Offshore News Digest for Week of February 10, 2003

“PATRIOT II”: ASHCROFT AND BUSH PREPARE NEW ATTACK ON LIBERTIES

The Bush Administration is preparing a bold, comprehensive sequel to the USA Patriot Act passed in the wake of September 11, 2001, the “Domestic Security Enhancement Act of 2003”, which will give the government broad, sweeping new powers to increase domestic intelligence-gathering, surveillance and law enforcement prerogatives, and simultaneously decrease judicial review and public access to information. Senior members of the Senate Judiciary Committee minority staff have inquired about “Patriot II” for months and have been told as recently as last week that there was no such legislation being planned.

In addition to all but destroying American financial privacy, the 2001 USA Patriot Act gave government huge new police powers to use wiretaps, electronic and computer eavesdropping, searches. Now they want even more power over our lives and fortunes.

Let your Senators and Congressman know your views. Without the hysterical atmosphere post 9/11, it is doubtful that Congress will give the likes of John Ashcroft yet another blank check (some legislators had not even read The Patriot Act before voting for it) to destroy our rights. Your voice can help prevent this new threat to liberty.

Text of new Ashcroft proposal here and here (PDF file).

NEW REPORT HITS IRS FOR ANTI-OFFSHORE PROPOSAL

The IRS has proposed a regulation (133254-02) that would require U.S. financial institutions to report bank deposit interest paid to certain nonresident aliens. The IRS admits that the information is not needed to enforce U.S. tax law, and instead seeks to collect the information so it can be provided to the tax authorities of 15 specified nations. But since nonresident alien depositors easily can shift their funds to other jurisdictions if they wish to protect their privacy, the regulation has attracted considerable opposition.

Critics fear the regulation would drive capital from the U.S. economy and undermine the competitiveness of American financial institutions. These are very legitimate concerns, but they are overshadowing another important issue: Is the IRS overstepping its authority and abusing the regulatory process by proposing a regulation that is fundamentally inconsistent with the law? The answer is “yes”. “Who Writes the Law: Congress or the IRS?”, asks Daniel J. Mitchell.

Unremitting efforts being made in the US by opponents of the IRS’s proposed bank interest reporting rules are finally beginning to pay off. Last week, Senate Budget Committee Chairman and Senate Finance Committee Member, Senator Don Nickles of Oklahoma, asked new Treasury Secretary John Snow during his confirmation hearing to take a hard look at the regulation and report back to the Committee. And now US House of Representatives Small Business Committee Chairman Donald Manzullo (Rep - Ill) says he plans to hold hearings on the issue.

EU SAVINGS TAX DIRECTIVE DEAL FALLOUT CONTINUES

Speaking to the GUERNSEY Press and Star, chairman of the Investec Bank group, Hugh Herman urged the Island’s authorities to allow finance center clients to choose between information exchange and a withholding tax.

GIBRALTAR’s government said that if the UK chooses not to defend the Rock’s position on the EU savings tax directive, then the directive will apply to Gibraltar and there is nothing that the Gibraltar government can do about it.

Following concern expressed by a number of offshore jurisdictions that the EU’s Savings Tax Directive deal agreed two weeks ago makes a “level playing field” unachievable, PANAMA has now written to the OECD putting on hold any further actions to fulfil the “commitment letter” it signed last year.

BRUSSELS TO CUT 25% OF 90,000+ PAGES TO SIMPLIFY EU LAWS

The tangled jungle of European law will be cut back by at least 25% within three years, Romano Prodi, European Commission president, will promise this week. Mr. Prodi has drawn up a plan to repeal, rewrite and reorganise the EU’s complex law book, in an effort to help businesses find their way around European legislation, and to aid in the drive to raise competitiveness.

MONACO OPPOSITION WINS ELECTION

The opposition party upset the old order with a sweep in Monaco’s weekend elections - proof that politics exist in this tiny principality best known as a playground for the rich. The Union for Monaco won 21 of the 24 seats in the National Council - monopolized for more than three decades by a party representing mainly old Monegasque families.

Monaco, smaller than New York’s Central Park, brings to mind sumptuous casinos, luxury yachts, Formula I races, and tax breaks. But, for a brief period at least, it became a hotbed of political debate that climaxed with Sunday’s vote. Some 80% of the 5,800 eligible voters cast ballots to choose their representatives for the next five years, according to election officials.

Having hugely expensive cars make way for you is one of many little pleasures to be had cheaply in Monaco. One of the most fun things about Monaco is seeing how the other half lives. If you have ever wanted to glimpse millionaire lifestyles, this is the place.

LIECHTENSTEIN FOR RENT

The Alpine tax-haven sandwiched between Austria and Switzerland, has put itself up for rent in an attempt to attract corporate conferences and bolster its tourism industry. For a cost of betwen €350 and €500 per person per night, Karlheinz Ospelt, mayor of Liechtenstein’s capital, Vaduz, will hand over the keys to the tiny principality to your company. You are then free to hang your company’s flags in place of Liechtenstein’s own.

MALTA’S MANY ATTRACTIONS

There are neither property taxes nor rates. Permanent residents pay only a flat rate of income tax of 15%. Crime is absolutely minimal. And you can eat out for less than $8 - wine included. Depending where you look, island farmhouses and houses of character can be surprisingly affordable. Everybody speaks English - until 1964, the islands belonged to Britain.

