Wealth International, Limited

Offshore News Digest for Week of June 23, 2003


An attendee at a trade fair in New York sniffed around for what information he could find floating around the local airwaves. The results were -- ahem -- interesting.

Conclusion: “[If] you are not using encryption or not sure you are, you’re absolutely data naked to the world with wireless. Any voyeuristic geek can see right through your clothing and discover all sorts of stuff you were hoping and perhaps assuming were completely private. Use a public hot spot only if you’d also be completely comfortable at a nudist camp with your wallet hanging open and credit cards spread across the ground.”

More on this story here.


High on the list of priorities for the organization, whose annual plenary takes place this week in Berlin, is the task of extending the scrutiny on financial flows from banks and other big institutions, the traditional targets, to lawyers, accountants, auction rooms, casinos, jewelry dealers and other, smaller finance-related services. The so-called “40 Recommendations” -- the bible of the anti-money laundering world, expanded with a further 8 rules on terror finance after 9/11 -- will be further added to in order to make sure fringe financial services do not act as loopholes.

It also wants institutions to be more careful about knowing who their customers really are -- especially when they might be connected to people with dubious political histories. Other measures include tighter regulation of informal money transfer arrangements such as the South Asian “hawala” system.

But according to some, there is also a job to be done in tightening up the existing rules -- not in Caribbean or Pacific islands, often labeled as havens for funny money, but in the US and the UK. Neither, critics say, is doing enough to stem illicit financial flows, despite being among the loudest voices backing the crackdown on the funding of terror.

Meanwhile, FATF revised its “blacklist” of countries with inadequate controls on dirty money. It removed the Caribbean state of St Vincent and the Grenadines, to leave nine states and territories still labelled as risky.

More on this story here and here.

FATF press release announcing the new rules here.

Swiss banks reaffirm anti-money laundering pledge.

Swiss bankers have pledged to do more to combat money laundering at a seminar in the Swiss capital, Bern. But Switzerland’s largest bank, UBS, said the country could not shoulder all the responsibility for tracking illegal funds.

“There turned out to be very little of [ex-Zaire dictator] Mobutu’s money in Switzerland after his death,” said Hanspeter Bauer, head of compliance at UBS. “But nobody investigated neighboring countries, where he had residences and who were the former colonial powers of his country.”

More on this story here.

Swiss banks freeze Liberian leader’s assets.

Switzerland has ordered its banks to freeze any accounts belonging to Liberia’s president, Charles Taylor, and his associates. The decision follows a request from a United Nations war crimes court in Sierra Leone -- which accuses Taylor of crimes against humanity during the civil war in Sierra Leone between 1996 and 2001.

Earlier this year the British-based organization, Global Witness, published a report claiming that Swiss bank accounts were being used to hide funds embezzled by Taylor. Global Witness said Liberian assets in Swiss banks totaled at least $3.8 billion.

More on this story here.


Switzerland is under mounting pressure from the OECD to scrap tax rules that make the country attractive to foreign holding companies. International firms including Wal-Mart, Philip Morris, Gillette and Procter & Gamble base their headquarters in Switzerland, drawn to the country’s low corporate tax rates and attractive financial conditions. The OECD is considering a plan to single out Switzerland for having “harmful tax practices”.

“This is not acceptable,” Daniel Eckmann, a Swiss finance ministry spokesman, told swissinfo. “We have big difficulties understanding how after five years of discussions about what should be considered a harmful tax practice, [OECD’s Forum on Harmful Tax Practices] comes up with a report that considers Switzerland the only country in the whole OECD with harmful aspects in its tax legislation.”

“We won’t make any concessions in this field because we are convinced that our system is OK,” he added.

Although Eckmann declined to criticize specific countries, he said the potential blacklisting was motivated by governments eager to break Switzerland’s attractiveness to global firms.

More on this story here.


An offshore company in Cyprus used to be the default option for Russians keen to avoid taxes and secret their share of an estimated $200 billion spirited out of Russia since the collapse of the Soviet Union in 1991. But the Mediterranean island has cleaned up its offshore sector to improve its eligibility for the European Union, which it hopes to join in 2004. For the same reason, it will end visa-free travel for Russians this year.

Russian business poured into Cyprus in the 1990s attracted by a secure banking system, a double tax treaty with Moscow, a flat tax of 4.25% on offshore firms, and a lax regulatory environment, analysts say. It was a popular base for shell companies to buy state assets at way below market prices and then siphon off hard currency profits during the fire sale privatisations of 1995-6. Until recently, most of the island’s 14,000 or so offshore companies were Russian -- the majority “brass plate” firms with no physical operations there and opaque ownership structures.

More on this story here.

Russia attracts record private capital inflow.

There will be more investment into Russia than capital flight this quarter, for the first time in post-Soviet history. The Central Bank of Russia expects a net inflow of private capital of $2 billion in the second quarter of this year after a net outflow of $1.2 billion in the first quarter and despite a long history of capital flight.

The flight of capital has been a drain on the Russian economy since the early 1990s, prompted by political turmoil, high inflation and a lack of confidence in the economy. In 1996, when Boris Yeltsin was re-elected as Russian president, capital flight had reached $30 billion. The return of capital is welcome news for president Vladimir Putin who is expected to be re-elected as Russian president next year.

However, Alexei Kudrin, Russia’s finance minister, warned that rising energy costs and the strength of the rouble would put pressure on Russian producers. “Russian industry has not yet gone through a process of modernisation and restructuring that would make it competitive in the international markets. There are two reasons for this: half of the Russian economy is still in the hands of the government and needs to be privatized. The other reason is the low level of corporate governance in many Russian companies.”

More on this story here.


The Bahrain Monetary Agency (BMA) is undertaking a major review of existing regulation related to private banking and wealth management services. The aim is to develop and implement regulation that is on par with advanced wealth management centers of the world. The rules being developed focus on such issues as strengthening bank-customer confidentiality and the establishment of trusts.

More on this story here.


It is a familiar script in Latin America: A feverishly growing economy, mansions going up, investors scrambling for a piece of the action, international onlookers gushing. But tensions mount as banks collapse, the currency plunges, investors panic and bankers are led off to jail. The movie closes as the contrite government turns to the International Monetary Fund, promising to mend its spendthrift ways in exchange for new loans.

