Serbia's richest man pays record bail
Serbia's richest man Miroslav Miskovic, charged with abuse of power and tax evasion, was released on record €12m ($15.8m) bail pending trial, his company said Tuesday.
Miskovic was released from a Belgrade detention unit after it posted the requested amount, the highest set so far in Serbia, Delta holding company said on its website.
Prosecutors have accused Miskovic of abuse of power during the privatisation of several state-run companies engaged in road construction, illegally gaining €153.1m ($200.5m) and evading taxes worth €4.2m.
The 68-year-old had been detained since his arrest in December along with his son Marko, who is also indicted. Ten other people were also charged in the same case.
If found guilty, they face up to 10 years' imprisonment, the prosecutor said.
Miskovic's arrest came amid a government campaign to root out corruption, a key condition in Serbia's bid to join the European Union.
One of the most influential businessmen in the Balkans, Miskovic had close ties to the late strongman Slobodan Milosevic. His wealth is estimated at around €2.3bn ($3bn).
Local media have speculated for years about Miskovic's influence on Serbian politics and ties with top-level politicians, which he allegedly used to obtain the best deals for his business.
Over the past decade, he expanded his vast Delta Holding empire -- which includes real estate, food production, retail and insurance -- throughout the region.
But he has slowly begun to sell off some of his businesses, including the supermarket chain Delta Maxi, which he sold to a Belgian company last year for almost €1bn.
No tax rises of any kind, vows Merkel
German Chancellor Angela Merkel said on Tuesday she was against tax rises of any kind in Europe's biggest economy if she is re-elected in September, a clear indication of where she expects the campaign to be fought.
Merkel has previously said she is opposed to tax increases of the kind proposed by the opposition Social Democrats (SPD), who want to make the wealthy pay more, but the strong comments show she may be thinking more broadly about taxes.
"(For many voters the election is) about a stable euro, jobs - if possible for everyone, a strong economy for our country," Merkel said in an interview with her own conservative Christian Democrats' television channel. "For that you need reliable conditions. That means tax rises are wrong. Of any kind."
Merkel, who has preached austerity to euro zone countries during the currency bloc's debt crisis, argues that raising taxes will not necessarily yield higher tax revenues.
Although most pollsters expect Merkel to win a third term in the September 22 vote, it is unclear if she will be able to continue her centre-right alliance with the Free Democrats, who favour low taxes.
She may have to seek a "grand coalition" with the SPD, and tax policy could be one of the thorniest issues in any talks between the parties.
Merkel nearly squandered a huge poll lead in 2005 by pledging during the election campaign to raise value-added tax (VAT) to 18% from 16%.
The conservatives' lead fell from 42% in opinion polls to 35.2% in the vote, partly due to Merkel's VAT pledge, forcing them into an unwanted partnership with the SPD.
Big US tech groups slip European tax net
Most big US technology companies cut their tax bills by not declaring a tax residence in their main European markets, preventing tax authorities in those countries from even assessing their income, a analysis of hundreds of corporate filings shows.
Last week the Organisation for Economic Co-operation and Development (OECD) issued an action plan for tackling what it calls corporate tax avoidance. This has become a major political issue as citizens tire of paying higher taxes while companies often pay effective tax rates that are a fraction of statutory levels.
The OECD, which advises its mainly rich nation members on economic and tax policy, said it needed to assess how far companies in the digital economy use tactics like not creating a tax residence or permanent establishment (PE) in countries where they have major operations, to avoid paying tax where they do most of their business.
Business lobby groups such as the Business and Industry Advisory Committee, which focuses on the OECD, and Britain's CBI have questioned how far companies use such techniques, suggesting widely publicised avoidance by big names such as Apple, Google or Amazon might be the exception.
"It is unclear how significant this issue is," the CBI said in an April submission to the OECD.
The examination found that 37 of the top 50 US tech companies don't have a tax residence in their biggest European markets for their main businesses.
There is no suggestion any of the techniques are illegal, and those companies which responded to requests for comment said they follow the tax rules in all countries where they operate.
Some, including Microsoft which sells software to customers across Europe from Dublin, said their arrangements were driven primarily by a desire to effectively serve customers, rather than tax reasons.
Managers have an obligation to investors to use legal means to reduce their tax bill, said Chas Roy-Chowdhury, Head of Taxation at the Association of Chartered Certified Accountants. "Corporation tax is another cost to the business," he said.
