The UK’s anti-corruption two-step: curtailing abuse of courts while underfunding anti-kleptocracy police
PROPHETS OF PROFITS
Many of you will know the work of Gabriel Zucman, at the University of California, Berkeley, in which he tries to pierce the layers of secrecy around offshore finance and see who really owns what. I was really excited to see an update to the ongoing project Missing Profits of Nations, which he and two Danish economists have been working on for a few years.
In this new paper, they analyze the profitability of different companies to determine that fully 36% of multinationals’ profits are shifted to tax havens, in a way that really highlights the importance of achieving a global minimum tax rate.
- “We analyze how the location of corporate profits would change if shifted profits were reallocated to their source countries. Domestic profits would increase by about 20% in high-tax European Union countries, 10% in the United States, and 5% in developing countries, while they would fall by 55% in tax havens,” they write.
- “We establish that U.S. multinationals shift comparatively more profits: in 2015, U.S. firms shifted more than half of their multinational profits, as opposed to about a quarter for other multinationals.”
It’s worth reading the paper (or its summary at least), to appreciate the rigor of their technique. And then stop to think what governments desperately trying to keep the lights on, keep hospitals open, and support Ukraine’s military could do with all those unpaid taxes.
As for the global tax deal, which aims to impose a minimum rate of 15% on major multinational companies, some countries are continuing as if it will still go ahead (for example, the U.K.), but the picture is very far from rosy. It is pretty clear that the situation Zucman and his co-authors have exposed is intolerable, and governments will therefore not tolerate it. If the multilateral effort does end up falling apart, countries will start taxing tech giants themselves on a unilateral basis, and things will get incoherent extremely quickly.
THE UK SHUFFLE
It’s two steps forward in the U.K…
There have been many parts of the U.K.’s response to the Ukraine crisis but perhaps the element that has received the fullest and most thoughtful treatment from officials and politicians is that around so-called SLAPPs. SLAPPS – the acronym stands for Strategic Lawsuits Against Public Participation – are what happens when a wealthy person misuses the court system to ensnare poorer people in endless litigation. In a British context, this often involves them using the country’s strict laws around defamation.
- “We won’t let those bankrolling Putin exploit the U.K.’s legal jurisdiction to muzzle their critics. So today, I’m announcing reforms to uphold freedom of speech, end the abuse of our justice system, and defend those who bravely shine a light on corruption,” said Deputy Prime Minister, Justice Secretary and Lord Chancellor Dominic Raab, in a statement.
The British government’s talent puddle is currently so shallow you could walk across it barefoot and not get wet, so Raab may only come across as relatively impressive because of who he’s working alongside. However, be that as it may, this is still a pretty good selection of proposals. Crucial to leveling the playing field is the idea of limiting costs. Often journalists or others fold long before a case comes to court (or, indeed, they do it preemptively before a case has even been thought of) out of fear of potential bankruptcy.
The proposals would also allow judges to throw out cases at an early stage if they appear abusive, an idea which has long been championed by lawyers for Catherine Belton, whose excellent book Putin’s People was targeted with five different lawsuits from wealthy Russians, including Roman Abramovich.
- “This looks to be an impressive government response to counter abuse of the UK legal system by the super-rich: The reforms will introduce ‘a new statutory early dismissal process to stop these cases – allowing judges to throw out claims that lack merit,’,” tweeted Belton.
Of course at the moment, Britain is going through a spell of political turmoil, with the two candidates to succeed Boris Johnson as prime minister spending their time debating important issues like earrings. Whoever comes out on top may decide not to go ahead with this proposal, which is what most activist groups are now focused on.
- “Thankfully it is clearly no longer a question as to whether SLAPPs are a problem in the U.K., but what measures will most effectively address them. We are highly encouraged to see the government’s proposals,” said Susan Coughtrie, Project Director at the Foreign Policy Centre, who has written several important research papers on abusive lawsuits in the U.K. and their global chilling effect. “How quickly these reforms will be implemented and their effectiveness in remedying the U.K.’s SLAPPs problem will be a key part of our continued focus on this issue.”
… and it’s two steps back.
Another important part of the U.K.’s response to the Ukraine crisis, which came in Boris Johnson’s speech responding to Putin’s assault on February 24, was a new focus by law enforcement on kleptocracy.
- “We will set up a new dedicated ‘Kleptocracy Cell’ in the National Crime Agency to target sanctions evasion and corrupt Russian assets hidden in the U.K., and that means oligarchs in London who have nowhere to hide,” said the prime minister.
Now, full disclosure, I was a bit skeptical whether this would amount to anything in the long run, but was open-minded and a little bit optimistic. In May, the BBC published an irritatingly-fact-free piece about the new unit, and that was all we had to go until last week, when a National Crime Agency spokesman gave a briefing to the press.
