Six US senators urge Obama to prioritize cyber crime at G20 summit

NEW YORK - Six U.S. senators have urged President Barack Obama to prioritize cyber crime at this weekend's Group of 20 summit in China, in the wake of the theft of $81 million from Bangladesh's central bank, according to a letter obtained by Reuters.

In the letter sent to the White House ahead of the Sept. 4-5 summit, Sherrod Brown, a senior Democrat on the Senate Banking Committee, and five other Democratic senators say they want the U.S. president to press leaders from the world's 20 biggest economies to commit in joint communiques to a "coordinated strategy to combat cyber-crime at critical financial institutions."

The letter, dated Monday, suggests that concern among U.S. lawmakers is growing over the February incident in which hackers breached Bangladesh Bank's systems and used the SWIFT banking network to request nearly $1 billion from an account held at the Federal Reserve Bank of New York.

Some of the dozens of orders were filled, with much of the lost $81 million disappearing into Philippines casinos - prompting months of international finger-pointing, an ongoing investigation, and several requests from members of Congress for answers from the Fed and from SWIFT, the secure messaging service that banks use to transfer money around the world.

"Our financial institutions are connected in order to facilitate global commerce, but cyber criminals - whether independent or state-sponsored - imperil this international system in a way few threats have," the senators, headed by Gary Peters of Michigan, wrote in the letter to Obama.

"We strongly urge you to work with your counterparts and prioritize this discussion at the G20 leaders level in September," it said of the summit to be held in Hangzhou, China, adding that "executive leadership circles across the globe" needed to pay more attention to the risks.

A senator in the Philippines has said Chinese hackers were likely to have pulled off the Bangladesh Bank heist, citing a network of Chinese people involved in the routing of the stolen funds through Manila.

Beijing has dismissed the suggestion.

Copies of the letter from the U.S. senators were also sent to Federal Reserve Chair Janet Yellen and U.S. Treasury Secretary Jack Lew.

The other senators signing the letter were Mark Warner and Martin Heinrich, both members of the Senate's Select Committee on Intelligence; Kirsten Gillibrand and Debbie Stabenow, the ranking Democrat on the Senate's Committee on Agriculture, Nutrition, and Forestry.

The White House expects G20 members at the summit "to affirm their commitment to cooperate to fight cybercrime and to enhance confidence and trust in the digital economy," a senior administration official said.

Asked generally about cyber security on Monday, White House spokesman Josh Earnest said at a press conference: "I would anticipate that this issue more generally will be on the agenda" when Obama meets Chinese President Xi Jinping, the G20 summit host, later this week.

At a November summit, the G20 pledged not to conduct economically motivated cyber espionage, an agreement intended to reduce the estimated hundreds of billions of dollars worth of commercial trade secrets that are stolen by foreign governments seeking to benefit industry in their own countries.

Since then, the Bangladesh Bank attack and others that have emerged are only some of the threats posed by cyber criminals, the senators wrote. World regulators should "erect more robust defenses and collaborative systems to prevent and mitigate the impact of successful attacks," the letter said, noting that steps already taken by SWIFT are not enough.

The Fed and other U.S. regulators said in a letter last week they were focused on cyber risks and controls at banks in the wake of the Bangladesh incident, though they offered few specifics.

Peters, a member of the Senate's Committee on Homeland Security and Governmental Affairs, told Reuters he is considering requesting a committee hearing on the heist.

"I am concerned about the response and what steps have been taken to make sure it doesn't happen again," he said in an interview. "You just need more collaboration and sharing of information... because often times all these entities aren't talking to each other."

source: www.abs-cbnnews.com

Burger King has maneuvered to cut US tax bill for years

Burger King may have taken a lot of flack in the past week for a deal that should curb its U.S. tax bill but in many ways it is consistent with the burger chain's aggressive tax-reduction strategies in recent years.

Some U.S. lawmakers and other critics attacked the company that is the home of the Whopper for deciding to move its tax base to Canada from the U.S. through its proposed purchase of Oakville, Ontario-based coffee and doughnut chain Tim Hortons . They say it will allow Burger King to avoid paying some U.S. taxes.

That would be nothing new. A Reuters analysis of Burger King's regulatory filings in the U.S. and overseas, which was also reviewed by accounting experts, shows that it has been making major efforts to reduce its U.S. tax bill for some time.

