|W.I.L. Home Page||Offshore News Digest Home|
ZURICH FACES UNCERTAIN FUTURE AS FINANCIAL HUB
Zurich’s future as a leading financial center is looking precarious -- the city has been buffeted by thousands of job cuts and is facing stiff competition from abroad. A survey of 105 European private banks said Switzerland’s private banking system was threatened by an industry slump.
The threat to Switzerland’s banking industry has triggered much soul-searching within Zurich’s banking world. On the one hand, critics say Zurich is doomed to become a financial backwater, hamstrung by high costs and a lack of innovation. Others argue that the lakeside city has an unassailable global lead in key niche markets such as private banking, despite threats from competitors.
Traditionally, Zurich has profited handsomely from its reputation as a haven for private banking -- where consistency, efficiency, and above all, discretion are the rule. But EU demands on Switzerland to scrap banking secrecy have many wondering how long Swiss confidentially rules can hold out against the pressure.More on this story here.
“Arrogant” Zurich faces identity crisis.
A faltering economy and rising unemployment has had a humbling effect on the residents of the country’s “number one city”. A string of high-profile business disasters, most notably the collapse of the Zurich-based national carrier, Swissair, has hit the confidence of the previously smug pinstripe brigade.
More on this story here.
Ron Holland has a couple of questions.
Like: Have the Swiss Elites “Sold Out” Swiss Sovereignty, Their Nation and the Swiss Franc? And: How might this impact the Swiss franc and Swiss investments along with the closure of the US Pioneer Swiss alternative? He ponders the issues in an April 2002 letter to clients.Full letter here.
CAYMAN DELEGATION DISCUSS REGULATORY ISSUES IN WASHINGTON
A delegation from the Cayman Islands held high level talks with US government representatives in Washington last week, with financial and legal affairs the main topics on the agenda. The main thrust of the meetings was aimed at the Cayman financial sector, with a particular focus on regulation.More on this story here.
GIBRALTAR MOVES CLOSER TO EU REPRESENTATION
The enfranchisement of Gibraltarians in European Parliament elections moved a step closer last week when the UK’s European Parliament (Representation) Bill was given Royal Assent. The new Act will now pave the way for Gibraltar to vote in European elections as part of either an English or Welsh constituency.
The new legislation is intended to ensure the UK complies with the judgement handed down by the European Court of Human Rights in the case of Matthews vs UK in 1999. The case was brought by Ms Matthews on the grounds that Gibraltar’s exclusion from the European electoral process was a clear violation of the population’s human rights.More on this story here.
COLLAPSED HEDGE FUND CREDITORS INCLUDE BRITNEY SPEARS
Pop star Britney Spears and jailed former Sotheby’s chairman Alfred Taubman are among the investors who have lost money in a $800 million hedge fund scandal. An application was made in the British Virgin Isles to place two parent companies of Lancer Offshore Fund Group into administration last week. One of the hedge fund group’s investment partnerships, Lancer Partners, has already filed for bankruptcy protection in Connecticut, citing Spears and Taubman among 110 “Equity Security Holders”.
It is the first time that a hedge fund has ever filed for Chapter 11 protection, which exists to protect American companies from their creditors while allowing them to reorganize. Observers doubt whether Lancer will reorganise as the suspicions of securities fraud grow. The full extent of the group’s insolvency is still not publicly known, since its filings are incomplete and there is no up-to-date information about assets and liabilities.More on this story here.
LEGISLATION PROPOSED IN COOK ISLANDS TO SATISFY FATF
Sweeping new measures are being introduced in the Cook Islands Parliament over the regulation of domestic and offshore financial industries. The bills include a Financial Transactions Reporting Act, which will require all banks to report local, and international money transfers to a central financial intelligence unit.
The committee says it is hopeful the enactment of the legislation will satisfy the Financial Action Taskforce, which put the Cook Islands on the international money laundering blacklist.More on this story here.
SOLOMON ISLANDS’ BANKS CLOSE
Banks in the civil war battered Solomon Islands have closed as their expatriate staff fled on a chartered plane, following threats to blow up buildings and kill staff allegedly made by operators of a get-rich-quick scheme. The government of the South Pacific nation said they had ordered police to mount a security operation, but sources in the capital, Honiara, said many police officers are involved in the scheme.
Around a year ago a pyramid scheme called the “Diana Trust” began operating, promising people who paid S$250 Solomons (A$53) each that they would be paid S$1.2 million back a month later. Its principal operator, known as “Betty Maenua”, is believed to have gone to Fiji although it is not clear where the money is. Solomons dollars now have little value outside the country.
Australia and New Zealand Bank (ANZ) Melbourne headquarters spokesman Paul Edwards said that on Friday members and ex-militants linked to the trust arrived at the ANZ demanding to open an account. “We have refused to open an account for this organisation, it is clearly fraudulent and we believe the accounts were being opened for the purposes of money laundering, so we couldn’t do that.” The trust then threatened to blow up the bank and kill expatriate staff.More on this story here.
UK’S TAX LEAD UNDER THREAT
British corporation tax of 30% since 2001 is now only just below the average for the EU and for the member countries of the OECD, and the advantage is continuing to be eroded. The global trend to falling tax rates is caused by a growing competition to attract business. Belgium and Ireland are at the forefront of such cuts, with the Irish tax down last year from 16% to 12.5%.More on this story here.
ONLINE BROKERS VOW TO FIGHT “EXECUTION” BY EU DIRECTIVE
Stocktrade, the Edinburgh-based stockbroker, may see its business model consigned to the history books under European Union plans to bring an end to advice-free stockbroking. Other online execution-only brokers such as TD Waterhouse and Charles Schwab could also be put out of business.
