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Chevron Gets U.S. License to Pump Oil in Venezuela Again

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WASHINGTON—The U.S. said it would allow

Chevron Corp.

CVX -0.29%

to resume pumping oil from its Venezuelan oil fields after President Nicolás Maduro’s government and an opposition coalition agreed to implement an estimated $3 billion humanitarian relief program and continue dialogue in Mexico City on efforts to hold free and fair elections.

Following the Norwegian-brokered agreement signed in Mexico City, the Biden administration granted a license to Chevron that allows the California-based oil company to return to its oil fields in joint ventures with the Venezuela national oil company, Petróleos de Venezuela SA. The new license, granted by the Treasury Department, permits Chevron to pump Venezuelan oil for the first time in years.

Biden administration officials said the license prohibits PdVSA from receiving profits from Chevron’s oil sales. The officials said the U.S. is prepared to revoke or amend the license, which will be in effect for six months, at any time if Venezuela doesn’t negotiate in good faith.

Venezuela produces some 700,000 barrels of oil a day, compared with more than 3 million in the 1990s.



Photo:

Isaac Urrutia/Reuters

“If Maduro again tries to use these negotiations to buy time to further consolidate his criminal dictatorship, the United States and our international partners must snap back the full force of our sanctions,” said Sen.

Robert Menendez

(D., N.J.), the chairman of the Senate Foreign Relations Committee.

The U.S. policy shift could signal an opening for other oil companies to resume their business in Venezuela two years after the Trump administration clamped down on Chevron and other companies’ activities there as part of a maximum-pressure campaign meant to oust the government led by Mr. Maduro. The Treasury Department action didn’t say how non-U.S. oil companies might re-engage with Venezuela.

Venezuela produces some 700,000 barrels of oil a day, compared with more than 3 million barrels a day in the 1990s. Some analysts said Venezuela could hit 1 million barrels a day in the medium term, a modest increment reflecting the dilapidated state of the country’s state-led oil industry.

Some Republican lawmakers criticized the Biden administration’s decision to clear the way for Chevron to pump more oil in Venezuela. “The Biden administration should allow American energy producers to unleash DOMESTIC production instead of begging dictators for oil,” Rep. Claudia Tenney (R., N.Y.) wrote on Twitter.

Biden administration officials said the decision to issue the license wasn’t a response to oil prices, which have been a major concern for President Biden and his top advisers in recent months as they seek to tackle inflation. “This is about the regime taking the steps needed to support the restoration of democracy in Venezuela,” one of the officials said.

The Wall Street Journal reported in October that the Biden administration was preparing to scale down sanctions on Venezuela’s regime to allow Chevron to resume pumping oil there.

Jorge Rodriguez led the Venezuelan delegation to the talks in Mexico City, where an agreement was signed.



Photo:

Henry Romero/Reuters

Under the new license, profits from the sale of oil will go toward repaying hundreds of millions of dollars in debt owed to Chevron by PdVSA, administration officials said. The U.S. will require that Chevron report details of its financial operations to ensure transparency, they said.

Chevron spokesman Ray Fohr said the new license allows the company to commercialize the oil currently being produced at its joint-venture assets. He said the company will conduct its business in compliance within the current framework.

The license prohibits Chevron from paying taxes and royalties to the Venezuelan government, which surprised some experts. They had been expecting that direct revenue would encourage PdVSA to reroute oil cargoes away from obscure export channels, mostly to Chinese buyers at a steep discount, which Venezuela has relied on for years to skirt sanctions.

“If this is the case, Maduro doesn’t have significant incentives to allow that many cargoes of Chevron to go out,” said

Francisco Monaldi,

director of the Latin America Energy Program at Rice University’s Baker Institute for Public Policy. Sending oil to China, even at a heavy discount, would be better for Caracas than only paying debt to Chevron, he said.

The limited scope of the Chevron license is seen as a way to ensure that Mr. Maduro stays the course on negotiations. “Rather than fully opening the door for Venezuelan oil to flow to the U.S. market immediately, what the license proposes is a normalization path that is likely contingent on concessions from the Maduro regime on the political and human-rights front,” said

Luisa Palacios,

senior research scholar at the Columbia University Center on Global Energy Policy.

The license allows Venezuelan oil back into the U.S., historically its largest market, but only if the oil from the PdVSA-Chevron joint ventures is first sold to Chevron and doesn’t authorize exports from the ventures “to any jurisdiction other than the United States,” which appears to restrict PdVSA’s own share of the sales to the U.S. market, said Mr. Monaldi.

The license prohibits transactions involving goods and services from Iran, a U.S.-sanctioned oil producer that has helped Venezuela overcome sanctions in recent years. It blocks dealings with Venezuelan entities owned or controlled by Western-sanctioned Russia, which has played a role in Venezuela’s oil industry.

Jorge Rodriguez,

the head of Venezuela’s Congress as well as the government’s delegation to the Mexico City talks, declined to comment on the issuance of the Chevron license.

Freddy Guevara,

a member of the opposition coalition’s delegation, said the estimated $3 billion in frozen funds intended for humanitarian relief and infrastructure projects in Venezuela would be administered by the United Nations. He cautioned that it would take time to implement the program fully. “It begins now, but the time period is up to three years,” he said.

