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Withholding Tax

Stuart White
THE WORLD IN BLACK-N-WHITE

Anyone following current business and finance news will no doubt have caught a whiff of what the world’s press is calling the HSBC scandal, though like me, you probably aren’t familiar with all the details. 

You may not even know what HSBC stands for which is the Hong Kong & Shanghai Banking Corporation, an institution whose roots go back as far as 1865.  According to Wikipedia HSBC’s current standing is thus:

“HSBC Holdings plc is a British multinational banking and financial services company headquartered in London. It is the world's second largest bank. It was founded in London in 1991 by the Hongkong and Shanghai Banking Corporation to act as a new group holding company. The origins of the bank lie in Hong Kong and Shanghai, where branches were first opened in 1865. As such, the company refers to both the United Kingdom and Hong Kong as its "home markets".


HSBC has around 6,600 offices in 80 countries and territories across Africa, Asia, Europe, North America and South America, and around 60 million customers. As of 31 December 2013, it had total assets of $2.671 trillion, of which roughly half were in Europe, the Middle East and Africa, and a quarter in each of Asia-Pacific and the Americas. As of 2012, it was the world's largest bank in terms of assets and sixth-largest public company, according to a composite measure by Forbes magazine.  HSBC is organised within four business groups: Commercial Banking; Global Banking and Markets (investment banking); Retail Banking and Wealth Management; and Global Private Banking.”


The current scandal concerns the thorny issue of tax avoidance whereby the corporation stands accused of assisting its customers, specifically large corporates, of secreting monies away in its Swiss arm in order to thwart revenue collection in their countries of business.  

And in a new twist today the Geneva offices of HSBC’s Swiss private bank were raided by Swiss authorities looking for evidence of alleged money laundering and reports that staff also helped hide money accrued from dodgy arms dealing and sales of ‘blood diamonds’. 

The information on which authorities are now acting is contained in e-files stolen in 2007 by HSBC's former computer specialist, Hervé Falciani, who said he was alarmed at how "banks such as HSBC have created a system for making themselves rich at the expense of society, by assisting in tax evasion and money-laundering".Falciani fled to France and gave the files to the French police. The information was leaked to the French newspaper Le Monde, and then to the International Consortium of Investigative Journalists, who lifted the lid on the names last week. 

Meanwhile some of the mud flying around in the fallout has been thrown at various governments and individual politicians who are accused of having known about the stolen information and colluded in a cover-up in the intervening  past 8 years.  Commenting on the unprecedented raid, Swiss Attorney General Oliver Jornot said: ‘What we are looking for today is not yet proof. What we are looking for are all documents, all information which will then allow us to make an analysis.’  He added that Swiss law did not allow an investigation based on stolen evidence but his office could investigate if it secured the evidence itself.

And whilst much of the fall-out from the exposé seems far away from us here, there is now a regional aspect after the South African Sunday Times published a list of names of wealthy South Africans who have reportedly stashed away 23 Billion Rands in HSBC Swiss accounts.  This has led to the South African Revenue Service (SARS) becoming involved.  SARS Service Executive Vlok Symington confirmed that SARS was "analysing" the information. "Early indications are that some of these account holders may have utilised their HSBC accounts to evade local and/or international tax obligations," he said. 

HSBC in South Africa has countered by saying the list of names was obtained illegally and making a complaint in the offending newspaper.  In a three-page letter sent to Sunday Times last week, their lawyers Cliffe Dekker Hofmeyr said the list of South African clients was "stolen from HSBC". The lawyers said it would be a "breach of confidentiality" to publish the names, especially as this would lump these people together with crooks and tax dodgers and  demanded that no details should be disclosed to anyone, ever.

Now it is not illegal for South Africans or indeed most other citizens in other countries on the stolen HSBC lists to hold Swiss bank accounts.  And I must confess to thinking that that was what having a Swiss bank account was all about – to stash away profits, inheritances and even ill-gotten gains away from the prying eyes of tax collectors and nosey parkers.  If it’s not Switzerland it’s the Cayman Islands or some other recognised off-shore tax haven where bank account holders are known to enjoy complete confidentiality and money movements are none of the authorities’ business. 

In Switzerland this complete confidentiality was first ratified in 1934 under The Federal Act on Banks & Savings Banks  and has been a subject of Swiss banking pride ever since.   However, under mounting international pressure the current Swiss government is unstitching part of that antique confidentiality quilt.  Last year it signed up to an international agreement on automatic sharing of tax information and last month unveiled draft legislation to fulfil this obligation.  Currently such details are only given on formal request from a foreign government but if the proposed regulations are ratified then potential tax issues such as property ownership would be automatically flagged up and some information such as account holders’ names, account numbers and bank balances would be shared with certain as yet undetermined governments.

All of which of course brings up the thorny issue of the difference between tax avoidance and tax evasion, the former being perfectly legal though morally questionable, the latter being against the law.   And in light of the proposed new Swiss banking policies a lot of account holders must be feeling extremely nervous, be they innocent or slightly less so.  For my own part I wish I was in the happy position of having such fat and obscene profits that could warrant considering a secret off-shore account but at least I have the moral high ground, meaning that as I remain scot (or tax) free I will also always be a free Scot.

