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U.S. BEGINS TO SEIZE MILLIONS IN FOREIGN BANKS
The Justice Department has begun using its expanded counterterrorism powers to seize millions of dollars from foreign banks that do business in the United States. Law enforcement officials say the tool has proven invaluable in seizing money that criminals hide overseas and that was once out of the government’s reach. Under the counterterrorism measures approved by Congress after the Sept. 11 attacks, prosecutors are not even required to trace the money back to the target of an investigation.
Officials at the State Department, however, have raised concerns over the practice -- in part because most of the seizures have involved fraud and money-laundering investigations that are unrelated to terrorism.
State Department officials worry “that this might be seen by other countries as arbitrary or trying to extra-territorially impose our laws” under the guise of fighting terrorism, said a Bush administration official who demanded anonymity. Diplomats from several nations, including Switzerland, have voiced private objections, officials said.More on this story here.
Patriot forfeitures reach beyond terror targets.
In a recent report to Congress regarding the enhanced foreign money forfeiture powers of the post-9/11 Patriot Act, Justice Department prosecutors dwelled on a certain “model” case -- only it was not a case involving terrorism but rather garden variety domestic embezzlement.
The troubling model case involves an American lawyer who was accused of defrauding clients out of millions of dollars and absconding to Central America. Federal prosecutors indicted him and moved to freeze and seize some of the ill-gotten booty that they traced to a bank in Belize. The accused lawyer and his wife were allegedly bleeding the foreign accounts to purchase luxury items such as yachts.
However, a court in Belize blocked the move by the feds to freeze the assets. Enter the handy, dandy Patriot Act. Under the Act’s enhanced forfeiture provisions, the Justice Department was able to move in late 2001 to seize about $1.7 million -- not from the institution in Belize -- but from the Belizean banks’ correspondent or so-called “inter-bank” accounts in the United States.More on this story here.
To seize or not to seize.
There are a few ongoing controversies about the Patriot Act, the batch of laws passed to combat terrorism in the aftermath of the September 11 attacks. Most serious is the charge that anti-terror laws are being misapplied to advance agendas that have nothing to do with preventing another attack on America. If so, this is a serious problem.
Specifically, civil-liberties groups are warning that the Justice Department is abusing powers derived from the Patriot Act. The agency argues that it very clearly is utilizing Patriot Act provisions for crime-fighting beyond anti-terror activities, but that it is perfectly within the bounds of the law to do so. Of particular import is Section 319, which gives prosecutors the ability to seize foreign assets in U.S.-based accounts of foreign banks if there is probable cause that the funds were obtained illegally.More on this story here.
A COLLECTION OF FACTS AND THOUGHTS ABOUT EXPATRIATION
Expatriates. You see them in back-street bars of Bangkok, Manila, Guadalajara, along third-world waterfronts, in up-country Thailand, anywhere living is cheap and rules scarce.
Almost universal among them is a profound desire not to be part of somebody else’s parade. They want to be left alone. In the semi-developed countries favored by expats, governments usually do not care about you unless you break the law. Sometimes they do not care even if you do break the law, depending on the law. The big North American governments never stop supervising, admonishing, collecting data, requiring forms. Those who dislike it enough end up somewhere else.More on this story here.
YOUR RIGHTS: USE ‘EM OR LOSE ‘EM
What if our basic rights were taken away and no one noticed? What if our system of checks and balances was destroyed and everyone remained convinced it was happening to someone else?
Under current legislation, if you are “suspected” of terrorist activity, you can be picked up and held indefinitely, without charges and without access to a lawyer. If your loved ones call to find out where you are or if you are okay, they will be told nothing. After all, to disclose your whereabouts would infringe on your right to privacy. Don’t bother clutching your passport to your chest; this law applies to all U.S. citizens.
The attack on civil liberties has not been subtle; rather it has erred on the side of being so extreme as to seem surreal. Currently proposed legislation would increase the PATRIOT Act’s powers.
Tirien Steinbach, a lawyer at East [San Francisco] Bay Community Law Center who works with indigent clients, says she has seen a noted increase in harassment of her clients since the passage of the Homeland Security act. “It”s not the policies themselves,” she says, “but the climate of repression that lets law enforcement feel as if they can get away with anything these days.”
She sees her clients, and immigrant groups that have come under attack, as canaries in the coal mine -- a warning signal that others should heed. “Everyone thinks it only happens to some other kind of people,” she says, “and by the time they realize the extent of the repression, it will be too late.”More on this story here.
