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Posts tagged ‘offshore’

Closing the Stable Door

About a month ago, the ever-amazing Bill Nighy argued in an interview with the UK’s Sunday Independent that hunger – whatever we may mean by that – could be eradicated by forcing big multinationals to pay their taxes. Nighy, who is a spokesman for the anti-hunger If Campaign, has a point. As a Guardian investigation demonstrates, these global businesses and their subsidiaries go out of their way not to pay their taxes – something which hits developing nations particularly hard:

The Zambian sugar-producing subsidiary of Associated British Foods, a FTSE100 company, contributed virtually no corporation tax to the state’s exchequer between 2007 and 2012, and none at all for two of those years.

The firm, Zambia Sugar, has recently posted record pre-tax profits and its huge plantation is increasing its capacity to produce more sugar for markets in Europe and Africa. Yet it paid less than 0.5% of its $123m pre-tax profits in corporation tax between 2007 and 2012.

The company benefits from generous capital allowance and tax-relief schemes in Zambia, but the investigation also found that it funnels around a third of its pre-tax profits to sister companies in tax havens, including Ireland, Mauritius and the Netherlands. Tax treaties between Zambia and some of those countries mean the state’s revenue authorities are unable to charge their normal tax on money leaving their shores.

If businesses like Associated British Food paid their taxes in countries like Zambia, then, the logic goes, these governments would have enough money to ensure that everyone would have access to enough food.

But tax evasion has implications for everyone’s food supply, and not only those who live in low- to middle-income countries. As the recent horsemeat scandal in Europe shows, the presence of horsemeat in ready meals and fast food products was partly the work of a network of businesses which managed to evade both (admittedly shambolic) regulators and tax by operating through scrutiny-free offshore companies.

Romanian horsemeat entered the European food chain when meat from two abattoirs was sold to Draap Trading Limited, which sold the meat to European food companies, like the meat processor Spanghero – whose licence was suspended earlier this month after being accused of knowingly mislabelling horsemeat as beef in some of its products.

Draap Trading Limited operates in the Netherlands, but is registered in tax-flexible Cyprus. Its sole shareholder is a firm based in the British Virgin Islands, another tax haven. Not only does this arrangement allow Draap to avoid paying tax, but it becomes almost impossible to identify Draap’s shareholder. Investigators suggest that the shareholder may be linked to a collection of Russia-linked offshore companies which have, in the past, been involved in high-profile transactions in Russian industry. Importantly, there are allegations that these businesses are connected to gang activity.

Exciting as these revelations may be, this is certainly not the first time that food adulteration has been linked to organised crime. In Italy, write Anna Sergi and Anita Lavorgna:

The Cosa Nostra, the Camorra and the ’Ndrangheta have long sought to gain a foothold in the fruit and vegetable market, which is one of the most profitable markets in southern Italy. Police investigations over the past two years indicate that mafia families are beginning to have a presence in every stage of the agricultural market – from production to transport. The illegal activities are numerous and market distortion is fundamentally based on the monopoly to transport and distribution in the south, but the phenomenon is widespread across Italy.

The clans have been entering every stage of production – from cultivating products to transporting goods to local markets. It is a business that involves approximately 150 different crimes every day, according to SOS Impresa (an association of Italian business owners created to combat organised crime) and an estimated one third of farmers are affected by this.

Crimes include ‘theft of machinery and tools; extortion; the theft of livestock and cattle; unregulated butchery practices; fraudulent claims for EU funds; and the exploitation of labour.’ These have appalling consequences for the environment, employment practices, and, indeed, food safety – particularly because the clans not only ignore regulations around hygiene and animal welfare, but are also involved in the illegal butchering and trafficking of potentially contaminated meat.

In the US, the Mafia and pizzerias have a long and complicated relationship. Between 1985 and 1987, the Pizza Connection Trial revealed that mobsters had used a collection of pizza parlours as fronts for the sale and collection of heroin and cocaine. Throughout the twentieth century, though, the mob controlled supplies of ingredients to pizzerias. For instance,

Al Capone – who owned a string of dairy farms near Fond du Lac, Wisconsin – forced New York pizzerias to use his rubbery mob cheese, so different from the real mozzarella produced … in New York City since the first immigrants from Naples arrived in Brooklyn around 1900.

