Offshore News Digest for Week of June 4, 2001

A PRINCE & HIS BANK

VADUZ. Dirty money charges continue to rile little LIECHTENSTEIN and HANS-ADAM II, its billionaire ruler and owner of its biggest bank.

FRENCH HYPOCRISY

PARIS. French Socialists continue calls for a European super state and EU-wide taxes. A nation where leftist parliamentarians have made tax haven bashing a sport with unfounded attacks on Switzerland, Monaco and Luxembourg, itself now stands revealed as a hot bed of tax evasion, money laundering and corruption.

MONACO PLANS AHEAD

The government does not want the principality to become a dirty money laundry for the euro conversion exchange.

ISLE of MAN PRESSURE

DOUGLAS. A rumored loss of a major bank locating here spurs efforts to get off the FATF dirty money blacklist.

RUSSIA COMES CLEAN?

MOSCOW. Pres. PUTIN signs an anti-ML law outlawing anonymous accounts and requiring cash transfer reporting.

U.S. AGENTS TRAIN BAHAMAS FINANCIAL STAFFS

NASSAU. It's no secret the slew of restrictive new laws here were drafted with lots of help from the US government. Now the US Dept. of Justice is training local financial staff on how to spot and report that highly elastic crime, money laundering.

ESCAPE TO BERMUDA

HAMILTON. Ex-US corporations of all sorts continue to make the island their new home to escape high US taxes.

But under anti-money laundering laws here, assets can be frozen.

CAYMANS SECRECY CHALLENGED AGAIN

GEORGE TOWN. On Tuesday we reported that in the Ansbacher Bank case a Caymans judge upheld bank secrecy laws against Irish tax authorities demands for names. Now the Irish may have another go at it.

TIRED OF BEING CANADIAN?

TORONTO. A leading Canadian businessman bails out, renouncing his citizenship. 96 others did the same last year.

CASH FOR U.S. VISAS

WASHINGTON. Pay $1000 and you get a US visa in 3 weeks. Don't pay, and you wait 3 months (or more).

I.R.S. OFFSHORE REPORTS REQUIRED JUNE 30

Foreign Account Form TDF 90-22.1: If you had offshore financial accounts during 2000 with a combined value of more than $10,000, you must file this IRS form no later than June 30th. Get a copy of the form & info at,

BRUSSELS: EU bureaucrats push for Europe wide power and taxes.

Euro-zone governments may gain an E6 billion windfall if citizens don't exchange all their national currencies for euro money.

WASHINGTON. "The Internal Revenue Service, US tax enforcer, has a history of tactics and transgressions that would "make the hot poker wielders of the Inquisition proud."

EUROPEAN ASSET MANAGERS PROTEST

They oppose EU proposals to treat them as part of the banking industry which would increase required capital reserves.

SOUTH AFRICA BLAME GAME

Inept Pres. Thabo MBEKI blames RSA big business for not doing enough to foster economic growth.

OFFSHORE LEGAL STRUCTURES

Consider an LLC combined with a trust. Here are the facts.

IDENTIFY THEFT EXPANDS

It is one of the fastest growing crimes. It can ruin your credit and make life miserable. And credit agencies are in part to blame.

For more information and how to protect yourself, visit here, here, and here.

U.S. PONDERS THE FUTURE FOR FATF, OECD CAMPAIGNS

After U.S. Treasury Secretary Paul O’Neill publicly distanced the US from the OECD's “harmful tax competition” initiative, the Treasury Department is understood to be reviewing the whole subject of US support for anti-money laundering legislation.

Even under the Clinton administration, Congress was no push-over for such legislation, rejecting both an attempt to install “know your customer” rules for US banks, and an administration request for additional funding to be used for tightening up on international money-laundering.

The right-wing activists who have a strong influence on the new administration are fighting from a “privacy” and individualist platform which has much support in the administration itself and of course from the strong banking lobby in Congress.

The rules currently in operation in US banks require them to report any cash deposits over $10,000, and flag any unusual pattern of transactions in reports filed to the government. Paul O'Neill, Treasury secretary, said earlier this month that the $10,000 threshold for reporting "imposes a significant cost on society". Mr O'Neill also questioned whether the $700m the government spends annually to fight money laundering is well spent.

The pressure on the administration is coming from a loose coalition that has brought together small bankers, privacy advocates and libertarians. Dina Ellis, who was previously a senior lawyer on the Senate banking committee under Phil Gramm, a Texas Republican who staunchly opposes tougher financial regulations, is heading the Treasury review.

