Wealth International, Limited

Offshore News Digest for Week of August 4, 2003


Is the right to travel anonymously a necessary part of the First Amendment freedom to assemble? This is the key question in a case filed by John Gilmore against the demand that airline passengers traveling within the US be required to show photo ID before being allowed to board a plane.

Most of us, when presented with airline security, just try to get through as fast and unnoticeably as possible. Gilmore, Agnostic love him, is the opposite; he was refused carriage by British Airways recently for declining to take off a button that read “Suspected Terrorist”. You can argue that Gilmore acted like a nut, that BA is not American and therefore not subject to the First Amendment, that a plane is private property belonging to a business, that an airline captain has absolute discretion, and that intransigence is not a rational response to easily unnerved staff. But there is a principle here: do we surrender all our rights when we become airline passengers? If not, which ones do we have?

By now Gilmore surely needs no ID beyond his name, sandals, and tie-dyed socks for them to know who they have got there. But the fact is that you do not really need to know who he is anyway when he is sitting next to you. You just want to know he is not going to blow up the plane or stab you with the pin from the back of his button.

More on this story here.

Gilmore v. Ashcroft lawsuit home page here.


If there was an other-worldly feel to the news last week that the Pentagon was investing in an online futures exchange to reward [the prediction of] terrorist atrocities, then the following few days have been even stranger. While we have seen economists and pundits rush to the defense of the aborted “terror casino”, very few commentators have examined the curious ideological motivations behind the ill-fated Policy Analysis Market, which at times appear determined to outdo any occultist. The phrase “not of this world” might spring to mind as you read on.

More on this story here.

Poindexter to leave Pentagon research job.

John M. Poindexter, the retired rear admiral involved in the Pentagon’s ill-fated plan to launch an online futures market for betting on Middle Eastern developments, will be leaving his job with a Defense Department research agency, a senior defense official said. The departure had been demanded by lawmakers outraged over the notion that the Pentagon should set up a system enabling people to profit from predictions of terrorist attacks and other events. Poindexter, who has not spoken publicly about the initiative since it sparked a political firestorm Monday, has headed the office at the Defense Advanced Research Projects Agency (DARPA) responsible for developing the trading program.

More on this story here.


ID cards come in two quite distinct flavours -- the nasty one, where they use the cards to police you, and the nice one, which you use to establish and protect your rights and identity. Simple? Actually, I lie when I say they are distinct flavours; in reality nice isn’t absolutely nice, the two bleed most horribly into one another, and what we should really be busying ourselves with is establishing clear lines of distinction then defending them.

If we do not, then ten years hence, ID as establishment of personal rights and identity will inevitably come with free, added control and monitoring. By happy coincidence, here in the UK we have recently been presented with pretty good examples of nasty, nice, the blurring between the two and how that blurring happens.

More on this story here.


Manufacturers who have been shedding jobs and slowing production would get a helping hand with tax cuts and equipment write-offs, House Ways and Means Committee Chairman Bill Thomas said as he revealed a $120 billion tax cut for businesses. Lawmakers challenging Thomas, who have lined up their own force of corporate supporters, said the bill mostly benefits multinational corporations that move jobs to cheaper markets overseas at the expense of U.S. workers.

The bill also would penalize individuals who move abroad and renounce their U.S. citizenship to dodge their income tax liabilities, and it strengthens the disclosure requirements for tax shelters.

More on this story here.

For the text of the Thomas bill, go here and enter “HR 2896” for “Bill Number”.

Official Taxpatriates Page here.

The motto of the expatriate: “You don’t have to be nice to nation states you meet on the way up if you’re not coming back down!”

GOP assaults on privacy drives more wealth offshore.

If so many companies [such as W.I.L.] are getting into the very specialized business of offshore asset protection, what does that say about how many of America’s wealthy are leaving? What will happen to the tax base, as they leave? What will happen to the jobs that their wealth supported, after they and their investment capital are gone?

More on this story here.


Gordon Brown, the chancellor, wants to lay his hands on the hundreds of millions in tax avoided -- perfectly legitimately -- by those whose domicile is Monaco, Jersey, Switzerland or other low-tax economies. So what is motivating the Treasury? Well, it is not simply the politics of envy from a Labour government reverting to type. The Tory government of the 1980s gave serious consideration to removing some of the tax breaks.

But the chancellor will have to balance the short-term political gains against the damaging effects any reform could have on business and the economy. A study by economists at Numerica recently argued that axing “non-dom” status would knock between £5 and £10 billion off Britain’s GDP.

More on this story here.


Most notably regarding tax harmonization. The President of the European Convention, Valery Giscard d’Estaing, has warned member states that the constitution will ultimately be doomed if national governments begin to pick away at the elements of the text that they do not like. However, this is not likely to deflect the UK government from its intended path.

More on this story here.


Negative internal rates of return, a dearth of realizations, investors unwilling to stump up funds and volatile markets have overshadowed the private equity industry in the past two years. But in April, Gordon Brown, the UK finance minister, threatened to hit the industry’s professionals in the back pocket. Buy-out chiefs faced the prospect of a much harsher tax regime under the Finance Act 2003.

But a collective sigh of relief was audible last week after the Inland Revenue decided to maintain the majority of existing tax arrangements. The development followed intense lobbying by the British Venture Capital Association, the UK industry trade body. Because the changes did not go through, the UK private equity industry will continue to benefit from one of the most benign tax regimes in the world.

More on this story here.


Ease of access to their cash is paramount for expats when deciding where to deposit savings, but building societies have traditionally lagged behind the banks in this key area. In general, offshore building societies are less likely to be able to offer internet access to accounts, for example. Usually, accounts have to be accessed remotely if you do not live in a place that happens to have a branch.

More on this story here.


