Submerging Markets™

The Curious World of Donald Trump’s Private Russian Connections James S. Henry

 

Donald Trump, Tevfik Arif, and Felix Sater

 Did the American people really know they were putting such a "well-connected" guy in the White House?

 Intro by David Cay Johnston

Pulitizer-Prize winning author, The Making of Donald Trump.

Throughout Donald Trump's presidential campaign, he expressed glowing admiration for Russian leader Vladimir Putin. Many of Trump's adoring comments were utterly gratuitous. After his Electoral College victory, Trump continued praising the former head of the KGB while dismissing the finding of all 17 American national security agencies that Putin had directed Russian government interference to help Trump in the 2016 American presidential election.

 As veteran investigative economist and journalist Jim Henry shows below, a robust public record helps to explain the fealty of Trump and his family to this murderous autocrat and the network of Russian oligarchs.

 Putin and his billionaire friends have plundered the wealth of their own people. They have also run numerous schemes to defraud governments and investors in the United States and Europe. From public records, using his renowned analytical skills, Henry shows what the mainstream news media in United States have failed to report in any meaningful way: for at least three decades Donald Trump has profited from his connections to the Russian oligarchs, whose own fortunes now depend on their continued fealty to Putin.

We don't know the full relationship between Donald Trump, the Trump family and their enterprises with the network of the world– class criminals known as the Russian oligarchs. Henry acknowledges that his article poses more questions than answers, establishes more connections than full explanations. But what Henry does show should prompt every American to rise up in defense of their country, to demand a thorough out in the open Congressional investigation with no holds barred. The national security of United States of America and of peace around the world, especially in Europe, may depend on how thoroughly we understand the rich network of relationships between the 45^th president and the Russian oligarchy. When Donald Trump chooses to exercise, or not exercise, his power to restrain Putin's drive to invade independent countries and seize their wealth, as well as to loot countries beyond his control, Americans need to know in whose interest the president 's acting or looking the other way.

 

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“Tell me who you walk with and I’ll tell you who you are.”

—Cervantes

“I’ve always been blessed with a kind of intuition about people that allows me to sense who the sleazy guys are, and I stay far away.”

—Donald Trump, Surviving at the Top

Even before the November 8 election, many leading Democrats were vociferously demanding that the FBI disclose the fruits of its investigations into Putin-backed Russian hackers. Instead FBI Director Comey decided to temporarily revive his zombie-like investigation of Hillary’s emails. That decision may well have had an important impact on the election, but it did nothing to resolve the allegations about Putin. Even now, after the CIA has disclosed an abstract of its own still-secret investigation, it is fair to say that we still lack the cyberspace equivalent of a smoking gun.

Fortunately, however, for those of us who are curious about Trump’s Russian connections, there is another readily accessible body of published and other Internet material that has so far received surprisingly little attention. This suggests that whatever the nature of President-elect Donald Trump’s relationship with President Putin, he has certainly managed to accumulate direct and indirect connections with a far-flung private Russian/FSU network of outright mobsters, oligarchs, fraudsters, and kleptocrats.

Any one of these connections might have occurred at random. But the overall pattern is a veritable Star Wars bar scene of unsavory characters, with Donald Trump seated right in the middle. The analytical challenge is to map this network—a task that most journalists and law enforcement agencies, focused on individual cases, have failed to do.

Of course, to label this network “private” may be a stretch, given that in Putin’s Russia, even the toughest mobsters learn the hard way to maintain a respectful relationship with the “New Tsar.” But here the central question pertains to our new Tsar. Did the American people really know they were putting such a “well-connected” guy in the White House?

The Big Picture: Kleptocracy and Capital Flight

A few of Donald Trump’s connections to oligarchs and assorted thugs have already received sporadic press attention -- for example, former Trump campaign manager Paul Manafort’s reported relationship with exiled Ukrainian oligarch Dmytro Firtash. But no one has pulled the connections together, used them to identify still more relationships, and developed an image of the overall patterns.

Nor has anyone related these cases to one of the most central facts about modern Russia: its emergence since the 1990s as a world-class kleptocracy, second only to China as a source of illicit capital and criminal loot, with more than $1.3 trillion of net offshore “flight wealth” as of 2016.[1]

 

This tidal wave of illicit capital is hardly just Putin’s doing. It is in fact a symptom of one of the most epic failures in modern political economy -- one for which the West bears a great deal of responsibility. This is the failure, in the wake of the Soviet Union’s collapse in the late 1980s, to ensure that Russia acquires the kind of strong, middle-class-centric economic and political base that is required for democratic capitalism, the rule of law, and stable, peaceful relationships with its neighbors.

Instead, from 1992 to the Russian debt crisis of August 1998, the West in general—and the U.S. Treasury, USAID, the State Department, the IMF/World Bank, the ERDB, and many leading economists in particular—actively promoted and, indeed, helped to finance one of the most massive transfers of public wealth into private hands that the world has ever seen.

For example, Russia’s 1992 “voucher privatization” program permitted a tiny elite of former state-owned company managers and party apparatchiks to acquire control over a vast number of public enterprises, often with the help of outright mobsters. A majority of Gazprom, the state energy company that controlled a third of the world’s gas reserves, was sold for $230 million; Russia’s entire national electric grid was privatized for $630 million; ZIL, Russia's largest auto company, went for about $4 million; ports, ships, oil, iron and steel, aluminum, much of the high-tech arms and airlines industries, the world’s largest diamond mines, and most of Russia’s banking system also went for a song.

In 1994–96, under the infamous “loans-for-shares” program, Russia privatized 150 state-owned companies for just $12 billion, most of which was loaned to a handful of well-connected buyers by the state—and indirectly by the World Bank and the IMF. The principal beneficiaries of this “privatization”—actually, cartelization—were initially just 25 or so budding oligarchs with the insider connections to buy these properties and the muscle to hold them.[2] The happy few who made personal fortunes from this feeding frenzy —in a sense, the very first of the new kleptocrats—not only included numerous Russian officials, but also leading gringo investors/advisers, Harvard professors, USAID advisers, and bankers at Credit Suisse First Boston and other Wall Street investment banks. As the renowned development economist Alex Gerschenkron, an authority on Russian development, once said, "If we were in Vienna, we would have said, "We wish we could play it on the piano!"

For the vast majority of ordinary Russian citizens, this extreme re-concentration of wealth coincided with nothing less than a full-scale 1930s-type depression, a sudden “shock therapy”-induced rise in domestic price levels that wiped out the private savings of millions, rampant lawlessness, a public health crisis, and a sharp decline in life expectancy and birth rates.

Sadly, this neoliberal “market reform” policy package that was introduced at a Stalin-like pace from 1992 to late 1998 was not only condoned but partly designed and financed by senior Clinton Administration officials, neoliberal economists, and innumerable USAID, World Bank, and IMF officials. The few dissenting voices included some of the West's best economic brains -- Nobel laureates like James Tobin, Kenneth Arrow, Lawrence Klein, and Joseph Stiglitz. They also included Moscow University’s Sergei Glaziev, who now serves as President Putin’s chief economic advisor.[3] Unfortunately, they were no match for the folks with the cash.

There was also an important intervention in Russian politics. In January 1996 a secret team of professional U.S. political consultants arrived in Moscow to discover that, as CNN put it back then, “The only thing voters like less than Boris Yeltsin is the prospect of upheaval.” The experts' solution was one of earliest "Our brand is crisis" campaign strategies, in which Yeltsin was “spun” as the only alternative to "chaos." To support him, in March 1996 the IMF also pitched in with $10.1 billion of new loans, on top of $17.3 billion of IMF/World Bank loans that had already been made.

With all this outside help, plus ample contributions from Russia’s new elite, Yeltsin went from just 8 percent approval in the January 1996 polls to a 54-41 percent victory over the Communist Party candidate, Gennady Zyuganov, in the second round of the July 1996 election. At the time, mainstream media like Time and the New York Times were delighted. Very few outside Russia questioned the wisdom of this blatant intervention in post-Soviet Russia’s first democratic election, or the West's right to do it in order to protect itself.

By the late 1990s the actual chaos that resulted from Yeltsin's warped policies had laid the foundations for a strong counterrevolution, including the rise of ex-KGB officer Putin and a massive outpouring of oligarchic flight capital that has continued virtually up to the present. For ordinary Russians, as noted, this was disastrous. But for many banks, private bankers, hedge funds, law firms, and accounting firms, for leading oil companies like ExxonMobil and BP, as well as for needy borrowers like the Trump Organization the opportunity to feed on post-Soviet spoils was a godsend. This was vulture capitalism at its worst.

The nine-lived Trump, in particular, had just suffered a string of six successive bankruptcies. So the massive illicit outflows from Russia and oil-rich FSU members like Kazahkstan and Azerbaijan from the mid-1990s provided precisely the kind of undiscriminating investors that he needed. These outflows arrived at just the right time to fund several of Trump's post-2000 high-risk real estate and casino ventures – most of which failed. As Donald Trump, Jr., executive vice president of development and acquisitions for the Trump Organization, told the “Bridging U.S. and Emerging Markets Real Estate” conference in Manhattan in September 2008, on the basis, he said, of his own “half dozen trips to Russia in 18 months”:

"[I]n terms of high-end product influx into the United States, Russians make up a pretty disproportionate cross-section of a lot of our assets; say in Dubai, and certainly with our project in SoHo and anywhere in New York. We see a lot of money pouring in from Russia."

All this helps to explain one of the most intriguing puzzles about Donald Trump’s long, turbulent business career: how he managed to keep financing it, despite a dismal track record of failed projects.[4]

According to the “official story,” this was simply due to a combination of brilliant deal-making, Trump’s gold-plated brand, and raw animal spirits – with $916 million of creative tax dodging as a kicker. But this official story is hokum. The truth is that, since the late 1990s, Trump was also greatly assisted by these abundant new sources of global finance, especially from "submerging markets" like Russia

This suggests that neither Trump nor Putin is an “uncaused cause.” They are not evil twins, exactly, but they are both byproducts of the same neoliberal policy scams that were peddled to Russia’s struggling new democracy.

A Guided Tour of Trump's Russian/FSU Connections

The following roundup of Trump’s Russo-Soviet business connections is based on published sources, interviews with former law enforcement staff and other experts in the United States, the United Kingdom, and Iceland, searches of online corporate registries,[5] and a detailed analysis of offshore company data from the Panama Papers.[6] Given the sheer scope of Trump’s activities, there are undoubtedly other worthy cases, but our interest here is in overall patterns.

Note that none of the activities and business connections related here necessarily involved criminal conduct. While several key players do have criminal records, few of their prolific business dealings have been thoroughly investigated, and of course they all deserve the presumption of innocence. Furthermore, several of these players reside in countries where activities like bribery, tax dodging, and other financial chicanery are either not illegal or are rarely prosecuted. As former British Chancellor of the Exchequer Denis Healey once said, when it comes to financial chicanery, the difference between “legal” and “illegal” is often just “the width of a prison wall.”

So why spend time collecting and reviewing material that may either not point to anything illegal and or in some cases may even be impossible to verify? Because, we submit, the mere fact that such assertions are widely made is of legitimate public interest in its own right. In other words, when it comes to evaluating the probity of senior public officials, the public has the right to know about any material allegations—true, false, or, most commonly, unprovable—about their business partners and associates, so long as this information is clearly labeled as unverified.

Furthermore, the individual case-based approach to investigations employed by most investigative journalists and law enforcement often misses the big picture: the global networks of influence and finance, licit and illicit, that exist among business people, investors, kleptocrats, organized criminals, and politicians, as well as the "enablers" -- banks, accounting firms, law firms, and havens.

Any particular component of these networks might easily disappear without making any difference. But the networks live on. It is these shadowy transnational networks that really deserve scrutiny.

Bayrock Group LLC—Kazakhstan and Tevfik Arif

 We’ll begin our tour of Trump's Russian/FSU connections with several business relationships that evolved out of the curious case of Bayrock Group LLC, a spectacularly unsuccessful New York real estate development company that surfaced in the early 2000s and, by 2014, had all but disappeared except for a few lawsuits. As of 2007, Bayrock and its partners reportedly had more than $2 billion of Trump-branded deals in the works. But most of these either never materialized or were miserable failures, for reasons that will soon become obvious.

Bayrock’s “white elephants” included the 46-story Trump SoHo condo-hotel on Spring Street in New York City, for which the principle developer was a partnership formed by Bayrock and FL Group, an Icelandic investment company. Completed in 2010, the SoHo soon became the subject of prolonged civil litigation by disgruntled condo buyers. The building was foreclosed by creditors and resold in 2014 after more than $3 million of customer down payments had to be refunded. Similarly, Bayrock’s Trump International Hotel & Tower in Fort Lauderdale was foreclosed and resold in 2012, while at least three other Trump-branded properties in the United States, plus many other “project concepts” that Bayrock had contemplated, from Istanbul and Kiev to Moscow and Warsaw, also never happened.

Carelessness about due diligence with respect to potential partners and associates is one of Donald Trump’s more predictable qualities. Acting on the seat of the pants, he had hooked up with Bayrock rather quickly in 2005, becoming an 18 percent minority equity partner in the Trump SoHo, and agreeing to license his brand and manage the building.[7]

Donald Trump and Tevfik Arif

 Exhibit A in the panoply of former Trump business partners is Bayrock’s former Chairman, Tevfik Arif (aka Arifov), an émigré from Kazakhstan who reportedly took up residence in Brooklyn in the 1990s. Trump also had extensive contacts with another key Bayrock Russian-American from Brooklyn, Felix Sater (aka Satter), discussed below.[8] Trump has lately had some difficulty recalling very much about either Arif or Sater. But this is hardly surprising, given what we now know about them. Trump described his introduction to Bayrock in a 2013 deposition for a lawsuit that was brought by investors in the Fort Lauderdale project, one of Trump’s first with Bayrock: “Well, we had a tenant in …Trump Tower called Bayrock, and Bayrock was interested in getting us into deals.”[9]

According to several reports, Tevfik Arif was originally from Kazakhstan, a Soviet republic until 1992. Born in 1950, Arif worked for 17 years in the Soviet Ministry of Commerce and Trade, serving as Deputy Director of Hotel Management by the time of the Soviet Union’s collapse.[10] In the early 1990s he relocated to Turkey, where he reportedly helped to develop properties for the Rixos Hotel chain. Not long thereafter he relocated to Brooklyn, founded Bayrock, opened an office in the Trump Tower, and started to pursue projects with Trump and other investors.[11]

Tevfik Arif was not Bayrock’s only connection to Kazakhstan. A 2007 Bayrock investor presentation refers to Alexander Mashevich’s “Eurasia Group” as a strategic partner for Bayrock’s equity finance. Together with two other prominent Kazakh billionaires, Patokh Chodiev (aka “Shodiyev”) and Alijan Ibragimov, Mashkevich reportedly ran the “Eurasian Natural Resources Cooperation.” In Kazakhstan these three are sometimes referred to as “the Trio.”[12]

The Trio has apparently worked together ever since Gorbachev's late 1980s perestroika in metals and other natural resources. It was during this period that they first acquired a significant degree of control over Kazakhstan’s vast mineral and gas reserves. Naturally they found it useful to become friends with Nursaltan Nazarbayev, Kazakhstan’s long-time ruler. Indeed, State Department cables leaked by Wikileaks in November 2010 describe a close relationship between “the Trio” and the seemingly-perpetual Nazarbayev kleptocracy.

In any case, the Trio has recently attracted the attention of many other investigators and news outlets, including the September 11 Commission Report, the Guardian, Forbes, and the Wall Street Journal. In addition to resource grabbing, the litany of the Trio's alleged activities include money laundering, bribery, and racketeering.[13] In 2005, according to U.S. State Department cables released by Wikileaks, Chodiev (referred to in a State Department cable as “Fatokh Shodiyev”) was recorded on video attending the birthday of reputed Uzbek mob boss Salim Abduvaliyeva and presenting him with a $10,000 “gift” or “tribute.”

According to the Belgian newspaper Le Soir, Chodiev and Mashkevich also became close associates of a curious Russian-Canadian businessman, Boris J. Birshtein. who happens to have been the father-in-law of another key Russian-Canadian business associate of Donald Trump in Toronto. We will return to Birshtein below.

The Trio also turn up in the April 2016 Panama Papers database as the apparent beneficial owners of a Cook Islands company, “International Financial Limited.” [14] The Belgian newspapers Het Laatste Nieuws, Le Soir, and La Libre Belgique have reported that Chodiev paid €23 million to obtain a “Class B” banking license for this same company, permitting it to make international currency trades. In the words of a leading Belgian financial regulator, that would “make all money laundering undetectable.”

The Panama Papers also indicate that some of Arif’s connections at the Rixos Hotel Group may have ties to Kazakhstan. For example, one offshore company listed in the Panama Papers database, “Group Rixos Hotel,” reportedly acts as an intermediary for four BVI offshore companies.[15] Rixos Hotel’s CEO, Fettah Tamince, is listed as having been a shareholder for two of these companies, while a shareholder in another—“Hazara Asset Management”—had the same name as the son of a recent Kazakhstan Minister for Sports and Tourism. As of 2012, this Kazakh official was described as the third-most influential deputy in the country’s Mazhilis (the lower house of Parliament), in a Forbes-Kazakhstan article.

According to a 2015 lawsuit against Bayrock by Jody Kriss, one of its former employees, Bayrock started to receive millions of dollars in equity contributions in 2004, supposedly by way of Arif’s brother in Russia, who allegedly “had access to cash accounts at a chromium refinery in Kazakhstan.”

This as-yet unproven allegation might well just be an attempt by the plaintiff to extract a more attractive settlement from Bayrock and its original principals. But it is also consistent with fact that chromium is indeed one of the Kazakh natural resources that is reportedly controlled by the Trio.

As for Arif, his most recent visible brush with the law came in 2010, when he and other members of Bayrock’s Eurasian Trio were arrested together in Turkey during a police raid on a suspected prostitution ring, according to the Israeli daily Yediot Ahronot.

At the time, Turkish investigators reportedly asserted that Arif might be the head of a criminal organization that was trafficking in Russian and Ukrainian escorts, allegedly including some as young as 13.[16] According to these assertions, big-ticket clients were making their selections by way of a modeling agency website, with Arif allegedly handling the logistics. Especially galling to Turkish authorities, the preferred venue was reportedly a yacht that had once belonged to the widely-revered Turkish leader Atatürk. It was also alleged that Arif may have also provided lodging for young women at Rixos Group hotels.[17]

According to Russian media, two senior Kazakh officials were also arrested during this incident, although the Turkish Foreign Ministry quickly dismissed this allegation as “groundless.” In the end, all the charges against Arif resulting from this incident were dismissed in 2012 by Turkish courts, and his spokespeople have subsequently denied all involvement.

Finally, despite Bayrock’s demise and these other legal entanglements, Arif has apparently remained active. For example, Bloomberg reports that, as of 2013, he, his son, and Rixos Hotels’ CEO Fettah Tamince had partnered to pursue the rather controversial business of advancing funds to cash-strapped high-profile soccer players, in exchange for a share of their future marketing revenues and team transfer fees. In the case of Arif and his partners, this new-wave form of indentured servitude was reportedly implemented by way of a UK- and Malta-based hedge fund, Doyen Capital LLP. Because this practice is subject to innumerable potential abuses, including the possibility of subjecting athletes or clubs to undue pressure to sign over valuable rights and fees, UEFA, Europe’s governing soccer body, wants to ban it. But FIFA, the notorious global football regulator, has been customarily slow to act. To date, Doyen Capital LLP has reportedly taken financial gambles on several well-known players, including the Brazilian star Neymar.

The Case of Bayrock LLC—Felix Sater

Our second exhibit is Felix Sater, the senior Bayrock executive introduced earlier. This is the fellow who worked at Bayrock from 2002 to 2008 and negotiated several important deals with the Trump Organization and other investors. When Trump was asked who at Bayrock had brought him the Fort Lauderdale project in the 2013 deposition cited above, he replied: “It could have been Felix Sater, it could have been—I really don’t know who it might have been, but somebody from Bayrock.” [18]

Although Sater left Bayrock in 2008, by 2010 he was reportedly back in Trump Tower as a “senior advisor” to the Trump Organization – at least on his business card -- with his own office in the building.