Catriona Shaw, head of European affairs at the Association of Private Client Investment Managers, and Stockbrokers said: “We do not believe it is the intention of either the European Commission or the parliament to make the regulations on execution-only broking so onerous that it would force execution-only brokers out of business. But it would be an unintended consequence. It would increase the costs per transaction for customers of execution-only brokers from their current level of £10-£12 per trade to in excess of £100.”
British MEP Theresa Villiers is currently lobbying the European parliament in a last-ditch attempt to amend the section of the EU directive dealing with execution-only broking.More on this story here.
LITHUANIANS STRONGLY BACK EU ENTRY IN POLL
VILNIUS: Lithuanians voted strongly in favor of joining the European Union next year in a two-day referendum, election officials said on Sunday. The election committee said that after 21% of the vote had been counted, 89% had voted in favor. The “Yes” vote would complete the ex-Soviet republic’s return to mainstream Europe after more than a decade of reforms and would give a boost to other candidate countries yet to hold their ballots on EU entry.
Many see the Lithuania poll as a critical test ahead of referendums in Slovakia next week and Poland in June, which have similar turnout requirements and struggle with voter apathy. A Lithuanian thumbs-up would also be expected to give a boost to pro-EU camps in its more euro-skeptic Baltic neighbors Latvia and Estonia ahead of referendums in September.More on this story here.
U.S. EXPAT DEDUCTION ELIMINATION APPROVED BY SENATE FINANCE COMMITTEE
US expats, whose government is almost unique in requiring its citizens to file a tax return even after they leave the country, currently get a waiver of federal taxes on up to $80,000 of income a year. But that exception would be removed under the provision approved by the Senate finance committee.
Jenny Tom, a Senior Manager in the US Tax Practice of KPMG in Amsterdam, said the proposal to eliminate the tax exemption comes around every few years. “The chances are fairly slim as to whether it will pass or not,” she said.More on this story here.
I.R.S. TARGETS OFFSHORE LIFE INSURANCE WRAPPER TAX SHELTERSMore on this story here (Subscribers only).
DOUG CASEY: GOOD DAY, FELLOW INCOME-TAX PAYERS, AKA “SERFS”
The average tax payer never consider how the government gets money: Namely, by forcible extraction from its subjects. Every other person and entity creates goods and services which are exchanged voluntarily; only the State makes a purely one-sided demand. It is a sign of the continuing degradation of life in America that the subject is even worthy of discussion.
The average guy may hear about the IRS destroying someone’s life from time to time, but he has been pretty well brainwashed into believing they somehow deserved it. In any event, it probably bothers him about as much as it does a bovine when a predator cuts another cow out of the herd –- he figures if they are gutting someone else, they are distracted from him for the time being.
Even when there is a muffled complaint, it tends to center on the system’s lack of “fairness” (as if the nebulous concept of fairness had any meaning in this context), or its lack of “efficiency” (thank God for small favors), or some other tangential issue. People may whine about taxes being “too high,” but, unfortunately, they rarely talk about the legitimacy of taxation itself.
Nowhere, except perhaps in a few newsletters, which are preaching to the choir, do you ever hear an attack on the principle of taxation itself. Rather odd when, in point of fact, taxation is theft. My dictionary defines theft as “the act of depriving another of his property by force or fraud.” It does not go on to say “unless you’re the government, then it’s not theft anymore.” Or, perhaps, “unless the money is used for good purposes.”More on this story here.
THE CASE FOR AN END TO DOUBLE TAXATION
The essential problem is that a dollar of U.S. corporate earnings is taxed at a rate of 35% for the largest corporations, leaving 65 cents of after-tax income. When this is paid as dividends, an additional tax of up to 40% is due, resulting in a combined tax rate of 61%. Even if the 65 cents is retained and reinvested by the business, the stockholder will have a “capital gain” equal to the after-tax income of 65 cents because of the increased value of corporate assets represented by a share of stock. When realized, a capital gains tax of 20% is due, bringing the combined tax to 48%. Double taxation occurs whether dividends are paid or the income is realized as an increase in stock price. The Bush plan would end both sources of double taxation, bringing the total tax rate down to the corporate tax rate, the same as the top rate for individual income tax after 2005.
With double taxation, corporations must offer higher returns to compensate for the extra tax. This raises their cost of capital, or the rate of return that they must earn to justify profitable investments, which, in turn, reduces capital investment. A smaller capital stock, in the form of equipment, buildings or working capital means that workers’ productivity is impaired and this lowers their real earnings. The Bush plan would lower the cost of capital substantially, reversing these adverse effects. The Council of Economic Advisers conservatively estimates that this change will lower the cost of capital by 14% and that this tax reform will raise stock prices by 10%. Even these large benefits could underestimate the effects, however, perhaps by as much as half.More on this story here.
The most surprising and divisive part of President Bush’s tax plan is his proposal to end the double taxation of dividends. Academics have liked the idea for decades, but Bush, who is no scholar, never even mentioned it until late last year. Today it is the centerpiece of his top domestic priority. How did that happen? The answer is simple and strange: Glenn Hubbard was determined to make it so.
Who is Glenn Hubbard, you ask? At the moment he is an economics professor at Columbia University in New York City, the same place he was in January 2001 before he took a White House post so low profile that it does not rate an office in the West Wing: chairman of the Council of Economic Advisors. During Hubbard’s short tenure, however, the office became a powerhouse.
