Amazon's corporate tax affairs in Luxembourg come under EU scrutiny

According to a report by the Financial Times published yesterday, the EU’s Competition Commission has asked Luxembourg to hand over documents relating to US online retailer Amazon’s corporate tax affairs in the country. The request for information will establish whether or not the company’s tax affairs through Luxembourg comply with applicable state aid regulations. The outcome of the fact-finding mission could ultimately lead to a full investigation being carried out.

An EU official told the Financial Times that, ‘We are looking into what kind of arrangement Luxembourg has with Amazon’. If the Competition Commission unearths evidence of unlawful operations between Luxembourg and Amazon, it will have the discretion to order the repayment of all tax revenues that have been lost as a result of the arrangement.

Within the UK, Amazon faced a torrent of criticism earlier this year when accounts revealed that in 2013 the company paid just £4.2 million in tax to the UK Treasury, despite achieving record sales of £4.3 billion.  At the time, a representative from Amazon stated, ‘The company pays all applicable taxes in every jurisdiction that it operates within’. Prior to this, in November 2012, Amazon, Google and Starbucks were quizzed by the UK Public Accounts Select Committee over their controversial tax arrangements and were branded ‘immoral’ by the MPs questioning them. In 2011, Amazon had made over £3.3 billion in sales across the UK, but paid no corporation tax and in over 14 years of trading in the UK, Starbucks had paid just £8.6 million in corporation tax.

The request for information marks another step in a broader EU crackdown against large multi-nationals channelling money via ‘tax-havens’ and concluding ‘sweetheart’ deals with certain countries. Last month, the EU launched investigations into Apple, Starbucks and Fiat to establish whether the deals they had struck with authorities in Ireland, the Netherlands and Luxembourg breach state aid rules. 

BNP Paribas fined £5.2 billion for breaching trade sanctions

France’s biggest bank, BNP Paribas, has been fined £5.2 billion ($8.97 billion) for breaching US trade sanctions against Cuba, Iran and Sudan between 2004 and 2012. It is also being prevented from clearing certain transactions in US dollars for one year from the beginning of 2015. BNP Paribas agreed to pay the fine to settle the charges against them after months of negotiations with US authorities. The fine is the largest for such a case in US history.

Previously, the largest fine levied against a bank by US regulators for sanctions violations was $1.9 billion paid by HSBC in 2012.

US Attorney-General, Eric Holder, stated at a press conference that BNP Paribas had gone to ‘elaborate lengths to conceal prohibited transactions, cover its tracks and deceive US authorities’. According to Mr Holder, the bank ‘deliberately and repeatedly violated longstanding US sanctions’.

Jean-Laurent Bonnafe, CEO of BNP Paribas, said, ‘We deeply regret the past misconduct that led to this settlement. The failures that have come to light in the course of this investigation run contrary to the principles on which BNP Paribas has always sought to operate. We have announced today a comprehensive plan to strengthen our internal controls and processes…Having this matter resolved is an important step forward for us. Apart from the impact of the fine, BNP Paribas will once again post solid results this quarter and we want to thank our clients, employees, shareholders and investors for their support throughout this difficult time’.

France’s banking supervisory authority, APCR, said in a statement that it had previously examined the liquidity and solvency of the bank and found it to be ‘quite solid’ and able to ‘absorb the anticipated consequences’.

Following the US authorities’ fine, Swiss regulator, FINMA, has announced that it has now closed its investigation into the activities of BNP Paribas. In a statement released in January 2014, FINMA said it believed that the bank had ‘persistently and seriously violated its duty to identify, limit and monitor the inherent risks, subsequently breaching supervisory provisions’.