By massaging down U.S. taxable profits while maximizing the profits it reports in low-tax jurisdictions overseas, Burger King is able to operate one of the most tax-efficient businesses in the U.S. fast-food industry.

The chain's effective tax rate of 26 percent over the past three years compares with rates above 31 percent at McDonalds Corp, Starbucks Corp and Dunkin Brands Group Inc. KFC and Pizza Hut owner Yum Brands did have a similar tax rate to Burger King though this reflects the 74 pct of its revenues that were generated outside the U.S., in markets where tax rates are typically around 25 percent.

The Burger King rate is 30 percent lower than the average tax rate it paid in the five years before it was bought in 2010 by private equity group 3G, still the company's majority shareholder.

The accounting experts say the Canadian move will allow Burger King to double-down on those efforts as it will open up new tax-saving opportunities for the company. It could, for example, apply the tax structures it currently employs in major markets like Germany and Britain, and which allow the group to operate almost tax free in those places, to its business in the United States, they said.

And that could mean Uncle Sam will lose corporate tax income that Burger King would have to pay under its current structure.

"I would be surprised if in five years' time, their tax rate does not come down reasonably dramatically," said Professor Stephen Shay, from Harvard Law School, who has testified to Congress on corporate taxation.

Burger King declined to comment on its current U.S. tax arrangements. But it has said the so-called "inversion" deal to buy Tim Hortons for $11.5 billion, and move the headquarters to Canada, was based on Canada being the combined company's biggest market. It said the deal was about international expansion - particularly of the Tim Hortons' brand and not about tax savings.

"We don't expect our tax rate to change materially. As I said this transaction is not really about tax, it's about growth," Chief Executive Daniel Schwartz said in a call with analysts last week.

It would be perfectly legal for Burger King to reduce its U.S. tax bill through the Canadian move. Chas Roy-Chowdhury, Head of Taxation at the Association of Chartered Certified Accountants in London, said companies all over the world manage their tax bills so they don't have to pay more tax than necessary.

"If the U.S. doesn't like inversion deals, it should change the law to prevent them. The U.S. has a leaky corporation tax system which encourages companies to park profits offshore," he said.

U.S. MARGINS LOW

Finding ways to report less income to the Internal Revenue Service (IRS) and more to overseas tax authorities is a particular focus for companies with a headquarters or big operations in the U.S. because of the headline federal corporate tax rate of 35 percent on profits. It is the highest headline corporate tax rate in any major developed country, and can be even higher once state and local taxes are added on. There is an incentive for companies to shift U.S.-generated profits overseas, where rates can be very low, the experts say.

Burger King generated almost 60 percent of its revenues in the United States between 2011 and 2013, regulatory filings show, but the chain reported just 20 percent of its profits in the country over the period.

By contrast, the percentage of their profits that McDonalds, Starbucks Corp, Dunkin Brands and Yum reported as being earned in the United States was in line with the percentage of their total revenues generated in the country.

Those companies all declined to comment.

Shay said Burger King's large debt load could explain why it has more ability to manage its U.S. tax bill than less leveraged peers.

Burger King's low reported U.S. profit translates to domestic profit margins of just an average 4 percent between 2011-2013 - a fifth of the level it recorded in overseas markets in that time. The company declined to say why its U.S. operation enjoyed such low margins over the period - it reported a small U.S. loss in 2012 and a tiny profit for 2011, though the profit was up to a much healthier level by 2013.

There could be explanations other than tax-driven moves for the low margins. The U.S. fast food market is the most competitive in the world, and prices for fast food offerings are lower than in some other major markets as a result. However, a lot of the burden, including increased labor costs as the minimum wages rises in some states and spending on a refurbishment program for Burger King restaurants, would be borne by the company's franchisees. Burger King operates very few of its own restaurants.

Professor Daniel Shaviro from New York University Law School, who was previously Legislation Attorney at the Joint Congressional Committee on Taxation, said tax planning likely had a lot to do with the low levels of income reported in the U.S.

The company's accounts show the low reported U.S margins are due, at least in part, to how hundreds of millions of dollars in group overheads, such as head office and debt costs are spread across the company each year.

Before such costs are applied, profit margins at Burger King's United States and Canada division (the U.S. produces 91 percent of that unit's revenue) are in line with international operations, at around 39 percent, its filings show. But after these costs are applied, the North American unit ends up with its rock-bottom margins.

