The US Federal Bureau of Investigation (FBI) has released its digest of the weeks top news stories – two of which are financially related.  From the release:

4. San Diego: Indictment Charges Civilian Navy Employees and Contractors with Fraud and Bribery

A 25-count indictment was unsealed on 07/07/09, charging six individuals with corruption and fraud charges related to defense contracting at Space and Naval Warfare Systems Command (SPAWAR), a government organization based in San Diego that is responsible for the development of technology to collect, process, display and manage information essential to successful military operations. Full Story

…

7. New York: Six Charged in $140 Million Investment Fraud and Stock Manipulation Scheme

Ross H. Mandell, Stephen Shea, Adam Harrington, a/k/a “Adam Rukdeschel”, Arn Wilson, Robert Grabowski, and Michael Passaro have been charged in a two-count Indictment with conspiracy to commit securities, wire and mail fraud; and with securities fraud. The defendants surrendered to agents of the FBI. Full Story

To read the whole release and for more click here.

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Take a look at some of today’s top news stories below:

UPDATE 3: Investors bet on quick deal in UBS tax row
Reuters, July 9, 2009

UBS Digs Its Heels on Clients’ Names
New York Times, July 9, 2009

Firm admits overseas corruption
BBC, July 10, 2009

Equatorial Guinea Calls Report ‘Blackmail’
New York Times, July 9, 2009

U.S.-Russia Group to Fight Graft
The Moscow Times, July 10, 2009

Concrete actions must follow G8’s reiteration of anti-corruption commitments
Transparency International, July 9, 2009

Swiss, UK Governments Reach Dual Taxation Agreement
Wall Street Journal, July 9, 2009

Ex-BDO Seidman Partner Pleads Guilty in Shelter Fraud Case
Wall Street Journal, July 9, 2009

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The FT has reported:

UBS shares outperformed the Swiss market strongly on Thursday as investors digested the latest twist in the battle of wills between the US and Switzerland over bank secrecy.

The Miami judge presiding over a crucial court hearing next Monday has called on the US authorities to specify how far they would go to force the Swiss bank to comply, should the court rule in their favour.

Alan Gold, the US district judge presiding over the case, late on Wednesday gave the US government until midday US time on Sunday to clarify whether it might go as far as seizing assets of the bank’s US operations, or forcing them into receivership, should the court rule against UBS and the bank not comply.

The move followed a deposition by the Swiss government saying it would forbid UBS to hand over confidential client information if the court ruled against it.

Bern warned on Wednesday that it might go as far as confiscating the data, should the court rule the bank was obliged to transfer the client names requested.

As the FT also notes:

Although the Swiss government is not directly involved, Bern is represented as a “friend of the court.” In a filing, the government warned it would issue a blocking order and, if necessary, confiscate all relevant material, to prevent UBS from complying, should the court side with the US authorities.

“UBS is unable to comply with the summon without violating Swiss law. The government of Switzerland will use its legal authority to ensure that the bank cannot be pressured to transmit the information illegally, including if necessary by issuing an order taking effective control of the data at UBS that is the subject of the summon and expressly prohibiting UBS from attempting to comply”, Bern said

What we have here is the inevitable culmination between a secrecy jurisdiction – perhaps the ultimate secrecy jurisdiction and the rest of the world.

Remember what a secrecy jurisdiction is – secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain. That regulation is designed to undermine the legislation or regulation of another jurisdiction. To facilitate its use secrecy jurisdictions also create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

Then look at what we have here – a place – Switzerland – that has deliberately passed laws that are designed to assist people from the USA to break the laws of that country behind a veil of secrecy Switzerland has created to help them do so.

There is no doubt they’ve broken the law and no doubt Switzerland helped them do so. as the FT says:

UBS has admitted that Switzerland-based bankers broke US laws when visiting clients in America. Last February, UBS agreed to pay $780m to settle a separate, but linked, criminal action by the US authorities.

