Wealth International, Limited

Offshore News Digest for Week of November 3, 2003


DRAFT ID CARD BILL SLIPS INTO QUEEN’S SPEECH

A draft bill to introduce ID cards in the UK is expected to be included in the Queen’s speech later this month. Although the move keeps the government’s options open, the Sunday Times reports that it is becoming increasingly unlikely that ID cards will be brought in before the next general election (June 2005).

Instead, the paper sees the scheme as a means to preserve the political modesty of the Home Secretary, David Blunkett, who is fighting to keep a cherished project alive against the opposition of his cabinet colleagues. Senior members of the cabinet are said to be split on the issue.

More on this story here.

RUSSIA’S OLIGARCH WARS: THE KREMLIN SPLITS OVER YUKOS

More than a week after it erupted, the Khodorkovsky controversy shows no sign of fizzling out. The prosecutors’ campaign against Russia’s biggest oil company, Yukos, which culminated in the arrest of its boss and major shareholder, Mikhail Khodorkovsky, may have had President Vladimir Putin’s approval. But Mr. Putin is unlikely to approve of the way in which the affair has turned into a political and economic crisis. Indeed, it has left a lot of rich Russians and foreign investors feeling almost as uncomfortable the still-imprisoned Mr. Khodorkovsky, especially after Russian officials seized a 44% stake in Yukos late last week. A top Kremlin aide has resigned over the affair and his successor has expressed concern about the campaign against Yukos. Indeed, the Kremlin appears to have split down the middle.

On the face of it, the hounding of Mr. Khodorkovsky is similar to the campaigns against Vladimir Gusinsky and Boris Berezovsky, two other magnates who were stripped of most of their assets and chased out of Russia three years ago. Then, too, Mr. Putin feigned distance from the affair; but it became clear that the two men, both of them close advisers to Mr. Yeltsin, were being punished for refusing to stick to the terms of Mr. Putin’s bargain with the oligarchs to stay out of politics. After they left, those businessmen who kept to the rules were free to keep increasing their wealth.

More on this story here and here.

Russia is mostly unmoved by the troubles of its tycoons.

While many Russians may think of the Oct. 25 arrest of Mr. Khodorkovsky as an odd and distant event, it also has some appeal. Distrust of the wealthy runs deep in Russian society, with its roots in peasant culture. Mr. Khodorkovsky and other tycoons are widely despised by many Russians, who see their quick fortunes, amassed in the economic chaos of the 1990’s, as stolen, not earned.

“It is not an exaggeration to say that a bit more than half of society hates the rich,” said Leonid A. Sedov, an analyst for the Russian Center for Public Opinion Research, an independent polling company. “Dislike of rich people goes very deep. They feel the rich did not get their money in an honest way. And in part, that is actually true.”

More on this story here.

ITALIAN TAX AMNESTIES HURTING SWISS BANKING SECTOR

In addition to adjusting to the demands of increasing regulation, heightened scrutiny of its operations and the recent downturn in the world’s financial markets, the Swiss banking sector has been facing an additional threat in the form of Italian tax amnesties, which have sucked many millions of euros out of Switzerland in recent times.

Under the first amnesty last year, Italians declared €60 billion to the government, 40% of which was not repatriated. As the authorities believe there is between €250 billion and €300 billion held abroad by Italian nationals, the government resorted to another amnesty this year, the deadline of which was extended twice after disappointing results. By the middle of July, an additional €15 billion had been declared, just over half of which was repatriated.

More on this story here.

AUSSIES IMPLEMENT E-VOTING SYSTEM THAT ADDRESSES FRAUD CONCERNS

While critics in the United States grow more concerned each day about the insecurity of electronic voting machines, Australians designed a system two years ago that addressed and eased most of those concerns: They chose to make the software running their system completely open to public scrutiny.

Although a private Australian company designed the system, it was based on specifications set by independent election officials, who posted the code on the Internet for all to see and evaluate. What is more, it was accomplished from concept to product in six months. It went through a trial run in a state election in 2001. Critics say the development process is a model for how electronic voting machines should be made in the United States.

More on this story here.

