Dolce and Gabbana to go on trial for tax evasion

Loopholes under friendly skies. Photo ET.

Domenico Dolce and Stefano Gabbana saved $540 million in taxes by creating a Luxembourg company in 2004.

Like all governments that are spending like drunken sailors, the Italian government needs every dime it can put its hands on. Therefore owning a Luxembourg, Swiss or other company looks suspicious to both men's tax man.

So it becomes that question, that is often answered with a joke: what is the difference between tax avoidance and tax evasion? Answer: five years in prison.

For all those jurisdictions that occasionally or permanently are branded a tax havens, it is an ongoing concern to stay on the good side of that equation, which is to be on the tax avoidance side. Most governments won't like it, but it can be enshrined in international law as for instance in double taxation agreements. The only remaining problem is that compliance with any international standard in that matter is a moving target that changes as governments and the need for more tax money changes.

Cargolux and Luxair in phase 4: carpet bombing

My Orchids. Phalaneopsis chain reaction. Photo ET

Cargolux and Luxair in phase 4: carpet bombing

Today Luxair denounced the CWA just as Cargolux did a couple of weeks ago. Both companies are closely related as they have similar share holders, Luxair even is a share holder of Cargolux, and both are the two significant players based at the Luxembourg airport where they are also operationally tied together.

The move is not totally unexpected, given the intertwined relationship and the earlier initiative of Cargolux. It is however surprising, as this move is not following the "Luxembourg model".

What is disturbing in that respect is that there was no real dialogue. None of Cargolux and Luxair really brought up any issue for discussion. Both managements were advancing generally that competitiveness concerns were their motivation, indicating that cuts had to take place. But both were unwilling and unable to define the issues and to engage in a negotiation, a give and take.

The main reason: consultants are working on reports, which are expected to be ready later this year. Really? But why then is any action required now, as no one knows yet what there is to talk about? My conclusion is that no talks are actually desired, not now, and not when those famous reports come out. The wishful thinking is probably  that the experts' findings and conclusions are not intended to be discussed. Just applied. A dictate. The government, a key stakeholder, fakes neutrality, a player at arm's length. It is difficult to believe that there is no government approved policy backing those denouncements.

Assuming such a consent, both airlines will now be run like Air Forces, indulging in carpet bombing. No discussion tolerated. Of course the term carpet bombing comes from carpet, which generally covers a larger area. The area now covers the denounced CWA's of Cargolux and Luxair employees, and puts pressure on more and more people, to emphasize the crisis and undermine resistance.

Cargolux: the missing link !

My Three Orchids Phalaneopsis: Cargolux, ING, and QR. 
Photo ET.


Since day one of QR's acquisition of 35% of Cargolux, I was scratching my head. The numbers made no sense, the official declarations looked suspicious, and hard information from my old friends let almost no doubt: We weren't told the Truth, and actually misled by the powers to be. But now, look here, we have the missing link, that vindicates one year of skepticism. Véronique Poujol, an investigative reporter with Lëtzebuerger Land unearthed the trick used to make some people go away quietly, and that was played and buried deep in the banking secrecy of an intermediary bank, ING. The article in French "Traitement asymétrique" appeared yesterday in the Land.

Remember that one of the basic questions was, why would Cargolux sell shares to QR, the lowest bidder, if a Chinese bidder was offering 50% more? Several fishy explanations were offered: there was no other bidder (false), there were exclusive negotiations with QR (how intelligent!), there were excellent synergies with QR and CV needed that strategic partner, if not capital.

The deal in place however brought no new capital. It merely was designed to replace shareholders by someone else. Most prominent was BIP, a private investor. Why in the world would such a private fund neglect its fiduciary duty to please the wishes of government, and give up 50% of its potential sale? They didn't.

Véronique Poujol digged up the answer. BIP and other private shareholders kept quiet, as they got their due. Says the article, freely translated: "The acquisition of Cargolux shares by Qatar Airways on June 9, 2011, was set up through a secret transaction, covered by ING, in order to hide a preferential treatment in favor of the private investors."

Basically, ING took over the shares consisting of common and preferred shares as an intermediary and transferred them to QR, all converted in common shares. ING distributed the $117,5 million among the former shareholders on an agreed upon, but uneven key, advantaging the private investors. BIP getting away with $42,354 million, whereas Luxair's share in the sale, according to the same key should have been $101 million, but was only rewarded $27,75 million.

This according to the article raises new questions about the reason why such a secret strategy was used, and why the government owned entities were those treated with neglect if not abuse, and without protest from their representatives? The tax payers entrusted them with a fiduciary duty to be good stewards of the common good. Which rules if not laws, including European restrictions on this operation might have been violated? 

The overarching question remains: why did the Luxembourg government push the least attractive proposal for the sale of 35% of Cargolux? Why did it conceal the inner workings of the deal through the use of a third party? Why did it disadvantage its own holdings (SNCI, BCEE, Luxair) and privilege the private shareholders?  There are actually no more simple answers, excuses, non disclosure agreements, evasion and hiding. It is getting complicated. But we have the missing link.

