Why should Goldman Sachs financing 1Malaysia Development Berhad (1MDB) be worse than it financing Venezuela’s Maduro’s regime?

David Crow and Laura Noonan in an FT The Big Read write, “Goldman is under increasing scrutiny over its role in underwriting $6.5bn of bond offerings for 1MDB in 2012 and 2013, a service for which it reaped a hefty $600m in fees and trading gains. After the money was raised, $2.7bn was allegedly siphoned off by the Malaysian financier Jho Low, who is accused of masterminding the fraud, to pay for a lavish lifestyle and to bribe Malaysian officials.” “Tim Leissner: Goldman Sachs banker at the heart of 1MDB scandal” December 24.

Sir, why should this operation be considered so worse than when, in May 2017, Goldman Sachs, Lloyd Blankfein approved to hand over about US$800 million to the notoriously corrupt, criminal and human rights violating government of Venezuela’s Maduro?

GS, in exchange for their money obtained $2.8billion Venezuelan bonds paying a 12.75% interest rate, which if repaid would provide GS with about a 42% yearly return, 2.000% more than what US pays. Is that not bribing foreign government officials and should therefore perhaps fall under the Foreign Corrupt Practices Act of 1977?

With respect to money being siphoned off, if anyone in GS doubts that much of that loan did not go the same route, then the days of GS are soon over. Such naiveté does not survive in the world of finance.

We are now in December 2018, and still not the slightest sign of a "Sorry Venezuelans" from Lloyd Blankfein. An elite, aware of its true responsibilities, would be shaming Lloyd Blankfein… and surely not inviting him to their homes. 

@PerKurowski

If elites do not socially sanction those they should sanction, there’ll be no society left to sanction.

Sir, Laura Noonan writes “Goldman Sachs is considering a special surveillance programme to monitor higher-risk employees in far-flung locations so the bank can demonstrate that “lessons have been learnt” from the 1MDB scandal” “Goldman eyes monitoring of high-risk staff after 1MDB”, December 3.

Great, but they should also monitor high-risk bosses in home office locations, like Mr. Lloyd Blankfein. And I here refer to that lending by him and Goldman Sachs to a notoriously inept, notoriously corrupt, notoriously human rights violating regime of Venezuela’s Maduro.

Do I want Goldman Sachs’ Lloyd Blankfein to be punished by the justice? No! I much prefer the elite; universities, media among others should do that, shaming him, by socially sanctioning him, by for instance not inviting him to anything.

Sir, do not give Lloyd Blankfein, or an unrepentant Goldman Sachs, one inch more of space in the Financial Times, they do not deserve it.

PS. To this date Lloyd Blankfein has not been able to find in himself to utter the slightest “I’m sorry Venezuelans”.

PS. But perhaps justice might also have a bone to pick with Blankfein.

@PerKurowski

Any jury, given the facts on how Venezuela works, would in seconds, unanimously condemn Mr. Mauro Libi for corruption.

Sir, John Paul Rathbone writes: “As protests and violence engulf Caracas, the country is beset by shortages and endemic corruption. Amid the chaos, Mauro Libi has built a huge food business empire but his critics want to know how.” “Profits from empty shelves” FT, Big Read, Venezuela, July 14.

His critics want to know how? In a country in which a government centralizes 97% of all export revenues, and foreign currency is thereafter allotted not by free market operations but by mechanisms that require the approval of individual government bureaucrats, can there be any doubt that the fortune Libi derives from imports of food to Venezuela, as described by Rathbone, can be anything but the result of corruption?

FT, I am sure you would not dare try to justify any other possibility, and this even if the only consequence you could suffer from it was being laughed at?

Rathbone writes: “Mr Libi’s story, as he tells it, is of a resourceful businessman working against the odds… He even claims to be exporting oatmeal to the US”

Those readers of papers like FT, who can read statements like that, and do not feel like vomiting, prove themselves to be intellectual and immoral accomplices of the death of the many Venezuelans who are suffering from lack of foods and medicines. 

