DCR 01 09 2009
Headings
International: EU carbon market still open to tax fraud
Reuters
Brazil: Brazil needs to beat corruption to enjoy oil bonanza
Reuters (Analysis)
Equador: Chevron offers evidence of bribery in Ecuador lawsuit
The New York Times
France: Trader faces trial over alleged $7B fraud
CNN
Indonesia: District attorneys to handle graft prosecution
Jakarta Post (TI mention)
Iraq: Iraq wants to go after companies involved in 'food for oil' program
The Examiner
Israel:Israeli ex-ministers convicted of graft start prison terms
Agence France-Presse
Kenya: Kenyan anger over corruption job
BBC
Public Accounts Committee, Meetings
Daily Jang Karachi dated 1st September 2009
| News Heading: |
| EU carbon market still open to tax fraud |
| Originator and Sourse: |
| By Michael Szabo and Nina Chestney – Analysis Reuters. |
| Date and Place of Publication: |
| Tue Sep 1, 2009 7:34am EDT LONDON |
| Link: |
| http://www.reuters.com/article/reutersEdge/idUSTRE5802II20090901?sp=true |
| Detail: |
|
|
LONDON (Reuters) - A patchwork of unilateral actions by a few European Union nations to prevent suspected tax fraud in carbon permit trading could serve only to push the activity into neighboring states.
A Reuters investigation into suspected carousel tax fraud exposed a mix of tax loopholes, lack of regulatory oversight and easy market access that could open the EU's $90 billion emissions trading scheme to abuse.
Investment banks and brokers said they are worried they may have to foot unpaid tax bills left after any fraud or face legal action for having traded unknowingly with anyone charged.
"It's put the innocent intermediaries in a very awkward position of responsibility and liability, which isn't fair," said David Bates, a director at emissions broker CarbonDesk.
Last month, HM Revenue and Customs (HMRC) raided 27 properties around London following a 7-month investigation into a suspected 38 million pounds ($62 million) tax fraud.
Nine people were arrested, but all have since been released without charge.
Through carousel fraud, also called missing trader fraud, fraudsters import goods including mobile phones or computer chips free from value-added tax (VAT) from other EU countries, then sell the goods to domestic buyers, charging them VAT. The sellers then disappear without paying the tax to the government.
For a graphic on how carbon credit carousel fraud works, see here
CARBON PERMITS
Fraudsters are alleged to have targeted spot trade in carbon permits, an unregulated market worth tens of billions of dollars, because of its tax treatment in the EU and lack of oversight by financial watchdogs.
"Carbon permits are a tax on emissions, and applying VAT to them is effectively putting a tax on a tax, which is kind of ludicrous," said James Emanuel, a director at broker CantorCO2e.
France exempted carbon permits from VAT in June following concerns over record spot trading volumes on emissions exchange BlueNext, a joint venture between NYSE Euronext and state-owned Caisse des Depots. BlueNext said there was no evidence fraudulent activity ever occurred on its exchange.
In July, Britain and the Netherlands followed France's lead, altering their tax treatment of carbon permits.
"The EU made the wrong decision in applying VAT to carbon, but made the right decision in not regulating spot trading," Emanuel said.
The European Commission said it had been informed by member states of the suspected scam and may trial reversing VAT charges, meaning the buyer, not the seller, is liable to pay it.
The UK's Financial Services Authority (FSA) regulates trading in derivatives such as carbon futures but not spot permit trading, instead classing them as normal goods.
Opening an account at a national emissions registry to trade spot carbon is also a simple task, showing the ease with which anyone can access the market.
"If you are an individual, the registry asks for two proofs of address as if you were opening a video store account," said climate campaigner Bryony Worthington.
MARKET ACCESS
Once the registry account is open, accessing the market is not much more difficult.
Carbon traders throughout Europe told Reuters they received an unusually high number of phone calls from individuals or companies looking to trade spot permits earlier this year.
"I did receive quite a few calls from obscure brokers looking to shift spot credits," said a trader at a UK utility.
Some larger brokers trade for smaller, unregulated brokers not governed by the FSA's strict know-your-client guidelines.
