Thursday, November 23, 2017

In praise of off-shore tax havens

The last few years has seen a spate of "scandals" about the use of off-shore tax havens. The hacking and subsequent leaking of data about who does and does not hold assets in off-shore jurisdictions has become an old perennial in the British press, rather like the "COLD weather happens in winter and QUITE HOT weather happens in summer", whose alarmist capital letter laced headlines are such a lazy part of contemporary "journalism". 

The increasing sophistication of the hackers, whether Russian-inspired or not, has resulted in a steady trickle of information becoming a torrent. After the relatively filleted release of data in the so-called "Panama Papers", the data release of the "Paradise Papers" is even larger.  Of course, just natural curiosity dictates that the off-shore ownership, or even just "ownership", of assets is of general public interest.  Celebrities, from the Royal family to the cast of Mrs Brown's Boys, are shown to wealthy, which may not be such a surprise, and to hold assets in places like the Cayman islands or Bermuda, which might be more of a surprise.

The UK press, in one of the more spectacular episodes of hypocrisy to which they are regularly prone, affects to be shocked and appalled by the fact that so many people "avoid tax" by holding assets in multiple off-shore and international jurisdictions. Just to remind the public at large: Rupert Murdoch, an Australian who naturalised American for tax purposes, holds assets in multiple off-shore jurisdictions. Lord Rothermere, living in Wiltshire, but legally domiciled in France for tax purposes, holds the Daily Mail and General Trust through off-shore holdings in Bermuda.  The owners of the Daily Telegraph, the rather sinister Barclay Brothers, domiciled off-shore in Sark, control their empire though the Channel Islands. The pornographer Richard Desmond controls the Express group through a series of off-shore holdings, as does the Russian Evgeny Lebedev, owner of the Evening Standard and the Independent. Bluntly, the off-shore ownership of media assets is quite legitimately a matter of public concern, especially given the occasionally important business relationships that their owners have with anti-democratic regimes, such as Russia or China.

Neither is there any doubt that off-shore holdings are routinely used by criminal organisations to hide the sources of wealth acquired by crime. Mind you the fact is that all jurisdictions are used by criminals- there is no single crime-free jurisdiction in the world, not even the Vatican. There is no doubt that some of the tax avoidance schemes operated in certain jurisdictions, even if they may be perfectly legal, are nevertheless extremely questionable on ethical grounds.

The fact is that the overwhelming amount of money and the overwhelming proportion of transactions are undertaken in off-shore tax jurisdictions for entirely legitimate reasons. These could, for example, include the establishment of a single neutral jurisdiction for a corporation which has conflicting tax or compliance requirements in different countries where they operate, or to hold assets that are involved in international M&A.

Nevertheless there is no doubt that the off-shore world exists because of tax, and that is a scandal. However it is not the scandal that the public imagination believes.  The scandal, especially in the UK, is not the off-shore tax code but the on-shore one.

The United Kingdom now has a tax code that is 27,000 pages long.  In the past two decades the standard political solution has been to promote certain policies through tax incentives. The result is a massive and unwieldy tax code which is literally impossible to understand, let alone to comply with. Last night I had a small dinner with a UK government Minister and the subject of export support came up, and with it the suggestion of... you guessed it... tax incentives. Yet at every further release of off-shore data the asinine politicians demand tougher regulation and more tax inspectors.

The result is not merely the longest tax code in the world: as a result HMRC is one of the largest tax bureaucracies in the world with over 120,000 employees. The cost of administration of the Revenue is over 3% per annum, which is over  £21 billion every year, and that does not count the tax credit system, which is a further cost. Neither does it count the cost of compliance in the economy at large: the massive number of tax accountants that are needed to submit a return for even the most basic tax matter. The fact is that tax collection and administration is one of the biggest businesses in Britain and it adds exactly nothing to our national wealth. The annual budget never simplifies, it only complicates.

The scale of this failure is what has created the need for off shore holdings. The fact is that the very offices that  HMRC works from are owned by funds who are legally based in off-shore jurisdictions. The HM in HMRC also invests using off-shore holdings: she, like most of the rest of us, is compelled to do so by the drastic negative effect on investment returns if she does not.

So when you see more blazingly hypocritical headlines in our off-shore owned press about the iniquity of holding assets off-shore, spare a thought for the real scandal. The fact that politicians have given up any idea of real tax reform. This utter failure of leadership is yet another example of the UK at its very worst. Off course it is "difficult", but unless it is tackled, all value-added businesses will end up off-shore and all that will be left will be estate agents and tax inspectors: not a recipe for the dynamic post-Brexit future that the off-shore, hypocritical, extreme right-wing, verminous British press insists is the coming future, against all evidence to the contrary.           

Monday, November 13, 2017

Putin over reaches himself- but the West must respond.

