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"ATTACK OF THE GLOBAL PIRATE BANKERS!"The Great White Sharks at UBS and LGTJames S. Henry

(Note: The following is an expanded version of our article that appeared in the July 22, 2008 online edition of The Nation, available here.)

"For what is the crime of burgling a bank, compared with the crime of building one?"
-- Brecht

The Hearing

Last week in Washington we got a rare look inside the global private banking industry, whose high purpose it is to gather up the assets of the world's wealthiest people and many of its worst villains, and shelter them from tax collectors, prosecutors, creditors, disgruntled business associates, family members and each other.

Thursday's standing-room-only hearing on tax haven banks and tax compliance was held by the US Senate's Permanent Subcommittee on Investigations, chaired by Michigan Senator Carl Levin, a regular critic of tax havens--except when it comes to offshore leasing companies owned by US auto companies. He presented the results of his Committee's six-month investigation of two of Europe's most venerable financial institutions - LGT Group, the largest bank in Liechtenstein and the personal fiefdom of Crown Prince Hans-Adam II and the royal family, with more than $200 billion in client assets; and UBS, Switzerland's largest bank and the world's largest private wealth manager, with $1.9 trillion in client assets and nearly 84,000 employees in fifty countries, including 32,000 in the United States.Kieber

The theatrics included videotaped testimony by Heinrich Kieber, a Liechtenstein computer expert in a witness protection program with a $7 million bounty on his head, for supplying a list of at least 1,400 LGT clients - some say more than 4,500 - to tax authorities in Europe and the United States; two former American clients of LGT, who took the Fifth Amendment; Martin Liechti, head of UBS international private banking for North and South America, who'd been detained in Miami since April, and who also took the Fifth; Douglas H. Shulman, our sixth IRS commissioner in eight years, who conceded that offshore tax evasion must be a "serious, growing" problem even though the IRS has no idea how large it is; and Mark Branson, CFO of UBS's Global Wealth Management group, who apologized profusely, pledged to cooperate with the IRS (within the limits of Swiss secrecy) and surprised the Committee by announcing that UBS has decided (for the third time since 2002) to "exit" the shady business of providing new secret Swiss accounts to wealthy Americans.

There were also several other potential witnesses whose importance was underscored by their absence. Peter S. Lowy, of Beverly Hills, another former LGT client who'd been subpoenaed, is a key member of the Westfield Group, the world's largest shopping mall dynasty, which has interests in and operates 55 US malls and 63 others around the world with a combined value of more than $60 billion, holds the lease for a new shopping mall at the reconstructed World Trade Center, has many other properties in Australia and Israel, and was recently awarded a L3 billion project for the UK's largest shopping mall, in time for the 2012 Olympics.

His lawyer, the renowned Washington fixer Robert S. Bennett, reported that Lowy was "out of the country" and would appear later, probably also just to take the Fifth. Perhaps he traveled to Australia, where his family is also reportedly facing an LGT-related tax audit. (Bennett's law partner, David Zornow, the head of Skadden, Arps' White Collar Crime practice, represents UBS's Liechti.)

Steven D. Greenfield, a leading New York City toy vendor and private equity investor whose business had been personally recruited by the Crown Prince's brother, went AWOL and did not bother to send a lawyer.

LGT Group declined to follow UBS's contrite example and also failed to appear.

Also missing from the roster were two prominent UBS executives: Robert Wolf, CEO of UBS Americas, who has reportedly raised over $500,000 for Barack Obama, bundled more than $370,850 for him this year from his bank alone, making UBS Obama's fifth-largest corporate donor, and had private dinners with the junior Senator from Illinois; and former Texas Senator Phil Gramm, vice chairman of UBS Securities LLC, a leading lobbyist for UBS until March, and until recently, John McCain's senior economics adviser. (In 1995, while preparing his own ultimately-unsuccessful race for the Republican Presidential nomination, Gramm commented memorably, "I have the most reliable friend you can have in American politics, and that's ready money.")

While neither of these UBS executives have been directly implicated in the tax scandal, both might reasonably be questioned about precisely what the rest of UBS in the States knew about the Swiss program, what it implies for US tax policy, and whether those who complain about UBS's knowing facilitation of tax fraud are just whining.

While they were on the subject of offshore abuses, the Senate might also have wanted to depose former top McCain fundraiser James Courter, who also resigned last week, after it was disclosed that his telecom firm, IDT, had been fined $1.3 million by the FCC for using a haven company in the Turks and Caicos to pay bribes to former Haitian President Jean-Bertrand Aristide.

The Cases

This crowded docket, combined with the UBS mea culpa, almost distracted us from the sordid details of the Levin Committee's actual findings.

UBS: UBS opened its first American branch in 1939, and for all we know, has likely been facilitating tax fraud ever since, but the Senate investigation focused only on 2000 to 2007. During this period, even as UBS was sharply expanding its onshore US operations by acquiring Paine Webber, expanding in investment and retail banking, it also mounted a top-secret effort to recruit wealthy Americans, spirit their money to Switzerland and other havens and conceal their assets from the IRS.

This program, aimed at people with a net worth of $40 million to $50 million each, was staffed by fifty to eighty senior calling officers and 1,000 client advisors. Based in Zurich, Geneva, and Lugano, each officer made two to ten surreptitious trips per year to the United States, calling on thirty to forty existing clients per visit and trying to recruit new ones by attending HNW (high net worth) watering holes like Miami's Art Basel and the UBS Regatta in Newport. By 2007, this program had garnered 20,000 American clients, with offshore assets at UBS alone worth $20 billion.

