All Politics Are . . . .

The late Speaker of the U.S. House of Representatives Thomas “Tip” O’Neil is most remembers for his observation that “all politics are local.”  It would be absurd to provide a national weather report.

Nationalism and ethnocentrism are facts of life.  That is why U.S. citizens refer to themselves as Americans (at times to the chagrin of Canadians and Argentines).  The concept of “hyphenated Americans” is becoming an anachronism with respect to second and third generations.  Of course, it is entirely appropriate to refer to Louisiana Governor Bobby Jindal as an “Indian-American” and President Obama as an “African-American” because at least one of their parents is an immigrant.

Americans have always had a problem distinguishing between nationality and citizenship — which may be a positive phenomenon.  Still, even though our President had an African father and a white American mother, the press feels that it is appropriate to describe him as a “Black American” as opposed to a mixed race individual.  A focus on individuals would be preferable, but the human tendency is to view people within the context of groups — for example by religion or region of the country.

It seemed as if the Europeans were ahead of us in this area.  With the formation of the European Community, tariff free trade, no need for entry visas for citizens of member states and the adoption of the Euro by most of its members, the “European Man” had emerged.

This appears to be a misconception or idealism over reality.  Few French nationals living in Lyon would describe themselves as “Europeans” but as Frenchmen (or if they have parents having different citizens, they might refer to that fact).  When will Indians or Jamaicans living in London simply be described as British?  Probably not in the near future.

When the Euro was first unveiled, I predicted that it would not last more than 15 years (and the British have not given up the pound).  I doubted that national governments would abandon fiscal policy as a policy tool.  The EU leadership has not enforced their requirements with respect to the size of the deficits its members may have.  By being “flexible,” the European Union survived but what where the consequences.  The needs of the people of Portugal and Greece are not the same as that of France, Germany and Italy.

Now with the current financial crisis, country identification is back.  I dare call it “nationalism” since I cannot predict the future of Britain or Belgium.  Borders are not eternal.  The EU made them less important — but Tip O’Neil was not being chauvinistic when he made his remark.   People need an external threat or commonality of concern (e.g. global warming) to feel connected to persons unlike themselves.  Perhaps an invasion from outer space would be helpful at this time, provided we prevail.  In science fiction movies we usually do.  Suddenly the United Nations functions.  Inevitably the aliens die because they are allergic to pollen.  I have never read a book about what happens after the common enemy is defeated.

Today’s Financial Crisis, Corporate Governance, and the Issue of Third-Party Liability

<This piece appeared on RGE Monitor’s Finance and Market Monitor, available at http://www.rgemonitor.com/financemarkets-monitor/256477/todays_financial_crisis_corporate_governance_and_the_issue_of_third-party_liability.>

According to the U.S. Securities and Exchange Commission, the principal laws that protect investors and preserve business integrity are (i) the Securities Act of 1933, (ii) the Securities Act of 1934, (iii) the Trust Indenture Act of 1939, (iv) the Investment Company Act of 1940, (v) the Investment Advisers Act of 1940, and (vi) the Sarbanes-Oxley Act of 2002.  With the exception of the Sarbanes-Oxley Act (SOX), the above statutes are products of the New Deal. Congress enacted them in response to the country’s greatest financial crisis to date.

The factors that produced the Great Depression and the present economic situation are too numerous to list and complex to adequately analyze. It must not be overlooked, however, that the causes were global in nature and undermined confidence in all economic sectors and among the population as a whole.

Unlike in the 1920s, large numbers of Americans today are “investors” – as purchasers (i.e. shareholders) of individual stocks, mutual funds, etc. In recent months, both individual and institutional investors have witnessed the decline in the value of their portfolio. This situation has made many people ponder: what is the appropriate role of governmental bodies and international institutions when regulating the private sector.

For more than fifty years, most western governments generally evinced considerable faith in the market system, albeit subject to varying degrees of government regulation and social welfare benefits. In addition, policy makers are questioning the roles of private self-regulating organizations in our financial system since many perform quasi-governmental functions.

Central to U.S. thinking about our economic model of organization is the belief that private corporations should have a central role in the economy. Unfortunately, our corporate model is based on the myth of shareholder control. In reality, most shareholders do not monitor the corporations they own part of (much less vote their shares). More annual reports and proxy statements are tossed into the garbage than are analyzed. In lieu of shareholder control a cozy relationship between management and boards of directors has developed that effectively controls the way corporations operate.

Unfortunately, many Chief Executive Officers are also Chairmen of the Boards that employ them – an obvious conflict of interest as is recognized by many countries, including England. The U.S. and its political subdivisions do not limit an individual from serving on numerous boards of directors (though some countries do, such as Colombia – not a country well-known for having a well-developed system of corporate governance).

The procedures and other requirements governing the number and substance of corporate board meetings are seldom set out in great detail. Furthermore, there is no education or training requirements for persons to serve as board members. Board members typically are nominated by senior management or existing board members; it is rare that shareholders are successful in choosing a majority of the board – the costs and dedication needed to organize are significant impediments.[1] Recent events have demonstrated that corporate oversight can be lax. Furthermore, federal and state government regulators frequently lack the resources and political support to perform effective oversight functions or bring enforcement actions.

Finally, there seems to be recognition within Washington that existing laws and regulations have not kept pace with business practices – the need to regulate derivatives and hedge funds is no longer a matter of whether, but how.

After the passages of SOX, many people were lulled into complacency that the factors contributing to corporate governance scandals had been addressed by assigning greater responsibilities to corporate board of directors. In fact, this is only partially the case as recent events have shown.

It is not possible to regulate morality and frequently companies have incentives not to rigorously carry out internal compliance systems as they do not generate a profit. A good share of the blame for corporate governance failures (and poorly performing corporations in general belong to passive boards of directors (the members of which are often handsomely remunerated).[2]   These individuals frequently serve on numerous boards while spending very little time examining the activities of the corporation – the details of which are frequently supplied by management.

Even the so-called independent directors are often only independent in the sense of not being employees of the company. Of course, investors should have understood that it is not logical for the increasing value of stock portfolios to greatly outpace the GNP growth or gains in worker productivity.