In espionage the standard of proof is a variable measure. There are very few times that information can be said to be "beyond reasonable doubt". Nuances and circumstances acquire great significance and it requires an analyst with a deep sense of intuition to piece together an accurate narrative from small pieces of partial information. There may be much data, but to find the information it contains is like putting together a shattered mirror, where you do not know whether you have all the pieces. Thus intelligence can be a double-edged sword, and it is dangerous to rely purely on secret intelligence without bringing one's own sceptical biases into the equation.  Spies are much given to using two quotes from Sherlock Holmes: the first dictum is about positive truth: "once you eliminate the impossible, what ever remains, no matter how improbable, must be the truth". The second is "the curious incident of the dog in the night time" "the dog did nothing in the night time" "that was the curious incident". This second refers to how positive information can be determined by things missing or absent.

I point these things out because the growing awareness of Russian subversion and propaganda in the democratic world is being played out against a very strong background of secret services involvement.  Yet the Russian secret services are rather different from their rivals in the West. As we have seen from the Steele dossier, the primary purpose of MI6 is to acquire secret information from a variety of sources in order to build up an understanding of the direction of Russian actions. The document is written in the fairly standard format of MI6 reports, with as much cross referencing as may be available. By definition it is not a document intended to prove beyond reasonable doubt. Nevertheless the emergence of other source material has substantially corroborated the dossier. By the standards of secret intelligence the dossier is very strong evidence indeed. Where there are faults, they have tended to be the result of caution. For example, Steele writes of a five year business relationship between the Trump organisation and Russian money, the evidence now suggests that the relationship is both deeper and longer -as long as fifteen years- than first alleged.

The Russian security apperat: Internal FSB, external SVR, military GRU and SigInt SSSR, has two mandates. The first is the gathering of secret intelligence. The second is the active disruption and subversion of critical targets. Of course, Western agencies have attempted to disrupt certain targets: terrorist cells, for example, but the difference is that Russia has devoted substantial resources to the disruption of western democracy. This is no longer a matter of opinion: as the evidence grows of Russian government support for an army or information trolls, including millions for false Facebook posts, and the direct financial support for far-right political parties, this is not even a matter of reasonable doubt, it is a matter of fact. Russia is actively campaigning to undermine Western democratic values and norms.

There is now substantial evidence of Russian support for the election of Donald Trump. The fact that Donald Trump says that Vladimir Putin told him that there was no such collusion can be safely put into the "he would say that, wouldn't he" box of political scandals. In intelligence terms the evidence is extremely strong that Donald Trump's campaign self consciously accepted substantial Russian support and that he did this because a large part of his supposed wealth is in fact Russian money and the Russian intelligence services hold kompromat including personally and sexually compromising material on Mr Trump himself.

Meanwhile, it grows increasingly clear that the election of Donald Trump was not the only campaign waged from the Kremlin in the last two years. It is a matter of proven public record that Russian finance supported the election campaign of the far right Marine LePen in France.  The other, far more successful, Russian intervention in European politics was the British referendum vote of June 23rd 2016. Although there is some evidence that Russian money was involved in the Scottish referendum vote of September 2014, the evidence for the EU vote is much stronger. As with the US Presidential election an army or twitter-bots and Facebook propaganda was deployed in support of the Leave campaign. 

Nor was the support simply external to the UK. As we now beginning to understand about the Russian subversion campaign against the US, there were several agents of influence who provided secret back channels of communication and of finance. One of the leading financial backers of the Leave campaign, Arron Banks, has a Russian wife and has publicly praised the Putinist government in Moscow. More to the point, the sources of his apparent  wealth are not transparent. Insurance is a business where changing actuarial assumptions can allow significant changes in the financial position of the company.  Were Russia to wish to launder large sums into British politics, it could be a fairly easy way to do it. 

Although poo-pooed by the Brexit camp, the connections between Nigel Farage and Julian Assange, and his partner, suspected Russian agent, Edward Snowdon, are clearly suspicious in intelligence terms.  The inquiries now underway on both sides of the Atlantic have already proven the intent of the Kremlin to subvert the US and the UK. There is substantial circumstantial evidence that suggests they succeeded in their attempts.

So what now?  Putin played and he won.

Not so fast.

There are material differences between the shallow and weak rule of law in Russia and the entrenched strength of wealthy and powerful western democracies. The appointment of Bob Mueller as special counsel to investigate Russian interference in the Presidential election not only brings one of the world's leading figures in counter espionage to the inquiry; it also brings one of the straightest arrows in US law enforcement.  Mr. Mueller believes in the government of law, not of men, and he clearly considers it is patriotic duty to uncover the whole plot and clean the stables, no matter what. Although Mr. Mueller is working to the highest standards of proof: "beyond reasonable doubt",  it is becoming clear that, as with the substantial corroboration of the Steele dossier, such proofs do indeed exist, as the guilty plea by George Papadopoulos indicates.

The wheels of justice may grind slow, but they do grind fine and eventually, if Bob Mueller has his way, the truth will prevail.

