Space Law

One of the more notable recent events was the launching of a non-government rocket by a company run by Elon Musk to the International Space Station. Apparently Boeing is going to do something similar in the not too distant future. In some ways this is exciting, because one way or another, human ventures into space will increase markedly. I recall in 1969 sitting in front of a TV one morning (I was in Australia) getting direct feed from Parkes to see the first Moon landing in real time. (OK, there was a slight delay due to the speed of light, and probably more due to feed looping, but you know what I mean.) There was real tension because while everyone was reasonably confident that NASA had selected a good site, it was always possible the ground was not as solid as it might appear and it only needed for the lander to roll over and the ending might have been less than happy. Additionally, the landing was not entirely optimal, and fuel consumption was a little higher than anticipated. This may not seem important, but it did at the time. But all ended well. There were several more Moon landings, and apart from Apollo 13, the program was brilliantly successful. The recovered rocks are still yielding scientific information.

Then the program ended. And nothing more happened. We constructed the International Space Station, with reusable shuttles, but somehow this has had limited value. Certainly, it has permitted the testing of the effects of long periods of weightlessness on people and on other life forms. The best part of this was we got international cooperation. Arguably, humanity was going into space and not just various countries. We have sent a battery rovers and space craft through the solar system, and we genuinely know a lot more about our planetary system. When I was a schoolboy, I believe I knew as much about the planets, other than their orbital details, as anyone. That may sound ridiculous, but I believe it to be true because basically nobody knewvery much at all. They guessed on the basis of their observations, and their guesses were largely wrong. So that part of the space program has been a resounding success, but it brings into question, what is the point of acquiring that information if we do nothing with it? If we do, who does? If different parties go to space, what will be the rules they must follow? Who decides? It is much better if we can get this sorted before various parties get there.

There are two schools of thought. One is, we should stay here and leave the rest of the solar system for careful study, or if we do go somewhere, like Mars, again it should be for study, and we should leave it alone. The other school of thought is the solar system is a resource, and we should be free to tap into it. Which brings up the question, who decides? And what happens if someone does something another group decides should not be done? What happens if one government decides to do something, and a private company decides to do something similar in the same place? How are issues such as these to be resolved?

On Earth, we use the courts to resolve many such issues, although for some issues, governments decide, and of course the split between governments and courts varies from country to country. Worse than that, there is often no real logical reason to prefer one route over another, and the decision is made through politics. Again, different countries have different political systems, so two countries might reach very different decisions based properly on the way they conduct their affairs. Often enough, the various countries find that there is an impasse in finding common ground. What then? Carl von Clausewitz’ “war is a continuation of politics by other means” is not where we want to end up.

There is another problem. For a court to resolve something, there has to be law, and law follows from sovereignty, that is, the right to impose the law, AND the means of enforcing it. So, what happens in space? There is no sovereignty, and suppose there were settlers on Mars, why should they not have their own sovereignty? While they might start off as a colony, through needing a lot of support from people on Earth, their laws should not be imposed by people who have no concept of what life is like there. For example, environmental laws to conserve nature on Earth should not be imposed on Mars, where settlers would struggle just to get what they need to stay alive. Additionally, why would Russian settlers on Mars have to obey American laws, or vice versa? We might argue that the United Nations should set the laws for space, but unless all countries interested in exploring space agreed to them, why should they? Why should countries with no interest in space have standing in setting such laws?

Then there is the question of enforcement. The US is creating a “Space Force” so what happens if they try to stop Russians, say, from doing something in space that the US does not like? Settlements on planets are another matter. There, in my opinion, enforcement will have to fall on settlements, if for no other reason than if a crime is committed on Mars, we cannot have the situation where everyone has to wait for possibly a year and a half to get investigators from Earth. And if anyone thinks there will be no crime, I say, think again. The history of colonization is littered with crime. The US had its “wild west”, Australia its bushrangers, and the history of New Zealand has serious crime, the most spectacular being armed hold-ups of gold during the gold rush days. There will also be other opportunities for crime that are a little more sophisticated, such as in my novel “Red Gold”

But there will also be serious commercial disagreements, particularly if some want to use something and others want to preserve it. I believe everyone has the right to their opinion, but there have to be rules and a means of enforcing them to avoid conflict. This procedure should be fully established beforeit is needed. There is plenty of time to argue now, but not in the middle of a dispute, and it is wrong to impose restrictions on an activity when huge sums of money have already been spent.

