letter of the law but also the spirit of it. Great public anger over the bailing out of the banks has not yet reached boiling point, but the Barclays revelations may just push the mercury further towards the top.

Labels: , , , , , ,

Share |

3/17/2009 11:44:00 PM | | | links to this post

Tuesday, January 20, 2009 

Are we about to become utterly fucked?

It's understandable that a lot of people are getting terribly excited about someone who isn't a Bush ascending to the presidency of the United States of America, but left behind has been a major lack of any real substantive comment on the latest bail out of the banks, or rather, as it's beginning to already look, the further throwing of money at a lost cause.

Even if you opposed the original bail out, few were so dismissive of Brown and Darling to claim that they didn't know what they were doing; quite the opposite in fact. While they may have been authoratitive then, they were left looking anything but yesterday morning. They're not helped by the fact that no one, including them, has any idea of just how much effectively providing insurance to the banks for their losses in exchange for them to return to lending is going to cost, for the simple reason that no one it seems, Brown and Darling included, still has any idea of just how much the banks have lost through the collapse of the sub-prime market. This is part of the reason why the City has took such fright and been getting out of Royal Bank of Scotland as quickly as it can - when a bank that is over 70% owned by the state is still not potentially revealing the true nature of its losses, already estimated at £28bn, the idea that RBS is in fact bankrupt and has only been propped up the taxpayer quickly gains traction.

To give an indication of just how quickly we might be moving from another bail-out to full nationalisation of most, if not all of the banks, John McFall, chairman of the Treasury select committee and regarded as close to Gordon Brown, is already calling for both RBS and Lloyds to be fully nationalised, in what could well be a softening up exercise. The implications of such a move should not be understated - taking RBS alone into the public sector would put more than a year's GDP onto the already massive and continually growing national debt. With this fast becoming an increasingly ominous prospect, there's already talk that this could result, inevitably, in a sovereign debt crisis, where the buyers of the debt refuse to take any more, leaving us to go cap in hand to the IMF and also probably the EU.

For the moment this is not yet a full-blown crisis - undoubtedly Ireland and the United States itself are in far more dire straits than we are - but the underlying cause remains the same. For all the talk from the government that this is an American problem imported here on the back of the collapse in the US housing market, it was the hubris of Brown in imagining that he had abolished bust while instituting a light-touch regulatory system which in fact turned out to be a no-touch regulatory system which allowed our own banks to get involved in the toxic loans in the first place. Undoubtedly, the main share of the blame should fall on the bankers themselves, especially the likes of "Sir" Fred Goodwin, who slashed jobs while devouring the likes of ABN Amaro in a truly disastrous predatory move. They were however encouraged by a government which had fallen completely for the mantra of neo-liberalism in the City whilst expanding the public sector too quickly. As ever, New Labour wanted results and it wanted them fast, and to be fair in certain areas it has shown - the NHS, despite the cynics, has been markedly improved. Less apparent are the advances in education, where the obsession with reform has created a gaggle of schools which to this blogger look nightmarish in their controlling tendencies, whilst failing to boost the results sufficiently to mitigate such policies.

The boast since the original bail out that the government had saved the banks has been accurate. Without the injection of funds, RBS and HBOS may well have gone bust, with all the implications that the letting of Lehman Brothers fail caused, not just here but around the world. The fear now must be that all the original bail out has succeeded in doing is postponing just that, with the state shortly to be forced to fully intervene. The jibes at the Tories that they are a do nothing party will look even hollower if it turns out that doing something was almost as bad as doing nothing. If the bank shares continue to fall tomorrow, things really might be about to get a whole lot worse.

Labels: , , , , , , , , , ,

Share |

1/20/2009 11:59:00 PM | | | links to this post

Wednesday, October 08, 2008 

They say, we pay.


In what is now a multimedia age, it's two newspaper front page headlines that still sum up a day's events: the Telegraph going with back from the brink, while the Guardian has staring into the abyss. If you believe both the politicians and the wider commentariat, all of whom seem to be in basic agreement that today's/yesterday's bailout was both on the whole a good package, and one to which there was, in the age old phrase now so hollow, no alternative, then what would have been considered hyperbole weeks ago is now wholly justified.

That very lack of dissent is what ought to worry us the most. Today's givens, or in Rumsfeldian, known knowns, are tomorrow's deepest regrets. It is even more telling that around the only two people who are objecting to the bailout as set out are on what would be considered the further reaches of both left and right: John McDonnell, who advocates a controlling stake in the banks that will apply for the immediate £50bn of funds being made available, and John Redwood, who appeared to oppose the sort of plan which has emerged on Monday but who now appears to have rowed back somewhat.