"Some deals we would exchange-settle over BlueNext through a regulated broker who is a member, (but) some brokers wouldn't deal with us until we were FSA-regulated," Bates said.
CarbonDesk gained FSA regulation on August 12, but weeks before that Bates hired a consultant to examine CarbonDesk's clients. The findings prompted CarbonDesk to stop trading for 15 UK clients, accounting for volumes of around 4 million tons a month, who did not satisfy their tightened compliance rules.
MOVE ABROAD
Some say the UK's VAT exemption will shield the British market from any scam, but would not prevent potential fraudsters from moving on to other countries such as Spain and Germany, where large amounts of carbon permits are traded.
The EU Commission would not comment on specific countries at risk.
"Since France and the UK took out VAT we have received many calls from interested new clients (but) we are not accepting any until the Spanish government makes a decision," Spanish emissions exchange SENDECO2's spokesman Martim Gonçalves said.
German utilities E.ON and RWE said they adhere to strict rules for trading energy and safeguards to ensure that deals are only done with long-known counterparties.
A German environment ministry spokesman said he had no knowledge of any VAT fraud cases in Germany.
"I cannot imagine our companies being so silly as to fall for the methods of fraud that have been published," he said.
| News Heading: |
| ANALYSIS - Brazil needs to beat corruption to enjoy oil bonanza |
| Originator and Sourse: |
| By Stuart Grudgings Reuters |
| Date and Place of Publication: |
| Tue Sep 1, 2009 5:35pm IST RIO DE JANEIRO. |
| Link: |
| http://in.reuters.com/article/businessNews/idINIndia-42120520090901?sp=true |
| Detail: |
|
|
RIO DE JANEIRO (Reuters) - Brazil needs to stamp out the dangers of free-spending and corruption if a proposed national oil fund is to help fuel economic growth and avoid the "resource curse" that has soured oil bonanzas in other countries.
Based partly on Norway's successful Petroleum Fund, the social fund announced by Brazil's government on Monday as part of a proposed reform of oil laws will channel oil revenues toward fighting poverty and improving the nation's badly neglected schools.
The aim of an oil wealth fund such as Norway's is to smooth the impact of huge revenues over time to avoid governments going on spending sprees that can disrupt an economy.
But experts say a fund is little protection against the misallocation of oil revenues. Governments can, and often do, change the rules in response to economic and political pressures.
It is more important that the main political parties build a lasting consensus on the use of oil revenues and that corruption is not tolerated.
"In a way it's a good principle but actually there's no evidence of funds making any difference at all," said Macartan Humphreys, an associate professor at New York's Columbia University who has studied the impact of oil wealth.
"The only place funds seem to work are places where it is likely you would have had pretty good fiscal policy."
President Luiz Inacio Lula da Silva has called the discovery of the huge reserves off Brazil's southern coast a "gift from God" that can drive the South American giant's development.
But recent history is littered with newly oil-rich countries that pledged a new era of prosperity only to squander the wealth through mismanagement, corruption or misjudging the economic disruption that a sudden influx of oil wealth brings.
Brazilian officials say they are determined to avoid that trap.
"We are creating the conditions to avoid the oil curse, that terrible curse that has kept many oil-rich countries in poverty," Dilma Rousseff, Lula's chief of staff and likely ruling-party candidate to succeed him in October 2010 elections, said as she presented the plan on Monday.
Under the reform plan, which faces a lengthy battle for approval in Congress, the fund would invest abroad and at home and make regular transfers to the government's budget to be invested in targeted areas.
Rousseff said priority spending areas, including education, the environment, and science and technology, would be defined by a committee made up of government and private groups. Revenue from the funds would be managed by Congress.
With an estimated minimum of 50 billion barrels deep below the ocean and a thick salt layer, Brazil's windfall is worth about $3.6 trillion at current prices, more than twice the size of its entire economy.
Unlike Norway, Brazil has a gaping need for investments in a dismal education system and to make further inroads into poverty that still affects millions of its people.
NEITHER NORWAY NOR NIGERIA
While it is no Nigeria or Angola, where oil resources have fanned corruption and conflict, Brazil also falls far behind Norway in terms of political graft and disunity, raising concern about how it will manage the wealth.
