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TBR News November 11, 2017

Nov 11 2017

The Voice of the White House

Washington, D.C., November 11, 2017:”At one point in time, the Internet’s Yahoo was once worth $125 billion and was as large as either Facebook or Google are at present. Now it has been sole to Verizon for far, far less.

But in time, Yahoo began to slip and in September of 2017, all of Yahoo’s 3 billion accounts were hacked.

Now it has been sold to Verizon for far, far less.

This resulted in a mass exodus from the site and the departure has shrunk the once-dominant entity to a small shadow of its former glory.

Are those remaining secure?

They would be safer on Gmail.”

 

Table of Contents

  • The Great College Loan Swindle
  • How Facebook and Google threaten public health – and democracy
  • Saudi Arabia, Wellspring of Regional Instability
  • EXCLUSIVE: Senior Saudi figures tortured and beaten in purge
  • Lebanese president calls on Saudi to explain why Hariri has not returned
  • Exclusive: How Saudi Arabia turned on Lebanon’s Hariri
  • Trump says he trusts Putin’s denials of election meddling
  • Roy Moore’s Republican Opponents Chased Rumors About “Women Issues” For Years, But Could Never Nail Them Down
  • Game for the Wealthy: The Ongoing Battle against Tax Havens

 

The Great College Loan Swindle

How universities, banks and the government turned student debt into America’s next financial black hole

November 3, 2017

by Matt Taibbi

Rolling Stone

On a wind-swept, frigid night in February 2009, a 37-year-old schoolteacher named Scott Nailor parked his rusted ’92 Toyota Tercel in the parking lot of a Fireside Inn in Auburn, Maine. He picked this spot to have a final reckoning with himself. He was going to end his life.

Beaten down after more than a decade of struggle with student debt, after years of taking false doors and slipping into various puddles of bureaucratic quicksand, he was giving up the fight. “This is it, I’m done,” he remembers thinking. “I sat there and just sort of felt like I’m going to take my life. I’m going to find a way to park this car in the garage, with it running or whatever.”

Nailor’s problems began at 19 years old, when he borrowed for tuition so that he could pursue a bachelor’s degree at the University of Southern Maine. He graduated summa cum laude four years later and immediately got a job in his field, as an English teacher.

But he graduated with $35,000 in debt, a big hill to climb on a part-time teacher’s $18,000 salary. He struggled with payments, and he and his wife then consolidated their student debt, which soon totaled more than $50,000. They declared bankruptcy and defaulted on the loans. From there he found himself in a loan “rehabilitation” program that added to his overall balance. “That’s when the noose began to tighten,” he says.

The collectors called day and night, at work and at home. “In the middle of class too, while I was teaching,” he says. He ended up in another rehabilitation program that put him on a road toward an essentially endless cycle of rising payments. Today, he pays $471 a month toward “rehabilitation,” and, like countless other borrowers, he pays nothing at all toward his real debt, which he now calculates would cost more than $100,000 to extinguish. “Not one dollar of it goes to principal,” says Nailor. “I will never be able to pay it off. My only hope to escape from this crushing debt is to die.”

After repeated phone calls with lending agencies about his ever-rising interest payments, Nailor now believes things will only get worse with time. “At this rate, I may easily break $1 million in debt before I retire from teaching,” he says.

Nailor had more than once reached the stage in his thoughts where he was thinking about how to physically pull off his suicide. “I’d been there before, that just was the worst of it,” he says. “It scared me, bad.”

He had a young son and a younger daughter, but Nailor had been so broken by the experience of financial failure that he managed to convince himself they would be better off without him. What saved him is that he called his wife to say goodbye. “I don’t know why I called my wife. I’m glad I did,” he says. “I just wanted her or someone to tell me to pick it up, keep fighting, it’s going to be all right. And she did.”

From that moment, Nailor managed to focus on his family. Still, the core problem – the spiraling debt that has taken over his life, as it has for millions of other Americans – remains.

Horror stories about student debt are nothing new. But this school year marks a considerable worsening of a tale that ought to have been a national emergency years ago. The government in charge of regulating this mess is now filled with predatory monsters who have extensive ties to the exploitative for-profit education industry – from Donald Trump himself to Education Secretary Betsy DeVos, who sets much of the federal loan policy, to Julian Schmoke, onetime dean of the infamous DeVry University, whom Trump appointed to police fraud in education.

Americans don’t understand the student-loan crisis because they’ve been trained to view the issue in terms of a series of separate, unrelated problems. They will read in one place that as of the summer of 2017, a record 8.5 million Americans are in default on their student debt, with about $1.3 trillion in loans still outstanding.

In another place, voters will read that the cost of higher education is skyrocketing, soaring in a seemingly market-defying arc that for nearly a decade now has run almost double the rate of inflation. Tuition for a halfway decent school now frequently surpasses $50,000 a year. How, the average newsreader wonders, can any child not born in a yacht afford to go to school these days?

In a third place, that same reader will see some heartless monster, usually a Republican, threatening to cut federal student lending. The current bogeyman is Trump, who is threatening to slash the Pell Grant program by $3.9 billion, which would seem to put higher education even further out of reach for poor and middle-income families. This too seems appalling, and triggers a different kind of response, encouraging progressive voters to lobby for increased availability for educational lending.

But the separateness of these stories clouds the unifying issue underneath: The education industry as a whole is a con. In fact, since the mortgage business blew up in 2008, education and student debt is probably our reigning unexposed nation-wide scam.

It’s a multiparty affair, what shakedown artists call a “big store scheme,” like in the movie The Sting: a complex deception requiring a big cast to string the mark along every step of the way. In higher education, every party you meet, from the moment you first set foot on campus, is in on the game.

America as a country has evolved in recent decades into a confederacy of widescale industrial scams. The biggest slices of our economic pie – sectors like health care, military production, banking, even commercial and residential real estate – have become crude income-redistribution schemes, often untethered from the market by subsidies or bailouts, with the richest companies benefiting from gamed or denuded regulatory systems that make profits almost as assured as taxes. Guaranteed-profit scams – that’s the last thing America makes with any level of consistent competence. In that light, Trump, among other things, the former head of a schlock diploma mill called Trump University, is a perfect president for these times. He’s the scammer-in-chief in the Great American Ripoff Age, a time in which fleecing students is one of our signature achievements.

It starts with the sales pitch colleges make to kids. The thrust of it is usually that people who go to college make lots more money than the unfortunate dunces who don’t. “A bachelor’s degree is worth $2.8 million on average over a lifetime” is how Georgetown University put it. The Census Bureau tells us similarly that a master’s degree is worth on average about $1.3 million more than a high school diploma.

But these stats say more about the increasing uselessness of a high school degree than they do about the value of a college diploma. Moreover, since virtually everyone at the very highest strata of society has a college degree, the stats are skewed by a handful of financial titans. A college degree has become a minimal status marker as much as anything else. “I’m sure people who take polo lessons or sailing lessons earn a lot more on average too,” says Alan Collinge of Student Loan Justice, which advocates for debt forgiveness and other reforms. “Does that mean you should send your kids to sailing school?”

