|Saturday 20th February 2010
| Northern Rock could buy
RBS and Lloyds branches | RBS braced
for bonus row with planned £1.3bn
payout | Boom in sales of tax-free CDs
casts doubt on
Treasury claims | British firms
could be hit in revenge for
Falklands oil drilling | Britain's
'dangerous' deficit is
dividing the business community | So
where did all the
money go? | Smith Deal Drills Into
Shares | Miami-Dade businessmen
accused of ties to
terrorist group | Fruits of boom
largely wasted, says Davy
report | 'Edinburgh economy can't
afford to be so reliant on the financial
'Edinburgh economy can't afford to be so reliant on the financial sector'
Brian Ferguson - Scotsman - 20th February 2010
Edinburgh must shed its traditional reliance on the financial sector for its economic growth if it is to prosper over the next five years, council leaders will tell a major conference next week.
A summit on the capital's future will hear how the local authority sees tourism, renewable energy, the creative industries, life sciences and major cultural events as key to boosting the city's economy and its competitiveness with international rivals.
Dave Anderson, the council's director of city development, will tell the first in a series of major conferences organised by The Scotsman that the city needs to make its voice heard much louder on the international stage in the wake of the troubles that have hit the city's financial sector.
Senior city figures will be urged to help making a much stronger case for greater Scottish Government backing and a "fairer share of the cake" from national agencies such as VisitScotland.
Business leaders attending Monday's conference will be also told the private sector will need to throw more weight behind efforts to promote the city as a place to visit, study and work because of "horrendous" spending cuts the council is expected to make.
New business improvement districts – possibly one dedicated to securing direct financial support from the hotel sector – are expected to be pursued by the city to shore up predicted shortfalls in funding for new initiatives.
Plans will be mapped out for the first city-wide taskforce whose members will lobby Edinburgh's case for more funding from the government, try to attract overseas investment and act as "ambassadors" for the city, as has already happened with the city's festivals and conferences sector.
Mr Anderson is one of the keynote speakers at Monday's conference at the Hub, which will also hear from John Swinney, Scotland's Cabinet secretary for finance and sustainable growth, Owen Kelly, chief executive of Scottish Financial Enterprise, events guru Pete Irvine, and architect Malcolm Fraser.
Mr Anderson told The Scotsman that the impact of the collapse of the global economy on Edinburgh's financial sector may be to the city's long-term benefit if it can step up efforts to full diversify over the next few years.
"Maybe it will have been necessary in pricking the city about the danger of being complacent about Edinburgh's growth. The city has been completely transformed from what it was like in the early 1990s but a lot of its progress was borne out of a relatively narrow base in the financial sector."
Mr Anderson said much work had already been done to "sharpen the focus" of the city's efforts to encourage development and attract inward investment, but admitted there was a need to attract greater backing for the fledgling Destination Edinburgh Marketing Alliance, particularly from VisitScotland.
He added: "We do need to find a mechanism for the private sector to come to the table."
Capital can lead UK out of global recession
Edinburgh's civic luvvies in need of a wake-up call
Sailing into financial disaster
Boom in sales of tax-free CDs casts doubt on Treasury claims
• VAT dodge thought to be costing UK £110m a year
• Low website prices forcing hundreds of shops to shut
Simon Bowers - Guardian
The controversial online sale of VAT-free CDs exploded at the end of last year, driving one in three purchases by British music-lovers on to the web. The surge in sales casts doubt over Treasury claims to be tackling the tax dodge, already thought to be costing the exchequer £110m a year and rising.
Websites operated by HMV, Tesco, Amazon, Play.com, Asda, WH Smith and Woolworths structure almost all their online CD and DVD transactions as personal imports from the Channel Islands. As a result they are able to offer unbeatable VAT-free prices, threatening the futures of music stores and sapping tax revenues.
