Wealth International, Limited

Offshore News Digest for Week of June 2, 2003


The Justice Department has begun using its expanded counterterrorism powers to seize millions of dollars from foreign banks that do business in the United States. Law enforcement officials say the tool has proven invaluable in seizing money that criminals hide overseas and that was once out of the government’s reach. Under the counterterrorism measures approved by Congress after the Sept. 11 attacks, prosecutors are not even required to trace the money back to the target of an investigation.

Officials at the State Department, however, have raised concerns over the practice -- in part because most of the seizures have involved fraud and money-laundering investigations that are unrelated to terrorism.

State Department officials worry “that this might be seen by other countries as arbitrary or trying to extra-territorially impose our laws” under the guise of fighting terrorism, said a Bush administration official who demanded anonymity. Diplomats from several nations, including Switzerland, have voiced private objections, officials said.

More on this story here.

Patriot forfeitures reach beyond terror targets.

In a recent report to Congress regarding the enhanced foreign money forfeiture powers of the post-9/11 Patriot Act, Justice Department prosecutors dwelled on a certain “model” case -- only it was not a case involving terrorism but rather garden variety domestic embezzlement.

The troubling model case involves an American lawyer who was accused of defrauding clients out of millions of dollars and absconding to Central America. Federal prosecutors indicted him and moved to freeze and seize some of the ill-gotten booty that they traced to a bank in Belize. The accused lawyer and his wife were allegedly bleeding the foreign accounts to purchase luxury items such as yachts.

However, a court in Belize blocked the move by the feds to freeze the assets. Enter the handy, dandy Patriot Act. Under the Act’s enhanced forfeiture provisions, the Justice Department was able to move in late 2001 to seize about $1.7 million -- not from the institution in Belize -- but from the Belizean banks’ correspondent or so-called “inter-bank” accounts in the United States.

More on this story here.

To seize or not to seize.

There are a few ongoing controversies about the Patriot Act, the batch of laws passed to combat terrorism in the aftermath of the September 11 attacks. Most serious is the charge that anti-terror laws are being misapplied to advance agendas that have nothing to do with preventing another attack on America. If so, this is a serious problem.

Specifically, civil-liberties groups are warning that the Justice Department is abusing powers derived from the Patriot Act. The agency argues that it very clearly is utilizing Patriot Act provisions for crime-fighting beyond anti-terror activities, but that it is perfectly within the bounds of the law to do so. Of particular import is Section 319, which gives prosecutors the ability to seize foreign assets in U.S.-based accounts of foreign banks if there is probable cause that the funds were obtained illegally.

More on this story here.


Like all forms of reductio ad Hitler, the 1933 analogy constitutes a gross trivialization of the worst event in modern history. Do we remember what actually happened in 1933? Hitler ascended to the chancellorship, suspended constitutional rights and banned all opposition political parties, sent the Brown Shirts into the streets and issued the first decrees stripping Jews of their rights. To compare the passage of the U.S.A. Patriot Act and the proposed -- but scotched -- program to get ordinary citizens to pass along tips about suspicious dark-skinned strangers, not to mention the cancellation of Tim Robbins’s invitation to appear at the Baseball Hall of Fame because he might criticize the war in Iraq -- to compare these and other inroads on our liberties to Hitler’s budding terror state is repellent.

Fascist states arise not simply because a mesmerizing leader seizes state power in unsettled times but because the democratic institutions that might oppose him have rotted away, as they did in Weimar Germany. Has that really happened here? It is true that today’s Republican Party is, by all historical standards, fervently doctrinal, if not necessarily ruthless or antidemocratic. Left to its own devices, the Bush administration, and especially Attorney General John Ashcroft, might be perfectly willing to expand government powers to fight terrorism no matter the cost to individual liberties. But the administration has not been left to its own devices. Opposition from both liberals and libertarian conservatives -- i.e., Republicans -- killed the TIPS program and may already be hindering next-generation Patriot II legislation; organs of the “corporate-controlled media”, like 60 Minutes, have reported on the growing threat to civil liberties.

More on this story here.


With the nation safely distracted by the NBA playoffs, Congress passed the terrifying Citizenship Redefinition And Income-Based Relocation Act of 2003 with little opposition Monday.

“This piece of legislation is essential, both for more efficient implementation of the New American Ideal and to give law enforcement the broad discretionary powers necessary to enforce certain vital civil and behavioral mandates,” said U.S. Sen. Lamar Alexander (R-TN), addressing an empty press room Sunday, midway through game four of the NBA Eastern Conference finals. “We are confident that Americans will embrace this law, should they eventually realize it has been passed.”

In addition to allocating $14 billion for “development of surveillance technologies and domestic weaponry,” the bill expands the criminal code to include any acts determined to be “a compromise of national interests” by the Justice Department or other federal authorities. U.S. Sen. Joe Biden (D-Deleware) also tacked on a rider late in the approval process that adds situational provisions to the First Amendment and effectively does away with the Fifth.

More on this story here.


The traditional exodus of the rite-of-passage backpacker/workers has been dramatically boosted by a surge in skilled professionals, partly attracted by bigger pay packets. Half of the expatriates are earning more than $100,000 a year, more than a third earn $150,000 and one-fifth are on $200,000, according to a previously unpublished Federal Government survey of expatriates.

As well, only about half of those questioned said they definitely planned to return to Australia. Emigration has more than doubled over the past 15 years to about 5% of the population, or about 120,000 citizens a year leaving the country permanently or long-term. By comparison, about 2% of the United States population lives overseas.

More on this story here.


Last week the tax office began a new approach to tax enforcement -- it started going after the advisers as well as the taxpayers. Two Perth tax advisers were charged with conspiracy to defraud the Commonwealth over advice they gave on minimization schemes. Whatever happens, the case will set an important precedent for the tax industry.

More on this story here.


Millions of natural-born Filipino expatriates would soon regain their Filipino citizenship under the proposed “Philippine Citizenship Retention Act of 2003”. House Speaker Jose de Venecia and Senate President Franklin Drilon met last week and reached a consensus to hasten passage of priority political reform measures that include the dual citizenship bill.