But the pitch works on everyone these days, especially since good jobs for Trump’s beloved “poorly educated” are scarce to nonexistent. Going to college doesn’t guarantee a good job, far from it, but the data show that not going dooms most young people to an increasingly shallow pool of the very crappiest, lowest-paying jobs. There’s a lot of stick, but not much carrot, in the education game.

It’s a vicious cycle. Since everyone feels obligated to go to college, most everyone who can go, does, creating a glut of graduates. And as that glut of degree recipients grows, the squeeze on the un-degreed grows tighter, increasing further that original negative incentive: Don’t go to college, and you’ll be standing on soup lines by age 25.

With that inducement in place, colleges can charge almost any amount, and kids will pay – so long as they can get the money. And here we run into problem number two: It’s too easy to find that money.

Parents, not wanting their kids to fall behind, will pay every dollar they have. But if they don’t have the cash, there is a virtually unlimited amount of credit available to young people. Proposed cuts to Pell Grants aside, the landscape is filled with public and private lending, and students gobble it up. Kids who walk into financial-aid offices are often not told what signing their names on the various aid forms will mean down the line. A lot of kids don’t even understand the concept of interest or amortization tables – they think if they’re borrowing $8,000, they’re paying back $8,000.

Nailor certainly was unaware of what he was getting into when he was 19. “I had no idea [about interest],” he says. “I just remember thinking, ‘I don’t have to worry about it right now. I want to go to school.’ ” He pauses in disgust. “It’s unsettling to remember how it was like, ‘Here, just sign this and you’re all set.’ I wish I could take the time machine back and slap myself in the face.”

The average amount of debt for a student leaving school is skyrocketing even faster than the rate of tuition increase. In 2016, for instance, the average amount of debt for an exiting college graduate was a staggering $37,172. That’s a rise of six percent over just the previous year. With the average undergraduate interest rate at about 3.7 percent, the interest alone costs around $115 per month, meaning anyone who can’t afford to pay into the principal faces the prospect of $69,000 in payments over 50 years.

So here’s the con so far. You must go to college because you’re screwed if you don’t. Costs are outrageously high, but you pay them because you have to, and because the system makes it easy to borrow massive amounts of money. The third part of the con is the worst: You can’t get out of the debt. Since government lenders in particular have virtually unlimited power to collect on student debt – preying on everything from salary to income-tax returns – even running is not an option. And since most young people find themselves unable to make their full payments early on, they often find themselves perpetually paying down interest only, never touching the principal. Our billionaire president can declare bankruptcy four times, but students are the one class of citizen that may not do it even once.

October 2017 was supposed to represent the first glimmer of light at the end of this tunnel. This month marks the 10th anniversary of the Public Service Loan Forgiveness program, one of the few avenues for wiping out student debt. The idea, launched by George W. Bush, was pretty simple: Students could pledge to work 10 years for the government or a nonprofit and have their debt forgiven. In order to qualify, borrowers had to make payments for 10 years using a complex formula. This month, then, was to start the first mass wipeouts of debt in the history of American student lending. But more than half of the 700,000 enrollees have already been expunged from the program for, among other things, failing to certify their incomes on time, one of many bureaucratic tricks employed to limit forgiveness eligibility. To date, fewer than 500 participants are scheduled to receive loan forgiveness in this first round.

Moreover, Trump has called for the program’s elimination by 2018, meaning that any relief that begins this month is likely only temporary. The only thing that is guaranteed to remain real for the immediate future are the massive profits being generated on the backs of young people, who before long become old people who, all too often, remain ensnared until their last days in one of the country’s most brilliant and devious moneymaking schemes.

Everybody wins in this madness, except students. Even though many of the loans are originated by the state, most of them are serviced by private or quasi-private companies like Navient – which until 2014 was the student-loan arm of Sallie Mae – or Nelnet, companies that reported a combined profit of around $1 billion last year (the U.S. government made a profit of $1.6 billion in 2016!). Debt-collector companies like Performant (which generated $141.4 million in revenues; the family of Betsy DeVos is a major investor), and most particularly the colleges and universities, get to prey on the desperation and terror of parents and young people, and in the process rake in vast sums virtually without fear of market consequence.

About that: Universities, especially public institutions, have successfully defended rising tuition in recent years by blaming the hikes on reduced support from states. But this explanation was blown to bits in large part due to a bizarre slip-up in the middle of a controversy over state support of the University of Wisconsin system a few years ago.

In that incident, UW raised tuition by 5.5 percent six years in a row after 2007. The school blamed stresses from the financial crisis and decreased state aid. But when pressed during a state committee hearing in 2013 about the university’s finances, UW system president Kevin Reilly admitted they held $648 million in reserve, including $414 million in tuition payments. This was excess hidey-hole cash the school was sitting on, separate and distinct from, say, an endowment fund.

After the university was showered with criticism for hoarding cash at a time when it was gouging students with huge price increases every year, the school responded by saying, essentially, it only did what all the other kids were doing. UW released data showing that other major state-school systems across the country were similarly stashing huge amounts of cash. While Wisconsin’s surplus was only 25 percent of its operating budget, for instance, Minnesota’s was 29 percent, and Illinois maintained a whopping 34 percent reserve.

When Collinge, of Student Loan Justice, looked into it, he found that the phenomenon wasn’t confined to state schools. Private schools, too, have been hoarding cash even as they plead poverty and jack up tuition fees. “They’re all doing it,” he says.

While universities sit on their stockpiles of cash and the loan industry generates record profits, the pain of living in debilitating debt for many lasts into retirement. Take Veronica Martish. She’s a 68-year-old veteran, having served in the armed forces in the Vietnam era. She’s also a grandmother who’s never been in trouble and consid
ers herself a patriot. “The thing is, I tried to do everything right in my life,” she says. “But this ruined my life.”

This is an $8,000 student loan she took out in 1989, through Sallie Mae. She borrowed the money so she could take courses at Quinebaug Valley Community College in Connecticut. Five years later, after deaths in her family, she fell behind on her payments and entered a loan-rehabilitation program. “That’s when my nightmare began,” she says.

In rehabilitation, Martish’s $8,000 loan, with fees and interest, ballooned into a $27,000 debt, which she has been carrying ever since. She says she’s paid more than $63,000 to date and is nowhere near discharging the principal. “By the time I die,” she says, “I will probably pay more than $200,000 toward an $8,000 loan.” She pauses. “It’s a scam, you see. Nothing ever comes off the loan. It’s all interest and fees. And they chase you until you’re old, like me. They never stop. Ever.”

And that’s the other thing about lending to students: It’s the safest grift around.

