Roland Dürre
Saturday May 14th, 2016

Letterbox Companies and More of the Same … (Series) #4

Come and work for me – make me rich!

The following experience of mine is one I consider a display of particularly bold behaviour. It will be the last article of my series (Serie) on corruption for the time being. But it was definitely a very attractive offer and it was by no means easy to say no.

What happened did not happen as long ago as what I related in the other three articles. My memory is of it happening early or in the middle of the 1990ies.

At the time, we were a respected and also well-known supplier of support and service for products of the best hardware and software producers. We provided service and support their customers in the name of the producers. As a general rule, both parties behaved like good partners, which made for nice “win-win” situations.

During those days, new enterprises with special software solutions in the service and security fields grew like comets, both in the USA and other countries. And, of course, it was our goal to service different producers and all varieties of technologies. After all, we wanted to have a broad range of products on the market and thus remain independent from individual producers.

One day, as a total surprise, a famous and very successful technology provider called us, asking if we were interested in servicing exclusively their products in huge parts of DACH (Germany, Austria, Switzerland).

Es ist immer schön, wenn das Bargeld in der Kasse klimpert.

It is always nice to hear money jangling in the box.

Of course, this sounded fantastic. Today, I know that you always want to be sceptical if you get this kind of offer, because in entrepreneurial reality, miracles just do not happen (or if, then very, very rarely). And if they happen, there is (always) something (very much) wrong. As a meeting point – surprise, surprise – they proposed the lobby of an airport hotel.

We were curious and wanted to test the chance by all accounts. So we agreed to the appointment. And it was all true. The Europe support head of the enterprise welcomed us very kindly and hospitably and told us convincingly why he had chosen our enterprise as a candidate for a future partnership. He offered to hand us the service for his products and customers exclusively for a very attractive region. The necessary training of our colleagues for his products was offered for free, we only had to provide the time. It all sounded like a new and wonderful partnership.

Then came the glitch. Our business partner pointed out that, with such a model, we would have no sales costs and could still realize excellent prices. After all, all the orders would come directly from and be paid for by his enterprise. Consequently, it would be only fair and in no way against our interests if we paid a 10 per cent sales fee for all the turnover with our new customer. We would get invoiced at regular intervals from a sales enterprise in Switzerland and all we would have to do is pay on time.

We asked for time to consider and drove back home. And then, with a heavy heart, because the turnover we missed was absolutely relevant, we rejected the offer. Incidentally, the company in Switzerland was also some sort of letterbox company. Who knows where the money ended up.

During my rather long professional career, I witnessed quite a few very definite kick-back transactions. Mostly, persons from the middle management of rather famous and also German enterprises expected a “little back” from their service providers – and received it, too. Mostly, this was also done through letterbox companies. But I never knew such a bold procedure as the one I just told you about.

RMD
(Translated by EG)

P.S.
I took the picture from Wikipedia. 
About bank notes: Hermann Eidenbenz for the Deutsche Bundesbank. Coins by various artists for the German Federal Republic – bank notes: edited by the Deutsche Bundesbank. Coins: edited by the Federal Republic of Germany, PD-Amtliches Werk.

In the country of horse-trading …

After previously having written in my last two articles (1 and 2) about what generally happens, I will now continue this small series on corruption by relating to you two things that actually happened to me. Here is one example of what I experienced.

As most of you know, I founded an enterprise more than thirty years ago and was its managing director and board member.

Even as early as in the 1980ies, cars were highly subsidized in the FDR as business vehicles. Since in those days it was a matter of course that everybody went places by car, we offered our employees to get a so-called business car as part of their salary if that was what they wished. If you buy a “business car”, you save the entire added value tax, you can deduce all (!) costs, such as the purchase of the car, repair parts, tyres, additional gadgets, insurance, maintenance and repairs, service and the entire cost of gas as normal business expenses. This is how you can economize on the entire added value tax and more company taxes (income, trade).

Calculated over the entire life of a vehicle, you can save an enormous amount of money in taxes, even with a medium-size car. The sum is considerably higher than the money the employee has to pay in taxes for “money-worth advantages”. Especially if the employee has only a short way to go from his home to his work place. And “prudent” employees usually have a short way from their home to the work place, even if sometimes only on paper.

The subsidized profit (difference between the added value tax you saved and the tax the employee has to pay for “money-worth advantages”) can easily be divided between the employee and the enterprise, which means both sides will profit from the car-industry subsidy. And since in those days I was still rather naïve when it came to driving cars, I used the incentive “you will get a business car” frequently when looking for new employees.

Thus, the number of business cars grew as massively as the number of employees in our firm. After a short time, the term “small fleet” was actually adequate when we talked IF cars. And it kept growing in size (10, 20, 30 …). If you have a fleet, the car salesperson will come and talk you into a fleet contract, pointing out the many advantages of same. So I also signed said contract.

