#Switzerland Shorn of Bankers Proves Industrial Juggernaut - Bloomberg

Behind the headline-grabbing job reductions at Switzerland’s biggest banks is a manufacturing boom that is keeping the economy ahead of the rest of Europe.


Switzerland Shorn of Bankers Proves Industrial Juggernaut
By Patrick Winters - Apr 29, 2013 12:00 AM GMT+0200

Behind the headline-grabbing job reductions at Switzerland’s biggest banks is a manufacturing boom that is keeping the economy ahead of the rest of Europe.

Even after 10,000 Swiss job losses at banks led by UBS AG (UBSN) (UBSN) and Credit Suisse Group AG (CSGN) in the past five years, the nation’s unemployment rate has fallen to 3.1 percent, the lowest of Europe’s 10 biggest economies and less than the rate a decade ago. The nation of 8 million is adding workers in factories that make electrical equipment, airline seating, toilets and drugs.

“People think that precision engineering, watchmaking and the medical industry are minor, but collectively added up, they are quite sizeable in Switzerland,” said Hubertus Von Gruenberg, chairman of Zurich-based ABB Ltd. (ABBN), the world’s largest maker of power transformers. Banks are “overemphasized” in the public perception as there’s a big finance industry relative to the size of the country, he said, adding that the industrial base is “powerful and important.”

Banks and insurers had 152,000 full-time employees last year, compared with 588,000 who work for industrial companies. The banking industry’s share of domestic economic output fell to 6.2 percent in 2011 from 8.7 percent in 2007, according to the most recent data from the Swiss Bankers Association.

“Switzerland is like a Silicon Valley for the manufacturing industry,” said Markus Koch, a partner at Deloitte AG in Zurich. Given the higher cost base, no Swiss manufacturer would survive if it’s not world leading or top quality, he said.
Plane Seating

The focus on high-quality engineering allows companies to compete with cheaper products from emerging markets even as the Swiss franc’s 1.6 percent advance against the euro from a 20- month low in January makes the nation’s exports more expensive.

“We always have to be better than the others, that’s the only way we can compete these days,” said Ilona Illing, director of design at Lantal Textiles, a maker of business class seats for Deutsche Lufthansa AG (LHA) planes.

Global demand for air cushions that replace foams in airplane seats allowed Lantal, which morphed into an airplane seats manufacturer from making cheese cloths more than a century ago, to add 34 jobs last year. The success of the 127-year-old company, based in the Swiss town of Langenthal, and other local manufacturers helped keep the number of jobless in the mountainous canton of Bern at 2.5 percent in February.
Bank Exits

Pressure to stay ahead has pushed Swiss companies from drugmaker Novartis AG (NOVN) to watchmaker Swatch AG to the top of the global rankings for 2012 patent applications. Universities such as Zurich’s Swiss Federal Institute of Technology and a pro- business regulatory environment have helped make Switzerland a home for research hubs for U.S. companies, including International Business Machines Corp. and Google Inc.

The growth in engineering and manufacturing helped to make up for job losses in the finance industry. In response to requests from regulators, Swiss banks have reduced their dependence on borrowed money and exited businesses that fail to deliver big enough returns. Banks employ 10,000 people fewer in Switzerland today than five years ago, the country’s association of banking employees said Jan. 28.

The number of Swiss bankers is set to shrink further after Zurich-based UBS, the country’s largest lender, said in October that it will shed 10,000 jobs globally and abandon most debt- trading operations to focus on money management. Credit Suisse has said it will cut costs by 4.4 billion francs ($4.7 billion) by the end of 2015.
Competitive Nation

With few natural resources apart from water and beautiful landscapes, Swiss companies have focused on specialized, knowledge-based industries because of competition from lower- cost countries, said Peter Chen, a professor at Zurich’s ETH university who has been a member of chemicals-maker Clariant AG (CLN)’s board since 2006.

Switzerland has the world’s highest industrial production per capita and is the most competitive nation overall, according to the World Economic Forum’s Global Competitiveness Report. Industrial production in the country has grown “sharply” since 2005, while traditional manufacturing nations such as Japan and Germany saw only a slight increase, and the U.K. saw a decline, according to a report by Deloitte.

Swiss industrial production per person rose to $12,260 in 2010 from $7,177 in 1991, according to Deloitte.

The country’s resilience is also apparent in the global equity markets.
Treaty of Paris

The Swiss Market Index, which includes the country’s largest companies, gained 28 percent during the past 12 months, outperforming the 18 percent gain of France’s CAC index, the 16 percent advance of Germany’s DAX index and the 12 percent advance of the U.K.’s FTSE 100 index. Eleven of the 20 companies in the Swiss index are industrial companies.

The Swiss success story is rooted in the country’s history as a neutral nation that hasn’t fought a foreign war since its neutrality was established by the Treaty of Paris in 1815. That stability has attracted foreign investors and entrepreneurs.

Brown Boveri & Cie, one of two companies which were merged to form ABB, had founders with foreign roots. One was the son of a British engineer and the other the son of a German doctor. Henri Nestle, a German, started Nestle SA (NESN), the world’s largest maker of food and drink.
Entrepreneurial Spirit

The country’s entrepreneurial spirit is still alive, with biotechnology company Actelion Ltd. (ATLN) being one of the country’s more recent showpiece start-ups. The Allschwil-based company makes drugs designed to treat pulmonary arterial hypertension, an incurable disease characterized by high-blood pressure in the arteries of the lungs. Actelion, founded in 1997 by a team that includes Chief Executive Officer Jean-Paul Clozel, has a market value of 6.5 billion francs.