Pale, thin, and soft-spoken, the 44-year-old Hubbard is a prolific authority on how taxes affect corporate behavior. He grew up in tiny Apopka, Florida, the son of English teachers, and earned his Ph.D. in economics from Harvard. On the subject of the double taxation of stock dividends he is a man obsessed.More on this story here.
EURO DAY LOOMS FOR UK
These are tumultuous times. The pound slumped to record lows against the euro last week, prompting fears about a sterling crisis. Yet this and other short term problems are insignificant when set against the decision about to be taken by Tony Blair and Gordon Brown. Before the nation’s chairman and chief executive thrash out this new strategic direction, they would be well-advised to take a peek at the latest company report.
Michael Porter, Harvard Business School’s guru extraordinaire, will tomorrow release his take on Britain’s economic future, a report funded by the Department of Trade and Industry and the Economic and Social Research Council.
Porter’s unmistakable cocktail of scattergrams, Venn diagrams, flow charts and general abuse of Microsoft Powerpoint yields some interesting reflections on UK competitiveness and the occasional lack thereof.
The decision over euro entry is not just about Britain’s currency; it will fundamentally change the UK economy. Anti- and pro-euro campaigners now agree that joining the single currency is irrevocable. But now the pro-euro camp argues that not joining is also irrevocable, in the sense that there is a unique window of opportunity to shape Europe’s economic infrastructure to the long-term interest of Britain and the rest of the continent.More on this story here.
DOLLAR AT 4-YEAR LOW VS. EURO
The euro climbed to another four-year high Monday against the sinking U.S. dollar, inching closer to its all-time peak after U.S. Treasury Secretary John Snow said a weaker dollar would help U.S. exports. Economists said Snow’s comments on a Sunday television broadcast in the United States set off the latest surge by indicating the U.S. government would not take steps to halt the dollar’s slide.
“When the dollar is at a lower level, it helps exports, and I think exports are getting stronger as a result,” Snow said.
His comments were echoed on Monday by a Commerce Department official. Kathleen Cooper, undersecretary of Commerce for economic affairs, told a conference on international trade that the dollar’s drop was giving exporters “somewhat more pricing power”.
The strength of other currencies does not, economists say, necessarily reflect buoyant economic performance. In Europe, economic growth continues to be feeble, dragged back by the sluggish performance of Germany. But bank deposits in the eurozone yield interest rates twice as high as those in the US, thanks to aggressive rate-cutting by the Federal Reserve.
And the falling dollar is of particular concern to Japan, where its fabled export strength is practically the only thing keeping its battered economy from toppling.More on this story here and here.
HEDGE FUNDS GOING RETAIL
Eager to get back at least some of what they have lost in the bear market, a growing number of investors are turning to the risky hedge-fund industry, which has outperformed the general stock market in the past three years. Once open only to those with a cool million to invest, but now you can get started with as little as $25,000 to put into a fund of funds.
This has helped fuel an explosion of interest in hedge funds. Though it is hard to judge how many funds exist in the largely unregulated industry, the advisory firm Hennessee Group estimates there are about 5,700 funds with $592 billion in assets, up from 4,800 funds with $408 billion in 2001. The fastest-growing sector is the funds of funds.
This growth has sparked some concern at the Securities and Exchange Commission. The agency is holding a two-day roundtable in Washington, D.C., this week to help it determine whether hedge funds should be subject to more disclosure and regulatory requirements.
So just what are hedge funds? Though the term has become a catch-all for privately managed pooled investments, traditional hedge funds bet on stocks or other securities going both up and down to reduce market risk. They can also become highly leveraged, and this can cause serious trouble if the fund manager bets wrong.More on this story here.
The Watchdogs’ Next Target: Hedge Funds.
Now that federal and state securities regulators have cracked down on Wall Street analysts for their conflicts of interest, the watchdogs are training their sights on a new target: hedge funds. State authorities, alarmed by the explosive growth of these private investment pools and by a string of fraud cases, are pressing the Securities & Exchange Commission to bring the lightly regulated hedge-fund industry to heel. They are admonishing the SEC to act fast -- or risk being upstaged.
Regulators are likely to take a firmer stand than they did the last time hedge funds were in the headlines. After the near-collapse in 1998 of the mammoth Long Term Capital Management, the SEC and other financial-market overseers proposed reforms to curb highly leveraged trading. But when markets bounced back, the urge to regulate faded. That is less likely to happen now. Hedge funds are far bigger, and policymakers are much quicker post-Enron to spring to investors’ defense.More on this story here.
SOUTH AFRICA’S IMPROVED FINANCES PROMPT S&P RATINGS BOOST
The South African National Treasury confirmed that S&P has raised its long term foreign currency rating from BBB- to BBB with local currency ratings improving to A/A-1 from A/A-2.More on this story here.
WHY PANAMA MAKES SENSE RIGHT NOW
Panama is an often-misunderstood country. To set the record straight, General Manuel Noriega, along with his kidnapping and corrupt government, has been out of power for more than a decade now. Furthermore, despite what you may read in the mainstream press, Panama’s economic performance is, almost every year, better than just about every other country in Latin America. In fact, over the past 40 years, the country’s inflation rate has averaged less than 2% per year.
When you compare Panama to its neighbors, you will see that it has more amenities than traditional retirement spots like Mexico and Costa Rica -- but costs and crime rates are lower. In Panama there is less red tape and less interference from local authorities. In fact, the government of Panama actually encourages foreigners to invest and live here.
Here is one way to think about this country. Have you ever been to a place where someone said, “Yeah, it’s nice now... but you should have seen it 10 years ago”? That is what we think you will be saying about Panama in the not too-distant future.More on this story here.
