Nizar Manek, Columbia Journalism School ‘12

April 13, Coveringbusiness.com

In the wake of the financial crisis, proponents of regulatory reform argued the collapse of large financial institutions had exposed the failure of their boards and supervisors to oversee the risks they were taking. At the time, Congress was sympathetic to that argument and eventually voted to tighten federal oversight by passing the Dodd-Frank Act.

Although it is too early to tell whether the Dodd-Frank Act has left the nation’s financial system safer, the law has drawn plenty of fire. Its critics argue that the new rules have done little to mitigate the threat of a systemic crisis and in some cases could create new risk.

For instance, one of the Dodd-Frank Act’s new rules could mandate that large financial institutions draft living wills, essentially emergency plans for a speedy and unexpected bankruptcy. The goal would be to extract as much value from a failing company as possible and to cushion the blow of its collapse to financial markets.

Critics of the living will rule say it is difficult to prepare such plans without knowing which areas of the institution were failing and that they would make little difference in determining whether a troubled company would have to borrow money from the government.

“Though the ultimate endpoint is to give taxpayers 100 cents on the dollar, it would be styled as a bailout,” Jeffrey Gordon, a corporate law professor at the Columbia Law School, said at a public lecture this week at Columbia Law School. “In effect, [the companies] would have to borrow money from the Treasury.”

Another rule of the Dodd-Frank Act would create a new office of financial research tasked with amassing a dataset large and comprehensive enough to predict cataclysmic financial events.

Peter Fisher, senior managing director of Black Rock and a board member at the UK Financial Services Authority, called the project a “noble calling” but a “huge challenge to pull off.” He added that it was unlikely regulators would be able to use a dataset like that to any real end. “I think the challenge is how you make data like that more useful,” he said.

Mr. Fisher also questioned the value of another Dodd-Frank reform: a central clearing party, a buyer to all sellers and a seller to all buyers that would protect counterparties in over-the-counter markets. “If we just throw these things into clearinghouses and the clearinghouses aren’t robust and don’t have the right kind of margining, we’re making this riskier, not less risky,” he said. “We’re creating concentration points for all this risk. We’re not dampening down the risk.”

Nizar Manek,Columbia Journalism School ‘12

April 7, 2012 - Coveringbusiness.com

It’s a common trope that to investigate corruption, a journalist has got to follow the money. Now, some reporters say, trends in globalization and regulation are making the trail harder to follow.

A panel of three journalists spoke last week at the Columbia University Graduate School of Journalism about the challenges of investigating crime and corruption around the world. Because large-scale corruption frequently involves actors outside the country, the panelists emphasized the importance of a transnational, cooperative approach.

Reporting on governmental corruption often requires investigating companies outside the nation’s borders, the panelists said. For example, Raphael Marques de Morais, an investigative journalist who runs the watchdog website Maka Angola, said the 2012 Angolan federal budget had earmarked about $17 million for a private Angolan company to push a public relations campaign to improve the government’s image on CNN. For Marques, that meant reaching out to CNN International to challenge the organization on its coverage of Angola. He said his investigation is still underway.

Misha Glenny, who covered organized crime in Yugoslavia during its decent into war, said reporting on systemic corruption was best done over a long period of time. He said he conducted interviews in a “very laid back way” while working for the BBC World Service.

“I slid into war in Yugoslavia, not as a war correspondent or investigative journalist, but as a political correspondent,” Glenny said. “Then as the war developed, what I observed was that the conflict in Yugoslavia, rather than being a case of overheated nationalist passions and strategies of vengeance that reached back to the Second World War, was really a cover for the grabbing of state assets by new national elites in the former Yugoslavia.”

Oleg Kashin, who covers youth and political movements for the Russian paper Kommersant, said different readerships have different levels of interest in corruption. No one in Russia is shocked by corruption, he said, so domestically, the impact of investigative journalism can be limited.

Kashin added that reporting about Russian corruption would be more effective in U.S. and European publications because Russian officials have interests in those areas.

Marquez also stressed the importance of stepping up the pressure on corrupt officials in the U.S. and Europe. “Without the west,” he said, “where are they going to spend these millions?”

Nizar Manek, Columbia Journalism School ‘12

March 19, 2012 - coveringbusiness.com

Energy prices have soared so far this year, as the broader market has rallied and rising tensions between Iran and the West have prompted some concern over supply. Investors betting that oil prices will continue to rise might consider an equity play like an energy company. Energy stocks tend to be less volatile than commodities themselves, but they can still benefit from an oil price swing.

Investors in search of an energy play with a chance to pop will find several options under the sea. Deepwater energy explorers tend follow the broader energy sector relatively closely, but their small size offers the potential for big gains if they hit on a new pocket of crude in the ocean floor.

Take Cobalt International Energy, a Houston-based driller with rigs in the Gulf of Mexico and off the coast of Africa. Cobalt has no production facilities online yet, but the company’s share price has benefited from milestone discoveries. In January, Cobalt found a 1,180-ft. column of oil in the Southern Atlantic, just west of Angola.

The find sent the stock skyrocketing to a 52-week high. After tests revealed that the new well would exceed production expectations, the stock nearly doubled to about $32 a share.

Analysts say more discoveries may be on the horizon. “In the next few months, they should announce some results from the Gulf of Mexico, and if those results are positive, the stock should react favorably,” Citigroup analyst Joseph Stewart said. He added that production test results for a second well in the area of the column near Angola could help drive the stock higher as soon as this year.

On March 2, RBC Capital raised its price target to $36 from $17 and upgraded the company for the first time since July 2010.

