Offshore News Digest for Week of June 16, 2003

DISMAL DAYS IN LATIN AMERICA

The recent lack of attention on Latin America by many, particularly the United States government, has not altered the fact that the region is struggling with its own war in which drugs may not be weapons, but certainly continue to be the means, of mass destruction. Over the past 30 years the demand for cocaine has had its toll in the Andean countries, bringing in its wake a degree of corruption which has ruined many regional institutions, financed guerrillas and, because of coca planting, has ruined large tracts of land. The drug profits seep into and distort regional economies despite increasingly tough money laundering controls in regional banking centers such as Panama where opening accounts is particularly challenging and time-consuming.

As the mobility of the drug industry has frustrated efforts to significantly reduce it, so the volatility of Latin American economies is making some of them almost impossible to manage. Argentina and Venezuela aside, Uruguay is probably going to experience its fifth year of recession. Even one of the region’s two big investment-grade economies, Mexico, has faltered of late. Venezuela is focused on paying interest due on its external debt of $22.4 billion of which $5 billion is payable this year. The country is about to become the third Latin American country this year to restructure its external debt.

In Latin America (especially Brazil) the past has shown that men in uniforms, rather than lounge suites, have often had the right approach to social and economic issues and have been the most effective leaders which, of course, plays into the hands of the told-you-so brigade who are only too willing to typecast a continent. The results of Transparency International’s latest index of perceptions of corruption, which targets the misuse of public office for private gain, may surprise some. Finland, ranked number 1, is believed to be the least corrupt country. Britain is number 10 with the United States in 16th position, one position above Chile, which itself is ranked just above Germany. Botswana ranked higher than France, Taiwan or Malaysia, and Brazil was in 45th place. Ethics, of course, cannot be enforced, only encouraged and unethical people everywhere will continually try and work around any system of controls. So it all comes down to the individual, and not the country, in the end.

MOODY’S DOWNRADES BELIZE CURRENCY RATINGS

The ratings agency has taken the decision to downgrade the country’s foreign currency country ceiling for bonds and notes from Ba2 to Ba3. Additionally, the foreign currency country ceiling for bank deposits has been notched down from Ba3 to B1. Government backed foreign currency bonds were downgraded from Ba2 to Ba3 and Domestic currency nominated securities dropped to Ba2 from Ba1.

Moody’s commented that their ratings were as a consequence of a build up in public debt resulting from a recent policy of fiscal expansion. However, the ratings agency noted that debt ratios were not set to decline dramatically in the near term, and maintained a stable outlook for the nation.

BERMUDA IS STILL THE CAPTIVE INSURANCE KING -- BUT IS LOSING GROUND TO RIVALS

Chief rivals are Cayman Islands and Vermont, according to 2002 figures which showed a bumper year for these types of insurance companies. In 2002 462 new captives insurance companies were licensed for business around the world, a growth of nearly 10% overall and an increase of 75% over 2001’s new captive formations.

The compiled figures show that Bermuda had 1,426 captives in 2002 -- 29.5% of the global market which is more than double the next largest domicile, Cayman, which has 642 and more than three times the number in Vermont, 454. But while Bermuda tops the chart in terms of sheer volume, the Island is losing ground on the formation of new captives. Of the 462 captives formed in 2002, 79 or 17.1% were formed on the Island. But 21% or 97 were formed in Cayman and 70 or 15% formed in Vermont.

COOK ISLANDS TRYING TO IMPROVE MONEY LAUNDERING RECORD

Deputy prime minister Dr. Terepai Maoate says his country is doing all it can to be removed from a money-laundering blacklist. He says Cook Islands has suffered a decline in its revenue because it is on the list.

NAURU’S OFFSHORE BANKING SECTOR “ELIMINATED”

The new government of Nauru, the only nation or territory in the world facing full-blown financial sanctions for money laundering, announced it had ended its offshore banking operations. Chief Secretary Willie Star told delegates at the Asia Pacific Working Group’s annual meeting in Tokyo that Nauru has revoked all 140 banking licenses except for its national bank. He said Nauru is now in full compliance with recommendations by the Financial Action Task Force on Money Laundering.

Nauru, a 21-square-km (8-sq-mile) island of 8,000 people, is dependent on foreign aid after hundreds of millions of dollars in earnings from phosphate exports was frittered away. It is also being paid by Australia to house unwanted boat people.

CYPRUS TO IMPLEMENT EU TAX PACKAGE BY 2005

The tax package was finally adopted last week after years of deliberation between member states and other jurisdictions directly affected, most notably Switzerland. The three-pronged directive seeks to eliminate banking secrecy by allowing exchange of information between member states concerning individuals’ savings income. It also seeks to do away with the double taxation of royalties and interest payments for companies, and establishes a business Code of Conduct aimed at preventing harmful tax competition.

The statement emphasised that the directive on information exchange will not apply to residents of non-member states, a move likely intended to placate the vast Russian interest in the jurisdiction. Recent estimates have suggested that Russian deposits count for as much as 90% of all offshore money located in Cyprus. Also, the legislation does not apply to companies, therefore much of the Cypriot offshore business sector will remain unaffected.

TONY BLAIR BACKS MACSHANE OVER GIBRALTAR COMMENTS

UK European Affairs Minister Denis MacShane has received the support of the Prime Minister over comments made to Spanish newspaper El Pais last weekend when he dismissed the idea of an Anglo/Spanish deal concerning Gibraltar in the years ahead. “The Minister certainly did speak for the Government. What he actually said however, was that there could be no question of any deal going through without the consent of the people of Gibraltar. We have always made that clear. That remains the position. I have said it myself and he said it too,” said Mr. Blair.

FATF PUTS NEW AREAS IN SPOTLIGHT

The international body leading a campaign against money laundering aims to expand a crackdown on dirty money with new rules for e-banking, insurance, derivatives and securities trading, according to a memo.

“With the increasing technical developments ... and the creation of new financial products [such as] derivatives, the methods and techniques of money laundering have changed. Not only banks can be misused to launder money,” a document supplying an agenda for the upcoming FATF plenary meeting said.

New rules propose tougher “customer due diligence” procedures for high-risk business areas such as correspondent banking or dealings with people with questionable political histories. The rules will also be expanded to apply to insurers and securities dealers, not just banks, and would also crack down on underground financial networks used by criminals to circumvent banking regulators, the document said.

