China and America SAED.

You cannot thrash them all. You cannot beat them all. The strength of your opponent defines your options in dealing with him.

In his over 25 centuries old treatise, “The Art of War”, the Chinese master, Sun Tzu, had wrote:”He who wishes to fight, must first count the cost”. And quite appropriately, perhaps, the Americans seem to be following the advice of the Chinese master diligently in avoiding a confrontation with China. China is too big, and too powerful to be trifled with. And so, the American strategy toward China is predictably different from that applied to Iraq, Iran, Libya, Saudi Arabia, and so on.

Las week, the 28th of July, to be precise, a new chapter, as it were, opened in China-U.S. relations, with the successful conclusion of the first round of China-U.S. Strategic And Economic Dialog(SAED). The dialog revolved around the theme of strategic and long term issues concerning both the countries in particluar, and the rest of the world, in general. The objective of holding the dialogwas apparently to achieve a deeper understanding of each others’ views, to bring about consensus in thought and action, to increase mutual trust that follows greater understanding, to take matters forward through mutual co-operation, and give a filip to their bilateral partnership.

A pretty long list of wishes. But one which both the sides seem to be keen on achieving, at least apparently. Of course, for their own reasons. It is difficult to imagine America giving space voluntarily to Chinese ambitions for World dominance. At the same time, the U.S. may not have many options at its disposal, in dealing with China. And the current economic crisis has only made it worse. America may be slowly, but reluctantly, coming to the realization that it cannot always call the shots. And progress in these talks may result in some benefits too, especially for its beleagured industry, and banking and financial system by attracting more Chinese imports of American goods and services.
To be concluded.

The G-20 Response To The Global Economic Crisis-Part I

This article is the first in a series of articles on the outcome of the Summit Meet of the G-20 Heads of States, held in London, on the 2nd of April, 2009.

Introduction:  The G-20, or the Group of Twenty, is a forum of Finance Ministers and Central Bank Governors of member countries, established in the year 1999, to bring together “systemically important industrialized and developing economies” to discuss key issues in the golbal economy.   It seeks to promote a frank and constructive discussion between the industrialized and emerging economies, on key issues related to the global economic stability.   The member countries of this group are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, the United Kingdom, and the United States of America.

Outcome of the 2nd April Meet:  In the wake of the economic downturn that has engulfed a good part of the world, especially the western part, the G-20 Heads of State met on the 2nd of April this year, to take stock of the situation, and to come up with a response to the debilitating effects of the recession underway.

The G-20 Heads of States put their heads together to come up with a joint action plan, that they believe, is the right answer to the problem of the present global economic crisis.   Though, at this point of time, it is not clear as to who would play what role in the action plan, and who would contribute how much to the global economic revival kitty. 

One of the most striking results to emerge from the meeting, was the recognition of  the need for joint and concerted efforts, on part of the entire global community, to fight the contagion of the economic crisis.   It reflects, in a way, the helplessness of the Western Governments, especially the United States, in fighting the global crisis on their own.

While the G-20 leaders have spoken of the need for inclusive growth, encompassing the poorest countries of the world, they have stuck to their pet theme of “open world economy based on market principles”, albeit, with effective regulation and strong global institutions. 

The G-20 leaders have emphasized on the point of shared growth and prosperity.   The need for spreading the goodies around!   The need for the developed world, the developing world, and the undeveloped world to grow and prosper together, which means removing the disparities in growth and development between different geographical areas of the world.   Also the prospects and problems of the future generations are sought to be addressed, to ensure fair and equitable growth and development.

In order to address the problems of the current global economic crisis, the G-20 pledged to take several steps to overcome the problems.   Among them are:

1)  To restore confidence in the world economy, as also in the individual national economies.   To ensure growth and to save and create jobs and to protect the livelihood of the people.

2)  To repair the financial system, including Banking, that has been knocked out of shape, and unable to effectively engage in the basic banking activity of lending.

