Friday, June 15, 2012

Water, land, and food under debate

Food sovereignty is fundamental to Sumak Kausay, or good living, an indigenous way of life grounded in the construction of social systems that are based on the reciprocity between humans and nature.

That’s how it’s understood by the principal indigenous and campesino organizations in Ecuador, like the National Confederation of Campesino, Indigenous and Black Organizations, or FENOCIN, which is closely aligned to the national government, and the Confederation of Indigenous Nationalities of Ecuador, or CONAIE. The two, along with smaller organizations, are looking to join forces to get laws approved that guarantee food that is safe, healthy and permanent.

An early victory for the grassroots organizations was getting into the country’s 2008 Constitution articles on the right to food as well as to food sovereignty.

For example, Article 13 of the Ecuadoran Constitution states: “Individuals and communities have the right to safe and permanent access to healthy, sufficient and nutritious food, preferably produced locally and in accordance with their different identities and cultural traditions.” Specifically regarding food sovereignty, Article 281 reads: “Food sovereignty is a strategic objective and an obligation of the State to guarantee that individuals, communities, towns and nationalities achieve permanent self-sufficiency with foods that are healthy and culturally appropriate.”

For those articles to work, the Constitution places the responsibility on the State in designing fiscal, technological, and production policies, as well as those for biosecurity and the provision and use of seeds, among others.

After the new Constitution went into effect, the indigenous and campesino organizations took up a campaign together to seek approval of different laws that ensure food sovereignty. To that end, in early February 2010, about 75 grassroots indigenous and campesino organizations declared that year the Year of National Mobilization for Food Sovereignty.

Of primary concern to the organizations was the lack of consensus in the National Assembly to approve a Food Sovereignty Law, which elaborates on issues like agrarian development, seeds, local farming, and bans on transgenics, and which need to be buttressed by a Water Law, which would regulate access to water on equal terms, prioritizing human consumption and agriculture. These bills were drawn up in the National Assembly in 2009 without consulting the social sectors involved. This sparked an indigenous mobilization in September 2009 and lead to the death of Shuar professor Bosco Wisuma.

One disagreement over the Water Law is about managing the flow of water; the government wants to establish a state agency, disregarding the historic “juntas de agua,” or water boards, in which communities participate. Another point of contention is with the Land Act, which seeks land redistribution and the elimination of the large estates.

The call for the organizations’ campaign denounced the tendency of neoliberal governments to favor agribusiness, monoculture, the prioritization of agricultural production for export (of exotic products such as flowers, strawberries, uvillas, broccoli, etc.), for which entrepreneurs look to take over productive land and water sources. The organizations countered this with an appeal to promote sustainable agroecology, the recovery of traditional practices, and fair trade.

One of the campaign’s strong points was the call to reestablish family and communitarian farming practices, forms that allowed indigenous peoples to survive despite the pressure of the Western world.

“You just have to look at how the last indigenous march was held to know that indigenous communities can feed their people autonomously,” says Gloria Chicaiza, an activist with Acción Ecológica, the country’s leading environmental organization, referring to the mobilization last March in defense of water.

Chicaiza highlighted how in all indigenous protests, each community is responsible for feeding and supporting their own delegations, fully decentralizing the logistical responsibility for the general mobilization.

“A similar practice could ensure food not only for the communities but for the surrounding towns,” Chicaiza said.

Despite the importance of the call to action and the involvement of pro-government organizations —like FENOCIN, the National Federation of Agribusiness Workers and Free Campesinos in Ecuador, or FENACLE, and the National Campesino Coordinating Body Eloy Alfaro, or CNC-EA — neither government officials nor President Rafael Correa accepted the proposals. The bills are held up in the National Assembly.

“Ensuring a system of food sovereignty requires the adoption of laws relating to the administration and regulation of water flows, and the redistribution of land; that is the only way to transform the agriculture and food systems in our country,” said CONAIE President Humberto Cholango.

He added that one of the basic requests of the recent indigenous march was the adoption of the Land Act, but despite talks with the government, no progress has been made because neither it nor the Water Act are priorities for the National Assembly.

“Without solving the problem of land tenure, without eradicating the large estates and redistributing idle land, we cannot guarantee food, let alone food sovereignty,” Cholango told Latinamerica Press, referring to the law’s basic points.

“In talking about land, we also should talk about its spiritual character, the community structures there, and not merely consider it as something to be exploited,” said Cholango, pointing out the difference with how land is seen by the indigenous groups allied with the government.

While the government talks of production and productivity, for which it is seeking to implement agrobusiness and turn communities into units of production, CONAIE claims the land is more than that.

In short, if it is true that the indigenous and campesino organizations have decided to act together on the issue of food sovereignty, there are still differences that divide them. In the meantime, the National Assembly and Correa’s administration are not making inroads to legislate and put into practice the constitutional principles adopted four years ago.

Italy seeks extradition of Australian "Mafia" trio

Three Mafia figures living freely in Australia and labelled ''extremely dangerous'' by Italian authorities have been sentenced in absentia to long jail terms for international drug trafficking.

Fairfax can reveal that Australian men Nicola Ciconte, Vincenzo Medici and Michael Calleja have been convicted and sentenced in absentia in Italy for their role in a plot to smuggle up to 500 kilograms of cocaine into Australia.

Australian and Italian police have received intelligence that the cocaine - which has never been recovered - was meant to be smuggled off the port of Melbourne by corrupt workers and taken via truck to a container yard in Sydney, where some of it was to be hidden in a second truck and driven to Adelaide.

Ciconte, 56, formerly of Victoria but now living on the Gold Coast, was sentenced to 25 years jail last month by a Calabrian court for his role in the conspiracy.

The court heard that Ciconte had, along with a small group of Calabrian Mafia bosses, worked as ''promoters, directors, organisers and financiers'' of a plan to import cocaine provided by the Colombian cartels to Australia between 2002 and 2004.

Medici, 47, of Mildura, and Calleja, 53, of Melbourne, were found to have assisted Ciconte in the plot and were each sentenced to 15 years in jail.

Assistant prosecutor Maria Vittoria De Simone told Fairfax that Italy would be pushing the Australian government to extradite the convicted men.

''We will be strongly pursuing the extradition,''

''These individuals have been convicted of heavy sentences in a huge trial and they are extremely dangerous.''

The revelations of the trio's convictions and sentences highlights a common but mostly untold story of global organised crime investigations, in which suspects often escape justice due to jurisdictional hurdles.

During the Italian police inquiry into Ciconte, Medici and Calleja, the Australian Federal Police launched its own drug trafficking inquiry into the trio.

But key evidence from Italian police, including the testimony of an informer, could not be used in Australian courts and the Commonwealth Director of Public Prosecutions advised the AFP against charging the men.

Before the Australian trio were convicted and sentenced in absentia last month, Italian prosecutors had alleged in court that the men had conducted a trial drug run using an empty shipping container before the actual drug run.

The prosecutors alleged that Ciconte ''maintained contact with associates in Vibo Valentia, supplying the materials for the trial containers in collaboration with Medici, Calleja … who made several trips from Australia to Calabria to determine the details of the shipments and the payments''.

''The ultimate goal for Ciconte, Medici, Calleja … [was] to supply the imported cocaine in the Australian market''.

Ciconte's key contact in Italy was Calabrian mafia boss, Vincenzo Barbieri, who is serving an 18-year sentence for his role in the plot.

Between 2002 and 2004, Italian authorities tapped phone calls between Barbieri in Calabria and Ciconte in Victoria and filmed meetings in Italy between Ciconte and his Australian associates and Barbieri and other Mafia figures.

The trio's sentencing in Italy also highlights the ongoing presence in Australia of the Calabrian mafia, known as the 'Ndrangheta, or Honoured Society, which established deep roots in NSW, Victoria and South Australia through migration during the last century.

Ms De Simone told Fairfax: ''We urge the Australian authorities to remember that 'Ndrangheta … represents an enormous risk for countries far from Italy.

''The 'Ndrangheta is the organisation that runs the international cocaine market. It doesn't do its business in Calabria but around the world. It has infiltrated all economic sectors and it controls voting and political candidates at a national and international level. I urge the Australians not to underestimate this organisation. Otherwise it will be too late.''

Ms De Simone said a request to extradite the trio would be made by Italy's Ministry of Justice to the Australian Attorney-General Nicola Roxon.

When asked about the case, the Attorney-General's department told Fairfax it does not comment on extradition matters.

In a separate case also targeting Australian crime figures with links to the Calabrian mafia, NSW drug trafficker Pasquale Barbaro was last month sentenced to life in prison for his role in organising an importation from Italy.

Expatriates find an affordable welcome in Ecuador

Ashley Rogers wanted adventure. She had been a network television producer and writer in Los Angeles for 20 years when she decided it was time to move abroad.

After considering Buenos Aires, Montevideo and Panama City, she settled in May 2011 on Cuenca, a small city of about 330,000 in the highlands of southern Ecuador, drawn to its culture, friendly people and low cost of living.

“The building I ultimately moved into was the first of its kind in Cuenca: an old colonial building being renovated and restored into ultra-modern apartments and lofts, yet keeping the integrity of the historic building,” Ms. Rogers said. “It is the perfect blend of old and new and I couldn’t be happier.”

