Tuesday, September 24, 2013

Stop Tax Haven Abuse Act, 2013

    My Orchids. Phalaneopsis. Out of the Shadows. Photo ET

Stop Tax Haven Abuse Act, 2013


Over the years, I have always marveled at the nonchalance encountered in Luxembourg while bringing up five potential threats to the Luxembourg financial center. (or other tax havens for that matter). These are US initiated threats, that eventually will be adopted by other countries, such as at the recent G20.

Those threats were and still are in historic order:
  1. Anti Money laundering, terrorist financing.
  2. The Foreign Corrupt Practices Act
  3. FATCA
  4. The Stop Tax Haven Abuse Act
  5. An emerging concept of combating regulatory and judicial havens.

While 1-3 are enacted, 4 has seen a new version of an old one being deposited by Senator Carl Levin, whose reputation of getting the financial systems in order doesn't need any advertising anymore. The Senator has also an impressive group of exceptional investigators at hand. I have met some. They are at the origin of detecting loop holes and recommending action.


"The United States hemorrhages hundreds of billions of dollars in tax revenue each year to a relatively small group of multinational companies. These large, profitable companies are headquartered here, they do business here, and they benefit from the safety and stability of living and working in the United States. Yet they use an array of complex arrangements involving offshore tax loopholes to avoid paying their taxes. The Senate Permanent Subcommittee on Investigations, which I chair, has spent more than a decade examining these loopholes and the damage they do.
That’s why on Sept. 19 I introduced the Stop Tax Haven Abuse Act, a comprehensive effort to end these loopholes and gimmicks and bring more fairness to the tax code. This bill, cosponsored by Sens. Sheldon Whitehouse of Rhode Island, Mark Begich of Alaska and Jeanne Shaheen of New Hampshire, would tackle an array of offshore corporate tax abuses.

The provisions of our bill would, according to official estimates, reduce the deficit by about $220 billion. If we used that revenue as one part of a balanced deficit reduction plan, we could avoid six years or more of sequestration. And the public supports that plan: Last year, a poll showed that 75 percent of Americans support closing offshore tax loopholes to reduce the deficit."


"According to a Wall Street Journal article, over 20 percent of the corporations that made initial public offerings or IPOs in the United States in 2010, were incorporated in Bermuda or the Cayman Islands, but also described themselves to investors as based in another country, such as the United States.  The article also described how Samsonite, a Denver-based company, reincorporated in Luxembourg before going public.  Too many of these tax-haven incorporations appear to have no purpose other than having the advantage of operating in the United States while avoiding U.S. taxation and undercutting U.S. competitors who pay their taxes."



Cargolux: Nostalgic of olden times? QR takes women under its wings!

    My Orchids. Oncidium. Bouquet de Mariée. Photo ET.


Cargolux: Nostalgic of olden times? QR takes women under its wings!


Everyone has choices. Governments have strategic choices. Minister Frieden liked the Middle East and of course Qatar Airways. As a strategic choice, I guess. Some say that birds of a feather flock together. Not sure if that applies to Mr. Frieden or Cargolux to the point related here in an article by Arabian Business:


Quote: "Qatar Airways female employees are required to gain permission from the airline to get married or change their marital status as part of their contract of employment, it was reported on Tuesday.


Contracts also state female employees must also inform the company if they become pregnant, which may result in the termination of their employment."
.
No word if Cargolux would have had to follow the example.



Saturday, August 31, 2013

War on Syria: "Drôle de Guerre" and the Principles of War 101

   Dark Clouds. Or Smoke Signals? Photo ET

War on Syria: "Drôle de Guerre" and the 
Principles of War 101

Updated September 10, 2013

President Theodore Roosevelt summarizing US foreign policy's Monroe Doctrine, is supposed to have said: "Speak softly and carry a big stick". It morphed yesterday into: "Speak loudly and and kerry carry an unbelievably small toothpick."