More on this story here.

New Finish citizenship law takes force.

A new law allows ethnic Finns living in other countries to take on Finnish citizenship alongside their present one. The law also permits former Finns to have their citizenship restored without having to give up their new citizenship.

More on this story here.


Expatriates. You see them in back-street bars of Bangkok, Manila, Guadalajara, along third-world waterfronts, in up-country Thailand, anywhere living is cheap and rules scarce.

Almost universal among them is a profound desire not to be part of somebody else’s parade. They want to be left alone. In the semi-developed countries favored by expats, governments usually do not care about you unless you break the law. Sometimes they do not care even if you do break the law, depending on the law. The big North American governments never stop supervising, admonishing, collecting data, requiring forms. Those who dislike it enough end up somewhere else.

More on this story here.


Last week, media reports from the region revealed that the Spanish government had submitted its own recommendations to the EU on Gibraltar’s tax reforms to ensure that the Rock does not become “a fiscal paradise”, and a “a tax haven and a center for unfair competition in Europe.”

“We note with regret and concern statements made by the Spanish Minister of Finance, Cristobal Montoro, in relation to the EC Commission’s assessment of Gibraltar’s proposed new tax scheme,” a Gibraltar government spokesman said. The spokesman went on to explain that EU law does not permit representatives from other member states to unfairly prejudice investigations into taxation matters for political reasons. “In this context Sr. Montoro’s remarks are entirely improper, since they suggest precisely the opposite.”

More on this story here and here.


Francesco Moretti was arrested in Ticino in August 2000, after investigators found SFr12 million ($9 million) in cash stashed in his office. Moretti, 62, faces charges of belonging to the mafia, fraud, financing drug deals and money laundering. The Swiss authorities suspect Moretti of having been a financial advisor to key mafia clans both in Italy and in the United States. Ticino’s state prosecutor, who is pressing the charges, also accuses Moretti of organizing a major drug deal in 1993.

More on this story here.


Jersey has warned it may create its own currency or even adopt the dollar if the UK joins the euro. Frank Walker, Jersey’s most senior Minister, said “Jersey is not a full member of the European Union and the island’s economic success depends on the right to set and maintain its own fiscal structures. If membership of the euro is likely to suck us into tax harmonization, for example, we could not do it.”

More on this story here.


South Africa is to start a long-heralded tax amnesty, in the hope of attracting back the billions which fled abroad to avoid foreign exchange controls or duties and taxes. The amnesty, which runs from Sunday 1 June to Sunday 30 November, means that money taken abroad can be brought home with no tax penalties. But individuals, trusts and private companies (institutions and public corporations cannot take part) will have to pay a 5% charge on money they bring back to South Africa, and 10% on funds they declare but keep abroad.

More on this story here.


Malaysia’s central bank said it plans to speed up the opening of the Islamic banking sector under a financial blueprint to make the country a regional Islamic financial hub. Bank Negara governor Zeti Akhtar Aziz said new Islamic bank licenses would be issued to foreign players sooner than planned under the Financial Sector Masterplan unveiled two years ago but did not give a time frame.

More on this story here.


At its annual meeting in North Carolina last week, Ingersoll Rand shareholders rejected a proposal for the company to reincorporate back to the United States from its present headquarters in Bermuda. The company later revealed that 58.6% of the company’s shares were voted against the move while 41.4% were voted for it.

While the company can claim victory, the results showed investor disenchantment has grown since investors first gave their nod to the plan in late 2001, despite the more than $50 million the company saved in taxes last year. At that time, nearly 90% of Ingersoll-Rand’s shares were voted in favor of the so-called corporate inversion.

More on this story here and here.


Dave Hartnett, the deputy chairman of the Inland Revenue, appears to be leading a concerted attempt by the Revenue and the Government to equate tax planning with “avoidance” and, by extension, “evasion”. He labels some forms of tax avoidance “improper and immoral”, introducing the language of the intolerant and authoritarian society, rather than one in which there are commercial and personal freedoms. Unfortunately, his comments are no more than an extension of those made by his political masters.

Perhaps those in government have forgotten the difference between tax avoidance and tax evasion. Tax avoidance involves using the tax rules to your best advantage, for example by making greater contributions to your pension fund. Tax evasion is the illegal reduction of one’s tax liability, for example by understating income or over-claiming expenses.

Accountants would be incompetent, or perhaps even negligent, if they failed to ensure that clients did not pay more tax than necessary. Many such “avoidance” moves are actively encouraged by the Chancellor to provide incentives to businesses. The vast majority of accountants do their tax planning in a transparent, legitimate fashion. Few have the appetite or time to devise complex tax avoidance schemes.

More on this story here.


Endowments, term assurance and whole-of-life assurance [called whole life insurance in the U.S.] policies can all be written or held “in trust” to exclude death benefits from your estate for the purposes of calculating inheritance tax. Failure to fill in the form could allow the Inland Revenue to leap-frog to the front of the queue, ahead of your dependants.

More on this story here.


An OECD report, Taxing Wages, 2001-02, estimates that in 2000, the Australian Commonwealth, state and local governments imposed taxes worth 31.5% of gross domestic product, compared with an average 37.4% in the 30 member nations. Australia’s tax take was the sixth-lowest, with only Ireland, the US, Japan, South Korea and Mexico below it. The highest-taxing country was Sweden, where tax revenue was 54.2% of GDP.

More on this story here.


The Brussels authorities will tell EU finance ministers that they are in danger of missing the EU’s target date for a single financial market in two years time. A Commission report will give governments a deadline of next April to approve disputed laws such as a takeover code and new rules on share trading.

Failure to complete the EU’s Financial Services Action Plan would be a blow for the Brussels authorities, who regard the lack of a common financial market as a glaring gap in the EU's single market.

More on this story here.


