Friday 31 January 2020

What Kind Of Leadership Does Liberia Need For A Stable Longterm Future As A Democracy?

Throughout history, the bravest military commanders have also been leading behind-the-scenes advocates, for the peaceful resolution of conflicts - because they know the toll on families of the young soldiers under their command who die in wars.

It did not therefore come to me as a surprise that when  approached to help empower Liberia's private sector, in 2019,  by supporting mooted projects to commercialise the production of coirfibre products (www.ecocoboard.net), and introduce cutting-edge clean energy  generation for the national economy of Liberia, the former warlord, Hon. Sekou Damate Conneh, did not hesitate to offer the resources  of his private company, the Damate Group, to help those seeking to introduce both  transformative innovations to Liberia.

His reason for so doing, was his belief that creating jobs and a green entrepreneurial culture amongst younger generation Liberians, would ensure the longterm stability of Liberian democracy. It is instructive that whiles some ambitious and hot-headed individuals were organising disruptive  public demonstrations in the streets of Monrovia, the Liberian capital, last year, the brave Hon. Sekou Conneh,  was focusing instead on facilitating future investment for Liberia. That is the kind of selfless, one-nation focused-leadership Liberia needs. Definitely.


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Thursday 30 January 2020

NASA HQ News: NASA’s Spitzer Space Telescope Ends Mission of Astronomical Discovery


January 30, 2020
RELEASE 20-010
NASA’s Spitzer Space Telescope Ends Mission of Astronomical Discovery
NASA's Spitzer Space Telescope
NASA’s Spitzer Space Telescope has concluded after more than 16 years of exploring the universe in infrared light.

Credits: NASA/JPL-Caltech
After more than 16 years studying the universe in infrared light, revealing new wonders in our solar system, our galaxy, and beyond, NASA's Spitzer Space Telescope's mission has come to an end.

Mission engineers confirmed at 2:30 p.m. PST (5:30 p.m. EST) Thursday the spacecraft was placed in safe mode, ceasing all science operations. After the decommissioning was confirmed, Spitzer Project Manager Joseph Hunt declared the mission had officially ended.
Launched in 2003, Spitzer was one of NASA's four Great Observatories, along with the Hubble Space Telescope, the Chandra X-ray Observatory and the Compton Gamma Ray Observatory. The Great Observatories program demonstrated the power of using different wavelengths of light to create a fuller picture of the universe.

"Spitzer has taught us about entirely new aspects of the cosmos and taken us many steps further in understanding how the universe works, addressing questions about our origins, and whether or not are we alone," said Thomas Zurbuchen, associate administrator of NASA's Science Mission Directorate in Washington. "This Great Observatory has also identified some important and new questions and tantalizing objects for further study, mapping a path for future investigations to follow. Its immense impact on science certainly will last well beyond the end of its mission."

Among its many scientific contributions, Spitzer studied comets and asteroids in our own solar system and found a previously unidentified ring around Saturn. It studied star and planet formation, the evolution of galaxies from the ancient universe to today, and the composition of interstellar dust. It also proved to be a powerful tool for detecting exoplanets and characterizing their atmospheres. Spitzer's best-known work may be detecting the seven Earth-size planets in the TRAPPIST-1 system – the largest number of terrestrial planets ever found orbiting a single star – and determining their masses and densities.

In 2016, following a review of operating astrophysics missions, NASA made a decision to close out the Spitzer mission in 2018 in anticipation of the launch of the James Webb Space Telescope, which also will observe the universe in infrared light. When Webb's launch was postponed, Spitzer was granted an extension to continue operations until this year. This gave Spitzer additional time to continue producing transformative science, including insights that will pave the way for Webb, which is scheduled to launch in 2021.

"Everyone who has worked on this mission should be extremely proud today," Hunt said. "There are literally hundreds of people who contributed directly to Spitzer's success, and thousands who used its scientific capabilities to explore the universe. We leave behind a powerful scientific and technological legacy."
Spitzer Project Scientists Declares End of Mission
Spitzer Project Scientist Joseph Hunt stands in Mission Control at NASA's Jet Propulsion Laboratory in Pasadena, California, on Jan. 30, 2020, declaring the spacecraft decommissioned and the Spitzer mission concluded.

Credits: NASA/JPL-Caltech
Keeping Cool
Though it was not NASA's first space-based infrared telescope, Spitzer was the most sensitive infrared telescope in history when it launched, and it delivered a deeper and more far-reaching view of the infrared cosmos than its predecessors. Above Earth's atmosphere, Spitzer could detect some wavelengths that cannot be observed from the ground. The spacecraft's Earth-trailing orbit placed it far away from our planet's infrared emissions, which also gave Spitzer better sensitivity than was possible for larger telescopes on Earth.
Spitzer's prime mission came to an end in 2009, when the telescope exhausted its supply of the liquid helium coolant necessary for operating two of its three instruments – the Infrared Spectrograph (IRS) and Multiband Imaging Photometer for Spitzer (MIPS). The mission was deemed a success, having achieved all of its primary science objectives and more. But Spitzer's story wasn't over. Engineers and scientists were able to keep the mission going using only two out of four wavelength channels on the third instrument, the Infrared Array Camera (IRAC). Despite increasing engineering and operations challenges, Spitzer continued to produce transformational science for another 10 1/2 years – far longer than mission planners anticipated.