The examination found that only a quarter of the top tech firms report income in the countries where most of it is earned.
The rest declare a permanent establishment in smaller markets that offer lower tax, such as Ireland, Switzerland and the Netherlands. This ensures German, French and British tax authorities cannot even assess their income, let alone tax it.
"People should find it surprising," said Philip Kermode, Director of the European Union's Directorate-General for Taxation and Customs Union of the finding.
Pascal Saint-Amans, director the OECD's Center for Tax Policy, declined to prioritise the different measures the OECD should take, saying it was important to address all the tax avoidance tactics identified in last week's report.
But he added "PE issues are clearly important and this is why we have a couple of actions dedicated to this."
Cybercrime costs up to $500bn
Cybercrime costs the global economy between $100bn and $500bn annually, according to a study released Monday which acknowledged more data is needed for precise estimates.
The study by the security firm McAfee and the Center for Strategic and International Studies said the US economy loses some $100 billion to cyber crime and cyber espionage, including loss of key business data and intellectual property.
The estimate is lower than some earlier reports which put the costs as high as $1 trillion, but study authors said it was a matter of narrowing the range of damage from cyber attacks.
"It will always be a range," said James Lewis, a CSIS scholar on cybersecurity and co-author of the report.
"The data is either sparse or distorted."
But Lewis said the report offers a better way to compare the cost of cybercrime to other types of risks such as drug trafficking or other types of theft.
"We believe the CSIS report is the first to use actual economic modeling to build out the figures for the losses attributable to malicious cyber activity," said Mike Fey, chief technology officer at McAfee.
"Other estimates have been bandied about for years, but no one has put any rigor behind the effort."
The report said the impact of cybercrime includes loss of intellectual property and confidential information; reduced trust for online activities; additional costs for security, insurance and recovery; and damage to reputations.
Lewis said the impact on business could translate into the loss of as many as 508 000 jobs in the United States, based on a government formula for the ratio of exports to US jobs
"The raw numbers might tell just part of the story," he said.
"The effect of the net loss of jobs could be small, but if a good portion of these jobs were high-end manufacturing jobs that moved overseas because of intellectual property losses, the effect could be wide ranging."
Turkish central bank raises rates
Turkey's central bank raised interest rates on Tuesday and said it would, if necessary, take further steps to stop the lira from falling.
The move a rise in the overnight lending rate to 7.25% from 6.5% - was a reaction to capital outflows that have knocked the lira down as much as 9% against the dollar.
Uncertainty over the continuation of the US Federal Reserve's bond-buying programme has hit emerging markets in general. Turkish investments were also shaken by demonstrations last month against Prime Minister Tayyip Erdogan's government.
The bank kept its one-week repo policy rate at 4.5% and its borrowing rate at 3.5%.
The lira strengthened to 1.9081 against the dollar from 1.9153 beforehand. The 10-year bond yield fell to 8.49% from 8.69%.
Erdogan has long championed low interest rates, fearing an economic slowdown ahead of elections. But the central bank has already burned through $6.6bn of its reserves this year to try to boost the lira, a policy it cannot pursue indefinitely, making rate hikes its clearest alternative.
Analysts said the bank's view on the outlook for rates would be more important than the size of the expected hike itself.
"The rates may need to go higher if market stress continues. The central bank has probably done the minimum it needed to do," said Neil Shearing, chief economist at Capital Economics.
Erdogan and members of his economic team have blamed a "high interest rate lobby" for seeking to undermine Turkey's prospects.
Central bank Governor Erdem Basci, however, signalled a possible shift in policy last week.
Speaking a day after Erdogan met his economy and finance ministers, Basci said a "measured step" was on the cards to widen the interest rate corridor the bank uses to control liquidity conditions, widely interpreted to mean a hike in its overnight lending rate.
Deputy Prime Minister Ali Babacan has repeatedly said the central bank is fully independent, but the timing of Basci's announcement left some with the impression he had been emboldened to act after receiving the government's blessing.
Forward guidance key
Reassurances from Fed Chairperson Ben Bernanke last week over the pace of the US central bank's plans to withdraw monetary stimulus have boosted sentiment in emerging markets, lending support to the lira in recent days and taking some pressure off Turkey's central bank.
It nonetheless followed other emerging markets in lifting rates. Last week, India joined Brazil and Indonesia in raising some of its interest rates to try to prevent a rout of its currency.