Cobalt comes with at least two red flags. The company is the subject of a bribery probe by federal regulators, though analysts say the long-term impact of the investigation on revenues is unclear. Meanwhile, Goldman Sachs, Cobalt’s largest stakeholder, sold 11.9 million shares of the company, or about 16 percent of its stake, on February 29.

This article was written for the Columbia Journalism School’s seminar on business journalism in the spring of 2012.

Nizar Manek, Columbia Journalism School ’12 

February 5, 2012 - coveringbusiness.com

Thousands of employees helped Ford Motor achieve a 68-fold increase in net income during the fourth quarter, but none deserve more credit than the company’s accountants.

Of the $13.6 billion Ford earned during the last three months of 2011, most of it came from a rare quirk of tax accounting. As a result, the automaker’s headline earnings number hinted that the company had been far more profitable than it was.

In fact, Ford’s operating profit, which is more representative of its performance, was a letdown. The company reported operating income of about $1.1 billion for the fourth quarter, a year-over-year decline of about $189 million. The company earned 20 cents a share, a nickel less the average estimate of 15 analysts surveyed by Bloomberg.

Ford was transparent in its earnings release and explained that an extraordinary item had inflated its headline results. The item was a result of the company reversing its valuation allowance, which – though a tax expense – is recorded on the asset side of the income statement. The effect was a one-time accounting adjustment of $12.4 billion.

Although the valuation allowance largely negates Ford’s headline earnings number, it does suggest optimism within the company.

When a company first takes an allowance, it means management does not anticipate profits in the near future and is less likely to use its tax credit. Ford incurred substantial losses from 2006 to 2008, so it reduced its deferred tax assets by raising its valuation allowance.

When a company reverses that allowance, it indicates optimism in generating profits (and an ability to use those deferred tax assets).

For Ford, bringing tax expenses in line with tax payments is part of a strategy to reduce long-term debt and decrease interest expenses. The goal is to bring the company’s debt profile more in line with that of GM, which has no long-term debt and has been able to undercut Ford on prices.

That Ford had confidence to take back this allowance in one fell swoop suggests the company assumed it would be profitable and able to use the tax credits. In other words, the special item hinted at Ford’s faith that better years are ahead.

This article was written for the Columbia Journalism School’s seminar on business and economics journalism in the spring of 2012.

Nizar Manek, 21 February 2012

This article was first published in The Futures Magazine

Three months after MF Global became the eighth largest bankruptcy in U.S. history, Michael Stockman and Michael Roseman – the firm’s current and former chief risk officers, respectively – testified before the House Financial Services Committee. They detailed a contentious reporting relationship to Chairman and CEO Jon Corzine, stirring several more unanswered questions in the process.

Henri Feuga, Head of Global Risk and Compliance Systems and a Senior Vice President at MF Global from October 2008 until November 2011, did not testify, but provides a more candid distinction of the roles of the two risk officers. “The reality is that Jon Corzine let go of Mike Roseman because he was not happy that the guy was criticizing his excessive risk taking,” Feuga says.

Roseman, who served as chief risk officer from August 2008 until January 2011, testified that his discussions with Corzine and the board on liquidity risk of European sovereign repos to maturity (RTMs) started becoming “more material” in September 2010, and that he made a “full presentation” to the board in November 2010, saying they should not follow Corzine’s advice.

“Jon Corzine hired a chief yes officer, instead of a chief risk officer,” Feuga says referring to Stockman. 

The position also was de-emphasized. Roseman reported directly to the board and to Corzine, according to his employment agreement. By contrast, Stockman would report to COO Bradley Abelow. “Stockman didn’t have real access to [Corzine], or the board,” Feuga says. “What they did was really muffle down the risk function, to ensure that Jon could do what he wanted, and risk was out of the way. Jon pushed away anyone that was not in agreement with his position.”

Feuga, who worked closely with Roseman, says there also are more structural issues that led to the collapse. “The basic reason why MF Global collapsed was not because of Jon Corzine doing stupid things, and people digging in the cookie jar for customer money. It was because they were allowed to do it – by two major corporate governance flaws that every major corporation in America has.”

The first flaw is a lack of independence on boards of directors and Feuga recommends separating the CEO and Chairman titles as a reform. “The chairman of the board cannot be the CEO, and the CEO should not be a member of the board. Jon Corzine was the CEO, the head trader – he was the one that took the actual positions, he was on the board, he was chairman of the board,” Feuga says. “Who could say no? Nobody. And that’s why it happened.”

The second is related as the chief risk officer usually reports to the CEO and not the board. Feuga says, “This is like having a fox in charge of the hen house.”

“The CEO’s role is to take risk and maximize shareholder value, and the chief risk officer’s role is to control and monitor risk, and report on excesses,” he adds. But if the chief risk officer reports to the CEO, “this role is going to be muted, because it’s not in the CEO’s interests to have somebody report that he’s taking so much risk.”

Feuga’s solution is two-fold. “Make the [chief risk officer] report to the board, just like the head of audit already reports to the board, and not to the CEO. And exclude the CEO from the board. Put emphasis on the board when companies go bust, and you will see that companies regulate immediately, because they will have an incentive to do it,” he says, adding, “That is the biggest lesson in the MF Global bankruptcy.”

All your eggs on steroids

Feuga spent three years at MF Global, both before and during Corzine’s 19-month tenure, when the firm started its transition from a futures commission merchant (FCM) into an investment bank. With Corzine’s efforts to bring the firm to profitability, the influence of the teams in risk and IT, and risk and compliance began to fade. “Corzine came a year-and-a-half ago. It took him a year-and-a-half to destroy a company that is more than 200 years old,” Feuga says.

FCMs earn income through interest on customer funds, what is called “the float” in the industry. The low interest rate environment had put pressure on most futures brokers in recent years. “Our business model [did] not allow us to survive too long in such an environment,” Feuga says. “Something had to be done. But everyone in their right mind knows that you can’t do 40x leverage with all your eggs – actually, with as many eggs as you had borrowed — in one basket. It’s suicidal.”

