Risk displacement strategy of Irish Hotels Federation is to pimp Irish taxpayers

THE latest posse of knuckle-dragging parasites attempting to loot Irish taxpayers’ are the nation’s  hoteliers’.   Their mouthpiece, The Irish Hotels Federation, want to remove investor risk by slipping their greasy fingers around you tax payments because it has dawned on them that their industry has been an economic basket case since 2002 and they need to eradicate all risk to their investors!  The investors comprise fat cats who opted for tax avoidance rather than taxation.   

***** The Grand Vision  *****

This tale of woe has its origins in 2003 when The Irish Hotels Federation successfully hollered and yelped for tax allowances on capital investment to be spread over 7 years rather than 25 and their wish was granted. There were 42,235 hotel bedrooms in 860 hotels at the end of 2002. The Irish banks sector provided credit of €2,862 million to the hotel sector at that time (equivalent to €67,763 per room, with a loan-to-value ratio of 1.4) . If the capital tax allowances they so desperately sought were granted they intended to add 3,707 bedrooms in 45 new hotels bringing the total complement to 45,942 bedrooms in 905 hotels by the end of 2005.  The new rooms were to generate additional annual sales revenue of €61.85 million, having cost €463 million to construct (average construction cost €125k per room).   Another  important objective was to attract international hotel companies, such as Marriott, Radisson, Hilton, Four Seasons, Westin, Quality Hotels to operate them.

The lynchpin to achieve this was to attract the support of fat cats – high net-worth individuals with high anticipated tax liabilities in Ireland over the subsequent 7 years that could be avoided through the availability of capital allowances on new hotel projects.  If these allowances were not to be granted that “would have serious consequences of the industry as whole”.  The fat cats, the IHF said, would have otherwise invested their abundance outside Ireland and on villas in the Mediterranean.

A hotel building project costing €12 million would attract tax allowances over 7 years worth €4.92 million.  The fat cat would invest half of this, €2.46 million and the remainder would be borrowed with recourse to no other assets that that hotel.  The grand plan was that after 7 years milking tax allowances the property could be sold at multiples of its construction cost.  Unfortunately for those concerned, the property bubble burst.  Many of these hotels never made profit so their capitalised value is also down the toilet.  Therefore, the risk of loss must be passed to the taxpayers’ and ranked higher than welfare in priority. 

 

The ensuing dilemma

The Irish hotel industry in 2009 apparently comprises 917 hotels with almost, – and, wait for it, 60,000 bedrooms. Approximately €1 billion has been claimed in capital allowances by the fat cats since 2003 and a further €600 million is potentially claimable. While hotel bedroom capacity increased by 42% the brilliant and astute Irish banks increased credit to the hotel industry increased by 188% to over €7billion (equivalent to €116,000 per room – but with a loan to value ratio of 1.88). 

Bed-night demand by overseas visitors increased by 33% to 13,585,000 between 2002 and 2008 . As you can glean –everything is a little out of kilter and urge of fat cats to avoid paying Irish taxes ran somewhat ahead of reality and needs of the market place.  Not enough consumers came traipsing in their hotel doors willing to pay exorbitant prices and tolerate the impersonal  service provided by a badly paid, poorly trained, non-unionised. Eastern European labour force.

 

Foreign visitor trends

Total bed nights via overseas visitors increased by 15% from 2000 to the end of 2003.  The number of US visitors dropped by 140,000 in 2001 but recovered by 437,000 in 2002 before dropping by 106,000 in 2003.  The main source of growth was from Great Britain – almost one million extra bed nights between 2000 and 2003.  But it was visitors from other parts of Europe that made the numbers expand between 2003 and 2008 – from 2.4 million bed nights to 5 million.

The annual capacity of the Irish hotel sector is of the order of 21 million room nights and the number of beds per room trend has increased.

 

Cue the Pimps

When the consumers don’t show up to be financially castrated the next category to be raped is the taxpayer.  The Irish Hotel Federation looked into its soul and found the practice of reducing prices, so that they somehow relate to the consumer’s perception of value, is a flawed practice because it leads to market failure. Their pre-Budget submission this year ‘no more taxes but bucket loads of subsidies’.  They want State support to survive the recession caused by the banks who lent them too much money.  The natural consequence of any failed commercial adventure is that they go out business and that’s what these hotels need to realise.  Perish and get lost.

This means essentially that industry revenues are lower because extra transactions do not materialise. “The traveller is becoming more demanding in securing value for money” – their words, not mine.

Pimps’ begging list

Facilitate the closure of 217 hotels built since 2005 containing 15,600 rooms through the following ‘exit strategy’.  They call for ‘a managed process’.

• If these hotels close, the IHF requests that capital allowances already claimed should not be clawed back from the fat cats by the Revenue Commissioners on grounds that the hotels have been built less than 7 years ago. They argue that allowing hotels to exit without consequences for the investor in terms of the value of the tax allowances would have “no financial implications for the Exchequer compared with the situation where these remain open for 7 years”.  There’s insight for you! 

Well, they certainly do have major financial implications.  The Government has decided to save €233 million by cancelling Christmas welfare bonuses.  A €1 billion claw-back could pay the welfare Christmas bonus four times over were the Revenue Commissioners to nail these belligerent bastards to the contingent liabilities.

The want the Financial Regulator (if he’s awake) to oblige Irish banks to recognise bad loans in hotels. But the banks are playing ‘cute whore’. 

They are reluctant to do define a loans as bad because if such a bank asset is not realisable they need to raise more core capital and they are not in a position to do so – hence NAMA. 

This grand plan could also mean that if a large portion of the extra €4 billion in bank credit provided since 2003 becomes bad, the taxpayer is left with the liability.

• The want a Hotel Restructuring Fund to arbitrate in situations where currently insolvent hotels are deemed to be (do I construe systemically?) important for the recovery tourism against hotels which maybe solvent currently  but which (wait for this …) “have little or no strategic importance to the development of the Irish tourism product internationally”!  The profitable business may have no strategic importance internationally but some loss-making derelict incompetent ought to be bailed by the taxpayer because he is ‘strategically important’.  What unadulterated crap!

Having written off hotel debts and saddled the taxpayer with them, the parasites reckon that such hotels could be recycled back into the market at low capital cost and this would have long-term implications for competitors so they anticipate that this risk would need to be managed.

