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May 10, 2015
Who Calls the Shots on this Financial Road to Ruin?
by RIDWAN SHEIKH
Apologise and carry on, is a ruse played by corporate tax dodgers. And, banks are no
exception. The 2007 HSBC scandal, where 106,000 clients from more than 200
countries dodged hundreds of millions of tax dollars has only seen one person
prosecuted. With little done, are governments powerless at the financial legal
quandary, or is there something we’re not being told?
The whistleblower, Herve Falciani, redefined British understanding of the forces at
work. For a bank to assist clients to dodge taxes into secret Swiss banks was
unthinkable. But it went further. Falciani also claimed many banks adopt similar tax
It’s a claim familiar to the U.S. In 2012, Bank of America ensured its clients avoided
taxes on stock dividends in hedge fund trading by using its subsidiary bank in Europe,
all done with government backing.
It saw Bank of America hide $17.2 billion in offshore accounts. An estimated $4.3
billion of federal taxes was evaded. Prior to 2012, the banking giant was bailed out by
the Federal Reserve Bank and the Treasury Department of a staggering $1.3 trillion.
It’s the same story with Citigroup, offshoring $42.6 billion resulting in the loss of $11.5
billion in taxes. The bank also received a bailout, to the sum of $2.5 trillion.
This reflects the cosy relationship a State has with banks. It’s rooted in history but has
steadily diminished a government’s authority.
Banking took off in the U.S in an event known as the Panic of 1907. The instigators of
this public panic were four private bankers, J.D Rockefeller, J.P Morgan, Paul
Warburg and Baron Rothschild, which led to the collapse of major banks and trusts.
The bankers decided to combine their wealth to form a private bank, with 100%
private shareholding. The bank would create money and lend it to the government
under their terms.
The Senate strongly opposed the idea, but in 1910, the four bankers wrote the
Federal Reserve Act in secrecy, and the recommendation was pushed through
congress by their allies. In 1913, after heavy lobbying and political donations to
President Woodrow Wilson, the bill was voted through, and the Federal Reserve Bank
To make sense of banking irregularities the principle of how money is created needs
to be understood.
This was apparent in a landmark Minnesota court case in 1969. In the First National
Bank of Montgomery vs. Daly. The defendant, Jerome Daly, an attorney representing
himself, opposed the bank’s foreclosure on his home mortgage loan on the basis the
bank had put up no real money for his loan. This was known as no actual
consideration, (i.e. the thing exchanged), for the loan. When the bank’s president, Mr
Morgan, took the stand, to everyone’s astonishment, he admitted the bank created
money, ‘out of thin air’, for its loans, adding this was standard banking practice.
In the end, the court rejected the bank’s claim for foreclosure, and the defendant kept
his house. The decision wasn’t enough to reform banking practice. It remains
standard practice, but questioning continues of why this exclusive treatment of
corporations even exists.
In the U.K, the Bank of England confirmed private banks unchecked economic hold. In
its 2014 analysis, entitled: “Money Creation in the Modern Economy”, it stated money
creation in education is skewed. It is when banks make loans they create new money.
This is explained by Richard Werner, an economist and professor, in his book, New
Paradigm in Macroeconomics. He says: ‘the credit extended by banks do not remove
purchasing power or claims on resources form anywhere else in the economy. Strictly
speaking it cannot be described as ‘lending’. Banks do not lend, they create it.’
The think tank, Citizens for Tax Justice (CTJ) noted that 15 of the Fortune 500
companies paid no federal income tax on $23 billion in profits in 2014 alone, and paid
almost no tax on $107 billion in profits over the past five years. Amongst the big
hitters of tax breaks were General Electric, the toy makers Mattel, and media giants,
Time Warner, and CBS.
Exploiting the loopholes is the reason why corporations get away with paying between
0% and 15% tax, instead of the 35% rate. The FACT (Financial Accountability &
Corporate Transparency) coalition reported the U.S treasury loses $150 billion a year
in tax revenue, with decade losses of $1.5 trillion.
Lobbying influence also undermines governance. Wells Fargo, for example, spent
millions of dollars on lobbying, which influenced laws in 2009, and in 2012, when the
legislators were thinking of putting measures on foreclosure practices and reforming
A study by Martin Gilens, a Professor at Princeton University, in September 2014,
entitled Testing Theories of American Politics: Elites, Interest Groups, and Average
Citizens, showed the influential factors involved in determining public policy.
Using data collected from 1981 to 2002, the report looked at the U.S political system
from 3 interest groups. The groups were the average citizens, economic elites
(affluent Americans), and organized interest groups; mass-based or business-
After examining nearly 1,800 U.S policies during that period, and comparing them to
the groups, the research concluded U.S policy is dominated by its economic elite.
The researchers say, “The central point that emerges from our research is that
economic elites and organised groups representing business interests have
substantial independent impacts on US government policy, while mass-based interest
groups and average citizens have little or no independent influence.”
The researchers conclude government policies rarely meet the preferences of
majority of Americans, and instead overwhelmingly express the preferences of special
interests and lobbying organisations: “When a majority of citizens disagrees with
economic elites and/or with organised interests, they generally lose. Moreover,
because of the strong status quo bias built into the U.S political system, even when
fairly large majorities of Americans favour policy change, they generally do not get it.”
The Regan era in the 1980’s was seen as the golden age of ‘free’ enterprise
capitalism. In truth, this era never really left. Banks are operating beyond their call of
duty by seizing public assets, while the government turns a blind eye.
Morgan Stanley imported 4 million barrels of oil and petrol into the U.S in June 2012,
Goldman Sachs stored aluminium in warehouses in Detroit, and continues to own and
operate airports in many countries, and makes vast profits from toll roads in the U.S,
Puerto Rico, India and Australia.
The Colorado toll road is of particular importance. The 50 year contract, covering 18
miles, was approved by the Senate on 20 February 2014. Under the terms of the
contract, the Colorado Senators and Representatives were not allowed to read the
contract prior to signing, or to amend or vote on the contract. Goldman Sachs is not
spending a dime funding the project, instead the $552 million is pocketed from tax
payer dollars, while the company will secretly profit from hiked up toll charges.
The challenges are monumental but futile unless there is a political will, to stand
against corporations buying their way out of justice. Only then can there be some
credibility to the meaning of democracy, a term derived from the Greek language,
“Rule by the people”.
Ridwan Sheikh, holds a post graduate diploma in Journalism from London School of
Journalism. He has also visited Israel and occupied Palestine, and has written about
the region. He can be contacted at email@example.com