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Don Quijones

Articles by Don Quijones

Was Carillion’s Collapse the Beginning of the End for UK’s Outsourcing Sector?

2 days ago

Two large British outsourcers are also on the verge of collapse, and the vultures are circling.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Two large British outsourcers are at risk of following in the doomed footsteps of Carillion, the infrastructure and services giant that collapsed in free-fall fashion in January. Between them the two firms, Capita and Interserve, employ roughly 150,000 workers worldwide and are responsible for delivering a dizzying array of vital public services in the UK.
Both are in deep financial trouble. Fears are growing that Carillion was not a one-off episode. Until two months ago Carillion was the UK’s second largest construction firm. Now, what remains of its corporate corpse is being picked apart by employees of PricewaterhouseCoopers

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EU Bad-Loan-Fiasco-Reform Loses Teeth, Adds Sweeteners for Banks (Funded by Taxpayers)

3 days ago

After much lobbying, guidelines for banks become “non-binding expectations,” says the ECB.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Banks in Europe have won yet another key regulatory battle, and once again largely at the expense of Eurozone citizens, both in their role as taxpayers and bank customers: How to deal with their bad loans.
These non-performing loans (NPLs) are a long-festering massive problem at European banks. At most recent count, the total was estimated to be €759 billion, or 5.15% of total loans. By comparison, the NPL ratios in the US and UK banking sectors in 2016 were 1.3% and 0.9%, respectively. Currently six (out of 19) Eurozone countries have an NPL ratio above 10%:
Ireland: 12.8% (down from 15.8%)
Italy: 11.8% (down from 16.6% in 2016)

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“Welcome to Hell”: Barcelona Taxi Drivers Prepare for Uber’s Return

6 days ago

Uber has struck a more conciliatory approach this time, but taxi drivers are not convinced.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
War is about to break out once again between Uber and the highly mobilized taxi drivers of one of its most febrile markets, Barcelona. After three years of absence due to regulatory issues as well as the hostile welcome it received from local taxi associations, the ride-share giant announced this week that it was returning to Spain’s second largest city.
This time will be different, it says. “We are changing the way we work. And Barcelona is no exception. We want to work with local agents to help build a mobility model that is more sustainable,” said the company in a statement. The company has long shown a special interest in the

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Despite Years of ECB’s QE (Ending Soon), Italy’s “Doom Loop” Still Threatens Eurozone Financial System

8 days ago

Even banks outside Italy have an absurdly out-sized exposure to Italian sovereign debt.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The dreaded “Doom Loop” — when shaky banks hold too much shaky government debt, raising the fear of contagion across the financial system if one of them stumbles — is still very much alive in Italy despite Mario Draghi’s best efforts to transfer ownership of Italian debt from banks to the ECB, according to Eric Dor, the director of Economic Studies at IESEG School of Management, who has collated the full extent of individual bank exposures to Italian sovereign debt.
The doom loop is a particular problem in the Eurozone since a member state doesn’t control its own currency, and cannot print itself out of trouble, which leaves it exposed

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Petro-Plunder Rages in Mexico, Costs Surge

11 days ago

Just as the gasoline market is opened to competition, Mexico becomes one of the worst places in the world for fuel theft. 
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Mexico’s black market for black gold keeps getting bigger. In 2017, 10,363 illegal pipeline taps were found, 50% more than the 6,873 found in 2016, according to data from Petróleos Mexicanos (Pemex). In other words, an average of 28 new pipeline taps were found each and every day last year. Most of them are into gasoline pipelines. And those are the taps that were found. Many more are presumed to be in operation but are yet to be detected.
The reach of the fuel thieves — often referred to as “huachicoleros” — has grown exponentially, according to Pemex. Five years ago just 1,635 illegal taps were found

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Toxic Debt Still Plagues Spanish Banks (and Taxpayers Will End Up Paying for It)

12 days ago

Years after Crisis Was “Solved.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Europe’s banking authorities are finally beginning to pile pressure on poorly performing banks to clean up their books, something that should have happened a long, long time ago. But as is often the case with European banking regulation, there’s an elevated risk of unintended consequences.
If a bank with a deeply compromised balance sheet is forced to report its loans that have gone bad — the hidden piles of toxic “assets” — at prices that reflect their real value (rather than the illusory prices the bank arrived at with its mark-to-model formula), that bank could suddenly find that its capital has gone up in smoke.
This is more or less what happened with Banco Popular, the mid-sized