Data from market research firm Kantar shows that 16.5m CDs were bought by British customers over the internet in the last three months of 2009 at an average price of £7.80. Over the same busy pre-Christmas period, 26.6m DVDs were bought online at an average price of £9.36.
In most cases, customers remain unaware of the extraordinary lengths online firms are going to to ensure the buyer avoids the 17.5% VAT charge they would pay on the same product bought from their local store. What appears a simple online purchase exploits a 27-year-old European tax directive that waives VAT charges on low-value personal imports from outside the EU. In the UK, the VAT relief applies to goods bought for £18 or less.
Tax-free internet sales from the Channel Islands have been steadily ballooning over the past 10 years while the Entertainment Retailers Association claims 1,600 shops selling music have closed in the last five years. Among the high street names to have failed, or to have disappeared altogether, are Fopp, Our Price, MVC, Music Zone, Virgin Megastores, Tower Records, Zavvi and Woolworths.
While the number of CDs bought online soared by 18% last year, – including a 37% rise over the busy final three months – Kantar's figures show that music sales volumes at traditional music stores and retailers on the high street declined by 33%. And as stores such as Zavvi and Woolworths have slipped into administration, Channel Islands operators have stepped in to resurrect the brands online – again offering VAT-free prices.
Kantar data shows 5% of online DVD transactions are above £18, the threshold at which the VAT exemption no longer applies. The proportion of CDs bought on the web for more than £18 is so tiny as to be "statistically insignificant", Kantar said.
Mike Dillon, who has run independent store Apollo Music in Paisley since the 1970s, said last Christmas was his worst, blaming unfair competition from VAT-avoiding online operators. "We are very competitive on price. We try to sell chart CDs for a tenner but it's not always possible. I doubt if we have any customers who don't already buy CDs online. The government has a duty to collect all the taxes that are applicable. Shops are shutting, people are losing their livelihoods, jobs they have had for years. It's absolute negligence."
Alison Wenham, chief executive of the Association of Independent Music, representing small record labels and distributors, said: "This is a hidden disease within the music business. It is very simple to resolve, but what we are getting from government is a denial of reality."
When the Guardian reported last summer that the Treasury was understating the extent of the ballooning online retailing tax dodge, Treasury minister Stephen Timms ordered an internal review be carried out by department officials and HM Revenue and Customs. In a leaked letter written after the review, Timms privately attacked the Guardian claims. "The article ... has exaggerated the level of exports made by some of the businesses it mentions ... [It] also fails to explain that most of the businesses it mentions, including the proposed launch of a Woolworth retail site, are not actually new businesses based in the islands ... the [CDs and DVDs] are owned and despatched by a fully licensed and established Jersey company, under contract to the major retailers," he told Tory MP Sir Peter Tapsell, who had aired a constituent's grievance on the matter.
In fact, the Guardian investigation had found that all but one of the companies involved in the VAT dodge were controlled by UK-registered parent businesses. Maidenhead-based HMV Group and Swindon-based WH Smith – both stock exchange-listed – push much of their online sales through subsidiaries HMV Guernsey and WH Smith Jersey.
Amazon has an arrangement with Indigo Starfish, a Jersey company owned by Glasgow-registered parent Indigo Lighthouse, while Tesco, Asda, Argos and WH Smith have struck outsourcing deals with Cheshire-based The Hut, which operates through Jersey and Guernsey subsidiaries. The only genuinely Channel Islands-owned company using the VAT loophole is Play.com, founded by islanders Richard Goulding and Simon Perree. The Guardian has been unable to find any mainstream website that does not offer CD or DVD sales via the Channel Islands VAT loophole.
Timms was not available to comment this week and has repeatedly turned down requests to talk to the Guardian about online VAT-free sales. the Treasury said: "The implication that businesses are simply setting up on the Channel Islands to take advantage of this relief is not true. In fact exports from the Channel Islands account for a very small percentage of the CD/DVD market".
So where did all the money go?