It's ironic of course that while the US won't accept KYC at home, the IRS's Qualified Intermediary programme has the effect of imposing it on wide swathes of the rest of the world in the interests of collecting withholding tax on US source income.

There has to be an outcome soon. Both the OECD and the FATF are due to pronounce in June on the future for their lists of miscreant offshore jurisdictions, and if the US won't support the use of sanctions against those countries remaining on the list then the two campaigns will be largely toothless. The US itself has delayed the annual issue of its money-laundering strategy for several months while the process of navel-gazing goes on; so, expect fireworks in June!

CALL TO SCRAP ECHELON LEGISLATION

Australian legislation condoning use of the Echelon surveillance system should be revoked, Greens Senator Bob Brown said yesterday.

The Telecommunication Interception Act passed last year supported Echelon-type spying, legalising inteception of individual and business communications with broad-based search "warrants," Senator Brown said in a statement.

A European parliament working document last week concluded the Echelon global surveillance system exists and was used to monitor telephone, fax and e-mail communications.

A draft report said spying by Echelon member countries - which include the United States, Great Britain, Australia, Canada and New Zealand - depends on intercepting satellite data, but is not "nearly as extensive" as media reports claim.

Senator Brown said the government should launch an inquiry into Australia's involvement in gathering data for the Echelon network.

Echelon is designed to intercept private and commercial communications, not military data, and is supported by a network of listening stations in English-speaking countries, including a post near Geraldton in Western Australia.

"Clause 11 C of the Act establishes a new type of foreign communication warrant which will authorise the interception of communications which relate to a specified issue that is important to the Commonwealth's defence of foreign affairs," Senator Brown said.

But the legislation failed to define what was a "specified issue" and had no provisions to prevent information being passed onto spy agencies, he said.

MANX COURT THROWS OUT “FISHING EXPEDITION” SEEKING BANK DETAILS

The Isle of Man Chancery Court last week dismissed an application by Irish court-appointed inspectors to inspect the books of the Douglas branch of National Irish Bank, calling it “a fishing expedition”.

The inspectors, Mr Justice John Blayney and Tom Grace, were appointed by the Irish High Court several years ago with terms of reference which included the investigation of suspected ‘improper charging of interest to account of customers, improper charging of fees to accounts of customers and improper removal of funds from accounts of customers’.

The application to the Manx court sought access to a list of deposit accounts at the branch, the names and addresses of the account holders together with all account balances.

The 11-page judgment delivered by Deemster Cain discussed whether precedents existed to give the Court the power to make such an order in Manx law, and the propriety of giving details of the accounts of innocent third parties to the proceedings.

One such precedent was in the Chancery Court in 1979 when officers of the Inland Revenue came to the Island looking for permission to inspect and take copies of books in the Manx branch of Barclays Bank. Deemster Roy Eason had at that time refused the order saying the application was in respect of legal proceedings in Wales and could not, therefore, be make under Manx law, which only covered proceedings within the Island.

Deemster Cain observed that no notice of the application had been given to accounts holders in the NIB. ‘I am bound to say that I think the practice of making orders ex parte in respect of accounts of persons who are genuinely third parties, unconnected with the proceedings is a most undesirable one,’ he added.

The Deemster quoted other precedents ruling that such orders should be strictly limited and not be allowed if they could be regarded as ‘fishing licences’ into the affairs of third parties; he said that in the present case, the details sought by the inspectors were an intrusion into those affairs and were ‘in the nature of a fishing expedition’.

His judgment concluded: ‘For these reasons I consider that even if this court had power to make an order ... in relation to the investigation into the affairs of the bank, it would not have been appropriate to have made an order in the terms requested by the petitioners.’

Some reassurance for those who fear that the FATF and the OECD between them have stripped away legal protections enjoyed offshore!

THEY PRICE LAUNDERED MONEY

Ask John Zdanowicz for evidence of suspicious activity in cross-border trade, and he'll provide plenty of examples.

There are the cotton pillowcases worth more than $900 each that one importer brought in from France.

There are the disposable batteries sold for hundreds of dollars each.

There are the single-lens reflex cameras -- retailed for upwards of $200 -- which another exporter shipped to Japan for a bargain price of $3.50 each.

Those are just a few examples in a long list of oddly priced items that popped up in an analysis of U.S. import and export data performed by Zdanowicz and his partner Simon Pak, both finance professors at Florida International University.

This summer, they plan to launch a website that will search and compare prices for all products entering and leaving the United States. Users will simply type in a particular item and a country of origin or destination, to receive a list of prices for recent transactions.