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Cash Refuses to Die, But the €500-Note Is a Goner

15 days ago

War-on-Cash Backlash.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
“You got to be kidding, we can’t take that,” says the shop assistant as a man places a €500 bill in front of her for a €10 purchase. A waiter at a Michelin-star restaurant gives a similar response despite the fact that the total bill for the meal came to well over €100. Beginning to despair, the man then tries to pay part of his rent with the €500 note — something he has done several times before — but even the property agency refuses to take it.
“Things have changed,” says the property agent. “We now have to jump through hoops trying to explain to the bank where every single one of these bills comes from. It’s not worth our bother.”
This is happening all over Spain. The €500 banknote has lost much of

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European Court of Justice Deals Heavy Blow to “Corporate Sovereignty Clause”

16 days ago

Is it the beginning of the end for “Investor-State Dispute Settlement” clauses that have become toxic to democracies?
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
In a surprise move, the European Union’s top court has ruled that Investor-State Dispute Settlement (ISDS) clauses contained within almost 200 bilateral investment treaties (BITs) between EU member countries violate EU law, casting doubt on such deals as well as others struck by the bloc as a whole. ISDS clauses allow foreign investors or corporations to sue governments for passing laws or regulations that could undermine the value of their investments.
The Court of Justice of the European Union (ECJ) found that an award of damages to Dutch-based insurer Achmea from Slovakia under a bilateral investment

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The Oligopolization of Food Supply Hits a Snag

20 days ago

Three companies to control 60% of world’s seed and pesticide markets.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
German drug and agrichemicals giant Bayer has suffered a setback in its efforts to acquire the world’s biggest seed company, Monsanto. Bayer had reckoned on winning regulatory approval for its $63.5 billion takeover bid at the beginning of this year, but this week the company cautioned that it could take longer than expected to receive final clearance from EU regulators.
The corporate marriage between Bayer and Monsanto has already received the blessing of more than half the 30 antitrust authorities that need to sign off on the acquisition, including those in the US and Brazil. If given the go-ahead by the European Commission, this mega-merger would

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Will Italy’s Banking Crisis (Rumored to be Over) Spawn a New Frankenbank?

23 days ago

“Operation Overlord.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
There are rumors currently doing the rounds that Italy’s banking problems have finally been put to rest. The FTSE Italia All-Share Banks Index has soared about 40% over the last 12 months, about double the advance by the Euro Stoxx Banks Index. Six of the top seven gainers in the latter index this year are Italian.
The story of Italy’s non-performing loans, which just a year ago terrified global investors and posed a systemic threat to the entire Eurozone economy, “is over,” according to Fabrizio Pagani, the chief of staff at Italy’s Ministry of Economy and Finance. Pagani believes that now that the banking sector is well and truly on the mend, work should begin to take consolidation of the sector to

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A New Cunning Plan to Allay Banking Jitters is Hatched in Spain

24 days ago

But there’s a problem with the plan.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The Spanish Government has a brand new cunning plan to fortify the country’s banking system, which was rocked last year by the collapse of the sixth biggest bank, Banco Popular. It wants the country’s Deposit Guarantee Fund (DGF) to insure the entire bank deposits of large companies, even if those deposits exceed the current limit of €100,000, so that if a bank begins to wobble, its corporate customers don’t take their money out en masse.
The government hopes that the plan will be included in the new banking resolution rules being drawn up by EU banking authorities in the aftermath of Banco Popular’s quickfire resolution last year, the financial daily Cinco Dias reports.
If the law is

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“It’s Not only Carillion that’s Built on Sand, it’s our Whole System of Corporate Accountability”

26 days ago

The construction & services giant collapsed even as KPMG signed off on its financial statements; now they deny any responsibility.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The Big Four accountancy firms — PricewaterhouseCoopers, Ernst & Young, KPMG, and Deloitte — reported combined annual revenues of $134 billion in 2017. In the global audit arena, they are virtually unassailable. In the US, the Big Four audit 497 of the S&P 500 companies. In the UK, they audit 99 of the FTSE 100 companies. In Spain there’s not a single firm listed on the IBEX 35 whose accounts are not audited by one of the Big Four.
But what are the Big Four firms actually good for?
Given the oligopolistic structure of the global audit industry as well as the potential conflicts of interest that

