Multinationals and International Banking Systems

1. Multinationals and International Banking Systems

2. Multinational corporations • In 2005, the revenues of US car company General Motors were $191.4B, greater than the GDP of more than 148 countries. • In its fiscal year ending 2005, US retailer Wal-Mart’s revenues were $285.2B, larger than the combined GDP of sub-Saharan Africa. • They avoid paying taxes when possible, some skimp on health insurance for their workers, many try to limit speeding up cleaning up the pollution they create. Often the bill is picked up by the governments in the countries where they operate.

3. Infamous corporate evil-doing • In 70’s, Nestle’s campaign to persuade Third World mothers to use infant formula, leading to alledged deaths of babies as a result of formula being mixed with contaminated water • Intern. Code of Marketing of Breast-milk Substitutes signed in 1981 • Baby food companies may not distribute free samples of substitute milk in hospitals and other places providing public health services. • Manufacturers of breast milk substitutes may not distribute promotional gifts to health workers. • Images of mothers and children on the packets or labels are forbidden. • Nestlé has issued instructions to all its offices to ensure strict compliance with the International Code.

4. Infamous corporate evil-doing • Bechtel: a US company whose heads have been secretary of state, secretary of defense, etc. • Bechtel’s attempt to privatize Bolivia’s water • Water price raised by 200% after privatization. • Many had to withdraw their children from school and stop using doctors because of higher costs for water • Riots; contract terminated • Bechtel filed a lawsuit against Bolivia and in 2006 settled it with a compensation of 30cents in an outside jurisdiction (International Centre for the Settlement of Investment Disputes).

5. Infamous corporate evil-doing • The US cigarette companies’ half-century conspiracy to persuade people that there was no scientific evidence that smoking is bad for health even though their own research confirmed that it was • Monsanto’s development of seeds that produced plants which in turn produced seeds that couldn’t be replanted, thereby forcing farmers to buy new seeds annually • Los Angels once had the world’s large urban rail system (1,100 miles of track), until a group led by General Motors brought it out, dismantled it and replaced it with GM buses. • Food companies teach children to want sugary cereals that are bad for their teeth.

6. Briberies • No good model is set--“In the US, mineral resources are essentially given away to the mining companies; when President Clinton tried to have the resources auctioned off, sold to the highest bidder, he was beaten back by lobbyists from mining companies.” (Stiglitz, MGM, 138) • In sophisticated economies such as that of the US, outright bribery has been largely replaced by political campaign contributions. Winning not only a road contract but also a change in policy

7. Briberies • Pharmaceutical companies spent $759M to influence 1,400 congressional bills between 1998-2004, and employed 3,000 lobbyists. • Even in 1996, bribes were not only legal but tax-deductible in a a large number of countries (France, Switzerland, Luxembourg, Japan, etc.) • The US passed a Foreign Corrupt Practices Act in 1997. • There is now an OECD convention on bribery, but enforcement is difficult and incomplete.

8. Tax Haven and Bank Secrecy • The huge expansion of the financial services industry in the 1980s and 1990s saw the number of offshore tax havens increase from 25 in the early 1970s to 72 by the end of 2005. • Offshore companies are not audited, so there is no way of knowing who owns those companies, who benefits from the offshore trusts, and what purpose they serve. • (see chapter 3 in “A Game As Old as Empire” edited by Steven Hiatt)

9. Tax Haven and Bank Secrecy • Supported by preferential treatment under the Basel I banking agreement, offshore banks have grown at an astonishing rate, but little attempt has been made to regulate their activities in developing country or to crack down on the use of offshore accounts and trusts for tax evasion. • According to one estimate, some $5trillion of capital has been shifted out of poorer countries to the west in the past decade, and $1T of dirty money flows annually into offshore accounts, approximately half of which originates from developing countries.

10. Tax Haven and Bank Secrecy • “When Sani Abachi was dictator of Nigeria at the end of the 1990s, the Central Bank (of Nigeria) had a standing order to transfer $15 million or so to his Swiss bank account every day. • Corruption on this scale in the developing countries cannot survive without the complicity of wealthy countries’ financial institutions. • A former Nigerian minister said in 2005: • Switzerland should top the list of most corrupt nations “for harboring, encouraging, and enticing robbers of public treasures around the world to bring their loot for safe keeping in their dirty vaults”

11. Tax Haven and Bank Secrecy • About $300million of Abacha’s ill-gotten loot ended up in Jersey-based banks. • When international pressure finally forced the repatriation of this looted money to Nigeria after Abacha’s downfall, not a cent of the banks’ fees was repaid.

12. Tax Haven and Bank Secrecy • “Client is a private investment company domiciled in the Bahamas used as a vehicle to manage the investment needs of beneficial owner, now a retired professional who achieved much success in his career and accumulated wealth during his lifetime for retired in an orderly way.” • This is how Chilean dictator Augusto Pinochet was described by a bank in Jersey, a 9 miles X 5miles Channel Island tax haven of the UK: • Chileans today are repaying to international banks and organizations the debts incurred during the Pinochet regime

13. A Conspiracy Theory • “Economic hit men (EHMs) are highly paid professionals who cheat countries around the globe out of trillions of dollars. They funnel money from the World Bank, …, into the coffers of huge corporations and the pockets of a few wealthy families who control the planet’s natural resources. Their tools include fraudulent financial reports, rigged elections, payoffs, extortion, sex, and murder. • “I should know; I was an EHM.” —John Perkins, in Confessions of an Economic Hit Man

14. EHMs • The book was on the New York Times (non-friction) best seller list for a couple of weeks in 2004 • The book was turned down by 25 major publishers before being accepted by a small independent publisher (now a major Hollywood company purchased the option to film it) • The major US media didn’t discuss the book until Feb 2006 (perhaps because more writings by EHMs are coming out!). http://www.democracynow.org/article.pl?sid=06/01/03/1435206

15. How it work? • Identify a resource rich country. • Over-estimate the benefit of a public project • Help the country get grants/loans from the World Bank, or other international organizations • Contract the project with firms in the US or Europe. • The developing country government officials may or may not know it is a white elephant (if they know, they are bribed) • Then the project turns out to be failures • The country is indebted and is at the mercy of the loaners/rescuers, although some people get very rich.

16. Some Remedies • Sarbanes-Oxley Act passed in 2002 to make CEOs responsible for the company’s account—prison is possible • Likewise, make CEOs should be held criminally liable for serious violation of a nation’s environmental laws, etc. • Abandon bank secrecy