As the story goes, the only places permitted to use good mozzarella made locally were the old-fashioned pizza parlours like Lombardi’s, Patsy’s, and John’s, which could continue doing so only if they promised to never serve slices. … Apparently, neighbourhood pizzerias that served slices and refused to use Capone’s cheese would be firebombed.

As the connection between organised crime and food is nothing new, so is the link between food and tax evasion. Nicholas Shaxson begins his excellent Treasure Islands: Tax Havens and the Men Who Stole the World (2011) with an account of the incredible wealth and power of the Vestey brothers. These two men controlled the meat industry during the early twentieth century. Ian Phimister explains:

Prior to 1914, Vesteys had interests in South America, China and Russia, and extensive land holdings in South Africa; it gradually extended its operations to embrace Australia, New Zealand and Madagascar. The company also owned ‘five steamers refrigerated and fitted for the carriage of frozen meat which they use largely for their own trade. Major expansion occurred, however, primarily after the war when in 1922 they absorbed the British and Argentine Meat Company. Vesteys had previously owned over 3,000 butcher shops in England, and the take-over added between 800 and 900 shops to that total. Overall, it was thought that the ‘deal gave Vesteys control over one-quarter of the Argentine export trade.’ On the other side of the world, Vesteys leased 20 million acres in northern Australia where they ran 300,000 cattle. Generally speaking, these were low-grade animals, but their low cost of production gave Vesteys a competitive selling edge, especially during the Great Depression when beef prices collapsed. There were no rail charges because cattle were ‘walked’ to the freezing works, and labour costs were the envy of even South Rhodesia: ‘they employ about 200 aborigines who do not seem to have advanced as far as our natives – at any rate they are only starting to ask for money wages.’

Essentially, Vesteys owned every link in the food chain: from the land on which cattle were farmed, to abattoirs and newly-invented cold storage warehouses, to refrigerated ships and the butchers who sold the meat to shoppers in Britain. But they didn’t limit themselves to beef: they shipped eggs, chicken, ducks, pork, and dairy products from China and Russia, as well as mutton from Australia and New Zealand.

What the example of Vesteys demonstrates – above all – is that big food multinationals have existed since the early twentieth century and have used the same tactics for more than a hundred years. Monsanto and Cargill have the same monopolistic instincts and low regard for labour rights and animal welfare as Vesteys. Moreover, our food supply has been globalised for as long – if not longer – and the myth that once upon a time all butchers were independent and totally ethical is, well, just that – a myth.

But Vesteys also illustrates how food companies dodge taxes. William and Edmund Vestey went out of their way never to pay tax if they could help it. When the British government began to tax British companies on profits earned abroad, to raise funds for the war effort in 1914, the Vestey brothers first lobbied against the measure, and then upped sticks to Chicago and then Buenos Aires, to take advantage of America and Argentina’s less onerous systems of taxation.

They used a range of strategies now commonplace among multinationals to channel their profits away from countries with high tax rates – the countries, in other words, where they did business. Also, in 1921 the Vesteys established a trust based in Paris which the British authorities could not tax (they didn’t even discover it until 1929). Giving evidence to a Royal Commission established to investigate how to tax multinational businesses, William Vestey summed up his attitude towards taxation:

If I kill a beast in the Argentine and sell the product of that beast in Spain, this country can get no tax on that business. You may do what you like, but you cannot have it.

In 1934, Argentinian authorities which had long been uneasy about the brothers’ cutthroat business practices came across a cache of secret documents hidden under a pile of guano on their ship, the Norman Star. The investigation launched after finding this deeply incriminating evidence was blocked and manipulated at every turn by the Vesteys – who were particularly concerned by British authorities’ interest in it. In the end, the man in charge of the committee and with the greatest knowledge of the Vesteys’ tax evasion systems, Senator de la Torre, shot himself in 1939, leaving a suicide note ‘which expressed his disappointment at the general behaviour of mankind.’

