BLOG 3 - ICARUS AND THE OLIGARCHS
As we enter the fourth week of war and the conflict begins to take an unbearable toll on the civilian population of Ukraine, we begin to brace ourselves for the worst. Sanctions continue to tighten, arms start to flood Ukraine and threats fly from the pulpits of power, traversing frontiers as they echo through the bloody trenches. The geopolitical chess board is also becoming a flurry of activity, with Chinese diplomacy becoming increasingly active and the erstwhile reviled Venezuelan regime suddenly becoming America’s energetic cavalry. The EU is heavily restricting purchases of Russian gas. Germany has ramped up its military spending. Finland and Sweden are rethinking their long-standing positions of military neutrality. What we are seeing is, tragically, a slow but inevitable escalation, in which yesterday’s red lines are today’s “faits accomplis”. What a terrifying time to be alive!
Meanwhile, our Government is ignoring my requests to publish a list of all the assets frozen in Gibraltar as a consequence of the sanctions imposed by our Government. We are not referring to the list of individuals published by the UK government, but a “Gibraltar-specific” list detailing who (and in what way) has been sanctioned in our jurisdiction. We also want to know if these people have had their assets managed by any MPs or companies partly owned by MPs. This is a basic exercise of transparency that we believe is important, particularly due to the issue I will be dissecting in this blog entry. So far I have seen some vague assurances bandied about by the GSD, and heard the usual, dismissive rhetoric from Government. Not a single document. Not a single, honest exercise of transparency.
All the while (as is their standard MO) they are trying to make this about my competence, falsely claiming that this information has already been disseminated and claiming my “continued failure to find the relevant sanctions lists applicable in Gibraltar.” That, unfortunately, is the reality of the system we live in, and it is a reality that goes far deeper than we want to admit.
When I began this blog I told you I would use it as a tool to discuss the big, systemic issues that affect our community. I promised to take advantage of the format to do what cannot normally be done within the media ecosystem, which is to discuss complex issues in depth, turning my gaze beyond partisan perspectives. Today I would like to talk about the most fundamental and unfortunately unapproachable of all systemic issues: The Gibraltar economic model.
That many Russian oligarchs had made their fortunes on the back of pillage, corruption and exploitation was a well-known fact. That many of these oligarchs were also Putin’s piggy bank, as well as a way for him to have a greater stranglehold of the Russian economy, was common knowledge. That Russia is (and has been for many years) a repressive regime in which political dissidents have been killed and jailed, the media is mostly state-controlled, and there is systematic repression of LGBTQ people is an open secret.
Invading Ukraine, however, was a step too far.
As once revered Russian oligarchs lose their assets and status all over Europe (and other places around the globe), societies are starting to discuss why they ever made life so easy for them in the first place. There are passionate debates in the UK, France and Spain and many others about the suitability of economic systems that don’t ask enough questions (or don’t ask the right questions) to those that have the most money, as long as they invest part of it in the right places. In Gibraltar however, we are not having such debates.
Our economic model is not only tolerant of these, let’s call them, “high risk” investors, but is generally geared towards attracting as many of them as possible. It is another very badly kept secret that Gibraltar, as well as many other UK OTs (and more recently the UK mainland itself) who trade in this model have been specifically targeting Russian HNWIs for decades. I know for a fact, because they have told me so themselves, that several of our MPs deal or have dealt with wealthy Russian clients and their assets in Gibraltar. Anyone who has any understanding of the work of our most powerful and relevant law firms understands that this is simply part of the bread-and-butter of our “financial services” industry. This, until two weeks ago, was a perfectly legal and legitimate line of business.
And it is not just the Russians. In my lifetime as a politician I have seen my fair share of undesirables linked to the Gibraltarian economy and to people right at the top of the local food chain. People like the 'Butcher of Hama' and uncle of Syrian dictator Bashar Al Assad, whose assets were frozen in Spain, France and UK due to suspicions of money laundering, corruption and tax evasion, but who managed to sell his assets in Gibraltar to a trust part-owned by a Government minister, or Dan Gertler, an Israeli billionaire who was dealt a Global Magnitsky Sanction (US programme that targets human rights abusers and kleptocrats around the world), and who amassed his fortune through a series of opaque and corrupt mining and oil deals in the Democratic Republic of Congo.
