Sins of the Father (31 page)

SiteServ owed IBRC €150 million. It was sold in 2012 for €45 million to Millington, an Isle of Man registered company that was owned by Denis O’Brien. IBRC agreed to write down the debt by just over €100 million, while the company’s shareholders received a €5 million pay-out from the sale – incredible given that the company was effectively bust. SiteServ, via Sierra, would later emerge as one of the contractors for the installation of water meters. Dublin solicitors Arthur Cox acted for both SiteServ and Millington, confirming that there were procedures in place to deal with any conflicts of interest.

Alongside the issue of IBRC stood the on-going investigation into possible criminal activity within Anglo in the months and years leading up to and after the 2008 bank guarantee. Five years on from the initial investigations, nobody had been put on trial. Indeed, as journalist Dearbhail McDonald put it in her publication,
Bust
, the initial arrests in March 2010 of Anglo’s Sean Fitzpatrick and Willie McAteer came fifteen months after the revelations about ‘the hiding of Fitzpatrick’s Anglo loans on the balance sheet of Irish Nationwide, and fourteen months after it emerged that Anglo had conspired with Irish Life and Permanent in a deposit swap intended to make Anglo’s balance sheet look healthier at its year end in September 2008.’
⁷¹
In Ireland, justice comes dripping slowly.

Although shocking in itself, there was nothing particularly unusual about the lack of commitment by the State to the investigation of financial crime. The default position is the establishment of an inquiry board, a process of bloated profundity but little conviction. The
Irish Examiner
reported that there were less than sixty State employees engaged in investigating white collar crime. ‘This figure includes all relevant Gardaí, Central Bank officials and the Office of the Director of Corporate Enforcement staff assigned to the problem,’ said the editor, adding that ‘we probably have more dog wardens’.
⁷²

The story of IBRC revealed some of the tensions at play within Ireland’s financial class in the wake of the 2008 collapse. There is a Shakespearian quality to this drama, but, rather like
Julius Caesar
, the conflict is between members of the same class. Nobody is calling for a democratisation of economic power – for regardless of who wins, that aspect of the Irish State will remain in private hands and under private control. In many ways, that is what the fight is about: it is centred on
who
will have control, not
where
the control will reside. As with the cobbler of Rome, the citizenry of Ireland is called upon to enter the stage simply as ‘a mender of bad soles’.

The liquidation of IBRC also revealed tensions between the Irish State and the ECB. Ireland, however, was very much the poster-boy for austerity. The country had not witnessed any riots; there had been no major strikes, nor any national counter-austerity protest of any real consequence outside of an anti-property tax campaign that ran out of steam in the early part of 2013. When it came to austerity, the ECB needed a success story, and Ireland was its best shot. The ECB’s need for an austerity fiction gave Ireland’s financial class a certain amount of leverage at EU level, and they used it to address some of the intra-class tensions and conflicts which surrounded the death throes of Anglo. They did not use it to counter the effects of austerity. This may have been because the policies of austerity are inextricably linked with the monetary policies of the EU and ECB.

On 15 April 2013 the Political Economy Research Institute (PERI) at the University of Massachusetts published a paper which highlighted serious mathematical errors within one of the main economic justifications for austerity.
⁷³
The authors of the report conducted an analysis of the spreadsheets used in the influential 2010 publication, ‘Growth in a Time of Debt’ by Carmen Reinhart and Kenneth Rogoff, and found the results to be skewed by coding errors. Reinhart and Rogoff had argued that economic growth in advanced countries was significantly hindered by national debt when that debt exceeded 90 per cent of GDP.
⁷⁴
Once the spread sheet errors were corrected, however, the PERI researchers discovered that there was no evidence for a 90 per cent debt to GDP boundary above which growth is significantly reduced.