To achieve these results, UBS established an elaborate formal training program, which coached bankers on how to avoid surveillance by US customs and law enforcement, falsify visas, encrypt communications, secretly move money in and out of the country and market security products even without broker/dealer licenses.

Meanwhile, back in 2001, UBS had signed a formal "qualified intermediary" agreement with the US Treasury. Under this program, it agreed either to withhold taxes against American clients who had Swiss accounts and owned US stocks, or disclose their identities. However, when UBS's American clients refused to go along with these arrangements, the bank just caved in and lied to the US government. Eventually, it concealed 19,000 such clients, partly by helping to form hundreds of offshore companies. This cost the US Treasury an estimated $200 million per year in lost taxes.

In early July 2008, a US court approved a "John Doe" subpoena for UBS, demanding the identities of these 19,000 undisclosed clients. However, as of last week's Senate hearing, UBS has refused to disclose them. While it maintains that it is no longer accepting new Swiss accounts from Americans, it is also insisting on the distinction between "tax fraud" and "tax evasion," reserving full disclosure only for cases involving criminal tax fraud, which is much harder to prove under Swiss law. This means it may be difficult to ever know whether it has kept its commitments.

Ultimately UBS got caught, not by virtue of diligent law enforcement, much less the Senate's investigation, but by sheer accident. In late June, Bradley Birkenfeld, a senior private banker who'd worked with UBS from 2001 until late 2005 out of Switzerland, and then continued to service the same clients from Miami, pleaded guilty to helping dozens of wealthy American clients launder money. His name surfaced when his largest client, Igor Olenicoff, a Russian emigré property developer from Southern California, was accidentally discovered by the IRS to be reporting much less income tax than he needed to justify his $1.6 billion measurement on the Forbes 400 list of billionaires.

With Birkenfeld's help, Olenicoff succeeded in parking several hundred million of unreported assets offshore--including millions in accounts controlled by a Bahamian company that he said had been set by former Russian Premier Boris Yeltsin. Ultimately, Olenicoff settled with the IRS for $52 million in back taxes, one of the largest tax evasion cases in Southern California history, and also agreed to repatriate $346 million from Switzerland and Liechtenstein. In theory he faced up to three years of jail time, but--following standard US practice of going easy on big-ticket tax evaders who have no "priors"--he received only two years probation and three weeks of community service.

As noted, Olenicoff also gave up his UBS private bankers, including Birkenfeld, who plead guilty in June to facilitating tax fraud and is now awaiting sentencing--the first US prosecution of a foreign private banker in history. It was Birkenfeld's revelations, in turn, that led to the disclosure of UBS' program for wealthy Americans, and at least one-half of the Senate investigation.

The most important point is that this entire program would clearly have been impossible without the knowledge and approval of the bank's most senior officials in Switzerland, and probably some senior US executives as well -- although the Committee did not press this point. As former UBS CEO Peter Wuffli once said, "A company is only as ethical as its people." From this standpoint, we have reason to be concerned that UBS's behavior may repeat itself, so long as so many of these same senior executives remain in place.

LGT: For all its pretensions to nobility, Liechtenstein is well-known in the trade as the "place for money with the stains that won't come out," a flexible jurisdiction whose "trusts" and "foundations" are basic necessities for everyone from Colombian drug lords and the Saudi royals to the Suhartos, Marcoses, Russian oligarchs, and Sicilian mafia.

As detailed by the Senate investigation, LGT Group has certainly lived up to this reputation in the US market. It maintained a program that was, if anything, even more sophisticated and discreet than that of UBS for large fortunes. Among its specialties: setting up conduit companies in bland places like Canada, allowing clients to transfer money without attracting attention; leaving the designation of "beneficiaries" up to corporations controlled by potential beneficiaries themselves, a neat way of avoiding "know your customer" rules; rarely visiting clients at home, let alone mailing, e-mailing, or phoning them, certainly never from a Liechtenstein post office, Internet address, or area code; shifting the names of trust beneficiaries to very old folks just before death to make it look like a repatriation of capital was an inheritance.

In terms of precise trade craft, indeed, LGT had it all over UBS. It only really got caught red-handed when it tried to modernize and trusted Heinrich Kieber, a fellow citizen and IT expert ,who turned out to be either a valiant whistleblower, a well-paid extortionist (he was paid $7.5 million by the German IRS alone for his DVDs), or both.

Skating on EcstasySpecial Treatment for An Israeli Drug Lord?James S. Henry

While most major US drug dealers get prison terms of at least 15 years to life for selling a few kilos of coke or a few hundred pills of the Class A illegal drug Ecstasy (MDMA), the world's ecstasy king-pin, Israel-based Russian mobster Ze'ev Rosenstein, has apparently just learned to skate.    

Rosenstein is reportedly one of the "godfathers" in Israel's burgeoning criminal underworld  --  one of "the worst of the worst" among global drug dealers, according to a former US attorney. 

Long sought by Israeli police and the US DEA,  Rosenstein was finally arrested in Tel Aviv in November 2004. At the time, the arrest was hailed as a major victory over transnational crime by former US Attorney General John Ashcroft:

"The arrest of Ze’ev Rosenstein is the result of extraordinary close and creative cooperation between U.S. and Israeli law enforcement. It is a significant step forward in our common struggle against trans-border organized crime and international narcotics trafficking that will make both of our countries safer."

After two years in a maximum security cell, in March 2006 Rosenstein was finally extradited to Miami, charged with having organized an international drug gang that reportedly exported millions of tabs of MDMA from Netherlands-based labs to the US -- including the 800,000 pills that were seized in a New York apartment in July 2001.