Most of these costs are taken in the U.S. because it is where cash is borrowed, and senior managers and product innovators are based. But tax rules state that such costs should be evenly spread across international divisions, said Kimberly Clausing, a Professor of Economics at Reed University.

Clausing said the gap between Burger King's gross and pre-tax profit figures for the United States suggested such group-wide costs are being disproportionately offset against U.S. income.

"That's one way of shifting income abroad ... it's a common problem," for the IRS, said Clausing.

TAX FREE IN GERMANY

Burger King also operates a tax-efficient operation overseas. By channeling income through Switzerland it has managed to pay an effective tax rate of 15 percent on foreign income over the past three years, company filings and statements show.

Experts said this arrangement could become a template for how Burger King, as a foreign company, could shave its U.S. tax rate further.

The impact in Germany shows how that could cost the U.S. Treasury.

Germany has historically been Burger King's largest market outside North America, generating over 10 percent of total sales. In 2011 and 2012, the last two years for which figures were available, the German operation had combined sales of $501 million - over half the total for the Europe, Middle East and Africa region, regulatory filings show.

In 10 conference calls with analysts covering the two-year period, transcripts of which Reuters reviewed, then-Chief Financial Officer Schwartz mentioned the German market eight times, and each time spoke of its "strong performance" or "positive" results.

EMEA operating profits for 2011 and 2012 totaled $356 million. Yet, Burger King Beteilligung GmbH - the entity which consolidated earnings for the group's main German operating units - reported losses in 2011 and 2012, totaling over $10 million and recorded a net income tax credit of more than 200,000 euros.

Burger King Germany's taxable income was reduced partly because German stores pay around five percent of their turnover to an affiliate in Switzerland, Burger King Europe GmbH, the company told Reuters in 2012.

Burger King Europe GmbH owns brand rights for Europe, the Middle East and Africa - which also allows profits from other places, not just Germany, to be at least partly funneled through Switzerland.

Burger King declined to say why the group declared no profits in Germany at the same time as it boasted to investors about the market's strength, but a spokeswoman said the tax structure in Europe pre-dated New-York based 3G's acquisition of the chain in 2010.

Almost all of Burger King's restaurants are now run on a franchise basis rather than directly by the company, and more than 80 percent of the company's revenue comes from franchise fees and property revenue. At the end of last year, it had 7,384 franchised restaurants in the U.S. and 52 company owned and run - the latter are in the Miami area near the company's current headquarters so it can test new food offerings and other changes to the way it operates.

Under U.S. tax rules, Burger King cannot currently cut its American tax bill by routing franchise fees from its U.S. franchisees via Switzerland. But these rules would not apply to a Canadian company. The company spokeswoman said Burger King had no plans to shift franchisees into contracts with offshore subsidiaries.

source: www.abs-cbnnews.com

GM chief Barra: I am deeply sorry

WASHINGTON - General Motors Co CEO Mary Barra on Tuesday called her company's slow response to faulty ignition switches linked to at least 13 deaths "unacceptable," but could not give U.S. lawmakers many answers as to what went wrong.

After taking an oath at a House of Representatives panel, Barra kicked off the contentious hearing by declaring, "I am deeply sorry" for the company's failure to respond quickly to the safety problem and subsequent deaths.

The questioning became contentious at times but it did not appear to rattle the GM chief executive, who rose to her current job in January. However, she repeatedly did not provide the answers House Energy and Commerce panel lawmakers were seeking, citing the company's ongoing internal investigation.

Still, during a nearly three-hour appearance on Capitol Hill, Barra testified again and again that GM had taken steps to prevent future safety problems from occurring. She labored to remind lawmakers that the so-called "new GM" she heads was nothing like the "old GM" that failed to deal with faulty ignition switches for more than a decade.

Barra was called to testify as part of congressional probes into GM's delayed recall of 2.6 million vehicles that could have faulty ignition switches that unexpectedly cause engines to stall and prevent air bags from deploying and power brakes and power steering systems to operate normally.

Barra also announced the company had hired a well-known consultant, Kenneth Feinberg, to examine what steps, if any, GM might take for families of crash victims. Safety advocates said the move indicated the company was exploring setting up a victims' compensation fund.

For all the claims of GM having a new culture, however, Barra and the three executives seated behind her in the hearing room have notched more than 120 years of combined employment with the automaker.