Even though Reinhart and Rogoff did not explicitly argue for austerity, their paper was cited by central banks and governments already pursuing such policies and scrambling for proof. The European Economic and Monetary Affairs Commissioner, Olli Rehn, alluded to the now-discredited research in a letter to EU finance ministers in February 2013, when he told them that ‘it is widely acknowledged, based on serious academic research, that when public debt levels rise above 90 per cent they tend to have a negative impact on economic dynamism, which translates into low growth for many years.’
⁷⁵
Rehn had written the letter in response to an IMF research paper which concluded that the austerity model of government disinvestment was flawed to say the least.
⁷⁶
With just over 19 million people unemployed in the eurozone, the logic of austerity was, quite literally, not working. At the heart of the European project today is the idea that what is needed for a stable economy is tight monetary policy, low production costs and low debt. This has been proved to be wrong, yet the policies remain. There is an ideological battle at the heart of Europe today, and the Irish State is very clearly on the side of finance.

Editorial,
Finance Dublin
, May 2013.

On 9 March 2013 the
Financial Times
published an article by the writer Christopher Caldwell which dealt with the rising stock market, and why its fortunes seem to have little effect on the majority of the population. ‘Part of the reason people get less giddy about the Dow [Jones Industrial Average] than they did five years ago’ he wrote, ‘is because they have learnt a bit about inequality.’
⁷⁷
Since 2008 it has become increasingly clear that a significant proportion of national and international economic activity oversteps the lives of ordinary people, and that ‘what looks like a recovery, a rally or an increase in consumer confidence may just be the effect of elites passing money among themselves.’ Caldwell said that the ‘tide of liquidity’ unleashed by central banks in response to the crash, ought to have lifted all boats in the harbour. ‘But when the harbour is an equity market,’ he concluded, ‘you won’t find your yacht lifted unless you own one.’

In Ireland the facilitation of elites passing money among themselves is national economic policy. For all intents and purposes, the State is a tax haven.
⁷⁸
The maintenance of this merry-go-round lies at the heart of State legislation regarding business, finance and tax. And although this system is portrayed by the State as dynamic and entrepreneurial, the administrators are as grey and banal as the professions to which they belong. This is the world of stockbroking, accountancy, banking, law and property.

None of this is by accident. The past forty years have been marked by the re-emergence and dominance of rentier capital – that is, income drawn from ‘owning financial assets, rather than working or from owning productive assets’.
⁷⁹
It was facilitated by a profound shift in economic policies around the world, away from the embedded social contract of the post-Second Wold War period and towards so-called free market neoliberalism. And Ireland did not escape this trend, although it did not quite walk the same path as its more progressive brethren in social democratic Europe. Indeed, it could be said that when neoliberalism arrived on European shores, Ireland’s response was: what took you so long?

The type of business activities in Ireland which have the deepest influence over national economic policy today are defined not by production but by administration. This is not to say that indigenous producers of goods are non-existent, but in terms of national economic policy the influence of administration – and in particular financial administration – is out of proportion to that sector’s size and population within Irish society.
⁸⁰
The repeated defence by politicians and professionals of Ireland’s ‘sacrosanct’ corporation tax rate and tax haven status, the lack of proper investigation and prosecution regarding the financial industry, the long history of outright criminality regarding tax, finance and banking involving the highest echelons of the political system – in all of this we are witnessing an indigenous Irish class using the State to protect itself
from
the State, that is, from the democratic oversights within the State (however truncated those oversights may be), as well as from its own socially destructive behaviour. It would be quite a sight to behold, were it not so depressing.

Ireland’s tax avoidance industry came under the spotlight in May 2013 when the US Senate Permanent Subcommittee on Investigations conducted a hearing into the offshore strategies of the American multinational corporation, Apple Inc. ‘Sending valuable intellectual property rights offshore together with the profits that follow those rights,’ said the subcommittee’s chairman, Carl Levin, ‘is at the heart of Apple’s tax-avoidance strategy.’
⁸¹
He explained that ‘the key to offshore tax avoidance is transferring the profit-generating potential of that valuable intellectual property offshore so that the profits are directed not to the United States, but to an offshore tax haven.’ In the case of Apple, the company uses ‘a variety of offshore structures, arrangements, and transactions to shift billions of dollars in profits away from the United States and into Ireland, where Apple has negotiated a special corporate tax rate of less than two per cent.’
⁸²

