Apple’s cash mountain, how it avoids tax, and the Irish link

(THIS ARTICLE IS COURTESY OF THE IRISH TIMES)

(OPED: PEOPLE LIKE APPLE’S TIM COOK WHO GO BEFORE CONGRESS AND LIE HIS -SS OFF SHOULD BE ARRESTED AT ONCE AND HELD WITHOUT BAIL. IF THE AVERAGE PERSON DID THESE SAME CRIMES THEY WOULD BE THROWN UNDER THE JAIL. IN MY OPINION, IT SHINES A LIGHT ON THE REAL WORLD OF POLITICAL CONTRIBUTIONS, IF YOU ARE A BIG MONEY GIVER TO THE POLITICIANS (BUYING THEM), YOU ARE ALLOWED TO BREAK THE LAWS AND STEAL BILLIONS THROUGH TAX FRAUD.) (TRS)

Apple’s cash mountain, how it avoids tax and the Irish link

Paradise Papers: Elite tax advisers help Apple and others skirt effects of ‘double Irish’ crackdown

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The International Consortium of Investigative Journalists (ICIJ), use the example of a fictional fast-food chain, Snax Haven, in explaining how offshore tax avoidance systems work. Video: ICIJ

It was May 2013, and Apple Inc’s chief executive, Tim Cook, was angry. He sat before the United States Senate’s permanent subcommittee on investigations, which had completed an inquiry into how Apple avoided tens of billions of dollars in taxes by shifting profits into Irish subsidiaries that the subcommittee’s chairman called “ghost companies”.

“We pay all the taxes we owe, every single dollar,” Cook declared. “We do not depend on tax gimmicks . . . We do not stash money on some Caribbean island.”

Tim Cook looks on as the new iPhone X goes on sale at an Apple Store on November 3rd, 2017 in Palo Alto, California. Photograph: Justin Sullivan/Getty
Tim Cook looks on as the new iPhone X goes on sale at an Apple Store on November 3rd, 2017 in Palo Alto, California. Photograph: Justin Sullivan/Getty

Five months later Ireland bowed to international pressure and announced a crackdown on Irish firms, like Apple’s subsidiaries, that claimed that almost all of their income was not subject to taxes in Ireland or anywhere else in the world.

Now leaked documents shine a light on how the iPhone maker responded to this move. Despite its CEO’s public rejection of island havens, that’s where Apple turned as it began shopping for a new tax refuge.

Apple’s advisers at one of the world’s top law firms, the US-headquartered Baker McKenzie, canvassed one of the leading players in the offshore world, a firm of lawyers called Appleby, which specialized in setting up and administering tax-haven companies.

A questionnaire that Baker McKenzie emailed in March 2014 set out 14 questions for Appleby’s offices in the Cayman Islands, the British Virgin Islands, Bermuda, the Isle of Man, Guernsey and Jersey.

One asked that the offices “Confirm that an Irish company can conduct management activities . . . without being subject to taxation in your jurisdiction.”

Apple also asked for assurances that the local political climate would remain friendly: “Are there any developments suggesting that the law may change in an unfavorable way in the foreseeable future?”

Tim Cook, CEO of Apple, speaks about the iPhone X during a launch event in Cupertino, California on September 12th, 2017. Photograph: Stephen Lam/Reuters.
Tim Cook, CEO of Apple, speaks about the iPhone X during a launch event in Cupertino, California on September 12th, 2017. Photograph: Stephen Lam/Reuters.

In the end Apple settled on Jersey, the tiny island in the English Channel that, like many Caribbean havens, charges no tax on corporate profits for most companies. Jersey was to play a significant role in Apple’s newly configured Irish tax structure set up in late 2014. Under this arrangement, the MacBook maker has continued to enjoy ultralow tax rates on most of its profits and now holds much of its non-US earnings in a $252 billion mountain of cash offshore. The Irish Government’s crackdown on shadow companies, meanwhile, has had little effect.

The inside story of Apple’s hunt for a new avoidance strategy is among the disclosures emerging from a leak of secret corporate records that reveals how the offshore tax game is played by Apple, Nike, Uber and other multinational corporations – and how top law firms help them exploit gaps between differing tax codes around the world.

The documents come from the internal files of the offshore law firm Appleby and the corporate services provider Estera, two businesses that operated together under the Appleby name until Estera became independent in 2016.

The files show how Appleby played a cameo role in creating many cross-border tax structures. The German newspaper Süddeutsche Zeitung obtained the records and shared them with the International Consortium of Investigative Journalists and its media partners, including The Irish Times, the New York Times, Australia’s ABC, the BBC in the United Kingdom, Le Monde in France and CBC in Canada.

These disclosures come as the White House and Congress consider cutting the US federal tax on corporate income, pushing its top rate of 35 percent down to 20 percent or lower. President Donald Trump has insisted that American firms are getting a bad deal from current tax rules.

The documents show that, in reality, many big US multinationals pay income taxes at very low rates, thanks in part to complex corporate structures they set up with the help of a global network of elite tax advisers.

