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Report links McDonald’s to EU tax avoidance scandal

Report links McDonald’s to EU tax avoidance scandal

McDonald’s has been linked to the growing scandal of tax avoidance within the EU after the fast-food group was accused of avoiding €1bn of taxes by funnelling royalties through Luxembourg.

A report by the charity War on Want and three trade unions revealed that between 2009 and 2013 McDonald’s paid a total of €16m in tax on royalties of €3.7bn.

Its authors called for the fast-food chain’s relationship with the Grand Duchy to be investigated by the European Commission in a move that would drag the US group into the row over tax avoidance within the trading bloc.

In November, the leaking of 28,000 pages of documents from auditor PwC revealed how large companies reduced their tax bill by pushing revenues through the Grand Duchy.

This revelation triggered an unsuccessful vote of no-confidence in Jean-Claude Juncker, the new European Commission president, who had been prime minister of Luxembourg while these tax rulings had been made.

A spokesperson for McDonald’s, which has almost 8,000 outlets across Europe generating more than €20bn of sales, said: “McDonald’s complies with applicable laws, including payments of the taxes that are owed in each country in which we operate.”

McDonald’s set up an intellectual property holding company in Luxembourg in 2009 as part of a restructuring that saw its European headquarters move from London to Geneva in Switzerland.

The creation of the Luxembourg division came a year after the Grand Duchy introduced a generous tax regime allowing companies to benefit from a tax rate of 5.8 per cent on income generated from intellectual property. But, according to the report, McDonald’s paid a €3.3m tax bill from revenue of €833.8m in 2013.

The European Commission is investigating whether sweetheart tax deals between Luxembourg and Amazon, the online retailer, as well as the financing arm of Fiat, the carmaker, amounted to illegal state aid. It has launched similar investigations into the operations of Apple, the technology company, in Ireland as well as Starbucks, the coffee chain, in the Netherlands.

A spokesperson for the commission said that the report would be “carefully processed”. He added: “Combating tax evasion and avoidance is a top priority of the European Commission.”

In December, the commission widened its probe into sweetheart tax deals — and whether they equate to illegal state aid — to include all 28 EU member states. Previously the EU’s executive arm had only been looking at Cyrpus, the Netherlands, Ireland, Luxembourg, Malta and the UK.

“The steady drip-feed of investigations and leaks gives a partial picture at best,” said Nienke Palstra, a senior policy officer at Transparency International EU, the anti-corruption group. “A transnational problem needs a transnational solution. That is why the EU must act to ensure that companies report this information as a matter of routine.”

Financial Times            February 25, 2015

 
Corruption Watch Annual report 2014 - corruption is growing

Corruption Watch Annual Report 2014

Corruption Watch has released its third annual report, and marked its three-year anniversary of operations.

Under the theme of My Hands Are Clean, the publication bears a distinctive polygraph cover which speaks about honesty and integrity.

Corruption Watch data reveal that the watchdog organisation received a total of 8 181 corruption complaints in the three years since its inception to the end of last year. Of these, 2 714 were submitted in 2014, which is a 17% increase in reports over the previous year. It translates to an average of seven reports received a day.

Of these, 56% were confirmed as corruption in terms of Corruption Watch’s official definition: corruption is the abuse of public resources or public power for personal gain. Corruption Watch is concerned with any such abuse by anyone at any level of government or in business.

“The influx of reports evidences the positive response we have received from the public, and is an indication that people have had enough and are starting to object to what is going on around them. We are also affirmed by the continued willingness of public sector employees to report corruption in their own ranks. It gives us confidence that the fight is worth fighting,” said executive director David Lewis.

Abuse of power prevails

The 2014 report reveals that abuse of power is the most prevalent type of corruption, constituting 41% of all the complaints received in 2014. The most dominant sectors featured in reports include schools, traffic and licensing, immigration and housing.

The report highlights progress in the organisation’s ongoing schools campaign, and details various milestones marked during 2014 – they include a song targeted at the youth sector, a photo and essay competition for young people across the continent, and a number of investigations.

A Corruption Watch survey conducted via Mxit revealed that 84% of South African youth involved in the study were concerned about corruption. Out of over 6 000 respondents between the ages of 14 and 34 who participated in the survey, over half claimed that they would like to take part in an anti-corruption campaign.

“As a result, this year we will be focusing on amplifying the voice of the youth. We approach the youth on the basis that they are innovators, the leaders of today, not the leaders of tomorrow. There is no reason to expect that they will not play a leading role in the struggle against corruption,” said Lewis.

To learn all about these matters, and more, download Corruption Watch annual report here.