Asked whether GM previously had a culture that would have put cost considerations over safety, Barra responded, "We are doing a complete investigation but I would say in general we have moved from a cost culture, after the bankruptcy, to a customer culture. We have trained thousands of people in putting the customer first."

GM emerged from bankruptcy in 2009 with the help of a $49.5 billion U.S. taxpayer bailout.

Representative Henry Waxman, a veteran Democrat who has spearheaded past attempts to tighten U.S. laws on automotive safety, bluntly told Barra: "Because GM didn't implement this simple fix when it learned about the problem, at least a dozen people have died in defective GM vehicles."

Barra is scheduled to testify on Wednesday to a Senate panel, which also is investigating her company's handling of the defective ignition switches. The company also faces a criminal probe by the U.S. Department of Justice.

GM first learned of a problem with its ignition switches on Chevrolet Cobalts, Saturn Ions and other models in 2001, documents have shown, but took no steps to recall any cars until this past February.

Lawmakers are investigating why GM and regulators missed or ignored numerous red flags that faulty ignition switches could unexpectedly turn off engines during operation and leave airbags, power steering and power brakes inoperable.

David Friedman, acting administrator of the National Highway Traffic Safety Administration, tried to fend off suggestions that the agency failed to spot the problem, saying, "I wish these crashes were as simple as they seem to be."

Instead, Friedman said GM failed early on to share links it had established between the ignition switch problem and the non-deployment of air bags during crashes.

'HORRIFIC STORIES'
Families of victims killed in crashes involving GM cars held an emotional meeting with Barra in the company's Washington offices on Monday night.

The drama inside the packed hearing room, named the "John D. Dingell" room after the Michigan Democrat with a long history of advocating for GM, was heightened by more than 10 photographs of accident victims displayed against one of the walls. Some victims were from home states of members of Congress serving on the committee holding Tuesday's hearing.

Many family members have tried, unsuccessfully, to convince Barra to urge consumers to park all recalled cars and avoid driving them until repairs are made.

Laura Christian, whose daughter Amber Rose was killed in a 2005 Chevy Cobalt in Maryland, said in an interview after the meeting, "Everybody was crying the entire time" during the meeting. "There were horrific stories."

Barra reiterated during her testimony that it was safe to continue driving the recalled cars as long as no keys or other items are attached to the lone key inserted into the ignition.

GM's shares closed down 8 cents at $34.34 on the New York Stock Exchange on Tuesday.

On Monday the company said March sales rose 4 percent from a year ago, beating analysts' predictions of a 0.5 percent increase.

Industry analysts and some GM dealers, however, raised concerns that all the publicity about recalls could begin eroding sales in April.

Republicans and Democrats on the panel, who usually are at odds on most issues, were united in aggressively challenging Barra and GM's performance.

House Energy and Commerce Committee Chairman Fred Upton, a Republican, told Barra: "With a two-ton piece of high-velocity machinery, there is zero margin for error; product safety is a life or death issue. But sadly, vehicle safety has fallen short."

Barra calmly reiterated that the issue of defective ignition switches only came to her attention on Jan. 31.

She had few answers for lawmakers wanting to know who made the decision to quietly revise the design of the faulty switch in 2006, and why GM did not take more seriously dozens of reports of keys unintentionally moving to the "off" position, sometimes at high speeds.

Barra said she will learn more from an internal probe led by Anton "Tony" Valukas, who chairs the law firm Jenner & Block.

"We will learn from this and we will make changes and we will hold people accountable," she said.

Under intense grilling by lawmakers, Barra said she found employee statements "disturbing" that cost considerations may have discouraged the prompt replacement of faulty ignition switches linked to recall of 2.6 million vehicles.

"I find that statement to be very disturbing. As we do this investigation and understand it in the context of the whole timeline - if that was the reason the decision was made, that is unacceptable. That is not the way we do business in today's GM."

On one of the most sensitive issues in the congressional investigation of GM, lawmakers asked Barra why the company would have included ignition switches in its cars even though they did not fully meet the company's specifications, as revealed in documents handed over to lawmakers this week.

"There is a difference between a part not meeting specifications and it being defective," Barra responded.

Pressed on whether the switch was acceptable from a safety and functionality perspective, Barra said: "As we clearly know today, it is not."

source: www.abs-cbnnews.com