In this regard, Apple has led the field. Despite almost all design and development of its products taking place in the US, the iPhone maker has for years been able to report that about two-thirds of its worldwide profits were made in other countries, where it has used loopholes to access ultralow foreign tax rates.

Now leaked documents help show how Apple quietly carried out a restructuring of its Irish companies at the end of 2014, allowing it to carry on paying taxes at low rates on the majority of global profits.

Multinationals that transfer intangible assets to tax havens and adopt other aggressive avoidance strategies are costing governments around the world as much as $240 billion a year in lost tax revenue, according to a conservative estimate in 2015 by the Organisation for Economic Cooperation and Development.

Corporate creativity

Documents reviewed by ICIJ and other media partners provide insight into how those strategies work. They show the creative methods that advisory firms devise in response to attempts by regulators to crack down on tax shelters.

“US multinational firms are the global grandmasters of tax-avoidance schemes that deplete not just US tax collection but the tax collection of most every large economy in the world,” said Edward Kleinbard, a former corporate lawyer who is now a professor of tax law at the University of Southern California.

The Trump administration and the United States Congress are considering whether to grant a one-time tax holiday that would allow big multinationals to bring home, at a sharply reduced tax rate, more than $2.6 trillion they have stowed in offshore subsidiaries.

Kleinbard said the prospect of a big corporate tax holiday “simply begs companies to ramp up their tax-avoidance strategy still further in anticipation of more holidays in years to come. And it removes pressure for genuine reform.”

An Apple spokesperson declined to answer a list of questions about the company’s offshore tax strategy, except to say it had informed US, Irish and European Commission regulators of its reorganization at the end of 2014. “The changes we made did not reduce our tax payments in any country,” the spokesman said.

He added: “At Apple, we follow the laws, and if the system changes we will comply. We strongly support efforts from the global community toward comprehensive international tax reform and a far simpler system, and we will continue to advocate for that.”

By quietly transferring trademarks, patent rights, and other intangible assets to offshore companies, many other global businesses have also been able to cut their tax bills dramatically.

The leaked papers show how the ownership of prized assets – including rights to Nike’s Swoosh trademark, Uber’s taxi-hailing app and medical patents covering such treatment options as Botox and breast implants – could all be traced to a five-story office block in Bermuda occupied by Appleby and Estera.

Ownership of Facebook’s user database for most countries outside the United States, as well as rights to use its platform technology – together worth billions of dollars – has been held through companies at a similarly unassuming address on Grand Cayman used by Appleby and Estera. And Apple’s money trail has been traced to a building used by Appleby and Estera in Jersey, 30km off the coast of northern France.

Addresses shared by the two offshore firms on tax-haven islands have played host to secretive shell companies buried deep within the corporate architecture of many of the largest multinationals. Despite moves by governments to phase out loopholes, tax shelters remain as popular as ever.

Governments around the world have challenged some of the tax structures maintained by Appleby and Estera clients – though not always successfully. Nike triumphed over the US Internal Revenue Service a year ago. A dispute between Facebook and US tax authorities continues to play out in court. Apple, meanwhile, is being pursued €13 billion in Irish back taxes after European regulators ruled that Ireland had granted illegal state aid by approving Apple’s tax structure.

The leaked documents help explain how three small jurisdictions – the Netherlands, Ireland, and Bermuda – have become go-to destinations for big corporations looking to avoid taxes on their overseas earnings. Among them, these three spots hold less than one-third of 1 per cent of the world’s population – but they accounted for 35 per cent of all profits that US multinationals reported earning overseas last year, according to analysis by Gabriel Zucman, an economist at the University of California, Berkeley.

Holy grail

Over three decades US multinationals have been growing bolder, shifting vast chunks of profits into tax havens. Concerns about their tactics were largely ignored until government finances around the world came under pressure in the wake of the 2008 financial crisis. Beginning in the autumn of 2012, the issue came to a head in a welter of government inquiries, tax-inspector raids, investigative reporting and promises of reform.

By the time the US Senate permanent subcommittee on investigations released 142 pages of documents and analysis for its public hearing on Apple’s tax avoidance in May 2013, the world was paying attention. The subcommittee found that Apple was attributing billions of dollars of profits each year to three Irish subsidiaries that declared “tax residency” nowhere in the world.

Under Irish law, most firms incorporated in Ireland are required to pay taxes locally on their profits. But if the directors are able to convince the Irish tax authorities that a company is “managed and controlled” abroad, it can often escape all, or almost all, Irish tax

For more than two decades the directors of Apple’s three Irish companies – including, for many years, Tim Cook – did just that. By running these Irish subsidiaries from group headquarters in California they avoided Irish tax residency.

At the same time, the directors knew that their Irish companies would not qualify for tax residency in the United States because American tax law worked differently. Under US rules a company has American tax residency only if it is incorporated there.

“Apple sought the holy grail of tax avoidance: offshore corporations that it argues are not, for tax purposes, resident anywhere in any nation,” Carl Levin, then a Democratic senator for Michigan, and chairman of the Senate subcommittee, said at the 2013 hearing.