Ms. Rogers paid $148,000 for the 186-square-meter, or 2,000-square-foot, loft with adobe walls in Casa San Sebastian. The price included reconfiguring the initial architectural plans to match her taste and all the renovations, like the addition of skylights and a mezzanine, surrounded by glass.

“It was an empty shell when I purchased it,” Ms. Rogers said. She worked on the renovations with Juan Heredia, the first developer in Cuenca to take on such restoration projects, capitalizing on the city center’s status as a Unesco World Heritage Site.

Since finishing the brick building that includes Ms. Rogers’ apartment, he has worked on Casa Juan Jaramillo, in the city center, which sold out immediately. His third restoration, at Casa de los Frutales, is being planned.

Ms. Rogers still works on documentary films in various spots around the world but she also has found business opportunities within the Ecuadorean expatriate community. She and Michel Blanchard, a former model and fashion editor, have started Ecuador At Your Service, a travel consultancy and concierge service for anyone interested in visiting or moving to the country. They also are co-hosts of an Internet radio show about Ecuador for the Overseas Radio Network.

Other expatriates, primarily retirees from the United States, also have been drawn to Cuenca since a 2009 magazine article labeled it the “World’s Best Place to Retire.” Today, estimates say there are 1,500 to 1,600 expatriates living permanently in the city, with another 1,000 on long-term visas.

One of them is George Evans, who had been planning to retire in Tucson, Arizona, but was unhappy about the cost of utilities, gas and food. He moved to Cuenca almost three years ago with his wife and two children and opened California Kitchen, a restaurant that quickly became a popular meeting spot for the expatriate community.

“The weather is nice. The cost of living is very low. Public transportation is very good,” said Mr. Evans, who lives in an apartment south of the city center. “I really love to walk and don’t need a car.”

One feature that expatriates regularly cite is the inexpensive, high quality health care provided by the 18 hospitals and medical centers in the city and the large number of English-speaking doctors. Also, as Cuenca is the center of the region’s agricultural and tourism industries, it has supermarkets and malls, English-language bookstores and cultural opportunities.

News articles frequently tout the low cost of living in Cuenca, which one Canadian family of three estimated to be $11,000 a year in 2010.

But no one should expect to find a $40,000 condo. (The U.S. dollar is the official currency of Ecuador.)

Residential buildings range from stone and brick structures that are centuries old to modern condominium and apartment developments in concrete and steel, often covered in brick veneers.

Most condos are priced from $800 to $1,000 per square meter, which equals about 10 square feet, less than half the average cost in Panama City.

Houses tend to be cheaper at $500 to $600 per square meter, with prices declining in rural districts like the Yunguilla Valley.

Most units can be bought for somewhere between $80,000 and $300,000, said David Morrill, who moved here eight years ago from Tallahassee, Florida. He owns Cuenca Real Estate and also runs an expatriate Web site and newsletter.

Mr. Morrill said there are 30 to 40 new condo buildings in development in the city at any given time, and most projects sell out before construction is finished. Prices, he said, have increased around 10 percent per year for the past five years. For example, he said, “I bought a condo six years ago for $60,000 and sold it for $98,000.”

“If you come for the cheapness, you will be disappointed,” Mr. Morrill said, adding, “There’s a lot to enjoy, but it’s not for everybody.” He estimated that of every four expatriates who move to Cuenca, one decides to leave.

But in addition to the real estate demand from expatriates, Cuenca is popular with Ecuadoreans returning to the country after spending years in the United States or Europe. Mr. Morrill estimates that they make up more than 30 percent of the potential buyers’ pool.

“There are 3.5 to 4 million Ecuadoreans living out of the country and almost all want to come back” to retire, he said.

Standard Bank named "Best Expatriate Bank"

Standard Bank has been named ‘Best Expatriate Bank’ for the third time (previously titled ‘best International bank’) and for the second consecutive year also received a highly commended in the ‘Best International Structured Product’ category.

The awards are designed to reward the work of international product providers and finance centres and ‘Best Expatriate Bank’ is awarded to the bank that the judging panel believes offers the best range of current, deposit and savings products available for expatriates.

John Coyle, CEO, Standard Bank Isle of Man, said: “Receiving recognition in these highly prestigious awards is very rewarding for our Offshore group which provides services for expatriates around the world. Our Optimum current account and Quantum Plus products have been designed with expatriates in mind and offer multi-currency banking solutions. To have these products recognised as market leading and for our expatriate service to be highlighted in these awards is excellent news and we are delighted.”

He added: “These accolades are a very credible endorsement of the high standards we strive for within our business and go a long way in assisting us to raise our profile in the core markets in which we operate.”

The International Fund and Product Awards are the only awards that recognise the achievements of the offshore financial services industry and the financial products and services that they distribute through IFAs internationally. The judging panel looked for the following attributes in winners: commitment to target market; appropriateness of product range; use of technology and product innovation; and levels of service and support to distributors.

Thursday, June 14, 2012

Finding private bankers is far more difficult than clients imagine

Since the financial meltdown of 2008, private bankers have been busy devising schemes to both maximize the fees they earn from wealthy clients, as well as make it more difficult for clients who wake up to discover they’ve been hosed, to fire them.

The new financial products and strategies that private bankers have been sneaking into client portfolios in recent years serve a purpose that has nothing to do with what’s best for clients. It’s all about improving the bottomline of the private banks. Unfortunately transferring wealth from client accounts is the means to the end that private banks are seeking.

Structured notes, hedge funds, hedge fund of funds and other high risk investment products lack transparency and liquidity and are hard-to-value assets. As a seasoned investigator I can assure you, it is impossible for you to evaluate and monitor the risks related to these investments. Don’t even try to.

Even if you were able to get hold of the terms sheets, offering memoranda and other documents related to these investments, good luck understanding the unique features involved in each and every one of these highly complex products. Further, the investment strategies and portfolio composition of hedge funds and hedge fund of funds can be changed at any time.

That domestic equity, long-only, unleveraged fund you invested in today may become global, short and levered to the max tomorrow. With respect to hedge fund of funds, you will not even know who’s managing your money or where your money is being custodied. Caymans? Bermuda? Guatemala? Who knows?

Structured notes, hedge funds and hedge fund of funds are purchased for discretionary clients by private banks because they pay significantly higher fees to the bank.

A private bank may earn 20 to 50 basis points in revenue sharing by steering client portfolios into mutual funds managed by others. (Private banks may deny they receive these revenue sharing payments but, trust me, they do.)

A bank may earn far more – 100 to 150 basis points—from proprietary mutual funds. This is still chump change.

Exponentially greater fees, say 3% to 8% and performance fees of 40%, can be earned by the bank from alternative investments. Given the financial pressure banks are under today, is it any surprise where they’re steering investors? But that doesn’t make it right. These discretionary investment managers are supposed to be guided by what’s best for their clients—held to a fiduciary standard of care. Unfortunately, no regulator is scrutinizing the investment management activities of private banks which are not required to register with the SEC.

Investing client assets in high risk, high fees products that do not perform competitively is a violation of applicable fiduciary duties, in my opinion. Whenever I have examined the performance of these private bank investment products (net of all fees) compared to relevant benchmarks, the perfomance is not just bad—its horrific. T-bill performance for Madoff-size risk.

Since the financial meltdown of 2008, private bankers have been busy devising schemes to both maximize the fees they earn from wealthy clients, as well as make it more difficult for clients who wake up to discover they’ve been hosed, to fire them.

The new financial products and strategies that private bankers have been sneaking into client portfolios in recent years serve a purpose that has nothing to do with what’s best for clients. It’s all about improving the bottomline of the private banks. Unfortunately transferring wealth from client accounts is the means to the end that private banks are seeking.

Structured notes, hedge funds, hedge fund of funds and other high risk investment products lack transparency and liquidity and are hard-to-value assets. As a seasoned investigator I can assure you, it is impossible for you to evaluate and monitor the risks related to these investments. Don’t even try to.

Even if you were able to get hold of the terms sheets, offering memoranda and other documents related to these investments, good luck understanding the unique features involved in each and every one of these highly complex products. Further, the investment strategies and portfolio composition of hedge funds and hedge fund of funds can be changed at any time.

That domestic equity, long-only, unleveraged fund you invested in today may become global, short and levered to the max tomorrow. With respect to hedge fund of funds, you will not even know who’s managing your money or where your money is being custodied. Caymans? Bermuda? Guatemala? Who knows?

Structured notes, hedge funds and hedge fund of funds are purchased for discretionary clients by private banks because they pay significantly higher fees to the bank.

A private bank may earn 20 to 50 basis points in revenue sharing by steering client portfolios into mutual funds managed by others. (Private banks may deny they receive these revenue sharing payments but, trust me, they do.)

A bank may earn far more – 100 to 150 basis points—from proprietary mutual funds. This is still chump change.

Exponentially greater fees, say 3% to 8% and performance fees of 40%, can be earned by the bank from alternative investments. Given the financial pressure banks are under today, is it any surprise where they’re steering investors? But that doesn’t make it right. These discretionary investment managers are supposed to be guided by what’s best for their clients—held to a fiduciary standard of care. Unfortunately, no regulator is scrutinizing the investment management activities of private banks which are not required to register with the SEC.