The new cell – or the CKC, as they call it – has apparently been helping out foreign law enforcement agencies keen to discover the ownership of planes, yachts, etc. It has also arrested 10 or so “enablers” (this appears to be a broad category, running from security guards to corporate lawyers), and is investigating various oligarchs’ wealth. These cases can last for years, as anyone who has tried to follow them knows, which is when the briefing got depressing.
The extra funding for the NCA lasts only until the end of this financial year. So, come April 6 2023, its managers will be expected to fund this whole new battlefront out of their already overstretched resources. On top of that, they’ve been asked to look into ways to reduce expenditure to match a government promise to cut civil service headcount by 20 percent, at a time when their officers are already paid a fraction of their U.S. counterparts.
- “If you look at, you know, the average budget per FBI officer, compared to average budget across NCA officers, you see a real difference. And there’s no point in pretending that there isn’t,” the spokesman said. “As far as I recall, it was something like three-to-one in terms of spend per officer.”
You can’t fight oligarchs on the cheap. Or, to put it another way, if you’re doing it on the cheap, you’re not fighting oligarchs, no matter how loudly you say it in parliament.
JUST IN CASE
There is likely to be some cross-over in readership between this newsletter and the Wall Street Journal, so I wanted to correct a misconception that may have arisen from anyone reading a review of my most recent book.
- “A more serious problem lies in Mr. Bullough’s distinct antipathy to capitalism. He dislikes money-making and rich people, not just kleptocrats,” the reviewer, Tunku Varadarajan, informs his readers. “His is a Manichaean view of wealth, part Boy Scout, part Thomas Piketty.”
I know Varadarajan a little from his days as an editor at Newsweek, when he commissioned me to write about Circassians, so I was a little surprised he would misrepresent me like this. It’s not that I mind being bracketed with the improbable trilogy of Piketty, boy scouts and Manichaeism, or that I mind people not liking my books, but I do mind being presented as some kind of revolutionary.
This is not worth spending much time on, because it’s an unserious review, but for the record: I do not have a distinct antipathy for capitalism. I do, however, have a distinct antipathy for cheats, hypocrites, liars and bullies. If a resourceful entrepreneur has a great idea, attracts investment, markets it well, and makes a fortune for everyone involved, then yay.
However, if that businessman wants to take advantage of the vitality of the U.S. economy to sell his product, but doesn’t want to contribute to that vitality by paying taxes, then I am distinctly antipathetic. If a Russian oligarch wants to steal a fortune, then send it offshore to enjoy the rule of law he denies everyone else, then I am also distinctly antipathetic. If a politician loudly trumpets his support for democracy, while encouraging kleptocrats to stash their money in his country, then I am distinctly antipathetic about that as well. On a smaller scale, if a well-paid editor at a well-funded magazine commissions an article from a freelancer, who then doesn’t get paid for 18 months, well, I’m pretty distinctly antipathetic about that too.
This is not, I think, a complicated argument to understand, and if Varadarajan had accurately reflected it, it would be clear that I am not an anti-capitalist at all. I’m criticizing people who enjoy capitalism’s privileges while ignoring its responsibilities, and thus about as squarely in the middle of the historical mainstream as it’s possible to be.
- “They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people,” wrote Adam Smith, the father of modern economics and the first theorist of capitalism, in Wealth of Nations. And that was in 1776.
I suppose an interesting question though is why Varadarajan and the WSJ would want to misrepresent me like this. Did I touch a nerve?
Apropos of nothing, except the fact it amuses me, I also got a review this week in Socialist Appeal, the British section of International Marxist Tendency, which came at me just as hard, but from a rather different direction (and with mercifully fewer rhetorical curlicues).
- “In contrast to Bullough, as Marxists we understand that corruption and financial swindling is endemic under capitalism, and always has been. There is no such thing as ‘good capitalists’ and ‘bad capitalists’. Their entire system is based on the exploitation of the working class – legally or otherwise.”
WHAT I’M LISTENING TO
I am fascinated by the tensions and mismatches between the globalized economy and national legislation, which (I think) explain most of the major problems currently afflicting the world. As such, I loved the podcast series Hot Money, made by the FT, which delves deeply into how the internet upended the porn industry. Pornographic material clearly moves around the world unhindered, so who ends up regulating it? The answer will surprise you, and I cannot recommend this fascinating series enough.
I have also, as I warned you about, been plowing steadily onwards through George Orwell’s essays, which remain marvelous, though – as a well-meaning literary man myself — I did feel pretty seen by this paragraph from a book review.
- “It is worth noticing that this scheme is not as visionary as it sounds. Of course it is not going to happen, nothing advocated by well-meaning literary men ever happens.”