Does the US have a choice in the face of such a challenge: a challenge from another state that says it will blatantly use its laws to shield criminals? The price Switzerland has to pay is high: the loss of banking access to the US for a start, economic sanctions as another – for 12 Tax Information Exchange Agreements are meaningless in this case.  Switzerland is backing organised crime – that is what secrecy jurisdictions do – and the USA has a duty to challenge that.

Like it or not – UBS assets outside Switzerland will have to be sequestered – and not just by the US I suggest – but by the UK and others too as it cannot be considered a fit and proper person to conduct financial business on this basis. That, I hope, is where this case is going.

We’ve had it said that we’ve created banks that are too big to fail – but we can’t also have banks that are too big to avoid criminal charge – and that’s what we face here. If the rule of law, and society with it, is to survive then Switzerland has to be brought to its knees on this one. I hope the US has the courage to do that. And to impose the cost of it on Switzerland – which will have to pay the most almighty penalty for its criminal activities because its conducts provides it with no defence, no rights and no appeal.

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Nick Shaxson has written a great post on the TJN blog which tears apart the notion that information exchange would somehow hurt people in developing countries. From the post:

Certain think tanks have attacked TJN for proposing transparency and tax compliance, with one group of them arguing that we are putting at risk millions of people including “Jews in France, or homosexuals in Saudi Arabia” by threatening their privacy. Really? We are not aware of a single transparency campaigner, street protestor, anti-corruption campaigner, trade union official, investigative journalist, or dissident of any kind who has been protected from oppression by virtue of having a secret bank account or offshore trust. On the contrary, we can name any number of their oppressors – Augusto Pinochet, Obiang Nguema or Sani Abacha come to mind here – who use and have used secrecy jurisdictions extensively to preserve their power and wealth at the expense of their millions of victims.

Check it out if you get a chance.

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The Group of Eight* (G8) summit commenced yesterday amongst the rubble of the devastated Italian town, L’Aquila, which had been crushed by the Abruzzo earthquake on April 6^th.  Images of the leaders from the world’s eight biggest economies convening amongst smashed buildings provide a fitting metaphor for the world’s still caving economy.  Unfortunately, it seems my brilliant solution—closing my eyes tightly and violently shaking my head—has not made it all go away.

Much like devastating effects of the Abruzzo earthquake, the world’s economy continues to crumble, exposing the fault lines in our global financial system, which were easy to ignore when profits were only leading to even higher profits.  And as the crisis has unfolded, leaving profits, jobs, and housing prices collapsing around us, the world has finally sat up and taken notice of one line underlining the system, whose fissure has deepened the crisis worldwide.

This crack is the epidemic of secrecy and corruption that plagues the international financial system, which has enabled irresponsible and criminal practices to run rampant.  For example, Bernie Madoff (who we can now officially label a convicted criminal!) stashed hundreds of millions of dollars into offshore tax havens.  This fact has made the money hard to trace and even harder to recover.  Also, as GFI has pointed out, this system of opacity has worsened the withering credit market, as the quality of assets held by banks and other financial institutions are more difficult to appraise.  Finally, in developing countries, as much as $1 trillion in illicit financial flows is shifted abroad, hurting economic growth and causing massive losses in tax revenue.

Even Pope Benedict XVI has joined in the condemnation of these cracks in the financial system—I imagine out of fear that executives, jubilant on their success in evading taxes, might look to him for advice on how to tackle death next.  In his letter to the G8, the Pope addressed corruption and illegality, also noting that while finance is not necessarily bad, it can be harmful with “man’s darkened reasoning.”

Yesterday, standing amongst the rubble, the G-8 leaders strongly affirmed their commitment to close the crack in international finance.  In a joint declaration they affirmed they cannot “continue to tolerate large amounts of capital hidden to evade taxation,” which is particularly important given the extraordinary government spending packages which have been “adopted to stabilize the world economy.”  We cross our fingers that such a strongly worded conviction will translate into real change.

