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Greetings from Norway: Follow the Money, Panama Papers

Posted on April 16, 2016 at 7:20 AM


Greetings from Norway: Follow the Money, Panama Papers

The Panama Papers are a real hit in the Norwegian newspaper, Aftenposten. Each day, new revelations follow, along with the obfuscations and changing explanations of DNB Bank’s President, Rune Bjerke. I have to admit I found him a jerk when I called him accidentally some years ago. (There is another Rune Bjerke in the Oslo area who should not be confused with this man.) DNB’s president kept me on the phone, mocking me in a continuing spiral of chatter meant to make me feel timid, small and apologetic for simply having reached the wrong phone number. But now I am already digressing.

What should a bank do with its money? And what should the Norwegian bank (that would be: DNB) do when the State of Norway is an owner? Not just banks – there are several companies with important global operations – in oil, technology, minerals, manufacturing – that are partially or majority owned by the State of Norway.

Beate Sjafjell has written a critique in the Aftenposten that I found interesting. I’d like to share it with you. This article appeared in the Aftenposten, Norway’s leading newspaper, the only Norwegian paper involved in the Panama Papers research activity. Beate Sjåfjell is a Norwegian attorney and Law School Faculty at the Norwegian Law School of the University of Oslo.

Her article, translated by me below, was published only in Norwegian. I am translating it here into what I call ‘transparent English’ so that others will see it and read it. . . . And ask related questions.

It’s key to raising not only questions about how the Norwegian state manages the mega-billions it holds in its ‘Oil Fund’, now called the ‘Pension Fund’, but it also begs the question I’m trying to see the answer to – even in the Panama Papers revelations: Where is the money going? Follow the money? Where does the money lead it? Not just to Panama . . .

After all, when the money gets to Panama, someone wants it there for a price. The price they’ll pay for that means they are interested in borrowing it or using it while it is ‘parked there’ - for some other, further purpose. That purpose could be economic activity involving drugs, illegal trade in arms, even legal trade in arms, trade in humans, body parts, medicines, drugs, any commodity for which is sought a market underneath the ‘white market’s radar system and into the (non-taxed, or lower-taxed black market, any objective that makes someone else a lot of money at less expense and means more profits in more secret private pockets related to more secret goals and, well, nasty, unfair or unethical activities.

As my favorite audit manager supervisor, Kevin Carhill, always said, “Follow the money.” I’m trying, but I don’t see the end of the Panama Papers trail yet. I really hope we do!

It’s hard to prove a negative, but you tell me: can I be positive that not one single Norwegian crown (kroner) has gone to buy one single gun in Syria? One single bomb in the Middle East?

Then there is a habit, apparent in Norway’s State company ownership interests, of not asking hard questions in the right forum. From where I come from (Illinois), at least we had The Open Meetings Act, even if politicians and cronies were busy hustling around avoiding it when they wanted to break, in particular, the labor laws. And we had the Corporations Act, which told owners of companies how to behave when they made decisions. Norway should take a lesson in this.

Here is Beate’s article I enjoyed so much. The sub-titles and cut-out quotes are scattered around, unfortunately, making it a bit harder to follow. Still, fantastic work. Thank you, Professor Sjafjell, for your insights and suggestions:

“Government failed shareholdings

The Norwegian State’s Ownership Report provides no indications that the government will deal with the extremely harmful and short-term pressure for maximum profit. This comes at the expense of social responsibility.

What do Yara, Statoil, Telenor, Hydro, Kongsberg,, DNB Bank, and Kvaerner have in common? They all have the State as a shareholder (indirectly on Kvaerner’s part), and all have, during recent times, been accused of being involved in crimes or unethical conduct. How can this happen with a government shareholder who claims to have clear expectations of social responsibility?

Profit before corporate social responsibility

The Norwegian Minister of Business argues that the state is clear that profit should not be at the expense of legal and corporate governance (White Paper 27 (2013-2014, "A diverse and value-creating ownership - "Ownership Report"). The Ownership Report shows the opposite. It states emphatically repeatedly that the main objective is the maximization of profits/returns.

The state has no legal obligation to always do what maximizes profits.

Government expectations for corporate social responsibility are, in content, praiseworthy. But they are coming long after the message, sandwiched in between the expectations of the highest possible returns and guidelines on executive pay.

Neither returns nor executive pay are explicitly related to social responsibility. The main point is profitability. Working with social responsibility should help to "protect shareholder value." One fourth of the pages in the 122-page message are devoted to adhering and expectations concerning social responsibility.