But that is what happened, Feuga explains. “Corzine saw the company was not making money, and he decided to take action.”

In attempting to expand MF Global from its commodities roots into an investment bank, “[Corzine] started a proprietary trading group that failed to deliver results. And when that failed, he decided to take the huge bet.

“It’s easy to buy [a large] position and play the difference between the return of the position and the funding cost,” he says. “But all they did was play the credit spread. That is very dangerous. Corzine took a stupid bet thinking he would never have to pay back at a discount, and the collateral, the repo, would not require a haircut. The fact is, it did.”

Value at risk

Feuga says that the transition to an investment bank required MF Global to create a stronger and faster risk management system. “I basically wrote down all the specifications on what we needed to do,” Feuga says.

They needed a system for Value at Risk (VAR). “To do that, you need specific risk measurements, because once you start principal trading, market-making and proprietary trading, the risk is much bigger than being a broker,” he says. “I was leading the project to install such a system, which Mike Roseman was very eager to get. But when Mike Stockman came in, he totally stopped it.”

Feuga says Stockman wanted another team to handle this.

What followed appears to have been a game of cat-and-mouse, in which Stockman passed the project to the front office. “It was complete nonsense,” Feuga says. “Because front office cannot meet such a project, they cannot produce the numbers; there is a major conflict of interest.”

Eventually, front office could not fulfill the goal to install a VAR system, and “they were about to create a mid-office group to do it, because risk did not want to do it. But that mid-office would be staffed with people from risk, because those are the people who can run such a project. You see how bad it is,” Feuga says, noting that Stockman eventually got excluded from most of the meetings. “When the company was about to collapse, a week before it filed for bankruptcy, [Stockman] came in [briefly] in the morning and then went away.”

So with people scrambling to save the company because it had too much risk on, the chief risk officer was nowhere to be found. “He came back in again in the afternoon… and went away again, when people spent the entire Saturday and Sunday night to save the company.”

Eight billion long and two billion short

Stockman told the House Financial Services Committee that he had concerns about market and liquidity risk in August, but that after discussions with the board, his understanding was that if there was a problem, “liquidity would be available.” When asked during the hearings if he verified whether the liquidity was available or if he asked for more liquidity to meet demands, he deferred to Treasury. “The actual liquidity function is part of the CFO and Treasury area with respect to sources of liquidity. As it relates to the various discussions, and information I was disseminating in July, those people responsible for ensuring liquidity saw this information, and made an informed judgment,” Stockman testified.

This is in contrast to his replacement. “Mike Roseman was fighting very heavily to be allowed to properly monitor liquidity, even though it is not a risk role to manage liquidity,” Feuga says. “If Treasury lends money in a place that’s illiquid, and we need the cash, and we can’t get it, we’ll go bankrupt, so it makes sense for Risk to want to monitor Treasury, to ensure that they are properly managing liquidity.”

Feuga adds, “That’s what Mike wanted, he didn’t want to manage liquidity, he just wanted to monitor it. And he was [resisted]. That’s one of the reasons Roseman was pushed [out]. And basically Stockman was asked to stay away. So Stockman wasn’t allowed to properly monitor Treasury and the use of company funds and liquidity. You’re told that the sovereign risk is something you’re not really responsible for, and you can’t report on this, and you buy that? The guy completely betrayed his office.”

Something Feuga says Roseman wouldn’t do. “Mike Roseman lost his job. He was let go by Jon [Corzine] because he said that during the stress testing it was obvious that they couldn’t stand too big an exposure, and that one billion was the maximum exposure we could bear, and [Corzine] went and did eight billion long and two billion short.”

Feuga says Roseman battled with Corzine over the nature of the risk. “Jon got really annoyed, which is when he started thinking of getting rid of Mike,” Feuga says. “He told Mike ‘it’s not an excess, it’s a new limit.’ If you increase your exposure, and you have no limit, that shows that Jon was not reasonable. He had all the numbers on his desk to check, to prove that what he was doing was not reasonable, and he did it anyway,” Feuga says.

In his testimony, Roseman said, “I would certainly suggest that the company’s ability to handle the positions was pushed to the maximum, and…under adverse liquidity conditions, it could put the company in harm’s way. It was not about the leverage, but what composes the leverage. A year before that, almost all the leverage was in extremely liquid securities, and it was well presented to the ratings agencies. When Corzine arrived, the composition of the leverage changed, that’s the important point.”

At arm’s length

Feuga indicates that Stockman was paid to look the other way. “Stockman was not monitoring, he was just doing the bare minimum; he was asked to do the bare minimum.”

That was apparent when Stockman was asked in the hearings regarding his role in the so-called “Break-the-glass plan.” He said a senior member of his staff assisted in the creation of that document. “I actually did not see the final outcome,” he said, and also seemed unable to reconcile whether it was 10 days before MF Global’s collapse when he became “less comfortable” with the risks, or in August.

“He didn’t know what it involved – he didn’t want to be exposed, which was amazing because it was his job,” Feuga says. “He was not pushing to get involved, and people knew he was completely irrelevant.”

Key to Stockman’s arm’s length relationship with his staff is that he worked in a different building, and in the same building as the senior staff – the CEO, COO and General Counsel, Laurie Ferber, Feuga says. “Mike Roseman was let go on Jan.30, but stayed on the premises for two months just in case people needed him. Mike Stockman was in [another] building, the Park Avenue Plaza, when Mike Roseman and myself were in the 717 Fifth Ave. Building, two blocks away.”