Rosenstein, who was  also accused of importing Colombian hit men to conduct a hit on the rival Alperon crime family, faced at least 14 years to life in imprison. In 2004, one of his top lieutenants, Shem Tov Michtavi,  had received  a 20-year sentence for lesser miscondut  -- although in November 2005, the US Court of Appeals for the 11th circuit  reduced it to a maximum of 16 years. With Rosenstein finally in US hands, many thought that he'd probably spend the rest of his days in a Miami prison cell, not far from Panama's former dictator Manual Noriega, who is serving 35 years for drug trafficking.

HOW DID GENERAL PINOCHET GET SO RICH?James S. Henry

Most assessments of General Pinochet, pro and con, acknowledge his responsibility for thousands of grevious human rights violations. But there is growing evidence that his criminality did not stop there -- as it rarely does when governments are vested with unfettered authority, whether in the name of “national security,” religious truth, or just raw personal power.

As noted in our lead article on the General’s legacy, only in the last three years have historians come appreciate just how far-reaching and systematic was  his regime's involvement in criminal activity -- partly just because its political opponents had been systematically eliminated, so that there were few limits on Pinochet's power. 

As we’ll see, Pinochet was no exception to the “absolute power corrupts” cliché.

Indeed, there is strong evidence that leading members of his regime were deeply involved in a wide range of crimes for profit, including diversions of public funds, tax evasion, money laundering, bribery, illegal arms exports, falsification of identity documents, drug trafficking, money laundering, and murder-for-profit.

There is also strong evidence that “mi General” and his family profited handsomely from such crimes.

From this angle, Pinochet’s death in early December probably saved him and his family from convictions,  stiff penalties and fines in the six criminal prosecutions and more than 300 civil suits still pending against him – for charges ranging from the misuse of public funds and tax evasion to torture and murder. 

But at least there was a modicum of justice. The General’s extensive crimes apparently contributed to Chile's decision to deny him  an official state funeral.  And -- the ultimate insult -- the Chilean Army also returned his ashes, refusing to bury them at the huge Lenin-like tomb that he’d built for himself at the Escuela Militar.

SOURCING THE MONEY

This evidence provides the key to the puzzle posed by all the recent revelations (especially since the US Senate Permanent Investigations Committee's July 2004 report on Riggs Bank) regarding the large personal fortune that Pinochet and his family accumulated during his 17-year reign – now estimated at at least $31 million in US and Swiss bank accounts and total family wealth of at least $100 million -- plus as much as $211 million more if the October 2006 allegations about 9.62 tons of Pinochet gold at HSBC hold up in the on-going investigation.

BEST BUDDIES

The evidence about Pinochet’s arms deals also helps us to understand another one of his many interesting attributes – why the Baroness Margaret Thatcher, in particular, was so “deeply saddened” by his death.

It turns out that Pinochet was no stranger to arms deals involving British companies like British Aerospace, Rolls Royce, and Royal Ordnance  -- companies that Mark Thatcher, the Baroness' only son, had also worked for as a highly-paid  "intermediario" on huge, lucrative arms deals (for example,  the $40 billion 1985 "Al Yamamah" aircraft deal, which involved hundreds of millions in payoffs. ) Indeed, when Pinochet was detained in London in October 1998, the reason he'd gone there in the first place was not his "health," but to facilitate another arms deal.
 
SCHIZOPHRENIA

Curiously, while even the General’s most ardent admirers acknowledge his many human rights violations, they have been much more reluctant to admit there were other criminal activities.

This is partly because Pinochet carefully cultivated the image of being -- in contrast to all other modern dictators, especially those from Latin America -- an austere Prussian type who eschewed personal wealth and served his country out of sheer dedication to Deus, patria, y honor. We recall all the appeals for help with his medical and legal bills when the General was interned in London in the late 1990s –  appeals that some of his more middle-class followers responded to by dipping into precious life savings and selling off the family jewels.

This schizophrenia about Pinochet’s crimes also derives from the sharp distinction that many of his followers draw between selfless and venal crimes.  In their view -- and, at least initially, that of Chile’s Catholic Church -- even his worst crimes against humanity may have been justified in the name of la causa superior – saving Chile from “godless communism.” 

On the other hand, crimes that smack of personal enrichment, the exploitation of arbitrary power, or insider influence are supposedly taboo.

In practice, of course, these boundaries tend to blur, especially with a regime that held absolute power for nearly two decades – and retained many “protectors” long after that.   

Blood DiamondsPart 1: The Empire Strikes Back!by James S. Henry

"...(O)ne of the great dramas of Africa: extremely rich areas are reduced to theaters of misery...."

-- Rafael Marques, Angolan journalist (July 2006)

"For each $9 of rough diamonds sold abroad, our customers, after cutting them, collect something like $56..." 

-- Sandra Vasconcelos, Endiama (2005)

"We found the Kalahari clean. For years and years the Bushman have lived off the land....thousands of years...We did not buy the Kalahari. God gave it to us. He did not loan it to us. He gave it to us. Forever. I do not speak in anger, because I am not angry. But I want the freedom that we once had."

-- Bushman, Last Voice of an Ancient Tongue, Ulwazi Radio, 1997 

 

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The global diamond industry, led by giants like De Beers, RTZ,  BHP Bililton, and Alrosa  Co Ltd., Russia's state-owned diamond company,  a handful of aggressive independents like Israel's Lev Leviev,  Beny Steinmetz's BSG Group, and Daniel Gertier's DGI, a hundred other key "diamantaires" in New York,  Ramat-Gan, Antwerp,  Dubai, Mumbai, and Hong Kong,  and leading "diamond industry banks" like ABN-AMRO, is not exactly renowned for its abiding concern about the welfare of the millions of diamond miners, cutters,  polishers, and their families who live in developing countries.