Now is the time for people to remember to live within their means. According to New York University Professor Nouriel Roubini, the Anglo-Saxon model of supervision and regulation of the financial system has failed – the same may be true for numerous corporations.[3]  Professor Roubini remarks, “Indeed, it seems that for approximately nine years, the U.S. Securities Commission’s Enforcement Division chose to ignore “red flags” that Bernard Madoff was orchestrating a large scale financial fraud”.[4]

Congress’ seeming inability to pass laws and for the executive branch to issue effective regulations in large part can be attributed to effective lobbying by corporations. For corporate governance to be effective, steps must be taken to ensure that directors, managers, and professionals working for companies are made more accountable.

At times it seems that the higher one rises in a corporation (or the public sector as well), the less accountable they become. Another problem is that corporation managers and board members are sometimes reluctant to file law suits on behalf of the corporation when it has been injured by third parties. This can be explained by numerous factors, including not wanting to damage personal relationships, fearing shareholder law suits or reducing the value of the corporation’s stock (which depending on the manner in which individuals are compensated, creates a divergence between their interests and those of the shareholders).

At present, it is cumbersome for shareholders to obtain the right to file derivative lawsuits. Perhaps, individual or groups of shareholders should be permitted to file claims in court when management and board members fail to investigate thoroughly potentially meritorious claims against third parties who cause through their negligence or wrongdoing harm to the corporation. Professionals working on behalf of corporate clients may be influenced by what could be characterized as conflicts of interest.

Similarly, certified public accountants continue to be hired by the corporations they are supposed to scrutinize. Lawyers are expected to exercise independent professional judgment, particularly. In reality, both accountants and lawyers are frequently asked to bless questionable corporate actions and in fact even devise them. Imagine if the SEC or federal Public Company Accounting Oversight Board (PCAOB) assigned accounting firms to companies.

Do you think that the auditors might have shown some skepticism when individuals were being approved for mortgages for amounts greatly exceeding three times their income?‌ Would questions have been raised about “no doc” loans?‌ Since many shareholders vote with their feet rather than attempt to assert their rights through the procedures set out in the corporate documents, senior management and board members can often act with impunity (and in any event, corporations typically pay for their errors and omissions insurance).

One way corporate governance could possibly be strengthened would be if Congress were to legislatively overturn the U.S. Supreme Court’s unfortunate decision in Stoneridge Investment Partners vs. Scientific-Atlanta, Inc., issued in January 2008.[5] Recent events illustrate that the existing laws relating to corporate governance as well as regulatory scheme cannot achieve the goals for which they were created. Resources in this area are almost always inadequate to investigate, identify and when appropriate ensure the prosecution of financial crimes.

Stoneridge concerned whether plaintiffs had the right to bring private causes of action based on the theory of “scheme liability,” where the actions of third parties allowed the corporation “to mislead its auditor and issue a misleading financial statement affecting the stock price” (i.e. commit a fraud on the market).[6] Justice Kennedy, writing for the Court’s five judge majority, ruled that the plaintiffs had no right to bring such a lawsuit since federal securities law did not create any implied right of action – and in any case the plaintiffs were precluded from bringing their case since they did not rely upon the statements of the third-parties.

This meant that shareholders are not permitted to file lawsuits against third-parties that allegedly aided and abetted a fraud such as assisting in the preparation of a deceptive financial statements in the absence of “reliance” on the third parties’ deceptive actions. Furthermore, Justice Kennedy asserted that only the SEC and not private parties were authorized under US. securities law to bring claims for aiding and abetting liability, that is, not by private parties. Of course private parties may have a greater incentive to bring such a claim than a federal regulator.[7]

In his dissenting opinion, Judge Stevens (joined by three other justices, Judge Breyer did not participate) rejected the majority’s opinion. Not only did Judge Stevens believe that Justice Kennedy misconstrued existing precedent he ignored “the history of court-created remedies and specifically the history of implied causes of action under § 10(b) . . . .”[8]

Judge Stevens was very direct when he wrote that “the Court is simply wrong when it states that Congress did not impliedly authorize this private cause of action “when it first enacted the statute” and that when “Congress enacted § 10(b)” it did so “with the understanding that federal courts respected the principle that every wrong would have a remedy.”[9]

As a practical matter, to restore investors’ faith in the market, Congress must amend existing laws that permit regulators or plaintiffs’ attorneys to aggressively take action against those who facilitate corporate wrongdoing to prevent future financial meltdowns.[10]

* * * * *

[1] See Robert A.G. Monks and Nell Minnow, Corporate Governance, Chapter 2 – Shareholder Ownership, at 94-222. (4th Ed. 2008).

[2] See William S. Laufer, Corporate Bodies and Guilty Minds: The Failure of Corporate Criminal Liability, at 108-129, (2008).

[3] Ask the Expert, The Anglo-Saxon model has failed,” The Financial Times, at 10,February 10, 2009.

[4] See Testimony of Harry Markapolos, available on the Wall Street Journal’s website, available at http://online.wsj.com/public/resources/documents/MarkopolosTestimony20090203.pdf (Last Accessed February 12, 2009). Shortly after Mr. Markopolos testimony U.S. House of Representatives Committee on Financial Services on February 4, 20089, the SEC’s Senior Enforcement Official Linda Thomsen, who had been in her post for approximately five years, resigned her position “to pursue opportunities in the private sector, but did not provide further details.” Marcy Gordon, SEC Enforcement Chief Linda Thomsen Resigns,” The Washington Post’s website, available at http://www.washingtonpost.com/wp-dyn/content/article/2009/02/09/AR2009020901409.html‌nav=rss_business/industries (Last Accessed February 12, 2009).

[5] Stoneridge Investment Partners LLC v. Scientific Atlantic, Inc., 128 S. Ct. 761; 169 L. Ed. 2d 627 (Sup. Ct. 2008). [6] Id.,169 L. Ed. 2d at 634.

[7] See Ethan S. Burger and Mary S. Holland, Why the Private Sector is Likely to Lead the Next Stage in the Global Fight Against Corruption, 30 FORDHAM INT’L L. J. 45 (2006).