Western civilization world, if something like Venezuela happened in your country, would you like the world to behave as indifferent as you do?

Western civilization, “We did not know” might have worked previously, but is nowadays a completely unacceptable excuse.

@PerKurowski

With the Venezuelan bonds purchase, has Goldman Sachs committed an act punishable under Foreign Corrupt Practices Act?

Sir I refer to Robin Wigglesworth’s and Gideon Long’s “Goldman hit by ‘hunger bond’ storm after Venezuela deal” June 2.

There are plenty of persons currently in jail in the US because of acts committed against the Foreign Corrupt Practices Act (FCPA). You can read about many cases in http://www.fcpablog.com

Goldman Sachs, has just handed over about US$865 million cash to the notoriously corrupt and human rights violating government of Venezuela, in order to obtain $2.8billion Venezuelan bonds, which according to some calculations seen, if repaid, would provide GS with about a 48% internal rate of return.

So, has Goldman Sachs, de facto, unwittingly, committed the mother of all corruptions acts punishable under the FCPA? 

http://perkurowski.blogspot.ca/2017/05/goldman-sachs-lloyd-blankfein-should.html

@PerKurowski

There must be serious consequences for regulators and controllers who fail or allow themselves to be cheated

Sir, Tim Harford writes “In the case of VW, transparency was the enemy: regulators should have been vaguer about the emissions test to prevent cheating” “How do you catch a cheat?” February 19.

What? That seems like the absolutely most certain way to produce a cheat. Or is it that Harford believes regulators and emission controllers are a different set of humans with angel like qualities? Does he not understand what kind of temptations that would create?

Sir, the greatest problem with Volkswagen cheating on US emissions tests, is that the failed emission controllers who allowed themselves to be cheated have not been publicly shamed and sent packing home. Just like the extremely failed bank regulators of the Basel Committee for Banking Supervision have not been. In fact, the latter are still working on tweaking their fundamentally wrong regulations.

If creating regulations and controlling what’s being regulated carries no consequence when failing or being cheated, things are only bound to get worse. So, should we parade Paul Volcker, Alan Greenspan, Mario Draghi, Stefan Ingves and all their other bank regulating colleagues down our avenues wearing dunce caps? Why not? Do we not owe at least that to all who have suffered and will be suffering the consequences? Sincerely that seems like a very minor and gentle reprimand for all the societal damages they have caused with their risk weighted capital requirements for banks.

Sir, Harford correctly concludes though with “The truth is that the world can be messy place. When our response is a tidy structure of targets and checkboxes, the problems really begin”. Precisely! It reminds me of an Op-Ed I wrote in 1998 titled “Regulations as enemies of bank missions”

PS. Sir you might ask why I here mention Paul Volcker. The truth is that he was one of the responsible for the genesis of what with time will be considered one of the greatest statist regulatory failures ever. 

@PerKurowski

Compared to the poor of Venezuela, PDVSA’s bondholders, as a group and over time, have benefitted way too much

Sir, Eric Platt and Robin Wigglesworth write that PDVSA’s Rafael Rodriguez, Mr del Pino’s chief of staff, appealing to the investors to take part in the proposed swap said: “We hope investors will support PDVSA in the same way that we have supported them for many years”, “Caracas piles on pressure for $5.3bn bond swap” October 19.

For the poor of Venezuela, who demonstratively might not have received more than 15 percent of their per capita share of Venezuela’s oil revenues, that is an insult. I don’t care one iota about these bondholders; as a group and over time they have benefitted way too much.

As an example, Elaine Moore and Simeon Kerr when recently reporting on an upcoming international bond issue of Saudi Arabia wrote: “a banker not involved in the (US$ 20bn) deal, estimates that Saudi Arabia will price at 150bp above US Treasuries for a five-year bond and 160 to 165 for 10-year debt”. “Saudi debt pitch focuses on youth and reform” October 18. Sir, compare that with what the land that advertises itself to have the largest oil reserves in the world, has to pay.