Sater has also testified under oath that he had escorted Donald Trump, Jr. and Ivanka Trump around Moscow in 2006, had met frequently with Donald over several years, and had once flown with him to Colorado. And although this might easily have been staged, he is also reported to have visited Trump Tower in July 2016 and made a personal $5,400 contribution to Trump’s campaign.

Whatever Felix Sater has been up to recently, the key point is that by 2002, at the latest,[19] Tevfik Arif decided to hire him as Bayrock’s COO and managing director. This was despite the fact that by then Felix had already compiled an astonishing track record as a professional criminal, with multiple felony pleas and convictions, extensive connections to organized crime, and — the ultimate prize —a virtual “get out of jail free card,” based on an informant relationship with the FBI and the CIA that is vaguely reminiscent of Whitey Bulger.[20]

Sater, a Brooklyn resident like Arif, was born in Russia in 1966. He reportedly emigrated with his family to the United States in the mid-1970s and settled in “Little Odessa.” It seems that his father, Mikhael Sheferovsky (aka Michael Sater), may have been engaged in Russian mob activity before he arrived in the United States. According to a certified U.S. Supreme Court petition, Felix Sater’s FBI handler stated that he “was well familiar with the crimes of Sater and his (Sater’s) father, a (Semion) Mogilevich crime syndicate boss.” [21] A 1998 FBI report reportedly said Mogilevich’s organization had “approximately 250 members,” and was involved in trafficking nuclear materials, weapons and more as well as money laundering. (See below.)

But Michael Sater may have been less ambitious than his son. His only reported U.S. criminal conviction came in 2000, when he pled guilty to two felony counts for extorting Brooklyn restaurants, grocery stores, and clinics. He was released with three years’ probation. Interestingly, the U.S. Attorney for the Eastern District of New York who handled that case at the time was Ms. Loretta Lynch, who succeeded Eric Holder as US Attorney General in 2014. Back in 2000, she was also overseeing a budding informant relationship and a plea bargain with Michael’s son Felix, which may help to explain the father's sentence.

By then young Felix Sater was already well on his way to a career as a prototypical Russian-American mobster. In 1991 he stabbed a commodity trader in the face with a margarita glass stem in a Manhattan bar, severing a nerve. He was convicted of a felony and sent to prison. As Trump tells it, Sater simply “got into a barroom fight, which a lot of people do.” The sentence for this felony conviction could not have been very long, because by 1993 27-year-old Felix was already a trader in a brand new Brooklyn-based commodity firm called “White Rock Partners,” an innovative joint venture among four New York crime families and the Russian mob aimed at bringing state-of-the art financial fraud to Wall Street.

Five years later, in 1998, Felix Sater pled guilty to stock racketeering, as one of 19 U.S.-and Russian mob-connected traders who participated in a $40 million “pump and dump” securities fraud scheme. Facing twenty years in Federal prison, Sater and Gennady Klotsman, a fellow Russian-American who'd been with him on the night of the Manhattan bar fight, turned "snitch" and helped the Department of Justice prosecute their co-conspirators.[22] Reportedly, so did Salvatore Lauria, another "trader” involved in the scheme. According to the Jody Kriss lawsuit, Lauria later joined Bayrock as an off-the-books paid “consultant.” Initially their cooperation, which lasted from 1998 until at least late 2001, was kept secret, until it was inadvertently revealed in a March 2000 press release by U.S. Attorney Lynch.

Unfortunately for Sater, about the same time the NYPD also reportedly discovered that he'd had been running a money-laundering scheme and illicit gun sales out of a Manhattan storage locker. He and Klotsman fled to Russia. However, according to the New York Times, citing Klotsman and Lauria, soon after the events of September 11, 2001 the ever-creative Sater succeeded in brokering information about the black market for Stinger anti-aircraft missiles to the CIA and the FBI. According to Klotsman, this strategy “bought Felix his freedom,” allowing him to return to Brooklyn. It is still not clear precisely what information Sater actually provided, but in 2015 US Attorney General Loretta Lynch publicly commended him for sharing information that she described as “crucial to national security.”

Meanwhile, Sater’s sentence for his financial crimes continued to be deferred even after his official cooperation in that case ceased in late 2001. His files remained sealed, and he managed to avoid any sentencing for those crimes at all until October 23, 2009. When he finally appeared before the Eastern District's Judge I. Leo Glasser, Felix received a $25,000 fine, no jail time, and no probation, in a quiet proceeding that attracted no press attention. Some compared this sentence to Judge Glasser's earlier sentence of Mafia hit man “Sammy the Bull” Gravano to 4.5 years for 19 murders, in exchange for “cooperating against John Gotti.”

In any case, between 2002 and 2008, when Felix Sater finally left Bayrock LLC, and well beyond, his ability to avoid jail and conceal his criminal roots enabled him to enjoy a lucrative new career as Bayrock’s chief operating officer. In that position, he was in charge of negotiating aggressive property deals all over the planet, even while—according to lawsuits by former Bayrock investors — engaging in still more financial fraud. The only apparent difference was that he changed his name from “Sater” to “Satter.” [23]

In the 2013 deposition cited earlier, Trump went on to say “I don’t see Felix as being a member of the Mafia.” Asked if he had any evidence for this claim, Trump conceded “I have none.”[24]

As for Sater’s pal Klotsman, the past few years have not been kind. As of December 2016 he is in a Russian penal colony, working off a ten-year sentence for a failed $2.8 million Moscow diamond heist in August 2010. In 2016 Klotsman was reportedly placed on a “top-ten list” of Americans that the Russians were willing to exchange for high-value Russian prisoners in U.S. custody, like the infamous arms dealer Viktor Bout. So far there have been no takers. But with Donald Trump as President, who knows?

The Case of Iceland’s FL Group

 One of the most serious frauds alleged in the recent Bayrock lawsuit involves FL Group, an Icelandic private investment fund that is really a saga all its own.

Iceland is not usually thought of as a major offshore financial center. It is a small snowy island in the North Atlantic, closer to Greenland than to the UK or Europe, with only 330,000 citizens and a total GDP of just $17 billion. Twenty years ago, its main exports were cod and aluminum – with the imported bauxite smelted there to take advantage of the island's low electricity costs.

But in the 1990s Iceland’s tiny neoliberal political elite had what they all told themselves was a brilliant idea: "Let's privatize our state-owned banks, deregulate capital markets, and turn them loose on the world!" By the time all three of the resulting privatized banks, as well as FL Group, failed in 2008, the combined bank loan portfolio amounted to more than 12.5 times Iceland’s GDP -- the highest country debt ratio in the entire world.

Iceland 2008 - All Cross-Holdings

For purposes of our story, the most interesting thing about Iceland is that, long before this crisis hit and utterly bankrupted FL Group, our two key Russian/FSU/Brooklyn mobster-mavens, Arif and Sater, had somehow stumbled on this obscure Iceland fund. Indeed, in early 2007 they persuaded FL Group to invest $50 million in a project to build the Trump SoHo in mid-town Manhattan.

According to the Kriss lawsuit, at the same time, FL Group and Bayrock’s Felix Sater also agreed in principle to pursue up to an additional $2 billion in other Trump-related deals. The Kriss lawsuit further alleges that FL Group (FLG) also agreed to work with Bayrock to facilitate outright tax fraud on more than $250 million of potential earnings. In particular, it alleges that FLG agreed to provide the $50 million in exchange for a 62 percent stake in the four Bayrock Trump projects, but Bayrock would structure the contract as a “loan.” This meant that Bayrock would not have to pay taxes on the initial proceeds, while FLG’s anticipated $250 million of dividends would be channeled through a Delaware company and characterized as “interest payments,” allowing Bayrock to avoid up to $100 million in taxes. For tax purposes, Bayrock would pretend that their actual partner was a Delaware partnership that it had formed with FLG, “FLG Property I LLC,” rather than FLG itself.

The Trump Organization has denied any involvement with FLG. However, as an equity partner in the Trump SoHo, with a significant 18 percent equity stake in this one deal alone, Donald Trump himself had to sign off on the Bayrock-FLG deal.

This raises many questions. Most of these will have to await the outcome of the Kriss litigation, which might well take years, especially now that Trump is President. But several of these questions just leap off the page.

First, how much did President-elect Trump know about the partners and the inner workings of this deal? After all, he had a significant equity stake in it, unlike many of his “brand-name only” deals, and it was also supposed to finance several of his most important East Coast properties.

Second, how did the FL Group and Bayrock come together to do this dodgy deal in the first place? One former FL Group manager alleges that the deal arrived by accident, a “relatively small deal" was nothing special on either side.[25] The Kriss lawsuit, on the other hand, alleges that FLG was a well-known source of easy money from dodgy sources like Kazakhstan and Russia, and that other Bayrock players with criminal histories— like Salvatore Lauria, for example—were involved in making the introductions.

At this stage the evidence with respect to this second question is incomplete. But there are already some interesting indications that FL Group’s willingness to generously finance Bayrock’s peculiar Russian/FSU/Brooklyn team, its rather poorly-conceived Trump projects, and its purported tax dodging were not simply due to Icelandic backwardness. There is much more for us to know about Iceland’s “special” relationship with Russian finance. In this regard, there are several puzzles to be resolved.

First, it turns out that FL Group, Iceland’s largest private investment fund until it crashed in 2008, had several owners/investors with deep Russian business connections, including several key investors in all three top Iceland banks.

Second, it turns out that FL Group had constructed an incredible maze of cross-shareholding, lending, and cross-derivatives relationships with all these major banks, as illustrated by the following snapshot of cross-shareholding among Iceland’s financial institutions and companies as of 2008.[26]

Cross-shareholding Relationships, FLG and Other Leading Icelandic Financial Institutions, 2008

 

This thicket of cross-dealing made it almost impossible to regulate “control fraud,” where insiders at leading financial institutions went on a self-serving binge, borrowing and lending to finance risky investments of all kinds. It became difficult to determine which institutions were net borrowers or investors, as the concentration of ownership and self-dealing in the financial system just soared.

Third, FL Group make a variety of peculiar loans to Russian-connected oligarchs as well as to Bayrock. For example, as discussed below, Alex Shnaider, the Russian-Canadian billionaire who later became Donald Trump’s Toronto business partner, secured a €45.8 million loan to buy a yacht from Kaupthing Bank during the same period, while a company

Cross-shareholding Relationships, FLG and Other Leading Icelandic Financial Institutions, 2008

belonging to another Russian billionaire who reportedly owns an important vodka franchise got an even larger loan.[27]  

Fourth, Iceland’s largest banks also made a series of extraordinary loans to Russian interests during the run-up to the 2008 crisis. For example, one of Russia’s wealthiest oligarchs, a close friend of President Putin, nearly managed to secure at least €400 million (or, some say, up to 4 times that much) from Kaupthing, Iceland’s largest bank, in late September 2008, just as the financial crisis was breaking wide open. This bank also had important direct and indirect investments in FL Group. Indeed, until December 2006, it is reported to have employed the FL Group private equity manager who allegedly negotiated Felix Sater’s $50 million deal in early 2007.[28]

Fifth, there are unconfirmed accounts of a secret U.S. Federal Reserve report that unnamed Iceland banks were being used for Russian money laundering.[29] Furthermore, Kaupthing Bank’s repeated requests to open a New York branch in 2007–08 were rejected by the Fed. Similar unconfirmed rumors repeatedly appeared in Danish and German publications, as did allegations about the supposed Kazakh origins of FLG’s cash to be “laundered” in the Kriss lawsuit.

Sixth, there is the peculiar fact is that when Iceland’s banks went belly-up in October 2008, their private banking subsidiaries in Luxembourg, which were managing at least €8 billion of private assets, were suddenly seized by Luxembourg banking authorities and transferred to a new bank, Banque Havilland. This happened so fast that Iceland’s Central Bank was prevented from learning anything about the identities or portfolio sizes of the Iceland banks’ private offshore clients. But again, there were rumors of some important Russian names.

Finally, there is the rather odd phone call that Russia’s Ambassador to Iceland made to Iceland’s Prime Minister at 6:45 a.m. on October 7, 2008, the day after the financial crisis hit Iceland. According to the PM's own account, the Russian Ambassador informed him that then Prime-Minister Putin was willing to consider offering Iceland a €4 billion Russian bailout.

Of course this alleged Putin offer was modified not long thereafter to a willingness to entertain an Icelandic negotiating team in Moscow. By the time the Iceland team got to Moscow later that year, Russia’s willingness to lend had cooled, and Iceland ended up accepting a $2.1 billion IMF "stabilization package" instead. But according to a member of the negotiating team, the reasons for the reversal are still a mystery. Perhaps Putin had reconsidered because he simply decided that Russia had to worry about its own considerable financial problems. Or perhaps he had discovered that Iceland’s banks had indeed been very generous to Russian interests on the lending side, while -- given Luxembourg’s fact actions -- any Russian private wealth invested in Iceland banks was already safe.

On the other hand, there may be a simpler explanation for Iceland’s peculiar generosity to sketchy partners like Bayrock. After all, right up to the last minute before the October 2008 meltdown, the whole world had awarded Iceland AAA ratings – depositors queued up in London to open high-yield Iceland bank accounts, its bank stocks were booming, and the compensation paid to its financiers was off the charts. So why would anyone worry about making a few more dubious deals?

Overall, therefore, with respect to these odd “Russia-Iceland” connections, the proverbial jury is still out. But all these Icelandic puzzles are intriguing and bear further investigation.

The Case of the Trump Toronto Tower and Hotel—Alex Shnaider

 Our fourth case study of Trump's business associates concerns the 48-year-old Russian-Canadian billionaire Alex Shnaider, who co-financed the seventy-story Trump Tower and Hotel, Canada’s tallest building. It opened in Toronto in 2012. Unfortunately, like so many of Trump’s other Russia/FSU-financed projects, this massive Toronto condo-hotel project went belly-up this November and has now entered foreclosure.

Donald Trump and Alex Shnaider

According to an online profile of Shnaider by a Ukrainian news agency, Alex Shnaider was born in Leningrad in 1968, the son of "Евсей Шнайдер," or "Evsei Shnaider" in Russian.[30] A recent Forbes article says that he and his family emigrated to Israel from Russia when he was four and then relocated to Toronto when he was 13-14. The Ukrainian news agency says that Alex's familly soon established "one of the most successful stories in Toronto's Russian quarter, " and that young Alex, with "an entrepreneurial streak," "helped his father Evsei Shnaider in the business, placing goods on the shelves and wiping floors."

Eventually that proved to be a great decision – Shnaider prospered in the New World. Much of this was no doubt due to raw talent. But it also appears that for a time he got significant helping hand from his (now reportedly x) father-in-law,   another colorful Russian-Canadian, Boris J. Birshtein.

Originally from Lithuania, Birshtein, now about 69, has been a Canadian citizen since at least 1982.[31] He resided in Zurich for a time in the early 1990s, but then returned to Toronto and New York.[32] One of his key companies was called Seabeco SA, a "trading" company that was registered in Zurich in December 1982.[33] By the early 1990s Birshtein and his partners had started many other Seabeco-related companies in a wide variety of locations, inclding Antwerp,[34] Toronto,[35] Winnipeg,[36] Moscow, Delaware,[37] Panama, [38] and Zurich.[39] Several of these are still active.[40] He often staffed them with directors and officers from a far-flung network of Russians, emissaries from other FSU countries like Kirgizstan and Moldova, and recent Russia/FSU emigres to Canada.[41]

According to the Financial Times and the FBI, in addition to running Seabeco, Birshtein was a close business associate of Sergei Mikhaylov, the reputed head of Solntsevskaya Bratva, the Russian mob's largest branch, and the world’s highest-grossing organized crime group as of 2014, according to Fortune. [42] A 1996 FBI intelligence report cited by the FT claims that Birshtein hosted a meeting in his Tel Aviv office for Mikhaylov, the Ukrainian-born Semion Mogilevich, and several other leaders of the Russo/FSU mafia, in order to discuss “the sharing interests in Ukraine.”[43] A subsequent 1998 FBI Intelligence report on the "Semion Mogilevich Organization" repeated the same charge,[44] and described Mogilevich's successful attempts at gaining control over Ukraine privatization assets. This FT article also described how Birshtein and his associates had acquired extraordinary influence with key Ukraine officials, including President Leonid Kuchma, with the help of up to $5 million of payoffs.[45] Citing Swiss and Belgian investigators, the FT also claimed that Birshtein and Mikhaylov jointly controlled a Belgian company called MAB International in the early 1990s.[46] During that period, those same investigators reportedly observed transfers worth millions of dollars between accounts held by Mikhaylov, Birshtein, and Alexander Volkov, Seabeco's representative in Ukraine.

In 1993, the Yeltsin government reportedly accused Birshtein of illegally exporting seven million tons of Russian oil and laundering the proceeds.[47] Dmytro Iakoubovski, a former associate of Birshtein’s who had also moved to Toronto, was said to be cooperating with the Russian investigation. One night a gunman fired three shots into Iakoubovski’s home, leaving a note warning him to cease his cooperation, according to a New York Times article published that year. As noted above, according to the Belgian newspaper Le Soir, two members of Bayrock’s Eurasian Trio were also involved in Seabeco during this period as well—Patokh Chodiev and Alexander Mashkevich. Chodiev reportedly first met Birshtein through the Soviet Foreign Ministry, and then went on to run Seabeco’s Moscow office before joining its Belgium office in 1991. Le Soir further claims that Mashkevich worked for Seabeco too, and that this was actually how he and Chodiev had first met.

All this is fascinating, but what about the connections between Birshtein and Trump's Toronto business associate, Alex Shnaider? Again, the leads we have are tantalizing.The Toronto Globe and Mail reported that in 1991, while enrolled in law school, young Alex Shnaider started working for Birshtein at Seabeco’s Zurich headquarters, where he was reportedly introduced to steel trading. Evidently this was much more than just a job; the Zurich company registry lists "Alex Shnaider" as a Director of "Seabeco Metals AG" from March 1993 to January 1994. [48]

In 1994, according to this account, reportedly left Seabeco in January 1994 to start his own trading company in Antwerp, in partnership with a Belgian trader-partner. Curiously, Le Soir also says that Mikhaylov and Birshtein co-founded MAB International in Antwerp in January 1994. Is it far-fetched to suspect that Alex Shnaider and mob boss Mikhaylov might have crossed paths, since they were both in the same city and they were both close to Shnaider’s father-in-law?

According to Forbes, soon after Shnaider moved to Antwerp, he started visiting the factories of his steel trading partners in Ukraine.[49] His favorite client was the Zaporizhstal steel mill, the Ukraine's fourth largest. At the Zaporizhstal mill he reportedly met Eduard Shifrin (aka Shyfrin), a metals trader with a Ph.D. in metallurgical engineering. Together they founded Midland Resource Holdings Ltd. in 1994.[50]

As the Forbes piece argues, with privatization sweeping Eastern Europe, private investors were jockeying to buy up the government’s shares in Zaprozhstal. But most traders lacked the financial backing and political connectons to accumulate large risky positions. Shnaider and Shifrin, in contrast, started buying up shares without limit, as if their pockets and connections were very deep. By 2001 they had purchased 93 percent of the plant for about $70 million, a stake that would be worth much more just five years later, when Shnaider reportedly turned down a $1.2 billion offer.