There’s probably no better symbol of the bankruptcy of the education industry than Trump University. The half-literate president’s effort at higher learning drew in suckers with pathetic promises of great real-estate insights (for instance, that Trump “hand-picked” the instructors) and then charged them truckfuls of cash for get-rich-quick tutorials that students and faculty later described as “almost completely worthless” and a “total lie.” That Trump got to settle a lawsuit on this matter for $25 million and still managed to be elected president is, ironically, a remarkable testament to the failure of our education system. About the only example that might be worse is DeVry University, which told students that 90 percent of graduates seeking jobs found them in their fields within six months of graduation. The FTC found those claims “false and unsubstantiated,” and ordered $100 million in refunds and debt relief, but that was in 2016 – before Trump put DeVry chief Schmoke, of all people, in charge of rooting out education fraud. Like a lot of things connected to politics lately, it would be funny if it weren’t somehow actually happening.
”Yeah, it’s the fox guarding the henhouse,” says Collinge. “You could probably find a worse analogy.”

But the real problem with the student-loan story is that it’s so poorly understood by people not living the nightmare. There’s so much propaganda that blames the borrowers for taking on the debt in the first place that there’s often little sympathy for people in hopeless situations. To make matters worse, band-aid programs that supposedly offer help hypnotize the public into thinking there are ways out, when the “help” is usually just another trick to add to the balance.

“That’s part of the problem with the narrative,” says Nailor, the schoolteacher. “People think that there’s help, so what are you complaining about? All you got to do is apply for help.”

But the help, he says, coming from a for-profit predatory system, often just makes things worse. “It did for me,” he says. “It does for a lot of people.”

Correction: This story has been updated to reflect that in 2014 Navient and Sallie Mae split, and Sallie Mae is now a private company.

 

How Facebook and Google threaten public health – and democracy

The sad truth is that Facebook and Google have behaved irresponsibly in the pursuit of massive profits. And this has come at a cost to our health

November 11, 2017

by Roger McNamee

The Guardian

In an interview this week with Axios, Facebook’s original president, Sean Parker, admitted that the company intentionally sought to addict users and expressed regret at the damage being inflicted on children.

This admission, by one of the architects of Facebook, comes on the heels of last week’s hearings by Congressional committees about Russian interference in the 2016 election, where the general counsels of Facebook, Alphabet (parent of Google and YouTube), and Twitter attempted to deflect responsibility for manipulation of their platforms.

The term “addiction” is no exaggeration. The average consumer checks his or her smartphone 150 times a day, making more than 2,000 swipes and touches. The applications they use most frequently are owned by Facebook and Alphabet, and the usage of those products is still increasing.

In terms of scale, Facebook and YouTube are similar to Christianity and Islam respectively. More than 2 billion people use Facebook every month, 1.3 billion check in every day. More than 1.5 billion people use YouTube. Other services owned by these companies also have user populations of 1 billion or more.

Facebook and Alphabet are huge because users are willing to trade privacy and openness for “convenient and free.” Content creators resisted at first, but user demand forced them to surrender control and profits to Facebook and Alphabet.

The sad truth is that Facebook and Alphabet have behaved irresponsibly in the pursuit of massive profits. They have consciously combined persuasive techniques developed by propagandists and the gambling industry with technology in ways that threaten public health and democracy. The issue, however, is not social networking or search. It is advertising business models. Let me explain.

From the earliest days of tabloid newspapers, publishers realized the power of exploiting human emotions. To win a battle for attention, publishers must give users “what they want,” content that appeals to emotions, rather than intellect. Substance cannot compete with sensation, which must be amplified constantly, lest consumers get distracted and move on.

“If it bleeds, it leads” has guided editorial choices for more than 150 years, but has only become a threat to society in the past decade, since the introduction of smartphones. Media delivery platforms like newspapers, television, books, and even computers are persuasive, but people only engage with them for a few hours each day and every person receives the same content.

Today’s battle for attention is not a fair fight. Every competitor exploits the same techniques, but Facebook and Alphabet have prohibitive advantages: personalization and smartphones. Unlike older media, Facebook and Alphabet know essentially everything about their users, tracking them everywhere they go on the web and often beyond.

By making every experience free and easy, Facebook and Alphabet became gatekeepers on the internet, giving them levels of control and profitability previously unknown in media. They exploit data to customize each user’s experience and siphon profits from content creators. Thanks to smartphones, the battle for attention now takes place on a single platform that is available every waking moment. Competitors to Facebook and Alphabet do not have a prayer.

Facebook and Alphabet monetize content through advertising that is targeted more precisely than has ever been possible before. The platforms create “filter bubbles” around each user, confirming pre-existing beliefs and often creating the illusion that everyone shares the same views. Platforms do this because it is profitable. The downside of filter bubbles is that beliefs become more rigid and extreme. Users are less open to new ideas and even to facts.

Of the millions of pieces of content that Facebook can show each user at a given time, they choose the handful most likely to maximize profits. If it were not for the advertising business model, Facebook might choose content that informs, inspires, or enriches users. Instead, the user experience on Facebook is dominated by appeals to fear and anger. This would be bad enough, but reality is worse.

Any advertiser can get access to any Facebook user over unsupervised, automated systems. Five million advertisers do so every month. The Russians took advantage of this first to sow discord among Americans and then to interfere in the 2016 election. Other bad actors exploited Facebook in other areas. One company surveilled protest groups and marketed that data to police departments.

Financial institutions were investigated for using Facebook advertising tools to discriminate on the basis of race. Facebook is not the only problem. Alphabet provides Chromebooks to elementary schools with the objective of capturing the attention, and perhaps even behavioral data, about children. At the same time, Alphabet’s YouTube Kids is a site filled with inappropriate content that creates addiction in children far too young to resist.

While optimizing for profit is understandable and generally appropriate, Facebook and Alphabet have caused harm that requires serious discussion and remediation.

Facebook and Alphabet assert they are not media companies and therefore are not responsible for what third parties do on their platforms. While that position might be reasonable from start-ups, it is not appropriate from companies who control seven of the top 10 platforms on the internet and exhibit the behaviors of monopolies.

Society regulates products that create addiction. We have laws to prevent discrimination and election manipulation. None of these regulations and laws has yet been applied to Facebook and Google. The time has come.

 

Saudi Arabia, Wellspring of Regional Instability

November 7, 2017

by Paul Pilar

The National Interest

The anachronistic family enterprise known as the Kingdom of Saudi Arabia has long been politically fragile.  In some respects it is remarkable that this entity has endured into the twenty-first century.  A clan of royals lives on rake-offs from the country’s petroleum wealth, while using more of that wealth to buy off a fast-growing population.  The Saudis have had to continue playing that game through vicissitudes of the oil market, on which the Saudi economy depends.  The potential for breakdown has always been present.  Now a king and his favorite—and ambitious and inexperienced—son are bringing the potential closer to becoming reality.

The power plays by that son, Crown Prince Mohammad bin Salman (MBS), include the latest spectacular purge, which extends to senior princes in government as well as leading private sector figures.  The power plays flout some of the principal conventions through which the Saudi royals have held their enterprise together so far.  Although only one man can be king at a time, the system of rule to date has involved a distribution of power among different branches of the royal family.  With the latest purge and the concentration of power in the young hands of MBS, that system is destroyed.