Missing the will to lead

The Ownership Report points out the problem as companies with many small shareholders, who can be seen to be without strong shareholder control – i.e. "ownerless" companies. The state obviously does not consider that the same applies to a company with a state majority shareholder - who dares not run it.

The bottom line is profitability. Work with social responsibility should help to "protect shareholder value.

The state is in a double role as a public shareholder, whether passive or active. The state seems to want to manage its dual role by giving the impression of being aloof and not exerting direct influence on these companies.

The government can exercise authority at the AGM (the Annual General Meeting)

The state claims that it cannot do more than choose a competent board. That is wrong. At the AGM, shareholders exercise the highest authority in the company. Here, the State has, as majority shareholder (in Telenor, Statoil, and Kongsberg) control; and as a large minority shareholder (in Yara, Hydro, DNB Bank, Kvaerner Aker Holding) significant influence.

The state has no legal obligation to always do what maximizes profit. The State could ,through selected, strategic decisions at the AGM meetings, show that, for example, zero tolerance for corruption means “saying ‘No, thanks” to some projects. The State’s capacity and opportunity for influence, both nationally and internationally, is formidable.

Missing Transparency in Company Shareholder meetings (AGMs)

Instead, the state uses the AGM to elect the board and to “sprinkle sand” (slow down progress) on their proposals. The state argues that it addresses important questions in the so-called ownership meetings between State department staff and company leaders.

The state is breaking with its own principles of good corporate governance: There should be transparency knitted into the ownership activity, and decisions and resolutions should be conducted at the AGM meeting. The ‘ownership dialogue’ should be tied, in addition, to the AGM, not be replaced by other meetings.

The state should be an active and socially responsible shareholder

The state is afraid to scare off other investors. Consideration of other shareholders and the market means that the government’s representatives should refrain from partisan political power activity and other arbitrariness.

There is little that separates the state from a private profit-maximizing shareholder.

This does not mean that the state should refrain from being an active and socially responsible shareholder and only try to influence decisions in closed meetings. Active and socially responsible share ownership activities can be conducted in a predictable and orderly manner within the framework of company law and ethical principles and in line with the government's own overall objectives and international obligations.

The hunt for current profit maximization

Short-term profit maximization pressures make it difficult for companies to propose tough enough requirements when they enter into corrupt countries. The Ownership Report itself notes that leaders are feeling the pressure for short-term profit maximization as a growing problem.

Public shareholding company direction could propose greater long-term focus and a willingness to put social responsibility before profit, also in the form of proposing an ultimatum for transparency in business dealings with all corrupt regimes.

Long-term focus is mentioned - with exception

Instead, we see that the message emphasizes, time after time, that the main consideration is maximization of invested capital, and when long-term focus is mentioned, the need for continued short-term returns at the same time is emphasized.

The consultant network, such as PWC (Price Waterhouse Coopers) is a part of, and among those whose facilitation has given us the Panama Papers scandals.

The signal is that profit is the goal and all else should be managed as well as one can, with the exception that it must support the goal of maximizing profits. There is little that separates the state from a private profit-maximizing shareholder. There is nothing that suggests that the state should have settled and agreed to something of extreme damage, or short-term pressure for maximum profit.

What is the Department of Business doing?

The Norwegian Department of Business, which has the overarching responsibility for the state’s shareholder ownership management, has asked the Attorney firm within Price Waterhouse Coopers for help. PWC should discuss and report on the companies and the Department follow up messages concerning owner’s expectations to work against corruption and towards transparency in economic transactions well enough.

Secretiveness is just a symptom.

The consultant network sits on all sides of the table

These consulting networks, such as PWC is a part of, are among those additional agents who have given us the Panama Papers scandal. These consultant communities are sitting on all sides of the table, alongside, preparing the ground for the owners’ reports, facilitating services of the companies, and then evaluating whether the companies and the state government’s ownership activities work well enough.

That a consultancy environment that is so well integrated into this system, which obviously does not work, should be the one to give systemic, thoroughly persuasive assessments of what is the problem and what should be changed should be unthinkable. Unless the government takes a completely different grip, we ought to expect new scandals.”


-June Edvenson is a former Illinois State Senior Auditor. She worked as an auditor for the State of Illinois for 7 years in Springfield and Chicago. She is an American attorney now living and working in Norway.


Categories: Law Stuff, Auditing Stuff, International Miscellaneous