STUART WHITE is the Managing Director of HRMC and they can be reached on 395 1640 or at www.hrmc.co.bw

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DIS Parley Committee selection disingenuous 

25th November 2020

Intelligence and Security Service Act, which is a law that establishes the Directorate of Intelligence and Security Service (DIS), provides for establishment of a Parliamentary Committee. Recently, the President announced nine names of Members of Parliament he had appointed to the Committee.

This announcement was preceded by a meeting the President held with the Speaker and the Leader of Opposition. Following the announcement of Committee MPs by the President, the opposition, through its leader, made it clear that it will not participate in the Committee unless certain conditions that would ensure effective oversight are met. The opposition acted on the non-participation threat through resignation of its three MPs from the Committee.

The Act at Section 38 provides for the establishment of the Committee to examine the expenditure, administration and policy of the Directorate. The law provides that the Parliamentary Committee shall have the same powers and privileges set out under the National Assembly (Powers and Privileges) Act.

On composition, the Committee shall consist of nine members who shall not be members of Cabinet and its quorum shall be five members.  The MPs in the Committee elect a chairperson from among their number at their first meeting.

The Members of the Committee are appointed by the President after consultation with the Speaker of the National Assembly and Leader of the Opposition in the National Assembly. It is the provision of the law that the Committee, relative to its size, reflect the numerical strengths of the political parties represented in the National Assembly.

The Act provides that that a member of the Committee holds office for the duration of the Parliament in which he or she is appointed.  The Committee is mandated to make an annual report on the discharge of their functions to the President and may at any time report to him or her on any matter relating to the discharge of those functions.

The Minister responsible for intelligence and security is obliged to lay before the National Assembly a copy of each annual report made by the Committee together with a statement as to whether any matter has been excluded from that copy in pursuance of the provision of the Act.

If it appears to the Minister, after consultation with the Parliamentary Committee, that the publication of any matter in a report would be prejudicial to the continued discharge of the functions of the Directorate, the Minister may exclude that matter from the copy of the report as laid before the National Assembly.

So, what are the specific demands of the Opposition and why are they not participating in the Committee? What should happen as a way forward? The Opposition demanded that there be a forensic audit of the Directorate. The DIS has never been audited since it was set up in 2008, more than a decade ago.

The institution has been a law unto itself for a longtime, feared by all oversight bodies. The Auditor General, who had no security of tenure, could not audit the DIS. The Directorate’s personnel, especially at a high level, have been implicated in corruption.  Some of its operatives are in courts of law defending corruption charges preferred against them. Some of the corruption cases which appeared in the media have not made it to the courts.

The DIS has been accused of non-accountability and unethical practices as well as of being a burden on the fiscus.  So, the Opposition demanded, from the President, a forensic audit for the purpose of cleaning up the DIS.  They demand a start from a clean slate.

The second demand by the Opposition is that the law be reviewed to ensure greater accountability of the DIS to Parliament. What are some of the issues that the opposition think should be reviewed? The contention is that the executive cannot appoint a Committee of Parliament to scrutinize an executive institution.

Already, it is argued, Parliament is less independent and it is dominated by the executive. It is contended that the Committee should be established by the Standing Orders and be appointed by a Select Committee of Parliament. There is also an argument that the Committee should report to Parliament and not to the President and that the Minister should not have any role in the Committee.

Democratic and Parliamentary oversight of the intelligence is relatively a new phenomenon across the World. Even developed democracies are still grappling with some of these issues. However, there are acceptable standards or what might be called international best practices which have evolved over the past two or so decades.

In the UK for instance, MPs of the Intelligence and Security Committee are appointed by the Houses of Parliament, having been nominated by the Prime Minister in consultation with the Leader of the Opposition. This is a good balancing exercise of involvement of both the executive and the legislature. Consultation is taken for granted in Botswana context in the sense that it has been reduced to just informing the Leader of Opposition without much regard to his or her ideas; they are never taken seriously.

Furthermore, the current Committee in the UK has four Members of the ruling party and five MPs from the opposition. It is a fairly balanced Committee in terms of Parliamentary representation. However, as said above, the President of Botswana appointed six ruling party MPs and three from the opposition.

The imbalance is preposterous and more pronounced with clear intentions of getting the executive way through the ruling party representatives in the Committee. The intention to avoid scrutiny is clear from the numbers of the ruling party MPs in the Committee.

There is also an international standard of removing sensitive parts which may harm national security from the report before it is tabled in the legislature. The previous and current reluctance of the executive arms to open up on Defence and Security matters emanate from this very reason of preserving and protecting national security.

But national security should be balanced with public interest and other democratic principles. The decision to expunge certain information which may be prejudicial to national security should not be an arbitrary and exclusive decision of the executive but a collective decision of a well fairly balanced Committee in consultation with the Speaker and the minister responsible.