Peter Caruana has praised a House of Commons Foreign Affairs Committee (FCA) report which recommends that the British government should attempt to foster more friendly relations between the Rock and Spain while mothballing the joint sovereignty issue.

With regard to the joint sovereignty proposals, the FCA report stated: “In our view, the reality is that the deal is not only wrong in principle, it is simply unenforceable. The Government should recognise explicitly that the deal is dead, and should arrange for a speedy burial. We recommend that the FCO (Foreign and Commonwealth Office) withdraw its unacceptable joint sovereignty proposal, and then get on establishing normal and co-operative relations between Spain and Gibraltar as should be the case between member states of the EU and their dependent territories.”

More on this story here and here.


The latest crime report from the Federal Police Office shows that economic crime costs the Swiss economy between SFr3 billion and SFr5.4 billion ($4 billion) each year. A top police official says Switzerland lacks the personnel to tackle such crime effectively.

The report says that the methods used to carry out illegal transactions are becoming increasingly sophisticated, thwarting investigations. In addition, economic crime networks are often set up to execute a single illegal transaction, before being dissolved once the money has changed hands.

More on this story here.


What strikes a new arrival to Hong Kong even more forcefully than the summer heat is the sense of optimism emanating from this former British colony. The local economy has been floored by a property slump, deflation and the outbreak of SARS earlier this year. But Hong Kong is bouncing back at speed: the streets, shopping malls and restaurants appear as crowded as they ever were.

This cheer even encompasses the investment banking community. There is none of the sense of gloom, or at least caution, still evident among its counterparts in Europe and the US. In the island’s tiny financial district, where many of the securities houses sit on top of each other in a single office development, the talk is of improving deal pipelines, privatizations, hot markets such as South Korea and hot sectors such as natural resources. Investment bankers are professional optimists, but the facts bear out Asia’s growing importance to their industry.

More on this story here.

Lend Momentum to Hong Kong’s Democratization.

In the aftermath of a half-million-strong popular protest against strict new anti-sedition laws, the resignation of two senior Hong Kong cabinet officials on July 16 provides convincing evidence that Hong Kong’s political culture has the potential to withstand dictates from China’s leadership. Although, to date, the Bush Administration and Congress have performed admirably in supporting Hong Kong’s pursuit of democratic ideals, the momentum of such a grassroots movement towards democracy must be maintained. To this end, there are several steps the Administration and Congress should take.

More on this story here.


In China’s evolving system of justice and in its evolving market economy, all things -- including the rules of the game -- are negotiable. Crackdowns on developers and the well-to-do can be less law enforcement than raw indicators of political power -- who has it and, more important, who has lost it.

For a quarter-century, China’s economy has exploded as part of a chaotic transition from socialism to capitalism. Hundreds of millions of Chinese have risen from poverty. Many of the people who have benefited most, however, are corrupt officials and their relatives and friends who used public assets -- real estate, state-owned factories and banks, even government treasuries -- to build personal fortunes.

More on this story here.


Rising unemployment has rekindled a debate on the presence of about 800,000 foreigners, most of them workers, in the tiny city-state. Unemployment is at 4.5% -- the highest since a recession in the 1980s -- and workers currently employed are being asked to agree to steep wage cuts as the economy struggles to emerge from the impact of SARS and a global economic slowdown.

Foreigners manage many top companies here, while laborers from China and Bangladesh are the mainstays of the construction industry. Professionals, engineers and architects from Malaysia, the Philippines and other countries are fixtures in offices.

More on this story here.


A seemingly straight-forward commercial dispute in a Melbourne, Australia court has revealed allegations that the United States Government improperly pressured the impoverished Pacific state of Nauru.

In March, a delegation from Nauru headed by President Bernard Dowiyogo went to Washington to discuss what Nauru could do to help the world’s war on terrorism. What happened and what promises were made on that visit remain unclear, a situation not helped by the death of Dowiyogo, a chronic diabetic, during the trip. Accompanying the Nauruans was a cast of foreign characters, some of them with colorful pasts.

More on this story here.


A survey conducted by banking group First National Bank (FNB), has revealed the startling fact that successful applications for new accounts with FNB in the three months to July 7 were down by up to 50%. FNB is the only bank that has surveyed what effect the Financial Intelligence Centre Act could possibly have on its prospective customers.

The act contains the know-your-customer requirements for banks to establish and verify the identities of prospective customers, which are in addition to existing procedures. A person opening a new bank account must now provide their South African identity document and recent proof of their residential address.

More on this story here.

Repatriate funds in line with your view on South Africa.

Amnesty applicants can leave their offshore funds overseas, but are being encouraged to bring them home. In deciding whether or not to repatriate your assets, you must first decide how optimistic you are about South Africa’s future. This is the view of Dries du Toit, the chief investment strategist at Sanlam Investment Management (SIM).

Amnesty applicants have to pay a levy on the value of their unauthorized offshore assets as reduced by any unused portion of their R750 000 offshore investment allowance. Those who repatriate their assets pay a five percent levy, while those who leave their assets offshore pay a levy of 10%.

More on this story here.

South Africa urges dismissal of apartheid case.

The South African government has asked a United States court to dismiss apartheid lawsuits brought against major multinationals, including Swiss banks. In a letter filed with the US District Court in New York, the justice ministry argued that the multi-billion dollar claims could hurt the South African economy.

The lawsuits, filed on behalf of thousands of black South Africans, accuse more than 120 local and foreign firms of profiting from the apartheid system, which was abandoned in 1994. Top Swiss banks UBS and Credit Suisse, and multinationals including Nestlé, Novartis, Exxon Mobil and General Motors, are among the companies named in the lawsuits.

More on this story here.