Stockman came to the 717 Fifth Ave. Building “only once in nine months,” Feuga says. “And this was only because he sought to come by one of my co-workers, to join a farewell party. It was not even a formal meeting. He came to the farewell party, ate his pizza and just went away”.

It is hard to say whether default would have been averted if Roseman had stayed, but from the testimony and the Feuga interview, it does appear clear that Corzine replaced a chief risk officer with a ‘chief yes officer.’ As a result, Feuga says, “Corzine, the CEO and Chairman, had on his desk the stress reports that told him, ‘you can’t do [this],’ and he did it anyway.”

Nizar Manek, February 7 2012, The Bureau of Investigative Journalism

The UN Human Rights Committee has found that jailing a writer for libel represents a violation of freedom of expression.

The view, issued in recent months but without fanfare, was in response to the imprisonment of a former radio journalist Alex Adonis in the Philippines in early 2007.

In the Philippines libel is a criminal offense, unlike in most other countries where it is a civil offence. This means offenders can be imprisoned together with being fined, the latter being the case in the UK.

The UNHRC declared that the Revised Penal Code of the Philippines criminal libel provision is ‘incompatible’ with Article 19, paragraph three of the International Covenant on Civil and Political Rights (ICCPR). The declaration was hailed by campaigners as a triumph for free expression and press freedom.

Peter Noorlander, chief executive of the Medial Legal Defence Initiative said: ‘I think it is a very significant decision. This is the first time an international tribunal has come out strongly against criminal libel, and ordered a country to review its laws.’

The MLDI said it would now push the European Court of Human Rights ‘to make an equivalent ruling’.

‘The European Court of Human Rights has never gone quite this far, but we will seek out an appropriate case and push that court to make an equivalent ruling’, Noorlander said. The Medial Legal Defence Initiative has not yet decided which case it intends to bring.

Convicted for libel

In early 2007, Adonis was jailed for over two years after a conviction for libel against the former Speaker of the Philippines House of Representatives, Prospero Nograles.

‘The UNHRC view is a big win for freedom of expression’, said Professor Harry Roque, the associate law professor at the University of the Philippines who acted as counsel for the journalist. ‘For the first time, the Committee declared that criminal libel is incompatible with freedom of expression’.

‘No person, more so – no journalist, should be imprisoned or fear imprisonment for the exercise of a cherished right. I hope the Philippines government and all other jurisdictions that have criminal libel laws will heed the view and take steps to do away with it’, Roque said.

In January 2008 Roque said that if the UN Committee declared criminal libel a violation of the ICCPR, it would be possible to ask the Philippines Supreme Court to rule that jail terms for libel are ‘a violation of the country’s treaty obligations.

Roque, however, does not seek to immediately take the case to the Supreme Court, and points to a 180-day period for the Philippines government to report to the UN committee what it has done to implement the view.

‘The view states that the government can either repeal the law, or you can have the Supreme Court declare the law illegal’, he says. ‘The task should be to comply with the view of the UN committee’.

UNHRC views are not binding legal judgments, but national and international tribunals increasingly quote its case law under the Optional Protocol. There is also an argument that these views qualify as decisions of a quasi-judicial body.

Adonis’ rights were violated when he was convicted in absentia and without evidence showing that the court sought to notify him of the withdrawal of his lawyer, the Committee found.

A move to stamp out criminal libel 

Momentum is building for abolition of criminal libel around the world. In August last year, the Supreme Court of Bermuda came out strongly against the country’s criminal libel statute, and a case is currently pending in the Supreme Court of Uganda.

The UK abolished seditious libel and criminal defamation in January 2010 by section 73 of the Coroners and Justice Act 2009.

In the main chamber debates of the Coroners and Justice Bill in the UK House of Lords, Lord Anthony Lester QC said: ‘If our Parliament takes this step, it will be an example elsewhere and might also encourage the European Court of Human Rights to adopt a robust position in reviewing such laws and their operation.’

The full decision can be read here.

Africa Confidential, Friday 3th February 2012. Vol 53 No 3

Washington-based lobbyist Lanny J. Davis, a former counsel for ex-President Bill Clinton, is suing Equatorial Guinea. At issue is the non-payment of expenses incurred when Davis was hired in March 2010 by the office of President Teodoro Obiang Nguema Mbasogo to help implement a ‘comprehensive reform programme’.

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Is diplomacy a large-scale, real-life version of the famous Milgram experiment on suffering, responsibility and authority? The reviewer of Carne Ross’s ‘The Leaderless Revolution: How Ordinary People Will Take Power And Change Politics in the 21st Century’ is convinced by the arguments

“Diplomacy and diplomats have often aroused suspicion, even ridicule, but they still serve an essential purpose. There is, at present, no obvious alternative”. That was the view Sir Brian Urquhart, former Undersecretary-General of the United Nations, offered in reviewing Carne Ross’ 2007 book (“Are Diplomats Necessary?”, in The New York Review of Books).

Ross’s latest book, “The Leaderless Revolution”, offers an alternative. In this collection of essays, Ross, a disillusioned 15-year veteran of the British Foreign Service, presents a wide range of what effective substitutes and supplements to modern diplomacy might look like. One example is Ross’s own Independent Diplomat, a non-profit diplomatic advisory group he founded, which helped the government of South Sudan manage the 2005 peace accords and their implementation.

Ross was Britain’s UN expert in Iraq WMD sanctions for about four years. He also covered the Arab-Israeli dispute, the 1988 Lockerbie bombing by Libyan agents, and Morocco’s occupation of the Western Sahara.

In presiding over these events Ross came to believe that government’s biggest flaw is that “in claiming to arbitrate the world’s problems”, it unintentionally encourages in its protagonists a moral detachment from the consequences of their actions.