A report from the European Commission on innovation said Switzerland is the regional “leader,” continuously outperforming all 27 countries in Europe’s political bloc.

Employer-friendly labor laws and a strong work ethic have helped keep job losses to a minimum, Deloitte’s Koch said. Switzerland has some of the longest working hours in Europe and a statutory retirement age of 65, giving companies leeway to cope with the country’s high wages.

“Some companies went to employees and said we have a poor situation with the franc,” Koch said. Workers were asked whether they would work two hours more per week for the next 1 1/2 years and “people agreed,” he said.

Chen from Zurich’s ETH University predicts Switzerland will maintain its industry-focused economy over the long term.

“When you travel around Switzerland, you see the idyllic Swiss alps, but you are never too far away from a chemical factory,” Chen said. “It would be a mistake to move to a pure service economy.”

To contact the reporter on this story: Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

Read the article online here: Switzerland Shorn of Bankers Proves Industrial Juggernaut - Bloomberg

#Billionaires Flee Havens as Trillions Pursued #Offshore - Bloomberg

“We live in a world where you only have two choices: play by the rules of the country you live in, or get out if you don’t want to play by the rules,” Or Not...

Billionaires Flee Havens as Trillions Pursued Offshore - Bloomberg

Billionaire Dmitry Rybolovlev, Russia’s 14th-richest person, and his wife, Elena Rybolovleva, have been brawling for almost five years in at least seven countries over his $9.5 billion fortune.

In a divorce complaint originated in Geneva in 2008, Rybolovleva accused her husband of using a “multitude of third- parties” to create a network of offshore holding companies and trusts to place assets -- including about $500 million in art, $36 million in jewelry and an $80 million yacht -- beyond her reach.




Some of Russian Billionaire Dmitry Rybolovlev's art -- including works by Van Gogh, Monet and Picasso -- is now held in Xitrans Finance Ltd., a British Virgin Islands-based company, and stored in Singapore. Photographer: Alexander Zemlianichenko Jr/Bloomberg

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Cheung Kong Holdings Ltd. Chairman Li Ka-Shing, one of Hong Kong's richest men, owns his 43 percent stake of Cheung Kong through namesake trusts and companies in the Cayman and British Virgin Islands, according to regulatory filings with the Hong Kong stock exchange. Photographer: Jerome Favre/Bloomberg

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Ikea Group Founder Ingvar Kamprad fled Sweden for Switzerland in the 1970s in what he said was a protest of his home country’s tax policies. He placed shares of Ikea into a Dutch foundation in the 1980s, and later put the company’s intellectual property rights into a Liechtenstein foundation. Photographer: Chris Jackson/Getty Images

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Russian billionaire Dmitry Rybolovlev. Photographer: Lionel Cironneau/AP Photo

She has brought legal action against the 48-year-old Rybolovlev in the British Virgin Islands, England, Wales, the U.S., Cyprus, Singapore and Switzerland, and is seeking $6 billion.

The suits provide a window into the offshore structures and secrecy jurisdictions the world’s richest people use to manage, preserve and conceal their assets. According to Tax Justice Network, a U.K.-based organization that campaigns for transparency in the financial system, wealthy individuals were hiding as much as $32 trillion offshore at the end of 2010. Fewer than 100,000 people own $9.8 trillion of offshore assets, according to research compiled by former McKinsey & Co. economist James Henry.

“For a lot of people, it’s not just the objective of not paying taxes,” Philip Marcovici, an independent Hong Kong-based tax lawyer and board member of Vaduz, Liechtenstein-based wealth adviser Kaiser Partner Group, said in a telephone interview. “It’s the objective of obtaining the human right to privacy and seeking confidentiality about their financial affairs.”
Van Gogh

More than 30 percent of the world’s 200 richest people, who have a $2.8 trillion collective net worth, according to the Bloomberg Billionaires Index, control part of their personal fortune through an offshore holding company or other domestic entity where the assets are held indirectly. These structures often hide assets from tax authorities or provide legal protection from government seizure and lawsuits.

Rybolovlev, who lives in Monaco, made most of his fortune from the sale of two potash fertilizer companies for a combined $8 billion in 2010 and 2011. He held both companies -- OAO Uralkali and OAO Silvinit -- through Cyprus-based Madura Holding Ltd.

Some of his art -- including works by Van Gogh, Monet and Picasso -- is now held in Xitrans Finance Ltd., a British Virgin Islands-based company, and stored in Singapore. Rybolovlev bought a New York City apartment for $88 million in 2011 using a trust associated with his daughter, Ekaterina. The penthouse was purchased from the wife of former Citigroup Inc. chairman Sandy Weill, according to divorce documents filed in New York.
Liechtenstein, Cyprus

In the suit, Rybolovleva said the billionaire moved many of his assets, including jewels, furniture and the yacht, under the control of two trusts, Aries and Virgo, that he established in Cyprus in 2005, a few weeks after she refused to sign a post- nuptial agreement he offered her.

Sergey Chernitsyn, a spokesman for Rybolovlev at his Monaco-based family holding company Rigmora Holdings Ltd., said he declined to comment. Marc Bonnant, Rybolovleva’s Geneva-based attorney, also declined to comment.