Today Midland Resources Holdings Ltd. reportedly generates more than $4 billion a year of revenue and has numerous subsidiaries all across Eastern Europe.[51] Shnaider also reportedly owns Talon International Development, the firm that oversaw construction of the Trump hotel-tower in Toronto. All this wealth apparently helped Iceland's FL Group decide that it could afford to extend a €48.5 million loan to Alex Shnaider in 2008 to buy a yacht. [52]

            As of December 2016, a search of the Panama Papers database found no less than 28 offshore companies that have been associated with “Midland Resources Holding Limited.”[53] According to the database, "Midland Resources Holding Limited" was a shareholder in at least two of these companies, alongside an individual named “Oleg Sheykhametov.”[54] The two companies, Olave Equities Limited and Colley International Marketing SA, were both registered and active in the British Virgin Islands from 2007–10.[55] A Russian restaurateur by that same name reportedly runs a sushi franchise owned by two other alleged Solntsevskaya mob associates, Lev Kvetnoy and Andrei Skoch, both of whom are pictured below with Sergei Mikhaylov below. Of course mere inclusion in such a group photo is no evidence of any wrong-doing. (INSERT Picture Link here: https://www.theguardian.com/world/2012/nov/28/man-behind-megafon.) According to Forbes, Kvetnoy is the 55th richest person in Russia and Skoch, now a deputy in the Russian Duma, is the 18th. [56]           

            Finally, it is also intriguing to note that Bori Birshtein is also listed as the President of "ME Moldova Enterprises AG," a Zurich-based company" that was founded in November1992, transferred to the canton of Schwyz in September 1994, and liquidated and cancelled in January 1999.[57] Birshstein was a member of the company's board of directors from November 1992 to January 1994, when he became its President. At that point he was succeeded as President in June 1994 by one "Evsei Shnaider, Canadian citizen, resident in Zurich," who was also listed as Director of the company in September 1994.[58] " Evsei Schnaider" is also listed in the Panama registry as a Treasurer and Director of "The Seabeco Group Inc," formed on December 6, 1991, [59]and as Treasurer and Director of Seabeco Security International Inc.," formed on December 10, 1991. As of December 2016, both companies are still in existence.[60] Boris Birstein is listed as President and Director of both companies.[61]

The Case of Paul Manafort’s Ukrainian Oligarchs

 Our fifth Trump associate profile concerns the Russo/Ukrainian connections of Paul Manafort, the former Washington lobbyist who served as Donald Trump’s national campaign director from April 2016 to August 2016. Manafort’s partner, Rick Davis, also served as national campaign manager for Senator John McCain in 2008, so this may not just be a Trump association.

 

Dymytro Firtash

One of Manafort’s biggest clients was the dubious pro-Russian Ukrainian billionaire Dmytro Firtash. By his own admission, Firtash maintains strong ties with a recurrent figure on this scene, the reputed Ukrainian/Russian mob boss Semion Mogilevich. His most important other links are almost certainly to Putin. Otherwise it is difficult to explain how this former used-car salesman could gain a lock on trading goods for gas in Turkmenstan and also become a lynchpin investor in the Swiss company RosUrEnergo, which controls Gazprom's gas sales to Europe[62]

In 2008, Manafort teamed up with a former manager of the Trump Organization to purchase the Drake Hotel in New York for up to $850 million, with Firtash agreeing to invest $112 million. According to a lawsuit brought against Manafort and Firtash, the key point of the deal was not to make a carefully-planned investment in real estate, but to simply launder part of the huge profits that Firtash had skimmed while brokering dodgy natural gas deals between Russia and Ukraine, with Mogilevich acting as a “silent partner.”

Ultimately Firtash pulled out of this Drake Hotel deal. The reasons are unclear – it has been suggestd that he needed to focus on the 2015 collapse and nationalization of his Group DF's Bank Nadra back home in the Ukraine.[63] But it certainly doesn't appear to have changed his behiavor. Since 2014 there have been a spate of other Firtash-related prosecutions, with the US try to extradict from Austria in order to stand trial on allegations that his vast spidernet "Group DF" had paid $18.5 million in bribes to Indian officials to secure mining licenses. The Austrian court, knowing Firtash like a brother, required him to put up a record-busting €125 mm bail while he awaits a decision. [64] And just last month, Spain has also tried to extradite Firtash on a separate money laundering case, involving washing €10 million through Spanish property investments.

After Firtash pulled out of the deal, Manafort reportedly turned to Trump, but he declined to engage. Manafort stepped down as Trump’s campaign manager in August of 2016 in response to press investigations into his ties not only to Firtash, but to the Ukraine's previous pro-Russian Yanukovych government, which had been deposed by a uprising in 2014.  However, following the November 8 election, Manafort reportedly returned to advise Trump on staffing his new administration.  He got an assist from Putin -- on November 30 a spokeswoman for the Russian Foreign Ministry accused Ukraine of leaking stories about Manafort in an effort to hurt Trump.

The Case of “Well-Connected” Russia/FSU Mobsters

 Finally, several other interesting Russo/FSU connections have a more residential flavor, but they are a source of very important leads about the Trump network.

Indeed, partly because it has no prying co-op board, Trump Tower in New York has received press attention for including among its many honest residents tax-dodgers, bribers, arms dealers, convicted cocaine traffickers, and corrupt former FIFA officials. [65]

Semion Mogilevich

One typical example involves the alleged Russian mobster Anatoly Golubchik, who went to prison in 2014 for running an illegal gambling ring out of Trump Tower -- not only the headquarters of the Trump Organization but also the former headquarters of Bayrock Group LLC. This operation reportedly took up the entire 51st floor. Also reportedly involved in it was the alleged mobster Alimzhan Tokhtakhounov, [66] who has the distinction of making the Forbes 2008 list of the World’s Ten Most Wanted Criminals, and whose organization the FBI believed to be tied to Mogilevich’s. Even as this gambling ring was still operating in Trump Tower, Tokhtakhounov reportedly travelled to Moscow to attend Donald Trump’s 2013 Miss Universe contest as a special VIP.

In the Panama Papers database we do find the name “Anatoly Golubchik.” Interestingly, his particular offshore company, "Lytton Ventures Inc.," [67] shares a corporate director, Stanley Williams, with a company that may well be connected to our old friend Semion Mogilevich, the Russian mafia’s alleged “Boss of Bosses” who has appeared so frequently above. Thus Lytton Ventures Inc. shares this particular director with another company that is held under the name of “Galina Telesh.”[68] According to the Organized Crime and Corruption Reporting Project, multiple offshore companies belonging to Semion Mogilevich have been registered under this same name -- which just happens to be that of Mogilevich’s first wife.

A 2003 indictment of Mogilevich also mentions two offshore companies that he is said to have owned, with names that include the terms “Arbat” and “Arigon.” The same corporate director shared by Golubchik and Telesh also happens to be a director of a company called Westix Ltd.,[69] which shares its Moscow address with “Arigon Overseas” and “Arbat Capital.”[70] And another company with that same director appears to belong to Dariga Nazarbayeva, the eldest daughter of Nursultan Nazarbayev, the long-lived President of Kazakhstan. Dariga is expected to take his place if he ever decides to leave office or proves to be mortal.

Lastly, Dmytro Firtash—the Mogilevich pal and Manafort client that we met earlier—also turns up in the Panama Papers database, as part of Galina Telesh’s network neighborhood. A director of Telesh’s “Barlow Investing,” Vasliki Andreou, was also a nominee director of a Cyprus company called “Toromont Ltd.,” while another Toromont Ltd. nominee director, Annex Holdings Ltd., a St. Kitts company, is also listed as a shareholder in Firtash’s Group DF Ltd., along with Firtash himself.[71] And Group DF’s CEO, who allegedly worked with Manafort to channel Firtash’s funding into the Drake Hotel venture, is also listed in the Panama Papers database as a Group DF shareholder. Moreover, a 2006 Financial Times investigation identified three other offshore companies that are linked to both Firtash and Telesh.[72] 

Anatoly Golubchik’s Panama Papers Network Neighborhood

Of course, all of these curious relationships may just be meaningless coincidences. After all, the director shared by Telesh and Golubchik is also listed in the same role for more than 200 other companies, and more than a thousand companies besides Arbat Capital and Arigon Overseas share Westix’s corporate address. In the burgeoning land of offshore havens and shell-game corporate citizenship, there is no such thing as overcrowding. The appropriate way to view all this evidence is to regard it as "Socratic:" raising important unanswered questions – not providing definite answers.

In any case, returning to Trump's relationships through Trump Tower, another odd one involves the 1990s-vintage fraudulent company YBM Magnex International. YBM, ostensibly a world-class manufacturer of industrial magnets, was founded indirectly in Newtown, Bucks County, Pennsylvania in 1995 by the "boss of bosses," Semion Mogilevich, Moscow’s “brainy Don.”

This is a fellow with an incredible history, even if only one-half of what has been written about him is true. [73] Unfortunately, we have to focus here only on the bits that are most relevant.. Born in Kiev, and now a citizen of Israel as well as the Ukraine and Russia, Semion, now 70, is a lifelong criminal. But he boasts an undergraduate economics degree from Lviv University, and is reported to take special pride in designing sophisticated, virtually undetectable financial frauds that take years to put in place. To pull them off, he often relies on the human frailties of top bankers, stock brokers, accountants, business magnates, and key politicians.[74]

In YBM’s case, for a mere $2.4 million in bribes, Semion and his henchmen spent years in the 1990s launching a product-free, fictitious company on the still-badly under-regulated Toronto Stock Exchange. Along the way they succeeded in securing the support of several leading Toronto business people and a former Ontario Province Premier to sit on YBM’s board. They also paid the “Big Four” accounting firm Deloitte Touche very handsomely to issue glowing audits. By mid-1998, YBM’s stock price had gone from less than $.10 to $20, and Semion cashed out at least $18 million—a relatively big fraud for its day—before the FBI raid its YBM's corporate headquarters. When it did so, it found piles of bogus invoices for magnets, but no magnets. [75]

In 2003, Mogilevich was indicted in Philadelphia on 45 felony counts for this $150 million stock fraud. But there is no extradition treaty between the United States and Russia, and no chance that Russia will ever extradite Semion voluntarily; he is arguably a national treasure, especially now. Acknowledging these realities, or perhaps for other reasons, the FBI quietly removed Mogilevich from its Top Ten Most Wanted list in 2015, where he had resided for the previous six years.[76]

For our purposes, one of the most interesting things to note about this YBM Magnex case is that its CEO was a Russian-American named Jacob Bogatin, who was also indicted in the Philadelphia case. His brother David had served in the Soviet Army in a North Vietnamese anti-aircraft unit, helping to shoot down American jet pilots like Senator John McCain. Since the early 1990s, David Bogatin was considered by the FBI to be one of the key members of Semion Mogilevich’s Russian organized crime family in the United States, with a long string of convictions for big-ticket Mogilevich-type offenses like financial fraud and tax dodging.

At one point, David Bogatin owned five separate condos in Trump Tower that Donald Trump had reportedly sold to him personally.[77] And Vyacheslav Ivankov, another key Mogilevich lieutenant in the United States during the 1990s, also resided for a time at Trump Tower, and reportedly had in his personal phone book the private telephone and fax numbers for the Trump Organization’s office in that building.[78]

________

So what have we learned from this deep dive into the network of Donald Trump's Russian/FSU connections?

¶ First, the President-Elect really is very "well-connected," with an extensive network of unsavory global underground connections that may well be unprecedented in White House history. In choosing his associates, evidently Donald Trump only pays cursory attention to questions of background, character and integrity.

¶ Second, Donald Trump has also literally spent decades cultivating senior relationships of all kinds with Russia and the FSU. And public and private senior Russian figures of all kinds have likewise spent decades cultivating him, not only as a business partner, but as a "useful idiot."

After all, on September 1, 1987 (!), Trump was already willing to spend a $94,801 on full-page ads in the Boston Globe, the Washington Post, and the New York Times, calling for the US to stop spending money to defend Japan, Europe, and the Persian Gulf, "an area of only marginal significance to the US for its oil supplies, but one upon which Japan and others are almost totally dependent.''[79]

This is one key reason why just this week, Robert Gates, a registered Republican who has served Secretary of Defense under Presidents from both parties, as well as Director and Deputy Director of the CIA, critized the response of Congress and the White House to the alleged Putin-backed hacking as far too "laid back." [80]

¶ Third, even beyond questions of illegality, the public clearly has a right to know much more than it already does about the nature of such global connections. As our opening quote from Cervantes suggests, these relationships are probably a pretty good leading indicator of how Presidents will behave once in office.

Unfortunately, for many reasons, this year American voters never really got the chance to decide whether such low connections and entanglements belong at the world’s high peak of official power. In the waning days of the Obama Administration, with the Electoral College about to ratify Trump's election and Congress in recess, it is too late to establish the kind of bipartisan 9/11-type commission that would be needed to explore these connections in detail.

¶ Finally, the long-run consequence of careless interventions in other countries is that they often come back to haunt us.  In Russia's case, it just has.

♥♥♥ 

James S. Henry, Esq. is an investigative economist and lawyer who has written widely about offshore and onshore tax havens, kleptocracy, and pirate banking. He is the author of The Blood Bankers (Basic Books, 2003,2005), a classic investigation of where the money went that was loaned to key debtor countries in the 1970s-1990s. He is a Senior Fellow at the Columbia University's Center on Sustainable Investment, a Global Justice Fellow at Yale, a Senior Advisor at the Tax Justice Network, and a member of the New York Bar. He has pursued frontline investigations of odious debt, flight capital, and corruption in more than 50 developing countries, including Russia, China, South Africa, Brazil, the Philippines, Argentina, Venezuela, Nicaragua, Mexico, and Panama.

 

[1] Author’s estimates; see globalhavenindustry.com for more details.

[2] For an overview and critical discussion, see http://prutland.faculty.wesleyan.edu/files/2015/08/The-role-of-the-IMF-in-Russia.pdf.

[3] See Lawrence Klein and Marshall Pomer, Russia's Economic Transition Gone Awry (Stanford U. Press, 2002); see also James S. Henry and Marshall Pomer, "A Pile of Ruble," The New Republic, 1998, 219 (10), 20-21.

[4] See this Washington Post report, which counts just six bankruptcies to the Trump Organization’s credit, but excludes failed projects like the Trump SoHo, the Toronto condo-hotel, the Fort Lauderdale condo-hotel, and many others Trump was a minority investor or had simply licensed his brand.

[5] For example, the Swiss federal and cantonal corporate registries, available at http://zefix.admin.ch.

[6] For ICIJ's April 2016 "Panama Papers" database of offshore companies, see https://offshoreleaks.icij.org.

[7] Trump’s minority equity deal with Bayrock was unlike many others, where he simply licensed his name. See this March 2008 New York Magazine piece.

[8] “I dealt mostly with Tevfik,” he said in 2007 http://www.thedailybeast.com/articles/2011/05/26/inside-donald-trumps-empire-why-he-wont-run-for-president.html

[9] Case 1:09-cv-21406-KMW Document 408-1. Entered on FLSD Docket 11/26/2013. p. 15. https://archive.org/stream/DonaldTrumpArchive/Branding%20%20DJT%20Fort%20Lauderdale%20Depo%2011-5-2013#page/n19/mode/2up.

[10] https://kazakhbusinessbulletin.wordpress.com/kazakh-businessman/tevfik-arif/.

[11] Bayrock reported its co-ownership of six Rixos hotels in a 2007 press release.

[12] See also Salihovic, Elnur, Major Players in the Muslim Business World, p.107

https://books.google.com/books?id=aSa1DAAAQBAJ&pg=PA107&lpg=PA107&dq=%22the+trio%22+kazakhstan&source=bl&ots=pwxBZWjuGi&sig=v43XY1UxLhub0YayYH6vY1lcAJc&hl=en&sa=X&ved=0ahUKEwigx6Hi08rQAhUJwiYKHSoQACQ4ChDoAQgnMAM#v=onepage&q=%22the%20trio%22%20kazakhstan&f=false; http://www.telegraph.co.uk/finance/newsbysector/industry/mining/8171468/US-ambassador-unimpressed-by-food-at-oligarch-Alexander-Mashkevichs-house.html.

[13] See also http://www.sahistory.org.za/sites/default/files/file%20uploads%20/alastair_fraser_miles_larmer_zambia_mining_anbook4you.pdf; http://www.brusselstimes.com/belgium/3302/the-belgian-billionaire-georges-forrest-denies-any-involvement-in-kazakhgate; http://archives.lesoir.be/le-parquet-de-bruxelles-enquete-kazakhgate-tractebel-co_t-19991228-Z0HNTZ.html.

[14] According to the Panama Papers database, "International Financial Limited" was registered on April 3, 1998, but is no longer active today, although no precise deregistration date is available. See https://offshoreleaks.icij.org/nodes/167402.

[15]According to the Panama Papers, “Group Rixos Hotel” is still active company, while three of the four companies it serves were struck off in 2007 and the fourth, Hazara Asset Management, in 2013.

[16] http://www.ynetnews.com/articles/0,7340,L-4048812,00.html.

[17] See also [17] http://turizmguncel.com/haber/savarona-zanlilari-sorgulanirken-ismailov-adliyeye-gitti-h3325.html; [17] http://www.legrandsoir.info/Machkevitch-et-ses-complices-blanchis-par-la-justice-turque.html.

[18] Case 1:09-cv-21406-KMW Document 408-1. Entered on FLSD Docket 11/26/2013. p. 16. https://archive.org/stream/DonaldTrumpArchive/Branding%20%20DJT%20Fort%20Lauderdale%20Depo%2011-5-2013#page/n19/mode/2up.

[19]The exact date that Sater joined Bayrock is unclear. A New York Times article says 2003, but this appears to be too late. Sater says 1999, but this is much too early. A certified petition filed with the U.S. Supreme Court places the time around 2002, which is more consistent with Sater’s other activities during this period, including his cooperation with the Department of Justice on the Coppa case in 1998–2001, and his foreign travel.

[20] See https://www.ft.com/content/549ddfaa-5fa5-11e6-b38c-7b39cbb1138a; http://www.nytimes.com/2016/04/06/us/politics/donald-trump-soho-settlement.html; https://www.washingtonpost.com/politics/former-mafia-linked-figure-describes-association-with-trump/2016/05/17/cec6c2c6-16d3-11e6-aa55-670cabef46e0_story.html

; [20] http://c10.nrostatic.com/sites/default/files/Palmer-Petition-for-a-writ-of-certiorari-14-676.pdf. Note that previous accounts of Sater's activities have overlooked the role that this very permissive relationship with federal law enforcement, especially the FBI, may have played in encouraging Sater's subsequent risk-taking and financial crimes. See http://c10.nrostatic.com/sites/default/files/Palmer-Petition-for-a-writ-of-certiorari-14-676.pdf.

[21] See http://c10.nrostatic.com/sites/default/files/Palmer-Petition-for-a-writ-of-certiorari-14-676.pdf, 13.

[22] Sater’s 1998 case, never formally sealed, was U.S. v. Sater, 98-CR-1101 (E.D.N.Y.) The case in which Sater secretly informed was U.S. v. Coppa, 00-CR-196 (E.D.N.Y.). See also http://www.thedailybeast.com/articles/2016/11/06/trump-s-russia-towers-he-just-can-t-get-them-up.html.

[23] http://www.nytimes.com/2007/12/17/nyregion/17trump.html. Sater also may have taken other steps to conceal his criminal past. According to the 2015 lawsuit filed by x Bayrocker Jody Kriss, Arif agreed to pay Sater his $1 million salary under the table, allowing Sater to pretend that he lacked resources to compensate any victims of his prior financial frauds. See Kriss v. Bayrock, pp. 2, 18, at https://assets.documentcloud.org/documents/2638421/Kriss-v-Bayrock-Complaint.pdf The lawsuit also alleges that Sater may have held a majority of Bayrock's ownership, but that Arif, Sater and other Bayrock officers may have conspired to hide this by listing Arif as the sole owner on offering documents.

[24] See https://archive.org/stream/DonaldTrumpArchive/Branding%20%20DJT%20Fort%20Lauderdale%20Depo%2011-5-2013#page/n153/mode/2up, 155.

[25] "Former FL Group manager," interview with London, August 2016. Sigrun Davidsdottir, Iceland journalist.

[26] See "Report of the Special Investigation Commission on the 2008 Financial Crisis." (April 12, 2010), available at http://www.rna.is/eldri-nefndir/addragandi-og-orsakir-falls-islensku-bankanna-2008/skyrsla-nefndarinnar/english/.

