Category: Corporate Misconduct

Challenges await Australia’s new Tax Commissioner

by Miranda Stewart

In January 2013, Mr Chris Jordan AO starts as Federal Commissioner of Taxation in charge of the Australian Taxation Office (ATO). He follows Mr Michael D’Ascenzo AO, who was not reappointed after his seven-year term.

Mr Jordan will be only the 12th Commissioner and only the second external appointment in the ATO’s history. All appointments have been male. The first Commissioner, George McKay, appointed from the New South Wales public service in 1910, seems to have died from overwork in 1917 after administering on a shoestring the federal land tax and income tax introduced in 1915 to help fund World War I. The next Commissioner, Robert Ewing, appointed an assistant commissioner to help. In his 22 year innings until 1939, Mr Ewing oversaw a new federal estate tax, payroll tax, and the turbulent time before World War II, when the federal government took over the income taxes of the States.

Mr Jordan is a former chairman of KPMG and company director. His appointment has been widely welcomed especially by business and professional groups. He has been on the Board of Taxation since its establishment in 2000 and was appointed chairman in June 2011. His early working life as a policeman may also stand him in good stead.

So what are the challenges facing Mr Jordan in his new appointment?

Today, the ATO is an organisation of 25,000 people that collected net tax of $273 billion in 2010-11. Mr Jordan will be responsible for the income tax, GST, fringe benefits tax, petroleum and mineral resource rent taxes, medicare levy, fuel taxes and higher education levies. The ATO also administers parts of the superannuation system, child support, the Australian Business Register and Valuation Office.

The ATO is under constant pressure to increase revenue collection. Most revenue is collected through its highly effective income tax and GST withholding systems. These ensure electronic transfers from taxpayers to government coffers throughout the year. The ATO manages these systems at a remarkably low administrative cost of a little under $3.5 billion a year, a cost to revenue ratio of about 1 per cent. This does not include compliance costs of taxpayers and business and we know that these are significantly higher than direct governmental costs of tax collection, and regressive in their impact.

Mr Jordan’s main responsibility – and biggest challenge – is to keep this efficient organisation running well. He will have to manage his staff so that sick days are kept to a minimum and make sure the next computer roll-out stays on budget. He has lost one valuable support in this task, as Jennie Grainger, former Second Commissioner in charge of Compliance, has just taken up an appointment in Her Majesty’s Revenue and Customs in the UK. Several other leading ATO staff are also retiring, including senior legal experts.

Some have suggested that Mr Jordan can – and should – lead a change in ATO culture, presumably to make it more business and taxpayer-friendly. One commentator, for example, suggests that he will better understand the plight of small business.

It is true that the ATO has a strong organisational culture. Being the subject of widespread popular dislike will do that. ATO staff also understand their importance to government. Still, caution is needed: that strong culture contributes to the morale of ATO staff, and that helps keep the revenue rolling in.

Mr Jordan has demonstrated his effectiveness in liaison with government and business. He will no doubt strengthen the work begun by Mr D’Ascenzo in engaging with taxpayers and the tax profession about most aspects of administration and interpretation of tax law.

But it is important that the Commissioner of Taxation is – and is perceived to be – absolutely independent both of the government of the day, and of undue professional or business tax influence.

Mr Jordan faces the challenge of handling revenue collection in relation to high wealth individuals, including investigations into international tax evasion started under Mr D’Ascenzo. He must oversee controversial large corporate audits that challenge cross-border transfer pricing activity and tax planning. He becomes Commissioner in an era of unprecedented and expanding inter-governmental tax cooperation.

Mr Jordan will be in charge of new risk-based audit, settlements, and real-time information disclosure arrangements with large business. UK Secretary of Taxation Mr Dave Hartnett was at the forefront of these developments. He recently retired amid public controversy that he took “enhanced relationships” with big business too far. Within limits, a prickly relationship between business, the profession and the Commissioner is probably healthy. It won’t be Mr Jordan’s job to be liked.

What of Mr Jordan’s role in tax reform? That is only a small fraction of the job. In 2002, Treasurer Peter Costello moved the tax legislation function into Treasury. Mr Jordan will keep his seat on the Board of Taxation, but only as an ex officio member. He may be able to strengthen the voice of the core administrator in Treasury’s tax law reform processes. That would be a good thing. But his main job is to keep that revenue – about $750 million per day – rolling in to fund government to do what the public wants it to do.

Miranda Stewart is a Professor at Melbourne Law School, University of Melbourne.

This article was first published at www.theconversation.edu.au

 

The ‘Self-Made’ Myth and Our Hallucinating Rich

In real life, working hard only takes you so far. Those who go all the way — to grand fortune — typically get a substantial head start. So documents an entertaining, baseball-themed new analysis of the Forbes 400.