IRISH MONEY LAUNDERERING ABETTORS FACE “UNLIMITED” FINES

Accountants, art dealers and estate agents risk “unlimited” fines and a hefty jail term under new anti-money laundering rules. These three businesses are among 10 professions which will be legally obliged starting September 15 to inform the gardaí and the Revenue Commissioners of any suspicious financial transactions worth over €1,500 by clients. Other professions covered by the rules include solicitors, auditors, tax advisers, and investment firms, as well as dealers in art, precious stones and precious metals.

A conference at Dublin Castle organised by the Irish Centre for European Law discussed developments in the EU criminal and judicial area, including proposals for an EU Public Prosecutor, the European Arrest Warrant and EU anti-terrorist legislation. Justice Nial Fennelly of the Supreme Court said the European Arrest Warrant was “radical and disturbing” for a common lawyer.

BRITAIN: NO GO ON THE EURO?

As the June 9 deadline fast approaches for the government’s long-awaited decision on joining the euro, Britons are shrugging off Prime Minister Tony Blair’s arguments for joining, and they are even hardening their opposition. Some 61% of Britons say they would vote no, up from 54% in December. Only 29% say they would vote yes on joining, down from December’s 38%.

Business is skeptical, too. In a poll of senior executives released by MORI in January, just 35% said they thought Britain should go in as soon as possible, while 49% said the country should wait and see how the euro develops. Some 13% said Britain should never enter. This poses a considerable problem for Blair, who would like to crown his term in office and burnish his credentials as a possible future President of the European Union by leading the nation into the single currency.

Unless Blair succeeds in turning sentiment around, Britain could remain outside the euro zone for years, perhaps decades. That does not bother many British executives. The 10% fall in sterling against the euro in the past 12 months has mollified CEOs who were complaining that the high pound was making it impossible to sell their products on the Continent. Moreover, the dismal performance of the German economy since it joined the euro has shown the downside of relinquishing control of monetary policy to the European Central Bank.

BILLIONAIRE STATUS FOR HARRY POTTER AUTHOR -- IF SHE DECIDES TO DO A VANISHING TRICK

JK Rowling could be a billionaire by the age of 50 -- if she leaves her Scottish home to become a tax exile. Even if the writer remains in the UK, she is likely to reach billionaire status in her early sixties, making her the first author in the history of literature to make such a sum from her works. Financial experts say that with an estimated £280 million already in the bank, the 37-year-old author is destined to boast a ten-figure bank balance within her own lifetime.

Rowling’s earnings potential has emerged just days before her income will be boosted again, with the publication of the fifth book in her series about the bespectacled boy wizard. Harry Potter and the Order of the Phoenix will go on sale at midnight Saturday (June 21), and has been described as the most pre-ordered book in history.

MYSTERY MILLIONAIRE SEEKS WIRY WORKAHOLIC

A mystery millionaire claiming to be a disorganised swine is advertising for a £100,000-a-year personal assistant, with a warning that if you are married and want the job, you should get divorced now. The advert, which is causing a stir in a number of tax havens, including Monaco, was placed in last week’s Sunday Times at a cost of £10,080.

It is headed “Personal Assistant to Eccentric Tax Exile” and begins: “If you are a highly intelligent workaholic with a skin like a rhinoceros and don’t mind being asked to keep 20 balls in the air at once, then this could be just the job for you!”

HEDGE FUNDS PROFIT IN STORMY MARKETS

There are as many investment styles as there are hedge fund managers -- and there are 5,000 to 6,000 managers around the world. While all sell stocks short, some use leverage (borrowing), some concentrate their portfolios or use derivatives such as put and call options, or mix and match an assortment of techniques. Our portfolio managers highlight the differences in approach across strategies -- and even within one strategy, the well-known long/short hedge fund.

PRIVATE CONCERN, PUBLIC CONSEQUENCES

Last month, a federal judge ruled that Mr. Marshall Cogan had drained his company, Trace International Holdings, of tens of millions of dollars while its officers and directors stood by and did little. The ruling could cost Mr. Cogan and five officers and directors a total of $44 million, if it stands up on appeal. Judge Robert W. Sweet of the Federal District Court in Manhattan effectively said that the officers and directors of private companies could not simply rubber-stamp whatever “their boss” wants but have a fiduciary duty to the corporation and its creditors.

The case is highly significant for private companies, said several corporate lawyers and legal experts, because the judge applied the same criteria for fiduciary responsibility normally associated with public companies to the directors and officers of Trace. The case is also unusual, they added, because officers and directors with the exception of Mr. Cogan were found to be liable for the money even though they did not benefit personally.

DONATIONS TO TRUSTS LEFT OUT OF SOUTH AFRICAN EXCHANGE CONTROL AMNESTY

It emerged from reports last week that the South African Revenue Service’s Exchange Control Amnesty and Amendment of Taxation Laws act does not cover donations to overseas trusts, and that any money transferred to a trust in this manner may be liable for donations tax of up to 20%. It is very unlikely that a substantial amount of money was placed offshore in such a manner, according to Martin Grote, chief director of tax policy at the National Treasury. The majority of funds would have been directly transferred into offshore trusts and will therefore fall under the amnesty.

The amnesty, which commenced this month and will run until 30 November 2003 allows individuals who have illegally placed funds offshore in recent years to declare their investments without fear of penalties or prosecution. The provision announced in Finance Minister Trevor Manuel’s 2003 budget will levy a 5% tax on any repatriated funds. If investors choose to keep their money offshore, a 10% tax will be imposed.

PATRIOT ACT OF 2001 CASTS WIDE NET

Long-sought details have begun to emerge from the Justice Department on how anti-terrorist provisions of the USA Patriot Act were applied in nonterror investigations, just as battle lines are being drawn on proposed new powers in a Patriot Act II.

Overall, the policy now allows evidence to be used for prosecuting common criminals even when obtained under extraordinary anti-terrorism powers and information-sharing between intelligence agencies and the FBI.

The information was a response to doubts, not from outspoken civil liberties groups, but from Rep. F. James Sensenbrenner Jr., Wisconsin Republican and the House Judiciary Committee chairman who publicly pushed the act’s speedy 337-79 House passage.

The American Civil Liberties Union spearheaded opposition to sections that could let the government obtain vast amounts of information that infringe on constitutional rights. “It’s clear that the problems of 9/11 were the result of not analyzing information we had already collected. Creating more hay to search through the haystack is not an effective way to find the needle,” ACLU legislative counsel Timothy Edgar said in an interview.