Cargolux: a Strategy of Evasion and Silence

My Orchids. Naples, Florida.  Photo ET.

Two meetings within a week, on October 18th and on October 23rd, yielded little comfort for Cargolux employees. I understand that the first meeting between two members of the government, MM Schneider and Wiseler and the Unions gave some general indication that the government would not be disinclined  to consider favorably, of course circumstances allowing, to maybe eventually give all support as it may become available to Cargolux.

Not much else could be said. One has to wait for the various consultants to make their expert studies available first. I hope though that even without those expensive consultants, management has some idea in what shape their companies around the airport are. Aren't they the greatest experts of their own companies? So there is an imminent crisis, and decisions can be delayed for another couple of months? That's called evasion and conspiracy of silence. 

There is news however, through Radio 100,7 as related by tageblatt today, and if true, needs some explaining. The story is about a strange timeline and a surprise deal with Qatar Airways acquiring 35% of CV, that Minister Frieden is said to have done unbeknownst to other players. 

It sounds quite surprising that Mr. Frieden, who would easily claim that the government has no say in the affairs of Cargolux, a "private company", would go to Doha and sell a 35% stake in the name of that "private company". Even stranger would be the fact that among those 35% of existing shares were those not belonging to a government entity but a private company BIP. I would not have sold 35% for $117,5 million without a capital injection, if I could have had $175 million and a $100 million loan for the company from Yangtze. Help me understand. 

Any way, here is the timeline, according to tageblatt:

• Cargolux and Qatar Airways were negotiating a partnership, but they failed to reach an agreement and broke up their negotiations (ca 2010?).
• One year later, in February 2011, Minister Frieden travels to Doha, and to the general surprise comes back with the now well known 35% CV-QR agreement. Oops, he didn't know about the broken up negotiations, because he is not a CV Board member. So, what was his mandate, to negotiate in the name of others, as usually we are informed that the government cannot interfere with CV, because it is a "private company"? Why wouldn't the 35% sellers have agreed to rather sell their shares to Yangtze for almost $60 million or 50% more? 
• One year later, 2012, CV is worse off than a year ago.

That's a surprising action to sell a so-called "private company", where you cannot interfere, without the company knowing it, at a price that was not the best price available.

Update Oct.24. 
The heralded "Round Table" did not bring any result. Decisions can only be taken as soon as reports such as the Wyman report are available. As those conclusions, probably known to insiders from the beginning, a were not available, it was Berthold Brecht in the reverse: Imagine there is no war, and everybody attends. But there is another conclusion from all the above: don't talk to the ministers who don't know anything. Talk to Mr. Frieden only.

Cargolux: The Straw that broke the Camel's Back?

Wort.lu - Schneider wants to keep Cargolux maintenance in Findel

My Orchids. Naples Florida. Photo ET

 

 

So the Minister of Economy came out of the Luxembourg secret reservation. That is a definite statement for the record, that he made here. What took so long, and where are all the others? There are other members of the government who have to chime in. Minister Frieden is a key link here, as he is probably the keeper of the file. He was in Latin America, where he might or could have talked up Cargolux, which has so many destinations there. But probably not. The trip had an urgent LFF focus, where F doesn't stand for Flying.

Luxembourg and the United Nations Security Council

My Orchids. Naples Florida. Photo ET


Luxembourg's candidacy for a non-permanent Seat at the United Nations Security Council.

Today's election, from UN News:

18 October 2012 – The United Nations General Assembly is meeting today to elect five non-permanent members to the Security Council for two-year terms beginning on 1 January 2013.

At UN Headquarters in New York, the 193-member Assembly will conduct the election by secret ballot, with winning candidates needing two thirds of those countries present and voting. Balloting will continue until enough candidates reach that threshold, even if only one country is competing for a seat in a particular region.

Bhutan, Cambodia and the Republic of Korea are vying for the one seat for the Asian group, while Australia, Finland and Luxembourg are competing for two seats available for the Western European and Others category.

Rwanda is the sole candidate for one seat for the African group and Argentina for one seat for the Latin America and the Caribbean region.

The new members will replace Colombia, Germany, India, Portugal and South Africa, whose terms end on 31 December 2012.

The five permanent Council members, which each wield the power of veto, are China, France, Russia, the United Kingdom and the United States. Non-permanent members Azerbaijan, Guatemala, Morocco, Pakistan and Togo will remain on the Council until the end of 2013.

So Luxembourg is competing in its group "Western European and Others category" against Finland and Australia.

And the results are (asap = as soon as published):
Update1: Australia: 140
Finland: 108
Luxembourg:128 There will be another ballot between Finland and Luxembourg
Update 2:
And the final count is:
Finland: 62
Luxembourg: 131

Cargolux article at Cargoforwarder

My Orchids. Naples, Florida. Photo ET.

Mr. Heiner Siegmund, publisher of www.cargoforwarder.eu asked me some questions. Based on what we knoe, hear and see, how to read Cargolux' future?

Go to interview: http://www.cargoforwarder.eu/article.php?id=109