How to Buy a US Ambassadorship, and How Much to Pay

The recent news about the newly appointed US ambassador to Canada, Bruce Heyman--described as "A veteran Goldman Sachs & Co. executive and major fundraiser" for President Obama--reminded me of a paper I read some time ago in which the authors showed that ambassadorships are bought by contributing to the political coffers of the winning presidential candidate. All too unfortunately, this comes as no surprise. The more contributed, the more likely the desired post is obtained.  The paper is "What Price the Court of St. James? Political Influences on Ambassadorial Postings of the United States," by Johannes Fedderke and Dennis Jett, and here's a sample of the menu it describes, from a Table called "The Price of Some Lucrative Postings Implied by the Model":

The paper notes the low-end cost is usually for bundlers, while high-end cost is usually for individual donors, and "the greater pay-off attaches to bundled rather than personal contributions." The Center for Public Integrity's story about Bruce Heyman affirms the authors' predictions. Notice in the table above that the low-end price for the ambassadorship to Canada, most associated with the bundlers, is $740,418. From the CPI story:

Chicago-based Bruce Heyman raised more than $750,000 for Obama’s committees since 2007, along with his wife, according to a Center for Public Integrity review of records.

From a National Post story on the appointment, Bruce Heyman looks to be happy about the outcome:

Related findings from the Fedderke and Jett paper, some of which also affirmed by the latest appointment:

• the probability of a political appointment to a posting rises in the attractiveness of the posting as a tourist destination, and as the hardship allowance associated with a posting declines
• appointees that have personal political connections receive more lucrative postings in per capita GDP, tourist volume and hardship allowance terms. They are also more likely to receive postings in Upper Middle Income countries and in the Caribbean, North and Central America. 
• The greater the personal or bundled campaign contributions to a presidential campaign, the more lucrative the posting the contributor can expect in terms of per capita GDP, tourist volumes, hardship allowances, and the more likely the posting will be in High Income countries and Western Europe, and the less likely it will be in Central and South Asia or Sub-Saharan Africa.

And then there is this interactive from the CPI (below is a capture but you can click the link to roll over each country and see the details):

Notice how the bundlers and political appointees versus the "career diplomats" correspond to the observations above by Fedderke and Jett, and if you review the interactive's details about each of the ambassadors you get further affirmation of Fedderke & Jett's predictions about the costs of obtaining these posts based on their model. Incidentally, from the paper the price of the Court of St. James was "between $650,000 and $2.3 million": according to CPI, that appointment has been confirmed to Matthew Winthrop Barzun, National Finance Chair for Obama's 2012 campaign, who raised at least $1.2 million for the President. Fun fact: the first ambassador to represent the US there was John Adams, who, along with four others to hold that post, later became President themselves, thus completing the cycle. No idea how much each paid to get there, though.

Money might not buy happiness, but it appears that it might well get you to a nice diplomatic post in a tourist destination.

Russell Brand on governance as theatre and why MNCs get all the tax breaks

Russell Brand got invited to the GQ awards, made a joke about Hugo Boss' history serving Nazi troops, and then got ejected. I would never have heard or cared about this except that then Russell Brand decided to write about the experience in the Guardian, and his comments ended up as an indictment of the relationship between elites and government with a nod to the problem of multinational influence on tax policy. Excerpts:

We witness that there is a relationship between government, media and industry that is evident even at this most spurious and superficial level. These three institutions support one another. We know that however cool a media outlet may purport to be, their primary loyalty is to their corporate backers. We know also that you cannot criticise the corporate backers openly without censorship and subsequent manipulation of this information.

Now I'm aware that this was really no big deal; I'm not saying I'm an estuary Che Guevara, it was a daft joke, by a daft comic at a daft event. It makes me wonder though how the relationships and power dynamics I witnessed on this relatively inconsequential context are replicated on a more significant scale. 

For example, if you can't criticise Hugo Boss at the GQ awards because they own the event do you think it is significant that energy companies donate to the Tory party? Will that affect government policy? Will the relationships that "politician of the year" Boris Johnson has with City bankers – he took many more meetings with them than public servants in his first term as mayor – influence the way he runs our capital? 