100TH CIVIL LIBERTIES SAFE ZONE DECLARED
On May 6, the commissioners of Broward County, Florida, in a unanimous vote, passed the 100th local resolution in the United States proclaiming “a civil liberties safe zone”. These resolutions are directed at the Bush-Ashcroft war on the Bill of Rights. However, the undeterred Attorney General is planning to introduce in Congress USA Patriot Act II, which would much more radically reduce individual liberties in the holy name of national security.
In the spirit of Thomas Jefferson, who said that the people “are the only sure reliance for the preservation of our liberty”, on the same day that Broward County became part of the Resistance, it was joined by San Mateo, Marin, and Sausalito counties, all in California. On April 25, Hawaii’s legislature passed the first statewide resolution to preserve and protect the Bill of Rights. Alaska followed on May 22. On May 29, Philadelphia became the 116th town or city to pass one of these resolutions.
According to Nancy Talanian, director of the original Bill of Rights Defense Committee in Northampton, Massachusetts -- where this grassroots renewal of constitutional democracy started -- the term civil liberties zone means “a locale whose local government has passed a resolution declaring its commitment to protect the civil liberties of its residents.”
“It took a year,” Talanian points out, “for the first 50 locales to pass resolutions; the next 50 took just two months. A movement that started in progressive communities now includes many more mainstream communities, including Tucson and Flagstaff, Arizona; Dillon and Missoula, Montana; Blount County, Tennessee; and Minneapolis, Minnesota.”More on this story here.
AUSTRALIAN BANK CHIEF BROADSIDES COUNTER-TERRORISM DATA DEMANDS
Australian Banking Association chairman and Commonwealth Bank CEO David Murray last week threw a grenade into the counter-terrorism debate, warning the federal government that banks will not allow access to customer data as part of joint information-sharing initiatives. Addressing the ABA’s inaugural IT Security Conference in Sydney, Murray said the banking community will not automatically acquiesce to government attempts to arbitrarily fish in, or tinker with, a bank’s customer data under the banner of improved security.
Murray warned that, for banks to operate, customers need total confidence that both their funds and privacy are completely secure. If confidence is eroded an infrastructure collapse of its own can ensue. Murray also warned that terrorism-related security expenditure is draining revenue and productivity from the financial sector. While thwarting terrorists is imperative, it also means managing out the costs they can create for shareholders.More on this story here.
U.S. REPORT FAULTS THE ROUNDUP OF ILLEGAL IMMIGRANTS AFTER 9/11
The Justice Department’s roundup of hundreds of illegal immigrants in the months after the Sept. 11 attacks was plagued with “significant problem”q that forced many people with no connection to terrorism to languish in jails in unduly harsh conditions, an internal report found.
The highly critical report from the Justice Department’s inspector general concluded that F.B.I. officials, particularly in New York City, “made little attempt to distinguish” between immigrants who had possible ties to terrorism and those swept up by chance in the investigation. The inspector general’s report found that some lawyers in the department raised concerns about the legality of the tactics, only to be overridden by senior officials.
The report validated the concerns raised by some members of Congress and civil rights groups who charge that the Justice Department has cast too wide a net in the campaign against terrorism. The findings will probably provide legal and political ammunition to those seeking to curb the department’s counterterrorism tactics, officials said.More on this story here. Full report here (PDF file).
HARRY BROWNE: FREE MARTHA STEWART
Railing against insider trading is consistent with the great American philosophy: “If you don’t get what you want, sue somebody.” Whatever happens, do not take responsibility for your own life. Investors should not have to think for themselves, and they should not have to feel responsible for their investment losses. There are evil people out there who took advantage of them.
The essence of the insider-trading argument is the idea that no one should have access to help that everyone does not have. But everyone’s situation is different. Some people have better computers, subscribe to more newsletters, get phone calls in the middle of the night warning them of market crashes, have a better feel for the market, and in many other ways enjoy unfair advantages. Where do we draw the line?
The government cannot protect your investments any more than it can win a “war” on drugs or poverty. Government does not deliver on any promise, and you should never rely on it to protect you.
Although you would never know it from watching the TV news or listening to the politicians, insider trading is a victimless crime. If you ever owned ImClone stock, you would be hard-pressed to explain how Martha Stewart’s actions cost you money.More on this story here.