Wonga to pay £2.6 million compensation for fake legal letters

The Financial Conduct Authority ('FCA') has ordered the UK’s biggest payday lending company, Wonga, to pay £2.6 million in compensation to consumers over misleading debt practices. Between October 2008 and November 2010, Wonga sent out letters to 44,556 customers claiming to be from law firms ‘Barker & Lowe’ and ‘Chainey, D’Amato & Shannon’. All the letters had in fact been sent by Wonga and the law firms named on the letterheads did not exist. The letters misled customers into thinking that their outstanding debts had been passed on to a law firm or other third party. In a statement from Wonga released yesterday, the company admits that the letters contained the ‘threat of adverse consequences if the debts were not repaid quickly. Charges were added to some customer accounts as a result of this practice’. The poor practice was initially uncovered by the former consumer credit regulator, the Office of Fair Trading and was picked up by the FCA in April this year after it become responsible for regulating the consumer credit industry.

The FCA’s director of supervision, Clive Adamson, said today, ‘Wonga’s misconduct was very serious because it had the effect of exacerbating an already difficult situation for circumstances in arrears. We are pleased that Wonga has been working with us to put matters right for its customers and to ensure that these historical practices are truly a thing of the past’.

Consumer group Which? has also responded to yesterday’s announcements. Richard Lloyd, Which? executive director stated, ‘It’s right the Financial Conduct Authority is taking a tougher line on irresponsible lending and it doesn’t get much more irresponsible than this. It’s a shocking new low for the payday industry that is already dogged by bad practice and Wonga deserves to have the book thrown at it. The FCA must now also clamp down on excessive fees and charges, starting with default fees charged by some payday lenders, to show it is serious about getting a fairer deal for borrowers’.

Tim Weller, Wonga’s interim boss, said, ‘We would like to apologise unreservedly to anyone affected by the historical debt collection activity and for any distress caused as a result. The practice was unacceptable and we voluntarily ceased it nearly four years ago’.

 

Wonga is due to start compensating customers from the end of July, including a flat rate £50 settlement to all who received the letters for the distress and inconvenience caused and a refund of charges associated with sending the letters.

Financial Conduct Authority to crack down on ‘logbook lenders’

 

The Financial Conduct Authority (‘FCA’) has called for ‘logbook lenders’ to ‘dramatically raise their standards’ if they want to continue trading. Logbook lenders supply loans that are secured against a borrower’s vehicle.

Stemming from research conducted between November and December 2013, the FCA has found evidence of ‘poor firm behaviour, including little or no affordability checks’, with some applicants even being encouraged to manipulate details of their income on application forms. The FCA also came across evidence indicating that consumers were being pressurised and put on the spot to take out a loan without being informed about the existence of the statutory cooling off period. In other cases, borrowers had not been made aware of the total costs involved and that missed repayments could lead to their vehicles eventually being repossessed.

 

The FCA also found that many consumers had little knowledge of the concept of a logbook loan and what it meant in terms of, for example, the ownership status of their vehicle. Being desperate for the loan, many consumers also failed to shop around and were found to focus more on weekly payment amounts than the total sum of what they had agreed to repay.

 

According to the FCA, logbook loans range in size from approximately £500 to £50,000 and are often used by vulnerable consumers in difficult circumstances who have exhausted other means of potential credit. The loans usually last for about six to 18 months, with a typical APR of 400% or higher.

 

Christopher Woolard, director of policy, risk and research at the FCA said, ‘People who use logbook loans are often in difficult circumstances with few other borrowing options. The last thing that should be happening is for them to be squeezed yet more or even threatened, but that is what our research has found’. Woolard continued, ‘Logbook lenders should consider this as fair notice to improve and put their customers first or we won’t hesitate to take action’.

 

Responding to the FCA’s statement and accompanying report, shadow minister for Competition and Consumer Affairs, Stella Creasy, said, ‘Time and again this government has been too slow in recognising and reacting to dangerous practices in the consumer credit market…This research makes a damning case to show that there’s more than one toxic type of company out there causing serious damage to the finances of families’.

The FCA took control of consumer credit matters from the Office of Fair Trading on 1 April 2014 and this week’s statement on logbook lenders forms part of a swathe of new rules and standards for the consumer credit industry to adhere to and signifies a new, firmer approach to regulating the sector.

Is the new London Rental Standard a ‘meaningless gimmick’?