During its extended mission, Spitzer continued to make significant scientific discoveries. In 2014, it detected evidence of asteroid collisions in a newly formed planetary system, providing evidence that such smash-ups might be common in early solar systems and crucial to the formation of some planets. In 2016, Spitzer worked with Hubble to image the most distant galaxy ever detected. From 2016 onward, Spitzer studied the TRAPPIST-1 system for more than 1,000 hours. All of Spitzer's data are free and available to the public in the Spitzer data archive. Mission scientists say they expect researchers to continue making discoveries with Spitzer long after the spacecraft’s decommissioning.

"I think that Spitzer is an example of the very best that people can achieve," said Spitzer Project Scientist Michael Werner. "I feel very fortunate to have worked on this mission, and to have seen the ingenuity, doggedness and brilliance that people on the team showed. When you tap into those things and empower people to use them, then truly incredible things will happen."

NASA's Jet Propulsion Laboratory (JPL) in Pasadena, California, conducts mission operations and manages the Spitzer Space Telescope mission for the agency's Science Mission Directorate in Washington. Science operations are conducted at the Spitzer Science Center at Caltech in Pasadena. Spacecraft operations are based at Lockheed Martin Space in Littleton, Colorado. Data are archived at the Infrared Science Archive housed at IPAC at Caltech. Caltech manages JPL for NASA.

Lockheed Martin in Sunnyvale, California, built the Spitzer spacecraft, and during development served as lead for systems and engineering, and integration and testing. Ball Aerospace and Technologies Corporation in Boulder, Colorado provided the optics, cryogenics and thermal shells and shields for Spitzer.

Ball developed the IRS instrument, with science leadership based at Cornell University, and the MIPS instrument, with science leadership based at the University of Arizona in Tucson. NASA's Goddard Space Flight Center in Greenbelt, Maryland, developed the IRAC instrument, with science leadership based at the Harvard Smithsonian Astrophysics Observatory in Cambridge, Massachusetts.

View some of the amazing images showcasing some of Spitzer's greatest discoveries at:
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NASA HQ News: NASA TV to Air Landing of Record-Setting Astronaut Christina Koch, Crewmates

Januarye 29, 2020
MEDIA ADVISORY M20-016
NASA TV to Air Landing of Record-Setting Astronaut Christina Koch, Crewmates
The Soyuz MS-13 crew spacecraft is seen as it approached the International Space Station for docking
The Soyuz MS-13 crew spacecraft is seen as it approached the International Space Station for docking on the 50th anniversary of NASA landing humans on the Moon for the first time. The Soyuz will return Expedition 61 crew members NASA astronaut Christina Koch, station Commander Luca Parmitano of ESA (European Space Agency), and Soyuz commander Alexander Skvortsov of Roscosmos to Earth Feb. 6.

Credits: NASA

NASA astronaut Christina Koch, who has spent more time in space on a single mission than any other woman, is scheduled to return to Earth on Thursday, Feb. 6, along with two of her International Space Station crewmates.

Koch, along with station Commander Luca Parmitano of ESA (European Space Agency), and Soyuz commander Alexander Skvortsov of the Russian space agency Roscosmos will depart the station Feb. 6 in a Soyuz spacecraft that will make a parachute-assisted landing at 4:14 a.m. EST southeast of Dzhezkazgan, Kazakhstan (3:13 p.m. Kazakhstan time).

Live coverage of their return will begin at 9 p.m. EST Wednesday, Feb. 5, on NASA Television and the agency’s website. Landing coverage will begin at 3 a.m. Thursday, Feb. 6.

Koch, who launched in March 2019 with NASA astronaut Nick Hague and Russian cosmonaut Alexey Ovchinin, is wrapping up a 328-day mission on her first flight into space. Koch’s extended mission will provide researchers the opportunity to observe effects of long-duration spaceflight on a woman as the agency plans to return to the Moon under the Artemis program and prepare for human exploration of Mars.

Koch will have spanned 5,248 orbits of the Earth – a journey of 139 million miles, roughly the equivalent of 291 round trips to the Moon. She conducted six spacewalks during her 11 months on orbit, spending 42 hours and 15 minutes outside the station. She witnessed the arrival of a dozen visiting vehicles and the departure of another dozen. After landing, she will have completed the second longest single spaceflight by a U.S. astronaut after retired astronaut Scott Kelly, placing her seventh on the list of American space travelers with the most time in space.

Parmitano and Skvortsov will land after 201 days in space, having launched with NASA’s Andrew Morgan last July. Morgan will remain on the station until his return to Earth on April 17. Parmitano and Skvortsov will have completed 3,216 orbits of Earth and 85.2 million miles at landing.

Completing his second mission, Parmitano will have logged a total of 367 days in space, more than any ESA astronaut in history. Skvortsov is completing his third mission and a total of 546 days in space, good for 15th place on the all-time spaceflight endurance list.

After preliminary medical evaluations, the crew will return to the recovery staging city in Karaganda, Kazakhstan, aboard Russian helicopters. Koch and Parmitano will board a NASA plane bound for Cologne, Germany, where Parmitano will be greeted by ESA officials before Koch proceeds home to Houston. Skvortsov will board a Gagarin Cosmonaut Training Center aircraft to return to his home in Star City, Russia.