In his Congressional testimony last week, Alan Greenspan sailed through his customary delusions -- that additional mortgage debt is good for consumers... that technology has brought a New Era to the economy... and that modest productivity increases have some exceptional quality as yet unnamed.
He was cruising in the wake of John Snow, U.S. Treasury secretary who made the following remarkable comment to the G7 finance ministers:
“...the United States is not growing fast enough and neither are you, but we are growing a lot faster than you... We get complaints from our friends around the world who say, ‘your current account deficit is so high.’ And our response is: ‘Yeah. You know why? Because you don’t buy enough from us. And because we provide the highest risk-adjusted returns on capital in the world, so your capital flows over here. So why don’t you take steps to improve your domestic economy so you’ll be stronger and buy more from us? And you might think as well about steps to improve return on invested capital, and then capital would flow your way as well as to the United States. The fact is the American economy is strong. The underpinnings are good.”
There are other signs that the underpinnings of the U.S. economy are not as good as Mr. Snow thinks. In addition to bankruptcies and unemployment, business profits as a percentage of GDP have fallen to their lowest level in about 40 years. Without profits, why would people invest in new machinery, new ventures, new employees? How could the economy grow? Why would stocks go up? And why would profits decline -- even as productivity increases and technological marvels proliferate? Hearing no answer from the authorities, we offer one ourselves.More on this story here.
CRIMINALIZING RESPONSIBILITY: MAKING OFFICERS GUILTY FOR THE ACTS OF THEIR EMPLOYEES
For centuries, the law in Western nations was guided by the fundamental principle that an individual could only be prosecuted and convicted of a crime if he willfully or knowingly committed an unlawful act. Classic Anglo-American legal theory reflected this core belief in its requirement that the state prove beyond a reasonable doubt that the accused consummated the criminal offense with both an actus reus (a criminal act) and a mens rea (a criminal intent). Thus, criminal sanctions were never intended to punish bad thoughts remaining unmanifested by action nor bad acts occurring unwittingly or by accident. The former category was to be resolved by a higher spiritual authority and the latter could properly be resolved by the civil tort liability system.
Today, after more than 200 years of the American experience, both federal and state criminal law has devolved to a point where an individual can be charged, prosecuted, convicted, fined and, many times, sentenced to a lengthy term of imprisonment even if he neither performed or aided an unlawful act himself nor did so with any intent or knowledge of the crime committed. This is most often manifested in the corporate world, where under the “responsible corporate officer” doctrine, as it is called, even the most “responsible” corporate officers and managers face strict criminal liability for the “irresponsible” (including even mistaken and accidental) acts of their employees and agents.
Specifically, with increasing frequency and vigor, prosecutors are pressing criminal charges and getting convictions against corporate officials for the transgressions of “public welfare” statutes by their workers. At the federal level alone, corporations and their officers and managers now face criminal repercussions based on simple worker mistakes ranging from clerical errors on regulatory forms to the accidental mislabeling of food and drugs to exceeding pollution limits by as little as one part per billion.More on this story here.
DOES GOLD HAVE A BRIGHT FUTURE?
Most investors still value it as a currency, a role it has played for most of its history, although some see it like any other metal where the price is determined by supply and demand trends. However, gold’s recent performance reinforces the idea that gold has an inverse relationship with the world’s most traded currency.More on this story here.
YOUR PAPERS, PLEASE
America is becoming the Nazi Germany we feared in my childhood. For those who were not around during those years, you can get a flavor for the anti-tyrannical sentiments of the time by watching any number of movies depicting the Nazi police-state. The constant presence of police; the insistence upon showing “your papers” to whichever government underling demanded them; the awareness that neither your person nor home was immune from state searches or seizures; the disappearance of people into unknown prison camps; neighbors spying upon neighbors, and children betraying their parents to the state; and the domination of society by a military and bureaucratic arrogance, arbitrariness, and absolutism, were constantly chilling examples of the dangers of state power.More on this story here.
ECONOMIC MURDER-SUICIDE FOR THE EU
On June 3, 2003, the European Commission adopted measures to “tackle harmful tax competition”. If the term “harmful tax competition” sounds to you like an oxymoron, you are thinking clearly. The EU’s measures are designed to make it easier for them to tax savings but, in reality, will largely destroy the small amount of remaining legal savings by EU citizens.
Because of confiscatory levels of taxation, many of those who reside in the EU have moved their savings to the United States and other relatively low tax jurisdictions. For the last several years, many economic scholars and public policy organizations have warned the EU that attempts to reach beyond their borders to tax this so-called flight capital would end in disaster.More on this story here.
