Latest Developments, December 14

In the latest news and analysis…

Deadly weapons
Harvard University’s Dani Rodrik compares the International Monetary Fund’s view on capital flows to US lawmakers’ policy on guns:

“Guns, like capital flows, have their legitimate uses, but they can also produce catastrophic consequences when used accidentally or placed in the wrong hands. The IMF’s reluctant endorsement of capital controls resembles the attitude of gun-control opponents: policymakers should target the harmful behavior rather than bluntly restrict individual freedoms. As America’s gun lobby puts it, ‘Guns don’t kill people; people kill people.’ The implication is that we should punish offenders rather than restrict gun circulation. Similarly, policymakers should ensure that financial-market participants fully internalize the risks that they assume, rather than tax or restrict certain types of transactions.

Most societies control guns directly because we cannot monitor and discipline behavior perfectly, and the social costs of failure are high. Similarly, caution dictates direct regulation of cross-border flows.”

Profit sharing
In a Reuters interview, Ghana’s President John Dramani Mahama pledges to push foreign oil and mining companies to give his country a bigger share of profits from the extraction of its natural resources:

“ ‘With regards to the oil, our main problem is with income taxes,’ [Mahama] said, pointing out that Tullow’s contract allowed it to avoid income tax payments until it has recovered the costs of bringing a field into production.
‘We could use that revenue, so if we had a way of getting some payments on income taxes, on account even, that is something we would want to look at,’ he said.

Ghana is in the midst of discussions with gold-mining companies to improve terms. Mahama said the state was seeking to loosen up so-called ‘stability agreements’ held by some firms that lock in royalty and tax rates.
Ghana this year raised royalties on gold to five percent from three percent, a change that did not apply to miners like AngloGold Ashanti and Newmont protected by stability agreements.”

Cui bono
The Center for Global Development’s Julie Walz and Vijaya Ramachandran write that, nearly three years on from Haiti’s devastating earthquake, the vast majority of the assistance money disbursed has not gone to Haitians:

“Here is what we found from the data collected by the Office of the Special Envoy for Haiti:

  • $9.04 billion has been disbursed by both public and private donors.
  • Bilateral and multilateral donors have disbursed $6.04 billion, which is 47.8% of the $12.62 pledged in humanitarian and recovery funding.
  • Of the $6.04 billion from bilaterals and multilaterals, only 9.5% ($579 million) was channeled to the Government of Haiti (GOH) using country systems. 0.6% ($36.2 million) was channeled to Haitian NGOs and businesses.”

Killer handbags
The Guardian reports on the health impacts of luxury leather goods on those who make them in Bangladesh:

“According to the World Health Organisation, 90% of Hazaribagh’s tanning factory workers will die before they’re 50. Half – some 8,000 – have respiratory disease already. Many of the workers are children.
Thousands more Bangladeshi lives are blighted by the millions of litres of waste that pour, untreated, from the tannery district gutters, through a crowded housing area, and into Dhaka’s main river.

Yet the industry in the heart of Bangladesh’s capital is booming, because high-quality ‘Bengali black’ leather, much in demand by European leather goods makers, is cheap. A new Human Rights Watch (HRW) report claims that’s chiefly because of the factories’ refusal to clean up or pay decent wages, and the Bangladeshi government’s failure to step in despite repeated promises. The industry, worth half a billion pounds in exports last year, is crucial to this desperately poor country.”

Mutual responsibility
Global Financial Integrity’s Sarah Freitas writes that Zambia lost $8.8 billion in illicit financial flows (defined as “the proceeds of crime, corruption, and tax evasion”) in the last decade, a problem that no single country can tackle alone:

“These illicit outflows come on top of tremendous outflows from legal corporate tax avoidance. $2 billion is lost yearly to tax avoidance by multinational corporations operating in Zambia, according to Zambian Deputy Finance Minister Miles Sampa. Most of this tax avoidance is due to abusive transfer pricing–which is a type of quasi-legal trade misinvoicing–in the mining sector.

Zambia has the natural resource wealth to dig (literally and figuratively) its way out of poverty, but only if the West acts at the same time. Zambia can’t do this alone. The extra money could be siphoned off to the offshore bank accounts of corrupt public officials, or companies could find new ways to legally pretend that their profits were made elsewhere. The global shadow financial system–a network of secrecy laws, tax havens, shell corporations, and banks like HSBC without real money laundering controls–facilitates both illicit financial flows and pernicious corporate tax avoidance. We need to break this system down. We can start by reforming international customs and trade protocols to detect and curtail trade misinvoicing and requiring the country-by-country reporting of sales, profits and taxes paid by multinational companies.”

Above the law
Rolling Stone’s Matt Taibbi rejects the thinking that US criminal charges against HSBC executives for laundering Mexican cartel money could have jeopardized global financial stability:

“There is no reason why the [US] Justice Department couldn’t have snatched up everybody at HSBC involved with the trafficking, prosecuted them criminally, and worked with banking regulators to make sure that the bank survived the transition to new management. As it is, HSBC has had to replace virtually all of its senior management. The guilty parties were apparently not so important to the stability of the world economy that they all had to be left at their desks.
So there is absolutely no reason they couldn’t all face criminal penalties. That they are not being prosecuted is cowardice and pure corruption, nothing else.”