[8] Stoneridge Investment Partners LLC v. Scientific Atlantic, Inc., 128 S. Ct. at 781. [9] Id. [10] For some critiques of the Supreme Court’s decision in Stoneridge and its impact on the protection of shareholders and the SEC’s enforcement record, see Robert Prentice, Stoneridge, Securities Fraud Litigation, and the Supreme Court,45 Am. Bus. L.J. 611(2008); Faith Stevelman, Corporate Governance Five Years After Sarbanes-Oxley: Is there Real change‌: 52 N.Y.L. Sch. L. Rev. 475 (2007 / 2008) (noting that Sarbanes-Oxley’s emphasis on the role of corporate and governmental bodies to achieve improved oversight and accountability for public companies has contributed to anti-litigation attitude the consequence of which has been to reduce SOX’s ability to achieve its goals); and Rodney D. Chrisman, Stoneridge v. Scientific-Atlanta: Do Section 10(b) and Rule 10b-5 Require a Misstatement or Omission, 26 Quinnipiac L. Rev. 839 (2008) (viewing the Supreme Court’s decision in Stonebridge as not being based on principle and precedent, but a ruling based largely on policy grounds).

Musings on the Russian Regional and Local “Elections” in October 2009

Query whether one can steal elections which have already been stolen?

Last week’s Russian regional and local electoral results simply are not credible.  In all elections, what matters most is the manner by which votes are counted, not how they were cast.  It is largely irrelevant whether the most widespread fraud occurred during the course of the former rather than the latter.  No one in good faith can deny that significant fraud seems to have occurred.  Yet I continue to be perplexed by why the country’s national and regional ruling elites must fix elections that they would most probably have won anyway (albeit by much smaller margins).

One clever individual once described electoral systems in most developing countries (which in many ways Russia, and perhaps all states, can be classified), as “one man, one vote, one party, and one election.”  At present, the latter two characteristics do not describe Russia: there are multiple parties and there have been multiple elections.  Yet, it would be foolish to say this is an indication that Russia is a democratic state (“managed” or otherwise).  Furthermore, the government is in no way accountable to the people in any fashion.

Russia does not have a history of democracy.  Perhaps the events in October 1993 in Moscow followed by the December 1993 referendum allegedly approving the country’s Constitution showed democracy would not come to Russia for the foreseeable future.  Real hope to the contrary probably died when the late Boris Yeltsin was “re-elected” in a contest against the uninspiring Communist leader Gennady Zuganov.  Mr. Yeltsin’s victory was made possible in part by blatant violations of the country’s campaign finance laws, the assistance of many Russian government officials, and favorable media coverage.

With the passage of time, the countries’ various parties have changed along with the percentage of the vote they receive in legislative and executive elections at all levels, but a real opposition is not allowed to emerge.  In Russia, the “party (faction) of power” ends up with its candidates victorious.  Only the naive doubted that United Russia (and its allies) would win.

Russia is a diverse country.  140+ million persons live in eight time zones with roughly 30 million individuals eligible to vote in the various contests.  The population is highly stratified economically.  It is not homogeneous — it can be subdivided in any of a myriad of ways: age, education level, ethnicity/nationality, income, profession, urban/rural, etc.  How could its electorate speak in such a uniform manner?

Of course, the rules governing an election influence the result.  Where electoral boundaries are drawn have real consequences.  All democracies do not produce results that completely reflect the preferences of the voters, which change over time, do not necessary coincide with a particular candidate or party on all issues and all do not cast their votes.

Andrew Wilson’s Virtual Politics: Faking Democracy in the Post-Soviet World (2005) is the best book describing how elections fulfill a mock “legitimation” function in most (but today not all) of the Soviet Union’s successor states (i.e. the Baltic States and Ukraine).

Given the state of the Russian economy and level of governmental corruption, the absence of some degree of voter outrage is simply not credible.  U.S. President (and now Nobel Prize Winner) Barak Obama’s Democratic Party is preparing to lose some seats in both chambers of Congress and possibly even the governorships in traditionally Democratic New Jersey and “swing state” Virginia due to a multitude of reasons, even though the opposition Republican Party (with the exception of Olympia Snowe of Maine) has done little to promote a meaningful alternative program other than saying “no” to anything Mr. Obama proposes (with the exception of sending additional forces to Afghanistan, which ironically has more support among Republicans than Democrats).

Elections cannot be fair and free where those exercising power largely control the media, prevent opposition demonstrations, and appoint those who hold positions in the various electoral commissions.  The Russian leadership leaves nothing to chance.  No “color” revolutions (even at the local level) will be permitted, even at the local level, as it may spread.  Situations similar to that in Iran must not occur.

The U.S. is not perfect.  In 1960, John F. Kennedy’s victory over Richard Nixon was probably due to the fraud carried out at the direction of then-Chicago Mayor Richard Daley.  In 2000, the conservative justices who dominate the Supreme Court handed George W. Bush the election over all Gore — in what can only be described as a political as opposed to a legal decision.  Former Justice Sandra O’Connor deeply regrets her actions.

In fair, competitive elections, most victories are relatively narrow.  Germany and not Zimbabwe should be Russia’s future.  Who would have thought that I might have a sense of nostalgia for former Russian Central Election Head Aleksandr Veshniakov who seemed to have a sense that some opposition might be good for the country?

The recent presidential election in Afghanistan provides an interesting contrast.  Due to the neutral U.N. observers actions, it was determined there should be a run-off election.  That rather than crossing the 50% threshhold, President Karzai probably received close to 47% of the vote.  It is ironic that Afghanistan should offer Russia a model for fair elections.

Few observers of Russian politics are surprised that the Party of Power [United Russia] were victorious in the regional and local elections. As noted by former Soviet President Mikhail Gorbachev, it seems almost certain the the results are due to widespread fraud.  It is a tragedy for the Russian people that the country’s political leadership is unwilling to trust the people and move the country in a new direction.

Belarus and Iran do not offer attractive models for holding “fair and free” elections.  Belarusian President admitted to fixing the last presidential election, where he officially received 93% of the vote.  Now he says half jokingly that he cannot recall if the actual percentage was 80% or 90% percent.  A large share of the religious leaders in Iran are outraged that that Mahmoud Ahmadinejad was declared to be the winner of the Iranian presidential election.

