Wealth International, Limited

Offshore News Digest for Week of May 21, 2001


The London-based International Tax and Investment Organisation (ITIO), which was set up in March 2001 to help small and developing economies respond to global tax and investment challenges, has welcomed US Treasury Secretary Paul O'Neill's anti-OECD statement last week.

Following a scheduled meeting of ITIO in London on 9th -11th May, which comprises twelve small and developing economies, Lynette Eastmond, Director of the ITIO Secretariat, said:

"We are encouraged by the statement from United States Treasury Secretary O'Neill on the OECD's 'harmful tax competition initiative'. In particular, we support the strong position taken by the U.S. Government against criminal tax evasion.

"Like the US, we believe in rules that do not stifle competition.

"We also share Secretary O'Neill's concern about potentially unfair treatment of non-OECD countries. We believe that all countries, OECD and non-OECD alike, should play by the same rules, and that standards should be developed in a truly inclusive international forum that involves everyone.

"We hope and expect that the refocusing of the OECD process will lead to the involvement by right of ITIO members and other small and developing economies as equal participants in setting any new international taxation standards."

The ITIO grew out of the work of the OECD-Commonwealth Joint Working Group on Harmful Tax Competition, itself spawned by the highly unsatisfactory multilateral meetings held in the early months of 2001 between the OECD and groups of offshore jurisdictions which had been included on the OECD's blacklist in 2000.

The ITIO currently comprises twelve members: Anguilla, Antigua and Barbuda, Bahamas, Barbados, British Virgin Islands, Cayman Islands, Cook Islands, Dominica, Malaysia, St Kitts & Nevis, Turks & Caicos and Vanuatu. The Commonwealth Secretariat, Pacific Islands Forum Secretariat and CARICOM Secretariat have observer status.

The ITIO will also work on other international challenges to small and developing economies (SDEs) - for example, on e-commerce and on inward investment incentives - which need to be addressed from a global perspective. These matters have the potential significantly to damage SDEs' economies. They are not just technical issues.

More on this story here.


2 groups charge civil rights violations in raid.

Two national groups providing estate-planning help announced today the filing of a $500 billion class-action lawsuit against the Internal Revenue Service and approximately 50 individual IRS agents, charging them with civil rights violations against thousands of its members, most of whom are senior citizens.

The suit stems from a raid on the offices of Heritage America and the Aegis Company conducted by the IRS March 31, 2000, says the groups' executive director, Michael Vallone. About 30 armed IRS agents reportedly entered the Palos Hills, Ill., offices of the two groups.

The IRS agent in charge, Robert Kuschel, served a search warrant for a company named "Aegis Financial Group." The suit alleges this company has no relationship whatsoever to either Heritage America or The Aegis Company.

Vallone claims that Aegis Financial Group was a corporation of which he was a partial owner from 1996 to 1998, and that it was an Indiana licensed mortgage brokerage firm which operated exclusively in Indiana and had no business dealings whatsoever with Heritage America or the Aegis Company.

The suit alleges that upon entering the offices of the companies, the agents proceeded at gunpoint to separate the staff into separate rooms and interrogated them for as long as two hours without ever reading them their rights or informing them they were not required to provide information.

The IRS then proceeded to carry off all the companies' records, including the paper and computer records of their members, says the suit. This material contained the names, addresses and phone numbers of all the past and present members of Heritage America and the Aegis Company. It also contained financial information and the private estate-planning information of these people, including copies of their wills, trusts and other estate-planning documents such as powers of attorney.

"Their (the IRS') absolute rape of the privacy rights of more than 5,000 Americans is another example of the terrorist tactics of a government agency whose abuse of power demands severe retribution," said Vallone.

The suit also states that almost one year after the first raid, on March 29, 2001, the IRS performed a second raid in similar fashion on the offices of Homer Richardson, a representative of Heritage America and the Aegis Company. Once again, the search warrant served on Richardson stated it was to procure documents associated with "Aegis Financial Group." Richardson states he has never had any association whatsoever with Aegis Financial Group.

Vallone charges the attack on Heritage America and the Aegis Company is part of a four-year campaign the IRS has been waging against trusts. Both Heritage America and the Aegis Company have provided their members with services to set up trusts for estate planning, business planning and tax planning. The Aegis Company has provided educational material and services for its members regarding a type of trust that IRS regulations call a "Business Trust."