Investing client assets in high risk, high fees products that do not perform competitively is a violation of applicable fiduciary duties, in my opinion. Whenever I have examined the performance of these private bank investment products (net of all fees) compared to relevant benchmarks, the perfomance is not just bad—its horrific. T-bill performance for Madoff-size risk.

HK regulator bows to private banking demands

Hong Kong’s banking regulator has bowed to private banking industry demands to cut red tape in a bid to help the Chinese territory compete better with Singapore.

Norman Chan, chief executive of the Hong Kong Monetary Authority, told bankers in a speech that was made public on Wednesday that his “vision” was for Hong Kong to become “the most competitive and dynamic private banking hub in the region”.

Private bankers in Hong Kong had sought rule changes to address concerns that the city is falling further behind Singapore – the leading Asian wealth management centre – particularly as more wealthy Chinese look to move their money outside the mainland.

Singapore, with 48 private banks, is the main base for private banks seeking to gain market share in Asia, according to Celent, an arm of consultancy Oliver Wyman. This is partly because of the city-state’s privacy protection laws, in addition to its lack of estate duties, which Hong Kong only repealed in 2010.

Mr Chan announced key rule changes and in a separate letter sent to chief executives pledged to make the regulations “more user friendly”.

But he warned the changes could not be an excuse to compromise investor protection, particularly when it came to making sure clients understood the products they were buying. He told bankers in the predominantly Cantonese-speaking city that they needed to improve their Mandarin Chinese skills to ensure they could communicate properly with mainland clients.

“It is hard to imagine that quality service can be provided to a mainland customer who does not speak English or Cantonese if the account manager cannot communicate in Putonghua [Mandarin],” Mr Chan said.

He added that it would be “helpful if important contracts or documents are written in bilingual forms”, again to help mainland Chinese clients.

Silvan Colani, deputy chief executive of Liechtenstein’s LGT Bank in Asia, welcomed the efforts to clearly distinguish private banking from retail banking.

“We fully agree with the HKMA that Hong Kong has the potential to be a leading private banking hub for Asia, given that Singapore is arguably at a more advanced stage,” he said.

The pressure for rule changes has grown since widespread losses among retail investors on Lehman Brothers-related investments led to a regulatory crackdown that hampered private banks’ dealings with wealthy clients.

Alongside making clearer the distinction between wealthy clients and ordinary retail customers, the HKMA has relaxed requirements for the wealthy to undergo suitability assessments for every product, saying they could instead be assessed for a portfolio of investments when they first became a client.

Alan Ewins, a partner at Allen & Overy in Hong Kong, said the adoption of the “portfolio” suitability assessment standard, and the classification of private banking customers, were key developments for the industry. But he said wealth managers outside of the banking sector could now be left at a disadvantage.

“[Mr Chan’s letter] shows the need for a co-ordinated approach by regulators, given the existence of private wealth arms of non-banks where there clearly needs to be a level [regulatory] playing field. They were not catered for here,” he said.

More than US$5tn of the roughly US$11tn of assets held by non-Japanese wealthy people in Asia is in the hands of people with $1m-$5m each. According to Oliver Wyman, this is exactly the population of private banking clients that were not distinguished under the current Hong Kong rules.

Mr Chan said such people could be highly seasoned investors or “unsophisticated clients with only very basic investment knowledge, notwithstanding [their] substantial wealth”.

“Private banks must ensure that their account managers take extra care in offering investment advice and marketing investment products to the less sophisticated clients,” he said.

Italy, Switzerland to cooperate against tax evasion

Monti said Italy and Switzerland are considering double taxation and information exchange to fight tax evasion.

Speaking after his meeting with Switzerland's President and Finance Minister Eveline Widmer-Schlumpf, Italian prime minister Mario Monti said fighting tax evasion is a goal shared by Italy and Switzerland and "a priority for the Italian government". Monti went on to say that he was "very pleased to announce the good progress of the ongoing meeting of the bilateral working group tasked with discussing various financial and fiscal issues and suggesting possible operating solutions fully compatible with the EU discipline, especially in the fields of double taxation and information exchange"

UK fights euro zone threat with 100 billion pound credit boost

The government and central bank will flood Britain's banking system with more than 100 billion pounds ($155.43 billion), seeking to pump credit through an economy struggling to escape recession under the "black cloud" of the euro zone crisis.

In his annual Mansion House policy speech to London financiers on Thursday, Bank of England Governor Mervyn King said Britain would launch a scheme to provide cheap long-term funding to banks to encourage them to lend to businesses and consumers.

He also said the bank would activate an emergency liquidity tool.

Treasury officials said the government plan could support an estimated 80 billion pounds in new loans, while the central bank's separate scheme will provide monthly 5 billion pound tranches of six-month liquidity to banks.

King said the case for pumping more money into the economy via further purchases of government bonds had increased as the outlook for the economy had worsened, although he again rejected calls for the central bank to buy private assets.

King said the euro zone's woes were leading to a crisis of confidence in Britain which was leading to a self-reinforcing weaker picture of growth.

"The black cloud has dampened animal spirits so that businesses and households are battening down the hatches to prepare for the storms ahead," he said.

Britain's action comes just before cliffhanger Greek elections this weekend that could determine the fate of the euro zone, as well as a meeting of the leaders of the world's major economies next week to find ways to tackle the currency bloc's crisis and spur the global economy.

British finance minister George Osborne warned of the huge dangers from a collapse of the euro area. He again urged euro zone leaders to fix the crisis and said Britain was taking action to protect its own economy.

"We are not powerless in the face of the euro zone debt storm," Osborne said in his speech at Mansion House. "Together we can deploy new firepower to defend our economy from the crisis on our doorstep."

Britain is still reeling from the 2007-2009 financial crisis that has left many Britons poorer and forced the country to bail out big banks with tens of billions of pounds of taxpayers' money.

The government on Thursday announced a sweeping reform of bank regulations aimed at making financial institutions safer, and avoiding a re-run of the crisis which has pushed Britain into recession twice in the last four years.

Britain slid back into recession around the turn of this year, piling pressure on Osborne's embattled Conservative-led coalition government to come up with new ways to boost growth.

The government has pinned its fortunes on a tough austerity plan of tax hikes and spending cuts to erase a budget deficit which still comes in at around 8 percent of GDP.

Osborne defended his debt-cutting measures, arguing that they gave the Bank of England the leeway to keep monetary policy loose, and said there was still more the central bank could do.

BoE Governor Mervyn King said the central bank would complement its quantitative easing asset purchase scheme with new steps to encourage bank lending and reduce their funding costs, which have rocketed as a result of the euro zone crisis.

The BoE and finance ministry have designed a new scheme, to be launched in a few weeks, that would offer banks loans with a maturity of possibly 3-4 years at below current market rates.

The loans would be made available on condition that banks increase their lending to businesses and households.

In addition, the central bank will activate its Extended Collateral Term Repo facility, created in December, to provide six-month liquidity to banks against a wide range of collateral.

King said now was the right time to activate the scheme, which is aimed at helping banks through phases of exceptional stress.

King hinted that the central bank may also restart its QE program, which it halted in May having bought 325 billion pounds of British government bonds, and countered accusations that the scheme had lost its effectiveness.

"With signs of a deterioration in the outlook, especially in world markets, the case for a further monetary easing is growing," King said.

Wednesday, June 13, 2012

Scottish independence: Dilemma over future of Faslane

The Falsane nuclear submarine base on the Clyde could remain under UK control in an independent Scotland, according to a senior defence minister.

Armed forces minister Nick Harvey said the future of Trident would be the biggest issue in negotiations that would follow a vote for Scottish separation.

Mr Harvey told MPs at the Commons Scottish affairs committee: “I would have thought that relocation would be about the least favourite option possible.”

With the SNP set on removing “weapons of mass destruction” from Scottish territory, the Liberal Democrat minister warned the “costs of moving the base would be absolutely immense”.

His Tory colleague, Peter Luff, said relocation would be “a seismic shock” to the UK budget.

But the suggestion Faslane could remain part of the UK was last night dismissed by the SNP, which wants to turn it into a conventional naval base.

Mr Harvey said the most recent upgrade of Faslane was £3.5 billion “in today’s money” but added that this figure would be “dwarfed” by relocation costs.

It was also suggested that removing Trident could take as long as 20 years.

Under questioning from Tory MP David Mowatt, Mr Harvey raised the prospect that the base could remain UK territory. The move would create a military enclave north of the Border, comparable with US-controlled Guantanamo Bay in the Caribbean.

Another parallel is the Baltic port of Kaliningrad, which remained Russian after Lithuania broke away from the old Soviet Union in the 1990s.

Mr Mowatt asked what terms the UK government would insist on if the SNP reversed its policy on Trident and permitted UK submarines to remain on the Clyde.

Mr Harvey said: “I think the critical one would be complete freedom of action, complete control and complete sovereignty over the facility.”

However, both ministers said there were currently no contingency plans being drawn up for Faslane or defence if Scotland votes for independence, because they do not envisage the scenario happening.

They said the Ministry of Defence needed to hear from the SNP about its plans, but there had been no discussions with the Scottish Government.

They also said the MoD didnot have the resources to look at all the options.

On who would meet the cost of dismantling Faslane, Mr Harvey said a “huge negotiation” would be required.

He added: “If the residual UK taxpayer had to pick up that bill, their ability to pick up any other bills would be proportionately diminished.”