The dangers include the so-called Dutch Disease when oil exports boost a country's currency and hurt its exporters, boom-and-bust cycles caused by abrupt oil price changes, and greater corruption as politicians grab their piece of the pie.
"The Norway experience will not work anywhere else unless you adapt it," said Farouk Al-Kasim, an Iraqi who helped formulate Norway's energy policy and now runs his own oil consultancy there. "Actually you can't adapt it. You need to say 'What can go wrong and how can I minimize the damage?'."
Al-Kasim said Norway had been a model of restraint in managing its oil revenues long before its Petroleum Fund was set up thanks to a political agreement struck in the early 1960s. Norway's fund effectively isolates oil revenue from the economy by investing abroad and returning only the annual above-inflation gains of around 4 percent.
While a fund in itself is no guarantee of avoiding corruption, it can help by encouraging transparency. The balance could be made publicly available online, for example.
Ensuring that the revenues are protected against short-term political pressures, with strict rules on withdrawals and spending targets, would be key to ensuring a "clean" fund.
"What you want to do is build a political constituency that sees a flow of benefits ... to build long-term support for these objectives," said Joseph C. Bell, a partner at the energy practice of Washington law firm Hogan & Hartson. "The key is investment as opposed to consumption."
Despite the temptation for developing countries to spend the revenues at home, Al-Kasim said they should seek to invest about 70 percent of the fund offshore and only use it to invest in "sustainable" areas such as education and infrastructure.
He said Brazil has a good chance of avoiding the resource curse because of its diverse economy, but needs to avoid helping other industries through subsidies.
"They must be extremely selective where they use the petroleum revenue. They can't flood the market."
| News Heading: |
| Chevron Offers Evidence of Bribery Scheme in Ecuador Lawsuit |
| Originator and Sourse: |
| By SIMON ROMERO and CLIFFORD KRAUSS |
| Date and Place of Publication: |
| Published: August 31, 2009 CARACAS, Venezuela |
| Link: |
| http://www.nytimes.com/2009/09/01/world/americas/01ecuador.html?_r=2&ref=global-home |
| Detail: |
|
|
CARACAS, Venezuela — The oil giant Chevron said Monday that it had obtained video recordings of meetings in Ecuador this year that appear to reveal a bribery scheme connected to a $27 billion lawsuit the company faces over environmental damage at oil fields it operated in remote areas of the Amazon forest in Ecuador.
Flames burning gas in Lago Agrio. A group of area residents is suing Chevron, contending that they have been harmed by oil contamination. The company faces up to $27 billion in damages.
The videos, together with audio recordings obtained by businessmen using watches and pens implanted with bugging devices, appear to implicate Ecuadoran officials and political operatives, including possibly Juan Núñez, the judge overseeing the lawsuit, and Pierina Correa, the sister of Ecuador’s president, Rafael Correa.
The recordings indicate that an Ecuadoran political operative was working to obtain $3 million in bribes related to environmental cleanup contracts to be awarded in the event of a ruling against Chevron.
It was not clear from the recordings and transcripts provided by Chevron, however, whether any bribes discussed in the recordings were actually paid or whether Judge Núñez was even aware of plans to try to bribe him. The tapes also did not demonstrate whether the president’s sister was aware of the scheme or had participated in it.
But in a statement that Chevron says illustrates that the judge’s handling of the case is flawed, Judge Núñez said on one of the video recordings that he planned to rule against Chevron by January and that damages could exceed $27 billion.
Judge Núñez, who presides over the case from a cramped office in the town of Lago Agrio in Ecuador, could not be reached for comment on Monday.
The recordings, which Chevron placed on its Web site, are the latest twist in a 16-year legal battle over oil contamination of jungle areas in northern Ecuador. Mr. Correa, a left-wing economist who rose from obscurity to become Ecuador’s strongest president in recent memory, has repeatedly sided with the plaintiffs in the case, prompting a fierce lobbying effort by Chevron in Washington to strip Ecuador of American trade preferences.
