Britain's HSBC is facing charges of fraud and money laundering from authorities in Belgium, who accuse the Swiss arm of Britain’s biggest bank of having helped wealthy customers evade tax. The Belgian authorities said Monday that “The Swiss bank is suspected of having knowingly eased and promoted fiscal fraud by making offshore companies available to certain privileged clients. ”
Earlier this year U.S. authorities said they had broken a crime ring that laundered tens of millions of dollars from drug cartels through businesses in Los Angeles, California. Authorities suspect that drug cartels were funneling their profits through the companies in an international laundering scheme. Those might have included ransom payment made to release a U.S. citizen tortured by a drug cartel in Mexico.
Also this year, U.S. officials accused the British bank Standard Chartered of illegally laundering $250 billion in financial transactions with Iran during the past decade, allegedly filtering money through its New York branch in about 60,000 transactions with Iranian financial institutions.
Illegal money transactions have come to plague the free market system because western laws passed since the 1960s have created a financial structure that facilitates the circulation of illegal money, wrote former businessman Raymond Baker, in his book Capitalism’s Achilles Heel.
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| Raymond Baker |
"This structure consists of tax havens, off-shore secrecy jurisdictions, disguised corporations where no one knows who owns the business; flee clauses that enable the trustee who is the nominal head of the disguised corporation to shift that disguised corporation to a different secrecy jurisdiction if anyone comes knocking on the door trying to find out who owns it; shell banks, anonymous trust - fake foundations where you can donate money to the foundation and then benefit yourself out of the foundation; false documentation, mispricing and a whole host of loopholes that facilitate the movement of money out of the dirty money structure into western coffers, ” Baker told an audience in Washington D.C.
Kannan Srinivasan, a researcher at Melbourne's Monash Asia Institute, said the easiest way to conceal unlawful funds is to move them across international borders. The absence of coordinated international legal and law enforcement efforts makes this possible.
“When money comes out of any country, one does not go very deeply into the origin of that money. Therefore, it takes on this new character of being a variety of international money and can sometimes come back into the very country from which it has exited because it is presumed to be a sort of international investment.”
Srinivasan said many banks, including those in the United States and Switzerland, accept large deposits of money from overseas, typically without checking their origin. "For example," he said, "a person making money by running a prostitution ring in the United States could not by law deposit that money in an American bank. But if dirty money is earned outside the United States, it can be deposited in U.S. banks."
Drug dealers, racketeers, terrorists and other criminals have to conceal the sources of the money they earn through their illegal activities. So they usually have other legitimate businesses, such as shops, garages and restaurants, through which they channel their illicit incomes. But money laundering takes various forms and is not confined to criminal and terrorist circles.
“Dirty money comes in three forms: corrupt, criminal and commercial," said Baker. "The corrupt component is the proceeds of bribery and theft by foreign government officials. The criminal component is the drug and the racketeering and the terrorist money that sloshes around the globe in the billions of dollars. The commercial component has the characteristic of being almost always tax evading,” he said.
But many people are not aware of the devastating effect illegal money transactions have had on them and the rest of the world.
Baker estimated that some $ 11 trillion of dirty money were hidden away in tax havens around the world. In addition, about $1 trillion in illicit funds crossed international borders every year, half of it originating in poor countries who receive aid. According to Baker, this makes eradicating global poverty a near impossible task.
“Consider the impact of this money. First, it eviscerates foreign aid. Foreign aid has been running at about $50 billion a year, and higher in recent years. Match that against the $500 billion of dirty money that comes illicitly out of developing and transitional economies.”
Corrupt leaders in developing countries often use huge portions of aid money to enrich themselves and bribe those who help them in the endeavor. Terrorism also is financed by dirty money and as we can see in the case of ISIS, there is no shortage of it.
Baker said that al-Qaeda had accumulated an estimated $300 million through the dirty money structure in the decade prior to September 11 attacks. "It’s the way that Saddam Hussein re-armed after the Persian Gulf War, buying munitions that were later killing Americans in Iraq. It’s the way that Abdul Quadeer Khan in Pakistan operated his nuclear network, buying and selling nuclear materials around the world," he said.