Edmund Conway - Telegraph
It is all too easy to lose track of the amount of cash poured into the economy by the British authorities in order to support banks and prevent a repeat of the Great Depression.
So here, for any of you who might have forgotten, is a quick reminder: some £76bn from the Treasury to buy shares in RBS and Lloyds Banking Group ; £200bn worth of lender-of-last resort liquidity support provided by the Bank of England to stricken banks at the height of the crisis; £250bn of wholesale lending guaranteed by the Bank through the credit guarantee scheme; £185bn of loans to banks through the Special Liquidity Scheme; £40bn of loans and other funding to Bradford & Bingley and the Financial Services Compensation Scheme. Then, deep breath, there is the £200bn of liabilities taken on board from the Asset Protection Scheme, and the £200bn of cash poured into the economy through quantitative easing .
It isn't really fair to add this all together – some of the cash is merely guarantees rather than actual pledged money, some isn't technically a fiscal injection; much of it will, in time come back to the Government – but if you did you would find that the total amount of cash poured, in one way or another, into the economy is well above £1 trillion. In fact, it is not far off Britain's entire annual income.
And what has been the effect? The answer, disappointingly, is far less than had been expected. It is impossible to know the counterfactual – what would have happened had Britain not benefited from the combined injection – but on almost any metric one cares to consult, lending to companies and individuals, a key sign of early-stage economic growth, is still at dangerously low levels. Yesterday, the Bank of England revealed that lending to businesses fell at a record pace in December, down by £4.3bn compared with November. The Council of Mortgage Lenders said that gross mortgage lending dropped last month to the lowest level for a decade. The broadest measure of money growth - M4 - has also failed to pick up in the wake of the crisis – a sign that Britain is facing deflationary headwinds, despite the rise in the official measure of inflation earlier this week.
It is not merely the UK facing this continued contraction in bank lending. In the US, bank credit has contracted so far this year at an annualised rate of 16pc. In the eurozone, too, bank loans to non-financial firms fell by 2pc in the year to December. In both the US and eurozone, broad money, the more abstract but deeper measure of economic expansion, is falling. For those who assumed the credit crunch is over, the figures are a fierce rejoinder.
So, goes the obvious question, where has all the money gone? In some senses, the answer is relatively simple. Much of that cash has gone into repairing a broken financial system. Some has gone towards repairing banks' balance sheets. Some has contributed to bank lending. But its effects have been to soothe the financial pain rather than completely curing it. And precious little of the money has filtered back into lending to households.
Dissecting why this is the case is not easy, because lending is just as likely to be down because indebted households and businesses have little appetite for more borrowing these days than because struggling banks are unwilling to hand out cash. As with so much in economics, the reality is likely to lie somewhere in the middle.
However, Bank insiders are quietly worried that the vast quantities of medicine doled out to the UK economy have not taken the effect they expected. When they launched quantitative easing last March, they suggested that its effects would be seen in an increase in the flow of money around the economy, or at the very least in providing a support to lending. Now that the scheme is over, and with some economists questioning whether this will imply that conditions will become even tighter in the coming months, some are worried that a double-dip, sparked by continued weakness in lending, is becoming more likely.
Part of the reason banks are reluctant to lend is that they are unsure about quite how far they must go in fortifying their balance sheets for the future. Most have now repaired their capital stocks and liquidity buffers to levels far stronger than before the crisis. But they suspect – probably rightly – that regulators will impose far tighter capital requirements and liquidity ratios in the future. Since these are, in the words of Jaime Caruana of the Bank for International Settlements, an effective "speed limit" for the banking system, they are reluctant to press on the accelerator and lend cash before they know the future rules.
To make matters worse, they are aware that doing so might not work even if they wanted it to. At the height of the bubble, banks were reliant on securitisation markets to support their lending. These markets remain frozen. The vast majority of UK bank lending over the past two years has, in some way, been supported either by the special liquidity scheme or the credit guarantee scheme. To complicate matters further, Mervyn King insisted last week that "the SLS will not be extended", saying that otherwise banks would end up "just hanging on, waiting for a handout".