For Ross, the corruption was personal. Government, he says, allowed him “to become a guiltless architect of much suffering to others”.

Ross began to realise something was wrong when the British government’s “stories about Iraq stepped from over-simplification to downright falsehood”. He was particularly struck by what he says was government deceit to cover up foul play in the 2003 death of his colleague, Dr. David Kelley, the British biological warfare expert hired to advise the UK delegation about Iraq WMD sanctions. Kelley’s death, which came two days after he was questioned in Parliament about leaking sensitive information, had been ruled a suicide. “On the train to David’s funeral, I asked a small group of Foreign Office and Ministry of Defence colleagues whether any one of us had believed the government’s claims”, Ross says, “but no one spoke”.

Ross argues that the deferral of agency to authority – and the suspension of individual moral responsibility – can incite people to heinous acts. He uses the Milgram experiments, in which subjects were directed to administer increasing levels of electric shock to confederates, to illustrate the problem of obedience in diplomacy. “When people feel no agency and no responsibility for their actions, they can commit horrific actions”, Ross says: “I know this because I was once in a position of Milgram’s test subjects, asked to inflict suffering upon others. Except in my case, unlike his experiment, the suffering was real”.

The essays in which Ross is clearly most in his element – are “The Man in the White Coat”, in which he compares his obedience in Iraq to that of Milgram’s subjects; “Why Chess is an Inappropriate Metaphor” – a comparison of the complexity of international relations to the simplicity of government policy; and “Anarchy = Chaos” – which illustrates how “the ‘zero-sum’ calculus of international bargaining” works against collective interests.

Ross begins by outlining a seemingly disconnected series of events – the decline of the Dow by nearly 1,000 points one afternoon in 2010, the spread of the liquidity crunch to the equity market, and the delay and meagreness of regulatory responses to the ensuing financial crisis. Some readers will justifiably question the need to rehash history in such broad strokes, and the necessity and relevance of the many examples set against each other. But the overall effect is to show the inter-connectedness of events and dispel the idea of “purely random cause and effect”.

By extension, international relations and diplomacy are “more evocative of the swirls and splatters of a Jackson Pollock painting than a chessboard”. A game of chess, in which there are only two players, obliges an artificial divisibility between ‘Us’ and ‘Them’. This makes concerted action between state actors under ‘state dominated modes of thinking appear capricious – more like a roll of the dice. For instance, proponents and opponents of sanctions against Iraq by the UN Security Council divided a complex situation “into two distinct and opposing narratives… into competing blacks and whites”.

The UN’s chessboard view of international relations is at best hopeless. Although the UN’s 60 year history has seen a decline in inter-state conflict, “in these successes, new weaknesses have emerged, not least in dealing with the more fluid and boundary-less problems of the 21st century”. The Security Council was established to prevent wars between states, Ross notes, but today, about 80 percent of its agenda concerns “issues involving non-state actors, and conflicts both within and sometimes transcending states”. The argument, which points to the possibility of a “’leaderless revolution’”, is antithetical to Urquhart’s view that there is “no obvious alternative” to the practice of diplomacy.

As such, Ross accords importance to civil society and the politics of personal and direct action, powerful supplements to “the minimalist act of voting”. For instance, Aminatou Haider’s hunger strike drew international attention to Morocco’s occupation of the Western Sahara since 1975. And in the summer of 1964, about one thousand American students from Northern universities travelled to Mississippi to campaign against racial segregation in Southern States, contributing to the repeal of the Jim Crow laws.

Ross drives home his point with a quote from Gustav Landauer, a leading German theorist on anarchism at the end of the nineteenth century:

‘The state is not something which can be destroyed by a revolution, but a condition, a certain relationship between human beings, a mode of human behaviour; we destroy it by contracting other relationships, by behaving differently’.

One criticism that might be made is that Ross appears to generalize all international relations into ‘diplomacy’, and focuses on the deficiencies of the UN as an international platform, initiator of international actions and keeper of international law. To further his critique, he might consider the deficiencies of bilateral diplomatic relations, for instance, and deficiencies of customary international law itself.

The book certainly has its shortcomings, namely the sheer brazenness of its argument. But it is for a reason that this book is not intended for an academic readership, and it is successful in tempering some wide-eyed optimism in international law and the processes of international law making.

In 1933, Sir Hersch Lauterpact, Judge of the International Court of Justice from 1955 to 1960 and prominent international legal scholar, was prescient in arguing that the League of Nations covenant would fall short of established principles of non-violence by states, “the primary duty of law”, given the abundance of loopholes for belligerent states: “It is impossible in the scheme of things devised to secure the reign of law, to provide the machinery calculated to disregard the law”, he wrote in The Function of Law in the International Community.

Ross’s personal accounts and theoretical observations portray the UN – the descendant of the League of Nations – much as Lauterpacht described. Ross’s effort to offer bold observations and a general response to the problems of diplomacy in a book intended for a popular readership is admirable. In the wake of the revolutions in the Middle East and North Africa, his general argument will be convincing.

Nizar Manek, The Africa Report. Thursday, 01 December 2011

South Africa’s ruling party State Security Minister Siyabonga Cwele on 16 November claimed “foreign spies” have been paying civil society groups to oppose the African National Congress’ (ANC) new Protection of State Information Bill.

“You won’t find foreign spies openly marching in the streets of Cape Town, complaining that we are removing their easy access to our sensitive information, but they will fund their local proxies to defend their illegality”, Cwele said in a parliamentary debate, as the Democratic Alliance (DA) opposition stepped up its efforts at filibuster.

That was the opening gambit – soon to coincide with Black Tuesday’s 229 ANC majority vote in favor of the controversial bill, which its civil society detractors have labeled the ‘secrecy bill’. Together with prison sentences for whistleblowers, the bill provides a criminal prohibition on the press from publishing classified documents a judge might otherwise deem in the public interest. It now moves to the National Council of Provinces – the second chamber of parliament – for concurrence.