Ireland’s minister for finance at the time, Michael Noonan, at first defended his country’s policies, saying, “I do not want to be the whipping boy for some misunderstanding in a hearing in the US Congress.” But by October 2013, in response to growing international pressure, he announced plans to require Irish companies to declare tax residency somewhere in the world.

Minister for Finance Michael Noonan in the Dáil: “For existing companies, there will be provision for a transition period until the end of 2020”
Minister for Finance Michael Noonan in the Dáil: “For existing companies, there will be provision for a transition period until the end of 2020”

At that time Apple had accumulated $111 billion in cash almost entirely held by its Irish shadow companies, beyond the reach of US tax authorities. Each year the pile grew higher and higher as billions of dollars in profits poured into these low-tax subsidiaries.

Company officials wanted to keep it that way.

So Apple sought alternatives to replace the tax-shelter arrangements that Ireland would soon shut down. At the same time, however, the iPhone maker wanted its interest in the offshore world kept quiet.

As Cameron Adderley, global head of Appleby’s corporate division explained in an email to other senior partners: “For those of you who are not aware Apple [officials] are extremely sensitive concerning publicity . . . They also expect the work that is being done for them only to be discussed amongst personnel who need to know.”

For Appleby, Adderley explained, this was “a tremendous opportunity for us to shine on a global basis with Baker McKenzie”.

Baker McKenzie’s role in setting up offshore structures for multinationals, and then defending them when challenged by tax regulators, is legendary. The law firm has also been involved in lobbying against proposals to crack down on tax avoidance by technology giants. It has 5,000 attorneys in 77 offices around the world. Former partners include Christine Lagarde, the former French finance minister and now managing director of the International Monetary Fund.

Behind closed doors, Apple decided that two of its Irish companies should, with the help of Appleby, claim tax residency in Jersey, one of the largest island shelters with strong links to the UK banking system, where Apple’s Irish subsidiaries already held accounts. Jersey is a crown dependency of the United Kingdom, but it makes its own laws, sets its own tax rates and is not subject to most European Union legislation, making it a popular tax haven.

Double Irish

As Apple’s plans to use an offshore tax haven progressed another potential problem emerged. In mid-2014, again under pressure from other governments, Ireland had begun exploring a ban on the tax shelter known as the double Irish, an avoidance strategy used by scores of companies, including Google, Facebook, LinkedIn, other tech companies and drugmakers such as Abbott Laboratories.

The double Irish allows companies to collect profits through one Irish unit that actually employs people in Ireland and is tax resident there, then route those profits to a second Irish subsidiary that claims tax residency in a low-tax island such as Bermuda, Grand Cayman or the Isle of Man.

A crackdown on such arrangements could have interfered with Apple’s plans in Jersey before they had got off the ground. Although it was aimed at double-Irish structures the potential rule change would ban all Irish companies from claiming tax residency in a tax haven.

Although the iPhone maker was not in a position to protest loudly, others spoke up. California-based Terilea Wielenga, who was the international president of the Tax Executives Institute, wrote to Noonan in July 2014, warning that moves that would effectively ban double-Irish structures “may not be prudent”. And if Irish ministers did press ahead, she added, they would be well advised to incorporate “a substantial transition period”.

What her letter did not tell, but leaked Appleby papers now show, was that Wielenga was quietly orchestrating a long-standing double-Irish structure at Allergan, the maker of Botox, where at the time she worked as head of tax. For more than a decade the structure has shifted profits away from Ireland, where Allergan has a Botox factory, to Bermuda.

The ICIJ attempted to contact Wielenga but did not receive a response. Allergan did not answer specific questions about its tax affairs but said: “Allergan abides by all applicable tax laws and accounting rules and pays all taxes owed in all jurisdictions where it does business.”

The lobbying seemed to work.

Ireland included a generous grandfathering clause for Allergan and other multinationals using Irish tax structures. “For existing companies, there will be provision for a transition period until the end of 2020,” Noonan declared on October 14th, 2014.

More precisely, the fine print of policy documents revealed, the grandfathering provisions would apply not just to companies in existence when the finance minister spoke but also any new ones created up until the end of 2014.

That gave Apple just enough time. By the start of 2015, it had restructured its affairs in Ireland, including securing tax residency in Jersey for Apple Sales International and Apple Operations International, two of the three Irish shadow companies highlighted in the US Senate investigation a year earlier.

For the previous five years, Apple Sales International had been Apple’s biggest profit generator, churning out more than $120 billion, or close to 60 percent of Apple’s worldwide earnings.

Meanwhile, much of that profit was transferred as dividends to Apple Operations International, described by Cook as “a company set up to provide an efficient way to manage Apple’s cash”.

Before their move to Jersey, these two subsidiaries had played a leading role in helping Apple accumulate and hold $137 billion in cash – most of which came from non-US profits barely taxed by any government in the world.