The British government never succeeded in making Vesteys pay its full tax bill. In 1980 it was revealed that two years previously, the Vesteys’ Dewhurst chain of butchers had paid only £10 tax on a profit of more than £2.3 million. As one official commented: ‘Trying to come to grips with the Vesteys over tax is like trying to squeeze a rice pudding.’

A poster in Williamsburgh's Spoonbill & Sugartown bookshop

A poster in Williamsburgh’s Spoonbill & Sugartown bookshop

The only way to prevent tax evasion and organised crime is through better policing and enforcement of the law. But when food is involved, it is absolutely crucial for efficient regulatory bodies to be put in place. The publication of Upton Sinclair’s novel The Jungle in 1906, which exposed the appalling conditions under which people worked and cattle were slaughtered in Chicago’s meat packing industry, so appalled readers that momentum behind legislation to enforce standards of animal welfare and hygiene and prevent food adulteration, gathered. The same year, Teddy Roosevelt signed the Pure Food and Drugs Act into law. Even though sustained lobbying from big food had weakened America’s regulatory bodies – and has allowed for an increase in instances of contaminated food being recalled – American food is considerably safer now than it was at the end of the nineteenth century.

Without regulation, disasters like the recent milk scandal in China, can occur. Indeed, in 2011 a study published in the Chinese Journal of Food Hygiene estimated that more than 94 million people in China become sick – and 8,500 die – each year from food poisoning. Other than the discovery of melamine in milk and infant formula, there have also been scandals around ‘meat containing the banned steroid clenbuterol, rice contaminated with cadmium, noodles flavored with ink and paraffin, mushrooms treated with fluorescent bleach and cooking oil recycled from street gutters.’

Rotten peaches pickled in outdoor pools surrounded by garbage are spiked with sodium metabisulfite to keep the fruit looking fresh and with bleaching agents and additives harmful to the human liver and kidneys. The peaches are packed in uncleaned bags that previously held animal feed and then shipped off to big-brands stores.

These discoveries – of deadly infant formula, endemic tax evasion among big food companies, food cartels, forged hygiene certificates, forced labour, and deliberately mislabeled meat – are made only at the end of a series of criminal acts. Trying to fix food systems at the point at which food scandals are discovered – by blaming shoppers for buying cheap meat or for supporting multinational companies – avoids tackling the major, systemic problems which allow for businesses not to pay tax, or for criminals to take over the food chain. It’s like shutting the stable door after the horse has bolted.

Sources

Jennifer Ning Chang, ‘Vertical Integration, Business Diversification, and Firm Architecture: The Case of the China Egg Produce Company in Shanghai, 1923-1950,’ Enterprise and Society, vol. 6, no. 3 (September 2005), pp. 419-451.

Arlene Finger Kantor, ‘Upton Sinclair and the Pure Food and Drugs Act of 1906: “I Aimed at the Public’s Heart and by Accident I Hit It in the Stomach,”’ AJPH, vol. 66, no. 12 (December 1976), pp. 1202-1205.

I. R. Phimister, ‘Meat and Monopolies: Beef Cattle in Southern Rhodesia, 1890-1938,’ Journal of African History, vol. 19, no. 3 (1978), pp. 391-414.

Anna Sergi and Anita Lavorgna, ‘Trade Secrets: Italian Mafia Expands its Illicit Business,’ Jane’s Intelligence Review, September 2012, pp. 44-47.

Nicholas Shaxson, Treasure Islands: Tax Havens and the Men Who Stole the World (London: Vintage, [2011] 2012).

Creative Commons License
Tangerine and Cinnamon by Sarah Duff is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License.

Bananas

This term a colleague and I are teaching a course on the 1960s to our third-year students (who are uniformly lovely – henceforth I shall only teach third-year students, Head of Department-willing). I’ve spent the past two lectures on the counter-cuisine, a movement located mainly in California from around 1966 onwards. Aside from the loonier fringes represented by the Diggers and some members of the back-to-the-land movement, the most durable remnant of the food counterculture was the co-operative movement. Over five thousand buying clubs and co-operative groceries were established between 1969 and 1979. Warren Belasco explains:

Although many consumers flocked to these hip stores just for the cheaper, healthier food, co-op organisers frequently had a more ambitious agenda: using socialised food distribution as a starting point, they hoped to establish a decentralised, democratic, alternative economic network that would sustain an oppositional culture and eventually subvert the wider society.