Labour MP Iain McKenzie suggested decommissioning would be included in negotiations after a vote for independence, alongside the division of the national debt.

“A compromise would be made as to who pays for what so both sets of taxpayers would end up paying,” he said.

Mr Harvey replied: “That sounds to me like a sensible characterisation of what I think will probably happen.”

But last night the SNP said Faslane would be Scotland’s conventional naval base, with warships, post-independence.

SNP defence spokesman Angus Robertson said: “Faslane has a tremendous future as a conventional naval base in Scotland after independence.

“For decades arrogant Westminster politicians have foisted nuclear submarines on Scotland,” he added.

“There is no reason to decommission Faslane; it will change its use to something altogether more constructive.”

He said there was a lack of conventional capability in Scotland, which he described as a “total disgrace”.

He said: “The advantage of making better decisions in Scotland is that we can prioritise a non-nuclear defence posture and protect jobs in the conventional military.

“This stands in stark contrast to the UK government, which has been running down conventional defence in Scotland.

“Majority Scottish opinion, our churches, the STUC and civic society all oppose Trident – and the Scottish Parliament has voted against its replacement – yet the UK government wants to use Scottish taxpayers’ money to pay for these weapons of mass destruction, while cutting conventional defence.”

Call to criminalise Australians who support Fiji regime

There has been a call for Australia and New Zealand to make it illegal for its citizens to work overseas in support of undemocratic regimes.

The call comes from prominent Fiji academic, Professor Wadan Narsey, who says several Australians and and New Zealanders are working in prominent positions in the coup installed military government in Fiji.

Professor Narsey told Radio Australia's Pacific Beat program that both countries already criminalise their citizens who travel offshore to engage in paedophilia or terrorist activities, and supporting what he says are illegal governments should be treated the same way.

"I mean I have no problems with those people who are trying to do positive and constructive things, you know, to try and get the country back to a lawful and democratic government," he said.

"But where I have a problem is where quite a few people have gone there and justified illegal things such as the overthrow of a lawful government, or they have taken part in processes which have compromised the judiciary or have compromised the ministerial portfolios."

"If somebody goes and engages in paedophilia or engages in activities which encourage terrorism, such as what happened in September 11, you have laws over here which allows the Australian and New Zealand Governments to prosecute them," said Professor Narsey.

"There is no laws which they can use to discredit this unlawful behaviour abroad, and to me this strikes me as double standards."

He says the lack of legislation available to prosecute such actions is a double standard, made more glaring by the fact that Australia has imposed travel bans on not only those taking part in the coup in Fiji, but their relatives as well.

"That infringes on their basic human rights," he said.

"I mean you are not responsible for your relatives, you are responsible for your own actions."

Professor Narsey says that with huge financial interests at play in areas like PNG and East Timor, there is the very real danger that the assistance of well-trained New Zealanders and Australians can be used to further weaken the fragile political and judicial institutions in these places.

Currency unions in action around the world

The US dollar is used by three neighbouring sovereign states, Panama, El Salvador and Equador. In Panama, the local currency, the Balboa, has, since its creation in 1904, been tied to the US dollar.

Panama has no central bank. The US dollar is the paper currency while Panama issues coins equivalent to cents. It was followed by Equador in 2000, and then by El Salvador in 2001, both choosing to adopt the dollar as their de facto currency. A downside of this link is that the three countries have no influence over money supply. A spokesman for the US Federal Reserve confirmed: “Dollarised countries do not have a role of any kind in the Federal Reserve’s formulation of US monetary policy.”

The Swiss National Bank is the independent central bank of Switzerland, with the Swiss government taking no part in the setting of monetary policy. Neighbouring Liechtenstein had used the Swiss franc since the 1920s and then formally joined in currency union in 1980. That agreement allows for the government in Liechtenstein to inform and consult the Swiss National Bank “if needs be”. But a spokesman for the Swiss National Bank said: “Liechtenstein does not have any formal role in setting the monetary policy.”

The Australian dollar is used by three other independent nations, the tiny islands of Kiribati, Nauru and Tuvalu. The islands issue their own coins alongside Australian denominations which are treated as equivalent to the Australian dollar. In Kiribati, prior to independence, Australian currency was widely used. After independence in 1979, coins were issued in order to show its new political status. Tuvalu began a similar arrangement in 1976. Nauru has relied heavily on Australia since independence in 1968. In all three cases, the central bank is the Reserve Bank of Australia. A spokesman said the three countries had to abide by its decisions on interest rates and monetary policy.

In 1986, a Common Monetary Area for Southern Africa was signed covering South Africa, Lesotho and Swaziland. Namibia subsequently joined. This formalised a de facto currency union which has been in place since the 1920s. Under the 1986 deal, the three smaller countries were given the right to issue their own national currencies, pegged to the South African Rand. There is no common central bank, but – as the biggest player – the South African Reserve Bank holds sway. The countries’ bank governors meet three times a year but “the smaller CMA partner countries do not sit on the South African monetary policy committee and have to accept the monetary policy decisions taken by the SARB as given”, a spokesman for the SA treasury says.

Dubai banks lag behind offshore peers in attracting region's wealth

Although there are trillions of dollars in private financial wealth in the Middle East and Africa, a relatively large proportion of these assets are held in offshore accounts as opposed to Dubai banks.

According to a recent report by Boston Consulting Group, private financial wealth in the Middle East and Africa rose 4.7% in 2011 to $4.5 trillion despite the instability caused by the Arab Spring. As wealth in the region has climbed, Qatar, Kuwait, the UAE, and Bahrain are now among the top ten countries in the world by proportion of millionaire households.

However, the report also found that although the region has a large amount of private financial wealth, much of it is kept in offshore accounts. In fact, the Middle East and Africa had the highest proportion of offshore wealth in the world, with over a third of all assets booked abroad in 2011.

In terms of percentage of private wealth booked offshore, Saudi Arabia (65%) took the lead in the region, followed by Kuwait (53%), UAE (52%), Tunisia (45%), Bahrain (37%), Lebanon (34%) and Morocco (30%).

High net worth individuals in the Middle East have the choice between an onshore and/or offshore offering. As the product programme and service offering of the domestic banks increase, one will see a larger share of money kept onshore.

However, in order to succeed, local banks have to take a medium- to long-term view on this segment. They need to invest in qualified advisors, broadening their product program and providing local solutions which international banks cannot provide. A simple "me-too" offering will not succeed.

The prerequisite of success is a qualified product and service offering. Most Dubai-based banks need to innovate and offer a good reason for wealthy individuals to bank with them instead of established international players. Dubai banks need to find their competitive differentiation - this could be around Islamic wealth products, products with local assets/real estate, or regional private equity. We believe that a simple "me-too" offering will not succeed.

Furthermore, it is important to realise that the established offshore centres like Zurich and London have a long track record of preserving wealth for banking clients. The Middle East is a nascent centre from that perspective.

The Boston Consulting Group believes that there is a white space for local banks to capture a higher share of wealthy individuals' portfolios. However, copying the business models of international banks may not be the best strategy; instead local banks need to look at creating a new form of private banking "the Dubai way".

It will require a transformational move by Dubai banks to seriously outperform the incumbents.

Tuesday, June 12, 2012

El Salvador women put their faith in agroecology

María Elena Muñoz industriously weeds a clearing in the forest and then digs several holes, where she and another four dozen women are planting plantain seedlings to help feed their families in this poor farming area in El Salvador.

The group is involved in an agroecology programme that has two main aims: achieving food sovereignty, which is at risk in the rural communities of San Julián; and fomenting the development of energy forests, which provide local families with sustainable energy and help mitigate the impact of climate change.

"The forest belongs to everyone, it gives us fruit and firewood for cooking," said Muñoz, 42. She is president of the Association of Communities for Development in the district of Los Lagartos in the municipality of San Julián, which is home to 19,000 people in the western province of Sonsonate.

These communities, and especially local farms, are hit hard by climate swings year after year, said Mercy Palacios of the Salvadoran Ecological Unit (Unes), a local environmental NGO. "During the drought, the crops are scorched, and during the rainy season, they are drowned," she said the day IPS accompanied the local women in their activities in the community forest.

Subsistence agriculture is the mainstay of the communities, where peasant farmers grow corn and beans on infertile hillsides, and the harvests are steadily declining due to climate phenomena.

El Salvador, and central America in general, suffers heavy rain in winter – the rainy season – which almost inevitably leaves a trail of destruction. In October, for example, the rains claimed 43 lives in the country and flooded 10% of the national territory. Rebuilding in central America in the wake of the October storms will cost $4.2bn (£2.6bn), according to estimates by the Economic Commission for Latin America and the Caribbean.

"We are suffering from climate extremes, something new that we have to adapt to," Palacios said.

"There are very poor families that subsist on what they get out of the forest," said Elsy Álvarez, a 37-year-old mother of two. "For example, they sell tangerines in the town, and get a 'cora' [quarter – 25 cents] for tortillas or to give to their kid when he goes to school."

Tired of losing the family harvest, the women in Los Lagartos decided to do something to ensure food sovereignty, and began to plant an energy forest. Food sovereignty refers to people's right to healthy and culturally appropriate food produced through ecologically sound and sustainable methods, and their right to define their own food and agriculture systems.