In a letter to Treasury Secretary John Snow, Senators Charles Grassley, chairman of the Senate Finance Committee, and Max Baucus, the committee’s ranking Democrat, lambasted the IRS for supposedly assessing a mere $3.3 million, and collecting less than $1 million in taxes from an amnesty designed to encourage individuals to declare their offshore income in exchange for less severe penalties.

However, the Senators have since admitted that their staff misread the Treasury inspector general’s report and had mistaken the OVCI for the OCCP (Offshore Credit Card Program), which is a smaller component of the main amnesty scheme. According to recently released IRS figures, the OVCI has to date collected $75 million in unpaid taxes, receiving applications from nearly 1,300 individuals.

More on this story here.


Federal prosecutors in Pittsburgh have moved to seize gold coins, a silver block and more than $1.6 million in cash from three men accused of running an illegal offshore gambling business in Antigua, Belize and the United States. From locations in the Caribbean, the accused or their employees accepted millions of dollars in wagers on sports events from bettors in the United States, either online or by phone, according to the forfeiture document.

More on this story here.


Squeezed by skyrocketing rates, physicians, hospitals and nursing homes in Connecticut and across the nation are thumbing their noses at commercial insurance and quietly creating their own insurance companies. They are setting up companies known as “captives” to insure only themselves. A large Connecticut physician group and several Connecticut institutions have already created captives or are forming them, and more are exploring the idea.

Captive participants, especially those with lower than average claims, hope to save on premiums eventually. They figure they will avoid the roller coaster of regular insurers’ pricing, which lumps them in with higher-risk customers and includes certain expenses that captives can avoid. Some mainstream insurers, including the St. Paul Cos., have quit the malpractice business and others have failed as claim costs rose faster than premiums and investment income.

More on this story here.


Economic crime has affected 37% of businesses worldwide in the past two years, and one in four Swiss firms. A new global survey shows that it also cost companies millions of dollars on average and harmed their corporate image.

The findings are part of a regular audit of economic crime by the accounting giant PricewaterhouseCoopers (PwC). The firm interviewed more than 3,600 business leaders in 50 countries.

More on this story here.


Yields on bank deposits are stuck at their lowest levels in decades, but one bank is going out of its way to seek higher returns for account holders -- to the other side of the world, in fact. Everbank, a division of First Alliance Bank of Florida in Jacksonville, calls itself a branchless bank, serving clients only by mail, phone and the Internet. It has offered a wide range of savings accounts and certificates of deposit denominated in foreign currencies, including the euro, British pound, Swiss franc and more exotic fare like the New Zealand dollar and Chinese renminbi since 2002. For most CDs, there is a $10,000 or $20,000 minimum investment and a fixed term of three or six months, stretching to nine or 12 months in some instances.

More on this story here.


America has posted unexpectedly strong second-quarter growth in GDP, owing partly to a surge in defence spending. But Europe is still trailing behind, and economies on both sides of the Atlantic face continued uncertainties.

Why is America apparently surging ahead, while Europe continues to lag? Part of the answer surely lies with the differing actions of central banks. Another crucial difference between America and Europe is fiscal policy. America’s healthy second-quarter figures owe much to the stimulus provided by spending on the Iraq war. But all the signs are not positive in America, whose consumers save too little and have too much debt, and whose current-account deficit is generally considered to be unsustainable.

More on this story here.


Jean-Claude Trichet, outgoing governor of the Bank of France, has sent a frank last letter to President Jacques Chirac urging him to lower public spending and undertake the structural reforms needed to lift French growth rates and increase the attractiveness of the economy. He noted that at 53.4% of GDP in 2002, French public spending was almost five percentage points higher than the eurozone average and that Austria was the only other country with state spending above the 50% threshold.

With unemployment rising sharply in June to 9.5% and economic growth expected to be no more than 0.8% this year, economists say the government’s juggling act with the public finances is becoming ever more hair-raising.

More on this story here.


The fantasyland that Argentina represented for foreign financiers came to a catastrophic end early last year, when the government defaulted on most of its $141 billion debt and devalued the nation’s currency. A wrenching recession left well over a fifth of the labor force jobless and threw millions into poverty.

An extensive review of the conduct of financial market players in Argentina reveals Wall Street’s complicity in those events. Investment bankers, analysts and bond traders served their own interests when they pumped up euphoria about the country’s prospects, with disastrous results.

Wall Street firms assert that their enthusiasm for backing Argentina’s borrowing was motivated by a sincere, if misplaced, optimism about the country’s economic strengths. But critics contend that the same forces that fueled the U.S. tech-stock frenzy were at work in Argentina, in effect causing economic globalization to play a cruel trick on the country.

More on this story here.


During fiscal 2004, the Bank of Japan plans to issue new bank notes for the 10,000, 5,000 and 2,000 yen denominations. Some people are nervously recalling 1946, when the government froze all bank accounts at the same time it issued new bills. As a defense against a similar occurrence, a financial consultant says there has been a run on safety deposit boxes at banks.

As one company owner explained: “If you include local government deficits, the government is 700 trillion yen in the red; tack on the debts by special corporations like the Public Highway Corporation, and it’s probably closer to 1,300 trillion. Even if the consumption tax were doubled to 10%, it wouldn’t be enough to erase these deficits. The only measures left are freezing of accounts, followed by devaluation of the yen. The International Monetary Fund made the same conclusion in its report.”

More on this story here.


On 31 March, David Blunkett, UK Home Secretary, signed an Extradition Treaty on behalf of the UK with his United States counterpart, Attorney General John Ashcroft, ostensibly bringing the US into line with procedures between European countries. The UK parliament was not consulted at all and the text was not public available until the end of May. The only justification given for the delay was “administrative reasons”, though these did not hold-up scrutiny by the US senate, which began almost immediately.

