July 2003 Selected News Clips

(Especially noteworthy articles’ headings highlighted in gold.)

JON RAPPOPORT RUMINATES ON THE NATURE OF FREEDOM

It’s appropriate, on this July 4, to think about freedom and what it really implies. I have always thought that the freedom established at the beginning of America contained far more possibility than most people want to accept.

Freedom is a platform, from which individuals can create something from nothing. We are not limited by permissions of a king, and we are not limited by any concept of a prior Super-Reality which we can only copy.

Freedom goes a lot farther than that.

I happen to think, along with a minority of scholars, that there was a good chance Thomas Paine actually wrote the Declaration of Independence. For one thing, the prose sounds like him. Paine was a political poet. He knew what his own freedom was, and he exercised it. He saw the political realities of the time with great lucidity, and he was quite willing to invent a new seed.

Remember him on this day.

RON PAUL: INDEPENDENCE FROM ENGLAND, DEPENDENCE ON WASHINGTON?

On July 4th, we celebrate not only our political independence from England, but also our independence from the feudal notion of loyalty to King and Crown. We celebrate victory by the American colonies over a government that taxed them too much and sought too much control over their affairs. We also celebrate the Founding Fathers themselves, and the great principles contained in the Constitution and the Declaration of Independence.

Today some Americans, including many members of Congress, view both the Constitution and our Founders as quaint anachronisms at best. Times have changed, they argue, and we hardly should be bound by rules established by a bunch of dead white men who could not possibly understand our modern society. The Constitution is relevant only if it “evolves” to allow for new realities, and the federal government certainly should not be constrained by outdated notions about its proper role. This viewpoint steadily gained acceptance throughout the 20th century, exemplified by the blatantly unconstitutional New Deal and Great Society programs, Supreme Court activism, the virtual abolition of states rights, and uncontrolled growth of the federal government.

As we celebrate the Fourth of July, we might consider what our Founders would think of present-day America. Would they find the ideal of a servant government intact? Would they see a society that abides by the principles established in the Constitution?

Unfortunately, the answer is no. They would discover a society completely dominated by the federal government, totally at odds with the weak central state they envisioned. They would find the people over-taxed, over-regulated, and far too dependent on government in every sphere of human activity. They would find most Americans woefully ignorant about our own history and Constitution, despite the prevalence of college degrees. Worst of all, they would find an attitude of complacency and subservience toward government, a mindset of accepting whatever Washington hands down.

And on this Fourth of July, they would outrageously find that fireworks displays all across the nation have been canceled, because communities did not obtain federal licenses for handling explosives.

MASSACHUSETTS INSTITUTE OF TECHNOLOGY LAUNCHES WATCH ON U.S. GOVERNMENT

The M.I.T. Media Lab has built a fully web-enabled system promoting “Government Information Awareness”. The MIT system’s name consciously echoes the DARPA “Terrorist Information Awareness” program -- a comprehensive domestic snooping plan meant to collect and collate every obtainable scrap of data about everyone in the US population, as betrayed by the name initially given the proposal: “Total Information Awareness”.

M.I.T.’s system is intended to counter-balance the US government’s grasp of information about its citizens by providing them with effective ways to gather, organize and share information about governmental activities. It will hold data about elected and appointed officials at all levels of government, political campaign contributions and legislative action (and the implicit links between those that now so corrupt American politics), regulatory affairs, defence contracts -- everything people can learn.

Creator of M.I.T. site that lets citizens monitor “Big Brother” talks about the project.

Concerned about expanded government monitoring of individuals, Ryan McKinley, a graduate student at the Massachusetts Institute of Technology, has created an Internet repository for citizens to provide information about public officials, corporations and their executives.

The result, he hopes, will be a giant set of databases that show the web of connections that often fuel politics and policymaking, such as old school ties, shared club memberships and campaign donations.

McKinley, 26, was inspired by the military’s Terrorism Information Awareness program, a controversial effort to use computers to look for patterns from seemingly disparate financial and other personal data as a way of tracking and halting potential terrorists.

“In order to avoid a totalitarian world, we need to figure out ways to make sure it doesn’t become unilateral,” said McKinley, who is careful not to disparage efforts to combat terrorism.

PRESSURE ON BARBADOS OFFSHORE SECTOR

Barbados’ international financial services sector, which brings in some $200 million annually, is under pressure again to show its transactions are above board. This time the pressue is from the FATF, an international regulatory body fighting money laundering and terrorist financing.

Barbados which boasts of being a low-tax jurisdiction for off-shore business successfully battled with the Organisation for OECD in 2000 to remove its name from a “blacklist” of nations deemed to be involved in harmful tax practices.

The FATF has now introduced for off-shore business domiciles a Revised List of 40 Recommendations which could have serious implications for the sector and the several professionals involved such as attorneys-at-law, realtors and accountants. Furthermore, the recommendations which the FATF expects nations to implement as a matter of urgency, could also be attached to future financing from the World Bank and International Monetary Fund (IMF).