Since the onset of the global financial crisis in 2008, the laws and treaties that created and sustained the offshore tax- dodging industry and allowed for the kinds of maneuvers used by Rybolovlev have been undergoing a shift toward transparency.

Liechtenstein, once fabled for its banking secrecy laws, began in 2009 to require its financial institutions to hold -- and release when required -- details about the beneficial owners of all accounts held there. Andorra and Switzerland made their own concessions within a day of Liechtenstein.
Money Laundering

Singapore, the heart of Asia’s banking and offshore industry, will make laundering of profits from tax evasion a crime under a law taking effect on July 1. Luxembourg announced on April 10 that it would end its bank secrecy policy in 2015.

Cyprus was bailed out of its financial troubles in March by the European Union, which required the nation to impose a tax on bank deposits of more than 100,000 euros. That month, the country lost $2.4 billion in deposits, according to data from the European Central Bank.

The shift toward transparency has led many of the world’s wealthiest to reassess how and where they hold their assets, according to Goran Grosskopf, a Lausanne, Switzerland-based economist who has advised several billionaires, as well as the Russian government.
Li, Lee

Li Ka-Shing and Lee Shau Kee, Asia’s two richest men, control parts of their fortunes through offshore structures. Li owns his 43 percent stake in Hong Kong-based property developer Cheung Kong Holdings Ltd (1). through namesake trusts and companies in the Cayman and British Virgin Islands, according to regulatory filings. Lee holds his shares in Henderson Land Development (12) Co. through 10 firms set up in the two British island territories and Panama, filings show.




Bloomberg Billionaires Index

Alisher Usmanov, Russia’s richest man, earlier this year restructured the way he holds his $19.7 billion fortune, moving the majority of his assets -- including his two most valuable, Metalloinvest Holding Co. and OAO MegaFon (MFON), worth $12.7 billion combined -- under the control of British Virgin Islands-based USM Holdings.

He controls at least one asset -- a 30 percent stake in London soccer team Arsenal worth $225 million, which he shares with a partner -- through Red & White Securities. The holding company is based on the Channel island of Jersey, a Crown dependency of the U.K. that has threatened to sever ties with the country after being criticized during 2012 for its tax policies.
Koch Industries

Paolo Rocca, an Italian billionaire living in Argentina, is continuing a cat and mouse game with the Argentine government that was started by his grandfather in 1949. The family first established its San Faustin SA holding company in Uruguay that year, moving it to Panama in 1959, to Curacao and then to Luxembourg in 2011, using side entities in the British Virgin Islands and the Netherlands from which to control it.

A small part of the $15.3 billion fortune controlled by Texas billionaire Elaine T. Marshall, 70, is based in Liechtenstein, where her late husband, E. Pierce Marshall, started a foundation for their grandchildren, according to his will. The Dallas resident controls almost 15 percent of Koch Industries Inc., the second-largest closely held company in the U.S., after inheriting the stake in 2006.
‘Girlfriend, Wife’

Many of today’s wealthy remain focused on finding places to minimize their taxes and avoid double taxation, Grosskopf said. Mario Gassner, Chief Executive Officer of Liechtenstein’s Financial Market Authority, said there are other reasons the wealthy seek discretion.

“If you are married and have a girlfriend in another country, you may have a lot of assets that perhaps you don’t want your wife to know about,” he said. “Or perhaps you are looking for a solution for your children to finance university studies, or you’re not in good relations with them and you don’t know what is going to happen to your fortune in the future.”

Russian billionaires create entities in the British Virgin Islands because they find its legal system, which is based on British law, more attractive than their own, Valery Tutykhin, an attorney with John Tiner & Partners, a Geneva-based law firm that specializes in wealth management, said in a phone interview.
German gGmbh

The Cayman Islands are popular among billionaires because they don’t impose any type of income or investment taxes on funds organized in the Caribbean country, according to a 2013 taxation report by Amstelveen, the Netherlands-based tax and accounting firm KPMG International.

Delaware is the legal home to more than half of the corporate entities in the U.S. The state’s favorable tax laws cuts companies’ tax burdens by an average of 40 percent, according to a 2011 study by Jacob Thornock at the University of Washington Foster School of Business. Delaware also doesn’t require officers and directors to be U.S. citizens, and allows them to remain anonymous, according to its business code.

There are other structures, such as the Dutch stichting, the Liechtenstein foundation, and the German gGmbH, that billionaires can use to control their assets.

Ingvar Kamprad, who controls Ikea Group, the world’s biggest home-furnishings retailer, fled Sweden for Switzerland in the 1970s in what he said was a protest of his home country’s tax policies. He placed shares of Ikea into a Dutch foundation in the 1980s, and later put the company’s intellectual property rights into a Liechtenstein foundation.
Limited Liability

The transfers removed Kamprad, the world’s fifth-richest man, from any direct ownership of Ikea. He is credited with the wealth by the Bloomberg index because he controls those entities. The billionaire disputes that he controls the company.

Per Heggenes, a spokesman for Stichting INGKA Ikea, the owner of the Ikea Group, said in an interview last year that Kamprad’s goal was to protect Ikea. The multiple layers of ownership serve as a deterrent to takeover, he said. The foundations, if kept intact, will hold the ownership of Ikea in perpetuity.