Another feature of the Saudi political scene over the past few decades has been a leaving open of the question of exactly where the royal succession, which had been working its way through sons of kingdom founder Abd al-Aziz, would go once the succession reached the grandsons of Abd al-Aziz.  There is no evident reason why MBS’s father Salman—the sixth Saudi king since the death of Abd al-Aziz in 1953—should have had the prerogative of giving the nod to his favorite son as the holder of power in the following generation.  Salman himself was already showing signs of losing his faculties when he assumed the throne two years ago at age 79.  Not only are there some other sons of Abd al-Aziz still around; there are also grandsons who would rank ahead of MBS in experience and demonstrated ability.  Some of those grandsons are themselves sons of kings—such as the longtime intelligence chief and former ambassador to the United States and to Britain, Prince Turki bin Faisal.

No matter how smooth has been the purge and how much window dressing about family approval adorned the king’s earlier naming of MBS as crown prince, there is bound to be significant resentment and opposition within the royal family over MBS’s power grab.  Discontented royals can seek common cause with sources of discontent outside the royal family.  That is a prescription for even greater internal instability in the kingdom.

The young prince’s audacious moves bring to mind the power plays of another favorite son in a family autocracy, Kim Jong-un of North Korea.  The two heirs are nearly the same age; MBS is a year and half younger than Kim.  Both have unhesitatingly purged people without letting family ties get in the way.  The North Korean princeling’s purges have involved killing the victims—with anti-aircraft guns reportedly often being the weapon of choice.  The far milder Saudi method has been to incarcerate purged individuals at the Ritz-Carlton in Riyadh.  This is obviously a more humane approach, although one has to wonder whether MBS has crossed a Rubicon beyond which only something closer to Kim-style ruthlessness will enable him to keep rivals out of the way.

The internal Saudi instability is important for outsiders, including the United States, regarding the need to realize what they are embracing when they choose to embrace a ruler such as MBS.  (For a reminder of the implications of such an embrace, look at the other side of the Persian Gulf and recall what happened to U.S. influence following Washington’s close embrace of the shah of Iran.)  In addition, there are external implications.  MBS’s internal machinations are related to the export of instability from Saudi Arabia to the rest of the region.  This is partly a matter of how the concentration of power in MBS’s young hands amplifies the effects of rashness and inexperience.  It also is a matter of how rulers have long used external conflicts to complement their solidification of internal power, by providing a distraction from internal problems and benefiting from nationalist sentiment.

Saudi Arabia was already, even before the rise of MBS, a source of instability and a practitioner of throwing weight around elsewhere in the region.  Its moves have included the use of armed force to suppress the Shia majority under Sunni rule in Bahrain, and the stoking of civil war in Syria in collusion with extremists of the al-Qaeda stripe (longstanding Saudi dalliance with whom has been another Saudi channel for exporting mayhem, whether intentionally or not).

MBS is moving faster and farther along this trajectory of regional destabilization.  The prime exhibit is the disastrous war in Yemen, with the Saudi and Emirati offensive taking an internal conflict that was about tribal disaffection from the Yemeni government and turning it into an international humanitarian catastrophe.  The emboldened prince will make the situation even more catastrophic.  Shortly after his purge in Riyadh he announced he was making the partial blockade of Yemen a total blockade of all ground, air, and sea ports, thereby further extending collective punishment of the Yemeni people in a vain effort to salvage some kind of win.

No more successful has been the attempt to bring Qatar to heel. All that this effort has accomplished so far is an increase in tensions and animosity in the Persian Gulf region.

Now, also coincident with the purge, is a new Saudi move to politically destabilize Lebanon.  The announcement by Lebanese Prime Minister Saad Hariri that he is resigning was patently managed by the Saudi regime.  Saudi Arabia is where the Hariri family made its fortune, where Saad Hariri still holds citizenship, and where the resignation announcement was made.  The apparent Saudi intention is to stir the Lebanese pot in a way that somehow would be disadvantageous to Hezbollah, which is a partner in the governing Lebanese coalition.  But all the move has done so far is to make Hezbollah leader Hassan Nasrallah look honest and perceptive in noting the Saudi role in the move, and to make him look reasonable in being the one who wants stability in coalition politics in Lebanon rather than seeking crisis and confrontation.

A major theme in MBS’s regional maneuvers is hostility toward Hezbollah’s ally Iran.  An irony in this mess, given how “Iran’s destabilizing behavior” is a favorite theme of the forces hostile to Iran, is that the destabilization and the seeking of crisis and confrontation and even war are coming predominantly from MBS’s Saudi Arabia, with an assist from the Netanyahu government in Israel.

The contrived nature of the Saudi maneuver in Lebanon is illustrated by a statement from the Saudi minister for Gulf affairs.  Using a chain of reasoning that with Hariri gone, there is “no more distinction between Hezbollah and the Lebanese government,” the minister proclaimed that Saudi Arabia will treat the Lebanese as “a government declaring war”.  This is in response to a political crisis that Saudi Arabia intentionally initiated.  There is no indication that Iran lifted a finger to bring about any of it.

The Trump administration is worse than oblivious to all this; it is stoking it.  While the president tweets about which stock exchange should be used for an initial public offering of shares in Aramco, at least as important a figure is another princeling.  That would be the president’s son-in-law, Jared Kushner, who reportedly has hit it off well with his fellow thirty-something MBS and visited the Saudi crown prince just days before the purge.  This relationship is part of a mutual admiration society that also includes the United Arab Emirates’ de facto leader and Abu Dhabi crown prince, Mohammed bin Zayed, and the Emirati ambassador in Washington.  With everyone swaying to the same tune of seeking confrontation with Iran, it is hard to gauge exactly how much each party is influencing the others.  But if the current U.S. policies toward the Persian Gulf players continue, then the United States will be complicit in the increased regional instability that the young autocrat in Riyadh is bringing about.

 

EXCLUSIVE: Senior Saudi figures tortured and beaten in purge

Several detainees taken to hospital with torture injuries, while sources tell MEE scale of crackdown is bigger than authorities have revealed

November 11, 2017

by David Hearst

Middle East Eye

Some senior figures detained in last Saturday’s purge in Saudi Arabia were beaten and tortured so badly during their arrest or subsequent interrogations that they required hospital treatment, Middle East Eye can reveal.

People inside the royal court also told MEE that the scale of the crackdown, which has brought new arrests each day, is much bigger than Saudi authorities have admitted, with more than 500 people detained and double that number questioned.

Members of the royal family, government ministers and business tycoons were caught up in the sudden wave of arrests orchestrated by Crown Prince Mohammed bin Salman, known as MBS, under the banner of an anti-corruption drive.

Some, but not all, of the top figures arrested were singled out for the most brutal treatment, suffering wounds to the body sustained by classic torture methods. There are no wounds to their faces, so they will show no physical signs of their ordeal when they next appear in public.

Some detainees were tortured to reveal details of their bank accounts. MEE is unable to report specific details about the abuse they suffered in order to protect the anonymity of its sources.

The purge, which follows an earlier roundup of Muslim clerics, writers, economists and public figures, is creating panic in Riyadh, the Saudi capital, particularly among those associated with the old regime of King Abdullah, who died in 2015, with power then passing to his half-brother, King Salman.