Advertisement

Science that does not make sense

Occasionally in science we see reports that do not make sense. The first to be mentioned here relates to Oumuamua, the “interstellar asteroid” mentioned in my previous post. In a paper (arXiv:1901.08704v3 [astro-ph.EP] 30 Jan 2019) Sekanina suggests the object was the debris of a dwarf interstellar comet that disintegrated before perihelion. One fact that Sekanina thought to be important was that no intrinsically faint long-period comet with a perihelion distance less than about 0.25 AU, which means it comes as close or closer than about two-thirds the distance from the sun as Mercury, have ever been observed after perihelion. The reason is that if the comet gets that close to the star, the heat just disintegrates it. Sekanina proposed that such an interstellar comet entered our system and disintegrated, leaving “a monstrous fluffy dust aggregate released in the recent explosive event, ‘Oumuamua should be of strongly irregular shape, tumbling, not outgassing, and subjected to effects of solar radiation pressure, consistent with observation.” Convinced? My problem: just because comets cannot survive close encounters with the sun does not mean a rock emerging from near the sun started as a comet. This is an unfortunately common logic problem. A statement of the form “if A, then B” simply means what it says. It does NOT mean, there is B therefor there must have been A.

At this point it is of interest to consider what comets are comprised of. The usual explanation is they are formed by ices and dust accreting. The comets are formed in the very outer solar system (e.g.the Oort cloud) by the ices sticking together. The ices include gases such as nitrogen and carbon monoxide, which are easily lost once they get hot. Here, “hot” is still very cold. When the gases volatalise, they tend to blow off a lot of dust, and that dust is what we see as the tail, which is directed away from the star due to radiation pressure and solar wind. The problem with Sekanina’s interpretation is, the ice holds everything together. The paper conceded this when it said it was a monstrous fluffy aggregate, but for me as the ice vaporizes, it will push the dust apart. Further, even going around a star, it will still happen progressively. The dust should spread out, as a comet tail. It did not for Oumuamua.

The second report was from Bonomo, in Nature Astronomy(doi.org/10.1038/s41550-018-0648-9). They claimed the Kepler 107 system provided evidence of giant collisions, as described in my previous post, and the sort of thing that might make an Oumuamua. What the paper claims is there are two planets with radii about fifty per cent bigger than Earth, and the outer planet is twice as dense (relative density ~ 12.6 g/cm^3) than the inner one (relative density ~ 5.3 g/cm^3). The authors argue that this provides evidence for a giant collision that would have stripped off much of the silicates from the outer planet, thus leaving more of an iron core. In this context, that is what some people think is the reason for Mercury having a density almost approaching that of Earth so the authors are simply tagging on to a common theme.

So why do I think this does not make sense? Basically because the relative density of iron is 7.87 g/cm^3. Even if this planet is pure iron, it could not have a density significantly greater than 7.8. (There is an increase in density due to compressibility under gravity, but iron is not particularly compressible so any gain will be small.) Even solid lead would not do. Silicates and gold would be OK, so maybe we should start a rumour? Raise money for an interstellar expedition to get rich quick (at least from the raised money!) However, from the point of view of the composition of dust that forms planets, that is impossible so maybe investors will see through this scam. Maybe.

So what do I think has happened? In two words, experimental error. The mass has to be determined by the orbital interactions with something else. What the Kepler mehod does is determine the orbital characteristics by measuring the periodic times, i.e.the times between various occultations. The size is measured from the width of the occultation signal and the slope of the signal at the beginning and the end. All of these have possible errors, and they include the size of the star and the assumed position re the equator of the star, so the question now is, how big are these errors? I am starting to suspect, very big.

This is of interest to me since I wrote an ebook, “Planetary Formation and Biogenesis”. In this, I surveyed all the knowedge I could find up to the time of writing, and argued the standard theory was wrong. Why? It took several chapters to nail this, but the essence is that standard theory starts with a distribution of planetesimals and lets gravitational interactions lead to their joining up into planets. The basic problems I see with this are that collisions will lead to fragmentation, and the throwing into deep space, or the star, bits of planet. The second problem is nobody has any idea how such planetesimals form. I start by considering chemical interactions, and when I do that, after noting that what happens will depend on the temperatures around where it happens (what happens in chemistry is often highly temperature dependent) you get very selective zoes that differ from each other quite significantly. Our planets are in such zones (if you assume Jupiter formed at the “snow zone”) and have the required properties. Since I wrote that, I have been following the papers on the topic and nothing has been found that contradicts it, except, arguably things like the Kepler 107 “extremely dense planet”. I argue it is impossible, and therefore the results are in error.