As the sour economy and problems in Iraq persist, many American expatriates find themselves headed home after losing or quitting their foreign posts. But it is hard to regain your footing in the US when you have not worked here for years. You lack current contacts and, undoubtedly, your job-hunting skills are rusty.

More on this story here.


So says annual ranking in Bloomberg Wealth Manager Magazine. For the sixth year in a row, the Cowboy State leads the nation when it comes to letting families keep more of what they earn and own. But Rhode Island earns the dubious distinction as America’s most “wealth-hostile” state for the third straight year, according to the magazine’s exclusive survey.

Other states earning high marks for “wealth-friendliness” are Alabama (#2), Nevada (#3), Tennessee (#4), and Louisiana. The most “wealth-hostile”, after Rhode Island, include Vermont (ranked #48 in wealth-friendliness), Wisconsin (#47), New York (#46), and Maine (#45).

The results vividly demonstrate how tax bite can vary from state to state -- and how each state’s burden can change depending on the nature of one’s assets. For example, the identical set of financial parameters that generated a tax bill of $10,504 last year in tax-friendly Wyoming could have cost a family $68,583 in tax-hell Rhode Island.

More on this story here.


The niche companies offering bullet-resistant cars is pretty specific. Their customers include diplomats, oil field companies, the armed forces and wealthy individuals, says Brad Leedy, president of Houston-based Texcalibur Armor, which has been in operation for a year. Only a few of Texcalibur’s buyers are in the United States.

Retrofitting a car with bullet-resistant material is no easy feat. Most jobs can run three or four weeks with employees putting in approximately 400 man-hours.

More on this story here.


What if our basic rights were taken away and no one noticed? What if our system of checks and balances was destroyed and everyone remained convinced it was happening to someone else?

Under current legislation, if you are “suspected” of terrorist activity, you can be picked up and held indefinitely, without charges and without access to a lawyer. If your loved ones call to find out where you are or if you are okay, they will be told nothing. After all, to disclose your whereabouts would infringe on your right to privacy. Don’t bother clutching your passport to your chest; this law applies to all U.S. citizens.

The attack on civil liberties has not been subtle; rather it has erred on the side of being so extreme as to seem surreal. Currently proposed legislation would increase the PATRIOT Act’s powers.

Tirien Steinbach, a lawyer at East [San Francisco] Bay Community Law Center who works with indigent clients, says she has seen a noted increase in harassment of her clients since the passage of the Homeland Security act. “It”s not the policies themselves,” she says, “but the climate of repression that lets law enforcement feel as if they can get away with anything these days.”

She sees her clients, and immigrant groups that have come under attack, as canaries in the coal mine -- a warning signal that others should heed. “Everyone thinks it only happens to some other kind of people,” she says, “and by the time they realize the extent of the repression, it will be too late.”

More on this story here.


As Americans slowly shake the fear and anxiety caused by the terrorist attacks on New York City, they are beginning to realize the government’s unprecedented authority to peek into their private lives in the name of national security.

Under the USA Patriot Act, signed in 2001 by President Bush in the aftermath of Sept. 11, police agencies now can pry, sometimes without legal probable cause, into personal computer hard drives, request private and personal business and bank records and can solicit a patron’s list of library books.

“History has shown us that we will come to regret losing personal freedoms in the name of security,” said Howard Simon, Florida executive director of the ACLU. “Most people don’t realize how the administration’s insatiable appetite for ever-increasing intrusive and unnecessary powers affects them.”

More on this story here.


The debate on Capitol Hill continues regarding the USA Patriot Act. U.S. Sen. Barbara Boxer (D-California) last week introduced the Library and Bookseller Protection Act in an effort to exempt libraries and bookstores from the effects of the Patriot Act. Boxer’s act would reinstate former law and require investigators to obtain a court-ordered warrant before doing a search.

More on this story here

100th civil liberties safe zone declared.

On May 6, the commissioners of Broward County, Florida, in a unanimous vote, passed the 100th local resolution in the United States proclaiming “a civil liberties safe zone”. These resolutions are directed at the Bush-Ashcroft war on the Bill of Rights. However, the undeterred Attorney General is planning to introduce in Congress USA Patriot Act II, which would much more radically reduce individual liberties in the holy name of national security.

In the spirit of Thomas Jefferson, who said that the people “are the only sure reliance for the preservation of our liberty”, on the same day that Broward County became part of the Resistance, it was joined by San Mateo, Marin, and Sausalito counties, all in California. On April 25, Hawaii’s legislature passed the first statewide resolution to preserve and protect the Bill of Rights. Alaska followed on May 22. On May 29, Philadelphia became the 116th town or city to pass one of these resolutions.

According to Nancy Talanian, director of the original Bill of Rights Defense Committee in Northampton, Massachusetts -- where this grassroots renewal of constitutional democracy started -- the term civil liberties zone means “a locale whose local government has passed a resolution declaring its commitment to protect the civil liberties of its residents.”

“It took a year,” Talanian points out, “for the first 50 locales to pass resolutions; the next 50 took just two months. A movement that started in progressive communities now includes many more mainstream communities, including Tucson and Flagstaff, Arizona; Dillon and Missoula, Montana; Blount County, Tennessee; and Minneapolis, Minnesota.”

More on this story here.

Philadelphia city council condemns U.S. antiterror law.

City Council yesterday made Philadelphia the country’s largest city to condemn the USA Patriot Act, passing a resolution denouncing the post-9/11 law as a hastily written “threat to fundamental rights.” The nonbinding resolution, approved 13-3, blames the federal law for allowing racial profiling, denial of due process, and invasion of privacy. It calls on Pennsylvania congressional members to “work for the repeal of the act or those sections... that violate fundamental rights and liberties.”

More on this story here.


The Pentagon is shopping for ways to capture everything a person sees, says and hears as part of a project it says is meant to help create smarter robots. The projected system called Lifelog would suck in all of a subject’s experience -- from phone numbers dialed and emails viewed to every breath taken, step made and place gone. The idea is to index the material, and make patterns easily retrievable in an effort to make machines think more like people, learning from experience.