[27] These loans are disclosed in the Kaupthing Bank's "Corporate Credit – Disclosure of Large Exposures > €40 mm." loan book, September 15, 2008. This document was disclosed by Wikileaks in 2009   See http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5968231/Kaupthing-leak-exposes-loans.html; http://file.wikileaks.info/leak/kaupthing-bank-before-crash-2008.pdf, p.145 (€79.5mm construction yacht loan to Russian vodka magnate Yuri Shefler's Serena Equity Ltd.;   p. 208: (€45.8 mm yacht construction loan to Canadian-Russian billionaire Alex Shnaider's Filbert Pacific Ltd..

[28] Kriss lawsuit, op. cit.; author's analysis of Kaupthing/ FL G employees published career histories.

[29] Author's interview, "Iceland Economist," Reykjavik, July 2016.

[30] http://uniad.com.ua/main/940-dose-aleksa-shnajdera-sovladelca-zaporozhstali.html. The passage in Russian, with the father's name underlined, is as follows: "Родители Алекса Шнайдера владели одним из первых успешных русских  магазинов в русском квартале Торонто. Алекс помогал в бизнесе отцу – Евсею Шнайдеру, расставляя на полках товар и протирая полы. С юных лет в Алексе зрела предпринимательская жилка.  Живя с родителями, он стал занимать деньги у их друзей и торговать тканями и электроникой с разваливающимися в конце 80-х годов советскими предприятиями." "Евсею Шнайде

ру" is the dative case of "Евсей Шнайдер," or "Evsei Shnaider," the father's name in Russian.

[31] The Zurich company registry (http://www.zefix.ch/info/ger/ZH020.htm) reports that "Seabeco SA" (CHE-104.863.207) was initially registered on December 16, 1982, with "Boris Joseph Birshtein, Canadian citizen, resident in Toronto" as its President. It entered liquidation on May 5, 1999, in Arth, handled by the Swiss trustee Paul Barth. The Zurich company registry listed "Boris Joseph Birshtein, Canadian citizen, resident in Toronto," as the President of Seabeco Kirgizstan AG in 1992, while "Boris Joseph Birshtein, Canadian citizen, resident in Zurich," was listed as the company's President in 1993. "Boris Birshtein" is also listed as the President and director of a 1991 Panama company, The Seabeco Group, Inc. as of December 6 1991. See below.

[32] See http://blog.marcelsel.com/2015/02/26/quand-kubla-et-de-decker-tournent-kazakh/.

[33] The Zurich company registry reports that "Seabeco SA" (CHE-104.863.207) was initially registered on December 16, 1982, with "Boris Joseph Birshtein, Canadian citizen, resident in Toronto" as its President. According to the registry, it entered liquidation on May 5, 1999. See also https://groups.google.com/forum/#!topic/soc.culture.ukrainian/1mtgIacNtMw. The liquidation was handled by the Swiss trustee Paul Barth, in Arth.

[34] For Seabeco's Antwerp subsidiary, see http://archives.lesoir.be/mafia-russe-la-justice-suisse-fond-sur-anvers-et-bruxel_t-19970317-Z0DFVX.html.

[35] "Royal HTM Group, Inc." of Toronto, (Canadian Federal Corporation # 624476-9), owned 50-50 by Birshtein and his nephew. See https://www.ic.gc.ca/app/scr/cc/CorporationsCanada/fdrlCrpDtls.html?corpId=6244769&V_TOKEN=1481946919835&crpNm=Royal%20HTM%20Group,%20Inc.&crpNmbr=&bsNmbr= .

[36] Birshtein was a director of Seabeco Capital Inc. (Canadian Federal Incorporatio # 248194-4,) a Winnipeg company created 6/2/1989 and dissolved 12/22/1992 )https://www.ic.gc.ca/app/scr/cc/CorporationsCanada/fdrlCrpDtls.html?corpId=2481944&V_TOKEN=1481931998238&crpNm=Seabeco&crpNmbr=&bsNmbr=

[37] Since 1998, Boris Birshtein (Toronto) has also served as Chairman, CEO, and a principle shareholder of "Trimol Group Inc.," a publicly-traded Delaware company that trades over the counter. (Symbol: TMOL). Its product line is supposedly "computerized photo identification and database management system utilized in the production of variety of secure essential government identification documents." See https://www.bloomberg.com/quote/TMOL:US; https://www.sec.gov/Archives/edgar/data/1011733/0000950123-98-005826.txt.

However, according to Trimol's July 2015 10-K (http://www.wikinvest.com/stock/Trimol_Group_Inc_(TMOL)/Filing/10-K/2015/10-K/D20069370) the company has only had one customer, the former FSU member Moldova, with which Trimol's wholly-owned subsidiary Intercomsoft concluded a contract in 1996 for the producton of a National Passport and Population Registration system. That contract was not renewed in 2006, and the subsidiary and Trimol have had no revenues since then. Accordingly, as of 2016 Trimol has only two part time employees, its two principle shareholders, Birshtein and his nephew, who, directly and indirectly account for 79 percent of Trimol's shares outstanding. According to the July 2015 10-K, Birshtein, in particular, owned 54 percent of TMOL's outstanding 78.3 million shares, including 3.9 million by way of "Magnum Associates, Inc.," which the 10-K says only has Birshtein as a shareholder, and 34.7 million by way of yet another Canadian company, "Royal HTM Group, Inc." of Ontario (Canadian Federal Corporation # 624476-9), which is owned 50-50 by Birshtein and a nephew. It is interesting to note according to the Panama Papers database, a Panama company called "Magnum Associates Inc. was incorporated on December 10, 1987, and struck off on March 10, 1989.   See https://offshoreleaks.icij.org/nodes/10213728. As of December 2016, TMOL's stock price was zero.

[38] See the case of Trimol Group Inc above. The Seabeco Group, Inc., a Panama company that was formed in December 1991, apparently still exists. Boris J. Birshtein is listed as this company's Director and President. See "The Seabeco Group Inc." registered in Panama by Morgan Y Morgan, 1991-12.06, with "Numero de Ficha" 254192, http://ohuiginn.net/panama/company/id/254192; https://opencorporates.com/companies/pa/254192.

[39] As of December 2016, the Zurich company registry (http://www.zefix.ch/info/ger/ZH020.htm) listed a Zurich company called "Conim Investment AG" (CH-020.3.002.334-7) was originally formed in May 1992, and in January 1995 was transferred to Arth, in the Canton of Schwyz, where it is still in existence. (CHE-102.029.498). This is confirmed by the Schwyz Canton registery: https://sz.chregister.ch/cr-portal/auszug/auszug.xhtml?uid=CHE-102.029.498. According to these registries, Conim Investment AG is the successor company to two other Zurich campanies, "Seabeco Kirgizstan AG,"formed in 1992, and "KD Kirgizstan Development AG," its direct successor.   (http://zh.powernet.ch/webservices/net/HRG/HRG.asmx/getHRGHTML?chnr=CH-020.3.002.334-7&amt=020&toBeModified=0&validOnly=0&lang=1&sort=).

The Swiss federal company registry also reports the following Swiss companies in which Boris J.Birshtein has been an officer and or director, all of which are now in liquidation: (1) Seabeco Trade and Finance AG (CH-020.3.002.179-4, 4/3/92-11/30/98 ), ; (2) Seabeco SA (CHE-104.863.207,12/16/82-5/9/99) ; (3) Seabeco Metals AG (4/3/92-6/11/96); (4) BNB Trading AG (CH-020.3.002.181-9, 1/10/92-11/19/98 ); and (5) ME Moldova Enterprises AG (CH-020.3.003.104-1, 11/10/92-9/16/94). All of these liquidations were handled by the same trustee, Paul Barth in Arth.

[40] As of December 2016, active Birshtein companies include "Conim Investment AG" (CH-020.3.002.334-7) in the Swiss Canton of Schwyz and he Seabeco Group, Inc. in Panama.

[41] For example, the Zurich and Schwyz company registries indicates that the following have been board members of Birshtein companies: (1) Seabeco Trade and Finance AG: Iouri Orlov (citizen of Russia, resident of Moscow), Alexander Griaznov (citizen of Russia, resident of Basserdorf Switzerland), and Igor Filippov (citizen of Russia, resident of Basel). (2) ME Moldova Enterprises: Andrei Keptein (citizen of FSU/ Moldova; Evsei Shnaider (Russian émigré to Canada); (3) Seabeco Kirigizstan/ Conim Investment AG: Sanjarbek Almatov (citizen of Bishkek, FSU/ Kirgizstan), Toursounbek Tchynguychev (citizen of Bishkek, FSU/Kirgizstan), Evsei Shnaider (Russian émigré to Canada); (4) BNB Trading AG: Yuri Spivak (Russian émigré to Canada; (5) Seabeco Metals AG: Alex Shnaider (Russian émigré to Canada).

[42] Charles Clover, "Ukraine: Questions over Kuchma's adviser cast shadows," FT, October 30, 1999, available at http://willzuzak.ca/lp/clover01.html See also Misha Glenny, 2009. McMafia: A Journey Through the Global Criminal Underworld. (New York: Vintage Books), 63-65.

[43] Charles Clover, "Ukraine: Questions over Kuchma's adviser cast shadows," FT, October 30, 1999, available at http://willzuzak.ca/lp/clover01.html .

[44] See FBI, Organizational Intelligence Unit (August 1998), "Semion Mogilevich Organization: Eurasian Organized Crime," available at http://www.larryjkolb.com/file/docs/fbimogilevich.pdf.

[45] Charles Clover, "Ukraine: Questions over Kuchma's adviser cast shadows," FT, October 30, 1999, available at http://willzuzak.ca/lp/clover01.html

[46] Charles Clover, "Ukraine: Questions over Kuchma's adviser cast shadows," FT, October 30, 1999, available at http://willzuzak.ca/lp/clover01.html .

[47] Toronto Star, Aug 28, 1993 “Boris knows everyone,”

http://www.telusplanet.net/public/mozuz/crime/lemieszewski20001103.html#bottom%288%29.

[48] See Zurich corporate registry for "Seabeco Metals AG" (CH-020.3.002.181-9), formed 4/3/92 and liquidated 6/11/96.

[49] http://www.forbes.com/forbes/2005/0328/132.html

[50] http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=20412545

[51] http://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=20412545.

[52] See Kaupthing Bank, "Loan Book, September 2008," wikileaks: https://wikileaks.org/wiki/Financial_collapse:_Confidential_exposure_analysis_of_205_companies_each_owing_above_EUR45M_to_Icelandic_bank_Kaupthing,_26_Sep_2008

[53]The Panama Papers database provides an address for “Midland Resources Holding Limited" (https://offshoreleaks.icij.org/nodes/12085103) that exactly matches the company's corporate address in Guernsey, as noted by Bloomberg's corporate data base. Here are the 28 companies that are associated with Midland in database:  

Aligory Business Ltd., https://offshoreleaks.icij.org/nodes/10127460;

Anglesey Business Ltd., https://offshoreleaks.icij.org/nodes/10123508;

Blue Industrial Skies Inc., https://offshoreleaks.icij.org/nodes/10130255;  

Cl 850 Aviation Holdings Ltd., https://offshoreleaks.icij.org/nodes/10122735;

Cl 850 Aircraft Investments Ltd., https://offshoreleaks.icij.org/nodes/10122774;

Caray Business Inc., https://offshoreleaks.icij.org/nodes/10131819;

Challenger Aircraft Company Limited, https://offshoreleaks.icij.org/nodes/12155627;

Colley International Marketing S.A., https://offshoreleaks.icij.org/nodes/10123599;

East International Realty Ltd., https://offshoreleaks.icij.org/nodes/10122122;

Filbert Pacific Limited, https://offshoreleaks.icij.org/nodes/10199822;

Gorlane Business Inc., https://offshoreleaks.icij.org/nodes/10210594;

Jabar Incorporated, https://offshoreleaks.icij.org/nodes/10110254;

Jervois Holdings Inc.( https://offshoreleaks.icij.org/nodes/12125131) ,

Kerryhill Investments Corp., https://offshoreleaks.icij.org/nodes/10103732;

Leaterby International Investments Corp., https://offshoreleaks.icij.org/nodes/10202817

Maddocks Equities Ltd.,( https://offshoreleaks.icij.org/nodes/12085103,

Maverfin Holding Inc.( https://offshoreleaks.icij.org/nodes/12130837),

Midland Maritime Holding Ltd.( https://offshoreleaks.icij.org/nodes/12136120),

Midland River-Sea Holding Ltd. (https://offshoreleaks.icij.org/nodes/12136120),

Midland Drybulk Holding Ltd.( https://offshoreleaks.icij.org/nodes/12136120),

Midland Fundco Ltd. (https://offshoreleaks.icij.org/nodes/12136120),

Norson Investments Corp.( https://offshoreleaks.icij.org/nodes/12130837),

Olave Equities Limited, https://offshoreleaks.icij.org/nodes/12155627; https://offshoreleaks.icij.org/nodes/10125740;

Orlion Business Incorporated, https://offshoreleaks.icij.org/nodes/12155627

Perseus Global Inc., https://offshoreleaks.icij.org/nodes/10111891;

Sellana Investments Global Corp., https://offshoreleaks.icij.org/nodes/12155627

Stogan Assets Incorporated, https://offshoreleaks.icij.org/nodes/10206109

Toomish Asset Ltd., https://offshoreleaks.icij.org/nodes/10128146.

[54] With the address "11 First Tverskaya-Yamskaya Street; apt. 42; Moscow; Russia." https://offshoreleaks.icij.org/nodes/10123599;; https://offshoreleaks.icij.org/nodes/12078236; https://offshoreleaks.icij.org/nodes/10125740.

[55] As for the Midland-related offshore vehicles still listed as active, one shareholder in two of them -- -- Stogan Assets Incorporated and Blue Sky Industries Inc. -- happens to have the same name as Russia’s Deputy Culture Minister Gregory Pirumov, reportedly arrested in March 2016 on embezzlement charges. The “Gregory Pirumov” in the Panama Papers (https://offshoreleaks.icij.org/nodes/250440) has a registered address in Moscow (4 Beregkovskaia Quay; 121059), as do the reported agents of these two companies: "Global Secretary Services Ltd. Mal. Tolmachevskiy pereulok 10 Office No.3 Moscow, Russia 119017 Attention: Katya Skupova)." See https://panamadb.org/entity/stogan-assets-incorporated_189367. A "Georgy Pirumov" is also listed separately in the Panama Papers as having been a shareholder in the same two companies (https://offshoreleaks.icij.org/nodes/10206109; https://offshoreleaks.icij.org/nodes/12111401.) For what it is worth, in September 2016, one "Georgy Pirumov" was convicted in Moscow of "illegally taking over a building in Gogolevsky Boulevard," and sentenced to 20 months in a minimum-security correctional facility. See The Investigative Committee of the Russian Federation, Sept 15, 2016, http://en.sledcom.ru/news/item/1067178/. At this point, however, we need to emphasize that there is still plenty that needs to be investigated -- we cannot yet confirm whether "Georgy" and "Gregory" are the same person, whether they are related, how they might be related to Shnaider's Mineral Resources, or whether they are the same people named in the articles just noted above about criminal prosecutions.

[56] http://www.forbes.com/profile/lev-kvetnoi/.

[57] See Schwyz canton corporate registry, https://sz.chregister.ch/cr-portal/suche/suche.xhtml, ""ME Moldova Enterprises AG," CH-130.0.007.159-5.

[58] See Zurich corporate registry, http://www.zefix.ch/info/ger/ZH020.htm, "ME Moldova Enterprises AG," CH-020.3.003.104-1 (11/10/92-9/16/94).

[59] See "Seabeco Group Inc.," Panama Corporate Registry # 254192, https://opencorporates.com/companies/pa/254192, formed 12-6-1991.

[60] See "Seabeco Security Intl Inc." Panama Corporate Registry #254206, formed 12-10-1991," https://opencorporates.com/companies/pa/254206.

[61] Ibid, footnotes 58 and 59.

[62] http://www.independent.co.uk/news/uk/crime/Dmytro-firtash-spain-seeks-extradition-for-ukrainian-oligarch-linked-to-senior-tories-for-alleged-a7439621.html

[63] See http://www.unian.info/economics/1041128-nadra-bank-owned-by-firtash-declared-insolvent.html.

[64] http://www.independent.co.uk/news/uk/crime/Dmytro-firtash-spain-seeks-extradition-for-ukrainian-oligarch-linked-to-senior-tories-for-alleged-a7439621.html

[65] See http://transparency.org.ru/en/news/first-we-take-miami-why-russian-businessmen-and-criminals-move-into-trump-s-towers.

[66] A.K.A. "Tochtachunov." See FBI, Organizational Intelligence Unit (August 1998), "Semion Mogilevich Organization: Eurasian Organized Crime," available at http://www.larryjkolb.com/file/docs/fbimogilevich.pdf., 1.

[67]According to the Panama Papers, as of December 2016, Lytton Ventures Inc., incorporated in 2006, was still an active company but its registration jurisdiction was listed as "unknown." See https://offshoreleaks.icij.org/nodes/207427.

[68] For Telesh’s company the director’s name is given as “Stanley Williams,” as compared with “Stanley Edward Williams” in Golubchik’s, but they have the same address. See https://offshoreleaks.icij.org/nodes/196083. Telesh’s company, Barlow Investing, was incorporated in 2004. In the PP database, as of December 2016 its status was “Transferred Out,” although its de-registration date and registration jurisdiction are unknown.

[69] Westix Ltd., registered in 2005, is still active, according to the Panama Papers. See https://offshoreleaks.icij.org/nodes/214472.

[70] In the Panama Papers, Telesh’s company and Golubchik’s reportedly have the same director, one Stanley Williams. Williams is also reportedly a director of Westix, which shares its address with two other offshore companies that use corporate names that Mogilevich has reportedly used at least twice each in the past. Arbat Capital, registered in 2003, was still active as of December 2016, as was Arigon Overseas, registered in 2007.

[71] See the diagram below.

[72]These three offshore companies are not in the Panama Papers data base. https://www.ft.com/content/29f06170-12a2-11db-aecf-0000779e2340. Firtash acknowledged these connections to Telesh but still told FT reporters that he didn’t know her. The three companies identified in the report are (1) Highrock Holdings, which Firtash and Telesh each reportedly owned 1/3^rd of, and where Firtash served as director beginning in 2001; (2) Agatheas Holdings, where Firtash apparently replaced Telesh as director in 2003; and (3) Elmstad Trading, a Cyprus company owned by Firtash which in 2002 transferred the shares of a Russian company named Rinvey to Telesh and two other people: one of them Firtash’s lawyer and the other the wife of a reputed Mogilevich business partner. See also http://foreignpolicy.com/2014/03/19/married-to-the-ukrainian-mob/.

[73] On Mogilevich, see, for example, http://rumafia.com/en/eksklyuziv/kidala-vseya-strany-pervaya-chast.html.

[74] See also FBI, Organizational Intelligence Unit (August 1998), "Semion Mogilevich Organization; Eurasian Organized Crime," available at http://www.larryjkolb.com/file/docs/fbimogilevich.pdf.

[75] http://www.theglobeandmail.com/globe-investor/personal-finance/how-to-spot-fraud-and-be-a-vigilant-investor/article556022/

[76] See https://archives.fbi.gov/archives/news/stories/2009/october/mogilevich_102109;

 

http://www.slate.com/blogs/crime/2013/08/05/semion_mogilevich_fbi_ten_most_wanted_list_this_obese_mob_boss_is_twice.html.

[77]David Cay Johnston, interview with the author, November 2016. Wayne Barrett, Trump: The Greatest Show on Earth: The Deals, the Downfall, the Reinvention (Regan Arts, 2016).

[78]Johnston, interview; see also http://russianmafiagangster.blogspot.com/2012/12/the-superpower-of-crime.html. [78] In another interesting coincidence, the President of YBM Magnex was also reportedly a financial director of Highrock in the late 1990s, before Manafort-client Dmytro Firtash joined the company as a director in 2001. See note 151. http://foreignpolicy.com/2014/03/19/married-to-the-ukrainian-mob/.

 

[79] http://www.apnewsarchive.com/1987/Trump-U-S-Should-Stop-Paying-To-Defend-Countries-that-Can-Protect-Selves/id-05133dbe63ace98766527ec7d16ede08.