The Russian nomenklatura don’t need guidance about how to orchestrate the holding of elections and ensuring the pre-determined results.  At this time, whether the walkout by Duma Deputies was “staged,” reflect anger over not getting their share of the pie, Liberal Democratic Party of Russia, A Just Russia, and the Communist Party, or was motivated by a genuine anger over the fraudulent elections.  One wonders if by pushing a “reset button,” Russian domestic politics could be moved back in time –what year should it be?  The country lacks a historical period worthy of replication, but was and remains full of patriots with high moral convictions who deserve the world’s acknowledgment.

[A shorter version  of this piece appeared as part of Russian Profile's Expert Panel, available at http://www.russiaprofile.org/page.php?pageid=Experts%27+Panel&articleid=a1256314183#3].

Who Won World War II?

Who won World War II?

by Ethan S. Burger[1]

The British Archives recently released documents indicating that in 1989 both French President François Mitterrand and British Prime Minister Margaret Thatcher were apprehensive over the reunification of Germany.  To those without a sense of history, such concerns might appear to have been unjustified.  Yet for others, such thinking remains ingrained in their consciousness.

According to these documents, even after the fall of the Berlin Wall, Mitterrand cautioned Thatcher that reunification of Germany might “make even more ground than Hitler had.”  Then-German Chancellor Helmut Kohl understood such sentiments, and he did his best to allay them, but he could never be completely successful in this regard.

For persons who suffered both emotional and intellectual hardship as a result of the Nazi’s and their accomplices’ action the payment of reparations will never suffice.  These individuals’ hardships could not easily be forgotten, and they usually shared their memories of their suffering and loss of friends and family with their children.  Yes, the Nazi regime had perished, but many of its supporters and supporters as well as their progeny remained, even today many of whom continue to benefit from the former German government’s crimes.  This fact is impossible to forget.

Today, Germany is Europe’s largest economy.  German goods enter the other European Union countries duty-free.  Germans can buy real estate and factories located in neighboring countries.  German foreign investment and citizens can freely move into EU countries, many of which Germany invaded in the mid-20^th Century.

To their credit, Germans have proven themselves to be good “Europeans.”  Germany is a country where the rule of law exists.  German leaders (unlike many Austrian) acknowledge the country’s shameful Nazi past.  They have enacted hate crime legislation and require that their schools educate their children about the country’s history and seek to instill tolerance of other peoples and national minorities.

Germany restored the citizenship of Jews and others who had been stripped of their German citizenship and has been a haven for many people seeking to leave repressive countries (although it could improve the legal treatment of its guest workers).  In a nutshell, it is a successful democracy, imperfect like all states, but deserving of admiration.

While Germany did not achieve its World II aims of “lebraunraum,” and the elimination of Untermensch (sub-human people such as Slavs whose only purpose was to serve the Aryan nation), its earlier goals have largely been achieved through peaceful policies what could not be gained by arms – access to foreign markets, the ability to obtain labor from “guest” workers who lack full political rights, and the elimination of any military threat to its borders.  If German Chancellor Otto von Bismark or Kaiser Wilhelm II were alive today, they would no doubt judge contemporary Germany with pride.

Fifty years can be a long time, though the consequences of the events that occur during such a period of time often extend for millennia – not merely in human and material, but also its impact on subsequent generations born as well and those who will never walked this earth.

One should not ignore the hardships suffered by a large share of the German people during the war.  The country lost in excess of 6.5 million lives (both civilian and military) and experienced considerable material destruction.  Germany (and Berlin) was divided for more than 40 years – dividing families.  Germany’s loss of territory to Poland to compensate the Poles for land gained by the Soviet Union (and still held by its successor states.  The conflict created large numbers of German refugees as well as food and other shortages.

Today, many joke that Germans are the only true Europeans.  Most European youth, however, seem to regard this era as ancient history.  Many European youth are multilingual, work in other countries, and don’t consider an individual’s nationality to be a significant factor in their interactions.  Yet still for a large share of the continent’s population, nationalism remains a truly powerful force and this is unlikely to change for the foreseeable future.

*   *   *   *   *

---

[1] Mr. Burger is Senior Counsel to the Law Firm of Maxwell & Barke PC and an Adjunct Professor at Georgetown University Law Center.

The Political Significance of the UBS “Settlement”

The Swiss government has agreed to turn over 4,450 names of the more than 50,000 individuals who have accounts with UBS, whose identities were kept secret from the U.S. Internal Revenue Service.  The U.S. hopes that many of the hitherto unnamed individuals with accounts at UBS or elsewhere will approach the authorities in the hope of being treated more leniently than otherwise might be the case.  Indeed the U.S. government has a clever strategy in this regard.

Under U.S. law, “[e]ach United States person who
has a financial interest in or signature or other authority over
any foreign financial accounts, including bank, securities, or
other types of financial accounts, in a foreign country, if the
aggregate value of these financial accounts exceeds $10,000
at any time during the calendar year, must report that
relationship each calendar year by filing this report with the
Department of the Treasury on or before June 30, of the preceding year.”

A U.S. person’s failure to file a TD F 90-22.1 is not a matter of choice.  “Civil and criminal penalties, including in certain circumstances a fine of not more than $500,000 and imprisonment of not more than five years, are
provided for failure to file a report, supply information, and for filing a false or fraudulent report.”

In the coming  months, the U.S. government is likely to discover that UBS is not alone in holding the “off-shore” accounts of U.S. citizens.  There is likely to be a ripple effect as money might be moved from one “safe” jurisdiction from a bank secrecy jurisdiction to another.  It is unclear, however, whether this will succeed — but the demand for “private banking” services abroad for U.S. citizens is likely to decline.

After the U.S. enacted (i) the Patriot Act of 2001 with its anti-money laundering provisions after 9/11, and (ii) the Sarbanes-Oxley Act of 2003 after the Enron scandal, other countries adopted stricter laws to combat money laundering and to strengthen corporate governance.  Most industrial countries allow the U.S. to take the lead in combating economic crime.

Similarly, the OECD Member-States eventually ratifying an Anti-Bribery Convention in 1997, requiring them to adopt legislation similar to that found in the 1977 U.S. Foreign Corrupt Practices Act, which prohibited the paying of bribes to obtain or retain business.  Prior to the adoption of the OECD Convention, U.S. firms complained that they were competing at a disadvantage since they were prohibited from paying bribes, they could not deduct them as business expenses, as was possible in France and Germany.