The Defense Advanced Research Projects Agency, or DARPA, the Pentagon’s cradle for revolutionary technologies, is sponsoring a competition to bring out proposals for setting up such a system.

A DARPA spokeswoman said the new project had nothing to do with DARPA’s Terrorism Awareness Information program, a research initiative into creating a giant surveillance system aimed at thwarting terrorism which has been criticized by civil rights groups.

More on this story here.


According to the General Accounting Office, the IRS has 900 gaping security holes across 11 different IRS satellites. And that is because -- believe it or not -- it has not gotten around to fixing them. Consequently, people’s tax data could be open to others.

More on this story here. Full GAO report here (PDF file).


The President and the Republicans are claiming credit for a large tax cut, but the tax cut is about half as much as they wanted and there are some significant objectives that did not get included in the final bill. First and foremost, the cuts are not permanent. Like the estate tax cuts in 2001, they are being phased-in over a period of years and some elements of the cuts may be repealed in a future year.

One of the biggest surprises for those of us who pay close attention to new tax laws is the absence of a host of special interest provisions, technical corrections and provisons to generate compensating revenue increases. The final bill did not include proposed provisions designed to discourge individual or corporate expatriation, to repeal the exclusion for foreign earned income or to impose harsh new penalties on those fail to file the annual Treasury Dept. Form TDF 90-22.1. [The form acknowledges a US person’s authority over any foreign bank, brokerage or other financial account.]

More on this story here.

The latest Bush tax cut: “Disingenuous and risky”.

It is hard to object to tax cuts -- particularly when you are about to receive one. However, even the most conservative American should pause to reconsider the “economic recovery bill” concocted by Congress and George Bush that will hand back some $350 billion over the next decade. Sadly, this giveaway is disingenuous and also something of a gamble.

The first sleight of hand is that $350 billion number. Mr Bush had hoped for twice as much, but Congress has squeezed his tax cuts into a smaller package by setting time limits. For instance, the cuts in dividend taxes and capital gains are due to expire in 2008. At face value, this presents an absurd series of incentives for taxpayers. In fact, the chances of politicians letting the taxes reappear are slim. Add in a little political reality and the true cost of the tax cut could be $800 billion.

Now consider the next sleight of hand. Mr Bush has muddled up two sensible ideas: the short-term need for a fiscal stimulus to pep up the faltering American economy; and a long-term fiscal reform -- namely shifting the tax burden away from investment.

More on this story here.


LUXEMBOURG: EU finance ministers reached a final agreement on the taxations of citizens’ savings across Europe, after nearly 14 years of deadlock. Under the agreement, most EU countries will swap information on the savings of non-residents, and tax them accordingly, from 2005. Three countries with large banking systems -- Luxembourg, Belgium and Austria -- will be exempt from the exchange of information and will levy a “withholding tax”.

More on this story here and here.

EU tax deal leaves Swiss banking secrecy intact.

The Swiss have already made clear they are prepared to transfer a levy on EU citizens’ investment income to Brussels, provided banking secrecy is upheld. The Swiss proposal would leave the country’s cherished banking secrecy intact because no information about account holders would be handed over without their consent.

Non-EU members -- so-called third countries, such as Switzerland -- are now expected to comply with the new rules or face possible sanctions. The Swiss have long insisted that they will not sign up to any agreement involving the automatic exchange of information, despite heavy diplomatic pressure from the EU. Last year, Brussels threatened Bern with sanctions if it did not comply. But divisions over the issue among EU states themselves forced a compromise, which worked to the Switzerland’s advantage.

Switzerland is ready to impose a withholding tax on EU citizens’ savings to ensure Brussels received its tax take -- the same system as that agreed by EU members, Belgium, Luxembourg and Austria. The withholding tax will be 15% from 2004, increasing to 20% from 2007, and 35% from 2010.

“Administrative assistance linked to tax evasion continues to be out the question,” the Swiss finance ministry said in a statement. It added that an exchange of information would only be permitted in cases of tax fraud.

More on this story here and here.


If you have a head for math and an aversion to crime, Fintrac, a federal agency that tracks suspicious financial transactions, is seeking an Eastern Region director for its Montreal office. Agency staff crunch numbers reported by accountants, real estate brokers, banks, casinos, customs officers and others, and report suspicious transactions to police or the Canadian Security Intelligence Service (CSIS).

The federal agency, created in 2000 to track and analyze reports of money laundering, saw its role expanded in December 2001 to include transactions used to fund terrorist activities.

One of the most recent additions to the Fintrac arsenal is a rule obliging disclosure to Canada Customs and Revenue of all currency imports or exports of $10,000 or more, even if the money is used for legal purposes. Failure to report may result in seizure of the currency or fines ranging from $250 to $5,000. Customs agents at airports and border crossings have seized $12.5 million in unreported cash since the regulation took effect on Jan. 6, 2003.

More on this story here.


Government whip Ottiwell Simmons was happy to tell MPs how he had been hoodwinked in an effort to pass legislation saving others from his same fate. Two years in the making, the legislation intends to strengthen Bermuda’s regulatory framework and the investment marketplace generally, covering any person who is in the business of providing investment services.

“The legislation must include the best means to safeguard investors from individuals who are not as scrupulous in dealing with other peoples’ hard earned money,” said Acting Finance Minister Paula Cox.

More on this story here.


ASUNCION, Paraguay: When Nicanor Duarte Frutos becomes president of Paraguay in August, he will inherit an economy dangling at the end of its rope. Nearly all tax revenues are consumed by the salaries of a bloated state, leaving practically nothing for investment. The government borrows from the central bank to make debt payments to the World Bank, while projects for developing a promising agribusiness sector with multilateral loans are stalled because the state cannot contribute its part.

Paraguay never boasted the rich natural resources of its neighbors, Brazil and Argentina, and a third of its 5.6 million people live in poverty. But if it committed to reform, analysts say, it could cash in on the lucrative South American farm industry and consign its contraband-based economy to history.

