Wednesday, April 03, 2013

Swiss NGOs respond to Swiss government's decision to turn a blind eye to commodities swamp

In 2011, the Swiss NGO Berne Declaration published an in-depth research report about Switzerland’s dominant role in the global commodity business. The English version is entitled Commodities - Switzerand's most Dangerous Business - and it's an excellent piece of work. In the last decade Switzerland has emerged as one of the world’s dominant trading hubs for commodities, handling from 15 to 25 per cent of world trade. All the world’s largest trading houses operate partly or mainly out of this beautiful, peaceful country. As the report notes:
"This amazing success story is based on something deep-rooted in the Swiss character, namely political opportunism. Systematic standing on the sidelines, looking away and not wanting to know: cloaked as “neutrality”, abstention from UN-membership until 2002 brought Swiss- based businesses any number of questionable, but all the more lucrative, business opportunities. The rise in the commodity trading centres of Zug and Geneva was also facilitated by their exceedingly moderate tax regimes and a societal tendency towards a great deal of confidentiality and little regulation and control."
The attractions of the Swiss tax haven were the main reason why net Swiss receipts in this sector increased a staggering 15-fold between 1998 and 2010. And the impacts on developing countries, of course, are profound:
"On the whole, the “commodites business” as practised in Switzerland today is dangerous for all countries in the southern hemisphere that are blessed with natural resources but at the same time suffer from weak or corrupt governments. And absolutely so for those men, women and children who live in the dirt and dust of the mines and production facilities." 
The report got a lot of public debate in Switzerland, prompting quite a broad public debate. In 2012 the Swiss government decided to commission a review report on the sector, and published its results on March 27th.

Not particularly surprisingly for this large European tax haven, the government recommended essentially turning a blind eye to the rottenness. As the FT politely put it:
"Switzerland has sought to ­protect its central role in the commodities trading industry, rejecting calls for stringent regulation in the sector and opting instead to launch a consultation over a set of voluntary principles for the industry."
Well, now the Berne Declaration has responded to the Swiss government's cowardly, secrecy-loving response. We reproduce their press release in full, below.

Commodities Report of the Swiss Federal Council names problems but fails to provide solutions

Zurich/Lausanne, April 3, 2013

With its report published last week, the Swiss government finally acknowledges the risks of the commodity hub Switzerland. But the political industry review is far too cautious and fails to present suggestions for regulations in the booming sector. To fill this gap, Berne Declaration today publishes an in-depth analysis of the report.

The 50-page “Background Report: Commodities” is a detailed description of the key issues which regularly result in Swiss-based commodity trading and extractive companies making negative headlines. However, it is disappointing and at the same time symptomatic that, despite months of research, the three government departments involved cannot provide any new or enlightening data. While the report stresses the sector’s “huge economic importance” for Switzerland, it acknowledges that there are, at present, no figures available on tax revenues deriving from the commodities industry.” Equally unmet are the expectations for effective proposals as to how politics can get a grip on the risks, identified in the report, which the commodity sector represents for resource-rich developing countries and also for its host state.

Human rights and environmental damages: For these important areas, the report proposes only voluntary corporate initiatives which, to put it mildly, is politically naive. Switzerland as hot spot of global commodity traders must be able to ensure ethical Swiss standards particularly in their worldwide operations. This can be achieved only through a “smart mix” of regulatory and voluntary measures.

Corruption and money laundering: Regarding the wider topic of corruption, the report’s clarity is limited to the analysis: “Although the amounts at stake are quite considerable, there is little transparency in the commodities market; the complex structure of certain holding companies and companies that are not listed on the stock exchange also contribute to this.” The report lacks any proposal for more transparency and control regarding complex company structures and their owners. It recommends using the revision of the defensive measures in place for combating money laundering in order to minimize similar risks within the commodities industry. However, the existing consultation draft for revision of the Anti-Money Laundering Act (AMLA) simply states that commodity trading does not fit into this act. New legal instruments are therefore urgently needed.

Transparency: The Swiss Federal Council proposes the preparation of a consultation draft for a Swiss regulation on the transparency of payments to governments based on the example of the EU and the USA (Dodd-Frank section 1504 and the EU transparency directive). It remains unclear though whether payments of commodity trading companies will be included, as the use of the general term “Swiss commodity sector” suggests. Anything else would be completely useless as the extractive activities of virtually all Swiss commodities companies will already be covered by the forthcoming EU regulation. As the world’s most important commodity hub, Switzerland has the responsibility and the opportunity to make a significant contribution to a more transparent commodity sector by introducing effective disclosure requirements.

Instead of drawing the necessary legal conclusions from the report’s analysis and of taking appropriate legislative action, the Swiss government wants to develop voluntary corporate social responsibility standards. Any such initiative can only become credible if the world's leading commodity trading hub meets its political duties. Federal Councilor Johann Schneider-Ammann, head of the Federal Department of Economic Affairs, a department instrumental in preparing the report, announced last autumn that he wants to “put the stable in order”. The commodities report is the equivalent of officially measuring up this stable. Now the time has come for parliament and government to take up the muckrake.

For further information:
Oliver Classen, Media Director, +41 44 277 70 06,
Urs Rybi, Commodities Expert, +41 44 277 70 17,


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