Branko Milanovic, a senior scholar at the City University of New York, said international monetary laws should be tougher and more coordinated.
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| Branko Milanovic |
“When you have people who are mutually benefiting from a relationship that is somewhere in a gray area, and which may be illegal in one country and quasi-legal or legal in another country, it is very difficult to actually go after them,” said Milanovic. "And having laws in place is not enough," he warned, "because even those already on the books are not properly enforced."
Milanovic said the main reason is that most of the victims of money laundering are poor and powerless people in developing countries.
“It’s almost impossible for poor people to organize themselves and to fight back. They have no political power, they have no economic power and they have no access to the media.”
Perhaps more importantly, noted Milanovic,"the poor in developing countries often are unaware they have been harmed by money laundering."
Huge amounts of international aid attract the vultures who siphon off large portions of it and often send it back to where it came from, using illegal channels. Meanwhile, millions of destitute people die every year from preventable poverty-related causes.
The corruption of international capitalism has prevented the spread of global prosperity, with those most hurt by it unable to prevent it. Experts agree that new laws will hardly change a thing. But governments can and should do more to educate the public and establish mechanisms to enforce the existing laws. No amount of aid will erase poverty until the illegal flow of money out of poor countries is stopped.
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And on a lighter note:
http://www.tickld.com/x/capitalism-explained-this-is-so-accurate-it-hurts
When I wrote this article in 2006, there was very little discussion of the Nordic economic model in daily U.S. news media, and when there was, the idea that it can work anywhere else but in the Scandinavia, and even there in the long term, was generally rejected. Since then I have found the skepticism more and more giving way to careful thought.
Zlatica Hoke, May 25, 2006
Scandinavia's Success Story or Myth
Citizens of the northern European countries -- Sweden, Denmark, Finland, Iceland and Norway -- enjoy high living standards, and free health care and education. But they also pay high income taxes. Many economists say Europe’s socialist democracies are economically unsustainable. But others point out that Nordic economies are experiencing healthy growth.
When full-time workers in Sweden lose a job, they remain on full pay for a year. During that time, they are eligible for retraining at government’s expense. And if they remain unemployed after a year, they may qualify for unemployment compensation, equivalent to an average income, indefinitely.
High Taxes and High Growth
Education, including university study, is available to everyone at no cost as are health care and numerous social services. Swedish citizens pay for these benefits through taxes, which by American standards are very high. For example, personal income tax in Sweden can be as high as 55 percent and in Denmark can exceed 60 percent, compared to a maximum rate of about 35 percent in the United States.
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| Jacob Kirkegaard |
The outlook for the future is also good, says Jacob Kirkegaard. This year, most Scandinavian economies are expected to grow by about three percent -- Sweden by nearly four percent -- compared to a little more than two percent forecast for other western European economies. He says one reason for the growth of Scandinavian economies is that they encourage investment.
“Obviously they are small, which means that they tend to trade a lot with other countries, much more so than a big country such as the United States or, for instance, Germany," he says. "But also, in terms of investments. For instance, Sweden sold their car companies to U.S. firms G.M. and Ford. Or, for instance, in Denmark, just last year, a couple of private equity funds [investment firms] from the U.S. and Britain actually bought the former telecommunications incumbent [firm] in what was the biggest private equity deal in Europe in 2005. So these are really countries that are extremely open and hospitable to both trade and investments.”
Kirkegaard says low corporate taxes -- ranging from 18 to 28 percent, compared to about 40 percent in the United States -- as well as low corruption and violence make Scandinavian countries attractive to foreign and domestic investors.
Although Scandinavian labor is highly organized, unions are focused on creating jobs, rather than protecting them. They foster a system popularly called “flexicurity,” which includes generous unemployment benefits, but also an obligation on the part of workers to accept government sponsored training for new jobs.