ASHCROFT NONAPOLOGETIC DESPITE FINDINGS OF POST-9-11 INJUSTICE

Attorney General John Ashcroft must loathe this country’s traditions of freedom. How else can one explain his blithe reaction to a report by the Justice Department’s own inspector general that details how his department mistreated hundreds of immigrants detained following Sept. 11? Page after page of the nearly 200-page report is as scathing and condemning as bureaucrat-speak gets. Yet Ashcroft told Congress that he does “not apologize” for the way his department conducted itself post-Sept. 11.

None of the report’s findings apparently pricked his conscience: not the way men were indiscriminately arrested, or the way they were kept from contacting attorneys, or the way they were left to languish for months while the FBI agents assigned to clear them of terrorist links were given other duties. In the end, beyond Zacarias Moussaoui, who was arrested prior to the Sept. 11 attacks, not one of the detainees was charged with a terrorism-related crime. Not one.

How can the Justice Department claim to have been safeguarding Americans when it threw away the rule book -- the principles of due process -- and in doing so came up with zero al-Qaida members beyond Moussaoui? If the great paradigm of this century is liberty vs. security, then where was the security payoff?

U.S. will tighten rules on holding terror suspects.

Federal authorities said that they planned to use stricter standards for identifying and locking up terrorist suspects in light of concerns raised in a recent report that hundreds of illegal immigrants were mistreated after the Sept. 11, 2001, attacks.

Law enforcement officials plan to make at least 12 structural changes that were recommended in a report issued last week by the Justice Department inspector general, according to interviews with officials at the agencies affected by the report. Nine other recommendations are being actively considered, they said.

CONGRESS AIMS SODA AT DEPARTMENT OF JUSTICE SNOOPING

The U.S. government’s most secret class of Internet spying, telephone wiretaps and physical searches would become slightly less secret under legislation proposed reflecting lawmakers’ growing unease with the Justice Department’s use of expanded surveillance powers.

The Surveillance Oversight and Disclosure Act (SODA) introduced in the House of Representatives would require the DoJ to publish an annual report counting and categorizing the number of surveillance orders issued under the Foreign Intelligence Surveillance Act (FISA) in the previous year. The report would break down the number of FISA orders targeting U.S. citizens and non-citizens in each of four categories: bugs and wiretaps, covert physical searches, e-mail header interception, and access to stored records. Current law requires the department to reveal only the grand total: 1,228 last year.

PRYING EYES GO ONLINE

Husband acting peculiar lately? Daughter dating a fishy-looking fellow? Thanks to Web sites that allow anyone to play detective, your days of wondering “what if” are over. More and more Americans are embracing their curiosity and using online snooping sites like CrimeTime.com, to gather information that was once only available at the local courthouse.

Information ranging from criminal records and nursing home inspections to unsolved crimes and CDC reports of cruise liners, are literally at the tips of your fingers. With a few clicks, you can find the address of a long lost love, do a reverse phone book check to see if an organization is legit or find out if your nanny has a less than perfect past. More personal information, such as credit reports, can be accessed for a price.

EUROPE’S NEW CONSTITUTION: PHILADELPHIA IT IS NOT

European Union leaders have been meeting in Brussels to write a constitution that would provide a basis for the creation of a federal Europe. Amid much hyperbole about the blissful future of a united Europe, the former French president, Valery Giscard d’Estaing, head of the Convention on the Future of Europe, recently revealed the first draft of the European constitution. Regrettably, there is little resemblance between the Brussels document and the one produced in Philadelphia 216 years ago.

The American Constitution is permeated by the ideas of the Enlightenment and steeped in the desire to be free of foreign and domestic despotism. The EU constitution, in contrast, is written in largely impenetrable legalese and constitutes a politically correct proclamation of bureaucratic folly immersed in the European Left’s post-Cold War ideological confusion. Unlike the clear, direct language of the U.S. Constitution, which carefully enumerates (thereby limiting) the powers of the government, the division of powers between governments, and the general rights of the governed, the EU constitution teems with concessions to special interests, thereby making a mockery of the term “limited powers”.

American constitutional rights are “negative”, that is, they protect Americans from infringement upon their life, liberty, and property. Conversely, the EU constitution is filled with “positive” rights for Europeans that can only be guaranteed by limiting the freedoms of other Europeans.

FOREIGNERS RUSH TO BECOME GERMAN

In striking proof of Germany’s break with its old bloodlines citizenship law, officials said far more foreigners were being naturalized under a reformed law which came into force three years ago. A total of 154,547 people were given German citizenship in 2002 -- bringing the total number of foreigners who received German passports in the past three years to almost 520,000 -- a 56% increase over the previous three-year-period, said Interior Minister Otto Schily.

The legislation, which came into force on January 1, 2000, dumped the old link of German bloodlines to citizenship which dated back to the Kaiser’s era from before World War I. Under the new law, children of foreigners born in Germany are generally granted automatic citizenship and formerly tough requirements for adult foreigners to become German nationals have been greatly eased.

Germany has a total population of 82 million of which about 7.3 million are foreigners. Turks, numbering 1.9 million, are by far the biggest minority group.

BOOK REVIEW: BROADBANDITS: INSIDE THE $750 BILLION TELECOM HEIST

This book offers a scathing analysis and a riveting read just how $750 billion was trousered by what author Om Malik describes as “modern day robber barons”. The telecoms scamsters ruined the lives of employees while they lined their own pockets, built themselves palaces and just laid back and enjoyed the sun on multimillion dollar yachts.

Malik contrasts what he describes as the $750 billion telecom heist with the collapse of the dot.com bubble. The telecom “heist” started with less publicity than the dot.com bubble but cost 600,00 jobs as a result of what he describes as shortsighted, greedy and financially inept “broadbandits”, the subject of the book.

TRANSPARENCY INTERNATIONAL POINTS FINGER AT SWISS OLD BOY NETWORK

Switzerland has for the second year running failed to reach the organization’s top ten of the world’s least corrupt nations -- Switzerland placed 12th in this year’s annual global survey -- prompting calls for a fresh offensive against corruption. The global watchdog group said the country was plagued by a culture of petty nepotism.

Transparency International surveyed perceptions of public corruption in 102 countries and found that Switzerland, while generally seen as relatively clean, still has room for significant improvement. The study said Switzerland’s failure to improve its ranking over last year was because it had made little progress in severing the incestuous links between government and business which fuels minor corruption. The president of the organization’s Swiss chapter said a key problem remains the country’s limited size. The result is a web of personal relationships that criss-cross local and cantonal structures, into the party political system and throughout senior echelons of the army.

