The Komisar Scoop Reports & Analysis by Investigative Journalist Lucy Komisar

Wednesday, March 26, 2008

Larry Summers on Robert Rubin and money-laundering

Filed under: Blog,offshore,Regulation & enforcement — Tags: , — Lucy Komisar @ 5:31 pm

March 26, 2008

Lawrence Summers spoke at the Council on Foreign Relations last week and was a bit uncomfortable about my question regarding Clinton administration anti-money-laundering policy.Lawrence Summers

I pointed out that Treasury Secretary Robert Rubin (who happens to be one of the Council’s co-chairs) had not acted against money-laundering because he didn’t want to stop the free flow of cash into the US – in effect, into Wall Street. But when Summers succeeded Rubin in the job, he had taken action.

The facts are important because Rubin is poised to move into a Democratic administration — especially if Clinton wins — as a high-level Wall Street influential.

Here’s the q & a, March 19, 2008:

Q: Lucy Komisar, I’m a journalist. I interviewed Joe Stiglitz not too many years ago. He was chief of the Council of Economic Advisors under Clinton. He told me that when Robert Rubin was Treasury Secretary, he didn’t want to do anything to stop the free flow of money into the US. That meant not doing anything about money laundering because some of the freely flowing money was drug money, corruption money, money looted from developing countries.

But when you came in, you really took some initiative to do something about the whole money laundering issue. I’m interested about what made you want to do that and how did you decide what you ought to do.

Did you have problems with interests that didn’t want you to do this because maybe they wanted the money to come in freely without any blocking? This is an issue which of course is important today. Obama signed on to the Stop Tax Haven….

[Here Summers interrupts; I was about to say that Obama had co-sponsored the Stop Tax Haven Abuse Act with Senators Carl Levin and Norm Coleman.]

A: Lawrence Summers: I got it, I got it. I’ll take my compliments where I can get them, even from Joe Stiglitz who hasn’t usually been complimentary. Let me just say that I’m aware of no difference in opinion on this question between Bob Rubin and myself, and somehow the suggestion that he was representing Wall Street interests seems to me to be entirely unfair and unwarranted and devoid of merit.

For a variety of reasons at the time when I became Secretary of the Treasury, given concerns that existed in a number of parts of the US government, given some of what we have been discovering at the IRS, we did launch a series of initiatives directed at what I like to call the dark side of capital mobility. But for the most part open capital markets, foreign investment, bring tremendous benefits.

But we identified three highly programmatic things: tax havens that were costing the tax payer large amounts of money, principally because of bank secrecy, not just in the United States, but in the rest of the world. Pressuring the ability to maintain progressive taxation around the world. Money laundering and failure to adequately regulate levered financial institutions who could plant their leverage abroad.

We launched a series of initiatives designed to multilateralize an effort, to diplomatically pressure jurisdictions with respect to all three of those issues. I would say that during the time that we did it, with the help of my colleagues – my colleagues Will Wexler, Neal Woollen and Todd Sturn – we made what by government standards was quite a bit of progress over a period of a couple of years.

The new administration regarded this all as some kind of dangerous left-wing plot against the fundamental right of capital to hide itself and not pay taxes and basically eviscerated all the initiatives. They basically said they are not our policy anymore, we’re done, finished. Yes, we have been working in the OECD through all this time but it’s done. After 9/11 there was a bit of a change of heart, particularly around the money laundering parts of it.

I think we did the right thing, and by the way, if we are to maintain support for an open trading system, we had better be prepared in those places where open markets are coming with very substantial costs, to act aggressively and forcefully. I thought this was important in two respects. I thought the problems were large and important, and I also thought there was a broader symbolic purpose in making clear that our judgments and commitment to open trade were not some kind of ideological principle, but were based on a pragmatic judgment of what would best promote prosperity.

Full transcript plus video and audio.

Monday, March 10, 2008

The big crime in the Spitzer scandal is money laundering

Filed under: Blog,offshore — Lucy Komisar @ 11:19 pm

By Lucy Komisar
March 10, 2008

Eliot SpitzerIt’s not just about buying or selling sex. It’s also about money laundering. New York Governor Eliot Spitzer’s downfall began with an investigation by the Internal Revenue Service. That’s because when people move money for illicit purposes, they try to disguise the flows. And US banks are required to report suspicious transfers to the Treasury Department.

The IRS gets involved, because those transfers could be effected to hide income from taxes. So it responded to bank reports of suspicious transfers by Spitzer, who was paying thousands of dollars for call girl services. The money was being sent to QAT consulting, a shell company owned by the Emperor’s Club V.I.P. prostitution ring.

