Chuka Umunna, 'British Obama,' Takes on Tax Havens

[Let me try my at hand at a compound post--something I haven't done in quite a while. In three parts, then...]

I. After Barack Obama was elected president and before last year's UK general elections, there was some comment on how British politics could not or would not produce a British Obama:

Britons are ready to elect a black prime minister - but the system may never give them a chance, a study concluded today. It found a "deepening tide of tolerance" over the past 50 years, with attitudes to race similar in Britain to the US. But America's political system was better at promoting black talent than Parliament or local councils.

Author Professor Robert Putman [of Bowling Alone fame] said: "The minimal representation of non-whites in the House of Commons is a significant bar to the arrival of a British Obama." The researchers, from Harvard and Manchester, tracked views on mixed marriage and other tell-tale signs, on both sides of the Atlantic since the Fifties. Last year equalities watchdog Trevor Phillips said he doubted the UK's political machinery would let a "British Obama" break through.

Note that I am exceedingly wary of the term 'black president' for a number of reasons. First, Obama has a mixed race parentage, and it reflects biases that someone with one black parent is considered 'black' while having one white parent does not necessarily make one 'white' in popular discourse. In part, it reproduces deplorable notions of 'racial purity'. Second, phenotype matters: Manchester United footballer Ryan Giggs is not really considered 'black' despite having a black father largely due to his 'white' appearance.

At any rate, we come to another potential post-racial politician (caution advised using that term) with much promise. Also from a centre-left party (post-New Labour Labour, whatever moniker it has nowadays), Chuka Umunna, MP for Streatham and 32 years of age, is gaining national attention by adopting populist stylings reminiscent of someone prior to taking the highest US office. While this comparison works in some respects, it doesn't in others. They share:

• Being young politicians who've made it at an early age;
• Exotic, Africa-sounding last names (as opposed to more racially ambiguous, common surnames such as Brown, Johnson, etc);
• Mixed heritage featuring a father who was, in effect, a first-generation migrant,
• Sharp fashion sense; and
• As we shall see, a gift for oratory

On the other hand, our man Chuka comes from a more distinguished background on both sides:

Chuka Umunna is best known around Westminster for being black [see my caveat above], the one subject which this loquacious MP is rather reluctant to discuss. It is not that he is awkward about his mixed Nigerian/Anglo-Irish ancestry; more that he finds people make boring assumptions about him based only on his skin colour.

Far from being the poor south London kid, Umunna is rather grand on both sides. His father, who in 1964 arrived in the Liverpool docks from Nigeria with a suitcase on his head, was part of the local ruling family of chiefs. He did well in Britain by setting up an import-export business, before his premature death in a car crash when Chuka was 13.

His mother is of a prominent Anglo-Irish family from Sligo, the daughter of Sir Helenus Milmo, high court judge and interrogator of the Cambridge spies. Umunna has lived his entire life around Brixton and Streatham, “but I'm not going to pretend I grew up on one of the toughest estates in my constituency, because I didn't”. Indeed not. When his parents felt that teachers had given up on him in his local state school, they moved him to private St Dunstan's College in Catford, where he immediately began to thrive.

II. From more of the political bit we move, let's move to the international political economy bit. Barclays is undoubtedly familiar to football fans the world over as the title sponsor of the English Premier League. Something it shares though with other major financial institutions--not only those in Blighty--is a penchant for operating in paradis fiscaux or tax havens. And so it came to pass just a few days ago that Barclays President Bob Diamond found himself being grilled in parliament by one Chuka Umunna:

When Bob Diamond came before the Treasury Select Committee this week, he knew he would be asked awkward questions about the ample sufficiency of his multimillion-pound remuneration from Barclays Bank.

But he was not expecting the best-dressed MP in the room, a striking 32-year-old novice with just eight months in the Commons, to land the most painful kicks by suddenly interrogating him about Barclays' offshore subsidiaries. These allow the banks to enhance what lawyers delicately call “tax efficiency” for their clients and shareholders.