This experience suggests that many existing tax havens as well as countries like Austria and Lichtenstein, will decide as Singapore has that being known as a place to park “dirty money” is a net negative.  As the world’s secret wealthy become known, the question will arise how did they become so rich.  Did they simply not declare earned income, or were they shills for others (e.g. corrupt political officials, transnational criminal organizations, etc.).

Within the U.S., this could have significant political ramifications.  In the last 25 years, whenever the issue of increasing federal taxes were raised, the Republicans complained that the Democrats were engaged in “class warfare.”  This in part explains why there is a cap on earned income for social security tax purposes or that all forms of income (e.g. dividends, earned, and interest payments were taxed at different rates).

Now columnists and journalists may start asking how did such a small segment of the population become so wealthy.  This is an explosive question in today’s economic situation, where it it seems that more than one million mortgage borrowers will have their homes in the 2 years successive years. Certainly, those who can maintain off-shore bank accounts do not worry about the absence of universal health coverage.

This present situation raises many issues: (i) does the U.S. government have the will and resources to prosecute all those who violated the law; (ii) to what extent will U.S. and foreign law enforcement authorities study how the funds in these accounts can be linked to other crimes; (iii) to what extent will the U.S. Department of Justice be willing to engage in plea bargaining rather than seek the maximum penalties;  (iv) to what extent will American lawyers want to be associated with defending the interests of wealthy criminals at a time of economic hardship; and (v) will U.S. politicians come to the aid of their financial backers.

The U.S. is one of the few countries in the world that tax its citizens who work abroad.  Perhaps some of those with off-shore bank accounts simply felt that if they paid taxes in their country of residence, why should they be subject to U.S. taxes.  One might sympathize in instances where someone is a dual national or due to the falling dollar, they their living expenses have shot up.  I would wager that there are few such cases with respect to individuals with accounts at UBS, but it may be true elsewhere.

It is worth noting that that the criminal RICO (Racketeer Influenced and Criminal Organizations) Act, 18 U.S.C. s. 1961-68, has both criminal and civil provisions.

It has very broad reach. Although originally enacted to deal with organized crime, the way it is written essentially allows it to be used against corporate entities and their personnel.

Professor William S. Laufer of the Wharton School wrote an excellent book called “Corporate Bodies and Guilty Minds.” Interested individuals will find it fascinating.

The U.S. Internal Revenue Service has assigned a large number of people to investigate the beneficial owners of the off-shore bank accounts described above.

Since Civil RICO allows for treble damages, if the federal government does not aggressively pursue all matters that it arguably should, persons victimized by criminal conspiracies should have standing to pursue their own cases.

Private plaintiffs may not be constrained by a shortage of resources or political constrains in efforts to vindicate their rights. This is yet another example of how the private sector is often a useful ally in law enforcement — for example in economic crimes such as securities fraud.

One thing is certain, those who work in the economic crime area should be kept busy for years to come.

<<The piece appeared in the RGE Monitor at http://www.rgemonitor.com/financemarkets-monitor/author_name/eburger/Ethan-S-Burger>>

The Economic Crisis, Public Health & Immigration Reform

The conventional wisdom is that it would be political suicide for President Obama to undertake any new controversial policy initiatives until Congress approves some form of health care reform.  In fact, Mr. Obama said that he will not tackle the immigration issue until 2010 — is is doubtful that either the Mexicans or the Canadians will be pleased and given that projections of the size of the deficit seem to be increasing, he may not have the luxury to wait.

In the U.S., politics has increasingly taken on the characteristics of advertising.  Our attention spans have decreased.  We are now surrounding by gadgets must of us barely understand how to use.

Soundbites, rather than good policy or a sense of equity drives the political discourse.  What that means is that powerful interest groups push their agenda at the extent of a majority of the public.

President Obama probably was too busy reading when he was younger than to have the time to watch much television.  He probably put his spare time into his school’s debate team and studied the world’s greatest speech-makers.  That may be a shame.

To regain the initiative, he should announce that he will give up his current health care insurance paid for by the U.S. taxpayer and choose one of the health care options he proposes.  Then he should dare all members of Congress who failure to support his final proposal for public health to the do same.   They will have the choice to pay out-of-pocket, see if they can be covered by their spouses coverage, or search for private insurance.  Many of our older senators may find their premiums high and have trouble with pre-existing conditions.

I am perplexed when I attempt to understand what motivates those who oppose health care reform.  The U.S. is the only industustrialized country in the world without a public health system.  Part of this is because most Americans are allergic to taxes — which frankly are not too burdensome when compared with other countries where we might want to live.

On television, we can see new advertisements with horror stories about delays some people have endured waiting to have an operation performed.  Yes, this is indeed a tragedy.  But many Americans have no opportunity to have any operations performed.  What is not discussed in the commercial is that (i) it is now possible to procure private health care in Canada and (ii) the Canada’s doctor shortage in part can be attributed to individuals who after receiving a subsidized medical education at Canadian taxpayers’ expense move to the States to earn money.

President Obama fears imposing new income taxes on all but the wealthiest 2-3% of the population.  He should realize that there is a large pool of other people who could be a good source of tax revenue and they would welcome the opportunity to do so — undocumented workers (or for those who prefer — illegal immigrants).  At present, many of these people are vulnerable to unscrupulous employers who violate applicable employment laws.

It would take great courage to propose addressing the immigration era at a time of high unemployment.  Leadership demands courage.  If the 10-12 million undocumented workers in the U.S. paid all the taxes they were obligated to (not just sales and excise tax), we would discover a whole pool of money that this country could use to fund the stimulus program and reduce the deficit.

It wasn’t so long ago that both Republicans and Democrats were considering programs that would impose a fine of a couple of thousand dollars on undocumented workers who can prove they had lived in the States for a number of years, worked at jobs and had not committed any crimes.  In exchange, they would have the legal right to remain in the coutnry.  This was a reasonable proposal at the time and remains so to.

Let such people have a means to get a green card (and their children under 18 a chance to get U.S. citizenship).  These workers would certainly have to contribute to payroll taxes, and in some cases state income and property taxes.  Some may even be lucky enough to have the privilege of paying federal income taxes.