Corruption Watch               February 19, 2015

 
Rolls-Royce has been roped into Brazil's oil corruption scandal

Rolls-Royce has been roped into Brazil's oil corruption scandal (photo: AP)

Rolls-Royce, the British engineering concern, has become the latest company to be linked to the web of corruption at Petroleos Brasiliero, or Petrobras, Brazil’s semi-public energy giant that already has lost a CEO and five other senior executives because of suspected kickbacks and bribery.

A Brazilian court has released documents including 600 pages of testimony by one former Petrobras executive, Pedro Barusco, who said Rolls paid him $200,000 to help it win a $100 million contract.

Barusco, who has agreed to a plea bargain with Brazilian authorities, said that amount was just a small part of the bribes he received from Rolls.

Rolls, most commonly known for its luxury cars and aircraft engines, also makes propulsion and power systems used in oil rigs and ships, including gas turbines for Petrobras offshore oil platforms.

The engineering company is already under investigation by Britain’s Serious Fraud Office for suspected bribery and corruption believed to have been committed in December 2013. And it has been disclosed that the US Justice Department also is investigating the case, though it has received no formal notice of that inquiry.

Nevertheless, a spokesman for Rolls, who withheld his name as is common in Britain, expressed surprise at the new case of suspected corruption and stressed, “We have always been clear that we will not tolerate improper business conduct of any sort and will take all necessary action to ensure compliance, including co-operating with authorities in any country.”

Rolls is only one of 232 companies suspected of involvement in corrupt practices with Petrobras. Among them are SBM Offshore, a Dutch-based supplier of offshore oil tankers; three Brazilian shipbuilders; Keppel Corp. and Sembcorp Marine, both based in Singapore. SBM has been cooperating with Brazilian law enforcement, but Keppel and Sembcorp deny any wrongdoing.

The corruption probe has also put the law enforcement spotlight on 150 Petrobras executives, including directors on its board. Of these suspects, Brazilian police say, 80 already have been charged with various acts of corruption.

At the heart of the Petrobras scandal are kickbacks that the energy company is believed to have paid to Brazil’s ruling Workers’ Party. Its leader, Brazilian President Dilma Roussef, is a close friend with Maria das Gracas Foster, who was forced to resign as Petrobras’ CEO on Feb. 4 along with five members of the board of Petrobras.

Amid its mounting problems, Petrobras stumbled again, naming a leading banker, Aldemir Bendine, to replace Foster. Bendine is a close friend of the president and many observers say they would have preferred a new CEO with more independence. They also said Petrobras’ new leader should have his roots in energy, not banking.

As for Rolls, despite its fame and reputation it has been suffering financial difficulties recently as governments and companies reduce spending. In its annual earnings report for 2014 it recorded the first revenue loss in 10 years, down 6 percent to under $22.5 billion.

Business Insider              February 18, 2015

 
HSBC: Swiss bank searched as officials launch money-laundering inquiry

HSBC: Swiss bank searched as officials launch money-laundering inquiry (photo: Harold Cunningham/Getty Images)

Pressure on HSBC mounted on Wednesday, Feb. 18 when prosecutors in Switzerland announced a money-laundering investigation into its Geneva-based private banking subsidiary and raided its offices in the city.

Prosecutors said the investigation into “suspected aggravated money laundering” was prompted by “the recent published revelations” about the private bank. The revelations, by the Guardian, the BBC, Le Monde and other media outlets, showed that HSBC’s Swiss banking arm turned a blind eye to illegal activities of arms dealers and helped wealthy people evade taxes.

A search was being led by the prosecutor-general, Olivier Jornot, and the first prosecutor Yves Bertossa. The inquiry could later be extended to people suspected of committing or participating in money laundering, prosecutors said.

The investigation in Switzerland comes after inquiries in Belgium and France. French authorities have recovered £188m in taxes and fines from a list of 3,000 clients and Spain has recovered £220m, also from 3,000 clients.

The UK has faced criticism for prosecuting just one out of the 1,000 individuals whose details were contained in the cache of documents obtained by Hervé Falciani, a former employee of the bank.

Those files were the basis of last week’s reports by the Guardian and a collaboration of news outlets around the world about the scale of the tax avoidance operation being run by the bank’s Swiss subsidiary.

Prosecutors in Switzerland said the investigation followed those revelations, which showed how HSBC’s Swiss arm allowed clients to withdraw “bricks” of cash and helped clients conceal their accounts from domestic tax authorities.

Prosecutors said they were targeting the bank under a law that allows companies to be investigated independently of whether any employees are culpable “if it can be accused of not having taken all the organisational measures necessary” to prevent violations of the law.

Last year, Swiss authorities indicted Falciani on charges of data theft and said they may try him in absentia.

HSBC said: “We have co-operated continuously with the Swiss authorities since first becoming aware of the data theft in 2008 and we continue to cooperate.”