The UK-US Treaty has three main effects: (1) it removes the requirement on the US to provide prima facie evidence when requesting the extradition of people from the UK but maintains the requirement on the UK to satisfy the “probable cause” requirement in the US when seeking the extradition of US nationals; (2) it removes or restricts key protections currently open to suspects and defendants; (3) it implements the EU-US Treaty on extradition, signed in Washington on 25 June 2003, but far exceeds the provisions in this agreement.

More on this story here.


The European Union’s draft constitution has profound implications for its economy and for the euro. On the one hand, it creates a much-needed political authority, capable of co-ordinating the budgetary policies of the countries of the eurozone. On the other, by elevating the EU’s social chapter -- a list of good intentions -- into a binding “bill of social rights”, it threatens to stall the liberalizing forces that are making markets more competitive.

The drafters of the constitution contend that enforcement of these social rights will be restricted to actions resulting from an EU law. But that is cold comfort. In time, the reach of those laws will inevitably expand and reforming the welfare state will become a much more arduous task.

When EU leaders at last decide on the text of a new constitutional treaty, they will have to make a critical choice. If they want a Union that encourages rather than inhibits growth, they should adopt the political and institutional provisions of part one largely in their present form. But they should remove the social rights from the body of the constitution and restore them to their status as aspirations. The future of the euro depends on it.

More on this story here.


The government’s enforcement of privacy laws is uneven at best, with federal agencies lacking any way to detect unauthorized reading, altering or disclosing of personal information from about one-fifth of agency files, congressional investigators said last week. The General Accounting Office, the investigative arm of Congress, concluded that enforcement is so spotty that “the government cannot assure the public that individual privacy rights are being protected.”

More than one in four federal agencies, or 29% of those surveyed by the GAO, did not have procedures to ensure that personal data about individual Americans that they disclosed to nonfederal groups was complete, accurate, relevant and timely, as required by the Privacy Act of 1974.

More on this story here.

Airline passenger surveillance proposal expanded.

A passenger-screening system designed to help capture terrorists could also be used to target people suspected of violent crimes, under a proposal approved by Department of Homeland Security officials. Previously, government officials said the surveillance system known as CAPPS II would be used only to target potential terrorists and their allies -- limits intended to assuage concerns about the program’s impact on privacy and civil liberties.

Plans called for using commercial information services to sort through demographic and marketing data to establish whether passengers are “rooted in the community”. Classified government computers would then review passengers with questionable reports for signs of terrorist intent. The new proposal shows that officials intend to use the system -- potentially the largest surveillance network created by the government -- more broadly to keep dangerous people off planes.

More on this story here.

US anti-war activists hit by secret airport ban.

After more than a year of complaints by some US anti-war activists that they were being unfairly targeted by airport security, Washington has admitted the existence of a list, possibly hundreds or even thousands of names long, of people it deems worthy of special scrutiny at airports.

The list had been kept secret until its disclosure last week by the new US agency in charge of aviation safety, the Transportation Security Administration (TSA). And it is entirely separate from the relatively well-publicised “no-fly” list, which covers about 1,000 people believed to have criminal or terrorist ties that could endanger the safety of their fellow passengers. The TSA acknowledged the existence of the list in response to a Freedom of Information Act request concerning two anti-war activists from San Francisco who were stopped and briefly detained at the airport last autumn and told they were on an FBI no-fly list.

More on this story here.


The Homeland Security and State departments yesterday suspended two programs that allow some foreigners to enter the United States without a visa, in an effort to thwart an alleged terrorist hijacking plot that could have exploited that loophole. The action means foreigners will have to obtain U.S. visas, a process that now requires a face-to-face interview, to board international flights that have connecting stops at U.S. airports.

The agencies said they plan to reinstate both programs in the future and will review them in 60 days with updated intelligence. If the programs are suspended for 60 days, more than 6,000 travelers could be affected, the Homeland Security Department said.

More on this story here.


Generally, if you put your money in a bank, mutual fund or one of the many other methods of earning interest to increase your capital wealth, the governments of many countries will tax that income and other increments to your capital. This tax is frequently applied whether you actually received that additional income or not, i.e., you may be liable to pay taxes on those earnings, even if you decide to leave the money wherever it is in order to compound the earnings potential of your capital.

Except, that is, for the earnings within a life insurance policy. Simply put, this means that, in many countries, there is no tax payable on the accumulation of income and earnings within life insurance policies, unless and until the owner of the policy receives those earnings. Even then, there are many ways to reduce the tax liability of those earnings, depending on how the physical receipt of the income is structured.

If the income is taken in the form of a payment to your beneficiary(ies) in the event of your death, those monies are generally sheltered from inheritance and estate taxes. Moreover, as noted previously, an offshore policy gives the policy owner the flexibility to decide where such proceeds should be paid.

The benefits offered by offshore life insurance include:

More on this story here.

Treasury and IRS to close insurance loophole for hedge funds.

Proposals which will limit investors’ ability to avoid taxation on investment income by using life insurance or annuity contracts to purchase hedge funds and other financial instruments were outlined. The Treasury has conceded that the tax rules concerning life insurance and annuities have not kept pace with the rapid development of the financial markets over the last 15 years, and the change in the rules is an attempt to modernize the system.

More on this story here.


A widely publicized project to transform a man-made platform off the coast of England into a haven for controversial Web businesses has failed due to political, technical and management problems, according to Ryan Lackey, former chief technology officer of HavenCo. Lackey said that he left the project because his business partners had become nervous about hosting objectionable material and were leading the company toward financial ruin, with only about six customers remaining. A HavenCo representative disputed Lackey’s characterization of the company’s problems and said he was no longer in a position to know details about its workings.

When HavenCo launched in June 2000 to widespread press acclaim -- including a cover story in Wired magazine -- its founders promised to transform a windswept gun tower anchored six miles off the stormy coast of England into a co-location facility that would be a virtual home for businesses that were too controversial to place their servers elsewhere. The fortress was erected by the British military during World War II to shoot down Nazi aircraft.

