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KNOW YOUR CUSTOMERS -- INCLUDING WHERE THEY LIVE
In implementing the USA PATRIOT Act, more and more U.S. businesses are being required to set up “Know Your Customer” (KYC) programs. They want to know the physical address where you reside - not just your mailing address as in the past. This information could be extremely valuable to a stalker or identity thief.
Your options? For securities trading and other brokerage services you can use an offshore bank, which will require your residential address -- in privacy-oriented jurisdictions -- protect your information under strict secrecy rules. Or you could rely on the “protections” such as those in the E-TRADE privacy [?] statement:
“We may disclose certain information about you to our affiliated companies and to other financial services providers with which we have joint marketing agreements or that offer financial products and services with us or on our behalf.”E-TRADE privacy statement here.
Identity theft resource center here.
GUERNSEY TO ADOPT WITHHOLDING TAX UNDER EU DIRECTIVE
Guernsey’s Advisory and Finance Committee said that after undertaking a wide ranging consultation with all sectors of the finance industry on the options contained within the EU Draft Directive on Taxation of Savings, it had concluded that if and when the EU Tax Package is finally adopted it will recommend to the States to introduce a retention tax on EU resident individuals’ savings interest.More on this story here.
MONEY LAUNDERING “NOT IMPOSSIBLE” IN SWITZERLAND ... JUST DIFFICULT
According to the head of Switzerland’s Money Laundering Control Authority (MLCA), Dina Balleyguier, “absolute confidence is never possible because we have no figures whatsoever on the real cases of money laundering. But I would say [that] with the control activity we have put in place, it’s become more and more difficult for money launderers to have their laundering done in Switzerland without being discovered.”
Balleyguier made the comments after releasing the first-ever annual report of the MLCA, which forms part of a network of government surveillance bodies, designed to halt flows of illegal money through Switzerland.More on this story here.
Swiss police have raided several buildings across Switzerland in connection with a probe into alleged fraud and money laundering in Russia.More on this story here.
DEUTSCHE BANK FINED €59.3 MILLION FOR FACILITATING TAX EVASION
In what has been described by some as the biggest banking scandal in Germany since World War II, Deutsche Bank and other banks systematically helped thousands of customers avoid composite tax on interest earnings. They did this by opening branches in neighbouring tax havens such as Luxembourg, Switzerland and Liechtenstein, then advising customers to move untaxed earnings into accounts in these offshore braches, thus avoiding German taxes. [Note: The wording of the article does not make it clear whether the banks facilitated illegal tax evasion or legal -- but frowned upon -- tax avoidance.]More on this story here.
INDIA: TAX ON OFFSHORE BANKS MAY BE HALVED IN SPECIAL ECONOMIC ZONES
The finance ministry may exempt up to half of the profit generated by an offshore banking unit in the special economic zones from corporate tax. This, however, falls short of the commerce ministry’s proposal to tax OBUs at 5%. A reduced corporate tax rate will serve as a major concession for banks seeking to set up offshore banking units. While banking companies pay 35% corporate tax now, foreign banks operating in India through branches pay 40% tax.More on this story here.
The Indian government has decided to scrutinise foreign direct investment (FDI) inflows through the automatic route to check round-tripping: the routing of money back into the country through a subsidiary based in tax havens like the British Virgin Islands and Mauritius. Since the money is channeled into the country through a foreign company -- a company registered in a foreign country -- it technically qualifies as FDI. However, the government discourages the flow of such funds as local companies sometimes use this route to evade capital gains tax.More on this story here.
SUISSE SECURITY BANK & TRUST DENIED RESTORATION OF BAHAMAS BANKING LICENSE
The bank, which lost its Supreme Court battle to have its banking license restored, charged that the ruling further erodes the confidence of international investors in The Bahamas. In a statement released on the weekend, SSBT also stated that the ruling represent a very troubling, disconcerting message sent to the local and international banking/financial community.
Last Wednesday, Justice Davis ruled the appellants failed to prove any grounds for their appeal and dismissed the appeal “in total”. The Central Bank considers the court’s decision to be an important affirmation of the regulator’s authority. The legal wrangling between Suisse Security Bank & Trust and the central bank began on March 5, 2001, when Governor Francis suspended the license , which he claimed failed to formally fulfill certain prudential requirements and satisfy the Central Bank of The Bahamas as to its affairs.More on this story here.
US COVERT WAR AGAINST NAURU REVEALED
CANBERRA was unaware of the extent of the US campaign to get Nauru to scrap its dodgy banking and passport schemes, including threats to close down the island’s economy if it did not cooperate. Government sources expressed surprise yesterday at the hardline tactics employed by the US in its behind-the-scenes campaign, revealed in The Australian. That campaign included threats -- delivered by non-government intermediaries -- that Nauru effectively faced bankruptcy if it did not agree to reform its banking and passport systems, which were a potential haven for terrorists.More on this story here.
UK CLAN AVOIDS POTENTIAL £60 MILLION TAX BILL FOLLOWING SALE OF LITTLEWOODS
Up to nine Moores family members may have avoided capital gains tax by either moving to overseas tax havens or holding their shares in offshore accounts. The Barclay brothers paid the Moores family a total of £750 million for the Liverpool-based retail empire last October.
The biggest winner was John Moores lll, who received £38 million following the sale of his ordinary shares in the company last October. Mr. Moores now lives in Monaco, where there is no taxation charged on overseas residents. If he still lived in the UK, he would have been liable for £15.2 million in capital gains tax.
According to Daily Post calculations, based on Littlewoods records filed at Companies House a few months before the sale of the business, Littlewoods family members could have saved almost £60 million through making use of overseas tax havens. Such tax avoidance devices are commonplace among the wealthy, and are not illegal under British law.More on this story here.
MICROSOFT AUSTRALIA USES OFFSHORE SALES OFFICES TO REDUCE TAX BILL
Microsoft has revealed that it books much of its Australian sales revenue through offshore offices in the region as a tax-saving measure. The revelation has come to light as the Australian Tax Office (ATO) steps up its investigations into multinational technology companies employing tax minimisation schemes.
However, under current Australian taxation laws, it is perfectly legal for multinational companies to book some of their Australian sales through offices in Singapore, Malaysia or Hong Kong to lessen their tax bill, and many corporations, including Microsoft, employ this method.More on this story here.