That effort failed in June when the Obama administration, seizing a chance to improve ties with Mr. Correa, allowed the preferences to continue. But the release of the recordings will focus more scrutiny on Mr. Correa, who has come under pressure over his clashes with the media and accusations of corruption involving another family member, his brother Fabricio Correa, a prominent businessman.
Alexis Mera, a legal adviser to the president, dismissed the recordings as “approaching the level of defamatory libel.” He said Chevron was benefiting from the crime of intercepting conversations without authorization, reflecting “a terrible legal strategy.”
Steven Donziger, a lawyer representing the group of Ecuadorans who are suing Chevron, contending that they had been harmed by the oil contamination, said: “I suspect this is a Chevron sting operation; there needs to be an investigation into Chevron’s role in this as much as the judge’s. I find it awfully odd that these individuals would secretly film meetings using James Bond devices like a spy watch and a spy pen.
“At the end of the day this will not affect the underlying case,” Mr. Donziger said, “other than it might cause a short delay if the judge needs to be replaced.”
Chevron said it had obtained the recordings from Diego Borja, an Ecuadoran who once worked as a logistics contractor for the company. The company said Mr. Borja had been working with an American businessman, Wayne Hansen, to secure water treatment contracts. Chevron said that neither man had been paid for the recordings, but that the company paid for Mr. Borja and his family to leave Ecuador because of concern about his safety.
“I’d like to think he brought them to us out of respect for our company and concern for what seemed to be transpiring here,” Charles James, an executive vice president of Chevron, said of the recordings in a telephone interview. “We think this information absolutely disqualifies the judge and nullifies anything that he has ever done in this case.”
In one of the recordings made in June, the political operative, Patricio García, who identified himself as an official in Mr. Correa’s political party, referred to $3 million in bribes to be split equally among the judge, the presidency and the plaintiffs in the lawsuit. Mr. Correa’s party, Mr. García said, would receive the $1 million payment on behalf of the plaintiffs.
In the same meeting, Mr. García told Mr. Borja how to approach Ms. Correa, the president’s sister, about the bribe. “Tell Pierina clearly, ‘Madam Pierina, what we came to do beyond anything else is to participate, participate in the remediation. That’s why I want to make you part of this,’ “ he said.
The recordings do not indicate whether Ms. Correa was aware of the efforts to include her in a bribery scheme. Nor is there confirmation that Mr. García was in fact in contact with her.
Secret recordings of closed-door meetings have become a common feature of Ecuadoran politics. Mr. Correa, furious over the recent airing of a recording of a private conversation in his office with a cabinet minister and a member of congress, said he would request the shutdown of the television network that broadcast the recording.
“This is an attack on national security,” he said.
But while Mr. Correa takes such recordings seriously, it is not clear if the people whose conversations about contract bribes were recorded by Mr. Borja grasped the complexity of the Chevron lawsuit. For instance, appeals by Chevron could delay for years the payment of damages that could be used for water cleanup contracts.
Still, the recordings offered a glimpse into the murky world of Ecuadoran politics and business. In another reference to Ms. Correa’s ability to ensure that the contracts would be forthcoming, Mr. García said, “Pierina knows absolutely everything.”
He told Mr. Borja of a conversation he said he had with Ms. Correa, according to a transcript. “So she says: ‘Patricio, I just have to tell Rafael this one little thing, nothing else. Nothing else,’ he said.
Chevron said the assertion should be investigated.
This article has been revised to reflect the following correction:
Correction: September 1, 2009
A previous version of this article incorrectly referred to the name of Rafael Correa's brother as Patricio Correa. Mr. Correa's brother is named Fabricio.
Simon Romero reported from Caracas, and Clifford Krauss from Houston. Maggy Ayala Samaniego contributed reporting from Quito, Ecuador.
| News Heading: |
| Trader faces trial over alleged $7B fraud |
| Originator and Sourse: |
| CNN |
| Date and Place of Publication: |
| September 1, 2009 -- Updated 1114 GMT (1914 HKT) PARIS, France |
| Link: |
| http://edition.cnn.com/2009/BUSINESS/09/01/france.societe.generale/ |
| Detail: |
|
|
PARIS, France (CNN) -- The French trader accused of a multi-billion-dollar fraud at banking giant Societe Generale will go on trial next year, a lawyer for the bank said Tuesday.