All of these “investors” who have now been disgraced and whose assets have become almost untouchable, were once perfectly “kosher” business partners and a potential source of revenue for companies and governments.
The Gibraltar economy suffers from something I would define as “Icarus syndrome”. In our zeal to import wealth and wealthy citizens we are attracting risky business that can very quickly turn toxic and have a negative impact on our reputation, and in order to do this, the structures of the state are designed for these clients to seamlessly settle into our economy. Fiscal legislation designed for the wealthy to pay little-to-no taxes, residence laws tailor-made for wealthy foreigners and Governments (and oppositions) that are in the pockets of the large law firms who service their fortunes. My question is, why do we fly so close to the sun? Is this model, today, working for everyone?
And most importantly, why can’t we have a conversation about the suitability of our economic model without being accused of (again) being traitors?
It is undeniable that Gibraltar owes part of its financial success to this economic model. For a long while, the off-shore, low-tax model brought great wealth into our Government coffers in a world in which these practices did not come under great scrutiny. I have no doubt that this model funded many social policies (of successive Governments) that have brought higher standards of living and redistributed a great deal of wealth amongst many Gibraltarians. It funded public housing stocks. It provided grants and subsidies. It paid good salaries to our public workers.
But things are not like they used to be, and models such as ours are now being constantly tested by the demands of an ever modernising global economy. In this brave new world that is unfolding, global inequality is viewed as one of the great problems of our time, and values such as transparency have become basic requirements for respectable democracies. To top it off, the pressure on our ecosystem and our natural resources (our land, sea and air), are also producing unwanted byproducts that are impacting our lives in a negative way. Gibraltar is using up all of its land very fast, mostly to create luxury real-estate aimed at HNWIs, and this is driving completely unsustainable levels of growth in our housing market. As a consequence, average Gibraltarians are now entirely dependent on Government-subsidised housing, and our rich heritage and culture are being degraded by high rise buildings and the allure of vacuous, luxury lifestyles.
And there are other pitfalls to this system, for example, the fact that the economic model places Government front and centre of the economy. Apart from the wealth created in niche segments of the private economy (legal and financials services, real estate) this model funnels resources into the state coffers. This has created "soviet style" economy in which some 50% of the local workforce works for Government and an even greater number of locals live in government subsidised housing.
Also, a significant part of the private sector exists in a toxic embrace with public money, with great dependence on Government contracts. This creates serious issues related to Governance: clientelism and nepotism in the handling of civil service jobs and government housing, and corruption in the allocation of Government contracts with private companies. Basically, the governance problems intrinsic to centralised systems like ours pretty much coincide with the problems people complain about every day in Gibraltar.
Furthermore, this model puts our economy in a place of great vulnerability, as any crisis of public revenue (such as the one one we are experiencing right now), coupled with high levels of recurrent public expenditure, can set the entire economy on a destructive spiral that would threaten the very viability of the state. When Sir Joe Bossano ruminates about the “unsustainablity” of the civil service, he shows how worried he is about the possibility of this very scenario unfolding.
As the daughter of the founder of Hassans, I understand that the people in power in Gibraltar have done their best to grow our economy and create opportunities for our people in the ways they knew best. I also understand that this model has been a successful one, providing wealth and opportunity where there were none. I also understand, however, that this is a morally bankrupt industry with inherent risks attached to it, and I believe that as Gibraltarians we must understand this reality in depth in order to make a choice about the path we want to take as a society.
I also see a new economy unfolding around the world. One that is built on technology and innovation, capable of creating enormous value without the need for great land mass and natural resources, in which small jurisdictions like ours can have a significant role to play. In see companies operate in the post pandemic economy, hiring remotely around the globe and becoming more streamlined and more productive.
I look to the future and I see opportunity. That is why in its 2019 manifesto TG included a policy of modest tax hikes coupled with incentives to invest in strategic, technological industries. I believe this is where we have to look towards if we are ever to successfully diversify our economy, make our administration more effective and reduce our dependence on industries like fossil fuel bunkering and tax avoidance.
I believe it is time for us to start having these discussions, if not to maintain a righteous course between the heavens and the sea, at least to stop the sun from melting our wings.
Speak soon,
Marlene