Call it Argentina Redux. But this time it is the Dominican Republic that is at the center of the plot. The country is in the throes of a financial crises, two banks have already failed, the currency has been devalued by more than 30% this year and the economy is headed toward zero growth.

For all its enviable record of rapid economic growth in the second half of the 1990s -- the economy grew by more than 7% annually, by far the best record in Latin America -- the nation has not been able to escape the boom-bust fate of other Latin countries. In retrospect, the rapid growth in the late 1990s is now viewed in part as reckless expansion, spinning the economy out of control and contributing to the current collapse.

“The core of the problem was that last year and the year before that, [government] expenditures were growing by 24%, 25% and 26% per year when income was only going up 8%,” said economist Frederic Emam-Zadé.

More on this story here.


After spending more than three years trying to get the FATF to dismantle offshore centers in the region the United States is facing charges similar to those it leveled at those countries. The allegation: the United States has failed to take effective protective measures to stop money laundering and other illegal financial schemes.

Germany has charged that the United States is one of the most troublesome countries when it comes to money laundering. “Delaware is known as an ideal location for P.O. Box companies, and a great place for businesses that have something to hide,”said Dieter Ondracek, chairman of the German Tax Collectors Union, recently.

More on this story here.


A study published in the New Scientist magazine says the Brazilian city of Rio de Janeiro is the friendliest in the world. A team of social psychologists from California spent six years assessing the reactions of the local populations of cities around the world to different situations.

They carried out a study into the way locals treated strangers in 23 cities around the world. The team conducted their research through a series of “helpfulness” tests, such as dropping pens, feigning blindness or an injury and leaving stamped addressed envelopes in the street.

The results showed that the poorer, less stable cities generally had the friendlier, more open populations. Latin American cities in general fared well, as did Spain’s capital Madrid. San Jose, Costa Rica [;)] came in at #2 after Rio, while the Spanish capital followed at #3. Cities such as Kuala Lumpur, New York, Singapore and Amsterdam were deemed the least friendly. Locals here helped out the researchers in less than half of their cases.

More on this story here.


The I.R.S. ordered the Chicago branch of one of the nation’s biggest law firms, Jenkens & Gilchrist, to disclose the names of 600 wealthy clients who bought tax shelters that it considers abusive. The law firm said it would not comply. In other cases, it is seeking the names of people who bought tax shelters sold by the accounting firms of KPMG and BDO Seidman. Like the law firm, they are fighting disclosure. Two other big accounting firms, PricewaterhouseCoopers and Ernst & Young, reached agreements with the I.R.S. last year when it sought lists of tax shelter clients.

The I.R.S. commissioner, Mark W. Everson, said that “attorneys and accountants should be pillars of our system of voluntary compliance, not the architects of its circumvention.” “Where necessary we will vigorously pursue those who in fact act as promoters of abusive transactions.”

The order does not preclude criminal prosecutions of the taxpayers who bought the shelters or the lawyers and accountants who devised and sold them.

Jenkens & Gilchrist said in a statement that it would not identify any clients whose names were sought in the summons. The firm maintains that it did not sell tax shelters and merely gave advice. “Americans have a right to consult with an attorney in confidence, and that only the clients themselves can waive that right,” the firm said, adding that it expected the courts to uphold its position.

More on this story here and here.

KPMG and others sued over tax shelter scheme.

A case filed June 6 in U.S. District Court in Seattle is the latest of several lawsuits filed against KPMG and others nationwide by people who claim that KPMG in the late 1990s promoted a tax strategy that had already been rejected by the IRS. Wealthy clients recently have also sued Big Four rival Ernst & Young LLP over its tax-shelter strategies.

Seattle businessman Theodore C. Swartz contends in court documents that KPMG and the other participants were part of a “broader conspiracy to defraud individuals and the United States government,” and that their only motive was to generate millions of dollars in fees.

In his complaint, Swartz says the tax strategy cost him about $2 million, to say nothing of the penalties and interest that may arise if his deductions are disallowed. Swartz also expects to spend even more money on the additional accounting advice he needs to straighten out the mess.

More on this story here.


Armed IRS agents raided the tax-preparation office of a Saguache County commissioner last week as part of an investigation into alleged false federal income tax returns. An affidavit supporting the search warrant for Bill McClure Tax Services offices in Center and Monte Vista said County Commissioner Charles W. “Bill” McClure, an accountant, was singled out in November by the IRS. The tax agency used specific criteria to identify tax preparers with a “high volume” of questionable returns.

Boulder lawyer Shelley Wittevrongel, a friend and political supporter of McClure, said the raid and investigation are politically motivated and designed to embarrass McClure. “The issue is the use of power in coming in with guns drawn,” Wittevrongel said.

More on this story here.


A U.S. Department of Justice crackdown on allegedly fraudulent tax schemes has produced injunctions in two high-profile cases.

A Las Vegas federal district court all but erased a book that espouses a zero-tax plan. The case, U.S. v. Schiff, No. CV-S-03-0281, sparked a legal battle pitting federal tax law against First Amendment rights. [NLJ, April 28.]

The second case, in a federal district court in Macon, Georgia, involved a slavery-reparations tax-deduction plan that was enjoined by a federal judge. U.S. v. James, No. 5:03-CV-0113-1 (DF) (M.D. Ga.).

In Schiff, the defendants relied on the U.S. Supreme Court’s narrowly crafted limitations on the prior restraint of speech. But Judge Lloyd George, in extending the preliminary injunction indefinitely, found that 26 U.S.C. 7408 controlled. The statute authorizes injunctions against promoters of abusive tax schemes. Thus the government only bore the burden of proving the elements of a violation of 26 U.S.C. 6700 -- promoting abusive tax shelters -- by a preponderance of the evidence.

Though finding Irwin Schiff’s book (The Federal Mafia) mostly autobiographical, because of two pages that advertised his seminars and other materials, George adjudged it commercial speech -- “expression related solely to the economic interest of the speaker”.

Schiff, his associates and Freedom Books were represented by Del Mar, Calif., solo practitioner Noel Spaid. The American Civil Liberties Union (ACLU) filed an amicus brief, joined by the Association of American Publishers, the America Booksellers Foundation for Free Expression, the Freedom to Read Foundation of the American Library Association and PEN American Center. Spaid said the court’s order was “dastardly. It shut Mr. Schiff’s mouth, sewed it up better than an oral surgeon ever could. It’s an insult to the American way of life.”