Should anyone be interested in this ebook, see http://www.amazon.com/dp/B007T0QE6I

The Strange Case of Arkady Babchenko

They say truth is stranger than fiction, and I must say, I cannot conceive of any reasonable fiction writer coming up with a plot that included these rather bizarre events.

The first reports I heard were on the radio, where it was announced that the Russian journalist Arkady Babchenko, who had been a strong critic of Vladimir Putin and who had fled to Ukraine a year previously, had been shot in the back on a Kiev street, and had died on the way to hospital. There were strong protests from Ukraine and a number of other countries at the Russians for using murder as an act of revenge. The Kremlin denied any involvement. Of course, they would, wouldn’t they? My first thought was, since Ukraine is a bit anarchic, maybe we had better wait for more information. The next morning’s paper gave more details, and it looked bad. The story now changed to this murder had been pulled off outside their apartment, and his wife had phoned for the ambulance.

But the morning radio news had an even more bizarre twist. The Ukrainian police had given a press conference, and in the middle of it, in walked Arkady Babchenko. Yes, Putin was definitely innocent of his murder. It turned out the whole episode had been staged, which left open the question, why? The official statement was Arkady had had threats, and this was staged to “flush out the perpetrators” who were alleged to be Russian Intelligence. Even Arkady’s wife did not know this stunt had been pulled. My thought at the time was, he may not be dead yet, but when he gets home . . . But wait – his wife phoned for the ambulance?? A little short on self-consistency here. Well, there is worse to come.

Let’s think about this for a moment. You have been instructed to murder Arkady, then you hear on the news that he has been murdered? What do you do? Get flushed out? Or sit back and say to yourself, “Well, that was easy,” and have a glass or two of whatever beverage take your fancy? Even the highly suspicious agent (and note, this is Ukraine) might like to check out that there is indeed a funeral and see how sad the mourners are, but whatever, they are not going to jump up and down and be “flushed out.”

It seems these thoughts finally struck the Ukrainian authorities so the story changed. Now a hit-man had been hired and instead of doing it, he went to the police, and the Ukrainian intelligence services staged it so it looked as if it had been done, so the man who hired him would have to identify himself when he paid for the hit. The next question is, if so, why not wait a bit and let him identify himself. However, no need, because a day later, we knew who he was. The hit-man was an ultra-right wing priest who was known to be violently anti-Russian, and who liked to dress in military attire and take part in “exercises”. The man who hired him was Boris L. Herman, and he was alleged to have a list of some thirty others Moscow allegedly wanted eliminated. He is supposedly in custody for two months. Herman then claimed he hired the priest to kill Babchenko at the request of Ukrainian counterintelligence. Ukrainian counterintelligence denied this. Herman is reported as claiming that he hired the priest, on the basis that the priest would go straight to the SBU, Ukraine’s security service.

The SBU has conceded that he priest told them about this and they collaborated, but denied the matter had anything to do with Ukraine’s counterintelligence operations. That is like saying, “We did it, but it wasn’t us.” It then turns out that Herman is

the only private enterprise arms manufacturer in Ukraine, and was similarly right wing. Is this some sort of oligarch shakedown? They get his company and he lives if he cooperates? Whatever, who can believe anything out of Ukraine these days.

Meanwhile, a small commercial break. My ebook “Dreams Defiled”, the second in the first contact trilogy is 99c/99p from 7th – 14th. A story of a person gradually descending into being thoroughly evil, and the havoc he causes to everyone else. Also, why Mars can never be terraformed to be like Earth, and a different form of government.   https://www.amazon.com/dp/B01N24ATF7

Sergei Skripal, Novichoks, and Accusations

One of the more depressing pieces of news this week was the attempted assassination of Sergei Skripal and his daughter Yulia by what appears to be a Novichok agent. There is a large family of these, which were developed in the old Soviet Union as chemical weapons. Their structure involves a phosphoramidate or a phosphonate, either of which is often fluorinated. These can be made simply by mixing two chemicals: a substituted phosphoryl compound with at least one halogen on it, and if there happen to be two fluoride substituents, displacing one of these leaves the other fluoride as part of what is desired. The other compound appears to usually involve an amine or an oxime, and phosgene oxime (a chemical weapon in its own right called CX) appears to form particularly active Novichoks. A major advantage of these as war chemicals is that they can be made by mixing the chemicals at the point of use, which makes them safer to handle up to use, especially if they can be mixed remotely. The Novichoks are extremely dangerous, as can be seen in that when the Skripals collapsed after being poisoned elsewhere, a policeman who came to help was himself struck down by residue seemingly adhering to the Skripals.