In the last five years, Paraguay has run the gamut of political instability, from the assassination of a vice-president, to an attempted coup, to a president fleeing the country. It is no wonder investors keep their distance.

More on this story here.


Australia is considering sending more federal police officers to the Solomon Islands in an effort to bring lawlessness in the state under control. Police officers held Solomon’s Prime Minister, Alan Kemakeza at gunpoint last year in demands for more pay, and many are refusing to act as his security detail. More recent examples of lawlessness involve the closure of the country’s banks following bomb threats, a failed pyramid investment scheme, and the beheading of an Australian missionary.

The Solomons’ dire financial plight is also likely to figure in discussions. The Australian Government recognizes that crime is linked to the country’s effective bankruptcy.

More on this story here.


Whether it is a cocktail party or a nightly gathering at a local pub with other souls far away from home -- who have become instant friends by virtue of just being in the same location -- there is an expat lifestyle that can take some getting used to. And there are shocks at both ends of the expat social scale.

“I have been going to the American Women’s Club. The women are all wonderful and friendly but their problems are definitely different from mine,” says a British woman living in Prague. “They are trying to find decent five-bedroom homes in Prague, stay busy without work, find a maid or a nanny, while I am trying to afford our tiny two-room flat, negotiate with my new employers and navigate the Czech bureaucracy for permits. It is almost as if we are on different planets.”

More on this story here.


The words “terrorism”, “expatriates” and “Western targets” have dominated international media coverage since the two deadly bombings in May. Under the circumstances, you might expect expatriates in some Western European countries to be edgy -- but they are not. According to two recent Expatica surveys, a majority of expatriates in Belgium, France, Germany and the Netherlands, say they feel safe in their foreign homes.

More on this story here.

Energy firms reassess foreign operations as bombings elevate risk.

The terrorist bombings in Saudi Arabia and Morocco that killed 70 people in the past two weeks have upped the ante for U.S. companies that operate in high-risk countries. Security specialists in the private sector are advising clients who operate in such places to upgrade their emergency preparedness plans.

But oil industry and security experts in Houston doubt that even these latest events will cause major changes in business operations in the oil patch. “Companies will incur security premiums, but these concerns have been baked in the cake since 9/11,” says the managing partner in the Houston office of Korn Ferry International executive recruiting firm.

More on this story here.


Australian Banking Association chairman and Commonwealth Bank CEO David Murray last week threw a grenade into the counter-terrorism debate, warning the federal government that banks will not allow access to customer data as part of joint information-sharing initiatives. Addressing the ABA’s inaugural IT Security Conference in Sydney, Murray said the banking community will not automatically acquiesce to government attempts to arbitrarily fish in, or tinker with, a bank’s customer data under the banner of improved security.

Murray warned that, for banks to operate, customers need total confidence that both their funds and privacy are completely secure. If confidence is eroded an infrastructure collapse of its own can ensue. Murray also warned that terrorism-related security expenditure is draining revenue and productivity from the financial sector. While thwarting terrorists is imperative, it also means managing out the costs they can create for shareholders.

More on this story here.


Argentina’s Congress will on Tuesday begin debating a financial reform bill. The bill, which follows a government decree last week that established a special unit to look at how to restructure the financial system, is considered vital to Argentina’s continued economic recovery.

The most important aspect of the bill is that it grants central bank directors immunity from prosecution in their decisions over whether to declare financial institutions insolvent -- and therefore to order their closure.

There is widespread agreement among analysts on the need for a sweeping restructuring of Argentina’s banking sector -- a process that would inevitably lead to the closing of some banks. Last year’s devaluation and “pesification” of the economy, which followed a decade-long peg to the dollar, proved disastrous for financial institutions.

More on this story here.


The revelation that one of Shanghai’s leading entrepreneurs wagered A$122 million ($79.5 million) during 19 visits to a Melbourne casino, and lost A$5 million in a single session, has cast light on the gambling habits of China’s new rich.

Gambling, which has a tradition in China, has been banned since 1949, but has boomed offshore among newly wealthy businessmen and corrupt officials.

More on this story here and here.


The Justice Department’s roundup of hundreds of illegal immigrants in the months after the Sept. 11 attacks was plagued with “significant problem”q that forced many people with no connection to terrorism to languish in jails in unduly harsh conditions, an internal report found.

The highly critical report from the Justice Department’s inspector general concluded that F.B.I. officials, particularly in New York City, “made little attempt to distinguish” between immigrants who had possible ties to terrorism and those swept up by chance in the investigation. The inspector general’s report found that some lawyers in the department raised concerns about the legality of the tactics, only to be overridden by senior officials.

The report validated the concerns raised by some members of Congress and civil rights groups who charge that the Justice Department has cast too wide a net in the campaign against terrorism. The findings will probably provide legal and political ammunition to those seeking to curb the department’s counterterrorism tactics, officials said.

More on this story here. Full report here (PDF file).

Opinion: The Abusive Detentions of September 11.

It was vital after the terrorism of Sept. 11 that the nation protect itself, arresting and investigating those who might have had a role. But it was equally vital that it avoid doing things we would later regret, like failing to grant detainees due process or abusing them either mentally and physically. Sadly, such caution was not exercised, according to a frank and blistering report by the inspector general of the Justice Department.

The report, released yesterday, criticizes an array of practices, like holding suspects in 23-hour “lockdowns” and interfering with their access to lawyers. This stern indictment should lead the department to change its policies for handling terrorism detainees, and it should cause Congress to end its timidity in exercising its oversight of antiterrorism practices.

More on this story here.

For jailed immigrants, a presumption of guilt.

The report issued by the Justice Department’s inspector general said the nation’s law enforcement authorities ceased being consumed with prosecuting violations of the law and tried to put a lid on every possible type of terrorist activity. The aggressive tactics used against people held on minor immigration violations were, civil libertarians said, a natural result of the department’s new approach.

The report says that the usual presumptions of the legal system were turned upside down in the aftermath of the attacks on Sept. 11, 2001. As a result, people detained on immigration charges were considered guilty until proved innocent and were often held for months after they were ordered released.