Then the FBI joined the United States Internal Revenue Service-Criminal Investigative Division, looking into what appeared to be at first possible government corruption but then turned out to be payments to an organization running prostitution. And also laundering money in the United States and Europe.

The money laundering factor

When people or companies deposit big bucks in banks, they have to say where it comes from. That is because federal law says that banks have to do “due diligence” about their customers. “Where did you get this million you are depositing?”

And therefore, law breakers have to launder their profits. That means that they have to move money in a way so that it doesn’t show up in their accounts with no logical explanation of how they got it.

Remember how Al Capone got busted for tax evasion? Crooks learned then that they had to launder their ill-gotten gains.

That’s why the Emperors used shell companies: QAT Consulting Group, QAT International and Protech Consulting.

Spitzer’s bankers reported suspicious transfers in “SARs,” suspicious activity reports. But who were the Emperors’ shell company bankers and what were they reporting?

We’re talking about a million-dollar business operating in the US, the UK (London) and France (Paris), with transfers going across international borders.

Now, here’s the next step. Organized crime, which if this operation ran in at least three countries, it certainly is, routinely uses the offshore system, bank secrecy havens, to hide and move illicit money.

That’s because people and companies can set up offshore accounts and shell companies that don’t include their names but are registered in the names of local lawyers or accountants so they can hide from curious law enforcement agents. And so they can doctor their books to say what they want to say.

And that exists because the US has not used its muscle to shut down the corrupt tax haven system.

So, let’s wait to hear where the Emperors moved their money. Grand Cayman? Switzerland? The Isle of Man? That’s the real crime story, much more important than an arrogant guy who visited a hooker. Stay tuned.


Tuesday, March 4, 2008

Tom Stoppard’s “Rock ‘N’ Roll” dissects political morality and the politics of fighting repression

Filed under: Theater — Lucy Komisar @ 10:44 am

By Lucy Komisar
March 4, 2008

In 1986 I went to Prague to report on the dissident movement. Among the leaders I wanted to see was Jiri Dienstbier, who had been a reform Communist and radio journalist and commentator during the 1968 “Prague Spring.” He’d lost his job, because he spoke out on the air against the Soviet military intervention. After he helped found the human rights group, Charter 77, he’d spent three years in prison and then worked as a boiler technician in the subway.

He had been hard to reach. The phone company the month before had informed him half-apologetically that the city needed his line “in the public interest.” I left a note under his door, and he phoned that evening, asking if I wanted to go to an outdoor rock concert. We spent the next afternoon in the surreal setting of a sculptor’s rock quarry that had been lent to a dissident jazz club.

It all came back to me when I saw Tom Stoppard’s “Rock ‘N’ Roll,” on Broadway, directed by Trevor Nunn, about Czech dissidents and the government officials who repressed them. (Both Stoppard and Nunn are British.)

Stoppard, a man of the Left, muses over the decisions people make when confronted with tough personal and political choices. Mixing the complexities of peoples’ lives with their political realities, he paints figures who exhibit varying combinations of morality, courage and weakness.

Brian Cox as Max, photo Joan MarcusMax Morrow (Brian Cox), the unreconstructed Stalinist Cambridge professor, sides with the Soviets against the 1968 uprising led by the reformist Communist, Alexander Dubcek. He says, “I’m like the last white rhino” and argues with his Czech student Jan (Rufus Sewell) about the meaning of freedom. Max says that in London “everyone’s free to have lunch at the Ritz, and it’s absolutely legal to be unemployed…. For you freedom means leave me alone. For the masses it means give me a chance.” Jan ripostes, “Stalin killed more Russians than Hitler.”

Sinead Cusack as Eleanor, photo Joan MarcusBut Max also provides little human support to his cancer-stricken wife, Eleanor (Sinead Cusack) who shows courage while Max has affairs. So much for loving “man” or woman as well as “mankind.” Eleanor displays more personal fortitude dealing with her disease than Max does in refusing to share her suffering.

Jan is about to find out just how relentless Stalinist repression is. He has a history that ought to make him understand. He is Jewish, a journalist and university lecturer. He left Germany with his mother before Hitler and spent the war in England. Jan’s father died in the war, and he returned home in ‘48 with his mother. It is not immediately explained how he managed to get back to England, under Communism in the sixties, to attend Cambridge University. When he goes back to Prague in 1968 “to save rock and roll” and his mother, he is told by Czech officials that his luggage includes socially negative music.

Rufus Sewell as Jan, photo Joan MarcusThroughout, Jan’s demeanor is increasingly tentative, nervous, fearful. A university lecturer and journalist after ‘68, he compromises his newspaper articles and agrees not to be “rude” to the Russians, insisting, “We’re still in charge of creating socialism with a human face.”