In its most far-reaching declaration, the FATF has outlawed shell banks, some of which operate in Barbados and other Caribbean off-shore domiciles. The FATF has called on governments to shut down these entities that are usually registered off-shore to help companies in places like the United States reduce the level of corporate taxes they pay back home. Furthermore, financial institutions in Barbados would be prevented from doing business with any shell bank anywhere in the world.

EURO-SLUGGISHNESS

“The real weak point is Europe, where growth has really stalled,” Jorma Ollila, the chief executive of Nokia, says in an interview. Growth in Germany is zero, at best, and in France is only slightly better, he notes. “There is no sense of where growth could come from in Europe.”

Ollila’s worries about Europe are telling. For if there is any company that sees the world whole, it is probably Nokia, whose ubiquitous cellular phones have become symbols of globalization around the planet.

One explanation for Europe’s woes is that it simply does not work hard enough to compete. A panelist at a conference on European business leadership noted that because of their long vacations and generous holidays, Europeans on average work 30% less per year than Americans do. Hours worked per person are 15 to 20% less than in the States, he said.

THE NEW EUROPE LOOKS A LITTLE LIKE 1984

Europe recently paid homage to George Orwell, whose 100th birthday fell on June 25. Europe tipped its hat to Orwell in a different way as well. Orwell, of course, is famous for his writings about the rise of the totalitarian state in the name of a utopian ideal. Well, Europeans got a taste of that when the Financial Times uncovered a secret directive dreamed up by the European Commission’s Social Affairs Commissioner Anna Diamantopoulou.

In the name of ending sexual stereotypes of men and women, she opined that some European media and advertising should be banned. In her grand scheme, the official arbiter of what are stereotypical portrayals of men and women would be the EC’s Big Brothers and Sisters in Brussels, or, if necessary, the courts. The most breathtaking thing about this plan is that none of the terms are defined. Just what are stereotypical portrayals? In whose eyes is a television program or movie depicting an “unacceptable image”? This is the world Orwell created for us half a century ago. In Oceania’s Super State the Party elites decide what is truth.

From one of its most powerful commissioners, we get a glimpse into the attitudes of Europe’s ambitious, new, young post-war leaders.

GRANDIOSE SCHEMES FOR ELECTRONIC EAVESDROPPING MAY HURT MORE THAN THEY HELP

When it comes to the electronic gathering of intelligence information, it appears that no amount of information is enough. These two concepts have collided in America with the result that creating the very capability of gathering electronic intelligence is putting all of us in greater danger. The supposed cure may be worse than the disease. Maybe -- and only maybe -- we know a little more about what the bad guys in our society are doing, but it is coming at what might be a horrible cost.

The FBI administers the Communications Assistance to Law Enforcement Act (CALEA), which was passed by Congress in 1994. CALEA was a response to advances in digital communications. It was a way for law enforcement and intelligence agencies to go beyond old-fashioned phone taps and listen in on mobile phone calls, pagers, the Internet and any other form of electronic messaging that might be used by enemies of the state. Not only can the authorities listen to your phone calls, they can follow those phone calls back upstream and listen to the phones from which calls were made. They can listen to what you say while you think you are on hold. This is scary stuff.

But not nearly as scary as the way CALEA’s own internal security is handled. The typical CALEA installation has a direct connection to the Internet because, believe it or not, that is how the wiretap data is collected and transmitted. And by just about any measure, that workstation does not meet federal standards for evidence integrity.

And it can be hacked. And it has been.

CATO INSTITUTE ON UPHOLDING LIBERTY IN AMERICA AGAINST NEOCONSERVATIVE ASSAULTS

More and more anti-terrorist laws and rules straightjacket the nation. There is a congruent danger: the rise of neoconservatism on the right. The movement is using the threat of terrorism to expand government at home and abroad. America must safeguard its freedoms in the fight against terrorism, but protect itself from pernicious policies that erode freedom in the name of liberty.

James Buchanan, the Nobel laureate, argues that governments will acquire more power when the opportunity arises. History shows this to be true, and the Patriot law reflects it. Today, with the war on terrorism, the opportunities for the state to expand are ubiquitous. Both liberals and conservatives are casting a blind eye toward unnecessary usurpations of power, if not openly calling for them.

Underlying neoconservatism is a desire to reshape America and the world through the efforts of a robust federal government. For years, the Weekly Standard, the neoconservative magazine, has promoted the need for initiatives to reinforce America’s international power. Merely living in a free society appears to be insufficient for neoconservatives.

HOW THE IRS INTEREST-REPORTING REGULATION WILL UNDERMINE THE FIGHT AGAINST DIRTY MONEY

On January 17, 2001, as part of a blizzard of rulemaking during the final days of the Clinton Administration, the IRS proposed a regulation to compel U.S. financial institutions to report bank deposit interest paid to nonresident aliens -- even though this information is not needed to enforce U.S. law. The Bush Administration withdrew most of the controversial “midnight regulations” proposed by the previous Administration, but officials in the Office of Tax Policy at the Treasury Department inexplicably have fought to keep the IRS’s interest-reporting regulation alive.