Many fear the primary purpose of the crackdown is a move by MBS to knock out all rivals both inside and outside the House of Saud before he replaces his 81-year-old father.

On Wednesday night, seven princes were released from the Ritz-Carlton Hotel in Riyadh, where they had been held since Saturday. The top royals have been moved to the king’s palace, sources told MEE.

The crown prince’s cousin, Mohammed bin Nayef, who continues be under house arrest, has had his assets frozen, the Reuters news agency reported. Sons of Sultan bin Abdulaziz have also been arrested and had their assets frozen.

One of the most famous is Prince Bandar bin Sultan, a former Saudi ambassador to Washington and confidant of former US president George W Bush.

There is no word on his fate, but Saudi authorities said that one of the corruption cases they are looking at is the al-Yamamah arms deal, in which Bandar was involved.

Bandar bought a hamlet in Oxfordshire, in a picturesque area of central England, and a 2,000-acre sporting estate with part of the proceeds from kickbacks he received in the al-Yamamah arms deal, which netted British manufacturer BAE £43bn ($56.5bn) in contracts for fighter aircraft.

As much as $30m (£15m) is alleged to have been paid into Bandar’s dollar account at Riggs Bank in Washington and the affair led to corruption probes in the US and UK, although the case was dropped in the UK in 2006 after an intervention by then-prime minister Tony Blair.

Also among those arrested is Reem, the daughter of Al-Waleed bin Talal, the only woman to be targeted in the latest roundup.

Bank accounts frozen

To prevent others from fleeing, MBS has ordered a freeze on private bank accounts. The number of account closures and those banned from travel is many times the number of people who have been arrested, sources in Riyadh told MEE.

No one expected a crackdown of this scale and against princes of such seniority in the House of Saud, which is why so many of those detained were caught red-handed and had no time to flee.

The purge against other members of the royal family is unprecedented in the kingdom’s modern history. Family unity, which guaranteed the stability of the state since its foundation, has been shattered.

The last event of this magnitude was the overthrow of King Saud by his brother Prince Faisal in 1964. At one point in that saga, Prince Faisal ordered the National Guard to surround the king’s palace, but the king himself was never vilified.

His exit was dignified and all the senior figures, including Faisal himself, waved him goodbye at the airport.

Mohammed bin Salman vowed before becoming crown prince: “I confirm to you, no one will survive in a corruption case – whoever he is, even if he’s a prince or a minister.”

Today, however, the sons of all four key men in the House of Saud who comprised the core of the family through the last four decades have been targeted. They are the sons of King Fahd bin Abdulaziz, King Abdullah, Prince Sultan and Prince Nayef.

This represents an unprecedented attack on the position and wealth of the pillars of al-Saud, including the three most prominent figures of the ruling Sudairi clan.

King Salman is one of seven Sudairi brothers, the clan that has dominated the kingdom for the last 40 years. The other surviving Sudairi is Ahmed bin Abdulaziz, who has been sidelined.

Salman only gained the throne because two of his four full brothers, Sultan and Nayef, died as crown princes.

Even then his accession was a close-run thing, as MEE has previously reported. King Abdullah died before a decree writing Salman out of the line of succession could be signed and published.

Public humiliation

In Bedouin culture, the attack on his cousins will not be forgotten or forgiven. Their public humiliation, as well as the freezing of their assets, is seen as a blow to their honour, which surviving members of their family are duty bound to avenge.

The crown prince’s attack on leading business figures is equally risky.

One of those rounded up on Saturday was Bakr bin Laden, the head of Saudi Arabia’s biggest construction company. He had managed the biggest construction programmes for decades through a series of sub-contractors he paid directly.

Bin Laden was rich enough to absorb the costs, before he in turn had to “bribe” officials in the government to get paid for the original work and the contract they had agreed.

Once you remove the man or the company at the top of the sub-contractor pyramid, no one beneath him gets paid, thus risking throwing the entire construction industry into disarray. The same happened to Saudi Oger, the company owned by Saad Hariri, the former prime minister of Lebanon, which was declared bankrupt on 31 July.

Some of the ministers MBS promoted have also been caught by the purge.

Adel Fakeih, a former minister of planning and the economy, spearheaded the rollout of bin Salman’s ambitious privatisation drive called Vision 2030.

He was also key in the announcement of Neom, a proposed mega-city backed by $500bn in government money to be built on the shores of the Red Sea.

Fakeih, a former mayor of Jeddah, was arrested on 4 November. The same fate was suffered by Adel al-Torifi, the crown prince’s information minister.

Symbolically, the announcement of Neom was made at the Ritz Carlton hotel, where the princes have been detained since Saturday.

Many of Mohammed bin Salman’s colleagues must now be asking themselves how long they have before the ambitious prince turns on them.

By hitting the foundations of the unity of the family, as well as the oligarchs, and targeting independent Islamic scholars and public figures, MBS is turning his guns on the traditional pillars of the Saudi state, one analyst said.

“So far, the Saudi kingdom has used chaos as a policy in its near abroad, either in Iraq, Syria or in Yemen. However, it is now implementing the chaos theory at home too, and no one, least of all the prince himself, can be sure of what will now happen,” an informed person in Riyadh said last night.

“The stability of the kingdom was built on three pillars: the unity of the al-Saud family, the Islamic character of the state and the flourishing loyal domestic business community. By hitting all three simultaneously, the risk of the kingdom sinking into the sand is very high,” he said.

 

Lebanese president calls on Saudi to explain why Hariri has not returned

November 11, 2017

by Ellen Francis

Reuters

BEIRUT (Reuters) – Lebanon’s president called on Saudi Arabia on Saturday to clarify why Lebanese Prime Minister Saad al-Hariri could not return home, a week after he stunned his home country by announcing his resignation while in the kingdom.

A senior Lebanese official said President Michel Aoun had told foreign ambassadors Hariri had been “kidnapped” and should benefit from immunity.

Hariri’s resignation, which surprised even his close aides, has plunged Lebanon into crisis. It has thrust the country back into the frontline of a power struggle between Sunni Saudi Arabia and Shi‘ite Iran – a rivalry that has wrought upheaval in Syria, Iraq, Yemen, and Bahrain.

“Lebanon does not accept its prime minister being in a situation at odds with international treaties,” Aoun said in a statement. He said any comment or move by Hariri “does not reflect reality” due to the questions over his status following his shock resignation in a broadcast from Saudi Arabia.

Lebanese authorities believe Riyadh is detaining Hariri, two top Lebanese government officials, a senior politician close to Hariri and a fourth source have said.

French President Emmanuel Macron, who made an unscheduled visit to Riyadh this week, phoned Aoun on Saturday to discuss the crisis. A French official had made comments suggesting Paris believed Hariri may not be a free man.

Riyadh says Hariri is free and decided to resign because Iran’s Lebanese ally, Hezbollah, was calling the shots in his coalition government.

Hariri has made no public remarks since quitting last week, when he said he feared assassination and accused Iran along with Hezbollah of sowing strife in the Arab world.

Hariri, whose family made its fortune in the Saudi construction industry, has also given no sign of when he might return to Beirut.