DEUTSCHE BANK RESTRUCTURES CHANNEL ISLANDS OPERATIONS

The result of which will be something of a mixed blessing for the islands. While Guernsey is set to gain 15 jobs, 40 posts will go in Jersey.

CROATIA: THE INSIDER’S CHOICE FOR TAX-ADVANTAGED RESIDENCE AND YACHTING IN EUROPE

Croatia is generally a high-tax country, but it offers interesting advantages for persons who receive certain income, for example a foreign pension, bank interest and capital gains. Croatia also offers important tax advantages to yacht owners. These fiscal advantages as well as the natural beauty of the country and its rich culture and history make Croatia one of the most attractive locations for residence and retirement in Europe.

Croatia is divided between the Latin-influenced coast and an interior which is more Central European. The official language is Croatian, but English is widely spoken. Croatia occupies an area only slightly larger than Switzerland, but has a spectacular 6,000 km coastline on the Adriatic Sea with more than one thousand islands, of which only 66 are inhabited. This is the most beautiful coast in Europe with innumerable bays, inlets, coves and beaches.

Land and house prices are still very favorable, particularly on the islands where there are beautiful stone houses built in the traditional style. Also in the historic towns there are excellent opportunities to acquire prime location real estate at reasonable prices.

The Richest 15% of Croations hold half the wealth.

About 45% of Croatia’s residents earn almost 80% of the total income and own almost 75% of the property in the country, while the most affluent 15% own half of the income and property. These were the conclusions of last year’s research project conducted by the Economic Institute of Zagreb using a population sample of 2 million.

Those with a net income of up to $350 a month are considered lower class, while the middle class consists of individuals who earn between $350 and $600 a month. Those who make $600 a month are considered wealthy in Croatia, and those making $1,400 or more are among the wealthiest 15%.

BERMUDAN FURY OVER CANADIAN PAPER’S “TAX HAVEN” STORY

Bermuda International Business Association (BIBA) has reacted angrily to a story in the Canadian press which labeled the Island as a tax haven and mistakenly said that it had been blacklisted -- and demanded a retraction. And BIBA has written a strongly worded letter to Business Section Editor of the Toronto Globe & Mail requesting a correction to an “erroneous” statement that Bermuda was “until recently,” part of “an international blacklist of uncooperative tax havens”. BIBA chairman Jeff Conyers pointed out to the Canadian newspaper editor this statement was completely inaccurate.

Mr. Conyers added that BIBA was concerned to see Bermuda included alongside other offshore jurisdictions with very different approaches to taxation and financial regulations.

Bermuda to become associate member of CARICOM.

Bermuda is set to become an associate member of the CARICOM (Caribbean Community) group of states when the organization convenes for its 24th regular meeting on June 29. CARICOM was formed in 1973 and then comprised the ten English speaking islands of the former British West Indies Federation. Since that time, the Community has largely concentrated on the economic integration and promotion of member states, as well as the coordination of a unified foreign policy. It has also brought about reform regarding various social issues. Since its inception, the organization has grown to 15 states including French and Dutch speaking islands.

COSTA RICAN PRESIDENT’S PROBLEMS CONTINUE

President Abel Pacheco has repeated his call for a Constitutional Congress, arguing that the country’s current set of laws and institutional checks and balances is preventing him from governing and Costa Rica from escaping the web of underdevelopment. Political observers, meanwhile, claim it is the government leadership that needs changing, not Costa Rica’s 1948 Constitution.

“To govern a country is to make strategic decisions that will affect the future of the country,” said Citizen Action Party founder and presidential candidate Ottón Solís, who is running for President again in 2006. “Costa Rica is one of the only countries in the world that doesn’t have a government, but still manages to function, more or less.”

U.S. AND 29 OTHER COUNTRIES TARGET CROSS-BORDER FRAUD

The United States and 29 other countries announced an effort to track down spammers, telemarketers and other scam artists who operate across international borders. The agreement would make it easier for governments to investigate and apprehend fraudsters who operate on a global basis, officials with the U.S. Federal Trade Commission and several other countries said. The Internet and plunging long-distance telephone rates have made it easier for scam artists to pitch miracle health cures, get-rich-quick schemes and other fraudulent products to a global audience.

Complaints about international fraud nearly doubled to 30,798 last year, according to FTC statistics, while Nigerian e-mail hucksters fleeced U.S. residents out of at least $100 million last year, according to the Customs Service.

Sellers hit with online scam.

When Candi O’Brien decided to sell her car she listed it on cars.com and got an almost immediate response from a man who claimed to be a doctor in South Africa. However, she could not understand why the South African doctor could not find a Jeep in his own country, and while he agreed to nearly meet her asking price of $8,500, he had a questionable payment plan. “He was going to give me an American cashiers’ check from a person in the states. It was going to come from them. They owed him money for procedures that he had done, and that was how he was willing to exchange everything.”

O’Brien’s experience is one of many car-sale scams. In some cases alleged buyers want the cars up front before they pay. In other cases, they give you a check that turns out to be bad.

Then there is the one where the alleged buyer is willing to pay your price and claims to have a third-party settlement check for more than the amount and asks you send back the difference. Trusting consumers have lost money because they discover that buyer’s check turns out to be bogus. “If you get a cashiers’ check find out who the bank is and call the bank. Find out if it’s a legitimate check,” Massachusetts Consumer Affairs Director Beth Lindstrom said.

Southern California father, son to plead guilty for investment scam.

LOS ANGELES: A father and son agreed to plead guilty to wire fraud and money laundering charges for bilking more than $130 million from investors who thought they were buying into the foreign currency market.

Prosecutors said the father-son team ran a company called Midland Euro that took more than $130 million from more than 300 investors who lived in the United States, Canada, Saudi Arabia and Israel. They allegedly told investors they were guaranteed monthly profits from investments on the international currency market of 2 to 4 percent, and that 40 to 85% of their initial investments would be guaranteed against any losses. Less than 20% of the money was actually invested in foreign currency, prosecutors said. The rest was spent on jets, luxury cars and mansions, said Special Assistant U.S. Attorney Stephen Kramer.

U.K. COURT REJECTS EXPAT PENSIONER’S CLAIMS

The court of appeal has ruled in favour of the government, stating that it had not acted unlawfully in refusing to uprate expatriates’ state pensions in line with inflation. Currently, British expat pensioners living in South Africa, Australia, Canada and a long list of other countries have their state pension frozen and not increased annually in line with inflation, as happens in the UK. It is frozen either at the date of retirement or the date of arrival abroad and it never increases regardless of the level of national insurance contributions made.

