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In #Ukraine, new government demonstrates fighting against shadow economy and corruption

Graham Paul

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President of Ukraine Volodymyr Zelenskyi and parliament have begun to actively introduce changes to tax legislation aimed at unshadowing of the economy, combating corruption schemes and reducing pressure on business. At the same time, the law on the creation of a new agency – the “Bureau of Financial Investigations” caused some concerns from experts and the public, writes Graham Paul.

According to IMF estimates, the level of shadow economy in Ukraine is 44.8%, and according to Ukrainian tax experts, at least 50% of GDP. The studies by PWC, World Economic Crime and Fraud Research 2018: Survey of Ukrainian Organizations, showed that two of the first five types of economic crimes in Ukraine are corruption and embezzlement, and according to the statistics of the respondents’ answers in Ukraine, cases of corruption increased in 2018 up to 73% compared to 56% in 2016.

The head of the parliamentary committee on finance, tax and customs policy, Daniil Getmantsev, has already announced the simplification of the administration of VAT and introduction of tax on withdrawn capital.

However, the bill on creation of a new tax department to replace the tax police arose criticism from the people’s deputies, experts and the public. In particular, tax expert Andrei Gmyrin noted that the new bill has a number of risks that could lead to the fact that the promised tax department may not become truly independent.

“The adoption of the Bill “On the Bureau of Financial Investigations” registered on the website of the Verkhovna Rada will negatively affect businesses and citizens, because the new fiscal body will have an exclusively punitive function and will depend on the government or the Minister of Finance. In addition, the bill does not provide for a competition for the post of head of legislative restrictions to other law enforcement agencies to deal with crimes in the field of public finance, control and the like,” he said.

As an alternative, the expert suggested that the deputies create a new tax agency with a special status that will ensure the country’s national security in the economic sphere.

“The National Security and Defense Council, which is headed by the President of Ukraine, should coordinate and regulate the new independent State Revenue Service (the name is not important). The activities of the new fiscal department should be as independent as possible from state authorities, prosecutors, political parties, public associations. Control over the activities of the Service should be carried out by the parliament and supervisory public council specially created within the Service. Already existing anti-corruption bodies of the NABU and the State Bureau of Investigations are enough to investigate possible violations of the Service’s employees – they can effectively cope with such tasks as abuse of authority, corruption, negligence of employees,” explained Gmyrin.

Also, political expert Taras Semenyuk noted that the law does have some flaws that should be eliminated. Separately, he highlighted the proposal of the tax expert Gmyrin.

“The reorganization and integration of the existing tax authorities, their functions and information bases into a single information system, where the entire chain of movement of funds will be immediately visible, will make it possible to promptly prevent and qualitatively investigate economic crimes. That is, the coordination of the actions of tax department employees should be carried out from a “single center”. Similar mergers and optimization of tax authorities were used in other countries and proved to be effective. It is time to carry out a qualitative tax reform, but not, as always, create one body in exchange for another,” said Semenyuk.

According to TNS sociological research held by the Design Bureau of the National Reform Council, only 17% of Ukrainian citizens trust workers of the tax authority operating in Ukraine. The history of the tax reforms in the developed countries shows that without creation of an independent tax agency it is impossible to transparently and efficiently investigate economic crimes, especially of TOP officials. Perhaps the authorities in Ukraine should consider the opinions of the expert community so as not to repeat the mistakes of the previous parliament.

Catalan

Catalan MEPs lose immunity after secret European Parliament vote

Guest contributor

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Clara Ponsati, Carles Puigdemont and Toni Comin are wanted by Spain for their part in the 2017 Catalan independence referendum

The European Parliament has voted to remove the parliamentary immunity of three Catalan MEPs wanted by Spain over the 2017 independence push. Former Catalan president Carles Puigdemont and his ex-ministers Clara Ponsati and Toni Comin are exiled in Brussels, and Madrid could now reactivate European arrest warrants which have so far been refused by Belgium, writes Greg Russell @National_Greg.

In a secret ballot held last night but only revealed this morning, more than 400 MEPs voted to lift their immunity, almost 250 against and more than 40 MEPs abstained.

Puigdemont is expected to raise the issue at the European Court of Justice (ECJ) after a report from the parliament’s Legal Affairs Committee recommending the removal of their immunity was leaked to the media.