IRAQ COULD DESTABLILISE OPEC
A post-war Iraq could kill the Organisation of Petroleum Exporting Countries if it were to leave the cartel in a bid to produce as much oil as it can outside its quota system, analysts warn.
“If the Iraqi oil industry is privatised, forget about OPEC, it is dead,” said Leo Drollas of London’s Centre for Global Energy Studies. He said that after the war Iraq was likely to demand to be allowed to export the same amount of oil as neighbouring Iran -- as it did before it was kicked out of the cartel in 1990 for invading Kuwait. “Iraq will want to produce as much as it can as quickly as it can to finance its reconstruction costs. Iraq will say: ‘We want at least parity with Iran’.” Iran produces 3.59 million barrels per day.More on this story here.
Exiles call for Iraq to let in oil companies. Leading exiled Iraqi oil experts said the country should be opened to international oil companies as quickly as possible after the war. The move could spell a windfall for big oil companies such as ExxonMobil, Royal Dutch/Shell, BP and TotalFinaElf and oil service companies such as Halliburton and Schlumbeger and would strain the Opec oil cartel’s attempt to keep oil prices high.
Many in the group favored production-sharing agreements (PSA) with oil companies. The recommendation is expected to be made to any interim authority following the overthrow of Saddam Hussein and to any subsequent Iraqi government. Production-sharing deals allow oil companies a favorable profit margin and, unlike royalty schemes, insulate them from losses incurred when the oil price drops. For years, big oil companies have been fighting for such agreements without success in countries such as Kuwait and Saudi Arabia.More on this story here.
OPEC calls emergency meeting to ward off possible price crash. Oil ministers at the Organization of Petroleum Exporting Countries have agreed to meet April 24 in Vienna, Austria. The meeting will take place whether or not the war in Iraq has ended, a source said, speaking on condition of anonymity from OPEC headquarters in the Austrian capital. Most OPEC members have been producing at maximum capacity to keep world oil supplies plentiful during the war. However, oil ministers are increasingly worried that OPEC might be oversupplying the market just as demand starts falling to its seasonal low.
Oil prices have fallen sharply since peaking at almost $40 a barrel on Feb. 27, before the outbreak of fighting in Iraq. May contracts of U.S. light, sweet crude fell to a low on Monday of $27.15 before bouncing more than a dollar on news of OPEC’s planned meeting.
One item that will not be on the agenda for the meeting is how to reintegrate Iraq into OPEC’s production-quota system. Iraq has not participated in the group’s production agreements since the 1991 Gulf War because the United Nations has regulated its exports.More on this story here.
WHAT WAR AND ITS AFTERMATH MAY MEAN FOR IRAQ’S CREDITORS
Who gets repaid, and how much, depends on which creditors a new Iraqi government would need most to help rebuild its economy. The creditors fall into three groups: the IMF and World Bank; governments that provided trade credits and bilateral loans; and private banks and companies. Iraq owes only $1.1 billion to the first group. Assuming they can be kept happy, the chances of other creditors depend on whether America sets up an officially funded reconstruction program like the Marshall Plan for western Europe after the second world war, or whether Iraq has to rely mainly on private funding. If the first, it will have to repay its official creditors, known as the Paris Club. If the second, it might follow Nigeria’s example, repaying private creditors and ignoring official debt.
Above all, bankers argue, to return to the international capital markets, Iraq will have to show that it is at least willing to pay something towards its properly documented obligations. That would not include bills for sanctions-busting arms shipments, for example. But it would include bank loans, especially two big ones totalling $1 billion, syndicated in the 1980s, which have become a benchmark for Iraq’s future creditworthiness. Although the price is only 19 cents on the dollar, a final repayment, including back interest, of up to 75 cents on the dollar is conceivable.More on this story here.
SWISS LIFE SLAMMED FOR LACK OF CONTROL
An inquiry into a secretive fund operated by senior managers of the Swiss Life insurance company has found serious shortcomings concerning control mechanisms. The Swiss Federal Office of Private Insurance has ordered the company to claim back profits gained by former management members through the investment fund.
In its ruling on Monday, the insurance regulator said that six members of Swiss Life’s old guard had endangered the interests of policyholders by investing their own money in Long Term Strategy (LTS), a company with close ties to the insurer.More on this story here.
LAST MINUTE CHANGE TO SOUTH AFRICA EXCHANGE CONTROL AMNESTY
Last minute changes were made to the income tax and foreign exchange control amnesty last week to exclude tax and financial advisors from its provisions. So-called “messengers” who carried funds offshore will now not be covered by the legislation which is aimed at people who transferred or accumulated funds abroad in contravention of the foreign exchange and tax laws. However, the decision has sparked fears that the amendment may be unconstitutional and discriminatory.More on this story here.
US SUPREME COURT SIDES WITH BUSINESS IN DAMAGE CASE
The Supreme Court on Monday threw out a $145 million punitive damage award stemming from a car accident, a victory for businesses that have fought big-dollar jury verdicts. Justices split 6-3 over whether the award was unconstitutionally excessive.
Justice Anthony M. Kennedy, writing for the majority, said that “courts must ensure that the measure of punishment is both reasonable and proportionate to the amount of harm” someone suffers. The justices did not give a specific formula for determining that, but Kennedy said it was clear that a Utah man was not entitled to $145 million when his actual damages were $1 million.
Ruth Bader Ginsburg wrote in her dissent that the large award in this case “indicates why damage-capping legislation may be altogether fitting and proper.” But she said that the court should leave that matter to states.More on this story here.
BANKS THAT IGNORE AVAILABLE IT SOLUTIONS FACE REPUTATIONAL DAMAGE
Terrorists often resort to identity theft -- opening accounts in other people’s names, and then bringing in funds not in line with the account profile. To combat this, money laundering software (e.g., Searchspace) can examine behavioral profiles to spot inconsistent activity. Hot-list checking software also includes a name analysis program for detecting attempts (misspellings, abbreviations, name juxtaposition) to circumvent hot-list checks. Databases can be accessed to deal with identity theft using link analysis, biometrics and knowledge-based systems.
The Sept 11, 2001 terrorists had opened 14 accounts at a Florida bank, using false social security numbers and other documents. Think of the reputational damage and loss of goodwill a financial institution can suffer if it is not prepared to utilize technology solutions in an increasingly complex business environment.More on this story here.