One woman, who was a member of the West Concord Food and Friendship Co-Op remembers:

Every week we picked up our orders of whole grains, nuts, oils, dried fruits, seeds, tofu, yogurt, cheese, and peanut butter, bringing our own re-used quart and gallon jars and plastic containers. When it was our turn to place and break down the order we collated all the previous week’s orders, placed the order with NEFCO, the New England Federation of Cooperatives, and then divided up the bulk goods into boxes for each member. The food was first rate: gallon jars of organic yogurt with the cream on top, vats of tofu in pound blocks bought directly from Boston’s Chinatown, and 10-pound blocks of sharp cheddar cheese from the Cabot dairy cooperative in Vermont – for we purchased from producer cooperatives whenever possible.

One of the things which struck me as I wrote these lectures was how similar the present food revolution – whatever that may be – is to the counter-cuisine: as the Diggers distributed free food at Golden Gate Park in 1966, using food discarded by supermarkets, so organisations like This is Rubbish raise awareness about food waste by ‘skipping’ – collecting fresh produce past its sell-by date and then serving it in free feasts. The amazing People’s Supermarket provides an alternative to supermarkets by being run along co-operative lines.

As the co-operatives of the 1960s went out of their way to support local producers – as Alice Waters’s Chez Panisse (founded in 1971) bases its menus on what local organic farmers are harvesting – so now eating ‘locally’ is seen as one of the best ways of eating responsibly and sustainably. ‘Locavorism’ offers an alternative to a globalised, industrialised food system which stocks supermarkets with strawberries – flown halfway across the world – in the middle of winter.

But our food supply has been globalised since at least the beginning of the twentieth century. Already in the 1870s, improvements in transportation meant that Canadian and American wheat fed Europe during one of the worst harvest failures of that century. But the excitement many felt during the twentieth century at the prospect of relatively cheap pineapples and papaya grown abroad and flown and shipped to Western supermarkets, has been replaced by a deep concern about the environmental cost of unseasonal eating, and the power of Big Food.

There is another reason to think twice about food shipped in from abroad: its political cost.

I’ve just finished reading Nicholas Shaxon’s eye-poppingly good Treasure Islands: Tax Havens and the Men Who Stole the World (2011). He argues that tax havens – which the International Monetary Fund estimates to hold more than a third of the world’s GDP on their balance sheets – have fundamentally undermined the world’s economic system. Not only has the legitimate, on-shore financial system become progressively deregulated to compete with offshore – helping to cause the 2008 crash – but tax avoidance keeps poor nations reliant on aid. He explains:

Offshore business is, at heart, about artificially manipulating paper trails of money across borders. To get an idea of how artificial it can be, consider the banana.

Each bunch takes two routes into your fruit bowl. The first route involves a Honduran worker employed by a multinational who picks the bananas, which are packaged and shipped to Britain. The multinational sells the fruit to a big supermarket chain, which sells it to you.

So far, so obvious. But then it becomes more interesting:

The second route – the accountants’ paper trail – is more round-about. When a Honduran banana is sold in Britain, where are the final profits generated, from a tax point of view? In Honduras? In the British supermarket? In the multinational’s US head office? How much do management expertise, the brand name, or insurance contribute to profits and costs? Nobody can say for sure. So the accountant can, more or less, make it up. They might, for example, advise the banana company to run its purchasing network from the Cayman Islands and run its financial services out of Luxembourg. The multinational might locate the company brand in Ireland; its shipping arm in the Isle of Man; ‘management expertise’ in Jersey and its insurance subsidy in Bermuda.

Say the Luxembourg financing subsidiary now lends money to the Honduras subsidiary and charges interest at $20 million per year. The Honduran subsidiary deducts this sum from its local profits, cutting or wiping them out (and its tax bill). The Luxembourg’s subsidiary’s $20 million in extra income, however, is only taxed at Luxembourg’s ultra-low tax haven rate. With a wave of an accountant’s wand, a hefty tax bill has disappeared, and capital has shifted offshore.