At the time of undocking, Expedition 62 formally begins aboard the station, with NASA astronauts Jessica Meir and Morgan as flight engineers and Oleg Skripochka of Roscosmos as station commander. They will remain on board the orbital outpost until early April, when NASA astronaut Chris Cassidy and Russian cosmonauts Nikolai Tikhonov and Andrei Babkin will launch to the station.

Full NASA TV coverage is as follows (all times Eastern):

Wednesday, Feb. 5:

8:30 a.m.: Space station change of command ceremony, during which Parmitano will hand over command to crewmate Oleg Skripochka of Roscosmos

9 p.m.: Farewell and Soyuz hatch closure coverage (hatch closure at 9:25 p.m.)

Thursday, Feb. 6:

12:15 a.m.: Soyuz undocking coverage (undocking scheduled for 12:50 a.m.)

3 a.m.: Soyuz deorbit burn and landing coverage (deorbit burn at 3:18 a.m. and landing at 4:13 a.m.)

Watch Koch’s most memorable moments from her record-breaking mission at:

https://go.nasa.gov/36E40MZ
Get breaking news, images and features from the space station on Instagram, Facebook, and Twitter.
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Wednesday 29 January 2020

Should State-funded Boarding Senior High Schools Be Turned Into World-Class Day Second-Cycle Schools?

We are such an obdurate people. And hypocritical to boot, with it, too. God help us. We are against homosexuality, yet we won't abolish the government-funded boarding senior high school system (in which that confounded abomination, homosexuality, festers) - and use the money saved to transform such boarding schools into world-class day schools, instead. Amazing.

As an aspirational people, we all  want the free senior high school policy to be sustainable. Most of us are also worried about homosexuality spreading amongst our younger generations. 

In that regard,  the question we must all ponder over is: Will the abolishing of the state-funded  boarding senior high school system, not also remove the burden of the state supporting what are veritable cesspits of homosexuality (boarding schools)? 

And, at a time when one of the many impacts of climate change is the rapid spreading of infectious diseases, we must acknowledge that  perfect conditions for students being infected with all manner of viruses,  and assorted bugs, exist,  in the  over-populated dormitories of state-funded boarding schools. Let's close them down and transform them into world-class day senior high schools.


Furtheremore, why spend billions of taxpayers' funds to enable our younger generations continue staying in boarding schools, when, to all intents and purposes,  they are, in reality, bedbug-hotels and perpetual repositories of the DNA of all manner of skin infections? 


And, is the painful truth, simply not that the students who attend such boarding schools, unfortunately have to contend with sleeping in jam-packed, lice-infested dormitories, and are also lumbered with having to put up with using egregiously-unhygienic lavatories and bath-houses? Haaba.


Now we are told  that feeding students in state-funded boarding senior high schools has become a major challenge. Let us get serious in this country, and for once, deal with  this matter sensibly.


State-funded boarding senior high schools, simply no longer make sense financially -  and must be transformed into world-class day seniir high schools, if the policy of  free second cycle education is to remain sustainable and continue being maintained to empower social mobility in Ghana.


The painful truth is that in terms of funding, currently, state-funded boarding senior high schools are the educational equivalent of black holes. They are unsustainable social-enterprise business-models. Full stop. To make the free senior high school policy sustainable, we ought to turn all Ghana's state-funded boarding senior high schools into world-class day schools - for the well-being of our younger generations, above all. Now. Not tomorrow. Haaba.

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Monday 27 January 2020

NoMoreFakeNews.com/Jon Rappoport: Vaccine for the China virus

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Sunday 26 January 2020

McKinsey & Company/Grundin, Nuttall, Salazar, Sigurdsson, and Vucevic: Can telcos create more value by breaking up?

Technology, Media & Telecommunications

Can telcos create more value by breaking up?

| Article
By Gustav Grundin, Robin Nuttall, Lorraine Salazar, Halldor Sigurdsson, and Nemanja Vucevic
Can telcos create more value by breaking up?
Once primarily a regulators’ tool, structural separation is beginning to attract growing interest from operators facing financial and market pressures.

Downloadable Resources

  1. Article (PDF-333KB)
Sometimes, the whole is less than the sum of its parts. At least that is the belief underpinning structural separation—splitting an integrated telco operator into two freestanding businesses: one that operates the network (the NetCo) and one customer-facing entity (the ServCo). The idea is that the resulting units will perform better by clarifying management focus and improving capital allocation, given the fundamentally different nature of these two businesses. The hope, also, is that such a move will create a market structure that requires less regulatory intervention.
The concept of separation in the telecommunications industry has been around for over two decades, though for most of that time, it has been the government’s decision to mandate it, not the telco’s choice to pursue it. Yet integrated incumbents are beginning to embrace or at least consider separation voluntarily as a way to address deepening financial and market pressures as required infrastructure funding increases dramatically in the face of the investment-heavy evolution toward 5G and fiber to the home. So far, only a few telcos have fully taken the plunge. But with the telecom sector facing headwinds, structural separation is becoming a more frequently discussed topic of major industry stakeholders.
For management, boards, shareholders, and regulators pondering the prospect of separation, the central questions remain: Can breaking up a telco create more value in the long-term? Is doing so worth the risk? And how can telcos minimize that risk?