The Venezuelan state funds frozen in overseas banks by sanctions are expected to be used to alleviate the country’s health, food and electric-power crises in part by building infrastructure for electricity and water-treatment needs. “Not one dollar will go to the vaults of the regime,” Mr. Guevara said.

Chevron plans to restore lost output as it performs maintenance and other essential work, but it won’t attempt major work that would require new investments in the country’s oil fields until debts of $4.2 billion are repaid. That could take about two to three years depending on oil-market conditions, according to people familiar with the matter.

PdVSA owes Chevron and other joint-venture partners their shares of more than two years of revenue from oil sales, after the 2020 U.S. sanctions barred the Venezuelan company from paying its partners, one of the people said. The license would allow Chevron to collect its share of dividends from its joint ventures such as Petropiar, in which Chevron is a 30% partner.

Analysts said the new agreement raises expectations that will take time and work to fulfill. “Ensuring the success of talks won’t be easy, but it’s clear that offering gradual sanctions relief like this in order to incentivize agreements is the only way forward. It’s a Champagne-popping moment for the negotiators, but much more work remains to be done,” said Geoff Ramsey, Venezuela director at the Washington Office on Latin America.

—José de Córdoba and Ginette Gonzalez contributed to this article.

Write to Collin Eaton at collin.eaton@wsj.com and Andrew Restuccia at andrew.restuccia@wsj.com

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Business

First Came the Crypto Crash. Now Comes the Taxman.

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The rout in cryptocurrencies worsened this week with the collapse of the offshore exchange FTX. With bitcoin recently down more than 60% in 2022, many crypto investors would surely like to forget about digital assets, at least for now.

That would be a mistake. The Internal Revenue Service hasn’t lost interest in cryptocurrencies, and investors need to focus on key tax issues before year-end. 

New rules and enforcement actions are coming to ferret out crypto transactions that often went unreported in the past. There’s a bit of good news as well: This year’s painful selloff brings an opportunity for crypto holders to harvest losses to offset future taxes. 

Here’s more to help investors make smart crypto moves in the next few weeks—and get ready for new IRS scrutiny.  

Crypto losses as a tax-saving tool

There’s a silver lining for investors whose crypto holdings are in taxable accounts rather than tax sheltered accounts such as IRAs.   

The benefit is that if an investor sells this crypto and books a capital loss, it can be used to offset future capital gains on winners. These gains don’t have to be on digital assets; they could be on stocks, real estate, or other investments.

If an investor with capital losses has no capital gains to shelter, the losses can offset up to $3,000 of ordinary income such as wages per tax return, per year. These losses don’t expire.  

Say that John has a $20,000 loss in his crypto holdings now. If he sells and has no capital gains to offset, he can reduce his wage income by $3,000 this year and in future years. If he then has a capital gain of $5,000 two years from now, he won’t owe tax on it—and he’ll still have $9,000 to offset future taxes. 

In a key way, crypto losses have an advantage over stock losses. If an investor sells shares at a loss, the “wash-sale” rules penalize him if he also buys the same stock within 30 days before or after the sale.  

But the wash-sale rules don’t currently apply to cryptocurrencies. So crypto investors can have their cake and eat it too, by taking losses now to shelter future gains and then repurchasing favorites right away. There’s no need to wait and risk missing a market surge—if there is one. 

New IRS reporting by brokers

The 2021 Infrastructure Investment and Jobs Act included a provision requiring crypto brokers to report customers’ sale proceeds to the IRS on a 1099 form, if it’s held in a taxable account. The requirements are akin to what brokerage firms report for investors’ stock sales.

The change aims to clamp down on many crypto investors’ cavalier—and sometimes criminal—tax avoidance. Until Congress acted, few crypto transactions had to be reported to the IRS by third parties such as exchanges, and many investors have ignored crypto tax rules. In a recent court filing, the IRS said that in 2019 only about 100,000 tax returns reported crypto transactions. That’s far less than would be expected given research showing that about 20% of American adults have bought, traded, or used cryptocurrencies.   

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The new law is set to take effect Jan. 1, 2023, so the first forms would go to taxpayers and the IRS in early 2024. However, tax specialists say the date may be postponed because the Treasury Department hasn’t issued regulations detailing the laws defining thorny issues such as who is a crypto broker. Crypto firms also need to update software.  

The new rules will likely increase complexity, even for crypto investors complying with the law—so it could make sense to accelerate moves into this year. More paperwork will likely lead to more errors by taxpayers and the IRS that take time to untangle, says Shehan Chandrasekera, head of tax strategy at CoinTracker, a provider of crypto tax-filing software.   

For crypto holders who aren’t compliant, he adds, “The new reporting doesn’t change the taxation of cryptocurrencies. But it will tell the IRS about your transactions—so it’s important to put things in order now.”    

 New court-ordered searches for crypto tax cheats 

In August and September federal judges approved two new summonses requiring a crypto exchange and a bank to turn over customer information to the IRS to uncover tax cheating using cryptocurrency.

The crypto exchange is sFox, a crypto prime dealer with more than 175,000 customers whose transactions have totaled more than $12 billion since 2015, according to a Justice Department statement. The bank is M.Y. Safra Bank, which had an agreement to provide banking services to sFox customers. Neither business is accused of wrongdoing.

sFox and M.Y. Safra must turn over to the IRS account information on sFox customers who had $20,000 or more in crypto transactions in any one year from Jan. 1, 2016 to Dec. 31, 2021. 