The latest argument used by these officials is that the regulation will help the fight against dirty money. Like every other assertion made by Treasury Department personnel, this claim is demonstrably false. Indeed, the regulation will make it harder for U.S. law enforcement officials to investigate and prosecute criminals and terrorists by driving funds to foreign banks. The IRS’s proposed regulation has one purpose, and only one purpose, and that is to help foreign governments tax income earned inside U.S. borders. Treasury Secretary Snow should withdraw the regulation and fire department employees who put the interests of foreign governments before the interests of the U.S. economy.

BIG BROTHER GETS A BRAIN

Everything is set for a new Pentagon program to become perhaps the federal government’s widest reaching, most invasive mechanism yet for keeping us all under watch. Not in the far-off, dystopian future. But here, and soon.

The military is scheduled to issue contracts for Combat Zones That See, or CTS, as early as September. The first demonstration should take place before next summer, according to a spokesperson. Approach a checkpoint at Fort Belvoir, Virginia, during the test and CTS will spot you. Turn the wheel on this sprawling, 8,656-acre army encampment, and CTS will record your action. Your face and license plate will likely be matched to those on terrorist watch lists. Make a move considered suspicious, and CTS will instantly report you to the authorities.

Fort Belvoir is only the beginning for CTS. Its architects at the Pentagon say it will help protect our troops in cities like Baghdad, where for the past few weeks fleeting attackers have been picking off American fighters in ones and twos. But defense experts believe the surveillance effort has a second, more sinister, purpose: to keep entire cities under an omnipresent, unblinking eye.

“There’s almost a 100 percent chance that it will work,” said Jim Lewis, who heads the Technology and Public Policy Program at the Center for Strategic and International Studies, “because it’s just connecting things that already exist.”

RON PAUL: NEO-CON MEN HAVE COOPTED THE MODERN-DAY LIMITED-GOVERNMENT MOVEMENT

The conservatives have failed in their effort to shrink the size of government. There has not been, nor will there soon be, a conservative revolution in Washington. Party control of the federal government has changed, but the inexorable growth in the size and scope of government has continued unabated. The liberal arguments for limited government in personal affairs and foreign military adventurism were never seriously considered as part of this revolution.

Since the change of the political party in charge has not made a difference, who is really in charge? If the particular party in power makes little difference, whose policy is it that permits expanded government programs, increased spending, huge deficits, nation building and the pervasive invasion of our privacy, with fewer Fourth Amendment protections than ever before?

Someone is responsible, and it is important that those of us who love liberty, and resent big-brother government, identify the philosophic supporters who have the most to say about the direction our country is going. The true believers in limited government are now shunned and laughed at. At the very least, they are ignored -- except when they are used by the new leaders of the right.

Now there is mounting evidence to indicate exactly what happened to the revolution. The neoconservatives -- a name they gave themselves -- diligently worked their way into positions of power and influence. They documented their goals, strategy and moral justification for all they hoped to accomplish. Above all else, they were not and are not conservatives dedicated to limited, constitutional government.

Michael Ledeen, a current leader of the neoconservative movement, believes man is basically evil and cannot be left to his own desires. Therefore, he must have proper and strong leadership, just as Machiavelli argued. Only then can man achieve good, as Ledeen explains: “In order to achieve the most noble accomplishments, the leader may have to ‘enter into evil.’ This is the chilling insight that has made Machiavelli so feared, admired and challenging ... we are rotten,” argues Ledeen. “It’s true that we can achieve greatness if, and only if, we are properly led.” In other words, man is so depraved that individuals are incapable of moral, ethical and spiritual greatness, and achieving excellence and virtue can only come from a powerful authoritarian leader. What depraved ideas are these to now be influencing our leaders in Washington? The question Ledeen doesn’t answer is: “Why do the political leaders not suffer from the same shortcomings and where do they obtain their monopoly on wisdom?”

Rep. Ron Paul, The GOP’S loner from The Lone Star State.

A strict opponent of almost everything government undertakes, the Texas Republican congressman usually finds himself on the losing end of legislative battles. No more so than this year, in which the United States fought a war he did not support. Congress, meanwhile, enacted a tax cut he feels is too small, returned to deficits, expanded the role of government through the Department of Homeland Security and is poised to pass a Medicare reform package he abhors.

On July 10, he underscored why he is often a thorn in his own party’s side as much as in the Democrats’. In a lengthy floor speech [link above] dubbed “Neo-Conned”, he lambasted the administration and its philosophical bedfellows. Picking up on the same themes, he told The Hill, “I don’t think [the administration is] conservative at all. I think they talk conservative, but the government spending continues to go up. It seems like there’s no hesitancy to spend anything that anybody asks for, whether it’s guns or butter.”

Paul is confident that his views will prevail on issues both foreign and domestic: “I’ll probably win this argument. The reason is not because anybody’s going to pay any attention to what I say. But what’s going to happen is we’re going to run out of money. It happens to every empire, throughout all history.”

It’s tough to believe that Paul is not frustrated. No, he says, “In spite of my short-term pessimism, I’m optimistic about some of the changes that are happening in the country. This is really the beginning of an intellectual revolution that has to occur.”

The Ron Paul Freedom Principles here.

Ron Paul’s House web page here.