Many fear that to do so would reduce wages.  That is indeed a legitimate concern.  The answer is to make the minimum wage a living wage and increase it automatically (without the needs for Congress to pass a law), when the real cost of living increases.  Since the CPI is flawed as it does not adequately take into account the cost of housing, food and transportation, we need another measure.

Also, make it easier for workers to organize unions.  In the 1950s and ’60s, it was the unions who were concerned with the condition of the common man.  They might with time develop the clout to fight special interests.  Unions have gotten a bad rap in this country.  Unlike the European countries, the U.S. does not have a labor code to protect worker rights, as a result we have a great need for unions.  Not all union leaders were corrupt nor were all tied to organized crime.

Perhaps the above changes might produce a dynamic where it would be feasible to establish a national health care system (incorporating private insurers if it makes economic sense).  While personally, I have a hard time completing some insurance forms and understanding why some things are being reimbursed while others are not, private health insurers are supposed to be more efficient than a single payer system.  That might be true, but why not think of allowing citizens of each state to but into their state workers’ insurance plans (possibly even some employers might do so).  This is one idea that might make health care more affordable, but the debate has become a vehicle for rhetoric, rather than problem solving.

The Iranian Opposition Should Not be Abandoned

Even though it may be summer, where are the demonstrations in support of democracy in Iran?  How come professors who purport to favor human rights and civil liberties not taking out advertisements on a regular basis in the world’s most prominent newspapers criticizing what is taking place in Iran.

To a large share of the population the term “academic” means irrelevant — perhaps such individuals are right.  This is indeed a shame since within universities throughout the world are numerous respected Iranian studies specialists who could influence policy makers, the mass media and private citizens to take appropriate (as opposed to symbolic) action in response on the recent events in Iran.

Many of the many faculty members should be ashamed of themselves for not calling on persons (other than the athletes) not to attend the Beijing Olympics), and not raise questions about the wisdom and ethics of holding the 2016 Olympics in Sochi (but perhaps the rule of law may exist in Russia by that time as economic and human rights conditions in Russia worsen).

In any case, Mahmoud Ahmadinejad is not the legitimate President of Iran and for governments and private persons to treat him and those in his administration as such represents an ethical failing of mammoth proportions.  Many prominent Iranian leaders have shown the world great courage in expressing their views.  Some are even defendants in contemporary show trials not seen since Stalin’s purges or Mao’s cultural revolution.

We should not lose interest in the Iranian people who have demonstrated in the streets thoughout the country despite the risks of violence at the hands of the regime’s supporters.  We should applaud the courage of those Iranian officials and academics who have resigned their positions to support the establishment of democracy in the country.  Yet it seems that they are being betrayed by the silence of a large part of the international community.

It would be funny, if it were not so shameful that some British academia and certain trade unions participate in a boycott of Israeli academics — many of whom are prominent supporters of peace based on a 2-state solution.  There are few Arab countries where people could demonstrate against their governments’ policies or publish articles and books in support of their position.

There anti-apartheid movement was an important factor in bringing majority rule to South Africa.  Where are the voices condemning Zimbabwe?  The situation in Darfur has not abated.  Do we need another Rwanda to galvanize the international community to take action?

What is to be Done?

The international community should also be ready to act against such regimes. At the very least, Iranian representatives should not enjoy diplomatic privileges. Other nations should deny Iranian citizens who work for the Iranian government visas to travel abroad and prohibit the export of goods to Iran other than food, medicine and consumer items. Iranian officials should not be allowed to open bank accounts or purchase real estate or luxury items abroad.

The ability of an illegitimate government to continue in power undermines international law. Allowing a government to defy the law without consequences is analogous to enacting criminal laws and holding trials but never punishing the guilty.

Why Amy Klobachar Will Be President Obama’s Running Mate in 2012

President Barak Obama likes to make bold historical moves.  The very idea of a first-term African-American Senator from Illinois with the middle name “Hussein” successfully running for the Democratic nomination for president in 2008 would have unimaginable in 2000.  His nomination of Sonya Sotomayor to be the first Hispanic on the U.S. Supreme was a headline grabber and a source of pride for the second largest “group” (albeit diverse) in America.  At the same time, he is an individual who seeks to create a consensus on policy when feasible.  Many of President Obama’s supporters were disappointed when he did not announce that U.S. Court of Appeals Judge  Diane Wood would not be his nominee.  Her vocal support for abortion rights made her too controversial, disappointing those who wanted a new Supreme Justice with the personality and intelligence to stand up to Justice Anthony Scalia and his sophistic legal reasoning.

Barak Obama chose Joe Biden to be his running mate shortly after the Russian invasion of Georgia last year, recognizing his own limitations in the foreign policy area.  As Chairman of the Senate Foreign Relations Committee and a former candidate for president, Senator Biden not only had the expertise that Mr. Obama lacked as well as a compelling personal story, he would not have any skeletons in his closet.  His reputations for occasional gaffes did not disqualify him in the public’s eye — he would be no “Tom Eagleton.”  Senator Biden gladly accepted the offer to be Senator Obama’s “Advisor-in-Chief.”

Senator Obama may have wanted to create a ticket of national unity, by asking Nebraska Republican Senator Chuck Hagel to be his running made.  The two got on well on their trip to Iraq.  The straight talking, former Viet Nam veteran Hagel was tougher on Bush administration officials tesfifying about our policy in Iraq on the Hill than most Democrats.  He was not seeking re-election.  Washington insiders did not overlook that Senator Hagel’s wife had contributed the maximum amount of money allowed by law to the Obama campaign.  As things turned out, President Obama received the good fortune of having Bush Defense Secretary Robert Gates agree to serve his Obama administration at a critical time — Chuck Hagel will have other opportunities in the future to serve the Obama administration;  he is not apparently moving back to Nebraska.

Joe Biden has served Barak Obama well.  Senator Biden reassured the American electorate that Mr. Obama not merely smart, articulate and personable, he was not a radical.  Furthermore, Senator Obama understood the importance of Washington and international experience.  Vice President Biden is not a young man and there is no rule that a vice president automatically remains on the ticket.   Mr. Biden could be an excellent U.S. Ambassador to the United Nations, China, or the Court of St. James.