REPORTS FROM CFP’S GLOBAL TAX FORUM: OECD’S “LEVEL PLAYING FIELD” DOES NOT EXIST

“... Outside observers took a less positive view of the Ottawa meeting’s outcome, suggesting that the OECD’s admission that a level playing field does not currently exist among the world’s tax authorities represents, at least for the time being, the end of the OECD’s initiative to eliminate tax havens. ‘The level playing field does not exist. That’s a huge admission for the OECD,’ said Heritage Foundation spokesman Daniel Mitchell.”

“The Washington-based Center for Freedom and Prosperity ... characterized the Ottawa meeting as a ‘major defeat’ for the Global Forum process and the OECD’s efforts to end tax competition among the world’s jurisdictions. The OECD has been forced to concede that many of its own member nations are tax havens, and that jurisdictions on the OECD’s blacklist have no obligation to end their market-based tax laws unless all countries agree to the same policies, Andrew Quinlan, the center’s president, said in a statement.”

“... Nevertheless, ‘pretty much all of the jurisdictions are at least unofficially disavowing their letters of commitment because the OECD unambiguously failed to live up to its side of the deal,’ said Daniel Mitchel.”

More on this story here.

Antigua and Barbuda representative has his eloquent say on the subject.

Sir Ronald Michael Sanders, Chief Foreign Affairs Representative of Antigua and Barbuda: “Yesterday when we began the discussion on the Level Playing Field, I reminded the meeting that Antigua and Barbuda had issued its commitment to the OECD in respect of the harmful tax competition initiative, on the explicit understanding that before we would adopt and implement any aspect of the project there had to be a level playing field.

“... [W]e have heard that we should continue to maintain our commitments to the project. But, this is akin to asking us to commit economic suicide. No amount of sophistry ... can obscure the fact that a number of OECD members will be levying a withholding tax rather than engaging in exchange of information in respect of savings income. It is highly unlikely that their OECD partners would apply any sanctions to them for this infraction. The playing field is therefore clearly more, rather than less, uneven now than it was at the time Antigua and Barbuda issued its commitment letter.

“... Does it matter if the playing field is not level? It does if you are the representative of Antigua and Barbuda. It may not if you are from an OECD country. And here we see the problem. The non-OECD countries in this Forum are not volunteers in this process. On the contrary we were press-ganged under threat of punitive sanctions. The only condition we could demand was that our indenture in the service of the OECD project would be contingent on a level playing field. This demand was not made for reasons of perversity, but to protect our small scale financial services activities that, despite their relatively minor share of world markets, are vitally important to the well being of our people.”

More on this story here.

THREATS TO FINANCIAL PRIVACY AND TAX COMPETITION

Global economic growth and personal freedom are under attack by governments and international organizations seeking to squelch financial privacy and tax competition. Privacy rights and international tax competition are beneficial constraints on the monopoly power of governments. But high-tax nations and organizations such as the European Union are pressing for international agreements to remove those limits on government power at the expense of prosperity and freedom.

Many nations are passing laws to undermine financial privacy with initiatives such as requiring banks to provide governments with personal financial data. In the United States the erosion of privacy started before September 11, 2001, but the war on terrorism has increased government intrusion and further eroded rights. A parallel series of intrusions on financial privacy has occurred as governments have attempted to gain more tax revenue.

Efforts to thwart tax competition through government information sharing and other initiatives have been prompted by the rise in global capital flows in recent years. Some countries, such as Ireland, have taken advantage of the new global economy and cut taxes to attract foreign investments. But the governments of many bloated welfare states feel threatened by this global reality and are taking unproductive steps to defend their high-tax economies. The war on terrorism has given governments the green light to toughen intrusive laws at the expense of individual financial freedom.

More on this story here. Full text of policy analysis here (PDF file).

AT 100, PANAMA STILL FACES A NATIONAL IDENTITY CRISIS

Which came first, the country or its canal? Historians argue that Panama was destined for independence even without American help, but U.S. influence since the country’s birth has shaped its history and character. It was just three years ago that the United States ended a military presence that began with the battleships that kept Colombian troops at bay on November 3, 1903, the day Panamanians declared their separation from Colombia.

Over the next 93 years, the United States put down its imprint, often to the resentment of Panamanians. It built the Panama Canal, strengthened the canal’s strategic position in the hemisphere and used Panamanian land as a training ground for its troops. At one point, Washington had 130 military installations in the country. Panamanians are still trying to shake off a “black legend” that portrays their country as the product of U.S. expansionism, said Miguel Antonio Bernal, a university professor and lawyer. Although the U.S. troops left, the American shadow is not gone. The Carter treaties include a pact allowing the United States to intervene if the canal is threatened.