This is the third time the Spanish Supreme Court has tried have them extradited, after previous attempts failed in Scotland, Belgium and Germany.

Losing their immunity will not affect their status as MEPs, which they will retain until they are barred from office by a conviction.

Aamer Anwar, lawyer for Ms Ponsati, tweeted: “Shameful vote by @Europarl_EN giving into Spain to lift immunity of MEPs @ClaraPonsati @toni_comin @KRLS Who face extradition & political persecution for exercising the democratic will of the Catalan people-The legal battle goes on”

The Spanish government immediately welcomed the decision by the European Union’s legislature as a victory for the rule of law and against those who sought to break the north-eastern region away from the rest of Spain.

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Business

Has the shine worn off activist investment?

Graham Paul

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A few recent cases suggest that the tide may finally be turning on activist investment, which until recently seemed as if it was becoming an entrenched part of the business world. Although the value of activist investor-held assets may have been climbing in recent years (in the UK, this figure grew 43% between 2017 and 2019 to reach $5.8 billion), the number of campaigns fell by 30% in the year leading up to September 2020. Of course, that drop-off can partly be explained by the fallout from the ongoing coronavirus pandemic, but the fact that more and more plays appear to be falling on deaf ears could signal a bleaker long-term outlook for activist agitators going forwards.

The latest case in point comes from England, where wealth management fund St James’s Place (SJP) were the subject of an attempted activist intervention on the part of PrimeStone Capital last month. After purchasing a 1.2% stake in the company, the fund sent an open letter to the SJP board of directors challenging their recent track record and calling for targeted improvements. However, the lack of incision or originality in the PrimeStone manifesto meant that it was brushed off with relative ease by SJP, with little impact being felt on its share price. The underwhelming nature and outcome of the campaign is indicative of a growing trend in recent years – and one that could be set to become more pronounced in a post-Covid-19 society.

PrimeStone unable to inspire

The PrimeStone play took the traditional form favoured by activist investors; after acquiring a minority stake in SJP, the fund tried to flex its muscles by highlighting the perceived shortcomings of the current board in an 11-page missive. Among other issues, the letter identified the company’s bloated corporate structure (over 120 head of department on the payroll), flagging Asian interests and tumbling share price (stocks have fallen 7% since 2016). They also identified a “high-cost culture” in SJP’s backroom and made unfavorable comparisons with other prosperous platform businesses like AJ Bell and Integrafin.

While some of the criticisms had elements of validity, none of them were especially novel—and they didn’t paint a complete picture. In fact, several third parties have come to the defence of SJP’s board, pointing out that equating the company’s downturn with the rise of interests such as AJ Bell is unfair and overly simplistic, and that when set against more reasonable touchstones such as Brewin Dolphin or Rathbones, SJP holds its own remarkably well.

PrimeStone’s admonishments over SJP’s high spending may hold some water, but they fail to recognize that much of that outlay was unavoidable, since the firm was forced to comply with regulatory changes and succumb to revenue headwinds beyond its control. Its impressive performance against its competitors confirms that the company has been dealing with sector-wide issues exacerbated by the pandemic, something which PrimeStone singularly failed to fully acknowledge or address.

Momentous vote imminent for URW

It’s a similar story across the Channel, where French billionaire Xavier Niel & businessman Léon Bressler have collected a 5% stake in international shopping mall operator Unibail-Rodamco-Westfield (URW) and are adopting Anglo-Saxon activist investor tactics to try and secure URW board seats for themselves and push URW into a risky strategy to drive up its share price in the short term.

It’s clear that, like most companies in the retail sector, URW needs a fresh strategy to help weather the pandemic-induced recession, particularly given its relatively high level of debt (more than €27 billion). To that end, URW’s board of directors are hopeful of launching project RESET, which targets a capital raise of €3.5 billion in order to maintain the company’s good investment-grade credit rating and ensure continued access to all important credit markets, while gradually deleveraging the shopping mall business.

Niel and Bressler, however, want to forego the €3.5bn capital increase in favour of selling off the firm’s US portfolio—a collection of prestigious shopping centres which have by and large proven resistant to the changing retail environment—to pay down debt. The activist investors’ plan is being opposed by a number of third party advisory firms such as Proxinvest and Glass Lewis, with the latter calling it “an excessively risky gambit”. Given that credit rating agency Moody’s have predicted an 18-month slump in rental income that is likely to hit shopping centres – and have even gone as far as to warn that failure to implement the capital raise underpinning RESET could result in a downgrading of URW’s rating – it seems likely that Niel and Bressler’s ambitions will be rebuffed at the November 10th shareholder meeting, in the same way that PrimeStone’s have been.

