Paradise Papers, ‘Regulatory Capture’ and Democracy

Paradise Papers, ‘Regulatory Capture’ and Democracy

We may fulminate against a corrupt nexus connecting multinational capital and a deep state, but identifying clear illegality is more difficult. The collapse of the Anglo-Irish trials shows ‘white collar’ crime is difficult to prosecute. This is because much of what is widely considered immoral behaviour falls short of criminality.

The generally accepted distinction here is between tax evasion and tax avoidance, the latter of which can be technically compliant. Transactions exposed in the Paradise Papers were, it may be assumed, largely in the category of tax avoidance.

A number of Irish Times journalists participated on a transnational investigation conducted by the International Consortium of Investigative Journalists (ICIJ), yielding evidence of companies and individuals – including U2’s Bono – channelling of assets or income through countries with low taxation regimes. These transactions were undertaken, in many instances, on the advice of one or other of the ‘top 5’ accountancy firms in the world.

A particular specialism of these firms is to advise clients how to transfer assets between jurisdictions so as to avoid tax liabilities. Highly-educated individuals develop esoteric legal instruments and mathematical models that would defy the comprehension of most of us.

Such expertise also calls for intimate knowledge of the practical workings of a particular fiscal agency in a given country. This may lead to ‘Regulatory Capture’, which has been observed across a range of sectors including Pharma and Transport.

It could cover a situation where an individual gains experience in the state sector – working for NAMA say – leaves his job and then takes up employment in an accountancy or other advisory firm. Direct conflicts of interest, which could give rise to illegality, are naturally avoided; so-called gardening leave may even be demanded in some cases. But intimate knowledge of the workings of state institutions – and perhaps continued social relations – is of great value when it comes to a firm advising a client on how they should go about doing business anywhere, including Ireland.

Niamh Callaghan describes ‘regulatory capture’, as being where: ‘one operator in the market uses its influence or resources to extract a regulatory decision, or lack of decision, for their own benefit rather than the benefit of society as a whole’. It is a form of lobbying that is not subject to legal controls and disclosure requirements, for the benefit of a particular company or sector.

With these lenses I perused a recent opinion article in the Irish Times by Padraig Cronin of the accountancy firm Deloitte, one of the ‘top 5’ accountancy firms mentioned in the Paradise Papers. It is also noteworthy that the Irish Times Opinion Editor John McManus worked with the ICIJ.

As a long-time observer, and recent contributor, to this page I see an attempt to strike a balance between left and right views, although this occurs in a newspaper with a structural reliance on generally multinational commercial advertisers. This inevitably affects editorial positioning, favouring broad acceptance of the fiscal status quo, including our low corporation tax regime.

One can imagine that Deloitte contacted the Irish Times and argued that the editor, in the interest of balance, should carry an article representing their views, which would provide a balance to the paper’s coverage.

In the article that was accepted, Vice-Chairman Padraig Cronin begins by counselling that business operates best when there is legal certainty. On the surface, this is reasonable, but he also implies that no government should endeavour to change our fiscal regime. His rationale is: ‘Ultimately, the private sector creates jobs and opportunities, with government policy being the key enabler.’

The characterisation of government as “enabler”, and the private sector creator as “creator” of jobs and opportunities is a profoundly ideological statement, disregarding the creative work the state does in a whole range of sectors. A teacher is surely a creator of jobs and opportunities for a student, however deficient our Leaving Certificate regime.

In many of the most developed European states disproportionately large state sectors exist, and no business without a private security force could operate without a state holding a monopoly on violence in a given territory. Private enterprise may have an important role in harnessing human creativity, but a state can generate economic activity without private enterprise, however inefficiently, whereas private enterprise requires a state to operate.

Mr Cronin justifies the ‘various complex but legal methods used by businesses and individuals to minimise their tax bills’, meaning the bespoke advice on tax avoidance that firms such as his own offer at a rate no ordinary person could afford. The rule of law that underpins these methods is then referred to as ‘a key foundation stone of democracy’.

There is, however, a distinction between the Rule of Law and positive law. The idea of the Rule of Law was conceived in Classical antiquity by philosophers such as Plato, Aristotle and Cicero, who said: ‘True law is right reason in agreement with nature; it is of universal application, unchanging and everlasting; it summons to duty by its commands, and averts from wrong-doing by its prohibitions.’ Positive law, on the other hand, is any law, however unjust, which is passed by a legislature, carried out by an executive and upheld by a judiciary.