So the implication is that the SLS will come to an end in 2012, while the Credit Guarantee Scheme, which has already closed to new entrants, will see its final loans expire in 2014. These two dates may sound a long way in the distance, but to banks, which have to offer mortgages over 25 year maturities, they are already playing an important part in their business plans.
With these two threats looming on the horizon, it is hardly surprising that banks are reluctant to lend, even given how much their balance sheets have been bolstered by government support.
Policymakers recognise that this is a once-in-a-lifetime opportunity to overhaul a mutant financial system with tighter rules. But so long as insecurity over their plans remains, the credit crunch is likely to continue. It is a stark reminder of why hopes of a quick recovery from this recession may be forlorn, and why financial crises such as this one cast a shadow over growth for years.
Northern Rock could buy RBS and Lloyds branches
Katherine Griffiths, Miles Costello - The Times
Northern Rock could take over branches from Royal Bank of Scotland (RBS) and Lloyds that the two groups have been forced to put up for sale.
The idea has been floated in government and banking circles. The management of Northern Rock is understood to favour the move as a way of reinvigorating its brand and establishing a significant new force on the high street.
Northern Rock was split into a “good” bank and a “bad” bank on January 1 as part of the Government’s plan to return both parts to the private sector over time.
The Treasury has abandoned plans to try to sell the good part, which includes £19.4 billion in deposits, £10.4 billion in mortgages and £8 billion in cash, before the general election. Instead, it is considering ways to generate value over the longer term.
The Government has a unique opportunity to create a new force in banking to take on the incumbents because Lloyds and RBS have been ordered by the European Commission to sell off businesses, brands and assets as one of the conditions for state aid.
Among the assets RBS has been told it must sell are 318 branches made up of the RBS network in England and Wales and NatWest in Scotland. It will parcel them under its Williams & Glyn’s name, a 1980s revival.
Lloyds has been ordered to sell 600 branches made up of Cheltenham & Gloucester, Lloyds TSB in Scotland and a few more branches in England and Wales. Northern Rock has only 76 branches, so adding the portfolio of RBS or Lloyds would enlarge it substantially.
However, there would be many hurdles. RBS, which is 84 per cent owned by the Government, and Lloyds, in which taxpayers have a 41 per cent stake, have a duty to shareholders to get the highest price for their assets. The Government is unlikely to want to be the top bidder in any auction. RBS, in particular, is understood to be confident that it will sell the Williams & Glyn’s portfolio to a private bidder. Analysts believe that it is worth about £2 billion. Santander, the Spanish group that owns Abbey, Alliance & Leicester and B&B’s deposit book, and National Australia Bank, which owns Clydesdale and Yorkshire, are seen as strong contenders for the RBS assets.
It is less clear who would buy some of Lloyds’ assets. That may prompt Northern Rock and its advisers to focus on a tie-up between the two.
A senior banker close to the situation said: “You could allow someone else, whether private equity or a bank, to combine all of these assets and then resell a much larger and more valuable group back to the private markets. Northern Rock could be used as a consolidator of these banking assets.”
The banker said that the Treasury had “yet to decide what it thinks” about the idea.
RBS braced for bonus row with planned £1.3bn payout
• Taxpayer-owned bank to announce results on Thursday
• HSBC bosses push for pay rises of up to 30%
Jill Treanor - The Guardian
Loss-making Royal Bank of Scotland is braced for a row over City pay next week when it is expected to admit that its bonus pot for 22,000 investment bankers has reached £1.3bn – against last year's £1bn.
The Edinburgh-based bank is awaiting approval from UK Financial Investments, the body that looks after the taxpayer's 84% stake in the bank, for its proposed bonus pool. Chancellor Alistair Darling has yet to receive a formal presentation about the proposals, which he can veto. He has already said that bonuses cannot be paid in cash to anyone earning more than £39,000, which would affect most of the workforce in the investment bank.