But the industry -- whose top five corporate members still control more than 80 percent of the 160 million carets that are produced and sold each year into the $70 billlion  world-wide retail diamond jewelry market -- certainly does have an undeniable long-standing concern for its own product's image.

PERENNIAL FEARS

Indeed, for decades, observers of the diamond industry have warned that it was teetering on the brink of a price collapse, because the industry's prosperity has been based on a combination of artificial demand and equally-artificial -- but often more unstable -- control over supply.

Most of the doomsayers have always predicted that the inevitable downfall, when it came, would arrive from the supply side, in the form of some major new diamond find that produced a flood of raw diamonds onto the global market.

The precise culprits, in turn, were expected to be artificial diamonds (in the 1960s and 1970s), "an avalanche of Australian diamonds" (in the 1980s,) and Russian diamonds (in the 1990s.)

This supply-side pessimism has lately been muted, given the failure of the earlier predictions and the fact that raw diamond prices -- though not, buyers beware,  retail diamond resale prices!! --  have recently increased at a hefty 10-12 percent per year.  There is also some evidence that really big "kimberlite mines" are becoming harder and harder to find.

However, there are still an awful lot of raw diamonds out there waiting to found, and one does still hear warnings about the long-overpredicted Malthusian glut, now from new sources like deep mines in Angola, Namibia's offshore fields, Gabon, Zambia, and the Canadian Northwest.

THE REAL THREAT?

Meanwhile, the other key threat to the industry's artificial price structure -- where retail prices are at least 7 to 10 times the cost of raw diamonds -- comes from the demand side. This is the concern that diamonds may lose the patina of glamour, rarity and respectability that the industry has carefully cultivated since the 1940s.

It is therefore not surprising that the industry has been deeply disturbed by the December 8, 2006, release of Blood Diamond, a block-buster Hollywood film that stars Leonard DiCaprio, Jennifer Connelly, and Djinmon Hounsou.

While extraordinarily violent and a bit too long, the film is entertaining, mildly informative, and far from "foolish" -- the sniff that it received from one snide NYT reviewer -- who clearly knew nothing about the subject matter, other than, perhaps, the fact that the Times' own Fortunoff- and Tiffany-laden ad department didn't care for  the film. 

Indeed,  this film does provide the most critical big-screen view to date of the diamond industry's sordid global track record, not only in Africa, but also in Brazil, India, Russia, and, indeed, Canada and Australia, where diamonds have often been used to finance civil wars, corruption, and environmental degradation, and  indigenous peoples often been pushed aside to make room for the industry's priorities.

Surely the film is a small offset to decades of the diamond cartel's shameless exploitation of Hollywood films, leading ladies like Marilyn Monroe, Elisabeth Taylor, and Lauren Bacall, and scores of supermodels, rock stars, and impresarios.

INDUSTRY WHITE WASH
 

Dismayed at the potential negative impact of the film ever since the industry first learned about Blood Diamond in late 2005, it is reportedly spending at least an extra $15 million on a  PR campaign that responds to the film  -- in addition to the $200 million per year that the World Diamond Council already spends on regular marketing.

For example, if you Google "blood diamonds," for example, you'll see that the industry has purchased top billing for its own version of the "facts" regarding this film. Always eager for a new marketing angle, some diamond merchants have also seized the opportunity to pitch their own product lines as "conflict diamond - free."

DEF JAM'S  BLACK WASH

This shameless PR campaign has also included a "black wash" effort by the multimillionaire hip hop impresario Russell Simmons, who launched his own diamond jewelry line by way of the Simmons Jewelry Co. in 2004,  in partnershp with long-time New York diamond dealer M. Fabrikant & Sons.

Simmons, who admits to "making a lot of money by selling diamonds," rushed back to New York on December 6 from a whirlwind nine-day private jet tour of diamond mines in South Africa and Botswana -- but, admittedly,  not in conflict-ridden Sierre Leone, Angola, the Congo, the Ivory Coast or Chad.

Simmons was originally scheduled to travel with one of his latest flames, the  27-year old Czech supermodel and Fortunoff promoter, Petra Nemcova. But Petra reportedly preferred to stay home and accept a huge diamond engagement ring of her own from British singer/soldier James Blunt, whose 2005 pop hit "You're Beautiful" was recently nominated the "fourth most annoying thing in Britain," next to cold-callers, queue-jumpers, and caravans.

The timing of Simmons' trip, which he filmed for UUtube, just happened to coincide with the December 8 release of the Warner Brothers feature.

Upon his return, Simmons held a press conference, accompanied by his estranged wife Kimora Lee Simmons and Dr. Benjamin  F. Chavis Mohammed, a former civil rights activitist and fellow investor in the jewelry company who is perhaps best remembered for being fired as NAACP Director in 1994  after settling a costly sexual harassment suit, and for joining the Rev. Louis Farrakhan's Nation of islam. Simmons' astounding conclusion from his wonder-tour: "Bling isn't so bad."

Whatever the credibility of Simmons and his fellow instant experts, it was  evidently not enough to save M. Fabricant & Sons,  which filed for Chapter 11 in November.

THE GODS MUST (STILL) BE CRAZY

Simmons managed to tour a few major diamond mines on his African safari, but apparently he lacked time to examine the contentious land dispute between the Kalahari  San Bushmen, the members of one of Africa's oldest indigenous groups,  and the Botswana Government -- with the diamond industry's influence lurking right offstage.