President Jacob Zuma, who would thereafter sign the bill into law, also seems to be ‘cleaning out’ security officers suspected of opposing his second term, according to a report published by Africa Confidential: ‘Some say Zuma is getting ready to deploy the security services against his opponents’.

Neither process after the National Assembly vote is expected to result in any changes to the bill, which casts a dark shadow over the boundaries of the free flow of information. Expected to become law early next year, it could be used to obstruct evidence being presented to an approaching Commission of Inquiry into a late 1990s arms deal corruption case in which Zuma is implicated. Any ‘organ of state’ could classify any document, with the state having wide discretion to punish offences by imprisonment ‘for a period not less than 15 years but not exceeding 25 years’.

Zuma stood by Cwele amid calls for his resignation after the conviction of his wife for drug trafficking this May, and appointed Mark Hully, a specialist in criminal law, his personal legal advisor this month, while the DA called for the Law Society to investigative Hully for unprofessional conduct. Zuma’s allies in the police’s Crime Intelligence Services allegedly leaked to Hully tape-recorded conversations of anti-corruption officials discussing a long-running case that accuses Zuma and others of kickbacks. The case was dropped shortly before he became president.

Though Cwele’s convulsions were soon tempered by murmurs that the ANC would come to a “meeting point” with the press, he offered a curious assessment of the public interest argument:“We have looked at international best practice and there is no country which practices such reckless practice”. ANC MP Llewellyn Landers’ reason why there should be no public interest clause has been no less perplexing: “it would do irrevocable harm to the state and the people of South Africa if a court should find that a whistleblower was found to have given information not out of public interest but out of maliciousness”.

That is the outcome of a process that saw the ANC postpone its planned 20 September vote on the bill: government corruption shielded by secrecy, and concentration of information and power in the hands of a leadership that seeks to perpetuate itself.

The bill also includes the insertion of a provision that seeks override South Africa’s Promotion of Access to Information Act (PAIA), against a recent surge in advancement of access to information on the continent. PAIA has been a channel of information journalists were still learning to use to its full potential, but it will now be obstructed as circumstances for press freedom revert back to those under the apartheid regime.

Access to records could be refused on the basis of their status as a classified document. This ‘fundamentally [restricts] the constitutional right of access to information in South Africa’, according to the South African History Archive.

Though PAIA requires requests for access to information from the state to be responded to within 30 days, the Protection of State Information Bill ‘merely requires that requests for access to classified records are responded to within a ‘reasonable’ time (except where the release of the record clearly satisfies the public interest override)’, according to the South African History Archive. This leaves the period ‘open to subjective interpretation by government officials’.

With the postponement of the vote, ANC chief whip Mathole Mtoshekga said the bill would be finalized at the end of the year – ostensibly to allow wider consultation in the drafting stages. The ANC subsequently established its own private committee to gather submissions, in what has been argued as an abuse of parliamentary procedures. It also dissolved the ad hoc parliamentary committee on the bill, and established an ‘information bill unit’ – an attempt to restrict participation in the submissions process. The ANC said it did not want “only to listen to the views of well-financed lobby groups”.

South Africa is currently among only two out of ten African countries with access to information legislation to yield ‘any useful information’, according to an Associated Press investigation into whether countries with such laws follow them.

With the PAIA having been in force for nine years, there have been prominent exposures of fraud in public service; the Travelgate and Oilgate scandals, for instance. The Mail&Guardian gives an outline of some of the stories that would not have seen the light of day under a post-secrecy bill regime. A public interest clause could, by contrast, provide an outline for carefully defined grounds for disclosure of certain categories of information.

The clash could reach the Constitutional Court, the country’s highest court, with the South African National Editors’ Forum already having threatened a constitutional challenge if the public interest clause were left out of the bill, and South Africa’s largest trade union movement having vowed the same. The African Christian Democratic Party has said it will petition President Zuma to refer the bill for constitutional review, and the DA that it will take legal advice on whether to petition the president.

It only adds to South Africa’s woes that the bill, which may indeed have little chance of surviving a constitutional challenge from the highest court, that the ANC chief whip, Mathole Mtoshekga is reckless enough to attack the very existence of the Constitutional Court. Striking down the bill once passed would be a “gross violation” of the separation of powers doctrine, Mtoshekga said on South African television: “If people are defeated in a political arena, they want to substitute the will of the people with the will of the judges”, he said. “Then we must redefine our democracy and how we want to manage our country”.

It is sad that all of this comes from the ANC, the party of Nelson Mandela that deems itself a force of liberation in the post-apartheid era. The bill should shake the ANC’s traditional support base. As T.S. Eliot wrote in the opening stanza of Choruses from the Rock:

‘Where is the wisdom we have lost in knowledge?

Where is the knowledge we have lost in information?’

Africa Confidential, Friday 4th November 2011. Vol 52 No 22

President Alpha Condé is being consulted about bringing charges against any Guinean nationals who may have taken bribes from Victor Dahdaleh, a former senior Guinean official told Africa Confidential (AC Vol 50 No 2, A popular putsch, so far). The aluminium magnate was charged in London with bribery in late October.

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Africa Confidential, Friday 21th October 2011. Vol 52 No 21

On 19 October, President Teodoro Obiang Nguema Mbasogo nominated his son, Teodoro Nguema Obiang Mangue (‘Teodorín’) as his new deputy envoy to the Paris-based United Nations Educational, Scientific and Cultural Organisation. This followed UNESCO’s decision, after a year’s procrastination, to reject his offer of a US$3 million award, the UNESCO-Obiang Nguema Mbasogo International Prize for Research (AC Vol 51 No 13, Obiang’s prize turnip).

