More States Accounts: Woops!

This is what the front cover of the States accounts looks like. Click on it, and you can see for yourself...
This is what the front cover of the States accounts looks like. Click on it, and you can see for yourself…

JERSEY C.I. – Financial reports contain so much more than numbers.

Often, they also contain priceless gems, buried away in the notes.

So instead of boring everyone with figures, this week’s take on the States of Jersey 2015 accounts will be all about words.

No analysis. No maths. Just straight plagiarism.

Apart from anything, it’s quick and I’m busy.

If you want a look for yourself, check out pages 91 to 100


INAPPROPRIATE

Interim staff whose annual cost exceeded £100,000 were appointed without following the prescribed recruitment process, including the requirement for States Employment Board approval. [Risk that] inappropriate interim appointments may have been made.


DUPLICATE

Following the identification of a duplicate payment in excess of £1 million, Internal Audit undertook a review. Funds were immediately recovered.


CASH

In 2014, a grant had been approved even though the recipient had cash balances in excess of £1 million.


CHILDREN

Between 2010 and 2015, 15 serious case reviews (SCRs) have been commissioned in total and 12 of them relate to children.

The first serious case review, produced in 2010, has resulted in a substantial civil liability quantified in 2015 for many millions of pounds by States of Jersey insurers.

The outcome of the Independent Jersey Care Inquiry is likley to lead to changes in the systems and procedures to safeguard and protect vulnerable children, including potential legislative and other changes.

There is a risk of significant cost to the States of Jersey both financially and in terms of resources to deal with these cases. In addition, there is a reputational risk both to the States of Jersey and the island as a whole.


LOANS

An internal audit report commissioned by the chief officer was not able to confirm that appropriate or sufficient due diligence had been carried out on loans that had been proposed to the minister and subsequently made to third parties… [risk that] loans may be made to inappropriate third parties.


TRAVEL

The approved corporate travel provider was not always used in booking flights and accommodation. Concerns were raised in public over the level and cost of travel and accommodation in 2016 and a review is being carried out.

(Watch this space. Scrutiny heard this week that sometimes the ‘approved provider’ is not used for good reason, unless you’re going to Cape Town – MW)


FRUITLESS

And finally….what on earth is this?

Fruitless? I'm clueless...
Fruitless? I’m Clueless…

Next week, more maths…

While Lawyers Argue, a City Chokes

Taranto in Italy. Choked. Picture from Italian newspaper La Stampa
Taranto in Italy. Choked. Picture from Italian newspaper La Stampa

JERSEY, C.I. – Taranto in Italy is so polluted that farming has become nigh-on impossible and cancer rates are sky high. Reportedly.

Local magistrates say the problem is the town’s steel plant, one of Europe’s biggest.

To pay for the clean-up, assuming a clean-up is even possible, authorities there are trying to seize €8 billion from the wealthy Riva family, which until recently owned the steelworks. They say they’ve done nothing wrong.

Officials have designated the whole sorry mess an environmental disaster. And it’s a legal mess with a paper-trail through Jersey.

SCRAP

Adriano Riva was a scrap metal merchant who started his steel company with his now-deceased brother Emilio in the 1950s.

By the 1990s, the brothers had come a long way.

Having made untold millions building one of Europe’s biggest steel producers, Gruppo Riva, Adriano set up four Jersey trusts* called Antares, Orion, Sirius and Venus. You don’t have to remember their names.


*A trust is no more than an agreement that someone (say, a Jersey trust provider) will look after something (money, castles, yachts) for someone (perhaps a wealthy industrialist) for the benefit of someone else (perhaps the children of wealthy industrialists). Apparently trusts were invented by knights of olde dashing off on crusades wanting to make sure their families were looked after if the crusade didn’t work out. A modern-day trust can also help mitigate tax liabilities. Generally speaking, there’s also normally no record of a trust outside the trust provider’s office, so trusts help keep things private. 


Adriano must have known Jersey is good at trusts.

These ones are run for the Riva family by UBS Trustees, a Jersey subsidiary of Swiss bank UBS.