Is it any wonder that Amazon, Vodafone and Starbucks avoid paying tax when they enjoy such cosy relationships with members of our government? 

Ought we be concerned that our rights to protest are being continually eroded under the guise of enhancing our safety? Is there a relationship between proposed fracking in the UK, new laws that prohibit protest and the relationships between energy companies and our government? 

From the shallows of celebrity comings and goings, an all-too rare glimpse of perspective on the society we have built for ourselves.

Quebec's governance crisis continues: mayor who resigned under fraud charge gets $267K severance

There is something seriously broken in a governance system that produces this result, as reported by  the CBC:

The City of Montreal has confirmed that former mayor Michael Applebaum has received more than $267,000 in severance pay. 

Applebaum resigned from office after being arrested in June on 14 charges including fraud and conspiracy.

City spokesman Gonzalo Nunez said the law governing severance payouts does not take into account the reason for the end of time in office, except in the case of death.

Mr. Applebaum and Mr. Tremblay should both disgorge their severance pay of course, and while they are at it, why not all the pay they have ever received from the taxpayers of Quebec, in restitution for abuse of office. But that's not what the law requires. More evidence that we are experiencing a serious governance crisis in Quebec.

Senate quietly easing restrictions on their own insider trading, to protect "national security"

I wish I could express surprise. I can, however, muster some dismay:

The Senate has severely scaled back the Stock Act, the law to stop members of Congress and their staff from trading on insider information, in an under-the-radar vote that has been sharply criticised by advocates of political transparency. 

The changes, if they become law, will exclude Congressional and White House staff members from having to post details of their shareholdings online. They will also make online filing optional for the president, vice-president, members of Congress and congressional candidates. 

The House was expected to pass a similar bill on Friday.

MR posts links to the FT article, other sources, and says "Some officials suggested that transparency "could threaten national security," more detail on that here.  Here are some further interesting details."

Clearly, what we least need right now from our elected leaders is an assurance that we will know less and less about their business and financial dealings while they ostensibly serve in the public interest. For shame.

France ups the ante for EU tax evasion

Cahuzac's denials and ultimate admission about hiding money offshore while serving as the anti-evasion officer-in-chief is very embarrassing for France, and so it should be no surprise to see the rhetoric heat up as new allegations surface about his attempts to move the money around in an ultimately futile attempt at subterfuge. From AFP:

J'ai dit quoi?

France said Sunday [ed: France is a country and cannot speak. It is not so difficult to write "French leaders said", and it is ever so much less distracting.]  it was looking to tighten Europe-wide measures against tax evasion as it scrambles to contain a fraud scandal that has rocked President Francois Hollande's government.

...Finance Minister Pierre Moscovici announced that France would seek to reinforce the exchange of banking information throughout Europe, based on a US ruling in place since 2010 that seeks to fight offshore tax evasion.

Well, the "rule" may have been in place but let us recall that it is not in fact yet in force...three years later, we're still working out the kinks over here, and there are many, many kinks.

More:

"I propose that there be an automatic exchange of information, a European FATCA," Moscovici said on Europe 1 radio.

Hollande's government has been shaken by the scandal, which erupted Tuesday after Cahuzac -- once in charge of tackling tax evasion -- admitted to investigators that he had a foreign account containing some 600,000 euros ($770,000). 

...Critics have been quick to round on Hollande and his ministers, accusing them of either trying to cover up the scandal or of mismanagement for having believed Cahuzac's denials.

...Hollande has tried to contain the fall-out from the scandal, saying he was unaware of the account and announcing Wednesday that a new law would be submitted within weeks that will establish greater control over ministers' wealth. 

The law would also ban any elected representative found guilty of tax fraud or corruption from holding any form of public office.

Query whether there would be enough people left to run the world if every country made this same pledge.

Corruption laid bare by Global Witness: A Manual for Stealing Your State's Resources for Personal Gain

Global Witness issued this must-watch video this week, which demonstrates how leaders steal from their own people with the help of lawyers and bankers. The crime itself is bad enough, but the blasé demeanour of these perpetrators is truly offensive. They must have done this a lot in order to view the proposed transactions in such a banal and relaxed way. Though one woman clutches a pillow quite closely as she calmly explains how to take care of the details. Is she nervous about her illicit behaviour, or just eager to close the deal?