The preliminary injunction in the Georgia case squelches a tax plan claiming that African-Americans are entitled to take tax deductions for slavery reparation and segregation. At meetings held in churches throughout the country, Morris James Sr., through his company, National Resource Information Center, allegedly sold more than 6,300 packages promoting the plan.

More on this story here.


The law suit, against an organization known as the Take Back America Foundation, claims that the foundation was selling a scheme to people that claimed that they could renounce their citizenship while residing in the US, then by restoring citizenship, free themselves from income tax and social security obligations. The Foundation charged $1,595 plus annual fees for the privilege of supposedly putting assets out of the reach of the IRS.

More on this story here.


Here is a rundown of what the law allows: Business travel: Business trips are fully deductible. But caution: Expenses for meals and entertainment incurred while you are traveling on business are only 50% deductible. If you mix business with pleasure, you must show that the trip was primarily for business reasons. This is an all-or-nothing issue: There is no travel deduction if business is not the primary purpose of your trip. Special rules apply to business travel by ship.

The cost of a business education seminar is deductible and so is the cost of getting there and back. Sorry, you are not entitled to any deduction for attending investment seminars. Only costs of seminars relating to your trade or business are deductible.

More on this story here.


Foreign tycoons living in Britain would be forced to pay tax on multi-million pound fortunes, with the cash used to give every child in Britain a “nest egg” under proposals to be unveiled this week. The target is the “non-domiciles”, from Greek shipping families to the Indian steel tycoon Lakshmi Mittal, who shelter their money under a loophole in tax laws dating back to the empire.

Around 100,000 people are either non-domiciles -- living in Britain, usually because of punitive tax regimes in their native countries, but not officially domiciled here for tax purposes -- or people who are not ordinarily resident in Britain despite living there. They pay tax on British earnings, but not on any earnings overseas -- and accountants often make sure they end up with little or no British earnings on which to pay tax.

Stephen Byers, the former Cabinet Minister, has discussed the plan with Downing Street, and will call for the group to be taxed on collective earnings of up to £8 billion, which currently escape the Exchequer. His ideas come at an explosive time, following the suggestion from Peter Hain, the Leader of the Commons, of a higher tax rate for more moderately wealthy Britons (see below).

Critics say trying to tax these people will simply drive them out of Britain into other tax havens, costing jobs in the City and hitting national wealth.

More on this story here.

Higher tax rate for more moderately wealthy Britons suggested... and rejected.

The leader of the House of Commons, Peter Hain made the point that the higher rate band now catches many more middle income families than it used to. In his original speech, excerpts of which were leaked to the Daily Mirror, he suggested offsetting the costs of removing millions from the upper rate band by imposing a new top rate of tax. However, he was told in no uncertain terms by No. 10 Downing St. that new Labour was still not ready to talk about taxing the rich.

More on this story here.

Expat brits must be careful to avoid being taxed twice.

More than 300,000 Britons go to work overseas in a typical year, according to the Office for National Statistics. People with an international income could end up with the worst of both worlds if they fail to make financial plans before leaving the United Kingdom -- and review them before they return.

Probably the most important thing to establish for high earners is non-resident status, so that British income tax can be avoided. Failure to establish non-resident status means income is subject to UK tax wherever it is earned. Once overseas, care must be taken for the expatriate to avoid spending more than 90 days -- ignoring days of arrival and departure -- in the UK in any tax year. If the 90-day rule is exceeded, they will lose non-resident status.

Many expatriates are regarded as non-resident but remain domiciled in the UK. This is important because, although non-residence means they avoid UK income tax, remaining domiciled in the UK means all their worldwide assets are liable to UK inheritance tax (IHT). This is imposed at 40% on estates exceeding £255,000. While residence is largely a matter of fact, domicile is open to interpretation as it can be defined as the country which the individual regards as his or her home.

More on this story here.


The European Union and US are expected to sign an extradition and judicial co-operation agreement at this week’s summit in Washington. The agreements could signal the start of rebuilding a transatlantic relationship that was deeply damaged during the US-led war on Iraq.

The extradition agreement allows that if a certain individual living in one of the EU countries is sought by the US authorities on charges of terrorism or other serious crimes, an EU member state can extradite him or her to the US without even consulting the country of origin of the accused. EU member states, however, accepted the extradition agreement only on condition they received guarantees that none of their citizens would be subject to the death penalty.

The EU delegation will also clinch an accord on container security. It will give US officials based in some of Europe’s main ports the right to check containers crossing the Atlantic. A controversial proposal that will give the US the right to check airline passenger lists is expected to be agreed as well.

More on this story here and here.

David Blunkett, the U.K. home secretary, will this week come under attack for signing a “one way” extradition treaty with the US.

The bilateral treaty abolishes the requirement for US prosecutors to give evidence of the alleged crime, which can then be tested in the British courts, before an extradition is granted.

It will allow the US to extradite people on the basis of little more than a simple request, say critics. The agreement -- condemned as “totally one-sided” -- does not give the UK the reciprocal right to extradite people from the US without presenting prima facie evidence of the suspected offence.

The agreement is retrospective and so could allow the US to renew extradition requests thrown out by the British courts through lack of evidence -- such as the attempt to prosecute Lotfi Raissi, the UK-based pilot pursued by the US authorities after September 11.

The Home Office said the reason why the new treaty was one-sided is that US citizens are protected by their constitution from being extradited on the word of an overseas government alone. “... our legal system means we can get rid of that [prima facie requirement for US requests]," officials said.

More on this story here.


The UK government has finally admitted that the majority of responses to consultation on its ID card scheme were strongly opposed to the controversial idea. For months the government has neglected to include responses generated via the Stand Web site in its official figures, despite earlier assurances that such responses would be counted. Prompted by parliamentary questions, the Home Office has decided that the Stand responses would be counted individually (and not as a block vote) after all.

This revised calculation means that the overwhelming majority of consultation responses were against ID cards, not for, as ministers had previously claimed. In responses to a parliamentary question, Home Office minister Beverley Hughes told MP Anne McIntosh over 5,000 of the 7,000 responses to a public consultation on ID cards were opposed to the scheme.

So what next? Results of the public consultation are not binding on the government, and the Home Secretary, David Blunkett, seems to be strongly committed to going forward with the creation of an ID/entitlement card scheme. The Home Office favours ID cards containing biometric information and linked to a national database. Although ostensibly voluntary, over time it will be increasingly difficult for individuals to travel or deal with government without such cards.

