The Blackberry Five safe and well, thanks to City Critters and the fats cats at Goldman Sachs

Because it's Sunday and  it's nice to post good news ocasionally,  I couldn't resist following up my earlier New York/Goldman Sachs kitten story,  with this great photo of the five abandoned kittens - who were finally rescued by the lovely people at City Critters, with a little help from their friends at Goldman Sachs, who paid for the little critters' medical checks and helped place them in good homes.

The kittens were rescued by http://www.citycritters.org/ - a small animal rescue group in New York, staffed with voluntary help by people who all have fulltime day jobs as well. They mainly work with the many cats living rough in the city -  and some dogs, too.

They're a great organisation, and do a lot of good.  If you're interested, live in New York, or just like cats, visit their website, where you can also make donations for the animals.

The charming photo is courtesy of someone - (sorry, don't have your name) - posting a comment and photo in Downtown Express, the newspaper who was covering the story.

I used to live in New York on the corner of Bleeker and have many happy memories of catching the No 10 bus almost outside the apartment, and heading up town for yet another wonderful New York kinda day.

Diamonds in toothpaste and hissy fits - an everyday tale of whistle blowing

In this piece I'm assembling the facts as I see them, about the origins of the row between the Swiss Bank UBS and the US income tax people at IRS.

It falls neatly into a story of both wealth and power.  In this case the wealth of the invidual,  set against the power of Government bodies and commercial organisations.  Plus here we have an added element in the mix, the power of one very disgruntled whistle blower.

In 2001, Igor Olenicoff, a multi-millionaire real estate mogul living in California, flew to Switzerland to meet Bradley Birkenfeld. (Birkenfeld is on the left of the photo - from the Daily Telegraph).

This was to prove a very unlucky meeting for Mr Olenicoff, and for many others, and it proved to be the starting pistol that begun the present IRS blitz on off shore companies and so-called tax havens. And nearly brought down one of the great banks of the world, UBS, the Swiss bank specialising in wealth management.

Birkenfeld, now 44, had lived in Switzerland for 13 years, working as a financial adviser to the rich. Since 2001 he has been a director with UBS, living the charmed life of a highly paid expert in tax affairs. He had a million-dollar house under the Matterhorn in Zermatt and an apartment in Geneva and drove a 50,000 dollar BMW.

Birkenfeld looked after important clients for UBS's private bank, catering for US citizens with offshore accounts. Earlier, Birkenfeld had worked for Barclays Bank in Geneva and Mr Olenicoff had been one of his clients. When he left Barclays to become a director at UBS, Birkenfeld took Mr Olenicoff with him. Mr Olenicoff was his biggest client.

Using offshore accounts is not illegal for United States taxpayers, but hiding income in so-called undeclared accounts is. Switzerland does not consider tax evasion a crime, and using undeclared accounts is legal there.

Mr Olenicoff had approached Birkenfeld in good faith, believing, as any of us would, that he was dealing with a decent and trustworthy professional man, representing one of the great banks of the world. He naturally assumed that everything he said would be in confidence as he was talking to a man whose profession was advising on offshore banking. No doubt, Mr Olenicoff was paying a lot of money for the privilege of Birkenfeld's discretion and advice. It seems to me he was betrayed, in the most treacherous manner, by an individual who was himself doing exactly what he was condemning his client for doing.  The hypocrisy of Birkenfeld's behaviour is staggering - not to speak of his stupidity in thinking he could get away with it.

Birkenfeld took Mr Olenicoff's money, gave him advice, helped him move possibly hundreds of millions of dollars from the Bahamas to Switzerland, smuggled several hundred thousands worth of diamonds into the States, hidden in a tube of toothpaste -

- and then sold both his long term client and his ex-employers (who had kept him in luxury for years) straight down the river and into the hands of the IRS, the American tax authorities. The IRS, who didn't see this one coming, took a little time before they realised that their whistleblower, the apparent hero who was claiming virtuously to be so shocked when he found out what UBS was doing that it was his moral duty to tell on them, was hiding the fact that he himself had been doing exactly the same thing.

That's why, unusually for a whistleblower, he's just go 40 months in a state penitentiary, instead of the praise he might have got.

And the whole tacky story seems to have had its roots in little more than a hissy fit by Birkenfeld when he got a less than favourable annual report from UBS, and a smaller bonus than he was expecting. He flounced out of UBS and into the hands of the taxmen, taking his unsuspecting client with him.

Shakespeare talks of how 'one may smile, and smile, and be a villain.'
Well, for 40 months at least, I suspect Birkenfeld won't be doing much smiling.