U.S. BUDGET DEFICIT MAY SURPASS $450 BILLION

War, tax cuts and a third year of a flailing economy may push this year’s budget deficit past $450 billion, according to congressional sources familiar with new White House budget forecasts. That would be 50% higher than the Bush administration forecast five months ago.

The deficit projection due out today is nearly $50 billion more than economists anticipated just last week, and it underscores the continuing deterioration of the government’s fortunes since 2000, when the Treasury posted a $236 billion surplus. The 2003 forecast easily tops the previous record $290 billion deficit of 1992, even when adjusted for inflation. Measured against the size of the economy, however, the deficit still has not reached the levels of the Reagan era.

Tax revenue has fallen for three straight years, a streak not seen since the Depression. Through June, tax collection is below the amount of taxes collected in the same period in 1999, according to the Congressional Budget Office.

DEATH AND TAXES -- CAN THE CONGRESS KILL A PERNICIOUS TAX?

It is widely recognized that the estate tax is still another tax on money that has been remorselessly taxed before as income taxes (federal, state and municipal), property taxes, sales taxes, sin taxes and a mounting array of indirect excise taxes and therefore some 80% of Americans are said to be against it.

n 2001, these congressmen and senators then passed a triumphant piece of legislation which gradually raised the exclusion amount over a period of years ($1 million excluded in 2002-2003; 1.5 million in 2004-2005; $2 million excluded in 2006-2008; $3.5 million excluded in 2009) and slightly, grudgingly but perceptibly, dropped the highest tax rate from 50% in 2002 to 45% in 2009. Then, in the momentous year 2010 there will be great rejoicing in the land. It is the grand climax of the new death tax legislation, for in that year, 2010, the death tax was repealed, canceled, and made null and void. Unfortunately there was a great catch and anti-climax because the death tax was scheduled to return with full force and fury in the following year of 2011.

The House has now repealed the death tax; that is, it has repealed the death tax during and after the year 2010. The problem is that the House needs the concurrence of the Senate, and it is not totally clear what precisely the Senate plans to do.

PENTAGON TO DIG INTO MARKETING DATA ON CITIZENS

The type of information that can be legally obtained for a new federal government computer program ranges from political and religious contributions to magazine subscriptions, clothing sizes and even data about prostate problems.

Almost every conceivable tidbit of personal information is collected and sold by private firms to create behavioral dossiers on millions of consumers so marketers can pitch products to them. A loophole created for the Pentagon’s data-gathering computer program -- dubbed by critics a “supersleuth” system -- makes that same information fair game for the government.

Civil-liberty advocates say that because there are no laws to govern this relatively new method of data mining, it leaves people vulnerable to gross invasions of privacy and due-process violations.

MEET JOAQUIN LAVÍN, CHILE’S LIKELY NEXT PRESIDENT

The Concertación has governed Chile since it brought an end to military rule in 1990; the result has been substantial economic growth, which has led to a decline in the national poverty level from 42% to 20%. But despite this achievement, Chilean Foreign Minister María Soledad Alvear is not considered likely to beat the right-wing mayor of downtown Santiago, Joaquin Lavín, in the next presidential election, scheduled for 2005. On the contrary, Lavín is expected to trounce her.

The charm of Joaquin Lavín, whose ever-present smile is both genial and avuncular, is that he does not do politics, or so he claims. The agonizing debate in Chile over the Iraq War, which Lavín skirted, was politics. Instead of politics, Lavín solves problems: He does cosas, or “things”, and he claims to be neither a leftist nor a rightist but a cosista, “thing-ist”.

The “things” Lavín has done vary from implementing common-sense solutions to everyday problems (a series of underpasses replacing traffic lights on a congested roadway) to the application of standard conservative prescriptions (the privatization of middle schools) to idiosyncratic measures defying the right’s sacred principles (a system of neighborhood physicians copied from Cuba).

By doing these “things”, Lavín -- the public face of the Independent Democratic Union (UDI) party -- has become so popular that he is treated almost as a president-elect. Regardless of whether Lavín, as president, would enact his partywts right-wing agenda or hew to more centrist positions, his ascent seems to represent the triumph, 13 years after its fall, of the ideals of Augusto Pinochetwts dictatorship: a depoliticized politics, free of ideology and even argument, and a dedication on the part of government officials to treating citizens as clients.

THOMAS SOWELL ASKS “WHO IS RICH?”

A number of other rich people have at various times declared that they do not need what are called “tax cuts for the rich.” Whatever political points such rhetoric may score, it confuses issues that are long overdue to be clarified.

One of the most basic confusions is between income and wealth. Income tax cuts apply to income, not wealth. So the fact that some rich people say that they do not need a tax cut means nothing because they are not getting a tax cut on their wealth, since their wealth is not being taxed anyway. Looked at differently, high tax rates hit people who are currently earning high incomes -- usually late in life, after having worked their way up in their professions over a period of decades. Genuinely rich people who have never had to work a day in their lives are unaffected by income taxes, except on what they are currently earning, which may be a tiny fraction of what they own.

In other words, soak-the-rich tax rates do not in fact soak the rich. High income taxes punish people for becoming prosperous, not for having been born rich. Even estate taxes can be minimized by hiring ingenious lawyers and accountants. But people who have had to work all their lives may not be nearly as able to afford such expensive ingenuity.