The Czech case for separation

Separation can take different forms, from accounting separation (the simplest and most basic) to functional separation (where the wholesale and retail businesses are set up as independent units) to legal separation (where new legal entities are established but overall ownership remains the same).
The most sweeping change is a full structural separation, which entails creating two distinct legal entities. Historically, most such splits have been the consequence of government action, as a way for regulators to address perceived deep-rooted market inefficiencies resulting from having one entity, often the former state-run monopoly, dominate the telco market. While a few incumbents have considered breakups on a voluntary basis, most have ultimately opted against this path given the massive complexities involved.
That is starting to change. In 2014, O2 in the Czech Republic showed that pursuing structural separation voluntarily could generate superior stakeholder returns while greatly improving the infrastructure of the country. Four years later, Denmark’s TDC Group was acquired by a Macquarie-led consortium of buyers at a 34 percent premium to the market price with a structural separation initiative as one of the core pillars of value creation justifying the takeover. 1 Telecom Italia 2 in 2018 started to evaluate the possibility of setting up a separate NetCo, and that same year Telstra 3 came out with plans to establish a separate infrastructure business unit. Meanwhile, shareholders or board members of at least two other carriers, British Telecom 4 and Telefonica, 5 requested their companies consider the same.
A detailed examination of the O2 Czech Republic case offers a good illustration of the potential upside of separation. In 2014, PPF Group, a local private-equity fund, bought O2 Czech Republic from Telefónica Group. The new owner separated the network from the retail business and took the infrastructure unit, now named CETIN, private, while keeping the retail unit publicly listed under the O2 Czech Republic name. It didn’t take long for the move to pay off for the investors (Exhibit 1).
Exhibit 1
The deal not only benefitted the new owners; the country received a significant infrastructure upgrade as well. The creation of a pure network-infrastructure player lowered borrowing costs and improved capital access such that CETIN increased its network capital expenditures by 40 percent a year after separation. From there on, capital expenditures increased by 13 percent annually. This led to a jump in fiber coverage and broadband speeds at a level rarely seen in Europe (Exhibit 2).
Exhibit 2

How separation can pay off

While the specifics of how PPF Group doubled its money with the O2 Czech Republic separation is a matter of debate, structural separation in general can fuel value creation in the following five ways:
  1. Regulatory relief. Since separation invariably alters the existing market structure and typically increases retail competition, most cases result in some form of regulatory relief. There are even EU guidelines for regulations to this effect. 6 Before separation, O2 estimated that retail price regulation impacted roughly 25 percent of its gross margin. The company also faced several predatory pricing cases. With the lifting of these restraints, O2 and CETIN gained greater pricing and contracting flexibility. Removing nationwide retail pricing controls was particularly important in a market where rates vary greatly, given the localized nature of competition.
  2. Greater addressable market. A carrier-neutral NetCo can grow its wholesale business with other operators, since aggregating demand from multiple wholesale customers increases household conversion rates for fiber and, hence, return on investment for new builds. In the O2 case, the carrier-neutral CETIN, untethered from its former parent, grew beyond its original business by adding subscribers and traffic from the customer bases of other operators.
  3. Cheaper access to capital. By operating independently, financing options for the NetCo improve considerably. Since it primarily invests in infrastructure, the NetCo can attract long-term investors who are interested in buying into a physical asset. Similarly, the ServCo’s investment profile is better suited to investors who are looking for higher risk-adjusted returns. As a result, the multiples for the two entities recalibrate in a way that increases their combined valuation.
  4. Sharpened management focus. Investment horizons differ significantly for the separated entities; NetCos usually plan in ten-to-15-year time frames (for infrastructure investments that can last for 50 to 100 years) while ServCos work with one-to-three-year investment cycles (for commercial activities, such as marketing campaigns and promotions). By separating the NetCo and ServCo, decision makers can direct strategy and budget based squarely on the specific needs of each company, leading to greater strategic clarity and operating momentum. In the case of O2, the increased focus for management translated into higher customer satisfaction ratings for CETIN, and a faster buildout of O2’s O2 TV.
  5. Better suited for a 5G world. Although analysts disagree on the exact numbers and magnitude, there is broad consensus that 5G will drive up the total cost of network ownership, given the massively increased densification of urban areas and the resulting heightened requirements on capillarity of fiber deployment. A strong, independent NetCo is better positioned to support the industry’s need for fiber rollout than an integrated carrier. As a neutral party, it is also a natural orchestrator for the increased network sharing that 5G is likely to prompt. A recent McKinsey 5G survey found that 93 percent of chief technology officers expect increased network sharing to occur with the onset of 5G. 7

Why separation can backfire

While separation has the potential to generate significant value creation, it is also a high-stakes venture that can destroy value if managed poorly or pursued under the wrong preconditions. By giving up their network ownership ServCos could, for instance, face higher transaction costs in their day-to-day dealings with the NetCo and lose several important advantages, such as:
  • preferential treatment in fixed deployment through price differentiation or operational integration
  • ability to apply similar preferential treatment in mobile through bundling and cross-subsidization
  • power to direct NetCo investments into areas that benefit the ServCo, driven by regional market-share differences
  • full control of certain types of product development that require deep integration into the network (for example, certain IoT use cases)
The extent to which the loss of these advantages will impact the ServCo depends largely on the regulatory frameworks that will be adopted after the separation as well as on the details of the commercial contracts governing relations between the ServCo and the NetCo.
Separation is also costly and time-consuming. British Telecom estimated that a previous functional separation had cost them more than $1 billion, 8 and historic cases indicate that the process can take anywhere from two to five years, consuming significant management attention, and potentially all but paralyzing leadership. IT systems separation alone can take as long as 18 months, during which time typical product development generally grinds to a halt.