Kerviel faces up to five years in prison if convicted of fraud charges.
Jerome Kerviel will face charges including forgery, breach of trust, and introducing fraudulent data into the bank's data system, Societe Generale lawyer Jean Veil told CNN.
He faces a penalty of up to five years in prison and a fine of up to €375,000 euros ($538,000), Veil said. The bank also will ask that Kerviel reimburse them for almost 5 billion euros ($7.1 billion), "which probably he will not pay," Veil said.
The trial is expected to start in the first half of 2010, perhaps in May or June, Veil said. It will take place at the Tribunal de Grande Instance in Paris, he said.
Kerviel, who is now free on bail, was arrested last year after Societe Generale unveiled trading losses of more than $7.2 billion. The bank attributed the losses to fraud by Kerviel, who traded European index futures for the bank.
Kerviel is the only one charged in the case. His assistant, Thomas Mougard, was cleared of charges Monday, Veil said.
Societe Generale believes Kerviel alone was responsible for the losses, which the bank announced in January 2008. Kerviel maintains he was not acting alone, Veil said.
"The decision of the (court) confirms 100 percent the complaint of the bank, and that Kerviel was alone when he organized this massive fraud and that he was acting completely out of his (own accord)," Veil told CNN.
| News Heading: |
| District attorneys to handle graft prosecution |
| Originator and Sourse: |
| The Jakarta Post |
| Date and Place of Publication: |
| Tue, 09/01/2009 12:47 PM Jakarta |
| Link: |
| http://www.thejakartapost.com/news/2009/09/01/district-attorneys-handle-graft-prosecution.html |
| Detail: |
|
|
The House of Representatives Corruption Court Bill working committee says only district career attorneys, not appointed ones, are authorized to prosecute in future corruption cases.
"We originally reached an agreement that two prosecutors would have the authority to prosecute incorruption cases. One will come from district attorney offices; the other will be specially appointed by the Corruption Eradication Commission *KPK*," said Arbab Paproeka, the National Mandate Party (PAN) committee chairman.
"However, during our later meetings with the government, it was decided the most proper method to handle corruption cases was by using one prosecutor. He or she should come from district attorney offices, not be appointed by the KPK. The KPK's function should only be in the context of investigating corruption cases, not in the prosecution."
Anticorruption groups have accused the House and the government of trying to amputate corruption eradication efforts by limiting the influence of the KPK on prosecution in corruption cases.
Transparency International Indonesia (TII) Executive Director Todung Mulya Lubis said Saturday the KPK's influence on prosecution was still needed, claiming district attorney prosecutors' integrities remained badly tarnished.
However, Arbab said the idea was developing not because the House and the government wanted to reduce the KPK's authority, but because they wanted the bill, should it be passed into law, to be fully synchronized with a Constitutional Court ruling issued in 2006. Pre-2006, the Corruption Court was established under the KPK law, not the law on judicial powers.
The Constitutional Court also stipulated that such an establishment was against the Constitution and that a new law on the Corruption Court must be passed by December 2009 or the court would lose its legal standing.
| News Heading: |
| Iraq wants to go after companies involved in 'food for oil' program |
| Originator and Sourse: |
| Foreign Policy ExaminerAimee Kligman |
| Date and Place of Publication: |
| August 31, 9:04 PM
|
| Link: |
| |
| Detail: |
|
|
Iraqi government spokesman Ali al-Dabbagh told the press on Monday that its Department of Justice will be sending a letter to the U.S. Secretary of State, so that a complaint on behalf of the Iraqi government and its people can be filed in U.S. courts against foreign companies involved in corruption cases within the 'oil-for-food' program. The UN 'food-for-oil' was a humanitarian program designed to help Iraqis survive international sanctions imposed on Saddam Hussein's regime after the invasion of Kuwait in 1990.