AN UPDATE ON THE OECD “HARMFUL TAX PROJECT” FROM THE BAHAMAS
Speaking this week at a Bahamas Institute of Financial Services seminar, Attorney General and Minister of Education Alfred Sears said the government was monitoring developments within the OECD on exchange of tax information.
Mr. Sears said it was important that the OECD had agreed not to impose sanctions against other jurisdictions that were not imposed on OECD members themselves. But he added that the OECD had made several pronouncements regarding its commitment to a level playing field without much evidence of progress in the application of this principle. “That, of course, remains the major challenge of the OECD’s harmful tax project,” Mr. Sears said.
Recent events within the European Union (EU) have added to the uncertainty surrounding the OECD’s harmful tax project, which initially targeted offshore jurisdictions like the Bahamas on the premise that they were drawing tax revenues away from European countries.More on this story here.
US BILL TAKES AIM AT FOREIGN TAX BREAKS
Americans living abroad may face big tax increases, and a host of companies that reincorporated in Bermuda last year could face steep fees following a controversial tax bill approved last week by the US Senate Finance Committee. There is a planned provision to increase taxes on companies that move their headquarters offshore in the tax bill -- but few details have yet been made available.
The repeal of the tax deduction for US citizens working overseas would [allegedly] raise $32 billion to help pay for a dividend tax cut in the Senate bill, and end a 57-year-old exclusion allowing Americans abroad to deduct $80,000, plus housing costs, from the income they report to the IRS. But US business groups were outraged by the plan, saying it would make it prohibitively expensive to promote American products and ideas.More on this story here.
Bermuda could face exodus of US companies if tax bill becomes law.
International companies could pack up and leave Bermuda because of plans to repeal tax exemptions to US citizens as part of a new tax bill approved last week by the US Senate Finance Committee, said a leading tax expert.
James Paul Sabo, president of ETS Ltd., a Bermuda tax consulting company, said that companies may have to increase pay to their US employees to keep them on-Island -- and it may ultimately work out cheaper to move away from Bermuda.More on this story here.
LANCER OFFSHORE HEDGE FUND FILES FOR CHAPTER 11 PROTECTION
The first time that a hedge fund has ever done so, according to reports. The United States and the British Virgin Islands share jurisdiction over the Lancer Offshore Fund, as it has offices in New York but is registered as an offshore hedge fund in Tortola.
Chapter 11 protection is designed to protect US companies from their creditors while they reorganise. However, amid growing concerns that securities fraud has taken place, observers have suggested that the chances of the fund reorganizing are becoming increasingly slim.More on this story here.
CIVIL RIGHTS GROUP CRITICISES U.K. HOME SECRETARY PROPOSALS TO ALLOW POLICE MORE POWER
Human rights campaigners denounced controversial plans to allow police to detain terrorist suspects for longer without charge yesterday, as yet another addition to the government’s flagship criminal justice bill sparked controversy.
David Blunkett, home secretary, insisted the change, giving police the powers to request a further week to keep suspects under lock and key without charge, was necessary because it took time to investigate “loose-knit networks across international boundaries”.
But Liberty, the civil rights campaign group, attacked the plans as “ill-considered, unnecessary and politically motivated”. Mark Littlewood, Liberty’s campaign director, said: “There seems to be no end to this government’s tendency to rush through ever more draconian powers in order to appear ‘tough on terror’.”More on this story here.
DOLLAR’S FALL GIVING INVESTORS THE JITTERS
The prospect of a large fall in the dollar has been long been viewed with a combination of excitement and trepidation in the US. A weaker currency helps struggling manufacturers. But an excessively rapid fall risks provoking an exodus of overseas investors, undermining equity markets and pushing up interest rates.
So far the US has been getting all the pleasure and none of the pain. Part of the reason for this is that instead of ditching US assets, many investors are hedging their currency exposure. Overseas investors own around 45% of US government bonds, 35% of corporate bonds and 12% of equities and have been taking urgent steps to protect their huge stake in the US economy.
Since hedging is done by selling the dollars forward, this has been adding momentum to the fall in the greenback. Contrary to many alarmist predictions, the gathering pace of the dollar’s fall has yet to cause a sell-off in the bond markets, which would have pushed up long-term interest rates.
Strategists are unsure how long this perfect combination can last. Even with the currency risk totally removed, the international appetite for US assets is waning fast.More on this story here.
Bouncing around: Gyrating currencies make economic policymaking even more difficult than usual.
For those who make the wrong call on which way a currency will move, the experience can be extremely costly. Businesses that need to swap currencies to pay for imported goods, or because they have received foreign currency for products they have exported, can find themselves squeezed to the point where they watch their profits disappear. Hedging -- insuring against currency risk -- is expensive, especially for small businesses. Bad currency bets can prove painful for financial institutions too: just look at the experience of hedge funds like Long-Term Capital Management (LTCM), which had to be rescued in 1998 when it got its currency forecasts wrong. LTCM was bailed out by a consortium of banks only because of fears that its collapse would spark financial panic, because so much money was at stake.
But the complications for individual and commercial investors are as nothing compared to the difficulties which large and sudden changes in currency values create for economic policymakers. Framing macroeconomic policy so as to keep inflation at bay and support sustainable economic growth is hard enough at the best of times. But the exchange rate has a big influence on economic performance -- and thus on policy.More on this story here.
WEALTHY NEW ZEALANDERS ARE OVERTAXED SAYS NATIONAL PARTY SPOKESMAN
New Zealand National Party spokesman on finance, Don Brash, told a PricewaterhouseCoopers tax conference this week that lower to middle income groups currently pay up to 1,000 times less tax than those on higher salaries.