At times, the ordinary rules were replaced by no rules or perverse ones, the report said. Some detainees were given the names of lawyers to call but inaccurate phone numbers for them, or the names of lawyers who were unwilling to represent them. They might be given one try to reach a lawyer per week, and a busy signal or wrong number sometimes counted. These altered understandings of the basic rules of the justice system mirrored, the report said, the Justice Department’s new conception of its mission.

More on this story here.


An astonishing 27.5% of PC Advisor readers believe the U.K. Home Office has every right to access data on the internet activity of all UK consumers in the interests of national security, according to a recent poll on the PC Advisor website.

In the absence of the emergence of a code of practice -- regarded as unlikely by almost all quarters -- under the Anti-Terrorism, Crime and Security Act (2001), the Home Secretary is likely to make it obligatory for ISPs to keep logs of the online activity of all customers’ data for at least a year. The justification is they may one day need such data for subsequent investigations into serious crime or terrorism. Data will include records of all websites visited by a customer, along with all emails sent and received. Messaging is not covered (for now).

At a conservative estimate a third of the UK population -- around 20 million people -- regularly use the internet. That means in the course of a year the UK’s ISPs would have to retain the equivalent of 72 billion CDs of data. Taking into account a steady increase in the number of internet users, the number of sites visited, burgeoning emails sent and received, increased time spent online, and it does not take a genius to see that we will soon be drowning in a sea of retained data.

The extent of government snooping is growing and it needs to be watched. In short we are asking a quarter of poll respondents to think again.

More on this story here.


The deal reached by EU finance ministers, in a sweltering Luxembourg, marks the end of a saga that threatened to encapsulate all that is bad about the EU -- politicking, psychological blackmailing, petty defence of national interests and horsetrading.

Twelve EU countries will begin exchanging information on the savings of non-residents starting in 2005. This will enable each member to tax their citizens accordingly. Three countries keen to preserve the secrecy of their banking system -- Luxembourg, Belgium and Austria -- will levy a withholding tax instead.

More on this story here and here.

EU tax deal gives Swiss room to bargain.

Swiss finance minister Kaspar Villiger says he is ready to sign a deal on the taxation of savings with the European Union, provided speedy agreement is reached on nine other issues. Villiger said the main sticking points in the negotiations are on fraud and Swiss participation in the Dublin and Schengen agreements on border controls and asylum policy. The Swiss want the accords wrapped up as soon as possible in case there is a referendum in Switzerland on accepting the agreements, which would delay implementation.

More on this story here.

Bermuda exempt from EU tax agreement.

It had been understood that Bermuda, as an overseas territory, would be included in any document signed by the United Kingdom -- and that non-resident EU citizens with offshore savings in Bermuda would be taxed 35% on the interest on their accounts. But yesterday a spokesman for the EU said said it was not covered by the agreement because it was not listed in the final missive -- only overseas territories in the Caribbean are included in the written statement. But the spokesperson could not say whether Bermuda was left out as an oversight or if there was a reason for it not being included in the drafted document.

More on this story here.


In the waning days of the Clinton Administration, the IRS proposed a regulation to force American banks to report the interest paid to all nonresident aliens. This proposal was bad policy for a number of reasons. It would drive capital from U.S. banks. It would undermine tax reform. And it represented a flagrant abuse of the regulatory process. This proposal drew heated opposition from both industry and the public policy community. More than 99% of the submissions during the public comment period were hostile, and 100% of the testimony at the public hearing was negative. Numerous members of Congress weighed in against the proposed regulation, and CFP mounted a strong lobbying campaign against the IRS scheme. About 18 months after the regulation was first proposed, this effort bore fruit. The IRS was forced to withdraw the regulation.

But in a duplicitous move, the IRS almost immediately reissued the regulation after some cosmetic changes. Once again, the proposal attracted overwhelming opposition. The Treasury Department is actively pushing the proposal -- even though it puts the interests of foreign tax collectors above U.S. law and before the interests of the American economy.

2003 Prognosis: The President’s new economic team probably will decide this issue. If the decision goes the wrong way, expect a legal challenge since the regulation contravenes existing law and the IRS also failed to obey regulatory procedures such as preparation of a cost-benefit analysis.

More on this story here.


Waving candles and singing patriotic Chinese songs, more than 12,000 Hong Kong people on Wednesday demanded an accounting of the crackdown against pro-democracy activists in Tiananmen Square and voiced fears local freedoms are being crushed.

The Hong Kong government is about to win approval of an anti-subversion bill -- which carries life prison sentences for many crimes against the state. Critics fear the former British colony could find itself subjected to mainland-style suppression of unpopular views, although Hong Kong insists this is not an issue.

More on this story here.


The Vanuatu Government has rejected an opposition proposal for a debit tax to target the wealthy. Government officials say the opposition must be more specific when issuing such proposals because Vanuatu has a blanket taxation system, under which any new tax law affects everybody.

More on this story here.


Lord Ashcroft, the billionaire businessman and former Tory party treasurer, will today challenge the government’s centuries-old secrecy over the honors system by asking a judge to order the release of confidential Whitehall documents on his appointment to the House of Lords.

The controversial businessman [he is heavily involved in Belize’s economy] believes he has been the subject of a vendetta by the Foreign Office and Department for International Development -- under former ministers Robin Cook and Clare Short -- to discredit him and try to block his appointment twice as a working peer.

More on this story here.


Railing against insider trading is consistent with the great American philosophy: “If you don’t get what you want, sue somebody.” Whatever happens, do not take responsibility for your own life. Investors should not have to think for themselves, and they should not have to feel responsible for their investment losses. There are evil people out there who took advantage of them.

The essence of the insider-trading argument is the idea that no one should have access to help that everyone does not have. But everyone’s situation is different. Some people have better computers, subscribe to more newsletters, get phone calls in the middle of the night warning them of market crashes, have a better feel for the market, and in many other ways enjoy unfair advantages. Where do we draw the line?