U.K. FIRMS WARNED TO WISE UP TO MONEY LAUNDERING

The European Union’s Money Laundering Regulations, introduced this week, will target firms that are “dealers in high value goods”, such as jewelers and car dealerships, to ensure they are not accepting illegitimate payments. UK businesses that are willing to accept cash payments of £10,000 or more will be under the most scrutiny, with the regulations stating they must register with HM Customs & Excise.

KPMG warned that bosses who fail to adhere to the rules could face a large fine or even up to two years in prison, as well as the resulting damage to their business’ reputation.

SURVEY ON WORLD’S COSTLIEST CITIES RELEASED

New York City is the costliest city in the U.S., while Tokyo is the world’s most expensive place to live. According to a survey by Mercer Human Resource Consulting, Moscow comes in second after Tokyo, and Osaka, Japan, is ranked third.

New York ranked 10th worldwide, Los Angeles 22nd, Chicago 25th, Miami 27th and San Francisco 30th on the scale of costliness. In Europe, London, Copenhagen and Milan remain the European Union’s most expensive places to hang your hat.

A HALF-SERIOUS QUESTION: SHOULD GERMANY LEAVE THE EURO CURRENCY ZONE?

The interminable debate in Britain over whether to join the euro reached a new peak this week, when Gordon Brown, the chancellor of the exchequer, delivered his verdict. Mr. Brown based his judgment on five economic tests, of which Britain, he announced, had failed four. Yet perhaps this is the wrong debate about euro membership. Only partly in jest, The Economist suggests that a better question is not whether Britain should join the currency zone, but whether Germany should leave.

Take Mr. Brown’s five tests and apply them to Germany. Whatever the economic arguments for Britain’s joining the euro, the case for Germany’s quitting looks stronger. The idea that Germany will do it is, of course, the stuff of fairy tales. However, the country’s present predicament also has a fairy-tale feel, with the European Central Bank in the role of the wicked witch who lured Hansel and Gretel into her gingerbread home with the aim of eating them. In the story by the Brothers Grimm, Gretel pushes the witch into the oven. In the real world, Germany is being roasted, and risks living unhappily ever after.

WILL EXPORTS FROM IRAQ COMPLICATE OPEC’S EFFORTS TO CONTROL THE PRICE OF OIL?

ARE OPEC’s days numbered? Some oil-market watchers have been suggesting that it might soon be time to write the obituary of the oil producers’ cartel. That might be premature. OPEC has survived several turbulent decades -- bloodied, perhaps, but unbowed. But the prospect of oil from Iraq coming back onstream will certainly complicate efforts to keep the price of oil where OPEC would like it to be. The first contracts for the sale of Iraqi oil, signed on June 12th, were concluded remarkably quickly in view of the chaotic state of post-war Iraq.

For now, oil from Iraq is unlikely to have a big impact on the global balance between supply and demand. It is not clear, for example, how much oil will be available in the short term. More than a decade of neglect has left Iraq’s oil infrastructure desperately in need of fresh investment. It could be years before the country’s full potential for oil production -- it has the world’s second-largest proven reserves, after Saudi Arabia -- is realised.

RUSSIAN DEPUTIES APPROVE A TAMER TAX POLICE

Legislation declawing the heir to the infamous Tax Police -- which cease to exist as of July 1 -- has been well-received among the business community, because contrary to expectations, the reincarnated tax investigators will have their authority checked. The Tax Police’s replacement, the Federal Service for Economic and Tax Crimes, cannot launch an investigation without Tax Ministry approval.

The Tax Police were long criticized as a sprawling organization hungry for new authority, and they also duplicated functions of the Interior Ministry. Tax Police officials were often used by businessmen to gain an advantage over rivals.

CORRUPT SHANGHAI TYCOONS

Over the past 18 months four of China’s top tycoons and three senior bankers have fallen foul of the law, decimating the upper echelons of a Forbes magazine China “rich list”. The question of what exactly is ailing corporate China has relevance not only for foreign corporations that have made China the world’s top destination for direct investment but also for investment bankers and fund managers who have made the multi-billion-dollar foreign listings of Chinese companies a runaway success.

The forces that drive a disproportionate number of China’s emerging business elite to corruption are not explained by management shortcomings alone. Rather, they are the result of a fundamental incompatibility between economic and political systems; a mismatch between the raw, 19th-century capitalism of China’s entrepreneurial class and a largely unreconstructed and poorly paid communist bureaucracy that still bears the imprint of its Leninist ancestry.

For most of the past decade, private businesses have been kept in legal and political limbo. The assets of private concerns were not protected by law; until last year entrepreneurs were not encouraged to join the ruling party; state banks were reluctant to lend to them; and, in many ways, mandarins blocked access to markets and withheld business licenses.

Shut out from legal avenues to do business, entrepreneurs resorted to less orthodox means. They raised credit from a network of “underground banks”, dodged taxes and found ways to send earnings offshore. And, when confronting the bureaucracy was unavoidable, they used their only asset -- cash -- to buy the influence they required.

US TERRORISM ARRESTS TO REMAIN SECRET

The names of hundreds of people detained since the 11 September attacks can be kept secret, a US federal appeals court has ruled. The decision overturns a federal court ruling that the names of those detained as part of anti-terrorism efforts since the 2001 attacks should be made public.

More than 20 civil liberties groups had argued that their names should be disclosed under the Freedom of Information Act. But the appeals court backed the US Justice Department who said such information would play into the hands of terrorist groups.

Kate Martin, director of the Center for National Security Studies, said: “We are disappointed that for the first time in US history, a court has approved secret arrests and we plan to pursue the case.”

JUDGE TELLS IRWIN SCHIFF TO STOP SELLING BOOK

A federal judge ordered him to stop selling his book, The Federal Mafia: How the Federal Government Illegally Imposes and Unlawfully Collects Federal Income Taxes, that contends income taxes are voluntary and that people can lawfully escape them by filing tax returns listing no income.

Mr. Schiff and his associates, the judge wrote, knew that they “are offering fraudulent tax advice” and that the book is false commercial speech which “is not protected by the First Amendment.” He ruled that the record in two criminal tax prosecutions of Mr. Schiff, which resulted in prison sentences, established that he knew that his tax advice was inaccurate.