The last event of the G-8 summit will be a meeting between President Obama and the Pope tomorrow.  If I were in Obama’s place, I might ask about the afterlife.  But given the current situation, I suppose I’d be more inclined to ask about the after-meltdown.

Notes:

* The G8 includes: The United States, Canada, the United Kingdom, Japan, Germany, Italy, France, and Russia

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Read some of today’s top news stories below:

Judge calls on US to clarify position on UBS
Financial Times, July 9, 2009

UBS deal important to U.S. double tax deal-Leuthard
Reuters, July 8, 2009

Mabey & Johnson to plead guilty to overseas corruption charges
Telegraph.co.uk, July 9, 2009

Rights Group: Equatorial Guinea misused oil money
Associated Press, July 8, 2009

Austrian Parliament Falls Short of Loosening Bank Secrecy Laws
NASDAQ, July 8, 2009

Hong Kong launches consultation on anti-money laundering legislation
China View, July 9, 2009

Marc Dreier Asks for Leniency; U.S. Seeks 145 Years (Update3)
Bloomberg, July 8, 2009

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Check out some of today’s top stories below:

Pope Benedict XVI condemns ‘corruption and illegality’ of politicians and businesses on eve of G8
Telegraph.co.uk, July 8, 2009

Swiss Government Says It Would Seize UBS Data Sought by U.S.
Bloomberg, July 8, 2009

Treaty Conveys Little Power to Break Swiss Bank Secrecy
Washington Post, July 8, 2009

Luxembourg says removed from tax haven “grey list”
Reuters, July 8, 2009

Tax havens to come under government scanner
The Economic Times, July 8, 2009

Germany gives info on black money of Indians
Central Chronicle, July 7, 2009

Rwanda: RRA Recovers Rwf 3 Billion From Smuggling, Tax Evasion
The New Times, July 8, 2009

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The Washington Post published a fantastic article today which finally addresses the fact that TIEA agreements, as stipulated by the OECD standards, do very little to crackdown on tax evasion.  From the Post:

In an interview this week, a top Swiss official cited the recently negotiated treaty amendment as evidence that Switzerland is moving toward greater openness. Doris Leuthard, Switzerland’s vice president and economic minister, emphasized that in the future the treaty amendment now awaiting ratification would give the United States access to information in cases of tax evasion, which are not covered by an existing treaty between the two countries.

But Leuthard also said that under the treaty amendment, the United States would have to know the names of suspected tax evaders to obtain information about their Swiss accounts.

“This is basic, basic information they will need to give us,” Leuthard said.

Jack Blum, a lawyer who specializes in international tax and money-laundering matters, said the treaty amendment boils down to this: “If you have the information, we’ll give it to you.”

The main value of the agreement is that “it gives everybody the ability to say we signed an agreement,” Blum said, but “I don’t think that qualifies as solving the problem.”

Exactly!  Up until now, the news media has simply taken the politicians statements on face value – assuming that these TIEAs would solve the problem.  But the point remains, had a TIEA been in place last year, nothing would have changed in the UBS case.  The Swiss would still be refusing to turn over the account information. This is what we’ve been pointing out for months.  It’s nice to see we’re finally being heard.

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Take a look at some of today’s top stories here:

Odintz to Join Treasury’s Office of Tax Policy (subscription required)
Tax Analysts, July 7, 2009

U.S. says has far less than 52,000 UBS account names
Reuters, July 6, 2009

Banks consider ‘getting rid of all American clients’ (click to listen!)
World Radio Switzerland

Gruebel Isn’t Saying How Cutting 40% of UBS Can Help Earnings
Bloomberg, July 7, 2009

Jefferson tape cites Nigerian leader’s role: Prosecutors say bribe was planned
Nola, July 7, 2009

Halliburton: Culprits must face trial – Aondoakaa
Daily Sun, July 7, 2009

Florida regulators failed in Allen Stanford case
Miami Herald, July 7, 2009

Bourke ‘Stuck Head in Sand’ on Azeri Oil Bribes, U.S. Says
Bloomberg, July 7, 2009