To justify the summonses, the agency provided examples of 10 unnamed people who didn’t declare taxable income from transactions conducted largely through sFox. The unreported income ranged from $1 million by someone allegedly involved in a Ponzi scheme to $5,000 by someone whose return showed wages, retirement income, and Social Security payments—but no crypto profits. 

The IRS has already used this strategy, called a John Doe summons, to pursue crypto tax cheats with transactions of $20,000 or more at three other exchanges:

Coinbase,

Kraken and Circle. From these and other efforts, the agency has assessed more than $110 million in tax due on unreported crypto income, with more expected. Penalties and interest could nearly double the total that some taxpayers owe. 

Future summonses are likely, says Don Fort, a former chief of IRS criminal investigations now with the Kostelanetz law firm: “The IRS and Justice Department have become adept at tailoring requests judges will approve.”  

The IRS’s dogged pursuit of past cases is a reminder to investors with unreported crypto income that it may not stay hidden—and the consequences could be severe. 

Write to Laura Saunders at Laura.Saunders@wsj.com

Corrections & Amplifications
Taxpayers who have no taxable capital gains can deduct up to $3,000 of capital losses against ordinary income such as wages. An earlier version of the story incorrectly said the deduction would reduce income tax, not income. (Corrected on Nov. 11)

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Business

Treasury Sold $3.4 Billion in I Bonds This Week as Investors Rushed to Get 9.62% Rate

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Oct. 28 is investors’ last chance to buy I Bonds that earn a 9.62% interest rate. Yet a surge in demand for the inflation-adjusted bonds has overwhelmed the TreasuryDirect site and the Treasury Department said it cannot guarantee orders will be completed in time.

Many investors managed to beat the clock and the tech issues. As of 4 p.m. ET, nearly 69,000 accounts had been created and more than $710 million in I Bonds purchased on Friday alone, Treasury said. That brings this week’s I Bond sales to about $3.4 billion so far, Treasury said. Five thousand new accounts were created per hour Friday, Treasury said.

Michael Erat and his wife, Linda Erat, were among the thousands of people who had success.

After eight hours of wrestling with the TreasuryDirect website, Mr. Erat purchased his $10,000 I Bond allotment.

“It was an eight-hour struggle,” said Mr. Erat, who lives in northeast Pennsylvania. 

Mrs. Erat managed to make the purchase in about half the time of her husband.

Others have still not been able to access the TreasuryDirect site or log on to their account to buy I Bonds. The interest rate is expected to drop to about 6.47% starting Nov. 1, when the new figure is announced.

Safe, staid inflation-adjusted Series I savings bonds don’t capture much of the investing spotlight in most years. They became breakout stars of 2022 as inflation reached a four-decade high, markets plunged, and investors searched for a safe place to park their money.

As the deadline to get the 9.62% rate approached this week, the government’s TreasuryDirect site, the only place investors can directly purchase I Bonds, became one of the most visited federal websites, officials said, and has experienced intermittent outages for several days this week. 

Still, many investors continue to run into difficulties accessing and logging on to the site.

Todd Miller, who lives in Camarillo, Calif., hasn’t been able to unlock his TreasuryDirect account. He has been trying for several days to get assistance, calling the site’s help number and waiting over two hours. He was told Friday by a customer service representative that due to system outages, he wouldn’t be able to get his account unlocked in time to snag the 9.62% I Bond rate.

“I think the government should extend the deadline on this sale,” said Mr. Miller.

“We have tripled TreasuryDirect’s capacity in the last day and continue to see customers successfully create accounts and purchase bonds at record levels. Any additional updates to TreasuryDirect during the final days of the rate window, such as a delay to the Nov. 1 rate change, would pose significant risk to the operational integrity of the system,” said a Treasury spokesman.

“Due to unprecedented requests for new accounts, we can’t guarantee customers will be able to complete a purchase at the current 9.62% rate by the Oct. 28 deadline. The TreasuryDirect system has been and continues to process the payments that have been completed,” a spokesman said.

If a customer receives a confirmation that their purchase has been made or completed by 11:59:59 p.m. ET on Oct. 28, then the payment will be processed, a spokesman said.

The Treasury Department said Friday that it would be taking the TreasuryDirect account management system offline Saturday and Sunday for scheduled maintenance.

“The maintenance period will ensure TreasuryDirect is able to successfully process the unprecedented volume of I bond purchases made in the past 24 hours,” Treasury said on its site. 

Customers who complete an I Bond purchase before the scheduled maintenance begins will receive 9.62% for six months, Treasury said. 

TreasuryDirect will reopen for account creation and purchases on Monday, Oct. 31.  Beginning Monday, purchases will receive the rate that will be published on Tuesday, Nov. 1, Treasury said.

Users regularly take to social media to complain about the TreasuryDirect website and sometimes go to great lengths to make their I Bond purchases.

“The TreasuryDirect website isn’t known for its user friendliness,” said Elliot Pepper, a financial planner in Baltimore. 

It isn’t just people trying to buy I Bonds who are frustrated with the site’s outages.

Investors can’t buy or redeem T-Bonds, Treasury notes, or T-bills through TreasuryDirect if they can’t access the site or log in due to the high demand.