When separation makes sense—or doesn’t

Carefully weighing the pros and cons of separation before making a choice is not simple. Individual markets and operators differ greatly with regard to the parameters that determine the potential upside and downside. Given the irreversible nature of the decision, management, boards and investors should carefully evaluate each of the drivers. 9
These determinant factors include the scope of the current regulatory environment, which could be reduced as a result of separation and thereby unlock value; the amount of growth potential from increasing investments in infrastructure; and the extent to which the NetCo could play an active role in future network-sharing arrangements. They also include the ability of the ServCo to lock in some post-separation downside protection, such as a limited form of preferential coordination with the NetCo or a clear commercial opportunity on the retail side. Finally, there is the sheer complexity of the undertaking, the time required to complete it, and the sustained management focus required (Exhibit 3).
Exhibit 3

Getting separation right

There is no doubt that executing structural separation is one of the most complex and arduous journeys a telco management team can undertake. Yet, done well, it can potentially deliver huge returns. Success stories to date provide a clear picture of the trickiest issues to address. These include:
  • Asset and activity delineation. Deciding which assets belong to the ServCo and which should transfer to the NetCo is not a trivial exercise. When figuring out how to divide assets, executives need to consider both synergies and downstream implications. In addition to apportioning out core network functionalities and different customer interfaces, they need to address strategic questions such as how spectrum ownership will be assigned, choices that impact how the mobile network is designed and how wholesale capacity decisions are made.
  • Organization and process redesign. The breakup will require the NetCo and ServCo to create new processes, retrofit other ones, and create efficient information-sharing mechanisms. These efforts are complicated by two factors. First, many processes (such as provisioning) crisscross the incumbent’s network and customer-facing organizations. Disentangling them requires a comprehensive process redesign effort. Second, integrated players also depend on many informal and undocumented processes in their day-to-day work. Failing to manage the process-redesign effort effectively will almost certainly lead to disruptions in the network operations.
  • Commercial contract.Creating a commercial contract that governs every activity and service that the NetCo is currently providing to the ServCo is a monumental task. From a transparency and governance standpoint, it is also the most critical way to clarify any advantages the ServCo may forfeit after the split.
  • IT-systems separation. Each telco has a unique IT setup, usually a patchwork quilt of operations support systems and business support systems, some of them homegrown, most of them integrated across functions that will end up on different sides of the separated entity. Inevitably, some systems will have to be duplicated, some retired, and some built anew.
Addressing these changes successfully hinges on two things—timing and teaming. First, management needs to pay attention to the proper sequencing of tasks. Not all issues can be addressed in parallel, since the resolution of some are prerequisites for tackling others. Secondly, different tasks require very different talent profiles and capabilities. Some tasks, for instance, require significant expertise and analysis. Others require a tolerance for slogging through straightforward but laborious work for weeks or months on end. Still others, like the separation of IT, require both. Shaping the right road map and establishing the right project teams will have a significant bearing on the quality of the outcome (Exhibit 4). 10
Exhibit 4
Structural separation offers the potential for significant value creation, but the risks and complexity of carving out deeply interconnected businesses are great as well. While the jury is still out on whether it will become a more widely adopted business model, success depends on a close understanding of the market and regulatory environment, a comprehensive change-management plan, and an investment case that recognizes that separation is a long-term play that requires considerable ramp-up time and downside protection for ServCo businesses.

About the author(s)

Gustav Grundin is a partner in the Tokyo office, Robin Nuttall is a partner in the London office, Lorraine Salazar is an expert in the Singapore office, Halldor Sigurdsson is a partner in the Paris office, and Nemanja Vucevic is an associate partner in the Madrid office.
The authors wish to thank Stephanie Man, Shannen Poon, Colin Shea, and Maarten van der Velden, for their contributions to this article.

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Saturday 25 January 2020

The New York Times/David Segal: It May Be the Biggest Tax Heist Ever. And Europe Wants Justice.


Credit...Illustration by Nicolas Ortega
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It May Be the Biggest Tax Heist Ever. And Europe Wants Justice.