Allen Lichtenstein, general counsel of the American Civil Liberties Union in Nevada, said he looked forward to arguing the case before the Ninth Circuit Court of Appeals. Mr. Schiff said he had done nothing wrong and would appeal. “We argued that the book is not commercial speech, cannot be banned as false commercial speech and does not meet any other criteria for censorship,” he said.

DEPARTMENT OF HOMELAND SECURITY HALTS AIRLINE PASSENGER SCREENING SYSTEM

Lee Tien, a senior staff attorney for the Electronic Frontier Foundation, which has been sharply critical of the data mining program, said Friday his organization has received information “from inside the DHS” that a CAPPS II moratorium will be declared.

Bill Scannell, who organized a website calling for a boycott of Delta Airlines, which was testing the program at unidentified airports, was also declaring victory. His site says officials at the “highest levels of the Department of Homeland Security” confirmed the moratorium.

In early March, the Bush administration revealed the Transportation Security Administration (TSA), a department of the DHS, planned to scan government and commercial databases for potential terrorist threats when a passenger makes flight reservations.

FIRM DEMONSTRATES RADAR THAT CAN SEE BEHIND WALLS

A British firm, Cambridge Consultant, has demonstrated a type of radar that can allow people to find out what is happening behind walls. The detection technology can pick up the location and movement of people inside buildings, or breathing in rubble, it claims. The device works by transmitting low frequency radio pulses that can pass through material up to 25 centimeters thick. It can detect objects in a 5 to 10 meter range, and has a 120º field of view.

IP TELEPHONY HAS MATURED

Consumer IP Telephony is at the beginning of a transition phase with the growth of broadband enabling IP Telephony providers to merge lower rates with greater quality and features, market analysis organization In-Stat/MDR said this week.

“By 2007, the US IP Telephony market is forecast to grow to over five million active subscribers. While this shows a five-fold increase in subscribers over 2002, it still lags US Plain Old Telephone Service (POTS) with over 100 million households,” says a senior analyst with In-Stat/MDR.

PROJECTED U.S. FEDERAL GOVERNMENT DEFICIT SOARS

Congress’ top budget analyst warned Tuesday that the government is on track this year for a record deficit exceeding $400 billion, which provides fresh fodder for President George W. Bush and Democrats to use in their battle over taxes and spending. The deepest shortfall heretofore, $290 billion, occurred in 1992.

U.S. trade deficit swells to record $136.1 billion in Q1 2003.

The latest snapshot of trade activity reported by the Commerce Department shows that the mushrooming “current account” deficit in the January-March quarter was 5.8% larger than the previous record deficit of $128.6 billion set in the fourth quarter of 2002.

The current account deficit is considered the best measurement of a country’s international economic standing because it measures not just the goods and services reflected in the government’s monthly trade reports, but also investment flows between countries and unilateral transfers, including U.S. foreign aid payments.

Deficits driven by lawmakers out-of-control spending.

Heritage Foundation figures show that the federal government will spend more than $21,000 per household this year -- a record amount in peacetime. In fact, Washington will spend $520 billion more this year than it did in 1999. That is a lot more money than the recently enacted tax cut so many lawmakers attacked as being “too expensive”.

Even as they throw our money around, many lawmakers say they want to return to a balanced budget. Well, doing so means establishing priorities. If Congress limits the average annual growth of mandatory spending programs to 4.6% per year, instead of the 5.6% proposed by President Bush, and freezes non-defense discretionary spending at the 2003 level, a balanced budget would be achieved by 2008.

BUSH’S MEDICARE PLAN IS HILLARY CLINTON’S TRIUMPH

This week, at President Bush’s urging, the GOP-controlled Congress is likely to approve a bill that severely restricts seniors’ freedom of choice in health care. Its core premise -- medical treatment controlled by the state -- is an exact application of the Clinton health care philosophy. The similarity is not lost on the Clinton administration’s former Medicare administrator, Nancy Min DeParle, who told the Washington Post: “Democrats should do everything they can to whisk [the Medicare bill] to [Bush’s] desk. In signing it, as he will surely be forced to do, he will preside over the biggest expansion of government health benefits since the Great Society.”

Even the conservative Heritage Foundation, which rarely opposes any Bush administration notion, opposes the Bush-backed Medicare reform. Heritage calls it “an unforgivable failure of leadership”.

Both House and Senate versions of the bill force older Americans -- three-quarters of whom already have private drug coverage -- to join government purchasing cooperatives (dubbed PPOs) to get their prescriptions. Both bills grant government the power to define what drugs are acceptable for seniors and how much they will cost. Medicare recipients will also be forced to pay new drug deductibles -- those making $60,000 must pay even higher out-of-pocket costs.

BELGIUM REVIVES FIGHT OVER EU TAX PACKAGE

Belgium’s decision to block a key element of the June 3 deal on an EU tax package has put the fate of the package in a limbo yet again. The Belgian government announced its intention to block the agreement reached by member states concerning Italian milk quotas -- an issue that had stalled the final agreement of the European Savings Tax Directive for some time -- unless the European Commission supports its demands over a domestic tax issue.

MINOR TAX CHANGES ANNOUNCED IN BAHAMAS BUDGET

Finance Minister Allyson Maynard-Gibson detailed changes in the valuation of property for taxation purposes, an increase in premium tax for insurance companies and future reform of casino tax in addition to outlining developments in financial services regulation and e-business.

U.K. TAX CHIEF DEFENDS SALE OF BUILDINGS TO TAX-EXEMPT FIRM

Sir Nicholas Montagu, head of the Inland Revenue, said the sale to Bermuda-based Mapeley Steps Ltd. had followed government rules and provided better value for money than any of the other bids for the £220 million($370 million) sale, which took place in 2001.

The transaction caused political embarrassment for Montagu’s superior, Chancellor of the Exchequer Gordon Brown, who has led a clampdown by the European Union on offshore tax havens. It also triggered an investigation by a panel of lawmakers who oversee Brown’s Treasury in London.

Tax chief offered to resign.

Sir Nicholas Montagu told MPs that he offered to quit after his operation was plunged into chaos over handing out tax credits and selling all its offices to a company based in a tax haven.

Inland Revenue moves to Bermuda.

Shareholders in Mapeley, the Bermudan offshore company that is leasing the Inland Revenue its office space, have made a £23 million tax-free windfall by selling a London tax office. In a further embarrassing twist, the sale saw the Irish investor who bought the building avoid stamp duty thanks to a loophole that is costing the Treasury billions.