The professors are quick to point out that not every fishy price their system serves up is evidence of criminal activity. It's quite possible, for example, that a shipment of $80,000 motorcycles might have been plated in gold, which would account for the hefty price. It's also not unheard of for people to make clerical errors when putting in pricing data.

For many transactions, however, there's little plausible explanation for weird pricing, other than fraud.

Criminal activity is particularly likely, Zdanowicz said, when it involves under-priced exports. Tax evaders and money launderers, he said, are particularly fond of pretending the designer watches and diamond rings they're shipping out of the country are worth less than they really are.

Analyzing government data for shipments made between 1989 and 2000, Zdanowicz found that an estimated $131 billion worth of goods get moved out of the United States each year in over-priced imports and under-priced exports. While money laundering activity accounts for some of the cash drain, he believes tax evasion is the more common motive.

Surprisingly, most of it goes undetected.

"When we first saw these ridiculous prices, our first thought was, who would be so dumb as to raise these kind of flags," Zdanowicz said. But because no one routinely scrutinizes individual transactions recorded by the Commerce Department, he said, most suspiciously priced imports and exports don't get noticed.

If Zdanowicz and Pak get their way, however, it may soon become much easier to ferret out fishy transactions.

The professors say the service will give users an idea of what's a normal price for, say, a pair of sneakers imported from China, or a cotton t-shirt exported to France. They expect it'll catch on with both companies trying to set prices for products and with law enforcement officers.

"One of the problems that law enforcement, customs and banks are all having is they don't know the relevant price ranges," said Zdanowicz. That makes it easier for tax evaders and money-launderers to flourish in the import-export business.

The professors admit there are many cases where over- or under-pricing is obvious. (The $900 pillowcases and $3.50 cameras, for example.) However, for many more obscure products, it's unclear what a normal price might be.

Zdanowicz uses the example of one item in the Commerce Department codebook: a fixed capacitor. Since most people don't even know what a fixed capacitor is, they wouldn't have any idea whether it should sell for $5 or $5,000.

Even for Pak and Zdanowicz, the task of finding the standard price for things like fixed capacitors requires a data-crunching effort of near-epic proportions.

To perform their research, the professors purchased records of each and every import and export transaction logged by the Commerce Department. They then cross-reference codes for 15,000 separate import categories, 8,000 export categories, and more than 250 countries.

For investigators looking to find examples of such suspicious transactions, the professors will perform search requests by e-mail. They are tentatively planning to launch their website in July.

ASHCROFT-BELIZE ISSUE AGAIN

LONDON. A pre-election smear of the Conservative party's multi-millionaire treasurer, Lord ASHCROFT, attacks his business dealings in the tax haven of BELIZE.

BAHAMAS SAYS “NO NEW TAXES”

NASSAU. Having passed a host of resrtrictive offshore laws, the government now promises it will not raise taxes.

COOK ISLANDS CLEANS UP

The Pacific haven steps up anti-money laundering.

THE NATION PITCHES A FIT

WASHINGTON. Nation magazine does a hatchet job on Bush, tax havens and financial freedom. It loves the OECD.

And The Nation tries to carve up Citibank as well.

F.A.T.F. “NAME & SHAME” GAME

PARIS. Here, from the belly of the beast, is how the Financial Action Task Force's game plan is supposed to work.

As we said in Friday’s edition, FATF without the US & Bush is unlikely to achieve its nefarious scheme against haven nations.

GUERNSEY BANKS BOOM

ST. PETER PORT. Latest stats show bank deposits and financial activity way up in this Channel Island.

REVOLT AGAINST THE LEFT

VANCOUVER. In Canada, the socialist New Democrats, who governed British Columbia were wiped out by a tidal wave of voter resentment. NDP was left with only 2 seats in the 79 seat provincial legislature.

SPARBUCH EQUIVALENT

PRAGUE. The old Austrian sparbuch is going, but the CZECH REPUBLIC still provides anonymous bank accounts. But banks must ID all cash transactions over 100,000 Kc (US$2500).

FORFEITURE LAWS COMPARED

Comparison of civil forfeiture laws, US, UK, Ireland, Australia, with implications of expanding U.K. civil forfeiture laws.

NIGERIAN SCAM AGAIN

It is still bilking thousands out of millions.

OPT OUT

READ your privacy notices. A new US law allows consumers to exempt themselves from business information exchanges. Banks and credit card firms that trade personal information are now mailing out millions of "privacy notices" informing customers of this right but the opt out provision is often buried in fine print.