In the 1990s, after diamond deposits were reportedly discovered on the Bushmen's traditional lands, the Botwana Government -- which owns 15 percent of De Beers, is a 50-50 partner with De Beers in the Debswana diamond venture, the largest diamond producer in Africa, and derives half its revenue from diamond mining -- has pressured the Bushmen to leave their tribal lands.

The methods used were not subtle. To force the Bushmen into resettlement camps outside the Reserve, the Botswana Government closed schools and clinics, cut off water supplies, and subjected members of the group to threats, beatings, and other forms of intimidation for hunting on their own land -- all of it ordained by F.G. Mogae, Botswana's President,  who declared in February 2005 that he 'could not allow the Bushmen to return to the Kalahari." Those who have been resettled have been living in destitution, without jobs and little to do except drink. (See a recent BBC video on the subject.) 

Thankfully, on December 13, 2006, Botswana's High Court ruled that in 2002, more than 1000 Bushmen had been illegally evicted by the Botswana Government from the Central Kalahari Game Reserve, where they'd lived for 30,000 years.

The Botswana Attorney General has already attempted to attached strict conditions to the ruling, so this struggle is far from over. But at least the first prolonged legal battle has been won -- thanks to the determination of the Bushmen, public-spirited lawyers like Gordon Bennett, their legal counsel, courageous crusaders like Professor Kenneth Good, and  NGOs like Survival International, which has supported the legal battle.

In the wake of this decision, as usual,  the global diamond industry, led by De Beers, has denied that any responsibility whatsoever for the displacement of the Bushmen.

However, the fact is that De Beers and other companies has been prospecting actively in the Kalahari Reserve, especially around the Bushman community of Gope (see this video), where De Beers has falsely claimed that no Bushmen were living when it started mining. It has actively opposed recognizing the rights of indigeneous peoples in Africa. In 2002, at the time of the eviction, Debswana's Managing Director -- appointed by De Beers -- commented that "The government was justified in removing the Basarwa (Bushmen)….’.

De Beers' behavior in Botswana has so outraged activists that they have joined together with prominent actors like Julie Christie and several Nemcova-like supermodels who used to appear in De Beers ads, in an appeal for people to boycott the now-UK-based giant -- which has lately been trying to move downstream into retail diamonds.

However, De Beers is far from alone in this effort.  Indeed, as has often been the case with  "conflict diamonds," less well-known foreign companies have been permitted to do much of the nastier pioneering. 

In Botswana's case, these have included Vancouver-based Motapa Diamonds and Isle of Jersey-based Petra Diamonds Ltd. both of which have have obtained licenses to explore and develop milliions of acres, including CKGR lands. Petra is not unfamiliar with "conflict diamonds;" it is perhaps best known for a failed 2000 attempt to invest in a $1 billion diamond project in the war-torn DR Congo, in which Zimbabwe's corrupt dicator, Robert Mugabe, reportedly held a 40 percent interest.

In the case of Botswana, in September 2005 Petra acquired the country's largest single prospecting license -- covering 30,000 square miles, nearly the size of Austria -- by purchasing Kalahari Diamonds Ltd, a company that was 20 percent owned by BHP Billiton and 10 percent by the World Bank/IFC -- which apparently saw the sponsorship of CKGR mining as somehow consistent with its own financial imperatives, if not its developmental mission. (!!!). Petra has also licensed proprietary explorations technology from BHP Billiton, and offered it development rights, a front-runner for the Australian giant.

Meanwhile, at least 29 of the 239 Bushmen who filed the lawsuit have perished while living in settlement camps, waiting for the case to be decided, and many others are impoverished. 

Perhaps the diamond industry's $15 million might be better spent simply helping these Bushmen return to their homes -- and also settling up with  the Nama people in South Africa, the Intuit and Kree peoples in Canada, and the aborigines in Australia.

FAR CRY

Meanwhile, as we'll examine in Part II, despite the "Kimberly Process" that was adopted by many -- but not all -- key diamond producers in 2003, the fact is that diamonds continue to pour out of conflict zones like the Congo, Ghana, and the Ivory Coast, providing the revenues that finance continuing bloodshed.

The industry's vaunted estimate that they account for just "1 percent" of total production is based on thin air -- there are so many loopholes in the current transnational supply chain that there is just no way of knowing. Of course, given the scale of the global industry, and the poverty of the countries involved, even a tiny percent of the global market can make a huge difference on the ground.

Furthermore, in cases like Angola, the Kimberly Process has provided an excuse for corrupt governments to team up with private security firms and diamond traders to crack down on independent alluvial miners.

Finally, the diamond industry still has much work to do on other fronts --  pollution, deforestation, and, most important, the task of creating a fairer division of the spoils, in an industry where the overwhelming share of value-added is still captured by just a handful of First World countries. 

The objective here is not to kill the golden goose. In principal, the diamond industry should be able to reduce world inequality and poverty, since almost all retail buyers are relatively-affluent people in rich countries, while more than 80 percent of all retail diamonds come from poor countries.

But beyond eliminating traffic in "blood diamonds," however,  we should also demand that this industry starts to redress its even more fundamental misbehaviors.

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(c) SubmergingMarkets,2007

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"LIBBYGATE"Why Scooter Will Skate.....James S. Henry

Irving Lewis Libby, Jr. was finally arraigned today, after the Special Prosecutor Patrick "Bulldog" Fitzgerald's two-year investigation. It's always nice to see warmongers twisting in the wind,  but what have we really learned from all this? 

Unfortunately, the five-count federal indictment of Vice President Dick Cheney's 55-year old Chief of Staff did not actually reveal who outed CIA spookette Valerie Pflame. But at least we do now know "Scooter's" real first name and the origins of his cute little boys' school handle.     