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“Cash Must Not Be Made the Scapegoat”

29 days ago

In the War on Cash, a rare defense of physical money by an ECB Board Member.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The proposed EU-wide cash restrictions could come into effect as early as this year. But defenders of physical cash have an unexpected ally in their struggle: Yves Mersch, a member of the European Central Bank’s executive board. In a speech hosted by the Bundesbank last week, the Luxembourgian central banker exalted cash’s value as legal tender and heaped scorn on the oft-heard argument that its anonymity only helps criminals.
“Protection of privacy matters to all of us. Privacy protects people from the risk of a surveillance state and thought police,” he told his audience. “No particular link can be established statistically between cash and

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After Years of Crisis in Spain, Pensioners Next to Feel the Pain

February 21, 2018

Doubts emerge as to who is saving whom.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Structural unemployment and falling wages, precarious jobs, an endless brain drain, a rapidly ageing population, and the government’s constant pilfering of the national pensions pot have all taken their toll on Spain’s social security system. As we warned last November, the country’s Social Security Reserve Fund, which was meant to serve as a nationwide nest egg to guarantee future pension payouts — given Spain’s burgeoning ranks of pensioners — has been bled virtually dry by the government.
To avoid wiping out the fund altogether in 2017, the Spanish government extended a €10.1 billion interest-free loan to Spain’s social security system, which enabled it to pay out the two extra

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RBS Forgery Scandal Metastasizes Days before Crucial Earnings Report

February 20, 2018

The bailed-out megabank hasn’t had a year in the black since 2007.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Two weeks ago, UK mega-lender Royal Bank of Scotland (RBS) was accused by whistle-blowers of systematically forging customer signatures — that it had indeed trained staff to forge customers’ signatures — which elicited furious denials from senior management. But as we warned at the time, if irrefutable evidence emerges of forged documents, not only will management have to walk back those denials but the bank, which has already cost taxpayers €90 billion in bailouts, losses, fines, and legal fees, could end up facing yet another round of costly legal action.
That process has already begun. Now the bank was forced to apologize after retired teacher Jean

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On Closer Inspection, Debt of Bankrupt Spanish Construction Firm Grows Four-Fold

February 17, 2018

What happens if cases like this prove to be the rule rather than the exception?
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Spain appears to have a brand-new Abengoa — the imploded energy giant whose fabulous accounting tricks pushed creditors into a black hole — on its hands: Isolux was until recently a fairly large privately owned infrastructure company with operations spanning the globe.
When the group declared bankruptcy last July, its cash flow in Spain was barely enough to cover a month’s operating costs. The group had a a total workforce of 3,884 and 119 infrastructure projects under development of which 39 were still operational and the remaining 90 had been halted.
The company tried to reduce its debt addiction through agreements with investment funds but

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Can New NAFTA End Systematic Wage Repression in Mexico?

February 15, 2018

The entrenched system works to the detriment of the overall economy.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Chronic low salaries in Mexico have become a big bone of contention in the ongoing renegotiation of the North American Free Trade Agreement (NAFTA). In a talk at the University of Chicago last week, Canadian premier Justin Trudeau reiterated that if the labor standards of NAFTA were improved, companies would have fewer incentives to move factories to Mexico for cheap labor while Mexican workers would get a better deal. But that’s the last thing the Mexican government and global manufacturers with operations in Mexico seem to want.
Moody’s offered a bleak prognosis for Mexico’s low-cost regime. “Mexico has not attained the stellar growth rates that were

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Another Big British Bank Lands in Deep Trouble

February 14, 2018

Barclays faces a criminal trial in the UK. Last week it was RBS. 
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Now, it’s the UK’s second-largest bank Barclays’ turn to face the music. A week ago, it was the UK’s third-largest bank, state-owned Royal Bank of Scotland, that faced one of its biggest scandal yet after whistle-blowers accused the bank of systematically forging customer signatures. RBS also faces the prospect of a multi-billion dollar fine for the way it sold residential mortgage-backed securities during the lead up to the Financial Crisis.
On Monday, the UK’s Serious Fraud Office (SFO) announced that it was charging Barclays for a second time over a deeply suspicious £2.2 billion ($3 billion) loan it issued in 2008 to Qatar. To avoid a government bailout,