The latest figures indicate that since Apple’s reorganization of its Irish companies this sum has increased 84 percent, although Apple won’t confirm which of its foreign subsidiaries own this cash.

This pile of money has inadvertently made Apple one of the biggest investment funds in the world, and its offshore cash reserves have been put to work in a portfolio that includes corporate bonds, government debt, and mortgage-backed securities.

Under the wire

Apple was not the only multinational that moved quickly to grab a final chance before 2015 dawned.

“At the end of 2014 a window of opportunity closes,” advisers from the big US law firm DLA Piper explained to CitiXsys, a retail software supplier based in New York. DLA Piper set out a frenetic schedule of incorporations and intellectual-property transfers to be rushed through before the new year to set up a double Irish.

As DLA Piper explained, this arrangement “must be managed and controlled in [a] 0% or low tax jurisdiction, such as the Isle of Man, where the bulk of profits are recognized”. That way the entire structure “produces a very low effective tax rate, approximately 5% to 7%”.

ICIJ contacted CitiXsys and other multinationals featured in this story. CitiXsys did not respond, and Uber declined to comment. Nike, Facebook, and Allergan declined to answer questions but provided general statements saying they fully complied with tax regulations in countries where they operate.

DLA Piper declined to comment, and Baker McKenzie said it does not discuss client matters. Appleby declined to answer questions but said on its website: “We are an offshore law firm who advises clients on legitimate and lawful ways to conduct their business.” Estera, the corporate-services company that split away from Appleby at the beginning of 2016 and continues to administer many offshore companies on behalf of clients, declined to comment.

Finding home

While CitiXsys’s rapidly assembled structure mirrored the structures embraced by Facebook, Google and others using the double Irish, Apple’s reorganized Irish companies appear to function very differently.

The iPhone maker has declined to answer ICIJ’s questions about its new setup, but it appears to give a key role to another of Apple’s Irish subsidiaries, a company called Apple Operations Europe.

Together with Apple Operations International and Apple Sales International, the company made up the three Irish firms criticised by US senators in 2013 for being “ghost companies”, tax resident nowhere in the world.

By 2015 tighter Irish laws had caused all three to find a new tax home. But while the other two Irish companies took up residence in Jersey, Apple Operations Europe became tax resident in Ireland, the country of its incorporation.

A clue to why a multinational might want a subsidiary that was liable for taxes in Ireland can be found, once again, in Michael Noonan’s budget announcement in 2014.

While media headlines focused on his decision to crack down on double-Irish arrangements, less attention was paid to measures not mentioned in his budget speech but contained in accompanying policy documents. In particular, the paperwork revealed plans to expand an already generous tax regime for companies that bring the intangible property into Ireland.

The incentive, known as a capital allowance, offered Irish companies big tax deductions over many years if they spent money buying expensive intangible property.

Importantly for multinationals, however, it was also available to an Irish company that bought the intangible property from another company within the same group.

The arrangement was especially attractive to those multinationals that were in a position to sell their intangible property into Ireland from a subsidiary in a tax haven, where the gain from the sale would go untaxed.

In effect, even though the internal sale would cost the multinational nothing, such a move could nevertheless unlock huge tax breaks in Ireland.

Leprechaun economics

Even before Noonan sweetened the terms of this capital allowance tax break, some experts suggested it could be used to achieve tax rates as low as 2.5 percent.

Apple declined to answer questions about whether it has taken advantage of this tax break by selling rights to use its intangible property from Apple Sales International in Jersey to Apple Operations Europe in Ireland.

It’s clear, though, that a large amount of intangible property landed abruptly in Ireland around the period when Apple reorganized its three Irish subsidiaries. In fact, the country’s gross domestic product for 2015 leaped by an incredible 26 per cent, boosted by close to $270 billion of intangible assets suddenly appearing in Ireland’s national accounts at the start of the year – more than the entire value of residential property in Ireland.

The Nobel Prize-winning economist Paul Krugman called the development “Leprechaun economics”.

The ICIJ showed the findings from its investigation to J Richard Harvey, a Villanova University law professor, and Stephen Shay, senior lecturer at Harvard Law School. In 2013 both of them gave detailed testimony on Apple’s previous Irish structure to the US Senate committee’s investigation. They both told the ICIJ it appeared likely the iPhone maker had transferred intangible assets to Ireland.

“While it is not 100 percent clear how Apple has restructured its Irish operations, one strong possibility is that they have transferred more than $200 billion of valuable intangible assets . . . to an Irish resident company, for example, Apple Operations Europe,” Harvey said.

An Apple staff member counts a customer’s money as they pay for a new iPhone X at an Apple shop during its launch in Moscow, Russia, on November 3rd, 2017. Photograph: Sergei Ilnitsky.
An Apple staff member counts a customer’s money as they pay for a new iPhone X at an Apple shop during its launch in Moscow, Russia, on November 3rd, 2017. Photograph: Sergei Ilnitsky.

Shay added: “By using Irish intangible property tax reliefs, Apple likely will pay little or no additional Irish tax for years to come on income at Apple Operations Europe.

