Tuesday 22 November 2016

Exxon & the $74 Billion Fine

Your money or, errr ...
How the world changes, as amply illustrated by this story.  Chad proposes to fine Exxon $74 billion for - well, who really knows why?  Because they think it's the way to get 4 billion?  Because Exxon has 10 billion of local assets to seize?   Because they are desperate?  Because they can?

Well, can they?  I am sure their courts are sovereign in their own country and their adherence to the rule of law is impeccable, etc etc.  Just like everywhere else on the planet, in fact, and everyone will start taking a pop if this one works - there are enough US companies exposed around the globe.  And British, and German ...  

Global hostage-taking and blackmail is hardly new, indeed it's an entire industry, with consultancy services and all.  But it's mostly been at a *tolerable* below-the-radar level.  Piracy has been on the uptick in recent years, and at one stage got beyond a joke.  Russia has long felt at liberty to impound oil company assets at will, as BP, Shell, Conoco, aye and even the mighty Exxon have discovered over the past 15 years or so.   On the subject of BP, even the sainted Obama wasn't above outright theft.   VW hasn't fared much better there: and even more broadly America's de facto claim to universal jurisdiction has long been a cause of chuntering in many quarters.

Another straw in the wind of the end of globalisation as we thought we knew it?  It could be viewed even more simply: Might is Right.  But treason doth never prosper, etc, so when the USA does it, it's *globalisation*.

Maybe it explains TTIP et al.  Maybe the US saw this coming a mile off, and is trying to build a new layer of defence - short of sending in the drones, that is.  Trump's attitude will be interesting: he's said to be agin TTIP.  It might not only be Chad that discovers what the balance of international power looks like in 2017.



Thud said...

I know I shouldn't as potential disasters loom ahead but part of me is looking forward to some of the next few years happenings....may you live in interesting times etc.

Blue Eyes said...

If Chad et al. want to run their economy without foreign capital and talent then that is up to them!

Former French colony? Enough said.

SumoKing said...

This is not a new situation, we're just a bit used to having an extra national overseer (in the guise of the EU in particular) that can clamp down on governments gouging when the budget is weak.

It's also somewhat difficult to feel sorry for Exon when it will be using standard tax planning tactics to reduce local exposures and create a loss making sub while publicly reporting roaring profits. So you're starting from a position where both sides are basically at it.

The situation at the moment is being driven by resource prices in resource economies so they will take a pop through the tax courts. Russia in particular is very good at manufacturing a situation where people can at least argue that Russia is right.

There are of course various conventions, Lugano, New York etc that allow a foreign judgment from jurisdiction Y to be recognised and registered in jurisdiction X. In other places there are bi lateral recognition laws (i.e. England & Wales to Isle of Mann).

On top of this, given the current international practice of running local subsidiaries at a loss there are probably comfort letters in the audit files of the local company saying that the head co (or at the least a material shareholding co) will stand behind the local co.

The idea that mining or oil co's are going to pull out of shady jurisdictions because they are shady is bit laughable, this is essentially just a business risk for this sort of jurisdiction.