More on this story here.


Jersey’s finance industry has been reeling from the news that one of its banks has announced the loss of 83 jobs, a third of the bank’s entire workforce. It is not only finance that has been effected. A week earlier one of the major retailers also made an unexpected announcement that it is shedding about 20 jobs.

There has been a series of announcements regarding job losses in recent months, and the ripple effect from the downturn may well have had an impact on a whole raft of subsidiary sectors that benefit so much from the presence of finance, from restaurants to recruitment. Although Guernsey has been effected also, most of the high-profile announcements have originated from Jersey.

The response to this trend has been a complete divergence of opinion on what it signifies. One analyst was very pessimistic about the island’s economic prospects and sparked a fierce debate. All analysis aside, there are a lot of Jersey residents having to come to terms with the reality of job loss, and that is a social issue the island is not accustomed to.

More on this story here.


In April the IRS quietly eliminated a number of exemptions for those registered accounts. As a result, U.S. taxpayers with RRSPs will be liable for severe penalties unless they file two complex IRS forms by August 15. You need to complete these “foreign trust” forms for 2002 for each RRSP you own. The filing rules are confusing.

· Failure to file the four-page IRS form 3520-A (Annual Information Return of a Foreign Trust With a US Owner) will result in a penalty of five percent of the gross value of the RRSP.

· Failure to file the six-page IRS form 3520 (Annual Return to Report Transactions With Foreign Trusts and Receipts of Certain Foreign Gifts) will result in a penalty of 35 percent of the value of any contribution, withdrawal or transfer that occurred in 2002.

· With each form you must attach a signed document (a “Foreign Nongrantor Trust Beneficiary Statement”) from the RRSP trustee if you have made a withdrawal from your RRSP (or RRIF). If you do not, RRSP withdrawals become subject to U.S. income tax.

Why the change? The Web site of the IRS (www.irs.gov) may provide a clue. When you visit it and enter “3520” in the search box you will notice the words “Abusive Offshore Tax Avoidance Schemes” as the first reference. It seems that RRSPs may have somehow been caught in the net as the U.S. diligently searches for offshore tax havens under their new anti-terrorism legislation.

More on this story here.


A Geneva investigating magistrate has convicted the former Pakistani prime minister and her husband of money laundering. Daniel Devaud sentenced them within his discretionary powers to a six-month suspended prison sentence. Devaud’s ruling came after five years of investigations and shortly before he stepped down from his post as a magistrate in Geneva.

The money allegedly came from multi-million dollar kickbacks paid into Swiss bank accounts by the Geneva-based testing and verification group, SGS, in exchange for lucrative Pakistani inspection contracts. The money was allegedly deposited in Swiss banks, and accounts belonging to the Bhuttos were frozen following an official Pakistani request in 1997. The Geneva authorities launched their own investigation into money laundering a year later. The Bhuttos deny the charges and will appeal the sentence.

More on this story here.


America is unique in time and space. Others might be able to defy the US, but they can neither compel nor vanquish it -- except in the meaningless sense of nuclear devastation that will be mutual. The sweep of its interests, the weight of its resources and the margin of its usable power are unprecedented. This Uber-Gulliver packs a threefold set of uniquely big muscles -- military, economic and cultural -- and there is nothing on the horizon of political reality that suggests the speedy demise of his hegemony.

History and theory suggest that this cannot last. In the international system, power will always beget counter-power, usually by way of coalitions and alliances among the lesser players, and ultimately war, as in the cases of Napoleon, Wilhelm II, and Adolf I. Has this game already begun? The answer is “No, but”.

More on this story here.


When they were first introduced by the U.S. Postal Service in 1963, ZIP codes were intended to make mail delivery faster and more effective. ZIP codes, an aptly coined acronym for zoning improvement plans quickly developed a different sociological meaning that its creators may never have imagined. Because they often broke down cities and towns along geographical fault lines that separated one neighborhood from another, they became instant delineators of wealth and status.

When we set out to determine the ten most expensive ZIP codes in the country, we were surprised to learn that many of the most famous and most fashionable ZIPs did not come close to making the list -- Beverly Hills, 90210, for example, and Manhattan’s Upper East Side (10021). To compile the list, we used median home prices for 2002, the last full year for which numbers exist, and interviewed dozens of local real estate agents, boards of Realtors and multiple-listing service providers, as well as third-party data providers.

More on this story here.

List of the most expensive ZIP codes in the U.S. here.


In new figures released this week, iMoneyNet revealed that of the 252 money market funds studied, Ireland hosts 159. The fund information firm also revealed that 39 such funds are domiciled in Luxembourg, and 33 in the Cayman Islands.

More on this story here.


UBS, the world’s biggest asset manager, is boosting its hedge fund research capability to strengthen offerings for clients who typically have more than $1 million to invest, sources at the firm said. UBS manages more than $1 trillion through its private banking, asset and wealth management operations.

More on this story here.


This month, California’s Franchise Tax Board expects to conclude an agreement with the Internal Revenue Service to divert 30 of the state’s most seasoned examiners to ferret out Californians illegally evading federal taxes. IRS officials say while California is likely to be among the first states to sign such a deal, it is not likely to be the last. In an era when both state and federal budgets are strained, tax cheats, who are believed to cost the U.S. government billions of dollars annually, are getting more attention.

The IRS hopes to sign agreements with tax authorities in all 50 states -- even those that do not have a state income tax, an IRS spokesman said. These deals are expected to combine the IRS’ relatively meager resources with those of the states, allowing the agency to pursue hundreds of individuals and businesses that it otherwise would not have the time and staff to handle.

More on this story here.