They hold €990 million of “assets”, which Italy now wants to help pay for the clean-up in Taranto.

Complicating things, the actual money is at UBS headquarters in Zurich. Complicating things further, the Rivas say they haven’t been convicted of anything, and are fighting hard to keep the money. Here’s how…

SQUIRRELLED AWAY

Adriano set up the trusts to benefit his late brother’s children and….himself. Jersey Royal Court papers say it was in fact the late Emilio who put up the money for the trusts.

Whatever, it’s the family fortune.

And it’s not the first time the Riva fortune has been the subject of wrangling, which is relevant.

In 2009, the beneficiaries (Adriano, Emilio’s children, etc) took part in a tax amnesty whereby Italians with fortunes squirrelled away abroad could pay a one-off 5% tax rather than the normal full whack IF they brought it back to an Italian bank so it could work out the tax and pay the Italian treasury.

On paper, the money came back to Italy, but really it stayed in the Swiss accounts controlled by the Jersey trusts. Technically, though, it was henceforth held in the name of an Italian subsidiary of UBS: UBSF. All of this was above board, but the arrangement has now created a three-country legal nightmare. Mama mia!

That’s because now, the money in the trusts belongs to UBS in Jersey (which looks after it for the Rivas) while legal title to whatever’s in them belongs to UBS in Italy.

If you haven’t worked it out already, here’s why that’s a problem…especially for the Rivas.

CRIMINAL CHARGES 

In 2012, senior executives at Riva’s Taranto steel subsidiary Ilva S.p.A. – including members of the Riva family – were charged with criminal environmental offences.

The case is on-going and the Rivas deny wrong-doing, but the steel plant was put into administration by the Italian government and is now bankrupt.

A year later, in 2013, in an unexpected and separate turn of events, an investigation was launched into the Riva brothers and two accountants.

They were suspected of selling Ilva S.p.A. shares cheap to companies owned by Adriano with the proceeds being squirelled away… into the Jersey trusts. These allegations are also denied and to date no charges have been brought.

Not long after that, the State Attorney in Milan asked his Swiss counterpart in Zurich to freeze the Swiss UBS accounts belonging to the Rivas’ Jersey trusts while the environmental case is worked out.

The accounts remain frozen.

A decree issued by the Italian government now says the money should be handed over to help clean up Taranto, even though the Rivas have not been convicted of anything. The Rivas say this is unfair.

And to make things worse for them, the Italian government has also decreed that any money seized in any potential un-related prosecution (eg: suspect share deals) can also be seized for the same purpose, ie: cleaning up Taranto.

WORRIED

Worried about their fortune, the Rivas are appealing against all these rulings.

Initially, they were assisted by the Swiss authorities, which ruled that sending the cash to Italy broke Swiss law, but the Swiss have since changed their minds and ordered the accounts to be unfrozen.

Somewhat ironically, that has prompted the Rivas to instruct a Jersey law firm, Mourant Ozanne, to demand that the family fortune be re-frozen.

Various appeals are pending. It’s a quagmire, and all of it puts poor old UBS in a bind.

UBS Trustees (Jersey). Down here somewhere, past the Spar
UBS Trustees (Jersey). Down here somewhere, past the Spar

Like trustees everywhere, they’re duty-bound to do the best thing by the beneficiaries – while complying with the law. Doing both is not always possible.

Swiss and Italian authorities say that not releasing the money could result in criminal charges. Yet the trusts are with UBS in Jersey.

UBS in Jersey looks like it wants to comply but faces stiff opposition from the Rivas’ lawyers in the island, who have a big beef with how the Italian government’s going about all of this.

A temporary reprieve has been granted by an Italian court. It agreed with the Rivas who say the Italian government’s attempt to seize the money (officials want to use it to buy worthless bonds in the now-bankrupt steelworks to help fund the clean-up) amounts to illegal expropriation.

That might be alright if anyone had ever been convicted of anything, but the Rivas, they point out, haven’t been.  The Italian government’s appealing this one.