Sir, very high risk premiums paid by a sovereign debtor, might evidence that a government and its financiers, are in cahoots for some mutually benefitting corruption.

And please do not tell us PDVSA is not Venezuela, as like if Aramco is not Saudi Arabia.

@PerKurowski ©

Is there no moral issue in Venezuela bondholders being paid as a result of people being denied food or medicines?

Sir, Jonathan Wheatley writes: “In a broad sense, Caracas is already a serial defaulter. It has defaulted on its people by denying them access to the dollars they need for essential imports…” “Only one of Venezuela’s creditors is being paid without fail, on the button, every time: its international bondholders” “Venezuela clutches at straws in desperation to avoid bond default” September 28.

Let me ask: What would be a correct description of he who collects from a debtor knowing that he is being paid by a government because it denies food and medicines to its people? Or is that a moral irrelevance?

And what if the international bondholder’s would all just turn up to be close affiliates to the current government? I mean “A PDVSA bond maturing in 2017, on which a $2.3bn payment is due on November 2, is trading at about 80 per cent of par — hardly a sign of panic” could be indicative of it. Would it then just be another case of corruption? Insider trading?

The world needs a Sovereign Debt Restructuring Mechanism (SDRM) but, for that to be of any service or at least not a disservice to We the People, it needs to start with clearly defining what should be considered as odious credits or odious borrowings. As a minimum all bonds should not be bearer bonds, as we citizens should always have the right to clearly be able to identify who are financing our governments, and in what conditions, so that if we are not able to hold our governments accountable, like in Venezuela, we are at least able to hold its (our) creditors accountable.

@PerKurowski ©

In sovereign debt should not moral and ethical issues be more important than collective and pari passu clauses?

Sir, Robin Wigglesworth discusses bond legalese, like collective and pari passu clauses, and rightly concludes “paying attention to the legal differences is [especially] important when a borrower runs into a brick wall.” “Venezuelan bond small print piques investors’ interest” June 18.

But we citizens would also appreciate that lenders gave some minimum minimorum considerations to what the funds they loaned out were going to be used for, whether the loans were being correctly and transparently contracted, and of the quality of the managers of the proceeds, the governments.

In many cases, like that of Venezuela, if creditors had done so they could easily have concluded they were giving odious credits, and that the government was contracting odious borrowings; and that they better refrain from giving the loans, no matter how juicy the risk premiums.

In a world were legislation against acts of corruption exists it is surprising how little consideration “connoisseurs” give to the moral and ethical aspects of sovereign debt. Very high interest rate risk premiums, is the currency in which the corrupter and the corrupted too often conclude their dirty dealings.

For instance, in Venezuela, though there are serious scarcities of food and medicines, the government sells petrol domestically for basically nothing; and blocks humanitarian international arguing that to allow it would infringe their sovereign right to have exclusive responsibility for the welfare of citizens. And besides the market is well aware of that there are Venezuelans imprisoned for political reasons.

In such circumstances should not lending to Venezuela qualify as odious credit? Should that not also be qualified as part of odious government borrowings?

Should not citizens have a collective clause rights with which they can authorize or not the payment of odious credits and borrowings?

What should a due diligence process for bond issues which proceeds might help finance human rights violations include?

If a corporation suspect of drug trafficking made a bond issue, who would begin by revising the clauses of its legal documentation?

@PerKurowski ©

“Government, I will lend you fresh money if you favor me with huge risk premiums” Does that not sound a bit corrupt?

Sir, Max Seddon and Laura Noonan write about the plans of Russia to issue its first sovereign bond since the US and Europe imposed sanctions on Moscow, and of some reactions of Washington to that. “Russian bond poses dilemma for bankers” February 26.

And in this respect: “The Treasury told the banks that while there was technically no ban against helping the Russian government raise money, the banks would have to be mindful of the fact that the money could be diverted into activities that were not consistent with US foreign policy.”

But what about the case of money that could be diverted into activities that was not consistent with Russian citizens’ interests? Is that irrelevant?