The Department of Finance in Dublin told the ICIJ: “The Irish regime for capital allowances . . . is broadly similar to regimes available in other countries and does not confer any additional benefits to multinationals.”

However, in October 2017, Ireland reversed the sweetened terms Noonan had added to the tax break three years earlier.

Apple said that following its reorganization it pays more Irish tax than before. “The changes we made did not reduce our tax payments in any country,” Apple said in a statement. “In fact, our payments to Ireland increased significantly and over three years [2014, 2015 and 2016] we’ve paid $1.5 billion in tax there – 7% of all corporate income taxes paid in that country.”

But the iPhone maker still won’t say how much profit it makes through its Irish companies – making it impossible to gauge whether $1.5 billion is a lot of tax to pay in three years or not.

Reuven Avi-Yonah, director of the international tax program at the University of Michigan Law School, said Apple was “determined not to be hurt” when it had to abandon its previous Irish structure. “This is how it usually works: You close one tax shelter, and something else opens up,” he said. “It just goes on endlessly.”

Jesse Drucker, a reporter with the New York Times, contributed to this story

China threatens U.S. Congress for crossing its ‘red line’ on Taiwan

(THIS ARTICLE IS COURTESY OF THE WASHINGTON POST)

 

Josh Rogin

China threatens U.S. Congress for crossing its ‘red line’ on Taiwan

 October 12 at 6:00 AM

President Trump welcomes Chinese President Xi Jinping at Mar-a-Lago in Palm Beach, Fla., on April 6. (Carlos Barria/Reuters)

In a rare pressure campaign, the Chinese government is demanding that the U.S. Congress back off passing new laws that would strengthen the U.S. relationship with Taiwan. Beijing’s efforts are the latest sign that it is stepping up its campaign to exert political influence inside countries around the world, including the United States.

In response to proposed legislation in both the House and Senate, the Chinese Embassy in Washington lodged a formal complaint with leading lawmakers, threatening “severe consequences” for the U.S.-China relationship if Congress follows through. China’s tactics have angered lawmakers and staffers in both parties, who call them inappropriate and counterproductive.

In an August letter from Chinese Ambassador Cui Tiankai that I obtained, the Chinese government expressed “grave concern” about the Taiwan Travel Act, the Taiwan Security Act and Taiwan-related provisions in both the House and Senate versions of this year’s National Defense Authorization Act.

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The measures represent “provocations against China’s sovereignty, national unity and security interests,” and “have crossed the ‘red line’ on the stability of the China-U.S. relationship,” the letter stated.

The letter was sent to leaders of the House and Senate’s foreign relations and armed services committees and called on them to use their power to block Taiwan-related provisions in the bills. Lawmakers and aides told me the Chinese threat of “severe consequences” was unusual and out of line.

“The United States should continue to strengthen our relationship with Taiwan and not allow Chinese influence or pressure to interfere with the national security interests of the U.S. and our partners in the region,” said Sen. Marco Rubio (R-Fla.), the sponsor of the Taiwan Travel Act, which calls for more visits by U.S. officials to Taiwan and by Taiwanese officials to the United States.

The House Foreign Affairs Committee’s ranking Democrat Eliot L. Engel (N.Y.) told me Cui’s letter stood out because of its threatening tone. “China carries out this kind of heavy-handed behavior with other countries around the world,” he said. “It’s interesting to me that they now feel that they can get away with these kind of threats and vague pressure tactics with the U.S. Congress.”

The issue is coming to a head as the House and Senate Armed Services committees negotiate over the must-pass defense policy bill. The Senate version has several strong Taiwan-related provisions, thanks to amendments added by Sen. Tom Cotton (R-Ark.). It would authorize Taiwanese ships to make port calls to U.S. naval bases and vice versa, invite Taiwan to the “Red Flag” international military exercises and provide for increased supply of U.S. defense articles to Taiwan. The House version of the bill contains softer versions of those provisions that give the administration more flexibility.

When the two chambers go to conference, lawmakers and aides will have to reconcile the two versions. It’s a delicate negotiation, and aides resent the blatant Chinese efforts to influence it.

“Making these sorts of threats and laying down ‘red lines’ on domestic legislative action is neither helpful or constructive to build the sort of relationship needed between the United States and China,” a Senate Democratic aide said.

By stating that the “red line” had been crossed by the mere introduction of legislation, the Chinese government seems to be saying it believes that Chinese interference in U.S. domestic political processes is appropriate, the aide said.

Other congressional aides said that no other embassy uses threats as a tactic to influence Congress, especially not via an official communication. Most embassies try to build relationships and persuade U.S. policymakers to support what they believe is in their national interest. But not China.

Beijing’s worldwide strategy to exert political influence inside other countries’ decision-making processes has been expanding for years. It’s just now getting noticed in the United States.

“It’s a concentrated, long-term, political-warfare influence operations campaign that has been going on for a long time but has definitely become more brazen,” said Dan Blumenthal, a former Pentagon Asia official now with the American Enterprise Institute.