The Lebanese premier took part in a ceremony in Riyadh on Saturday welcoming Saudi King Salman from Medina, his media office said. Hariri met with the Turkish and British ambassadors at his Riyadh home in the afternoon, it said.

Sources close to Hariri say Saudi Arabia has concluded that the prime minister – a long-time Saudi ally – had to go because he was unwilling to confront Hezbollah.

FREEDOM OF MOVEMENT

Aoun wants Saudi Arabia, “with which we have brotherly ties and deeply rooted friendship, to clarify the reasons preventing Prime Minister Hariri’s return,” his office said.

Western countries have looked on with alarm at the rising tensions in the region.

“We would like Saad al-Hariri to have all his freedom of movement and be fully able to play the essential role that is his in Lebanon,” a French foreign ministry spokesman said on Friday.

Hariri’s resignation unraveled a political deal among Lebanon’s rival factions that made him prime minister and Aoun, a Hezbollah ally, president last year. The coalition government included Shi‘ite Hezbollah, a heavily armed military and political organization.

Hezbollah leader Sayyed Hassan Nasrallah said on Friday that Saudi had declared war on Lebanon and his group, accusing Riyadh of forcing Hariri to resign to destabilize Lebanon.

The comments mirrored an accusation by Riyadh earlier this week that Lebanon and Hezbollah had declared war on the Gulf Arab kingdom.

The White House called Hariri “a trusted partner” on Saturday and referred to him as prime minister.

The United States “rejects any efforts by militias within Lebanon or by any foreign forces to threaten Lebanon’s stability … or use Lebanon as a base from which to threaten others in the region,” it said in a statement.

U.S. Secretary of State Rex Tillerson had told reporters on Friday there was no indication Hariri was being held against his will but that the United States was monitoring the situation.

The resignation of Hariri comes amid an anti-corruption purge in Riyadh in which dozens of senior princes and businessmen have been rounded up.

Additional reporting by Laila Bassam; Editing by Richard Balmforth and Hugh Lawson

 

 

Exclusive: How Saudi Arabia turned on Lebanon’s Hariri

November 11, 2017

by Samia Nakhoul, Laila Bassam and Tom Perry

Reuters

BEIRUT (Reuters) – From the moment Saad al-Hariri’s plane touched down in Saudi Arabia on Friday Nov. 3, he was in for a surprise

There was no line-up of Saudi princes or ministry officials, as would typically greet a prime minister on an official visit to King Salman, senior sources close to Hariri and top Lebanese political and security officials said. His phone was confiscated, and the next day he was forced to resign as prime minister in a statement broadcast by a Saudi-owned TV channel.

The move thrust Lebanon back to the forefront of a struggle that is reshaping the Middle East, between the conservative Sunni monarchy of Saudi Arabia and Shi‘ite revolutionary Iran.

Their rivalry has fueled conflicts in Iraq, Syria and Yemen, where they back opposing sides, and now risks destabilizing Lebanon, where Saudi has long tried to weaken the Iran-backed Hezbollah group, Lebanon’s main political power and part of the ruling coalition.

Sources close to Hariri say Saudi Arabia has concluded that the prime minister – a long-time Saudi ally and son of late prime minister Rafik al-Hariri, who was assassinated in 2005 – had to go because he was unwilling to confront Hezbollah.

Multiple Lebanese sources say Riyadh hopes to replace Saad Hariri with his older brother Bahaa as Lebanon’s top Sunni politician. Bahaa is believed to be in Saudi Arabia and members of the Hariri family have been asked to travel there to pledge allegiance to him, but have refused, the sources say.

“When Hariri’s plane landed in Riyadh, he got the message immediately that something was wrong,” a Hariri source told Reuters. “There was no one was waiting for him.”

Saudi Arabia has dismissed suggestions it forced Hariri to resign and says he is a free man. Saudi officials could not immediately be reached for comment on the circumstances of his arrival, whether his phone had been taken, or whether the Kingdom was planning to replace him with his brother.

Hariri has given no public remarks since he resigned and no indication of when he might return to Lebanon.

“NO RESPECT”

Hariri was summoned to the Kingdom to meet Saudi King Salman in a phone call on Thursday night, Nov. 2.

Before departing, he told his officials they would resume their discussions on Monday. He told his media team he would see them at the weekend in the Red Sea resort of Sharm al-Sheikh, where he was due to meet Egyptian President Abdel Fattah al-Sisi on the sidelines of the World Youth Forum.

Hariri went to his Riyadh home. His family made their fortune in Saudi Arabia and have long had properties there. The source close to Hariri said the Lebanese leader received a call from a Saudi protocol official on Saturday morning, who asked him to attend a meeting with Crown Prince Mohammed bin Salman.

He waited for about four hours before being presented with his resignation speech to read on television, the source said.

“From the moment he arrived they (Saudis) showed no respect for the man,” another senior Lebanese political source said.

Hariri frequently visits Saudi Arabia. On a trip a few days earlier, Prince Mohammed bin Salman had arranged for him to see senior intelligence officials and Gulf Affairs Minister Thamer al-Sabhan, the Saudi point man on Lebanon.

Hariri came back from that trip to Beirut “pleased and relaxed”, sources in his entourage said. He posted a selfie with Sabhan, both of them smiling. He told aides he had heard “encouraging statements” from the crown prince, including a promise to revive a Saudi aid package for the Lebanese army.

The Hariri sources say Hariri believed he had convinced Saudi officials of the need to maintain an entente with Hezbollah for the sake of Lebanon’s stability.

Hezbollah has a heavily armed fighting force, in addition to seats in parliament and government. Saudi-backed efforts to weaken the group in Lebanon a decade ago led to Sunni-Shi‘ite clashes and a Hezbollah takeover of Beirut.

“What happened in those meetings, I believe, is that (Hariri) revealed his position on how to deal with Hezbollah in Lebanon: that confrontation would destabilize the country. I think they didn’t like what they heard,” said one of the sources, who was briefed on the meetings.

The source said Hariri told Sabhan not to “hold us responsible for something that is beyond my control or that of Lebanon.” But Hariri underestimated the Saudi position on Hezbollah, the source said.

“For the Saudis it is an existential battle. It’s black and white. We in Lebanon are used to gray,” the source said.

Sabhan could not immediately be reached for comment.

RESIGNATION

Hariri’s resignation speech shocked his team.

Lebanese President Michel Aoun, a Hezbollah ally, told ambassadors to Lebanon that Saudi Arabia had kidnapped Hariri, a senior Lebanese official said. On Friday, France said it wanted Hariri to have “all his freedom of movement”.

In his speech, Hariri said he feared assassination and accused Iran and Hezbollah of sowing strife in the region. He said the Arab world would “cut off the hands that wickedly extend to it,” language which one source close to him said was not typical of the Lebanese leader.

Hariri’s resignation came as more than 200 people, including 11 Saudi princes, current and former ministers and tycoons, were arrested in an anti-corruption purge in Saudi Arabia.