What are the implications of this? Most importantly, our banana multinational has managed to avoid paying the Honduran government – or indeed any government – any tax.

About two-thirds of global cross-border world trade happens inside multinational corporations. Developing countries lose an estimated $160 billion each year just to corporate trade mispricing of this kind. That much spent on health-care, Christian Aid reckons, could save the lives of 1,000 under-five children per day.

In 2006, the world’s three biggest banana companies, Del Monte, Dole, and Chiquita, paid only $235,000 tax between them – despite combined profits of nearly $750 million.

I’m sure that Shaxon chose deliberately to use Honduras as an example. Until 1970, Chiquita was known as the United Fruit Company. Fans of One Hundred Years of Solitude (1967) by Gabriel Garcia Marquez might have inkling about the United Fruit Company’s murky past:

The gringos…built a separate town across the railroad tracks with streets lined with palm trees…. The section was surrounded by a metal fence topped with a band of electrified chicken wire which during the cool summer mornings would be black with roasted swallows. No one knew yet what they were after, or whether they were actually nothing but philanthropists, and they had already caused a colossal disturbance…. Endowed with means that had been reserved for Divine Providence in former times, they changed the pattern of the rains, accelerated the cycle of the harvests, and moved the river from where it had always been and put it with its white stones and icy currents on the other side of the town, behind the cemetery.

The coming of the Americans – all of them employees of an unnamed banana company – is the cause of the ‘events that would deal Macondo its fatal blow’, chief of which is a massacre of striking workers. The employees of the banana company decide to down tools because of low pay and their appalling working conditions – something justified by the ‘mournful lawyers’ of the banana company on the grounds that

the banana company did not have, never had had, and never would have any workers in its service because they were all hired on a temporary and occasional basis. …it was established and set down in solemn decrees that the workers did not exist.

Caught in this ‘hermeneutical delirium’, the striking workers are at the mercy of the banana company and the army, sent to quell their action. The strike ends with a massacre in the town square, when soldiers turn their automatic weapons on an unarmed crowd.

This is a description of a real event, the massacre de las bananerasthe banana massacre – in Ciénaga, Colombia, on 6 December 1928. Garcia Marquez’s ‘banana company’ was the United Fruit Company, which hired labour only through local agents to avoid having to comply with Colombia’s labour laws. When Colombian workers demanded better conditions and formalised contracts, their strike became the biggest in Colombian history, and came to an end when the Colombian army opened fire on peaceful protestors in Ciénaga.

The term ‘banana republic’ was coined by O. Henry in his anthology Cabbages and Kings (1904) in his account of his brief stay in Honduras – on the run from an embezzling charge – to describe a country run for the profit of a small elite of politicians and businessmen. The business in question was the United Fruit Company – and the term could be used to describe most of the Latin American countries in which United Fruit operated.

Founded in 1909, United Fruit emerged as the largest North American banana importer during the first two decades of the twentieth century. Its success was due partly to its strategy of manipulating governments into allowing it to pursue its interests, mainly by excluding all other opposition. It created monopolies by paying local producers higher prices than its competitors – and then dropped these prices to well below acceptable levels once the rivals had left the market, often impoverishing its suppliers.

When United Fruit began cultivating its own plantations during the 1930s, it did so across Latin America. If one of its divisions succumbed to Panama disease (Fusarium cubens), the company simply abandoned it – and those workers – and destroyed all the infrastructure which would have allowed other companies to begin farming there again once the plants were rid of the fungus.

To top this, the company was not averse to manipulating governments through bribery and intimidation, and sponsoring the odd coup d’état. United Fruit lobbied hard for the CIA-backed coup in Guatemala in 1954, when the left-leaning Jacobo Árbenz Guzmán – who had expropriated land claimed by the company – was replaced by the rightwinger Carlos Castillo Armas.