And by the way, the client who trusted him got a suspended sentence, paid back some $50 million, and was fined $3,500. Maybe, like me, the court had considerable sympathy for Igor Olenicoff.

EVEN GOLDMAN SACHS CAN GET IT WRONG

The downside of being rich and successful  is that you have to be ultra careful of your image.

There are certain  groups it's safest not to get involved with.    Animal lovers, for instance - and, particularly, cat lovers:  steer well away from anything to do with fluffy, pretty, helpless little kittens. Put one foot wrong, and these people will mark you out, tell all their pals, and start a campaign against you - modern technology makes it frighteningly easy to do.
(This great photo is thanks to flickr via Marissa Cap)

Goldman Sachs quite accidentally became  involved with a bunch of kittens. Seems their intentions were good - but  they took their eye off the catnip ball. And look what happened.

In New York, Rich Brotman  runs an animal rescue service called City Critters.

In August, he found a litter of five abandoned kittens on a construction site on which Goldman Sachs are building their new HQ.  The youngsters were nicknamed Blackberries because of their dark coats.

Rich Brotman took the baby moggies home and approached Goldman S about help for paying  the medical costs involved in making sure the animals were in good health. He also asked GS to canvas their employees, to see if anyone would like to adopt  the the little fellows.  Goldman Sachs were pleased to help.

However, it wasn't long before things were going rapidly downhill for the company.

In October a  local New York paper claimed that promised money for the veterinary bills had not been forthcoming - and, insult to injury, the kittens had been brutally abandoned as no-one had given them homes.

In no time at all, this story was all over the internet, the blogosphere was in uproar, and Goldman Sachs wereThe Great Satan and marked with the number of the Beast, 666.  None of it was helped by the fact the company  had just announced  $3.2billion quarterly profits. All that cash floating around - and  5 little kittens abandoned to their fate.  Oh, dear!

Except, it turned out it was all a big understanding,  as the Goldman Sachs boys belatedly leapt into action to point out. All the bills had been paid - the delay had not been on their side, they had been waiting to be billed by the vet.  And all the kittens had found good homes, two of them going to a friend of the Goldman Sachs lawyer. And, they added plaintively,  they would never be unkind to kittens.

Goldman S should learn from this.  Their public image is not good at the moment, and when that happens, people will pounce on anything that seems to confirm that.  It's obvious what happened here.  To GS it was a minor incident, they agreed to do something about the kittens, and they did.  Bills  take time to come in, and get processed by whatever the section of their accounts dept is that deals with homeless kittens. Their mistake was in not keeping in touch and explaining things.

It could have been such a great tale to improve their image.  They messed up.  Maybe they should realise that a good PR department is worth just as much as their uber-clever money men. A shake up of their PR people, perhaps?

Goldman Sachs and The Dumb God

I quote below two excerpts I rather liked from John Arlidge's long interview in the Sunday Times on 8 November with the Chairman and CEO of Goldman Sachs, Lloyd Blankfein.

But before that, in view of the publicity that has been given to a careless passing reference to God towards the end of the interview, (and which has occasioned a number of lunatic fringe contributions in the comments column) , I thought I'd start with one of my own favourites quotes. It comes from Ben Johnson's comedy,  Volpone.  Here is Volpone, the old fox himself , speaking as he gazes lovingly on his gold:

"Riches, the dumb god, that givest all men tongues,

That canst do nought, and yet mak'st men do all things;

The price of soul; even hell, with thee to boot,

Is made worth heaven"

First said in 1606, Johnson's words are as accurate today as they were then. Money still enables you to do all things . . .

So here are two short excerpts from John Arlidge's interview with Lloyd Blankfein. 

Blankfein, acknowledging the public dislike of the banks these days, says:

"I know I could slit my wrists and people would cheer."  But then, he slowly begins to argue the case for modern banking. "We’re very important," he says, abandoning self-flagellation. "We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle." To drive home his point, he makes a remarkably bold claim. "We have a social purpose."

Later, Arlidge discusses why Goldman Sachs came out of the sub prime mortgage debacle better than other banks.  He points up the fanatical attention to detail that characterises the company, and explains:

"Take the sub-prime mortgage sector, the ticking toxic debt bomb that detonated the economic crisis. One year before bad home loans brought down Lehman and Bear Stearns, forced shotgun marriages of Merrill Lynch to Bank of America and HBOS to Lloyds, and made Royal Bank of Scotland a national joke, Goldman’s daily valuations revealed it had suffered modest losses in its mortgage holdings for just over a week. At most banks, the losses might have gone unnoticed or been dismissed as a rounding error, but Goldman convened a meeting of senior bankers to try to find out what was going on. Even though the housing and mortgage markets were still buoyant, the bank did not like what it saw and began reducing its exposure. When the credit crunch hit, its losses in the mortgage sector were only $1.7 billion, lower than any other big investment bank. UBS lost $58 billion."