3)  To strengthen the financial regulatory systems that have been largely discredited, for not performing their jobs well, and to restore public confidence in them.

4)  To fund and reform international financial institutions like the International Monetary Fund and the World Bank, such that they develop the capacity to perform their jobs more competently, and play a more effective role in preventing recurrence of the economic crisis, now being witnessed.

5)  To promote global trade and investment for a more equitable regime of growth and development, and to reject protectionism that can act as a barrier to trade and investment.

6)  To build a inclusive, green, and sustainable recovery.   This alludes to  a plan of recovery that encompasses all parts of the world, leaving no part neglected, and to promote technologies and systems that are non-abrasive to the environment.

By adhering to the above agenda for sustainable development,( which will be discussed in more detail future articles), the G-20 countries hope to come out of the current crisis in one piece, and to ensure that no such economic scares occur in future.

BANKING AND MONEY LAUNDERING

Definition:  What is money laundering?   Money Laundering is a process, in which, money earned from various criminal activities, like smuggling, black marketeering, drug peddling, etc., is channelled into the Banking system, in the form of legitimate commercial transactions.   Money, thus parked, in a Bank, acquires a seemingly legitimate and legal status, and can be utilized, thereafter, for genuine commercial and other transactions.    Simply speaking, money laundering is the process of converting Bad Money into Good Money.

Of course, it is not an easy task, and the money launderers take considerable pains to accomplish their task!   The methods adopted in converting bad money into good money vary from place to place and time to time.   For example, in India, it may involve the money launderer  purchasing a winning lottery ticket from the genuine holder, by paying him the full amount of the lottery, and then substituting his bad money for the lottery money.   This way the criminal’s bad money becomes good, and the original winner of the lottery does not pay his taxes due on the winning ticket.   This is, but just one of the hundreds of ways in which criminals launder their ill gotten wealth into clean money, that can be used for engaging in regular business transactions.

The FATF:  FATF stands for Financial Action Task Force.   What is this organisation about, and what does it do?   The FATF is an international body of experts, promoted originally by  the members of the G7 group of countries, dealing in money laundering issues.   The body was set up in 1989, and presently has about 35 members.   Their key responsibility is to deliberate and come up with practical recommendations for preventing the misuse of the financial and banking system by criminals.

The job of the FATF can be summarised as:

1.  To act as a central agency and clearing house on all matters related to money laundering;  and to coordinate with national and international institutions, etc., in efforts to prevent money laundering through the financial system.

2.  To study the various techniques and modus operandi employed by criminals throughout the world, in the process of money laundering, and to come up with recommendations that can be practically implemented to combat the menace of money laundering.

3.  To follow up with member countries to ensure compliance of their recommendations, and where such recommendations pose a problem, to study the same further, and come up with suitable modifications, with the primary aim of countering money laundering.

4.  To act as a sort of pressure group to promote necessary legislation and regulations by the member states to fight money laundering.

5.  To cooperate with other international agencies engaged in similar work, for example, anti terror organizations,to exchange notes on their respective activities, and to help each other.

6.  Most of the member states of the FATF have set up specialized agencies to deal with the problem of money laundering.   These agencies coordinate with the FATF, and financial institutions, in effectively implementing the laws relating to money laundering.

Role of Banks:  What are the Banks expected to do, to detect and to prevent, the incidence of money laundering through their systems?   Simply speaking, Banks are expected to identify and stop transactions relating to money laundering, that are sought to be channellised through them.

For instance, money launderers may open accounts in a Bank, with the help of fictitious documents, in assumed names etc.   They may tempt the Bankers with promises of good business to them.   And seek the Bank’s ‘cooperation’, in opening such accounts and conducting business through them.   On the face of it, the documents and also the persons involved, may appear to be perfectly normal to the Bankers.   And so, in good faith, the Bankers, in their eagerness to get business, may patronise such customers, and get themselves into trouble.