The idea came from Unes environmentalists who were working in the area, establishing an "agroschool" to teach the basic concepts of agroecology. But soon the local women made the idea their own. They have made it flourish – without financing.

The food sovereignty project encompasses a quarter of the 40 rural villages and communities in San Julián, a municipality 60km west of San Salvador. The project benefits about 50 families – 300 people – and the energy forest component will be expanded from Los Lagartos to other participating communities.

In Los Lagartos (population 5,000), the women work in their family gardens, where they grow vegetables with organic compost that they produce. They also use it in their plots of corn and beans, staples of the Salvadoran diet, and on fruit trees in the forest. The compost is helping to change planting techniques in favour of the environment. And the women plan to start selling their organic fertiliser, to earn funds for the project.

The forest is less than one hectare (2.5 acres), but it has a special importance for the women because they have managed to regain control over the area and replant it, after a sugar mill destroyed it 10 years ago to plant sugar cane.

"For 10 years we have been fighting for this forest," said Muñoz, a mother of four. When she and the rest of the women saw that the forest was being cut down, they complained to the authorities and managed to rescue a small part – but the damage was already done. So they began to replant. They planted avocado, mango and nance (golden spoon) trees. This year they began to grow plantains and trees that can be used for their wood.

"Now we don't let anyone cut down our forest," Álvarez said. "We exploit it ourselves, but only the dry branches and what is cut in the pruning process."

The concept of energy forests is not based on planting trees to cut them down later for lumber, but on their sustainable use, for instance by using dry branches as firewood and planting fruit trees. "A tree has a useful life expectancy, and the branches can be used as firewood, while maintaining its capacity to regenerate," Palacios said.

In this country of 6.1 million people, 25% use firewood for cooking, according to official figures. The poorest 10% of households spend more on firewood than on electricity, according to the 2010 United Nations Development Programme report on El Salvador. Consumption of firewood not only represents an important expense in family budgets, but many households also dedicate a significant proportion of their time to collecting it, the report says.

In El Salvador, 36.5% of the population live in poverty, and 11.2% in extreme poverty, according to official figures from 2010. But in rural areas, the poverty rate stands at 43.2%, and 15% live in extreme poverty.

Luis González, an environmentalist with Unes, said the Los Lagartos project falls under the concept of climate justice, which indicates that not every region, and not every population group within regions, is affected in the same way by global warming. "There are sectors that are more vulnerable than others, and different studies show that women are among the most heavily affected groups," he said. For example, he added, when drought dries up a water source, women suffer the stress of having to find a new source of water, further away from their homes.

A gender focus must be included in this kind of environmental project to give women a more decisive role, said Ima Guirola of the women's group Cemujer. In this part of the country, she said, women are taking the lead in efforts to adapt to and mitigate the effects of climate change. "The important thing is to see whether women are adopting technological tools and scientific knowhow on the environment, and whether they are participating in the decision-making involved in the project," she said.

Choose your offshore bank in haste, and you may end up regretting it

Moving overseas is a major upheaval for any family, and getting the finances right from the start is a key part of being able to settle into your new home as soon as possible. Yet many people will make a panic decision about which bank they want to use because they are about to be paid, and they could be left rueing that decision for months or even years to come.

Choosing an offshore bank as an expat is not simple – some people will prefer the comfort of choosing a name they know from home, which is effective as many banks are now global entities – while others would prefer to use a service that is part of the local economy, and provides good access to cash machines and other services that could be lacking from other providers.

When choosing your bank account, the first thing to consider is what you are using that account for. For example, are you intending to save money in the account, or do you need to make regular transactions from it? It may seem obvious, but you would ideally not use a single account to do both.

Current accounts are the day-to-day accounts that you use to pay bills and transfer money. Some will offer cheque books and cards, access to ATMs worldwide, and the ability to set up money transfers to make life easier. Some services do cost, however, so check the charges on like-for-like accounts before you make your decision.

An existing relationship in the UK with a bank that has an offshore arm, such as Barclays, HSBC or NatWest, can make it easier to open an account because of the history you have built up with that provider. But check what you are getting, because it won't necessarily offer you the services you need at, more importantly, the price you want.

If you are after a savings account, it is not as vital that the bank has a physical presence where you are. The interest payment you will receive is clearly a key driver to the particular account you choose, but it should not be the only thing. You need to look out for special introductory rates that may expire after six or 12 months, which can leave your interest looking the worse for wear.

By all means make the most of them while they are available, but remember to move your money when the introductory rate ends, so you are making the most of your offshore savings.

You also need to decide how long you can tie your money up for, as you can often get better rates on accounts that require a notice period. So if you are happy to give, say, 60, 90 or even 180 days' notice of a withdrawal, you will boost your interest payment. Penalties are charged, however, if you make a withdrawal without the notice period being completed, so try to stick to
the rules.

If you are travelling extensively for work or leisure, you may need to use a variety of currencies, and you can do this from the same account by choosing a multi-currency account. You can hold funds in a range of currencies, including sterling, dollars and euros.

Using these accounts effectively can reduce your costs when you need to move money around the world. You can also boost your earning potential thanks to the variations in exchange rates and interest applied on multi-currency accounts to the different currencies available.

Of course, an important thing to remember is that if you are subject to tax in the UK, you must declare any interest you receive to HM Revenue & Customs, as the taxman is clamping down on tax avoidance by expatriates.

It may seem easy to find a bank account, but it is easier to find the wrong one. There is a lot to consider, so be prepared to do your research carefully whether you have already left the UK, or plan to do so in the coming months.

Occupying farmland for organic food and fairness exposes university elitism

On Earth Day—April 22, 2012—about 200 people, accompanied by children in strollers, dogs, rabbits, chickens, and carrying hundreds of pounds of compost and at least 10,000 seedlings entered a 14-acre piece of land containing the last Class I agricultural soil in the East Bay. Located on the Albany-Berkeley border in the Bay Area, the plot is owned by the University of California Berkeley. By the end of the day, they had weeded, tilled, and successfully cultivated about an acre of the land. By May 14, when 100 University of California riot police surrounded the tract and began arresting the farmers, Occupy the Farm had cultivated around five acres of the plot known as the Gill Tract.

The Occupy farmers have laid out footpaths around cultivated plots, created wildlife corridors, riparian zones, and protected areas for native grasses and a wild turkey nest, and set up a library and a kitchen. They have planted thousands of seedlings of corn, tomatoes, squash, beans, broccoli, herbs, and strawberries, including heirloom varieties from a local seed bank. Other plots have been reserved for agro-ecological research. There’s also a permaculture garden for kids on the other side of a gazebo of woven branches where wind chimes tinkle in the breeze.

Gopal Dayaneni of Movement Generation, says that the vision for the farm is the “practice and promotion of sustainable urban agriculture with a commitment to food justice and food sovereignty.” He is a father, activist, and member of what he calls the “new urban peasantry.” Food grown on the farm will be distributed—for free—through existing food justice networks in the San Francisco Bay Area.

On April 24, the University shut off the water supply and threatened the farmers with eviction. University administration has gone on a media offensive, attempting to pit researchers against the Occupy farmers and according to some reports, preventing them from negotiating with the farmers. Some faculty members have published statements in support of the farmers, arguing that the goals of the farm are aligned with the public policy goals of the state and the U.C. mission. If transforming a student’s life is part of that mission, U.C. Berkeley student Lesley Haddock has certainly experienced it working on the farm. “Before our project began, I had never planted a seed,” she admits. “But in the past two weeks, I have become a farmer!”

One of the Occupy farmers, Ashoka Finley is a program assistant with Urban Tilth and runs an organic farm in collaboration with students at Richmond High School, in Richmond, California. A political economy graduate of U.C. Berkeley, Finley believes that the farm is redefining and reclaiming the role of the public university, just as the Occupy movement is redefining and reclaiming public space.

“The history of the Gill Tract is [about] public subsidization of private research that [profits] the corporate industrial complex; not research for the public good,” he says.

It was not always this way. The 104-acre plot was sold to the University in 1928 by the Gill family with the condition that it be used as an agricultural research station. Under the Smith-Lever Act of 1914, part of the University’s mission as a land grant institution is to promote community involvement and initiatives in agriculture.

From the 1940s through the 1990s, research conducted at the Gill Tract laid the groundwork for successful, non-chemical and non-petroleum-based methods for controlling numerous major insect pests on several California crops, and for the integration of biological, chemical, and cultural methods of pest control.5 The innovative methods developed, shared, and refined at the International Center for Biological Control included intercropping6 and using bugs to control pests in addition to or in place of pesticides, and means to reduce overall chemical dependency and prevent the development of superbugs in industrial and community agriculture worldwide.

The turning point came in 1998, when Novartis gave $25 million to the Plant and Microbial Biology department to conduct genetic research on the land. “They kicked off the local organic pest management project to do gene research,” says Ulan McKnight of the Albany Farm Alliance. “What was here before directly benefitted the people of California; now what they do here directly benefits biotechnology companies. Instead of doing things that can help people, they are doing things that benefit the one percent.”

Among the projects closed down at the time was a seed bank of rare heirloom varieties of many important food crops, and a state-of-the-art drip irrigation system from a student-run urban sustainable agriculture demonstration plot. Until the water was cut off at the Tract, the Occupy farmers were planning to start using those irrigation tubes again.