Write to Veronica Dagher at Veronica.Dagher@wsj.com

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Business

Treasury Says Orders for I Bonds With 9.62% Rate Might Not Be Completed by Deadline

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So many investors are scrambling to buy I Bonds, which pay a 9.62% interest rate if purchased by Oct. 28, that the Treasury Department said its overwhelmed site might not complete all the orders in time.

The government’s TreasuryDirect site, the only place investors can directly purchase securities such as I Bonds and Treasury bills, this week became one of the most visited federal sites on the web, officials said, and has experienced intermittent outages. The interest rate on I Bonds is expected to drop to about 6.47% beginning Nov. 1.

Safe, staid inflation-adjusted Series I savings bonds don’t capture much of the investing spotlight in most years. They became breakout stars of 2022 as inflation reached a four-decade high, markets plunged, and investors searched for a safe place to park their money.

During just the final week of October, the Treasury issued $1.95 billion in I Bonds, more than the total for fiscal year 2021. In just one year, some 3.7 million new accounts were created on the site, more than the 2.4 million for the prior 10 years combined.

“The popularity of I Bonds shows how people want to throw whatever they can at a problem like inflation,” said Kelly Klingaman, a financial planner in Austin.

The interest rate on I Bonds is recalculated every six months. The I Bond interest rate is based on a calculation tied to the consumer-price index. The overall CPI increased 8.2% in September from the same month a year ago, according to the Bureau of Labor Statistics. There is a $10,000 annual limit per person for I Bonds, yet there are certain strategies to exceed that ceiling.

Investors must complete purchases and receive a confirmation email by Oct. 28 to ensure they will get the 9.62% rate, according to the TreasuryDirect website. 

There is an investment that is 100% backed by the U.S. government, never loses its value and is paying more than 7% interest a year. So, why haven’t most Americans heard of Series I Savings Bonds? WSJ’s Dion Rabouin explains. Photo: TNS/Zuma Press

The Treasury doubled its server capacity in an effort to address the outages, a Treasury Department spokesman said. The system experienced some moments of slow performance and was briefly unavailable, the spokesman said.

People continue to have difficulty accessing and logging on to the site.

“Due to unprecedented  requests for new accounts, we can’t guarantee customers will be able to complete a purchase at the current 9.62% rate by the Oct. 28 deadline. The TreasuryDirect system has been, and continues to, process the payments that have been completed,” a spokesman said.

If a customer receives a confirmation that their purchase has been made or completed then the payment will be processed, a spokesman said.

This isn’t the first time the website crashed due to high I Bond demand. The TreasuryDirect website experienced outages on May 3, a day after the 9.62% rate was announced.

Users regularly take to social media to complain about the TreasuryDirect website and sometimes go to great lengths to make their I Bond purchases.

“The TreasuryDirect website isn’t known for its user friendliness,” said Elliot Pepper, a financial planner in Baltimore. 

Tuesday night Mr. Pepper was working with a client to open custodial accounts and purchase more I Bonds before the rate change and twice they were knocked off the website for seemingly no reason, he said. Eventually they were able to open the accounts and buy I Bonds, but it was quite stressful at the time, he said. 

Still, as long as people are comfortable with the 12-month lock up period, I Bonds are a great place to invest excess cash right now, he said.

During the time that the I Bond is held, there are no federal taxes due. Though investors get the benefit of compounding interest every six months, they don’t pay any federal taxes until they actually cash out the bonds.

Additionally, there are no state or local taxes on the interest earned, which is a big benefit for investors in high-tax states, said Mr. Pepper.

More than $22.3 billion worth of I Bonds have been purchased this year through September on the Treasury Department’s website. 

Bipartisan legislation introduced in the Senate in September would raise the cap on purchases to $30,000 per person when CPI holds above 3.5% year-over-year for a period of six months or more. 

The yield for I Bonds far exceeds cash, and the bonds are appealing for investors who want to grab a higher rate of return without the risk of the stock market.  

—Richard Rubin contributed to this article

Write to Veronica Dagher at Veronica.Dagher@wsj.com

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World

Rishi Sunak Becomes U.K. Prime Minister Amid Economic, Political Crisis

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LONDON—

Rishi Sunak,

a former hedge-fund manager and U.K. Treasury chief, formally became Britain’s prime minister on Tuesday after he was appointed by

King Charles III,

vowing to steer the U.K. through a period of growing political and economic troubles.

In his first speech as prime minister, Mr. Sunak warned of a “profound economic crisis” facing the country, which is suffering from stagflation and has recentlyplunged into deeper political uncertainty with three different prime ministers in seven weeks.

Mr. Sunak said he would keep the current chancellor of the Exchequer,

Jeremy Hunt,

who stepped in to undo Ms. Truss’s tax-cut plan and regain market confidence.

Britain’s first Hindu leader pledged to repair the damage caused by the ill-fated experiment in British Reaganomics of his predecessor,

Liz Truss,

who was forced from office after markets were spooked by large unfunded tax cuts and a generous subsidy for household energy costs.

“Some mistakes were made. Not born of ill will or bad intentions. Quite the opposite in fact, but mistakes nonetheless. And I have been elected as leader of my party and your prime minister, in part to fix them,” said Mr. Sunak, as he stood in front of Downing Street. “I will place economic stability and confidence at the heart of this government’s agenda.”

King Charles III welcoming Britain’s new prime minister, Rishi Sunak, at Buckingham Palace on Tuesday.