“A person earning $25,000 a year with a dependent spouse and two children under the age of 13 effectively pays only $27 a year.” Illustrating the harsh gradient of this progressive taxation curve, Mr. Brash explained that a similar family with an income of $100,000 would pay 1,000 times more tax.
Dr. Brash claimed that tax cuts could easily be afforded by the government, given what he considered a very high fiscal surplus.More on this story here.
IRISH LABOUR PARTY PLEDGES TO SOAK THE RICH
During the its annual conference last week, the Irish Labour Party passed a motion pledging to review the country’s personal taxation system, and calling for increases in taxes on the wealthy to finance improvements in public services.
The motion stipulated that tax rates should not increase for workers earning below €60,000 per year. Instead, according to Labour leader, Pat Rabbitte, fresh investment in public services should be funded by changes to the capital gains tax regime, as well as by closing off tax loopholes and targeting tax shelters.More on this story here.
THE WAR OVER TAXES
The Bush tax proposal is big enough and the public issues it raises are important enough that it deserves better than he-said, she-said coverage. The proposal has set off a classic philosophical tug-of-war over the proper role of government in a $10 trillion economy. It reopens a historic debate that seemed settled nearly a century ago when angry populists pushed through the Sixteenth Amendment in 1913, establishing the essential progressive structure of the income tax as we know it today. The debate could have ramifications for decades to come, and it will almost certainly set the tone for the next election.
So the tax proposal and the crossfire it has ignited are particularly compelling, with their own set of challenges for the news media. How do we give this difficult story the coverage it deserves?More on this story here.
AUSTRALIAN BANK CUSTOMERS AND MONSTER.COM USERS VICTIM OF INTERNET FRAUD
Customers of St. George bank and users of recruitment website Monster.com have been the victim of an internet banking fraud in which thousands of dollars were transferred offshore. It is believed the perpetrators of the fraud obtained customer details via Monster.com, a spokesperson for St. George told iTNews. St. George has reimbursed the customers in this instance.
The scam appears to work by duping people seeking jobs through the recruitment site. According to Taylor, the scam prompts these people to send their bank details to a person that promised to hire them. It is also suspected that malicious code was on the personal computers of a few customers, which allowed a criminal to read a person’s key strokes when they enter their card, pin and customer reference number. The money was reportedly transferred to an account in Estonia.More on this story here.
GOP RETREATS ON MAKING ANTITERROR ACT PERMANENT
Senate Republicans backed down from an effort to make permanent the Patriot Act’s sweeping antiterrorism powers, clearing the way for passage of a less divisive measure that would still expand the government’s ability to spy on foreign terrorist suspects in the United States.
As a result, the Senate voted 90-4 to approve a measure expanding the government’s ability to use secret surveillance tools against terrorist suspects who are not thought to be members of known terrorist groups. Under current law, federal officials are not allowed to seek secret surveillance warrants against noncitizens unless the officials can establish that they are linked to a known terrorist group.
The developments represented a key test of the balancing act between fighting terrorism and protecting civil liberties, and the result delivered a mixed verdict as many lawmakers expressed reservations about giving law enforcement officials too much power to fight terrorism. In the meantime, however, civil liberties advocates were heartened by the defeat of the Patriot Act proposal.More on this story here.
The rising costs of Patriot Act compliance.
The ostensible goal of the USA Patriot Act, passed a month after September 11, 2001, was to prevent future attacks by cutting off terrorist funding with a powerful new array of anti-money laundering laws. A year and a half later, many experts say we may never know whether the law is working as intended. Yet, effective or not, it is now an expensive fact of life for the financial firms that fall within its gamut.More on this story here.
PAPERWORK, PROBLEMS PILING UP FROM MEDICAL PRIVACY RULES
A man walked into Burke’s Main Street Pharmacy with a simple request: He wanted to know whether the Hilton Head Island, North Carolina pharmacy had any prescriptions for his wife. But because of new federal medical privacy rules, the pharmacy could not share the information unless the man provided specifics, such as the drug name and the condition it was treating. That is quite a change for the small, family-run pharmacy that prides itself on the cozy relations it has with its many longtime customers, said Tim Burke, who owns the business along with his brother.More on this story here.
FBI’S STRATEGIC MEDICAL INTELLIGENCE “A NEW WAY TO APPROACH BIOTERRORISM”
A blown-off finger, a skin burn or a respiratory illness were not normally reasons for an emergency room doctor to call the FBI. But now, with the threat of terrorism, they could be. The FBI’s Pittsburgh office wants to know about health problems that could signal the outbreak of a terrorist attack or the release of a biological agent, and now it has a way of culling that information quickly.
The Strategic Medical Intelligence unit, formed in the wake of the Sept. 11 terrorist attacks, is a pilot program begun in the FBI’s Pittsburgh office that quietly has forged an alliance between the agency and a small group of doctors. Special Agent in Charge Ken McCabe calls it “an early warning system”.More on this story here.
FEDS DOING MORE SECRET SEARCHES
A record number of searches and wiretap orders granted by the Foreign Intelligence Surveillance Court in 2002 underscores a growing trend of reliance on the secret court in government investigations, privacy advocates say. The number of FISA orders jumped more than 30% to 1,228 last year, compared to 934 the year before. The FBI uses the warrants in investigations of suspected terrorists and spies to eavesdrop on communications and conduct physical searches.