I ask because I am Venezuelan, and the government of my country has taken on loads of debt, something that clearly is not justifiable in the midst of an incredible oil boom. And all this odious credit/debt is now supposed to be repaid by all citizens who had absolutely nothing to do with how the loan proceeds were used, in much because of a big lack of transparent information.

And the financier’s of Venezuela have been quite aware that things in Venezuela were not fine and dandy. Among publicly notorious issues was that the government was selling oil to some countries a highly subsidized prices for its own political benefit; giving away gas to its own citizens for a value that exceeded all social spending put together; the existence of rampant corruption; and that its human right’s behavior was being questioned over an over again.

But the financiers loved the risk premiums, and so I ask:

In the case of a loan to an individual government official in return for a favor, there would be no doubt that it could be classified as an act of corruption, and the financier could be held liable in the US under the Foreign Corrupt Practices Act.

But, what about a loan that provides money to a whole government, in return of the favor of extravagant risk premiums, could that not also be classified as an act of corruption?

The world no doubt needs a Sovereign Debt Restructuring Mechanism (SDRM) but, if that is going to help the citizens of the world, which it primarily should do, that must begin by making clear the difference between bona-fide normal credits and odious credits.

@PerKurowski ©

Even though there is hunger, could Venezuela be servicing religiously its debt because of who the bondholders are?

Sir, even though Venezuela is suffering lack of food and medicines, it is doing all it can to pay its foreign bondholders. Andres Schipani quotes Bank of America’s Francisco Rodriguez in that “Venezuela could continue paying bondholders for longer than it keeps paying Maduro’s salary”, “Maduro’s Venezuela on the brink of default" February 12.

Could it be that all these bondholders are in fact the same usual local friends of the government and who in these bonds have just found another way to further exploit this poor-rich country? I mean it is hard to visualize any ordinary reasonably responsible investor, no matter how big the spreads, putting money in Venezuelan bonds while knowing without doubt that the resources raised by debt will be wasted just the same way as the greatest oil-boom in history has been wasted.

The world needs a sovereign debt restructuring mechanism (SDRM) but, for that to serve us citizens any useful purpose, and not even be counterproductive, it must begin by establishing clearly the differences between bona fide lending and odious credit.

@PerKurowski ©

What if your company was so honest you could lose your job or you had to accept a lousy salary?

Sir, Michael Skapinker writes about someone who bought a company, discovered it was engaging in corrupt practices, disclosed it to the government, was told to correct it, and the company lost one half of its business. “What to do if you discover your company is corrupt” October 15.

What would you do if you discover your company, is so scrupulously correct with absolutely everything, even with the silliest regulations, that it begins to lose business and could disappear

Unfortunately, we do not live in a perfect world, in which all are scrupulously correct.

And sometimes I have even got the feeling that the corruption fighters themselves, are engaged in some very devious kind of corruption.

Am I not against corruption? Of course I am! But I am also absolutely sure that the best way of fighting corruption is to reduce the temptations. In other words not to require weak humans to be able to resist too big temptations.

I come from Venezuela. There the government receives 97 percent of all export earnings… and these, oil revenues, do not even come as a result of a productive effort of its citizens… it was given to us by God.

To impede corruption in Venezuela, the minimum minimorum needed, would be to share out all net oil revenues to all citizens. But that is not happening, because there is always someone in waiting for the opportunity to manage and exercise the power provided by those oil revenues... and there is always somebody there, like EITI, telling you that if only they supervise and the governments adhere to their principals, everything is going to be fine and dandy.

Let us not ignore that so many speaking out against corruption, do so out of a position of security, one that quite often was assured them and their countries by not so utterly clean means. So less preaching, and more practical action.

@PerKurowski ©

Before Greece asks Europe to give it a chance it should stop hindering the free fair flow of bank credit to Greeks.

Sir, I refer to Yannis Dragasakis’, Yanis Varoufakis’ and Euclid Tsakalotos’ “All we ask is that Europe give Greece a chance” March 18.