Auch die Rückseite dieses Scheines hat manches Herz erfreut :-)

The opposite side of this bill, too, has delighted many

Well, now I believed that, since we had a fleet contract, we would get the cars cheaper than private buyers. But as it turned out, this was not the case. Again and again, I heard from friends who had “privately” bought a car, that they had been granted a higher individual discount – after long and intense negotiations, but still – than I got for the fleet. This annoyed me.

Additionally, the fleet contract salesperson made all kinds of promises, but the service was abominably poor. Consequently, I sometimes changed suppliers, once even the brand. The negotiations were always a disgrace, because the salespersons always used their entire sales repertory in an offensive way, which, to me, was very disagreeable.

And when I absolutely refused to continue, the super salesperson came to see me. He entreated me to remain with him as a supplier and with his brand. Everything was going to get better. And he also offered me a special extra treat, one he only offered to his very best customers:

He offered to pay 5% of the value of every car I would buy in the course of the fleet contract into an account of my personal choice!

I was shocked and replied that I had no account for this kind of purpose. His reply was that he could help me when it came to starting such an account – preferably abroad. Did he mean a letter-box company?

This was a time when InterFace had high growth rates. We always renewed our car fleet early and consequently ordered 10 cars for the year. I am sure that the total value was more than 250,000 DM. Consequently, the 5 % he had offered would have easily equalled 12,500 DM. Well, that was 12.5 times the bill you see on the picture – and in those days you actually got quite some material for this kind of money. And it was all tax free and would have had a tendency towards growing in the future. …

I declined, because for me such behaviour would not only have been bribery, but also fraud against my partners and employees. Today, I am very happy to have refused the then very seriously made offer. I will not tell you the brand and the supplier, because I assume that this was not usual business behaviour but the individual activity of one person. But then: who knows?

RMD
(Translated by EG)

P.S.
I took the picture from Wikipedia.

Roland Dürre
Thursday April 21st, 2016

Letterbox Companies, Corruption and More… (Series) #2

Today: Bribery & Secret Accounts

When I was still generating application software, I always had to do requirement engineering. Well, the term had at least the advantage that the word “management” was not part of it. Today, one would probably call it “requirement management”. Now, however, I prefer the more agile approach of a system outline with “user stories” and “use cases”.

Regardless of how you name it, you will always find something like Entity-Relationship-Models (ERM). Objects, or rather classes of objects, are described along with the qualitative relationship between said objects or classes of objects.

For me, the best example of an ER model is love. You have the lover (entity E1), love (relationship L->) and the beloved (entity E2), also E1 L-> E2. Of course, it is true for both sexes.
And as soon as the relationship is symmetrical (<-L->), you get a “Happy End“.

Even the doubtless very clever Jesuits as the best thinkers of the Catholic Church used exactly this same metaphor in order to make the incomprehensible and often doubted Trinity Dogma look humane. They simply made God the Father the lover, the Holy Spirit love and Jesus the beloved one.

:-)Those were the days when we still kept this sad piece of paper in our purses, neatly folded and deeply buried as a last resort.

🙂 Was waren das noch für Zeiten, als wir diesen tristen Schein sauber gefaltet und tief versteckt als eiserne Reserve in der Tiefe unseres Geldbeutel hatten.

Bribery can also be defined as an entity relationship model. There is a briber, the bribery and the bribed person. As early as a few decades ago, we had a controversial discussion and debate during a Rupert Lay – at the time he was considered the doyen in business and society – seminar.

All managers present agreed that bribery, at least if a German civil servant is concerned, is an absolute “no-go”, because it is definitely forbidden by law. However, bribing a buyer in a society that is definitely corrupt – for example in order to preserve jobs – might well be ethically acceptable. After all, someone else might otherwise do the bribing. And besides, our tax offices accept a declaration where “special expenses” are permissible up to a certain amount of money without giving the name of the recipient.

So much on the management concept of the 1980ies. Personally, I saw – and still see – matters a little differently. One reason is that such reasoning would make any behaviour acceptable, even using other unethical means – for instance violence. Another reason is that this kind of bribery would just make the wheels of corruption turn even faster.

How does bribery look in (real) life?

As a general rule, corruption consists of a system of illegal accounts. After all, it can only work if the briber (E1) and the bribed person (E2) remain unknown. Consequently, you have to take the money out of the enterprise circle as early as possible and transfer it into the shadow realm of illegal money.

In this realm, there are no rules – or rather, individual persons make the rules. As we all know, individual persons are weak and can easily be tempted. Especially if their social background is a corrupt system like the illegal account system showing them how to do it.