TRACKING SADDAM’S BILLIONS
As U.S. troops advance on Baghdad, a parallel assault on another prize -- the wealth of Iraq’s elite, particularly that of Saddam Hussein and his family -- is also speeding up. From the U.S. Treasury Dept. to creditors angling to collect decades-old debts, financial sleuths around the world are trying to figure out how much money Saddam, his family, and his cronies have stashed away, where it is hidden, and how quickly they can get their hands on it.
For the U.S., the hunt for Saddam’s wealth is a key test. To bolster its case that the war in Iraq is aimed at liberation, not empire, the Bush Administration has decreed that any funds looted from Iraq -- starting with $1.7 billion in Iraqi accounts frozen in the U.S. since 1990 -- will be devoted to rebuilding the country. U.S. officials and private analysts estimate that an additional $7 billion to $10 billion is hidden away. Finding the disputed loot, claiming it, and winning consensus on how best to use it will severely tax already strained ties among the U.S., Europe, and the Middle Eastern nations where the bulk of the cash probably resides.More on this story here.
ENRON COLLAPSE LAID BARE
Book review of Power Failure: The Inside Story of the Collapse of Enron, by Mimi Swartz with Sherron Watkins. Doubleday. 400 pages. $26.
Criminal fraud undoubtedly occurred at Enron. Former finance executive Michael J. Kopper has already pleaded guilty to two felonies. But the crimes were made possible, Mimi Swartz’s book makes clear, only by the larger stupidity, laziness, cowardice and rapaciousness of the people in charge.
Power Failure is not the last word on Enron. An ideal Enron saga would be written two or three years from now, when various criminal and civil prosecutions will have added the juiciest bits to the narrative raw material: conversations between Kopper and Enron chief financial officer Andrew Fastow, for instance. But this book is a good and entertaining account of the information that has spilled out so far.Book review here.
DAVE BARRY ON DETERMINING YOUR TAXES (HUMOR)
It’s tax time. I know this because I’m staring at documents that make no sense to me, no matter how many beers I drink. Take, for example, my Keogh Plan. If you’re wondering what a Keogh Plan is, the technical answer is: Beats me. All I know is, I have one, and the people who administer it are always sending me Important Tax Information. Here’s the first sentence of their most recent letter, which I swear I am not making up:
“Dear David: The IRS has extended the deadline for the restatement of your plan to comply with GUST and various other amendments until, in most instances, September 30, 2003.”
I understand everything in that sentence, up to “David”. After that I am lost.
... I’m not the only taxpayer who has no idea what he’s sending to the IRS. This year, only 28 percent of all Americans will prepare their own tax returns, according to a voice in my head that invents accurate-sounding statistics.More on this story here.
SWISS LOG ON TO EMAIL SURVEILLANCE
Starting April 1, Swiss Internet Service Providers (ISPs) now have to keep a log for six months of all the emails sent by their customers. The move has been criticised by experts who say it will be both difficult and costly to implement. Critics also argue that loopholes in the legislation will allow criminals to slip the net. ISPs have had over a year to comply with a change in the law under which they will now log customer activity, such as connection times, emails sent, addressees and senders.More on this story here.
FIREBRAND MUSLIM PREACHER FIGHTS DEPORTATION FROM UK
Abu Hamza could plead a breach of his human rights to stop Home Secretary David Blunkett using new laws to kick him out of Britain. And it could take up to 10 years before the one-eyed, hook-handed cleric is deported over his alleged anti-British outbursts, a legal expert said.
Hamza, 44, was served by hand with papers signed by Blunkett, his solicitor said, telling him the Government intended to use the new Nationality, Immigration and Asylum Act. The new law allows a person who acts against the UK’s interests to be stripped of British citizenship.More on this story here.
Why I fear Blunkett’s rap at my door. As someone who holds dual citizenship and has upset the Home Secretary, David Blunkett, a few times, I now wait in fear for the knock on my door by someone with the necessary piece of paper signed by David, removing me from Britain.
Why do I now, after nearly 50 years residency in Britain, doing my bit for Queen and country, including National Service, and with only two speeding fines, feel a sense of fear and insecurity? Simply because of the weekly announcements by the Home Secretary, making it clear that a few of those who were not born here can stay, but those without a British passport are not welcome. The proposal last week to snatch back British passports and deport those the Home Secretary doesn’t like, represents the latest installment of the continuous assaults on those who seek refuge here.Rest of commentary here.
BELGIUM EASES LAW ON TRIAL OF FOREIGNERS FOR WAR CRIMES
Belgium’s parliament has restricted the scope of a controversial law that allows foreign leaders to be tried in Belgian courts for war crimes and crimes against humanity. The amendment says only cases that are linked to Belgium can go directly to the courts. Under the existing law, legal action has been taken against a number of world leaders, including US President George W. Bush and Israeli Prime Minister Ariel Sharon.
Belgium’s 10-year-old law has been used successfully only against four Rwandans found guilty of involvement in the 1994 genocide. They were jailed for up to 15 years in June 2001. The use of the law has embarrassed the Belgian Government and caused tensions in links with other countries.More on this story here and here.
LIBRARIANS USE SHREDDER TO SHOW OPPOSITION TO NEW F.B.I. POWERS
SANTA CRUZ, CALIFORNIA: In the old days, staff members in the nine-branch Santa Cruz Public Library System would destroy discarded paperwork as time allowed, typically once a week. But at a meeting of library officials last week, it was decided the materials should be shredded daily. “The basic strategy now is to keep as little historical information as possible,” said Anne M. Turner, director of the library system.
The move was part of a campaign by the Santa Cruz libraries to demonstrate their opposition to the Patriot Act. Among provisions that have angered librarians nationwide is one that allows the FBI to review certain business records of people under suspicion, which has been interpreted to include the borrowing or purchase of books and the use of the Internet at libraries, bookstores and cafés.
In a survey sent to 1,500 libraries last fall by the Library Research Center at the University of Illinois, the staffs at 219 libraries said they had cooperated with law enforcement requests for information about patrons; staffs at 225 libraries said they had not. Ms. Turner said the authorities had made no inquiries about patrons in Santa Cruz. But the librarians here and the library board, which sets policies for the 10 branches, felt strongly about the matter nonetheless. Last month, Santa Cruz became one of the first library systems in the country to post warning signs about the Patriot Act at all of its checkout counters.More on this story here.