In the mean-time, UBS remains in a bind: comply with Italian and Swiss wishes and hand over the €990 million, or face the long arm of the law in its own backyard.

UBS in its Zurich home turf, where the bank DEFINITELY doesn't want to get in trouble
UBS in its Zurich home turf, where the bank DEFINITELY doesn’t want to get in trouble

A CUNNING PLAN

The Rivas’ attempted novel solution to all of this has been to simply change the trustees in Jersey: in effect, to take the conundrum out of UBS Trustees’ hands.

It hasn’t fully worked out though.

At Jersey’s Royal Court the Rivas’ lawyers have successfully applied for two completely different companies – one from Hong Kong and another from New Zealand – to become additional trustees alongside UBS in Jersey.

In theory, that gives them the power to over-rule UBS, and even send them packing, or at least order them to NOT hand over the money in Switzerland…. or Italy…or wherever it is.

A fly in that ointment, though, is that Jersey’s Financial Crime Unit (the police) does not approve of attempts to take the trusts out of UBS control. Nor, indeed, does UBS in Jersey, which fought the move.

Sir Michael Birt, a judge at Jersey’s Royal Court, met them halfway.

Allowing the new trustees to be appointed, he said there’s nothing irrational in trying to protect the family fortune. And confiscating it without a conviction, he pondered, may be in breach of European Human Rights.

So now the trusts are in the hands of those Hong Kong and New Zealand companies, a situation which Sir Michael backdated to September 2015.

But what’s inside the trusts remains tied up with UBS, which won’t play ball with the new trustees, not least because doing so would land it in hot water with the Jersey Financial Crime Unit. The JFCU suspects the contents of the trust could indeed be the proceeds of crime so won’t allow it to be shuffled about willy-nilly.

That means the new trustees, though now in charge, have to prove the money ISN’T the proceeds of crime if they want to do anything with it.

And it looks like that’s ultimately a call for the Italian courts, so don’t expect anything to happen quickly.

In the mean-time, Taranto festers.

Public Sector Pay: Gravy vs Salt?

Money. Jersey's got stacks of it, but not enough for everyone
Money. Jersey’s got stacks of it, but not enough for everyone

Jersey, C.I. – Thorny subjects don’t come much thornier than public sector pay. No-one likes a gravytrain, yet hard-working teachers, nurses and street cleaners always deserve better. Hmm…

Right now, there’s a lot of talk in Jersey about how many people the States should employ, and how much they get paid.

Teachers just got a pay rise they say amounted to a freeze. Manual workers face the chop by the dozen. We have fewer firefighters than before.

Meanwhile, senior officials jet round the world in business class.

(Or at least, they did. That sort of thing is frowned upon now.)

In any case, the ubiquitous ‘They’ say £145 million – half of it in payroll costs – must be shaved from States annual spending by 2019. The public headcount is, therefore, shrinking.

So why isn’t the wage bill?

WHO GETS WHAT?

So ‘They’ have to save £145 million.

That’s a big slice of the States £1.15 billion total spend (or £742 million, depending on your outlook), which we know because the 2015 accounts are just out.

The real bloodbath doesn’t get underway in earnest until at least this year, but by the end of last year they’d made a start.

The picture has doubtless evolved in the first half of 2016, but we only have figures for 2015, which is still helpful.

They show us that through last year, the States’ full-time equivalent headcount (not including arms-length bodies such as SOJDC, Ports, Andium Homes, etc *) dropped 138 from 6,272 to 6,134, ie: by more than 2%.

Meanwhile, total departmental wage and salary costs barely budged from just south of £300 million.

So are they only getting rid of those who are paid next to nothing, or are they paying more to those who stay? Guess what…

TO THE ACCOUNTS…

States of Jersey Staff Costs 2015... and scribbles
States of Jersey Staff Costs 2015… and scribbles
20160616_211405
States of Jersey Staff Costs 2014… and even more scribbles

On paper, the answer looks emphatically to be the latter.

In 2015, eight out of 11 departments lost staff. Education, Social Security and “Non-ministerial States Funded Bodies”, were the exceptions, between them gaining 75 jobs (meaning other departments shed 213) while keeping average salaries more or less flat.