The money launderers take advantage of the eagerness of the Bank to do business, and put through transactions of a dubious nature, by passing them through various layers of legitmacy, thereby misleading their Bankers, who accept the transactions as genuine.   This way, money earned in various criminal activities, gets into the Banking system, and acquires legal status.

Therefore, Banks are expected to take due precautions in opening accounts, and following all the laid down norms in this regard.   Being vigilant at the first point of the criminal’s entry into the Banking system would go a long way in preventing money laundering.

Regulatory authorities in different coutries have laid down elaborate systems and regulations, to be complied with, by the Banking industry, in the fight against money laundering.   Some such requirements to be followed by the Banking industry, include reporting of suspicious transactions, especially those of large value, particularly in cash.  Similarly, records pertaining to such transactions, are to be preserved for a longer duration than other records, for future reference.   It is expected, that by following these stipulations, Banks would be able to effectively deal with money laundering, and all the implications it has for the Banking industry.

Points to Ponder: 

1.  While fighting money laundering is everyone’s business, and concern, it must be noted that this process has come into prominence only after 911, which gives it a distinct American flavor.

2.   There is no uniform application of the Anti Money Laundering (AML) provisions in various countries, not only on account of differing systems, but also differing perceptions of what constitutes money laundering.   For instance, in Switzerland, the law makes a distinction between tax evasion and tax fraud.

3.  Dividing the world into the Western and Eastern Hemispheres, it is observed that money laundering is more prevalent in the Western side, whereas the focus of the West, especially the United States, is on the Eastern Hemisphere.

Some of the major centers of money laundering in the Western Hemisphere are Switzerland, Channel Islands, Guernsey Islands, The Bahamas, Luxembourg, etc.   Switzerland, perhaps, would win, the vote as the world’s largest money laundering center.   Of course, the Swiss have a different story to tell.   Or rather, they would not tell any story at all, citing “Banking Secrecy”.   But intense pressure from the United States is cracking open the secret world of the Swiss Banking System, for the world to see.

4.  Apart from the perceived geographic bias, as seen above, in the fight against money laundering, allegations abound, about how Islamic Countries, Institutions and Muslim individuals are being unfairly targetted under the guise of fighting money laundering as also terrorism.

5.  After about a couple of decades of fighting money laundering and especially after 911, the financial services industry has come to realize, that for all the troubles taken by them, and the enormous amounts of money spent in fighting money laundering, the end result does not appear to be encouraging.  

This fight against money laundering has given birth, in its wake, to a new software industry, that comes up with more and more sophisticated, and expensive  software, supposedly to counter this phenomena of money laundering, without actually giving the desired results.   This is causing a lot of heart burning in the financial services industry, whose transaction cost of conducting business has gone up many fold.

Conclusion:  From the above, we may conclude, that to make the fight against money laundering more meaningful, the perceived and or real religious and geographical bias must end.   It must be ensured that the AML procedures and measures are focussed on the actual extent of the problem without exaggerating it.   The emphasis of the AML measures must be towards catching the big fish first, then the smaller ones.  

The West, especially the United States, must take care not to be seen practising double standards, therby weakening the system.   Money laundering centers in the West, especially, countries like Switzerland, must be made to comply with the AML rules in letter and spirit.   Uniformity in application of the rules should be promoted for a more harmonious result from such efforts.

And last, but not the least, a cost-benefit analysis must be done, to see  what has been achieved so far, by spending huge sums of money on hi fi software systems and other expensive gadgets, in countering money laundering.    Wherever necessary, corrective action must be taken to prevent mutual recriminations among various states so that the focus of the joint effort is not lost.

AMERICAN POWER ON THE WANE?

Is America, the sole super power of the world, on the way to be a has been?   Is America losing its sting?   Is America on the decline?   Is American power on the wane?

