Catch Share Oversight Hearing: Groundswell – Taufen’s Comment 3/16/10

111^th U.S. House Committee on Natural Resources – Subcommittee on Insular Affairs, Oceans and Wildlife

March 16, 2010 — Public Comment by:  Stephen Taufen, Groundswell Fisheries Movement

Covering ABUSIVE TRANSFER PRICING, LAY SHARE LAW, DAP PROGRAM FAILURES, CRITERIA REQUIRED FOR BETTER DAPs, COERCION OF CREWMEMBERS…

For all Members and the Official Record (7-pages):

Tuesday, March 16, 2010 Oversight Hearing of Subcommittee on Insular Affairs, Oceans and Wildlife:

On “Catch Shares As A Management Option: Criteria For Ensuring Success”

 Dear Chairwoman Madeleine Z. Bordallo and Subcommittee members:

Congress should call for a three-year moratorium that firmly stands down the Secretary of Commerce’s ability to approve Dedicated Access Privilege (DAP) programs (‘Catch Share’ allocations) until more is known about their actual effects.  Revisions in the Magnuson-Stevens Act are needed to preserve Constitutional due process, equality (Equal Protection Clause), economic sovereignty and other rights.

I’m Stephen Taufen, an Alaska fish industry insider who blew the whistle on the illicit accounting practices of processing corporations who — acting as ‘resource vultures’ — use product laundering to control the means of production, product mixes, and move profits across national borders.  These tax avoidance tactics and revenue shifting strategies (abusive Transfer Pricing) gravely harm our Nation.

A ‘transfer price’ is the price charged by one company to a related company whenever they allocate income and expenses among themselves.  The bottom line is whether or not the U.S. (host nation) company properly reflects income attributable to its operations in the U.S., or whether its foreign parent is using illicit accounting and pricing strategies to avoid higher effective U.S. taxes — and to transfer profits offshore and jobs to home and foreign nations.  Refer to: U.S. Internal Revenue Code section 482 Transfer Pricing, and related code.

Allocation of fishery quota rights to transnational firms grants them ‘plenary power’ over our fisheries economy, creating job losses and negative shocks to economic multiplier benefits that belong in the USA.

The conversion of the public’s common resource privileges to catch shares for fish vessel owners can also foster fleet cooperative agreements with such processors in a way that supports price-fixing, rewards certain competitors instead of competition itself, and establishes restraints of trade.  In Alaska, all of this has occurred through the species-by-species march of rationalization regimes: pollock, crab, and rockfish.

In effect, all of these privatization regimes are coercive monopolies — in violation of market theory and tenets of competition — that only governments have the power to wickedly form.  “Once commodified, fishing rights are alienable.” — Courtney Carothers, “Rationalized Out”.

For 18 years, I’ve cooperated with federal law enforcement agencies in uprooting these harms and to aid the removal of Ted Stevens (R-AK) from the U.S. Senate.  Only with this corrupt senator gone is it now possible for Congress to take back its powers over our nation’s fisheries laws and assist fishermen in correcting the flaws of the Magnuson-Stevens Act.  Your renewed efforts are greatly appreciated.

Directed Access Privilege (DAP) “catch shares” programs — especially those ‘privatizing regimes’ that establish ‘tradable’ (asset commoditized) fishery allocations — have the following negative consequences:

 DAPs threaten economic sovereignty.

Home and insular territories are negatively affected re rights of U.S. citizens for reciprocity in the conduct of trade and indigenous peoples’ rights to self-determination.

DAPs resulted in a Resource Curse in Alaska — ‘the Paradox of Plenty’ can also occur elsewhere.

• A few strong players link with corrupt politicians to secure high rents for themselves, while destructing the development of a wider economic middle class.

DAPs have violated WTO treaty rights and NAFTA/CAFTA trade agreements.

In Alaska, Pollock and crab (and soon the rockfish) processor rights largely flow to Foreign-controlled Corporations (FCCs) who have been granted corporate resource acquisition, food manufacturing and distribution rights, in perpetuity: no longer available to other nations’ firms.

• A WTO challenge to this exclusivity — allowed only to certain foreign-owned multinational enterprises — would likely be upheld.  The USA could face WTO sanctions, imposed on other products or economic segments.

DAPs lead to directive and control by non-participants outside fishery dependent coastal regions.

Using market and financial powers superior to fishermen and coastal communities, DAPs allow a combination of FCCs, large food conglomerates (e.g. WalMart and other hypermarts), and investor class (hedge fund and mutual fund groups), as well as environmental non-government organizations (ENGOs) to gain control in perpetuity over U.S. fishing quotas to secure cheap sources of high volume supply at the expense of our fishery dependent communities and economy.

