Monday, December 29, 2008

One of the many reasons for the problems in Financial Reporting: conflicts of legal interest



Guardian editor Alan Rusbridger in the New York Review of Books. He's writing about a legal case between The Guardian and Tesco, but the wider implications are there for all, bloggers, lawyers and financial reporters. This is a lot closer to a journalistic reality than much of this year's "missed the credit crunch" hand-wringing.

This sort of financial journalism is notoriously difficult, expensive, and time-consuming. Few reporters have the training to disentangle and make coherent sense of the information publicly available from company accounts, annual reports, statutory filings, and corporate structures. The vast majority of reporters and editors—even those who specialize in business—would not know how to begin to unravel extremely complex corporate structures, which rely for their success on tax havens, partnerships, and tiers of associated financing and holding companies. A financial expert may understand public accounts, but be weak on corporate accounting. A corporate accounting specialist may know little or nothing about taxes. Effective analysis is complicated by the apparent legal impossibility—recognized by both academics and judges—of defining in a precise way the difference between tax avoidance and tax planning.

As we were to discover—if belatedly—the only route to total prepublication self-protection in these matters is to spend tens of thousands of dollars on tax, accountancy, and legal advice. Essentially, the only people qualified to produce wholly authoritative libel-proof assurance are the very people involved in constructing the strategies under scrutiny. They do not come cheap—and many of them have conflicts of interest. Some would give advice in private, but would not speak in public or in court.



And look, here's the Ghost of Christmas Future responding without an answer:

In my various scenarios for the future of news that relies more heavily on independent practitioners and networks, libel suits remain a huge question for which I can’t find an answer.

Says Ebenezer Jarvis.


Hopeful update from John Naughton.

There is, however, a chink of light in the gathering darkness. Rusbridger spells out in great detail the huge cost of retaining the specialist accounting and legal expertise needed to understand the Tesco transactions. But one rule of the new ecology is that there is wonderful expertise out there on the Net, and there might be ways of harnessing all that collective knowledge — rather as Linux harnessed the distributed skills of great programmers across the world to build a ferociously complex operating system; or as Larry Lessig and Charlie Nesson have crowdsourced the task of preparing legal briefs for pro bono cases.


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