Another fundamental confusion over tax cuts is confusing lower tax rates with reductions in tax revenues collected by the government. One of the enduring political myths of our generation has been the claim that the rise of federal deficits during the 1980s resulted from President Ronald Reagan’s “tax cuts for the rich”. Tax rates were cut. Tax revenues were not.

In the case of the IRS data on the 400 highest income-earners in the country, only 21 people were in that category throughout the nine years covered by IRS statistics. In other words, more than 2,000 people passed through this category in the course of nine years but fewer than two-dozen actually stayed there the whole time.

CROSSING THE RUBICON

“Given the powers that Bush, Ashcroft, and the Pentagon are wielding, it is impossible to overstate the magnitude of the danger Americans now face from the executive branch of their own government.”

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Have you noticed how many Americans get upset over the comparisons that are increasingly being made between the United States and National Socialist Germany? After all, it’s not as though we are living in a police state, right? Well, if U.S. officials could somehow assure us that the U.S. government’s treatment of accused terrorists is not moving in the same direction in which Nazi Germany treated accused traitors, maybe that would help to put those comparisons to rest.

Contrary to popular opinion, the cornerstone of a free society lies not with the freedoms enumerated in the First Amendment. They are important, but much more important is what very well could be considered to be the lynchpin of a free society -- the right of habeas corpus -- a right that is guaranteed within the original Constitution itself.

Assume that a government has the power to seize anyone it wants within the country and execute him the next day, without any trial whatsoever. Ask yourself: What difference would it make if people in that society had freedom of speech, freedom of the press, and freedom of religion? What difference would it make if they had the right to peaceably assemble and petition the government for redress of grievances?

Thomas Macaulay, in his History of England, described the Habeas Corpus Act of 1679 as “the most stringent curb that ever legislation imposed on tyranny.” It is why the Framers included the following language in the Constitution: “The privilege of the writ of Habeas Corpus shall not be suspended, unless when in Cases of Rebellion or Invasion the public Safety may require it.” It is why the U.S. Supreme Court in 1969 described the writ of habeas corpus as “the fundamental instrument for safeguarding individual freedom against arbitrary and lawless state action.”

How does habeas corpus work, and how is it being undermined today? Read on.

MILITARY TRIBUNALS DRAWING FEW ATTORNEYS

GUANTANAMO BAY, Cuba -- The rules have been drafted, critiqued and revised. A courtroom has been built. The first candidates have been selected. But as the Bush administration prepares to try some of the 660 terror suspects held at the U.S. Navy base here in the first tribunals of their kind since World War II, officials are having difficulty finding attorneys willing to participate. Nearly two months after the call, only 10 lawyers have submitted credentials. Many more have said they will not.

Lawyers say preparing a meaningful case becomes impossible under rules that allow evidence they may never be allowed to see, that permit the government to eavesdrop on their conversations with clients, and that require them to get official permission before discussing the case with witnesses or other attorneys.

“The rules have been crafted in such a way that civilian defense lawyers will find it almost impossible to effectively participate in military tribunal cases,” said Miami attorney Neil R. Sonnett, chairman of an American Bar Association task force on the treatment of enemy detainees. “And, in fact, there are many fine lawyers who believe it would be unprofessional and even unethical for a lawyer to get involved under the circumstances the government is laying down.”

THE CHALLENGES OF GLOBALIZATION TO CARIBBEAN STATES’ SOVEREIGNTY

It may be argued that from the first intervention of European states into the Caribbean that the states of the Caribbean have suffered from the impact of globalisation. It may be further argued, that even at the time of the granting of independence, the entire process of independence, the development and creation of the constitutions, and the granting of statehood, were all illusory indulgences with the Caribbean States having little or no real sovereignty.

Today the challenges of globalisation, the institutions of the World Trade Organisation, the World Bank, the International Monetary Fund, and their implications on the ability of current Caribbean states to manage their affairs have brought into focus once again issues of sovereignty.

BUSINESS WEEK’S RETIREMENT GUIDE

A series of articles, with descriptions such as “Disinflation and subsequent falls in interest rates especially hurt retirees”, “Is it time to lock in profits from your house?”, and “Sleep Soundly without Stocks: Author Zvi Bodie says the safest possible approach to retirement savings is to stick closely to TIPS and I-Bonds”.

THE DEATH OF PRIVACY -- AGAIN

The death of privacy has been predicted many times before, most notably with the growth of private and government databases that cross-reference vast amounts of data about individuals. What is different now is a wave of technologies, including Webcams, RFID tags, and location-based services in phones, that add the potential for “front-end” privacy intrusions that are immediate and personal, to add to the “back-end” intrusions (ranging from large databases of your spending habits to rogue employee abuses of driver records) that are largely offline and aggregated and that we have grown used to. These new technologies also empower individuals to violate each other’s privacy, something we had to rely on governments and unscrupulous companies to do for us in the past.

This is not just a question of individuals taking unwanted pictures of celebrities in public or of retailers actually being able to answer the question, “Nice pants -- where have they been?” Many businesses will need to pay closer attention to what employees, customers, and visitors alike are doing with intrusive technologies such as camera phones inside their facilities and on their property.