• Next on the list is a High Level Working Group, with large lactating breasts, who might remove hotels from the tourist accommodation sector and operate in sectors that do not threaten stability.  Presumably multi-ethnic brothels, homes for abusing priests, or lesbian nuns might fit the bill here.
• A Government Loan Guarantee is the next step on the road to risk elimination.
• Local Authority charges should be frozen to “improve competitiveness” .

Finally, now that all risk has been shoved onto the taxpayer the IHF advocates ‘transparency’.  The morons have apparently been charging different tariffs at home and overseas – ripping off foreign tourists and taking what they can get from the locals.

The G20 and OECD – ‘an evolving relationship’

THE Secretary-General of the OECD Angel Gurría came to Dublin to present the OECD’s Economic Survey of Ireland 2009 to the Minister for Finance. He was to also hold discussions with the Minister for the Environment, Heritage and Local Government on a pending report Environmental Performance Review of Ireland due for release in 2010. He dropped into the Institute for International and European Affairs at breakfast time this morning to speak of the evolving relationship between the OECD and the G-20 – the group of 20 finance ministers and central bank governors established in 1999 to act as a forum for twenty industrialized and developing economies across the world.  This morning’s  gathering attracted the Ambassadors to Ireland from Germany, Switzerland, South Korea and Croatia.

I’ll begin by using the following table to illustrate the membership of each grouping and where they overlap:

G-8	G-20	OECD
Canada France Germany Italy Japan United Kingdom United States Russia + European Union	Argentina Australia Brazil China France Germany India Indonesia Italy Japan Mexico Russia Saudi Arabia South Africa South Korea Turkey United Kingdom United States + European Union European Central Bank + International Monetary Fund + World Bank	Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Iceland Ireland Italy Japan Luxembourg Mexico Netherlands New Zealand Norway Poland Portugal Slovakia South Korea Spain Sweden Switzerland Turkey United Kingdom United States

 

The G-20

The G-20 has progressed a range of issues since being set up in 1999, including agreement about policies for growth, reducing abuse of the financial system, dealing with financial crises and combating terrorist financing. The G-20 also aims to foster the adoption of internationally recognized standards through the example set by its members in areas such as the transparency of fiscal policy and combating money laundering and the financing of terrorism. In 2004, G-20 countries committed to new higher standards of transparency and exchange of information on tax matters. This aims to combat abuses of the financial system and illicit activities including tax evasion.  The G-20 also tries to play a significant role in matters concerned with the reform of the international financial architecture.

The G-20 has aimed to develop a common view among members on issues related to further development of the global economic and financial system and held an extraordinary meeting in the margins of the 2008 IMF and World Bank annual meetings in recognition of the current economic situation. At this meeting, in accordance with the G-20s core mission to promote open and constructive exchanges between advanced and emerging-market countries on key issues related to global economic stability and growth, the Ministers and Governors discussed the present financial market crisis and its implications for the world economy. They stressed their resolve to work together to overcome the financial turmoil and to deepen cooperation to improve the regulation, supervision and the overall functioning of the worlds financial markets.

 

Role of OECD

Nowadays OECD acts as a facilitator, or hub, for members to compare and analyse policy perspectives, identify practices that can be deemed ‘best’ and coordinate domestic and international policies aimed at social and economic progress.

Gurría contends that new structures, relationships and approaches to coordination are necessary to deal with the prevailing crisis and that the OECD would advocate on behalf of those nations that are not members of the G-8 or -G20.  The world is a series of network and there is a need for international organisations such as his own, IMF, WTO, ILO to cross-pollinate their approach to world issues.

The G-20, he believes, will become the global platform at which to resolve all types of issues, except those with a military facet.  Example of the current agenda include exit strategies for the public intervention into the financial crisis, climate change, jobs, tax havens, elimination of bribery and corporate governance.  Progress, has been commendable in some areas but the capacity to deliver outcomes in many others “is excellent” according to Gurría.  The OECD input is in the form of evidence-based analysis and a facility for countries to stay connected to each other through OECD being an additional channel to support balanced and sustainable growth.

One of the offerings of the OECD is the peer review of member countries across a range of topics – health, environment, governance and others.  Interestingly, the only one of the 30 members that is not peer reviewed is the United States.

The blame for the financial crisis is split between the public and private sectors.  The former taking the hit for failure of regulation and the latter culpable for lack of supervision and ineffective risk management.

The Organisation for Economic Cooperation and Development [OECD] traces its roots to 1948 when the Organisation for European Economic Cooperation [OEEC] to help administer the Marshall Plan, the initiative of the United States Government to help European countries recover after World War II and to repel the threat of communism. It has 30 member countries that accept representative democracy and free markets that since 1961 include non-European states. Chile, Estonia, Israel, Russia and Slovenia have started accession talks to become members. It was founded in France and is headquartered in Paris. It has a budget of €320 million and a staff of 2,500 persons. Its budget is about one third that of FÁS and a similar staff headcount.

Angel Gurria (59), became Secretary-General of the OECD in 2006.  He is a former Mexican Minister for Foreign Affairs and Finance. He has represented Mexico on the board of The World Bank and the International Monetary Fund.

Ireland’s Permanent Delegate (Ambassador) to the OECD in Paris is Paul Murray.

Mortgage and residential meltdown in Ireland

THE Irish housing market is dead.  The coroner found that a surfeit of 100% and in some instances 100%+ mortgages combined with loans based on ridiculously small income levels to purchase in thistle infested meadows of Ballygobackwards hastened its demise.

The flies are even ignoring its decaying leprosy-stricken corpse.  Stamp duty receipts of €729 million to the end of October are down almost 49.8% compared to a year ago.

The Interim Results from Bank of Ireland for the 6 months ended 30 September 2009 confirm that of the 196,000 residential mortgages it has in the Republic of Ireland, 21,000 of these relate to properties with negative equity involving a quantum of €731 million.  But just 14 properties were repossessed in the six months to September compared to 5 in the previous six months. Impaired residential loans increased by 49% to €342 million during the reporting period.   