But with 370,000 people living in 95 square miles it is more a city-state than Paradise Island. The true paradise may be Gozo, a 25-minute ferry ride from Malta.

ASIAN NEWS

BEIJING: Hong Kong and the Virgin Islands were the mainland’s top two foreign investors last year, while contracted investment from the United States rose more than 25%, according to official figures published yesterday. Investments from tax havens such as the Virgin and Cayman islands is believed to be money mostly from Taiwan companies wishing to avoid regulations imposed by their government on mainland investments - as well as from Hong Kong, Macau and the mainland itself.

The Taiwan-based Taipei Times warned that the HONG KONG government should look around for alternative ways in which to reduce the jurisdiction’s budget deficit, arguing that increasing the tax burden could lead to “an accelerated exodus of capital from the territory”.

PHILIPPINE Senate defies FATF demands for anti-ML law changes. Voting 12-8, senators rejected a proposed amendment to the law that would have allowed the Anti-Money-Laundering Council to look into suspicious accounts without a court order. Another FATF demand, which seeks to cover banking transactions that took place even before the effectivity of the AMLA, was rejected by the Senate by a vote of 15-6.

The idea that both chambers of Congress have to scramble yet again to meet a deadline imposed by a group of faceless men in expensive suits rankles - but INQ7 recommends passing the amendments, however inadequate, in time, rather than risk the counter-measures. Otherwise, Phillipine workers’ remittances will be hostage to money-laundered fortune.

USA PATRIOT ACT SHREDS AMERICAN PRIVACY

The cat-and-mouse crackdown on money laundering, a key component of the U.S. government’s battle against terrorism, could be coming to a car dealership, travel agency or jewelry store near you. If it does, be prepared to document who you are, even if you have done business with those places for years.

Many more businesses may eventually have to comply with the act, but some do not know it yet. They include jewelry dealers, insurance and travel agencies, and car lots. FinCEN, the Financial Crimes Enforcement Network of the Treasury Department, said those operations are still under consideration for inclusion in the act. Those businesses pose as potential outlets for money laundering - someone pays dirty cash for an item and then turns around and sells it.

Stringent provisions of the Patriot Act raise privacy concerns for banks. The act ushered in a wave of new provisions, mandating extensive recordkeeping and due diligence in the areas of foreign banking and customer identification. While Byzantine regulations are nothing new to the financial services industry, this set is different and deadly serious.

“This is bigger and more long-lasting than anything related to Enron,” says Mary Faith Floyd, a senior compliance officer with First Tennessee National Corp. “And I really think we are just at the beginning.”

U.S. TAX SHELTERS UNDER IRS, LEGAL ATTACK

Some wealthy Americans who paid millions in fees to two of the “Big Four” accounting firms to set up tax shelters are suing the firms after the IRS denied the tax savings that they had been promised. Although only a few lawsuits have been filed, tax experts and lawyers handling these cases said they expected a flood of similar cases as the IRS stepped up its hunt for tax cheating by hundreds and perhaps thousands of executives, business owners, athletes and entertainers with big incomes.

The “Opinion Letter” that blesses the tax shelter as a legitimate way to reduce taxes, written by tax lawyers using the embossed stationery of their firms, may not be worth the paper they were printed on. Larry A. DiMatteo, an associate professor of legal studies at the Warrington College of Business at the University of Florida who has written extensively on opinion letters, said that even financially smart people “treat opinion letters as if they were binding, when under American law they generally have no legal consequence.”

The 1990s boom produced a large pool of rich potential clients, most unfamiliar with tax-law complexities. At the same time, accounting firms were looking for new revenue as income from audits flagged. A 1991 change in the profession’s rules provided a helping hand: Accountants could now charge performance-based fees just like investment bankers, as opposed to the traditional hourly rate. So big accounting firms formed teams dedicated to promoting high-margin tax strategies. Fees to the accounting firm ranged from 10 to 40% of taxes saved.

Corporations and executives who find their shelters under fire stand to lose vast sums, should the IRS prevail. The disclosure that Sprint CEO William Esrey and COO Ronald LeMay could face a $123 million tax bill illustrates the stakes involved. Several Washington litigators said Esrey and the others would have a strong case against their advisers.

IRS SEEKS CLIENT LIST OF TAX ADVISOR WHO USED SECTION 861 ARGUMENT

Everte Farnell, of St. Petersburg, Florida, had his tax return preparation business shut down by court order after federal prosecutors alleged he markets a tax evasion scheme and prepares fraudulent “zero income” returns. The preliminary injunction against Everte Farnell was issued January 26 by a Tampa federal judge, who also ordered Farnell to provide the IRS with a list of his clients and returns he prepared. The lawsuit accuses Farnell of promoting what authorities refer to as the “U.S. Sources Argument” or “Section 861 Scheme”.

Farnell said he evaluated the positions of the National Institute of Taxation Education (N.I.T.E.), an Internet organization based in Pennsylvania run by Thurston Bell, including the Section 861 argument, and began working with the organization. He contended the federal government never specifically addressed the Section 861 argument before deeming it frivolous. “All we’re looking for is for the government to tell us why and how we’re wrong,” Farnell said.

REP. RON PAUL: END THE INCOME TAX - PASS THE LIBERTY AMENDMENT

The Liberty Amendment would repeal the 16th Amendment, thus paving the way for real change in the way government collects and spends the people’s hard-earned money. The Liberty Amendment also explicitly forbids the federal government from performing any action not explicitly authorized by the United States Constitution.