Initially there was speculation Hariri was a target of that campaign because of his family’s business interests. But sources close to the Lebanese leader said his forced resignation was motivated by Saudi efforts to counter Iran.

Hariri was taken to meet the Saudi king after his resignation. Footage was aired on Saudi TV. He was then flown to Abu Dhabi to meet Crown Prince Mohammed bin Zayed, the Saudi crown prince’s main regional ally. He returned to Riyadh and has since received Western ambassadors.

Sources close to Hariri said the Saudis, while keeping Hariri under house arrest, were trying to orchestrate a change of leadership in Hariri’s Future Movement by installing his elder brother Bahaa, who was overlooked for the top job when their father was killed. The two have been at odds for years.

In a statement, the Future Movement said it stood fully behind Hariri as its leader. Hariri aide and Interior Minister Nohad Machnouk dismissed the idea Bahaa was being positioned to replace his brother:

“We are not herds of sheep or a plot of land whose ownership can be moved from one person to another. In Lebanon things happen though elections not pledges of allegiances.”

Family members, aides and politicians who have contacted Hariri in Riyadh say he is apprehensive and reluctant to say anything beyond “I am fine”. Asked if he is coming back, they say his normal answer is: “Inshallah” (God willing).

Writing by Tom Perry; Editing by Nick Tattersall

 

Trump says he trusts Putin’s denials of election meddling

November 11, 2017

Steve Holland and Denis Pinchuk

Reuters

DANANG, Vietnam (Reuters) – U.S. President Donald Trump said he believed President Vladimir Putin when he denied accusations that Russia meddled in last year’s U.S. election after the two met briefly at a summit in Vietnam on Saturday and agreed a statement on Syria.

It was their first encounter since July and came during a low in U.S.-Russia relations and at a time Trump is haunted by an investigation into accusations that Putin influenced the election that brought him to the White House.

Putin reiterated the denials of interference, Trump said.

“Every time he sees me he says I didn’t do that, and I really believe that when he tells me that, he means it,” Trump told reporters aboard Air Force One after leaving the Asia-Pacific Economic Cooperation (APEC) summit in the resort of Danang.

“I think he is very insulted by it, which is not a good thing for our country,” Trump said.

Trump, who has called allegations of campaign collusion with Moscow a hoax, has faced questions from Democrats about the matter since he took office. A special counsel, Robert Mueller, is conducting a probe that has led to charges against Trump’s former campaign manager Paul Manafort and his associate Rick Gates.

U.S. intelligence agencies have also concluded Russians interfered in the election to tip the election in Trump’s favor through hacking and releasing emails to embarrass Democratic candidate Hillary Clinton and spreading social media propaganda.

Russia has repeatedly denied meddling in the election.

In Danang, Putin told reporters an alleged link between Manafort and Russia was being fabricated by Trump’s opponents.

Putin dismissed suggestions Russia influenced the elections through political advertising. Tech companies, including Facebook, have said some Russian-bought political content spread on their platforms around the time of the election.

“There is no confirmation of our mass media meddling in election campaigns – and there can’t be any,” Putin said.

LIMITED CONTACT

After emphasizing last year on the campaign trail that it would be nice if the United States and Russia could work together, Trump has had limited contact with Putin since taking office.

In Vietnam, Trump and Putin agreed a joint statement supporting a political solution to the war in Syria.

“We did it very quickly,” Trump told reporters “We seem to have a very good feeling for each other, a good relationship considering we don’t know each other well.”

Talking after their meeting, Putin described Trump as “a well-mannered person and comfortable to deal with”.

“We know each other little, but the U.S. president is highly civil in his behavior, friendly. We have a normal dialogue but unfortunately little time,” he said.

Trump said they had two or three very short conversations.

They were seen chatting amicably as they walked to the position where the traditional APEC summit photo was being taken at a viewpoint looking over the South China Sea.

 

 

Roy Moore’s Republican Opponents Chased Rumors About “Women Issues” For Years, But Could Never Nail Them Down

November 10 2017

by Jonathan Lee Krohn and Ryan Grim

The Intercept

Republican strategists in Alabama have for years heard rumors that Roy Moore had “women issues” — a euphemism for sexual misconduct used in the politics business — according to four sources who ran various campaigns against Moore, but they were never able to get definitive proof.

“There’s been a rumor for a while,” said David Mowery, an independent political consultant who first heard the allegations in his role as campaign manager for Bob Vance, Moore’s opponent in a 2012 race for chief justice of the Alabama Supreme Court. “But I don’t know if anyone knew the extent of it, if you know what I mean,” Mowery added.

Moore is the Republican candidate in a December special election for a U.S. Senate seat in Alabama. Luther Strange, who lost the GOP primary to Moore in September, has also known of the broad allegations against Moore for months, according to two sources with knowledge of the campaign’s activities not authorized to speak publicly on the matter. Opposition researchers from Washington and from Strange’s campaign traveled to Moore’s hometown of Gadsden, Alabama, earlier this year, but were unable to confirm the rumors, the sources said.

One Republican strategist who declined to be named said Moore’s problematic history with women was common knowledge in political circles, but the specifics — that he preyed on and molested a 14-year-old girl, as the Washington Post reported on Thursday — were unknown until this week. Part of the problem with chasing the story, the strategist added, is that rumors attach to so many men in power. “He’s got women issues going way back,” the strategist said he was told. “I feel like you hear that about everybody.”

On Friday, the National Republican Senatorial Committee dropped its support of Moore. Sen. Mike Lee of Utah, who endorsed Moore after his primary victory in September, has asked the Moore campaign to stop using his picture in a fundraising email the campaign sent out Friday.

The Moore campaign, in a lengthy statement, called the reporting in the Washington Post “fake news,” arguing that if the allegations were true, they would have been made earlier.

“Judge Roy Moore is winning with a double-digit lead. So it is no surprise, with just over four weeks remaining, in a race for the U.S. Senate with national implications, that the Democratic Party and the country’s most liberal newspaper would come up with a fabrication of this kind,” the campaign argued.

On Friday, Moore tried to walk back some of this tough talk by clarifying he believes most victims of abuse, just not his victims.

“I also believe that any person who has been abused should feel the liberty to come forward and seek protection,” Moore wrote in a statement, before admonishing his accusers. “False allegations are gravely serious and will have profound consequence on those who are truly harassed or molested.”

But Moore himself went on Sean Hannity’s radio show Friday afternoon and gave a much more equivocal answer. Asked if he dated 17- to 18-year olds when he was in his 30s, More said, “Not generally, no.”

“I don’t remember dating any girl without the permission of her mother,” he offered.

Those who have run against Moore, however, are pessimistic his voters will leave him over the molestation scandal. “Unless there is some sort of definitive proof that this is true, Roy Moore voters will be invigorated,” said Angi Stalnaker, a prominent strategist who has run multiple campaigns against Moore.

 

Game for the Wealthy: The Ongoing Battle against Tax Havens

The Paradise Papers offer only the most recent look into the widespread practice of tax avoidance. Governments around the world have taken steps recently to block such strategies, but it is unclear whether they will ultimately be successful.