Photo:

POOL/via REUTERS

Mr. Sunak takes control of a Conservative Party that has its lowest rating in the polls in decades. He will have to orchestrate one of the great political rebrands of recent British political history if he is to lead them to a victory during an election expected in 2024, analysts say.

Mr. Sunak moved quickly Tuesday to steady the Conservative Party. He appointed lawmakers from across warring factions to senior government roles in an effort to rebuild some unity in a party that has ousted its past three prime ministers in as many years. Nearly all the top appointments were cabinet members of former Prime Minister

Boris Johnson,

who was pushed to resign in July by a party rebellion.

In a sign of the challenges facing Mr. Sunak, the new prime minister broke with tradition and didn’t have allies in Downing Street clapping him into the building, underscoring the dark economic times the nation faced as he prepares to oversee some difficult decisions to plug a government budget deficit that is estimated to be 40 billion pounds, equivalent to $45 billion.

“I will unite our country not with words, but with action,” Mr. Sunak said. “I will work day in and day out to deliver for you.”

President Biden spoke Tuesday with Mr. Sunak to congratulate him on his appointment as prime minister, according to a U.K. government readout. The two men discussed bilateral cooperation, including efforts to counter China’s “malign influence,” as well as efforts to bolster Ukraine in its war against Russia.

Mr. Sunak, who at 42 years old is Britain’s youngest leader in more than 200 years, faces a daunting inbox. The British population is struggling with a cost-of-living crisis as inflation runs at 10.1%, fueled by high energy costs because of the war in Ukraine. With financial markets now wary of the stability of U.K. government finances, Mr. Sunak will have to regain market confidence through a combination of politically damaging spending cuts and tax increases, likely aggravating a recession and hurting incomes further, analysts say.

The government is set to outline spending cuts on Monday, only days before the Bank of England is expected to also raise interest rates.

“It’s going to be a terrible time for the economy whoever is in power,” said Jill Rutter, a former government official and a senior research fellow of U.K. in a Changing Europe, a think tank. “It will be very difficult with any government to come through that with the voters saying, ‘That was great.’ ”

Investors have welcomed the end of Ms. Truss’s government and the shift in policy toward more fiscal caution. The pound has fully recovered from its selloff following the tax-cut announcement on Sept. 23, which saw sterling briefly hit a record low of $1.0349. The pound traded at $1.1480 on Tuesday, roughly 2% above its prebudget level.

U.K. government bonds, which were at the heart of the recent U.K. market turmoil, have also staged a strong rally that continued Tuesday as Mr. Sunak took office. The yield on a 10-year U.K. gilt was at 3.647% Tuesday, well below a high of 4.643% set earlier this month, according to Tullett Prebon data. Yields rise as prices fall.

“It’s helpful that we have a resolution, at least for now, to the craziness of the last few weeks,” said Fraser Lundie, head of fixed income for public markets at Federated Hermes in London. “Today and yesterday is the first time where you could start thinking in weeks instead of days. Perhaps in the weeks to come you can start thinking in months.”

But as investors start to take the longer view, they may not like what they see in the U.K. economy, he added. “As the days go on I think people will pretty quickly change their attention from that crazy crisis period back to watching the Bank of England, watching the economic picture. It doesn’t look great to be honest,” he said.

Mr. Sunak’s opening statement came just over an hour after Ms. Truss defended her vision for a low-tax, high-growth economy.

Mr. Sunak takes control of a Conservative Party that has its lowest rating in the polls in decades.



Photo:

HENRY NICHOLLS/REUTERS

“As the Roman philosopher Seneca wrote: ‘It is not because things are difficult that we do not dare. It is because we do not dare that they are difficult,’ ” she said in a farewell speech outside Downing Street before handing her resignation to King Charles. “We simply cannot afford to be a low-growth country where the government takes up an increasing share of our national wealth.”

Polls this week showed that Ms. Truss had the lowest approval rating of any prime minister in modern times, with one survey giving her a 6% approval rating.

The Conservative Party “is in free fall and I don’t know if it has a parachute or not,” said Matthew Goodwin, a politics professor at the University of Kent.

In his cabinet shuffle, Mr. Sunak kept Defense Secretary

Ben Wallace

in his post as well as Foreign Secretary James Cleverly.

Suella Braverman,

who is popular on the libertarian wing of the party and advocates tough migration restrictions, was named as home secretary.

Mr. Sunak inherits a political machine that is accustomed to rapid rebrands. The Conservative Party, which was founded in 1834, is one of the world’s oldest and most successful electoral franchises. Its success lies in its ability to repeatedly shed its skin and emerge anew to appeal to the ever-changing needs of its electorate.

The past 12 years of Tory government is a prime example. Under Mr. Sunak, the party will have completed an ideological full circle that started when

David Cameron

came into office in 2010 as a social liberal and fiscal conservative, as his government tried to repair the nation’s finances after the 2008 financial crisis. After the Brexit vote in 2016, Theresa May tried to launch the party in a new socially conservative direction. Her successor, Mr. Johnson, remodeled it into a more populist franchise as he bulldozed through Brexit and ushered in a period of state intervention and high taxes. Ms. Truss took over and tried to rapidly dismantle that with an unsuccessful shift toward free markets and lower taxes.

Mr. Sunak is now expected to take it back to the Cameron-era focus on deficits with a degree of social liberalism, embracing issues such as climate change. It is unclear whether the electorate will buy the Conservative Party’s latest rebrand.