The news will cause acute unease to the Treasury and the Revenue. It is the first blatant example of how the Exchequer stands to lose millions thanks to the outsourcing of 600 tax offices to a company based in a tax haven.

EURO MAKES ONLY MODEST INROADS IN SWITZERLAND

A new study reveals that the franc remains the most popular currency in Switzerland, and that the euro has not become a major competitor. Switzerland is not a member of the European Union, but the euro has been accepted as payment for goods and services in many shops and restaurants since the notes and coins were introduced in 2002. However, only 24% of Swiss retailers give their customers change in euros.

Research indicates that Swiss companies are increasingly favoring the euro over the dollar, which recently plummeted to its lowest level in seven years against the franc.

GUERNSEY BANK DEPOSITS UP 3% Q1 2003

This translates to a rise from £71.9 billion at the start of the year to £74.2 billion after the first three months. However, it falls short of the £77.3 billion record achieved last year, and represents roughly half of the amount held in Jersey banks.

The largest single currency type within total deposits remains the US Dollar at 42.7%, with the Euro accounting for 20.2% of deposits at the end of March 2003. The proportion in Sterling was down a little at 31.4%.

ANDREW SULLIVAN ON “THE EURO MENACE”

For the longest time America’s approach to European unity was one of supportive neglect. In the wake of World War II, there was no reason whatsoever for the United States to object to increased Western European integration, the expansion of intra-European trade, and the pacification of ancient conflicts, especially between France and Germany. In fact, there were many good reasons to endorse and encourage increased European integration.

But this analysis always obscured something at the heart of the European project. From the beginning, European unity was understood, especially in French eyes, as a counterweight to the global hegemony of the United States. The calculation was simple: No single European power could ever hope to approximate U.S. wealth, population, or power.

The more integrated the European economies have become, the more eager European elites have been to fuse the polities as well. Currently, critical decisions -- such as taxation and foreign policy -- are still largely determined by national governments, although their freedom to maneuver has been sharply curtailed. The European parliament, an elected body that does amazingly little, is just as anemic. The solution? A new European “constitution”, the final leap from a series of treaties (from which member countries could theoretically still withdraw) to an actual federal European state. So far, the proposals suggest a huge shift toward what the architects wanted to call the “United States of Europe” (USE).

What can the United States do about this new threat? The sad answer is not much. At the same time, Americans need to wake up and understand the significance of this new rival to U.S. global power.

Brussels attacked over alleged fraud.

The EC admitted that allegations of fraud at one of its most sensitive departments -- Eurostat, the Commission’s statistical arm -- were “far more significant than we had known”. Yves Franchet, Eurostat’s chief civil servant, and Daniel Byk, a director, are suspected by the anti-fraud office of having set up “entirely or in part” the system that allowed public money to be siphoned off to a concealed bank account in Luxembourg.

INVESTORS INCREASINGLY DEMAND ACCESS TO THIRD PARTY PRODUCTS

That investors are increasingly demanding a more diversified approach to asset allocation and access to the world’s best investment products is a key finding in the 2003 World Wealth Report published by Cap Gemini Ernst & Young and Merrill Lynch. “During the bull market, the concept of strategic asset allocation became unfashionable as equities produced record returns,” said James Gorman, President of Merrill Lynch’s Global Private Client Group. “However, when the market fell, high net worth individuals (HNWIs) became increasingly risk averse and began to seek wealth preservation through strategic asset allocation and diversification.”

Petrina Dolby, vice president at Cap Gemini Ernst & Young’s securities industry consulting practice, said: “The ability of a Financial Advisor to access products from multiple financial institutions through a single point of contact is a major attraction for HNWIs.” Open product architecture enables providers to include third-party products in their offerings, leading the way to a broader and deeper product and service base, regardless of institutional origin.

HEDGE FUNDS RETAIN THEIR FLAVOR

The allure of hedge funds is easy to understand. Their managers, unhampered by the restrictions that govern mutual funds, can invest in pretty much anything they want, from soy bean futures to WorldCom debt. That, together with their ability to use strategies such as short- selling and leverage, explains why their returns do not track those of stock and bond fund managers, even though they invest in stocks and bonds.

The lack of correlation has boosted the performance of hedge funds in the last three years. As the stock market has stumbled, falling 22% last year and 37% over the last three years, the CSFB/Tremont Hedge Fund Index returned 2.5% and 12.9%, respectively, with some types of funds outperforming those indices significantly.

The combination of positive absolute returns and falling correlation is causing investors to overlook hedge funds’ high fees (managers take 20% of any profits plus a 2% fee), their relative illiquidity and the occasional blow-up caused by injudicious use of leverage. For many, the biggest remaining hurdle is the difficulty of implementing their decision to commit a part of their portfolio to hedge funds.

Hedge funds may emerge as the new powerbrokers.

Hedge funds, which have exploded in size and influence in the past few years, are getting involved in deciding who owns and controls companies. There are two reasons for the rising power of the hedge funds. At the most simple level, they have a lot of money. An estimated $600 billion is tied up in hedge funds. That gives them a lot of leverage. But they have also been liberated from many of the rules that tie the hands of more traditional fund managers.

A CONVERSATION WITH INTERNATIONAL INVESTOR EXTRAORDINAIRE JIM ROGERS

The co-founder of the Quantum Fund with George Soros pores over reams of charts and spreadsheets when mulling any overseas investment idea. Then he goes to the country in question. And he doesn’t fly there -- he drives. In 1999 he commenced a three year, 116 country, 152,000 mile trip, from Iceland to the doorstep of his mansion in Manhattan.

Along the way, Rogers found many good deals ... and drew many interesting conclusions. China, not the U.S., will be the dominant nation of the 21st century, he posits. Russia, he says, is rife with corruption and is disintegrating rapidly. Egypt is a powder keg. Pakistan, splintering from within, will not last as a unified country. Mexico, with its declining oil revenues and dwindling direct investment, is in deep trouble.

“When you cross a border, you learn a lot of what you need to know. You learn about the bureaucracy. You find out about the black market, if there is one. Is the currency sound? Is it freely tradable? Do you have to pay bribes? And when you drive into the interior, you learn about the infrastructure. Is there an infrastructure? Is it being maintained? Is there electricity? Is there radio, television, newspapers? If there is no black market, that’s usually a good sign. If there is one, how high of a premium do you have to pay for the currency? A small premium is a good sign. A big premium means things could fall apart any day. As you get further into the country, you find out about corruption. Are you being harassed by the police? Are there hotels, businesses, farmers, and if there are farmers, are they using machines, or just plows and hoes? What kind of vehicles are on the road? How easy is it to get gas and food? It all starts coming together, and usually by the time I get to the capital, I have a pretty good idea whether or not I want to invest in the country.”