Note the final sentence. How are the mighty fallen?  $58 billion down the drain - God in Heaven, what were UBS doing?  Whatever possessed them to get into such murky waters when their whole raison d'etre is asset and wealth management

As for the apparent quote from Blankfein, 'I'm just a banker doing God's work,"  -  for goodness sake lighten up, you people, it was a joke!

The Taxmen, The Bank and The Rat

Getting together this piece about the IRS/UBS row over tax -  triggered by the treachery of one Bradley Birkenfeld, left, a man who makes Judas Iscariot look like a Saint -  it seemed to me that in essence the whole thing comes down to two words: Freedom or Tyranny.

Those are dramatic words,  but this latest attack on the personal money of the

individual is a pretty dramatic affair.

In the violent slugfest between the IRS, the tax collecting arm of the United States Government, and the Swiss Bank UBS, specialising in wealth and asset management,  we seem to be seeing a clear attempt by one side, aided and abbetted by the OECD,  to do away with the long accepted distinction between tax avoidance and tax evasion - to the detriment of every one of us, rich or not.

Bear with me, because this is the boring bit where we have to define our terms.

In any civilised country,  two elements of the tax system have always been recognised - Tax Avoidance and Tax Evasion.

Tax Avoidance is legal. Tax Evasion is not.

To put it simply, Tax Avoidance is me exercising my god given right to hang on to my hard earned money and not hand over unreasonably large chunks of it to a bunch of greedy politicians.

Tax avoidance is the legal exploitation of the tax system, to try and reduce the amount of tax that is payable by means that are within the law, while at the same time - and this is the relevant bit to the present row - making full disclosure of income to the tax authorities.

Examples of tax avoidance are, for instance, using tax deductions, changing ones business structure through incorporation, or establishing an offshore company in a tax haven.

Tax Evasion, however, involves deliberate efforts by individuals, or firms etc, to evade the legitimate payment of taxes by illegal means.
This usually means taxpayers deliberately misrepresenting or concealing the true state of their affairs, and includes dishonest tax reporting, such as underdeclaring income, profits or gains - or overstating deductions.

So, Evasion is naughty. Avoidance is good,  because in a free country money belongs to the people who produce and earn it.

Of course, anybody in their right mind knows a certain level of tax is necessary - a portion of the wealth produced by the population must be given up to pay for the public good - for a decent health service, decent education, a trustworthy system of justice, national defence et al.

But why should we give the government an unlimited claim on our money to use as they see fit? And for what? Corporate bail outs, pet projects, foreign aid - the list goes on and on.

That's why this particular battle makes me nervous.  Not because I'm rich. I'm not - though one day, in a good old capitalist society, I might be.  And then I will want talented people around who will come to my aid and protect me from the grasping hands of my government.

Is there something a touch malevolent about the IRS relentless pursuit of UBS and it's clients?   A sort of old fashioned socialist desire to punish  people for having money? 

Yes, I do know that in this difficult financial landscape, all Governments are scratching round to find every and any source from which they can raise revenue.

And I am not saying the wealthy are perfect - but tell me who is? 

Mr Timothy F Geitner is the Secretary of the Treasury, the American equivalent of the UK's  Chancellor of the Exchequer.  I guess that makes him the boss of the IRS boys.

Do the words 'without sin' and 'casting the first stone' ring a bell, anyone?

more to come -including who are the OECD, and what's in it for them?

With A Little Help From My Friends . . .

Any blog centred on the wealthy and powerful is bound to spend time discussing the answer to the eternal question about money:
                       When you've finally got it, where do you put it, and who are your friends?

This year has seen probably the most vicious and sustained attack ever on the two institutions who provide the answer to that question -- Tax Havens and Offshore Banking.

I am of course referring to the long running bout of fisticuffs between the American tax authority, IRS, and the investment bank UBS -  sparked off by the rodent-like Mr Bradley Birkenfeld.

But before I embark on this sorry affair - with it's still strangely uncertain ending - I'll try to define the terms in play here. I'm going back to basics to talk about Tax Havens and Offshore Accounts.  For those of you who are not enchanted by money, this may be a bit tedious, so it might be an idea to leave now and go and do something more interesting.

Meanwhile,  off we go, beginning with -  What exactly is a Tax Haven?

The FT Lexicon defines a tax haven as:
"A country with little or no taxation that offers foreign individuals or corporations residency so that they can avoid tax at home."

