The UK is wedded to the class system, and so still awards new year honours of varying classes, indicating your rank in society. Amongst recipients this year are Mike Rake, senior partner of KPMG international, who is now Sir Mike Rake.

Candidly, this is a Knight too far. He was senior partner of KPMG in the UK throughout the debacle that nearly destroyed KPMG in the US and worldwide. He must have known something of what was going on there. And frankly neither he nor KPMG have moved far enough to justify any form of award as yet.

KPMG have done great disservice to the profession. To reward its chair for services to accountancy is pushing credibility beyond limits: well beyond limits most people bar Blair’s government would accept.

Dec 292006
 

Polly Toynbee has a new year’s wish in the Guardian today. Amongst them this:

¬? Create a standing tax commission to expose who pays what and how fat cats squeeze through loopholes. Get tough on tax exiles: cut the time they can spend here tax-free while stashing their cash in Jersey or Monaco, losing the Treasury escalating sums as the UK turns tax haven itself. Bring a top tax band at £100,000 as an opportunity tax, earmarked to pay for new life chances for left-behind children.

Spot on, I say.

 

I’ve mentioned Simon Caulkin’s writing here before. I will again. In considering the role of the heretic challenging the status quo with a truth that is obvious, and yet unacceptable (as Galileo did the Catholic Church) he wrote last Sunday:

Today those keeping people in ‘a pearly haze of superstition’ about their place in the world are the popes and cardinals of business – chief executives, investment bankers, consultants and PR and press cheerleaders, all with a vested interest in preserving the discredited belief that the shareholder is the fixed centre of the commercial solar system round which everything else – employees, customers, suppliers, society itself – revolves in orbit.

The truth is that shareholder value is obviously wrong. It’s time we realised business is all about a universe of interests that do not revolve around shareholders. Business would be a lot more effective if we accepted that truth.

Read the whole piece here.

 

I’ve found out who some of the sad people who read tax blogs rather than celebrate Christmas are. They’re the staff of the Center for Freedom and Prosperity (CF&P)in the USA who issued a press release about me on Boxing Day. Surely they had better things to do over Christmas than spend their time away from their families misrepresenting the truth? Apparently not.

For the sake of the record, the press release is to be found here. For the sake of correcting the misinformation within it let me add the following (on which, I give notice in advance, I will not be accepting comment from right wing groups, so don’t bother to try):

1. I never sought the debate with Senator Walker to which CF&P refer. Other’s challenged him to debate with me, without asking me first whether I was willing to do so. When he accepted I was also happy to do so. He is more responsible than most for setting Jersey on the path to ruin on which it is now almost certainly irreversibly set. He is accountable for that as Chief Minister of the Island. It would have been churlish not to debate. But he changed his mind. Unsurprisingly some wished to call him to account for that, me included.

2. I did not seek a debate with Dan Mitchell of the Heritage Foundation and CF&P. He asked for a debate. I’m unsurprised. As his own press release notes, he’s finding it difficult to find anyone credible who can be bothered to waste their time by engaging with him. So he thought he’d try me, and I’m pleased that he joins me with the likes of the EU, UN and OECD, but in truth the suggestion he makes that I act a spokesperson for any government or government funded agency is entirely wrong. Unlike the Heritage Foundation, which has reserves of $137 million according to its latest accounts, to create which it probably enjoyed tax subsidy of at least $40 million or more, neither the Tax Justice Network or I have ever received state funding (although I have had the odd expense reimbursement).

3. The truth is, I did not turn Dan Mitchell down flat. I was sorely tempted to. My personal, economic and religious convictions all lead me to loath discrimination and both the CF&P and Heritage promote discrimination. That discrimination is inherent their desire to restructure the economy quite fundamentally to ensure that the rich get richer and the remaining 95% stay where they are. The evidence for this comes from Alvin Rabushka, whose work on flat tax they strongly promote, who said in recorded interview with me in February 2006, which he gave me permission to publish, that the only people who matter in any society are the top 5% of income earners. He said it is the duty of government and the rest of society to keep the rich happy. That’s discrimination: he’s calling for specially favourable treatment for an already privileged group. That’s what Heritage and the CF&P set out to do. It’s also why rich Americans give them so much money. I hate discrimination in all its forms. It follows that I loathe all that CF&P stands for. Of course I was inclined to say no. Any decent person would.

4. But I was generous. I said I would debate. But there were conditions:

- they paid
- it was in London or Jersey
- they had to disclose all their sources of funding, as TJN does
- they had to disclose all their links with Jersey.

This seemed fair to me. TJN is an organisation committed to transparency. We are transparent, although we have allowed private donors but no other organisations to request anonymity if they wish for it. We’d have accepted the same from Heritage in return. But they sent their accounts and refused to do more.