AUSTRALIAN OFFICER TAPED IN “DRUG CASH STING”
A senior detective who allegedly stole A$300,000 from a drug dealer was caught later pocketing money in a royal commission sting, the West Australian inquiry heard yesterday. The police royal commission set up the integrity test in January after witnesses at private hearings testified the detective sergeant had taken A$300,000 from a drug dealer’s suburban storage unit three years earlier.
Counsel assisting the commission, Peter Hastings, said intensive video and phone surveillance had confirmed the detective’s involvement in the theft from the drug dealer and “other corrupt conduct”.More on this story here.
WHO’S 14, “KEWL” AND FLIRTY ONLINE? A 39-YEAR-OLD DETECTIVE
It is the job of undercover police officers to pose as characters of the demimonde: prostitutes, johns, drug addicts. That means learning the ways of the street: the shuffling gait, the sneakers, the slang. But three undercover officers in the New York Police Department spend their time studying other things, like Prom Magazine, “American Idol” and the chatter at the mall. It is their job to impersonate not cocaine smugglers, but teenage girls -- and, sometimes, boys -- to serve as their invisible protectors.
They are members of the Computer Crime Squad, a fast-growing unit of the department that deals with sexual predators, identity theft and other crimes in a world where screen names are changed much more deftly than street handles, and where forensic examinations are performed on hard drives.More on this story here.
WHY WE MAY NEVER REGAIN THE LIBERTIES THAT WE HAVE LOST
NEW YORK: The Empire State Building is now the tallest structure in the city, still half-stunned from the attacks that brought down the two taller buildings 18 months ago. As a new war raged in Iraq, the people in the room were acutely aware of the only slightly older war that has consumed their daily lives like nothing before -- the way in which the war on terrorism has also turned into an assault on individual liberties. The activists were in New York for the annual Computers, Freedom and Privacy conference.
Liberties ebbed and flowed in America’s past. Leaders curbed liberties, with the public’s often ignorant endorsement, in times of crisis. But the rights tended to come back when the crises ended. The fabled pendulum of liberty may not swing back this time. Why?
For one thing, the damage that one evil or deranged person or group can cause has grown. Even if America somehow persuades all Islamic radicals that we are a good and just society, there will still be some evil and deranged people who will try to wreck things and lives in spectacular ways. In other words, the “war on terrorism” cannot possibly end.
The Bush administration’s attitude, assisted by a Congress that long since abandoned any commitment to liberty, is that government has the right to know absolutely everything about you and that government can violate your fundamental rights with impunity as long as the cause is deemed worthy. You, on the other hand, have absolutely no right to know what the government is doing in your name and with your money, unless the information is deemed harmless by people who have every motive to cover up misdeeds. Bush and his people have turned secrecy into a mantra, and too few people recognize the danger that poses to our freedoms, much less our pocketbooks.More on this story here.
BERMUDA EYES E.U. TAX DIRECTIVE EXEMPTION
The Cayman Islands has won a ruling from the European Union saying that the proposed EU Savings Tax Directive cannot be applied to the Cayman Islands. By extension -- although the outcome is by no means clear -- the directive ought not to be applicable to Bermuda. The Government may, however, need to seek relief from the automatic application of the directive, as Cayman has done.
The Cayman Islands Government fears that the application of the directive to Cayman might result in a reduction in bank deposits in Cayman. The Bermuda Government has been silent on the application of the directive to Bermuda banks, and the assumption has been made here that since Britain had signed the directive, its Territories would also have to enforce its rules.More on this story here.
Bermuda Premier Jennifer Smith told members of the Mealey’s Insurance and Re-Insurance Roundtable Forum in Arizona that the criticism of Bermuda over corporate inversions was “well over the top”. As the keynote speaker, she told members that one of the major challenges faced by the Island in the last couple of years had come from the proposed Patriot Tax Act in the US -- which bids to persuade American companies not to incorporate overseas.
She said: “You may recall, that the crux of the problem was ‘corporate inversions’ -- although the Act and inversions are two separate issues. To neutralise hostility toward international financial jurisdictions, even those with impeccable standards like Bermuda, we long ago adopted a policy of economic diplomacy in partnership with our international business leaders. It is gratifying that as a result, informed persons have now come to realise that the criticism over corporate inversions was, in Bermuda’s case at least, well over the top. Some are also beginning to understand that the problem lies not offshore, but within.”More on this story here.
U.S. Congressional representatives from both major parties have said they are looking into the issue of an insurance company tax loophole raised by The New York Times last week. The companies operate under a little-known plan introduced in 1954 that allows individuals and companies to legally avoid US taxes. The plan allowed farmers and others having trouble finding insurance coverage to create their own tax-exempt insurance companies. Mutual insurance companies that were organised under the plan are considered tax-exempt if their insurance income does not exceed $350,000 a year.
Several of the companies have been used to shield millions of dollars from US taxes, quite legally -- but not in the way in which the framers of the original legislation (which was amended in 1986) had intended.More on this story here.
SENATE TAX EXILE BILL EXTENDS THE LONG ARM OF THE IRS
The “long arm” of the IRS may have just been extended further, as a bill passed last week in the US Senate seeks to tax wealthy Americans relocating offshore. Jurisdictions such as the Bahamas are home to many high net worth Americans who have either retired there or set up businesses.
The so-called “exit tax” aims to tax assets worth over $600,000 owned by people with a high net worth at the time that they decide to move abroad. It is estimated that around a quarter of a million US taxpayers leave American shores each year to take up residency in other parts of the world, though most are not considered “tax exiles” under the IRS’s definition of the phrase.More on this story here.
GRENADA OFFICIALLY WARNS AGAINST TWO BANKS AND A COMPANY THERE
SWISS POLITICS SPLITS DOWN THE CENTER
With six months before the general election, Switzerland’s political landscape is becoming increasingly polarized, with voters deserting the center parties. The left-leaning Social Democratic Party and the right-wing Swiss People’s Party emerged the main winners of this weekend’s regional elections.
The two other main parties, the center-right Radicals and Christian Democrats lost votes, in what commentators say is likely to mirror national voting patterns in the October elections.More on this story here.
GUERNSEY FINANCE INDUSTRY WELCOMES DECISION OVER RETENTION TAX
The decision, made at a meeting of the Advisory and Finance Committee last week, to adopt a retention tax in response to the EU’s Savings Tax Directive has been supported by the majority of the Island’s finance industry, according to a Guernsey Press and Star report. Peter Symes, chairman of the Association of Guernsey Banks welcomed the move, explaining that: “We had to maintain our competitive nature and we have to be seen to be doing the right thing.”More on this story here.