Expensive Welfare State
But many economists point to flaws in the Scandinavian economic model. Marian Tupy, a policy analyst at the Cato Institute in Washington, says expensive social welfare systems sooner or later run out of money. He notes that in the past 15 years, northern European countries have had an average economic growth rate of just 1.5 percent per year, compared to three percent in the United States.
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| Marian Tupy |
“Sweden and Norway and Finland and Denmark are still very rich countries. That’s not at issue here. The issue is what will happen to these countries and to the welfare state they have 10, 20, 30, 40 years down the line, says Tupy. "And if you look at their economic performances in the past 15 years, then you have to conclude that it should be very difficult for them to maintain the current rates of taxation and redistribution and financing of the welfare state while at the same time remain rich."
“Sweden and Norway and Finland and Denmark are still very rich countries. That’s not at issue here. The issue is what will happen to these countries and to the welfare state they have 10, 20, 30, 40 years down the line, says Tupy. "And if you look at their economic performances in the past 15 years, then you have to conclude that it should be very difficult for them to maintain the current rates of taxation and redistribution and financing of the welfare state while at the same time remain rich."
Tupy says we can already see that. For example, he says, the Timbro Institute in Sweden came up with a ranking of all countries of the E.U. vis-à-vis the 50 states of the American union. "And it is very interesting that all the Scandinavian countries come at the bottom of the league. In fact, Denmark is poorer than Kentucky,” says Tupy.
During the 1980s, Swedish income taxes ran as high as 90 percent. As a result, Swedish households accumulated almost no savings. This made them even more dependent on social programs when the economy soured in the early 1990s. Swedes revolted at the ballot box, electing a neo-liberal coalition led by Carl Bildt, who lowered taxes. And without those changes, many economists point out, Sweden's economic rebirth in the late 1990s would have been impossible.
Scandinavian Lessons
Still, the combination of social welfare and the ability of Scandinavian countries to integrate into the global economy has attracted the attention of a number of countries seeking to improve their socio-economic model. South Korea is one of them.
Branko Milanovic, an analyst at the Carnegie Endowment for International Peace here in Washington, notes that South Korea shares some common traits with northern Europe. “It has a tradition of consensus building. It has very ethnically homogeneous population. It has a fairly high level of education of its population. It has several of these features that are also similar to the Scandinavian countries. So I don’t think it is impossible that some form or variant of the Scandinavian model could be applied, " says Milanovic. "I am a little more skeptical of the applicability of the Scandinavian model to other countries.”
Most economists agree that the Scandinavian economic model is very hard to emulate, especially in poor nations that cannot afford to impose the high taxes needed to support an expensive welfare state. This model may work in small, rich countries with homogeneous and well-educated populations and a long history of income sharing. But some analysts argue not forever.
*****
July 5, 2014
Here is the conclusion of an article in The Economist Magazine of February 2013:
"The main lesson to learn from the Nordics is not ideological but practical. The state is popular not because it is big but because it works. A Swede pays tax more willingly than a Californian because he gets decent schools and free health care. The Nordics have pushed far-reaching reforms past unions and business lobbies. The proof is there. You can inject market mechanisms into the welfare state to sharpen its performance. You can put entitlement programmes on sound foundations to avoid beggaring future generations. But you need to be willing to root out corruption and vested interests. And you must be ready to abandon tired orthodoxies of the left and right and forage for good ideas across the political spectrum. The world will be studying the Nordic model for years to come."
More on the topic:
http://billmoyers.com/story/after-living-in-norway-america-feels-backward/#.Vq4xoPvPY6I.facebook
http://www.forbes.com/sites/timworstall/2014/06/23/why-jonathan-cohn-is-right-to-have-sweden-envy-its-a-great-place-to-live/
http://www.cityam.com/article/1394655511/forget-nordic-socialism-welfare-didnt-make-scandinavia-rich
http://www.theamericanconservative.com/the-nordic-mirage/
http://opinionator.blogs.nytimes.com/2013/05/29/why-cant-america-be-sweden/?_php=true&_type=blogs&_r=0