As a result I declined to enter into a debate they organised. The reasons were simple. As I told Dan Mitchell:

Your comments are profoundly disappointing. Both organisations for which you work are engaged in political lobbying. Their stated intentions are political. Despite this you refuse to disclose the identities of those who are providing the resources to fund this work. In consequence it is quite reasonable to believe that those funding you wish to interfere in the democratic process whilst wishing to be unaccountable within it. My position on this is simple: it is unethical, anti-democratic and in consequence wholly unacceptable to work in this way. A belief in freedom must require a belief in democracy. A belief in democracy is based upon the principle of accountability. You are not evidencing these beliefs.

I would add that in making both these observations I flatly reject your claim that your position is based on a respect for the right to privacy. Of course that is an important right. But it is one people forego when they seek to engage in the public domain of politics as you and your supporters are.

I regard transparency and accountability as crucial to civil society legitimacy. In the interests of proceeding with the debate, I repeat my request that you disclose the information requested in my earlier email.

He never sent that information so that was the end of any chance of a debate on their terms. But as Dan Mitchell well knows, and this is why I can say with complete sincerity that his press release is mis-information, I have not refused to debate with him. I have said that if he can find a reputable organisation that would like to arrange the debate so that I can be sure that it is run properly then I would happily engage in discussion. The precedent is clear. I no more like Alvin Rabushka’s ideas on flat tax than I do Dan Mitchell’s on tax competition. I would not have debated with Rabushka if he’d arranged it. But when I was asked to do so by reputable people in Slovenia working with the IMF earlier this year I did. And Mitchell should note, Rabushka argued for flat tax, and I argued against. Slovenia has decided against flat tax. I make no personal claim as to my role in that, but what is clear is that Rabushka lost.

So, that’s the reality. People like the EU, IMF, universities and the governments of many countries ask me to participate in discussion, and I do. The CF&P seem to have problems getting such invitations from such reputable sources. But if they can secure one I’ll be there. But I stress – a right wing think tank is not a reputable location in my opinion. Reputation is based on a commitment to equity, justice and fair play. Anyone who promotes tax policies that discriminate against less well off people does not share those commitments, in my opinion. So don’t bother to ask me to places that promote flat taxes, for a start. I won’t show.

Accept that though and it’s then over to you Dan. You wanted this debate. To me it’s just an irritation. But if you can find someone to host it on these terms, I’ll do it.

Dec 292006
 

I mentioned recently that Statoil was one of the most ethical companies.

It’s disappointing to note therefore that it has settled fines of $21 million dollars this year for paying bribes to secure contracts in Iran. Now this has been drawn to my attention I correct the impression given earlier. Corruption is always unacceptable. And inevitably, there was an offshore dimension.

But Statoil does remain one of the best companies on disclosure. It’s just clearly got some distance to cover as yet on other issues.


Dec 282006
 

Just before Christmas I asked where all the accountants were in declaiming the government’s decision not to pursue corruption investigations at BAE. I still haven’t noted their presence in the debate, but it’s good to see two major fund managers saying the government got this wrong. Full marks to Hermes who have said (according to the Sunday Times) in a letter sent to Tony Blair:

“Lack of credibility in the regulation of one company can spread to the rest of the stock market, creating higher-risk premiums and cost of capital.”

F & C are also reported to have said:

“As a long-standing advocate of strong corporate governance and anti-corruption standards, we place great value on the actions that governments take to ensure the investment climate is marked by clear, predictable standards and independent enforcement of the rule of law.”

“There is a danger that the government’s recent action will be perceived as undermining the consistent application of the UK’s national legislation governing corrupt practices, precisely at a time when wider take-up of the OECD (Organisation for Economic Co-operation and Development) convention is beginning to take root.”

Good for them. There is still some honour in the City. And some appreciation left of the importance of doing business properly, and being seen to have done so.

Shame about the ICAEW, ACCA and the other professional bodies though. Nothing links them to any announcement on this issue.

 

The Sunday Times broke the news on Sunday that:

[HM Revenue & Customs] investigators have raided the homes of executives at a top City accountancy firm over a £100m tax avoidance scheme used by leading sportsmen, musicians and investment bankers.

The firm in question was Vantis – an AIM listed accountancy practice.

The Sunday Tines suggests (and it’s no more than that right now) that:

the firm – and its executives – were involved in setting up a sophisticated tax scheme to exploit Treasury concessions on charitable donations. It gave investors the opportunity to at least double their money, and in some cases quintuple it, within months.

The way it is alleged they did this was simple. The firm set up companies on the Channel Islands Stock Exchange. The clients of Vantis bought shares in those companies, which then soared in value, apparently. The shares were then gifted, capital gains tax free, to charities and the former owners claimed tax relief for the value of the gift, so getting tax relief at 40% on the value gifted, not the original cost, which was much less. Under charity law as it stands at present the charities had to accept the gifts. Those using the scheme made application for massive tax refunds from the Revenue.

As the Sunday Times notes:

The Revenue is investigating whether the price of the shares was manipulated for tax purposes. The charities, including the Terrence Higgins Trust and Action Medical Research, now find it almost impossible to sell the shares as virtually no trading occurs on the Channel Islands stock exchange. The Vantis companies account for almost half the firms on the exchange.