Mr Cronin also contends that ‘it is the role of an elected government to fulfill the wishes of an electorate as regards what the laws (including on taxation) should be’; followed by: ‘it would undermine the democratic model if corporate behaviour were judged not against how well it complied with the law, but against more subjective criteria and opinions.’

This is disingenuous, to say the least. The vast majority of voters in elections have little idea of how different tax codes work, which is why these specialists can charge such high fees for their services. Moreover, any bill that passes through Dail Eireann is the legacy of not only Dail committees, but also the oversight of civil service draftsmen and the influence of lobbyists; we also know that voting populations are easily manipulated, especially by those with deepest pockets.

Democracy, to quote Churchill is the ‘least worst system’, so let’s not pretend otherwise. In Ireland, as many environmentalists find, it takes an exhausting level of effort to bring stories that do not reflect well on big business to public attention.

Yet another contradiction emerges when Mr Cronin urges the government to make a long-term commitment to follow recommendations of the ‘OECD-sponsored base-erosion and profit-shifting (Beps) process’. These are non-binding legal instruments which purport to close off tax loop holes in participating states. Leaving aside the democratic oversight he previously urged, he argues that to ‘ensure it obtains a fair share of the increased tax take of this state must move at the same pace as other countries while maintaining its competitiveness as a location.’

He is now saying it is the OECD’s advice we should heed, and we may assume there is no better organisation than a top-5 accountancy firm to guide any client on what will emerge from the research of this transnational agency. But an important caveat is added: “while maintaining its [Ireland’s] competitiveness as a location”. A pro-business (or really pro-multinational) exception, maintaining our low rate of corporation tax, is thus lodged in his submission alongside (or perhaps at variance with) OECD recommendations.

The next paragraph speaks directly to Taoiseach Varadkar, calling for an examination of our tax strategy, presumably insofar as it relates to the “competitiveness” exception rather than adhering to OECD recommendations. Has democratic accountability asserted itself over OECD recommendations again?

In the most brazen passage of the article he writes: ‘If we do not do so we might all be “getting up early in the morning to work hard” but others could be eating our lunch.’ Cronin seems unaware that that is precisely the purpose of taxation: to ensure the poorest can eat lunch even if they are out of work, or homeless.

A coded message then seems apparent when he says: ‘Ireland now needs to determine how it will play to win within the evolving Beps framework’. What exactly does “playing to win” mean in this context? I suspect it relates to regulatory capture; dangling long-term incentives to officials of the Irish state in their negotiations with officials from other jurisdictions in order to manipulate a favourable tax regime.

Cronin returns to the theme of certainty in the closing paragraphs, calling for the government to set out a road map to 2030 that would bind future administrations: ‘sticking to it would send a powerful message to the business community that it should feel it is safe to get on with business and underpin economic growth’.

An earlier appeal to democracy is forgotten once again when he argues: ‘knee-jerk reactions by governments are bad for business, certainly with a knock-on negative impact on economic growth. We need to avoid these’. In other words: democracy is fine when it works to our advantage.

I also wonder who he means by “we”? Is that the Irish people living in a period of stark income inequality, or is he referring to the plutocratic circles in which he presumably moves?

Less damningly, he refers to research by OECD showing that a greater focus on consumption and property taxes would be more equitable than increasing income tax, again ‘while maintaining a competitive corporate tax regime’. Disregarding the bias of someone who undoubtedly enjoys a six-figure income there is merit to higher property taxes, particularly on unoccupied properties, while Carbon and Sugar taxes are eminently sensible. But he appears to be advising that low corporation tax regime should be defended at all costs.

He concludes with a slightly forlorn request that companies playing: ‘by these rules should be allowed to get on with business without fear of criticism.’ He seems to saying: stop investigating our activities because what we are doing is legal.

Accountancy firms such as Deloitte have been subjected to stinging criticism in the UK over the Paradise Papers, and not just by Labour leaders. Vince Cable, leader of the Liberal Democrats, said: ‘Some years ago it emerged the big banks were facilitating tax avoidance and a code of conduct was introduced. It’s surprising and regrettable that accountants have seemingly failed to take the hint and carried on regardless.’

Even Justine Greening, the education secretary, acknowledged on BBC’s Question Time: ‘As we close down these [tax avoidance] schemes, accountants and lawyers will try and find out new ones, and that is why this business is never really complete.’