[80] https://www.theguardian.com/us-news/2016/dec/18/robert-gates-russia-election-interference-donald-trump-hillary-clinton.

***

Let's Make the Vatican Bank a Bank

James S. Henry & Laurence J. Kotlikoff

The American Interest (Published: October 2, 2015)

http://www.the-american-interest.com/2015/10/02/lets-make-the-vatican-bank-a-bank/

 

Pope Francis has a bank and wants to help the poor.

The poor need low-cost banking services. It's a match made in Heaven.

 

On his recent visit to the United States, Pope Francis received a warm reception at the UN and Congress for his constructive, thoughtful messages on issues like climate change, poverty, inequality, and immigration. Goodness knows His Holiness doesn’t need more work, but we’d like him to adopt one more priority. Fortunately, this one is a natural for the Vatican in more ways than one. Not only does it complement Pope Francis’s social concerns, but it’s something he’s already working on: banking for the poor.

About a decade ago, in June 2005, a new President took office at the World Bank: Paul Wolfowitz, fresh from the Bush Administration. We had our doubts about his Iraq adventure, but we were willing to give him the benefit of the doubt because we thought he had an opportunity to change the behavior of an institution that is a key player in the global war on poverty. So we wrote an op-ed for the Wall Street Journal called “Why Can’t the World Bank Be More Like a Bank?“

Back then, in addition to advisory work and “poverty counting,” the World Bank was still focused on project lending—an activity that a growing number of other public and private institutions were able to do, often more effectively. In that piece we proposed that the Bank should focus on critical areas that are underserved, partly because they are just not as profitable. Banking for the poor” was at the top of our list.

At the time, by that most people meant micro-finance—namely, the provision of small loans to tiny businesses and individuals. But we preferred to start with the other side of the balance sheet: payments, deposits, savings, and investment. Worldwide, after thirty years of donor- and equity-based micro finance, at most 130 million customers had received loans. But there were still more than 2.5 billion people without bank accounts. In our view, that was the bigger problem. Here is how the problem looked then, and still, pretty much, looks today:

Domestic Payments and Savings: First, billions of poor people lacked ordinary bank account services—mainly facilities for payments and savings. This compelled them to rely far too heavily on “mattress money” for savings and payments. This was not only inconvenient; it also increased the risks of theft, extortion, and corruption, and made it more difficult to advertise for business and accept payments (especially for the self-employed and small businesses), to save, and to accumulate the collateral required for loans.

Remittances: Closely related to the first point, given the rapid expansion of international migration, there was a growing need for low-cost remittance services for overseas workers from poor countries who wanted to send payments back home to their families, to schools and to doctors.

Reserve Savings Basket: Third, there was a huge need for a credible global financial institution to provide simple, low-cost, and secure savings accounts denominated in a basket of reserve currencies, as an alternative to unstable home currencies.

To his credit, Wolfowitz invited us down to a meeting at his DC office and expressed enthusiasm, especially if we could make something work with non-profits or NGOs in Iraq. But he didn’t last long enough at the Bank to make a difference. Since then, his successors have devoted increased attention to what they now call “financial inclusion” and “financial literacy,” but there is still a long way to go, especially with respect to remittances.

Indeed, since then, the need and opportunity for Banking for the Poor, ”BFP”—hey, every anti-poverty program in history has its acronym, and this is ours—has if anything increased. In particular, in the past decade the number of international migrants living abroad has soared to more than 250 million, while remittances have reached $450 billion a year, more than three times annual total official development assistance of $135–150 billion.

Amazingly, for many poor countries, private remittances by the foreign diaspora of low-wage workers are now by far the largest source of foreign exchange, exceeding foreign aid, exports, and foreign direct investment.

For example, take the tiny impoverished Caribbean country of Haiti, the poorest in the Western Hemisphere. Since the 2010 earthquake, which claimed at least 100,000 lives, the island has received a large amount of foreign aid and World Bank loans. But its most important single source of foreign exchange is the 2.2 million Haitians who work outside the country. Their “external GDP” is about three times the island’s, and each year they remit at least $2 billion, more than 20 percent of the country’s GDP.

Furthermore, like remittances to many other poor countries, most of this is still subject to a 5 to 10 percent “cartel tax” exacted by the international remittance cartel, led by Western Union and its local bank partners. In Haiti’s case this cartel is composed of six dominant banks, including Western Union’s key partner, SogeBank, which controls at least a third of the market. Not surprisingly, Haiti’s transfer charges are among the highest in the hemisphere. 

In theory, with more than seven billion cell phones on the planet and a plentiful supply of e-wallet applications, this should be an easy problem to solve technically. But again, Haiti is a great negative example. In 2010–13, when the Gates Foundation and a local cell phone company tried to deploy an e-wallet application in Haiti without the remittance cartel’s support, they failed.

Neither the World Bank nor anyone else has so far been able to help break the international remittance cartel in Haiti or most other places.

Meanwhile, with the help of strong local government in middle-income countries like Brazil and South Africa, banking for the poor has become a proven concept over the past decade, with hundreds of thousands of new accounts established for very poor people. But on a global level, the cause still lacks a real champion—especially one willing to help crack the remittance cartel.

But what about the UN and its brand new Sustainable Development Goals (SDG), you might ask? Doesn’t Pope Francis have the UN’s ear? And isn’t banking for the poor of interest to the UN SDG Committee? Well, true: 15 years ago this month, the UN convened a summit of 155 world leaders—the largest in history to that point—to declare eight new “Millennium Development Goals” for the year 2015. But banking for the poor was not on that list. Now, as that 15-year milestone passes, it is clear that there has been a bit of a shortfall, especially outside China, and especially for metrics like absolute poverty, “enrollment in school”, and several other MDGs that have proved hard to measure.

We can debate exactly how large the shortfall has been. But the clearest indicator is that on the MDGs 15th anniversary the UN has just convened another even larger summit of world leaders, including Pope Francis, to declare yet another 17 new SDGs, this time with 169 targets and 1,063 indicators! Basically these subsume the original eight MDGs, and give world leaders another generous 15 years to realize them. Private sector managers around the world only dream of living under such lax standards: “Let’s see: I get 15 years to reach my goals, and if I miss them, I get new goals and 15 more years? Nice!”

Remarkably, with all this “development banking” expertise at hand, that there is not one mention in all 17 new SDG goals of the fact that, as of 2015, more than 2.5 billion of the world’s poor still lack bank accounts and, therefore, access to the essential financial services that the rest of us take for granted.

If we’re really interested in the “sustainability” of investment, education, consumption, production, and employment, as the SDGs are supposed to achieve, the provision of low-cost financial services to the poor should be a core goal, not a peripheral one. (We might start by adding basic financial services to the minimum basket of goods and services that one has to consume in order to avoid being considered one of the “global poor.”)

Given that the World Bank and its fellow development banks have not been able to break the remittance cartel, should some other institution take the lead? Obviously, the Vatican Bank has new leadership and may be searching for a new mission.

The New Vatican Bank

Ever since Pope Francis became pontiff in 2013, one of his key concerns has been to clean up the Augean stables of the so-called Vatican Bank—formally known as the Institute for the Works of Religion, founded by Pius XII in 1942. Over time, the combination of secrecy, tax immunity, sovereign immunity, and global reach proved simply irresistible to a wide range of shady partners seeking laundry services, from the CIA and the Italian Mafia to big-ticket tax dodgers all over the world.

Technically, the bank now still takes some deposits, as a kind of pass-through shell bank, and manages Church business, but it doesn’t make loans. It has recently declared itself the Vatican’s “central bank,” but that might refer to any number of financial activities. The bank is still being reorganized, but Pope Francis has already succeeded in installing new management and establishing new procedures for transparent operations at the Vatican Bank.

This is a good start, but we invite Pope Francis to go farther. The SDGs may not recognize it, but world’s poor really do desperately need financial services. And they could really use a first-rate financial institution that will be in their corner —that will lead the way in working with other financial institutions around the globe to marshal new technology, cut through cartels and regulatory barriers, and design low-cost e-payments, e-savings, e-lending, and financial literacy services that the poor need to not just survive but prosper. He could start off by setting a goal of eventually providing free remittances to the poor—a target that is well within the reach of mobile technology.

Now cynics may say that in fact the Vatican Bank has limited facilities and staff, and lacks the global distribution network, technology, and expertise in “BFP” needed to pull this mission off. But what are business partners for, if not to fill in the gaps in institutional capabilities? After all, it is not as if there is a shortage of financial institutions in the world. They just need to a little moral fiber and encouragement.

In fact, the Catholic Church ideally suited to organize this effort. Not only does it have international aid organizations like Caritas that work with the poor every day, but it also has a huge global network of schools, hospitals, churches, and…why not train priests and nuns to help ordinary folk with financial literacy? 

Most important, though, if we’ve learned anything from forty years of experience with experiments in banking for the poor and micro finance, what’s been missing is not technology or networks or even capital, but a serious full-time commitment to serving the poor. Pope Francis clearly has that in spades.

So let’s stop waiting around for other institutions to solve this problem. Let’s reinvent the Vatican Bank and unleash it to do what global financial institutions should have been doing all along. It’s a match made in Heaven!

James S. Henry is an investigative economist and lawyer and a senior fellow at Columbia University's Center for Sustainable Investment. Laurence J. Kotlikoff is professor of economics at Boston University and president of Economic Security Planning, Inc.

 

IMF: Emergency Banker to the World, or to W. Europe and FSU?

As of 2015, not only is the IMF a leading lender to eight tiny Caribbean havens and Cyprus,[i]  with more than $752 million outstanding to them at very low interest rates.  In addition, more than two-thirds of the IMF's total loans outstanding went to just three developedcountries in Western Europe and the former Soviet Union:  Portugul, Greece and the Ukraine.

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[i] As of September 2015, the IMF had outstanding credits to the following tax havens:  Antigua ($43.4mm), Cyprus ($594mm), Dominica ($5.4mm), Grenada ($21mm), the Seychelles ($30mm),  St. Kitts ($ 22mm ), St. Lucia ($9.7 ), St. Vincent ($10.5) and Vanuatu ($17mm). These are priced at real interest rates that are close to zero.  See IMF (2015), http://www.imf.org/external/np/fin/tad/balmov2.aspx?type=TOTAL.

 

IMF's top 10 Debtors: W. Europe plus Failing States?

On the verge of the annual IMF/World Bank meetings in Lima in October 2015

The first time the meetings have been held in a developing country that is not a tax haven!

Let's recall who really runs the IMF.  

 

Hint: havens and creditors!  Those those of you who expect the IMF or the OECD to assist the tax justice reform movement should wake up and smell the Peruvian coffee! 

 

(Fast Capitalism is speeding up, creating more excess every day. To keep up, please follow us on Twitter: @submergingmkt)

 

Rethinking Spillovers of Tax Evasion and Trade Discrepancies

Case of China, Hong Kong and the Republic of Korea

Seung Won Suh

(Columbia Center on Sustainable Investment--Supervised by James S. Henry, Esq.)

Full report including the analysis of all appendixes & tables can be provided, upon request 

(contact to [email protected])

Lost Tax Revenue in Developing Countries

Tax revenue losses due to tax evasion in developing countries are significant in terms of the international components including profit shifting by corporations and offshore holdings of financial assets by private individuals. As capital becomes more mobile, developing countries are dealing with new international  challenges, such as taxing multinational enterprises effectively, building effective transfer pricing regimes, establishing and using information sharing agreements to obtain tax information about their taxpayers from other countries, and managing tax incentives to attract international investors (OECD, 2014).

Estimates of the level of tax evasion are based on measures of the size of the shadow economy (Fuest and Riedel, 2009). In the context of taxation, the term ‘shadow economy’ can be defined as unreported income from the production of legal goods and services, either from monetary or barter transactions, hence all economic activities that would generally be taxable, were they reported to the tax authorities (Schneider and Enste, 2000). Cobham’s (2005) approach[1*] based on macro indicators of shadow economy presents explicit consequences of lost tax revenue in developing countries. Shadow economies are mounting due to weakness of tax administration and policy structure in developing countries. For example, Bangladesh loses around $2 billion every year because of the tax evasion and profit shifting by the MNCs who evade taxes through the abuse of transfer pricing or mispricing in different ways including capital flight, transfer of dividend and profit to its permanent establishments including over and under-invoicing during transactions of goods and services within their associated enterprises  (EquityBD, 2014). Due to consistent expansion of the underground economy, the Bangladesh government cannot collect taxes to build up internal resources and consequently, development expenditures cause domestic budget deficit and financial default. Another example is a set of tax evasion practices of logging companies in the Democratic Republic of Congo (DRC). Details of tax revenues from DRC’s natural resource sector that have been released by the country’s Ministry of Finance over the last year as part of an effort to meet ‘economic governance’ benchmarks agreed with the World Bank are followings: in 2011 and 2012, the Treasury should have received USD 7,470,967 per year but, in fact, it received only USD 3,090,586 in 2011 and USD 777,908 in 2012 (Global Witness, 2013). In other words, USD 11,073,441 were missing for two years because of tax evasion practices. Provincial authorities in the Provinces of Equateur, Bandundu and Orientale - where huge swathes of forest have been allocated for logging – may have expected a welcome boost to their finances for regional development (Global Witness, 2013). However, they could not develop in the absence of these egregious tax abuses by logging companies.

It is difficult for government officials in developing countries to stand against tax evasion activities because illicit financial flows of multinationals and private individuals are often ironically main sources of foreign investment and economic development. However, they need to understand how much their lost tax revenue will impact sustainable economic development. Persistent and prospective potential to develop and engage in fair competition with other developed countries cannot be achieved with an increasing rate of lost tax revenue.

Prior to planning how to avoid vicious cycle of tax evasion practices, it is instrumental to understand how we can identify the underlying symptoms of tax evasion practices. There are a variety of methodologies to track down who are illegally not paying tax yet it is difficult to evaluate what methodology is concise and effective. One methodology presented in this report is to investigate discrepancies in multilateral trade.

Discrepancies in Multilateral Trade

 Trade data of imports and exports have discrepancies in between. The quantity and value of exports from reporting countries are not identical to those of import that partner countries record. Ferratino and Wang (2007) categorize eight possible sources of discrepancies: (1) timing; (2) shipping and insurance costs; (3) general versus special trade in terms of       goods in transit; (4) classification of goods; (5) re-exports; (6) partner country’s attribution and treatment of processing trade; (7) mis-invoicing, transfer pricing, and mis-attribution; and 8) smuggling. Accordingly, researchers add hypotheses to reconcile the growing statistical discrepancies: (1) recording of export-and-import trade using inconsistent customs standards of valuation (FOB, FAS and CIF); (2) geographic-coverage inconsistencies; and (3) exchange rate fluctuations.

Ferrato and Wang (2007) present mirror statistics to measure the magnitude of statistical discrepancies. Underlying assumption is that export statistics from one country to its partner countries are equal to import statistics from their partner countries. Suppose that there are three countries in trade relations: A, B, C and D. Country C is regarded as tax haven and Country D includes a set of every country other than A, B and C. There are two sides of mirror: eastbound (Country A to Country B) and westbound (Country B to Country A). Ferrato and Wang categorize five possible trade flows for each side of mirror: (1) Country A’s direct exports to Country B; (2) Country A’s reported exports to Country B via Country C; (3) Country A’s reported exports to Country B via Country D; (4) Country C’s reported domestic exports to Country B; and (5) Country C’s reported re-exports of goods of Country A’s origin to Country B.

Raymond Fisman, professor at Columbia University Business School conducted research of tax evasion models followed with findings on discrepancies in multilateral trade. Tax Rates and Tax Evasion: Evidence from “Missing Imports” in China (2004) and Outsourcing Tariff Evasion: A New Explanation for Entrepôt Trade (2007) identify possible causes of trade discrepancies which are developed from Ferrato and Wang’s hypotheses. Fisman examines the estimated amount of lost tax through indirect trade through an Entrepôt and his econometric analysis of measuring discrepancies is valid and instrumental.

Yet, there are some loopholes that need to be improved. Measures of trade values in transit (transshipment not re-export) and error terms are not reliable. In fact, challenges are raised from the nature of trade data which countries do not track down every flow of commodities transactions. Furthermore, there is no international uniform database developed to explain trade discrepancies and misinvoicing.

Trade misinvoicing is a method for moving money illicitly across borders which involves deliberately misreporting the value of a commercial transaction on an invoice submitted to customs. A form of trade-based money laundering, trade misinvoicing is the large component of illicit financial outflows (Global Financial Integrity Web, 2014). It is possible due to the fact that the trading partners write their own trade documents. Usually, through export under-invoicing and import over-invoicing, corrupt government officials, criminals and commercial tax evaders are able to easily move assets out of countries and into tax havens, anonymous companies and secret bank accounts (Kar and Spanjers, 2014). Multinational corporations do engage in trade misinvoicing and their activities involve the deliberate misreporting of the value of a customs transactions which is illegal tax evasion. 

Multilateral Trade: China, Hong Kong and the Republic of Korea

 

Measuring Discrepancies

According to empirical research of tax evasion using trade data discrepancies, multilateral trade data is provided through UN COMTRADE. The new interface of UN COMTRADE is available online to everyone and aggregate trade data accustomed to any set of preferences is available. In order to examine data availability and discuss about the issues of tax evasion, I conducted an interview with Ronald Jansen, Chief of Trade Statistics Branch and Department of Economic and Social Affairs, United Nations Statistics Division and Luis Gonzales Morales, Statistician on June 30^th (Appendix 7).

United Nations officials suggested me to examine the commodities of at least HS 4 level (6 level is more specified) and conduct bilateral symmetries of fixed continuous time period. There are two choices in commodity categories: SITC and HS[1]. SITC is generally used for high-level analysis and HS codes (varies from 2 to 10 digits) are used in this report. Prior to choose the pilot case of multilateral trade: China, Hong Kong and the Republic of Korea, from the UN COMTRADE, I first selected the Republic of Korea as a reporting country and all other countries as partner countries. The time period was fixed to one year, 2012 and the commodity was chosen as total (HS as reported). All trade values of world’s imports (based on CIF) and Korea’s exports (based on FOB)[2] are measured in US dollars and under-invoicing is calculated from a simple equation: world’s imports-Korea’s exports (Table 1). There are two patterns of this value: (1) positive, which can be noted as “over”-under-invoicing and this is the common outcome; and (2) negative, which can be noted as under-invoicing and this is an unusual outcome. There are a number of cases of this unusual outcome and I found out that Hong Kong is the destination with the largest value of under-invoicing (USD -11,153,938,618). On the other hand, China is the partner country with the largest value of “over”-under-invoicing (USD 34,406,006,712) (Appendix 8, Graph). The difference of these two inequalities is significantly large and I generated more concentrated dataset of fixed variables: multilateral trade of China, Hong Kong and the Republic of Korea in terms of detailed commodities noted as HS codes throughout a fixed time period.

Table 2 is the filtered data set (filtered HS 4 level commodities of large quantities (more than 1,000,000) and values(more than USD 10,000,000) in multilateral trade of China, Hong Kong and The Republic of Korea. I looked at 5-year time interval periods of 2000, 2005, 2010. There was one HS 4 level commodity (HS 7210) that consistently displayed “over”-and under-invoicing in China and Hong Kong. In this report, I term this pattern as a “wicked” trade discrepancy. This pattern might imply that Korean exporting enterprises have evaded paying tax by parking commodities via Hong Kong.

I enlarged the range of HS level to 6 levels within the boundary of HS 7210 and set the time period from 2000 to 2012. Table 3 displays how two commodities, HS721069 (Flat-rolled products of iron/non-alloy steel, of a width of 60mm/more, plated/coated with aluminum) and HS721070 (Flat-rolled products of iron/non-alloy steel, of a width of 60mm/more, painted with plastics) belong to the “wicked” trade discrepancies throughout 13 years (from 2000 to 2012). The differences are significantly large and more comprehensive analysis of detailed data is in need to examine the tax evasion practices through Hong Kong.

Analysis and Results

UN officials at Statistics Division suggested that these discrepancies might have occurred because of the difference in time sequence, amount of tax incentives, repackaging and trade costs including transportation and shipping costs. In response to their recommendations, I outlined the list of interviewees (Appendix 5) and distributed an interview request form in Korean (Appendix 6) to them. 