RBS, which a year ago announced the biggest loss in British corporate history, is on Thursday expected to show that its losses have narrowed.
Lloyds Banking Group, in which the taxpayer has a 43% stake, reports on Friday and is also expected to report a heavy loss. Estimates for the deficit, which will be caused by impairment charges on loans granted by HBOS before it was rescued by Lloyds, range from £3bn to £11bn.
The heads of both banks are facing pressure to follow John Varley and Bob Diamond, the top two executives at Barclays, and refuse any bonuses this year. Under terms imposed by the Treasury neither RBS chief executive, Stephen Hester, nor his Lloyds counterpart, Eric Daniels, are permitted to take cash payouts, and any bonuses they receive must be paid in shares in three years' time.
City sources reckon the Barclays bosses' move is being scrutinised by the executive team at HSBC despite attempts by the bank to convince shareholders that they should be awarded pay rises – of up to 30% – this year.
Michael Geoghegan, the chief executive, and finance director Douglas Flint are thought to be among the executives that HSBC's remuneration committee believes should receive a rise.
Some major investors have told the remuneration committee that they do not believe pay rises on such a large scale are warranted and that the bank needs to reconsider its plans.
The Lloyds bonus pool may attract less controversy as the bank does not have an investment banking arm and largely needs to pay bonuses to its army of staff working in high street branches, where the average payout is £1,000. It is thought that its bonus pool is around £200m, considerably less than RBS's proposed amount.
Hester has already said the pressure from UKFI to restrict the way bonuses are paid has caused an exodus of staff.
It is thought that the proposal sent to UKFI would involve the bonuses being paid in shares worth £1.3bn, although some of the bank's debt may need to be used to make some of the payments, which are likely to be deferred over three years.
While the bank is prohibited from paying cash bonuses, the recipients of shares may be able to sell them shortly after receiving them – turning them into cash.
British firms could be hit in revenge for Falklands oil drilling
Damien McElroy - Telegraph
Argentina is preparing to target British companies with links to the new oil drilling ventures off the coast of the Falkland Islands.
HSBC and Barclays are thought to be on a list of companies that could be hit in revenge for the exploration, which Buenos Aires claims is a “violation of sovereignty”.
The companies could find themselves frozen out of business deals in Argentina or find their dealings being blocked or hampered.
The threat is the latest act in a dispute over plans to begin exploring for oil near the British territories. The North Sea oil rig Ocean Guardian finally arrived in Falklands waters on Friday in defiance of the warnings from the Argentine authorities.
Royal Navy ships have already been put on standby to protect commercial shipping heading to the region after Argentina said all vessels passing through its waters would have to apply for a permit. The authorities stopped a shipment of pipes bound for the island last week.
British companies identified as beneficiaries of investments in Falklands oil include Barclays, HSBC and BHP Billiton, the mining house that has an investment in Falkland Oil and Gas and copper rights in Argentina.
The banks have been targeted even though each maintains relatively minor links with two of the exploration companies. A division of Barclay’s holds Desire Petroleum and Borders & Southern Petroleum shares in trust, while HSBC advises Rockhopper Exploration.
Barclays is thought to be particularly vulnerable to pressure as it is playing a leading role in negotiations on Argentina’s £65?billion in defaulted debt.
The new threat came as Argentina accused Britain of raising the “spectre of war” for saying preparations had been made to protect the islands.
Victorio Taccetti, Argentina’s deputy foreign minister, said war was not an option in resolving the dispute over the oil-rich area.
“War is excluded from our horizon,” he said. Island residents “should not be worried about this, but they should clearly know that Argentina will not abandon” its claim.
On Thursday, Gordon Brown said Britain had made “all the preparations” to ensure the Falklands were “properly protected”.