Nazih Hassan’s 700-member Muslim Community Association of Ann Arbor signed on as lead plaintiff in a lawsuit filed this week by the American Civil Liberties Union and a coalition of U.S.-based Islamic organizations seeking to dismiss provisions of the Patriot Act on constitutional grounds.

This week’s offensive against the Patriot Act is not a first for the ACLU. The organization has filed numerous lawsuits alleging civil liberties violations following the Sept. 11 attacks and launched a national campaign last fall to challenge government antiterror policies that it deems undemocratic. Wendy Wagenheim, spokeswoman for the ACLU of Michigan, said this week’s lawsuit is significant because it is the first to claim the Patriot Act provisions are unconstitutional.

In the meantime, recent actions by Congress are making it more likely that the ACLU will not need a lawsuit to get rid of the Patriot Act provisions it finds so objectionable.

More on this story here.


Europeans will soon consider a proposed constitution for the European Union that is very different from the U.S. Constitution. The United States is the oldest and largest surviving constitutional republic -- a nation that has experienced a larger increase in area, population, and income; absorbing people of more diverse racial, ethnic, and language backgrounds than any other contemporary nation. So Europeans are well advised to understand and consider those characteristics of the U.S. Constitution that provided the political and legal framework for the American success story.

Several characteristics of the U.S. Constitution have contributed to its relative success and survival as a body of foundation law. The preamble, for example, describes the objectives of the Constitution in only 52 words of forceful, declaratory, and quite general prose, which, by itself, provides no authority for any specific political decision. The main text, in only seven articles, describes the powers authorized to the several branches of government and the powers denied to the federal government or the states as few, brief, and well defined. All residual powers are reserved to the states. And the Bill of Rights, with one exception, is a list of the rights of individuals against the state, not a list of claims by individuals on services to be provided by the state; the one exception is the right to a trial by jury. All residual rights are reserved to the people.

The proposed EU constitution is very different in several dimensions.

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An NOP survey, commissioned by Internet security firm Symantec, reveals that many Brits would, given the opportunity, read messages or files on other people’s computers and mobile phones. Men are the worst culprits, with just over a quarter admitting they would look at colleagues’ salaries on their boss’s computer if they had the opportunity. Only 13% of women would spy on colleagues’ pay.

When it comes to snooping on partners at home, it is a different story. Women are the worst culprits -- 40% of all women interviewed said they would check their partner’s mails, while a staggering 60% were prepared to look at suspicious text messages if they thought they were being cheated on.

Symantec has devised some top tips for protecting confidential and personal information.

More on this story here.


To little fanfare last month the UK’s Office of National Statistics announced proposals for the creation of a central electronic database containing birth, death and marriage records. Announcing the publication of “Civil Registration: Delivering Vital Change”, and a consultation process running through until 31st October, the ONS listed key changes as including the ability to register births and deaths online, in person and by telephone, greater choice as regards marriage ceremonies and “new arrangements for access to registration information.” The creation of a centrally-held “through life record” for everybody however appears not to have been deemed a key change of sufficient moment to make it to the press release.

This Act is intended to allow changes to be made to legislation without them having to be put before Parliament, so in theory at least these changes should be minor, adminstrative, uncontroversial, whatever. But the “through life record” side-effect is potentially very controversial indeed.

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Repression just about always arrives with the consent of the governed. Benjamin Franklin memorably warned that those who would trade liberty for safety deserve neither. But what did Franklin know about Al Qaeda and orange alerts and shady people with Arabic names picked up on the Brooklyn Bridge, practically in the shadow of where you-know-what happened almost two years ago? And what have you got to hide, anyway?

The sixth annual Muzzle Awards, which single out 10 enemies of free speech and personal liberties, come amid a wave of repression. Last Fourth of July -- when the first post-9/11 Muzzles were unveiled -- was a time of trouble, but it was also a time of guarded optimism. Congress had quickly and spinelessly passed the USA Patriot Act, but so little use had been made of it by then that we wrote, “Fortunately, to date there have been more portents of oppression than actual oppression.” A year later, that optimism has given way to bitter reality.

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In late spring, HP Australia decided that that could save a few Australian dollars by replacing the ex-Compaq staff there with outsourced staff based in India, as reported here. But, sources claim, customers started to wonder why service was getting bad.

More on this story here.

More outsourcing madness: US smart bomb technology unit to move to China.

A report in a local US newspaper said that a Magnequench unit in Valparaiso which specialises in so-called smart bomb technology is to be outsourced to the People’s Republic of China. The Valparaiso unit makes 80% of rare earth magnets used in smart bombs.

The proposed move will mean the loss of 225 jobs in Indiana, but protesting politicians also say that national security is at risk in transferring such technology.

More on this story here.


It is no secret that the American economy is ailing. But few people realize that it has been ailing for about 30 years. When World War II ended, there were a few years of transition to peacetime, and then the economy returned to normal. From 1949 through 1973, economic growth (as measured by the estimated Gross Domestic Product) averaged 4.0% per year. But from 1973 through 2002, the growth was only 2.7% per year.

From 1949 through 1973, the median income rose an average of 3.1% per year. Since then the increase has been only 0.2% per year -- barely any gain at all. If the earlier trend had continued, the typical American family’s income today would be more than twice as large as it is.

What is so special about the year 1973? What happened then to cause the economy to slow down?

Actually, nothing. No unusual event occurred that year. It is simply that 1973 appears to be when the weight of government finally made a significant difference on the economy. Government spending and regulation reached the point that they were causing visible problems.

More on this story here.


The president of the Cayman Islands Chamber of Commerce, Conor O’Dea has written to the Caymanian government urging it to follow the UK’s lead, and not to impose additional mandatory regulatory requirements on the jurisdiction’s financial sector.

