Category: Norway

Norwegian government propose access to extended surveillance methods

The Norwegian Government proposed Proposition 68 L (2015-2016) today extending and introducing a wide range of methods for the police to cross the privacy boundry with increased surveillance, including what the Minister of Justice, Progress Party (FrP)'s Anundsen, calls "surveillance closer to the soul".

The possibility to perform telecommunications control in Norway has history back to 1915, however was limited to cases involving national security until 1976. Starting in 1915 the surveillance was restricted to post and telegraph but telephone surveillance was added in December 1950. Now in 2016 the government wants to extend the scope to:

  • "Data reading" is introduced as a term giving the police access to hacking into computers, including adding keyloggers (physical or virtual)
  • Possibility to send silent SMSes to generate telephone traffic. The Norwegian police has already been wildly criticized for illegally using IMSI catchers across, in particular, Oslo in violation with court order and registration requirements. A silent SMS is a message that is not displayed by the phone, but the generated traffic will increase the verbosity information that can be apprehended by the police when the phone company is compelled to turn over data.
  • Take control over email accounts without a court order to ease access to information early in an investigation
  • Physically bug (microphone) private rooms without an actual crime having been committed as a preventive measure.

"Closer to the soul", indeed; if you don't already see the resemblance to Minority Report (2002) you likely want to make it your weekend movie pick. IMDB summarize the Spielberg movie as "In a future where a special police unit is able to arrest murderers before they commit their crimes, an officer from that unit is himself accused of a future murder"

Anundsen argues that you don't get any more access to an individual's thoughts from monitoring what is typed on a computer and potentially never sent, than you get by physically taking control over the person's diaries. Without going into how wrong that argument sounds to begin with, there is of course a difference of awareness of the police physically getting access to a person's diaries or just silently monitoring in the background while the person were to be writing in the diary without knowledge of the police presence.

This adds to a long line of police requests for increased access to information across the globe. Senators in USA wants a new bill to impose fines if operators don't willingly help attacking their own products and Obama is ever reducing security, this time by increasing the scope of use of data collected.

So what can you do to protect yourself in a society where everyone around you is increasingly becoming your enemy? Arstechnica had an interesting post recently titled "Most software already has a 'golden key' backdoor: the system update". If you can't trust the operative system and hardware providers you're lost to begin with. Bill Gates expresses his view on personal information access as “It is no different than [the question of] should anybody ever have been able to tell the phone company to get information, should anybody be able to get at bank records,” Gates said. “There’s no difference between information.” He offered this analogy: “Let’s say the bank had tied a ribbon round the disk drive and said, ‘Don’t make me cut this ribbon because you’ll make me cut it many times.’”

So you need a software stack that you can trust, and likely want to audit the source code of, or if using binary builds at least a system that use reproducible builds.

With a relatively trusted software stack, and monitoring any update activity, while making sure that you do update for security issues immediately, of course, the added complexity of encrypted and digitally signed emails comes into question. Personally I quite prefer OpenPGP using the GnuPG implementation, and with the way the world continues to develop I'm tempted to refuse to answer emails from people that sends me emails that aren't following proper email etiquette and are properly signed and encrypted. Phone calls and SMS messages I prefer not to get or take to begin with (we haven't even discussed SS7 in this post). Naturally private keys should only be stored on smart cards and data expected to be sensitive only read on airgapped systems.

It is also curious that Norway is following China in its privacy activity by this act.

Aker's raid on Aker Solutions

I hope everyone has had a nice Easter, I know I've had; recharging my batteries, so to speak, and gotten some sun. But one case in particular has preoccupied me for the past couple of weeks, so I can might as well share some of my thoughts on the matter.

The summary of the situation is that Aker Solutions acquired ownership in a series of companies from the holding company Aker. Internal transactions are always vulnerable to speculations about proper pricing, and stresses the importance of proper Corporate Governance. For one thing the competencies and the independence of the different corporate boards of directors can result in the difference between a favorable and an unfavorable situation.  My hypothesis is that the board of directors in Aker Solutions is too closely related to the Aker system. Simultanuously you have a complicating factor in that the Norwegian government is involved. The Norwegian Prime Minister was present at the Aker Day 2nd of April when the transactions were announced, and naturally got questioned about his thoughts on the matter. More about that later.

Aker

Aker ASA is an industrial ownership company consisting of the companies (ownership in percentages after adjusting for the transactions in question)

  • Aker Floating Production (72.3%)
  • Aker Drilling (100%)
  • Aker Solutions (41.0%)
  • Aker BioMarine (82.9%)
  • Aker Seafoods (64.95%)
  • Aker Exploration (76.1%)
  • Aker Philadelphia Shipyard (50.3%)
  • Aker Clean Carbon (50%)

The aker companies has a total of 26,500 employees spread across five continents and total operating revenues totaling NOK 65 billion for 2008.

Aker Solutions

Aker Solutions delivers engineering, construction, manufacturing, technology products, maintenance and other specialised services, often as total solutions for complete projects. Aker Kværner is the result of a merger between the Kværner Group and the Aker Maritime Group in 2002, and it got listed on the Oslo Stock Exchange in 2004. In April 2008, Aker Kværner changed the name to Aker Solutions.

Governmental involvement / Aker Holding

Aker Solutions’ largest shareholder is Aker Holding AS, with a 40.27 percent stake in the company. Aker Holding AS is owned by Aker ASA
(60 percent), the Norwegian Government (30 percent), SAAB AB (7.5 percent) and Investor AB (2.5 percent). The government got involved on June 22nd 2007, when Aker transferred its entire ownership of Aker Solution (40.27 %) to Aker Holding, and sold 40% of the latter for NOK 6.4 bn. This happened after international investors showed interest in the company, by reasons of wanting the company to remain in Norway. As this is not a post about protectionism I'll leave it at that for now. There are also questions about a put option that was given to the swedish investors, but again, I'll leave that for now.