Before Big Media's attention was deflected back to bird flu and another contentious Supreme Court nomination, the indictment also produced much speculation about whether Libby would cop a plea; whether "Official A" -- Karl Rove -- or even the Veep himself might eventually be charged; and how long the judicial torments suffered by Libby, Tom Delay, Jack Abramoff, and other inner-circle Republicans will persist.

For a few moments, it also appeared that  Patrick "Bulldog" Fitzgerald might finally get down to a few of the really important issues:

• (1) To what extent did the White House, the Pentagon, its operatives, and its allies in the media and foreign governments conspire to orchestrate the fraudulent case for the Iraq War -- as opposed to just being victims of "faulty intelligence?" (E.g., "Tenet made me do it.")

• (2) How often were "house journalists" like Judith Miller, Tim Russert, and Bob Novak  -- whose principle skill is trading various kinds of favors with officials in high places -- used as distribution channels for the Administration's agitprop? campaign If they didn't learn about Valerie Plame's identity from Libby or Rove, who did they learn it from?

• (3) What special interests - energy companies, defense contractors, and several Middle East countries, would-be countries, and religious/ ethnic factions -- helped weave the cobweb of distortions and lies that got us into this War, and have kept us in it long after even Brent Scowcoft and William Odom agree that it is a monumental US strategic blunder?

• (4) What was the role of these same interests in insuring that so many leading Democrats have been completely supine on the War? And what other wars do they have in store for our sons and daughters?

Alas, the case against Libby & Co. is unlikely to ever reach these issues, because, as argued below,  Scooter Libby will almost certainly escape scot-free... just like his oldest client, Mark Rich, who's recently been implicated in paying bribes to Saddam Hussein -- post-pardon.  For the incredible story, read on......

MOTH MADNESS!The Latest Crazy Scheme in the Hapless "War on Drugs"James S. Henry and Jeremy Bigwood

In the midst of the war in Iraq, the war on terror, and the Bush Adminstration’s war on Social Security, Americans may perhaps be forgiven for having forgotten that their government is still waging a "global war on drugs" that costs at least $30-$40 billion per year, and also causes a great deal of other political, social, and environmental damage at home and abroad.

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As indicated in the adjacent chart, after more than three decades of this hallowed effort, drug enforcers have failed to produce any increase whatsoever in the real retail street price of illegal drugs.

Retail cocaine prices, for example, are much lower than when the drug war started. Similar charts could be also drawn for opium, marijuana, and the bevy of other new "designer drugs" that have been introduced in the last decades – a rational economic response to prohibition.

Of course, hard-core defenders of the anti-drug campaign may argue - just as Prohibitionist moralizers did about booze prices in the 1920s - that retail drug prices would be even lower, except for the war on drugs.

But it seems more likely that supply-side interdiction has failed to have any consistent impact, partly because improvements in drug dealer productivity – as many economists on all sides of the political specrum have predicted.

The collapse in retail drug prices is also consistent with the embarrassing fact that opium production has recently exploded in US-occupied Afghanistan.

The decrease in prices is also exactly what one would expect from a successful "decartelization" program, like the one that the US Government pursued with such fervor against Pablo Escobar, "Gacha" Orejuela-Rodriguez, and Manuel Noriega.

In the 1980s and 1990s that effort employed quite a few "drug busters," and provided endless material for TV and film scripts. But at the end of the day, it basically just helped to increase supply.

Now, after five years of saturating Colombia with chemical herbicides, the US government and their allies in Colombia have also failed to reduce the number of hectares under coca cultivation.

Indeed, the total area under cultivation in Colombia at the end of 2004 was slightly greater than at yearend 2003. Coca cultivation in Peru and Bolivia, have also recently been expanding. All this is consistent with a the "balloon" model, in which destroying coca in one place only increases the incentives to plant elsewhere.

It also appears likely that – like every other profit-motivated farmer on the planet – coca farmers, as well as cocaine laboratories and distributors, are not sitting still, but are working hard to improve per-hectare productivity.

This means they don’t require nearly as many hectares to produce a given amount of coca, as they used to. In calculating its estimates of "potential output," the US DEA assumes a constant 4.26 kilos of potential cocaine output per hectare of coca cultivation; UN "drug experts" assume a constant 3.56.

Even if we give the DEA the benefit of the doubt, however, it estimates that in 2004, Bolivia, Peru, and Colombia produced enough coca to make more than 640,000 kilos of pure cocaine. While this is 28 percent lower than the average potential output in 1996-2001, it is still enough coca to produce more than 2.5 billion grams per year of retail street-cut cocaine.

At today’s New York City street price for an "eight-ball" – $150 for an eighth of an ounce, or $43 a gram – even if just 20 percent of this potential output made it through, that’s a $22 billion annual market. Those who are waiting for supply-side interdiction to "win the war on drugs" will have to wait a long time.

Indeed, if one operative definition of insanity is to "do the same thing over and over again, expecting a different result," by this definition, US drug enforcement policy is bouncing off the walls.

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South Asia - The Mystery of the "Missing Women," High Population Growth Rates, and The Limits of ChoiceJames S. Henry

In the 1990s, India and its non-Communist neighbors on the Asian subcontinent -- Pakistan, Bangladesh, and Nepal --  followed the advice of UN experts and "pro-maternal choice" advocates,  and bet heavily on a laissez faire approach to population control.  This approach, which emphasizes education,  family planning, maternal control,  and the voluntary use of contraceptive devices, was supposed to be more humanitarian than the coercive approach that had been adopted by China,  and briefly by India itself,  in the 1970s. That approach had relied heavily on forced sterilzations, IUDs, and abortions,  and heavy-handed ceilings on the number of children per family.    

