Tag Archives: globalisation

Switzerland Discovers the Ugliness of Offshore

In recent days, Johann Schneider-Ammann, the Swiss Minister of Economic Affairs, has become the target of criticism for the tax dealings of the Ammann Group in Langenthal, the company he led between 1987 and 2010. From 1999 to 2010, Schneider-Ammann served in the National Council, the lower chamber of the Swiss parliament. He only gave up control of the Ammann Group when he became a member of the Swiss Federal Council, the federal cabinet, as Minister of Economic Affairs in 2010.


Official 2014 picture of the Swiss Federal Council. Schneider-Ammann is on the left.

The Ammann group was founded in 1869 by an ancestor of Schneider-Ammann’s wife and has been specializing in the production of construction machines. Since 1931, Ammann has been the exclusive importer of Caterpillar products to Switzerland. Today, the company has a worldwide employment of about 3,700–2,500 of them abroad.


Ammann road construction machines (Pavel Ševela / Wikimedia Commons)

One of the allegations, first reported by Swiss TV in late January, is that the Amman Group sold Caterpillar equipment to Iran after the 1979 revolution, thus circumventing the US embargo. Two retired truck drivers, Werner Zwahlen and Robert Z’Rotz, claim to have delivered many truckloads of Caterpillar products to Teheran and Baghdad between 1975 and 1984: “We picked up the machines and spare parts in Belgium and the Netherlands and brought them to Ammann in Langenthal. There we got new papers and, without ever unloading, drove on to Teheran and Baghdad.” As Schneider-Ammann entered the company in a leading position in 1981, it stands to reason that he knew about this scheme–which to be sure was not illegal under Swiss law.

The more serious allegation is that the Ammann Group set up offshore schemes to evade–or avoid–taxation in Switzerland.  In 1976, the Ammann Group founded Manilux SA, a financial holding corporation, in Luxemburg. In 1996, they founded another financial subsidiary, Jerfin Ltd., on the Channel island of Jersey. Schneider-Ammann himself was listed as the chief of Manilux which had neither employees nor offices in Luxemburg, nor elsewhere, even though 250 million Swiss Francs were invested there. Manilux and Jerfin were dissolved in 2007 and 2009, respectively, and the funds transferred first to Jersey and then back to Switzerland.

In an interview with the Zurich daily Neue Zürcher Zeitung on February 8, Schneider-Ammann confirmed the basic facts but denied any wrongdoing: “This was about reserves which we optimized in terms of taxation. The funds were intended for the strategic development of the international Ammann Group and were used to protect jobs. Everything was legal, everything was transparent, the taxation authorities had complete insight at any time. They confirmed this to the company again on Friday.” Entrepreneurs today, according to Schneider-Ammann, have to resort to such offshore schemes because companies are part of a global competition where this is standard procedure: “If you want to secure domestic jobs in an international corporation, it is legitimate to optimize taxes. From an entrepreneurial perspective, it would be a mistake not to take advantage of all legal options.”

While many corporations set up much more sophisticated tax avoidance schemes with a more complex web of subsidiaries in numerous jurisdictions, this is a textbook example for how offshore works. “Optimizing” tax liabilities becomes part of what corporate leaders do in order to increase profits or just to remain competitive. At the other end of the bargain, jurisdictions compete to offer the most attractive conditions to get companies to incorporate there. This is the mechanism Schneider-Ammann described quite frankly: “The Ammann group has to compete in a brutal environment. Before the turn of the millennium, this type of a tax break did not exist in Switzerland. That is why it was recommended to us to invest money in offshore corporations to shelter it from taxation. In the last few years, similar tax shelters were created here [in Switzerland]. This is why we brought the money back to Switzerland.”

This is how the offshore race to the bottom works: corporations create shell companies to move their money to the jurisdiction that offers the most advantageous conditions–and ordinary citizens all over the world shoulder an ever-increasing percentage of the tax burden. Jurisdictions in turn adjust their tax schemes to make their location even more attractive to corporations. When Switzerland matched the conditions offered by Luxemburg and Jersey, repatriating the accounts made business sense for the Ammann Group.

So why did revelations about the business practices of their Minister of Economic Affairs create such a stir in Switzerland to the point that some demand his resignation? Switzerland is one of the pioneers of the offshore system and for well over 80 years has created offshore opportunities for corporations and individuals who are based elsewhere. Mr. Schneider-Ammann has delivered a high-profile example for how offshore looks from the point of view of the jurisdiction that gets cannibalized–a perspective the Swiss are not used to seeing. And all of a sudden, it is very easy to comprehend just how wrong and unjust this system is.