GUERNSEY could end up with a half-built airport terminal as non-payment drives local companies off the project. The warning comes from Paul Rouget, who took his plant hire firm off site, claiming he was owed more than £120,000. Unless progress payments filter down to local companies, none will be able to afford to work there, he said. Many have already axed credit to groundwork subcontractor Concept.More on this story here.
SOUTH AFRICAN OFFSHORE TAX AMNESTY UNRAVELS
The six-month amnesty period for people who illegally stashed money offshore may have to be changed because of delays in passing the legislation through Parliament. The period for amnesty applications was intended to run from May 1 until October 31, but issues raised in parliamentary hearings this week will have to be addressed before the law is passed. Parliament goes into recess next week. One of the issues to be considered is the possible inclusion in the amnesty regime of advisers and facilitators who assisted with the illegal transfer of funds abroad.
The amnesty stipulates that all funds removed illegally from the country would be subject to a 5% tax if brought back and a 10% tax if not.
Earlier finance minister Trevor Manuel strongly denied that the amnesty offered in his recent budget would in any way be a witch-hunt for people who had siphoned their money offshore or for their financial advisers. Lobbyists and opposition parties had expressed grave concerns about various aspects of the bill and the powers to be accorded to the special unit to be set up to implement the amnesty.More on this story here, here, and here.
VANUATU AGREES TO OECD “HARMFUL TAX INITIATIVE”
A report from Vanuatu says the country’s Council of Ministers has bowed to international pressure and agreed to implement demands on Harmful Tax Initiative by the OECD, after having resisted demands to agree to the demands, pointing out that some wealthy OECD members had not committed to the standards being demanded of less wealthy developing countries.More on this story here.
US DENIES ANY THREATS AGAINST NAURU
The US has denied claims by senior Nauru politicians and diplomats that it promised aid in return for Nauru scrapping its controversial offshore banking and passport schemes. The Government of Nauru last month abolished the schemes -- which the US said were aiding terrorists -- in the expectation the US would reward the Pacific island with a substantial aid package.
The Weekend Australian revealed on Saturday that the aid promises were part of an extraordinary behind-the-scenes campaign driven by non-government intermediaries at arm’s length from the US Government to force Nauru in from the cold. In response to questions from The Australian, the US State Department distanced itself from these promises, saying they had no official status.
The now impoverished Pacific island nation is in the middle of an election campaign, with its spectacular financial mess and pressure from the United States taking center stage.More on this story here and here.
INTERNATIONAL LIVING 2003 QUALITY OF LIFE INDEX PUBLISHED
For the 19th time in 22 years, the United States comes in first. Current events notwithstanding -- e.g., airport security hassles, and recent “Homeland Security” measures, the U.S. remains, practically speaking, among the safest, freest places on earth. (Some are expected to take issue with this assessment.) There is no debating, though, that the U.S. is a comfortable and convenient place to live.
But is convenience your top priority? Certain countries on every continent have virtues that may merit your consideration.More on this story here.
COURT ORDERS MILLIONS IN VISA, MASTERCARD REFUNDS
A California court ordered credit card firms MasterCard and Visa to refund more than $800 million to customers over undisclosed currency exchange fees, lawyers representing customers said on Tuesday. California Superior Court Judge Ronald Sabraw ruled that MasterCard and Visa, owned by banks and financial institutions around the world, violated California’s unfair competition law by failing to adequately disclose the currency conversion fees they charged to U.S. customers using their cards abroad.
A top official at MasterCard disputed the amount of restitution in question, however.More on this story here.
US SENATE PUTS CLASS ACTION CURBS ON FAST TRACK
US legislation to curb class action lawsuits has been put on a fast track by Congress after a leading Democrat senator threw her weight behind reforms long demanded by business. But the decision by California’s Dianne Feinstein is likely to spell disappointment for those trying to reform medical malpractice and asbestos litigation. The Democrats are thought unlikely to take on the powerful trial lawyers -- important funders of the party -- on more than one front in pre-election year.
Business lobbyists now believe there is a good chance the legislation will pass this year. “We are thrilled that class action [reform] is going forward,” said Joe Manero of the Alliance of American Insurers, which represents 340 insurance companies.More on this story here.
US SUPREME COURT SETS LIMITS ON SIZE OF DAMAGE AWARDS
The Supreme Court set new constitutional limits on punitive damages today in a ruling that the business community hailed as a major victory in the long-running effort to shield corporate defendants from unconstrained jury awards. Punitive damages are not new to the court, which has wrestled with the issue for 20 years and has become increasingly sympathetic to defendants. But this decision in favor of the State Farm insurance company went beyond recent rulings in ways that could have a widespread effect.
The most significant departure in the 6-to-3 decision was the court’s declaration that juries should generally not be permitted to consider a defendant’s wealth when setting a punitive damage award. The practice is common, and the court had not previously addressed it in a majority opinion. “The wealth of a defendant cannot justify an otherwise unconstitutional punitive damages award,” Justice Anthony M. Kennedy said for the majority today.
The court overturned $145 million in punitive damages that a Utah jury awarded against State Farm and that the Utah Supreme Court upheld. The jury had awarded $1 million in compensatory damages to a Utah couple. Justice Kennedy said the ratio of 145 to 1 resulted in a damage award that was “neither reasonable nor proportionate to the wrong committed.” He called it “an irrational and arbitrary deprivation of the property of the defendant.”More on this story here.
GAO: IRS SAYS BUDGET TOO SMALL TO ENFORCE TAX LAWS
Salary increases and unexpected expenses absorbed money the IRS had planned to use to track down tax evaders, said government investigators. The General Accounting Office reported that even with budget increases and internal goals making compliance a top priority, the money devoted to collecting unpaid taxes declined from 2000 through 2002. The IRS Oversight Board concluded the agency does not have enough money to chase down uncollected taxes calculated at $280 billion and growing.More on this story here.
IRS TARGETS ABUSIVE EMPLOYEE LEASING ARRANGEMENTS
The IRS and the Treasury Department are warning taxpayers -- especially medical professionals -- against participating in certain offshore deferred compensation arrangements involving domestic and foreign employee leasing companies.