DAPs in Alaska have allowed a Closed-Class of Processors to avoid Value-added production.

USA jobs have been lost as the increased market powers granted FCCs who received processor quotas and linkage rights to supplies have failed to generate the promised increases in value-added production in our host nation, exacerbating deficits in the net national balance of trade in fisheries.  Coercive monopolies control the means of production and determine markets.

This goes hand-in-hand with the illicit purposes of creating and operating ‘hollow subsidiaries’ in our host nation, as value-added failures lower U.S. side revenues and revenues on the seller (fisherman) level, too.  American consumer choices are subjugated to corporate paradigms.

DAPs foster Global Tax Evasion and Restraints of Trade via FCCs’ Hollow Corporations.

Using abusive (illegal) accounting practices as part of global strategies to evade U.S. taxes, in violation of Internal Revenue Code §482 Transfer Pricing and related regulations, FCCs who operate “hollow subsidiaries” within the USA (host nation) manipulate operating profit.  Again, this allows a ‘closed-class of large processors’ to practice restraints of trade and horizontally fix prices against U.S. sellers (fishermen) on the ex-vessel (seller) level.

 The Seattle IRS-CID and International divisions can advise Congress on the harms to the Treasury, and discuss their limited enforcement and audit efforts to date, and estimated shortfalls to the net U.S. balance of trade.  But it is important to note that tax recoveries (low settlement compromises) do not recover the net-of-tax majority of profits product laundered or correct the multiplier benefits lost.

A proportionally low percentage of the full value of fish products is paid out on the seller side (ex-vessel). This places great risk on the Nation in cases where a fishery might collapse and the social and economic costs then must be provided for by government assistance and bankruptcies.  The UN-FAO and World Bank recognize the increasing trend to lower supplier segment ratios as similar threats to governments around the globe.

DAPs have caused Regulatory Capture of Regional Fishery Management Councils.

 Councils become so dominated by corporate special interests that the historical rights of active participants — such as Alaska’s crab and groundfish crewmembers — are unable to be recognized in the process of allocation amendments, options and elements.

DAPs have abrogated Crewmembers’ maritime law ‘Lay Share’ contract rights:

Exorbitant Lease fees are extracted by quota Sealords.  In legal terms, this is unjust enrichment.  It ignores the lifetime boots-on-deck investments of crewmembers, which is equally important to the amortized (recovered) financial expenditures and government subsidized vessel procurements.  Future opportunities to work one’s way up to the wheelhouse and to eventual vessel ownership end once privatization giveaways begin.

• “Labor is prior to, and independent of, capital.  Capital is only the fruit of labor, and could never have existed if labor had not first existed.  Labor is superior to capital, and deserves the much higher consideration.” – Abraham Lincoln

 

• Interference by quota Sealords who extract exorbitant leases (high rents) off-the-top before doing normal Trip Settlements results in third-party exploitation and contradicts contract bargaining rights of skippers and crew.

• In Alaska, the Council ‘Crab Ratz’ privatization process proceeded without proper consideration of one of the most applicable U.S. laws, 46 U.S.C. §10601 (and §11107) on Lay Share rights for crews contracted to fish on vessels over 20 gross tons.  The upcoming Gulf of Alaska Rockfish Rationalization regime contains plans to similarly ignore the 30% to 40% historical rights of crewmen.

   46 U.S.C. Section 10601 states, in relevant part:

1. Before proceeding on a voyage, the owner, charterer, or managing operator, or a representative thereof, including the master or individual in charge, of a fishing vessel, fish processing vessel, or fish tender vessel shall make a fishing agreement in writing with each seaman employed on board if the vessel is at least 20 gross tons and on a voyage from a port in the United States.
2. The agreement shall – (1) state the period of effectiveness of the agreement; (2) include the terms of any wage, share, or other compensation arrangement peculiar to the fishery in which the vessel will be engaged during the period of the agreement; and (3) include other agreed terms.

   46 U.S.C. Section 11107 states, in support of §10601 that:

1. An engagement of a seaman contrary to a law of the United States is void.  If the engagement is void, the seaman can recover “the highest rate of wages at the port from which the seaman was engaged or the amount [of] agreed [wages] . . . at the time of engagement, whichever is higher.”

 

Coercion of crewmembers who attempted to give public comment also occurred by their vessel owners and skippers during NPFMC sessions.

•     The FBI and NOAA-OLE were asked to investigate this coercion (see Addendum A for an article on the problem, and a link to part of the actual evidence of vote-rigging etc.).