Income taxes are responsible for the transformation of the federal government from one of limited powers into a vast leviathan whose tentacles reach into almost every aspect of American life. Thanks to the income tax, today the federal government routinely invades our privacy, and penalizes our every endeavor.

CREDIT CARDS FACE REFUNDING OFFSHORE CHARGES

A preliminary ruling by a California judge may mean that Visa and MasterCard have to refund at least $500 million for poorly disclosing fees to people who use their cards overseas. In his tentative opinion, the judge did not ban the charging of currency-conversion fees but he did say that Visa and MasterCard would have to refund cardholders who have paid the surcharge since 1996.

When a cardholder makes a purchase overseas, Visa and MasterCard charge a wholesale foreign-currency conversion rate plus 1% to the banks that issue credit cards. Those banks, such as Citibank, then pass along that charge to cardholders. Many card issuers tack on additional charges of as many as two percentage points.

THE CASE FOR GOLD

The paradox of gold is that it can be the finest speculation and the poorest investment. Though indestructible and lovely to behold, the barbarous relic earns no interest. And - what is much, much worse - it earns no interest on interest. Gold was the right thing to bury in A.D. 680 and the wrong thing not to dig up and invest in Microsoft at a split-adjusted price of 18¢ a share in March 1986 A.D. (Today, 17 years later, the price is $51.) Knowing when danger is advancing and receding is the rarest insight in investing.

So is risk advancing or receding? Jim Grant would say that it is advancing. Nominal interest rates are low, government bond buyers are complacent and central banks are easy. Bottom Line: He thinks inflation is coming back. [Note: For an alternative view go to the Elliott Wave International site. They think deflation is the danger.]

Despite bullion prices hitting six-year highs this week, gold mining company share investors have failed to catch the gold bug. The disconnect could not be more pronounced, since shares in leading goldminers have barely moved while the metal has been hitting its highs. This could be because bullion is trading at a “war premium”, rather than reflecting renewed inflationary times.

WHAT IS NEW ABOUT THE NEW EUROPE? THE ECONOMY.

In the postmodern European order, where war is now largely unthinkable, power is no longer measured by military arsenals but by economic vigor. Next year, when the European Union embraces 10 new members, the 25-nation group will include 450 million relatively prosperous citizens and account for more than one-fifth of global economic activity. But as the EU expands toward Russia’s doorstep and consolidates its economic power, the locus of Europe’s future economic dynamism will lie with the former communist societies of Central and Eastern Europe.

Over the next decade, Europe’s fastest growth rate and biggest income surge are projected to occur in the eastern swath, stretching from the Baltic states to Bulgaria. American and European companies are beginning to pour investments into the region, seeking to capitalize on the desires of youthful populations eager to raise their living standards to match those in the West and to take advantage of labor costs that are one-fifth those in Germany. Poles, Hungarians and Czechs who had immigrated to Western Europe years ago in search of well-paying jobs are now heading home.

THE DECLINE OF GERMANY

Glittery exterior notwithstanding, showcase city of Berlin is in such a financial fix that it is firing teachers and closing swimming pools. Just four months after Schröder’s reelection as Chancellor, his Social Democratic Party is so unpopular that it was clobbered in two key state elections on Feb. 2. Polls show Germans more pessimistic than they have been in decades. The vaunted model of Rhineland capitalism, where the state and business work together, is in slow-motion collapse. Japan on the Rhine is a better way to describe what is going on. Germany’s DAX 30 stock index was the worst-performing in the developed world last year.

Decline has enveloped Germany’s most vital institutions and industries. In the 1960s, the Germans were the world’s No. 1 pharmaceutical producers. Now, the country that invented aspirin has no company in the top 15. In the 1980s, Frankfurt’s elegant banks stood as bastions of stability. Now, Frankfurt’s future as a major financial center is in doubt. Germany’s once-hallowed universities are short of funds and overrun with mediocre students taking advantage of free tuition.

Germany has studied its problems for the past two decades, and many of its most committed reformers have long argued the need for more flexibility if the country is to preserve its power and influence. So what prevented reform? In a sentence, a reverence for stability at any cost. Shaped by a tumultuous past, the entire country is wired to resist change. Politicians from Schröder down to the local Burgermeister bend over backward to avoid confrontation, particularly with labor.

RICHEST WOMAN IN ALL OF ENGLAND

Not HRH Queen Elizabeth II - it is Charlene de Carvalho, heiress to the Heineken brewing empire. When her father, Freddie Heineken, passed away in January, his 48-year-old daughter took control of the entire family fortune along with the well-known Dutch brewing company. As a result, her wealth is now estimated at £2.85 billion.

RUPERT MURDOCH ENDOSES LABOUR - GETS TO TAKEOVER OF CHANNEL 5 IN RETURN

Between 1988 and 1999, the British division of Rupert Murdoch-controlled News Corp. did not pay a penny in corporation tax, despite making profits of £1.4 billion, thanks to its international / interjurisdictional setup. Yet New Labour is again preparing to give to a tycoon who gives nothing back.

Murdoch switched the Sun’s support from the Tories to Labour, and Blair has pampered Murdoch’s media interests ever since. The latest present is Channel 5. The Communications Bill, which returns to Parliament this month, contains what everyone in Westminster calls “the Murdoch clause”. It removes Channel 5 from the ban on the ownership of terrestrial TV stations by infotainment corporations with 20% or more of the national newspaper market.

