Friday, 14 September 2012


Cheat, Fraud, Corruption, Tax Avoidance, Price Fixing.
On February 7 2012 it was announced that there would be a merger of the commodity trader, Glencore, with the mining company, Xstrata, to form a new corporation, ‘Glenstrata’.
August 2012 the merger is not complete. Shareholders are objecting that the creation of the new corporation will deprive them of dividends, and lower the value of their holdings. Opponents are claiming that the new corporation will have too much control over the commodities markets.

It is projected that the new corporation will generate revenues of GBP 156 billion, with profits of GBP14 billion. The current chief executive officers were at university together in Witwatersrand, South Africa, and are already multi-millionaires.
The new corporation will manage the mining of zinc, copper, lead, alumina, nickel, cobalt, iron ore, coal; and production of fuel oil, heating oil, gasoline, naptha, jet fuel, liquefied petroleum gas, steam coal, and coke, ferro-alloys; and the farming of grains, wheat, corn, barley, rice, oilseeds, cotton, sugar, biodiesel, ethanol, meals. The corporation operates enterprises in Brazil. Bolivia, Argentina, Peru, Chile, Colombia; Mauritania, Tanzania, South Africa, Mozambique, Zambia, Equatorial Guinea, Republic of Congo, Democratic Republic of Congo; Kazakhstan, Russia; Italy, France, Spain, UK., Ireland, Sweden, Norway;Texas, Canada; Singapore, Philippines, Papua New Guinea, New Caledonia, Australia.
It will have a significant global presence.

In a socially just and equitable world, one could imagine that such corporations as
‘Glenstrata’ [and RioTinto, and BHPBilliton, Anglo-American, and Cargill] would be examples of the benefits of globalization. They would support local workers and communities with fair wages, pensions, social benefits such as housing and health care; provide facilities for safe water and sanitation; offer education and training; provide roads and railways; enable local  mining companies to develop effective safety procedures, and to protect local environments from pollution. Such global corporations could make the lives of the local people better with higher standards of living in return for the rights to produce and process local commodities. Alternatively, if they did not want to bother to make such social provisions, the corporations and their subsidiaries could fully pay their taxes so as to allow the governments to provide all these amenities to the local citizens.
But such an humanitarian approach does not seem to be part of the agenda for international commodity capitalism!

Glencore produces, sources, processes, refines, transports, stores, finances, and supplies commodities, and trades them, playing the markets, selling them at the highest price. Xstrata mines ores and sells the minerals on the commodities markets. As part of the new corporation, it will become a trader. ‘Glenstrata’ will control the commodities it mines and grows from source to market. It will control the prices of everyday goods from fuels, electric wiring, bread, and cereals. It will speculate on futures markets: buying  commodities today at an agreed price, betting that the price will be higher, securing a profit, on the agreed sale date. And of course, because Glenstrata brings the commodities to the market place, it can control the supply and prices. Such a corporation will benefit from globalization by gaining access to resources and materials from many countries. It will have strategic control of essential commodities and will need to be closely regulated by international and national
As reported by the New York Times, the Ecologist, Aljazeera, the Daily Telegraph, the opponents of the merger object that Glenstrata will be able to control the world supply and prices of vital materials by hoarding them until the prices rise e.g. holding grains in storehouses, waiting for a drought! They fear that Glenstrata will exert a price stranglehold over minerals, foods, and metals. However, some primary shareholders vigorously oppose the merger on the grounds that too much bonus money will be going to the chief officers to the disadvantage of the shareholders.
The past history of  both companies leads us to conclude that their corporate strategies are ‘hard-nosed’ and that they are highly likely to play the global markets to their advantage, without any consideration of the benefits of the countries and the communities in which they operate.
‘Minimise costs to maximize profits’ is a key principle of capitalist practice. For example, Glencore set up joint enterprises by private deals in the Democratic Republic of Congo with 6 mining companies that cost the government $5.5 billion in lost revenue as the result of operating tax avoidance schemes such as non payment of corporate taxes. In Zambia, the mines at Mufulira pay workers minimum wages, create serious pollution including sulphur poisoning, and acid rain. In Chile, and Australia, and Canada, Xstrata has been subject to worker disputes over wages and safety.

In view of the fact that GLENSTRATA is a new corporation, looking towards a new future, what are the possibilities of new corporate strategies? The countries of Africa have many poor people trying to survive on less than $1.25 a day. And these countries are rich in minerals and ores. Their tenants should be richer from the rents, and fees and royalties that ‘Glenstrata’ could be paying them. But the new corporation will continue to deprive the local communities of their rights and dues. This could change if the governments of countries like Zambia, and the Democratic Republic of Congo, Tanzania, South Africa, Indonesia, Philippines chose to develop systems of regulation, that would  establish and secure exactly what corporations ought to be paying for their mining and farming enterprises, ‘Glenstrata’ would be forced to choose to play fair, and operate for the benefit of  local communities and shareholders. A recent story by the BBC showed that this is not happening. John
Sweeney reported that in the DRCongo, at the Luilu refinery, Glenstrata continues to mine and refine copper by using sulphuric acid, and pouring the residues direct back into the local river........while declaring that it is busy looking after the environment, and improving the living conditions of the workers!