NO SAFE HAVENS, CHAIRMAN OF IRELAND’S TAX AGENCY WARNS

He revealed that over €700 million has been collected from special investigations into bogus non-resident accounts. Speaking at the publication of the annual report for 2002, Frank Daly said it is should clear to everyone that there were no longer any safe havens for hot money. He added people with bogus non-resident accounts thought they were safe from Revenue security, but were proven wrong.

GERMAN CABINET APPROVES PROPOSAL FOR TAX AMNESTY

Under the amnesty plan now going to Parliament, German residents who repatriate and declare money held abroad will not be prosecuted between Jan. 1, 2004, and March 31, 2005. Savings transferred back to Germany next year will be taxed at 25%, rising to 35% in the final three months. Chancellor Gerhard Schroeder once forecast that the planned amnesty would bring more than €100 billion ($118 billion) in foreign-held money back to Germany. But the Finance Ministry has scaled that estimate back to about €20 billion, with the government’s expected take totaling less than €5 billion.

Swiss banks are playing down the likely impact of the amnesty, details of which first appeared last year. The country’s financial institutions weathered a similar amnesty in Italy -- introduced in November 2001 -- after many Italians repatriating funds simply transferred their money to branches of Swiss banks in Italy.

ARGENTINA DECLARES WAR ON TAX EVADERS

Argentina’s government sent a bill to Congress that gives greater powers to the official tax-collection agency and stiffens penalties for offenders. “This is the start of a drastic plan to improve tax collection and do away with evasion,” said Alberto Fernández, the cabinet chief.

HOUSE VOTES TO END FEDERAL ESTATE TAX AS SENATE BATTLE LOOMS

The permanent elimination of the estate tax is a long-sought goal of the conservative Republicans who lead the House, and many said today that the measure would keep family businesses from dissolving to pay the tax upon an owner’s death. Democrats countered that only a few thousand of the very richest estates have to pay the tax every year, and several said it was immoral to add to the nation’s record-setting debt to benefit those at the economic pinnacle.

The bill will have a hard time in the Senate, where supporters will have to assemble 60 votes for passage under the chamber’s budget rules. That barrier prevented a similar bill from passing last year, and barring a compromise that changes the House bill, supporters say they are probably four or five votes short in the Senate.

Variable annuities, REITs miss out on tax cut benefits in US.

As investors look forward to receiving a larger slice of their stock profits as a result of lower rates of dividend and capital gains tax, it is becoming clear that not all investment vehicles, such as Real Estate Investment Trusts and variable annuities, will benefit from the recently enacted tax cuts, leading to speculation on the future worth of these instruments.

EXPAT U.K. PENSIONERS STRUGGLE TO CONTINUE LEGAL BATTLE OVER MEAGER BENEFITS

Almost 150,000 expatriate pensioners living in Canada are running out of time to continue a legal battle against the British government aimed at getting their pensions boosted to take into account the rate of inflation. The retirees’ legal campaign suffered a serious blow at the court of appeal in Britain this week, and now they have less than two weeks to find enough money to appeal that ruling to the House of Lords. The court ruled that the issue is one for Parliament, not the courts, to decide.

FALSE TERRORISM TIPS TO F.B.I. UPROOT THE LIVES OF SUSPECTS

Federal agents, facing intense pressure to avoid another terrorist attack, have acted on information from tipsters with questionable backgrounds and motives, touching off needless scares and upending the lives of innocent suspects.

WASHINGTON POST: INDEFENSIBLE SECRECY

The U.S. Court of Appeals for the District of Columbia Circuit handed down a dreadful decision yesterday affirming the government’s authority to keep secret basic information concerning the hundreds of people detained during the Sept. 11 investigation -- information such as their names, dates of arrest and release and the names of their lawyers. The ruling sets an ugly precedent: The government need only whisper the words “national security”, the court says in effect, and the courts will roll over.

The government argues that making information about detainees public could give al Qaeda a road map to the investigation and expose potential witnesses to intimidation. Such concerns may justify shielding some information, but they cannot justify blanket secrecy, for not even the government contends that every detainee has connections to terrorism or information about it.

It is a mark of the decision’s weakness that the majority does not even attempt a real response to Judge David S. Tatel’s persuasive dissent. The purpose of the Freedom of Information Act, Judge Tatel writes, is disclosure, not secrecy, and the burden is on the government to establish that law enforcement material is exempt. Even as it worries that releasing information about detainees risks compromising its investigation, he notes, the government releases information about detainees when doing so suits its purposes. The court does not demand of the government a rational relationship between its genuine needs and the shield it requests.

The full appeals court or the Supreme Court should clarify that the law in this country does not permit intrusive government actions without accountability.

FBI’S TERROR INVESTIGATIONS LEAVE LESS TIME FOR DRUG CASES

The General Accounting Office, in testimony yesterday to a House committee, found that the number of FBI field agents dedicated to drug crimes had dropped from about 1,400 in the fall of 2001 to just over 800 today. The overall number of new drug investigations by the FBI has fallen from 1,825 in 2000 to 944 last year and just 310 in the first half of this year.

In a seperate report to the committee, congressional investigators said about 30 suspected terrorists may still be in the United States because of continuing flaws in the county’s visa program and poor communication between federal agencies.

DHS WANTS FINGERPRINT SCANNERS IN EVERY AIRPORT BEFORE THE END OF THE YEAR

The U.S. Department of Homeland Security wants the scanners in order to scan travelers from countries whose citizens must have visas in order to enter the United States. Many questions remain, but this much is clear: Air and seaports will expand use of existing systems to meet the end-of-year deadline, the deputy director of the US VISIT program says. Other details were not as clear, but an airline industry official is concerned about the potential long waits for international travelers entering the country.

SWISS RAILWAYS IS WATCHING YOU

Security cameras will provide round-the-clock surveillance on 225 Swiss trains from this autumn. The move is a response to increased violence and vandalism on the railways. In 2002 there were 345 such incidents on Swiss trains, more than double the number of the previous year. A 2001 pilot project proved successful, with cases of vandalism on the routes dropping by 80%.

The videotapes will only be looked at and kept if there has been an incident on a train. All other tapes will be erased after 24 hours.