The government cannot protect your investments any more than it can win a “war” on drugs or poverty. Government does not deliver on any promise, and you should never rely on it to protect you.

Although you would never know it from watching the TV news or listening to the politicians, insider trading is a victimless crime. If you ever owned ImClone stock, you would be hard-pressed to explain how Martha Stewart’s actions cost you money.

More on this story here.

The interminable persecution of Martha Stewart.

Martha Stewart is still accused of something. But what? It has been widely reported that the Securities and Exchange Commission plans to recommend civil charges (i.e., try to collect a fine) because the standards of proof are lower than for criminal charges. Indeed, the standards of proof in this case are approaching a record low.

As attorney James Ostrowski explains (at www.mises.org), Martha Stewart is really being accused of outsider trading. Relatively perceptive members of the press politely describe this federal fraud as a “novel” or “creative” theory of insider trading.

More on this story here.

Martha Stewart pleads not guilty to all charges.

June 4 -- Martha Stewart and her former broker were indicted today on federal charges that they conspired to obstruct a probe into her personal stock sales by lying to investigators, making up conversations and -- in the broker’s case -- altering a key document to support their story.

Stewart pleaded not guilty. Later, her company issued a statement saying that Stewart was resigning as chairman and chief executive but would continue as a director and serve as chief creative officer.

More on this story here.


In his Congressional testimony last week, Alan Greenspan sailed through his customary delusions -- that additional mortgage debt is good for consumers... that technology has brought a New Era to the economy... and that modest productivity increases have some exceptional quality as yet unnamed.

He was cruising in the wake of John Snow, U.S. Treasury secretary who made the following remarkable comment to the G7 finance ministers:

“...the United States is not growing fast enough and neither are you, but we are growing a lot faster than you... We get complaints from our friends around the world who say, ‘your current account deficit is so high.’ And our response is: ‘Yeah. You know why? Because you don’t buy enough from us. And because we provide the highest risk-adjusted returns on capital in the world, so your capital flows over here. So why don’t you take steps to improve your domestic economy so you’ll be stronger and buy more from us? And you might think as well about steps to improve return on invested capital, and then capital would flow your way as well as to the United States. The fact is the American economy is strong. The underpinnings are good.”

There are other signs that the underpinnings of the U.S. economy are not as good as Mr. Snow thinks. In addition to bankruptcies and unemployment, business profits as a percentage of GDP have fallen to their lowest level in about 40 years. Without profits, why would people invest in new machinery, new ventures, new employees? How could the economy grow? Why would stocks go up? And why would profits decline -- even as productivity increases and technological marvels proliferate? Hearing no answer from the authorities, we offer one ourselves.

More on this story here.


Russian banks are so flush with cash they are not interested in the reforms that a few years ago were seen as key to rebuilding public confidence and attracting depositors. The public still does not trust them, but Russia’s booming oil companies have deposited more money into the banks’ vaults than they can put out in loans.

Russians are hiding as much as $40 billion US under their mattresses rather than putting the money in banks where it could earn as much as 11% interest. One reason they are reluctant to turn their money over to the banks is the lack of deposit insurance.

More on this story here.


A constitutional dispute between Mexico’s executive and legislative branches over the fall-out from the $65 billion bank bail-out in 1995 could have sweeping consequences for the international banks that control almost 90% of the sector in Mexico.

The country’s auditor-general, appointed by Congress, says Banamex, Citigroup’s Mexican subsidiary, should be required to repay 6.5 billion pesos (about $65 million) it received in the bail-out, on the basis that this money backed loans that were fraudulent.

Phil Guarco, who analyses Mexican banks for Moody’s, described the arguments as political theatre, while making clear that congressional action could have serious consequences. “I can’t see them bankrupting banks by not making good on their obligations. I look at these bonds on the banks’ balance sheets and I consider them to be worth [100 per cent of face value]. If I think there’s any hint that they aren’t going to get repaid, my rating is wrong. And if I have to reduce their value by even 20%, that would leave these banks looking severely under-capitalised.”

More on this story here.


Most City institutions think it does not matter to them whether Britain joins the euro, a private report commissioned by the Corporation of London has found. A study of financial institutions’ views of London’s competitive position is expected to put euro entry low on their list of priorities, with a majority of institutions indicating that European regulation is a bigger issue. The indifference of most financial institutions weakens the pressure to join.

More on this story here.


“Hedge funds: coming soon to a retail brokerage office near you.”

That seems to be the message of the Securities and Exchange Commission to ordinary investors. Officials at the US’s main financial regulator have said the retailization of hedge funds is one of the main reasons they have spent the last year investigating the industry.

“In many ways you would say a hedge fund has less risk because it is hedged,” SEC chairman William Donaldson told reporters. He added that as long as hedge funds were vetted by the SEC, they might be appropriate for retail investors.

More on this story here.


“Tax Freedom Day” arrived on June 2 for the UK taxpayer this year, and if a bill being introduced by Lord Saatchi, the Conservative Treasury spokesman in the House of Lords, makes it onto the statute book, the day will not only be officially calculated by the Treasury and announced annually in the budget speech, it will also become a national holiday.

The concept of tax freedom day is based on the amount of days that we have to work to satisfy our tax obligations to the government, and according to the Adam Smith Institute, is due to fall later and later over the next few years as the tax burden increases.

More on this story here.


Attorney General John Ashcroft urged Congress on Thursday to expand the USA Patriot Act to permit the government to hold more suspects indefinitely and to extend the death penalty to more people accused of terrorist crimes. He also said the law, which critics say is eroding citizens’ legitimate rights, needs to be expanded to allow charges against anyone who helps or works with suspected terrorist groups as “material supporters”.

Ashcroft said the Patriot Act “has several weaknesses which terrorists could exploit, undermining our defenses.” The death penalty provision would allow for executions in cases where a terrorist caused “massive loss of life” by attacking a military base, nuclear plant or energy plant, the Justice Department said. Ashcroft also said some courts have ruled that “going and taking training, and joining up with” terrorist groups abroad could not be prosecuted under the current material support statute, and he wants that changed.