Stock traders are accused of siphoning $60 billion from state coffers, in a scheme that one called “the devil’s machine.” Germany is the first country to try to get its money back.
They made quite a team.
One was an Oxford-educated wunderkind who handled the complicated math behind the transactions. The other was a beefy, 6-foot-2 New Zealander with an apparent fondness for Hawaiian shirts, who brought in clients and money.
Martin Shields and Paul Mora met in 2004, at the London office of Merrill Lynch. Mr. Shields was always the pupil, a little in awe of the older man’s ability to bluff and charm. Once, after Mr. Mora fended off suspicious auditors at a bank where the two worked, Mr. Shields sent an admiring email.
“Remind me never to play poker with you,” he said, according to an internal report later commissioned by the bank.
Today, the men stand accused of participating in what Le Monde has called “the robbery of the century,” and what one academic declared “the biggest tax theft in the history of Europe.” From 2006 to 2011, these two and hundreds of bankers, lawyers and investors made off with a staggering $60 billion, all of it siphoned from the state coffers of European countries.
As one participant would later put it, taxpayer funds were an irresistible mark for a simple reason: They never ran out.
The scheme was built around “cum-ex trading” (from the Latin for “with-without”): a monetary maneuver to avoid double taxation of investment profits that plays out like high finance’s answer to a David Copperfield stage illusion. Through careful timing, and the coordination of a dozen different transactions, cum-ex trades produced two refunds for dividend tax paid on one basket of stocks.
One basket of stocks. Abracadabra. Two refunds.
The process was repeated over and over, as word of cum-ex spread like a quiet contagion. Germany was hardest hit, with an estimated $30 billion in losses, followed by France, taken for about $17 billion. Smaller sums were drained away from Spain, Italy, Belgium, Austria, Norway, Finland, Poland and others.
Outrage in these countries has focused on the City of London, Britain’s answer to Wall Street. Less scrutinized has been the role played by Americans, both individual investors and branches of United States investment banks in London, including Morgan Stanley, JPMorgan Chase and Bank of America Merrill Lynch.
American bankers didn’t try cum-ex at home because they feared domestic regulators. So they moved operations to London and treated the rest of Europe as an anything-goes frontier. Frank Tibo, a former chief tax officer at a bank where Mr. Shields and Mr. Mora worked, said American and British cum-ex traders regarded the Continent as a backwater of old economies ripe for swindling.
”There was this culture in London, and it really came from New York,” he said. “These guys were either from New York or trained in London at New York banks, and they looked at Europe as their playground. People at the highest levels were collaborating to rip off countries.”
Seemingly risk-free profits poured in, and over the years a mini-industry thrived, one that a former participant labeled “the devil’s machine.”
Exactly how that machine operated is a central question in the first cum-ex prosecution, which began in September in Bonn, Germany. In a trial expected to last until February, German prosecutors intend to make an example of Mr. Shields, 41, and a former colleague. (Mr. Mora, 52, was indicted in December and will be tried separately in the coming months.) The men in the Bonn case have been charged with “aggravated tax evasion” that cost the German treasury close to $500 million.
Last month, the presiding judge issued a preliminary ruling that, for the first time, declared cum-ex a felony, calling it a “collective grab in the treasury.” Punishment has yet to be determined, but the give-it-back and the go-to-prison phases of this calamity are about to begin.
German prosecutors say they will now pursue 400 other suspects, unearthed in 56 investigations. Banks large and small will be ordered to hand over cum-ex profits, which could have serious consequences for some. Two have already gone bust.
Dozens of law firms and lawyers may face penalties, too, having drafted highly priced opinions contending there was no law explicitly prohibiting cum-ex and thus it was perfectly legal. That is an argument that many involved might offer in the coming years of litigation. They may insist that if Germany didn’t make the trade impossible, they did not break a law. A desk-thumping variation of that defense is already being offered by Hanno Berger, once the most formidable tax auditor in Germany, who later switched sides and became a cum-ex mastermind as well as an ally of Mr. Shields and Mr. Mora.
But officials in Germany say the trade was a form of theft, one so obviously illicit that forbidding it — which was tried twice, with ineffectively worded laws — was hardly necessary. In September, the justice minister of the state of North-Rhine Westphalia, Peter Biesenbach, went so far as to liken cum-ex players to mobsters.
Their work, he said, was “organized white-collar crime of unimaginable magnitude.”
Image
Credit...Wolfgang Rattay/Reuters
American investment banks and hedge funds have long been the leading laboratory for financial instruments, some a boon to economies (money market funds), others not (collateralized debt obligations). Precisely who invented cum-ex trading, and when, are mysteries, but ground zero for this scandal may have been the London branch of Merrill Lynch.
That is where Mr. Shields took his first job in 2002. He has yet to enter a plea — that comes later in the German system — but he has been cooperating with prosecutors in the hope of winning leniency, and he read a long statement at the start of proceedings in September to the panel of judges who will decide the case.
Sitting at a table beside a translator, he said he regretted ever entering the cum-ex world. Back then, though, he had “different information and a different perspective.”
That perspective came largely from Mr. Mora, his onetime boss at Merrill Lynch, an obese man fond of wearing loud shirts and Bermuda shorts in London, according to a description in Die Zeit, a German newspaper. A New Zealand publication, Stuff, wrote in October that Mr. Mora now lives in a luxurious house overlooking a golf course in Christchurch and owns a portfolio of properties, including an interest in dairy farms.