The question is not just whether Mr. Schneider-Ammann’s tax schemes were legal but whether a corporate leader who actively pursued offshore strategies to avoid paying corporate taxes in Switzerland can be a trusted guardian of the common good and more specifically is fit to be its Minister of Economic Affairs–who sits at the table when tax issues are discussed with foreign entities. And just perhaps the offshore system has become odious enough for even the Swiss to understand that the global offshore system they helped create–and from which they profited immensely–may be legal but is morally corrupt.



“When did globalisation start?” A Response.

This question was posed in a blog post on The Economist web site on September 23. Why does the question matter? It matters because it forces us to think about the nature of globalization, its history, and its interpretation. And it forces us to address the question of whether globalization has benefited humanity over time. In that sense it is important to understand whether globalization started in Antiquity, around 1500, in the 19th century, or in the 1980s, as arguments can be made for all scenarios.

Economists like to connect globalization with a convergence and integration of markets, enhanced by a progressing division of labor and expanding trade systems. The great European discoveries around 1500 thus must be seen as a major incubator for globalization. Already Adam Smith argued that the influx of great amounts of silver from mines in Mexico and Bolivia in the 16th century profoundly affected the markets in Europe by dramatically lowering the price of silver–to which the value of European currencies was pegged–while accelerating inflation. Inflation only slowed around 1650, so the theory goes, “when the price of silver fell to such a low level that it was no longer profitable to import it from the Americas.”


The fact is that Europe suffered from serious inflation between 1500 and 1650 which had a destabilizing effect on European societies. Inflation was real, and it was feared. In church hymns of the time, inflation joined illness, hunger, disorder, celestial events, and the Turks as the most serious ills of the time that required God’s assistance. But did Columbus cause inflation?

While the story of American silver is a compelling one, there are a number of destabilizing factors after 1500 that contributed to inflation: the Protestant Reform, the transformation of a feudal society into a mercantilist one, the rapid growth of urban production with rising wages, the Little Ice Age, and the Turkish threat, to name just a few. Then there was the demographic collapse created by the arrival of the plague around 1350 which caused low prices, and the rapid rise of the population starting in the late 15th century which caused a rise in price levels and promoted a rapid expansion of the European trade system. Inflation was also driven by the Thirty Years War (1618-48) which created both shortages and high demand for weapons and provisions for soldiers. The 1648 Peace of Westphalia ended the high demand, and coupled with a massive population loss in the Empire it also ended inflationary pressures.

But there is a larger point to be made. Globalization is a way of thinking about the world and the role of the human in it. Around 1500, the way humans thought about space and the way they related to it changed profoundly. The earth now was thought of as a sphere that could be traveled on endlessly, the universe became infinite, and art marked the centrality of spatial relations through Leonardo’s innovation of the perspective. It is in this context that Columbus’s westward travels to Asia and Vasco de Gama’s travels around Africa and across the Indian Ocean became thinkable. So globalization reflects a state of mind which allows humans to see the world as a whole, to understand spatial relations, to make connections between its parts, and to act upon this insight. The transformation from the old T-O world map, printed as late as 1475, and the Waldseemüller world map of 1507 that first marks “America” indicates this intellectual leap.


Vasco de Gama may have stopped at this protected natural harbor on Mozambique Island in 1498. The Portuguese built their first fort here in 1507.

The second element in this globalization story is competition. It is no accident that Columbus and Vasco de Gama ventured out almost simultaneously to find a sea route to Asia. Both Spain and Portugal were in an open competition to find a commercially viable route to Asia to enhance their trade in high-value goods such as silk and spices. While quickly seizing the opportunities the newly discovered continent offered, the Spanish for three decades were feverishly looking for navigable passages through or around it.

The third element was that the discoveries were driven by commerce, not by sheer curiosity.  As opening a sea route to Asia had great economic promise, many merchants and investors financed expeditions to lands unknown. Voyages of discovery were financed by private venture capital under license from the Spanish and Portuguese crowns to a significant degree. Santo Domingo, the first Spanish hub in the Americas, became a city with stone buildings teeming with investors, entrepreneurs and adventurers within a decade of Columbus’s arrival. From there, the new Atlantic trade system evolved with breathtaking speed–which included mining and plantation operations in the Americas, the Transatlantic slave trade, and an intensifying trade with Asia. But it is the intellectual leap of seeing the world holistically which is the true moment of globalization, the evolving system of global trade just being its logical outgrowth.


The Calle de las Damas in Santo Domingo in 1502 became the first paved road built by the Spanish in the Americas, just 10 years after Columbus first arrived here. These stone buildings were built as investment properties around the same time. One tenant was Hernán Cortés.