Chinese pressure on domestic institutions in other countries takes many forms, he said. For example, Chinese government delegations routinely pressure U.S. governors by threatening to withhold economic benefits if they, for example, meet with the Dalai Lama.

In Australia, there’s a huge debate about Chinese pressure on universities to alter curriculum to match Chinese propaganda. In Spain, the government controversially changed the law to curb prosecutions of foreign leaders for human rights violations, under Chinese government pressure.

“We don’t really recognize the Chinese efforts to coerce political influence in other countries. That’s not even on our radar,” said Blumenthal. “It’s part of Chinese grand strategy. It’s a big, big deal.”

Congressional action over the next weeks and months will be a test of the legislative branch’s willingness to stand up to Chinese bullying and continue a long tradition of seeking improved engagement with Taiwan. Even if the House and Senate compromise, they should send a clear message that China’s tactics won’t work.

Vladimir Putin Doesn’t Understand the Limits of Donald Trump’s Power

(THIS ARTICLE IS COURTESY OF TIME.COM NEWS)

 

Russian President Vladimir Putin visits Finland
Russian President Vladimir Putin holds a joint press conference with Finland’s President Sauli Niinisto in Savonlinna, Finland, on July 27, 2017. Mikhail Svetlov—Getty Images

Vladimir Putin Doesn’t Understand the Limits of Donald Trump’s Power

7:07 AM ET

There are still many in Russia who take pleasure in watching the White House consumed by infighting and stumbling from one setback to another, most recently the failure to push through health care reform and the rapid hiring and firing of foul-mouthed communications director Anthony Scaramucci. But the more common feeling around the Kremlin these days might seem familiar to many Republicans. After observing Trump in office for more than six months, there is a mix of disappointment and foreboding.

President Vladimir Putin seems particularly out of sorts. By now he has realized that betting on Trump represents a mistake he has made before with Western leaders, and his decision on Sunday to expel hundreds of diplomats and other personnel from the U.S. embassy in Moscow shows that he’s ready to cut his losses. “There was nothing more to wait for,” his spokesman, Dmitry Peskov, said in explaining the decision on Monday. “It was all pretty obvious.”

And Putin should have known better. His closest alliances with the West have all gone the same way. Whether it was Jacques Chirac in France, Silvio Berlusconi in Italy or Gerhard Schroeder in Germany, each was built on a personal rapport with an incoming head of state, always another man, usually also a blowhard. Each collapsed when that leader was confronted by the limitations of democracy: term limits, a free press, an independent legislature, an unhappy electorate, or any of the other checks and balances built into their constitutions. But with each new attempt at a friendship with the West, Putin seemed to hope that his counterparts could override these curbs on their authority the same way Putin has done in Russia.

They have always let him down, though none quite as spectacularly as President Trump. The U.S. Congress sent Trump a veto-proof bill on July 27 imposing new sanctions on Russia for its alleged interference in the U.S. presidential elections last year, not even a month after the two Presidents met for the first time during the G20 summit in Hamburg, Germany. To many in Moscow, the legislation proved Trump to be a feckless leader, unable to make good on his earnest promises to “get along” with Russia. “Since Trump cannot handle his own lawmakers, it means he is weak,” the Russian political analyst Alexei Makarkin wrote in an analysisof the sanctions bill.

But the point Makarkin missed was the one that Putin also seems incapable of getting his head around: that members of the U.S. Congress, including the Republicans, are not Trump’s “own lawmakers.” They represent a co-equal branch of government, much like the judiciary that has repeatedly blocked Trump’s agenda on immigration.

That confusion over the limits on executive authority goes back to the early years of Putin’s presidency, when he established control over the Russian media and began to assume that his Western counterparts could do the same in their countries. During a summit in 2005 with then-President George W. Bush, Putin refused to believe that the U.S. commander-in-chief does not have the power to muzzle American journalists. “Don’t lecture me about the free press,” Putin said, according to Bush’s memoir. “Not after you fired that reporter.”

It took a moment for Bush to realize what Putin was talking about. “Vladimir,” he said, “Are you talking about Dan Rather?” The veteran broadcaster had been forced to apologize and resign from CBS News a few months earlier, not due to any White House fiat but because of a flawed report on Bush’s service in the National Guard. In Putin’s eyes, the incident showed that the American posturing about freedom of the press was a charade. Bush tried to set him straight. “I strongly suggest you not say that in public,” he recalls telling the Russian President. “The American people will think you don’t understand our system.”

But that’s just it – he doesn’t. A few years into my stint as a reporter in Moscow, I lost track of the number of officials who tried to explain to me that there is no such thing as an independent journalist. One official even started our interview by exclaiming that American reporters are all just secret agents in disguise. This is how Pavel Astakhov, then the Kremlin ombudsmen for children’s rights, greeted me one afternoon in 2013: “The CIA is here!” he shouted, laughing, to his assistant. “Send him in!”