In his letter he noted: “Despite the concerns expressed of the financial industry as to the increased costs or doing business in the Cayman Islands, the inconvenience to our customer base and the lack of a level playing field with other competing countries (including the UK and the United States), we have forged ahead in implementing such legislation, not the least of which includes the amendment to the Money Laundering Regulations 2000 which created the very requirements that the UK’s FSA has now determined not to impose on its financial industry. Cayman never had the benefit of adopting a similar approach by the UK, of undertaking an independent cost benefit analysis.”

More on this story here.


Business in the island has long been unhappy at the introduction of a six year term limit on work permits (which can be extended to nine years in certain circumstances), arguing that the inflexibility of the policy will lead to a recruitment crisis in the future. However, the new Bermudian Premier Alex Scott has indicated that it will be possible for workers to stay beyond the nine years under current government policy.

More on this story here.


Leading fund manager Mark Costar, a partner and fund manager at JO Hambro based in London, believes the economic outlook for Jersey and the world at large is optimistic despite falling corporate profits and redundancies. Quoted in a Jersey Evening Post report, Mr. Costar, who has recently been voted amongst the top three fund managers by Investment Week magazine, observes “there is plenty of scope for sustained economy recovery.”

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In a recent interview, chairman of the Malta Financial Services Authority, Joe Bannister, tracks the island’s progress from “tax haven” to a more European orientated regulatory environment: “We have been screened by a number of international organizations,” stated Mr Bannister, “The EU, the OECD, the FATF the World Bank, and a few weeks ago, the International Monetary Fund. The IMF found nothing that caused us concern. It concluded that our regulatory system was very robust.”

More on this story here.


The Lausanne-based Court ruled that documents concerning a number of frozen bank accounts in Switzerland should be shared with Pakistan. In so doing it overturned requests from three companies to block the transfer of such information. The documents contain details of three accounts at Barclays Bank and Switzerland’s biggest bank, UBS, in Geneva, held by three companies with headquarters in Panama and the British Virgin Islands. Reports suggest that Bhutto, her husband, Asif Ali Zardari, and her mother, Nusrat Bhutto, had access to the accounts.

More on this story here.


South Africa’s richest industrial family have floated a scheme to award companies tax breaks for helping speed the country’s post-apartheid transformation. The scheme would lower companies’ tax rates on the basis of their performance in such areas as black ownership, employment equity, skills development and procurement.

In proposing the plan, the Oppenheimers are grasping the nettle of South Africa’s thorniest public policy debate. Johannesburg-listed stocks have been hit over the past year amid uncertainty about government guidelines on “black economic empowerment” (BEE) -- aimed at shifting business ownership and practices in mining, financial services and other sectors.

Companies complain of draconian and fickle government regulation. De Beers itself faces a potential 8% levy on diamond revenues -- double the rate for any other mineral -- under a government mining royalty scheme under discussion.

Many black South Africans are ambivalent about big business, and it remains unclear how the Oppenheimers’ proposal will be received.

More on this story here.


Fingerprints, DNA and behavioral characteristics are unique and difficult to forge, but using them to identify an individual in the modern world is legally problematic. This is the argument of Cape Town lawyer Kevin van Tonder in an article in the August edition of the SA Law Society’s journal De Rebus.

Among Van Tonder points is that “Uniqueness and difficulty to forge, make a biometrics system a potentially powerful authentication or identification tool. The downside, however, is that there is a risk that it will be impossible for a person to repudiate a transaction or repair the situation if something has gone wrong. Once someone steals your biometric information, it remains stolen for life. There is no going back to a secure transaction.”

And still more chillingly: The use of biometrics could increase personal risk from criminals, who might mutilate body parts in order to take advantage of the access these could give to personal information.

More on this story here.


Beijing’s staunch support for Tung Chee-hwa, the chief executive of Hong Kong, seems to have quieted the largest outbreak of political unrest in the territory since it was handed back to Chinese rule. Yet any misstep by Mr. Tung in the coming year is likely to spark renewed public demands for his resignation. If Hong Kong’s residents are to ensure that his replacement is directly elected, they must start acting now to clear the many constitutional hurdles in their way.

Mr. Tung is unlikely to survive another year. He faces grave challenges, the solutions to which require a degree of competence and leadership that he appears to lack. If his blunders trigger more big demonstrations, Hu Jintao, China’s president, would consider him a political liability. So too might Jiang Zemin, China’s former president, who handpicked Mr. Tung and, as commander-in-chief of the armed forces, retains a huge powerbase. These two are unlikely to resist further pressure for Mr. Tung’s resignation, for fear of undermining growing confidence in Beijing on the part of Hong Kong’s residents.

Under the current constitutional arrangements, if Mr Tung goes, his successor would be chosen by Beijing and “elected” by a Beijing-controlled committee. That is not what most Hong Kong residents want. Polls show they want their chief executive directly elected. However, under the Basic Law, a mini-constitution that Beijing adopted for Hong Kong, direct elections cannot take place before 2007.

The constitutional hurdles for direct election of Mr. Tung’s replacement appear insurmountable. But since the shelving of the national security bill, the word “insurmountable” seems to be fading from the Hong Kong lexicon. The territory’s people may yet give the world another surprise.

More on this story here.


Hong Kong’s stock exchange will explore trading in renminbi-denominated products as part of plans to make the former British colony an offshore centre for the Chinese currency. The plans, which also include allowing Hong Kong banks to accept deposits in renminbi, are intended to help China ease pressure on its currency amid increasingly strident international calls for a revaluation.

It was not immediately clear whether foreign investors would be allowed to invest in renminbi-denominated products listed in Hong Kong, or how these products would compare with those already traded in Shenzhen and Shanghai, the mainland’s two exchanges.

More on this story here and here.