IRS, TAX SHELTERS, ETC.

Investors seek safer methods to shield income from taxes.

The Bush administration wants to boost audits of wealthy taxpayers by 70%. Under the $2.23 trillion budget proposal delivered to Congress last week, the IRS would get an extra $133 million to target “high-income non-compliance” with tax laws, including shelters such as the one held by departing Sprint CEO William Esrey. The proposal would enable the IRS to examine 160,000 returns a year, vs. 93,000 a year now. To help the IRS identify targets, the administration also is asking Congress to tighten the law requiring the registration of tax shelters with the IRS, and to give the agency greater access to shelter promoters’ client lists.

Accounting firms defend tax shelters as clients point fingers. In a statement, Ernst & Young said it provides clients with tax planning “that is appropriate and has the highest probability of being approved if reviewed by the IRS ... Because this policy was strictly adhered to in the case of the Sprint executives, we stand by the tax advice and counsel we provided.”

Accounting industry experts say the curtain is about to rise on the New York-based accounting and auditing giant Ernst & Young, exposing multiple examples of the kind of individual tax shelters that have gotten Sprint Corp.’s top two executives in the news lately. Company clients “are calling us night and day about their own shelters - they are just freaking out at us,” said one Ernst & Young auditor.

VERN JACOBS: SOME NON-TAX MOTIVATED REASONS TO GO OFFSHORE

“For those who are concerned or fearful about “going offshore” for asset protection, investments or even for business, it may be helpful to remember that risk is relative. Jumping out of a two-story window is certainly high on the risk scale, but if the building is on fire and you can’t get out any other way, the two-story jump is a lot less risky than staying where you are.

“Before discussing some of the ways in which you can reduce the risk of losing your assets by moving them offshore, let us look at some of the alternatives and the reasons why an increasing number of people in the US are moving some of their assets offshore.”

An outstanding introduction to the case for going at least partly offshore.

Excerpt from J. Richard Duke’s Critical Issues in Offshore Estate Planning for US Persons here. Includes a concise summary of offshore advantages and types of offshore trusts.

BRITISH VIRGIN ISLANDS DOUBTS ON E.U. TAX DEAL

FirstBank Virgin Islands’ new Offshore Banking Manager, Robbie Hirst praised the BVI government’s legislative efforts to ensure that the jurisdiction’s finance centre is well regarded by the international community, but expressed concern with regard to the potential impact of the EU’s Savings Tax Directive.

BERMUDA VIEW OF U.S. TAXES

HAMILTON: Navigating American tax policy. Among the observations: Non-residents are liable for US return filing and taxation once they have more than 90 days of US presence in a tax year, or greater than $3,000 of compensation for work performed in the US. After that other tests kick in - and with the border tracking that now goes on, count on your visits being tallied.

BAHAMAS FINANCIAL SERVICES BOARD CHAIRMAN SPEAKS

While not on an blacklists, he sees several threats on the horizon.

A DOMINICAN PERSPECTIVE

An interesting interview with a native of Dominica who is attending Stanford University. He feels blessed for the opportunities that he has had in the US, while appreciating the life and environment of his own country. The IMF meddlers are in there, poking around the island’s economic affairs.

Dominica Economic Citizenship Program information here. Among the requirements: An individual (who can include spouse and up to two dependent children under the age of 18) makes a direct, one-time contribution of $50,000 to the Dominica Government.

EXPATS ABROAD FACE POSSIBILITY OF MID-EAST WAR

The CANADIAN Embassy yesterday called on Israelis who have Canadian citizenship to make sure their passports are valid in view of the “situation in Iraq” and in case they have to leave Israel on short notice.

U.S. citizens around the world are at a heightened risk of terrorist attacks, according to a State Department caution issued Feb. 6. “Terrorist actions may include, but are not limited to, suicide operations, assassinations or kidnappings,” the alert states. It goes on to warn “nonconventional weapons” may be used. The warning does not speak to specific locations or dates, but urges an overall heightened awareness.

PHILIPPINES TRY TO MEET F.A.T.F. DEADLINE

MANILA: The Philippines government is making a last-minute bid to pass money-laundering laws to avoid economic sanctions threatened by the FATF. After months of debate, the Senate has unanimously passed an amended bill, after it was passed by the House of Representatives.

CORPORATE OFFSHORE “INVERSIONS”

The rationale for a corporate inversion, as going offshore is known, is obvious. By moving its headquarters to one of the 25 or so tax-friendly offshore territories, an American company can avoid paying taxes twice on foreign profits - first in the overseas country where they were earned, then again in the U.S., and avail themselves of various other tax reduction manoeuvres.

Pithily summarizes the debate / charade as it stands today. Good quote: “Companies are voting with their feet. It’s the canary-in-the-coal-mine situation, and rather than beating up on them, we should be thinking about why they’re doing this.”

GREENSPAN WARNS ABOUT BUDGET DEFICITS

WASHINGTON: He said that restoring budget discipline is particularly important because of the looming rise in spending for Social Security and Medicare benefits when the baby-boom generation begins retiring in large numbers about 10 years from now. He said that while Social Security payroll taxes currently exceed benefit payments, counting the future payments workers are accruing would show that program is really running a deficit.

DIM FUTURE FOR U.S. TORT REFORM?