Dieter Schwarz, Germany’s second-richest man, created a gemeinnuetzige Gesellschaft mit beschraenkter Haftung -- a limited liability company with a charitable purpose -- in 1999 to hold his Lidl and Kaufland discount supermarket chains, which form the largest closely held food retailer in Europe.

The 73-year-old controls a $23.6 billion fortune through the Neckarsulm, Germany-based Dieter Schwarz Stiftung gGmbH, a tax-exempt entity that had more than 30 million euros designated for charitable giving through October 2012 -- about 0.1 percent of Schwarz’s net worth -- according to Gertrud Bott, a company spokeswoman. The retail chains are overseen by his company, Schwarz Group.
Monaco Resident

In the U.K., structures that help billionaires avoid taxes are attracting increasing public scrutiny, according to Chizu Nakajima, a co-director of the Center for Research in Corporate Governance at London’s Cass Business School. Billionaire Philip Green controls Arcadia, the clothing retailer that includes the Topshop and Topman fashion chains, through London-based Taveta Investments Ltd., according to filings with the U.K.’s Companies House registry.

Taveta Investments is owned by Jersey-based holding company Taveta Ltd., the documents show. Taveta Ltd. is controlled by Green’s wife, who is a Monaco resident. The arrangement enabled a 1.2 billion-pound ($2.3 billion) dividend paid by Arcadia to Green’s wife in October 2005 to go untaxed, according to an article published in London’s Guardian newspaper.

Green, who didn’t respond to a request for comment, defended the arrangement in a November 2012 interview with the Financial Times newspaper. He said the structure was legal, and that Arcadia had paid 2.3 billion pounds in taxes since 2002.
‘Get Out’

Establishing an offshore account remains cheap and easy, according to Tutykhin. The typical structure costs about $1,500, he said, though he has seen ones marketed by Russian students for $200. Even the most-reputable firms don’t charge much more to establish an offshore structure, he said, though billionaires will often spend “tens of thousands” of dollars a year on lawyers to manage their holdings and assure discretion.

Those wealthy individuals should stop searching for new tax havens to hide their assets, said tax adviser Marcovici.

“We live in a world where you only have two choices: play by the rules of the country you live in, or get out if you don’t want to play by the rules,” he said.

To contact the reporters on this story: David De Jong in New York at ddejong3@bloomberg.net; Robert LaFranco in London at rlafranco@bloomberg.net

To contact the editor responsible for this story: Matthew G. Miller at mmiller144@bloomberg.net

Read the article online here: Billionaires Flee Havens as Trillions Pursued Offshore - Bloomberg

Sovereign #credit concerns, low interest rates reshaping world reserves | Reuters

85% still held in US #Dollars and #Euros

Sovereign credit concerns, low interest rates reshaping world reserves | Reuters

By Natsuko Waki

LONDON | Tue Apr 23, 2013 4:45pm IST

(Reuters) - After years of being also-rans, currencies from countries such as Canada, Australia, China, Brazil, Russia and Norway now have a realistic chance of breaking deeper into the $11 trillion global reserve mix.

Such a move, if it came, could encourage billions of dollars in private investment to ride along in the slipstream.

Deteriorating sovereign credit quality across industrial economies has already begun to push central bank asset managers to diversify away from the traditionally dominant U.S. dollar, euro, Japanese yen, British pound and Swiss franc.

The latest IMF report - the only official data on how reserves are managed - showed central bank holdings of currencies such as Australian and Canadian dollars jumped 25 percent to 6.1 percent at end-2012.

That's small compared with the 85 percent still held in U.S dollars and euros. But it points to the future.

Central bank reserve diversification is being driven by two things - the near zero official interest rates in the advanced world and the series of sovereign credit rating downgrades in major economies over the past year or so.

The low interest rates drive up the cost in domestic currency terms of building a huge overseas cash piles. The downgrades simply mean traditional safe havens do not seem as safe as they were.

The United States, France and Britain have lost triple-A endorsement from at least one credit agency. The latest hit to reserve credit quality came last Friday when ratings firm Fitch became the second agency to strip Britain of its top AAA rating.

"Central bank and official holders of reserves, like everyone else, are worried about incipient inflation, (but) they are also worried about declining credit quality among sovereigns," said George Hoguet, global investment strategist at State Street Global Advisors.

"The commodity currencies in general have significantly better balance sheets, certainly than the euro zone. It's understandable that they would move to diversification."

The annual survey of 60 central banks released this month, compiled by Royal Bank of Scotland for Central Banking Publications, showed two thirds of them are considering or would consider investing in China's yuan, while 40 percent of them said the same about investing in the Brazilian real, Danish crown and Indian rupee.

Around one in three is considering or would consider Norwegian, Swedish and Danish crowns, Russian rouble and New Zealand dollar.

"This (diversification) should stabilise the international monetary system by helping balance the investment flows and encourage (a) more long-term investment horizon into the new reserve currencies," one reserve manager at an Asian central bank told the survey.

SHRINKING SUPPLY

The desire for other currencies is driven by the imbalance in the demand and supply of safe-haven assets as well as the rising cost of holding a huge cash pile.

Backed by strong export growth, emerging economies have built up shock-absorbing precautionary reserves via central bank intervention to cap local currencies. But that very financial operation generates a large "cost of carry" in the process.