Since FISA’s inception in 1978, the court has approved every FBI application it has received, despite disclosing last year in a report that the agency had misled FISA judges in 75 cases. “Increasingly, FISA is becoming the surveillance weapon of choice,” said Barry Steinhardt, who directs the American Civil Liberty Union’s Technology and Liberty program.
Applications for FISA warrants receive less scrutiny than Title III wiretaps despite the fact that they are much more intrusive. While Title III wiretaps allow investigators to eavesdrop on the oral and electronic communications of suspects, FISA orders include these wiretapping techniques as well as physical searches of residences, automobiles and belongings.More on this story here.
ENTRAPMENT, AMERICAN STYLE
In the usual “soccer parent” rush I quickly ran into the local convenience store to pick up a couple of bottles of water before our oldest daughter, Sarah’s, senior soccer game and award ceremony. My attention was suddenly drawn to the young man in front of me as he asked for a pack of cigarettes.
I didn’t find this unusual until the cashier asked for his driver’s license and then replied, “Sorry you are too young to buy cigarettes.” Then suddenly, a short guy with a crew cut standing directly behind the boy puffed his chest out, held up a badge and stated in a loud voice to show his authority, “I’m with the ‘blankety-blankty’ government enforcement division. Ma’am, you did the right thing.”
Cicero was right when he said, “A bureaucrat is the most despicable of men, though he is needed as vultures are needed, but one hardly admires vultures whom bureaucrats so strangely resemble. I have yet to meet a bureaucrat who was not petty, dull, almost witless, crafty or stupid, an oppressor or a thief, a holder of little authority in which he delights, as a boy delights in possessing a vicious dog. Who can trust such creatures?”More on this story here.
THE NAKED TRUTH ABOUT AIRPORT SECURITY
According to Business Week and The Wall Street Journal, about 13 million people - 4.5% of the population - are on some government watch list. That might explain some airport searches.
But if you don’t have anything to hide, you don’t have anything to worry about.
Which is why I couldn’t understand what happened to a couple of Southwest Airlines pilots last month.More on this story here.
PRIVACY VILLAIN OF THE WEEK: G8
Word from Paris this week is that the G8 nations -- the governments of France, Germany, Japan, the United Kingdom, the United States, Italy, Canada, and Russia -- have agreed to develop a biometric passport system, perhaps complete with barcode, eye scan, and fingerprints.
Taking the lead on working out the details of the scheme will be the US government and its purported nemesis, the French. They may disagree on the proper level of violence to utilize in engineering an international takeover of a third-world country, but have had an evident meeting of the minds on the necessity of tracking and tracing their own citizens in the most Orwellian ways possible. The two countries hope to have the details worked out by the end of the year and to roll out the brave new papers by the end of 2004.
And leave it to the United Kingdom, the homeland of Big Brother, to use the plan as a pretext for mandating such identification papers for all their citizens, not just those who have the temerity to travel. Home Secretary Jack Straw told the London Daily Telegraph that the new passports would be an excellent mechanism to do just that.More on this story here.
WHY DOES THE LEFT DESPISE JOE MCCARTHY?
Why do they keep digging up the corpse of Joe McCarthy for a ritual flogging? Even if what is alleged is true -- that McCarthy bullied witnesses and accused men of disloyalty who only made mistakes -- that still does not explain why the left cannot let go of him.
The answer: As no other man, Tailgunner Joe stripped the old establishment of its reputation, credibility and moral authority in the eyes of the people. McCarthy convinced Middle America that FDR and Truman had been duped by “Uncle Joe” Stalin, had tolerated treason, and had blundered and lost in five years all the fruits of the victory won by the blood and sacrifice of the Greatest Generation in World War II.
The establishment has never recovered from that beating.More on this story here.
AMERICA IS A POLICE STATE
First, a definition: The Internet’s dictionary.com website defines “police state” as: “A state in which the government exercises rigid and repressive controls over the social, economic and political life of the people, especially by means of a secret police force.”
Simple enough! All we have to do now is discern whether or not our beloved country exercises what might be called “rigid and oppressive controls” over our “social, economic and political life”. I am certainly not here to argue that America has become a police state in the image of any number of communist, fascist or theocratic regimes you could name. Let us just say that we need to look at this picture a bit more closely.More on this story here.
SWISS ECONOMY “SUFFOCATED” BY COMPLEXITY
Doing business in Switzerland is more difficult, slower and complex “than anywhere else”, a leading global economic survey has found. In a damning assessment of the country’s ability to compete around the world, the Lausanne-based business school IMD, warned that Switzerland faces an uphill battle to reform.
“The economy is increasingly being suffocated by complex legislation, rules and practices that are blocking society’s ability to reform itself,” Stéphane Garelli, director of the World Competitiveness Report 2003, told swissinfo.More on this story here.
RUSSIA WITHIN A STEP OF INVESTMENT GRADE
International ratings agency Fitch upgraded its assessment of Russia’s credit worthiness by two notches Tuesday, putting it just one step shy of the landmark status of investment grade, which major global funds need to buy Russian government bonds.
The BB+ rating leapfrogs upgrades in December by rival agencies Moody’s and Standard & Poor’s, both of which put Russia two notches under investment grade. Edward Parker, Fitch’s primary sovereign analyst for Russia, cited continued economic expansion, the reduction of the nation’s overall debt burden and strong growth in foreign exchange and gold reserves as reasons for the move. “We see the risks to Russia’s debt servicing as very low,” he said.More on this story here.
MAJOR JUMP IN LABUAN INCORPORATIONS
Figures announced by LOFSA (Labuan Offshore Financial Services Authority) chairman Tan Sri Dr Zeti Akhtar Aziz this week revealed that the number of offshore companies incorporated in Labuan increased by 486 or 33.5% last year, bringing the total number of offshore firms registered in the territory to 3,571.