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Bridgewater Bets Big against Largest Banks in Spain & Italy

February 10, 2018

World’s largest hedge fund puts down $13 billion to profit from trouble in Europe. 
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
A lot of people have lost a lot of money in the recent financial market convulsions, but there’s still plenty of money to be made by betting against the companies, as the world’s largest hedge fund, Bridgewater Associates, showed this week. It bet heavily against four of Spain’s biggest corporate hitters. The fund took up short positions worth €1.2 billion, or 0.5% of total shares at Banco Santander, BBVA, Telefónica and Iberdrola.
The gamble has already reaped dividends. Shares of Iberdrola, Spain’s biggest utilities company, Telefonica, Spain’s struggling telecoms giant, and Santander, Spain’s biggest bank ended the week around 5% lower,

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Barcelona Grapples with its Housing Crisis

February 8, 2018

Local tenants vs. global capital in search of assets.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Spain has become a difficult country for many tenants. In the most populous provinces rents are rising ten times faster than salaries. In its two biggest cities, Madrid and Barcelona, they’re rising 30 times faster. In 2017 alone 36,138 rental contracts at an average monthly price of €873 were signed in Barcelona, a city where 65% of under-30-year-olds earn less than €1,000 a month.
Barcelona City Council – which is run by the leftist mayor Ada Colau, a former housing activist – has decided that enough is enough. The council has halted renovation works on two buildings on grounds that the developers were carrying out major reworks without requesting the appropriate

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Bailed-Out RBS Systemically Forged Customer Signatures: Whistle-Blowers

February 6, 2018

Small-business customers suffered most at the bank’s hands.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The Royal Bank of Scotland, the UK mega-lender that has already cost British taxpayers over £90 billion in bailouts, losses, fines and legal fees, could be about to face its biggest scandal yet following allegations staff were routinely “trained” to forge customer signatures.
First, managers were taught how to fake the names on key customer documents, according to whistle-blowers at the bank, cited by the Scottish Mail on Sunday. Staff were then allegedly shown how to download authentic signatures from the bank’s online system, trace them on to new documents by holding them against a window and to photocopy the paperwork a number of times, to “obscure the image

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Crash of Outsourcing Giant with 70,000 Employees Globally Sparks New Panic

February 2, 2018

“Not another Carillion,” says UK government to soothe frazzled nerves, as entire industry is teetering.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Since the sudden downfall of the British infrastructure giant Carillion two weeks ago, investors’ nerves in London are frayed. And short-sellers, scanning the horizon for their next prey, seem to have found it.
Its name is Capita. It is one of the UK government’s biggest outsourcing firms with contracts to provide services to government entities, such as NHS cleaning, school dinners, and prison maintenance. It has 70,000 employees in the UK, Europe, South Africa, and India.
On Wednesday, its shares tumbled 47.5% to a 15-year low after its new CEO, Jon Lewis, slashed profit forecasts, announced plans to tap the capital

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Touted Energy “Reform” Goes Awry in Mexico

January 31, 2018

Dream of cheaper energy in an open market turns into nightmare.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Four years ago, Mexico’s government passed a sweeping energy reform aimed at opening up Mexico’s long-protected oil and gas sectors to global competition and expertise for the first time in over 70 years. The reforms would lead to lower energy prices for domestic consumers as well as thrust Mexico into a more prominent position in the global hydrocarbons market, the government confidently predicted.
Instead, the opposite has happened: prices of gas, diesel and natural gas have soared while Mexico’s heavily indebted state-owned energy giant, Petróleos Mexicanos, or Pemex, got tangled up in the oil bust, lost $9 billion in 2016, received a bail-out, and after

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Customer Lawsuits Pummel Spanish Banks

January 30, 2018

After it collapsed, Banco Popular was discovered to have 55,000 complaints against it.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Following a succession of consumer-friendly rulings, bank customers in Spain are increasingly taking their banks to court. And many of them are winning. Last year an unprecedented wave of litigation against banks forced the Ministry of Justice to set up dozens of courts specialized in mortgage matters to prevent the collapse of the rest of the national judicial system.
The Bank of Spain, according to its own figures, received 29,957 complaints from financial consumers between January and September 2017 — already double that of the previous year and by far the highest number of complaints registered since 2013, a record year when