The evidence which has come from the Paradise Papers regarding Deloitte and other accountancy firms does not appear to involve illegality. For a firm such as Deloitte to advise a client to commit a criminal offence would be bad for business, and in any case, often unnecessary. This should be the case in Ireland where a multinational-friendly fiscal regime is already in place, but even then companies such as Apple have managed to pay virtually no corporation tax. Regulatory Capture, along with the best professional minds, allows firms such as Deloitte to develop greater acquaintance than even the government on the import of the state’s tax codes.

The rewarding of individuals in the state sector who work on behalf of private interests is almost untraceable. The pay-off may come much later in the form of a directorship or other sinecure. It might never arrive. But, we can assume that within the state sector a certain ideological conformity underpins the perseverance of sacred cows such as a low corporation tax regime, protection of which seemed to have been the government’s one red line during the bank bailout negotiations.

Whether a different Ireland can be built, one that is not a tax haven for multinationals, is rarely considered. A substantial, though diminishing, upper middle class does well under the current regime, while both of the main political parties favour the current model. I wonder can we imagine another kind of Ireland.

Fine Gael did nothing to stop ghost estates

Fine Gael has launched a poster campaign featuring a picture of the ghost estate of Keshcarrigan in County Leitrim. Under it runs the caption: Don’t Let Fianna Fail Come Back to Haunt Us. But such negative advertising reflects an ideological confusion stemming from the failure of a generation of Fine Gael intellectuals in the 1960s and 70s to assert a clear identity. The party could have become a mainstream party on the centre-left and given Irish politics a conventional left-right divide.

The poster may be effective as it preys on the outrage felt at the sight of ruined landscapes. Its chilling effect is enhanced by the structures being half-completed suburban houses – familiar in dimensions to most of us who grew up in one – laid bare to reveal apocalyptic grey brick.

The image’s emotive value might explain the whirlwind success of the NAMA to Nature campaign involving the planting of trees on that very ‘Waterways’ site on which I participated. Our symbolic act of restoring native forest to a famished landscape led, in short time, to interviews on national radio and television, and for the story to appear on the front page of almost all national newspapers. For a short time guerrilla gardening was all the rage.

Sadly, the present government led by Fine Gael has done nothing to remove this toxic eyesore and others like it. If anything its environmental record is worse than its predecessor, especially the cavalier approach to climate change with the expansion of the dairy sector, and another property bubble looms.

Little has been done to prevent schemes of that type from occurring again. Thus, under the Planning and Development Bill (no.2) 2014 the office of the National Regulator is limited to investigating, reporting and recommending as opposed to imposing sanctions.

The ghost estates emerged under Fianna Fail when tax breaks and loose regulations fuelled nonsensical developments. But Fine Gael was the largest party on ten county councils between 2004-2009, a period when numerous dodgy applications were approved.

Leitrim County Council passed from Fianna Fáil control in the first half of that period to Fine Gael. Available records show that the Waterways was planned over five years ago, but not when exactly. Embarrassingly Fine Gael may be using a disturbing image its own councillors bear responsibility for.

Moreover, in opposition at national level the party failed to warn against a property bubble despite assessments to that effect from leading economists and The Economist magazine. They advocated expansionary economic policies before the 2002 and 2007 elections. Tellingly, Enda Kenny sought a contract with the Irish people in 2007 that promised removal of Stamp Duty for first time buyers and reductions in income tax.

The leader of the opposition sought to outbid Fianna Fail by preying on an acquisitive desire to invest in property. During an era of unprecedented prosperity he might have proposed that if elected his government would provide high density social housing built in sensible locations as part of his ‘contract’. Of course we’ll never know how the electorate would have responded but at least they would have been presented with an alternative especially in numerous rural constituencies where the two party hegemony was firmly entrenched.

Fine Gael has assumed the position of the natural party of government by default since the economy unravelled. Dangerously for our democracy, their policies seem to be framed in public relations offices and advancement is achieved within a closely managed system. Meaningful debate is avoided as scripts are stuck to. At the next election fear may lead the electorate to choose their least-unpalatable option.

Fine Gael has seen an intellectual decline since the days of Garret FitzGerald, and under Kenny it was shaped into an alternative Fianna Fail. This is particularly problematic, as noted, in rural Ireland where other parties, apart from Sinn Fein, have been unable to build up a presence.

Fine Gael could have become the mainstream party of the left and real opposition to Fianna Fail if they had accepted principles laid down by the former Attorney General and President of the High Court Declan Costello in his Just Society document. Interestingly this included nationalising the banks which people used to scoff at. Amalgamation with the Labour Party should have occurred.