Under the typical leasing arrangement, an individual taxpayer supposedly resigns from the current employer or professional corporation and signs an employment contract with an offshore employee leasing company. The offshore company indirectly leases the individual’s services back to the original employer using one or more intermediaries. The individual performs the same services before and after entering into the leasing arrangement.
These arrangements result in the avoidance and evasion of individual and corporate income and employment taxes. The arguments used by promoters of these arrangements to justify these tax benefits are inconsistent with numerous longstanding tax principles. The IRS intends to challenge the supposed tax benefits claimed for these arrangements and to assess appropriate interest and penalties.More on this story here.
ALTERNATE MINIMUM TAX HITS US MIDDLE CLASS EARNERS
Bob Reilly is just a middle-class schoolteacher trying to get by. Sure, his family’s earnings total $100,000 a year. (His wife works in a doctor’s office). But that does not go far when you are paying $10,800 in property taxes, $5,600 in state income taxes, $14,000 in federal taxes -- plus raising five kids and paying off a mortgage in Miller Place, Long Island.
Of course, the Reillys -- like many middle-class taxpayers -- used to write off many of those big expenses on their federal income tax forms. But this year, they were prohibited from claiming many of the most valuable deductions that normally would take the sting out of their tax bill. As a result, the couple’s federal tax refund was slashed by $3,400.
As the current tax season draws to a close, 2.4 million taxpayers are discovering that they, like the Reillys, are subject to an expensive tax system known as Alternative Minimum Tax or “AMT”. What makes the AMT so punishing is that it prohibits filers from claiming the most basic of middle-class write-offs.More on this story here.
ARGENTINA ENDS HATED BANK RESTRICTIONS
BUENOS AIRES: Bank doors opened on Tuesday for thousands of Argentines to gain access to the last 16 billion pesos ($5.5 billion) frozen in accounts as the economy returns to normal after a massive crash last year.
The government has allowed some 400,000 account holders to withdraw term deposits after 16-month-long bank curbs that were instituted to stop a bank run in late 2001. The curbs sparked massive protests and further worsened a four-year recession.
Banks operated as normal with no signs of a rush to withdraw savings, highlighting how confidence was slowly coming back to Latin America’s No. 3 economy after a year of currency devaluation, debt default and deep recession put Argentina near financial collapse.More on this story here.
CANADA’S AUDITOR GENERAL: MONEY LAUNDERING LAWS MUST RESPECT PRIVACY RIGHTS
With a review of the money-laundering legislation not due until 2004, auditor general Sheila Fraser said, in her just-released annual report, civil rights cannot be trampled in a rush to ferret out criminals. “Not only must the federal government’s strategy enforce the law, it must also try to achieve other important objectives, such as protecting personal information, controlling costs, and supporting international efforts,” Fraser said.More on this story here.
DUE PROCESS VANISHES INTO THIN AIR
The aviation list, intended to catch terrorists before they board planes, has persistently and widely snagged innocent American travelers, according to government documents obtained by the Electronic Privacy Information Center through a Freedom of Information Act lawsuit. The documents -- which include numerous e-mails, letters and call logs detailing the attempts of seemingly ordinary Americans to remove themselves from the list -- reveal that the lists are only getting longer. “The FAA/TSA ‘watchlist’ has expanded almost daily,” according to an internal Transportation Security Administration memo dated Oct. 16, 2002.
Those who objected to being repeatedly targeted include a 71-year-old retired English teacher, a frequent business traveler with “top-secret” security clearance, an employee of the Bothell, Washington, city manager’s office, a prominent businessman from Huntington Beach, California, and a woman whose name is similar to an Australian man 20 years her junior. All said they were inaccurately targeted by an overly simplistic system, and they complained of missed flights and invasive and embarrassing searches. And in the documents, all of the travelers complained about the inability to clear their names from the list.More on this story here.
U.S. STATES CONSIDER ANTI-ENCRYPTION LAWS
State houses across the nation have been considering and even passing poorly-drafted legislation that makes it illegal for consumers to protect the privacy of their communications and computers using encryption and firewalls. Legislation that is now law in Michigan and being considered in such places as Masschusetts and Texas would flatly ban the possession of technologies, including software, that “conceal from a communication service provider ... the existence or place of origin or destination of any communication.”
Simply put, this means possession of common, freely available encryption software like Pretty Good Privacy (PGP) -- which conceals the “To:” and “From:” lines of your email from your Internet Service Provider -- would be outlawed. An analysis by Freedom-to-tinker.com further reveals that most firewalls and even modern operating systems would be banned by such legislation! Other analysis indicates that the language may ban non-subscription satellite dishes and police scanners.More on this story here.
FBI COMPUTERS ENTER THE 21ST CENTURY
The FBI, hoping to shred its paper-swamped reputation and maximize its crime fighting capability, has unveiled the biggest change in its workflow in 50 years: a computer network called “Trilogy” that will help the agency sift the massive amounts of data it collects. A new database already used by 300 FBI agents and analysts will draw relationships between 26 million agency records. The $596 million network has been deployed to 591 sites and can expand as needed.
The agency aims to make its Virtual Case File, which tracks terrorists and other criminals, available to all appropriate employees by December. The database is expected to store 100 terabytes of information drawn from state, local, and federal law enforcement agencies as well as the news media. The system also accommodates multimedia elements such as audio, video, and 3D mapping.
Civil liberties advocates are watching the effort, hoping the FBI appropriately balances its information gathering with privacy measures.
“We’re very good collectors of information,” an FBI official said. “The problem is we haven’t had an information technology structure to support us.”More on this story here and here.
WORLD’S MOST STUPID SECURITY MEASURES NAMED AND SHAMED
Privacy International announced the results of its competition to find the world’s most pointless security measures. The competition, launched in February, attracted almost 5000 nominations from 35 countries. While airlines and airports dominated the competition, nominations arose from almost all areas of private and public sector activity. The winners include JFK Airport, T-Mobile (UK), Michigan Correctional Facilities and the Australian government.
The Stupid Security Awards were judged by a distinguished international panel of security and privacy experts, and intended to highlight the absurdities of the security industry.
Privacy International’s director, Simon Davies, said his group took the initiative because of “innumerable” security initiatives around the world that had absolutely no genuine security benefit. “The extraordinary number of nominations indicates that the situation has become ridiculous,” he said. “Security has become the smokescreen for incompetent and robotic managers the world over. The situation has become more than an irritation to the public. It has become an outright danger.”More on this story here. Full details of the awards can be found here.