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Africa Confidential, Friday 7th October 2011. Vol 52 No 20

Suspicion has been growing in Nigeria that some of the billions recovered from corrupt public officials may have been stolen again. A human rights group, the Socio-Economic Rights and Accountability Project (Serap), has filed a Freedom of Information request for the government to provide details of the spending of recovered stolen public funds and of how much has been recovered since civilian rule returned in 1999.

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Africa Confidential, Friday 22nd July 2011. Vol 52 No 15

After Westminster MPs lambast BAE over the radar saga, questions about the accountability of Tanzanian officials remain

Hearings in the British parliament over the £29.5mn. (US$47 mn.) BAE Systems must pay Tanzania over the radar affair have revived questions about whether any Tanzanians, especially Chama Cha Mapinduzi member of parliament and former Attorney General Andrew Chenge, will face prosecution (AC Vol 52 No 9). Rostam Aziz, widely associated with the Richmond scandal, has given up his CCM parliamentary seat and his position on the National Executive Committee (NEC), increasing pressure on Chenge to follow suit.

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Nizar Manek, guardian.co.uk, Sunday 24 October 2010 08.00 BST

The international media must not forget the campaigners paying a high price for exposing corruption in the developing world

The arrest and detention of Algeria’s most prominent anti-corruption campaigner last month attracted wide media attention inside the country, but it received little or no attention internationally in the English-language media.

The reporting silence may be due to linguistic barriers: much of the relevant documentation is in French and Arabic. Perhaps reporting on Algeria’s opaque political system is not seen as newsworthy (no matter the international relevance), or maybe there is simply a lack of interest in the plight of anti-corruption activists outside the developed world.

There is now widespread recognition that pervasive corruption is a violation of basic human rights and a severe impediment to development.

Article 1 of the 1998 UN declaration on human rights defenders asserts the right of everyone “to promote and to strive for the protection and realisation of human rights and fundamental freedoms at the national and international levels”, and article 13 of the 2005 convention against corruption guarantees public participation in anti-corruption efforts. But in fighting against corruption, human rights defenders often have their own rights violated through harassment, physical attacks, smears, changing legal requirement and blocking of their funding sources.

Earlier this month, a councillor in the Brazilian city of Analândia was shot dead at his home by two men who arrived on a motorbike – another case left unreported by the international press. The councillor, Evaldo José Nalin, was investigating several cases of fraud and overbilling. Threats had been reported to the Analândia authorities prior to his murder. Another activist was shot in the head and left blind in one eye.

The problem is not confined to Algeria and Brazil: where special interests capture legal and political elites, the politically motivated suppression of anti-corruption activists is not uncommon.

The Algerian case involved Dr Djilali Hadjadj, the well-respected president of L’Association Algérienne de Lutte contre la Corruption (Algerian Association to Combat Corruption), the main local organisation fighting corruption and embezzlement of public funds. It followed a string of corruption investigations that included state-owned hydrocarbons company Sonatrach, which holds an automatic 51% share in all new energy products and which accounts for 97% of total exports from Algeria.

Hadjadj’s arrest closely shadowed his publication of a number of articles in Le Soir d’Algérie which denounced both the Algerian president and a new anti-corruption office for its lack of independence. On 29 August, a week before his arrest, the daily newspaper El-Watan published an interview with Hadjadj in which he complained about an absence of political will at the highest levels to put an end to corruption.

Some saw the Hadjadj arrest as politically motivated and undermining the credibility of President Abdelaziz Bouteflika, who had made an election pledge last year to deal with corruption and establish a legacy for genuine reform.

It was only after his arrest that Hadjadj discovered he had been tried in his absence earlier this year and sentenced to three years in prison for supposedly falsifying medical leave certificates.

Though he has now been released with a six-month suspended sentence and €500 fine, the Hadjadj case must be regarded an emblem of a wider, more systemic, problem. His release was a result only of the “multiplier effect” initiated by a network of civil society groups putting pressure on the authorities.

In Morocco, Chekib El-Khiari – a journalist and founder of a local human rights organisation, Association du Rif des Droits de l’Homme (Association of Human Rights in the Rif) – is now serving a three-year prison sentence. This came after he spoke on international television about high-ranking Moroccan officials being involved in a drug-trafficking ring.

Like Hadjadj in Algeria, Khiari was sentenced for a trivial offence – opening up a bank account and transferring money without proper authorisation (this related to the opening a bank account in Spain to cash a €250 cheque from the Spanish newspaper, El Pais) and for “undermining or insulting a public institution”.

Often there is no adequate protection for anti-corruption activists in line with international standards – and once imprisoned, they are easily forgotten. That is the situation in numerous cases of less high-profile activists whose cause has not been taken up by NGOs or the international press.

International media scrutiny cannot be shut down, but these problems are often left unreported. International media outlets should make a clear shift to internationalising the public interest – particularly in supporting the international protection of human rights in countries where investigating and publishing on corruption faces censorship, imprisonment and state-sponsored killing. Reporters need to monitor these cases and engage in cross-border investigations where unacceptable restrictions are imposed on the local media.

Reuters: Analysis & Opinion, The Great Debate UK

Nizar Manek, August 13 2010

- Nizar Manek is a writer and a law student at the London School of Economics. He blogs here. Follow him on Twitter. The opinions expressed are his own. -

In this current state of ‘austerity’, with a proliferating tax avoidance industry whose reason for existence it is to creatively exploit the ever-complicating fiscal spaghetti of taxing statutes – the new loopholes for avoidance which inevitably arise upon construction of new legislation, Benjamin Franklin would of course be wrong in his conclusion on certainty, that: “In this world, nothing is certain but death and taxes”.