As Pablo Neruda wrote in his poem ‘La United Fruit Co.’ (1950):

When the trumpet sounded
everything was prepared on earth,
and Jehovah gave the world
to Coca-Cola Inc., Anaconda,
Ford Motors, and other corporations.
The United Fruit Company
reserved for itself the most juicy
piece, the central coast of my world,
the delicate waist of America.

It rebaptised these countries
Banana Republics,
and over the sleeping dead,
over the unquiet heroes
who won greatness,
liberty, and banners,
it established an opera buffa:
it abolished free will,
gave out imperial crowns,
encouraged envy, attracted
the dictatorship of flies:

It seems that Chiquita still engages in questionable practises, other than doing its best not to pay tax. An investigation into Chiquita’s business dealings in Latin America during the late nineties alleged that the company bribed officials, used dangerous pesticides, employed its workers in appalling conditions, and illegally maintained a monopoly on banana production.

In 2003, Chiquita admitted to paying $1.7 million to the paramilitary group the United Self Defence Forces of Colombia (AUC), which has been listed as a terrorist organisation by the US State Department. The company also allegedly provided AK-47s to the group. Chiquita said that the payments were to protect its workers, but the Colombian authorities reject this, arguing that they were meant to allow Chiquita to continue producing bananas and to discourage labour unrest. It’s difficult to believe Chiquita’s claims as it becomes clear that nearly all of the victims of the AUC were Colombian workers.

So what are earnest locavores to do? They could stop buying bananas altogether, along with other imported produce. I have mixed feelings about this. I really like being able to support farmers in Kenya. We know that the distance that food travels between producer and plate is not necessarily linked to its impact on the environment: a ready meal made in a local factory may have a bigger carbon footprint than string beans grown in Tanzania. Another alternative would be to buy certified, Fair Trade products.

But, even so, Fair Trade can have only a limited impact. The problem with Fair Trade is that it asks consumers – those at the end of the food chain – to make the choices which will change a whole food system. This, particularly during a recession, is absolutely impossible. For real change to happen, we need a fundamental reform of both political and economic systems:

Fair trade alone cannot address the core problem of excessively concentrated markets in which a handful of overpowerful transnational corporations dictate terms of trade and suck profits up into their own coffers.

What is needed for really fair trade is a more equitable distribution of the money in the chain. That will only be achieved with a shift in power which requires political action.

Which is why, oddly, getting Chiquita to pay its taxes is the first step in creating a better and fairer food system.

Further Reading

Sources cited here:

Warren Belasco, Meals to Come: A History of the Future of Food (Berkeley: University of California Press, 2006).

Warren Belasco, Review of Storefront Revolution: Food Co-ops and the Counterculture by Craig Cox, The Journal of American History, vol. 82, no. 2 (Sep., 1995), pp. 853-854.

Marcelo Bucheli, ‘Enforcing Business Contracts in South America: The United Fruit Company and Colombian Banana Planters in the Twentieth Century,’ The Business History Review, vol. 78, no. 2 (Summer, 2004), pp. 181-212.

Gabriel Garcia Marquez, One Hundred Years of Solitude, trans. Gregory Rabassa (London: Penguin, [1967] 1973).

Mark Moberg, ‘Crown Colony as Banana Republic: The United Fruit Company in British Honduras, 1900-1920,’ Journal of Latin American Studies, vol. 28, no. 2 (May, 1996), pp. 357-381.

Nicholas Shaxon, Treasure Islands: Tax Havens and the Men Who Stole the World, revised ed. (London: Vintage, 2012).

Other sources:

Anthony Ashbolt, ‘From Haight-Ashbury to Soulful Socialism: Culture and Politics in the Movement,’ AJAS, vol. 1, no. 3 (July 1982), pp. 28-38.

Warren Belasco, Appetite for Change: How the Counterculture Took on the Food Industry, 1966-1988, revised ed. (London: Cornell University Press, 2007).

Andrew Kirk, ‘Appropriating Technology: The Whole Earth Catalog and Counterculture Environmental Politics,’ Environmental History, vol. 6, no. 3 (Jul., 2001), pp. 374-394.

Creative Commons License Tangerine and Cinnamon by Sarah Duff is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License.