Throughout the interviews I conducted in remote basis (international call meetings from Columbia Center on Sustainable Investment), I realized that detailed data sets explaining the “wicked” trade discrepancies are not available at ease. Statisticians at Korea Statistical Information Service told me that data regarding tax evasion rate might be available at National Tax Service and Korea Customs Service. However, Ministry of Finance, National Tax Service and Korea Customs Service did not permit me to access the detailed data sets of HS721069 and HS721070 under the “Personal Information Protection Law.” Even, Jaeho Jeong who is a senior researcher at Korea Institute of Public Finance was skeptical of this research due to the difficulties regarding data availabilities. 

From August 5^th to August 21^st, I stayed in Korea and tried to reach out other researchers who are expert on this issue. I had an interview with one of the employees at Korea Iron and Steel Association (Dohyun Kim) and I could find out that big Korean multinational enterprises (POSCO, SEAH Steel Industry and Hyundai Industry) are in charge of trading HS721069 and HS721070. Mr. Kim told me that these commodities require high technology and it is rare that repackaging practices (mostly value added) would occur at Hong Kong. He also argued that tax evasion practices would not be involved in these commodities. 

Based on the information that Mr. Kim provided, I had a meeting with Sanghyung Sim, who is a senior researcher at POSCO Research Institute (POSRI). Since POSCO is the largest firm in trading HS721069 and HS721070 to Hong Kong and China, it was a great opportunity to interview her. She provided a number of answers regarding this issue. She contacted some employees at POSCO’s Hong Kong and China mainland branches and shared their opinions with me. 

According to POSCO employees, the time differences in terms of transactions between Korea and Hong Kong and Korea and China are not large enough (about only 4 or 5 days) to the “wicked” trade discrepancies. They also said that HS 6 digits are specific enough and the value throughout China, Hong Kong and the Republic of Korea is uniformly categorized. They insisted that POSCO has not practiced tax evasion and argued that Tax Tracking Service at Korea Customs Service is well advanced to find out these practices.   

Rather, they provided two possible explanations: (1) Korean iron and steel companies including POSCO do a large amount of transshipment to smaller ships on Hong Kong border shore and these values are recorded as Hong Kong’s import, not China’s import; and (2) Since corporate tax in Hong Kong is “0,” POSCO makes profits by executing transactions in Hong Kong but exporting goods to China. In this case, the values are not recorded as Hong Kong’s import, but China’s import. 

In reference to two possible explanations outlined above, Korean iron and steel enterprises might be doing round-tripping. Round-tripping is a trade-tax-investment strategy whereby Korean enterprises undervalue exports or artificially overvalue imports, in order to move Korean capital across the border through current-account transactions. Specifically, Korean enterprises export domestic capital to the related-party enterprises situated outside China in offshore tax havens, such as Hong Kong, pursuant to non-arm’s length transfer-pricing transactions that are designed to circumvent Korean capital controls. The exported Korean domestic capital is then recycled abroad and returns to Korea in the form of foreign investment, and as such, receives a lower tax rate on profits (Liu and Giesze, 2008). Round-tripping is a pattern of transfer mispricing and it is an offshore tax evasion practices. “Over”-and under-invoicing of iron and steel imports in China and Hong Kong are representative case studies of trade misinvoicing that present virtual offshore tax evasion practices.

Challenges

Followed with a wide variety of interviews and data analysis, the biggest challenge was to investigate data in depth. Based on theoretical explanations of trade data discrepancies and tax evasion practices, “wicked” trade discrepancies reflect unusual pattern of financial flows. Even if it is not the complete evidence of illicit transfer pricing and tax evasion, we need to know why this pattern continues.

Indeed, “Personal Information Protection Law” is important but decomposition of missing values in trade is significantly instrumental for the research. Each sovereign nation has privilege to secure its own information and data but government officials need to realize the importance of this research. Conformed to a universal data set such as UN COMTRADE, data including re-exports, transportation/shipping costs, transshipment costs and other missing variables (at least estimates) need to be accessible for researchers. 

Conclusion

Efforts to identify tax evasion practices and construct the compliance frameworks accordingly are still in progress. Compared with the previous approaches that tax authorities and academic scholars conducted, this report has its significance of making connections between trade data discrepancies and tax evasion practices. A pilot case of multilateral trade: China, Hong Kong and the Republic of Korea is indeed a representative work and needs more improvements ahead.

In order to identify puzzles in the wilderness of illicit financial flows and tax evasion practices, active collaboration with United Nations, World Bank, OECD, IMF, Non-governmental organizations and academic research centers is recommended. Appendix 4 (Table 4) represents another new set of the “wicked” trade discrepancies in Argentina and Latin America and indeed, research should expand and tackle this issue. A complete set of defanging process to complex trade data discrepancies, developed from this work, will be a remarkable frontier in the fields of tax evasion and compliance. 

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[1] The SITC was developed by the United Nations with the intention of classifying traded products not only the basis of their material and physical properties, but also according to which stage of processing, as well as their economic functions in order to facilitate economic analysis. The HS was introduced in 1988, and has since then it has become an internationally accepted method of classification wherever products are traded. The HS classification is “harmonized” in relation to the classifications of the United Nations and the European Communities (International Trade Centre Web, 2014).

[2] CIF(cost, insurance and freight)-type values include the transaction value of the goods, the value of services performed to deliver goods to the border of the exporting country and the value of the services performed to deliver the goods from the border of the exporting country to the border of the importing country. FOB(free on board)-type values include the transaction value of the goods and the value of services performed to deliver goods to the border of the exporting country (UN COMTRADE Web, 2014)

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[1*] Cobham’s (2005) approach is an innovative and important contribution to the debate on revenue mobilization in developing economies. The hypothetical tax revenue of a country in the absence of tax evasion is T₀ = tw, where t is average tax rate and w is the overall economic activity, which is assumed to be equivalent to the tax base. Assume that the share of the shadow economy in overall economic activity is given by a proportional factor denoted by s, so that the actual tax base is T₁ = tw(1-s) (Fuest and Riedel, 2009). Then the tax revenue lost is T₀ - T₁ = tws.

Reference 

1. Andriamananjara, Arce and Ferrantino, Transshipment in the United States, U.S. International Trade Commission Office of Economics Working Paper, 2004 

2. Cobham, Tax Evasion, Tax Avoidance and Development Finance, University of Oxford, 2005 

3. Equity and Justice Working Group, Who Will Bell the Cat: Revenue Mobilization, Capital Flight and MNC’s Tax Evasion in Bangladesh, EquityBD, 2014 

4. Ferrantino and Wang, Accounting for Discrepancies in Bilateral Trade: The Case of China, Hong Kong, and the United States, United States International Trade Commission, 2007 

5. Fisman, Tax Rates and Tax Evasion: Evidence from “Missing Imports” in China, Journal of Political Economy, 2004 

6. Fisman, Outsourcing Tariff Evasion: A New Explanation for Entrepot Trade, National Bureau of Economic Research, 2007 

7. Fuest and Riedel, Tax Evasion, Tax Avoidance and Tax Expenditures in Developing Countries: a Review of the Literature, Oxford University Centre for Business Taxation, 2009 

8. Global Financial Integrity Web, Issues: Trade Misinvoicing, retrieved from the website, http://www.gfintegrity.org/issue/trade-misinvoicing/, Global Financial Integrity, 2014 

9. Global Witness, The Cut-Price Sale of DRC’s Forests: Tax Avoidance, Illegal Deals: 90% of Taxes Missing from Public Coffers, Global Witness, 2013 

10. Henry, The Price of Offshore Revisited: New Estimates for “Missing” Global Private Wealth, Income, Inequality, and Lost Taxes, Tax Justice Network, 2012 

11. Henry, The Global Haven Industry-Impacts on Developing Countries, Tax Justice Network, 2014 

12. International Monetary Fund, Issues in International Taxation and the Role of the IMF, IMF, 2013 

13. International Trade Centre Web, Difference between the Standard International Trade Classification (SITC) and the Harmonized System (HS), International Trade Centre, 2014 

14. Kar and Spanjers, Illicit Financial Flows from Developing Countries: 2003-2012, Global Financial Integrity, 2014 

15. Liu and Giesze, China’s Global Trade Balance Discrepancy: Hong Kong Entrpot Effects and Round Tripping Chinese Capital, The Trade Lawyers Advisory Group LLC, 2008 

16. OECD, Improving Tax Compliance-the Role of OECD’s Committee on Fiscal Affairs, OECD, 2012 

17. OECD, Illicit Financial Flows from Developing Countries: Measuring OECD Responses, OECD, 2014 

18. OECD Web, Introduction about the Forum on Tax Administration, retrieved from the website, http://www.oecd.org/tax/administration/, OECD, 2014 

19. Schneider and Enste, Shadow Economies: Size, Causes and Consequences, Journal of Economic Literature, 2000 

20. UN COMTRADE Web, United Nations Commodity Trade Statistics Database Metadata and Reference Glossary, retrieved from the website, http://comtrade.un.org/db/mr/rfGlossaryList.aspx, 2014 

 

 

 

 

[NEW] E-Commerce Access to Report & Data - Investigative Economics - Submerging Markets, Capital Flight, Corruption, Global Poverty and Inequality, Tax Justice & Inclusive Financial Markets, Sustainable Development

[NEW] E-Commerce Access to Report & Data - Investigative Economics - Submerging Markets, Capital Flight, Corruption, Global Poverty and Inequality, Tax Justice & Inclusive Financial Markets, Sustainable Development

Report & Data

DARKNET: HFT MARKET MADNESS BROUGHT TO YOU BY THE VERY SAME BANKSTERS WHO RIGGED GLOBAL FX MARKETS AND LIBOR!!

 Fast Capitalism R 1.0

James S. Henry, Esq

 

Download PDF

 

Our Key Findings:

1. The very banksters who rigged the FX and Libor markets now totally dominate the US "Darknet"- alternative securities trading systems that allows for anonymous clearing.

2. For the latest available data, for the week of 8/3/2015, they accounted for 68% of the 3.69 billion (?) shares traded that week on these alternative systems.

3. Surprisingly, the leading bank is Credit Suisse, with 13%, followed by UBS, with 12%.

4. All of these banks have been fined and subjected to lawsuit settlements involving libor rigging, FX rigging, and AML violations.

Each and every one of them.

 

Feel free to use this chart as a sequel to Friday.

"Even more market madness?"

"What are the world's biggest banks doing to gamble with deposit insurance now?"

 

 

Taxing Money Madness – now is the perfect time for FTT/Robin Hood tax

Taxing Money Madness — Why This Is A Perfect Time for a Robin Hood Levy on Financial Transactions

http://www.taxjustice.net/2015/08/28/taxing-money-madness-now-is-the-perfect-time-for-fttrobin-hood-tax/

 

A guest blog for TJN by James S. Henry

If ever there was a perfect time to revisit the proposal to adopt a so-called “Robin Hood tax” (AKA the “financial transactions tax,” or the “Tobin tax“) and make it global, this is it.

In the last week we’ve just seen a very compelling reminder of why the Yale Prof. James Tobin (1972), a Nobel Laureate, and long before him, J.M. Keynes, a Cambridge don, were outspoken advocates of taxing financial transactions – in the case of Tobin, only currency purchase, but in the case of Keynes, all transactions in financial assets that might be subject to the speculative furies.

Their chief goal was financial stability. The idea was to “throw a little sand in the cogs of speculation, ” in order to rein in what they saw as one of modern capitalism’s most self-destructive tendencies. This is its periodic propensity to turn itself into a gigantic speculative casino, generating wild gyrations in asset prices that have nothing to do with their real economic value – and, indeed, may actually help to undermine real value, while scarring the BeJesus out of the rest of us. As Keynes argued in 1936.

“Speculators may do no harm as bubbles on a steady stream of enterprise. But the situation is serious when enterprise becomes the bubble on a whirlpool of speculation….(A) substantial transfer tax on all transactions might prove the most serviceable reform available…to mitigating the predominance of speculation over enterprise…” [1]

The Mainstream Case for FTT (Yawn)

Of course, the FTT has recently attracted many other supporters for other reasons beside Keynes-Tobin’s focus on money madness. [2]

For example, many supporters find the FTT attractive simply because it would be a good revenue generator – not unlike the global taxes on international airline tickets that have been in place since the 1970s. [3] From this standpoint, a global FTT would be an efficient, low-cost way of generating hundreds of billions of dollars that the planet urgently needs to pay the costs of fighting global problems like climate change, natural disasters, epidemics, and security threats. FTT advocates argue that it would be relatively painless to deduct just .05% to .1% of the gross asset value of financial transactions. The tax would apply to publicly-traded stocks, bonds, commodities, futures, derivatives and ETFs, as well as the $5-$6 trillion per day of foreign exchange trades, most of which are conducted in a handful of financial centers by a handful of giant banks. Given the immense size of these markets, even at those low percentages, FTT advocates argue that it might easily raise at least of $100 billion a year if it were implemented by major financial centers.

In addition, many advocates also see this particular tax as unusually progressive. While, in principle, the revenues would be channeled to all these worthy causes, the costs would be concentrated on a particular segment of the especially-undeserving that the rest of us, involuntarily, have come to know far too well since 2008 – banksters, LIBOR market riggers, currency market riggers, and high-frequency stock traders.

Naturally, all these arguments have been hotly contested by the financial services industry and its minions. However, FTT proponents appear to be winning the analytical side of the debate. But it is also fair to say that up to now, the idea has yet to catch on fire, especially given the opposition of key financial centers like Wall Street and the City of London. While proposals for an EU-wide FTT are on the table, and the FTT has even been discussed by the US Presidential candidate Bernie Sanders as a way to pay for his college tuition aid plan, politically speaking, a global FTT still has a very long way to go.

The China Syndrome

Until now. Perhaps the last three weeks of global stock market madness might help to break the logjam. Ever since China’s Central Bank decided to suddenly loosen its managed peg to the US dollar in mid-August, stock markets the world over have experienced wild gyrations way out of proportion to changes in economic fundamentals.

Last Friday, August 21, following several days of heavy losses on Shanghai’s market, European stocks fell sharply, and the Dow fell 525 points in the US, or 3 percent. On Monday, August 24, there was another 8.5% Shanghai market plunge. The Dow then fell like a stone, losing more than 1085 in its first 2 hours of trading, and forcing the exchange to halt trading entirely. Stock markets everywhere recorded similar sell-offs – all told, more than $3 trillion of market value was wiped out overnight, at least on paper.

But then markets rebounded sharply. As of Thursday, August 27, the Dow was just 2 percent below where it had been a week earlier, most of the world’s other 292 stock markets had also recovered sharply, and even Shanghai had rallied. Indeed, compared with a year ago, the Shanghai market is still 43 percent higher.

What’s been going on? Well, the disturbing fact is that all these wild gyrations are almost entirely utterly unrelated to “fundamentals” – the rational determinants of shareholder value like expected growth rates, profitability, and competitive position. For example,

Some analysts tried to blamed the wild gyrations on a "currency war" initiated by China's Central Bank with its mid-August 3 percent "devaluation" of the reminbi. In fact this was a drop in the bucket. Since 2005, when it shifted from a hard $US (from 8 reminbi per $ to 6.4), even while the $US has also gained strength against most other currencies. The overall effect, for example is that China's currency has appreciated against the Japanese yen by more than 80 percent since 2013.

Contrary to right-wing China bashers (especially in the US), China’s latest moves are not part of a “currency war,” but an attempt to actually reduce its interventions the currency market – as the IMF has been requesting. If anything, given the desire to reverse capital flight, stimulate domestic consumption, open up its capital markets to foreign bond investors, and allow its currency to play a larger international role as a “reserve currency,” China’s preference is clearly to have have astronger currency. While its Central Bank should have done a better job of telling the world what it was up to, this mild devaluation can’t explain the wild overreaction.

Other analysts have blamed this week’s market madness on a variety of other domestic factors with respect to China – like its declining growth rate, the country’s soaring internal debt levels, the ups and downs of President Xi’s recent anti-corruption drive, and this year’s soaring capital flight. But “China doomsayers” have aware of all these factors for some time. They don’t come close to explaining this week’s wild ride.

For example, while China’s stock market did indeed become overheated in 2014-2015, a correction was already well under way. Shanghai’s market index peaked in June 2015 (at 5166 on 6/12/15), after more than doubling in the past year (from 2052 on 6/12/2014). But by July 2 it was already down 24 percent (to 3912), and by July 31, another 6 percent (to 3664.) By last Monday, it had fallen another 16 percent, to the point where average price-earnings ratios are now about the same as in the US.

Moreover, China’s economy is hardly in free-fall. The IMF’s latest forecast, issued just this week, is for a healthy 6.8 percent GDP growth rate over the next year, about the same as last year, and only slightly below the 7.2 percent recorded in 2013. Nor is the Shanghai stock market a good predictor of China’s growth rate – which makes sense, given that that market, now the world’s fifth largest, is notorious for its “Wild East,” margin-fueled, speculative ups and downs.

Whatever has been going on in China’s economy, it should not have the dramatic impact that it did on the world’s stock markets, especially those in the US and Europe. For example, US exports to China now account for just .7 percent of US GDP.

Just this week we learned that US GDP growth in QII 2015 was proceeding at an annual rate of 2.7 percent, the highest growth rate since 2008. The US housing market is strong; energy prices are low; real interest rates are close to zero; the federal deficit is declining; corporate profitability has been setting records; and big banks are much less highly leveraged than they in the years preceding the financial crisis.

True, US stock markets have now had 6.5 years of steady growth, and investors always feel a little guilty when a winning streak has continued this long. But none of this justifies the 3 to 7 percent daily swings that we saw this week in US markets. And similar market madness has gone on almost everywhere else.

The gap between market valuation and economic value were even more glaring at the level of individual companies. For example, it is true that Apple, the world’s most valuable tech company, has invested heavily in China. When the Shanghai stock market plumetted by 8.5 % last Monday, however, on total trading volume of around $70 billion, back in the US, Apple’s stock price fell by 13 percent in the first three hours of trading –about $70 billion of the company’s market value. At that point, then, perhaps the most successful, dynamic company in the history of capitalism was trading at less than 10 times earnings – compared with a 19 average for all US companies. And Apple’s stock price had fallen 23 percent in the previous two weeks – all because of China.

All this led Apple’s CEO Tim Cook to call reporters and tell them that in fact Apple had just had its best two quarters everfor sales in China – despite all the Shanghai market ups and downs. He expected this trend to continue. And he tried also tried to explain that the “rebalancing” going on in China’s economy right now is likely to improve that country’s real stability and growth over the long run – where by far the largest portion of any company’s – or country’s – net present value is located.

Market Madness Components

Across all major markets, there have been many other similar stories of companies whose stock prices have just experienced a brutal disconnect between economic fundamentals and speculative mania. Keynes was absolutely right – market madness can produce contagions where the “enterprise becomes the bubble on a whirlpool of speculation.”

If this was true in the 1930s, it is even more so now.

First, now we have many more powerful ways to speculate, with an extraordinary range of traded options, derivatives, commodities, futures, exchange-traded funds at our disposal, plus many ways of leveraging and hedging all such tranactions. It has gotten to the point where many of the smartest MIT math wizards and Harvard PhD economists no longer want to teach or work on real-world problems — they head to Wall Street to build quantitative trading models for hedge funds.

Second, the power of trading all these speculative instruments is now amplified across at least 292 public stock markets in 153 countries, as well as markets for for currencies, commodity futures, and debt. In addition, there is also a growing number of “dark” markets not available to the public at large.

Third, since the 1990s, we’ve seen the globalization of 7×24 financial news in almost every market, as well as instant mobile communications, Internet and data services, and mobile financial transactions of all kinds. A feather does not fall in Kinshasa without it being recorded and refracted around the planet as a potentially-tradable event. Citigroup used to say “The Citi never sleeps.” Now it is not just Citi. The whole remotely-connected world is on pins and needles, waiting for that event, and then instantly reacting before someone else does.