Of the certainty deemed necessary for tax legislation, it is well acknowledged that it necessarily makes revenue collection increasingly uncertain. Contrived avoidance schemes follow in the wake of specifically targeted legislation: tax law followed to the letter. Abuse of  Low Value Consignment Relief, an EU tax relief on goods exported from the Channel Islands, for instance, results in a VAT loss of over 110 million pounds per year. We might consider a proverb of Sir Francis Bacon:

“If a man will begin with certainties, he shall end in doubts; but if he will be content to begin with doubts, he shall end in certainties”.

So it is with tax avoidance, estimated to cost 17.5 percent of the total ‘tax gap’ – around 7 billion pounds per year. (The figure is disputed as an underestimate). It was in 1996 when John Avery Jones, the eminent Judge of the Upper Tax Tribunal, argued (pdf) that the result of the unending pursuit of ‘certainty’ in taxing statutes is that “tax legislation is now more than four times as long as it was 25 years ago, but I do not believe it has achieved any more certainty, rather the reverse”. “There is nothing new in complaining about the complexity of tax legislation”, he said: “Every generation does it”. 

Indeed, since 1997, Tolley’s Yellow Tax Handbook, the guide to fiscal legislation, has more than doubled in volume, swelling to over 11,000 pages – at the same time, increasing the administrative burden faced by the tax collection bureaucracy.

The efficacy of a statutory General Anti-Avoidance Rule (GAAR), a ‘super law’ to clamp down on avoidance already adopted by a number of common law jurisdictions – Canada, New Zealand, Australia, and others, is now being considered by the newly established Office of Tax Simplification, due to report to the Chancellor. Following the 1998 Budget, the GAAR proposal disappeared, in part for lack of ‘certainty’. It may now be attached to the 2011 Finance Bill, with or without success – and against the tide of much inevitable lobbying expenditure from business.

If the principles-based approach of the GAAR were implemented, the relationship between the taxpayer and the state could be reconfigured: the culture of artificiality created by the tax planning industry turned on its head. In its most likely incarnation, tax reliefs and benefits would only be available on those transactions with a genuine commercial, non-tax, purpose. Already, there is a disclosure requirement for tax avoidance schemes of individuals and corporations. Though a GAAR would probably include a facility for taxpayers to request an advance ruling, it would unlikely be compulsory.

According to pre-coalition calculations by Liberal Democrats, the GAAR would be aimed at raising 2.1 billion pounds in corporation tax per year. Deficit reduction might be more adequately handled. Cuts in departmental public spending might not be so deep: 25 percent for the 6 million public-sector workers who will also face a ‘pay freeze’ – a pay cut, if inflation and the regressive VAT rate were taken into account.

If properly crafted (with an adequate clearance mechanism and appeals procedure), the GAAR could give the courts clear constitutional authority to strike down unacceptable tax avoidance schemes – conferring upon judges a necessary interpretative power, beyond mere formalism in statutory interpretation. Such a principles-based tax regime could reconfigure the rules of ‘corporate morality’, and lessen chances for the tax planning industry to exploit imperfections in tax law’s spider web.

It was Ronald Dworkin who first offered (pdf) the important distinction between rules and principles: rules are all-or-nothing, but principles may be balanced against each other, and provide guidance on points not expressly covered by rules. Recent UK case law already shows signs of a shift to principles-based reasoning (Gaines-Cooper, earlier this year; Shepherd, in 2005), and tax law has long involved principles that have effects similar to anti-abuse rules:  substance-over-form, the step transaction doctrine, the sham transaction doctrine.

In the UK in particular uncertainty would not be problematic: tax avoidance is considered legal, whether successful or not; it does not carry a criminal penalty – the breach not actionable in court. If an avoidance scheme is attempted but fails, the tax must simply be paid with any interest or surcharges.

Of course, Lord Hoffman’s view of the GAAR is that “the cure is worse than the disease”. But like Benjamin Franklin, the view of Lord Hoffman is one from an era by-gone, and highly disputable. Judith Freedman, Oxford’s KPMG Professor of Tax Law, makes a compelling argument (pdf).

Yet the details are finely balanced: the facets many. As Ian Roxan, Senior Lecturer in Tax Law at the LSE puts it: “If Parliament wants to use a GAAR to define a greater range of schemes as unacceptable, the GAAR also has to persuade the courts to adopt that standard. That is much harder to achieve, as many countries have found. That is the challenge that faces the Office of Tax Simplification”.

The regulation of tax avoidance is unique: here, a genuine rule of law would be constituted by a rule of principles, a system of anti-avoidance constituted by a GAAR, as opposed to a rule of rules – the indeterminacy of rules causes their continuous proliferation. The loopholes created in the legislative framework enable a system of ’self-regulation’ and distorted transactions governed by the bottom line of the profit-and-loss account.

The introduction of a GAAR could see a gradual development of a new form of certainty through the accretion of a value-based case law: a shift away from narrow legal semanticism. The purpose of the rule could be the guide: principles can be conflictual, and form a superstructure for the interaction of rules. Recent case law of the Canadian Supreme Court has, for instance, developed significant interpretative guidelines for important elements of their GAAR.

While the development of a clearance system would result in an inevitable administrative burden, this burden would be more than offset by the reversal of the inimitable game of cat-and-mouse that has long become the situation of tax avoidance.

Old tax certainties are no more. The GAAR has long been waiting in the wings.

Fairness must precede certainty: certainty is not necessarily a prerequisite to fairness. A change in the rules of the game is long overdue: without it, ‘the bad logic of fiscal austerity’, as Paul Krugman puts it in a recent New York Times op-ed, would continue – perverse and misguided.