President Bush may have the power to send America to war against Iraq, but when it comes to fighting the country’s litigation crisis it is far from clear that he will get his way. Plaintiffs’ lawyers, who are heavy contributors to the Democratic Party, can be expected to lobby strongly against medical liability reform since medical malpractice suits are the core business of many firms. The prospects for legislation to tackle the asbestos crisis are even less certain - although asbestos is arguably the bigger problem.

According to Mark Behrens of the American Tort Reform Association: “Prospects are brighter now, but as we go into the year they will dim and when we reach the end of the year they may go out.” The pace of reform will also depend on how hard the president pushes it - and even on the possible war with Iraq (a victorious president might be better placed to push his legislative agenda).

HEDGE FUNDS ATTRACT SMALLER INVESTORS

Once available only to investors with net worths north of $1 million who could invest $250,000, a new breed of hedge funds aimed at the masses allows investors to get in for as little as $25,000. Hedge fund assets have doubled to $600 billion in just four years. There now are an estimated 6,000 hedge funds, double just five years ago. [Question: Just when has following the crowd of small investors been a wise investment strategy?]

The US Treasury is proposing to extend its anti-terror regulations to clamp down on hedge funds around the world. It has drawn up rules that would compel any hedge fund with a “US nexus” - taken to mean a US investor, manager or sponsor - to give US authorities access to files on its investors. Industry members said the proposal could threaten client confidentiality, which has been cherished by many wealthy individuals who make up the majority of hedge fund investors. Funds could just end up trying to rid themselves of US investors.

HOUSE OF ROTHSCHILD CHANGES THE GUARD

While other investment banks have lost the individual flare of their founders, for the Rothschilds, banking is still a family business. And so it seems natural that Sir Evelyn de Rothschild, 72, who runs the London house, known as N. M. Rothschild, is moving closer to the inevitable: handing control to his French cousin, Baron David de Rothschild, 60, who currently runs the French house, Rothschild & Compagnie Banque. The move has been expected for years, though the official change of control may not happen for another six months to a year, as family members negotiate a structure that would allow for the transfer of assets among the holding companies.

Founded in the 1760s by Mayer Amschel Rothschild, a coin dealer in the Jewish ghetto of Frankfurt, the family unity has not always been as strong as it now appears to be. In a time when boutique banks are under an enormous amount of pressure, this is an advantage.

THE NIGERIAN “419” SCAM

What it is and where to report it when you get your unwanted e-mail. Country-specific instructions and further links.

CANADIAN NEWS

Immigration Minister Denis Coderre got a rough ride from his Liberal colleagues when he pushed the Commons immigration committee to consider national identity cards. Several Liberal MPs on the committee, along with some opposition members, questioned Coderre’s assertion that a national ID system could protect privacy rights rather than erode them. A Quebec MP raised concerns about cost, efficiency and security in other federal government programs, including massive fraud involving Social Insurance Numbers, stolen passports and the gun registry fiasco.

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) announced today, that it has concluded memoranda of understanding with financial intelligence units in Australia, Belgium, the UK and the US. With these agreements, FINTRAC is now able to access information from those foreign counterpart agencies to analyze transaction data to detect suspected money laundering and terrorist financing.

If you value your privacy, better ride the bus. Under a recently enacted program few Canadians have heard of, the federal government will scrutinize your travel plans every time you take to the air - including your name, gender, nationality, date of birth, travel document type, all the destinations you will visit, the way your ticket was purchased, where you sit on the plane and the number of bags you check. The data collected under this program - the Advance Passenger Information and Passenger Name Record (API/PNR) system - will remain on file for six years, and can be freely shared with different government departments. Soon, the program may be expanded to cover people travelling by train and watercraft as well.

Canadians going south: “Your documents please!” Canadians travelling to the United States will soon be getting used to that unfamiliar demand for documents. The days of “easy come, easy go” border crossings are over. Legislation passed last year by the United States Congress requires that everyone entering or leaving the US will be subject to entry and exit controls. Not only will the entry and departure be recorded and monitored, but also some Canadians will be fingerprinted and photographed. The Prime Minister’s reluctance to stand with U.S. President George Bush in his war against Saddam Hussein does not help.

NETHERLANDS POLICE ID CHECKS FOR ALL COMING SOON

In the future police will be authorized to require anyone in the Netherlands older than 12 to show proof of his or her identity. Failure to do so can result in a prison sentence of up to two months or a fine of up to 2,250 Euros.

U.S. VISA DATABASE LINKED TO U.S. POLICE

Law enforcement officials across the country will soon have access to a database of 50 million overseas applications for United States visas, including the photographs of 20 million applicants. The database is maintained by the State Department and typically provides personal information like the applicant’s home address, date of birth and passport number, and the names of relatives. It is a central feature of a computer system linkup, scheduled within the next month, that will tie together the department, intelligence agencies, the F.B.I. and police departments.

TAX COLLECTION, NOT ANTI-TERRORISM THE GOAL

If you want to catch a criminal or terrorist, does it make sense to “follow the money”? A “yes” answer makes sense if you can identify at least one of the individuals or institutions connected with the suspected wrongdoer. However, if you are trying to follow money flows in general or all money flows, it is not likely your work will be very productive, and it will also involve massive violations of civil liberties. Most terrorists’ money comes from legal sources and is used for illegal acts, which is the opposite of criminals using illegally obtained money for legal acts.