•        The Crewmembers Association has been long awaiting a reply from past NOAA Administrator James Balsiger about what the Inspector General’s office is doing.

Hundreds of millions of dollars are extracted in high rents by quota Leases, across a collection of major species — and Congress should first quantify these economic extractions (exorbitant rents) and the role of bankers (seeking interest income) before proceeding on future DAPs.

 This is an inherent requirement to guarantee that DAPs do not become modern “letters of marque and reprisal” (privateer grants) or act in the Insular territories as if ‘Deeds of Economic Maritime Cession’ to foreign interests (a non-USA Thalassocracy — regime of the sea).

Ex-Senator Stevens regularly used propaganda such as criticizing factory trawlers as foreign-owned (by Norwegians, who had already converted to American ownership) while ignoring his legislative shifting of rights to FCCs (from Japan and Korea) in the ill-named American Fisheries Act (Pollock privatization).

However, Stevens’ hypocrisy was regularly exposed by disingenuous but responsibly sounding statements on the Senate podium that his legislative acts then failed to uphold; a primary example being:

• “I’m worried about the IFQ’s from the point of view of having another piece of paper that must be purchased by an entrant to the fishery, to the point where only the corporations or the very wealthy can become real participants in the fishery.” – Senator Ted Stevens

However, speaking such a paramount truth is only as good as the legislation that actually backs it up.

Congress should ask these serious questions before initiating more DAPs:

“If we could not prevent Alaska’s major ports from becoming economic branches of foreign nations, stop the Transfer Pricing abuses bleeding off billions of dollars per year and prevent the Resource Curse and Regulatory Capture of the NPFMC, then how can Congress justify further ‘Catch Share’ regimes elsewhere in the nation and its Insular regions?”

“If quota Sealords can extract high rents of up to 70% or more right off the top of ex-vessel revenues (the seller segment cutoff) — a ‘kleptocracy’ transferring hundreds of millions of dollars annually away from regional fishing economies — then do DAP initiating arguments of ‘overcapitalization’ and pending bankruptcy hold any water as driving reasons; or are they merely dishonest rationales to convert (through quota giveaways) privileges to use public commonwealth to create private property rights that only benefit a few select carpetbaggers?”

SOLUTIONS:

• A three-year moratorium on developing or implementing further ‘catch share’ programs.
• Independent research and analysis, including economic Impact studies, on all existing DAPs.
• Scientific and economic studies on the relative efficiencies and consumer benefits (traceability, quality) between small-scale and industrial (large-scale) fishing and processing operations.
• Treasury, Justice Department and Federal Trade Commission reviews of tax, antitrust and restraint of trade harms, as well as effects of Regulatory Capture and Resource Curse problems.
• Quantification of Abusive Transfer Pricing losses, resulting deficits in net national balance of trade.
• Quantification of losses due to Resource Curse ‘high rents’ extraction by quota sealords.
• Assess States Rights and the coordinating compliances required to ensure regional economies do not fall prey to national policies that unjustly shift revenues, taxes and profits from states.
• Legislative debate and changes to MSA to define the parameters for economic management, and ensure all applicable laws (e.g. Lay Share statutes) are part of due process.
• Legislative changes to ensure stakeholder due process (GAO 06-0289 recommendations) and guidelines for scientific and legally justified Problem Statements and National Standard reviews before DAP amendments proceed.
• Increased protection through new legislation on ‘prohibited acts’ to prevent undue foreign influence, and to strengthen prosecution of abusive profit transfers and avoid tax losses.

The above solutions and clarifications and legislative corrections should occur before ending the stand down (moratorium) on developing and implementing new Directed Access Privilege programs.  Until then, allowable catch limits, bycatch mitigation measures, and other traditional fishery management tools can be used to better manage national fisheries.

Bear in mind, as Robert F. Kennedy, Jr. of the Natural Resources Defense Council reminded us, “trespassing on common property … is a form of subsidy that ought to end.”  And as Peter Barnes, author of “Capitalism 3.0” states, “…it’s possible to propertize a natural inheritance without privatizing it… [as] Privatization goes further and assigns property to corporate owners.  …[for] to whom are they accountable for commons-based performance?…The basic idea is to turn pieces of the commons into common property rather than corporate property.”

 

I appreciate your efforts in learning more about the real truths and complexities of ‘Catch Share’ privatization regimes as implemented to date in the Alaskan region.  Improving “economic efficiency” from a limited bundle of resources to benefit of consumers and maintain coastal communities is far superior to wrongfully ‘reframing’ needs of the Commons as “productive efficiencies” for corporate players hell-bent on solely maximizing profits.