More on this story here.


EU citizens are set to be issued with new passports which will be harder for forgers to copy, and come into line with new US legislation. Washington decided in May to tighten border controls with the implementation from January 1, 2004 of a new sophisticated system for checking the identity of foreign residents and tourists in the United States. EU spokesman Reijo Kemppinen said that it was not a question of a common European passport, but rather a matter of enabling Europeans to continue travelling to the US without a visa.

The plans to create passports carrying information on a person’s fingerprint or retinal scans are presented as a way to reduce counterfeiting and fraud. Biometric chips would also be implanted in visas issued to foreign nationals traveling to Europe.

More on this story here and here.


Bearer shares are often the joker in the con artist’s pack of cards and, as such, they have been misused, abused and have caused a great deal of problems. They have probably had their worst effect when used in estate planning: seen as a quick fix in testamentary terms (avoiding the need for a trust or will), they have, more often than not, made matters worse. The Book of Common Prayer puts it rather nicely: “We have left undone those things which we ought to have done and we have done things which we ought not to have done”. In order to equip yourself against the machinations of the con artist, it is helpful to not only have at least a grasp of the role bearer shares should play, but to also understand some of the fundamentals applicable to company and fiduciary structures, both of which are central to most offshore strategies.

More on this story here.


There are five major reasons for creating a trust: 1.) For the preservation of wealth; 2.) For the protection of people and the promotion of causes; 3.) For continuity of business; 4.F) or minimising estate duty; and 5.) For reducing income and donations taxes. Because of the complexity of trusts, the question is not whether you can trust your trust, but more importantly whether you can trust your trustees.

More on this story here.


Licensing and risk management requirements are the centerpiece of the draft Superannuation Safety Amendment Bill. The start date for the legislation is April next year, with a potential transitional period for trustees of up to 33 months. Assistant Treasurer Helen Coonan said she believed licensing of trustees and the requirement to create and audit yearly a risk management strategy and plan would “substantially address concerns relating to operational risk,” which could include trustee fraud or neglect.

More on this story here.


A wave of companies have recently decided to stop contributing to their employees’ 401(k) accounts. From the worker side, there is not nearly enough money being saved. The Center for Retirement Research at Boston College figures that only 8.6% of workers are putting the maximum of $12,000 that is allowed into their 401(k)s. If you want to cut your income in half in retirement, saving too little is a sure way to do it.

And now there are big allegations of mismanagement of 401(k) funds, at companies large and small. At Tyco, HealthSouth, Enron, WorldCom and some others, a bevy of lawsuits filed and being prepared contend that they have not done their duty, as fiduciaries in charge of retirement savings. The suits allege that when the books were cooked and the 401(k) plan trustees knew it, company stock was not the kind of sound investment that fiduciaries should be offering, under the federal law that governs 401(k) accounts, the Employee Retirement Income Security Act or ERISA.

More on this story here.


Indonesia, the Philippines and Nigeria are among nine countries listed as havens for money laundering, according to an OECD report released Monday. The other countries on the noncompliant list are the Cook Islands, Egypt, Guatemala, Burma, Nauru and Ukraine. The nine noncompliant countries have until Oct. 1 to improve their procedures to be removed from the list -- a country or territory must comply with 40 recommendations to be taken off the blacklist.

More on this story here.


Suburban lawyers, estate agents and accountants may find themselves co-opted into the fight against terrorism in Australia under new recommendations from an international task force looking at money laundering and the financing of terrorism. The Financial Action Task Force, a body set up by 31 nations including Australia, now wants non-banking institutions handling money to investigate dubious accounts or clients. And although these are only recommendations, many professional groups argue that the hunt for terrorists must be balanced with the need for client privacy.

The most contentious aspect of the new rules is the obligation by non-financial institutions such as casinos, real estate agents, accountants and lawyers, to follow the same procedures as banks in sharing information about potential money launderers.

More on this story here.


An independent study commissioned by the financial regulator found that 95% of financial services companies questioned believed their cost base had increased due to regulation by the Financial Services Authority. Half the companies questioned by Europe Economics, the consultancy, thought FSA regulation added up to 2% to their operating costs. A third said their operating costs had risen by between 2% and 10% because of FSA regulation.

These costs included companies having to spend more money on staff training and tightening up their anti-money laundering controls. The increase in costs come as many insurers and fund managers are struggling because falling stock markets have hit sales.

More on this story here.


SAN FRANCISCO: A U.S. appeals court on Monday overturned the conviction of a Mexican banker sentenced to 10 years in prison after the largest ever U.S. money laundering sting and ordered a new trial, while upholding the conviction of two other mid-level Mexican bankers indicted in the scheme.

A U.S. federal court convicted the three Mexican bank executives in June 1999 as part of the highly touted sting “Operation Casablanca”. They were convicted of laundering money for the Cali, Colombia, drug cartel as well as for a narcotics cartel based in the Mexican border town of Ciudad Juarez, across from El Paso, Texas.

“We hold that the district court erred when it refused to allow Ortega to present a defense of entrapment”, a panel of three judges wrote. “Accordingly, we reverse Ortega’s conviction and remand for a new trial.”

More on this story here.


Internet stocks are racing, even those with more promise than profits. Unsolicited pitches for obscure penny stocks inch out of fax machines, and stockbrokers are prospecting for customers. Mutual fund managers who have been in the doghouse for years are basking once again in the favorable publicity that shines on hot performers.

There is no denying it: the bull is back. The Standard & Poor’s 500-stock index has risen 13% this year, while the Nasdaq composite is up 23%. Individual investors are leading the charge back into the stock market, according to some brokerage firm executives who look closely at trading behavior.

More on this story here.

A mood of optimism sweeps Wall Street and the City. But is the worst really over?

Three years after the bull market ended and the brutal cull of jobs on Wall Street and in the City of London began, there is suddenly a lighter mood among those who still have a job. A clutch of big investment banks have reported decent second-quarter results, and those yet to come are also likely to be good, considering the recent gloom.

Most of the banks’ profits have come from a roaring bond market, fuelled by falling interest rates. But now other businesses are stirring too. Stockmarkets are up around the world. The mergers-and-acquisitions (M&A) market is showing signs of life. Companies are tip-toeing into the equity markets.