The major effort underway to do blanket [mass financial data on individuals who are not suspected of any illegal act] sharing of information between governments, under the guise of fighting money laundering or terrorism, is being driven by the Europeans who are more concerned about tax competition than terrorism. In fact, blanket information sharing will make us less safe because all governments leak information, and personal financial information has great value to criminals and terrorists.

STATES MINING DATA TO BOOST TAX REVENUE

An area of increased national scrutiny is the use tax, which essentially is a sales tax that kicks in on purchases for which no sales tax was imposed. For instance, if you bought a $10,000 piano from a retailer in Oregon, where there is no sales tax, and had it shipped to Los Angeles, where there is an 8.25% sales tax, you avoided paying $825 in taxes at the point of purchase. But the obligation to pay the tax never went away - it simply shifted from the retailer to the consumer.

SOCIAL SECURITY NUMBER USE MAY BE CURBED

Faced with growing pressure from constituents concerned about the risks of identity theft, lawmakers are [finally] contemplating ways to curtail use of Social Security numbers for purposes other than taxpayer identification.

“The request for a Social Security number is now often made as if it were the most natural thing in the world, when this number is actually the passport to your identity," said California Assemblyman Joseph Simitian.

CLINTON LITE? BUSH’S THIRD WAY BETRAYS TRUE CONSERVATISM

There are many competing strands in President George Bush’s agenda. Parsing his recent State of the Union speech, it is a far cry from the individualist, free-market, less-government conservatism of Barry Goldwater.

During the 2000 election, he campaigned across the country telling voters: “My opponent trusts government, I trust you.” But in speeches to more liberal audiences, he ridiculed “the destructive mind-set ... that if government would only get out of the way, all our problems would be solved” and declared that “government must be carefully limited but strong and active and respected within those bounds”.

His State of the Union agenda can only make us ask: “Where are those bounds?” For now, the best hope is the schizophrenia in Bush’s agenda.

TOTAL INFORMATION AWARENESS OUT, FOR NOW

House and Senate negotiators have agreed that the Pentagon’s Total Information Awareness project, intended to detect terrorists by monitoring Internet e-mail and commercial databases for health, financial and travel information, cannot be used against Americans. The conferees also agreed to restrict further research on the program without extensive consultation with Congress.

Senator Ron Wyden, the Oregon Democrat who sponsored the Senate amendment, said, “It looks like Congress is getting the message from the American people loud and clear and that is: Stop the trifling of the civil liberties of law-abiding Americans.”

Senator Charles E. Grassley, the Iowa Republican who co-sponsored the Wyden amendment, said: “Protecting Americans’ civil liberties while at the same time winning the war against terrorism has got to be top priority for the United States. Congressional oversight of this program will be a must as we proceed in the war against terror. The acceptance of this amendment sends a signal that Congress won’t sit on its hands as the TIA program moves forward.”

Bill Safire finds the bipartisan Congressional agreement to call a halt to the Executive branch’s power grab heartening: “Even as the nation braces for more terrorist murders, a Republican-led Congress absolutely refuses to give carte blanche to a Republican war president to treat all citizens as suspects. These legislators are attuned to the views of their voters; this means that a courageous constituency exists to defend personal freedom.”

Now he warns about what is next: “Among other abominations, Ashcroft’s ‘Patriot II’ would computerize genetic information without court order or our consent. As in the Pentagon’s Poindexter project, Justice’s aim is to avoid judicial or Congressional control.”

But the work on it continues ...

Financed by more than $20 million in government contracts, researchers are taking the first steps toward developing a system that could sift through the financial, telephone, travel and medical records of millions of people in hopes of identifying terrorists before they strike. So far, the companies awarded contracts by the Defense Department are using only fabricated data in their work on the program. The Pentagon’s technology chief, Pete Aldridge, has said the department is interested in tying together such privately held data along with massive quantities of intelligence information already gathered by the federal government.

TV CHANNEL BUYS $150 ID FOR FBI “MOST WANTED” SUSPECT

Using a fake driver’s licence bought via a web site, US TV’s NewsChannel 4 fooled ID checking software and got confirmation that the licence could probably be used safely to fly on any commercial airline, rent a car, or cross the border into the US. Just to spice things up, NewsChannel 4 had used a picture of Khalid Shaikh Mohammed, a star of the FBI’s 22 most wanted list, with a $25 million price on his head. The producer who bought the licence told the vendor: “He doesn’t have a driver’s license number (please make one up), and also make up an address.”

CANADIAN POLICE RECOVER DISK AT CENTER OF ID THEFT FLAP

A hard drive that contained confidential details about hundreds of thousands of insurance company clients has been recovered by Canadian police. The disk was found with the data it contained overwritten early last week. Police believe an employee of Regina, Saskatchewan ISM Canada stole the drive for personal use.

UK NATIONAL HEALTH SYSTEM PATIENT PRIVACY? WHAT PATIENT PRIVACY?

Up to 200,000 requests are made under by investigators under false pretences to obtain health information on British patients each year. And most attempts succeed, according to the Foundation for Information Policy Research.

US TAX LAWS ON FORMER US CITIZENS NOT BEING ENFORCED

There is little or no enforcement of special tax rules for people who give up their U.S. citizenship or permanent residence status in order to avoid paying U.S. taxes, a congressional report released on Wednesday said. The report said problems getting information on former citizens was a major reason for the lack of enforcement.

The US congressional Joint Committee on Taxation Report: Tax & Immigration Treatment of Relinquishment of Citizenship & Termination Of Long Term Residency here (PDF file).