November 10, 2017

by Christian Reiermann

Spiegel

Early this week, the financial world was rocked by the latest revelations about tax tricks used around the world by corporations and the super-rich. The leaks, which included 13.4 million documents and were labeled the “Paradise Papers,” were the product of an international investigative consortium including journalists from influential German daily Süddeutsche Zeitung.

The cases uncovered are similar to those revealed in the previous leak, the Panama Papers, which triggered global outrage last year. The data describes how the rich and super-rich, international stars and companies try to avoid paying taxes in their home countries. It is a game for the wealthy.

The players are usually multinational corporations seeking to shrink their tax bill using convoluted structures. Tech-giant Apple once again stands accused of skullduggery, as does sporting-goods producer Nike. The accomplices are also largely the same. The deals in question invariably involve tax havens such as the Bermuda Islands, British dependencies such as the Isle of Man or Jersey, and European member states like the Netherlands, Luxembourg and Ireland.

The questions facing politicians are also the same ones that come up after every new substantial leak: How can we continue to tolerate a situation in which tax loopholes still haven’t been closed? And why are EU member states still allowed to cheat their partners within the bloc out of tax revenues?

Indignation is understandable, though out of date on many points. Many of the tax avoidance strategies wouldn’t work today because numerous countries have joined forces to eliminate tax loopholes. The malfeasance uncovered by the Panama and Paradise Papers is sometimes akin to looking in the rearview mirror.

But it is also true that closing all of the loopholes that exist is an arduous, sometimes frustrating political process, with the economic interests of the countries involved far too divergent to ensure universal satisfaction. There are, though, several positive developments. Cooperation between the fiscal authorities of dozens of countries is now taking place on multiple levels. For example, the largest industrialized and developing countries are working together within the framework of the G-20 on the so-called “base erosion and profit shifting” (BEPS) initiative. Participating countries are no longer allowed to wait until they are asked, but must automatically provide fiscal information to participating partners. The regulation has been in force since September, with 50 countries having already joined and 50 others planning to do so.

Hurdles to Profit Shifting

International agreements will also supposedly make it more difficult for companies to shift profits from one country to another in an effort to pay the lowest tax rate possible. The most popular vehicle for doing so among multinationals is charging inflated “management fees” and brand licensing fees among susidiaries.

An international register has also been introduced to publicize the owners of companies, including those that participate in tax-saving models. That creates transparency, though it doesn’t go quite far enough for German Chancellor Angela Merkel’s outgoing administration. Berlin had initially wanted to list all companies and individuals who profited from the structures. But the proposal for such an expanded register was blocked by Britain and the Netherlands. Erstwhile German Finance Minister Wolfgang Schäuble and his allies from other EU member states could do nothing since tax issues must be passed unanimously in the bloc.

That also explains why there is no universal minimum corporate tax rate in the EU, an absurdity given that such minimum rates have been agreed on in Europe for tobacco taxes and VAT. In both cases, the taxes levied by EU member states may not fall below a predetermined level. But countries like Malta, for example, prevent the introduction of a minimum corporate tax rate in Europe.

The Mediterranean country is also known for trying to lure the owners of smaller companies to set up shop on the island. If they do so, earnings up to 5 million euros per year are only taxed at a rate of 15 percent. Anything above that is tax free.

Those opposed to tax avoidance measures only managed to close one tiny loophole. Recently, an informal minimum tax rate was applied to so-called license boxes. That model involves the separate declaration of income from patents, income which is then taxed at a lower rate. In Ireland and the Netherlands, such income is taxed at half the normal corporate rate. The problem, though, is that EU law is silent about what the minimum corporate tax rate should be.

An additional transparency initiative has thus far been held up by opposition in the U.S. and Japan. The initiative focuses on tax payments made by internationally active companies in their home countries. Thus far, only tax authorities in the countries involved have been able to learn where companies are taxed and how much they pay. Washington and Tokyo are opposed to making such information public.

Tax experts in the German government have understanding for national peculiarities when it comes to such regulations. “It’s like in your private life,” says one. “Not everyone who climbs naked into the bathtub likes to expose themselves at a nudist colony.”

Half-Hearted U.S.

At the moment, the transparency initiative isn’t being pursued, simply because any attempt to force it through would be futile. If all the remaining countries were to agree on more extensive steps, Japan and the U.S. would simply withdraw from the current deal. The resulting damage would be greater than the additional value.

Another way to undercut tax havens is to compete with them. But this option is unrealistic for larger economies. For countries with hardly any industry like Malta and Cyprus, it may be worth it to attract foreign profits with low tax rates. But larger countries with established industrial bases would ultimately lose money. They would, after all, have to offer the lower tax rates for foreign companies to their domestic companies as well, meaning they would lose more revenue than they would gain.

Making the battle against tax loopholes even more difficult is the fact that the world’s largest economy, the U.S., is rather half-hearted when it comes to fighting tax havens. The state of Delaware offers an anonymous home to hundreds of thousands of shell companies. The U.S. government – whether Democratic or Republican – has also for years been rather indulgent when it comes to multinationals dodging the taxman, despite the fact that it is the U.S. itself that is shortchanged by the tricks employed by Google, Apple, Amazon and co.

Tax revenues from American multinationals should be flowing into U.S. coffers, just as all profits from German automobile manufacturers, for example, are taxed in Germany. Global tax doctrine, after all, holds that taxes should be levied in the country where products are produced.

But for decades, U.S. tax law has maintained a loophole for American companies. They are allowed to park their intellectual property – in the form of patents, licenses or film rights, for example – with subsidiaries based overseas, which means that those subsidiaries are taxed in the countries where they are based. That is why Apple, as the new document leak indicates, didn’t decide to pay taxes on its profits back home once an Irish loophole was closed. Instead, the company went searching for tax havens that might offer it a new home.

An Arduous Process

Why does the U.S. government allow such a thing? Why doesn’t it close this long-known loophole? There are two reasons. Early on, the regulation was established to prevent the U.S. from losing money. After all, if companies don’t need to tax their profits back home, they also aren’t able to claim deductions when they lose money. But when the highly innovative companies ultimately proved profitable, the tax authorities didn’t remove the loophole. The U.S. government has always seen it as a kind of export subsidy for domestic companies. For Washington, the influence of American companies abroad is more important than the loss of billions in tax revenue.

So is the fight against tax havens in vain? Not necessarily, but it is an arduous process that doesn’t produce quick results.

Once coalition negotiations are complete, Merkel’s new government will have little option than to continue doing what it can to block the flow of money to tax havens around the world. Some of those involved in those negotiation believe that Germany has a number of tools at its disposal for putting pressure on tax havens. One of those is Wolfgang Kubicki, the deputy head of the business-friendly Free Democrats (FDP) who could become Germany’s next finance minister. He even thinks that Berlin could solve some problems unilaterally.

Regardless of who takes over the finance portfolio, he or she should focus most efforts on convincing European Union partners to stop offering improper tax privileges. And convincing the U.S. of the same. Because just as with climate change, without the world’s largest economy on board, little will change.

 

 

 

 

 

 

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