Overarching all this is the trillion-dollar question: is the bear market over? After all the job losses of the past couple of years, securities firms employ 170,000 more people in America than they did in the mid-1990s, when activity was last at today’s levels. A lot of people must be hoping that the bear market has gone for good. Fingers crossed.

More on this story here.


In a mutual fund world that has precious little to celebrate, these stock pickers boast 20%+ returns and billion-dollar portfolios. The masses are paying tribute to these results by throwing millions of dollars at the money managers every day.

The problem, in a nutshell, is that there is too much money chasing too few good trusts. Used properly, money managers say high-quality trusts, also known as income funds, can goose extra cash out of companies, cash that can be passed on as income to an aging population. The concern is that Bay Street, always quick to jump on a financing trend, will jam businesses ill-suited to the trust structure into the market.

More on this story here.


The acquisition battle involving Oracle, PeopleSoft, and J.D. Edwards is just one demonstration of how the appetite for acquisitions is building. How is this important to the mainstream investor? Once the exclusive province of wealthy individuals and large institutions, merger arbitrage funds are now being offered to the investing public.

These funds, experts say, provide some stability in today’s volatile stock market. “Merger or risk-arbitrage tends to be relatively profitable in both up and down markets,” says Ben Branch, a professor of finance at the University of Massachusetts, Amherst.

Stability has been the hallmark of merger arbitrage investing. Lipper, the mutual-fund research company, gives merger arbitrage funds its highest ranking for capital preservation.

More on this story here.


At the height of the Asian financial crisis five years ago, blame was not placed on the market mechanism nor its ideological trajectory. Rather, pundits of all stripes pointed to corruption and lack of accountability as the root cause of the systemic failure. In the post-Enron period, many continue to affirm that in the global age, commercial entities could only succeed when more information is divulged. Capitalism works best when balance sheets are not cooked.

In the lucrative world of private banking, this sector remains oblivious to this need for greater disclosure. In fact, there are legal institutional factors that do not permit firms engaged in private banking to do what globalization expects: make financial information available to all and sundry.

According to a report released by Gemini Consulting and Private Banker International, the amount of money deposited in the world’s private institutions -- currently numbering 4,000 -- has increased steadily over the past decade. In 1986, the amount was said to be $4.3 trillion. A decade later, the figure has more than doubled to $10 trillion. In year 2000, the figure hit $13.6 trillion, and is currently still growing at a rate of 30% per year.

If private banking can serve as a corral for safe and clean banking, then all would be well. The specter of money laundering would be absent. But it is not.

More on this story here.

Lawsuit offers look into private banking.

PORTLAND, Maine: The court action between Fleet Bank and a retired Fairchild Semiconductor executive offers a glimpse into the business of private banking, an upscale service a world apart from the banking most clients experience.

Private bankers help clients invest in boats, oil rigs, second homes -- even alligator farms. They are also actively expanding their role in estate planning.

More on this story here.


New York may still be at the pinnacle of world finance, but it is losing its foreign accent. Foreign banks are closing offices in New York at a rate of two a month, an acceleration over prior years, Crain’s New York Business reports this week. The move marks a sharp reversal from the early 1990s, when many of those banks expanded aggressively here. A slumping economy and bank consolidation have made far-flung offices costly and unnecessary.

More on this story here.


During the late 1990s, public ownership was considered to be the holy grail for companies. Technology start-ups rushed to list their shares within a few years of their foundation, and many fortunes were made (and lost) this way. Many countries rushed to establish new stockmarkets for dynamic young companies, such as the Neuer Markt in Germany.

The consensus now is that it was all too much too soon: companies that should never have been taken public had their shares listed, tempted by the lure of almost free capital and promoted forcefully by investment bankers who were desperate to keep the deal machine running. Many of these firms have now either gone bust or private again.

With the sums of money sloshing around stockmarkets having fallen dramatically since the bubble burst, all but the very best companies are now finding it difficult to raise money by selling shares. By contrast, the private-equity market is still awash with cash. Private-equity funds are still sitting on billions of dollars raised during the boom years. According to the European Venture Capital Association, some €50 billion ($58 billion) raised in Europe alone for such funds is still to be invested.

Just as important as the bulging chequebooks of private buyers are the incentives to management. Chief executives are now seen -- by many institutional investors as well as the general public -- as greedy and overpaid rather than hard-working heroes. Private owners, by contrast, are still perfectly happy with the idea of granting huge incentives to managers to do well. Even more important is that managers in private companies do not have to face the intense public scrutiny that now comes with managing a quoted company.

[Our opinion: It is all part of the cycle.]

More on this story here.


When the government announced this year its publicly held debt was in the neighborhood of $3.6 trillion, it was quoting a figure that “ignores massive imbalances” in other mandatory spending programs -- such as Medicare and Social Security -- which actually inflate the national debt by a factor of 10, according to published accounts. Was this fact conveniently omitted from the current budget document in order to sell the Bush tax cut?

While official government documents pegged the current value of the unfunded obligations at $43 trillion, the Federal Reserve has put the net worth of all U.S. households at just $40.6 trillion. Food for thought.

More on this story here.

US National Debt Clock here.


An Italian Economy Ministry spokesman announced recently that the government intends to extend a tax amnesty on foreign-based funds until October 16 this year. The amnesty is similar to that being considered in Germany and elsewhere, and is designed to allow investors to repatriate undeclared funds placed in offshore accounts and investments. The amnesty initially lapsed on May 16 this year and has raised about €8.5 billion over the past year. By extending the amnesty until October, some experts estimate that a further €3 billion will flow back to Italy.

More on this story here.


“Kings, Queens and Despots,” a short list of the world’s most wealthy rulers published by Forbes magazine, comes with a number of caveats. Valuing these multibillion-dollar private fortunes is a “tricky business,” says Forbes. Most royal families decline to comment on their wealth. But last December, as the 2003 list was being compiled, a prominent member of the Netherland’s illustrious House of Orange broke the family’s long silence on the issue.

Prince Bernhard, feisty 92-year-old father of Queen Beatrix, phoned Christopher Forbes, who is married to his German niece, and demanded that he stop printing “bulls—t” exaggerations of his family fortune. The Oranges would have been in the billionaire class occupied by the House of Saud and Prince Hans Adam II of Liechtenstein. But when the list was published earlier this year -- after the prince had set the record straight, they were wedged in among the lowly multimillionaires, like Yasir Arafat and Fidel Castro. In an increasingly transparent financial world, the massive restatement is a reminder of how difficult it remains to penetrate the regal sphere.

