Giant Companies Pinpricked by ‘Direct Democracy’

A Swiss village has decided to reject tax money from the firm Glencore and to instead donate it to charities. Other towns may follow, sending a strong signal to the government to follow the U.S. and the EU and introduce transparency rules for the extractive industry.
 
It’s rush hour in the city of Zug in Central Switzerland as Mrs Sandra Räppli struggles to raise her voice over the traffic noise. About 35 people listen as she lectures about commodity extraction and trading companies based in the city and the neighbouring town of Baar.

Räppli talks about complex company structures and tax optimisation, finally asking the audience: “Could you follow my explanations? Did you understand?” Then she smiles: “You couldn’t? No problem, because that is what those companies intend.”

Once a month, actress Maria Greco slips into the role of Sandra Räppli and guides groups of inhabitants and visitors through the streets of Zug. The canton counts 116,000 inhabitants and more than 30,000 companies, 105 of which belong to the commodity cluster formed by GlencoreXstrata, Northstream, Rusal and Gazprom, to name just a few.

Privileged taxation for holding, domicile and mixed companies brought these firms here. Holding companies are exempt from cantonal income tax, and pay almost no capital tax. Incomes of management companies generated abroad are hardly taxed, too.

Critics say Zug’s tax environment is an invitation to ‘transfer pricing’, a method to allocate a corporation’s net profit before taxation; in other words a means for tax evasion. Despite sales of 214.44 billion dollars in 2012, Glencore paid no tax on earnings at all in the canton of Zug last year.

The commodity cluster as a whole is estimated to have paid only 40 million dollars in cantonal and communal taxes.

Under official secrecy rules, exact taxes paid by Glencore and other companies are not available. Statistics on the number of companies or their employees is also lacking, even at the national level.

“That  lack of transparency is a major problem,” says Andreas Hürlimann, a parliamentarian with the Green-Alternative party in Zug. “Even as a member of parliament I can’t be sure that things are handled correctly if the government on any occasion hides behind the tax secret.”

Hürlimann finds Zug’s tax regulation deeply unfair. “It makes us rich, while people in extraction countries suffer, as the companies evade taxation there.” He says that Zug bears at least some moral responsibility.

At the end of her tour, Sandra Räppli stops in front of Zug’s town hall. “Our politicians are hand in glove with Glencore’s managers,” she tells her audience. “Only if people get active can something be done about these companies.”

Räppli has just ended her second season of city tours. She’s happy that the attendance has remained high – by Swiss standards. Media reports and a campaign run by the Swiss non-governmental organisation Berne Declaration have clearly increased popular interest in the commodity sector.

In the nearby canton of Zurich, these efforts have yielded fruits. Several villages are up in arms against Glencore. The corporation’s flotation on the stock market in 2011 had filled the pockets of CEO Ivan Glasenberg, leading to a huge one-time tax inflow for the canton. That money was redistributed to the communes.

But in several communes, residents were appalled by profiting indirectly from what they call “Glencore’s dubious business conduct abroad.” They collected signatures and demanded that at least 10 percent of the “Glencore money” be donated to charities who support affected communities in extraction regions.

In Hedingen, a village of 3,500, voters approved the donation of 120,000 dollars to charities. Samuel Schweizer, a member of the local citizens’ committee, explained that success to IPS: “Our proximity to Zug was crucial, people could relate to Glencore. Also, we’ve managed to build a broad committee.”

Schweizer explained that donating only 10 percent of the “Glencore money” instead of the whole amount further helped to find a majority.

At least five more communes will soon decide upon similar initiatives. In Affoltern for example, 180,000 dollars are at stake. In Hausen, it’s 80,000 dollars.

There, Franz Schüle of the local initiative committee is optimistic. “We live in a rural area. When I explain that in Colombia the surface of the land belongs to the farmers, while everything below can be owned by extraction companies, people can relate to the problem easily.”

“Direct democracy has hit Glencore,” says Oliver Classen, spokesperson of the Berne Declaration. He’s aware that these communal initiatives are only a drop in the ocean and a one-time effort. “However, Hedingen has a huge political signalling effect,” Classen tells IPS.