In most of the rest of government, average salaries jumped, in some cases considerably…

CHANGE IN AVERAGE STATES SALARY IN 2015

  • Economic Development (30 staff) £53,820 to £78,497 (+46%)
  • Chief Minister’s Department (222 staff) £51,913 to £62,953 (+21%)
  • TTS (420 staff) £38,124 to £40,612 (+7%)
  • Health & Social Services (2,373 staff) £46,388 to £48,117 (+4%)
  • Environment (107 staff) £53,965 to £55,690 (+3%)
  • Home Affairs (640 staff) £51,439 to £52,371 (+2%)
  • States Assembly Support (25 staff) £48,021 to £48,854 (+2%)
  • Non-ministerial bodies (192 staff) £60,415 to £60,556 (0%)
  • Education, Sport & Culture (1,655 staff) £45,947 to £45,284 (-1%)
  • Social Security (237 staff) £39,341 to £38,932 (-1%)
  • Treasury & Resources (233 staff) £50,537 to £49, 219 (-3%)

It’s possible that a small number of highly paid people moving between departments are doing funny things to the figures. But keep reading…

BROUHAHA

The noise just now is about manual workers at TTS facing redundancy.

From the brouhaha, you’d be forgiven for thinking there must be an army of them, tending our  open spaces, day and night.

It’s a small army. TTS employs about 420 all-in, and you can see from above they’re among the lowest paid in government (although their average is above-average, if you know what I mean).

And they are nowhere near the biggest demand on the wage bill. Civil servants are…

2015 CHANGE IN STATES STAFF COSTS BY JOB TYPE

  • Civil Servants: ROSE from £126.6 million to £127 million
  • Doctors & Nurses: ROSE from £68 million to £68.6 million
  • Teachers: ROSE from £48.6 million to £51.9 million
  • Manual Workers: FELL from £30.9 million to £30.1 million
  • Emergency Services: FELL from £22.6 million to £21.8 million
  • Lawyers and Chief Officers: FELL from £6.6 million to £5.3 million
  • Law Officers: ROSE from £2.5 million to £2.9 million (+16%!)

From the above you can see that last year the States spent £30 million (and falling) on manual workers and £127 million (and rising) on civil servants.

So why are manual workers bearing the brunt of the cuts?

PUZZLE

It may turn out to be a question of perspective.

To anyone affected (and I speak from experience) the prospect of redundancy is bound to feel painful, even unfair.

But it wouldn’t be surprising if the financial size of the cuts planned at TTS – if not the human size – are simply in line with other departments.

We’ll know more about the scale of the cuts in July.

The problem – for manual workers – is that other departments can make a big dent in costs by letting fewer but better-paid workers retire and/or not replacing others who decide their skills are better appreciated elsewhere.

Heck, if enough drift off of their own volition, you can even afford to pay more for those who hang around! Perish the thought.

To achieve the same financial effect, TTS will have to get rid of more people and a bigger proportion of its workforce.

And to boot, they may be less skilled and less mobile so justifiably more worried about their outside prospects and, therefore, less inclined to jump before they’re pushed, even though the writing’s on the wall.

In that context – and with no obvious common ground between worker and employer – compulsory redundancies, public argie-bargies, and strike action seem all but inevitable.

Yet a puzzle remains.

When civil-servant grades are, on paper, collectively doing so well while accounting for by far the biggest whack of the wage bill, it’s surprising ministers are so keen to kick the heavily-unionised manual workers’ beehive.

Perhaps they hope no-one will sit down with the accounts and a calculator and figure out what everyone else in the States is actually getting paid.

Thorny indeed.

(*SOJDC, Ports of Jersey, Andium Homes, etc, are in the accounts but are treated slightly differently and are far smaller, in staff and cash terms, than regular government departments . If you want to do the sums, you can, although they don’t record headcount. I haven’t. Another post, perhaps…?)