"These types of trusts are completely legitimate," says Vallone. "They are used by many of the major mutual funds in the United States, such as Fidelity Magellan, Kemper and Nuveen. However, they can also be used by small business owners. The IRS has recognized this in their own regulations. Unfortunately, many companies have improperly promoted the use of business trusts, and so the IRS has stepped in to crack down on the abuse of these trusts."

The class-action lawsuit contains 11 separate counts of violations of Title 42 of the United States Code for deprivation of civil rights, and an additional count under Title 18 which charges that the IRS and its agents violated federal racketeering laws.

The 56-page complaint was filed May 8 in the Southern District of Illinois.

More on this story here.


Canada's leading economic think tank, the Fraser Institute, has this week published a study entitled 'Flat Tax: Principles and Issues', the conclusions of which have led the Institute to call for Canada's federal and provincial tax systems to be reformed on the basis of a flat tax.

The Institute explained the flat tax as a comprehensive, integrated approach to taxation, applying a uniform tax rate to all sources of income, whether personal or business. Jason Clemens, director of fiscal studies at the Institute and co-author of the study, explained in a statement: 'Such a system would provide enormous positive incentives for work, savings, and investment. The research suggests that the economic benefits of implementing a flat tax system would include greater rates of economic and income growth, higher levels of capital formation and investment, and greater social welfare.'

He added: 'The issue of tax cuts has overwhelmed the equally important issue of tax reform in the national debate. Any discussion of tax reform during the 2000 federal election was riddled with misinformation that prevented an open and rational public debate about tax reform, particularly flat tax reform.'

According to the Fraser Institute, a flat tax is necessary to achieve efficiency, fairness and simplicity - which are the traditional measures of tax success. In studying the case histories of tax systems adopted by jurisdictions such as Hong Kong and the Channel Islands, the Institute claimed that a flat tax would decrease the amount of economic distortions caused by taxation and therefore increase rates of economic growth. Households with similar income would face similar tax burdens more consistently (known as horizontal equity). For instance, explained the Institute, single income and two-income households are treated much more equally under a flat tax system than under Canada's current tax regime. A flat tax also ensures that as individuals earn more, they pay more (vertical equity), and a comprehensive flat tax would substantially simplify the current tax system with its multiple rates, exemptions, deductions, and various tax credits.

'The flat tax model presented here,' declared the Institute, 'not only achieves these principles but would create an enormous tax advantage for Canada relative to our competitors. It would facilitate greater work effort, savings, and investment, and ultimately lead to higher rates of economic growth.'

For more information on the Fraser Institute's findings, go here and here.


The editor of a top medical journal on Friday accused the U.S. Food and Drug Administration, the world's most powerful drug watchdog, of endangering people's lives.

Richard Horton of The Lancet said the FDA, which safeguards the health of 274 million people and regulates over $1 trillion worth of products, was compromised by funding from the drugs industry and pressure from Congress.

In an editorial, he slammed the FDA for its handling of GlaxoSmithKline Plc's controversial bowel drug Lotronex.

The FDA approved Lotronex in February 2000, but the company voluntarily withdrew it from the market nine months later after the deaths of five patients who had been taking it.

Senior FDA officials are now trying to reintroduce it, Horton said.

"This story reveals not only dangerous failings in a single drug's approval and review process but also the extent to which the FDA, its Center for Drug Evaluation and Research (CDER) in particular, has become a servant of the industry," he wrote in an editorial in the journal.

According to Horton, serious side effects were evident during the pre-approval process and shortly afterwards but the FDA kept the product on the market. "The decision was to prove fatal," said Horton.

More on this story here.


Be careful to whom you talk on the net or phone; soon law enforcement agencies could win sweeping powers to scrutinise the electronic communications of every European.

Proposals are being put forward to the European Union to make communications companies keep records of all phone calls, e-mails, faxes and net use for seven years, just in case police forces need to search them during criminal investigations.

Civil liberty groups and net watchdogs have condemned the plans and said the laws, if passed, would give law enforcement agencies powers denied to repressive regimes.

But opposition to the plan is growing as Data Protection Commissioners, business groups and human rights watchdogs unite to fight the proposals.


Statewatch, a civil liberties and state monitoring group, has been leaked documents that reveal the EU is being lobbied to rip up existing data protection and telecommunications legislation and replace it with laws that give sweeping "snooping" powers to police forces.

Under the proposals, net service companies, telecommunication firms and mobile phone operators would be forced to keep the records of every call made, e-mail sent or website visited for seven years.