This summer, the European parliament introduced the Transparency and Accounting Directives that force mining, oil and gas companies to publish their payments to governments; country by country and project by project. The Swiss government has remained hesitant so far and will present its own measures next spring.

Oliver Classen demands transparency on payments and human rights obligations for commodities companies producing or trading abroad.

GlencoreXstrata neither commented on the tax initiatives nor responded to accusations ranging from tax avoidance to violating basic human rights in extraction countries. Its spokesperson Charles Watenpuhl sent IPS a statement.

“We believe that Glencore’s global presence and economic strength have a predominantly positive impact on the communities in which we operate. We seek out, undertake and contribute to activities and programmes designed to improve quality of life for the people in these communities.

“Glencore’s tax strategy and payments play a vital role in our intention to achieve long-term sustainable development. We are committed to full compliance with all statutory obligations, full disclosure to tax authorities and reporting transparently in the tax payments that we make to the governments of the countries in which we operate.”

This report was first published here by IPS Inter Press Service. 

Commodities Trade Haven Faces Protests

The powerful Swiss commodity sector is under fire here, as citizens fed up with government inaction on charges of corporate corruption, tax evasion and lack of transparency gear up for major protests.

Switzerland is anything but a country rich in raw materials but it is, nevertheless, a major hub for international commodity trade, hosting some of the world’s biggest commodities companies such as Glencore (which specialises in power generation, steel production, oil and food processing); Xstrata (copper, zinc, aluminium, nickel and coal-fired electricity), Vitol (which ships oil products like gasoline, diesel, jet fuel and metals, as well as ethanol and chemicals) and Mercuria (dealing in oil and energy products).

Swiss-based companies are estimated to have a share of 15 to 25 percent of the global commodities trade.
Data provided by the industry reveals that 60 percent of the global metals and coffee trade is done in Switzerland. In sugar, the Swiss sector has a market share of 50 percent and in crude oil and grains it makes up 35 percent of global trade.

Against this backdrop, Swiss critics are preparing for a chance to voice their grievances with these massive commodities giants at the second annual Financial Times Global Commodities Summit to be held in the city of Lausanne, about 60 kilometres northeast of Geneva, on Apr. 15.

Organisers describe the official conference as an “unparalleled” opportunity for executives of the world’s biggest investment banks, trading houses and natural resource entities to come together and debate, network and strategise about the future of world trade.

But protestors say the summit “is a symbol of exploitation and speculation”. “While the companies’ profits increase, the local population in mining countries suffers from environmental damage, expulsion, tax avoidance and anti-trade union measures,” Yvonne Zimmermann of MultiWatch, a broad coalition of NGOs, trade unions and anti-globalisation organisations, tells IPS.

An alliance of two-dozen organisations is calling for a demonstration to coincide with the arrival of businessmen in Lausanne on Apr. 15. Speaking on behalf of the protest organisers, Alwin Egger tells IPS the march, which is expected to draw hundreds, will move towards the Hotel Beau-Rivage Palace, where the summit takes place.

A member of the anti-globalisation Association for the Taxation of financial Transactions and Aid to Citizens (ATTAC), Egger says, “In our opinion, it’s the people who should have control over extraction and trade of raw materials, not profit-oriented companies.”

Over the last decade, the commodities business has grown exponentially in Switzerland. In 2011, its net receipts from trade added up to 20 billion Swiss francs (or 21 billion dollars), contributing 3.5 percent to the country’s gross domestic product (GDP). While some corporations are only involved in either commodity trade or extraction, most of them offer services throughout the entire supply chain.

For more than a century, commodity companies have flocked to Switzerland to avail themselves of the country’s low tax rates and the privileged corporate taxation system. Holding companies, for example, are exempt from corporate income tax on cantonal and communal levels as long as they own shares in foreign companies only. Besides, Switzerland offers strong banks, political stability and a high standard of living.