The transactions

Aker Solutions is acquiring five companies at a total consideration of NOKbn 2 including shareholder loans (ownership in brackets):

  • Aker Oilfield Services (100%)
  • ODIM (33%)
  • Aker DOF Supply (50%)
  • Misund Bruk (100%)
  • Aker Clean Carbon (50%)

It is worth noticing that a few of these companies undoubtedly prompts sound long-term gains for Aker Solution. The issue is the pricing involved. At the same time it seems weird to increase the capital expenditure requirements for the next couple of years by roughly NOK 2.5 bn and the debt ratio (NOK 2 bn in debt accounts for roughly 25% increase) in the mids of the financial environment we're in.

One company that seems additive for Aker Solution is the acquisition of Aker Oilfield Services, but while the valuation of comparables are down 50-90% over the past 18 months, the transaction involved a premium to prices at that point, which seems unreasonable at best. Similarly the ODIM stake seems just, except for being sold for a 16% premium over closing prices on the Oslo Stock Exchange previous day. The transfer of Aker DOF Supply (pretty much 6 AHTS (Anker Handling Tug Supply) ships) is more questionable.

The acquisition of Aker Clean Carbon is also interesting, as Aker Solution sold this to Aker in the first place and now pays a premium in order for it to be re-acquired. But the most questionable in the whole situation is the process.

The Aker value statement says "Aker ASA’s overriding concern is to create value via its ownership of well-run businesses that provide products and services in an environmentally sound, ethical, and socially responsible manner.", an interesting notion considering the situation in the first place.

Aker Solutions had a general assembly 1st of April 2009. Nothing about these transactions, however, were mentioned untill the Aker Day the 2nd of April. For transactions resulting in 25% increase in debt and capex increases it would've been nice for this to be mentioned in the documents for the general assembly, not to mention for it to be disclosed at this, not the following day.

As for Aker Holding, the equity agreement between the partners states that such a transaction in Aker Solution ASA is clearly a matter for the board of Aker Holding and the general assembly. However, the transactions were performed through a fully-owned subsidary of Aker Solution ASA named Aker Solution AS (note the difference in organization form, so it is actually two different companies).

Inquery into the transactions

The government has started an inquery into the transactions. The financial valuation will be performed by Pareto Securities, while the legalities will be considered by the lawfirms Simonsen and Selmer. The question is, what can happen even if they should conclude things to be non-favorable for Aker Solutions? Ultimately the responsibility is with the board of directors in the company.  The government's representative in the Aker Holding board is now responsible for the investigation, after apparently reacting due to the stock market reaction to the news.

akso

As one can see in the drop the past couple of days, it is down (rougly 13% the days directly after the announcement), on a montly basis it is down about 11% vs OBX (25 most traded shares on OSE, of which AKSO consists) which the past month is up 4.36%. The increased debt ratio and capex has also resulted in rating agencies taking matters into their own hands and prompting a negative watch on the rating (BBB- initially)

No matter what happens, it shows the importance of corporate governance when dealing with internal transactions, it will be interesting to see what the inquery concludes.

NOK the new safe haven?

Investors are currently searching for a new safe haven currency as the USDs position is being questioned due to the strain on the US economy and the resulting stimulus packages. At the same time the Swiss Central Bank is getting worried about the export industry and has announced the probability of interventions to weaken CHF.

There have been some statements lately about the Norwegian Krone (NOK) being positioned as an alternative new safe haven. In particular David Bloom from HSBC has claimed that the NOK is the "ultimate haven currency", and that "It's probably the best currency in the world." noting that Norway's economy grew by 1.3% in Q4 and was not forecasted to experience as big a downturn as other economies this year. Norway's monetary policy was also NOK supportive, like other commodity-producing countries and it is not expected to resort to quantitative easing policy to boost inflation expectations.

This view has some support, in e.g. that the cost of insuring against sovereign default in Norway through credit default swaps is the lowest among the countries with the ten most traded currencies.

At the same time there are several arguments against the NOK being a new safe heaven currency. Gavin Friend at NAB Capital agrees the krone appears one of the best of a bad lot, with a healthy current account balance and interest rates likely to lend it support. But he says: "You are trying to win the least ugly currency contest at the moment. I can't disagree that it might move higher, but I can't get too enthusiastic." His main concerns are the lack of liquidity in the market and the krone's long-held correlation with oil prices.

If we look at a chart of the NOK vs the USD we see the large shifts of NOK as investors pulled money away from it during the credit crunch, as NOK traditionally has been considered a somewhat emerging market economy.

Ashraf Laidi at CMC Markets says the fact that the krone fell against both the dollar and the euro during the turbulence following the collapse of Lehman Brothers in September means it cannot really be called a haven currency.

Another argument is that Norway, similar to Switzerland is dependant on export, so that the Norwegian Central Bank will most likely intervene if NOK appreciates too much relative to others currencies.

Granted the safe-heaven status is more about low volatility than it being strong per se, and it could be argued that Norway has higher chances of intervening than most other countries, amongst others because of the Norwegian Government Pension Fund - International, and that the high volatility we've seen in the past doesn't necessarily limit a lower volatility forwards if the situation is managed properly by the Norwegian CB. But this would require a shift in the school of thought.

But if NOK won't be the new safe currency, what will be? Gold is an obvious traditional placement. At the same time the Chinese economy can be an interesting argument for Chinese, or other Asian, currencies.

The only thing that is certain is that we're facing an interesting situation, and it will be interesting to see how the situation continues to play out.