Expanding somewhat on that, The Economist tends to use Geoffrey Powell's explanation. Powell is the former economic adviser to Jersey and he says:
“ What identifies an area as a tax haven is the existence of a composite tax structure established deliberately to take advantage of, and exploit, a world wide demand for opportunities to engage in tax avoidance.”

In a report in December 2008 the US Government Accountability Office expanded even further and said the following were indications of a tax haven:

nil or nominal taxes
*lack of effective exchange of tax information with foreign tax authorities
lack of transparency in the operation of legislative, legal or administrative provisions.
no requirement for a substantive local presence
self promotion as an offshore financial center

*note this one particularly, because it's the one that really got the goat of the IRS, and fuelled their thuggish bullying of UBS (as you can tell, I'm nothing if not impartial in this story!).

 UBS is the Union Bank of Switzerland, a premier global financial services firm offering wealth management, investment banking and asset management.  As they say on their website:

UBS is one of the world's leading financial firms. And we operate in two locations. Everywhere and right next to you.

Unfortunately, everywhere included America and right next to included Mr Igor Olenicoff, a multi-millionaire real estate mogul living in California,  who was unlucky enough to innocently seek the help of one Bradley Birkenfeld, an employee of UBS.

But I'm jumping ahead.  Before that, one more definition - offshore banking. The growth of tax havens is primarily due to the considerable growth of offshore banking, and this expansion is due to the globalization of the world's businesses.

So, what is offshore banking?
An offshore company is a business entity organized outside the primary jurisdiction of its home country. It locates all or some of its business operations in offshore havens, to take advantage of the low tax incentives they offer.
Offshore companies are regulated by their foreign tax havens, though it's fair to say that offshore companies operate in a pretty loose regulatory environment.
A company frequently incorporates in an overseas juridiction to avoid the extremely high taxation which they are paying in their home country.
An offshore company will be protected by the laws of their new domicile and obviously the laws enacted by these tax havens will be advantageous to the interests of the relocating company. For example, if you are trying to sue a company domiciled in the Cayman Islands, you would have to sue this company in the Cayman Islands where this company is chartered and incorporated. The laws in the Caymans are more considerate toward the interest of these companies than those, say,  of the United States.

Some countries, such as the United States, have increasingly sought measures to regulate offshore companies which also operate in the United States. Some new laws have barred offshore companies from retaining employees in their offshore jurisdictions. There are also new regulations on the kinds of business operations which these companies could move to the offshore locations.  Some countries have started to enact new measures aimed at making it illegal for companies to conduct business in the low-tax havens.

But there are big guns on both sides of this divide and the story aint over yet.

Next time, the battle in detail between the taxmen and the defenders of the rights of an individual to protect his own money.  At this stage in the battle, it looks as though the taxman is winning - but nothing in the world of high finance is ever quite what it seems . . .

Private and Public Knowledge.

Before I post a piece on Tax Havens and Offshore companies,  this is a little prologue.

As I state in the heading of this blog, I make no moral judgements. Moral judgements easily become absolutes, and I'm nervous of absolutes.

All the information in the Sark piece is in the the public domain for the whole world to read. In fact, I stumbled across it quite accidentally.  One of the great bonuses for a writer is the amount of information one acquires unexpectedly on the internet when searching for something completely different. I was actually searching for more detailed architectural information on Fort Brecqou, (which I absolutely love, and three cheers to the twins for conceiving and creating such a glorious building - and for those of you who are scathing about it, treat yourself to a good book on architecture and see what the experts say).

(I've posted photos of the castle on the two previous posts, so here for a change is the landing stage at Brecqhou - one of Ningaloo's excellent photos on Flickr. It's a bit small because my  system for some reason wouldn't enlarge it.  The notice board reads 'Private Island, No Mooring or Landing").




When I came across this stuff about the Larkers, I was intrigued. Especially as it fits in with a point I make over and over again.  In all matters in life, unless you're actively marketing a product, a low profile is a good thing.  If I was renting myself out as a company director I would,  unlike some people, make very sure I knew the people I was getting into bed with, and what business they were in.  But, even if it were all above board,  if I discovered that the information about what I was doing was on line, I would feel uneasy.

 Especially at this present  time when, because of the Birkenfeld case and the tricky footwork of the OECD on tax havens, a lot of very sharp eyes are on the world of offshore companies.

The fact of present-day life is that almost any information can be acquired within minutes by someone sitting at home with a computer and an on-line connection. And any of it can be transmitted in a matter of minutes to the whole world.

I'm afaid times they are a-changing, Sark  . . .

But moving on from this outpost of a bygone age, my next piece is going to be about the Birkenfeld/UBS storm and the OECD.