Let’s cut Mitt Romney some slack. Not every off-the-cuff comment the GOP White House hopeful made at that now infamous, secretly taped $50,000-a-plate fundraiser last May in Boca Raton reveals an utterly shocking personal failing. Take, for instance, Mitt’s remark that he has “inherited nothing.”

A variety of commentators have jumped on Romney for that line. They’ve pointed out that Mitt, the son of a wealthy corporate CEO, has enjoyed plenty of privilege, everything from an elite private school education to a rolodex full of rich family friends he could tap to start up his business career.

On top of all that, the young Mitt also enjoyed $1 million worth of stock his father threw his way to tide him over until big paydays started arriving.

Not quite “nothing.” But no reason to pick on Mitt either. Most really deep pockets, not just Mitt, consider themselves entirely “self-made.” The best evidence of this predilection to claim “self-made” status? The annual September release of the Forbes magazine list of America’s 400 richest.

Each and every year Forbes celebrates the billionaires who populate this list as paragons of entrepreneurial get-up-and-go. The latest top 400, Forbes pronounced last week, “instills confidence that the American dream is still very much alive.”

Of America’s current 400 richest, gushes Forbes, 70 percent “made their fortunes entirely from scratch.”

Forbes made the same observation last year, too, and most news outlets took that claim at face value. Researchers at United for a Fair Economy, a Boston-based group, did not. UFE analysts stepped back and took the time to investigate the actual backgrounds of last year’s Forbes 400. They released their findings last week, on the same day Forbes released its new 2012 top 400 list.

The basic conclusion from these findings: Forbes is spinning “a misleading tale of what it takes to become wealthy in America.” Most of the Forbes 400 have benefited from a level of privilege unknown to the vast majority of Americans.

In effect, as commentator Jim Hightower has aptly been noting for years, most of our super rich were born on third base and think they hit a triple.

In its just-released new report, United for a Fair Economy extends this baseball analogy to last year’s Forbes 400. UFE defines as “born in the batter’s box” those Forbes 400 rich who hail from poor to middle-class circumstances. Some had nothing growing up. Others had parents who ran small businesses.

About 95 percent of Americans, overall, currently live in these “batter’s box” situations. Just over a third, 35 percent, of the Forbes 400 come from these backgrounds.

Just over 3 percent of the Forbes 400, the United for a Fair Economy researchers found, have left no good paper trail on their actual economic backgrounds. Of the over 60 percent remaining, all grew up in substantial privilege.

Those “born on first base” — in upper-class families, with inheritances up to $1 million — make up 22 percent of the 400. On “second base,” households wealthy enough to run a business big enough to generate inheritances over $1 million, the new UFE study found another 11.5 percent.

On “third base,” with inherited wealth over $50 million, sit 7 percent of America’s 400 richest. Last but not least, the “born on home plate” crowd. These high-rollers, 21.25 percent of the total Forbes list, all inherited enough to “earn” their way into top 400 status.

Last year, a rich American had to be worth at least $1.05 billion to make the Forbes 400. This year’s entry threshold: $1.1 billion, the highest ever.


Forbes
, the United for a Fair Economy researchers sum up, has glamorized the myth of the “self-made man” and minimized “the many other factors that enable wealth,” most notably the tax breaks and other government policies that help the really rich get ever richer.

The narrative of wealth and achievement that Forbes is pushing, the new UFE study adds, “ignores the other side of the coin — namely, that the opportunity to build wealth is not equally or broadly shared in contemporary society.”

And many of those who do have that opportunity — like the mega millionaires in Boca Raton who applauded so warmly when Mitt Romney asserted he had “inherited nothing” — see absolutely no reason to turn that coin over.

Sam Pizzigati edits Too Much, the online Institute for Policy Studiesweekly on excess and inequality. 

The Unrepentant And Unreformed Bankers

By Phil Angelides

Money laundering. Price fixing. Bid rigging. Securities fraud. Talking about the mob? No, unfortunately. Wall Street.

These days, the business sections of newspapers read like rap sheets. GE Capital, JPMorgan Chase, UBS, Wells Fargo and Bank of America [2] tied to a bid-rigging scheme to bilk cities and towns out of interest earnings. ING Direct , HSBC and Standard Chartered Bank  facing charges of money laundering. Barclays caught manipulating a key interest rate, costing savers and investors dearly, with a raft of other big banks also under investigation. Not to speak of the unprecedented wrongdoing that precipitated the financial crisis of 2008.

Evidence gathered by the Financial Crisis Inquiry Commission clearly demonstrated that the financial crisis was avoidable and due, in no small part, to recklessness and ethical breaches on Wall Street. Yet, it’s clear that the unrepentant and the unreformed are still all too present within our banking system.

A June survey of 500 senior financial services executives in the United States and Britain turned up stunning results. Some 24 percent said that they believed that financial services professionals may need to engage in illegal or unethical conduct to succeed, 26 percent said that they had observed or had firsthand knowledge of wrongdoing in the workplace, and 16 percent said they would engage in insider trading if they could get away with it.