More on this story here.


The Investment Dealers Association of Canada will require its members, which include the country’s biggest brokerages, to verify who owns offshore accounts, following advice given by the OECD. The IDA’s 190 members must identify the beneficial owners of new offshore accounts within six months, and will have a year to identify those holding existing accounts, President Joe Oliver said in a statement from the group’s annual meeting in St. Andrews, New Brunswick. Provincial regulators have been sent the new rule for approval.

More on this story here.


The American Civil Liberties Union has sent me quantities of junk mail soliciting me to join for years. Now, it is not as though I am not sympathetic to a lot of what the ACLU is doing. I am strongly in favor of its activities in defense of free speech, its efforts to maintain the proper separation of church and state, and the like.

But I have been less sanguine about its stands on things like private freedom of association and the death penalty. I agree with the ACLU that it is wrong for the Boy Scouts to exclude gays, but I also do not think it is the government’s business to try to force people to put up with one another in voluntary organizations. If you don’t like the Boy Scouts’ homophobic policy, then don’t join and don’t contribute.

Anyway, when I received another ACLU solicitation last month, I decided to send in my check and sign up. Why now? The ACLU is oh-so-right on the vital and timely constitutional issues of free speech and protection of people from unreasonable and intrusive government action.

As it turns out I am far from alone in seeing new value in ACLU membership.

More on this story here.


The EU Summit has backed the allocation of €140 million to developing controls at borders and of databases. The Visa Information System will log all applications for visas to enter the EU, the length of stay, arrival and departure date, and those to be refused entry. The next generation Schengen Information System holds a list of those to be refused entry and people or vehicles to be placed under surveillance.

More on this story here.


Charles Buchanan-Turnor, who styles himself as a lord, claims his dodgy deeds known as “knightships” entitle customers to call themselves Sir or Dame. However, the name Buchanan-Turnor appears on NO list of English peers -- and now a REAL aristocrat is warning gullible customers to beware.

More on this story here.


Orwell was a radical for all reasons.

Why should it matter what George Orwell might have thought more than half a century after he died, and more than a decade after the Soviet Union -- the obvious target of his two most famous books, Animal Farm and 1984 -- fell apart? One reason is that the kind of folly, cowardice and corruption he fought against is still with us.

Orwell anticipated the revolutionary fantasies that bloomed in the late 1960s and still haunt the imaginations of many academics, intellectuals and journalists with the line about revolutionary, 1930s, Spain: “So much of left-wing thought is a kind of playing with fire by people who don’t even know that fire is hot.”

More on this story here.

“Making political writing into an art.”

Despite being a devoted socialist who believed in a classless society, Orwell never really identified himself with any particular political group. He joined the Independent Labour Party after his return from Spain only to leave it within just a few months. Years later, he would claim that “a writer can only remain honest if he keeps free of party labels.”

“The Spanish war and other events in 1936-37 turned the scale and thereafter I knew where I stood. Every line of serious work that I have written since 1936 has been written, directly or indirectly, against totalitarianism and for democratic socialism, as I understand it.... My book about the Spanish Civil War, Homage to Catalonia, is of course a frankly political book, but in the main it is written with a certain detachment and regard for form.... Animal Farm was the first book in which I tried, with full consciousness of what I was doing, to fuse political purpose and artistic purpose into one whole," he wrote.

Although 1984 was widely regarded as one of the fiercest attacks against the Soviet system ever written, Orwell maintained the work was meant as a warning against the threat of totalitarianism anywhere in the world. As Orwell once said, 1984 is not a denunciation of socialism -- up until his death he remained faithful to his political ideal. Instead, he said it was an assault on the perversions of socialism generated by both communism and fascism. Neither was it a prophecy, contrary to what its title -- an inversion of the last two digits of 1948, the year the book was completed -- might suggest.

More on this story here.

Politics and the English Language

“Now, it is clear that the decline of a language must ultimately have political and economic causes: it is not due simply to the bad influence of this or that individual writer. But an effect can become a cause, reinforcing the original cause and producing the same effect in an intensified form, and so on indefinitely. A man may take to drink because he feels himself to be a failure, and then fail all the more completely because he drinks. It is rather the same thing that is happening to the English language. It becomes ugly and inaccurate because our thoughts are foolish, but the slovenliness of our language makes it easier for us to have foolish thoughts. The point is that the process is reversible.”

Rest of essay here.

Orwell centenary in the land of “Big Brother”.

LONDON: A great many of the millions who tune in to Channel 4’s “Big Brother” night after night -- watching ordinary people sleep, eat and argue -- probably have not read Nineteen Eighty-Four, Orwell’s 1949 vision of a totalitarian society where people are kept in line with the warning: “Big Brother is watching you”.

Closed-circuit cameras scans shopping centers, parking lots, offices and street corners in Britain’s cities and picturesque towns, an omnipresent security tool.

Orwellian, some would say.

More on this story here.

Text of 1984 here.


Pierre Mirabaud, one of Geneva’s leading private bankers, is to become president of the Swiss Bankers Association (SBA). Mirabaud will replace Georg Krayer, who has announced his decision to quit after eleven years in the post.

Mirabaud has said he will continue the association’s aggressive defence of Switzerland’s system of banking secrecy. “Why,” he asked in a recent interview, “should Switzerland renounce its traditions of banking privacy just because the tax systems of neighbouring countries do not work properly or efficiently?”

More on this story here and here.

Switzerland’s Suspected Money Laundering Cases Surge by 56%.

Reports to the Money Laundering Reporting Office rose 56% to 652 from 417 in 2001, federal police said in a statement from Bern, Switzerland. More than half of the cases came from such non-banking areas as casinos and lawyers. They also said that the amount of suspected tainted funds reported fell 76% to 666.5 million francs from the previous year, and that Switzerland “probably lost attractiveness for money launderers” following four years of “strict use” of anti-money-laundering regulations.

More on this story here.


Chairman of the Economic Committee of the Bermudian Chamber of Commerce, Kit Astwood: “International business has totally replaced tourism as the main foreign exchange earner. Our agriculture no longer feeds Bermuda more than 10%. Our foreign exchange earnings provide the real money to feed all of our residents and all of our visitors.”