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.More on this story here.
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.More on this story here.
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.More on this story here.
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.More on this story here.
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 favourable, 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.More on this story here.
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.More on this story here.
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.More on this story here.
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.”More on this story here.
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.More of this editorial here.
BE CAREFUL WHEN USING WIRELESS LOCAL AREA NETWORKS
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.
DOMINICAN REPUBLIC BECOMES THE MOST RECENT TO REPEAT LATIN AMERICAN ECONOMIC HISTORY
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.
INJUNCTIONS WON AGAINST IRWIN SCHIFF’S BOOK, SLAVERY REPARATION DEDUCTION SCHEME
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.
LOOMING MERGERS OPEN DOOR FOR INVESTORS
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.
CAPITALISM’S MISTRESS: PRIVATE BANKING
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.
WHY I BECAME A CARD-CARRYING MEMBER OF THE ACLU
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.
GEORGE ORWELL’S LEGACY AT THE CENTENARY OF HIS BIRTH
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.
Text of 1984 here.
USING FINANCIAL STRUCTURES, INSURANCE TO PROTECT YOUR ASSETS
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.
CARLYLE GROUP GIVES CAPITALISM A BAD NAME
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.
AMERICAN CARTOONISTS BETTER JOURNALISTS THAN JOURNALISTS?
British cartoonist Steve Bell claimed that US journalists are falling far behind their colleagues, the cartoonists, in exposing the truth. In an article in the Media Guardian, Bell says that the journalistic content even in the “supposedly great” New York Times, makes him wonder whether the hacks there would “ever say boo to a goose, let alone tell truth to power”. The net result of this timorousness, which is not exclusive to the New York Times by any means, is that Bush gets away with lies and murder while the press beats itself up about the ethics of Jayson Blair, the young, black New York Times journalist who notoriously faked stories.More on this story here and here.
BERMUDA’S EU TAX EXEMPTION MAY NOT LAST LONG
No one can say with certainty whether Bermuda’s exemption from the EU Savings Tax Directive will continue for much longer, according to Richard Hay, an expert in the field. It was agreed that the directive would apply to all Britain’s Caribbean territories, Mr. Hay explained -- but Bermuda is not in the Caribbean.
Mr. Hay then proceded to talk about the wider offshore financial world in his interesting speech. He asked why the offshore community has gone like lambs to the slaughter in the face of intervention by the G8 and its satellites, and answered his own question with refreshing candor. “The member countries of the OECD control 80% of the business in the world. They can turn off the lights (in any offshore jurisdiction) with the stroke of a pen.” It’s blackmail, then.More on this story here.
LEGAL MARIJUANA. GAY MARRIAGE. PEACE. WHAT IS GOING ON UP IN CANADA, EH?
Just when you had all but forgotten that carbon-based life exists above the 49th parallel, those sly Canadians have redefined their entire nation as Berkeley North. “It’s like we woke up and suddenly we’re a European country,” says Canadian television satirist Rick Mercer.
Majorities of Canadians support their government on the war, marijuana and same-sex marriage. The most negative reaction, at least to gay marriage, is coming from Alberta, which Canadians call their most “American” province: cowboys, oilmen. Maybe it is time to overhaul some old assumptions about national character.
At one time all you needed to know was that America was created through revolution under the slogan “life, liberty and the pursuit of happiness”. Canada was born of evolution and compromise under the slogan “peace, order and good government”. America invented itself, Canada sort of happened.
A new nonfiction bestseller in Canada is called Fire and Ice: The United States, Canada and the Myth of Converging Values. It is based on surveys of Canadians and Americans about their values as sampled in 1992, 1996 and 2000. “What emerges,” writes Toronto-based author and pollster Michael Adams, “is a portrait of two nations evolving in unexpected directions...”More on this story here.
CAYMANS: PARADISE LOST?
In John Grisham’s The Firm the Cayman Islands is portrayed as the home of tax evasion and money laundering. Perhaps it was a long time ago, but the reality in Cayman for at least 15 years is of probity and a spotless reputation in the banking community. Yet everyone else still has Grisham’s view and most TV shows that deal with the topic of money laundering mention Cayman. Cayman is the most famous of the low-tax centers, which are pejoratively known as “tax havens”.