That too much of Wall Street remains unchanged is not surprising. Simply stated, the banks and their leaders have paid no real economic, legal or political price for their wrongdoing and thus have not felt compelled to change.

On the economic front, the financial sector has rebounded nicely from its brush with death, thanks to an enormous taxpayer bailout. By 2010, compensation at publicly traded Wall Street firms had hit a record $135 billion.

Last year, the profits of the nation’s five biggest banks exceeded $51 billion, with their chief executives all enjoying pay increases. By 2011, the 10 biggest U.S. banks held 77 percent of the nation’s banking assets.

On the legal front, enforcement has been woefully inadequate. Federal criminal financial fraud prosecutions have fallen to a two-decade low. Violations are settled for pennies on the dollar – the mere cost of doing business, with no admission of wrongdoing and with the bill invariably picked up by insurers or shareholders. (When it’s shareholders, that’s not someone else far away, that’s your 401(k), pension fund or mutual fund.)

When Goldman Sachs was charged with failing to set policies to prevent insider trading, it was fined $22 million, an amount the bank collects in about seven hours of trading. Goldman’s record $550 million penalty for securities fraud in 2010 amounted to less than 2 percent of that year’s revenue.

On the political front, after a brief stint in the penalty box, the big banks have resumed the political muscling that got them two decades of deregulation.

To block reform, the financial industry has spent more than $317 million on lobbying in Washington over the past two years and more than $230 million in federal political contributions in the 2010 and 2012 election cycles.

It’s been to good effect. Two-thirds of the regulations called for in the financial reform law passed two years ago are still not in place. And the House Republicans, the banks’ sturdiest allies, have slashed at the budgets of the Securities and Exchange Commission and theCommodities Futures Trading Commission to impede their ability to investigate wrongdoing.

Clearly, the present order is unsustainable. We need to demand fundamental changes now, breaking up the big banks to snap their stranglehold on our markets and our democracy, ensuring that the newly minted financial reform laws are implemented, and wringing out rampant speculation.

But true reform can only occur if we root out the corruption that has distorted our banking system and undermined the productive work of the many good people in the financial sector.

The system of financial law enforcement is clearly broken. Think of it this way: If someone robbed a 7-Eleven of $1,000 but could settle a few days later for $25 and no admission of guilt, would they do it again?

Only enforcement with real consequences will work. That means vigorous pursuit of criminal cases against individuals involved in wrongdoing, the surest method to deter malfeasance.

It means enforcement agencies eschewing weak settlements in civil cases and seeking remedies with teeth such as civil penalties, restitution and executives forfeiting their jobs. And, it means tougher financial fraud laws. In that regard, the bipartisan proposal by Sens. Jack Reed, D-R.I., and Charles Grassley, R-Iowa, to increase fines for securities fraud is a place to start.

To make any of this a reality, the U.S. Department of Justice and the federal regulators must have the will and the resources to do the job. President Obama has asked for additional funds for the Department of Justice, the SEC and the Commodities Futures Trading Commission.

Giving these agencies the tools to detect and prosecute wrongdoing will more than pay for itself – the Commodities Futures Trading Commission’s fine against Barclays for interest rate manipulation alone will pay for almost an entire year of that agency’s budget.

None of these changes will come easily, but this much is clear: We cannot allow Wall Street to continually flout our sense of right and wrong, to erode faith in our legal and political systems, and to put our financial system and economy in jeopardy.

Originally published in The San Francisco Chronicle.

Political Corruption in New York: Low Comedy and High Cost

by Dan Collins

It’s possible, what with the rush of the holiday season, that you have neglected to pay close attention to the city’s latest political corruption trials. I must admit my own attention was wandering until this week, when a Brooklyn Assemblyman was indicted for attempting to solicit bribes so he could pay lawyers to defend from charges of taking bribes in a previous corruption trial.

The star of that saga is William Boyland Jr., who exemplifies all the reasons the words “state legislature” make New Yorkers want to beat their heads against the nearest flat surface.

He has a completely safe seat, which he inherited from his father, William Boyland Sr., who inherited it from his brother. Junior has had a totally undistinguished career in Albany, starring only in the narrow but competitive area of filling out expense forms. But back home he’s apparently been very active in a business loosely described as consulting.

In Albany, consulting is generally a euphemism for being paid to get somebody state money.

Read more ...

The Next Banking Crisis

by Hugo Radice

In the ongoing Euro-crisis, our political leaders are constantly criticised for “playing catch-up” and not being “ahead of the curve” (although others might feel that they are completely round the bend).   Perhaps, therefore, it is time to look up from the turmoil in the sovereign bond markets and the counsels of the European Union, dust off the crystal ball, and look forward to the next banking crisis.  For it is becoming increasingly clear that banks across Europe face a much more serious problem than a 50% haircut on their holdings of Greek government bonds;  and that problem goes to the heart of what is wrong with the current culture and practices of the financial sector.

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