Commentators around the world are debating this hot topic in the light of the continued crisis gripping the American economy, and its fabled markets.   Some are convinced that America, the super power, is truly and well on its way to demise.   And going by the increasingly negative news emanating from the United States, one cannot be blamed for imagining the worst.

Whether America can continue to hold its position as the sole super power of the world may depend on a very simple and mundane asset, namely, CASH!   How deep are America’s pockets?   In order to retain its present position in the comity of nations, America may have to go on spending cash, and more cash,  till it reaches a point when its economy finds its feet once again, and America can go back to strutting around on the world stage as the only super power!

What does America need to spend money on?   Here are some of the areas where the U.S. has to spend billions upon billions of dollars without really counting them (saves time!), in order to keep its number one position.

Take Care Of Own:  The American Government has to naturally take care of its own citizens first, like any good Government, and that requires a hell of a lot of money.   Its not an easy task for the American Government to keep its citizens happy, given their proclivity to wasteful spending, and lack of the savings habit.  

The American Government has not only to take care of the basic needs of its citizens, but also to pamper them with innumerable goodies.   Cheap gas, for one.   Americans are hooked to the automobile, and keeping them happy on the road costs the American state quite a packet!

America has to ensure unemployment within its population to the bare minimum, or pay unemployment doles to the unemployed.   On the other hand,it has also to provide job opportunities to a large number of aliens, in order to retain its competitive edge by attracting the best talent from all over the world.   Also a large number of aliens throughout the world, looking up to America for a better future, does its image a whale of good.   And the Social Security system that American citizens are entitled to, takes up a large chunk of the American State spending.

Military Power:  America has to maintain a vast, and first rate defence force, that has the capability of intervening in any part of the world, at short notice.  This entails maintaining and sustaining a steady supply of arms and ammunitions of every variety and description, in huge quanities, and of the best quality of course.   Land, Sea and Air based, and in future, space based weapons systems of the highest quality and accuracy are needed to project America’s muscle power before the rest of the world-to friends and foes alike.

Projecting Power Abroad:   Propping up friendly, even if brutal regimes with little or no concern for human rights, like Israel, and Egypt in the pursuit of its strategic interests, takes up a huge chunk of America’s resources.   Israel is the top beneficiary of American aid, so much so that every morsel of food that the Israelis consume, and every drop of water they drink is either partly or fully financed by America!  The second largest receipient of American aid is Egypt.

And then there are states like Pakistan and South Korea, that are supposed to act as a bulwark against perceived threats to not only American interests, but to world peace and prosperity.   Pakistan is supposed to counter the threat of the Taliban and Al Qaeda, and South Korea is supposed to halt the spread of red (communism) from North Korea!   Both these friendly states, especially Pakistan, swallow up a considerable amount of American money year after year.

As if this were not enough, America has a bounden duty to punish unfriendly regimes like Iraq and Afghanistan by occupying these states physically;  and subverting their systems to make them America-friendly requires a virtual pipeline of cash to be put in place between America and these countries.   In spite of all this, the end result may not be satisfactory for America, which means all the money spent going down the drain.

Intelligence gathering:  This is another area where America spends countless billions of dollars to maintain its ‘edge’ over the rest of the world, in the hierarchy of nations.   The American intelligence set up is said to be as expansive as it is expensive.  The cost of  maintaining and running such a vast network of intelligence gathering mechanism, both human and non-human can only be imagined, as a lot of the expenditure is of a secret nature, and not accounted for.

By no means, is the above, a complete list of the expenditure incurred by the American Government to maintain its power and prestige, and more importantly, its ’sole super power’ status.

The current economic crisis that has America in a vice like grip, refuses to ease up soon, thereby putting enormous pressure on the American system, and pushing America into more and more debt, thereby mortgaging the future of the coming generations of Americans.   If this situation continues, America may soon be left with the hard choice of saving its flesh and bones, by letting off its enviable, or hated, as you please, status, of the sole super power of the world.