As might be expected, everyone has jumped up and down blaming the Russians, and of course, they may well be to blame. The Russian case for innocence is not helped by the poisoning of Alexander Litvinenko some time ago with 210-polonium, which in some ways was quite clever in that after administering, it takes several days before any symptoms appear, so the villain would have left the country before a crime was even recognized. While we do not know who did that, the actual use of such an isotope meant that the perpetrator had to have access to extremely dangerous isotopes, and that strongly suggests a nation such as Russia. You can’t make such isotopes in a shed, even with an unlimited budget.

However, Novichoks are not particularly difficult to make for a skilled chemist. The synthesis would involve some sophisticated equipment and quite a bit of patience to make them from chemicals you could often purchase if you were in the chemical business, but they are not impossible for someone with the necessary skill. It would be very difficult to make them on a large scale, but a gram of each precursor would not be that difficult. There are other sources. They were developed in the old Soviet Union, and not just in Russia. Uzbekistan was one of the places, and I would suspect other parts also had some of the necessary chemicals. Of course Russia would be a good source.

Teresa May delivered some sort of ultimatum to the Russian government: either account for all your Novichok agents within about 36 hours, or “face the consequences”. With the best will in the world, I doubt a country as large as Russia could account for its entire chemical stock in that short a time. Probably much less than a gram of each precursor would have been used, and I doubt any country could account for that degree of accuracy in a chemical stock in that time, if ever. However, Sergei Lavrov, the Russian Foreign Minister, did make a response: he asked for a sample of the Novichok. Given there were could be many of them, and the different ones could well have originated from different places, wanting to know the structure is a reasonable request. Maybe a sample of the agent is too much to ask, but at the least a mass spectrum would be helpful because that should define which Novichok was used, assuming it was one.

As it happens, Russia did not respond to May’s demands. Now what? The problem with delivering an ultimatum is that if the other side declines to give in, you have to deliver, and Britain’s position is too weak to worry Russia.

So, who else could be responsible? What we have to realize is that Skripal, as a double agent, managed to hand over a GRU list of agents in the West, most of whom were promptly arrested. Now suppose, many years later, some were released? Or one of their associates who managed to avoid detection found out where the Skripals were? Anyone want to bet they would not have a motive? The man they trusted, a senior officer in their own organization, handed them over to the West, and they, whose lives had been ruined, don’t want payback? And why a Novichok? The real problem with them is there is a good chance the damage is permanent. The victim may recover, but only partially, and some nerve damage will be permanent. That would be revenge.

So how do we find out? My guess is good old police work. It is known when it happened, where it happened, it was a public place so someone must know something. Britain has a large number of surveillance sites, and with any luck, images of the perpetrators will be available. Let us wait and see what the investigations produce before jumping on the bandwagon. Evidence is what we need. Facts. Not wild accusations. Maybe it was the Russian government, but not necessarily. If the perpetrator can be identified, at least an arrest warrant can be issued. In the meantime, being a KGB defector does not look like being a good position to have.

What Does Evidence Prove?

I often hear people say they want evidence-based decision-making, but they then behave in a totally different way. My view is evidence is all observed facts relating to the issue at hand. Only too many people think evidence is that which supports their hypothesis, and that which does not is irrelevant. Thus collecting evidence requires dispassionate thoroughness, while determining what such evidence means requires clear logic. However, not everyone is capable of being truly dispassionate once they have reached a conclusion; they do not like revisiting previous decisions.

Consider the hypothetical statement, John murdered Joe. Joe’s apartment door was open, whereupon another apartment dweller found the body, which had a bullet through his head. Forensics tell you he died of the bullet wound at about 1 am. Joe is dead, which meets the first criterion, and there is no gun left behind. So, was he murdered?

Superficially, suicide can be eliminated, but in principle someone else could have removed the gun, so there are actually two hypotheses consistent with that evidence. The police could test the victim’s hands for gunpowder residue, but suppose they jump to a conclusion and don’t bother? Some innocent could go to jail.