That the country wasn’t a member of the United Nations until 2002 was another factor behind its popularity, as it allowed Switzerland-based companies to avoid U.N. embargoes and sanctions.

The commodities business is known for its discreetness. But as of late, that peace has been disturbed by NGOs such as the Berne Declaration (BD), which published a groundbreaking book in 2011 to shed light on some of the dubious practices the sector constantly engages in.

Accusations range from human rights abuses, ecological destruction, exploitation, to corruption and tax avoidance in developing countries. In 2012, for instance, NGOs accused Glencore of buying copper from intermediaries in the Democratic Republic of Congo that was extracted partly using child labour and under precarious conditions.

Entitled “Commodities – Switzerland’s Most Dangerous Business”, the book found that “trade in oil, gas, coal, metals and agricultural products – particularly via deals made in Geneva and Zug – has grown by an incredible 1,500 percent since 1998…The result: Seven of the twelve corporations with the highest turnover in Switzerland trade in…or mine commodities.”

“As more information becomes available, attentiveness to the issue grows” — and so does criticism, observes Zimmermann, adding that a media spotlight on these practices has dealt a harsh blow to the industry’s public image.

But Economics Minister Johann Schneider-Amman opposes specific, national regulations for the commodities sector. “We don’t want to treat our companies any stricter than other, competing locations do,” he said at a press conference, echoing the standard argument issued every time the corporate tax system is in the line of fire: that Switzerland cannot afford to have companies relocate elsewhere.

For critical experts like Classen, this excuse is not valid since “there are no unregulated alternative business locations” anywhere else in the world.

The Swiss Federal Council has proposed a consultation draft for a transparency regulation similar to the 2010 Dodd-Frank Act in the United States, section 1504 of which obliges companies to disclose their payments to governments for access to oil, gas and minerals. It is still unclear, though, whether payments of commodity trading companies will be included in the Swiss draft regulation.

Fearing new regulations, the Swiss commodities sector has ramped up its lobbying efforts. Associations representing the industry have popped up in the main commodity trading hubs of Geneva, Zug and Lugano.
Glencore recently invited Swiss parliamentarians to hear an explanation of its “engagement for sustainable business, for the health and safety of its employees and for the environment”. Media and NGOs were denied access to the closed-door meeting.

“The sector is concerned that it has become the subject of attentiveness and debates,” says MultiWatch’s Zimmermann, who protested against the recent lobby event.

“As a reaction to criticism, these companies have started to publish sustainability reports”, she said, which whitewash their practices and portray themselves as charities.

Voluntary Regulations “Inadequate”

BD Media Director Oliver Classen says these companies also put Switzerland's reputation at risk. “The negative image of Glencore, Vitol or Mecuria affects Switzerland the same way that the misconduct of the Union Bank of Switzerland (UBS) and Credit Suisse have in the past.” UBS alone has coughed up 1.5 billion dollars in fines for its part in the fraudulent fixing of the Libor rate, the agreed international rate of exchange between banks.

The Swiss Federal Council’s recently published “background report” dedicated to Switzerland's commodity sector has been criticised as “inadequate” for failing to suggest serious measures for solving or preventing fraudulent or criminal activity, though it does identify “challenges” such as human rights violations or fighting corruption.

“The report proposes only voluntary corporate initiatives, which is politically naïve,” the Bern Declaration claims.

For example, the Federal Council highlights the importance of the international Extractive Industries Transparency Initiative (EITI), which promotes revenue transparency on a local level by asking companies to publish their transactions with governments of member states, who in turn are expected to disclose how much they receive.

Calling the initiative “necessary, but insufficient”, Classen laments that the EITI is voluntary, with only 20 member states.

“Many important mining countries – such as Angola or Colombia -- where Swiss-based companies are very active, aren't EITI-members,” explains Classen.

Furthermore, the transparency initiative only deals with commodities extraction, but not with trade.

“Misconduct such as Glencore's aggressive tax avoidance in Zambia is neither covered, nor sanctioned by the EITI,” according to the Berne Declaration.

 This report was first published here by IPS Inter Press Service.