The Sunday Times suggests almost 400 people used the scheme. The Revenue said:

“For legal reasons we can’t comment on specific organisations. We take any abuse of the Gift Aid system very seriously and we will come down hard on any fraudulent abuse of Gift Aid. Any scheme that targets the charity sector is particularly offensive and HMRC is taking decisive action against them and those who market them.”

I have no idea whether the allegations are true or not, but suspect the Sunday Times is pretty sure of its story. The simple fact that the companies used for this purpose now make up half the Channel Islands exchange suggests that something serious is going on. As ever, questions arise:

  1. What did Vantis think it was doing?
  2. Is it possible for an accountancy firm to be quoted and be ethical, or does being quoted mean ethics always come second?
  3. Why didn’t Channel Islands regulators stop this?
  4. What does this say about financial services regulation in he Channel Islands?
  5. Will the States of Jersey and Guernsey investigate?
  6. How was the price rise engineered? If it was artificial will the Channel Islands be prosecuting as well?
  7. Why has no price fixing investigation been reported in the Channel Islands?
  8. Why haven’t the charities involved been protesting publicly? Who told them not to?
  9. Will the accountancy professions professional bodies be condemning thus as soon as they reopen in the New Year?
  10. Will shares in the companies in the Channel Islands be suspended?
  11. Will Vantis have its shares suspended if found to be involved in market abuse?
  12. If major firms of accountants knew this was happening (and you can bet they did) why didn’t they ‘shop’ Vantis to the Revenue and to the professional bodies for bringing the profession into disrepute?
  13. Would anyone like to join me in making such a complaint now so that we ca see what happens?

Put simply, where were the honest accountants who could have stood up and said ‘no’ to these deals? For the sake of the profession it’s time people did just that. Whether or not they’re legal, they’re clearly unethical. That’s good enough reason to shout. It’s time honest accountants did a bit more shouting. That way dodgy dealers can be driven out of this profession, for good.

And I want to hear our professional bodies both saying that, and proving the mechanisms to ensure it can be done. Now. It’s the least the public can expect of them.

Is this sustainable?

 Accounting  Comments Off
Dec 282006
 

The lat time the FTSE 100 index ended the year over 6,000 points and upbeat was 1999. Within months the tears began. Yesterday it was 6245. In 1999 it was around 6800.

I thought the 2000 crash was inevitable. I said why in the paper I co-wrote with Colin Hines and Alan Simpson for the New Economics Foundation called ‘ People’s Pensions’. This time there is a difference. In December 1999 the market p/e ratio was 30 (near enough). That was unsustainable. Now it is around 13. I thought that sustainable when I wrote ‘People’s Pensions’.

The difference though is simple. I happen to think the current market rises are also unsustainable. This time though I doubt that profits can be kept at this level. They’ve risen as a proportion of GDP, as I’ve shown here. The difficulty is I can think of nothing that justifies this apart from financial engineering. And that can’t be leveraged forever.

I doubt it will happen just yet, but I am of the view that the markets are over-heated and a downwards readjustment will follow. That makes me cautious. As an entrepreneur I like fundamental ability to make money, rather than deal making. This market seems solely based on the latter. I hope people who can’t tell the difference won’t get her fingers burnt, but suspect they will. And those that do won’t be in the City. They’ll be ordinary people, with ordinary pension funds managed by people who do deals. That’s the real scandal of the UK financial services industry.


 

Back to work (at least for an hour so) and so I had a quick look at the blog stats for the last few days. All blog owners will probably tell you this is a compulsive, if not always useful pastime.

This time though they did make for fascinating reading. Sunday (Christmas Eve) was the best Sunday for readership in this blog’s history, beating all previous records by a reasonable margin.

And on Christmas Day 137 people read this blog. Frankly, I call that sad. Sad enough that I sought to find out some more about who had been pursuing such an unlikely activity on a day when I presumed people would have better things to do (and I would add in saying this that I have known what it’s like to be alone at Christmas – and spent it working for Shelter driving minibuses full of drunks around London – and had a great time, for which I’ve always been grateful to that charity).

I was glad to know that almost none of the readers on those two days were regulars (something that the stats show although I would add I do not know who most readers actually are). In fact only two readers on Christmas day appeared to be be regulars. So, where did the rest come from? Well, almost entirely from unusual sources (which is something else I can track). In fact the regular feeds fell almost off the charts. In their place came a range of right-wing blogs. The sort that I block from posting here, and do not feed back to because I have yet to find merit in anything that they have to offer.

And what story did they link to more than any other? Well, to this one. Largely it seems because they can’t work out what to make of it. Take it at face value, I suggest.

What else attracted attention? Well, one other thing stood out. Bono remains a hypocrite, and like Philip Green is now beknighted. Google sent the readers to this one.

Funny what you learn about people by having a blog.