"Drôle de Guerre" or "Phoney War" is the name given to that strange historic event started by the French-British declaration of war against Germany on September 3, 1939. Germany had crossed a red line by attacking Poland on September 1st. After the declaration of war, nothing happened though until May 10, 1940. The Germans, proponents of the concept of "Blitzkrieg" mocked the allies as having declared a "Sitzkrieg" (Seated war).

As a former soldier, I'm of course aware that warfare is an art and very serious business. People die. The quite amateurish posturing of our western leaders made me think back to my years at the Royal Military Academy in Brussels, Belgium, when Professor Henri Bernard dissected military thinking into 3 principles of the art of war. They should be known at least minimally to the civilian leadership, as even private companies have recognized their validity in their daily competitive world. And many versions of those principles have been around, from General Sun Tsu to General von Clausewitz. Those principles are dos and don'ts of the art of war, and breaching only one is most often a fatal mistake. All great military failures stem from the violation of at least one principle.

It seems to me that in the case of the well announced, yet not decided strike on Syria, which was expected to take place before Wednesday, September 4th according to the French President, with a list of targets and a civilian choreography of missile strikes in the sand or across the bow lasting for about 48 hours, all 3 principles and many rules have already been violated.

The leaked narrative of operations to come gives the "enemy" ample assurances that he can win this, by simply sitting it out, taking shelter for 48 hours. Clemenceau, the French President who oversaw the final years of WW 1, is supposed to have said that war is too serious a matter to entrust to military men. Mais mon cher Georges, look at what's going on now. Isn't this a case for military men to reciprocate your wit? War seems indeed too serious a business to entrust it to elected officials.

Henri Bernard had distilled military thinking from Sun Tsu to von Clausewitz into those 3 principles, each with a set of rules. Here they are, a bit popularized, the way even the roughest street fighters understand and certainly use them:

The first principle is: Proportionality between mission and assets, which means don’t even go there if you know, you really have no goal and if you can’t afford it. Or: are you sure you can beat them up?

The second principle is: Freedom of Action, which means never, never lose the initiative, and dissimulate your intentions. Or better, you wait for the right moment at the right place. Then let all hell get lose.

The third principle is: Economy of Forces, which means use them efficiently. Or better strike suddenly, fast and with all your might.

OK, I made it a bit folksy so my crash course students will remember the stuff. If they do, we might actually have a war where no one shows up. But if we still go, I'm afraid the three above principles are and remain violated:

The first principle is being violated, because intelligence is missing, we don't know yet who did it, and on this entangled battlefield we don't always know who is who. Is Al Qaida now an ally, because it is the enemy of our enemy? Is Assad really our enemy, or has that shifted to Assad being an objective ally, because now that our enemy Al Qaida is an ally of our ally, their enemy Assad becomes our ally? I hope I now have confused you, which is exactly my point. Please try again. And what about the mission? I guess it would be the following manifold mission, if we mean serious business: get rid of the Assad regime, defeat Al Qaida, have the rebels win, but only the good rebels, not the ones that will do an Egypt. That would be a mission today with boots on the ground. You know, missiles, drones and planes don't make prisoners. However wouldn't that have been easier 2 years ago, choosing the good rebels before the bad ones even showed up?

The second principle is violated "all you can violate": the details of the intended military intervention are telephoned. No dissimulation, unless all the leaked information hopefully has been leaked intentionally and is very clever disinformation. Or it is begging for no Syrian or Iranian retaliation to an "unbelievably small" action. Assad will watch the fireworks from his balcony, the New York Times' program of events at hand, knowing that it won't last long.

The third principle is violated, because there is no surprise left. We know or will know who will deliver the shot across the bow, when, where, how, and how long. And there is very little backup in theater to mission-creep, or a claim that all options are on the table. Which Syria seems to claim on their side.

So, now it looks as if we have planned for disaster. It won't really be a military disaster, because Syria is no match for Western forces, and the military will dutifully pull the trigger and go home. But it could well become a geopolitical disaster, if Assad's backers see weak action. How can we save face?