Bunker mentality
Inter Press Service reports that Western countries continue to block an international conference on migration called for a UN General Assembly resolution back in 1993:

“Joseph Chamie, a former senior U.N. official and currently research director at the New York-based Centre for Migration Studies, told IPS that wealthier and more influential labour-importing industrialised countries and their allies have consistently resisted convening a global conference on international migration.
‘A conference would likely limit their sovereignty over matters relating to international migration,’ he said.
As a result, he said, the United Nations is unlikely to convene a global, intergovernmental conference on international migration in the foreseeable future.
Instead, said Chamie, the United Nations ‘will continue to resort to high-level dialogues that are voluntary, non-binding global forums to address international migration.’ ”

Latest Developments, February 1


In the latest news and analysis…

Legal letter
The Twittersphere has uncovered, seemingly thanks to the Globe and Mail’s Geoffrey York, a 2011 letter addressed by American law firm McKenna, Long & Aldridge to Senegalese President “His Excellency Maitre Abdoulaye Wade” who is currently facing mass protests over his decision to seek a third term in contravention of the country’s constitution.
“It is indeed an honor to consult with you and to provide representation for The Office of the President with respect to your efforts to seek a third term as President of The Republic of Senegal. I will lead a team of lawyers and professionals at McKenna Long & Aldridge (hereinafter “MLA”) who have been assembled to research and analyze your authority to seek a third term under the Senegalese Constitution and other relevant laws, create a white paper that discusses our conclusions, and develop and implement an agreed upon protocol for sharing these findings with appropriate officials and interested parties in the United States and in The Republic of Senegal.”

Drone suit
The Washington Post reports the American Civil Liberties Union has filed a suit against the US government in order to obtain documents pertaining to its use of drones, though only insofar as they involve the targeted killings of US citizens.
“The lawsuit, filed in the U.S. District Court for the Southern District of New York, charged the Justice and Defense departments and the CIA with illegally failing to respond to requests made in October under the Freedom of Information Act (FOIA). It cited public comments made by President Obama, Defense Secretary Leon E. Panetta and other officials in arguing that the government cannot credibly claim a secrecy defense.

‘The request relates to a topic of vital importance: the power of the U.S. government to kill U.S. citizens without presentation of evidence and without disclosing legal standards that guide decision makers,’ the complaint said.

Mining suit
The Montreal Gazette reports a group of NGOs has asked the Supreme Court of Canada to decide whether a Canadian mining company can be held liable for its alleged involvement in a massacre in the Democratic Republic of Congo eight years ago.
“The group says Anvil Mining Ltd. provided logistical assistance, such as planes, trucks and drivers, to the Congolese military during a rebel uprising in Kilwa, a town near the Dikulushi copper and silver mine the company owned in the Central African country until 2010.
That year, the five-member Canadian Coalition Against Impunity asked the Quebec Superior Court to approve a class-action suit on behalf of relatives of an estimated 100 victims.
Anvil Mining contested the court’s jurisdiction and lost – but that ruling was overturned last week by the Quebec Court of Appeal.”

Coronary capitalism
Harvard University’s Kenneth Rogoff uses the example of the food industry to suggest the “pathological regulatory-political-economic dynamic” of the financial sector is present throughout Western capitalism.
“Highly processed corn-based food products, with lots of chemical additives, are well known to be a major driver of weight gain, but, from a conventional growth-accounting perspective, they are great stuff. Big agriculture gets paid for growing the corn (often subsidized by the government), and the food processors get paid for adding tons of chemicals to create a habit-forming – and thus irresistible – product. Along the way, scientists get paid for finding just the right mix of salt, sugar, and chemicals to make the latest instant food maximally addictive; advertisers get paid for peddling it; and, in the end, the health-care industry makes a fortune treating the disease that inevitably results.”

Colonial plant policy
Jeune Afrique reviews a new book by Serge Volper that explores how colonial powers not only took resources from Africa but also imposed the forced production of cash crops with implications that are being felt to this day.
“But the most effective way to meet certain requirements rested on another form of constraint. ‘The colonial system imposed monedy,’ Volper explains. ‘The prevailing barter system – commodities for manufactured products – evolved when the colonizer introduced taxation. The people then had to work to obtain the money necessary to pay taxes…’ Obviously, the crops that would best feed the population were not on the list of priorities. Based on climate, workforce and land, the different regions under French control were pushed to develop specific crops. Cocao in Côte d’Ivoire, peanuts in Senegal, bananas in Guinea, vanilla in Madagascar. Only cotton production did not meet with success, which did not come until after independence.” (Translated from the French.)

Math problem
ECONorthwest’s Ann Hollingshead explains why a recent Global Financial Integrity report estimating illicit financial outflows from Mexico at $18.7 billion per year – of which $15.3 billion is attributable to transfer mispricing – used a non-traditional method for reaching that figure.
“[Author Dev] Kar does not net out ‘reversals’ or illicit inflows from his estimates. This diverges from more traditional models, where economists do subract illicit inflows from illicit outflows, resulting in a lower ‘net’ estimate of capital flight. But this gives a skewed picture. Illicit inflows [Editor’s note: I changed “outflows” to “inflows” here to correct what I believe is a typo], because they are illegal by definition, are not supplementing the domestic economy in the same way an illicit outflow is detracting from it.

Why should laundered money offset the damage of tax evasion?”

Raising the CSR bar
In light of the ongoing controversy over Dow Chemical’s association with the 2012 London Olympics, the Institute for Human Rights and Business’s Salil Tripathi argues future organizers should extend the ideal of excellence to corporate responsibility by subjecting prospective sponsors to a rigorous screening process.
“It is clear that a quick check of company reputation isn’t adequate. Reputation surveys are notoriously subjective. Nor can the existence of corporate sustainability policies be sufficient: there are many companies that have policies in place which commit them to respect human rights, to act in a responsible manner, to operate in a sustainable way, and to obey the law. And yet, many companies still end up committing or being associated with abuses. The new UN Guiding Principles on business and human rights – which provide the authoritative due diligence steps all companies need to take, including to track and monitor performance – are a promising yardstick to deploy. Companies that can effectively demonstrate they are acting in line with this international framework should in theory pass such a screening.”