They are under attack by high-tax European countries that want them shut down so that they lose fewer taxes. It is essential that the U.S. defend them, because they show the way to the developing, aspiring nations of the world. They demonstrate that an economy can be successful no matter how small it is, if it follows fiscally conservative measures. Furthermore, jurisdictional competition keeps government in check, so we all win when places like Cayman keep their taxes low.More on this story here.
RON PAUL: HILLARYCARE, REPUBLICAN STYLE
In a late-night vote last week, the Republican congress managed to do what Hillary Clinton and Ted Kennedy tried to do ten years ago: take the next big step toward socialized medicine in America. More specifically, Congress voted for a huge expansion of Medicare that enriches pharmaceutical companies, fleeces taxpayers with billions in new spending, and forces millions of seniors to accept inferior drug coverage. Conservatives might ask themselves whether this is what they had in mind when the party of “limited government” gained control of the House, Senate, and White House.
Seniors have been terribly misled about this new Medicare scheme. The essence of the new plan is government control. Government will play an even greater role in deciding what drugs seniors get, how doctors and pharmacies are paid, how private medical information is distributed, and what drug companies benefit most. The plan moves America disastrously toward a complete government takeover of medicine.
In order to participate, seniors must choose between staying in traditional Medicare and joining an HMO/PPO organization. This means either a federal bureaucrat or a nominally private-sector bureaucrat will decide what drugs will be available. Both Medicare and HMO bureaucrats inevitably will be forced to control costs, because the demand for subsidized drugs will be unlimited. They will do so by rationing drugs, especially expensive drugs. Bureaucrats may even go so far as to forbid seniors from using their own money to buy Medicare-covered drugs, just as Medicare rules now prohibit use of private funds to buy unapproved health-care services.
Drug rationing, fewer choices, bureaucracy, subsidies, and a declining quality of health care -- these are the hallmarks of government medicine.More on this story here.
JERSEY LOCALS IN REVOLT OVER BID TO KEEP OFFSHORE STATUS
Jersey is required after 2005 to levy the same taxes on all its businesses -- from the brass-plate companies that have made it famous to the local newsagent and other firms engaged in the island’s “real” economic activity. Part of a long-term drive by Brussels to harmonise taxes across Europe, the move threatens Jersey’s existence as a tax haven.
The island plays host to tens of thousands of tax-exempt companies, which do not trade in Jersey at all, and international busi ness companies, which can park there and pay a very low rate of tax. Both are used as fronts and investment vehicles for the global rich and as depots for corporate royalties earned abroad. And both would instantly lose their appeal if forced to hand over the full corporate taxes paid by local firms.
To avoid this, Jersey has opted to turn the EU’s harmonisation drive on its head. Rather than wealthy guests being required to pay meaningful taxes at last, local businesses will have their own taxes removed. All Jersey-registered businesses will pay a zero per cent rate of corporate tax. That ought to preserve the offshore finance sector, but it could also halve government revenues.
Scrapping the corporate tax will leave an already cash-strapped government with a financial black hole. To recoup even some of its losses, Jersey will have to raise indirect taxes on goods and services, which inevitably fall more heavily on consumers. The protests are already beginning.More on this story here.
WILL CHINA REVALUE THE YUAN?
What is good for Chinese manufacturers is raising howls of protest elsewhere in the world. Currency analysts such as Montreal’s BCA Research regard the yuan -- pegged at around 8.3 to the dollar for a decade -- as undervalued by 20%-30%, given China’s swelling foreign reserves, which increased 35%, to $286 billion, last year. Now, with the yuan even cheaper thanks to the dollar’s dive, China’s export machine is really roaring -- at the expense of Japan, Mexico, South Korea, and other nations with floating currencies. U.S. manufacturers also claim they are being hurt by an artificially cheap yuan. In May, China’s exports surged 37% above last year’s levels, despite tepid growth in the U.S., Europe, and Japan. Beijing University economist Song Guoqing expects China’s exports will be up 30% for the year, to $424 billion.
This success is sparking renewed calls for Beijing to revalue the yuan, or even let it float. And there are indications that the jawboning may be having an effect. On June 16, U.S. Treasury Secretary John Snow stoked speculation that Beijing may make a move by saying Chinese leaders had indicated “that they intend to create more flexibility” in the currency.
But absent a big political push by Washington, hopes for a Chinese revaluation may be misplaced. The reason: Exports are one of the few brights spots in the Chinese economy. The Chinese economy is in the midst of a painful transition. Private estimates put unemployment as high as 15%. And joblessness is rising, as Beijing continues to restructure agriculture and close state enterprises.