First, leave all options on the table. Which means there is no such thing as a limited operation, because a limited operation takes options OFF the table. And Assad's protectors will think twice. Then make one of 4 decisions:

1. Do nothing. The assessment being, that Syrian events are none of the West's interests.
2. Wait for a UN mandate as the sole legal base for action. However even Luxembourg as a member of the Security Council will vote against intervention. Not mentioning the Russian and Chinese veto powers with their own agendas.
3. Claim preponderance of a doctrine, a more or less unilateral rule originated from a position of power. The "Red Line Doctrine", well announced ahead, would be grounds for punitive action if the line is crossed, which seems to be the case, even more so if crossing the line is a crime against humanity.
4. Act upon international outrage of intolerable human rights violations and genocide. A sort of UN mandate without the UN.

So there are two options to do nothing, and two possible unilateral ones. But the international outcry against Assad is not at a level to support military intervention. Therefore there is no good option, only bad ones or worse ones.

Unless you talk to a hawk, which doesn't seem to be the mood of the day. In a hawkish view, you could speculate that there is a strategy that would also achieve other goals, and would go this way: There is military intervention in Syria on humanitarian grounds, Syria's Iranian backers imprudently intervene and retaliate, which gives justification to launch an assault and take out Iran's nuclear sites. For many analysts this would be an overdue reaction to Iran's non-compliance with international demands to stop nuclear programs. The UN in particular, as a forum for international outrage is a lame construction, unable to accede to the level of enforcing its own demands. This would take care of that. Chances are however increasing by the day that there is a war, and no one shows up. And Syria is actively engaged in the propaganda war, the likely ersatz event for the real thing.


As this short overview is a crash course in Principles of War 101, there is a bonus for you having read this far: a summary of Henri Bernard's Principles and Rules of War. Easy to print, cut out and wear in your wallet, if ever you go to War.

THE PRINCIPLES OF WAR

PRINCIPLES
RULES

1. PROPORTIONALITY
INTELLIGENCE GATHERING

2. FREEDOM OF ACTION
COMBINE FORCES
SECURE LINE OF COMMUNICATIONS
SAFETY
DISSIMULATE INTENTIONS

3. ECONOMY OF FORCES
ASSEMBLE MAXIMUM OF ASSETS
USE WITH MAXIMUM INTENSITY
IN COOPERATION
UNDER ONE COMMAND
CHOICE OF TIMING
CHOICE OF PLACE
SURPRISE
SPEED
CONTINUITY

UPDATE: 08.31.2013 14:50 EST

President Obama has spoken.
Peace has effectively broken out, and you have celebrations in Damascus, Tehran, Moscow and elsewhere. It is a stunning reversal from Secretary of State Kerry's call for action just a day ago. The backdoor escape from action is that though the President has decided to take military action, and though he has the authority to decide this (Presidents Reagan, Bush, Clinton, and Bush did so), he wants Congressional approval. Most observers would say, that's impossible to get.
So the Syrians and their friends celebrate.
Rebels lose morale and hope.
Israel knows it is on its own.
Congress is likely to say "No" on September 9th, which almost everyone assumes.
The US military might be relieved and hope to go back to the principles of war.
The rogue states are emboldened.
The US Presidency is weakened.
US public opinion prevailed, as polls found more than 80% opposed.
Luxembourg also prevailed with its advertised "No" at the UN.
And, Oh mon Dieu, Monsieur Hollande has to go it alone. Beware of the Beresina!

UPDATE: 09.10.2013 09:00 EST

By now the enemy is so confused, that indeed when the war breaks out, no one goes. It is replaced by a vote that will not take place and international control of inaccessible chemical weapons arsenal.

Tuesday, August 27, 2013

Cargolux: Shootout at the OK Corral.

    My Orchids. Will there be Blood? Photo ET

Corruption, Sanctions, and Deal-

Making: Luxembourg Style


Nuqudy has been on this story quite some time. All you always wanted to know about wheeling and dealing behind the scenes, but were too afraid to ask about. Or to talk about. Nuqudy is well informed, I can tell you. Nothing to add for now, except be aware of a US backlash!