At the moment the World Bank, the IMF, the OECD, and the UN, all condemn the leaders of many ‘developing countries’ for their extensive practices of corruption. While this may be justified, it ignores the fact that the leaders of corruption in these countries are the multi-national corporations who are busy exploiting the resources of the different countries for the lowest cost and the maximum profit, as well as personal gain. It is well known and well documented that many global corporations, including ‘Glenstrata’, choose to use every means at their disposal to avoid paying taxes! For example, when there are tons of copper waiting to be sold, ‘Glenstrata’ would buy it from the local mining company, which it owns, at a low cost of  say $500million, and sell it in Switzerland at a premium price of say $11.4 billion.  Such transfer pricing is a normal practice operated by all the commodity groups of Europe and Australasia and is instrumental in depriving poor communities of any social benefits from the riches in their neighbourhoods.  
Another stratagem is to buy up local companies and to treat them as if they are competitors or subsiduaries or shells according to priorities at the time. ‘Glenstrata’ has a number of subsidiary companies in different countries. Sometimes they operate as integral parts of the corporation, contributing to the ‘total tax contribution’.  This is a scam developed by
PriceWaterhouseCoopers, PwC, whereby the auditors add together the total corporation tax; the total VAT paid by customers; PAYE and National Insurance payments paid by workers; and treat it as if it was the total tax paid by the corporation. The total tax contribution is used as the justification for the non-payment of tax. Sometimes the local companies are treated as independent, but dependent on the global corporation for loans. This scam is known as ‘thin capitalisation’. As business loans are usually welcomed by governments, they are subject to tax  relief schemes: the bigger the loan, the bigger the relief.  In this scam, the corporation is lending money to itself, so as to avoid paying tax and gaining relief.
Sometimes the local companies are operated as independent, mining the ores, and selling minerals to the corporation at the lowest prices.   

Tax havens such as Switzerland are essential to resource-seeking corporations operating in Africa: more than 85 per cent of asset portfolios for sub-Saharan Africa pass through tax havens. A tax haven is a territory/country that has low or nil taxes; allows companies to register, to be non resident; observe total privacy; enables individuals and companies to avoid paying taxes in their resident territory. A tax haven operates as a financial enterprise attracting as many cash deposits as possible. Shell companies are another scam that allows listed corporations to buy the name and listing of a company that no longer functions; has gone bankrupt, has no products, no officers, and no workers.  The shell enables corporations to hide monies in their accounts and audits. ‘Glenstrata’ has many subsidiaries in Africa that are registered in tax havens such as the British Virgin Islands.  It keenly utilises tax havens as vehicles for shell companies able to access legal and financial opacity tools including banking secrecy, thin capitalisation, little or no taxation, zero disclosure of company accounts, use of nominees, and - best of all - high-level client confidentiality, all of which is entirely legal. But all of which is immoral and corrupt. All of these scams enable corporations such as ‘Glenstrata’ to cheat the native workers, and their communities, and their governments of income and social funds and benefits. These complex webs of corruption raise issues about the legitimacy of such corporations and the intentions of governments that declare these actions as legal. These webs reveal that globalization is designed for the benefit of corporate capitalism.
GLENSTRATA is one of the largest owners of farm land in the world. Are they concerned to feed the farmers and their families, and raise their standards of living? or to hoard their products in storehouses?  Instead of playing the food markets to raise prices, should they endeavour to reduce hunger. Glencore already recognizes food insecurity and participates in the UN World Food Programme as a supplier of grain as well as a trader. However, shareholders of GLENSTRATA such as the United Arab Emirates and Korea are determined to gain access to the farmlands for the benefit of their own citizens in the future, without regard for the interests of the farmers in the supplier countries. We have to confront the facts that commodities markets reward the traders and keep the miners and farmers in poverty.                                                                                                  
Each year, Africa loses a minimum of $148bn - almost four times the sum of foreign aid it receives, to capital flight - of which 60 per cent is due to corporate mispricing. Clearly, the solution toward enabling African countries to recover their lost revenue and become economically independent, is to block revenue leakages, rather than provide further loans and grants characterised by conditionalities that undermine development.

The period between 2007 and 2012 has revealed more clearly than before that we are subject to a capitalist system in which the drive for profits leads banks and fund managers and corporations to seek for high prices and high returns without regard for the interests of the customers, the workers and communities across the world. We have to accept not only that poverty is the norm, but also that corruption is standard practice. It seems too that those individuals who have millions of dollars want more! They do not seem to care that if they could be satisfied with $500.000, they would release millions of dollars to alleviate the poverty of 6.9 billion others.                                                                                        
Is it so unreasonable to ask corporations like GLENSTRATA to adopt business strategies and working practices that benefit  the workers and their families? Instead of spending fortunes on auditors and financiers and lawyers to creatively account the books, those fees could be used to raise the standards of living of the locals involved in mining and farming across the world.

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