The executives and finance ministers from the Association of Southeast Asian Nations met Wednesday on the sidelines of a two-day ministerial meeting on economic and financial development. The executives, who are members of the US-ASEAN Business Council, are still keen on business opportunities within the region despite a slew of terror attacks. The latest bomb blast came on the eve of the ministerial meeting. A car bomb ripped through the Marriott Hotel in Jakarta, killing as many as 14 people.

“Terrorism is not unique to Southeast Asia as we found out in the Sept. 11 terror attacks in the U.S.,” said business council president Ernest Bower.

More on this story here.


The Financial Services Authority said Belfast-based Northern Bank had failed to verify customers’ identities properly in a number of new business accounts opened across its network during part of 2002. It said Northern Bank, owned by National Australia Bank, had in some cases verified a client’s name but not their address or had used inadequate documents.

The FSA said it was particularly concerned about Northern’s failure to verify business clients because corporate entities have been identified as possible vehicles for money laundering. However, the FSA said there was no evidence that any actual money laundering had taken place. The size of the fine reflected Northern’s failure to take prompt action and its share of the market in Northern Ireland, where it is the largest retail bank with 95 branches.

More on this story here.


The Internal Revenue Service has identified nearly 2,000 businesses that are not withholding taxes or are filing frivolous returns, but it mostly fails to follow up on those cases, a government report shows. Of 1,841 potential cases found by the I.R.S. through July 29, 2002, just 480 had been assigned for entry into a database of taxpayers who filed frivolous tax returns. Of those, 233 made it into the database, the Treasury inspector general for tax administration found.

While it criticized the I.R.S., the report praised “the major achievements” of the Justice Department for filing civil injunction cases against nine promoters of the so-called 861 position, named for a section of the tax code. Promoters say that in writing regulations to carry out the section, I.R.S. lawyers did not require taxes on wages paid by domestic employers. Numerous courts have rejected the argument.

So far only one advocate of the 861 position, Richard M. Simkanin, the owner of Arrow Custom Plastics in Bedford, Texas, has been indicted for failing to withhold taxes and turn them over.

More on this story here.


Australia’s third biggest bank said it was “assessing institutional investor interest” in a new issue of hybrid securities, but did not disclose any target amount, or what the funds might be used for. The bank is widely considered by analysts to be one of Australia’s three frontrunners to launch an offer bid for NBNZ, which is up for sale and expected to fetch about A$6 billion.

More on this story here.


China’s top economic official Wen Jiabao, the prime minister, on Tuesday reiterated the country’s opposition to floating the renminbi, saying that a stable currency was in the interests both of China and the global economy.

“To keep the stable renminbi will not only benefit the stability and development of the economic and financial order in China, but also the economic and financial order of surrounding countries, and fundamentally the international economic and financial order,” he said. But he conceded that China was considering moving towards a more flexible system for the renminbi, which is pegged to the dollar in a narrow range between 8.276 and 8.28. Most observers believe the likely outcome is a widening of the band in which the renminbi fluctuates against the dollar.

Economists argue that a free float of the Chinese currency would be dangerous. It would require China to abandon controls that exert a heavy influence over demand for renminbi. This would endanger the stability of China’s financial system, in which bad loans are officially put at more than 20% of bank assets.

Chinese efforts to keep the renminbi in its band has also been convenient for the US in recent months. China’s purchases of dollars has helped the US finance it bloated current account deficit and put downward pressure on interest rates.

More on this story here.


Police in Florida are building a new counter-terrorism database designed to give law-enforcement agencies around the country a powerful new tool to analyze billions of records about both criminals and ordinary Americans.

Organizers said the system, dubbed “Matrix” -- short for Multistate Anti-Terrorism Information Exchange, enables investigators to find patterns and links among people and events faster than ever, combining police records with commercially available collections of personal information about most American adults. It would let authorities, for instance, instantly find the name and address of every brown-haired owner of a red Ford pickup in a 20-mile radius of a suspicious event.

The state-level program, aided by federal funding, is poised to expand across the nation at a time when Congress has been sharply critical of similar data-driven systems on the federal level, such as a Pentagon plan for global surveillance and an aviation passenger-screening system.

More on this story here.


A legal advocacy group filed papers Tuesday in federal court in Los Angeles challenging the constitutionality of the USA Patriot Act. The Center for Constitutional Rights, based in New York, argues that the Patriot Act infringes on free-speech protections by outlawing “expert advice and assistance” to groups that the United States has labeled terrorist organizations, even if the assistance is humanitarian in nature and has no connection to terrorism.

The American Civil Liberties Union sued last week over a provision that allows the government to secretly seize business records in terror investigations.

The latest case involves American activists and aid workers with ties to Turkey’s Kurdistan Workers’ Party, or PKK, and the Liberation Tigers of Tamil Eelam, both of which have been declared terrorist groups by Secretary of State Colin L. Powell. The plaintiffs argue that whatever links they might have with the groups are innocent and protected by the First Amendment, a view that has been supported by previous federal court rulings focused on other statutes.

More on this story here.


Ex-Intel engineer Maher “Mike” Mofeid Hawash has pleaded guilty to one of three charges that he conspired to aid and abet the Taliban. Hawash, 38, admitted that he traveled to Afghanistan in 2001 with the intention of fighting against the US’ invasion of that country. Apparently he got as far as China but failed to get into Afghanistan because he was denied a visa to cross Pakistan. He then returned to the US.

The US Department of Justice arrested Hawash last March and was finally indicted in April after being held without charge for several weeks. He was charged on three counts: one of “conspiring to levy war against the United States”, one of “conspiracy to provide material support and resources to Al-Qaida” and a third of “conspiracy to contribute services to Al-Qaida and the Taliban”. Hawash pleaded guilty only to the third charge.

At Intel, Hawash was lead software engineer on the company’s Pentium MMX design efforts.

More on this story here.
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