The trend of privatizing the research and knowledge produced at public institutions is systemic, according to Julie Sze, associate professor of American Cultures at U.C. Davis. A long-time supporter of social justice and student movements, Sze attributes her activism to her student days at U.C. Berkeley, where she took courses with the likes of RP&E founder Carl Anthony. She credits the university with being the “social justice innovation lab” that produced so many of the environmental justice leaders of today and argues that corporatization is an impoverishment of the U.C. system and a betrayal of the system’s legacy for California.

It is worth noting that the number of people graduating from UCLA annually exceeds the total number of people graduating from all private colleges in the state. It is no exaggeration, therefore, to say that whatever happens with the U.C. system affects the future of California.

Universities have a special role to encourage ways of thinking that go beyond the corporate workplace, says Sze. People who have fought to work with communities on the side of racial and economic justice are an important legacy of the university. People like Paul Taylor, who in the 1930s, promoted the idea of the agricultural job ladder (where farm workers could eventually become family farmers) over the agribusiness model, which depended on seasonal workers. The university is a place to explore and imagine different possibilities and different futures, which is why student activism is a global force and so deeply threatening to the existing order.

Sze believes that the move towards corporate funding of research, coupled with increasing student debt, has curtailed the ability and desire of students to participate in the creative and innovative social justice thinking and activity that is so important to the common good.

David Naguib Pellow, another movement scholar-activist and a professor of sociology at the University of Minnesota, observes, “Every [public] university I’ve worked at, professors are encouraged to secure external funding for their research to alleviate state budget constraints. This often involves seeking resources from corporations and foundations that have little or no accountability to the public, which amounts to the privatization of ideas, knowledge, and the commons, and is a dangerous trend if we desire to live in a democratic society.”

The tuition hikes and the cuts in programs that do not have a corporate/profit bent are a direct result of the bias towards education in the service of corporations, according to Finley, and needs to be countered by the training of people in the service of people.

In an email sent out in early May, Adbusters urges recipients to “occupy the future;” that is, “to describe, build and sustain the post-capitalist future we want to live in.”

Dayaneni concurs with that sentiment. “People ask me what they can do to support. I say, take more land. Occupy a library, a clinic, whatever, plan it right and [re-launch] it appropriately and at scale. We need to prove that we have the ability to self govern. This is the new moment of occupy, not tit for tat, not cat-and-mouse games with cops, but full-scale intervention. Occupy the Farm is one of the first to-scale interventions.”

Projects like Occupy the Farm also create a sort of sovereignty and allow a space for larger political expression where people can articulate their demand for a more egalitarian, just society through work done with their own hands, argues Finley.

“In the first world, we have been fed a false sense of security that is imploding,” says Michelle Mascarenhas-Swan, recounting her family’s experience with the militant experiment in collective governance and self-sufficiency. “On Earth Day, our families were a part of manifesting a collective vision for a better way forward—that the land be a community educational center. We have planted strawberries in the children’s garden and feed the chickens with snails that we collect from our own garden. My partner, a cook, brings us food regularly. We are making that vision real.”

Not everybody, however, sees Occupy the Farm in the same light and on the same terms, Finley points out. For many communities of color, farmwork is both a practice of material and cultural survival and self-sufficiency, and, at the same time, deeply tied to racialized exploitation in the United States. For African Americans, farming is related to slavery and sharecropping. For recent immigrants from Latin America, farming is about the bankruptcy brought on by the dumping of subsidized monoculture products in their countries. And for Southeast Asian immigrants, farming is associated with a bloody countryside strewn with unexploded ordnance and other detritus from U.S. wars. At the same time, like other forced immigrants before them, these people have also brought with them a knowledge and identity that is wrapped up in the cultivation and ceremony of working the land.

Subsistence through the production of one’s own food is one of the most effective forms of resistance. But the action at Gill Tract also points toward the broader challenges at the University.

The arena of struggle revealed by Occupy the Farm is not just organic farming, food justice, and food sovereignty. The classrooms, the libraries, and the research agenda of the university are being shaped to meet the needs of corporate sponsors. Groundbreaking areas in scholarship that were pioneered in the University of California, such as Ethnic Studies, Women and Gender Studies, Peace and Conflict Studies, were won by student-led protest and strikes (and occupations) in the early 1970s. They now face devastating cuts against which students are mobilizing. Battles against tuition hikes, student debt, and democratizing University governance will be key to shifting the overall direction of the university and the society.

Amilcar Cabral, the African revolutionary and agricultural engineer once said: “Culture contains the seed of resistance, which blossoms into the flower of liberation.” At the Gill Tract we can see seeds of resistance that have been planted—but it is clear that in order to blossom, they will need watering.

Liechtenstein informs bank clients of U.S. tax evasion request

Liechtenstein, an Alpine country of 36,000 people, has told American clients of the principality’s oldest bank that U.S. authorities have requested their account data as they widen a tax-evasion probe.

Accounts at Liechtensteinische Landesbank AG (LLB) that contained at least $500,000 at any time since the beginning of 2004 are covered by the information request, according to a May 30 letter sent to a client by the principality’s tax authority. Liechtenstein facilitated the so-called group request from the U.S. by amending a tax law in March.

Liechtenstein’s second-biggest bank, also known as LLB, is one of 11 financial firms, including Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER), being investigated as part of a U.S. probe of offshore tax evasion. The stakes for Swiss banks were raised after the Department of Justice indicted Wegelin & Co. on Feb. 2 for allegedly helping customers hide money from the Internal Revenue Service.

“The motivation for the law is the Landesbank issue, which has accelerated the process,” said Mario Frick, a partner at Liechtenstein law firm Seeger, Frick & Partner. “For a certain period of time, it will be possible to make group requests to clean up the past and the issue of legacy assets.”

Landesbank, which had 48.1 billion Swiss francs ($50 billion) of assets under management at the end of 2011, confirmed it has received a group request via the Liechtenstein authorities, Cyrill Sele, a spokesman for the bank in Vaduz, said in an e-mailed response to questions.

“The ruling to extend the period of applicability back to the tax year 2001 in the administrative assistance law with the U.S. is limited to 12 months from the date it comes into force,” said Sele. It “is closely linked to the ongoing U.S. offshore voluntary disclosure program.”

Those affected by the U.S. request for information have the right to appeal, according to the letter.

In the Liechtenstein group request, U.S. authorities are also targeting lawyers, accountants, financial advisers, asset managers and those responsible for professional “asset protection,” who “conspired with a U.S. taxpayer to commit U.S. crimes or provided assistance,” according to the letter.

“It’s a sign that the U.S. is not just focused on Switzerland, but on all offshore jurisdictions with Singapore, Dubai and Hong Kong very much on the radar screen,” said Milan Patel, a partner at Zurich-based law firm Anaford AG. “This request appears to be much more expansive than the agreement with Switzerland and aims to get information on third parties.”

Swiss banks are seeking a settlement with the U.S. as Liechtenstein’s larger Alpine neighbor, the world’s biggest center for offshore wealth, tries to shed its image as a haven for undeclared assets. That may involve negotiating separate deferred prosecution agreements with U.S. authorities.

UBS AG, the biggest Swiss bank, avoided prosecution in 2009 by paying $780 million, admitting it fostered tax evasion and giving the IRS data on more than 250 accounts. It later turned over data on another 4,450 accounts. Before the UBS deferred- prosecution deal, U.S. prosecutors said the bank managed $20 billion in undeclared assets for American clients.

Landesbank declined to comment on whether the handover of account data under the group request would allow the bank to enter a deferred prosecution agreement.

Christof Buri, a spokesman for larger Liechtenstein rival LGT Group, which had 86.9 billion francs of assets under management at the end of last year, said the bank only has tax- compliant U.S. clients. The bank, owned by Liechtenstein’s princely family, declined to comment further.

Liechtenstein started to unwind secrecy after data stolen from LGT was used by Germany to prosecute tax evaders in 2008. Former Deutsche Post AG (DPW) Chief Executive Officer Klaus Zumwinkel was convicted of tax evasion and received a two-year suspended prison sentence plus a penalty of 1 million euros ($1.25 million).

Under pressure from the U.S., Germany and France, Liechtenstein said in March 2009 that it would conform with tax standards set out by the Organization for Economic Cooperation and Development to avoid being blacklisted as a tax haven.

Markus Amman, a spokesman for the Liechtenstein government, and Katja Gey, who helped negotiate a tax deal for the principality with the U.K., didn’t answer calls to their mobile phones.

“It’s only a question of time, say three to five years, when this type of group request will become standard for future business,” said lawyer Frick. “Liechtenstein is a small country that has had a reputation for not cooperating in the field of tax and that’s something that has to change. We have to find new areas of business.”

Monday, June 11, 2012

Offshore investing gets easier for South Africans

For some South Africans, getting tax clearance to take your money overseas has been a bit like trying to move through airport security with a chicken strapped to your head.

This has all changed, and not a moment too soon – the case for investing abroad has rarely seemed so solid.

Government recently issued a circular announcing that you can now invest R1m/year outside South African borders without having to obtain a tax clearance certificate.

Before the announcement, South Africans had an annual “single discretionary allowance” of R1m to take out of the country, which could only be used for travel, study, alimony and child support as well as for donations. You were then also allowed to take R4m to invest abroad, but you needed to have tax clearance from the SA Revenue Service.