With elaborate, mocking courtesy, Chuka Umunna asked Diamond if he would like to tell the committee how many subsidiary companies the group operates in the three benign jurisdictions of the Isle of Man, Jersey and the Cayman Islands. Diamond said he was awfully sorry and would have to get back to the committee on that one. Umunna spared the Barclays chief the bother, and as the television cameras rolled, provided the information — respectively 30, 38 and 181.

Offshore activist Richard Murphy has more commentary on this Umunna v. Diamond episode.

III. Especially after the global financial crisis blew over, the role of offshore tax havens has come back into focus after being off the popular radar for some time--especially with Northern Rock's use of vehicles located...elsewhere. If there are ready-made villains in subprime globalization, rich folks schlepping money away to faraway lands to avoid contributing their fair share of revenue to the tax authorities seem like naturals. Together with Professor Ronen Palan of my alma mater the University of Birmingham and Christian Chavagneux, they also authored a Cornell University Press title last year that is one of the most up-to-date on the subject of tax havens if you're further interested. Here is the introductory blurb:

From the Cayman Islands and the Isle of Man to the Principality of Liechtenstein and the state of Delaware, tax havens offer lower tax rates, less stringent regulations and enforcement, and promises of strict secrecy to individuals and corporations alike. In recent years government regulators, hoping to remedy economic crisis by diverting capital from hidden channels back into taxable view, have undertaken sustained and serious efforts to force tax havens into compliance.

In Tax Havens, Ronen Palan, Richard Murphy, and Christian Chavagneux provide an up-to-date evaluation of the role and function of tax havens in the global financial system-their history, inner workings, impact, extent, and enforcement. They make clear that while, individually, tax havens may appear insignificant, together they have a major impact on the global economy. Holding up to $13 trillion of personal wealth—the equivalent of the annual U.S. Gross National Product—and serving as the legal home of two million corporate entities and half of all international lending banks, tax havens also skew the distribution of globalization's costs and benefits to the detriment of developing economies.

The first comprehensive account of these entities, this book challenges much of the conventional wisdom about tax havens. The authors reveal that, rather than operating at the margins of the world economy, tax havens are integral to it. More than simple conduits for tax avoidance and evasion, tax havens actually belong to the broad world of finance, to the business of managing the monetary resources of individuals, organizations, and countries. They have become among the most powerful instruments of globalization, one of the principal causes of global financial instability, and one of the large political issues of our times.

While I acknowledge that tax havens often are places where corrupt rulers of developing nations siphon off cash from the people's purse, financial activity generated in tax havens surely benefits their hosts too, right? It's not entirely as, ah, black and white an issue as most commentators make it out to be. Whether becoming a tax haven is a legitimate development strategy for small island nations is certainly up for discussion. On the balance--that's what we need to investigate.

Still, it's a pretty good issue for a 'British Obama' to gain attention with, don't you say?

Why the Euro is B**ch Slappin' the US Dollar

I got a chuckle out of this one: Not so long ago during the height of the so-called euro crisis, foreign exchange commentators were issuing doom-laden prognostications about how the single currency would fall to parity with the US dollar in a short space of time. Well wonder of wonders--the Eurozone is not collapsing. Indeed, the currency has recently vaulted its way past the $1.30 handle. I like to think it has something to do with ECB President Jean-Claude Tritchet--a great, great man--warning against runaway stimulus spending's deleterious effects on maintaining the value of the currency debts are denominated in. As America has shown in recent years, it has little compunction in devaluing its currency. (After all, shortcuts to boosting export competitiveness and devaluing debts can't be that bad, right?) Store of value--such an eccentric European conceit.