A decade later, as recent research on this region's demographics makes clear,  both these approaches turn out to have serious limitations. For different reasons, they have both facilitated very high levels of infanticide against infant girls. And the laissez-faire approach has also utterly failed to restrain South Asia's population growth rate, which remains among the highest in the developing world. To transcend these problems will require the state to intervene, but in a much more intelligent way, by providing positive incentives to parents to "do the right thing."     

(Some) Justice Finally Comes to Chile -Is More on the Way?

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After decades of inaction, Chile's own judicial system is finally beginning to hold leading members of the Pinochet dictatorship directly responsible for the brutal reign of terror that it inflicted on Chile  from September 11, 1973 to March 11, 1990.

The most recent piece of good news was this week's indictment of 89-year old former Chilean dictator General Augusto Pinochet Ugarte on charges stemming from the disappearance and murder of several individual activists.

In July 2002, another serious human rights case against General Pinochet had been dismissed in Chile on grounds that he was mentally incompetent to stand trial. That case echoed the controversial March 2000 decision by UK authorities to permit him to return home rather than extradite him to Spain, France, Switzerland, or Belgium, after he’d spent more than 17 months under house arrest in London.

As noted below, this week's indictment is just the latest in a series of recent efforts by Chile's judicial system to provide justice for more than 3,200  civilians who were murdered by the regime, more than 28,000 others who recently stepped forward to bare witness about being illegally jailed and tortured, and tens of thousands more who had similar experiences, but have so far kept silent. 

Several other cases that have been brought against Pinochet in Chile have recently been allowed to proceed, especially after Pinochet gave a lucid, self-serving interview to Channel 22, a Spanish language TV station in Miami,  in November 2003. This incredible act of hubris may have finally brought Pinochet to ground.

While this latest ruling will no doubt be appealed to Chile’s Supreme Court, it is at least another step in the right direction.

In addition to providing justice, such efforts also provide a measure of vindication for those who have long maintained that the Pinochet dictatorship was an unwarranted, illegal, and counterproductive intrusion on Chile's long-standing traditions of democracy and respect for human rights.

However, the disgrace now is that while Spain, France, Belgium, Switzerland, Argentina, and Chile itself have brought serious criminal charges against Pinochet or his key associates, the US Government has never done so.

This is despite the fact that several US citizens were also murdered by the regime, not only in Chile but also in the US itself.   

Furthermore, as examined below,  many of the Chilean junta's most important confederates and accomplices -- including leading bankers, economists, lawyers, media magnates, convicted professional terrorists, and several senior government officials -- continue to enjoy sanctuary abroad -- especially in the US, the purported champion of the “post-September 11^th” global anti-terrorist campaign.

Many Americans may not recall that there was another September 11^th, even more bloody and terror-stricken than their own. Indeed, this “other September 11^th” was one that their own government helped to create.

To do so, the US worked closely with an incredible bevy of transnational terrorists and tin-horn "generals," like Pinochet (Chile), and later, Videla (Argentina), Banzer (Bolivia), Stroessner (Paraguay), and Rios Montt (Guatemala). These valorous "generals" specialized in the use of terror against defenseless civilians.

It is time for Americans who really care about human rights to demand that the US Government follow the courageous lead that Chile has taken, and  help bring these uniformed savages, terrorists, and their foreign and domestic collaborators to justice. 

”WHERE’S WARREN?” Bhopal’s 20th Anniversary

Today marks the twentieth anniversary of the deadly December 3, 1984, chemical gas leak at an Indian pesticide plant in the very  center of Bhopal, a city of 90,000 – just a little larger than Danbury, Connecticut -- in the state of Madhya Pradesh, in central India.  At the time the plant was owned by Union Carbide India, Ltd. (UCIL), an Indian company whose majority (50.9%) shareholder was Danbury-based Union Carbide Corporation (UCC) which was acquired by Dow Chemical in 2001.

This anniversary provides us with an opportunity to reflect on “lessons learned” from this disaster – including the need to make sure that the globalization of trade and investment is also accompanied by the globalization of justice for the victims of transnational corporate misbehavior.

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062704."Letters from the New World:"Fighting Corruption at Eye Level in Nigeria

About Denis Beckett

Whenever we talk Nigeria, we talk corruption. The two go together. Finland, ice and cellphones. Israel, strife. Australia, complacency and kangeroos. When you talk Nigeria, corruption is the first thing that comes up.

Try it. Tell people “I’m going to Nigeria.” Four out of five responses will give you detail, usually second-hand, about the necessity of spreading your dollars through different pockets in different denominations. From there they’ll go into horror-stories about corruption.

I found my first trip to Nigeria challenging. Scary, too, but that was a different thing. When the captain said: “We’re commencing the descent” I clutched my wallet. The scare starts fading once reality replaces rumour, but the challenge doesn’t fade at all.
Corruption is one of the main reasons why Africa spent its first half-century of liberation heading, on statistical averages, backwards. Another major one is Indigenisation, Transformation, or whatever the name is for shoving wrong people into wrong roles. Indigenisation is tricky to deal with, and the real answer still awaits.

Corruption is not tricky at all. The simple answer is: don’t do it. To me that’s the sole answer. It’s ingrained. I can’t pay a bribe, any more than I can kill an animal or fling a bottle. The neurons are just programmed another way. Which poses a certain fluttering of the pulse when one is landing in Lagos, stocked high with dire warnings. But I remind myself that visitors to Johannesburg, too, are warned direly about our corruption, whilst I who live in Johannesburg remain a virgin after all these years – apart from sandwiches and cold-drinks.