Ms. Rutter recalls being in government when the Conservatives successfully retooled their economic policies after the 1992 “Black Wednesday,” when speculator

George Soros

and other hedge funds forced the pound to break its peg to European currencies. Despite their best efforts, the Tories were never fully forgiven by voters and later spent 13 years out of office. Having worked hard to rebuild their brand as competent on the economy after 2010, the Conservatives “had an economic competence premium, and Truss managed to burn through that,” Ms. Rutter said.

In a February speech, Mr. Sunak, then chancellor, laid out his views on the challenges facing the U.K. and other Western economies where economic growth is slowing and productivity is stagnant. He warned that failure by politicians to create the conditions for faster growth would undermine public support for free-market economies and democracy in a world where autocracies such as China are on the march.

Rishi Sunak will become Britain’s new prime minister and the first person of color to lead the country. WSJ’s David Luhnow explains how the former investment banker quickly rose through the ranks to head one of the world’s largest economies. Photo illustration: Ryan Trefes

But he also warned against what he described as two false ideas on how to spur growth. The first was more government spending, regardless of its impact on borrowing and debt. The second was unfunded tax cuts, the idea that slashing taxes will unleash growth that will eventually give the government more money from a dynamic economy to spend on social services and investment. The latter idea is precisely what his predecessor, Ms. Truss, tried and failed to carry out some seven months after Mr. Sunak’s speech.

“The trap of both those ideas—that we can simply boost the economy with public spending, or supposedly self-funding tax cuts—is that they are both highly seductive, easy answers,” he said. “Neither are serious or credible; neither on their own will transform growth; and because they ignore the trade-offs inherent in economic policy, both are irresponsible.”

Instead, Mr. Sunak outlined three areas he called capital, people and ideas aimed at getting businesses to invest more. He said capital invested by British companies averages 10% of annual economic output versus a 14% average in the Organization for Economic Cooperation and Development club of rich countries. He pledged to help drive innovation by creating the right tax and regulatory environment for business to boost capital investment and spending in research and development, called for more vocational training of employees already in the workforce, and a visa system to attract entrepreneurs and high-skilled workers.

“Less ‘build it and they will come’ and more ‘let them come and build it,’” he said.

Mr. Sunak will have to navigate opposition from lawmakers within his own party to increased immigration of any kind.

On Monday, Mr. Sunak warned lawmakers during a private meeting that they had no option but to cooperate if they wanted to avoid losing the next election, according to people present. He is hoping that the Tory lawmakers’ desire for self-preservation will trump their personal ideological leanings, one person added.

Mr. Sunak inherits a healthy majority in Parliament following Mr. Johnson’s 2019 electoral victory and so should be free to push through legislation as long as he can contain rebellions.

Mr. Sunak said he would stick to the 2019 manifesto that helped Mr. Johnson secure his electoral victory. It included a pledge to help left-behind parts of the country and crack down on illegal migration. “I will deliver on its promise,” he said.

—Chelsey Dulaney and Vivian Salama contributed to this article.

Write to Max Colchester at max.colchester@wsj.com and David Luhnow at david.luhnow@wsj.com

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World

U.K. Prime Minister Liz Truss Fires Treasury Chief, U-Turns on Taxes

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LONDON—U.K. Prime Minister Liz Truss fired Treasury chief Kwasi Kwarteng and reversed crucial parts of her government’s tax cuts, after her plans to jolt the economy into growth unraveled in spectacular fashion following a backlash from financial markets and her party. 

Mr. Kwarteng, who three weeks ago presented the U.K.’s largest tax cuts since the 1970s, was asked to quit by Ms. Truss as markets balked at the scale of the borrowing required to fund the package and her lawmakers protested at the prospect of deep public-spending cuts. Mr. Kwarteng’s tenure as chancellor of the exchequer was the second shortest in recent British history. He was replaced by Jeremy Hunt, a party centrist and former foreign secretary.

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US

US freezes assets of Putin spokesperson family, Instagram influencer daughter Elizaveta Peskova

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The US on Friday unleashed new sanctions on Russian oligarchs connected to the attack on Ukraine — including President Vladimir Putin’s spokesman and his family.

The stateside assets of billionaire Viktor Vekselberg, Kremlin spokesperson Dmitriy Peskov, his wife and children, and 12 lawmakers were frozen for “enabling Putin’s unjustified and unprovoked war,” Treasury Secretary Janet Yellen said.

The spokesman and his family lead “luxurious lifestyles that are incongruous with Peskov’s civil servant salary,” the Treasury Department said.

His Instagram influencer daughter Elizaveta Peskova, 24, was among the family members targeted in the crackdown. The jet-setter had posted an anti-war message on her account last week before deleting it an hour later and setting her account to private.

Elizaveta Peskova, Dmitriy Peskov’s daughter, was also listed in the crackdowns regarding the new sanctions on Russian oligarchs.
Lisa Peskova/Instagram
Dmitriy Peskov lead luxurious lifestyles that were out of place with his civil servant salary, the Treasury Department said.
AP Photo/Alexander Zemlianichenko

Vekselberg’s frozen US assets included a $90 million jet and a $90 million yacht dubbed Tango.