So, what about John? People state that earlier John had a heated argument with Joe in his apartment. John has no alibi; he states he was in bed asleep at the time. They find John’s DNA in the apartment, but apart from Joe’s, nobody else’s. After a lot of questioning, the police find someone who saw a man walking away from the apartment block “early in the morning”. The person looked like John and was wearing a hoodie. John owns a hoodie.

So, what do we have? Strictly speaking, nothing against John. John does not deny the heated argument, and it also explains why his DNA is in the apartment. That no other DNA is there is not necessarily indicative that nobody else was there, but merely that nobody else left enough to be found. Just because you argue does not mean you will murder the other person, and anyone that lives alone is likely to be in bed asleep at 1 am. As for the “identification”, all we have is a man of about John’s height was wearing a hoodie. Such evidence can be consistent with a statement, but it can only prove the statement if it falsifies every other possibility.

Now, a real case. A young couple were at a New Year party near a marina and also present (and relevant to this) were our accused, who was drunk and behaving badly by trying to chat up any female, and a “scruffy man”, who was never identified and was alleged by the police to be the accused. The “evidence” in support of this was somehow they got a scruffy photo of the accused and one person picked this photo out of a photo lineup. He was later to say that the photo indicated the degree of scruffiness but it was not intended as a full identification, and as it happened, this photo did not look particularly like the accused. The two young people were ferried out to a boat at the invitation of scruffy man. The man who ferried them out described the boat as a forty-foot ketch. The couple were never seen again.

The police arrested the accused, and claimed they had been taken to his boat, a twenty-six foot sloop. The accused had been repainting his boat, and the police claimed he was covering up evidence. The accused claimed it was normal maintenance. The witnesses claimed that the water taxi ferrying the victims out left on a given course and gave a time for how long it took to get there. That would put it a minimum of ninety meters away from the sloop. The police maintained there was no ketch, but independently some claimed to have seen it, and their location of it was roughly where this water taxi went. In evidence there was no ketch, the police produced a montage of the whole area, and there was no ketch. The problem then was the various photos were all taken at different times, and all of them well before the party. The police argued the two were locked away in a cabin of the sloop, and there were scratch marks where they had fought to get out. Evidence was that the scratch marks had been there before. Finally, after some time, forensics found two hairs belonging to one of the victims on a blanket taken from the sloop. What do you make of that?

If someone were making deep scratches trying to get out (a futile gesture but that is beside the point) there would be a lot of other DNA there. Ha, the police said, the accused cleaned that up. But if he was good enough to clean up all the DNA from everywhere else, why not get rid of the bedding, because it was almost certain that something would be left behind? In my opinion, the key evidence was where these victims were taken. If you know anything about boats, you know the difference between a sloop and a ketch (one and two masts is one major difference) and the ferryman was a master mariner. Further, if the people who saw the water taxi go out and come back have it going to a different place than the sloop, coupled with the ketch, the police have the wrong boat.

However, the accused was found guilty. Part of the problem was the defence lawyer. Thus when the police asked one witness did you not pick photo C from a photo lineup, the witness had to agree he had. He was later to say that had the defence lawyer asked him was the scruffy man he had seen now in the court, he would have answered no. But the lawyer had no idea what the witness would say, and he relied on his oratory at the end. The trouble was, his oratory was not up to scratch, and he had failed to establish sufficient facts. On the basis that the accused gets the benefit of reasonable doubt, I believe this was a miscarriage of justice, but thanks again to lawyers, his appeals process has run out. Had I been on a jury I would never have convicted, not because I am sure he was not guilty, but because I am sure there is reasonable doubt. However, the emotion of these two young people presumably being killed, together with angry parents, meant the jury almost certainly did not view this dispassionately. Evidence will be consistent with the truth, but it can also lead many down a completely different path.

Flynn Pleads Guilty

Earlier in the year I wrote about Michael Flynn being fired by President Trump. Now the story continues, as he has pleaded guilty to lying to the FBI. Now, if I were writing about this in a novel, it would be important to construct the plot so that there was a reason why Flynn would plead guilty, but in real life, why would that be?

In a novel, one reason might be the noble acceptance that he knows he lied, so he will take what follows on the chin. Strictly speaking, we do not know that this is not what has happened, but the media seems to think he has done a deal with Mueller, and will tell all that will bring down the current administration. That may be wishful thinking, even if Flynn has done a deal, the reason being that while Flynn may have lied, the truth would have had to be sufficiently serious to bring down the administration then.