The majority of recent mortgagees are therefore, at best, on life support. bewildered by the force of negative equity and unprecedented unemployment levels, wage cutbacks and a collapse in consumer sentiment. The prospect of massive mortgage defaults and repossessions cannot be ruled out.  The mortgage sector is moribund and the blame for this can be laid, in the first instance, at the door of the Central Bank of Ireland whose impact on the economic wellbeing of Irish citizens has been as robust as that of  Mikado, Kimberly or cocoanut cream biscuits  on human nutrition. 

Torrential rain is falling heavily on the parade of maudlin politicians, buccaneering developers and the predatory clown princes and princesses of the Irish banking sector whose malignant vanity and bonus-hunting culture has metastasized the entire Irish economy for at least a decade.  These preening, duplicitous, preening bastards flooded this country with 100% mortgages and are now out to scavenge flesh off the economic corpse.  The income of the average residential mortgage holder is under €58,000.  The size of the average Irish mortgage is €271,000 – a mortgage-to-loan ratio of 4.7:1.

 

The Monthly Statistics of September issued by the Central Bank of Ireland reveals that residential mortgage lending for September declined by €14 million and that September was the sixth consecutive month of decline.  However, when one considers that the total value of residential mortgage debt outstanding is close to €148 billion a drop of €14 million is hardly a drop in the proverbial bucket.  Furthermore, a declining trend over the last six months is a function of how derailed the housing market in Ireland has become rather than a mark of prudence and stability. 

Ireland  has been bewildered with the consequences of toxic debts of the supply side of the construction industry and the passage of legislation to create the National Asset Management Agency to deal with this at enormous cost to the Irish taxpayer. But a significant proportion of Ireland’s 480,000 mortgagees are under enormous personal pressure to maintain repayments of mortgages on houses that are experiencing the consequences of crushing negative equity.  The New Year may herald a tsunami of repossessions and mortgage defaults of an unprecedented scale.  An analysis of mortgage patterns through the EU-27 and the 16 members of the euro currency zone illustrates the appalling extent that Irish citizens were thrown to the predatory wolves by their own Central Bank.

Mortgage ‘Liberalization’

Mortgage liberalization was essentially about letting mercenary yahoos take control while the Central Bank scratched its crotch.  The past 20 years was characterized by a very substantial increase in housing credit that was facilitated by ‘innovation’ in the Irish financial sector.  Mortgage lending was traditionally determined by the basics – disposable income, prevailing interest rates and prudent lending practices based on the deposits of savers.

But the Irish financial sector provided additional funding through access to interbank markets and the increased securitisation of Irish mortgages.  The value of Irish mortgages increased 3-fold between 2000 and 2007 as a consequence.

Formal indicative guidelines on bank lending and the allocation of credit to the private sector were ended by the Irish Central Bank from the 1980’s.

 

Irish mortgage history

Year	Outstanding Residential Mortgages € Billion	% GDP	Mortgages issued € Million
1985	6.74	25.8%	880
1990	6.56	17.9%	1,492
1995	11.93	22.3%	2,666
2000	32.54	31.3%	9,004
2005	98.95	61.5%	27,753
2008	147.9	77.1%	15,140

 

 

 

 

 

 

 

 

Ireland compared to EU-27

	EU-27 2007	Ireland 2007	Ireland 2009
GDP growth	2.9%	5.3%	-8.7%
Unemployment rate	7.1%	4.5%	12.2%
Inflation	2.4%	2.9%	-6.5%
% houses owner occupied	70.4%	74.5%
Residential mortgage average loan per capita	€11,250	€32,200	€34,400
Value of residential loans € Billion	6,146.6	139.8	147.9
Typical mortgage rate	5.1%	5.1%	4.5%

 

Ireland and other € countries

 

2007	Total Residential Mortgages € Billion	Residential   Mortgages  % GDP	Mortgage Debt per Capita
Austria	65	23.9%	€7,820
Belgium	121.8	36.8%	€11.530
Cyprus	6.9	44.8%	€8,870
Finland	61.7	34.3%	€11,670
France	651.1	34.9%	€10,170
Germany	1,155.7	47.7%	€14,050
Greece	69.3	30.2%	€6,210
Ireland	139.8	75.3%	€32,200
Italy	304.2	19.8%	€5,130
Luxembourg	13.8	38.5%	€29,030
Malta	2.0	37.6%	€4,940
Netherlands	558.9	100%	€34,140
Portugal	101.0	62.1%	€9,520
Slovakia	6.5	11.9%	€1,120
Slovenia	2.6	8.0%	€1,320
Spain	646.6	61.6%	€14,510

 

The 16 central banks of the €-zone countries face similar constraints insofar as none of them determine local interest rates.  But Ireland has managed to increase it mortgage debt, per capita, from €5,650 in 1998 to €32,200 in 2007.  Expressed a percentage of GDP, residential mortgage debt in Ireland increased from 26.5% in 1998 to 75.3% in 2007 and will be even higher in 2009 given that GDP will contract and residential mortgage debt has increased by €9 billion since 2007.  The stock of housing units in Ireland has increased from 1,173,000 in 1998 to 1,883,303 in 2007 but many of these are located in remote and inconvenient places in incomplete housing estates.  Does this not suggest utter dereliction of responsibility on the part of the Central Bank of Ireland?

The residential mortgage debt of The Netherlands is equivalent to 100% of GDP.  But the owner occupation rate there is only 54% but this has increased from 43% in 1983.  Like Ireland, Holland experienced a sustained period of house price increases.  This occurred between 1996 and 2001.  Since then prices have risen at a more moderate pace – 4%-5% per annum.

The Dutch authorities introduced a Code of Conduct for Mortgage Lenders in 2007 that has led to a considerable tightening up of the lending criteria by limiting lending at high loan-to-value ratios and putting a ceiling on mortgage-to-income ratios.  Should the Irish Central Bank follow suit, or do they care?  The new Governor will have to transform the Central Bank quickly and successfully if there is to be any chance change for the better.

Candidates for top positions in Irish banks must be independently vetted

ALL candidates for top positions in systemically important Irish banks and building societies’ must be independently vetted before being offered the job.  Responsibility for this ought to rest with the Governor of the Central Bank or the Director of Corporate Enforcement.

The competence of incumbents also needs to be routinely scrutinised against known criteria and severe sanctions put in place if breaches of competence are identified.