Links to IRS “Taxpatriate” lists here. The people on these lists may be taxed for ten years after they renounced their citizenship. Furthermore, these persons may not be allowed back into the US for any reason. Even facing these penalties, wealthy US citizens continue to leave the US at an alarming rate. The following lists show conclusively that the exodus of US citizens and their wealth is continuing. What these lists fail to show is the increasing numbers of wealthy US citizens who are just taking their wealth and leaving the US without ever renouncing. Tax haven countries are recording significantly larger and larger numbers of US applicants for permanent residence or second citizenship every year. Instead of reducing the number of taxpatriates, these repressive laws have actually increased taxpatriation.

BAHAMAS ATTORNEY CALLS FOR GOVERNMENT ACTION

NASSAU: Financial information exchange to prevent and detect money laundering and terrorist financing is widely acknowledged as appropriate and important for any respectable financial center. However, information exchange to assist other countries in collecting taxes has (for centuries) been viewed differently.

In March 2002 the former Government of The Bahamas made a conditional commitment to the OECD to exchange information for tax purposes. Amongst the conditions was that there be a level playing field amongst all jurisdictions, OECD and non-OECD, with which The Bahamas was materially in competition as regards financial services. Given the recent preferential treatment afforded to Austria, Belgium and Luxembourg by the EU Savings Directive, it is surprising that to date there has been no official comment by The Bahamas on the developments in Europe.

The ISLE of MAN is playing its cards close to the vest with regard to the EU tax directive deal. Treasury Minister is “cautiously optimistic”, but commits to nothing.

CAYMAN LEADER HITS OUT AT UK OVER EUROBANK TRIAL, SAVINGS TAX AGREEMENT

GEORGE TOWN: Caymanian Leader of Government Business, Hon McKeeva Bush stated that: “The United Kingdom is hell-bent on destroying the financial industry of these islands because we are in competition with them.” He says the islands will fight having to comply with the European Savings Tax Initiative, and will fight it all the way to the UN if necessary.

RISE IN BERMUDA FIRMS ON SINGAPORE STOCK EXCHANGE RAISES “RED FLAG”

The rising number of Bermuda-incorporated companies that are listed or plan to list on the SGX has, of late, raised concern among some local investors over their rights as shareholders of these firms. According to the SGX website, about 45 Bermuda-registered companies are now listed here, representing around a tenth of all listed firms.

Singapore regulators have been moving towards a disclosure-based regime. According to a note on SGX’s website, this philosophy acknowledges that the market is better able to decide on and judge the merits of transactions [and jurisdictions], than is the securities regulator.

UK Inland Revenue row continues over property sale to Bermuda corporation.

GIBRALTAR CALLS FOR END TO UK-SPANISH TALKS

The chief minister of Gibraltar on Wednesday called for an end to talks between Spain and Britain over the sovereignty of the British territory, saying a November referendum settled the issue. Residents of the rock outcropping on the southern edge of Spain voted overwhelmingly in the last November 7 referendum that they want to remain a British territory. But Peter Caruana, the chief minister of Gibraltar, said that Britain and Spain continue to hold talks on joint sovereignty.

PHILIPPINES SET TO PASS DILUTED ANTI-MONEY LAUNDERING LAW

MANILA: After weeks of rancorous debate about bank account secrecy and threats to national sovereignty, the amendments hammered out by a panel of lawmakers late on Wednesday now go to President Arroyo for her signature. But even those close to Arroyo said the changes may not placate the FATF.

The FATF is unlikely to be happy that financial regulators still will need a court order to probe bank accounts, except in cases of kidnapping, hijacking and drug trafficking. A provision also forbids banks from asking new customers to exempt their accounts from the country’s bank secrecy laws.

U.S. CONGRESS DEMAGOGUES OFFSHORE ISSUE AGAIN

WASHINGTON: Despite the bipartisan outrage over corporations abandoning the already stretched federal Treasury in a time of a possible war, it still appears increasingly unlikely that anything will happen to prevent them from relocating to tax-friendly Bermuda or the Cayman Islands. “There’ll be a lot of saber-rattling, but there probably won’t be much done in this area this year,” predicted one lobbyist working the issue.

IRS CRIMINAL INVESTIGATORS EXPAND ACTIVITIES

While most people do not think of the IRS as a crime-fighting agency, agents from the IRS Criminal Investigation Division often investigate crimes which can involve millions of dollars and more serious crimes such as murder - many crimes are tied to greed, and solving them often means following the money trail.

Another expanding role for IRS criminal investigators is illegal offshore trusts. Upper-income taxpayers are setting up trusts in the name of charities and putting the money in banks in tax-haven countries. They then access that money by using charge cards.

An agent for IRS criminal investigators said, “What we’re finding in these abusive schemes, for example they might be putting the business in the trust [but] the taxpayer is truly not giving up control of that business. Usually the trust will be formed offshore and this is done to hide the income from the IRS. These trusts are clearly illegal. So, this money is literally coming from overseas banks back into the US and has never been taxed.”

BIG FOUR ACCOUNTING FIRMS FACE LEGAL TROUBLE, LOST BUSINESS

Transformed into global financial powerhouses during a decade of rapid growth, they face serious threats on several fronts - including the possible loss of their lucrative tax-shelter businesses, waves of lawsuits from people upset by their audits or tax-shelter work and government investigations that could result in fines or lost business.