Another reason may be that he is going to tell what he knows, but given what he has admitted to already, what could that be that will not get him into deeper trouble. Of course Mueller could have dealt immunity, on the basis he tells all and truthfully. That raises the question of what is all Flynn knows?

So, what will happen to Flynn? A detailed account of the Plea Agreement is at https://www.justice.gov/file/1015121/… . As it stands, the sentencing guidelines are estimated as imprisonment for between zero and six months, and if a fine is imposed, that fine will be between $500 and $9,500. As to what Flynn is accused of doing:

(a) On January 24, 2017, Flynn made materially false statements and omissions during an interview with FBI agents who were investigating whether the Russian government interfered with the 2016 Presidential election. These false statements included that following President Obama’s executive order announcing sanctions against Russia, he initially denied receiving a question from the Russian ambassador (Kislyak) relating to Trump’s policy (recall he had campaigned about getting better relations with Russia), then he omitted to mention that he spoke with the Presidential Transition Team (PTT) about this, and received the response that they did not want Russia to escalate the situation by making counter moves. Flynn then passed this request on to Kislyak, and subsequently reported back to the PTT the substance of the conversation. Then, about December 30, Putin announced he would not take retaliatory action.

(b) Flynn made false statements to the effect he did not make specific requests regarding an Egyptian resolution to the United Nations Security Council regarding Israeli settlements. A senior member of the PTT directed Flynn to learn where each government stood on the resolution, and to try to delay the vote or defeat the resolution. Flynn informed the Russian ambassador that the incoming administration opposed the resolution. The Russians responded by telling Flynn that Russia would accommodate the new administration.

(c) When he filed for his company in accord with the Foreign Agents Registration Act, his company did not know the extent to which the government of Turkey was involved in the Turkey project, a project focused on improving US business opportunities in Turkey, and omitted mentioning that officials from Turkey provided supervision and direction over the Turkey project.

My personal view is that Flynn was wrong to lie, but he would have good cause to believe that details of the future policy of the US government is not something to be disclosed to FBI agents. Simply saying, “That is classified,” would have been preferable. Both (a) and (b) are merely acts where he tried to make things easier for the new administration. After all, was it all that bad to ask Russia not to impose some sort of counter punishment on US companies? How is that working against US interests? More to the point, Obama had plenty of time to impose sanctions before the election, but he did not. If that was to make things easier for Clinton, and then he imposed them to undermine Trump, that in my view is just plain wrong. Similarly, the actions to try to improve things for US business in Turkey can hardly be crime of the century. The filing errors were naughty, but this is low-level stuff really. So why did Flynn plead guilty? My guess is he knew there was incontrovertible evidence that he was guilty of some things, including false filing and fibbing, and while he might have been able to defend these to some extent, it would be a lot cheaper to plead guilty, save the legal fees, and most importantly wipe the slate clean.

My guess is also that when this is over for Flynn, he can recover most of his costs by writing a book. I am sure he would get a good deal. So he can’t write? No worries; I am sure a lot of writers would be only too willing to provide their services. Name recognition alone would justify it.

Infested with Panamanian Rorts!

By now, most people in the reasonably developed world will have heard of Mossack Fonseca, the Panamanian law firm whose activities have led to New Zealand being called a tax haven. Well, right now it doesn’t feel like it to me, as it is time for me to start preparing my tax return. However, the history of this is quite interesting. After the first release of information, our Prime Minister, John Key, did his usual performance when something is not going his way: he smiled and said sort of derisively that NZ is not a tax haven, and there was nothing in this. His standard operating protocol is to dismiss the accusations and say not much more, on the basis that if he says nothing, it all runs out of steam. This time, however, it did not.

The next step was that the reason for the accusation became public. Part of New Zealand tax law is, if you do not earn anything in New Zealand and you do not reside here, you have no tax obligation. That seems reasonable. But what has happened, apparently, is that thanks to Fonseca and an Auckland law firm, Bentleys, a number of foreign trusts have been set up here. Now, since they have no tax obligations, they do not have to file a return, and that means there is a small black hole between the money and the owners of said money, and Fonseca has complicated the issue by having the New Zealand entity owning trusts elsewhere, and so on. What it does is to make it very difficult to track down who the rich are that are using such mechanisms to evade tax. It is also important to note there are sometimes good reasons for foreign trusts. If you live in a country where dictators are likely to confiscate everything if your political views are wrong have good reason to put their money offshore.