The resignation of the chief executive, Eugene Sheehy  and chairman, Dermot Gleeson of AIB was announced on 1 May to avert a revolt at the AGM.  The position of chief executive has still not been filled although AIB seem to be attempting to manoeuvre an insider into it.  That is an appalling vista for a company that has sucked €3.5 billion for taxpayers to compensate for its grotesque incompetence and inadequacy.  The current financial crisis is merely the latest in a series of monumental blunders at this bank including the loss of $691 million in its US affiliate, Allfirst, by the rogue trader, John Rusnak; systemically overcharging its own customers and tax evasion of epidemic proportions through the allowing Irish customers maintain offshore bank accounts.  AIB and Bank of Ireland seem to embrace the arrogant posture as an entity ‘too big to fail’ with a management untouchable by Government that was too big for its hobnail, country and western boots.

An  article by business columnist, John McManus in The Irish Times on October 19th describing AIB as being ‘arrogant’ in attempting to appoint an insider to the position of chief executive was followed by a letter to the paper from former AIB director, Padraic Fallon on October 21^st endorsing the candidacy of the imputed candidate – and signalling to the Irish public how the cosy cartels and golden circles are alive and kicking, crisis, or no crisis. This prompted me to have my say on this matter which was published in The Irish Times on October 19^th and in the Irish Examiner the following day.

I contended that given the scale of taxpayer support of the banks and building societies, it is simply not credible to appoint insiders to significant positions of influence banks and building societies’ being bailed out by the State and that the view of the Minister for Finance must prevail, if public confidence is not to evaporate.

There doesn’t appear to be any processes currently in place in Ireland where candidates for significant positions of influence are vetted thoroughly by the Central Bank or the Financial Regulator. A consequence of this is that an insider was chosen by the Court of the Bank of Ireland to be its incumbent chief executive. This person, having been previously in charge or retail operations in Ireland at Bank of Ireland and those reporting to him are directly responsible for the SNAFU that Bank of Ireland is now in which the taxpayer is bailing out.  British banks no longer have a free hand to make senior appointments.

The British Financial Services Authority (FSA) is the counterpart of the Irish Financial Regulator. Its mandate is to regulate the 5,000 firms in the British financial services industry and it has four objectives:

1. maintaining market confidence
2. promoting public understanding of the financial system
3. securing the appropriate degree of protection for consumers
4. fighting financial crime.

It has independently vetted candidates for positions that perform ‘significant influencing functions’ (SIF) since October 2008 and it announced an even tougher approach to this issue two weeks ago. These positions in practice are chairman, chief executive and senior independent director of systemically important financial institutions.

During the past year 15 of the 224 candidates who applied for top jobs, including chairman or chief executive, have pulled out before a formal decision was made. Twelve of them dropped out after an initial interview with the FSA during which they were questioned about the adequacy of their ‘skills, experience and integrity’ for the job. Companies are unlikely to challenge FSA decisions because appeals and their results are public and if an appeal is unsuccessful the FSA could make a public statement identifying the applicant and the firm involved. The FSA blocked 16 appointments from a total of 224 it has reviewed. Another 156 were accepted and 52 are pending.

The FSA wrote to all regulated firms two weeks ago, in the light of what it saw as shortcomings exposed by the financial crisis, to reinforce its regulatory philosophy and more intrusive approach in placing a great deal of emphasis on governance and the responsibility of senior management. New procedures have been introduced to interview, at its discretion, candidates applying to perform SIF roles in particular firms and it is to place greater emphasis on monitoring the performance of persons already performing SIF roles. This includes reviewing more critically the competence of such persons. The FSA assessment of competence of persons performing SIF roles is based on expectations set out in a handbook titled Supervision Manual

One of the key questions the FSA expect relevant senior management of a firm to be able to answer is: What are the circumstances under which the firm will fail?

In assessing competence, the FSA will expect senior management to be able to demonstrate their understanding of the inherent risks in the business/markets and to articulate what plans are in place to mitigate the risk of failure.

The FSA will take tough enforcement action against approved persons where it finds evidence of culpable misconduct or a breach due to competence failures (as well as cases of dishonesty and lack of integrity).

The principal purpose of the interview is to help assess the candidate’s fitness and propriety, including his or her competence and capability, to perform the role in question.

The interview (which takes place at FSA offices and normally lasts about 90 minutes), explores a range of issues that are relevant to our approval decision, including, but not limited to the:

• responsibilities of a person approved by the FSA to perform a controlled function
• knowledge, skills and experience that the person will bring to the role
• person’s view of the main risks facing the firm and the role they play in managing them; and
• FSA expectations of the individual in performing the SIF role.

The FSA would not expect the candidate to be accompanied by a representative of the firm at the interview. In certain cases, the FSA may decide to meet separately with appropriate representatives from the firm to gain additional insight into the firm’s due diligence undertaken on the candidate. Where the firm wishes to send a representative to accompany the candidate, this should be discussed and agreed between the firm and the FSA prior to the interview taking place.

In circumstances where the FSA decide to grant an application, it will provide written notice to the firm, who in turn, should notify the person concerned. In addition, the FSA will normally write to the candidate setting out the key points of the discussion, which will include its understanding of the person’s priorities during their first few months in post, and any action points agreed, which the FSA will follow up as part of its normal supervisory activity. A copy of this letter will also be sent to the firm.

Contrast that with what has been happening here!  The only apparent change in approach is that Gillian Bowler, chairman of Irish Life & Permanent Plc has abandoned her sunglasses indoors so that she can observer venality without ‘rose tints’. The Committee Stage of the NAMA legislation ought to provide an imminent opportunity to press this important matter into the statute books.

Russia: – an optimistic market for car sales again

VOLKSWAGEN is predicting a 30% growth in the Russian car market by 2018 to become one of the top five global markets with sales of 3.6 million volumes.  A recovery in oil prices has helped boost confidence in Russia following the trauma of the past 12 months since my last visit.  Imported cars must contend with 30% import tariffs.

This optimism is against the background of Russia’s largest car plant being threatened with bankruptcy.  It is operated by Avtovaz in Toylatti, a city with a population of 700,000 to the south of Russia.  It is a legacy of the Soviet era  and employs 102,000 persons making the Lada.  Up to 27,500 workers are threatened with redundancy despite €570 million having been provided in State bailout money.  The decline is a consequence of mismanagement.