There is no doubt that the DIS has been a rogue institution. The reluctance by the President to commit to democratic-parliamentary oversight reforms presupposes a lack of commitment to democratization. The President has no interest in seeing a reformed DIS with effective oversight of the agency.

He is insincere. This is because the President loathes the idea losing an iota of power and sharing it with any other democratic institution. He sees the agency as his power lever to sustain his stay in the high office. He thought he could sanitize himself with an ineffective DIS Committee that would dance to his tune.

The non-participation of the opposition MPs renders the Committee dysfunctional; it cannot function as this would be unlawful. Participation of the opposition is a legal requirement. Even if it can meet, it would lack legitimacy; it cannot be taken seriously. The President should therefore act on the oversight demands and reform the DIS if he is to be taken seriously.

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The Maccabean Uprising

25th November 2020
Jewish freedom fighters

 Jews drive away occupying power under the command of guerrilla leader Judas Maccabees but only just

Although it was the Desolation Sacrilege act, General Atiku, that officially sparked the Maccabean revolt, it in truth simply stoked the fires of an already simmering revolution. How so General?

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Atomic (CON)Fusion

25th November 2020

For years I have trained people about paradigm shifts – those light-bulb-switch-on moments – where there is a seismic change from the usual way of thinking about something to a newer, better way. 

I like to refer to them as ‘aha’ moments because of the sudden understanding of something which was previously incomprehensible. However,  the topic of today’s article is the complete antithesis of ‘aha’.  Though I’d love to tell you I’d had a ‘eureka ‘, ‘problem solved’ moment, I am faced with the complete opposite – an ‘oh-no’ moment or Lost Leader Syndrome.

No matter how well prepared or capable a leader is. they often find themselves facing perplexing events, confounding information, or puzzling situations. Confused by developments of which they can’t make sense and by challenges that they don’t know how to solve they become confused, sometimes lost and completely clueless about what to do.

I am told by Jentz and Murphy (JM) in ‘What leaders do when they don’t know what to do’ that this is normal, and that rapid change is making confusion a defining feature of management in the 21st century.  Now doesn’t that sound like the story of 2020 summed up in a single sentence?

The basic premise of their writing is that “confusion is not a weakness to be ashamed of but a regular and inevitable condition of leadership. By learning to embrace their confusion, managers are able to set in motion a constructive process for addressing baffling issues.

In fact, confusion turns out to be a fruitful environment in which the best managers thrive by using the instability around them to open up better lines of communication, test their old assumptions and values against changing realities, and develop more creative approaches to problem solving.”

The problem with this ideology however is that it doesn’t help my overwhelming feelings of fear and panic which is exacerbated by a tape playing on a loop in my head saying  ‘you’re supposed to know what to do, do something’. My angst is compounded by annoying motivational phrases also unhelpfully playing in my head like.

  • Nothing happens until something moves
  • The secret of getting ahead is getting started

and

  • Act or be acted upon

All these platitudes are urging me to pull something out of the bag, but I know that this is a trap. This need to forge ahead is nothing but a coping mechanism and disguise. Instead of owning the fact that I haven’t got a foggy about what to do, part of me worries that I’ll lose authority if I acknowledge that I can’t provide direction – I’m supposed to know the answers, I’m the MD!  This feeling of not being in control is common for managers in ‘oh no’ situations and as a result they often start reflexively and unilaterally attempting to impose quick fixes to restore equilibrium because, lets be honest, sometimes we find it hard to resist hiding our confusion.

To admit that I am lost in an “Oh, No!” moment opens the door not only to the fear of losing authority but also to a plethora of other troubling emotions and thoughts:  *Shame and loss of face: “You’ll look like a fool!” * Panic and loss of control: “You’ve let this get out of hand!” * Incompetence and incapacitation: “You don’t know what you’re doing!”

As if by saying “I’m at a loss here” is tantamount to declaring “I am not fit to lead.” Of course the real problem for me and any other leader is if they don’t admit when they are disoriented, it sends a signal to others in the organisation stating it’s not cool to be lost and that, by its very nature encourages them to hide.  What’s the saying about ‘a real man never asks for direction. ..so they end up driving around in circles’.

As managers we need to embrace the confusion, show vulnerability (remember that’s not a bad word) and accept that leadership is not about pretending to have all the answers but about having the courage to search with others to discover a solution.

JM point out that “being confused, however, does not mean being incapacitated.  Indeed, one of the most liberating truths of leadership is that confusion is not quicksand from which to escape but rather the potter’s clay of leadership – the very stuff with which managers can work.”

2020 has certainly been a year to remember and all indications are that the confusion which has characterised this year will still follow us into the New Year, thereby making confusion a defining characteristic of the new normal and how managers need to manage. Our competence as leaders will then surely be measured not only by ‘what I know’ but increasingly by ‘how I behave when I accept, I don’t know, lose my sense of direction and become confused.

.I guess the message for all organizational cultures going forward is that sticking with the belief that we need all-knowing, omni-competent executives will cost them dearly and send a message to managers that it is better to hide their confusion than to address it openly and constructively.

Take comfort in these wise words ‘Confusion is a word we have invented for an order not yet understood’!

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