With a total worth of US$64 billion, and under UN control, it had allowed Iraq to sell from 1996 to 2003, limited quantities of oil and to purchase goods in exchange for its population. However, the Iraqi government corrupted the system and several billion dollars were misappropriated. The scandal came to light in January 2004 and its former director Benon Sevan resigned from the UN in August 2005.
More than 2,200 companies (including Russian, French and Chinese) from over 60 countries were involved in the program's manipulations, according to a report by an independent inquiry commission headed by the former president of the U.S. Federal Reserve, Paul Volcker.
The program was corrupted through over-invoicing or effecting sales on the side, particularly in the form of vouchers (for oil) given as gifts or as payment for imported goods without the knowledge of the UN.
A 2004 report on Fox News indicated that many in the program did not want the corruption to end:
One casualty was Ihasan Karim (search), the Iraqi official heading an inquiry into the Oil-for-Food program. On July 1, a bomb placed under his car exploded in Baghdad, killing him, and U.S. officials in Iraq told FOX News that they believe Oil-for-Food was the motive in the assassination.
| News Heading: |
| Israeli ex-ministers convicted of graft start prison terms |
| Originator and Sourse: |
| AFP |
| Date and Place of Publication: |
| 01 Sep 2009 JERUSALEM. |
| Link: |
| https://www.ipotindonesia.com/news.php?page=detail&id=290750 |
| Detail: |
|
|
Two former Israeli ministers started serving prison terms on Tuesday after being found guilty of corruption in two separate trials, the prison service said.
Former finance minister Avraham Hirshson started a five-year sentence in a prison in northern Israel after a court last May found him guilty of embezzling one million dollars from a rightwing trade union between 1998 and 2005.
Hirshson served as finance minister in 2006-2007 in the cabinet of his close friend and ally, ex-premier Ehud Olmert who was himself on Sunday indicted over a number of graft charges almost a year after he stepped down over a slew of corruption allegations.
Meanwhile Shlomo Benizri, a former health and labour minister and a prominent leader of the ultra-Orthodox Shas party, arrived at a prison in central Israel to begin a sentence of four-and-a-half years after he was convicted last year of bribery and fraud.
Benizri served as health minister in 1999-2000 and as labour and social welfare minister in 2001-2003.
Hirshson and Benizri were among several high-profile politicians to face criminal investigations and trials in a string of scandals in recent years, which included Olmert and former president Moshe Katsav whose trial on rape charges resumed on Tuesday.
| News Heading: |
| Kenyan anger over corruption job |
| Originator and Sourse: |
| BBC |
| Date and Place of Publication: |
| 1ST August 2009. London |
| Link: |
| |
| Detail: |
|
|
Campaigners have long accused Aaron Ringera of not doing enough
Campaigners and critics have condemned the reappointment of the head of Kenya's anti-corruption agency by President Mwai Kibaki.
"Retired Justice Aaron Ringera has failed to fight corruption in this country," lawyer and former MP Paul Muite told the BBC's Network Africa.
The party of Prime Minister Raila Odinga has also rejected the move.
Mr Kibaki won elections in 2002 promising to tackle corruption but critics say little has changed.
No senior officials have been convicted of corruption.
We are dismayed that the president has made this appointment in total contravention of the law Okong'o Omogeni Kenya Anti-Corruption Commission advisory board
Mr Odinga's Orange Democratic Movement (ODM) said the prime minister had not been consulted.
Mr Muite said Mr Ringera's reappointment for a second five-year term was illegal, as parliament was supposed to consider a shortlist of candidates before an appointment was made.
Kenya Anti-Corruption Commission (KACC) advisory board chairman Okong'o Omogeni told the BBC that the board should have been consulted.
"We are dismayed that the president has made this appointment in total contravention of the law.
"As a board we want to seek intervention from the national assembly to whom we are accountable."
The spokesman for President Kibaki's Party of National Unity said he accepted that the procedure was wrong but that he had not problems with Mr Ringera.
The KACC head is Kenya's best paid civil servant, earning 2.5m shillings ($34,000; £21,000) a month - more than the president.
Mr Ringera's spokesman has said he would not comment at the moment.
He has previously defended the lack of convictions by saying he does not have the powers to prosecute those accused of corruption.
0 comments