He wasn’t entirely kidding. In Russian officialdom (and among the public generally) people often assume that the West functions a lot like Russia, with a tame judiciary, a subservient media and a ruling clique that pulls all the strings. This view of the world makes it easier to brush away foreign criticism: if everyone is corrupt, no one has the right to judge. But a lot of very senior officials in Moscow also happen to believe this.

They tended to believe, for instance, that Trump would be able to override the other branches of government in pursuing his agenda, especially when it comes to easing U.S. sanctions against Russia. On a deeper level, they believe that power in the U.S., like in Russia, is concentrated in the hands of the executive, while the rest is mostly democratic window dressing.

And that conviction is not likely to budge amid the latest lesson in American civics. On Russian state television channels, Trump’s failure to silence the media and force his agenda through Congress and the courts has simply been cast as further proof that the U.S. is run by some all-powerful cabal – only this time the cabal has turned on the U.S. President.

It is a new twist on a familiar narrative, and it suggests that the Kremlin still holds out hope for Trump getting a grip on the American system and steering it toward an alliance with Moscow. “We have fed the hope that the situation will change,” Putin lamented on Sunday in a televised interview. “But it seems that if this change does come, it won’t be soon.”

U.S. Senate Votes Near Unanimously (98-2) For Russia, Iran Sanctions

(THIS ARTICLE IS COURTESY OF REUTERS)

U.S. Senate votes near unanimously for Russia, Iran sanctions

By Patricia Zengerle | WASHINGTON

The U.S. Senate voted nearly unanimously on Thursday for legislation to impose new sanctions on Russia and force President Donald Trump to get Congress’ approval before easing any existing sanctions on Russia.

In a move that could complicate U.S. President Donald Trump’s desire for warmer relations with Moscow, the Senate backed the measure by 98-2. Republican Senator Rand Paul and Bernie Sanders, an independent who caucuses with the Democrats, were the only two “no” votes.

The measure is intended to punish Russia for meddling in the 2016 U.S. election, its annexation of Ukraine’s Crimea region and support for Syria’s government in the six-year-long civil war.

If passed in the House of Representatives and signed into law by Trump, it would put into law sanctions previously established via former President Barack Obama’s executive orders, including some on Russian energy projects. The legislation also allows new sanctions on Russian mining, metals, shipping and railways and targets Russians guilty of conducting cyber attacks or supplying weapons to Syria’s government.

“The legislation sends a very, very strong signal to Russia, the nefarious activities they’ve been involved in,” Senator Bob Corker, the Republican chairman of the Senate Foreign Relations Committee, said as lawmakers debated the measure.

If the measure became law, it could complicate relations with some countries in Europe. Germany and Austria said the new punitive measures could expose European companies involved in projects in Russia to fines.

The legislation sets up a review process that would require Trump to get Congress’ approval before taking any action to ease, suspend or lift any sanctions on Russia.

National flags of Russia and the U.S. fly at Vnukovo International Airport in Moscow, Russia April 11, 2017.REUTERS/Maxim Shemetov
Trump was especially effusive about Russian president Vladimir Putin during the 2016 U.S. election campaign, though his openness to closer ties to Moscow has tempered somewhat, with his administration on the defensive over investigations into Russian meddling in the election.

Putin dismissed the proposed sanctions, saying they reflected an internal political struggle in the United States, and that Washington’s policy of imposing sanctions on Moscow had always been to try to contain Russia.

The bill also includes new sanctions on Iran over its ballistic missile program and other activities not related to the international nuclear agreement reached with the United States and other world powers.

UNCERTAIN PATH IN HOUSE

To become law, the legislation must pass the House of Representatives and be signed by Trump. House aides said they expected the chamber would begin to debate the measure in coming weeks.

However, they could not predict if it would come up for a final vote before lawmakers leave Washington at the end of July for their summer recess.

Senior aides told Reuters they expected some sanctions package would eventually pass, but they expected the measure would be changed in the House. The Trump administration has pushed back against the bill, and his fellow Republicans hold a commanding 238- to 193-seat majority in the chamber.

Secretary of State Rex Tillerson questioned the legislation on Wednesday, urging Congress to ensure that any sanctions package “allows the president to have the flexibility to adjust sanctions to meet the needs of what is always an evolving diplomatic situation.”

Previously, U.S. energy sanctions had only targeted Russia’s future high-tech energy projects, such as drilling for oil in the Arctic, fracking and offshore drilling. They blocked U.S. companies such as Exxon Mobil, where Tillerson was chairman, from investing in such projects.

The new bill would slap sanctions on companies in other countries looking to invest in those projects in the absence of U.S. companies, a practice known as backfilling.

Also included for the first time are discretionary measures the Trump administration could impose on investments by companies in Western countries on Russia energy export pipelines to Europe.

The Senate also voted overwhelmingly on Thursday to add provisions to the bill allowing the U.S. space agency NASA to continue using Russian-made rocket engines and the 100 senators voted unanimously for an amendment reaffirming the U.S. commitment to the NATO alliance.