But let's remember one thing before any further discussion of tax havens and offshore companies - these are not illegal.  Rules may vary from country to country, but the concept of tax havens and offshore companies is not illegal.

In this supposedly free Western world, we are still at liberty to try and protect our own hard earned cash from the greedy incompetent hands of our politicians (and in the UK, we now know the high moral ground  on which these noble men stand!) But that protection is under fierce attack.  I, in my miniscule way, would like to offer a defence of freedom. 

More to follow . . .

Sark, Larks - and tax havens

I suppose one of the considerations for choosing Brecqhou on which to build a great house is that Sark, of which Brecqhou is a sort of fiefdom (though the Barclays are changing all that; after all, when you've paid 2.3 million pounds for an island you are nobody's fiefdom!) - has no income tax.  There's not a person in the world who doesn't want to own property and be resident in a place which has no taxes, me included. But I'm not sure I would have wanted close proximity to Sark.

In fact, Sark not only has no income tax, but no capital gains or inheritance taxes. There is no VAT and many businesses can be run without having to register for or charge it.  And  Sark has no company register.

The tax free status of Sark led, inevitably, to the jauntily called Sark Lark, though this is just another name for the old company-director-for-hire game. But times have changed.  The Barclay brothers acknowledge that, and, along with the British Government, of which Sark is a Crown Dependency, take a dim view of the Larkers.

Sark has a population of about 600, and at one point it was said that most of the adult population was involved in the business of directorships.  A resident of Sark, for instance, offers himself as a company director to some mysterious off shore company about which he knows nothing and for which he has no responsibility. This company pays no tax and is not required to declare its true ownership.  This arrangement can be lucrative, with directors' fees ranging from one to two hundred pounds, upward to tens of thousands of pounds. 

Naturally, the would-be-director, having a high opinion of human nature, assumes the company he is linking up with is highly respectable.  Nobody willingly wants their name associated with a bunch of money launderers involved in all manner of skullduggery.

However, greed is part of human nature and let's be honest about this, we all like money.  This sort of set up looks very appealing. And the odd directorship or two is doing no-one any harm, is it?  But, when it gets to the point where people might, for instance be company director of 700 companies, or perhaps have a couple of dozen phone lines running into their house,  or maybe, even, regularly have letters addressed to 200 different companies rolling through the letter box - then that is raising the bar, somewhat. And shortening the odds on trouble. I have to say, people playing this game are a lot bolder than me.

All it needs is for just one of a person's multitude of companies to crash land publicly, and in no time at all the boys in blue are coming up the  garden path closely followed by several dozen hacks and the paparazzi, and that person's  photo is spread all over the newspapers alongside assorted crooks and conmen, and life is looking pretty ugly. And it wouldn't do much for the reputation of of the Bailiwick of Guernsey and the reputation of the Channel Islands generally.

Once upon a more innocent time, this sort of larking about was fun.  But these days, with drugs lords and arms kings moving money around the world one step ahead of the authorities, and Bin Laden and his band of romantically garbed young men out and about fundraising successfully for their cause,  none of this looks quite so clever, or safe.

Sark, though independent, is also part of the Bailiwick of Guernsey and in 2000 the Bailiwick introduced the Fiduciaries Law, which looked as though it would bring the Sark Lark to an end.  But it's clear that hasn't happened.

The Barclays object to the practice.  So would I, in their position. And even in my lowly position, I object. This is a dangerous climate at the moment for anybody who wants the right to hold on to their own hard-earned money and find somewhere safe to put it.  We are in the midst of a concerted attack on the whole concept of off shore funds and tax havens, by both the OECD in Europe and, in America, by the IRS tenacious pursuit of the Swiss bank UBS. 

There are black and white lists of tax havens that are acceptable or not, as the case may be. And on the whole it is better not to be on the black list. It's always better not to draw attention to yourself. Sark's behaviour unfairly draws unwelcome attention to the Channel Islands, which run their affairs in a perfectly orderly manner.  Like most so-called tax havens, the Channel Islands have reciprocal Tax arrangements with the UK and most other countries in the world. Sark has no such arrangement.

Some years ago my favourite high IQ guru,  Lord Mandelson, was speaking in Guernsey.  He was asked about the European attitude to the Channel Islands.  He gave his usual wise advice. He said they were not really on the EU's radar screen and advised that they should 'remain unintroduced.' Exactly. Keep a low profile. Sark could spoil all that with its unsubtle greed.  It's a quaint little feudal system which looks increasingly out of touch with the real world

Next post is going to be about where we are at present in relation to the fight back by the off shore world, against the present attack on its belief in its right to some measure of privacy to protect itself and those it shelters.