But he refuses to sign a loyalty pledge and is purged along with 900 university professors and half the journalists. He notes ruefully, “Self-censorship about Soviets didn’t save us.”

At first, he rejects the importuning of his activist friend Ferdinand (Stephen Kunken) to join the opposition. “Heroism isn’t honest work,” he declares. Yet, he is inexorably pulled in, because he is a fanatic rock music fan, and the government has targeted rock groups.

He says, “Underground concerts are so rare now (1974), kids from all over the country got the word and found their way to this nowhere place. So did busloads of police, with dogs. They stopped the concert and herded everyone to the railway station and through a tunnel under the tracks, and in the tunnel the police laid into everybody with truncheons. Rock ’n’ roll!”

The unseen star of the play is the Plastic People of the Universe, a rock group that became a target of the government not just because its venues became meeting places for the dissidents – like the quarry concert I attended – but probably because government officials didn’t understand the idiom and thought it must be subversive.

Stephen Kunken as Ferdinand, photo Joan MarcusFerdinand has no interest in them, because he sees no political “leverage” there. He says, “Who’s going to change things for the rest? Not the ones who just want to be left alone.” He wonders, “Who’s got the best chance of getting [Czech President] Husak’s attention – [Playwright Vaclav] Havel or the Plastic People of the Universe?” Jan replies, “The Plastics.”

Havel also understood the significance of the repression of rock musicians. He defended “The Plastics,” and that led to Havel’s open letter to Husak and to the human rights document Charter 77, which Havel, Dienstbier and others organized and which with more than a hundred signatures, flowered into a dissident movement. Jan signs after internal conflict. He and his cohorts end up like Dienstbier. Stoppard’s Jan works in a bakery for 12 years!

There will be a few surprises, and contradictions, including the irony of Jan getting permission for his Cambridge studies by agreeing to inform on Max – his mentor and a loyal Communist — to the Czech police. Of course, he tells them pap. And in 1977, Max supplies some unknown documents to the Czech secret police to buy freedom for Jan, then in prison.

Stoppard takes us up to the fall of the system. In 1987 Gorbachev announces perestroika (reconstruction) and greater ‘control from below’. Journalists are lining up to interview Havel. But the Czech leadership refuses to publish Soviet leader Gorbachev’s perestroika speech, although Soviet TV is available in Czechoslovakia. Police arrest people who go to “The John Lennon Wall” to light candles and play his music. But after the Berlin Wall falls in November 89, the Czech Communist leadership disintegrates and resigns.

Jan at dinner party, photo Joan MarcusThey will dispute the significance of what they lived through. In Czechoslovakia, the cultural revolution provoked by rock contributed to political upheaval. Not so in the West. In ’68 in the West, as a British journalist in the play puts it, “We were all high on bringing down capitalism… And ending war. All war, not just Vietnam.”

Max declares, “It turned out to be merely a cultural revolution. It left the system in place…” And Stephen (Brian Avers), the boyfriend of Max’s granddaughter, comments, “Capitalism doesn’t self destruct, it adapts.”

Perhaps Stoppard wants us to understand that in some ways, in some places, the cultural revolution is a political revolution. As the Czech Lenka (Nicole Ansari), Max’s lover, says, “Make love, not war” was more important than “Workers of the world unite.” When communism fell, Jiri Dienstbier became the free country’s foreign minister.

“Rock ‘N’ Roll.” By Tom Stoppard. Directed by Trevor Nunn. Starring Brian Cox, Sinead Cusack, Rufus Sewell, Nicole Ansari, Brian Avers, Mary Bacon, Alice Eve, Seth Fisher, Stephen Kunken, Quentin Mare, Ken Marks, Alexandra Neil, Anna O’Donoghue. Sets by Robert Jones, Costumes by Emma Ryott.

Jacobs Theatre, 242 West 45th Street. Tue – Sat at 8pm; Wed & Sat at 2pm; Sun at 3pm. Running Time: 2 hours, 40 minutes. $76.50 – $98.50. 212-239-6200.

Photos by Joan Marcus.

Story on IPS site

Monday, March 3, 2008

Ex-Rock Impresario Tony Defries lost $22 million in offshore tax evasion scheme

Filed under: offshore,Scoops,tax evasion — Lucy Komisar @ 11:51 am

By Lucy Komisar
March 3, 2008

Tony Defries, the rock manager who launched Cyrinda Foxe, Angie Bowie & Tony Defries (US Tour 1972)David Bowie and who takes credit for managing, marketing and branding such rock stars as Lou Reed and John Mellencamp as well as being “present at the birth of Madonna [and] the reincarnation of Stevie Wonder,” might be making some headlines of his own soon. (He is shown here in 1972 with Bowie’s wife Angie on his right.)

