Transcript Multinationals

Multinationals and
International Banking Systems
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 WalMart’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.
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.
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).
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.
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
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 taxdeductible 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.
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)
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.
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”
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.
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
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
EHMs
• The book was on the New York Times (nonfriction) 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
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.
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