HOAXSTER HACKER DISCOVERS INFINITE-WEALTH ALGORITHM
Hacker stunt-double and convicted financial fraudster Kim Schmitz (aka “Kimble”) is back, with a package of techno trickery for making a killing in the stock market. To satisfy the dreams of instant fortune common to those who believe in fairy tales, he has devised an “AI-based decision system” for share trading which scientifically “selects the optimal combination of trading strategies for current market conditions”. It is called Trendax, “the money-making machine” that “uses a complex combination of sophisticated technical analysis, real-time content analysis of news feeds, multi-dimensional statistical analysis and advanced proprietary mathematical techniques.” [Note: Some legitimate trading systems do use such inputs and techniques.]
Only last Summer a Munich court rewarded Schmitz with a twenty-month suspended sentence for running a stock manipulation scam called “Kimvestor”. Minimum investments of $50,000 in the Trendax fund are now being accepted from those eager to enjoy a once-in-a-lifetime experience.More on this story here.
NEW U.S. AD CAMPAIGN TAKES ON CORPORATIONS THAT “MOVE” OFFSHORE
A new U.S. television ad campaign will target companies that move their headquarters offshore, at least on paper, in an effort to trim their U.S. tax bills. The ads cut between images of soldiers fighting in Iraq, CEOs using cash to light cigars and pictures of President Bush and Vice President Dick Cheney. At the end, the announcer on the 30-second spot intones: “We’re doing our part to support our brave men and women overseas. Why don’t they?” The ads, to be broadcast in three markets over the next week, are aimed at jump-starting legislative efforts to crack down on such companies.
Congress considered legislation to stop inversions last year but ultimately took no action. The Treasury in the Bush administration has generally taken a cautious stand on the issue, acknowledging that inversions are a growing problem but also saying they were symptomatic of deeper problems in the U.S. tax code.More on this story here and here.
U.S. - CANADA BORDER DEAL REPORTEDLY IN THE WORKS
Canada is negotiating with the United States to hand over information collected by Canadian border guards so the Americans can monitor who leaves their country, government sources say. The move is a bid to avoid logjams at the border when the United States puts in place new security measures requiring checks on all who leave. U.S. law calls for full exit controls by 2005.More on this story here.
CFP STUDY LOOKS BEHIND THE CORPORATE SCANDALS
High-profile bankruptcies, financial scandals, and accusations of tax-dodging have given Corporate America a black eye. Some of this damage is self-inflicted since some executives -- presumably a small minority -- are willing to cut corners and engage in unethical behavior. But government policy also has a big impact on corporate governance. Many of the problems afflicting corporate America are the result, at least in part, of misguided government policies. This paper reviews how bankruptcy law, tax law, contracting law, and takeover law can influence corporate behavior. The paper also explains why companies should not use government power as a competitive weapon. Businesses can -- and should -- engage in spirited rivalry. But the battle should be fought in the private arena, with companies seeking to win the hearts and minds (and dollars) of consumers.More on this story here.
U.K. BUDGET IS ANNOUNCED
This year’s Budget emphasised the UK’s economic strengths of low inflation and low interest rates. But beyond the Chancellor’s growth forecasts, how will his measures affect individuals, from the size of their pay packet to the cost of a pint?More on this story here.
The Inland Revenue is embarking on an intensive public consultation about a tax loophole that benefits wealthy foreigners living in Britain. Inland Revenue’s new paper highlights how foreigners based in the UK and claiming non-domicile status pay no tax on their overseas income and capital gains, and it is seeking comments from industry, accountants and lawyers about the paper, which was published alongside Wednesday’s Budget.
The paper makes no commitment by ministers to reform. But it hints at the possibility that foreigners who claim non-domicile status in the future may have to pay tax on their worldwide income and capital gains -- possibly after five or 10 years. Government insiders say placing a time limit on non-domicile status is the most likely reform if ministers deal with the loophole.More on this story here.
GUERNSEY WITHOLDING TAX DECISION WILL NOT INFLUENCE IOM SAYS TREASURY MINISTER
Isle of Man Treasury Minister Alan Bell has indicated that Guernsey’s decision to opt for the withholding tax over exchange of information is somewhat of a surprise, though not entirely unexpected, and will not influence the Island’s decision on the issue.
It was the timing of the Guernsey Advisory and Finance Committee’s decision which was the most surprising thing according to Bell, given that the actual European Savings and Tax Directive has not yet been formally concluded. Speculation suggests that Guernsey hurried its decision somewhat to calm an increasingly anxious banking sector, and it is thought this will instil more certainty in the financial community.More on this story here.
WAY OUT FOR POOR LITTLE RICH ISLAND NAURU
In 1968 it was clear that phosphate mining had only about 20 years to run and that the (always) uninhabitable center of the island could not be rehabilitated because the coral pinnacles were porous. But at that time each Nauruan woman, man and child was worth A$500,000 (A$3.5 million in today’s money). During the next decade phosphate prices rose, with huge income flows giving Nauruans the highest per capita income in the world.
Nauru refused sound professional advice, and publicly and privately wasted its income. It became, and still is, the victim of the shadiest financial, legal and academic operators in the world. Nauru invested in dubious real estate, being taken to the cleaners by rogue operators from Melbourne to Boston and throughout the Pacific. It funded a musical in London that failed after four nights.
Nauru does not need aid. If it accepts sound financial advice, it can pay its debts and marshal its investments so that Nauruans can live in comfort and health.More on this story here.
HEDGE FUNDS CONTINUE TO BE UNDER MAGNIFYING GLASS
The Motley Fool examines the financial media’s assault on hedge funds.
More on this story here.
The time is ripe for federal regulators to re-examine the growing hedge fund industry, Securities and Exchange Commission Chairman William Donaldson said. The last time the SEC took a good look at hedge funds was in 1998, when Long-Term Capital Management, a Connecticut hedge fund, nearly collapsed. In testimony prepared for delivery to the Senate Banking Committee, Mr. Donaldson said markets have evolved since then and the time has come to review hedge fund operations.
Regulators are concerned that high-risk hedge funds may be attracting ordinary investors. Although hedge funds must limit their marketing to wealthy, accredited investors, Mr. Donaldson said the standards to become accredited have not changed much in 20 years. The role of prime brokers in hedge fund sales also is under scrutiny. Short selling by hedge funds is another concern.More on this story here.