But now you may also use the single allowance to invest abroad – without tax clearance.

This has been welcomed, with some financial advisers claiming that it was “virtually impossible” to get tax certificates for some clients.

There have been complaints about constant changes in the way applications have been processed and that SARS often decided not to issue the certificate because of minor technicalities. In response, a number of small outfits have sprung up, promising to assist investors in getting clearance certificates.

Gregg Sneddon of The Financial Coach in Cape Town, says SARS sometimes seemed to require that applicants had to have the money they were planning to invest abroad actually sitting in their bank account - they could not move it from another investment.

This was part of anti-laundering efforts, says Sonja Frank, a legal and tax adviser and director of Exceed Trust. SARS therefore requires extensive source documents - including property transaction contracts and transfer documentation - to make sure it knows where the money comes from. If a client’s tax returns were not up to date this could also delay getting tax clearance.

And the process for those wanting to start a business abroad - proving where your money will go, including premises and other expenses - could be particularly onerous, says Frank.

She thinks that the new regulation will make a big difference to those wanting to invest abroad.

So, the world is your oyster - and if you haven’t done so already, you should get a tiny fork and some Tabasco, and dig in.

There seems to be bargains elsewhere, with valuations in the local market on the expensive side. The local market is trading at a price-to-earnings ratio (which tells you how expensive a market is) of more than 13 times - in line with its long-term average.

But US stocks are also trading at 13 times - significantly cheaper than its historical average of 16. Other emerging markets like Brazil, Russia, India and China are also trading at lower ratios than SA.

Also, the rand is looking shaky. The currency has already lost 13% in the past year to the dollar, and 22% to the euro. Any further weakening in the rand will give you an instant profit on your overseas investments. With inflation ticking higher in SA, no sign of an interest rate hike (which will make the rand more attractive to overseas investors looking for yield) and amid continued nervousness about the eurozone (SA’s biggest trading partner), it’s expected that the local currency may come under further pressure in the future.

As a general rule of thumb, experts recommend having at least 30% of your portfolio invested outside of SA.

“Offshore assets are included in investment strategies as they behave differently to local assets and thus offer diversification benefits. Investing offshore also allows access to opportunities that are not available in SA - investing in Google or Microsoft for example,” says Jonathan Brummer, Financial Planning Coaching Support Consultant at acsis.

Another reason to diversify is that the local market is very resource-heavy, a sector, which may face a bit of a rough ride, according to some. Allan Gray’s chief investment officer, Ian Liddle, recently questioned the sustainability of commodity prices and mining company profit margins, which are mostly substantially higher than their long-term averages. “For example, the 21st century boom in iron ore prices has been of a similar magnitude to the Nasdaq tech bubble in the Nineties, the Japanese stock market bubble in the Eighties and the gold bubble in the Seventies.”

If you do want to diversify abroad, Sneddon likes direct investments in global unit trusts – which are cheaper than going though platforms like Glacier, which adds more costs and layers. Institutions like Ashburton, Investec and Templeton, which operate in SA and are approved by the Financial Services Board, offer offshore unit trusts to local investors.

Participatory notes investors pull out Rs 1 Trillion from India

Rich overseas entities, investing in Indian markets through 'Participatory Notes', are estimated to have pulled out over Rs 1 lakh crore (about USD 20 billion) in less than three months on fears of getting caught in the government's taxation net and its black money trail.

As a result, the quantum of money invested through these P-Notes has hit its rock-bottom levels of just about 10 per cent of total FII (foreign institutional investment) holdings -- which used to be more than 50 per cent a few years ago.

The Participatory Notes (P-Notes) allow foreign HNIs (High Networth Individuals) and other rich investors to invest in India through already-registered FIIs, while saving on time and costs associated with direct registrations.

The flight of P-Note investments began late in March after the government in its union budget proposed new taxation regime of General Anti-Avoidance Rule (GAAR) and certain retrospective amendments for taxing offshore transactions.

Sources said that P-Note investors have already pulled out close to Rs 1 lakh crore (about USD 20 billion) from Indian equity and debt markets, while they might have decided against putting in fresh investments worth at least Rs 50,000 crore ever since the new tax policy was proposed.

While GAAR has been deferred by a year, the tax proposals for offshore transactions could apply to FIIs as well.

It is feared that the new taxes could lead to heavy tax burden for the foreign investors investing through tax-friendly jurisdictions like Mauritius. Most of the overseas entities route their investments into India through such places to take benefit of their tax-friendly regimes.

There are apprehensions that FIIs could be forced to pass on their tax liabilities to their P-note clients, thus adversely impacting their overall returns on investment.

Many hedge funds and ultra-rich investors from abroad prefer P-Notes, which are sold by India-registered FIIs, as it allows them maximise the returns through savings on costs and rigmarole of various regulatory processes.

As per the latest data available with market regulator Sebi, the total value of PNs in Indian markets stood at about Rs 1,30,012 crore (about USD 25 billion) at the end of April 2012, down from Rs 1,83,151 crore at the end of February and Rs 1,65,832 crore as on March 31, 2012.

This figure was on a sharp uptrend this year till middle of March, but started declining sharply after tax proposals came to be known. While the mid-month figures are not shared by Sebi, the industry sources said that the total value of PNs are estimated to have reached near Rs two trillion (about USD 40 billion), before it started sliding in late March.

Sources said that the total value of PNs is estimated to have fallen further to near Rs one lakh crore level (about USD 15 billion) currently, marking a fall of nearly same amount from its late-March peak. The share of PNs in total FII holding stood at 16.4 per cent in February, but fell to 11.4 per cent by April. It has now further fallen to near 10 per cent level, sources said, while adding that most of the FII outflow currently taking place is in the P-Note accounts.

The PNs have been accounting for mostly 15-20 per cent of total FII holdings in India since 2009, while it used to much higher in the range of 25-40 per cent in 2008. However, it was as high as over 50 per cent at the peak of Indian stock market bull run during a few months in 2007.

In addition to the new taxation proposals, the government's recent White Paper on Black Money has added to the flight of P-Note investments from India, sources said. The White Paper, tabled by the Parliament on May 21, said that Pnotes were being used by Indian citizens to re-invest the black money in the country.

"Investment in the Indian Stock Market through PNs is another way in which the black money generated by Indians is re-invested in India," it said.

Participatory Note is a derivative instrument issued in foreign jurisdictions, by a Foreign Institutional Investor or its sub-accounts against underlying Indian securities.

"... through the instrument of PNs, investment can be made in the Indian securities market by those investors who do not wish to be regulated by Indian regulators due to a variety of reasons," the White Paper noted.

The reasons could include the desire of investors to keep their identity anonymous, which is possible also for the reason that PNs/ODIs can be freely traded and easily transferred without disclosing the identity of the actual beneficiaries, it added.

As per the White Paper, since PNs are issued from Offshore Financial Centres (OFCs) such as the Cayman Islands, British Virgin Islands, Switzerland, and Luxembourg, it is possible to hide the identity of the ultimate beneficiaries through multiple layers. Amid rising concerns that some of the money coming through PNs could be unaccounted wealth under the of FII investment, market regulator Sebi has already taken various measures to ensure that these instruments are not used for black money laundering. It was due to the steps taken by Sebi that the PNs' share in total FII holding had previously fallen from over 50 per cent to 15-20 per cent.

Tanzania: From tax avoidance to tax evasion

Thursday, June 14 this year is Budget Day in the East African Community countries of Kenya, Uganda, Rwanda, Burundi and Tanzania. Not too distant in the past, Tanzanians generally looked forward to Budget Day with considerable excitement.

They were much like numbers game players who anxiously looked forward to ‘Draw Day’ when the raffle results would be announced. In the event, holders of the winning tickets would be awarded cash prizes, going laughing all the way to the bank (if they were ‘bankable!’).

The losers, resigned to their fate, would do their crying in the rain (crooners Everly Brothers, Don Williams pardon!) – till the next lottery and Draw Day!

Ditto Budget Day, when Tanzanians waited with bated breath the announcement in Parliament of government budget proposals for the next 12 months beginning on July 1. It was a foregone conclusion that Finance ministers would invariably hike extant tax rates, or introduce new taxes, on beverages and tobacco goods. Bettors to the contrary have always lost!

Imbibers nonetheless said ‘cheers!’ – and swallowed the new, bitter ‘tax pill’ with the first pint of the best brew in the house, happy in the knowledge that they were contributing in their own small way to public revenue coffers for national development.

But, when tax rates became inordinately high, and the number of taxes multiplied across the board – thanks to bottomless government coffers and itchy-fingered unprincipled filching officials – taxpayers started to feel the pinch. The imaginative ones turned to tax avoidance, while their impatient, reckless ones resorted to bad old tax evasion!

The difference between the two...? Well; ‘tax evasion’ includes smuggling; cheating on values and volumes/quantities of taxable consignments; bribing customs and other tax officials to look the other way at the psychological moment, and other illegitimate presentation of one’s finances, etc...

‘Tax avoidance’ is a different ballgame all together – and it isn’t a crime! Tax avoidance is when potential taxpayers legally take advantage of the extant tax regime, thereby reducing the tax burden they’d have otherwise carried, doing so by simply exploiting loopholes in the law.