Toylatti is a monogorod – a city dependent on single industry and there are as many as 400 such cities of varying population sizes scattered across the country.

Russian car sales halved in 2009 having reached a record 3.2 million in 2008 – when oil was trading at $140 per barrel.

Volkswagen is setting up a new assembly plant about 170 KM to the west of Moscow which will produce 150,000 cars next year and use complete knockdown kits to produce 5 models, including one model specially designed for the Russian market, based on the VW Polo and will sell for €10,000.

Volkswagen is to sponsor the 2014 Winter Olympics at Sochi.  It will provide 3,000 vehicles before and during the event.  The value of the sponsorship is €68 million.

Volkswagen sold 72,000 cars in the first 9 months of 2009 in Russia representing a 6.6% share of the Russian market – up from 3.3% in 2008.

The St Petersburg area has become an important centre for car manufacturing investment in Russia.  Suzuki ($120 million in 2009), Hyundai ($400 million in 2007), Nissan ($200 million in 2006), Ford ($200 million in 2002) and Toyota ($150 million in 2005) have plants there.  Most of these were closed for a period earlier in the year responding to a collapse in demand.

AvtoVAZ is the largest Russian maker of cars. The company features models such as the LADA-ELFI (a miniature city car), the VAZ-1111E (a four-seat electric car), the VAZ-2115 (sedan), and the Niva 2131(an all-wheel drive SUV). As the largest passenger car maker in Russia and Eastern Europe, AvtoVAZ controls around 70% of domestic car production. The company has a $330 million joint venture with General Motors -- GM-AvtoVAZ -- to manufacture the Chevy-Niva SUV and Chevy Viva cars. AvtoVZ and GM each hold a 41.5% share in the venture, while the European Bank for Reconstruction and Development owns the remaining 17%.

AvtoVAZ cars sell under the Lada brand name outside.

Corruption is a factor that creeps into various facets of Russian life and has now emerged in online State tenders  A State university recently sought tenders for a new car and described the measurements as to be 44.27 metres long and 18.09 metres wide.  No car fits these measurements but if the measurements are divided by 10 the precise measurements of a the VW Tiguan. Suppliers would typically not be able to link the measurements with the Tiguan so it is speculated that the university had a particular supplier in mind. 

Cars are a popular item on tender lists.  The Office of the President announced a tender for 90 BMW cars last month and the marque was chosen because it was “considered best efficiency of use and economic advantage.  We are not rich enough to buy cheap things – cheaper cars would break down more often and end up costing more than the BMW’s”.

Europe’s Fight Against Organised Crime

THE Institute of International and European Affairs hosted a seminar under the above title today that included The Attorney General and The Director of Public Prosecution as attendees.  Speakers included the Head of the Criminal Assets Bureau, Patrick G. Byrne, the Director of Europol, Welsh born Ron Wainright and the Deputy Head of Britain’s Serious Fraud Office, Gary Leong.  Former Minister for Justice, Equality and Law Reform chaired the seminar.  An objective of the fight against organised crime is to strip to holders of ill-gotten gains of those assets.

 

Europol

Ron Wainright, a Welsh-born history and literature buff, became Director of The Hague-based Europol last April.  Europol is the EU Law Enforcement Agency that deals with police intelligence.  Its function is to support the police forces of Member States.  Wainright described how the scale of organised crime is growing exponentially with open borders, ease of travel, and advances in the capacity of the internet combining to enable gangsters and criminals to blend a range of innovative and long established approaches to their mercurial enterprises.  These circumstances have enabled criminals to operate in smaller cellular structures and to diversify their activities as a camouflage.  Various forms of violence and corruption are used to dominate their own ethic communities.  New type of e-tools, methods of computer hacking, and data mining have facilitated large-scale identity theft and online fraud and online money laundering.

The majority of the organised crime groups operate between those domiciled within the EU and others domiciled outside the EU.   Many supplying groups, or non-EU-based groups, typically want to better safeguard their business interests in the EU and maybe also get more involved in the final phases of the supply chain, such as distribution and money laundering. They may even wish to expand their business into other criminal markets located in the EU. Originally non indigenous organised crime gangs may also regard the borderless.

The EU is considered by crooks to be a good location to invest some of their criminal proceeds and to get involved in legal businesses that are apparently profitable,  especially if the risk of involvement is dispersed and some parts of the overall interests of the criminal organisation are maintained outside the EU in the origin.

Europol considers that the organised crime  environment in the EU is evolving and dynamic.

Some groups in intermediary situations are increasingly featuring members from a mixed ethnic background so that several ethnicities and nationalities, including that of the countries of activity, are represented. Their leaders, in a guise  to safeguard their overall strategic interests, often reside both in the countries of activity and origin.

They are also prepared to use influence and corruption in the EU both in the public and private contexts and they display  an increasing awareness of the functions of the EU and readiness to control any aspect possibly affecting the criminal business.

 

Drugs

 

The large scale importation of cocaine into the EU is dominated by Colombian organised crime cartels. They profit from the historic and linguistic links with Spain but also Portugal, as well as from the long coastline of the Iberian Peninsula and well established Colombian communities there. Colombians and Spanish nationals are used to co-operate within this drug market and recently also cooperation with Nigerian groups is frequently reported.

Drug transportation to Europe can be via the Caribbean or recently via West Africa. West Africa is increasingly gaining in importance as a trans-shipment zone. Recently, Colombian gangs  have developed relationships with their Moroccan counterparts in order to make use of the traditional cannabis smuggling routes, thereby enabling the onward transport of cocaine to the EU.

Most of the heroin circulating in the EU is originating from Afghanistan.  Heroin trafficking towards and within the EU
continues to be dominated by Turkish criminal groups. Turkey has ties with Afghanistan and with countries such as The Netherlands,
Belgium, France, Germany and the UK.