The answer to this, of course, is reasonably simple: the trusts should have all their owners and their activity declared. Total transparency does not worry the legal (given that tax authorities must maintain confidentiality, other than for prosecuting for tax evasion). If there is a chain of trusts, the chain should be explicitly declared. So, why has this not been done?

Here comes the problem for Key. Apparently two or so years ago, our IRD started to consider what it should do about such trusts, as they were blossoming. A certain Mr Whitney, Key’s personal lawyer (at least that was how it was described in the media initially, but there seems to be some accusations that he is no longer a lawyer) approached Key and asked about the issue. (Nothing wrong there.) What Key replied is unclear; he says there were no current plans as far as he knew and Whitney should see the appropriate Minister. Fair enough. Then it is unclear what happened because there is some accusation that Whitney asserted to the Minister that there should be no action. We have no real idea what happened, but the next thing is the Minister stopped the IRD from future action on these trusts. Whitney, it appears, was another lawyer running such trusts.

Then, suddenly, Key bounces back, triumphant. Some of these trusts that people are complaining about, says he, have the Red Cross, or Greenpeace, or Amnesty International as beneficiaries. In an attempt to dispose of another problem with one brush, there are arguments that Auckland’s property boom is being driven in part by foreign trusts. Key announces that only 3% of sales are to foreigners. However, perhaps he should have thought before putting mouth into action. It turns out that the Red Cross, Greenpeace, Amnesty, etc, know nothing about these trusts. What the likes of Fonseca, or whoever draws up the trusts, have done is to name beneficiaries on these trusts to allay the tax authorities, but they are fraudulent. Then for the property sales, it turns out that foreign trusts were excluded from the statistics. Why do house sales matter? Well, it appears people of unknown origin have turned up with suitcases of hundred dollar notes to pay. Soon after, the house is sold, and since there is a bubble progressing, at a profit. Now, New Zealand has an excellent banking system, so what’s the betting this is money laundering?

Obviously, we need more action from the government to make all this transparent. Tax evasion by the very rich is bad; the laundering of drug money is certainly worse. At this point I should emphasize that I am not in any way accusing Key of corruption. On the other hand, he has made a personal fortune as a trader in one of those banks, so he is hardly likely to mount a crusade against such activities. And herein lies the problem. Sloth and indolence from those who we vote in to make life fairer for all is just as bad, if not worse, than actual involvement. A further curse of what we call democracy (but is not) is that politicians want to stay in power, and they have a vested interest in not annoying the people that give their party the big donations to mount election campaigns.

Of course, on the world stage, so far New Zealand’s role is rather small as far as New Zealand citizens go, at least as far as we know. But the impact of slothful regulation might be huge. As Ellen Zimiles, a former New York federal prosecutor noted, fraudsters like offshore because the lack of transparency makes it very difficult for investigators to get at the ultimate beneficiary. And, of course, New Zealand is hardly the only guilty party.

Exposed Trusts

I found there were two major items of interest this week on the news. The first was the fact global warming was much worse than expected, but I shall leave that for a later post. Also interesting was the disclosure of some files that somehow or other leaked from a Panamanian law firm, and were about prominent people who had foreign trusts, most presumably for the purposes of tax evasion. Some of the media made a great fuss about some people associated with Putin having these trusts, as if this was somehow Putin’s fault. It might be, but we have more spectacular examples. There was the Premier of Iceland who was directly involved, and had to resign, despite his asserting he had done nothing wrong. If he had really done nothing wrong, why resign? Why not simply explain his position? Then there was David Cameron, Prime Minister of Britain. His father apparently uses such a haven. Now, you cannot be blamed by association, he would say, but it is not exactly a good look.

My favourite, though, is Poroshenko, Premier of Ukraine, the man who asserts he is there to stamp out corruption. When he took office, he promised to sell his confectionary company, worth billions. So he sold it. Well done? Well, no, he sold it to a trust that one way or another ends up with there being only one owner of this company: Poroshenko. He sold it to himself, but moved it to a tax haven. Sneaky!

Of particular interest here was the revelation that New Zealand was listed as a tax haven. And in case you are thinking of moving here for the low taxes, think again. It is not a tax haven in the usual sense, but thanks to some inept politicians, it is a contributor, although in much the same way as many other countries. As an aside, what New Zealand does in this respect is very similar to what other OECD countries do, except New Zealand has a different approach to taxing them.

