Who is in trouble – company or government?
An IBT Desk Report
A recent corporate move has reignited the US debate about how Washington should tax American multinationals. In a so-called corporate inversion, Burger King has reportedly decided to accompany its acquisition of Canadian coffee and doughnut chain Tim Hortons with the transfer of its Miami headquarters to Canada.
Even President Barack Obama had condemned such moves as dishonourable and damaging to America. He promised new laws to close ‘this unpatriotic tax loophole for good’. A century ago, Americans were not familiar with the concept of considering the corporate as criminal. Understandably, the US government needs higher amount of taxes and the president, who is focussed on economic issues, wants to see generation of more jobs for Americans on US soil.
Still, issue came as a blow for those who had hoped to have shamed and tamed corporate America into losing its recent appetite for inversions. The first food inversion deal has the financing backing from Warren Buffet, who was, however, a key figure behind Obama-introduced higher taxes for America’s very top-earning households. Also US pharmacy group Walgreens has decided to ignore tax advice suggesting it should use its full takeover of European rival Alliance Boots as an opportunity to switch headquarters out of the US.
These were the developments when London-based influential magazine The Economist ran a major story on ‘The Criminalisation of American Business’, observing that the increasing criminalisation of corporate behaviour in America is bad for the rule of law and for capitalism. Many cases of corporate settlements were not made public nor did they go to the court and thus no precedent is established.
‘So far this year, Bank of America, JPMorgan Chase, Citigroup, Goldman Sachs and other banks have coughed up close to $50 billion for supposedly misleading investors in mortgage-backed bonds. BNP Paribas is paying $9 billion over breaches of American sanctions against Sudan and Iran. Credit Suisse, UBS, Barclays and others have settled for billions more, over various accusations. And that is just the financial institutions. Add BP’s $13 billion in settlements since the Deepwater Horizon oil spill, Toyota’s $1.2 billion settlement over alleged faults in some cars, and many more.’
US prosecutors claimed that they were clearly shifting away from only big corporate settlements in such cases and were beginning to target more individuals. Already this year, the Justice Department has unsealed charges, or obtained convictions, against 15 people accused of engaging in bribery or related charges outside the US. That compares to 11 such cases last year and only six in 2012.
A Reuters report said instead of utilising corporate disclosures as a starting point, for example, investigators are using more body wires and wiretaps to gather evidence — methods that have been successful in building cases against organised crime syndicates — and some Wall Street inside traders. Federal investigators have obtained court ordered search warrants issued to companies such as Yahoo Inc and Microsoft Corp to get access to overseas emails. Prosecutors began in the mid-2000s to vigorously pursue companies that violated the Foreign Corrupt Practices Act, a 1970s law that bars US-linked companies and people from bribing foreign government officials in exchange for business.
Another report said bankers and U.S. officials have warned that cyber-terrorists will try to wreck the financial system’s computer networks. What they aren’t saying publicly is that taxpayers will probably have to cover much of the damage.
US companies have meantime complained that China is targeting foreign firms with opaque laws and rules. A survey by the American Chamber of Commerce in China showed that 60% respondents felt that foreign business is less welcome. They have growing perceptions that multinational companies are under selective and subjective enforcement, an allegation that by Chinese authorities denied. Following the trial of high-profile party leader Bo Xilai, China also accused the GlaxoSmithKline’s former head of China operations of making illegal payments, signaling its intolerance to corruption.
The examples of movements in the corporate world suggest that smart companies understand and do business whenever and wherever they feel the environment is somehow favourable for making money despite challenges. And global multinational corporations, too, have to face undue challenges and awkward situations. Business often suffers for unexpected developments such as tensions in South China Sea and Ukraine crisis in which parties use economic tools like sanctions.
However, more money flowed into Russia and China exchange-traded funds than any other emerging markets in recent times, causing concern about the prospect of tougher international sanctions. U.S.-based ETFs focused on Russia attracted $265 million last month, or 14 percent of their market value, the most among 47 regions after Portugal and Hong Kong, according to data compiled by Bloomberg. That was followed by Chinese funds, which drew $944 million, equivalent to 10 percent of their value.
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