Raising the overnight lending rate increases the real interest rate on lira assets and makes them more attractive to foreign investors, supporting the currency. Whether that in itself will be enough to calm nerves remains to be seen.
"Even with this rate hike we expect the central bank to tread carefully: Growth is still fragile and PM Erdogan will not be too happy with the central bank quenching growth, considering the upcoming elections," said Nordea Bank analyst Annika Lindblad.
US, UK fine trader for manipulation
Regulators in the United States and Britain fined US trading firm Panther Energy Trading LLC and owner Michael Coscia nearly $6m for manipulating commodities markets, in the latest crackdown on abuses in high-speed automated trading.
Regulators have been taking a tougher line on high-frequency and algorithmic trading in the wake of the so-called flash crash on Wall Street in May 2010. That was when a free-fall in blue-chip stocks temporarily wiped out $1 trillion in shareholder equity from the markets.
High-frequency trading uses computer algorithms to allow traders to dart in and out of markets faster than the blink of an eye. This is usually legal but Panther and Coscia allegedly used the software to post and then cancel orders to profit from the false impression of activity they had created, the regulators said.
Reached at his office, Coscia declined to comment.
The US Commodity Futures Trading Commission (CFTC) fined Panther and Coscia $1.4m and ordered them to pay back $1.4m in illegal profit on trades made between August 8 2011, and October 18 of that year. It also banned them from trading on any CFTC-registered trading platform for one year.
The Panther scheme allegedly involved placing a small order on one side of the market near the best price available, and then within one-tenth of a second, placing several larger offsetting orders with progressively improving prices. The impression of activity induced others to trade on the side of the large orders, increasing the likelihood that Panther's small order would be filled. The large orders were then cancelled.
Luring prey
Monday's action marked the first time the CFTC used new powers under the Dodd-Frank financial reform law to combat the manipulative practice, known as "spoofing."
"Spoofing sends false signals to markets in order to lure prey and game the system," CFTC Commissioner Bart Chilton told. He said the regulator was currently looking at a variety of violations throughout the market, but could not comment on other investigations.
Panther's alleged bad practices are not a sign that all algorithmic or high-speed traders are disrupting markets, said Gary DeWaal, a former general counsel for Newedge Group, who is now a consultant on financial-services regulatory matters.
"I don't think this is an indictment of the nature of the trader," he said. "This is an indictment of the trading activity."
Exchange operator CME Group Inc, which has some regulatory powers, fined Panther $800,000 which is included in the $6 million in total fines. It ordered the company and Coscia to pay back $1.3m in illegal profit. The profit paid back under the CME ruling will partially offset the CFTC amount.
CME said Panther placed 400 000 large orders in energy and agriculture markets between August and October 2011 with 98 percent of the orders cancelled.
Several employees of Red Bank, New Jersey-based Panther executed transactions using six identification numbers registered to Coscia, CME said.
In Britain, the Financial Conduct Authority (FCA) fined Coscia nearly $1m for manipulating commodities markets, the new watchdog's first penalty on a high-frequency trader.
The FCA said Coscia used algorithms in 2011 to place thousands of false orders for energy futures from the United States on the ICE Futures Europe exchange in Britain.
He pocketed $279 920 over a six-week period of trading at the expense of other market participants, mainly other high-frequency traders, the FCA said.
Coscia was able to trade from the United States through a broker that offered direct access to the UK exchange.
The FCA said the penalty reflected the serious nature of the deliberate market abuse. Coscia received a 30% discount on the fine by agreeing to a settlement.
Crackdown
High-frequency trading volumes have come to represent a large chunk of trading on some exchanges and regulators have already moved to inject more transparency into the sector and toughen up rules on direct market access.
The Financial Industry Regulatory Authority said last week it sent out targeted examination letters to 10 high-frequency trading firms asking for detailed information on the testing and supervision of trading algorithms and other software.
Separately, Newedge unit Newedge USA LLC agreed this month to pay $9.5m to settle allegations by FINRA and several exchanges that it did not adequately monitor and prevent potentially manipulative and suspicious trading activity by high-speed traders.
In Britain, the Financial Services Authority, which the FCA replaced in April, fined Swift Trade £8m ($12.3m) in August 2011 for trading abuses similar to those at Panther, but this is being appealed.