But this means there is never enough time for interpretation, nuance, in-depth investigation. “Long-term investing” becomes holding an asset any longer than it takes to find a buyer.

Fourth, on top of all these other trends, there has also been the proliferation of so-called “high-frequency” securities trading, powered by ultra-fast networks and automatic computer trading algorithms, as ably described by Michael Lewis.[4] This now account for at least 84 percent of all stock trades in the US, 77 percent in the UK, and a rising share in other markets as well. [5] Ownership of these systems is reported dominated by our old friends, Wall Street investment banks (61%) and hedge funds (24%).[6]

Indeed, consistent with this, US retail brokers report that on Monday, August 24, high-frequency automatic trading programs accounted for almost all of the trades reflected in 1085-point Dow Jones downdraft, before trading was halted. Retail brokers watched from the sidelines, unable to break into to the trade flow, as one automated program after another followed the rest of the market down, robotically. At that point, in a sense, the entire New York Stock Exchange had been replaced by a very fast,utterly unconscious computer algorithm.

Fast Capitalism

The combination of all four factors just described leads to a degenerate form of free enterprise we will call “fast capitalism,” a generalization of the “fast food” and “fast fashion” concepts to the world of finance. If the folk hero of conventional, “slow capitalism” is the Ayn Rand’s John Galt-type entrepreneur, the business innovator and builder, the folk hero of fast capitalism is the trader/ speculator. The full specification of the contrasts between these really two quite different systems is interesting and important, but we have to leave that for another occasion.       

Reframing the Case for the FTT

In any case, by now we have at least begun to gather the firewood that will be needed for another attempt to light a new, slightly different kind of political fire under the FTT. Rather than merely emphasizing FTT’s revenue-generating potential, let’s argue that the kind of speculative excesses just witnessed in the China case, while severe, are not unique, and that they may be avoidable. On the other hand, they might well also be a harbinger of even worse to come, if “fast capitalism” is allowed to extend its reach, underregulated and undertaxed.

From this angle, the kind of extravagant price fluctuations, way out of proportion to value, that were witnessed in this week’s China madness are just another kind of market “externality” that deserves to be taxed, so that the “polluters” – in this case, heavy traders – have to pay.

When it comes to criticizing capitalism, the Left’s traditional focus has been on so-called “objective” structural factors like “inequality,” “unemployment,” and “poverty” that, at least in principle, can be measured and counted.

In contrast, with respect to the problems described here, we have focused on capitalism as a lived experience — on how it actually feels to live in a society that is subjected to such utterly pointless ups and downs.

The global trading system described here fails not only because it doesn’t make us all rich, “successful,” employed, and well-fed. It fails because it doesn’t make us feel content, fulfilled, or secure. And that insecurity will persist, even if, on average, the system continues to expand.

***

[1] J.M Keynes (1936), The General Theory of Money, Interest, and Employment. (Cambridge U., 1936), 104-105.

[2] See https://en.wikipedia.org/wiki/Tobin_tax#Is_there_an_optimum_Tobin_tax_rate.3F.

[3] See https://www.globalpolicy.org/global-taxes/aviation-taxes.html.

[4] See Michael Lewis, Flash Boys (W.W. Norton, 2014).

[5] See http://www.washingtonsblog.com/2012/04/84-of-all-stock-trades-are-by-high-frequency-computers-only-16-are-done-by-humans.html.

[6] See See also http://www.businessinsider.com/barclays-just-got-lawsuits-triggered-by-flash-boys-book-thrown-out-of-court-2015-8?r=UK&IR=T.; http://www.esma.europa.eu/system/files/esma20141_-_hft_activity_in_eu_equity_markets.pdf.

Understanding Argentina's Pseudo-Debt Crisis

 

For those who are interested in Argentina's recent troubles with the debt vultures, here is Chapter VII from my book The Blood Bankers. (New York: Basic Books, 2005).  

No important political or economic event can be understood without an historical analysis.  

This chapter provides the essential historical background  that you need to understand where Argentina's current crisis came from, and its "debt problem" is so deep-rooted. 

Download 07FINALFINALCHAPTERSEVENARGENTINA42112003.

Here are a few of my recent TV and newspaper interviews on the subject: (1),  (2), and (3). And here is the 2012 US Court of Appeals decision that upheld US Federal District Court Judge Thomas P. Griesa's 2011 rulings in favor of the vulture funds. 

 

Download USCOURTS-ca2-12-00916-0.pdf

 

More later!  Stay tuned! 

The Real Wolves of Wall Street

Please click on this image to get a real sense

of what "too big to jail" is all about: 

STELLAR WIND: THE NSA's DOMESTIC SPYING PROGRAM
Please watch this video. Then call your US Senators and Congresspeople. Tell them to open their ears. The US Constitution is at stake.

 

http://www.nytimes.com/2012/08/23/opinion/the-national-security-agencys-domestic-spying-program.html

 

Blood Diamonds

24 Hour Blackout, In Opposition to SOPA and PIPA "Closed Internet" Legislation

 

 

Gaddafi's Fellow Travelers James S. Henry

(An earlier version of this appeared today as a Forbes column.)

I recall one cold wintry Saturday evening about three years ago in Vermont,  and a dinner conversation among a small group of former business colleagues, including  HBS Professor Michael E. Porter, the eminent competitive strategist.

He’d just returned from Tripoli, where he’d been working on what he told us was a  “strategy project” for the Gaddafi regime with a raft of consultants from Monitor Group, the Cambridge-based consulting firm that he’d helped to found in the early 1980s.  

For about thirty minutes or so he shared with us how excited they all were to be working to reform the Libyan economy, and how Colonel Gaddafi and his sons now really seemed to “get it.”

Clearly Prof. Porter felt this was all pretty cool. When asked about the issue of democracy and the rule of law, he rather quickly brushed aside such concerns, suggesting that they were sort of beside the point – after all, as the case of China supposedly demonstrated, all those annoying traditional liberal values sometimes just need to get out of the way of progress.

At the end of all this, there was a brief silence. I suspect that most of those at the table were slightly discomforted by Prof. Porter’s blunt, hard-nosed neoliberal analysis, and certainly by his apparent intoxication with the infamous Libyan dictator. But he was,  after all,  an eminent Harvard professor. And unlike us, he’d not only been to the country, but had met its most senior leaders personally.

Finally, however, my friend Roger Kline, a wise old McKinsey partner, broke the silence with a simple, direct, slightly impolitic question,  which would be answered only by the silence that it provoked from Professor Porter:  “Doesn’t it ever bother you at all, Michael, to be working for a terrorist?”

***

As the spirit of doom hovers over the last remnants of Muammar Gaddafi’s 42-year-long dictatorship, and most Libyans are celebrating his departure with sheer delight, there is much less joy in a handful of top-tier academic and professional-class households in Cambridge, Princeton, Georgetown, Baltimore,  East Lansing, and London.

For Mighty Muammar has indeed struck out -- contrary to the hopes  and  expectations of some of our very best and brightest experts on  “competitive country strategy," “global democratic governance," "the idea that is America,” and “soft power.”

After all, from their perspective, whatever Gaddafi's flaws, his blood-stained but deep-pocketed regime was certainly not like that of Kim Jong Il.

Unlike Kim, Gaddafi had been willing to pay quite handsomely to hear them spout off about their pet aerie-faerie neoliberal theories of political and economic development.

 
Meanwhile, Gaddifi's  government also ordered up an expensive grab-bag of university grants, endowments, special education for Libyan police and diplomats, ginned-up degrees for his dim-witted family members, lots of slick lobbying and lawyering, plus a large number of custom press portraits by leading Western academics gurus – none of whom ever bothered to disclose the fact that they were all on Brother Leader's  payroll.

This sordid tale first began to trickle out about two years ago from the Libyan opposition,  but it really picked up steam after the Revolution began in February 2011.  The interested reader can look here, here, here, here, and here for  the gory details.

But right now, just as the Gaddafis are about to take their rightful place in history’s waste bin, it is worth recalling the highlights  for several reasons.

First, we’d like to make sure that all of the leading academic   collaborateurs who helped to legitimate Gaddafi's abattoir receive their due: the  very first installment of the “Milton Friedman/ "Putzi" Hanfstaengl Iron Cross Award.

Second, we'd like to require all these collaborateurs to donate the millions of dollars of blood money and the  thousands of frequent flier miles they accumulated as unregistered foreign agents for Gaddafi’s regime to Libya’s teeming hospitals and orphanages.

Together, these two simple steps might help to insure that this kind of totally uncool dictatorship rebranding is brought to a screeching halt.

REBRANDING GADDAFI

This tale really began in 2003, when the Gaddafi regime, seeking to end an annoying economic  boycott,  gave its solemn word  to swear off terrorism forever, cease dabbling in nuclear technology, pay compensation for the 1988 Pan Am 103/Lockerbie bombing, and "accept responsibility for the actions of its officials,” whatever that meant.

Not surprisingly, given Gaddafi's horrific track record, most ordinary Westerners, not to mention the hard-pressed Libyan opposition, were deeply skeptical.

But Western leaders and policy experts were curiously much more receptive to Libya’s extraordinary effort to upgrade its image from “terror camp” to “the West’s best new pragmatic partner in the Middle East."

Indeed, it turned out to be a very fertile time for this kind of rebranding effort. First, even though Libya’s U-turn had largely been  motivated by economic self-interest, George W. Bush, Tony Blair, and Silvio Berlusconi welcomed it as a badly-needed victory in the “war on terror.”  Berlusconi and Blair even flew directly to Tripoli to welcome the “reborn” Gaddafi back into the community of nations.

Nor, in the US, was the welcome committee just limited to Republicans. In July  2008, Democrats Carl Levin and (now Vice President) Joe Biden played a key role in guiding S.1330 through the US Senate.

This  scurrilous bill, signed into law by President Bush, controversially granted Gaddafi complete legal immunity for the Lockerbie bombing, so long as he paid a (rather paltry) agreed-upon sum to the victims’ families.

Second, Libya’s U-turn opened the door to a whole bevy of Holy-Water merchants and academic medicine men. These instant Libyan "experts" were eager to offer Gaddafi not only absolution, but also their very latest pet theories about everything from “competitive clusters" and "strong democracy" to “the Third Way.”

They were also eager to see test such theories in Gaddafi’s living laboratory -- especially if the dictator was willing to subsidize the  clinical trials. Not since Boris Yeltsin, General Suharto, and General Pinochet have neoliberal academics had such a golden opportunity to test their theories on real live human subjects at country scale.  

Third, to a large extent mainly for PR purposes,  Western experts also made much of their opportunity to "dialogue" in person with real live Libyans. Well, perhaps not so much with the nascent opposition, which was mainly abroad, in hiding,  in jail, or dead.

 Of course, according to Gaddafi & Sons, confirmed by US intelligence officials like John Negroponte – who got much of his info about Libya from his brother Nicholas, who got it from Gaddafi & Sons (see below) – the Libyan opposition consisted of radical "al Qaeda” sympathizers or the members of “dissident tribes” in Libya’s supposedly “very tribal” society, anyway.

Their received image of Libya, seen through Gaddafi-colored lens, was curiously similar to the self-image that South Africa’s apartheid regime used to project – a deeply “tribal” society that required strong-armed rule to preserve it  from the radical horde at the gates.

In any case,  Western experts were generally quite happy to take the Gaddafis’ word -- and his moolah --  for all this, and to participate in  one-sided “dialogues” with Brother Leader  himself whenever he was able to spare the time.

This delighted Brother Leader. No doubt this was partly because of  his  deep intellectual curiousity about the very latest  economic and political theories. But, more practically, it also meant that prominent Western expert after expert had to fly  thousands of miles to Tripoli and back just to help his regime flaunt its wares on Libyan State TV and lend him unprecedented respectability.

Ultimately, you see, Gaddafi had  all these neoliberal academics pegged to the tee.

He understood from the start that many were frustrated by their powerlessness in (more) democratic Western societies.  Their secret wet dream is the absolute dictator who takes them seriously, and able and willing to test their theories on command, without the need for messy democratic processes.

Indeed, Gaddafi's personal power n Libya was so complete that he never even bothered to give himself a formal title other than "Colonel."

THE CARAVAN

From 2004 on, therefore, Tripoli became a kind of alternative Mecca for a veritable “Who’s Who” of leading Western intelligentsia. Among the key interlocutors were Professor Porter; Cambridge  University/LSE’s   “Baron” Anthony Giddens and George Joffe; LSE’s Director Sir Howard Davies (now resigned), and Professor David Held,  its leading expert on “globalization;”  and Monitor Group’s Rajeev Singh Molares (now at Alcatel), Mark Fuller (recently resigned as its Chair), and Bruce J. Allyn (formerly the head of Monitor’s Moscow office).

Others who tagged along for the camel ride included Ann-Marie Slaughter, Dean of Princeton’s Woodrow Wilson School; Princeton Professors Bernard Lewis and Andrew Moravcsik; the insidious neo-con Richard Perle (2 visits); MIT Professor Emeritus Nicholas Negroponte (several visits), brother of  US DNI John Negroponte, and the former head of the MIT Media Labs,  who was very eager to get Libyan funding for his ill-fated pet “One Laptop Per Child” project; a flurry of other Harvard profs, including the Kennedy School’s Robert Putnam, Joseph Nye, and Marshall Ganz, an organizer-guru who became involved in another tidy little dictatorship, Syria; and Johns Hopkins' "end of history" champion Francis Fukuyama, who made history himself by pulling down a record $80,000 for a single audience with Brother Leader.

 Nor were journalists entirely immune from the attractions of the Libyan honeypot. Here,  the Monitor ringmasters also went for high-profile celebrities, including Al Jazeera's David Frost, who collected $91,429 for a single visit.  They also nearly  recruited several others before the project got terminated.  One Monitor project memo reports, for example,  that:

“Monitor approached (Fareed) Zakaria who said that he is very interested in travelling to Libya in order to meet with the Leader….Monitor also approached ( the New York Times’ Thomas) Friedman who said that he was interested in travelling to Libya at some point in the future.”

Collectively this respectability caravan made dozens of such Gaddafi-tour site visits, logging tens of thousands of First Class miles and receiving millions of dollars in fees to commune about the “New Libya" – all the while helping to launder the regime’s  blood-stained image.

This activity seems to have gone far beyond simply helping Libya to restructure its economy and political system along more open,  competitive lines. Indeed, it is now clear that the regime probably never seriously intended any meaningful reforms, but was mainly trying to curry influence and favors.

The experts’ punch list included such dubious activities as ghost-writing Saif Gaddafi’s PhD thesis; helping to design a “national security agency” for Libya (!), quite probably with inputs from folks like the Negropontes and Richard Dearlove, the Monitor “senior advisor” who ran the UK’s MI6 from 1999 to 2004; offering to ghost-write a puffed-up version of Brother Leader’s collected works;  and, all along, orchestrating a flurry of favorable press coverage in influential papers like the Washingon Post, the New York Times, the International Herald, and the Guardian.

All of this was done without without ever bothering (until this Spring, in the case of Monitor Company) to register as what many of these high-toned folks truly turned out to be:  foreign agents of the Government of Libya.

BETTER SAIF THAN SORRY

There are many glaring examples of outright shilling for the Gaddafis by these brown-nosing academic and consulting mercenaries, but a handful captures the essential odor.

One good example was LSE Professor Emeritus/ Blair confidant/ Baron Anthony Gidden’s bold March 2007 speculation in the UK’s Guardian newspaper that Colonel Gaddafi’s Libya might soon turn out to be “the Norway of North Africa.” The piece mentioned Lord Giddens’ impressive academic credentials, but  it neglected to mention the fact that he had received $67,000 in fees from Libya, plus First Class round-trip travel expenses for at least two hajjs to visit with Brother Leader and his staff in Tripoli.

Another example is Rutgers Professor Emeritus Ben Barber’s even more wildly enthusiastic August 2007 Washington Post endorsement of the “surprisingly flexible and pragmatic” Gaddafi and his “gifted son Saif.” Of course Saif is much more familiar to the rest of us now for his blood-curdling “rivers of blood” speech on February 20, 2011, which contributed mightily to the subsequent polarization and bloodshed.

Professor Barber’s piece reminded his readers that he was a  best-selling author and a Distinguished Senior Fellow at the think-tank Demos. But it neglected to mention the fact that he’d also made multiple all-expense-paid trips to Tripoli, for which he’d been paid at least $100,000 in fees by the Libyan Government.

A third example is HBS Professor Michael E. Porter’s February 23 2007 Business Week interview, in which he reported that he had “taken on” a consulting project in Libya,  as if this were some kind of beneficent act. Gaddafi,  he maintained with a straight face,  wasn’t really a dictator after all: “In a sense, decision-making is widely distributed in (Libya). People [consider Libya] a dictatorship, but it really doesn't work that way. That is another reason for optimism.” (Emphasis added).

Prof. Porter neglected to mention the fact that he and Monitor Group, the Cambridge consulting firm that he, plus HBS grads Joe Fuller and Mark Fuller, had founded in the early 1980s, were not only earning several million dollars for their Libyan strategy work, but were also up to their proverbial eyeballs in a second multi-million dollar PR project to bolster Gaddafi’s image.

THE IMPACT

All this salacious material is interesting.  But did it really have any harmful impacts on Libya?  Or is all this merely frivolous second-guessing?

The answer is that this kind of orchestrated air-brushing of the Gaddafi regime by leading Western consultants and academics clearly was not only enormously harmful to the interests of most Libyans, but also that these negative impacts were entirely foreseeable – and, indeed, were anticipated by many critics who had the same intuitive reaction as Roger Kline (see above.)

✔ The academic white-washing helped to conceal the fact that the Gaddafi regime was enormously unpopular with its own people – that the opposition was broad based, that high-level corruption was rife, and that  the “tribal”/al Qaeda paradigm of the Libyan opposition was simplistic and dangerously misleading, not to mention self-serving for the Gaddafi clan.

✔Academic air-brushing also contributed to the misleading view that “reforming Libya" was mainly just a technocratic exercise for the insider-elite and their Western advisors,  to which constitutive matters like elections, rights, the rule of law, and genuine popular representation could take a back seat.

✔The bevy of  big-name Western intellectuals and consultants who courted the Gaddafis not only inflated their egos even larger than they already were, but also encouraged them to believe they could easily  buy influence, as well as arms, in the West -- and delay fundamental political reforms.

In short, the white-washing and the kid glove treatment of the Gaddafi regime by leading Western academics may well have discouraged that regime from pursuing deeper political reforms much earlier, and from negotiating in good faith once conflict increased.

In other words, it probably cost lives.  

 If and when the Gaddafi clan is captured and put on trial, either in  Libya or before the ICC, we hope that these courts seize the opportunity to examine the conduct and responsibilty of these  neoliberal fellow travelers of dictatorship very closely.     

***

So, in the waning hours of the Gaddafi regime,  it is important to recall that Brother Leader and his band of thugs did not simply become a menace to Libya’s people and the world on their own.

Nor was his particular brand of madness simply due to the “usual suspects:” anti-Western radicalism, liberation ideology,  Gaddafi's own imperialistic ambitions in Africa, his idiosyncratic version of political Islam, or even the fact that he spent far too much time spent frolicking in the desert sun with Ukrainian nurses.

No – while Gaddafi’s buddies in Venezuela still portray  him as a stalwart opponent of Western imperialism,  the fact is that in recent years he actually continued to increase his influence in the West only with the really quite extraordinary assistance of prominent, high-priced, incredibly smart, but ultimately quite gullible Western “friends.”

(c) JSH 2011

 

TAX OFFSHORE LOOT!A Modest Proposal for Improving Global Tax Justice NOW James S. Henry

(Note: The following article also recently appeared in Forbes.)

How can we get the world's wealthiest scoundrels – arms dealers, dictators, drug barons, tax evaders – to help us pay for the soaring costs of deficits, disaster relief, climate change, and development?

Simple: levy a modest withholding tax on untaxed private offshore loot

Many above-ground economies around the world are struggling, but the global economic underground is booming. By my estimate, there's $15 to $20 trillion of private wealth sitting offshore in bank accounts, brokerage accounts, and hedge fund portfolios, completely untaxed.