Echelon: It can see us, but not as clearly as we thought.

The almost mythical Anglo-American global listening system -- Echelon -- really does exist, it really does listen to phone conversations, and it really does read your emails and faxes. According to a preliminary report, Echelon snoops on private and business communications, and not military ones as originally suspected, and everyone is now being advised to encrypt all emails as a safeguard.

In spite of the fear that any unencrypted private communications can be intercepted and read, the report does admit there is no evidence to suggest Britain and the US have abused information gained. It also admits that Echelon is not as powerful as was feared.

IT Myths: Who is analyzing our trans-Atlantic phone calls?

Who is listening to your phone calls? One of the most commonly heard IT myths has it that governments and large telcos are in cahoots, tapping calls, especially those between the US and other countries, listening for key incriminating phrases.

The idea of blanket monitoring of thousands of calls in real time, coupled to real time analysis of what is being said, isn’t likely. It is far more likely a suspected wrong-doer is the subject to someone “listening in”, in classic spy story style.

TAX AND REGISTRY COMPETITION PRAISED IN PANAMA LAWYERS’ FORUM

On July 15 some of competition’s greatest advocates -- and a representative of Panama’s greatest competitor in the ship registry field -- talked public policy and international economics before an audience of admiralty lawyers. This was an occasion to bash the OECD and the EU over policies that arguably run counter to Panama’s interests. Basically the OECD, largely at the behest of European countries, has a “Harmful Tax Competition Initiative” that would blacklist countries deemed “tax havens”. Moreover, within the OECD and the International Maritime Organization there are proposals for changes in ship registry laws, ostensibly for protection against the fleet said to be owned by Osama bin Laden’s outfit, which would discourage ship owners from using Panamanian or Liberian flags of convenience.

“The OECD is trying to force all countries to share information... to everybody to pay tax back to their home countries,” the Center for Freedom and Prosperity’s Andrew Quinlan explained. He detailed the history of the CFP, a small think tank and lobbying outfit spun off from the larger American conservative movement and specializing in international tax issues.

SURVEY: RICH NOT GETTING RICHER

A new survey shows the world’s billionaires and millionaires lost almost $2 trillion in wealth in 2002 as economies slowed and markets declined. According to the Boston Consulting Group’s Global Wealth 2003 survey, those same investors have seen their holdings tumble by almost $5.3 trillion in local currency terms since early 2000, when the equities markets were near their collective peak. The total increases to $6.4 trillion if investors with holdings of $250,000 to $1 million are included.

Not only are the rich getting poorer, they are getting fewer. According to the BCG survey, in 1999 there were about 36.5 million households around the world who met the criteria of “wealthy” -- assets under management of $250,000 or more. In 2000 that number slipped to 35.3 million. In 2001 it was down to 33.3 million and last year it fell again to 33.0 million, made up roughly of 13.6 million in North America, 9.2 million in Asia-Pacific and the Middle East, and 9.1 million in Europe.

INVESTIGATIVE REPORT: IRS COMPROMISES TAXPAYER PRIVACY

Duane Horton knew there was something strange about the tax-preparation software he received in the mail from H&R Block. On its face the pitch looked like one of the normal solicitations from software companies. But it was not the package itself that raised his suspicions so much as the address to which it had been sent.

Horton did not receive the mailing at his home in Portsmouth, R.I. Instead, in 2000 he pulled it out of his postal box in the nearby city of Middletown, where he receives important mail. Then he noticed the package also was addressed to his wife, Josephine, who never received business mail at the box. There was only one exception to this rule: Horton and his wife both received their tax documents there from the Rhode Island Department of Revenue and the IRS.

The more he thought about it, the more Horton, a civilian mechanical engineer for a U.S. Navy laboratory and a self-described libertarian who takes privacy very seriously, became convinced that someone at the IRS was behind this mailing of the product from a private company.

BRUNEI HOPING TO CREATE A MARKET IN BONDS

Brunei has little chance of unseating global bond capitals like London, New York or Tokyo. Especially when you consider Brunei does not even have a bond market; it only recently launched an equity exchange. Its vast oil wealth left the government little incentive to create financial markets. It is now building them.

Brunei may provide an intriguing test case of a Southeast Asian economy building a market from scratch. It needs to create a debt department, form a group of bond dealers to bid on and distribute debt. From there, Brunei needs to develop a vibrant secondary market to pave the way for corporate, mortgage-backed and asset-backed securities.

Like its peers in the region, Brunei ends up shipping large quantities of its financial reserves overseas. Its economy would be better off if that money stayed here and were put to productive use. The money could be aimed at economic development, which might boost consumer and business confidence.

Oil and gas account for 94% of exports. Yet the source of the nation’s wealth could vanish in 20 years if predictions about Brunei’s wells running dry come true. Efforts to fill that void are intensifying.

U.S. HOUSE OF REPRESENTATIVES TAKES AIM AT PATRIOT ACT SECRET SEARCHES

The House voted overwhelmingly to roll back a key provision, which allows the government to conduct secret “sneak and peek” searches of private property. The House voted 309-118 to attach the provision to a $37.9 billion bill funding the departments of Commerce, State and Justice. It would be the first change in the controversial USA Patriot Act since the law was enacted in October, 2001.