Jorge Taiana, Argentina’s foreign minister, is scheduled to discuss the dispute with Ban Ki-moon, the United Nations secretary-general, next week.
A Foreign Office spokesman said: “We have no doubt about our sovereignty over the Falkland Islands and we’re clear that the Falkland Islands government is entitled to develop a hydrocarbons industry within its waters.
“The Falkland Islands territorial waters are controlled by the islands’ authorities.
“We’re monitoring the situation closely, but we’re not going to react to every development in Argentina. We remain focused on supporting the Falkland Islands government in developing legitimate business in its territory.”
British officials fear that the issue will continue to fester in the run-up to Argentina’s presidential elections next year.
Falkland authorities separately denounced the Argentine government in statement on the islands website.
“This is a move by Argentina to try and disrupt the oil drilling due to start early next week,” said the statement. “All the supplies the industry needs are located here in the islands and drilling will commence as planned, weather permitting. [We have] every right to develop a hydrocarbons industry within our waters.
“It is no surprise to anyone that Argentina is behaving in this way but it is nonetheless disappointing when they do.”
Britain's 'dangerous' deficit is dividing the business community
Angela Monaghan - Telegraph
Britain's bulging deficit has divided the country's politicians and economists into two distinct camps. Now the business community is split too.
The first camp, championed by Labour, argues that fiscal tightening must not begin until 2011-12, for fear of derailing the recovery.
The second camp, led by the Conservatives, believes action to cut the deficit should begin immediately in 2010-11, or risk a drastic loss of confidence in the UK economy, with terrible consequences for all.
For its part, the Institute of Directors (IoD) is clear. "We are saying it needs to come in 2010 and not 2011," said Graeme Leach, IoD chief economist. "For those who say we should wait and delay, it's a classic case of 'Lord make me chaste, but not yet'. We think it's going to be a weak recovery come what may, so it's a case of biting the bullet on this one."
The IoD and other supporters of an early move – who include Sir Richard Branson – argue that delaying spending cuts will ultimately push up borrowing costs.
George Osborne, shadow Chancellor, has argued that in order to protect Britain's top-tier credit rating, almost immediate action on the deficit is required. He has said the Conservatives would "make a start" on cutting the deficit in 2010, but has refused to put a figure on any reductions. Areas of public spending likely to be targeted include child tax credits for the better off, as well as advertising and consultancy budgets.
The British Chambers of Commerce (BCC), however, said it had been alarmed by the weakness of recent economic data, not least an initial gross domestic product estimate which showed Britain only just made it out of recession in the fourth quarter of 2009 with growth of just 0.1pc. As such, its members are fearful of a double-dip recession, and a premature tightening of fiscal policy. For them, the removal of emergency measures including the VAT cut and car scrappage scheme is enough tightening for now.
"Additional tightening during 2010, on top of the withdrawal of emergency stimulus measures, could make the recovery even more uncertain," said Adam Marshall, director of policy at the BCC. Its members would like to see aggressive deficit reduction, but not until 2011 and beyond.
Similarly the Home Builders Federation, whose members were hard hit from the very beginning of the downturn, does not want to see action on the deficit until 2011. It argues that the lack of mortgage availability, borne out in recent data, will continue to constrain a sustainable recovery.
Other groups, including the CBI and the British Retail Consortium, will be consulting members as they compile their Budget wish-lists.
Beyond business, the Conservative stance was backed by a group of prominent economists in a letter to The Sunday Times last week , only to be dismissed as "dangerous" and "reckless" by an even bigger group of important economists in two letters to the Financial Times published on Friday.
The latter group provided the opportunity for some more political point-scoring. A spokesman for the Chancellor said: "Once again George Osborne has jumped on the wrong bandwagon. This puts an end to his claim there is a consensus among economists.
"His judgment is wrong and his approach would risk derailing the recovery. It's obvious to most people that government support is still needed until recovery is secured. It's a view shared by most other governments around the world of all political colours."