Through his lawyers, Mr. Mora has denied wrongdoing. He has also denied having an eccentric taste in clothing. In 2017, he issued a statement to Stuff ridiculing Die Zeit’s account of his appearance.
“That’s so far from the truth it’s laughable,” he wrote.
At Merrill, Mr. Shields’s job was to identify “tax-attractive trades,” as he put it in his testimony. He had joined one of the least visible sectors of the financial world, which pokes at the seams of international finance law, looking for ways to reduce clients’ tax bills.
Many of these were variations of a strategy called “dividend arbitrage,” and right before Mr. Shields left Merrill in 2004, he learned about a new one, cum-ex, that would soon become the focus of his life.
Academics have struggled for years to explain the trade and say its impenetrability is part of what made it so successful — as though someone had found a way to weaponize string theory. At the Bonn trial, defendants spent days walking judges through cum-ex’s nuances, with one baffling slide after another.
Suffice it to say, the goal was to fool the financial system so that two investors could claim refunds for dividend taxes that were paid just once.
The trade was pure theater and required a huge cast: stock lenders, prime brokers, custodians, accounting firms, asset managers and inter-dealer brokers. It also required vast quantities of stock, most of which was sourced from American shareholders.
Germany was the largest bull’s-eye for these traders because it is home to Europe’s largest economy, with dozens of blue-chip stocks. Requests for multimillion-dollar dividend refunds were more likely to pass unnoticed.
Some of the best legal minds in Europe spent much of their working hours writing opinions declaring cum-ex within the bounds of the law. One of those lawyers was Hanno Berger, now 69, who provided Mr. Shields and Mr. Mora with an invaluable legal imprimatur, as well as a kind of remorseless zeal.
A lawyer who worked at the firm Dr. Berger founded in 2010, and who under German law can’t be identified by the media, described for the Bonn court a memorable meeting at the office.
Sensitive types, Dr. Berger told his underlings that day, should find other jobs.
“Whoever has a problem with the fact that because of our work there are fewer kindergartens being built,” Dr. Berger reportedly said, “here’s the door.”
To German prosecutors, Dr. Berger is an archetype straight out of a potboiler: the revered enforcer who went to the dark side. In 2012, the government raided his home and law firm. Within hours, he drove to Switzerland, where he now lives.
He will stand trial in the same case as Mr. Mora, for aggravated tax evasion. Reached by email, Dr. Berger said he remained convinced that cum-ex trading is legal.
“The current prosecution in the context of cum-ex is the attempt of the German tax administration to obscure the failure of the politicians and the legislation in a retroactive way,” he wrote. “This is not appropriate for a state of law!”
Dr. Berger began working with Mr. Shields and Mr. Mora after the two left Merrill Lynch for the London branch of HypoVereinsbank, a bank based in Munich. By 2006, Mr. Mora’s group was producing immense profits and plenty of internal suspicion. Worried about the growing pileup of tax-withholding credits on the books, Frank Tibo, the bank’s chief tax officer, flew to London in May 2007. He spent the day grilling Mr. Mora in a company conference room, Mr. Tibo recalled in a recent interview.
“He just told me a lot of nonsense,” Mr. Tibo said. “He said he had this toolbox of financial instruments and he’s in the middle of these trades, and that sometimes he doesn’t even know who he is trading with.”
When Mr. Tibo tried to signal his concern to executives at UniCredit, the bank’s Italian owner, they didn’t seem to care, he said.
“There were big profits coming out of HypoVereinsbank, and most of it was from the investment banking section,” Mr. Tibo said. “The Italians quickly made up their minds: ‘We want to make money.’ No one gave us any internal support, because they didn’t want us to learn anything.”
The blowback came a few years later. In 2012, the German authorities raided the Munich headquarters of HypoVereinsbank, and the company agreed to hand over more than $160 million in repayments and fines.
By then, Mr. Mora and Mr. Shields were long gone from the London branch. Tired of niggling questions and feeling underpaid, they had left in 2008 to open Ballance Capital, one of the first full-service, one-stop cum-ex trading shops.
With the financial crisis in full swing, cum-ex was one of the few reliable moneymakers, and the trade boosted careers throughout the City of London. Prosecutors have reportedly opened investigations into transactions handled by Bank of America, JPMorgan Chase, Morgan Stanley and many others. Dozens of German banks participated in cum-ex deals, too, gobbling up German taxpayer money at the same time they received a rescue package worth more than $500 billion.
Spokesmen for JPMorgan Chase, Morgan Stanley and Bank of America, which took over Merrill Lynch in 2008, said they had no comment.
Before it all unraveled, the cum-ex ecosystem of lawyers, advisers and auditors enjoyed heady days. Last year, the lawyer who testified anonymously at the Bonn trial described the culture of the cum-ex world to Oliver Schröm and Christian Salewski, two reporters on the German television show “Panorama,” under disguising makeup. It was a realm beyond morality, he said: all male, supremely arrogant, and guided by the conviction that the German state is an enemy and German taxpayers are suckers.
He remembered looking down from his office on the 32nd floor of a Frankfurt skyscraper and pitying the pedestrians.
“That was the normal world to which we no longer belonged,” he told the reporters. “We looked out the window from up there, and we thought, ‘We’re the cleverest of all, geniuses, and you’re all stupid.’”
Two weeks ago a former Merrill Lynch investment banker sat in a London restaurant near the Thames and described what had turned him into a whistle-blower. In the years after the financial crisis, he said, he noticed that a handful of colleagues on the company’s trading floor were using their personal mobile phones, a breach of company policy. All communication was supposed to be tracked and recorded. These guys were sending self-deleting texts on Snapchat.