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Fallout from Carillion Collapse Hits KPMG

January 27, 2018

Next Arthur Andersen? No, the “Final Four” audit firms are “too big to replace.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
As the rubble from the financial collapse of British infrastructure giant Carillion gradually settles, two powerful parliamentary panels are piling pressure on the world’s biggest audit firms to disclose the full extent of their involvement with the company. The big four auditors — Deloitte, Ernst & Young (EY), KPMG, and PricewaterhouseCoopers (PwC) — have received letters from the Business and Work and Pensions select committees ‎demanding that they reveal all the work they carried out for Carillion since 2008.
The move comes amid growing concern around the world about the ‎power of the so-called Big Four — down from the Big Five after Arthur

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Mastercard Pushes Biometrics, Banks Follow

January 25, 2018

Biometric authentication “will be of great benefit to everyone.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Mastercard has set a deadline for widespread use of biometric identification for its services across the whole of the EU: April 2019. Mastercard Identity Check, currently available in 37 countries, enables individuals to use biometric identifiers, such as fingerprint, facial, and iris recognition, to verify their identities when using a mobile device for online shopping and banking. The technology is not mandatory for customers, but from next year it will be vigorously promoted throughout the EU and many consumers will welcome it.
The impact will be felt not just by consumers but also by most European banks, since any bank that issues or accepts Mastercard

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ECB’s New Plan B? Synthetic Structured Eurobonds

January 24, 2018

“Near-zero risk” derivatives… the banks are on board.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
We could be about to be treated to a brand new central bank-coined acronym, ESB, or in its somewhat catchier plural form ESBies (as in “esbies”). ESB stands for “European Safe Bond,” which in today’s Europe may sound like a contradiction in terms but is in fact an idea that has been gathering dust on the drawing board for close to seven years. It could soon be brought to life, however, if the ECB approves a plan being drawn up to launch the new financial instrument by an independent task force under Irish central bank governor Philip Lane.
Here’s how the scheme would work: private or public institutions, such as large banks or the European Stability Mechanism — the euro

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Barcelona Rental Market Is Out of Control

January 23, 2018

Rents up 50% since 2013, wages go nowhere, a third of residents earn less than €1,000/month.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
For the first time in over a decade, I spent a few days last week flat hunting. It was not for my own benefit but rather to provide moral support to a close friend of mine who’s looking to rent a place in the same central Barcelona neighborhood where my wife and I live, Fort Pienc. The experience was a depressing one for the both of us. Not only is my friend almost certainly priced out of this highly gentrified neck of the woods, but my wife and I could also find ourselves in the same predicament the next time our contract is up, in three-and-a-half years’ time.
When we moved to this once staunchly middle class neighborhood way

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Draghi’s Membership in Murky G30 Financial Group Under Fire

January 21, 2018

A private club for central bankers, regulators, and bankers.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
On Wednesday, ECB President Mario Draghi suffered the rare ignominy of being criticized in public by the EU’s Ombudsman, Emily O‘Reilly, whose job it is to arbitrate public complaints about EU institutions. The complaint against Draghi was that he had compromised his public role by regularly attending the Group of 30, a secretive club of corporate and central bankers.
In her response to the complaint, O‘Reilly recommended that Draghi should suspend his membership of the group for the remaining duration of his term.
“The implied closeness of the relationship through membership – particularly between a supervising bank and those it supervises – is not compatible

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In Brexit Tug-of-War, EU Aims at City of London’s Tax-Haven Empire

January 17, 2018

But the EU keeps tripping over its own tax havens.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The European Commission last year published its first ever tax-haven black list. On it was an eclectic mix of 17 far-flung jurisdictions including Panama, South Korea, the United Arab Emirates, Macao, Bahrain, Barbados, Namibia and Trinidad and Tobago, though eight of them, including Panama, have already been removed.
Conspicuously absent from the list were EU countries accused of facilitating tax avoidance, such as Luxembourg, Ireland, and the Netherlands. Also not included were British Overseas Territories or Crown Dependencies, despite being named in earlier EU lists and some being implicated in the Paradise Papers scandal. But that could be about to change.

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