Long-term growth over short-term gains

Elsewhere, Twitter CEO Jack Dorsey appears to have also overcome an attempt by high-profile activist investor Elliott Management to oust him from his role. Although a recent committee meeting did cede to some of Elliott’s demands, such as reducing board terms from three years to one, it chose to declare its allegiance to a chief executive who had overseen total shareholder returns of 19% prior to Elliott’s involvement with the social media behemoth earlier this year.

Alongside the atypically uninspiring campaigns conducted elsewhere in the market, and the retrogression of the sector as a whole, could it be that activist investors are losing their clout? For a long time, they have drawn attention to their ventures through flashy antics and bold prognoses, but it seems that companies and shareholders alike are catching on to the fact that behind their bluster, their approaches often contain fatal flaws. Namely, a focus on short-term inflation of the share price to the detriment of long-term stability is being exposed as the irresponsible gamble that it is – and in a shaky post-Covid economy, judicious prudence is likely to be prized above immediate profit with increasing regularity.

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coronavirus

Russia has launched a propaganda campaign to smear the coronavirus vaccine being developed by Oxford University scientists

EU Reporter Correspondent

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The Kremlin is accused of spreading fear about the serum, claiming it will turn people into monkeys. The Russians base the suggestion on the fact the vaccine is using a chimpanzee virus. The Russians have disseminated pictures and memes of Prime Minister Boris Johnson looking like “a yeti”. It’s captioned: “I like my bigfoot vaccine”.

And other shows a “monkey” scientist holding a syringe and working on the treatment.

The monkey is wearing an AstraZeneca lab coat.

The pharmaceutical giant is at the forefront of developing a vaccine.

Last month the London Globe and the EU Reporter carried stories about the Russian campaign.

Both publications have since removed two articles from their online sites.

Publisher Colin Stevens said:

“We were given the story by a freelance journalist in Brussels.

“However, after an investigation by The Times we now know the story has no basis.

“When I heard the stories were false, they were taken down straightaway.

“Sadly, we have been the unwilling victims of a Russian campaign to discredit the excellent work being done by Oxford University scientists.

“Even the very best get caught out now and again. Indeed even the Times was fooled into publishing the fake "Hitler Diaries" some years ago.”

AstraZeneca's chief executive Pascal Soriot condemned attempts to undermine their work.

He said: “Scientists at AstraZeneca and at many other companies and institutions around the world are working tirelessly to develop a vaccine and therapeutic treatments to defeat this virus.

“But it is independent experts and regulatory agencies across the world that ultimately decide if a vaccine is safe and effective before it is approved for use.

“Misinformation is a clear risk to public health.

“This is especially true during the current pandemic which continues to claim tens of thousands of lives, significantly disrupt the way we live and damage the economy.”

Professor Pollard, who is professor of Paediatric Infection and Immunity at the University of Oxford, told BBC Radio Four's Today programme:

“The type vaccine we have is very very similar to a number of other vaccines, including the Russian vaccine, all of which use the common cold virus from humans or from chimpanzees.

“To our bodies, the viruses look the same.

“We don't actually have any chimpanzees involved at all in the process of making the vaccine, because it is all about the virus, rather than animals it might more commonly

Meanwhile, Doctor Hilary Jones told Good Morning Britain the attempts at disinformation were “utterly ridiculous and shameful”.

He added:

“Oxford have a fantastic reputation; they are doing this thoroughly and are looking at thousands of people from all different groups and ages.

“They are doing this safely and effectively and for the Russians to try to besmirch what they are trying to do because parts of the vaccine comes from chimpanzee material is utterly ridiculous and shameful.

“I would put my money on Oxford every time.”

A Russian Embassy spokesman in London said: “The suggestion that the Russian state may conduct any kind of propaganda against the AstraZeneca vaccine is itself an example of disinformation.

“It is obviously aimed at discrediting Russia's efforts in combating the pandemic, including the good co-operation we have established with the UK in this field.”

 

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