The majority of heroin is still transported via different branches of the Balkan routes, but a considerable amount is trafficked via the Northern Black Sea route which is gaining in importance. Dutch and to a lesser extent Belgian organised crime groups still dominate the major production of synthetic drugs in the EU, profiting from their
knowledge and experience and with trafficking facilitated by major ports such as Antwerp and Rotterdam which also act as important
trans-shipment points, for instance for cocaine trafficking. However, large scale MDMA (ecstasy) production continues to spread, in particular in Indonesia, Canada and Australia. In some
cases the use or support of criminal expertise from the EU has been observed. Within the EU, an increase of large scale production
sites outside the Dutch-Belgian region can also be noticed.

Europol consider that the accession of Bulgaria and Romania will influence the EU market in synthetic drugs. Bulgarian organised crime  groups are producing amphetamine tablets currently trafficked to the Middle East. In this context, there are indications that laboratories are moving towards destination countries in the Middle East. The large transport possibilities (Black Sea harbours and important Pan-European corridors) can further facilitate the production and trafficking of synthetic drugs and possibly also the trafficking of precursors, from principal source countries such as China and Russia, towards Western Europe – according to Europol.

All these developments might indicate that regions of the world will become self-sufficient in synthetic drug production and distribution.
With this in mind, the global dominance of Dutch and Belgian organised crime groups in relation may diminish over time. The cannabis market is the largest illicit drug market so far. Cannabis originating from Morocco enters the European continent via Spain and is often transported to The Netherlands for further distribution. Spanish and Moroccan nationalities are predominant within this activity and cooperation with other nationalities allow successful results. The Netherlands is an important producer of cannabis herb when focussing on the European market. Indoor cultivation
of cannabis is also increasing in the Czech Republic by making use of technological skills and equipment originating in The Netherlands.  The actual growing of cannabis is sometimes outsourced either to other people who have financial problems and set up a nursery in their own home or to labourers from Eastern Europe who are forced to employ their skills to grow Nederweed.

Fraud

Fraud can range from from VAT, investment and social security fraud into fraud on EU funds and public tenders.  Intellectual property rights (IPR) issues and cigarettes, alcohol and gasoline smuggling are regarded as fraud due to their direct and indirect financial and tax implications (theft or evasion of revenue).

Fraud features more sophisticated and complicated schemes crossing the globe and involving various bogus and real companies, such as trade fraud, but also more straightforward scams orchestrated simply to lure gullible individuals into parting with their monies, such as some forms of advance-fee fraud. Fraud can be typified and discussed according to its main objective: fraud with direct financial benefits, and fraud with further interests to influence
the society and economy (penetration into society, acquiring a legal appearance, strengthening the control over territory through the control of local administrations, establishment of new criminal business, laundering criminal proceeds, etc.). It can be argued
that in the end all fraud purports to financially benefit its perpetrator but this is not the sole purpose of fraud; criminals  can use it in a more functional way to attach itself into various legal structures and either exploit or penetrate them. In some cases the blatant money-making aspect of fraud actually misleads both law enforcement and society in general into overlooking it as nothing but.

Fraud financially supports many threatening forms of organised crime. It is in many cases the latch that criminal activity can use to penetrate society and economy almost unnoticed. This penetration can have far-reaching implications especially when it is combined with the use of corruption to influence important political and economic decision-making locally, regionally and nationally.  The most threatening aspect of fraud is that it can be used by gangs to gain a strong foothold in various sectors from construction to transport aided by cumulative fraudulent practices and subsequent lower prices offered by OC-related businesses.  Thus, fraud has a far-reaching impact on society as a whole that surpasses its direct financial implications.

This applies specifically to venture and trade fraud, where fraud on EU funds (public tenders and procurement) is an example
of the former, and trade fraud is a main heading for different types of crimes and fraudulent practises that exploit, in various ways, the borders between the buyer, the seller, and the possible intermediaries. These expose certain key vulnerabilities in society
and the economy that can be exploited by OC with grave destabilising consequences. Concerning payment card fraud, Gangs have the capacity to exploit the readily available technological expertise and equipment (skimming devices, hackers, phishing kits, etc.) to engage in credit card fraud.  Payment fraud using credit cards is a global problem but that the relevant tools against it are mainly national, and the growing use of the Internet providing new vulnerabilities to be exploited for stealing and abusing data.  The main threat in relation to payment card fraud is that gangs supported by external experts increasingly gets involved in payment card fraud and, aided by its resources, develops more and more efficient means of stealing high volumes of data.

Counterfeiting

Counterfeiting is an illegal activity encompassing a wide range of criminal fields. It can  be a crime in itself, a specialisation and a facilitating factor for other crimes.

Counterfeiting can be divided in three main categories:

• Currency counterfeiting (banknotes and coins), especially the €;
• Documents counterfeiting (ID, freight, vehicle, excise, etc.);
• Commodity counterfeiting (intellectual property rights infringements).

The countries most affected during the first ten months of 2007 were France, Italy and Spain, followed by Germany, Austria, The Netherlands and Belgium. The smallest number of euro
counterfeits was seized in Denmark, Latvia and
Estonia.

Currency counterfeiting is characterised by a strict distribution of tasks between producers, middle-men and distributors, in some cases controlled or, more often than not, tolerated by Mafia-type Italian Criminal groups from Lithuania, Bulgaria and Poland. Criminals from the itinerant community are among the main distributors in France and Spain. Most of the involved crime gangs have a multi-crime profile, and exploit their international dimension and all available trafficking routes to provide to other criminals and to the public a wide range of illegal products and services.

Currency counterfeiting in the EU remains a threat that, for the time being, is under control, Documents counterfeiting is a major crime facilitator. Counterfeit documents facilitate crimes such as drug trafficking, THB, facilitating illegal immigration, stolen vehicles trafficking, commodity smuggling (including cigarettes and spirits), identity theft and many types of fraud.The transnational nature of modern OC is reflected in the utmost care spent by OC groups
in carefully counterfeiting all documents to be used to cross several borders in apparent legitimacy.

Forged accompanying documents also facilitate the infiltration of illegal products into the legitimate retail sector, releasing distribution
from the clandestine enclosure of black markets, thus increasing the profits of OC groups.

The variety of official or semi-official documents existing throughout the world, combined with the ever-increasing movement
of people and goods across real and virtual borders, hampers efficient controls and facilitates illegal operations. The threat deriving
from document counterfeiting is therefore to be considered as very serious. Commodity counterfeiting is a crime which requires special attention. All Member States are affected by it, and an emerging threat is the infiltration of counterfeit goods into the legitimate retail sector. 