Much of this offshore wealth derives from capital flight and the proceeds of past and present tax evasion. Another key source is crime. At least a third comes from developing countries -- more than their outstanding foreign debt.   This wealth is incredible concentrated. Nearly half of it is owned by 91,000 people -- 0.001% of the world's population.  Ninety percent is owned by the planet's wealthiest 10 million people.

Let's tax it. The pile of offshore anonymous loot is now large enough so that even a very modest 0.5% global withholding tax would yield at least $50 to $100 billion a year.

This "global scofflaw tax" could be used to help pay our own staggering unpaid bills for debt service, retirement insurance, and heath care, as well as the developing world's bills for disaster relief and climate change.

By reducing incentives for capital flight and tax evasion, a tax on illicit, anonymous wealth would also help countries to depend less heavily on debt, inflationary finance, and regressive taxes.

Is it feasible?   Yes. The majority of these assets are managed by the top 50 global banks. As of September 2009, these banks accounted for $8.1 trillion of all offshore assets under management -- 72% of the offshore industry's total. The top 10 banks manage 40 percent.

In other words, the real "tax haven" problem is not tiny island havens on the periphery of the system. The real problem is the global "pirate banking" industry, with an assist by the best lawyers, accountants, and lobbyists money can buy. At its core are the world's true tax havens: institutions like JPMorganChase, UBS, Credit Suisse, Citigroup, Morgan Stanley, HSBC, Deutsche Bank, Barclay's, Bank of America, BNP Paribas, Pictet & Cie, Goldman Sachs, and ABN Amro. They are all based, not in picturesque principalities or remote tropical paradises, but in New York, London, Amsterdam, Zurich, Geneva, Frankfurt, Hong Kong, and Singapore.  They fall firmly under the jurisdiction of First World government agencies.

Capital may be "mobile," but it rarely travels without an escort. For  decades these institutions have operated "Capital Flight Air," recruiting clients and teaching them how to hide wealth offshore, launder it, and access it remotely.

Now they are going to help us tax it.

These highly-visible institutions should be required to withhold a modest 0.5% tax, prorated each quarter, on the value of their clients' assets – which they already track on a daily basis. The proceeds could be turned over to First World tax authorities, with a disproportionate share dedicated to development aid.

Only anonymous wealth should be taxed. If the beneficial owners can show they're paying taxes on their offshore assets back home, they can claim rebates. Most will just pay up.

Over time, we can continue to chip away at "tax havens," trying to make the world's 80-odd havens less secret while helping developing countries enforce their own tax codes.

But that's a long war. The haven system has taken decades to build,  and it will probably take decades to dismantle. Right now there's something simple that OECD countries can do to collect badly-needed revenue from the world's wealthiest crooks – no questions asked.

"SPILL BABY SPILL""Let's Fill Up the Land Rover and Drive to the Mall!"

Haiti: Gov Facing Political Test

May 13, 2010 Port au Prince. Today UN spokesperson Edwin Mueller said the UN was opposed to President Rene Preval' decision to seek an extra 3 month emergency term now, delaying the elections scheduled for the end of Nov. 2010. He said the GOH could easily wait til November to determine if emergency conditions existed that required such a delay, and that elections have been held in other countries under much more turbulent conditions. He also said the UN is witholding further aid to the GOH, and will channel it only to NGOs, pending improvement in the GOH's administration of the emergency shelter camps, where at least 1.41 million people -- probably more -- are now living under miserable conditions.
Separately, opposition groups have today announced plans for protests next Monday May 17, demanding Preval's resignation. Stay tuned!!!
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Haiti: No Real Shortage of Land -- Just Political Will

En route from Mirabelais to Port au Prince, May 13 2010
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Is Medical Care In Haiti Really Better Now Than Before the Quake? James S.Henry

(HEUH,Port au Prince, May 12, 2010)

On Monday AP carried a story, unfortunately replayed with no editing by the Huffington Post , which baldly claimed that medical care in Haiti is now actually much better and more accessible than it was before the January 12th quake.

Having spent much of the past week in Haiti visiting nurses, doctors, and medical workers at the main hospital and leading clinics in Port au Prince, as well as several of the largest camps here, I've concluded that this report is, at best, highly misleading.

At worst, it is yet another striking example of sloppy AP reporting and the virtually-unedited brave new world of "fast food" Internet journalism.

While the supply of medical care in Haiti has indeed increased since January, mainly because of the temporary influx of foreign volunteers and donations, the fact is that the demand for most kinds of care has increased even more.

For example, in the aftermath of the quake, there was an immediate need to treat traumatic injuries and perform amputations. That need, which had not really existed before Haiti, naturally got most of the world's attention.

By now that specific need has indeed mostly been met, however. Accordingly, most US volunteer surgeons and nurses have either rotated out, or are in the process of leaving.

However, according to more than a dozen nurses, doctors and health workers at HEUH, the main hospital in PauP, and at the leading clinic at the 50,000 person Camp Jean-Louis, this hardly means the country's medical needs are now being better served than before the quake.

The need for the kind of high-visibility, "ER-" type fly-in care has now been replaced by a surge in other maladies, which may be less visually-dramatic to international TV audiences, but no less life-threatening.

Unfortunately, treating these other less glamorous quake-related medical consequences demands a longer term commitment -- plus basic improvements in nutrition and community health that are -- like Adam Smith's "invisible hand" -- for the most part still nowhere to be seen.

For example, since the quake, there's been a sharp rise in under-5 age mortality and physical illnesses and injuries. These include not only infectious diseases like malaria, typhus, and diptheria, but also tetanus (from rubble), accidental poisoning toxic, injuries due to fires.

I spoke with medical workers at Partners in Health, a leading NGO that has been active in Haiti since the mid 1980s, and now operates 15 clinics here, including 4 in PauP. They attribute this surge in infant illness and injuries to the dire living conditions for the 1.412 million (as of this week) still living in temporary shelters. They also attribute many of the health problems they are seeing for kids and adults alike to the increasing prevalance of hunger and malnutrition in the camps. And that, in turn, is due in large measure to the total inadequacy of Government/NGO food and water distribution -- right up to the present.

The PIH clinic workers that I spoke with also report that there has been a serious increase in mental health problems, due to the quake's unusual capacity to inflict severe simultaneous traumas: the sudden loss, not only of one's loved ones and many friends, but also of shelter, job, savings, community, and sense of security. PIH mental health workers described patients who have recurrent feelings that the ground is shaking, irrepressible memories of the sights and smells of death and destruction, acute fears about entering buildings, nightmares and daymares about searching for the missing.

0f course before the quake, this country had a grand total of 17 psychiatrists, only 9 of whom were public doctors, to serve a population of at least 8.5 million. There were more Haitian mental health workers in any one of New York, Miami, Boston, and Montreal than in all of Haiti.

Now, after the quake, dedicated NGOs like Partners in Health are indeed working hard to beef up their community mental health efforts -- PIH will launch mental health services at up to 4 of its clinics this year.

However, even PIH freely admits that they are just beginning to scratch the service -- and to understand how vast the need is for post-traumatic therapy on a community-wide scale as a result of the quake. This will require a long-term commitment on all sides.

It would also be really helpful if foreign journalists would make a long-term commitment to really understanding this country, rather than treating it as an endless source of "unexpected natural disasters" and "amazing recoveries."

(C) SubmergingMarkets, 2010


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Haiti: Getting Food to Hungry People

Outside camp at Croix d S'pres, Port au Prince, May 12, 2010.
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Haiti: "Morning Bath"

"All God's Children" Orphanage, Mirabelais, May 12 2010
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Haiti: "As Hard As It Is, There's Good People Doing Good Things Every Day."

Alfredo Merat, intrepid Hamptons musician and activist, entertaining the kids at an orphanage in Mirabelais, Central Plateu, Haiti, May 11, 2010.

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Haiti: "As Hard As It Is, There's Good People Doing Good Things Every Day."

Alfredo Merat, intrepid Hamptons musician and activist, entertaining the kids at an orphanage in Mirabelais, Central Plateu, Haiti, May 11, 2010.

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Haiti: The UN Defines This as Victory

Jim Henry (Tent camp, road to Mirabelais, May 11 2010.)

At the 8:30 am UN Logbase "transitional housing cluster" this morning, a meeting of (overwhelmingly white, non Haitian) representatives more than 25 NGOs and international aid agencies discussed the ongoing challenges involved in meeting the housing and shelter needs of Haiti's quake victims.

An interesting new progress report was distributed, which indicated that as of right now, countrywide, there are an estimated 1.4127 mm "people in need of shelter," including precisely 282,538 households.

To meet the needs of all these people for housing, the UN says that to date 62,732 tents and 563,558 tarps have been distributed by shelter NGOs. In addition, they have doled out some 58,999 tool kits, 107,735 kitchen sets, 196,053 mosquito nets, 339,151 "hygiene kits," 150,994 sleeping mats, and 490,383 "blankets or sheets."

On the housing front, the UN cluster leaders claim an overall coverage ratio of 113%, defined as the sum of "tents plus (# of tarps passed out, divided by 2)" -- though this ratio is still below 50 percent in a few big communes like carrefour (47%) and grande-goave (38%).

Some NGOs representatives in the audience expressed some discomfort with these metrics, however -- especially given the fast approaching rainy/ hurricane season.

For example, one rep from the Amer Red Cross suggested that perhaps "adequate drainage" or "ability to withstand high winds and rain" might be added to the success criteria. And another NGO rep suggested that perhaps the real answer was to accelerate the relocation of those in the camps back to "green" houses -- in cases where their original homes had been certified as sound -- and to speed up repairs to "yellow" houses, those which have damage, but are deemed repairable. He claimed that in many cases such repairs might be cheaper than the kind of temporary shelters that many NGOs have emphasized.

The UN cluster group leader reminded such critics that his forum was only about "transitional housing," and that such "longer-term" shelter, reconstruction, and, indeed, land tenure issues would have to reserved for (some other unspecified) cluster meeting.

To date the "transitional housing" cluster's efforts have raised about 63 % of the $122 million that was budgeted for all this activity through the end of May. The group expects to start another fund raising effort in June to complete its work on "transitional" shelter.

(c)SubmergingMarkets, 2010

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Haiti: Shelter Situation, May 10 2010

...According to UN temporary shelter coordinators, overall coverage of 283,000 "households in need," with 1.4 mm people, is 113%. But this counts a HH as "covered" if it has been provided with 1 tent or 2 tarps. Quietly, many NGOs -- for example, the Amer Red Cross -- are scared stiff about the lack of preparation for heavy rains and hurricanes. But the focus of this "cluster" was on "transitional" housing; apparently weather resistant housing is someone else's concern.
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Haiti:"Transitional Shelter" NGO Meeting, UN Log Base, May 11 2010

...Lots of white faces, except for Sean Penn, who missed this week's meeting...Little discussion of the flooding threat; some debate about whether people should be encouraged to return to homes marked "green," and whether it is cheaper/safer to help people fix "yellow" (damaged but fixable) housing. One black NGO rep: "Many Haitians are staying in the tents because they think people like you will build them new houses...or are unsure what "green" and "yellow" means, if new quakes are a risk."
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Haiti: The UN Goes in Style!

...Countless NGOs (59 big ones), UNICEF, UNCTAD, WFO, USAID...." You can't get enough of what you can't stand."
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Haiti: At Least "There's Partners in Health"

PIH Clinic, near Camp Jean-Louis Vincent, in downtown Paup, 5/11/10. 50,000 people, 15K kids, in this camp alone. Just 2-3k are in school. Haitian gov has stopped free food distribution to the camp since March 31. PIH estimates 40-50 % are hungry. Last week alone its new nutrition center I'd 107 kids with malnutrition, included 40 seriously malnourished.

PIH now has 4 such clinics in Paup, 11 more in the central plateau, where its efforts started in the mid-1980s. Last year, before the quake, its $25 mm budget was 2x the entire Haitian gov's Ministry of Health budget. This year, it will spend $40 mm here, supporting more than 5500 community health workers, more than 200 haitian doctors and nurses, the country's only community mental health services, and 100 foreign volunteers.

Meanwhile, the GOH continues to fall down on the job. Last week it finally managed to pay some of the doctors and nurses on staff at HUEH gen hospital for the first time since Nov. Its own outpatience clinics, mobile medical services, and mental health service are virtually non-existent; there are only 9 publc health psychiatrists in the entire country, and conditions at the badly-damaged mental hospital in Paup are zoo-like. Of course the food distribution calamity noted above -- a concession to the country's private food vendors, big and small -- is a triumph of brutilitarianism over humanity.


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Haiti: At Least "There's Partners in Health"

PIH Clinic, near Camp Jean-Louis Vincent, in downtown Paup, 5/11/10. 50,000 people, 15K kids, in this camp alone. Just 2-3k are in school. Haitian gov has stopped free food distribution to the camp since March 31. PIH estimates 40-50 % are hungry. Last week alone its new nutrition center I'd 107 kids with malnutrition, included 40 seriously malnourished.

PIH now has 4 such clinics in Paup, 11 more in the central plateau, where its efforts started in the mid-1980s. Last year, before the quake, its $25 mm budget was 2x the entire Haitian gov's Ministry of Health budget. This year, it will spend $40 mm here, supporting more than 5500 community health workers, more than 200 haitian doctors and nurses, the country's only community mental health services, and 100 foreign volunteers.

Meanwhile, the GOH continues to fall down on the job. Last week it finally managed to pay some of the doctors and nurses on staff at HUEH gen hospital for the first time since Nov. Its own outpatience clinics, mobile medical services, and mental health service are virtually non-existent; there are only 9 publc health psychiatrists in the entire country, and conditions at the badly-damaged mental hospital in Paup are zoo-like. Of course the food distribution calamity noted above -- a concession to the country's private food vendors, big and small -- is a triumph of brutilitarianism over humanity.


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Haiti: Continuing Medical Crisis

Open air ICU, HEUH general hospital (only public hospital still open in Paup, 5/11/10.
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Haiti: What Would We Do W/O the Olaffson?

...Landmark P aup P "Addams Family" hotel, used as a hospital by the US Marines, 1915-34; frequented by the NY London early jet set, 1950s (Graham Greene, Sir John Gielgud, Anne Bancroft, Truman Capote, Marlon Brando, etc.; young Mick Jagger), given up for dead and revived again and again -- like Haiti. Since 1988, under the tender care of Haitian-American musician Richard Morse and his family.....
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Haiti: Using Your Head

Pacot, May 9 2010
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Haiti: Not All Is Rubble

Dadeski, Pacot, Port au Prince, May 9 2010
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Haiti: Rainy Season Aftermath

Matisan, May 9 2010
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Haiti Once Had Fabulous Architects

Marche en Fer, downtown Port au Prince, May 8 2010.
It recently caught fire for the second time.
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Haiti: Rebuilding

Croix d S'pres, May 8 2010
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Haiti: Most Wooden Houses Survived.

.... Unfortunately Haiti has been largely deforested. Another libertarian achievement: no land reform+ few national forests+rural poverty + no forestry programs. So they built Port au Prince out of cheap cement and "sable blanc...,designed to survive hurricanes but not even 7.0 quakes. "
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Haiti: The Perfect Free Market Economy

...Downtown Port au Prince: Marche de la Croix des Bossales, May 8 2010. No regulation, few police, no army, no courts, no taxes, no import controls, no environmental laws, no labor laws, no consumer protection, no social security contributions, few public schools, no public hospitals still functioning, no public medical care, no parks, gov buildings mostly destroyed, no foreign exchange controls....and millions of people willing to work for nothing, and, indeed, sell themselves in slavery. Question: did the world's first slave revolt (in the 1790s) ) really succeed?
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Haiti: Cite d' Soleil, end of the dock

May 8 2010
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Haiti: There's Always Football

Croix d'Pres, May 8 2010
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Haiti: Bootstrapping the Country

Croix de S'Pres, May 8 2010
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Haiti: Giving Aid Directly to Hungry People, May 8 2010

My friends "Junior" laForest and Alfredo Merat distributing bags of rice, oil, and pasta in the camps at Croix de S'Pres...out of their own pockets. Most people here have gotten little aid.
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Haiti's Next Disaster?

(Port au Prince, May 8 2010)

Here's an interesting problem -- a great example of the "politics of aid" in Haiti, even though you didn't heard much about it from the mass media, let alone Bill Clinton or Michelle Obama.

Three months after the January 12th earthquake, you've still got at least 1 mm people "living" in Port au Prince, Haiti's capital city, in crowded camps of tents and makeshift shacks.

Furthermore, hurricane season is fast approaching: it lasts from June to November here. And NOAA, the US weather agency, says there could be at least a dozen Caribbean hurricanes this year. While they don't predict land fall more than a few days in advance, we know that Haiti is clearly at risk --
In 2008, it was hit by 4 hurricanes that were Class 3 or stronger.

And that was before the quake, when most people were living in concrete houses. Now those are mostly all gone.

The real problem, in other words, is not just "the rainy season;" it is the hurricane season.

The Preval government has recently received nearly $1 billion from foreign donors. But it is not spending nearly enough of that money on new housing or relocation.

Indeed, not long ago, President Preval was quoted as warning people to stay where they are, because, he said, there was a danger of "new earthquakes."

Of course earthquakes are much more unpredictable than hurricanes. But Preval evidently doesn't want to admit that to relocate a million people to better housing and safer land, he's have to have already started --- mandating relocation to rural areas where people came from, and putting up stronger shelters on gov and private lands near Port au Prince, or in the existing camps, for those who have nowhere to go.

The problem is that such a move was politically unpopular. Preval, a lame duck President, has been fighting for an extension of his term, which was supposed to expire in November. Yesterday he got at least a three month extension -- but in the interim, very little has been done about relocation.

Nor has any one else taken charge of this issue. There's been lots of bold talk from the international community about "reconstructing Haiti," and some efforts to rebuild "places that can be named after donors," like hospitals and government buildings.

But none of this really addresses the looming hurricane threat. Unfortunately, many of the hundreds of NGOs that are still here are still focused on "fighting the last war" -- dealing with the continuing dire impacts of the earthquake.

Of course the Obama Administration has had its hands, but to some extent it has also glossed over this looming hurricane threat. In a tough election year, with many Americans facing tough times, providing more aid to Haiti is not exactly popular -- although dealing with thousands of Haitian "boat people" would also be a nightmare.

Apparently the USG also doesn't want to be perceived as "intervening in internal Haitian affairs" by telling Preval to step it up. The US military, which has been helping with aid, is slated to leave the island in June.

Well, Earth to Obama: the US already crossed the Haitian intervention bridge long ago. (... Just to pick a few examples: the US trade boycott with Haiti in the 1820s-1860s; occupying the island with thousands of Marines in 1915-1930; supporting Papa Doc Duvalier and his son in the 1950s-1980s; supporting Gen. Cedras' 1991 ouster of Aristede, Aristede's first return to power in 1994, and his ouster again in 2004...)

So right now may actually be the time for another US intervention -- a humanitarian one, in the interests of saving lives, perhaps as many as were lost in the earthquake.

There's still time -- not much, but maybe just enough to get some of those empty thousands of FEMA trailers down here for people who can't go bsck to the countryside, plus mount a serious effort, mainly through incentives, to get folks able to move to do so. And right now, before it is too late.

We know that the world's donor community has "Haiti fatigue." It feels that it has already done as much as it can do for Haiti, and that the patient has stabilized. Indeed, the International Red Cross and most its affiliates have already moved on, and many other NGOs are also in the process of withdrawing.

Unfortunely the weather gods didn't get the memo about Haiti's "stabilization"....

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Cochon Noir d'Haiti: May 8 2010

...Evidently USAID didn't get them all!
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Haiti, May 8 2010: Pay Day!

...Workers hired by USAID for $4.80 per day to move rubble are lining up to get paid...hired for two weeks at a time... Perhaps we should try the same approach in Detroit, Hartford, Cleveland, Phoenix..!
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Haiti: Croix de S'pres Camp, May 7 2010

...These kids are receiving almost NO help from anyone...the Haitian gov and the top ten families are stealing like bandits...they know who they are, and YOU will too...
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Hait: US rice imports, May 2010

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Croix de S'Pre may 7 2010

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