Meanwhile, Beijing is trying to put the brakes on new lending after allowing bank loans to soar by 34% in the past two years, an unsustainable pace. The easy-money strategy has worked wonders in propelling economic growth since the 1997 Asia crisis and through several years of domestic deflation. But it has come at a cost. China’s $1.8 trillion in outstanding bank loans are equal to 140% of its gross domestic product, compared with 88% in 1996. And nonperforming loans are high at China’s four major banks, all of which are technically insolvent. The lending spree also has fed a real estate bubble that Beijing is trying to gently deflate.More on this story here.
U.S. GOVERNMENT CASH SEIZURE REJECTED
A federal appeals panel has told the government for a second time that it did not have the right to seize cash from the owner of a Miami import-export firm merely because she was carrying a large amount. Drug Enforcement Administration agents did not have probable cause to take $242,484 from Deborah Standford at Miami International Airport in December 1998, according to an 11th U.S. Circuit Court of Appeals ruling.
The ruling signals shifting court treatment of forfeiture cases in light of a 2000 federal law making it more difficult for the government to seize money, property or other assets. The Civil Asset Forfeiture Reform Act of 2000 (CAFRA) placed the burden of proof on prosecutors to show that seized assets are fruits of criminal activity rather than forcing the assets’ owners to show that they are not.
A prominent Miami criminal defense attorney said the opinion was indicative of a change in judicial thinking. “It used to be that the government just had to show up and everything would be forfeited,” said Roy Black, senior partner at Miami’s Black Srebnick Kornspan & Stumpf. “Now, fortunately, it’s not like that.”
According to the opinion, the facts of the case “[O]nly hint at crime: a suggestion well short of showing probable cause that a ‘substantial connection’ exists between the funds at issue here and a narcotics transaction.”More on this story here.
MEDICAL PRIVACY-LAW CHANGES AFFECT LIVING TRUSTS
At issue is access to medical records in cases where people become too infirm, injured or debilitated to handle their own financial affairs, possibly because of suffering a stroke, the onset of dementia, loss of sight or an ailment like Parkinson’s disease.
Living trusts are popularly known as probate-avoiding documents that may help shave or skirt estate taxes while ensuring your assets wind up with the intended beneficiaries at death. But trusts also typically contain language that may prove helpful while you are still alive but unable to handle affairs responsibly, from investments to bill paying.
The clauses contained in living trusts allow a successor trustee -- commonly an adult child or perhaps a bank trust department -- to step in when you no longer can do so. But as a safeguard against abuses, trusts typically require a certification from one or two doctors attesting to your weakened condition and its likelihood to persist before a successor trustee can step in. Now, with the tighter privacy rules on medical records, doctors have become less willing to reveal patient health issues, attorneys say.
If you are thinking about drafting a trust, make sure it addresses potential incapacity with reference to the new privacy rules. If you already have a trust, it might be time to update it. One attorney suggests an amendment in which you agree to submit to a neuro-psychological evaluation, at the request of a majority of your beneficiaries, to assess your ability to continue as trustee.
A confidentiality issue also could affect people with durable financial and health care powers of attorney -- documents often drawn up separate from a trust allowing someone else to act on your behalf in cases of incapacity.More on this story here.
Medical privacy? What medical privacy?
Despite the flurry of privacy notices and irksome new obstacles to normal patient-doctor interactions, private medical records have not been protected. Instead, the federal government has authorized 600,000 clinics, hospitals, insurers, and data processing companies to dig deep into the private lives of more than 280 million individuals. For the most part, patients will not be allowed to know who is doing the digging.
Topping the list of privacy violations in the federal rule are: 1.) No patient consent required for a broad list of activities, 2.) False assurance of an audit trail, 3.) Reporting loophole on the use of patients’ medical records, 4.) Psychotherapy notes -- private statements expressed by patients and the thoughts and conclusions, right or wrong, of the therapist -- are not protected, and 5.) Marketing and fundraising -- practitioners, clinics, hospitals, and insurers who hold patient data may engage in fundraising using the patient's name, address, age, other demographic data, and treatment dates -- is allowed.
Federal officials have declared private medical records to be public property. The rule makes medical records available without patient consent to individuals and organizations that claim a need or a right to them. That the term “privacy” is not even one of the 61 terms defined in the rule provides further evidence that, despite its title and statements to the contrary, the rule was not written to protect patient privacy. It was written to share patient data. It’s about to do a very good job.More on this story here.
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