What New Zealand does is permit foreign trusts, and they can be owned by foreigners. The requirement is they are registered, which means they are recognized by the Inland Revenue Department, and they must have a nominated trustee. However, under New Zealand law, and this is different from the other countries, if a person or an entity does no business in New Zealand during a financial year and does not enter the country, they are permitted to file a nil return, i.e. if they are not physically in the country, and their business is done elsewhere, they pay no tax in New Zealand. That seems reasonable, but there is a catch. If the trust merely owns another trust somewhere else, and that one owns a company that is doing business in several other countries still, then as you can see, there is an impenetrable barrier to tracking the money. Our IRD states it will inform other tax authorities if they ask, but what can they ask? They have to know the answer to the ownership issue before they ask, and there is no record of any transaction to ask about.

Of further interest is the fact that lawyers and accountants here apparently make somewhere between 25 – 50 million dollars annually “monitoring” the trusts, acting as trustees, and filing nil tax returns. All of which to benefit the unworthy rich in other countries who refuse to pay their legally required share.

Of course there can be legitimate uses for such trusts. Apparently, such trusts started with the Crusades, where Crusaders left their property in trust while they were away. That was an obviously sound reason for creating the trust. Now the property is away and the rich are being trusted, and these men are anything but trustworthy.

The price of wanting more

The arrest of Martin Shkreli on charges of securities fraud has certainly attracted attention, and the internet is riddled with helpful advice, mainly directed to ensuring Shkreli has to pay a huge amount more than anyone else for the same service, especially lawyers’ fees, or bail fees. The reason lies in Shkreli having had control of Turing Pharmaceuticals, which purchased to sole rights in the US for the drug Daraprim. Daraprim is the go-to drug for treating toxoplasmosis, which, while not common, can be deadly for unborn babies and for people with compromised immune systems. He then decided to raise the price of a pill from $13.50 to $750, seemingly because he wanted more money. Don’t we all! Somewhat later, he stated that if he had the opportunity to do it again, he would have raised it higher. Now, there is compassion and contrition, Wall St style.

Naturally, this sort of person does not do something only once. Kalobios Pharmaceuticals acquired the licence for Benznidazole, the standard treatment fro a deadly parasitic disease in Central and South America, and has announced plans to increase the price from something like $200 for two months, to something more like $60,000. So far, it appears it has not done it, and with Shkreli where he is, maybe they won’t. He is also allegedly responsible for raising the price of Thiola from $1.5 per pill to $30. A deeper background can be found at http://www.bloomberg.com/features/2015-martin-shkreli-securities-fraud/

However, the current arrest has nothing to do with price gouging, but rather to do with fraud. Shkreli has a raft of companies, and he is accused of taking money from one to pay off debts of another. He is accused of backdating records, making phoney loan agreements between one of his companies and a hedge fund, and creating sham consulting agreements as a way to route cash from recent investors to earlier ones, which of course, is partly the structure of a Ponzi scheme.

Apparently in an earlier phase, he set up a hedge fund, trashed biotech stocks in online chat rooms, then shorted them, making lots of money. Meanwhile, lots of ordinary people were losing lots of money. This is, of course, the deep spirit of capitalism.

At this stage, we might wonder at the efficiency of the laws. The good news is that Daraprim may now have a generic alternative, from San Diego-based Imprimis Pharmaceuticals Inc. The drug is 60 years old, so it is clearly out of patent, and the only things stopping manufacturing generics is the question, is it worth it? Following Shkreli’s approach, most certainly, if only for the advertising.

One of the other things that impressed me about this is the antics the SEC accuses Shkreli of are very similar in nature to the antics I described in my novel Red Gold, which was about fraud during the colonization of Mars. It is always comforting to get confirmation from a good authority, and the SEC is a good authority on fraud, that the antics I described are indeed characteristic of frauds.

One unusual thing about fraud is that it takes quite a lot of thought and effort to carry it out successfully, and if the same effort were to be put into more respectable activities, the person might be hailed as a successful citizen. So the question is, why carry out fraud? At first sight, greed, but I don’t think that is enough. I think in only too many cases the desire to be seen as important, and to wield power, are also important.

This will be my last post for 2015. I live in the Southern Hemisphere, and here, Christmas is hot, and subsequent days are also hot, so working is less desirable and most people go on vacation. So, guess what I shall be doing? I shall be back about the third week of January.

Meanwhile, I hope you all have a very merry Christmas with friends and family, and I wish all the best for 2016.