Perhaps a better example is in two more well-known economic thinkers. Reading Ruth Lea's whole-hearted welcome was enough for the alarm bells to really start ringing: her past is impeccable having both been chief UK economist at - who else - Lehman Brothers, and also director of the unashamedly Thatcherite Centre for Policy Studies. In much the same vein, Will Hutton, who's had a new lease of life thanks to the "credit crunch", sings the praises so profusely that you'd not be surprised to find he was sporting a huge erection while writing it; apparently the markets were too "shell-shocked" to assimilate the greatness of the Brown and Darling bailout, hence why the FTSE continued to drop like those who threw themselves off buildings in New York in 1929.

It would of course be ludicrous to judge the plan by how the market reacted to it, especially on a day on which the IMF produced a grim as it gets report on how the economy is likely to contract slightly next year, with most even thinking that at the moment is too optimistic. The Dow later plummeted after Paulson made clear that he believed institutions in the US would still fail despite their own bailout being passed and now slowly being put into place.

There are however more than legitimate reasons to be incredibly apprehensive about this plan, not least because unlike in America, our own legislators seem unlikely to even be offered a vote on whether it should be put into action or not. Partly this is because the problem is so urgent that something has to be done now, or so we're told, and it's also true that in the current, almost war-time consensus which has fallen upon both the media and the politicial classes it would be passed with hardly a single vote against, but that is besides the point. This is something far too serious, especially when it involves such vast sums which the taxpayer will be providing collatarel upon, to be decreed simply by a prime minister and his chancellor in agreement with the other very people who brought us into this mess.

This £50bn, or is it £500bn, is itself a hall of mirrors, as we don't have such sums in the coffers to instantly pay out. No, this money itself is to be borrowed, pumped into the banks in the form of the government taking a stake via preference shares. Of the four banks which are in the most relative trouble - HBOS, RBOS, Lloyds TSB and Barclays - three could be bought outright with that £50bn, while you could take a significant stake in the one left out. After all, as we're splashing money around, why not take control, wind down the businesses and put the deposits in one big bank? This is not to say that the government should be in the job of running banks when it can't so much as run its own departments properly, but could they really be any worse at just running them down than the current proprietors that got them into the situation today?

For taking this stake which will, if the plan works, in effect prop failing institutions up, with the eventual promise that there might be a profit in it for the taxpayer if they wait long enough and don't die in the mean time, the deals that the government has supposedly received in return are not worth the paper they aren't even written on. Banks will apparently have to cut to the bone their executive bonuses this year, shareholder dividends will similarly fall under the knife, while small businesses must be offered better rates than currently on their own borrowing. There is perhaps a tendency in such times to call for heads on sticks, as someone has already put it, but whilst there must be stability, surely those responsible at the executive level at these banks must at some point be shown the door, starting as Nils Pratley suggests with Sir Fred Goodwin. Again though, perhaps the reason why there has been far more carping from the Conservative side, with David Cameron demanding, almost Trot-like that no banker receive a bonus this Christmas, is that if the chief executives and others at the banks have to go, then surely also does this country's chief executive for his own role in the crisis. If they are to be treated as Justin suggests, like the benefit scroungers so demonised for their weekly pittance, then Brown and Darling and the rest of them should all be exposed to such penury and shame also.

Fundamentally, the current consensus cannot last, and nor should it. Despite the apparent undoubted Conservative part in the deregulation and the "age of irresponsibility", as well as how if they were in power they would be doing much the same, the resentment that today's payola will breed will likely be easily built on by Cameron and friends, even if they have been so woeful thus far. As we stumble into the recession, the bills will just keep mounting up, with the increases in welfare spending for those newly unemployed already starting to hit the Treasury. Make no mistake, despite everything that has happened, the poorest in society, the sick, the elderly, all will be hit the hardest as those very same bills are aimed to be kept by down by a government that has just bailed out the very richest with our own inheritance. Already the ridiculous one-off cases like the Afghan single mother supposedly living in a "mansion" for which the taxpayer pays out £170,000 a year are being highlighted, with the one direct aim of hitting the welfare state as a whole. How bitterly and cynical typical that it is one of the richest men in the world, with some of the most comparatively better off individuals in the country in tow that are doing such sniping now, and this is only likely to be the start of it.

New Labour could have prevented this. It was always going to win the 97 election, and it could have done so without the support of Rupert Murdoch, of the City, of the CBI, and everyone else that has directly contributed to the current crash. It could have properly regulated the City, rather than ticking boxes and slapping backs; it could have restrained the buy now pay later culture; and it could have condemned the bonuses which are now being criticised far earlier. None of the above though deserve the blame except for Labour themselves. We must not let them forget it, and we must fight to ensure that those blameless in all of this are not the ones held responsible any more than they already are.

Labels: , , , , , , , ,

Share |

10/08/2008 11:59:00 PM | | | links to this post

About

  • This is septicisle
profile

Links

Last posts

Archives

Email me
Syndicate this site (XML)
Powered by Blogger
and Blogger Templates