Corruption, Sanctions, and Deal-Making: Luxembourg Style is the link to Nuqudy's article, where I want to quote just two paragraphs about a Luxembourg culture of permissiveness:

"From at least 2006 through 2008, Cargolux, the national cargo airline of Luxembourg majority-owned by direct and indirect holdings of the state, ran a coordinated smuggling operation transporting cigarettes to Iran. These cigarettes were unloaded directly into Iranian Revolutionary Guard trucks and then smuggled back to Europe by land where they were sold. The illicit profits are believed to have been laundered into the Western banking system through front companies used by Iran to acquire dual-use parts for their nuclear program. While we found no evidence showing that the Luxembourg facilitators of this operation were aware of the proliferation dimension of their crimes, we were informed that on December 21st, 2007 Western intelligence agencies intercepted dual-use parts that were scheduled to be flown from Frankfurt to Tehran on one of these same Cargolux flights."

And further:

"Current Luxembourg policy does not forbid government ministers and civil servants from sitting on boards of for-profit companies and they are even allowed to personally keep the payments for this activity, which they affectionately refer to as "jetons" or tokens. Apparently, the quest for "jetons" was the beginning of a slide into corruption that led Jeannot Krecké and his deputy Jean-Claude Knebeler to become cigarette smugglers and nuclear proliferators for the Iranian Revolutionary Guards."

Of course there are some original perspectives on the facts. Some urgent conclusions have to be drawn, in order to avert further damage. And certainly we'll see which parties propose as an electoral program for the upcoming October elections, to get rid of the culture exposed here, and by which actions and means it should be done. 

For those reading Luxembourgish, please see here what should be donehttp://peckvillchen.blogspot.com/2013/08/main-walprogramm-2013.html Doesn't that sound very much like a consulting paper for the spread of democracy in Zimbabwe?





Sunday, August 11, 2013

Fitch Affirms Luxembourg at 'AAA'; Outlook Stable

    My Orchids. Phalaneopsis "Triple A". Photo ET


Fitch Ratings has affirmed Luxembourg's AAA rating, and pointed out Luxembourg's relatively good performance in GDP growth.
Several statements indicate the key spots that will be considered in future assessments:
·         Luxembourg's greater volatility due to the reliance on financial services and its risks
·         The total balance sheet of the financial sector  is 70X GDP, though this is not indicative of potential risks.
·         Luxembourg's debt and Eurozone liabilities are increasing

·         Future social security liabilities and costs, though known but ignored and invisible now, will become a shock in about 2030, if unattended. 



Tuesday, July 23, 2013

Talks with four potential candidates over Cargolux stake - Lloyd's Loading List


    My Orchids. Oncidium. Photo ET

Talks with four potential candidates over Cargolux stake - Lloyd's Loading List

This very good article reports and summarizes the present thinking at Cargolux: trying to replace the Luxembourg government, holding 35% of CV, as a shareholder by another investor.

Talks with four potential candidates over Cargolux stake - Lloyd's Loading List

Comments:


1. Apart from what seems the government's wish to find a buyer for its 35% share, there is no urgency to find such a buyer. I would dismiss the argument that assumes that the European Commission would want this to happen asap.

2. Allowing for external pressure from the European Commission is bad for decision making. We hopefully still remember Mr. Frieden's fire sale to QR, the lowest bidder.

3. It will be difficult to trust an airline partner after QR almost cannibalized CV.

5. Selling the Luxembourg governments shares doesn't add a cent to CV's capital base. Only acquiring NEW shares would achieve this. Although that is obvious by itself, those who didn't know this should have learnt from the QR debacle.


6. So the Unions shouldn't know what is going on in those negotiations? CV however is not the standard private company, where this would be defensible. It is owned by the government, and CV is a pillar of its newly proclaimed national logistics strategy. The government should actually be interested to share the state of those negotiations with the unions. For the simple reason that the QR debacle had been "negotiated" by management and government representatives who now again don't want to share information. But wouldn't it be prudent for our negotiators to let those who saved them and the company before, know firsthand where things are going? That could spare another painful U-turn later. They can be asked to keep the secret, though my aunt Léontine will tell me all about what's going on anyway in the days to come.