Duma speaker Vyacheslav Volodin was among the lawmakers sanctioned for “facilitating the sham pretext used by Putin to justify the … unprovoked war against Ukraine,” officials said.

Get the latest updates in the Russia-Ukraine conflict with The Post’s live coverage.

The economic penalties also hit ten people on the board of VTB Bank, the nation’s second-largest lender.

Russia said it would block Instagram access in the country starting Monday over parent company Meta’s new policy that allowed Facebook and Instagram users in Ukraine to encourage violence against their invaders.

Billionaire Viktor Vekselberg Vekselberg’s assets were frozen by the US for his role in Putin’s go-ahead to invade Ukraine.
REUTERS/Sergei Karpukhin
Viktor Vekselberg’s frozen US assets included a $90 million jet and and a $90 million yacht dubbed Tango.
Joan Llado / GTres / SplashNews.com
The graphic depicts Russia’s invasion of Ukraine as of March 11, 2022.
NY Post Graphics

Moscow had already blocked access to Facebook and Twitter and passed a law that made inaccurate reporting of the war punishable by up to 15 years in prison.

Crippling sanctions, including the ejection of Russia from the international banking system, have caused the value of the ruble to plummet since fighting began.

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US

Donald Trump to Fight Release of Tax Returns, His Lawyer Says

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WASHINGTON—Former President Donald Trump will fight any move by the Treasury Department to turn over his tax returns to Congress, a lawyer for Mr. Trump said Monday, days after the Justice Department directed the agency to provide the documents to a House panel.

“There is no evidence of any wrongdoing here and I object to the release of the returns not only on behalf of my client but on behalf of all future holders of the office of the president of the United States,” said Ronald Fischetti, a lawyer for Mr. Trump.

The Treasury Department told a federal judge Friday it intended to comply with the House Ways and Means Committee’s request for the documents, in light of the Justice Department’s new opinion, but would give Mr. Trump a reasonable opportunity to raise objections. If the committee receives the records, it could release at least some of them to the public.

A judge asked the parties to lay out a time frame for written arguments by Wednesday. It could take months before the judge ultimately decides whether the Treasury Department must hand over the returns to Congress. That ruling could then be appealed.

A Justice Department spokeswoman declined to comment Monday.

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US

Justice Department says IRS must give Trump’s tax returns to Congress

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The Justice Department on Friday said the Treasury Department must hand over former President Trump’s tax returns to the House Ways and Means Committee, putting an apparent end to the yearslong battle over the records.

In the 39-page opinion, the Justice Department’s Office of Legal Counsel (OLC) found that the committee “has invoked sufficient reasons for requesting the former President’s tax information,” and said that “the statute at issue here is unambiguous.”

The decision is a reversal of a 2019 opinion from the same office, which was then under the direction of the Trump administration. 

The new opinion states that the previous decision, which concluded the House committee request was “disingenuous,” had failed to take into account that Congress is a co-equal branch to the executive. The office now finds that the previous administration, in denying the request for the tax records, “failed to afford the Committee the respect due to a coordinate branch of government.”

In April 2019, House Ways and Means Chairman Richard Neal, a Democrat, requested from the Treasury Department Mr. Trump’s individual tax records and those of eight Trump-related businesses for 2013 to 2018 to examine IRS enforcement of tax laws that applied to the president. Then-Treasury Secretary Steven Mnuchin asked the OLC how to respond. 

At that time, the OLC advised Mnuchin that the committee had to “demonstrate a legitimate legislative purpose” for its request, and went on to say that since Treasury had concluded that the committee’s request was a “pretext” and had requested Mr. Trump’s tax records “for the purpose of public release,” the OLC agreed with Treasury that the request was not a legitimate one and banned Treasury from providing House Ways and Means with the tax records.

The opinion issued Friday disputed the Trump administration’s determination that the committee’s interest in the returns was simply a ruse to hide underlying political motivations. The OLC on Friday called the finding “irrelevant.”

“Congress is composed of elected members who stand for re-election. It is, therefore, neither unusual nor illegitimate for partisan or other political considerations to factor into Congress’s work,” the opinion says. “If the mere presence of a political motivation were enough to disqualify a congressional request, the effect would be to deny Congress its authority to seek information — a result that is incompatible with the Constitution.”

The new opinion states that the executive branch may conclude a records request from Congress lacks a legitimate legislative purpose “only in exceptional circumstances.”

The Ways and Means Committee will review the former president’s tax returns from the years 2015 through 2020, and investigate whether he complied with tax laws.

“As I have maintained for years, the Committee’s case is very strong and the law is on our side. I am glad that the Department of Justice agrees and that we can move forward,” Neal said in response to the new OLC opinion.

The review will look at several matters, including the lengths the IRS can enforce federal tax laws against the president, whether Mr. Trump’s taxes could unearth “hidden” business relationships that may post conflicts of interests and whether his foreign business dealings influenced his time in office.

“Access to former President Trump’s tax returns is a matter of national security,” House Speaker Nancy Pelosi said in a statement. “The American people deserve to know the facts of his troubling conflicts of interest and undermining of our security and democracy as president.”

The OLC memo contained no timetable for the turnover of the documents, but in the lawsuit that the committee filed regarding the dispute, D.C. District Court Judge Trevor McFadden issued an order in January requiring the Treasury Department to provide 72 hours’ notice to Mr. Trump’s counsel before releasing the tax records. The order was set to expire in February, but McFadden has been renewing the order every month. Acknowledging the OLC’s memo, McFadden reissued the order on Friday, writing, “In light of the Administration’s agreement, Defendants shall provide 72 hours’ notice to counsel…before any release of the tax record information at issue.” 