 

Tanker War Loot?

tankerwar
Norbert Schiller’s 1987 shot of a Cypriot tanker not long after it had been attacked by Iran

JERSEY, C.I. – Cast your mind back to the Gulf War. Not that one. Nope, not that one. Yup, that one.

The Iran-Iraq War lasted most of the 1980s.

It was a humdinger. No-one really has the foggiest idea how many people died, but most agree it ranged from hundreds of thousands to more than a million, a good many of them civilians.

At the time, the world was living with the daily possibility that tensions between the US and Russia could erupt into nuclear death being rained on at least Europe, if not the whole of humanity.

But one thing the superpowers could agree on was the need to prevent Islam – at least the revolutionary Persian sort – spreading too far beyond Iran’s borders.

So the US, Russia, UK, Germany, Brazil, etc, paid and/or armed Saddam Hussein to slaughter the Iranian revolutionaries, who – for their part – were then and remain now a pretty nasty bunch.

They all set about the bloodshed with tremendous gusto but nobody won. It was all completely in vain. That said, the Iranian revolutionaries are still in power… and we all know what happened to Saddam.

Either way, the war was costly. According to Iranian Perspectives on the Iran–Iraq War, by Farhang Rajaee, the economic cost was more than a trillion dollars.

In the 1980s, that was equivalent to about a quarter of the United States entire GDP.

Talking money may seem crass here, but where there’s war, there’s cash. Buckets of it.

And some of the money from that war – allegedly – is still being fought over in the Royal Court in Jersey.

HOW SO?

In 1987 the war took a turn that really made the West sit up and take notice. Both sides started attacking oil tankers, mainly – but not exclusively – each other’s.

American tankers tended to get left alone.

This got Abdul Fattah Al Bader thinking.

He was an executive at the state-owned Kuwait Oil Tanker Company, which was nervous about what was becoming known as “The Tanker War”.

So Al Bader and his cronies set up offshore shell companies all over the world (although not in Jersey) that allowed the Kuwaiti tankers to sail safely under American flags. The wheeze also allowed Al Bader and his chums to pocket about $140 million.

Al Bader fled Kuwait for England before being sentenced in the 1990s to 35 years in prison in his home country. He’s dead now, but 20 years later and Kuwait still wants its money back.

One of the places they’re chasing it is Jersey.

SWANKY PAD

In particular, they’re interested in a London property – a swanky pad at 104 Berkeley Court, Marylebone Road, NW1 5NE.

104 Berkeley Court. Yours for a few million. Pic from Google Maps
104 Berkeley Court. Pic from Google Maps

It was bought around 2003 by a Jersey company (see where this is going?) called Westport Limited, which is a run by the very-much-still-alive-and-kicking Jersey-based trust company, Sanne.

They looked after Westport on behalf of Nouriya Al Mutawa, Al Bader’s sister-in-law.

Here’s where it gets tricky, and contested.

She says she used her own money to buy the flat for her sister and the late Al Bader so they’d have somewhere to live after he was held to account around 2003 for the tanker wheeze and made bankrupt.

Not so, say the Kuwaitis. The money for the flat was, they say, Al Bader’s loot and should be returned.

The Kuwaitis have been pursuing this in Jersey’s Royal Court for years. Nouriya Al Mutawa recently tried to have the case thrown out but failed. A public trial looks likely.

LOOKING STICKY

As evidence, the Kuwaitis point to another London pad, 80 Viceroy Court. You might not immediately see why this bit’s important, but stick with it.

80 Viceroy Court on the right, Regent's Park on the left...
From Google Maps: 80 Viceroy Court on the right, Regent’s Park on the left…

It was owned by a BVI-registered outfit called Pontirana Investments Limited, and it was to this comfortable hideaway that Al Bader and his fairer half first fled when things started looking sticky for them in Kuwait.

Kuwait’s liberation by the US in 1991 hadn’t done Al Bader any favours. At least he could escape to neutral England.

Or could he? The English High Court has long since ruled that 80 Viceroy Court was bought with dodgy loot. The Al Bader family were kicked out and Viceroy Court was turned over to the Kuwaitis.