Rationalization schemes have been around for over 120 years as means of corporate takeovers of resources.  One definition of “rationalization” is, “the cognitive process of making something seem consistent or based on reason.”  The truth lies in that definition, as DAPs only seem to be rational, when in effect they only convert and selectively ‘ration’ ownership of the Public Commonweal to specific private entities.  This disenfranchisement of living persons in no way serves the actual participants and the fishery dependent communities they live in.

In closing,

“Earth has resources for everyone’s needs, but not for everyone’s greed.”

— attributed to Mahatma Ghandi

 Sincerely,

Stephen R. Taufen, founder of the Groundswell Fisheries Movement

 Addendum: Crab Rationalization ‘Damage Control’ Conspiracy article with link to evidence file.

Must read: “Enclosing the Fisheries: People, Places, and Power” by Marie E. Lowe and Courtney Carothers, American Fisheries Society Symposium 68, © 2008; 223 pgs.; ISBN 978-1-934874-05-09.

U.S. Government Accountability Office report GAO 06-0289, February 2006; “FISHERIES MANAGEMENT: Core Principles and a Strategic Approach Would Enhance Stakeholder Participation in Developing Quota-Based Programs”; http://www.gao.gov/cgi-bin/getrpt?GAO-06-289  [See also: GAO GGD-95-101 & GGD-99-39.]

 

Re ATP, see: Stephen Taufen’s public comment to U.S. Commission on Ocean Policy, Seattle, WA, June 2002; which includes two papers, “The WTO & Fisheries: An Issue of ‘Accountability and Transparency’ – A Case of Global Production and Transfer Pricing Strategies versus Citizen-Taxpayer Rights” (1999 WTO Seattle; web published by the Institute of Agriculture and Trade Policy), and “Transfer Pricing Affects Fish Catch and Sales Prices” (published 1995 in the “AIFMA Leader”); copy available on the Web at: http://oceancommission.gov/publicomment/northwestcomments/taufen_comment.pdf

 

Addendum: Evidence of ongoing plot against Crewmembers released.

Crab Rationalization ‘Damage Control’ Conspiracy is a Reality

Anchorage, AK – December 11, 2008 (revised) — Disenfranchised crab crewmembers have sought since 2004 to restore the historical share of the individual transferable quotas (ITQs) that were taken from them in the Bering Sea and Aleutian Islands crab fisheries.

At the North Pacific Fisheries Management Council (NPFMC) meeting here this weekend, crewmembers will try again to get a separate placeholder on the agenda — a Crew Reallocation Amendment to the Fisheries Management Plan (FMP) for Crab Rationalization (CR).

National standards support that it is a ‘fair and equitable’ goal to reallocate as much as $400 million of the initial $1.1 billion worth of Individual Transferable Quotas (ITQs) to all ‘vessel operators’ — i.e. skippers and crew.  Yet the Council persists in steering things towards violating federal Fisheries Acts that clearly establish no compensation needs to be made to existing ITQ holders, instead of taking the reallocation amendment course.  Apparently, there is a reason why.

The evidence attachment (see locator below for CrabConspiracy.pdf) surfaced in August of 2006, and speaks for itself.  Crewmembers are obviously the target of this deliberate “damage control” plan that outlined how to continue defrauding them of permanent rights to access crab.

Crab crewmembers should calmly remember that a tide must reach its lowest point before it begins to advance.  Now the prudent option for crew is to channel justifiable anger into joining the Bering Sea Crab Crewmen’s Cooperative — to obtain their historical rights back, and ensure Lay Share laws are followed.

The Conspiracy in 3 Nutshells:

In short, three key elements were proposed to keep crewmembers at bay forever, and others were added when needed to keep any damage under uncompromising control.

The first element was to combine two insurmountable hurdles of (1) allowing no motion for reconsideration or reallocation; and if that were to fail, then (2) to hold six council votes in opposition, in order to reject reconsideration.  Inherent to such subjugation was that it might involve all voting Council members, save one, in order to ensure no motion was ever seconded by another member.

The second element was to deliberately deny crewmembers the chance for equitable change “by insisting on a minimum five-year trial run” of crab privatization before modifications could be made.  This roadblock flies in the face of the legal fact that the CR program could be changed at any time, without making any compensation to existing quota privilege holders.

Meanwhile, processors and ITQ-holders have continually pressed the Council, successfully, to change the CR program to overcome their problems.  The ‘damage control’ plan helps explain why only token images of reciprocity were given crew concerns.

The third element was to “quiet angry voices with a prudent delay” by ensuring that the Economic Data Report (EDR) information not be timely shared with crewmembers, so that they could not calculate historical participation rights using official data sources.