Astwood pointed out that the 300 international firms that have a physical presence on the island provide jobs for over 3,400 residents. In all, 14,000 companies have chosen to establish in Bermuda, according to Astwood. Although finance has superseded tourism as the main foreign exchange earner, Astwood made the point that the fortunes of the one industry are very much dependent on the performance of the other.

More on this story here.

Deloitte Touche Bermuda facing fraud claims in United States.

Deloitte Touche Bermuda (DTB) is set to stand trial over its alleged role in the $400 million fraud perpetrated by the Manhattan Investment Fund. The hedge fund’s principal, Michael Berger admitted lying to and defrauding investors in a New York Court in 2000, but reportedly fled before sentencing could take place, and has not been seen since.

DTB has been implicated in the fraud because of the audits which it conducted for the Manhattan Investment Fund in fiscal 1996 and 1997. However, the firm recently filed a summary judgement motion, arguing that the New York court has no subject matter jurisdiction.

More on this story here.


The first three proposed regulations will allow the Seychelles International Business Authority (SIBA) to register specified international companies such as holding, protective cell and limited liability partnership companies. This will be in addition to the registration of low tax international business companies (IBCs). Currently SIBA has registered over 10,000 IBCs.

The new laws will allow the introduction of licenses to regulate registered agents and trustees to ensure that the services offered are of a very high standard and according to regulations. They also propose the licensing of interactive gambling, allowing it to be conducted as defined by law.

More on this story here.


A musing on whether expat Filipinos should be allowed to hold dual citizenship and vote via absentee balloting.

More on this story here.


When the nightclubs in Bali were bombed, expatriates started to feel personally targeted. With the recent bombing of an expatriate housing compound in Riyadh, Saudi Arabia, expatriates are feeling the noose draw in closer.

For many expatriates, the compound attack has heightened their concern for their personal safety because it was an attack on the sanctity of the home. With the high walls and guarded gates, compounds can offer excellent security while providing the amenities of home. Now, however, many companies and expatriates are wondering whether compounds are indeed the panacea to the challenges of overseas living they once seemed to be.

More on this story here.

Expat children: “third culture kids”?

Dr. David Pollock, author of the book Third Culture Kids, defines his subject as individuals who spend a large part of their developmental years in a culture other than that of their parents. Such a background, he says, stimulates third culture kids to develop a relationship to all cultures, while not having full ownership of any.

More on this story here.


Where is the line between trying to save money on your taxes and trying to rip off Uncle Sam? As the IRS sees it, that line runs straight through some of the sophisticated investment vehicles created solely as tax benefits for high-net-worth individuals. The IRS is taking aim at these taxpayers as well as the law firms, accounting firms and investment banks offering “abusive tax shelter” products to well-heeled clients.

“These are not transactions that people enter into for long-term investment purposes,” said Pam Olson, assistant Treasury secretary. “These schemes advertise a significant tax loss.”

More on this story here.

KPMG’s E-Mails pointed to concerns over tax shelters.

While clients suing KPMG LLP allege the firm sold a questionable tax-shelter product through the end of 1998, a pair of internal e-mails show the accounting firm knew about possible flaws in its tax-shelter product as early as the fall of 1997. The e-mails, dated March 14, 1998, were disclosed by the IRS in filings in a tax-court case relating to a deceased individual who used the shelter and whose estate is in litigation against the agency.

More on this story here.


In April of this year, the BofI wrote to around 400 customers with accounts at its Jersey branch warning that the Revenue Commissioners would be looking into their accounts in June to ascertain whether they had evaded Irish taxes. In return for their cooperation with the tax man, the customers were informed that they could reduce penalties payable on those assets from 100% to between 3% and 10% by making a voluntary disclosure to the tax authority before the end of May.

Recent reports in the Irish press have indicated that 254 customers came forward in the final weeks of the amnesty. A further 27 have owned up to holding accounts and investments in locations such as Switzerland and the Isle of Man.

More on this story here.


The German government’s plan to accelerate tax cuts proposed for 2005 has met with a hostile response from the EU Commission which fears the country will breach eurozone stability rules for a third consecutive year. German officials remain convinced that the EU will allow Germany to breach its deficit obligations next year if the country shows evidence of progress with structural reforms.

More on this story here.


This week, competition officials from around the world are meeting in Mexico to talk about how to make regulations governing cross-border mergers simpler and more harmonized, and how to coach developing countries that are relatively new to competition law. Whatever proposals come out of Mexico and (if ever) Brussels, it will take much more to revive companies’ appetite for cross-border mergers and acquisitions (M&A). The days when companies boldly scooped up competitors abroad, especially in now-distressed sectors like technology or telecommunications, are long over.

Underlying the slump in merger activity, and FDI at large, is global uncertainty. Investing abroad means taking on the receiving country’s risk. Fears of terrorism and war, combined with weak economies in most rich countries, make such risks greater and harder to bear. Talk of deflation in America (and in Germany, where consumer prices have recently fallen) has also scared foreigners, as have corporate scandals.

[Our opinion: It is all part of the boom/bust, bull/bear market cycles.]

More on this story here.


In a speech outlining sharply lower economic growth forecasts for 2003, Manley declined to say where he thought the dollar was heading. “Clearly, a rapid and significant rise in the Canadian dollar against the U.S. currency will have a negative effect on Canadian profit margins and exports in the short term as exporters adjust,” he said.

The Canadian dollar has risen 15% this year against the greenback.

More on this story here.


The 400 wealthiest taxpayers accounted for more than 1 percent of all the income in the United States in the year 2000, more than double their share just eight years earlier, according to new data from the IRS. But their tax burden plummeted over the period. The minimum income to qualify for the list was $86.8 million in 2000, over triple the $24.4 million threshhold in 1992.

While the sharp growth in incomes over that period coincided with the stock market bubble, other factors appear to account for much of the increase. A cut in capital gains tax rates in 1997 to 20% from 28% encouraged long-term holders of assets, like privately owned businesses, to sell them, and big increases in executive compensation thrust corporate chiefs into the ranks of the nation’s aristocracy.

More on this story here and here.


Liability insurance is a great asset-protection tool. In any business, property-and-casualty insurance is important, but special coverage is also available in various professional practice areas. It will certainly help you sleep better.