The move would block the Justice Department from using any funds to take advantage of the section of the act that allows it to secretly search the homes of suspects and only inform them later that a warrant had been issued to do so.

Supporters of the change say that violates both the U.S. Constitution and the long-standing common law “knock and announce” principle -- which states the government cannot enter or search private property without first notifying the owner.

The UNPATRIOT Act.

Congressman Ron Paul praised two landmark votes in Congress that could mark a turning point in the battle to protect civil liberties threatened by the Patriot Act. Paul has been an outspoken critic of the Patriot Act since its hasty passage in the weeks following the 9/11 terrorist attacks.

The House of Representatives recently passed two amendments to the annual Justice department funding bill that show many in Congress are having second thoughts about the Patriot Act. However, the battle against the Patriot Act has only just begun as the Senate could strip the new restrictions passed by the House. Both the administration and congressional leadership continue to support the Act, despite public outcry against it and growing opposition among rank and file members of the House. Paul and hundreds of his House colleagues now hope to capitalize on their momentum by working to repeal all or part of the Patriot Act itself.

WHY OFFSHORE TRUSTS HAVE LOST THEIR APPEAL TO SOUTH AFRICANS

Offshore discretionary trusts were originally created for the management and protection of the assets of the truly wealthy, usually in cases where a meaningful donation had been made, and this still remains their primary role. However, the many problems attached to offshore trusts are pushing investors more and more to explore offshore alternatives, says Dr. Barry Spitz, an international tax and trusts expert.

According to estimates by Scotland Yard and the United States Federal Bureau of Investigation, 60% of all of the money in the world is held offshore. Industry specialists claim that some 40% of that amount is held in or under offshore trusts. If these figures are correct, that would mean that offshore trusts hover over about a quarter of the world’s investment wealth.

Spitz says a trust has, at its heart, a number of essential fundamentals that South African and other clients frequently refuse to accept as part of the trust relationship, including the fundamental requirement that a trustee should take full legal ownership and control of the assets settled in the trust by the settlor, or the person who set up the trust.

“Where the settlor later seeks to protect his funds against creditors, spouses or tax authorities, in a discretionary offshore trust, but has used devices, such as letters of wishes or protectors, to keep control of the funds, the courts are now seeing right through the trust and declaring the assets to be still vested in the hands of the settlor. Papers before the House of Lords indicate that perhaps 90% of all offshore trusts are invalid on the grounds that the settlor is calling the shots.”

PENSION CRISIS BREWING IN U.S.

A pension crisis -- one that is inviting comparisons to the massive savings-and-loan-industry bailout of the late 1980s -- is coming to the forefront in Washington. Last Wednesday, Congressional investigators designated the government-sponsored program that insures the pensions of 44 million private-sector workers as “high risk”. In fact, the Pension Benefit Guarantee Corp. is running the highest deficit in the program’s 29-year history, prompting the Bush administration to say the nation’s private pension system needs major reforms.

The PBGC has suffered a $15 billion downturn in its financial health since 2000, moving from a $9.7 billion surplus three years ago to a $5.4 billion deficit by April. To blame is a surge in pension-plan terminations, with private companies that cannot meet their pension obligations ending their plans and turning over their pension assets to the PBGC, which then continues paying retirees.

With an estimated $300 billion in underfunded pensions among the nation’s corporations as of April, the PBGC sees more trouble brewing. Employers are struggling with massive pension-underfunding problems caused by the downturn in the market, low interest rates and an increasing number of aging workers. Airlines have $26 billion in pension underfunding, the PBGC has said, and automakers have $60 billion in unfunded obligations.

U.S. REGULATORS TURN THEIR ATTENTION TO THE SELLING OF MUTUAL FUNDS

On July 23rd the House of Representatives’ Committee on Financial Services proposed a law requiring investment firms to disclose commissions paid on the sale of mutual funds. Nine days earlier, state regulators in Massachusetts had charged Morgan Stanley with lying about the preferential terms given to brokers and branch managers for pushing the firm’s own products. The Securities and Exchange Commission (SEC) and the National Association of Securities Dealers are also said to be investigating.

The investigation into Morgan Stanley’s practices has big implications. The mutual-fund industry is a $6 trillion business, and the investigation raises two important questions about how financial firms sell their products. The first of these is whether, in selling a financial product, investment firms have a duty, like doctors and lawyers, to be truly objective in their advice. The second -- just as important, especially if the likelihood of objectivity is slim -- is whether customers should be made aware of the incentives that salesmen have to push one product rather than another. These the industry is reluctant to reveal.

HOW RICH IS RICH?

When asked what defines “rich”, a lot of people say it means never having to worry about money again and working only if the mood strikes. Robert H. Frank, a professor of economics at Cornell and author of Luxury Fever, has noted in his work how wealth is perceived and defined in relative terms. He cites H.L. Mencken, who “defined a wealthy man as one who earns $100 a year more than his wife’s sister’s husband.”