The ex-impresario, a Brit who now lives in Los Angeles and who for a promoter is unaccountably interview- and camera-shy, was one of the beneficiaries of a fake annuity scheme organized by a Swiss bank and its partner, a pseudo insurance company whose main product seems to be tax evasion. But the “benefit” turned out to be a disaster.

A Swiss whistleblower, Rudolf Elmer, who worked happily for the Julius Baer Bank office in Grand Cayman at $212,000 a year, got into a dispute with his employers, leaked some documents, was fired after failing a lie detector test and is now publishing his purloined papers on the Wikileaks internet site. The bank tried to get the site taken off line, at first succeeded but finally failed. It has not charged Elmer with a crime, probably because it would have to then detail what documents had been taken, and that would show proof of clients’ tax evasion.

The Defries story was discovered by this reporter after investigating Swisspartners, the pseudo insurance company, which had been cited in Elmer’s posted documents. Defries was not mentioned in them.

Swisspartners Insurance Company was a subsidiary of Swisspartners Investment Network and Wealth Management, Zurich, partly owned by Julius Baer Bank. It had registrations, for tax and secrecy purposes, in the Cayman Islands and Liechtenstein, but was run out of Switzerland. Julius Baer Bank was SPIN’s partner and held policyholders’ portfolio accounts.

The deal was that clients would buy annuities with huge premiums, say $1 million, and after Swisspartners and Julius Baer took their commissions, the rest was invested in offshore funds whose records could not be examined either by Swiss authorities or by tax officials of any other country. The profits from the investments were kept in the funds or transferred to offshore accounts of the clients, who could handily avoid/evade taxes.

Defries bought into the scheme and invested, ie paid an annuity premium of $22 million.

A source familiar with the case said, “Tony got caught up in trying to shield his assets legally. They said this is the way to do it, shelter your assets so there won’t be claims of estate tax or attribution of income for the large portfolio you have in Switzerland.” But Defries has a law degree, though he never practiced law, and he must have understood the implications of buying an annuity that wasn’t an annuity.

“It’s not for the faint of heart to figure out how this works,” said the source. “You want to use a Caymans trust to hold the assets used to fund the life insurance annuity.”

He said, “You make a lump sum single payment for the annuity. You put in big money, they write an insurance policy. It’s a way of getting that $2 or $22 million offshore so it’s held in the name of a Cayman Islands trust. That insurance trust uses it to back insurance policies also issued in the Cayman Islands, but the assets are actually Swiss assets assigned into Swiss Partners Investment Company. Now all the millions in this bank don’t belong to me but to you, even though they never move, there’s just a paper transfer. Now all your assets in Switzerland are on paper in the Cayman Islands.”

He explained, “They did this because the Swiss at the insistence of number of countries, especially the US trying to follow money laundering, agreed to disclose more about what assets they held. That if you’re holding assets in Switzerland, they have to be in a vetted entity. They put the clamps down. We can no longer show all this money in Swiss accounts, we have to move it, because we don’t want to disclose that “Jones’” $10 million is in this bank. If Jones is a drug dealer from Columbia, he’s not going to like that.”

“The banks fought it. But because of pressure from 9/11, there is now more transparency in Swiss bank assets. So they’ve tried to put another layer in there. The new layer is that money is held in SPIN in the Cayman Islands in title. They’ve set up a number of corporate entities by which people who bank with them in Zurich are transferring money into Cayman Islands accounts.”

Unfortunately for Defries and other investors, the money managers were focusing on the scam and weren’t properly monitoring investments. In 2000, the bubble broke and dot.coms crashed. Defries said “sell,” but under the law, he was not allowed to have control – otherwise it wasn’t really an insurance policy, it was a taxable investment! His money managers, like many financial wizards who make their money by finessing the law, didn’t have real market skills. They failed to pull out of those stocks, and Defries lost his $22 million.

Film Ziggy Stardust and the Spiders From Mars (1973)Attempting to recoup what he could, Defries filed a civil complaint in federal court in Virginia in 2003, charging Swisspartners, Julius Baer Bank and a collection of other defendants with “securities and insurance fraud.” At that time Defries lived in Berryville, VA, on a large estate in the hunt country. The suit was dismissed for lack of jurisdiction. Attempts to reach him through his lawyer were not successful.

Till now Defries’ main creative work of his own has been the film, “Ziggy Stardust and the Spiders from Mars” (1973). But it was announced recently that his autobiography, Gods and Gangsters, will be published this year. Now, he may need to add a chapter.

Swisspartners was sold in 2005 to the Liechtensteinische Landesbank (LLB) of which the country of Liechtenstein, a notorious tax haven, holds 68% of the capital. Liechtenstein bank and government officials have been tied by German intelligence reports to international drug traffickers and other criminals.


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