What then?  Russia is already exposed as a hostile power, attacking the West directly or by proxy in Ukraine, Georgia, Syria and any other place they can. Russia has been waging a war directly on Western democracy, largely without the notice of all but those most closely involved.  However, as with Japan in 1941, it is very dangerous to launch a surprise attack. The election of Donald Trump and the subversion of the British referendum are, in my view, the equivalent of the burning battleships of Pearl Harbor. However, Russia is weak and poor, and getting poorer.  Even China is cautious about accepting such an unstable and disruptive ally. In Chinese eyes the model is not the Second World War, but the First, with Russia playing the role of Austria Hungary. 

Putin will not survive a determined push back from the West. He has drastically overplayed the hand of a weak, corrupt, poor and divided country: Nigeria with nuclear weapons.

The recent release of the Kennedy papers has shown one critical thing. That Lee Harvey Oswald kept in touch with his KGB handlers, and that the CIA hid this information in order to avoid emotional demands that the Soviet Union be punished, which in the aftermath of the Cuban missile crisis could have led to nuclear confrontation. It maybe that certain circles in Washington would like to avoid revealing the full scale of the possible involvement of the Trump organisation in what is, after all the most heinous of crimes: treason. This could be for reasons of national prestige or to avoid the threat of a similar nuclear confrontation as might have occurred in 1963.Nevertheless, it is clear that the much of America now clearly understands the direct threat of Putinism to Democracy.

The United Kingdom must now also understand what has been done to them and to respond accordingly.  Ben Bradshaw's request for an enquiry is only the beginning of a process that needs to clean the British stables of corrupt money and Russian influence. 

The circumstantial evidence that secret intelligence relies on already points to something a lot bigger than covert Russian funding of the Leave campaign.  There are significant issues of intelligence interest that demand answers even from serving ministers.  We cannot exclude collusion by figures well beyond the names that are in the public domain.      

            

Monday, November 06, 2017

Tory Leadership Vacuum

In Brexit Britain, there seem to be few aspects of human behaviour that do not seem to be in some form of crisis.  The return of the Conservative party to the sleazy days of yore is not exactly a surprise. What is a surprise is that it the rather clumsy Sir Michael Fallon who was forced out, rather than the considerably more predatory Boris Johnson.  The fact is that with sleaze, as with everything else, the Conservatives are engaging in a vicious kin strife.

Fallon had to go because he was loyal to Theresa May. Johnson stays because he isn't. That the odious Andrea Leadsom was the occasion of Sir Michael's fall merely underlines her ambition and her utter absence of any wider loyalties at all. She is, of course not very good, which is why her perfidy was quickly revealed. In fact her aspirations are way beyond her skills. I encountered her at Perpetual, which she "administered" and it was clear that this was a pretty unhappy ship, with good asset managers over ruled by a woman with little understanding of the investment process. She has, I judge, "delusions of adequacy" rather than grandeur particularly, but whereas Theresa May now inspires little but pity, Mrs. Leadsom is increasing the object of hate from her own back benches.

Meanwhile Jacob Rees-Mogg, who I also encountered when he was investing -again rather ineffectually- for Lloyd George Asset Management similarly over estimates his own skill set. Although the Rees-Moggs are not especially grand by the standards of Eton, Jacob has affected a false persona of unfashionable suits and deeply reactionary opinions. he gets away with not because he was a star fund manager- he was actually pretty useless- but because he acquired a great deal of wealth the old fashioned way: he married it. His wife is widely believed to have been worth over £ 300m upon their marriage. His ultramontane religious ideas - extreme though they are- is not why Rees Mogg is as dangerous as he is loathsome. The reality is that under the urbane Etonian charm, Rees-Mogg is about as right wing and reactionary figure as Nigel Farage.  It is not merely a taste for unfashionable and ugly clothes that unites these two figures, but a similar contempt for those who disagree with them.  Farage over the weekend declared that he would "pick up a rifle" if Brexit was overturned. Yes he would- that's what fascists do when they lose the argument and their madness is overturned. Rees Mogg shares this intolerance of the true fanatic. There is no negotiation with such people. Farage has finally left his long suffering wife, but Rees-Mogg's views on women, despite his own famously uxorious life, are at least as primitive as Farage's- arguably more so. 

So the Conservative Party, at a time when the UK faces an extraordinary crisis- which is largely the result of the Tories sacrificing the national interest for their own sectional advantage- is turning to a bunch of duds.  Gove and Johnson are hugely overpaid journalists in the pay of the borderline criminal Rupert Murdoch organisation, and of the senior cabinet  ministers only David Davis has any significant business experience at all. May is a broken reed, Any loyalists are being broken by the 80 or so Tories who insist that the only way forward is a suicidal hard Brexit.

The economy- as long predicted- is now beginning to splutter alarmingly. There is now less than 2 months before British business must know at least the kind of transition that the incompetent Tories are aiming for. I predict they won't get it, and that starting in January and through the whole first quarter that many of the strongest businesses in Britain will be relocating tens of thousands of jobs offshore. National moral is going to take one hell of a beating- and the b*******s who delivered this disaster will finally start to face their judgement. 

Mene mene tekel upharsin