The revelations have caused a political row in Britain. The opposition Labour party has called on the chancellor, George Osborne, to answer questions about why there have been so few prosecutions by HM Revenue & Customs after it received the files hacked by Falciani in 2010.

HMRC identified more than 1,000 tax evaders after receiving the files and recovered £135m in repayments, but only one person was prosecuted.

A petition calling for the UK to investigate the affair is two-thirds of the way to towards its target of attracting 1m signatures.

The shadow chancellor, Ed Balls, has also called on the Osborne to explain why he and David Cameron gave HSBC chair Stephen Green a Tory peerage and appointed him trade minister “several months after the government was given information from the French government in May 2010”.

Green has so far refused to comment on the allegations, which covered his period at the helm of the bank, first as chief executive and later as chair.

Over the weekend, Stuart Gulliver, chief executive of the bank, issued an apology through some national newspapers in the UK. He has not yet spoken publicly about the scandal but will face questions about it when he presents the bank’s full year results in London on Monday.

Senior executives from the bank – including chairman Douglas Flint – are due to appear next Wednesday before a committee of parliamentarians in London to demonstrate that the culture of the bank has been overhauled.

The Guardian               February 18, 2015

 
Canada: Lawyers win exemption from money-laundering law

Supreme court of Canada (photo: freegrassy.net)

The Supreme Court of Canada has unanimously struck down a federal law aimed at conscripting lawyers into the fight against money laundering by criminals and terrorists.

The court’s landmark ruling puts the confidential relationship between lawyers and their clients on a special plane, as an essential feature of the justice system that the government will find very hard to disturb as a result. The battle between the Canadian government and the country’s 95,000 lawyers goes back to anti-terrorism legislation passed shortly after the Sept. 11, 2001, attacks in the United States.

The federal Attorney-General had urged the court not to treat lawyers as “above the laws passed by Parliament,” but the Supreme Court found much to dislike in a money-laundering law that allowed government agents to search lawyers’ offices and seize documents without a warrant. The court said it would have turned lawyers into unwitting agents of the state, unable even to inform their clients when their confidential records were at risk of being viewed by a government agency set up to fight money laundering (methods of disguising illegal sources of income).

The law requires lawyers, accountants, life insurance brokers and others who move money for clients to keep records of the transactions, verify identities and establish internal programs to ensure no money laundering occurs. They can be jailed if they fail to comply. A Liberal government first included lawyers in the fight against money laundering in November, 2001. The Conservative government expanded the law’s reach in 2006.

The ruling exempts lawyers from the money-laundering law, and reinforces a previous decision that the relationship of confidentiality known as solicitor-client privilege is a near-absolute. And it goes further, by establishing for the first time, by a 5-2 vote, that a lawyer’s duty of commitment to the client’s cause is a “principle of fundamental justice” – which means it is enduring and central. It will thus be nearly impossible for the government to interfere in that relationship by using the threat of criminal prosecution.

The Canadian Bar Association, representing 38,000 lawyers, called the affirmation of the lawyer’s commitment to the client a historic moment.

“It’s one of those points people will still be talking about 50 years from now,” Craig Ferris, a commercial litigation lawyer in Vancouver, said for the CBA. “I liken it to Pierre Trudeau saying there’s no place in the bedroom of the nations – this is the Supreme Court saying the state has no place in the solicitor-client relationship.”

A spokesman for Finance Minister Joe Oliver said the government is reviewing the ruling.

Justice Thomas Cromwell, writing for the five judges in the majority on that point, said that “the state cannot impose duties on lawyers that undermine their duty of commitment to their clients’ causes.”

Mr. Ferris explained the principle to mean that the state can’t cause lawyers to feel conflicted in their duties to the client, and said the principle protects clients. “It allows Canadians to be confident that their lawyers are advancing their interests, that they’re not conflicted, that there are not loyalties to the state. When they speak to a lawyer, there is complete confidence that it’s privileged and the lawyer is going to use it for their benefit, and not for the state’s benefit.”

The court cited several major flaws, such as the power given to government agents to examine and copy documents until a lawyer asserted that the documents are subject to “privilege.” The court said this approach increases the risk that confidential communications between lawyer and clients will be revealed. A lawyer claiming privilege would need to reveal a client’s name and address, though this information itself may be confidential, the court said.

The law was never used against lawyers. Law societies that challenged it won temporary court orders barring its use in five provinces, and the federal government came to an agreement with the Federation of Law Societies to allow a single court challenge to proceed in British Columbia, while refraining from using the law until the case was concluded. Both the trial judge who first heard the case and the B.C. Court of Appeal ruled that the law was unconstitutional.

The law societies, which regulate lawyers, say they have set up their own rules for stopping money laundering by banning lawyers from receiving more than $7,500 in cash on a single matter, in most cases, and by requiring them to verify their clients’ identities.

The Globe and Mail            February 13, 2015

 
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