For example, China's central bank buys U.S. dollars to keep a lid on the yuan exchange rate in order to keep its exports competitive. In doing so, the bank sells yuan to its local banking system and then needs to sell yuan bonds to prevent the excess yuan seeping into the economy and stoking inflation.

It is then losing the difference between what it earns on its accumulated U.S. dollars - typically held in Treasury debt - and what it pays to its banks via the yuan-denominated bonds.

Tufts University researchers estimate this cost has grown to 3 percent of gross domestic product. For all emerging economies, it has grown to 1.8 percent of GDP from 1 percent in 2004.

Another study by Gioia Cellai and Francesco Potente at the Bank of Italy for Central Baking Publications showed the scale of a shrinking supply of top-rated debt.

In Europe, the size of outstanding debt with credit default swap rates below 100 basis points - one of the "safety" thresholds used - fell by a third to 4.7 trillion in the three years to 2011. That represents less than 50 percent of total outstanding debt, compared with more than 90 percent in 2008.

At a global level, the weight of debt deemed as a safe haven against the total debt fell by more than 15 percent in the same period.

"One desirable scenario for the coming years could be a gradual reduction in the concentration and polarisation of the safe asset universe...(That) would require prudent fiscal policies, major regulatory changes and a deepening in the local sovereign bond markets," Cellai and Potente wrote.

"The increased creditworthiness and liquidity may lead investors to gradually recognise the suitability of such bonds for meeting their safety needs, thus contributing to an increase in supply."

(Additional reporting by Carolyn Cohn, editing by Jeremy Gaunt)



Sovereign credit concerns, low interest rates reshaping world reserves | Reuters

Bank Leumi, Mizrahi Accounts Used for Back-to-Back Loans - Bloomberg

He said “everyone in their community” of Persian Jews in Los Angeles was “using back-to-back loans to access their offshore funds,”  

The tip of the iceberg.  No one is safe.

Bank Leumi, Mizrahi Accounts Used for Back-to-Back Loans - Bloomberg

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A Los Angeles businesswoman charged with conspiring to defraud the Internal Revenue Service used accounts at two Israeli banks, Bank Leumi Le-Israel Ltd. (LUMI) and Mizrahi Tefahot Bank Ltd. (MZTF), to hide assets, her attorney said.
Guity Kashfi will plead guilty in federal court in California, where prosecutors filed her plea agreement, the Justice Department said yesterday in a statement. Kashfi went to the Los Angeles branches of both banks to obtain so-called back- to-back loans secured by accounts she set up offshore and didn’t declare to the IRS, according to the Justice Department.
Kashfi first set up an undeclared account at Mizrahi and then opened one at Leumi, said her attorney, Ed Robbins. The court documents refer to Mizrahi as Bank A and Leumi as Bank B. The highest balance in Kashfi’s undeclared accounts was $2.5 million, the Justice Department said.
“These back-to-back loans were part of the bank’s service,” Robbins said. “She’s cooperating with the government in what’s obviously an investigation of the banks and its principals. She’s been cooperating for quite a while.”
Orit Reuveni, a spokesman for Leumi, didn’t immediately return an e-mail yesterday after regular business hours in Israel seeking comment on the case. A spokesman for Mizrahi couldn’t immediately be located for comment yesterday after regular business hours in Israel.

March Plea

On March 29, Zvi Sperling of Beverly Hills, California, pleaded guilty to conspiracy for using back-to-back loans obtained in Los Angeles that were secured by undeclared accounts at Israeli banks. The banks were Leumi and Mizrahi, two people familiar with the matter said.
Dozens of U.S. citizens who used offshore accounts to avoid taxes have helped the federal government in a criminal investigation of those banks, said the people, who asked not to be identified because the matter wasn’t public.
The probe, which the people said involves a U.S. grand jury, comes amid a U.S. crackdown on offshore tax evasion that has widened since UBS AG (UBSN), the largest Swiss bank, avoided prosecution in February 2009. Zurich-based UBS paid $780 million, admitted it helped clients evade taxes, and later turned over data on thousands of accounts.
Kashfi, who was born in Iran, came to the U.S. in 1980 and became a U.S. citizen about 15 years ago, according to a statement of facts filed in her case. She started a clothing business called Countess of California.

Needed Collateral

About 1982, her business had a $2.5 million line of credit with Mizrahi secured by her inventory. Her banker said she needed more collateral and asked if she had any Persian money to secure the loan. She said she had offshore funds that she wanted to keep overseas, according to the statement of facts.
The banker recommended that she open an account in Israel and transfer her funds to use as collateral for a back-to-back loan. He said “everyone in their community” of Persian Jews in Los Angeles was “using back-to-back loans to access their offshore funds,” according to the statement of facts.
While she initially opened the account in her name, she put it in a different name in 2001 “to prevent the United States government from finding the account,” according to the statement. He said the interest paid in Israel would be tax free “because it would not be reported to the IRS so no one would know about her Israeli account.”