Initially a little teeth-gritting is required, to take the same approach to Lagos, but it settles. By the time the first guy outright demanded a bribe (“because I am the one who is in charge of your baggage, heh, heh, heh…”) I was emboldened. All he got from me was two short traditional words.

I recognise that it’s hollow to sound holy when all you’re risking is a suitcase of used clothes, or the R500 fine for phoning while you drive. I admit I have no bosses to sack me if I fail to secure the contract,
no shareholders to re-deploy me as Deputy Manager of the Jammerdrif depot.

Still, the principle is not much different: Most times that you give the bribe-seeker short words he backs down. The times he doesn’t, it’s better to suffer the consequences than to hammer another nail into the coffin of your continent’s aspirations. In which light, the way that the going-into-Africa discussion usually plays out can be depressing.

It starts well, invariably. “We’re all Africans now, isn’t it wonderful. And you should see how much good we’re doing!”

They are, too. And it is spectacular, often. On Monday the housewives of Ndola are buying scrawny ox-shank, little more than bone with hair, chowed on for a week by 10,000 flies. They’re buying baked beans in rusted tins, a year after sell-by. They’re paying three times the price that their privileged southern sisters pay for first-class merchandise at our fancy Cresta or Cavendish supermarkets.

On Tuesday the new South African supermarket opens its doors. By Friday, Ndola is dancing to a new tune. The city is galvanised. Everybody has to give service, give value, wake up. On a March visit to a provincial capital, the dinner options are a suspicious unnameable stew on a sweltering dusty roadside, or a two-star menu at a five-star hotel with the seven-star tariff designed for the expense accounts of the aid brigade (who keep the aircon on frigid to remind them of home). In April a South African chain introduces middle-class eating at middle class prices. By July the city is holding its head higher.

Similar processes occur in every industry from brick machines to water meters. Good is being done, no two ways. But then the question the question comes up: “and, er, ahem, how do you handle the matter of adaptation to local mores?” There is a common answer to that question: “Oh, no, no, no. No corruption for us. We know that corruption causes ruin and destruction. We have no part in it, except of course when absolutely necessary.”

There is also the increasingly fashionable answer: “You know, we do have to grow into African ways. The time for arrogance is over now. We must mature into an acceptance that our sectional traditions are not universal.”

Then there is the answer that nobody gives unless he’s absolutely certain you are never going to quote him: “Why should I worry? That country is a total stuff-up anyway. If I can give some guy a million rand and make ten million in return, what do you think?”

Finally there is the still small voice that says: “No, on no account do we do it.” You hear that voice not often, and believe it less often. When you do believe it, perhaps because you know the people concerned especially well and repose in them a special faith, it is jolting indeed to find that the rumour factory is thick with alleged inside tales that place your faith under constant question.

The net result is disappointing, especially at the times that I am revelling in the magnificent welcome that tropical Africa addresses to Seffricans of the paler kind. Tropical Africa addresses magnificent welcomes to most people in most circumstances, but they have an added knack of making the whiteys from “South” as they call it, feel like a long lost brother.

You’re taken as a member of the family – a fairly pushy member, perhaps, rich in annoying habits, but in some way one of us, something more than solely a buccaneer on the profit trail. You’re a curiosity factor as well, and you’re assumed to be – potentially, at least – a handily systematic sort of character, the long lost brother who maintained the household inventory and made sure the insurance premiums were paid.

It’s a delightful combination. Not for nothing does every second SA expat go on and on about being wanted, being needed, being befriended, being loved (in the intervals between going on and on about not being robbed).

The prospects are wonderful, moving, emotional. A continent actually moving upward, after fifty years of empty talk about moving upward; moving upward and forward and with us, us, the once untouchable white South Africans, in there and part of it, in the engine room, the galley, the bridge, the lot.

Unfortunately that vista gets harder to glimpse as time goes by. Reality intrudes. I look at the heavy hands that RSA brings into the rescue of this or that failing African mine or plant or factory. I look at the hubris “stand aside, mere locals; we’re very friendly, as you see, calling us Jack and Joe and not ‘Bwana’ any more, but we’re in charge again so keep out of our way.” I look at the sickening crass insensitivity; the pulling of rank, sometimes unwitting; the disinterest in learning the barest syllable of even French or Portuguese, let alone Swahili or Hausa; the fervour to adopt every management fad emanating from New York or LA.

The pioneers carrying business to the tropics could and should be our heroes, our champions. Too often they become embarrassments. The many lesser embarrassments could usefully be discussed.

The one big embarrassment is not susceptible to much discussion. A culture of corruption means a pathetic nation; that is no more arguable than that the sun comes up in the east, and a critical mass of pathetic nations means a continued pathetic continent.

There’s sabotage in there.

Some foreign companies that have recently tried to enter Nigeria, like Shell and Halliburton, have apparently been following this well-trodden road to perdition. But there are signs of hope. A few others, like Vodafone, have recently been told by their shareholders to refuse to play at all unless they can play it straight.

Ironically, behind the closed doors of our cynical business community, it is Vodafone that gets the most ridicule. Indeed, almost wheresoever two or three businesspersons gather together in South Africa these days, one hears: “Look at these wussies, getting their asses whupped in Nigeria; buncha sissies calling themselves an African company, squealing ‘good governance’ because they’ve come short. What business did they have leaving just because they couldn’t play it straight? ”

Somebody’s got this upside-down. The real question we should be asking of is of those who stayed: “Precisely how did you manage to stay on and keep playing it straight?”

***

© Denis Beckett, SubmergingMarkets™, 2004