Sometime ago when the euro was soaring, gangsta rap artist Jay-Z replaced greenbacks with euros in his music videos (see here for footage). They say life imitates art; and so it is now. An argument that previously struck me as an urban legend was that gangsters (criminals who can spell?) were ditching dollar for euro notes since €500 notes existed whereas only $100 ones did, making it easier to traffic in the former than the latter. Well, the Wall Street Journal has a new article that aims to put my apprehensions to rest. Yes, Virginia, it appears that criminal interest is, er, a legitimate explanation for the single currency's buoyancy:

Gangsters, drug dealers and money launderers appear to be playing their part in helping shore up the financial stability of the euro zone. That's thanks to their demand, according to European authorities, for high-denomination euro bank notes, in particular the €200 and €500 bills. The European Central Bank issues these notes for a hefty profit that is welcome at a time when its response to the financial crisis has called its financial strength into question.

The high-value bills are increasingly "making the euro the currency of choice for underground and black economies, and for all those who value anonymity in their financial transactions and investments," wrote Willem Buiter, chief economist at Citigroup, in a recent research report. The business of issuing euro notes, produced at almost zero cost, is "wildly profitable" for the ECB, Mr. Buiter wrote...

By value, 35% of euro notes in circulation are in the highest denomination, the €500 bill that few people ever see. In 1998, then-U.S. Treasury official Gary Gensler worried publicly about the competition to the $100 bill, the biggest U.S. bank note, posed by the big euro notes and their likely use by criminals. He pointed out that $1 million in $100 bills weighs 22 pounds; in hypothetical $500 bills, it would weigh just 4.4 pounds.

Police forces have found the big euro notes in cereal boxes, tires and in hidden compartments in trucks, says Soren Pedersen, spokesman for Europol, the European police agency based in The Hague. "Needless to say, this cash is often linked to the illegal drugs trade, which explains the similarity in methods of concealment that are used."

So word up, homies. Like me, the gangstas are down with Jean-Claude T--a "badass mofo" if there ever was one.

UPDATE: LSE alum William Vlcek who is now lecturing at the University of St. Andrews dropped a note telling us to look at two BBC articles which he finds more informative than the WSJ one. First, the widespread use of this denomination for illegal purposes has resulted in UK authorities curtailing their availability here:

Exchange offices in the UK have stopped selling 500 euro banknotes because of their use by money launderers. The Serious Organised Crime Agency says 90% of the notes sold in the UK are in the hands of organised crime. Soca deputy director Ian Cruxton said 500 euros had become the currency of choice for gangs hiding their profits.

The move means nobody will be able to buy the note in the UK - but travellers will be able to sell them if they enter the UK carrying them from abroad. There has been mounting international concern over the note, which is worth more than £400, and its use by criminals or tax evaders.

Second, another article details a sting operation that prompted the ban:

In some countries they're known as "Bin Ladens" - the banknote everybody knows exists but few, other than criminals, ever see. Now the 500 euro note is being withdrawn from sale in the UK.

Like almost all organised crime, the breakfast cereal box plan was done with the minimum of fuss. Eftychia Symeonidoy stood outside a London apartment, casually holding the box under her arm. But instead of it containing the recommended daily amount of vitamins and minerals, it had been stuffed with 300,000 euros.

As the undercover team from HM Revenue and Customs secretly filmed her, an ordinary estate car pulled up and the box was handed to the driver. It was another consignment of laundered drugs cash safely delivered - or so the gang thought. Symeonidoy and the rest of the 13-strong laundering gang were all later convicted and jailed. The group smashed by HMRC investigators had taken £24m of dirty money from their clients in the criminal underworld - and returned "clean" euros.

Every month, they'd take in between £1m and £4m in cash - massive bags of sterling notes. They had so much of it, they had to stack it on sofas and in cabinets, and stuff it in bags in cupboards. The jailing of that gang was a major breakthrough for investigators - but it's only the tip of the money laundering iceberg which revolves around fake bureau de change and the 500 Euro banknote.

Money laundering centering on €500 notes is a game that's increasingly up in the UK. With the pound appreciating somewhat, hey, maybe it isn't too bad ;-) Gangsta, gangsta, it's not about a salary it's all about reality.