Thorough exploitation of the transport sector and of state-of-the-art technology, globalisation and borders are the main facilitating factors for commodity counterfeiting, making it a crime in perfect line with the modern nature and structure of international crime gangs.  The threat posed by commodity counterfeiting and IPR fraud is multiple and potentially devastating.  The sectors most threatened by it are  health and safety, economy, innovation (scientific and technological) and employment.  A side-effect of commodity counterfeiting is its  impact on innovation and research, the core  product and added value of intellectual property.  Decreasing profits due to unfair competition  by counterfeiters negatively affect innovation and research, slowing progress down.

Moreover, falling profits and shrinking markets  unavoidably lead to a necessary reduction of  working personnel, with consequent loss of
jobs.

Euopol have identified five nexus points for the activities of organised crime ~ Holland for drug distribution in North-Western Europe, the Baltics for activities and the North-East, especially of Russian origin; the Balkans, especially Turkey and Spain / Portugal has become a nexus for a plethora of criminal activity originating in Africa.

Europol is integrating intelligence and shares this on a bilateral basis with national police authorities.  Public confidence is based on the transparency of its role, layers of accountability and strong data protection regimes.

A new legal framework for Europol will be introduced next January when Europol is set to become an official agency of the EU

 

Criminal Assets Bureau

Detective  Chief Superintendant Patrick Byrne worked in the CAB for the first 10 years of its existence and returned to take the helm at the beginning of October.  The CAB was established on a statutory basis on 15 October 1996 following the killing the previous June of Detective Garda Jerry McCabe and Sunday Independent crime reporter, Veronica Guerin.  Today, CAB became a teenager! 

The CAB is not an independent asset confiscation body but it does gather ad present evidence of asset tracing to the courts which decides on cases that are subject to appeal.  Apart from Gardai, the CAB human resource cohort includes representatives of The customs and tax inspectors, Department of Social and Family Affairs inspectors , and professional forensic experts.

In the course of 2008, €6,069,049 was paid over to the Minister for Finance. A further €2,539,709 was confiscated as a result of three Section 4 and nine Section 4A Orders made at the end of 2007 and during 2008.  CAB collected €5,891,498 in relation to income from criminal conduct. Under Social Welfare legislation, CAB made savings of €712,615 for all schemes and a total of €182,198 was recovered from overpayments made. During 2008, CAB trained an additional 57 Gardaí as Divisional Assets Profilers, which brought
the number of Garda Profilers to 82.  During the first ten years of its existence CAB chased down 114 defendents and obtained 77 orders relating to assets worth €20.74 million and £160,000.

The future direction of CAB will include a focus on non-conviction based forfeiture of assets as well as criminal confiscation.

 

Serious Fraud Office

Britain’s Serious Fraud Office pursues frauds typically involving more than £1 million.  Each case is approached on the basis of its pertinent details.  Good intelligence is the cornerstone of its efforts.  This involves making full use of relevant information to inform decision-making at every level in the fight against serious and complex fraud and corruption.

Intelligence often begins life as raw information provided by members of the public, commercial institutions and public bodies.  Once received, it is recorded, analysed, developed and evaluated  before the SFO Intelligence team ultimately uses it for a variety of purposes.

This process may involve comparing the raw information with other material that the SFO already hold or applying different analytical tools and techniques.  They will often use additional information collected from a variety of sources to develop a particular piece of intelligence.

Within the SFO, intelligence may be used to support an on-going investigation or to better inform strategic decisions.  It may also be used as the basis for beginning a criminal investigation.  We also share intelligence from time to time with other law enforcement or regulatory bodies such as the police or the Financial Services Authority.

As part of the intelligence gathering process, the SFO encourages reports from potential victims, members of the public, employees in organisations who may have relevant information on serious or complex fraud or corruption.  We may also receive referrals from other agencies, the police, or other organisations.

In assessing these referrals they first measure the details against any relevant intelligence that already held . Together with any additional, relevant details that are found , they assess the report against their acceptance criteria.  There are several factors which can make the difference in the seriousness or complexity of a fraud.

Generally, the take on around 30-40 new cases each year.  They consider the information they hold very carefully before they decide whether, or not, to take on a case.

€795,631 paid in pensions to currently serving TD’s and MEP’s in 2008

THE audited Financial Accounts for the Exchequer for the year ended 31 December 2008 have been published by the Department of Finance.

Our judiciary was paid €27,748,576 ~ 8 justices of the Supreme Court, 37 justices of the High Court, 37 judges of the Circuit Court and 59 district justices.

One of the bugbears of citizens is the payment of pensions to former Ministers and other office holders while they continue to hold elected office.  A total of €4,467,657 was paid in respect of politicians’ pensions last year, including those currently in office and those no longer active in politics. 

The list includes former Attorney General and subsequently AIB Chairman Dermot Gleeson SC (€49,841) and tribunal witnesses Liam T Cosgrave (€18,736) and Ray Burke (€56,260).

Current office holders paid severance payments include Bertie Ahern (€68,337) and Tom Kitt (€23,641).  Kitt is Chairman of the Joint Committee on Arts, Sport, Tourism, Community, Rural and Gaeltacht Affairs.