The Irish State brought its diplomatic corps into play to defend itself. On 29 May the Irish Ambassador to the US, Michael Collins, wrote to Senators Levin and McCain to tell them that the ‘tax rates attributed to Ireland in the Memorandum… are wrong and misleading.’
⁸³
He said that Ireland’s ‘tax rates are set out in statute – so there is no possibility of individual special tax rates being negotiated for companies’ and that either way ‘the companies concerned are
not
tax-resident in Ireland.’ He finished by expressing his hope that the information provided would be ‘of assistance’ to the senators in their on-going work.

Senators Levin and McCain responded with a joint statement. ‘Records obtained by the subcommittee clearly reflect that, for years, Apple paid Irish tax authorities a nominal rate far below Ireland’s statutory rate of 12.5 per cent, on trading income,’ they said.
⁸⁴
The senators highlighted the fact that Apple’s special arrangement with Ireland was mentioned in evidence given to the subcommittee by Apple executive Tim Cook and the head of tax operations Philip Bullock. ‘Most reasonable people would agree,’ said Levin and McCain, ‘that negotiating special tax arrangements that allow companies to pay little or no income tax meets a common-sense definition of a tax haven.’

This was not the first time Ireland’s (tax-funded) ambassadors had been used to defend tax avoidance. The previous month the Irish Ambassador to France, Paul Kavanagh, wrote to
Le Monde
to complain about an article which had called Ireland a ‘palm tree tax regime’ that facilitated money laundering and financial fraud.
⁸⁵
Mr Kavanagh, as with Mr Collins in Washington, outlined that the corporation tax rate was 12.5 per cent on trade and 25 per cent on non-trade activities. He said that Ireland does not favour ‘letter-box’ companies which are registered for tax avoidance purposes only. Finally, Mr Collins said that Ireland was using its presidency of the EU to combat tax evasion and to ensure that steps were taken against it. The response of the government to the Permanent Subcommittee seems to have been based on the premise that if you keep on waving your hands and saying you are not a tax haven, somehow the evidence will go away.

The British Prime Minister, David Cameron, when asked about Ireland’s tax policy at the G8 summit in Fermanagh, replied that where a country has a low rate, ‘we need to make sure that the tax is actually paid.’
⁸⁶
It was a somewhat hollow answer – the square mile of the City of London is a global tax avoidance centre that Cameron fully supports – but nonetheless it contained a kernel of truth. The tax rate for corporations in Ireland – especially for multinationals, brass-plates and individuals registered as companies – is in many ways a token figure. The tax benefit comes not so much from the rate itself but from the accountancy procedures and legal structures which envelop it.

Ireland’s corporation tax rate is essentially a totemic figure. The real selling point is the ‘can-do’ approach towards tax avoidance, both at a legislative and regulatory level. In the words of Tax Justice Network founder, Richard Murphy, the real benefits to corporations registered in Ireland comes from the Republic’s ‘relaxed approach to the taxing of foreign dividends and to transfer pricing regulation, [its] relatively easily achieved corporate secrecy’ as well as the fact that it ‘has no controlled foreign company laws or thin capitalisation rules.’
⁸⁷

Ireland’s tax avoidance laws exist for a reason, and that reason has nothing to do with growth or investment. The Irish State is dominated by, and shaped towards, the interests of an indigenous middleman, or comprador, class. This class acts as an intermediary between foreign capital and the resources of the State. This is not a new class within Irish society, nor is this a new relationship. It is one that routes itself through the very structures of the State, and has done so since that State’s formation in 1922. In the past the middlemen were strongest in the cattle industry and banking, in construction, real estate and the sale of natural resources. Today there is an added element to all of this. It is the highly lucrative trade in the ability of a nation-state to set tax laws and to have those laws recognised internationally. Today, this class – via finance, stockbroking, accountancy and law – trades on that ability, and it has made that class, collectively, very rich indeed.