Banker Arrested

In 2008, Kashfi was told that one of Mizrahi’s bankers had been arrested and the bank would use money in her Israeli accounts to pay off her back-to-back loans, according to Robbins and the statement. She then transferred the money to a Leumi account in Luxembourg “because she did not want to bring her money back” to the U.S., according to Robbins and the statement.
Kashfi grew concerned in 2009 and went to Luxembourg to close her account. She went to dinner with two bankers “who told her she would have issues if she closed her account and sent the funds” to the U.S., according to the statement.
“One of the bankers told Kashfi that her money was safe in Luxembourg” because “no one could get information relating to bank accounts” there, according to the statement.
The bankers “gave Kashfi a German cell phone to use with both bankers’ numbers preprogrammed in the phone, and told her to use the phone” to call them, according to the statement. “If the bankers needed to talk to Kashfi, they would call her on her personal phone and tell her to call them back on the German cell phone.”
After she closed her account in Los Angeles in 2011, “the bankers in Luxembourg told Kashfi to return the German cell phone, which she did,” according to the statement.
She failed to report interest income of $211,306 on the accounts from 2005 to 2011, according to court papers.
The case is U.S. v. Kashfi, U.S. District Court, Central District of California.

To contact the reporter on this story: David Voreacos in Newark at dvoreacos@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

Read the story here: Bank Leumi, Mizrahi Accounts Used for Back-to-Back Loans - Bloomberg

The Pangea Advisors Blog
http://blogpangea.blogspot.com/

On Following Instincts – and Crowds Mark Mobius #Botswana

“To buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude and pays the greatest ultimate rewards.”

On Following Instincts – and Crowds

Mark Mobius

2013/04/11

inShare1

I’m a believer in managing expectations, but I’ve found there are few better ways to undermine your potential travel enjoyment and investment success than limiting yourself with preconceived notions.
That being said, I myself have fallen victim to (wrongful) assumptions or biases. When my team and I traveled to the Republic of Botswana recently, I was, to be honest, expecting dilapidated infrastructure and generally depressed conditions as can be seen in some of the Sub-Saharan African countries. The actual experience, however, was quite surprising.  When we landed in the capital, Gaborone, we found that the airport was recently remodeled, with a full commitment to creating a pleasant, efficient and overall positive experience for arriving travelers.
It set the tone for other pleasant surprises we found there—including unexpected opportunities in new industries there to further investigate. In addition to a new modern and efficient airport, we saw lots of construction of new offices and apartment buildings, good roads, and we perceived a generally bright outlook there.
As one of the world’s largest diamond exporters, mining has been a key driver of Botswana’s economy. Since gaining independence in 1966, Botswana managed to transform itself from one of the world’s poorest countries to a country with one of the world’s fastest growth rates, and with that, a growing middle class. The International Monetary Fund projects Botswana’s 2013 GDP growth at 4.1%.¹
With one of Africa’s more stable and progressive regimes, Botswana has a diverse global base for its exports and notwithstanding some social problems, is truly an African success story, in our view. We discovered how leaders have been diversifying the economy via tourism and initiatives such as the introduction of call and data processing centers.

The purpose of our trip was to visit a company that, on paper, looked attractive as a potential investment. The management delivered an impressive presentation, talking up their products with verve. But later, in a local supermarket, I noticed the company’s goods were resigned to the farthest corners of the shop where they were difficult for customers to find. This raised some red flags for us to probe more deeply into the company’s growth potential. The whole experience was a good reminder that sometimes, you have to not only see things yourself, but you have to dig beyond the surface of what others are telling you.
After our first visit to Botswana, we felt the country looked to be a good place for growth and potential investment, but perhaps not so the individual company we had originally come to examine. It confirmed the reason why I travel so much: investing intuition plus first-hand observation and analysis is a powerful combination.
Another case in point. When I’m in a country and don’t at least once find myself in a traffic jam, it makes me suspicious about its growth potential. Why? When an economy is booming, congestion often results because infrastructure can’t keep up fast enough with the growth. The number of trucks on the roads can also be an important indicator of the demand for goods and services flowing in and out of a country.
Sometimes, when there’s too much traffic clogging up the road you need to take a different route. Following the same path as everyone else can stall your progress in reaching your investment goals too. Templeton’s founder, the late Sir John Templeton, was a proponent of not following the crowd. One of his more famous contrarian quotes is, “To buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude and pays the greatest ultimate rewards.”
In the realm of behavioral finance, following the crowd is termed “herding.” Many of us are conditioned to believe that the collective wisdom of the masses is superior to our own individual ideas, but this herd mentality can prevent us from reaching our investment goals. Sometimes, you just need to trust your own intuition. Here’s a good video on the topic I thought I’d share that illustrates in a fun way the pitfalls of following the crowd.
U.S. investors can view the video here
Non-U.S. investors can view the video here
The lesson of all this as investors is what my team and I continually strive to do — keep an open mind,  trust your intuition,  and try to avoid following crowds, both on the streets and in the equity markets!

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1. Source: Copyright © by International Monetary Fund. “World Economic Outlook” October 2012.

http://mobius.blog.franklintempleton.com/2013/04/11/on-following-instincts-and-crowds/?nicamp=other&nichn=markmobius&nismseg=twitter

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#Luxembourg announces end of #bank #secrecy

* Luxembourg PM ready to give bank account information
* New transparency regime would begin from Jan. 1, 2015

The continuation of the end of privacy laws.