House Democrats, meanwhile, complained about the way the Justice Department has used its current anti-terrorism powers, especially considering a department inspector general report Tuesday that criticized the government’s treatment of illegal immigrants held after the attacks.

More on this story here.


For centuries, the law in Western nations was guided by the fundamental principle that an individual could only be prosecuted and convicted of a crime if he willfully or knowingly committed an unlawful act. Classic Anglo-American legal theory reflected this core belief in its requirement that the state prove beyond a reasonable doubt that the accused consummated the criminal offense with both an actus reus (a criminal act) and a mens rea (a criminal intent). Thus, criminal sanctions were never intended to punish bad thoughts remaining unmanifested by action nor bad acts occurring unwittingly or by accident. The former category was to be resolved by a higher spiritual authority and the latter could properly be resolved by the civil tort liability system.

Today, after more than 200 years of the American experience, both federal and state criminal law has devolved to a point where an individual can be charged, prosecuted, convicted, fined and, many times, sentenced to a lengthy term of imprisonment even if he neither performed or aided an unlawful act himself nor did so with any intent or knowledge of the crime committed. This is most often manifested in the corporate world, where under the “responsible corporate officer” doctrine, as it is called, even the most “responsible” corporate officers and managers face strict criminal liability for the “irresponsible” (including even mistaken and accidental) acts of their employees and agents.

Specifically, with increasing frequency and vigor, prosecutors are pressing criminal charges and getting convictions against corporate officials for the transgressions of “public welfare” statutes by their workers. At the federal level alone, corporations and their officers and managers now face criminal repercussions based on simple worker mistakes ranging from clerical errors on regulatory forms to the accidental mislabeling of food and drugs to exceeding pollution limits by as little as one part per billion.

More on this story here.


A Pentagon project to develop a digital super diary that records heartbeats, travel, Internet chats -- everything a person does -- also could provide private companies with powerful software to analyze behavior.

Known as LifeLog, the project aims to capture and analyze a multimedia record of everywhere a subject goes and everything he or she sees, hears, reads, says and touches. The Defense Advanced Research Projects Agency, or DARPA, has solicited bids and hopes to award four 18-month contracts beginning this summer. The LifeLog research is unclassified, so its components could eventually be used in the private sector.

Defense analyst John Pike of Global Security.org is dubious about the project’s military application. “I have a much easier time understanding how Big Brother would want this than how (Defense Secretary Donald H.) Rumsfeld would use it,” Pike said. “They have not identified a military application.”

More on this story here.

Ethics and mapping the brain.

Emerging technologies that map the brain, reveal “guilty knowledge”, and expose patterns associated with disfavored behavior raise thorny questions of law and ethics. Three University of Pennsylvania professors grapple with these questions in a lucid article that appears in the June issue of the IEEE Spectrum, a monthly journal of the Institute of Electrical and Electronic Engineers. Bioethics and the Brain, although written for specialists, is refreshingly free of the jargon and bad writing that mars so many academic publications.

More on this story here and here.


Government prosecutors are reviewing years worth of sensitive telephone and e-mail wiretaps and results from secret searches to decide whether they can file criminal charges against suspected terrorists in the United States.

The wiretaps and searches were performed during the past 25 years on suspected spies and terrorists under the 1978 Foreign Intelligence Surveillance Act. With permission from a super-secret U.S. spy court, the FBI has used such warrants to break into homes, offices and hotel rooms to install hidden cameras, copy computer files and eavesdrop on telephones. Agents also have intercepted e-mails and pried into safe deposit boxes.

Criminal prosecutors previously were not entitled to the contents of intelligence files, which were limited under Justice Department policies to government espionage and counterterrorism experts. But a court ruling this year lowered that wall, allowing the review of old surveillance.

More on this story here.


Distributed digital video arrays, or DIVAs, are collections of really smart cameras able to detect and identify an individual in a crowded train station and track him wherever he goes -- out of the station, into the parking lot, onto the freeway and so on. They also notify authorities when they “think” the individual engages in suspicious activity or meets with questionable cohorts. You can watch for these DIVAs in summer 2004.

More on this story here.


The House of Representatives approved the use of large scale DNA testing to track down criminals. “Large scale DNA tests are an important tool when the police do not have a suspect,” said parliamentarian, Dorle Vallender. “It’s used by other European countries and it has helped solved crimes.”

However, opponents of the measure said it was the thin end of the wedge and that the system was open to abuse.

More on this story here.


Every day 550 U.K. passports disappear, either lost by the owners or stolen and then passed on to gangs, who sell them on the black market for around £3,000. Police and immigration officials fear that tens of thousands are falling into the hands of terrorists and criminals, who use stolen passports to forge new identities for illegal immigrants and bogus asylum seekers.

More on this story here.


UK Home Secretary David Blunkett plans legislation to introduce ID cards this autumn, but possibly has a small problem in transforming the verdict of what must surely have been a heavily anti ID card public consultation into a favourable one. The Home Office does however seem to be trying.

Some months back Home Office minister Lord Falconer happily said the consultation was running in favor of the cards, which were then pitched as “entitlement cards”. The heroic number of “people and organizations” who had then commented amounted to 1,500, but this was swiftly overturned by an extra 6,000 whipped up by Privacy International and stand.org. Then the plot thickens...

More on this story here.

Citywide “citizen cards” to hit London.

By early July, Transport for London (TfL) expects to introduce credit card sized smartcards for adults traveling on the underground and buses across the city in a £1.2 billion project. Commuters will be able to use this card in replace of monthly and annual tickets.

According to TfL, the card will benefit it and passengers because it will reduce the amount of time people have to queue to buy a ticket and to get through ticketing barriers. Cardholders will simply swipe their card through a reader. A London Connects document envisages the card being used as an electronics purse for things such as parking, library services and access to leisure facilities, as well as an entry token providing a means of establishing the holder’s rights to public and private services.

More on this story here.
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