Before they have the right to ask that of Europe they should give their own citizens a chance.

They write of “Many of the 60 per cent of young people out of work will one day be reclassified as long-tem unemployed”… and yet they play along with bank regulations which by favoring credit to the government, hinders the free flow of fair credit to SMEs and entrepreneurs, those who stand the best chance to create the sustainable jobs the Greek youth so urgently need.

In Paris, March 25-26 OECD will hold its Integrity Forum 2015 titled Curbing Corruption Investing in Growth. To me, when regulators tilt the access of bank credit in favor of their employers, here by means of risk-weighted equity requirements, it sounds like a sort of corruption, and it definitely stops medium and long-term growth. I hope OECD, though also government dependent dares to analyze that issue.

@PerKurowski

More than sovereign credit ratings we might need sovereign ethic ratings.

Sir, last week in an Op-Ed I published in Venezuela titled “Creditors of Venezuela, read our Constitution!” I wrote: “In the same way there are international conventions that help foreign investors to collect what governments duly owe them, there should be agreements that help citizens not to be saddled with the payment of debts incurred by governments who violate their constitutions.”

That is exactly what should happen to those that Michael Holman refers to in “Investors in corrupt ‘new Africa’ repeat old errors”, April 9.

Neither creditors nor investors should receive any help to enforce their commercial rights if it can be proven they did not fulfill their moral duties of making reasonable sure human rights violations and acts of corruption were present. More than sovereign credit ratings we might need sovereign ethic ratings...and to make these count.

Recovery Inc.

Sir in “Dodging the graft”, November 10, you discuss the needs to strengthen the UN Convention against Corruption, because it still lacks teeth.

In Washington in September 2009 in a conference titled "Increasing Transparency in Global Finance: A Development Imperative.", organized by Task Force on Financial Integrity & Economic Development Lord Daniel Brennan QC outlined the Caux Round Table's initiative to develop a private recovery agency for registering, recovering, and restoring corrupt assets. How about that for teeth?

I immediately saw in front of me a corporation listed in the New York and London stock market called Recovery Inc and therefore published soon after an article in Venezuela suggesting to do the same on a local basis, in order to take advantage of our very favorable market conditions and ample supply of inside knowledge.

Lord Daniel Brennan´s conference:

http://www.youtube.com/watch?v=XkY5lDMCmMQ

My article:

http://opinion.eluniversal.com/2009/10/22/opi_art_recuperadora-inc._22A2933411.shtml

How will the fines from Siemens be distributed?

Sir Daniel Schäfer reports on December 16 that Siemens has to pay $1.4bn in fines to US and German authorities in order to settle bribery inquiries in the United States and Germany related to Venezuela, Argentina, Iraq, Israel, Russia and Bangladesh. How much of these fines will the real victims, the citizens of those countries that were the object of the bribery receive and how will these be distributed?

A corruption of a third kind?

It is impossible to fight graft when its origins are in the centralization of a big oil income

Sir you write in “Nigerian graft”, August 12, that “the most important battle at home looks likely to be lost” and yes, at current oil prices, the battle was lost before it even began. Any country where the oil revenues are centralized in the hands of government and where they come to signify more than for instance 5 percent of GDP and thereby make the government wealthy, independently of its citizens, will be swamped by graft, in whatever shades or colours it comes, whether open, hidden, informal or de-facto, whether in pseudo-democracies or real autocracies, whether in Nigeria, Russia, Saudi Arabia or Venezuela.

What an opportunity was missed in Iraq when someone decided not to implement an oil revenue sharing plan for its citizens! That way Iraq was condemned to a non functioning democracy and to living in graft.

Could axing an anti-graft watchdog actually reduce graft?

Sir I read the report by Guy Dinmore and Michael Peel titled “Italian premier to axe anti-graft watchdog” July 18 and was of course duly upset. But then I started to think about the figures mentioned and as a yearly budget of 2.5m Euros to fight corruption in Italy seems not to be sufficient it could actually be more honest, and less corrupt, not having a watchdog at all.