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Our good friend and Task Force member, Richard Murphy, has gotten ahold of the UK/France Summit Communiqué and points out some very exciting language.  1st – both countries acknowledge that 12 TIEA agreements to do not a clean jurisdiction make.  And 2nd – both countries call on the OECD to look at the benefits of country-by-country reporting.  From the communiqué (emphasis added by Richard Murphy):

France and the United Kingdom will also address the task of implementing the decision of the G20 concerning uncooperative jurisdictions and remain vigilant in ensuring that the 42 countries on the OECD “grey list” meet their commitment to apply international standards for the exchange of tax-related information.

It is essential that we maintain the momentum set by the London Summit. We are therefore clear that where jurisdictions have not reached the standard of information exchange agreement by March 2010, they should be subject to coordinated international counter-measures agreed in London.

Both our countries also stress the importance of combating tax evasion and undertake to combine our efforts to reinforce the coherence and effectiveness of international action in this domain. We agree that the threshold of 12 tax information exchange agreements should be seen as a starting point in the move towards greater tax transparency. If progress stalls we will expect the threshold to rise above 12, bringing those who have not made further progress back into the “grey list”.

We will work together through the G20 to ensure that proposals are developed by the time of the next G20 Summit to ensure that developing countries can benefit from the new cooperative tax environment, including through a new multilateral tax information exchange agreement. We also call on the OECD to look at country by country reporting and the benefits of this for tax transparency and reducing tax avoidance.

Indeed France’s vocal support for country-by-country reporting  is very significant given that this is the first time that France has ever vocally supported country-by-country reporting.  The UK, of course, came out strongly in favor of country-by-country reporting a few weeks ago in the lead up to the summit of finance ministers in Berlin on June 23.  This is another huge victory for Christian Aid, TJN, and Richard Murphy who have implemented a full-court press on country-by-country reporting over the past couple of months.

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Task Force member Global Financial Integrity echoed the sentiments of other civil society organizations today, including Task Force member Tax Justice Network, in condemning the harassment of Cameroonian journalist Jean-Bosco Talle for his part in fighting corruption in the West African nation.  From GFI’s statement:

Following publication of the report “Biens mal acquis” or “Ill-Gotten Gains,” by the French non-profit organization Catholic Committee against Hunger and for Development (CCFD) last month, Mr. Talla, editor of the Cameroonian newspaper Germinal, has been harassed and his life has been threatened. The report presents estimates for assets stolen by 30 heads of state during the past 50 years, including Cameroon’s President Paul Biya. The report also draws upon GFI research of illicit financial outflows from developing countries which found that Cameroon lost an estimated $842 million per year to illicit financial practices, including government corruption.

“The case of Mr. Talla and the report on ‘Ill-Gotten Gains’ demonstrates how corruption can entail more than just thievery of a country’s wealth; it can also entail coercion, repression, and violence,” said GFI director Raymond Baker. “This is truly one of the most detestable elements of an overarching problem.”

You can read the full statement at www.gfip.org…

You can also learn more about the CCFD report on their website (in French) at ccfd.asso.fr

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The Basel Institute on Governance’s International Centre for Asset Recovery (ICAR) joined the Task Force today!  From the release:

The Basel Institute on Governance is an independent non-profit think tank dedicated to research, policy development, consulting and capacity development in the areas of corporate, public and global governance. Created in 2006, the International Centre for Asset Recovery (ICAR) of the Basel Institute assists developing countries in building capacities and setting-up necessary procedures and institutions to more effectively make use of international legal assistance in criminal matters for the purpose of recovering stolen assets. A primary goal of ICAR is to support countries in implementing the provisions of Chapter V on asset recovery of the UN Convention against Corruption (UNCAC). ICAR provides advice and assistance and may act as a facilitator, coach or mentor in international asset recovery cases. The Centre conducts applied research on advanced techniques and developments on asset recovery matters by using various tools, such as surveys and case studies.

You can read the rest of the release here…

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