The U.S. has yet to have a female president even though women constitute a majority of the country’s population.  Hillary Clinton sought to break that glass ceiling, but her candidacy was problematic for many.  America did not want a Clinton dynasty — a Bush dynasty was a disaster of incalculable proportions.  Secretary Clinton has played an important role in advancing the role of woman in U.S. political life.  So much in fact, that Senator John McCain impulsively invited soon-to-be former Governor to be his running mate.  She may end up as a talk show host, while Senator Kay Bailey Huchinson becomes the next governor of Texas.

How might President Obama excite a portion of the country to improve his chances for re-election?  His best option would be to pick a female vice presidential candidate, who could then use the post as a stepping stone to the presidency.  There are  a host of attractive candidates, including Homeland Security Secretary and former Arizona Governor Janet Napolitano — who not only has executive experience, but is gaining national security experience as well.  In addition, she could be the first president of Italian descent as well (if she can beat out Andrew Cuomo).

Yet, President Obama has a much better option, Minnesota Senator Amy Klobachar.  Ms. Kolobachar is ready for prime time.  She was the chief prosecutor in Minnesota’s largest county and not surprisingly good on talk shows.  She is smart and thoughtful.  She is not a liability on “family values” — having fought in Minnesota for one of the first laws in the country guaranteeing 48-hour hospital stays for new moms and their babies.  She is not a “blue blood” — grandfather was a miner and her mother an elementary school teacher until she was 70.

Most importantly, she will make things difficult for the one individual who would seem to be the Republican’s strongest presidential candidate, Minnesota Governor Tim Pawlenty.  Governor Pawlenty was mentioned as a possible running mate for John McCain.  For a Republican to be elected as governor in a state like Minnestota is no small feat.  In some of his recent public speaking opportunities, he sounds increasingly conservative.  As a person, he is comfortable in his skin.  Yet, if Senator Kobachar were President Obama’s running mate, he would be forced to devote a lot of time and resources to carry his home state.  This might even make Republicans reconsider their options and turn to Mitt Romney or some new face.

After four years as vice president, Amy Klobachar will have acquired top-level executive experience and been exposed to defense issues, foreign trade concerns, and foreign policy.  Amy Klobachar may not yet be a household name, but who heard of Barak Obama outside of Illinois in 2005?  A President Klobachar could become a shared legacy of Secretary Clinton and President Obama.

A Pragmatic Alternative to Affirmative Action

The Supreme Court’s recently held in the Richi case that New Haven, Connecticut fire fighters who passed an exam necessary for promotion enjoyed the protection of the Constitutions’ Equal Protection Clause.  Consequently, it would be improper to set aside the test results on the basis that no African-Americans who took the exam passed.  Apparently, the exam was designed specifically to ensure that cultural and racial factors may have an impact on the results.

Some columnists have declared that this represents the end of affirmative action as it has been practiced in recent years.  This would not be a negative development.  Achieving real equality in a society is not possible since we all are individuals with different backgrounds, capabilities, and experiences.

Connections are often decisive factors in an individual being hired for a job, getting promoted, accepted to an institution etc.  This is not desirable.  If possible, personnel decisions should be based on merit. Recently, Financial Times Columnist Michael Skapinker wrote an insightful piece criticizing unpaid summer internships.

Such internships are often important factors in college students getting jobs after graduation in an increasingly competitive job market.  Of course, not all individuals are lucky enough to be able to afford to not earn money over the summer.  Should these students be at a disadvantage when they apply for jobs since they lack a prestigious internship on their resume or don’t know those individuals personally who might have the ability to influence a hiring decision within an organization.

We have minimum wage laws — but internships somehow are not covered.  Perhaps this can be justified if a student is working for a non-profit organization and is receiving college credit (and hence can accelerate their studies, saving money in the process.  What about for profit organizations?  Sometimes internships are a way for employers to assess individuals who will eventually replace existing workers.

There is no way to ensure equal opportunity.  Affirmative action based on race (as well as the alleged use of goals or targets) is unjustified.  As President Obama indicated that no one can say that his children are disadvantaged.  No one can challenge his intelligence and achievements.  The same can be said of Attorney General Holder and Massachusetts Governor Deval Patrick.  Is affirmative action based on race an anachronism?

Affirmative action should be primarily but not entirely based on economic factors.  Of course, such a system is not without its drawbacks since circumstances change over time.  Nonetheless, it is the truly disadvantaged whom society owes special consideration.  We should not overlook the hurdles certain people need to overcome — such as poor public schools, growing up in high crime areas, being raised in dysfunctional families, overcoming a disability, etc.

It is likely that such an approach to affirmative action might result in the pool of persons being favored as being disproportionally African-American or Hispanic, these persons could be thought as deserving that additional thought be given to their circumstances, since their disadvantaged backgrounds may have had an impact on an awareness of their options or  intellectual development.  Not everyone grows up with computers in their households, receiving special tutoring, and going to camp or on foreign family vacations.

We are all in agreement that children should not be punished for the sins of their parents.  If children spend part of their lives growing up in public shelters, in orphanages or a series of foster parents, should society in essence continue to punish them?  Income and circumstance discrimination should be what should be considered with respect to affirmative action.

People should not be judged on the color of their skin, particularly when according to the U.S.  1990 Census indicates that 4% of the households in America are mixed race.  Individuals should not be arbitrarily assigned to racial and ethnic groups that benefit from so-called “Equal Opportunity” programs.  Similarly, people should not be discriminated on the basis of age.

This is not to deny that racism, ethnic and religious bias does not exist in this country.  Only an invasion from Mars will make us recognize that we share a common humanity.  There is nothing improper about ensuring equal opportunity, provided that the particular circumstances of the individual are taken into account.

Russian Strategic Thought: Prisoner of the Past

Recently, U.S. President Obama showed a high degree of candor when he quipped that Russian Prime Minister Vladimir Putin still had one foot in the Cold War.

At this week’s Moscow Summit, he was more diplomatic (i.e. restrained).  He focused his attention on areas where the U.S. and Russia seem to have  common interests:  achieving greater strategic arms reductions, counter-acting Islamic militants in South Asia, and most probably slowing down nuclear proliferation (although possibly not including Iran).

It seems only those subjects upon which there was agreement in advance among the two sides’ staff can be considered resulting from the meeting.  Still deadlines produce results.  Achieving results on complex issues is far more difficult.