That said, LLC’s and corporations are excellent tools for liability protection, and corporate law is well-settled and uniform throughout the states. LLC’s are relatively new on the legal and tax scene, however, having only come into vogue in the latter half of the 1990’s. That means there is, as yet, no uniform body of law for LLC’s, so the rules may vary from state to state.

However, while the appropriate business entity can protect you from liability that may arise as a result of a mechanical error, liability arising from a defect in the aircraft or the act or omission of an employee or a contractor that your school hires, it offers no shield against the consequences of your own personal acts or negligence.

If you want to protect your assets from your own malpractice or negligence, it is possible to create an offshore asset-protection trust and transfer the ownership of your assets to it. “These trusts do not save any income or estate tax, they are merely asset-protection vehicles aimed at slowing down or stopping future creditors from taking all your personal assets as a result of a judgment against you,” says Chicago attorney Brian Whitlock. In order to be effective, such a trust must be created before any bad act occurs.

More on this story here.


To track domestic terrorist threats against the military, the Pentagon is creating a new database that will contain “raw, non-validated” reports of “anomalous activities” within the United States. According to a DoD memorandum, the system, known as Talon, will provide a mechanism to collect and rapidly share reports “by concerned citizens and military members regarding suspicious incidents.”

Lee Tien, staff attorney for the Electronic Frontier Foundation, an online rights group, said Talon raises many of the same questions as those that plagued the unsuccessful Operation TIPs. “What is the value in accelerating the speed of the rumor mill? You have a wealth of really weak data that ends up percolating its way through the system. How will they ensure that there’s no opportunity for people’s dossiers to become tainted?”

More on this story here.


A report from the Terrorism Information Awareness program contains a major loophole that allows the government to data mine “everything under the sun” including medical and credit records, says the top Senate Democrat on privacy issues.

The report said the program to track terrorists will use information collected and analyzed that is “legally obtained and usable by the federal government under existing law.” Sen. Ron Wyden of Oregon said vast amounts of data can be legally obtained, including consumer information purchased from private companies.

More on this story here.


The convergence of privacy-invading technologies and Washington’s appetite for surveillance have put civil liberties on the run. This is especially true in the war against terrorism. Controversial initiatives have included biometric face cameras, wiretap enhancements, invasive computer-assisted airline passenger screening, escalated e-mail monitoring fostered by the USA Patriot Act, and the Pentagon’s “Total Information Awareness” data-mining project (now renamed the “Terrorism” Information Awareness, or TIA). Even a national ID card was proposed.

To safeguard civil liberties in the new surveillance state enabled by digital technologies, there are basically three requirements: (1) avoid mandatory databases or any form of National ID, because they violate the 4th Amendment, and because government’s dominance of the evolution of these technologies would effectively destroy the privacy sector’s ability to offer any privacy guarantees to us at all; (2) ensure 4th amendment protections even for surveillance in open, public places, and (3) avoid the mixing of public (compulsory) and private (voluntary) databases as new technologies emerge and proliferate.

While people have alternatives to dealing with private parties that snoop too much, they have little protection against an overly suspicious government. Thus, government must not have access to our private information without going through the appropriate legal hurdles. On the other side of the coin, instead of piggybacking on government-mandated information, private industry should be forced to generate its own databases, for purposes limited by the market’s twin engines of consumer choice -- and consumer rejection.

More on this story here.


State and local prosecutors bent or broke the rules to help put 32 innocent people in prison, some under death sentence, since 1970, according to the first nationwide study of prosecutorial misconduct. The study, Harmful Error, was conducted by The Center for Public Integrity, a private ethics watchdog group. Prosecutors misbehaved so badly in more than 2,000 cases during that period that appellate judges dismissed criminal charges, reversed convictions or reduced sentences, the study also found.

Charles Lewis, executive director of the center, said that by focusing only on cases in which appellate judges found misconduct the study presented “an extremely conservative and undoubtedly understated picture of the problem.” The study also excluded federal prosecutors.

More on this story here.


The Australian Security Intelligence Organisation, the national counter-espionage agency, will be given far-reaching new powers to detain anyone aged 16 or over for up to a week if they are suspected of having information about terrorist activities. Asio, the Australian equivalent of the US’s CIA, will be able to obtain warrants to detain people without charge and interrogate them over three eight-hour periods.

More on this story here.


Banks will require customers opening new accounts to provide them with a great deal more personal information to comply with new anti-money laundering legislation. New controls will require that in addition to identity documents, clients will have to provide documentary evidence such as utility bills and tax information, including income tax and VAT registration numbers.

More on this story here.


Sun, surf, marguaritas on the beach and cops who can be paid off: Mexico has long been a favored refuge for U.S. fugitives from justice. But it is becoming tougher for American criminals to hide south of the Rio Grande. According to latest FBI data, there were some 250 fugitives of U.S. justice believed to be hiding in Mexico in 2001.

There have been 19 extraditions from Mexico to the United States so far this year, more than by October last year and than in all of 2001. Around 60% of those extradited each year have been drug traffickers. Since President Vicente Fox took office in December 2000, cooperation between U.S. and Mexican authorities has improved vastly, especially in the war on drugs, U.S. officials say.

More on this story here.


On September 11, 2001, Shafiq bin Laden, described as an estranged brother of Osama bin Laden, was at an investment conference in Washington, DC, along with two people who are close to President George Bush: his father, the first President Bush, and James Baker, the former secretary of state who masterminded the legal campaign that secured Dubya’s move to the White House. The conference was hosted by the Carlyle Group, a private equity firm that manages billions of dollars, including, at the time, some bin Laden family wealth. It also employs Messrs. Bush and Baker.

In the immediate aftermath of the attacks, when no one was being allowed in or out of the United States, many members of the bin Laden family in America were spirited home to Saudi Arabia. The revival of defence spending that followed greatly increased the value of the Carlyle Group’s investments in defense companies.

You need not be a conspiracy theorist to be concerned about what lies behind Carlyle’s success. Can a firm that is so deeply embedded in the iron triangle where industry, government and the military converge be good for democracy? Carlyle arguably takes to a new level the military-industrial complex that President Eisenhower feared might “endanger our liberties or democratic process”. What red-blooded capitalist can truly admire a firm built, to a significant degree, on cronyism; surely, this sort of access capitalism is for ghastly places like Russia, China or Africa, not the land of the free market?

More on this story here.

Amazon.com link to The Iron Triangle: Inside the Secret World of the Carlyle Group, by Dan Briody, here

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