Joe Manchin torpedoes global tax on tech while money laundering sails through the House
U.S. POLITICS IS WEIRD
When I was studying Russian in St Petersburg a couple of decades ago, I made friends with a Texan student who was passionate about the U.S. Constitution – “it’s the most perfect document ever written” – in the way other people are fanatical about football teams, K-Pop bands, postage stamps or steam trains. His passion seemed quite odd at the time to a Brit who was pretty indifferent about the way his country’s government was structured. Whenever something particularly baffling happens in U.S. politics, I often wish I could phone him up and ask him what on earth is going on.
Exhibit A of my bafflement is Joe Biden’s taxation plan, which is supposed to impose a 15% minimum global tax rate on giant tech companies to help fund public services, but increasingly looks like it isn’t going to impose anything on anyone. That is a pretty modest tax rate by anyone’s standards, but even that seems out of reach.
It’s obviously opposed by Republicans, because opposing things that might conceivably strengthen the republic is what “republican” means these days. And it’s also opposed by Hungarians, which is imperiling the European Union’s prospect of approving the deal. And it’s opposed by the Wall Street Journal, where the editorial board is under the borderline-deranged impression that it involves ceding U.S. sovereignty to “the French, never mind the Chinese.”
But why is it opposed by Joe Manchin, Democratic senator from West Virginia?
I appreciate he has taken it upon himself to defend fossil fuels because his state produces coal, which is apparently reason enough to do nothing about climate change, but why is he defending Silicon Valley oligarchs’ offshore tax shenanigans?
- “We’re not going to go down that path overseas right now,” said Manchin. “Because the rest of the countries won’t follow, and we’ll put all of our international companies in jeopardy, which harms the American economy.”
To which my response is AAAAARGH. This is the best chance we’ve had in decades to redress the balance between giant tech monopolies and the rest of the economy, and somehow this tool is able to doom it.
This is when I need to phone up my Texan mate and ask why, when a tax cut is required, it’s passed in a flash; but a modest tax rise is apparently impossible? It feels a little like too many of Wales’ games against New Zealand, when it takes us 15 minutes to laboriously advance up the field before achieving nothing, then they seize the ball and score in 20 seconds.
Anyway, on to Exhibit B, which is the bipartisan majority in the House for the ENABLERS Act. The name is an acronym for the “Establishing New Authorities for Businesses Laundering and Enabling Risks to Security Act,” which in my opinion tries too hard, but – apart from that – it’s a great piece of legislation, the most significant overhaul of U.S. money laundering regulations in 20 years. It expands the list of companies and individuals that are obliged to report suspicious transactions to include investment advisors, art dealers, lawyers (!!!), trust and company service providers, accountants, PR executives and various others, and thus closes some of the most egregious loopholes in the U.S. system.
- “In passing the ENABLERS Act, the House has shown commitment to overhauling one of the most glaring blind spots in U.S. anti-money laundering law, a blind spot that has enabled criminals and kleptocrats to park their ill-gotten gains with ease in the U.S. financial system,” said Ian Gary, executive director of the FACT Coalition.
Admittedly, it has yet to pass the Senate so Manchin may step in, but hopefully it will pass there too. So what I am baffled about? How come this piece of legislation, which will stop law firms from attracting business, and restrict the ability of states like South Dakota to just set up trusts for anyone, didn’t get blocked like the tax reform did? Lawyers are the best-networked lobby in the world. Could they really not find a large enough number of biddable legislators able to parrot some drivel about international competitiveness and put a stop to this? Clearly, they couldn’t, and that’s great, but it’s still weird.
- “With little fanfare, counter-kleptocracy policy has become one of the most bipartisan arenas in Washington, with bills and legislation routinely gathering multiple sponsors from both sides of the aisle,” notes Casey Michel. “That bipartisanship is a welcome respite from the rancor in Washington. But it’s also further reason for hope that the U.S. can begin ending the loopholes plaguing its broader anti–money laundering efforts. Because for years, it felt like that hope was the only thing to go on.”
Perhaps I should dig out that Texan’s number, I’m sure I have it somewhere, and find out what he thinks.
BRITISH POLITICS IS WEIRD
Anyone old enough to remember the crisis of 2007-8 will remember that many of the most toxic financial products were cooked up in London, where banks benefited from what the government of the time referred to as “light touch regulation.” It was part of a decades-long effort to ensure that institutions based in the U.K. are able to outcompete those based in New York by having less onerous rules for them to follow.
The fact that the banks then blew up the world economy, leaving us all on the hook for their debts, showed the folly of this approach and fortunately regulators abandoned it.
However, ideas that are profitable never truly die, and London remains a place with a rich history of disinterring them (my most recent book is all about this, in fact), so we shouldn’t be too surprised that this one has lurched back to life. A new Financial Services and Markets Bill – British laws have really boring titles — is mainly being talked about for the fact it will guarantee people’s access to cash money, at a time when many banks are closing remote branches.
- But it goes further than that, and will also be: “updating the objectives of the financial services regulators to ensure a greater focus on growth and international competitiveness.”
The financial services industry, which has an even shorter memory than politicians, thinks this is just great. I do not. The Conservative Party has a rich tradition of this kind of thing, and has previously passed a bill requiring regulators to focus on promoting economic growth (which is, for an environmental regulator, say, completely nonsensical: pollution is profitable, which is why companies do it, so how is it possible to balance limiting pollution with promoting growth?), and it is alarming to see this creeping back into the City of London, where the damage firms can do is greatest of all.
- “There is a danger that as memories of the financial crisis fade, its lessons are forgotten. We cannot let this happen. If new post-Brexit regulation is to see the finance sector make the greatest possible contribution to our economy and living standards, the government must abandon its misguided competitiveness proposals, and instead give the regulator objectives reflecting the clear priorities of our country today,” writes Tory MP Kevin Hollinrake, who is not swayed by his party’s proposals.
So why am I baffled by this? The conservative party seems to spend much of its time in the past, whether that’s cosplaying as Margaret Thatcher, or Winston Churchill, or whoever; yet it never seems to learn the lessons the past offers. If we know one thing about light touch regulation, it’s that it leads to long-term problems. Yet here we are, going through it yet again.
While we’re in the U.K.: more baffling news from the Office for Sanctions Implementation, which has apparently allowed Russian businessman Pyotr Aven to spend 600,000 pounds a year even though his funds are frozen. Still, it’s a case that suggest the National Crime Agency is not shying away from difficult cases, which is good news and hopefully indicative of a harder line in future.
Should you be free on Thursday, I’ll be chairing a panel to discuss what business should/could be doing to divest from Russia. Sign up, it’ll be interesting.
WHAT I’M READING
I was writing a “six books you should read” column a couple of weeks ago and wanted to include something by George Orwell. I went back and forth about which if his books to include before thinking that, since his best writing was his essays, I should probably put them in. But then I was confronted with having to choose a particular edition of his essays, of which there have been several thousand. So, I went ahead and bought a collected edition.
I’m currently up to what he was writing in 1939, so there’s a lot to get through, but it’s reminding me of why I love his combination of razor-sharp prose, cantankerousness, humor, passion and integrity. Fortunately, this book is so long that I’ll probably be reading it for months.