“Obviously, they were circumventing controls,” he said.
When he pointed this out to management, the policy was tweaked.
“They said, ‘You can answer a call on your mobile, but you need to immediately move off the floor,’” he recalled. “So these guys would get up from their desks, start walking toward the edge of the floor, send a text message and then walk back. It was a joke.”
The whistle-blower requested anonymity for this article because he was discussing confidential information. Nearly all of it was included in a long complaint he sent in 2012 to the Office of the Whistleblower at the Securities and Exchange Commission in Washington.
A copy of the complaint was obtained by a team of reporters from Die Zeit, the news website Zeit Online and “Panorama,” which spent four years studying the cum-ex business. The team shared the document with The New York Times.
The complaint lays out, in painstaking detail, how the trades were confected, who executed them and which questions should be asked by investigators to uncover the “sham.” It states that Merrill Lynch earned hundreds of millions of dollars over the previous seven years from cum-ex trades.
A spokeswoman from the S.E.C. declined to comment.
“Anyone who stood in the way of this trade was swept aside, and those who enabled it were promoted,” the whistle-blower said in a follow-up phone call. “But it was widely regarded as insanity inside the bank for it to be extracting money from sovereign treasuries, particularly after the entire sector had been supported by the public purse.”
American banks conducted their cum-ex trades overseas, rather than at home, out of fear, the whistle-blower said. Specifically, he mentioned a 2008 Senate investigation into “dividend tax abuse” that found it was depriving the Treasury of $100 billion every year. The report led to a ban on dividend arbitrage tied to stock in United States corporations.
But nothing prevented American bankers from conducting such trades with foreign companies on foreign soil.
Eventually, American investors joined in, too. German efforts to stamp out cum-ex with legislation, in 2007 and 2009, left holes through which certain types of financial players could still crawl. This included private pension plans in the United States, a niche financial product for wealthy people who want the kind of privacy, and exotic investment options, that Fidelity doesn’t offer.
“These U.S. pension plans became the holy grail for cum-ex trading,” said Niels Fastrup, a co-author with Thomas Svaneborg of “The Great Tax Robbery.” “They were perceived by tax authorities as very trustworthy, and all European countries had agreements with the U.S., so these plans could claim 100 percent of withheld taxes.”
But in 2011, a clerk in the Bonn Federal Central Tax Office, who was interviewed by the German media team and has remained anonymous, came across tax refund applications that looked dubious. They were from a single American pension fund that had bought, then quickly sold, $7 billion in German stock. Now it wanted a tax refund of $60 million. The fund had just one beneficiary.
Instead of paying the refund, the clerk made inquiries. She soon received a peppery letter from a German law firm that threatened to hold her “PERSONALLY” accountable “under criminal, disciplinary and liability law.” The clerk reported all of this to prosecutors, which ultimately led to the trial in Bonn.
Last year, a crew from “Panorama” tracked down the fund’s beneficiary, Gregory Summers, who lives in a grand home in Green Brook, N.J. A reporter tried to interview Mr. Summers in his driveway as he sat in the passenger seat of a black Mercedes-Benz.
“I can’t talk to you,” he said, and the Mercedes drove away.
Messages left with Mr. Summers’s family were not returned.
The cum-ex reckoning has already begun. Several banks have been fined (Deutsche Bank, UniCredit), one has apologized (Macquarie), others have pledged cooperation with investigators (Santander, Deutsche Bank) and two are insolvent. A lawyer from Freshfields, a prestigious London firm that provided cum-ex advice, was briefly jailed by the German authorities in late November and has reportedly been charged with fraud.
If the Bonn trial ends in convictions, stiff penalties are expected.
“They won’t even have to prove that the banks were complicit, or that the banks were trying to evade taxes,” said Dierk Brandenburg of Scope, a credit-rating agency in London. “The fact that they benefited means they have to give the money back.”
Investors will have problems of their own. Many have said they had no idea how cum-ex traders returned such dazzling profits. That defense became less plausible in 2012, after the German government spent millions of dollars to buy 11 hard drives from industry insiders. The hard drives were filled with marketing fliers, written by bankers, who sold cum-ex with an antigovernment pitch.
“We learned that it was very common for these bankers to have conversations over coffee with clients about cum-ex,” said Norbert Walter-Borjans, a former minister of finance for North Rhine-Westphalia. “They would say, ‘If you have a problem with how your hard-earned money is being spent in taxes, we’ve got an idea for you.’”
Authorities across Europe are said to be waiting for a resolution of the Bonn trial to move ahead with their own. Many are livid that Germany didn’t alert them sooner about the perils of cum-ex. The failure, say lawyers, stems from a Europe-wide hypersensitivity about privacy, which is especially acute when it comes to taxes.
Some countries are starting to overcome their reticence, but scholars and bankers say cum-ex and its mutations still pose a financial threat. As evidence, there is the bitter experience of Denmark.
In 2012, soon after Germany shut down its cum-ex problem, a London trader began a cum-ex scheme that fleeced the Danish tax authority of $2 billion, officials there say. The trader, Sanjay Shah, who now lives in Dubai, denies wrongdoing but has never been shy about the source of his wealth.
When he bought a $1.3 million yacht a few years ago, he found the perfect name: Cum-Ex.
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