Four MEP’s, 25 TD’s and one senator are among the following current office holders received pension payments in 2008:

Recipient	Current Office	Party	€
Bertie Ahern	TD	FF	14,923
Bernard Allen	TD and Chair PAC	FG	6,021
Liam Aylward	MEP	FF	13,348
Sean Barrett	TD and Chair	FG	54,033
Richard Bruton	TD	FG	14,534
Paul Connaughton	TD	FG	17,662
Joan Burton	TD	Lab	8,475
Jimmy Deenihan	TD	FG	6,020
Proinsias de Rossa	MEP	Lab	13,833
Bernard Durkan	TD and Chair	FG	6,020
Frank Fahey	TD and Chair	FF	47,874
Pat the Cope Gallagher	MEP	FF	16,372
Eamonn Gilmore	TD	Lab	6,016
Jim Higgins	MEP	FG	5,829
Michael D Higgins	TD	Lab	19,469
Enda Kenny	TD	FG	15,468
Seamus Kirk	TD	FF	19,499
Terry Leyden	Senator	FF	21,309
Jim McDaid	TD	FF	24,681
Liz McManus	TD	Lab	6,020
Gay Mitchell	MEP	FG	6,021
Michael J. Noonan	TD	FG	43,842
Rory O’Hanlon	TD	FF	44,136
Jim O’Keeffe	TD	FG	19,504
Ned O’Keeffe	TD	FF	7,475
Mary O’Rourke	TD and Chair	FF	55,504
Brian O’Shea	TD	Lab	8,469
Ruari Quinn	TD	Lab	50,449
Pat Rabbitte	TD	Lab	6,036
Emmet Stagg	TD	Lab	8,469
Noel Tracey	TD and Chair	FF	40,212
Michael Woods	TD and Chair	FF	109,190
			€795,631

The Davy bluffer’s guide to GDP growth

DAVY, the indigenous Irish stockbroker and wealth management advisor, in a report on the Irish economy, published on 29 September, opines that the economy will grow by 4% in 2011 – “but the recovery will not be felt that strong on the ground”.  Reports of this nature ought to engender trust in the sponsor but there is precious little evidence to support this perspective on growth potential. 

Yesterday Standard & Poor placed AIB and Bank of Ireland on credit watch because they believe the Irish economy is expected to remain weak next year and unsupportive of bank profits.

This Davy Report is founded on:

• Agriculture, industry and traded services expanding and creating an additional 2,600 jobs – a tall order for4 a sector that has been in the doldrums for the past five years and because commodity prices are so low.
  
  The pay component of Irish agriculture is €569 million for the 116,000 ~ €4,905 per person. Employment in the sector dropped by 2,700 between 2007 and 2008.

• Retail sales recovering and creating 28,600 new jobs. But this sector has dropped 18,200 jobs in the last 12 months and is traumatised

• Consumer spending increasing by 1.5% from 2010 –“but may grow by 3.8% as incomes recover and precautionary savings unwind somewhat”. Retail sales volume dropped by 15% in the 12 months to July 2009 and was 9.6% lower in Q1 2009 and 6.2% lower in Q2 2009. Further taxes are likely. Consumer debt is gigantic and credit flow is sclerotic. Where are the resources to come from to nurture growth?

Changes in employment envisaged in this Davy report

Changes in Employment	Q4 2011
Agriculture, forestry and fisheries	2,600
Industry	-10,000
Construction	-16,400
Wholesale and retail	28,600
Transportation and storage	4,700
Accommodation and food services	14,900
Information and communications	2,700
Financial, insurance and real estate	-1,100
Professional, scientific and technical	14,900
Administrative and support	8,100
Other NACE activities	9,100
Public Sector
Public administration and defence	9,100
Education	3,000
Human health and social work	2,200
	14,300
TOTAL	72,400

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Irish Hotels Federation recently proclaimed the industry to be in crisis and that the excess capacity is 12,000 of the sectors 60,729 bedrooms and that a massive restructuring of the sector is urgently needed. The hospitality sector has dropped 10,400 jobs as a consequence.

The Exchequer deficit at the end of August was €18.73 billion (87.6% of Government revenue in the 8 months to August 2009). The Davy Report suggests that the Government provided for 35,000 more unemployment claimants than was necessary and will thus ‘save’ €400 million. Welfare spending at the end of August was €118 million less than the €6,873 million projected

Household debt is approximately €170 billion – an outrageous level by any civilised standard and is attributable to the Irish allowing imbeciles, who craved for bonuses like baboons crave for peanuts, run its banks.

While 83% of this secured by mortgage the collateral in question has collapsed in value resulting in negative equity in 32% of the nation’s housing stock. The Report suggest that “households are now in debt payoff or debt write-off phase” and that because ratio of debt service to after-tax income has seemed to improve, that consumers are all set to gallop into the golden sunset once again. Rising interest rates and more prudent bank regulation will impede this gallop.

The contention that a “rising interest burden in 2011 will become more manageable as disposable incomes begin to grow at a faster pace” (i.e. 2.7%) is difficult to fathom at a time when incomes are dropping like the proverbial stone. Did the IMF not categorically state that “further wage reductions will be required to restore competitiveness and growth prospects and that determined recovery efforts will require execution over several years”? The majority of Irish mortgages are on a variable interest rate.

Much is made by Davy of “an incredible spike in savings”. The National Income and Expenditure Account for 2008 actually indicates that net national savings dropped by 44% to €13 billion which contradicts the reports assertion that “personal savings jumped by €6.5 billion” and “it is not clear that all of the savings was rational. ” Well, well.

IMF Perspective

When the IMF reviewed the Irish economy last June they considered that Irish GDP will contract by 13% through 2010 and that when recovery comes it will be very modest and dependent on a banking system that is not loss making, fit for purpose, that NAMA proves itself and that the Irish banks are no longer controlled by imbeciles or any other dysfunctional, incompetent eunuchs.

ECB Perspective

The ECB is acutely aware of the need to rebalance the Irish economy, moderated public spending, reduce public deficit and return to compliance with the Stability and Growth Pact. Wage restraint would obviously be helpful as would taking account of competitiveness and local market conditions in a responsible and timely manner and other reforms that would enhance competitiveness.

Competitiveness is related to the external performance of the economy and is typically measured in terms of export growth, share of export markets and current account balances. Additional factors that impact on competitiveness include the degree of export specialisation in terms of the range and quality of products exported and the markets these are exported to. If Ireland were to export products with a higher quality or greater degree of sophistication and to find strongly growing markets for these – that would enhance competitiveness. This implies a capacity to generate a sufficient number of very productive firms.

The pattern of wage growth and exports does not reflect enhanced competitiveness:

Year	Wage growth	Export growth
2003	7.4%	1%
2004	9.4%	8%
2005	11.8%	5%
2006	10%	5%
2007	6.1%	9%
2008	2.9%	-1%

 

Another indicator of competitiveness are the trends in Current Account balances, which in the case of Ireland have been:

 

Year	Balance on Current Account, € Million
2003	-2
2004	-867
2005	-5,690
2006	-6,304
2007	-10,124
2008	-9,435