Rich is not just a quantitative experience. It is a qualitative one. Money is great, but only if it contributes to your sense of well-being rather than detracts from it. How you choose to spend your money has something to do with how wealthy (or poor) you feel. If you are constantly confusing need with desire (desire to keep up, desire to have the latest and greatest, desire to show off), chances are you will never feel rich enough.

High net-worth individuals seek financial advice during downturn.

There were an estimated 2 million high net-worth individuals (HNWI) in the United States at the end of 2002, according to a report from Merrill Lynch. However, that represents a decline of about 100,000 high rollers from the previous year.

“Their numbers and wealth were undermined by continued declines in U.S. equity markets,” said James Gorman, president of Merrill Lynch’s Global Private Client group. “However, the decline in their wealth was substantially less than the 22% drop in the value of the Standard & Poor’s 500 index over 2002, indicating that high net worth investors have strategies in place for wealth preservation.”

Assets under management by independent financial advisers who specialize in serving wealthy clients rose by 11% in 2002, with the median account size rising by 3.2% to $702,868. “It seems that during 2002, wealthy individuals whose portfolios had suffered at the hands of their brokers or because of their own poor judgment continued to turn to independent advisers for counsel,” said Kieran Beer of Bloomberg Wealth Manager magazine.

UNCLE SAM IS WATCHING YOU

Next time you book a flight to the United States, be prepared to leave your private life at the check-in desk. That, in effect, is what you will be expected to do as a result of sweeping new security measures. If you book through a travel agent, you might hear some bland talk of “the need for details of all bookings to be passed, of course, to the US authorities”. If you book online or by phone, you will probably give little thought to the small print on the website or the telephone-menu option on “what we do with your data”. It says something like this: “We are required by new laws introduced in the US and other countries to give border control agencies access to passenger data. Accordingly, any information we hold on you and your travel arrangements may be disclosed to the customs and immigration authorities of any country on your itinerary.”

Among that information is your passenger name record, or PNR, which includes your name, the date and time of your flights, the flight numbers, the destination and any stopovers. Depending on how you booked, and whether you are a regular customer, the PNR* can also include your date of birth, address, credit card numbers, emergency contacts and frequent-flier details. It may reveal information about your state of health (“uses wheelchair, can control bowels”) and, indirectly, your religion (“always requests kosher meal”) -- and it can list the cities and hotels you stay in regularly, the people with whom you stay, and whether you ask for one bed or two. It can, in short, lay bare a traveler’s life.

* In the words of Edward Hasbrouck, an American travel writer and campaigner on privacy issues, PNRs show “where you went, with whom, for how long, and at whose expense ... Particularly in the aggregate, they reveal trade secrets, insider financial information, and information protected by attorney-client ... and other privileges.”

TAX COURT DECISION GOES AGAINST FAMILY LIMITED PARTNERSHIP

For years, the IRS has brought lawsuits to invalidate the generous tax breaks claimed by family limited partnerships -- popular vehicles often used to pass wealth to younger generations. And for years, the IRS has had little success. But in May, the tax man’s luck changed, when a U.S. tax court rocked the quiet world of estate planners by declaring tax breaks off-limits to a Texas partnership.

The court did so on the grounds that its donor had retained too much control over key decisions, such as the distribution of money among partners. “For a lot of people who set these up, maintaining control is very important,” says Joanne Johnson, managing director at JPMorgan Private Bank in New York. “But now, they may have to compromise on that control.”

SHOULD CHINA REVALUE? SOON, IT MAY HAVE NO CHOICE

The debate over revaluing the Chinese yuan is gathering steam. At its current fixed rate of 8.28 per U.S. dollar it may be undervalued by as much as 30%. Many in the West argue that the Chinese, by keeping their currency artificially cheap, are ruining other nations’ ability to compete in global trade and building up a dangerously large foreign currency reserve. Chinese officials, politely but firmly, have basically told the West: Get lost. China’s domestic economy needs to soak up millions of jobless workers and recover from the ravages of SARS. Cheap exports are vital in this exercise. No way is a major revaluation possible.

Don’t fixate on the high-level chatter of the world’s finance ministries. Rather, look at what ordinary businesses and individuals in China are doing -- that is, at the day-to-day flow of money across China’s ever more porous border. In this realm, stockbrokers, fund managers, corporate executives, and currency traders are all betting on a revaluation by pouring money into the country. The very weight of all this money will force officials to act, analysts say, or risk unbalancing China’s domestic economy.

FBI TARGETS NET PHONING

Representatives of the FBI have met at least twice in the past three weeks with senior officials of the Federal Communications Commission to lobby for proposed new Internet eavesdropping rules. The FBI-drafted plan seeks to force broadband providers to provide more efficient, standardized surveillance facilities and could substantially change the way that cable modem and DSL (digital subscriber line) companies operate.

The new rules are necessary, because terrorists could otherwise frustrate legitimate wiretaps by placing phone calls over the Internet, warns a summary of a July 10 meeting with the FCC that the FBI prepared. “Broadband networks may ultimately replace narrowband networks,” the summary says. “This trend offers increasing opportunities for terrorists, spies and criminals to evade lawful electronic surveillance.”