Law enforcement agencies such as police forces, customs agents and intelligence services would also get free access to trawl through the data when investigating any crime.

Current EU legislation forces law enforcers to get permission every time they want to tap electronic communications or search for evidence during investigations. The existing laws also restrict the amount of time that communications firms can keep data before it has to be destroyed.

“Route map”

"Authoritarian and totalitarian states would be condemned for violating human rights and civil liberties if they initiated such practices," said Tony Bunyan editor of Statewatch.

"The fact that it is being proposed in the 'democratic' EU does not make it any less authoritarian or totalitarian."

Previous attempts to pass laws to grant the sweeping powers have been defeated thanks to objections from Data Protection Commissioners and public outcry. The UK Data Protection Commissioner has said of previous proposals that they would lead to "disproportionate general surveillance of communications".

Caspar Bowden, director of internet think tank the Foundation for Information Policy Research, said the laws would give the police a "route map" of the people anyone associated with, their contacts and sources and would significantly erode civil liberties and privacy.

The proposals are also likely to encounter stiff opposition from businesses reluctant to bear the cost of setting up huge archives to store the data should the police ever want too look at it.

More on this story here.


LUXEMBOURG. The prime minister reaffirms strict bank secrecy and announces lower taxes for this leading European tax haven.

More on this story here.

LIECHTENSTEIN. A delegation from the Financial Action Task Force is sniffing around, prior to deciding whether the principality gets off the FATF blacklist. But with tighter new anti-money laundering laws, local banks are having difficulty finding qualified employee/spies to watch the clients.

More on this story here and here.

Other FATF inspectors were in THE BAHAMAS checking on its dirty money clean up, even as the Prime Minister pledged "no new taxes," whether the OECD likes it or not.

More on this story here and here.


ROME. The new Berlusconi government vows to cut taxes and will probably join the US in withdrawing from the OECD anti-tax haven campaign.

More on this story here and here.


DUBLIN. The Finance Minister thinks £4 billion held in Irish branch banks in the ISLE of MAN may hint at tax evasion.

More on this story here.

But many Irish nationals and corporations have fled to the CAYMAN ISLANDS to avoid those taxes, even as Ireland's anti-money laundering laws are expanded and privacy diminished.

More on this story here and here.


VALETTA. The government restates its agreement to go along with OECD dictates on tax policies.

More on this story here.


AQABA, the Red Sea port, is now an official tax free zone.

More on this story here and here.


HAMILTON. The government denies a claim that it has frozen funds allegedly belonging to CHILE's former leader, Augusto PINOCHET.

More on this story here and here.


All you need to know about Revenue Canada's taxes and reporting.

More on this story here.

And for expats living or working in Canada, here's the scoop here.


PARIS. The Socialist government of France has repeatedly hurled wild charges of money laundering at the governments of neighboring Monaco, Switzerland and Luxembourg. Now mired deep in their own dirty money scandals, French sanctimony burns undiminished. So Paris is in fits over the US dumping the OECD's phony war on tax havens.

More on this story here and here.

But with 6 months to go before launch of the euro, Frenchmen are on a desperate, illicit spending spree of an estimated US$20 (£15) billion worth of francs to avoid reporting hidden cash.

More on this story here.

Meanwhile the Court of Appeal of Paris has nullified the government's punitive offshore tax haven holding company rules, saying they violate foreign tax treaty obligations.

More on this story here.


WASHINGTON. US Treas. Sec. Paul O'NEILL calls for radical reform of the US tax structure, including abolition of corporate income taxes and capital gains taxes. Who woke him up?

More on this story here and here.


PRETORIA. Headed in the opposite direction, the RSA government adopts a complex capital gains tax system over protests in the continent's richest nation.

More on this story here and here.


LONDON. A return of 180% was guaranteed by "banks" on the South Pacific island of NAURU, now thousands of investors worldwide have lost £20 million.

More on this story here.


No thanks to Bill GATES father, repeal of the US estate tax is moving ahead in Congress.

More on this story here and here.


CANBERRA. With its economy and currency slumping, Aussies move billions offshore.

More on this story here.


BRUSSELS. The European Union wants communications companies to keep records of all phone calls, email, faxes & Net use for 7 years, so police can search them.

More on this story here.


Police are upset by browser software that makes it impossible to control the material people have access to on the Web.

More on this story here.
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