One thing all seem to be agree on is that radical action will have to be taken to cut the deficit over the medium term. Government borrowing is expected to hit almost £180bn this year, and that is not sustainable. In the shorter term, the how and the when will underpin the general election battle.
Smith Deal Drills Into Schlumberger Shares
John Jannarone - Wall Street Journal
Schlumberger hardly hit a gusher. Investors responded to news of the oil-services giant planning a $9 billion bid for rival Smith International by lopping $2.5 billion off its market capitalization. In fact, with Smith adding only $1 billion, the net loss of value was almost 17% of the $9 billion price being discussed.
Certainly, it faces hang-ups. Antitrust regulators would likely force Schlumberger to sell key overlapping Smith businesses, such as directional drilling and coiled tubing.
Also, cost savings mightn't justify the mooted price. A 25% premium to Smith's undisturbed stock price equates to $1.8 billion. Jeff Tillery of Tudor, Pickering, Holt & Co. estimates annual cost savings at around $200 million, or $1.6 billion adjusted for tax and put on a multiple of 10 times. That would make the price received on any disposals key.
Also, a deal would probably include large amounts of stock, leading arbitragers to sell Schlumberger shares to hedge their risk. Like Baker Hughes's recent purchase of BJ Services, Schlumberger's target is unhappy with its stock price and may want shares so investors can participate in an eventual industry upturn.
On a more positive note, Smith's drill-bits operation would fill an important gap in Schlumberger's business mix. The combined entity would benefit from more market power in an industry where its customers are often some of the biggest companies in the world. And Smith's shares remain beaten down, having underperformed most of the sector since it levered up to buy W-H Energy Services in 2008.
Schlumberger investors shouldn't overreact.
Miami-Dade businessmen accused of ties to terrorist group
Three Miami-Dade businessmen face terrorism-related smuggling charges alleging they secretly exported video-game players to a shopping center in Paraguay that U.S. authorities say served as a front for financing the Middle East terrorist group, Hezbollah.
The businessmen -- Khaled T. Safadi, Ulises Talavera and Emilio Gonzalez-Neira -- were arrested late Thursday on conspiracy charges of violating a post-9/11 law that prohibits any person or company from doing business with a U.S.-designated terrorist group.
Safadi, 56, owner of Cedar Distributors Inc., and Talavera, 46, owner of Transamerica Express of Miami, were arrested in Doral. Gonzalez-Neira, 43, owner of Jumbo Cargo Inc., was arrested in Sunny Isles Beach. Their export and freight-forwarding businesses were also named as defendants in the 11-count indictment unsealed Friday.
While the indictment does not identify the terrorist organization, it explicitly names a U.S. black-listed shopping and office complex in Paraguay to which the businessmen allegedly sold thousands of Sony PlayStation 2 consoles and Sony digital cameras during 2007 and 2008.
The Treasury Department has singled out the commercial mall, Galeria Page, as a funding source for the U.S.-designated terrorist and political organization Hezbollah, based in Lebanon.
Safadi's defense attorney, Michael Tein, said in an interview that his client was innocent, mocking the indictment by calling it ``the great Sony PlayStation caper.''
``Believe it or not, this indictment actually charges these gentleman with supporting Hezbollah by shipping them Sony PlayStations,'' Tein said. ``I guess that's a new type of weapon of mass destruction.''
On Friday, federal prosecutors Russell Koonin and Allyson Fritz said the three defendants are flight risks and should be held without bail before trial. Magistrate Judge Peter Palermo scheduled bail hearings for March 1 and arraignments for March 5.
A fourth suspect, Samer Mehdi, who owns a business called Jomana Import Export that operated in the Galeria Page Mall in Ciudad del Este, also was charged. Mehdi, a 37-year-old Brazilian and Paraguayan national, has not been arrested.