Luxembourg announces end of bank secrecy with EU states | Reuters

Luxembourg PM says ready to give bank account information

* New transparency regime would begin from Jan. 1, 2015
* Move follows pressure from Germany and French scandal (Adds quotes and background)

 Wed Apr 10, 2013 6:56am EDT
By Michele Sinner
LUXEMBOURG, April 10 (Reuters) - Luxembourg plans to lift bank secrecy rules for European Union citizens who have savings based in the country, the prime minister announced on Wednesday, marking a sharp shift in policy that will take effect from 2015.
The move brings Luxembourg into line with all other EU countries bar Austria in sharing information within the European Union about bank depositors in its territory. The decision adds to pressure on Vienna to fall into line, after Austria's chancellor said on Tuesday it would join talks on the subject.
Luxembourg's decision follows lobbying by Germany and the European Commission, bolstered by the case of former French budget minister Jerome Cahuzac, who was placed under investigation for fraud after admitting lying about having a Swiss bank account.
"We can, without great damage, introduce automatic exchange of information as of January 1, 2015," Prime Minister Jean-Claude Juncker told parliament in a state-of-the-nation address.
"We are following a global movement ... we are not caving in to German pressure," he said, adding that 25 EU countries as well as the United States wanted such data-sharing.
Germany said on Tuesday that the EU's five largest economies - Germany, France, Britain, Italy and Spain - had agreed to deepen cooperation on tackling tax evasion.
Juncker's announcement ends decades of bank secrecy in Luxembourg, which helped the country establish what is now one of the biggest financial centres in Europe and to make its citizens the region's wealthiest in terms of per-capita income.
In recent weeks, however, Luxembourg, with a banking industry roughly 22 times the size of its economy and with deposits equivalent to 10 times its GDP, has come under renewed pressure to change.
The heavy losses imposed on uninsured deposit holders in the bailout of Cyprus underscored the weak bargaining position of smaller EU states should they run into difficulty. Cyprus's financial sector, swollen with foreign funds lured by low taxes and light regulation, also dwarfed the island's economy.
The European Commission said it "warmly welcomed" the announcement by Juncker and said discussions were ongoing with Austria to encourage it to fully sign up to the EU's savings directive, a piece of legislation that advocates say will help in the fight against tax evasion across the EU.
"I hope they will be able to follow the Luxembourg lead," said Emer Traynor, the Commission's spokeswoman on tax issues.
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For a ranking of countries' compliance with banking transparency standards, please click link.reuters.com/gyb37t ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
FIGHT LIKE LION
Luxembourg is also set to sign a similar agreement with the United States, which has long been pushing for tighter controls on offshore centres such as Switzerland to stop tax evasion.
Pressure to shift was increased by a report by the Washington-based International Consortium of Investigative Journalists detailing how banks have worked to help wealthy clients use tax havens such as the British Virgin Islands.
"We cannot deny to the Europeans all that we will have to concede to the Americans in a bilateral treaty," said Juncker.
Once Luxembourg adopts the legislation, it would mean the automatic exchange of data about EU citizens holding bank accounts in Luxembourg, with the aim of cracking down on tax avoidance in particular on interest income from savings.
It will not apply to foreign companies based in the country, which is a popular headquarters for major corporations. Juncker said Luxembourg would not increase corporation tax.
Most developed countries share information on taxpayers and depositors "on demand". But since this requires the authorities in the requesting jurisdiction to suspect wrongdoing, it only has limited impact in uncovering unlawful behaviour.
Automatic exchange of information allows tax authorities to more easily spot tax evasion or illicit money flows.
Juncker played down the impact of the change in rules, which Luxembourg has been resisting for roughly seven years since the EU Savings Directive was launched.
"The finance sector in Luxembourg doesn't existentially depend on banking secrecy," he said. "The government is not switching off the lights in the finance sector."
Wednesday's announcement leaves Austria as the only country not fully signed up to savings directive rules. Its finance minister said this week she would "fight like a lion" to defend the country's banking secrecy regime.
But Chancellor Werder Faymann signalled an easing of Vienna's hardline stance, saying on Tuesday that Austria would join Luxembourg for talks with the EU on how to crack down on cross-border tax cheats.
The European Commission warned Austria on Monday that its banking secrecy would put it in a "lonely and unsustainable position" if it did not adopt the same rules as other countries in sharing data on foreign depositors. (Reporting By Michele Sinner; Writing by John O'Donnell; Editing by Catherine Evans)


UPDATE 2-Luxembourg announces end of bank secrecy with EU states | Reuters

François Hollande’s Campaign Treasurer’s Investments in the Cayman Islands

More on the Offshore Leaks story now breaking. This time it is François Hollande’s Campaign Treasurer’s Investments in the Cayman Islands that are in question.

This from the ICIIJ website:

The International Consortium of Investigative Journalists has just released the first stories from aglobal collaborative project into the world of offshore money. The Tax Justice Network, an advocacy group claims that a third of the world’s wealth is tied up in the secret area of offshore.For the past 15 months, journalists from over 40 countries have worked together to shed light on this issue.

More here: http://www.icij.org/blog/2013/04/highlights-offshore-leaks-so-far


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http://blogpangea.blogspot.com/

François Hollande deep in tax haven merde

François Hollande, French president, was a hero for a time last year for the gullible until his proposed growth pact was revealed to be just a political slogan. He also fired up supporters with plans to tax the rich until the pips squeak and become the scourge of tax havens. However, in the past two weeks, the already unpopular president has found himself to be deep in tax haven merde.