The LOFSA chairman and Bank Negara governor, was presenting the association’s annual report for 2002 in the Malaysian capital, Kuala Lumpur. The report also showed that total unaudited pre-tax profits for the jurisdiction’s offshore banking industry stood at $112.1 million. This represented a turnaround from the previous year’s $153 million losses, and has been attributed in large part to increased fee based trading, and less pressure from bad debt as offshore banks restructured their loans.More on this story here.
DUBAI’S JEBEL ALI FREE ZONE AUTHORITY ISSUES NEW RULES FOR OFFSHORE FIRMS
Offshore firms seeking to locate in the free zone must have a minimum of two directors, and issue a single class of shares. At least one meeting must be held each year, and the offshore company must produce financial statements to be audited by an approved auditor. Firms must also maintain a registered office in Jafza, or must appoint a registered agent.More on this story here.
U.S. CONGRESS: YANKEE, GO HOME
That is the message it risks sending American expatriates in Asia if it is not careful. Ironically, the dickering over a tax cut plan could do more damage to U.S. economic interests in the region than the terrorists. That is because one of the “offsets” Republican lawmakers are reportedly considering is the elimination of an $80,000 tax exemption for American citizens living abroad.
It is arguable whether wealthy Americans should pay for the benefits of citizenship which follow them wherever they live. But eliminating the exemption would primarily hurt the middle manager posted in Asia. The likely effect would be fewer Americans doing business in the region. That in turn would hurt the domestic economy. This kind of lose-lose proposition has no place in a bill that is supposed to be about economic stimulus.More on this story here.
Section 911 repeal may have repercussions for Bermuda.
Proposals to repeal the 911 tax exemption given to US citizens employed outside of the United States could have a serious impact on offshore jurisdictions such as Bermuda, a local tax expert has warned, forcing many firms to leave the island.
James Paul Sobo, president of tax consultants ETS Ltd. said US firms are now faced with the prospect of having to increase salaries as an incentive for workers to stay in the jurisdiction, though ultimately it may be more efficient for the company to move away from the jurisdiction altogether.
According to Sobo, those most affected by the repeal of Section 911 would be those earning between $100,000 and $120,000. An employee who earns $120,000 for example would forfeit $24,000 in take home pay as a result of the extra tax.More on this story here.
INTERNATIONAL PROVISIONS OF TAX BILL UNDERMINE U.S. COMPETITIVENESS
The Senate Finance Committee tax bill contains a number of provisions that would undermine American competitiveness and restrict fundamental rights of labor and capital to cross national borders. If approved, these provisions will undermine the parts of the tax bill -- such as the acceleration of marginal tax rate reductions and small-business expensing -- that promote economic growth. Three provisions are particularly damaging.
Current law tries to limit the damage of America’s worldwide tax regime by taxing workers only on annual income above $80,000 -- a policy known as the Section 911 exclusion. According to PricewaterhouseCoopers and Johns Hopkins University economists, eliminating Section 911 would reduce U.S. exports by $8.7 billion and result in a loss of nearly 150,000 U.S.-based jobs.
If the Senate Finance Committee bill is enacted, companies that re-charter in low-tax jurisdictions will be treated as if they were still chartered in the United States. American companies trying to compete in global markets could then (a) passively allow their market share to decline, or (b) become takeover targets for foreign-based competitors. The idea is contrary to the commonsense notion of taxing only income earned inside national borders.
The Senate Finance Committee bill imposes heavy exit taxes on American residents who emigrate -- including a tax on unrealized capital gains. The Senate bill is to the left of even the United Nations. The 1948 Universal Declaration of Human Rights states that “Everyone has the right to leave any country, including his own” and that “No one shall be... denied the right to change his nationality.” The taxation of emigrants is almost unprecedented, at least among democratic governments.More on this story here.
Senate deals tax blow to deferred compensation schemes.
“The committee believes that many nonqualified deferred compensation arrangements have developed that allow improper deferral of income. As in the case of Enron, executives often use arrangements which allow deferral of income, but also provide security of future payment to the executive,” the Senate Finance Committee explained in a summary of the new proposal.
The measure will seek to tax certain non-qualified deferred compensation schemes with assets held offshore. It will also apply to trusts, and will prevent creditors from being denied access to such funds in the event of bankruptcies. The proposal also deals with the tax treatment of corporate insiders’ gross income.More on this story here.
STANLEY GOT WORKED OVER
Someone owes Stanley Works an apology. Last year, Connecticut politicians and the AFL-CIO shamed the tool and hardware company out of reincorporating in Bermuda so it could save $30 million in corporate income taxes. Attorney General Richard Blumenthal and GOP Congresswoman Nancy Johnson will no doubt now want to take some responsibility for the company’s decision this week to lay off 1,000 workers and close nine facilities.
But last year’s Stanley uproar looks even stranger considering this week’s tax machinations in Washington. GOP tax-writers are considering a proposal to cut the tax on repatriated corporate earnings to 5.25% for one year. That represents a giant leap down the Laffer Curve from the regular 35% U.S. corporate tax that Stanley was trying to avoid.More on this story here.
GRENADA THREATENS TO CLOSE BANK CROZIER
PricewaterhouseCoopers, who have been acting as controllers of the bank since last autumn under a Section 20 Order of the Offshore Banking Act, confirmed this week that Grenada’s Finance Minister Anthony Boatswain announced on 30th April his intention to revoke the Bank’s license, and it is this that led to the freezing of customer accounts. It is understood that the Bank’s management has been protesting against the closure order.