Immigration and Customs Enforcement agents working with the FBI's Joint Terrorism Task Force in South Florida began the investigation into the alleged smuggling ring in 2007.
According to the indictment, Safadi was a distributor of the Sony-brand electronics to the freight-forwarders, Talavera and Gonzalez-Neira. They shipped the products to Mehdi.
To conceal the true destination of the shipments, the defendants fabricated invoices with false addresses and fictitious consignees on required export paperwork, according to the indictment.
Also, Mehdi's wire-transfer payments in Paraguay to the U.S. distributors were routed through various facilities to mask their true origin, the indictment states.
John Morton, assistant secretary of Homeland Security for ICE, said the investigation was aimed at dismantling ``criminal organizations that support designated terrorist entities and participate in the illicit trade of commodities that support terrorist activities'' against the United States.
According to the Treasury Department, the Galeria Page Mall and offices there are considered the central headquarters for Hezbollah members in the tri-border region of Argentina, Brazil and Paraguay.
Muhammad Yusif Abdallah, a manager of Galeria Page, paid a regular quota to Hezbollah based on profits he received from the mall, a 2006 Treasury statement said.
The Treasury Department's Office of Foreign Assets Control also said the mall was part of a South American network that aided Assad Ahmad Barakat, who has been on the U.S. terrorist blacklist since 2004.
``Assad Ahmad Barakat's network in [South America] is a major financial artery to Hezbollah in Lebanon,'' Adam Szubin, director of OFAC, said in the release.
Fruits of Ireland's boom largely wasted, says Davy report
Laura Slattery and Charlie Taylor - Irish Times
Ireland “largely wasted” its years of high income during the boom, with private enterprise investing its wealth “in the wrong places”, according to a new report by Davy Research.
The study says that one of the great misconceptions about Ireland is that it is a wealthy country.
The report by economist Rossa White states that while Ireland “relentlessly climbed” the table of countries ranked by income per head of population from 1994 on, the country was never wealthy because the years of high income were not invested properly.
The study notes that at the end of 2009 Ireland was still ranked eighth in the euro zone in terms of income per capita.
But Mr White said the best way to compare the wealth of countries was to look at the capital stock or infrastructure of the country, rather than income per capita levels.
Although Ireland has similar income per capita to other small euro zone countries such as Finland and Belgium, the physical wealth of those countries exceeds that of Ireland, because of their “vastly superior” transport infrastructure, telecommunications network and public services.
“No Irish resident who has visited Belgium or Finland would have the audacity to claim that this country is wealthier,” Mr White wrote.
Capital stock soared by 157 per cent in real terms from 2000 to 2008, but almost two-thirds of the increase was accounted for by housing – an “unproductive asset” in economic terms.
In the eight years to 2008, the net capital stock of the State more than doubled from €222 billion to €477 billion, data from the Central Statistics Office (CSO) shows. But once housing is excluded, “productive” capital stock rose by only €70 billion to €174 billion.
Davy said most of the increase in “core” productive capital stock was related to the State or semi-State sectors.
The report catalogues “pitiful” levels of investment by the private sector and states that as a result of a “glut of investment in the wrong places”, Ireland’s technological capacity has “not advanced much over the last decade”.
Some €20 billion was also invested in areas that support imports such as retail, transportation and storage. However, since the collapse in consuming spending, “spare capacity in that area of the economy is abundant”.
The upgrading of Ireland’s road infrastructure was the “greatest triumph” and “perhaps the greatest legacy” of the period, according to Davy.
The value of roads leaped from €13 billion to €27.5 billion, with the reduction in journey times and “greater certainty of planning” helping to boost significantly economic activity.
Although it is highly critical for the most part, the report also notes that Ireland still has the second-highest number of graduates in the 25-34 age cohort in the European Union (behind Cyprus), and says the quality of employees has not been diluted by emigration.
Davy warns that Ireland must continue to make investment in education a salient priority.
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