Not content, though, they say Al Bader immediately sweet-talked his sister-in-law, Nouriya, into setting up the Jersey company in order to buy him ANOTHER London home.

To back this up, the Kuwaitis say it was Al Bader who told lawyers at the now defunct London law firm, Gardner Weller, that his wife or sister was about to buy a flat for his family. He also allegedly mentioned it to his own lawyers at the still-up-and-running law firm Olswang, who allegedly told him to draw up a lease between whoever ‘owned’ the place (his sister-in-law) and whoever lived there (Al Bader).

This, say the Kuwaitis, was all smoke and mirrors and is actually evidence that the £1.4 million used to buy 104 Berkely Court came from none other than Al Bader, who in any case never paid proper rent.

According to court papers, the Al Baders paid £1,000 a month… pennies for a multi-million pound central London des-res.

CROWNING IRONY

Yet there they lived until Al Bader died in 2009. Not long after, in an irony to crown all ironies, Mrs Al Bader fled England for her native Kuwait before being required to clear up her dead husband’s mess.

According to Jersey Royal Court papers, a UK warrant for her arrest remains outstanding and she is on an all-ports watchlist.

The Berkeley Court flat has, by the way, since been sold and the money – £3.25 million (that’s London for ya!) – is held up in an English court.

The difference now is that it’s not Mrs Al Bader but her sister, Nouriya, who’s left with the mess.

Nouriya says the £1.4 million actually came from her cousin, Anwar Sultan Al-Essa, who claims he owed it to Nouriya’s late brother, Fiaz Abdul Aziz Almutawa.

In effect, she says she inherited her brother’s debt. We don’t what his children have to say about that.

In any case, the cash and the flat it paid for were and are, says Nouriya, her, hers alone, and nothing to do with Al Bader or the dodgy tanker war loot.

CIRCUMSTANTIAL

The Kuwaitis disagree, saying the family are all in it together.

Nouriya, through her lawyer, Advocate David Blackmore from Jersey law firm Appleby’s, says the evidence is circumstantial and has asked – unsuccessfully – for the case to be thrown out.

But acting for the defrauded Kuwait Oil Tanker Company (which is owed many millions) Advocate Bruce Lincoln, from Mourant Ozanne, says Nouriya’s whole argument smacks of the same legal arguments Al Bader used when unsuccessfully trying to hang on to that original London property…. 80 Viceroy Court.

Back then, in the English High Court, Al Bader had said that 80 Viceroy Court had been bought with repayment of a debt from another of Nouriya’s cousins, a Dr Al-Mutawa. That, said Advocate Lincoln, had held no truck with the High Court years ago regarding 80 Viceroy Court, so nor should the current argument in Jersey’s Royal Court regarding 104 Berkeley Court.

“PULLING THE STRINGS”

Advocate Lincoln points to faxes from 2003, when the second flat, 104 Berkeley Court, was being bought, that seem to suggest Al Bader was in fact “pulling the strings”.

This line, from Nouriya’s lawyer at City law firm Devonshire to Al Bader, is suggestive: “If we are seen to be taking instructions from you on a daily basis, that will produce the very evidence that we do not want, namely it will suggest you are the beneficial owner.”

The Kuwaitis, via Advocate Lincoln, also wonder why Nouriya has, to date, come up with five different explanations as to where this £1.4 million to buy the flat came from. The court heard she simply “can’t remember” why this might be.

Al-Essa, for his part (he’s Nouriya’s cousin who re-paid the alleged £1.4 million debt) says he owed the money to Nouriya’s late brother Fiaz, who he’d bought ANOTHER flat from…in 1982…in Lebanon…for $60,000.

Quite how or why a $60,000 property transaction would even take place amid the 1980’s other most dreadful middle-eastern war (250,000 dead) is a mystery. How the $60,000 turned into £1.4 million is another.

Neither mystery was answered in Jersey Royal Court, which came down on the side of Advocate Lincoln and the Kuwaitis.

That is to say, Nouriya’s attempt to chuck out the Kuwait Oil Tanker Company’s claim was itself chucked out.

The case continues.