I remember a very successful lawyer-friend in Mombasa in the 1960s and ‘70s whom I’ll identify here by his car (latest ‘Mercedes’ saloon model then), registration No. KAZ-1!

‘Bwana Kazi’ – as he was popularly known – avoided paying further income tax by simply stopping to practise when his taxable income approached the surtax threshold. He went on vacation abroad till the next taxation year. Sheesh!

If nothing else, the foregoing suggests that rampant tax evasion in Tanzania is fuelled by a multiplicity of taxes, compounded by too high tax rates. In countries where taxes are few, are universally applicable across the population – and rates are virtually nominal – tax evasion is unusual, with voluntary tax compliance the norm.

Can/will our finance minister heed this in the next Budget – or is it too late now? Think about it!

Sunday, June 10, 2012

Filipino revolutionary heroes were young

“The Youth is the fair hope of the Motherland.” That is José Rizal’s most famous quotation. As it did in his time, the reflection holds true today, when 53 percent of Filipinos are below 20 years old and only three percent are above 65. Rizal himself started young in inspiring Filipinos about nationhood. He was only 26 when he published Noli Me Tangere in 1887. Going by the World Health Organization’s definition of “youth” as age 15 to 34, Rizal was barely out of his youth when executed at age 35. The Filipino life expectancy then was 66.1 years.

Many heroes of the Revolutionary Period — from the Propaganda Movement in the 1880s to the setting up of a national government in 1907 — were as young. A partial listing:

• Graciano Lopez Jaena was 32 when he founded the newspaper La Solidaridad in Madrid. He endured hunger and disease to expose to the Spanish people the aspiration of indios in their colony, Las Islas Filipinas.

• Marcelo H. del Pilar was probably the oldest of our young heroes. He was 39 when he took over editorship of La Solidaridad. Yet he started writing against friar rule in his native Bulacan as a lawyer aged 30. So stinging were his articles that he had to flee to Spain from persecution.

• Isabelo de los Reyes was 25 when he started writing in Ilocano and Spanish against abuses of the colonizers. He was barely 30 when thrown to the dungeons in Madrid for inciting fellow-Ilocanos to speak out against the abusers.

• At age eight Rizal wrote a poetic tribute to the mother tongue, “Sa Aking Mga Kabata (To My Fellow Youth)”. He finished his second novel, El Filibusterismo in 1891, when he was 30. His writings caused his exile to Dapitan the following year. He was blamed for the spark of the Revolution in 1896 and so was martyred that same year.

• Andres Bonifacio founded the Katipunan when he was but 29.

• When the Revolution began, his faithful comrade-in-arms Emilio Jacinto was only 21. Youth did not deter Jacinto, after the Supremo’s death, from carrying on the struggle in the mountains of Laguna.

• Gregoria de Jesus was only 22 when she became Bonifacio’s widow. She courageously fought on for independence.

• Emilio Aguinaldo was the victorious general of the Revolution at age 27. He founded the first Republic in Asia three months after turning 29.

• Maestro Artemio Ricarte was 32 when he taught the Katipunan trench warfare. His invaluable field tactics prevented Spanish troops from capturing Cavite.

• Marcela Agoncillo was 37 when she sewed the first Philippine flag for unfurling on June 12, 1898.

• Gregorio del Pilar became a general of the Katipunan at age 21. He had just turned 24 when he fought his last battle as Aguinaldo’s rear guard at Tirad Pass in 1899.

• Apolinario Mabini was 34 when he took on the intellectual leadership of the Malolos Republic and drafted its Constitution.

• Miguel Malvar was 36 when, after Aguinaldo’s capture, he took over the Revolutionary government in 1901.

• Macario Sakay was 31 when he continued the War of Liberation against the new U.S. colonizers in 1901 to 1904.

• And Sergio Osmeña and Manuel Quezon were both only 29 when they boldly became the Speaker and Majority Leader, respectively, of the first Philippine Assembly under American rule in 1907.

There surely were thousands of other young Filipino heroes during the countless revolts against 333 years of Spanish rule. Diego Silang was 32 when he led the Ilocano uprising against abuses and taxation in 1762. At age 33 he was assassinated the following year. His wife Gabriela, only a year younger, carried on the fight for four months until captured and executed. The Dagohoy Revolt in Bohol could not have lasted almost 85 years, 1744 to 1829, without the participation of youthful fighters.

The Filipino soldiers at Bataan and Corregidor were also young. A good number of them were college ROTC cadets; others were enlistees in their 20s in the US Armed Forces in the Far East. Tens of thousands of them were forced on a Death March to prisoner-of-war camp in Tarlac. Survivors carried on the fight, as guerrilla leaders of more youth recruits. One such hero was Sgt. Jose Calugas of the Philippine Scouts, who led his squad in a last-ditch battle against hundreds of advancing Japanese forces. Captured, he joined the torturous march to Capas, went underground upon release in 1943, and lived to tell the story of his buddies till age 91. Had they been older then they were then, they might not have survived the rigors of battle, prison and jungle.

The world's youth are, and shall always be, its source of revolution and progress.

Corruption is still Tunisia's challenge

In the year since the Arab Spring, attention has been riveted on one issue above all others: the place of religious practice in public life. In Tunisia, where the movement began, full-face and body veils, now often worn complete with gloves, are increasingly visible on the streets — an exotic sight for locals and foreigners alike. And the secular opposition seems increasingly strident in its conviction that the Islamist government is driving the country the way of Iran.

But it wasn't religion that set off the Jasmine Revolution; it was acute economic injustice and the pervasive and structured corruption that helped produce it. The fate of Tunisia, and its neighbors, may depend most on whether that lingering problem is addressed.

You can usually tell which buildings in this sparkling, white-and-sky-blue country the family of former dictator Zine el Abidine ben Ali had a stake in; they're eyesores. Last month, a small group of protesters gathered in front of one of them, a squat, mustard-colored hotel complex on a beach in the town of Kilibia.

Kilibia, home to extensive Roman and Punic archaeological sites, also boasts beaches of silky, ash-white sand, which audibly sings underfoot as you walk across it. The seafront is exactly the kind of resource members of the Ben Ali family liked to commandeer for their personal gain.

They had shares in several sprawling hotels here, including the yellow one, built with an Italian investor. Typically for the Tunisian tourism industry, it functioned and still functions as a closed system: Tunisians are not allowed on the beach; the hotel employs no Tunisians except for a few guards, purchases no Tunisian supplies or food — not even any luscious local olive oil. Everything is shipped in from Italy.

Now the hotel is dumping coarse yellow sand across the top half of the beach to cushion tourists' feet from a rock formation.

This may sound like a trivial transgression. But it typifies the arrogation of public resources and financial opportunities for the personal enrichment of regime insiders that sparked last year's uprising.

Under the Ben Ali dictatorship, physical repression, torture and disappearances were fairly uncommon. The regime perpetrated its oppression by means of a diabolically intrusive system of state corruption.

This particularity has prompted Tunisian activists to blaze new paths in human rights doctrine. They are seeking to expand the definition of "gross violations of human rights" to include systematic economic crimes. They want perpetrators to answer for these crimes in a public reckoning, as part of a transitional justice process, like the ones in South Africa or Rwanda that focused on physical abuses.

Tunisia's new Cabinet includes a minister for "governance and anti-corruption." This is an innovation, certainly, but activists worry that his appointment was more show than substance.

A commission established in the weeks after Ben Ali's overthrow, and including public accountants and specialists in the intricacies of administrative or real estate law, examined some 5,000 complaints. The report it released in November exposed a vast system of structured corruption by which the Ben Ali in-laws and their cronies helped themselves to the best of everything: stakes in the most lucrative businesses, exemption from customs dues, choice public land. Government institutions such as tax authorities and the judiciary, even private banks, became instruments of coercion. Recalcitrant chief executives would get slapped with an audit or see their loans dry up or their authorizations revoked.

The commission developed evidence on 400 cases, which it transferred to courts. But according to member Amine Ghali, only a handful have been taken up by a judiciary still largely staffed by Ben Ali-era personnel.

"We're no one's first priority," says Ghali, detailing examples of neglect by the current government. "We have no office equipment or vehicles, no power to subpoena witnesses or to protect them. Members who are government employees don't even get relieved of their regular duties but have to do this work on the side. You get the feeling the government doesn't care if we succeed."

Many fear that the current political elite, including the leadership of the ruling Islamist party, intends to quietly appropriate the old structures and practices for their own benefit. Recently passed provisions of this year's budget include Ben Ali-style shelters for potentially ill-gotten gains, in return for a financial contribution. Taoufik Chamari, of the National Anti-Corruption Network, warns of the "real risk that the same system of corruption will be maintained, legitimized by new beneficiaries."

Corruption is a less photogenic issue than heavily veiled women. Yet when it grows so pervasive as to amount to capture of the state by a structured criminal network, as it did in Tunisia and in Egypt, public outrage can get explosive. Many here predict that if Tunisia does not use this remarkable post-revolutionary moment to impose accountability, then a frustrated people may truly radicalize, turning to militant, puritanical readings of Islam to afford a recourse the post-revolutionary democracy did not.

As the example of the yellow hotel suggests, actions of Westerners — conscious or unconscious — matter. Our support for Arab nations in transition, our behavior as investors and visitors, should break with past habits of contributing to corruption.