Instead the party chose to remain a more refined version of Fianna Fail that wrote cheques with gilded fountain pens rather than fumbled in greasy tills. It was unwilling to jeopardise its strong farmer vote that could have been lost if more inclusive and environmentally-friendly policies were pursued.

A generation of left-leaning intellectuals including Garret FitzGerald, Alexis FitzGerald, Michael Sweetman and Jim Dooge, described by UNESCO-HIE as a ‘towering figure and pioneer’ in the field of hydrology, failed to insist on core social democratic values in opposition to the liberal economic policies of Fianna Fail. This made it ripe for successive public relations makeovers, swayed by populist tides and seemingly oblivious to the structural flaws of the country.

The cost of having two dominant centre-right parties is that the country is subject to distressing boom-bust economic cycles and deep inequality. Since Fine Gael has become the dominant centre-right party, Fianna Fail is scurrying to the centre ground where it is joined by a resurgent Sinn Fein. All three parties derive their origins from approaches to the national question (in order: constitutional; slightly constitutional; and unconstitutional) rather than distinctive ideas on social or environmental issues. If only Irish politics could mature to a point where ideological substance rather than snide hypocrisy is offered to the public.


Blight of ghost estates remains three years on

(Published in the Irish Times 9/4/15)

We rose before sunrise. A consternation of alarm clocks calling us to action. The first glitch appeared when the motor on the boat intended to ferry us across the lake stubbornly refused to start.

Most of the group of about 20 would have to proceed by car. I enthusiastically volunteered to row the short distance in a smaller vessel blithely ignoring my complete inability to maintain a steady stroke. Fortunately my companion could and the reduced armada meandered unsteadily across in the pale dawn.

The remote village of Keshcarrigan did not seem to notice the small cavalcade bringing hundreds of saplings through the gates of the notorious ‘Waterways’ ghost estate. Posters outside projected a vision of happy families cavorting on blissful summer days. The reality was an eerie scrapheap of unfinished houses and shattered dreams.

Over the course of the day we planted nearly a thousand mainly native tree varieties. But we had not gone unnoticed. Mid-way through a police van trundled through the gates. As a trained barrister I agreed to plead our case. I told them we were asserting the right of a community to plant trees on common land that had fallen into disrepair.

The site of famished hardcore and errant Styrofoam abetted the argument but really I think the constabulary found the charming smiles of the female conspirators more persuasive. Observing this wasn’t a particularly cut-throat bunch of sans-culottes, they let us carry on.

Three years on it is astounding to consider the media furore our small action unleashed. Within hours of an online article appearing the John Murray Show was in touch looking for interviews. We continued with further actions, planting trees on sites in Wicklow near Rathdrum and then Cherrywood, Dublin where RTE news crews turned up.

I was interviewed with a neck tie wrapped around my head. Coated in dust I looked like a cross between a tramp and the Karate Kid. The Irish Times, Independent and Daily Mail featured pictures of us digging in costumes on their front pages. It culminated in Serena Brabazon delivering a TEDx talk at the Bord Gais Theatre.

We were happy to court publicity and played to the cameras. We chose business suits in imitation of the banking elites that had brought the country to ruin and allowed the landscape to be blighted with unfinished developments.

NAMA to Nature’s success can be attributed to the capacity of new media to transform a small action into a much larger spectacle. Online publication and Facebook allowed us to bring images to a wide audience, and mainstream media was attracted by the exotic phenomenon of guerrilla gardening. It also helped that the participants were well-spoken and possessed a sense of humour.

What also made NAMA to Nature a brief hit was it lifted the national mood during a period in 2012 when morale was in a trough, by offering a novel response to problems that seemed intractable. We showed that you could do something quite easily to improve a local environment.

Beyond the burlesque, what we were doing was actually a serious questioning of the inviolability of property rights. We were tentatively identifying grounds under which a right to property might be set aside for the greater good of the community, and even for the sake of the natural environment.

We were saying that the tragedy of the Irish commons where tax breaks and lax planning allowed developments with no regard to infrastructure could be challenged and that ownership only stretched so far. Without proposing anarchy, we were asserting that communities hold rights over all property in their vicinity. We were also pointing to a consistent Irish blind spot: the failure of many property owners to protect biodiversity.

Those of us who were involved in NAMA to Nature are hopeful that attitudes to the environment are changing and there is a growing appreciation of the intrinsic value of biodiversity.

But shockingly, like many such eyesores around the country, nothing has been done to clean the Waterways site. Many of the trees are growing but substantial debris needs to be cleared.