NINE PEOPLE ACCUSED OF CONSPIRING TO DEFRAUD IRS
Nine people have been indicted on charges of conspiring to defraud the IRS through a tax-dodge program operated by an Arizona company. The indictment says Ahwatukee-based Innovative Financial Consultants sold trust packages based on false claims that consumers could legally avoid paying income taxes. The company allegedly created about 3,000 bogus trusts from 1996 to 2001, with clients paying $10,500 for offshore packages and $4,154 for the onshore materials.
A message posted on IFC’s Web site acknowledged that company officials are being targeted on suspicion of hampering federal tax collection efforts. It says the government is using an obscure criminal law to meet a “political agenda (aimed) at scaring the American public with more disinformation about the tax system.”
“Those of you who know us KNOW that we never promote tax schemes,” continues the unsigned note. “Within 24 hours of typing this message, I shall be behind bars. I may never be returned to freedom. And the reason ... I taught the truth about the government and its confusing and misleading and sometimes fraudulent use of language and laws.”More on this story here.
ELF PAID GABON PRESIDENT SECRET CASH AS CUSHION AGAINST EXILE
President Omar Bongo of Gabon used secret payments from the French company Elf in the early 1990s to set up offshore bank accounts as insurance against his possible fall from power, the oil group’s former head of Africa operations, Andre Tarallo, said during a major embezzlement trial that began in Paris four weeks ago.
Tarallo, 75, who was known as Elf’s “Mr Africa” for his network of contacts on the continent, is one of 37 people charged with personally benefitting from the formerly state-owned company’s massive system of commissions and influence-buying. Accused of using Swiss accounts to buy a luxury villa in the Mediterranean island of Corsica and a Paris apartment using money from the accounts, Tarallo has always insisted the funds belonged to Bongo.More on this story here.
RESEARCH SHOWS U.S. FUND INVESTORS PAID $8.6 BILLION TAX LAST YEAR
A study has shown that despite the bearish market conditions through 2002, fund investors were saddled with a total tax bill of $8.6 billion. However, this still compares favorably with the $31.3 billion investors paid in tax in 2000, according to research firm Lipper Inc. Lipper’s research found that over the last decade, shareholders in taxable stock and bond mutual funds have handed over a quarter of their profits in taxes.More on this story here.
THE NON-TAXPAYING CLASS
There are now more than 16 million Americans who file tax returns but pay no taxes. And that is not because we are getting poorer. America is getting richer. Fewer people are paying taxes because more and more politicians are succumbing to class warfare, and granting more and more exemptions to an increasingly complex tax code. Now the bottom 50% of income earners make 13% of the money, but shoulder just 3.9% of the tax burden. The increasingly two-tiered tax system is undermining the political consensus for cutting taxes at all.More on this story here.
RAND FIRMS TO 2½ YEAR HIGH VS. DOLLAR
“People are just looking for decent returns where they can get them... most expect rate cuts, but even after a one percent easing South Africa would still look attractive,” said one London trader, referring to key interest rates that currently stand at 13.5% in South Africa. On a fundamental basis, he said it was hard to justify the rand at these levels and that it could be vulnerable later in the year if that strength starts to show an adverse effect on the wider economy.More on this story here.
FRANCE, BRITAIN TO END CONCORDE FLIGHTS
Air France and British Airways announced Thursday the retirement of their Concorde fleets by the end of the year, ending more than three decades of luxury travel.
In a statement, Air France said its last supersonic flights would be May 31. The airline cited a steep decline in business and increased maintenance costs for its decision. British Airways said it would cease flying its supersonic jets in the fall because of “commercial reasons, with passenger revenue falling steadily against a backdrop of rising maintenance costs for aircraft.”More on this story here.
REPUBLICANS WANT TERROR LAW MADE PERMANENT
Working with the Bush administration, Congressional Republicans are maneuvering to make permanent the sweeping antiterrorism powers granted to federal law enforcement agents after the attacks of Sept. 11, 2001. The move is likely to touch off strong objections from many Democrats and even some Republicans in Congress who believe that the Patriot Act, as the legislation that grew out of the attacks is known, has already given the government too much power to spy on Americans.
When it passed in October 2001, moderates and civil libertarians in Congress agreed to support it only by making many critical provisions temporary. Those provisions will expire, or “sunset”, at the end of 2005 unless Congress re-authorizes them. But Republicans in the Senate in recent days have discussed a proposal, written by Senator Orrin G. Hatch, Republican of Utah, that would repeal the sunset provisions and make the law’s new powers permanent. Republicans may seek to move on the proposal this week by trying to attaching it to another antiterrorism bill that would make it easier for the government to use secret surveillance warrants against “lone wolf” terrorism suspects.More on this story here.
LIBRARIANS MAKE SOME NOISE OVER PATRIOT ACT
MONTEREY PARK, California -- Every public computer inside this city’s library has a new warning taped to its screen. Beware, the message says, anything you read is now subject to secret scrutiny by federal agents.
Across the country, in a movement that belies their staid image, librarians are rising up in anger and rallying against a law the Justice Department calls one of its most important new tools to help catch terrorists before they strike. The USA Patriot Act gives federal investigators greater authority to examine all book and computer records at libraries. The law requires investigators to get a search warrant from a federal court before seizing library records, but those proceedings are secret and not subject to appeal. It also forbids libraries from informing patrons that their reading or computer habits are being monitored by the government.
Earlier this year, the American Library Association, which has 64,000 members, formally denounced the Patriot Act provision and passed a resolution urging Congress to repeal it. Since then, about two dozen state library groups -- from California to Georgia -- have taken the same stand. And that is only the beginning of the backlash.More on this story here.
“POLITICALLY EXPOSED PERSON” DATABASES ... WHAT ARE THEY?
Prime Associates, Inc., a leading provider of regulatory compliance software products and services for the financial services industry, today announced it has commercially released the Prime PEP’s database. The PEP’s or politically exposed person information is a listing of key political figures around the world. In addition to key political figures, the ongoing research provided by Prime includes additional information such as relatives of the PEP’s. The PEP’s database is integrated directly into the full suite of compliance solutions that Prime Associates, Inc. provides. As such, all transactions or database records that are filtered through the suite tools can be filtered against the PEP’s database.More on this story here.
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