• NPFMC actions to date strongly indicate coherence with the conspiracy’s blueprint.  What clearer evidence is needed than the April 2008 ‘strong six’ voting record of the Council, data report delays, ITQ-holders’ testimonies, and records of phone calls strong-arming crew into not voicing public comments that they had moments before signed up to give on the federal record?  [Or the 2009 manipulations of the crew (and lease) discussion paper, that got tabled until the 5-year review process comes back up in October 2010?]

The current Council approach of using a modifying motion that would merely lock crew into buying quota, from existing ITQ-holders if and when it ever comes up for sale, looks like the addition of ‘a fourth element’ to the racket in progress.

Be assured, federal law enforcement has been seriously looking into this for quite awhile.  According to federal guidelines, “Once existence of a conspiracy has been established, only a slight connection to the conspiracy is necessary in order to convict any one defendant of knowing participation.”

Consider for example surveillance on January 28, 2004 that reveals, with crewmembers absent, the ‘Distant Waters Committee’ met in Seattle before the February NP council meeting.  Some attendees openly discussed how favorable it was for them to be in possession of most of the data necessary for scientists and economists to fully evaluate the CR program, and they gleefully talked of leaving it out of required impact reports: before the program even became law.

Lay Share Contracts Ignored:

So, given such intents, it’s no surprise that the award of ITQs blatantly disregarded ‘lay share’ maritime contracts, required under 46 U.S.C. § 11107 and §10601 as amended, that should have certified the pre-rationalization level of historical skipper and crew participation rights.

Instead, harvesting quotas were misallocated 97% to “vessel owners” and a meager 3% was given to skippers.  Yet skippers historically got a ‘lay share’ between 10 and 17% of harvest settlements, and the handful of crewmembers typically onboard each vessel historically split another 20 to 25%.  But if they got 40% before, then why shouldn’t they get 40% today — quotas or not?

To resolve this requires a separate reallocation Amendment, particularly because crewmembers will keep facing these issues, nationwide for many species.

Consequently, the recent 9^th Circuit Court’s pro-prosecution ruling on the Weyhrauch indictment’s fraud charges may offer perspective about the ‘honest services’ owed by public officials and agency decision-makers.

States’ Responsibility is Obvious:

Former Alaska Governor and U.S. Interior secretary Walter Hickel said, “If you steal $10 from a man’s wallet, you’re likely to get a fight, but if you steal billions from the commons, co-owned by him and his descendants, he may not even notice.”

Moreover, when the government becomes extremely biased toward privatization of the public commons for special interests, then the eventual losers beyond taxpayers and consumers are the ecosystem and future generations who lose opportunities to exercise privileges to fish.

Yet it is easy to redefine fixing Crab Rationalization as a moral imperative, with practical solutions.  First, the State needs to get the crew reallocation Amendment in place.  Second, it must end high lease rents on ITQs.

Squashing any Demagogue:

If some of Alaska’s NP council members were squarely in on the “damage control” plan, then there’s a good chance that Governor Sarah Palin is being deliberately blindsided by those inside connivers.

The mastermind behind the “confidential (sic) communication” recommending damage control clearly expressed, “Our final concern is that someday a newly-appointed NPFMC voting member from Alaska could mount a serious political crusade on behalf of Alaskan coastal communities and their resident local businessmen to ‘do the right thing’ and ‘make things right for crab skippers and crewmen” … as it would be the unwelcome rise of a “grass roots demagogue [who] could stress the political system in Alaska sufficiently to prompt a reallocation … to the detriment of our clients’ interests.”

Could someone explain just why protecting crewmembers would be considered “a serious political crusade” — instead of the expected conduct of business for Alaska’s federal council members?

Is it possible that the successful implementation of this conspiracy also tainted the recent choice of a new Washington State representative to the NPFMC?  Is the State of Alaska even aware of the federal lobbying dollars that key processors spent to influence the choice of who just got that position?

Yes, Mr. Secretary, Congress, and Governor Palin, you will be asked to keep bowing before these resource kleptocrats — until you find the courage to stand up, execute the moral imperative, and stop this racketeering.

We leave crewmembers with one final thought, from Mahatma Gandhi,

“First they ignore you, then they ridicule you,

        then they fight you, then you win.”

# # # #

Stephen Taufen, Groundswell Fisheries Movement — Website:  http://groundswellalaska.com

Locator for Original Article: http://alaskareport.com/news1208/x61838_crew_conspiracy.htm

Locator for evidence attachment: http://alaskareport.com/pdf/CrabConspiracy.pdf