Global Glance: April 4, 2016
A quick look at intriguing international stories
By John Bostwick, Managing Editor, Radius
Welcome back to Global Glance. This week we look at:
- How to launder money and shoot craps at the same time
- The trouble with judging NAFTA
- Why US expats and accidental Americans loath the IRS
How to Launder Money and Shoot Craps at the Same Time
If you’re looking for a good summary of US anti-money laundering legislation, check out the US Department of Treasury’s “History of Anti-Money Laundering Laws.” That may seem an ironic statement — as if no one but a legal fetishist could possibly be interested in the subject — but keeping track of and complying with such legislation is increasingly important for any business, not to mention any individual keen on staying out of prison. As the Treasury website observes, combating money laundering is critical to fighting terrorism and promoting global economic stability. And the enforcement of these laws has been ever more stringent since the landmark Bank Secrecy Act of 1970.
Of course, all countries have their own anti-money laundering legislation, not just the US, and some of those laws are tougher than others. Apparently, the Philippines has a particularly large loophole in its anti-money laundering law. A Wall Street Journal article published recently explains that when that country expanded the scope of its anti-money laundering legislation in 2013, lawmakers decided (incredibly) not to include casinos on the list of industries that must comply. The decision flew in the face of a third-party warning that the Philippines’ casino industry was vulnerable to money laundering activities. The Journal explains that the casino exemption “means that authorities can’t compel [Filipino] casinos to submit reports on operations or specific players to aid their investigations.”
There’s no telling if this legislative gap has aided terrorists, but it has affected significant elements of the global economy. The Journal article reports that $101 million was recently stolen from the Bangladesh central bank’s account at the New York Fed in a cyberattack, and that Filipino anti-money laundering laws are hampering efforts to track and recover the stolen money.
Quartz reported on the story last Thursday, explaining that the stolen money is “known to have entered Philippines’ financial system through a handful of accounts at Rizal Commercial Banking, before being consolidated into one account. Most of it then ended up in casinos, where it was used to buy casino chips or pay for losses.” The investigation has been thwarted from that point due to the Filipino casino exemption that effectively bars investigators from demanding those “reports on operations or specific players” mentioned above.
For another good report on this, check out Reuters’ “Casino Agent in Philippines Says High-Rollers Brought in Heist Money.” It emphasizes the global interest in the case, which is the subject of a Senate hearing in Manila: “With the credibility of the Philippines' banking system and anti-money laundering efforts at stake, part of the hearing was held in English for the sake of what its chairman called ‘foreign observers.’” According to Reuters, and not surprisingly, one of those foreign observers was the Bangladesh ambassador to the Philippines. He or she just may have been sitting in the front row, gibbering in disbelief that the country’s casinos are exempt from its anti-money-laundering laws.
Finally, I mentioned craps in the title of this section because I’m a fan and this gives me the opportunity to recommend it to the uninitiated. When played right it offers the lowest house edge of any casino game. If you’re interest in learning how to play it right, read Tom Ainslee’s quietly magnificent How to Gamble in a Casino, now unfortunately out of print.
The Trouble With Judging NAFTA
The North American Free Trade Agreement (NAFTA) went into effect in 1994. Now, over 20 years later, it’s still hard to determine how the agreement has affected US jobs (to say nothing of those in Canada and Mexico). On the one side, proponents such as US Government agencies trumpet the deal’s benefits. Here’s a representative quote from the export.gov website: “The dismantling of trade barriers and the opening of markets has led to economic growth and rising prosperity in all three countries.”
On the other side, NAFTA’s critics proclaim the deal has greatly diminished US manufacturing jobs. Presidential candidates as ideologically different as Donald Trump and Bernie Sanders have condemned NAFTA for harming the average American worker. “NAFTA at 20: One Million US Jobs Lost, Higher Income Inequality,” published in The Huffington Post in 2014, speaks for many of the workers Trump and Sanders are appealing to. Here’s an excerpt: “Not only did promises made by NAFTA’s proponents not materialize, but many results are exactly the opposite.” The article notes that NAFTA promoted the relocation of jobs to Mexico, leading to a trade deficit “that equated to an estimated net loss of one million US jobs by 2004.”
That slippery phrase — “equated to an estimated net loss” — hints at the difficulties of trying to isolate NAFTA’s effects. In today’s global economy, it’s virtually impossible to ascribe a particular economic factor such as a trade agreement to particular job losses in a given country.