France24 says  Jérôme Cahuzac, who resigned as Hollande's budget minister, which included the job of countering tax cheats, once compared having a Swiss bank account with taking a pregnancy test. “It’s either there or it’s not - - there’s no in between,” he told a reporter from French daily Libération in February. “Do you think I’d still be in office if there was the slightest chance I had one?”

Two months later, Cahuzac’s carefully concealed “pregnancy”, or €600,000 offshore bank account, has come out screaming. Described by the French press as “one of the most spectacular scandals” the country has seen for decades, Cahuzac’s admission of guilt - - after four months of public denial - - has left the nation dumbfounded, and his Socialist Party colleagues devastated.

The news channel says Cahuzac was deemed a tough-talking, earnest politician who prided himself on honesty. His staggering fall from grace has got everybody in France wondering, who is the Socialist minister who duped the nation?

Then on Thursday reports of a massive leak of tax haven data identified Jean-Jacques Augier, President Hollande's campaign co-treasurer and close friend, as having an interest in a Cayman Island's company.

An anonymous source has provided the opportunity for the greatest insight into a worldwide network of tax evaders. Media in more than 30 countries are currently trawling through loads of data.

It is reported that 260 gigabytes of documents - - equivalent to 500,000 printed copies of the Bible, has been made available to the International Consortium for Investigative Journalism (ICIJ) in Washington. More than 2m emails and other confidential documents, implicate more than 130,000 people from 170 countries, who are alleged to have secreted their money in tax havens.

British Virgin Islands is the main tax haven in the trove of data - - known in shorthand as the BVI. It has a population of 28,000 and 500,000 active offshore companies. That represents about 40% of the offshore companies that exist around the globe, according to a 2011 World Bank report

An already weak President Hollande has taken a back seat in Europe to avoid brickbats.

After the second round of the National Assembly elections last June, he was offered a few EIB (European Investment Bank) funded projects to meet his demands for a growth pact and that was that. However, it would have been useful to have had a detailed plan that he could have used to rally support from other countries. He had nothing.

Angela Merkel, the German chancellor, has no countervailing power to worry about.

François Hollande deep in tax haven merde

CORRECTION FROM ABN #AMRO RE: ABN AMRO #defaults on physical #gold deliveries to customers

Its seems that the actual situation is quite different.  There has not been a default from ABN AMRO. 

CORRECTION WITH STATEMENT FROM ABN AMRO:

There has recently been misguided reporting in the media concerning a letter sent by us to a small number of Dutch clients regarding our gold banking services. We are seeking to clarify this misunderstanding with the following information:

Until 2009 ABN AMRO had a small bank that traded in physical gold called Hollandse Bank Unie (HBU) located in Rotterdam. Following our integration with Fortis Bank Netherlands, ABN AMRO was required by the European Commission to sell a part of its commercial banking portfolio in the Netherlands to Deutsche Bank. This was publicly announced at the time and included the sale of HBU, along with the transfer of HBU clients to Deutsche Bank. These HBU clients were able to use ABN AMRO facilities during the transition phase, and Deutsche Bank also offered its HBU services to ABN AMRO. Deutsche Bank subsequently announced last year that they would cease HBU activities in the Netherlands from 1 April 2013 – including this facility for ABN AMRO. We recently sent a letter to small number of affected clients, advising them that we can no longer make use of the HBU facilities provided by Deutsche Bank from this date. We have also found a new provider for these service, that is UBS.

If you require any further information, please contact the ABN AMRO press office

Jeroen van Maarsschalkerweerd +31 20 628 4748

Alex Evans                               +44 20 3192 9417

Alex Evans | Senior International Press Officer

ABN AMRO Bank N.V., UK Branch

This was the Original Post:

Is this the Canary in the Coal Mine?

ABN AMRO issued a letter to their gold contract customers of failure of delivery, and instead will pay account holders in a paper currency equivalent

 Largest Dutch bank defaults on physical gold deliveries to customers - National Finance Examiner | Examiner.com 

Last week, a rubicon was crossed in the precious metals market as one of the largest banks in Europe defaulted on their gold contracts, and informed their customers there was no physical gold available for delivery.
ABN AMRO, the largest Dutch bank in the Eurozone, issued a letter to their gold contract customers of failure of delivery, and instead will pay account holders in a paper currency equivalent to the current spot value of the metal.
Over the past two months, there has been a concerted effort by the major Western banks to bring down the price of gold and silver, even as countries like Russia, Iran, and China continue to accumulate the physical metal in large quantities. Like the folly of betting against the stock markets when the Fed is pumping up equities with $85 billion per month, going against the J.P. Morgan silver short machine in the futures market has been a losing proposition for silver bulls.
Interestingly for Europe however, since the Eurozone crisis spread from Greece to Spain, Italy, and Cyprus, the fastest growing currency being purchased by retail investors is Bitcoin. Bitcoin is a digital currency that is out of the control of sovereign central banks, and to this point, has not been manipulated by inflationary monetary policy.
In investing circles there is an adage which says, if you don't hold it, you don't own it. Whether it is land, metals, or other hard assets, if it is held in a bank, in a paper instrument, or in a paper currency, the documented owner has management control, but not physical control. And as the world saw last month in Cyprus, the government, or even a major bank like ABN AMRO, can change the terms of a contract at any time, and return to investors asset values set by the bank, and not the customer's intention.

Read the article online here: Largest Dutch bank defaults on physical gold deliveries to customers - National Finance Examiner | Examiner.com