Last month, Boris Johnson launched the London Rental Standard (‘LRS’) in a bid to improve the conditions faced by tenants in London’s sprawling private rental sector. The LRS is a voluntary set of minimum standards expected of landlords, managing agents and letting agents operating in London’s private rental market.

 

The scheme brings together seven landlord accreditation schemes under a single framework and has been drawn up following extensive consultations, including a three month public consultation between December 2012 and February 2013.

 

Certificates of accreditation will be awarded to landlords and letting organisations that meet a number of core requirements, attend a one-day course, sign a code of practice and agree to a declaration stating that they are fit and proper. Many of the common problems experienced by tenants (and already covered by legislation) are touched on in the scheme, including written rental agreements, the need for clarity regarding agency fees, protected deposits and repairs. According to the LRS, urgent repairs should ‘wherever possible…be dealt with within three working days of a landlord being notified’. Additionally, landlords ‘should always be contactable and must respond within a reasonable period of time’.

 

Extortionate agency fees and disproportionately high rental costs are not the only problems London’s tenants are faced with. High costs often bear no relation to the cramped, dingy homes left in poor condition many Londoners have to put up with. Kings Cross based letting agency ‘Relocate Me’ faced a media backlash this month after posting an advert featuring a single bed crammed into a kitchenette, along with a wardrobe (which blocked access to the front door) and a dining room. Described as a ‘modern studio apartment’ in Islington by the letting agent, the flat was on offer for £737 a month and has reportedly been snapped up by one, presumably desperate, tenant.

 

Announcing the new standards scheme, the Mayor of London, Boris Johnson, said, ‘With more of London’s workforce and young families living in rented homes, this growing sector is vital to meeting the capital’s housing needs and must not be overlooked. The standard aims to improve the experience of everyone involved, from landlord to tenant, with a clear set of good practice rules’.

 

However, Labour London Assembly member, Tom Copley, has criticised Boris Johnson for introducing a ‘meaningless gimmick’ and ‘wasting two years consulting on a voluntary standard that is not worth the paper it’s written on’. Mr Copley believes that the Mayor ‘should have been lobbying for government legislation to create longer tenancies as standard, caps on annual rent rises and a ban on letting agents’ fees for tenants’. Grainia Long, chief executive of the Chartered Institute of Housing, shares similar reservations. Ms Long hopes ‘that the voluntary nature of the scheme will not undermine its impact. Much work will need to be done to ensure it is not simply ignored by the worst offenders’.  

 A key shortcoming of the scheme is indeed the fact that it is voluntary. ‘Good’ landlords and agencies keen to enjoy the potential business benefits of being part of the scheme will be the ones applying for accreditation, while the ‘rogues’ in the sector are likely to steer well clear of it and continue to exploit prospective tenants desperate for a home in the capital.  Although a small step in the right direction, the LRS is not a failsafe solution for fixing the private rental market both in London and across the UK. 

New UK banking standards body to be launched later this year

A new voluntary standards body for British banks and building societies will be launched later this year to 'raise standards and competence' within the sector.

 

Funded by the banks themselves at a cost of between £7m and £10m a year and relying on voluntary support rather than statutory powers, the new body will be set up as a 'champion for better banking standards'. It will be underpinned by a 'voluntary and aspirational' goal based on the credo that the banking industry must raise its own game in order to win back public trust.

 

Richard Lambert, former director general of the Confederation of British Industry and author of today's 'Banking Standards Review' report, is under no illusions about the difficulty (and potential controversy) that the new standards body will face in influencing the ethical standards of the same institutions that are providing its finance. According to the report, the new body will have to establish its credibility and independence from the start and 'will have to show that it is willing to set demanding standards, and to speak out when appropriate'.

 

Britain's biggest banks and building societies, namely Barclays, HSBC, Santander, RBS, Lloyds, Nationwide and Standard Chartered, pledged to set up the body in light of recommendations made by the Parliamentary Commission on Banking Standards last year amid a series of scandals involving benchmark interest rates, breaches of anti-money laundering rules and the misselling of complex financial products and loan insurance.