In February, Manhattan District Attorney Cy Vance Jr. obtained former President Trump’s tax records after the Supreme Court declined to shield the secretive documents from investigators. Vance’s office has been investigating the former president’s business dealings in 2018, spanning from alleged hush-money payments made to women who claimed to have engaged in affairs with Mr. Trump.

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Business

Risks of Crypto Stablecoins Attract Attention of Yellen, Fed and SEC

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Stablecoins, digital currencies pegged to national currencies like the U.S. dollar, are increasingly seen as a potential risk not just to crypto markets, but to the capital markets as well.

Treasury Secretary

Janet Yellen

is scheduled Monday to hold a meeting of the President’s Working Group on Financial Markets to discuss stablecoins, the Treasury Department said Friday. The group includes the heads of the Federal Reserve, the Securities and Exchange Commission and the Commodity Futures Trading Commission.

“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” Ms. Yellen said in a statement.

Stablecoins are a key source of liquidity for cryptocurrency exchanges, their largest users, which need to process trades 24 hours a day. In the derivatives and decentralized finance markets, stablecoins are used by traders and speculators as collateral, and many contracts pay out in stablecoins.

Stablecoins have exploded over the past year as cryptocurrency trading has taken off. The value of the three largest stablecoins—tether, USD Coin and Binance USD—is about $100 billion, up from about $11 billion a year ago.

Jeremy Allaire,

chief executive of the USD Coin issuer, Circle Internet Financial Inc., said the meeting of the president’s working group is a good thing for stablecoins and that he supports developing clear standards. “I think it’s good news,” he said.

Tether Ltd., the issuer of the tether stablecoin, said it looked forward to working with officials to support transparency and compliance. Binance Holdings Ltd., issuer of Binance USD, said it sees the meeting as a positive move. Having regulators involved will bring more legitimacy and clarity to stablecoins, Binance Chief Compliance Officer Samuel Lim said.

Stablecoins and the companies that issue them have been criticized as not being trustworthy.

“There are many reasons to think that stablecoins—at least, many of the stablecoins—are not actually particularly stable,” Boston Federal Reserve President

Eric Rosengren

said in a June speech.

While the startups issuing these stablecoins including Circle and Tether are responsible for assets that make them sizable players in the traditional capital markets, there are no clear rules about how the assets should be regulated to ensure stability.

Share Your Thoughts

Do you think tether poses a potential financial stability risk? If so, what steps should regulators take? Join the conversation below.

In December, the president’s working group released a statement on the regulatory issues concerning stablecoins. Among other things, it suggested that best practices would include a 1:1 reserve ratio and said issuers should hold “high-quality, U.S.-dollar denominated assets” and hold them at U.S.-regulated entities.

Stablecoins operate on the assumption that their reserves are liquid and easily redeemable. Ostensibly, a stablecoin should at all times be redeemable for national currencies, and the amount held in reserve should equal the amount in circulation: currently $64 billion for Tether, $26 billion for USD Coin and $11 billion for Binance USD.

Stablecoin reserves, however, don’t just sit in bank accounts collecting interest. Circle and Tether manage the reserves to provide some level of income.

Neither Circle nor Tether provides a detailed breakdown of where their reserves are invested and the risks users of the tokens are taking. This lack of information has alarmed central bankers and lawmakers in the U.S. and overseas. Binance has said its stablecoin’s reserves are backed 1-1 by U.S. dollars held in custody by the New York-based crypto services company Paxos.

Both Circle and Tether have separately defended the level of information they share with the markets.

Stuart Hoegner,

general counsel at Tether, said the company has a highly liquid portfolio that has been stress-tested. He said the company has a risk-averse approach to managing its reserves and operates in a way to ensure that its dollar peg is maintained.

“Our transparency allows people to decide whether they are happy holding that token or not,” he said.

“
‘Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system.’
”


— Treasury Secretary Janet Yellen

What the companies have disclosed is that they have invested the reserves in corporate debt, commercial paper and other markets that are generally considered liquid, and in cash equivalents.

Tether, according to a report it released earlier this year, held about half of its reserves in commercial paper—short-term loans used by companies to cover expenses. The credit ratings of the commercial paper and whether it came from the U.S. or overseas couldn’t be determined.

In 2019, New York Attorney General Letitia James revealed as part of an investigation that executives of Tether, who also own and operate the exchange Bitfinex, took at least $700 million out of the tether reserve to shore up the balance sheet of Bitfinex.

The case was settled in February. As part of that settlement, Tether agreed to release quarterly reports on the composition of its reserves.

Regulators don’t have to look far for examples of what can go wrong in the world of finance. Money-market funds came under pressure last year during the pandemic-driven selloff and required support from the Fed. Dozens of money-market funds needed to be propped up during the 2008-09 financial crisis to prevent them from “breaking the buck,” or falling under their standard of a $1-a-share net asset value.

Building trust was one of the biggest reasons that Circle decided it would go public, according Mr. Allaire.

“It is about being a public company and being an open and transparent company,” he said in an interview earlier this month.

Write to Paul Vigna at paul.vigna@wsj.com

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