This exposes a number of rotten practices, few of which I would guess are unique to Malaysia. Instead, what I think we are seeing here is a manual:

How to steal your state's resources for personal gain, in 8 easy steps.

Step 1: get control over state land allocation and resource extraction licensing by becoming a state authority.
Step 2: open a series of accounts in trust or corporate form, in places will hide your identity and assets from other state authorities, for example, in "the new Switzerland."
Step 3: have the state sell land at nominal prices to your family members and/or companies you control.
Step 4: when buyers inquire at your state offices about making land leases or purchases, direct them to your family members.
Step 5: have your family members and lawyers explain to the buyer that the purchase will require two purchase contracts plus a side arrangement for licensing rights.
Step 6: write the first purchase contract for a nominal price to legally transfer the property locally but generate minimal (or no) profit.
Step 7: write the second purchase contract to direct the remaining purchase price to be paid directly to one of the offshore accounts.
Step 8: have the buyer write the side arrangement fee directly to one of the offshore accounts.

Query: how do you make sure your buyer actually pays you the second purchase price? That is, if the first contract documents the sale, what stops the buyer exercising ownership rights if he double crosses you on the offshore bank contract? The woman in the video says no problem, this has "been done." How has it been done? Are we talking about hiring thugs to break kneecaps? I've heard of similar triangular contractual arrangements in other equally criminal schemes, and I always wonder about how that aspect works out. Honor among thieves?

Montreal “Mafia Row” Rizzuto house has buy offer

Every penny from this sale ought to go to the City of Montreal. It's not much, but it might cover a few weeks worth of corruption maybe.

AIG PR Blitz “Thanks” Taxpayers For Bailouts

Something went horribly wrong in AIG's public relations department:

what is the message here from AIG?
“I needed money so I stole your car, robbed a liquor store, and now I am giving you your car back and I left a portion of the liquor store loot…”

And I'm proud of that. Thank you, America!

The PR dept didn't completely fail though: they were smart enough to disable the comments section:

Lobbying pays: rewards for legislative favors edition

Sungmun Choi asks, “Do Interest Groups Reward Politicians for their Votes in the Legislature?” And answers: of course they do.  Choi examined monetary contributions paid by interest groups to members of the U.S. House of Representatives and found evidence that the politicians who voted for the 2008 bank bailout were rewarded in the form of "more monetary contributions from the interest groups in the financial sector after passage of the EESA."  Conclsion; "interest groups reward politicians for their favorable votes in the legislature, at least in the case of the EESA. Of the two hypotheses that I develop in the theoretical part of the paper, I find evidence for the hypothesis of the long-term relationship between interest groups and politicians." Paper at the link.

So let's recap.

• Politicans need money to get (re-)elected: lobbying pays for that.
• Politicians need jobs when they retire from public office: lobbying pays for that.
• Lobbyists need clients who benefit from legal reform: lobbying pays for that.
• And now we see that politicians need to be rewarded for their legislative votes: lobbying clearly pays for that, too.

Cost to poor countries of illicit Cash flow: $859B

TJN posts this report from Global Financial Integrity, showing that

Crime, corruption, and tax evasion cost the developing world $858.8 billion in 2010

... the biggest exporters of illicit financial flows over the decade are:

• China,  $274 billion average ($2.74 trillion cumulative)
• Mexico, $47.6 billion avg. ($476 billion cum.)
• Malaysia, $28.5 billion avg. ($285 billion cum.)
• Saudi Arabia, $21.0 billion avg.  ($210 billion cum.)
• Russia, $15.2 billion avg. ($152 billion cum.)

Table 2 of the report's appendix has a complete list. This demonstrates why information gathering and exchange has got to be global and, contrary to how it's going right now, should probably start with the world's wealthiest countries imposing their gathering, reporting, and sharing regime on their own financial institutions vis a vis the rest of the world, rather than working to protect their own bases first and foremost.  This is a time for leadership by example.

Deutsche Bank offices raided in tax evasion inquiry | World news | The Guardian

"Tax officials clutching backpacks and suitcases were seen leaving the bank's twin-tower headquarters in Frankfurt."

Come on now.