It beggars belief that a state so keen to promote tourism through images of the natural beauty with which we are blessed allows such grotesque edifices to endure. It demands a response from county councils, and if they fail to act then the national government must step in.

Longer term we should anticipate problems before they materialize: just as tax breaks and lax planning allowed the property bubble to develop, today a lack of restraint on farming with the end of milk quotas is set to cause damage to Irish biodiversity and increase our greenhouse gas emissions.

The popularity of NAMA to Nature attested to a deep attachment to nature and an awareness that over time and especially during the Celtic Tiger we paid insufficient attention to it. But the blight of unfinished estates reveals the ghosts that remain in our midst.


From hardcore to hardwood

(Published in 19/3/12)

On the wall outside ‘The Waterways’ Keshcarrigan, Co. Leitrim a series of images with the caption ‘Boating from your back door’ survive. It features families frolicking on marinas and an overhead picture of how the estate will look. This could easily be the work of an artist lampooning the Celtic Tiger. But there is no irony intended. It is the real deal, an enduring monument to greed, folly and hubris.

Inside, houses in various stages of construction loom, some merely steel girdles, one a completed show house with decking outside which the family boat could be moored. There is no sign of the tennis courts or luxury cars that feature in the pictures.

Much of the area is covered in hardcore, hard-packed stone that does not permit plant life to grow. Here roads were to be built. Giant mounds of styrofoam and heaps of plastic bags complete a sickening picture.

Now even the caretaker’s portakabin has been abandoned with a window smashed in. Inside there is still a radio, a rotting copy of the Yellow Pages and rubber boots that look beyond repair. The Marie Celeste showed more signs of life.

We were building an Ireland resembling 1950s America, and now all that remains is a scene that reminded me of when Charlton Heston’s character in the original Planet of the Apes film encounters a crumbling Statue of Liberty. It is remarkable how quickly the Irish dream dissipated.

The ghost estates survive as a cliché that foreign news agencies use to portray the Irish excess and corruption that almost derailed the European project. They are no longer ‘the story’, but they endure nonetheless, scars on the landscape and an eyesore for communities. What tourist would appreciate the sight of these building sites?

With ‘The Waterways’ now held as security for unpaid debts by the state I decided to join a group called NAMA to Nature. Last Sunday morning we planted over one thousand trees on the site.

I am an unlikely activist and I acknowledge the importance of abiding by the law. But there are exceptions. For example I would steal a loaf of bread to stay alive and the Irish Constitution states that all rights including those to property are subject to the common good. A community can justifiably abate a nuisance.

We left early in the morning, some of us rowing across a lake in the haze of daybreak with bags of compost, spades and saplings. By 8am we were down to work, managing to find sufficient exposed soil to plant 500 alder, 100 silver birch, 100 hazel, 100 ash and 200 willow. What we did was a largely symbolic gesture, tonnes of rubble still need to be removed and the plastics need to be disposed of as a matter of urgency or they could pollute the adjoining lake.

At about 10am two members of the police, An Garda Siochana rolled into the estate in a large transit van, expecting trouble perhaps. When asked who we were and what we were doing we replied that we were private individuals planting trees on public land. The Gardai seemed confused.

Then another car entered the property. The two Gardai briefly left us and had a discussion with the driver who it transpired was the former caretaker. Perhaps he had placed the call. Upon hearing what we were doing he told them he had no problem with it. The developer had left him high and dry. I wonder how many lonely cups of tea he drank in that portakabin before deciding that enough was enough.

The Gardai were still perplexed and the exchanges became increasingly jovial. A Garda took the numbers of three of the female participants one of whom warned the Garda to refrain from any late night texting. The young man, who had the healthy glow of a Gaelic footballer, blushed slightly; the other was finding the whole affair increasingly amusing. The pretty tree-planters would make a good story for the boys back in the station.

A few phone calls were made. We agreed to leave the property if they compelled us to do so. Finally, they decided to let us carry on, expressing their personal support for our actions. The common good was recognised.

We hope that this half-finished estate can one day become a nature reserve, but much work is needed to bring it anywhere close to that point. Perhaps other scars on the landscape can be healed in the same way. When vandalism on this scale occurs the people should have a right to take proportionate measures to mitigate it.

We strongly advise anyone participating in a project such as this to exercise the utmost caution in ensuring the health and safety of themselves and those around them, and to refrain from any damage to the property therein. We also encourage everyone to respect the Gardai and seek the cooperation of the local community if they come from outside it. The objective is simple: help nature restore life by planting trees on scarred landscapes.