Bank Crozier is one of the few Grenadian banks not closed down by the Government after its blacklisting by the Financial Action Task Force (FATF), which was reversed after a visit by FATF officials ealier this year which is said to have included some type of inspection of Bank Crozier.More on this story here.
MEXICANS SEND RECORD AMOUNT HOME
Remittances of money from the US to Mexico reached a new record of $2.74 billion in the first quarter of the year -- revealing a flow of money home from Mexican migrants much higher than previously known. The new data, from Mexico’s central bank, also showed a 26% rise from the first quarter of last year.
Banco de Mexico officials pointed out that much of the increase could be attributed to improvements in data collection. However, the increase in money transfers shows that the impact of migrant labour on the Mexican economy is even greater than had been thought. Remittances are now approaching 2% of gross domestic product, second only to oil exports (about $4.9 billion) and the maquiladora -- the assembly-for-export sector -- profits ($4.57 billion) as a source of foreign currency.More on this story here.
INTERNATIONAL TAX REFORMS ANNOUNCED IN AUSTRALIAN BUDGET
The recently announced reforms will: reduce the compliance costs associated with the controlled foreign company rules, reduce tax on certain types of foreign business income and gains, modernise Australia’s tax treaty network, and better target the foreign investment fund rules. To enable adequate public consultation on the legislation, most reforms will not commence until 1 July 2004 at the earliest. Priority will be given to achieving early commencement of several key reforms.
On the personal income tax front, from 1 July 2003, there will be increases in the personal income tax thresholds and additional assistance for low income earners through a more generous low income tax offset, measures that in total are worth more than A$10 billion over the next four years.More on this story here.
BRITISH TAX GROUP ACCUSES GOVERNMENT OF PRIVACY VIOLATIONS
A British tax watchdog group has accused the government’s Inland Revenue department of failing to adequately protect the confidentiality of taxpayers and of thwarting inquiries into employee misconduct. Tax Relief, a new group affiliated with the Washington-based World Taxpayers Association, said in a report that 765 Inland Revenue employees have been caught violating the department's computer abuse and data protection regulations in the past three years.
The offenses range from exchanging obscene and abusive emails to browsing taxpayer records to illegally selling tax information to third parties. Tax Relief said that Inland Revenue refused to break down the offenses by category, citing potential costs. The organization said its probe was stymied by the department’s refusal to release information.
Inland Revenue did provide the group with a breakdown of how the offending employees were punished. Out of the 765 cases, three employees were fired, one was demoted, two were given a “financial penalty”, and about 200 received some type of official warning.More on this story here.
UK TO ANNOUNCE EURO ENTRY DECISION ON JUNE 9
Gordon Brown, the chancellor, is to announce the UK’s decision on entry into the euro in the House of Commons on Monday June 9, Downing Street has announced. The announcement will follow a special Cabinet session on June 5 or 6, after individual ministers have held talks with Mr Brown and prime minister Tony Blair.
The Cabinet will have an initial discussion on the single currency at their meeting next Thursday, May 22.More on this story here.
KNOW THE RISKS OF TODAY’S FOREX MARKET
The dollar has finally fallen out of bed. So who is making a buck on the collapsing buck, and how could the individual investor participate? Details and options follow.More on this story here.
THATCHER’S BACK AND GUNNING FOR THE FRENCH
In a one-off comeback speech in New York, which broke a medical ban on speaking in public, the former Conservative Prime Minister attacked those who use environmentalism, feminism and human rights campaigns to fight capitalism and the nation state. Speaking at a meeting of Atlantic Bridge, an Anglo-US free market think-tank, she praised Tony Blair, but above all President Bush, for overriding the “rot” that “paralysed” the United Nations.
Lady Thatcher said: “For years, many governments played down the threats of Islamic revolution, turned a blind eye to international terrorism and accepted the development of weaponry of mass destruction. Indeed, some politicians were happy to go further, collaborating with the self-proclaimed enemies of the West for their own short-term gain -- but enough about the French. So deep had the rot set in that the UN security council itself was paralysed.”More on this story here.
THE GROWING THREAT OF FASCISM
Fascism and communism are ideological kissin’ cousins -- just a few degrees to the right of communism. Both fascism and socialism favor -- to one degree or another -- government control of production and distribution. The only thing that distinguishes fascism from socialism in economic theory is how they get that control. Fascists realize the government does not need to own industry to control it. Through regulation and taxation, fascists know they can achieve the same results without nearly as much work and responsibility.
Most so-called “liberals” think they hate fascism. They equate it, understandably, with Nazism, Hitler, Mussolini, racism, anti-Semitism and imperialism. But they forget what the definition of fascism is. Yet, these “liberals” today are not democratic socialists. They are not really Marxists. Instead, they are pragmatists -- just like Mussolini. As did Il Duce, they dream of making the trains run on time. They cannot wait for their turn to make the economy lumber along at a 2.5% growth rate. Whatever deals need to be cut with big business to make that happen are OK with them. If they need to sell some corporate favors for campaign contributions, that is just political expediency. If they feel it is time to arm agents of the Environmental Protection Agency to put more teeth into enforcement of the Endangered Species Act, who could blame them?
Welcome to the world of “democratic fascism”. This is the tyranny most Americans are perfectly willing to impose on themselves.
It is not just economics, either. Look at the way we have abdicated our individual liberties in favor of “group rights”. That is a fascist concept.More on this story here.
|Previous||News Digest Index||Next|
|Back to top|