Unfortunately, the U.S. may have seemingly forgot about the Russian invasion of Georgia when it agreed to resume limited military cooperation that were suspended in the aftermath of last August’s events.  Perhaps it would have been wiser for President Obama to make a commitment to seek to end trade restrictions that are in place as a result of outdated Jackson-Vanik Amendment.

No agreement was achieved on contentious topics.  This demonstrates that Russia wishes that the U.S. would acknowledge its sphere of influence in the “near abroad” (i.e. the Soviet Union’s successor states (minus the Baltic States) — most significantly Georgia and Ukraine).  This will not come to pass.  It also seems that a large share of the Russian national security community have yet to accept that the Czech Republic and Poland are sovereign countries.

No doubt, upon his return to the U.S., the Obama administration will point to the President’s meeting with opposition figures as evidence that he had not abandoned the promotion of human rights and the rule of lawin Russia since he met with Russian opposition figures.

Still there does not appear to be any major concrete consequences for Russia to penalize it for its domestic policy — but the possible loosening up of  requirements for non-governmental organizations to register seems to be a positive development — now to see how it is implemented.

Just as the Soviets were fearful of the implications of Reagan’s Strategic Defense Initiative (“Star Wars”), the Russians’ anxiety over missile defense in Europe is unjustified.  The deployment of any defensive system would be limited in scope.  The Russian military has far greater confidence in the U.S.’s ability to develop and operate an effective missile defense system, thus Moscow’s concern appears exaggerated.

Apparently, the Russian leadership is no longer threatening to deploy offensive missiles in Kaliningrad.  This is inherently logical as ever military threat creates the necessity of countermeasures.  Events in both Georgia and Estonia suggest that the Russian military establishment is examining the potential of cyber-attacks, after all anti-missile systems rely on computers.

Now in a war-time environment, how much confidence should we have that our weapons systems will be able to operate as planned? Just think how many times that U.S. launches of rockets have to be postponed due to bad whether or the malfunctioning of some part or system that had already been checked by NASA engineers many times over.

Russian strategic planners may not fully  appreciate that nuclear power plants are very attractive targets for cruise missiles and conventional aircraft. Russia (and other countries dependent on nuclear energy such as France), face the very real danger of having their population irradiated; such a calamity would result in an untold number of deaths due to cancer and other disease as well as give rise to a food crisis the world has never seen.

At this stage, no news in U.S.-Russian relations is probably good news.  President Obama can show the Russians the respect they crave without making any concessions.  If both Zbigniew Brzezinski and Michael McFaul seem pleased with the results, who am I to disagree?

The Russian Judiciary

For more than 15 years, many specialists on the Russian “legal system” have been writing about widespread political abuse of the courts by the ruling Russian political elite in order to increase their own power and for financial gain. Unfortunately, this problem extends to the Russian Procuracy and other state bodies charged with enforcing the “law” in the country.

Yet most Russian officials and business persons, foreign judges, and other promoters of increased trade and investment in Russia have largely downplayed this. The Kremlin prefers to spend large sums of money on public diplomacy rather than addressing the problem.

Now that former German Minister of Justice Sabine Leuthheusser-Schnarrenberger has issued a Report on this phenomenon and IKEA announced that it is ending any further investment (at least in the near-term) due to corruption in the country, the situation is being widely covered by the mass media.

Why is it that many foreign government officials (including judges) and others only now are acting upon what has been common knowledge for quite some time?

Did it take the world economic crisis to bring candor to the forefront? Could concerns about legal or political survival play a role? Bravo to the NGO and the many brave individuals in the press who have been willing to speak the truth.

Will there ever be any accountability for the officials in international organizations governmental “aid” bodies who funded judicial “reform” in Russia with minimal positive results? Should the numerous consultants and lawyers who profited but not fully informing their clients of the genuine risks of doing business in Russia think of making restitution?

Why have so few paid attention to Dmitrii Kozak’s inability in introduce political reform in Russia, much less the comments of its President Dmitrii Medvedev? The number of questions is indeed quite large.

Ultimately, the bulk of the Russian people are the ultimate victims of the situation. Apart from the denial of their constitutional rights, their government is not providing most of them with decent public schools, environmental protection, housing and quality health care due to a lack of funds (and will to do so).

I doubt that hosting the Winter Olympics in Sochi will provide much solace to them.

Iran and Belarus: Each Voting Situation is Sui Generis

Persons interested in gaining greater insight into whether there was election fraud in the recent Iranian voting process should read a recent Chatham House (Royal Institute for International Affairs) Report available at

http://www.chathamhouse.org.uk/files/14234_iranelection0609.pdf

Iranians appearing on television saying they were acting due the encouragement of Voice of America and BBC is a good illustration, assuming that they are not supporters of the existing system, of what people might do if they feel that their families will be harmed if they do not cooperate.

The West has learned a lot about the consequences of giving people hoping for political reform false hopes since Hungary 1956.

One might wonder what Iranian President Mahmoud Ahmadi-Nejad and Belarusian President Aleksandr Lukashenka might have discussed during their reciprocal visits in recent years.  Conceivably, Mr. Ahmadi-Nejad might have solicited advice about how best to achieve “electoral” victory, for example how to tally millions of votes in a matter of hours.

In comparison to his counterpart, Mr. Lukashenka enjoys two key advantages: (i) his principal political opponents seem to lack deep roots in Belarusian society, and hence behave more akin to dissidents, and (ii) Belarus ranks low on most countries’ foreign policy agenda.  For Mr. Ahmadi-Nejad this is not the case.

Former Iran Premier Mir-Hossein Moussavi is an experienced, credible national leader with considerable support among the frustrated Iranian mass, which have been experiencing a decline in its living standards; and while sharing Belarus’ status as a pariah state, Iran’s nuclear program is of great concern to world leaders.

Elections do not a democracy make — often they are merely mechanisms for creating the illusion of legitimacy when none exists.  As it has been said, what is important about elections is not how people vote, but how the ballots are counted.

Iranian students have a tradition in toppling regimes that are not responsive to the people’s needs.  It should come as no surprise that both the Chinese and Russian leadership believe the election outcome is already a settled matter.