 

The new standards body will require participating institutions to commit to improving their culture and practices and publically report on their finances each year. Standards of good practice will be set, which may include whistleblowing procedures, staff values and behaviours and managing high-frequency trading.

 

At the end of his report, Lambert charts the future face of a banking utopia in 10 years' time and hopes that by then, 'balance sheets of banks doing business in the UK have been restored to health', more bankers have qualifications of one kind or another and 'politicians will have found other footballs to kick'.

 

Recognising the feat of the challenges ahead, Lambert does however concede that 'Realising this vision will require an enormous amount of heavy lifting by the banks and building societies in the years ahead, and by everyone who works in them. It will also require a different approach to their customers, and a much broader view of their role in society. But this is what the public has the right to expect. And it is what the country needs'.

 

Keen to build on and accelerate 'present momentum' on the issue, Lambert says that work to set up the new body should start immediately, with the next step being establishing an independent panel to appoint the new body's Chairman and approve the Chief Executive.  

Housing crisis threatens London's future business prospects

According to a report published today by the London Chamber of Commerce and Industry (LCCI), London’s housing crisis could seriously undermine the city’s economic competiveness and lead to problems for both employers and employees. The LCCI’s report argues that businesses relying on easy access to a skilled workforce could face staff retention and productivity problems if employees continue to be priced out of the London housing market and are forced to take longer commutes into work.

To overcome the capital’s chronic housing shortage, the LCCI suggests that more land should be secured for development and more builders with the capacity to deliver these homes should be available. Specifically, the LCCI recommends that all brownfield sites in London should be registered by the Mayor of London and private land owners would then be given four years to start building on such sites before a compulsory purchase would be enacted. Public sector landowners would have to start building within two years of being registered.

Public sector organisations are estimated to own as much as 40% of all brownfield land in London. Over 653 hectares are owned by the Greater London Authority, while a further 29.4 hectares are owned by the London Fire Brigade, 45.9 hectares by the London Legacy Development Corporation and 103.3 hectares by the Metropolitan Police Service. Other bodies like the NHS, local authorities and government departments also hold brownfield land in London, but do not publish this data. The LCCI suggests that ‘excess public sector land’ should be sold for development.

One controversial proposal in the LCCI’s report recommends that local authorities work with the Mayor of London to evaluate the potential to reclassify ‘a proportion of poor quality greenbelt land’ within the Greater London area for housing. The LCCI states that although any proposals to build on greenbelt land will ‘stir strong emotions amongst residents local to affected sites, the creation of truly “garden” suburbs in a handful of formerly private greenbelt areas could secure the delivery of the homes that London needs for generations to come’.

Over the last decade, London’s population has grown by around a million, faster than at any other time previously, to 8.4 million in 2013.  However, not enough new homes have been built to cope with this increase, with around 20,000 new homes a year being built in London over the last 10 years. To ensure that developers are producing the homes that the majority of Londoners need (those earning less than £50,000 and in the low to mid-housing price range), the LCCI suggests that the Mayor of London should set a new annual target for the creation of homes affordable to those earning up to £50,000.

LCCI’s survey of London businesses also found that 59% of employer respondents believed that increased housing costs have led to a greater pressure to increase wages for three in five employees. Rising housing costs have, according to the LCCI’s survey, also diminished businesses’ ability to recruit and retain skilled workers, with 42% of businesses stating that increased housing costs have had a negative impact on recruitment. One third (33%) of London firms surveyed believed that the lack of affordable housing in London affected punctuality and productivity. LCCI says that ‘employees that regularly endure travel fatigue are unlikely to be as productive and motivated as they could be, as long commutes have been found to make workers less happy and more anxious’.

Speaking about the LCCI’s proposals, LCCI’s Chief Executive, Colin Stanbridge, says, ‘There is no magic wand that can change this situation overnight but we urgently need to start building many more homes that ordinary Londoners can afford to buy or rent, otherwise we could find the workforce that is the capital’s greatest asset under threat’.