Humans love themselves most. And their sense of justice will protest if a corrupt person from an alien world is to get such a huge amount of money on top of everything. Consequently, they take a considerable sum out of the bribery money for themselves – which, in my opinion, is easy to understand. Any other behaviour would be more than stupid.

I assume that (more than) half of the bribery moneys paid never reach the bribed persons. Instead, it remains with the bribers. That is what makes bribery so problematic. Because all of a sudden, the ERM becomes symmetrical. The briber wants the bribery as much as the bribed person, because they have become accomplices. The lie “you have to bribe because it is the general rule” becomes even weaker than it already was.

It goes without saying that the money that has been paid to both parties must end up somewhere – and, again, it gets clear why so many fake companies exist. This is how we get back to my first article of this small series. In my next two articles, I will describe in detail how I was to be bribed.

RMD
(Translated by EG)

P.S.
I took the picture of the 1,000 – Euro bill fromWikipedia.

Agrippina minor mit Diadem als Justitia auf einer Münze des Nero

Agrippina minor with Diadem representing Justitia on a coin of Nero. The often rather blind goddess Justitia.

Well, a lawyer’s office (one of many) offering the founding and installation of special enterprises in rather dubious countries is (has been) “hacked” – and many people are surprised at what kinds of things happen if a part of the truth becomes public knowledge.

Naturally, the media, again, immediately published the data leak in their special and rather sensation-lusty way.

Except that we are talking about things that have been public knowledge for a long, long time. Consequently, I will now tell you a few things I personally know about corruption, letterbox companies, the methods behind them and everything else belonging in the same context.

Here are four corruption stories I myself was directly involved with

Story # 1:

How to make illegal money and invest it in a letterbox company.

Imagine yourself being a methodical counsellor and having a counselling company named “GAMMA” – a rather “normal” and more or less successful enterprise in Germany. You have an idea how to support your business and do some Excel programming on said idea over the weekend. You get a tool that supports your method, making your counselling service more efficient and setting you apart from the competition. Your employees like using the tool, your customers appreciate it and perhaps they are even prepared to pay an extra price or licence fee for it. But that is not strictly necessary.

So now you have a perfect starting point from which you can do a great job generating illegal money and transferring it into a letterbox company.

You do the following things – and it is all (almost?) totally legal.

You found a company “ALPHA“ in one of those letterbox company countries (“tax oasis”). You transfer your idea (your Intellectual Property / Geistiges Eigentum or IP) to this company. It is officially the job of the enterprise “ALPHA“ to do the world-wide marketing for your intellectual property. This is totally legal as far as prevailing law is concerned.

Only the location of the enterprise might be a little unusual; it is situated in a very exotic country that nobody really knows and that is commonly associated with the term “tax oasis”.  As a general rule, the director of “ALPHA“ will be a frontman. He does not have a lot of work and also gets only a small salary.

In another (a little more trustworthy) country, for instance Ireland, you found a very small software house and name it “BETA”. It has one employee who, in his leisure time, does some functional improvement and maintenance work on your spreadsheet and is paid a little bit for his work. That, too, is probably quite legal.

Company “BETA“ will write a substantial invoice addressed to “GAMMA“ for every registered(!) use of the method and the tool. A small part of the money is used for paying the part-time employee. The bulk of the money is transferred to “ALPHA“ as IP licence fees. The money remaining with “BETA“ is down to the absolute necessities. That, too, is probably not illegal.

In this manner, you will increase the cost and decrease the profit of “GAMMA“ (and you will pay less taxes). This is how you habitually transfer quite nice sums (illegally?) from “GAMMA“ via “BETA” to “ALPHA”, your off-shore enterprise, which you own and which administers and sells your intellectual property (IP).

This method can be used for all kinds of rights, both a in small and a huge dimension.

The remaining question is:
what will enterprise “ALPHA“ do with all the money?

ALPHA“ will invest in a house in the Ticino or on Mallorca – or in a yacht, or whatever you desire. You can let them and thus increase your capital. And, of course, you can also use both the yacht and the house if that is your desire. For instance if you wish to invite beautiful ladies and offer nice pastimes to your business partners – of course for free.

If, at some time, you want to liquidate your letterbox company “ALPHA“ , then you can do that, too. Again, the legal office that was such a great help when you founded the company will do the job for you. All moneys will be brought “back home” with as little tax paid as possible.

It is quite simple, isn’t it? However, Goddess Justitia can see it and still, as a general rule, can do nothing about it.

In my next instalment of this series, I will tell you who actually profits from the business with “secret cash” – and what role letterbox companies can play here. And afterwards, I will out myself by telling you how they wanted to bribe me, both as a customer and as a supplier (!).

RMD
(Translated by EG)

P.S.
Now I hope that there is no company called “Gamma” that actually does this kind of business.

P.S.1
I took the picture from Wikipedia – it is owned by Classical Numismatic Group, Inc.