(Additional reporting by Tim Gardner; Editing by Yara Bayoumy and Tom Brown)

14th Amendment To U.S. Constitution Passed This Day In 1866: Indians, Women, Kids, Not Citizens

(I GOT THIS ARTICLE FROM GOOGLE PLUS, JAMMISON HILL, HISTORY)

XIV Amendment passed by the U.S. House of Representatives today in 1866, ratified by states on July 9th. All persons born in U.S. are citizens, no state shall deny person life, liberty, or property without due process; representatives shall be apportioned among the states based on numbers of persons (defined as males over 21, excluding Indians not taxed) in each state.
Reconstruction Amendments to the U.S. Constitution
Reconstruction Amendments to the U.S. Constitution

Iran to work on nuclear-powered marine vessels after U.S. ‘violation’ of deal

(THIS ARTICLE IS COURTESY OF REUTERS NEWS)

Iran to work on nuclear-powered marine vessels after U.S. ‘violation’ of deal

By Bozorgmehr Sharafedin and Shadia Nasralla | BEIRUT/VIENNA

Iran ordered its scientists on Tuesday to start developing systems for nuclear-powered marine vessels in response to what it calls a U.S. violation of its landmark 2015 atomic deal with world powers.

Nuclear experts however said that President Hassan Rouhani’s move, if carried out, would probably require Iran to enrich uranium to a fissile purity above the maximum level set by the nuclear deal to allay fears of Tehran building an atomic bomb.

Rouhani’s announcement marked Tehran’s first concrete reaction to a decision by the U.S. Congress last month to extend some sanctions on Tehran that would also make it easier to reimpose others lifted under the nuclear pact.

Rouhani described the technology as a “nuclear propeller to be used in marine transportation,” but did not say whether that meant just ships or possibly also submarines. Iran said in 2012 that it was working on its first nuclear-powered sub. reut.rs/2gVr80g

Rouhani’s words will stoke tensions with Washington, already heightened by U.S. President-elect Donald Trump’s vow to scrap the deal, under which Iran curbed its nuclear fuel production activities in exchange for relief from economic sanctions.

Rouhani also ordered planning for production of fuel for nuclear-powered marine vessels “in line with the development of a peaceful nuclear program of Iran”.

But under the nuclear settlement Iran reached with the United States, France, Germany, Britain, Russia and China, it is not allowed to enrich uranium above a 3.67 percent purity for 15 years, a level unlikely to be enough to run such vessels.

“On the basis of international experience, were Iran to go ahead with such a (nuclear propulsion) project, it would have to increase its enrichment level,” said Mark Hibbs, nuclear expert and senior fellow at Carnegie Endowment for International Peace.

CIVILIAN VERSUS MILITARY ENRICHMENT

“That’s the point, because Iran would be looking for a non-weapons rationale to provocatively increase its enrichment level in the case that the deal with the powers comes unstuck.”

He pointed out that countries with more advanced navies and nuclear programs have been working on propulsion reactors for decades. Such technology might need uranium enriched to around 20 percent purity.

A Russian Foreign Ministry source told RIA news agency that a careful reading of Rouhani’s order showed he was talking only about developing power-supply units for nuclear-powered marine vessels, but not higher-enriched uranium itself, so “strictly speaking” this would not contravene the nuclear deal.

But the source acknowledged that such vessels typically ran on higher-enriched uranium prohibited by the accord.

Edwin Lyman, a nuclear expert at the Washington-based Union of Concerned Scientists, said developing a reactor suited for higher-grade nuclear vessel fuel would take at least a decade.

“(But) these are unfortunate developments. We are very concerned about the future of the (nuclear deal) under the Trump administration and any signs of erosion … must be taken very seriously and immediately addressed by the international community,” Lyman told Reuters.

Rouhani accused the United States in a letter published by state news agency IRNA of not fully meeting its commitments under the nuclear deal.

“With regard to recent (U.S. congressional) legislation to extend the Iran Sanctions Act … I order the Atomic Energy Organization of Iran to … plan the design and construction of a nuclear propeller to be used in marine transportation.”

Members of the U.S. Congress have said the extension of the bill does not violate the nuclear deal that was struck last year to assuage Western fears that Iran was working to develop a nuclear bomb. The act, Congress added, only gave Washington the power to reimpose sanctions on Iran if it violated the pact.

Washington says it has lifted all the sanctions it needs to under the July 2015 deal between major powers and Iran.

Rouhani’s move followed recent remarks by Iranian Supreme Leader Ayatollah Ali Khamenei and his hardline allies harshly criticizing the deal’s failure to yield any swift economic improvements in Iran. Khamenei said last month the U.S. Congress’s prolongation of some sanctions was a clear breach and the Islamic Republic would “definitely react to it”.

There was no immediate comment from the Vienna-based U.N. nuclear watchdog, the International Atomic Energy Agency, which monitors Iran’s nuclear program.

(Additional reporting by Alexander Winning in Moscow and Parisa Hafezi in Ankara; editing by Mark Heinrich)

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