US TO DEMAND MORE INFORMATION FROM HEDGE FUNDS

The US Treasury has announced plans to demand information from all hedge funds with US investors. US authorities are planning to extend their investigation of financial products to include hedge funds. Unsurprisingly, hedge fund managers are strongly opposed to the proposal, and clients may be put off too. If implemented, the new rules would affect thousands of hedge funds. The rules would apply to any hedge fund with a US manager or investor, and might result in hedge funds barring US investors.

Hedge funds, traditionally an investment outlet for the wealthy, increasingly are seeking to lure ordinary investors, and the Securities and Exchange Commission issued a warning about the risky, largely unregulated funds. The SEC advised would-be investors to check out the background of hedge fund managers as well as the fees charged by funds.

To make the point, the agency has put up a “scam” hedge fund site promoting a fund called “Guaranteed Returns Diversified” here.

ASHCROFT’S PATRIOT ACT II GETS CHILLY RESPONSE

Unlike its hastily passed predecessor, the Justice Department’s wide-ranging follow-up to the Patriot Act of 2001 is already facing intense scrutiny, just days after a civil rights group posted a leaked version of the legislation on its website. Nicknamed “Patriot II”, the proposed legislation would broadly expand the government’s surveillance and detention powers. Among other measures, it calls for the creation of a terrorist DNA database and allows the attorney general to revoke citizenship of those who provide “material support” to terrorist groups.

Privacy advocates said the bill “gutted the Fourth Amendment”, while prominent Democratic senators, including Patrick Leahy, ranking Democratic member of the Senate Judiciary Committee, immediately chastised the administration for its secrecy. Despite assurances to lawmakers that no bill was in the works, the Justice Department internally circulated a confidential 120-page summary and text of the Domestic Security and Enhancement Act in early January.

The act would allow the government to:

• Conduct domestic wiretapping without court order for 15 days following a congressional authorization of use of force or an attack on the United States.
• Secretly detain citizens.
• Deport any alien, including green-card holders, who are convicted of drug possession or an aggravated felony.
• Access a citizen’s credit reports without a subpoena.
• Abolish federal court “consent decrees” that limit police surveillance of non-criminal organizations and public events.
• Criminalize the use of encryption software in the commission or planning of a felony.
• Apply strict gag rules to those subpoenaed by a grand jury.
• Collect DNA from suspected terrorists and indeed from any individual whose DNA might assist terror investigations.
• Extend authorization periods for secret wiretaps and Internet surveillance.
• Ease restrictions on the use of secret evidence.

“This is something you have on the shelf,” said a spokesman for Electronic Privacy Information Center. “You wait for an opportune moment, like going to war, to introduce it. They call this a draft, but this bill is definitely close to final and gives a good road map of what the Justice Department wants.”

PATRIOT ACT II: A TOTAL POLICE STATE TAKEOVER

The Secret Patriot Act II Destroys What Is Left of American Liberty. The Act is a mirror image of powers that Julius Caesar and Adolf Hitler gave themselves. Whereas the First Patriot Act only gutted the First, Third, Fourth and Fifth Amendments, and seriously damaged the Seventh and the Tenth, the Second Patriot Act reorganizes the entire Federal government as well as many areas of state government under the dictatorial control of the Justice Department, the Office of Homeland Security and the FEMA NORTHCOM military command. The Domestic Security Enhancement Act 2003, also known as the Second Patriot Act is by its very structure the definition of dictatorship.

Ninety percent of the act has nothing to do with terrorism and is instead a giant Federal power-grab with tentacles reaching into every facet of our society. It strips American citizens of all of their rights and grants the government and its private agents total immunity.

EUROPE IS TO GET ITS OWN NSA OF SORTS

The European Commission unveiled plans for a European Network and Information Security Agency, to “serve as a centre of competence where both Member States and EU Institutions can seek advice on matters relating to cyber security.”

BRITISH ID CARD PLAN OPPOSED BY LIBERTIES ADVOCATES

The UK’s data protection watchdog fears racial background and religious beliefs could be included in plans to introduce an ID card. The so-called entitlement cards are expected to contain personal details such as those found on passports and driving licences. But the Information Commissioner, Richard Thomas, said the proposals were so widely drawn he had “serious concerns” over whether the cards would comply with privacy and data protection laws.

Among his objections: The cards could be a “target” for fraudsters and there would probably be “function creep”, where they would end up being demanded in situations where they were not really needed. There was a risk of ever-more information being added, and ever-greater state monitoring of individuals’ activities. [Gee. Where have we seen that happen before?]

HILLARY CLINTON WANTS NATIONAL ID

Saying that she is strongly opposed to “illegal immigrants”, New York Senator Hillary Clinton announced that she would support a national identification card for U.S. citizens if other measures to keep illegals out of the country failed. Sen. Clinton, whose husband opened the floodgates to illegal immigrants in 1996 in hopes of naturalizing them in time for that year’s presidential election, complained that too many Americans are employing illegals.

Government scientists are recommending a combination of facial recognition and fingerprint scanning technologies as the federal standard for identity documents to be issued to foreigners starting next year.

ANTI-MONEY LAUNDERING SOFTWARE FIRM’S SALES UP 25% IN 2002

Miami-based Americas Software said sales and installations of its anti-money laundering and regulatory compliance software were up sharply in 2002. “We’re growing our business at a rapid pace and helping financial institutions overcome the challenges they face in the current regulatory environment,” said John Daly, Americas Software president.