In fact, far from decrying NAFTA, some experts have recently argued that the deal has been beneficial for many US workers. For example, an article in last Tuesday's New York Times claims the deal may have helped save the entire US auto industry. The author, Eduardo Porter, concedes that free-trade deals “often threaten the livelihood of workers in the industries exposed most directly to foreign competition,” and that the US auto industry did indeed lose some 350,000 jobs in the 20 years following NAFTA’s effective date.
However, Porter believes that NAFTA’s part in these job losses is not as great as many assume. Moreover, he argues the deal may have helped stave off auto-industry competition from China and other Asian countries. He writes: “The integration of production across countries with complementary labor forces — cheaper workers in Mexico to perform many basic tasks, with more highly paid and productive engineers and workers in the United States — turned out to play a central role in reviving the auto industry in North America.” Gordon Hanson, a professor at UC San Diego, is quoted in the article as saying, “Without the ability to move lower-wage jobs to Mexico we would have lost the whole industry,” and that now is “exactly the wrong time to blow up NAFTA. … We would be doing China an enormous favor.”
For a another argument that seeks to put trade deals in a broad economic context, check out the Times’ “Free Trade Is Not the Enemy,” by William M. Daley, former US secretary of commerce. He reminds us that during NAFTA negotiations in 1993, “the internet was made up of just 130 websites” and “that America was on the precipice of great change.” After the deal went into effect and US manufacturing began to decline, he claims the main culprit was not NAFTA but “the offshoring of jobs to China, with which we have no trade deal, and automation.” (Daley’s article is not so much about NAFTA as about the Trans-Pacific Partnership, another trade deal involving the US that’s now under consideration by Congress. Radius will address what you need to know about TPP in a blog post to be published this month.)
To wrap up this section: PolitiFact ran an article in February about Ohio Senate candidate Ted Strickland’s claim that NAFTA is responsible for “320,000 net Ohio manufacturing jobs lost.” PolitiFact rates Strickland’s claim as “mostly false,” concluding: “The implication that NAFTA is solely responsible is a gross oversimplification of a very complex economic phenomenon.”
Why US Expats and Accidental Americans Loath the IRS
If I had a dime for every time I’ve heard someone say he or she will move to another country if Donald Trump wins the next US presidential election, I’d have enough money to buy a Starbucks specialty drink, maybe even at an airport location. (My wife overheard a good response to this from a Canadian: “Yeah, well, we’re going to build a wall to keep you guys out and you’re going to pay for it.”) These people should know there are serious tax consequences for renouncing US citizenship, including the fact that the IRS considers renouncers to have sold all their assets on the day before renunciation, leading to massive tax obligations.
Even US expats that have no desire to renounce their citizenship face serious and complex IRS challenges. Last week, Bloomberg.com published a well-researched article on the current state of taxation for US citizens living abroad. The article is misleadingly titled “Owe Back Taxes? Lose Your Passport,” the second sentence to me suggesting a solution to a problem rather than a consequence. And the piece covers far more ground than the subject of passport revocation. (That issue was summarized by FOXNews.com in January article like this: “Buried, no submerged deep in the transportation bill passed by Congress in December was a bold, brand new power given to the IRS. If you have a federal tax debt amounting to $50,000 or more, starting this month, the IRS can get your passport cancelled.”)
The Bloomberg.com article explores numerous additional issues faced by US expats, including the fact that “unlike almost every other country in the world, the US demands its citizens pay taxes on all foreign income.” And completing a US tax return when living and earning money outside the US is enormously complicated, even for the most diligent and organized taxpayer. The article reports, for example, that “a typical US tax return for Americans living in the UK is 40 to 50 pages long, even though they often end up owing nothing.” The confusing rules, the article continues, often lead to expats “being taxed unfairly, paying the IRS and their home country on the same income.”
The most fascinating section of the article appears at the end and addresses so called “accidental Americans,” or individuals living outside the US that might not even be aware they’re considered taxable by the IRS. These people include, for example, babies born in the US to non-US parents and who are then moved back to their parents’ home countries as infants. These individuals, Bloomberg.com explains, may learn decades later “that they need to file to the IRS every year.”
Amazingly, one such person is Boris Johnson, the mayor of London. Johnson was born in New York City to British parents and moved back to the UK as a child. Here’s Bloomberg.com again: “[Johnson] had to pay the IRS last year for capital gains on his sale of a house in north London. ‘I think it’s absolutely outrageous,’ he said when he learned of the debt in 2014. ‘Why should I? I haven’t lived in the US since I was five years old.’” For more information, read The Atlantic’s, “London Mayor Boris Johnson Hates the IRS, Too.”