It also reminded me of once when at an anti-graft conference I commented that those selling themselves as “anti-corruption experts” sometimes sounded to me as if they could themselves be involved in an extremely subtle form of corruption. I got some strange looks!

Do we then need two world banks?

Sir, Krishna Guha and Eoin Callan, September 13, in reference to a report on the role played by the World Banks internal anti-corruption unit, the Department of Institutional Integrity (INT) were told by Paul Volcker, the main responsible for the report, that “his inquiry had ‘reconfirmed’ there was ‘ambivalence’ in the bank as to whether they really want an effective anti-corruption program or not”. Wrong! Having been an Executive Director at the bank (2002-2004) I sincerely believe that an overwhelming majority of the bank staff clearly comes out in favour of more and better anti-corruption efforts but that these do not come into fruition only because part of the management, rightly or not, believe that these could hinder the bank from operating efficiently… at least as they wish for it to operate for whatever reason efficiently.

If we discuss “ambivalence” then perhaps we should also discuss what the report does not touch upon and which frankly I consider being the single most outstandingly ugly blemish on the World Bank’s reputation. Sir, please search out INT on the external website of the World Bank and click on the list of Debarred Firms and Individuals. There you will find, duly named and shamed, a list of names of individuals that one way or another after a due process have been considered to be involved in corruption, but that list does not include the name of one single of those officers of the World Bank that presumably must also have been involved in corruption one way or another. Susanne Folsom the Director of INT, on a Q&A session on that same site mentions, “We’re often asked why we don’t publicly name Bank staff who are terminated for fraud and corruption as well. The Bank’s rules don’t allow such disclosures….” What credibility can you get naming others while not being willing to name your own?

Sir, it might very well be that the “ambivalence” on anti-corruption in the World Bank is insurmountable but if so perhaps what we need is to have two world banks since the world definitely needs one that comes out completely and unabridged against corruption. And mind you I am far from being a zealot on this issue, since life has taught me well that zealousness frequently carries within its own even more dangerous breed of corruption.

You should not give debt relief to “odious” debt.

Sir Alan Beattie in “Vultures unlikely allies in anti-graft cause” July 18 quotes Stephen Rand of the Jubilee Debt Campaign saying “Debt relief should never be used as a weapon of economic coercion by creditors” as implying that debt relief should be awarded even when governments are still corrupt.

What is this? As a citizen of a country with a government that I consider quite corrupt, I do not like anyone giving it loans, debt relief or anything whatsoever. Frankly, before corruption is ended most of any debt relief given would just end up allowing these countries and governments addicted to debt, to hit the bars again.

If the concept of odious debt is applicable in the sense that some debts should not have to be repaid if contracted in an illegitimate way, castigating the creditor, then the same concept should clearly also apply to the granting of any debt relief, punishing the debtor.

The World Bank, though in a hole, needs to dig deeper

Sir, as a former Executive Director of the World Bank (2002-2004) it is with much sadness that I have followed the Wolfowitz affair. It is clear that he should not have played a role in deciding the terms on which his girlfriend was seconded to the US state department” and that he should leave the Bank but, having said that, we need also to question the general idea of the World Bank seconding anyone, even on reasonable and non interfered terms, just to solve a conflict of interest… permitting someone to have the cake and eat it too.

In contrast I remember while an Executive Director how we spent millions of dollars of the Board’s time just in order to debate a “measly” forty thousand dollar a year increase for the then World Bank president James Wolfensohn, so that he would be able to earn as much as his counterpart in the IMF.

Now, after so much procrastination, by all parties, the only real solution for the World Bank, with or without Wolfowitz, lies in appointing a committee of true outsiders to dig deep and review all the World Bank’s current work related policies. The World Bank, when compared to other similar institutions, is very clean but of course, after 64 years of accumulating problem solving compromises, it should be time for a good scrubbing.

The world needs the World Bank to come out of all this smelling like roses and frankly its good staff deserves it.