The U.S. presence kept Panama free of the social upheavals that beset other Central American countries. Panama now has a banking system similar to that of Switzerland, its free trade zone does brisk business, and the canal brings in more than $900 million a year. But the country also is branching out beyond the canal. Income from tourism, which was ignored by military regimes of the past, now rivals the canal’s revenues.

More on this story here.

WESTERN INVESTORS ARE WONDERING: ARE OTHER RUSSIAN OLIGARCHS RISKY PARTNERS TOO?

The arrest of Mikhail Khodorkovsky, CEO and major shareholder of leading Russian oil outfit Yukos, is the biggest shock for the country’s investors since the financial crisis of 1998. Ever since President Vladimir Putin was elected in 2000, everything seemed to be turning up roses for Russia’s economy and business climate. That has given people the confidence to pump money into the country.

Khodorkovsky’s arrest on charges ofr fraud, tax evasion, and forgery has brought all that into question. Many believe the campaign against him is politically motivated because he has been a sharp critic of Putin’s policies. If Khodorkovsky is the target today, then who might be next, the thinking goes. That makes them risky partners for foreign investors, too. Capital flight, which had been falling in the first half of 2003, picked up again in the third quarter.

It may be premature to assume that the arrest represents a fundamental turning point. Russia’s macroeconomic fundamentals remain strong. The transition to a market economy is well advanced and is not likely to be reversed. And most people still believe that at least one Western oil major will make a big investment in Russia in the months ahead, drawn by cheap reserves and the country’s improving economy.

More on this story here.

In resigning oil post, jailed Russian hints at political fight.

Mikhail Khodorkovsky resigned as chief executive of Russia’s richest company, Yukos Oil, on Monday even as he defiantly vowed to continue a public -- and possibly a political -- campaign “to build an open and truly democratic society in Russia.” Two people in a position to explain Mr. Khodorkovsky’s thinking said his resignation cleared the way not only for his legal defense but also for a campaign for political office, possibly even a challenge to Vladimir Putin in presidential elections scheduled for next March.

More on this story here.

HONG KONG PROMOTES BUSINESS SECTOR TO EAST EUROPE

This week, about 600 business leaders from Hungary and Poland were briefed by Andrew Leung, the Director-General of the Hong Kong Economic and Trade Office (HKETO) in London, on the latest economic development and business opportunities in Hong Kong and its substantial role enhanced by the Closer Economic Partnership Arrangement (CEPA) in the dynamic China market.

Mr. Leung outlined four “megatrends” underpinning the Mainland China market: a manufacturing powerhouse in the Pearl River Delta; a fast developing internal market of over 200 million middle-class consumers; huge infrastructural development such as the water diversion project linking the Yangtze River with the Yellow River; and an increasing flow of outward investment. “With CEPA and a new Hong Kong-Macau-Zhuhai Bridge, Hong Kong is set to play an even more dynamic role in honing the vast and rapidly expanding China market, which is destined to be one of the most vibrant economies in the world in the coming decades,” Mr. Leung added.

More on this story here.

Foul water and air part of cost of the boom in China’s exports.

China’s economy is growing faster than any other. But the air and water in many of its leading cities rank as the dirtiest in the world, and the number of people who die at work, 11,500 through the first nine months of this year, is far disproportionate to workplace fatalities in other countries.

More on this story here.

INTERVIEW: EFFECTS ON BAHAMAS OF PROPOSED TAX INFORMATION EXCHANGE ACT WITH THE U.S.

“If it is conceded that there is no or little reciprocity for The Bahamas (as The Bahamas is not a nation that imposes direct income tax), The we can expect to gain little or nothing in return from the act. What is in the best interest of The Bahamas and the Bahamian people? If this TIEA is to proceed in its present form, The Government of The Bahamas and Bahamians need to be fully informed as to the benefits expected to accrue. Is this yet another bill to kill or devastate our already severely depressed financial services industry in the wake of the 11-piece financial services legislative package? Can we afford to send over 4,000 financial professionals and associates to the unemployment queue? If we are serious about this legislation, we should, as a government, negotiate something in return that generates fair value in exchange... something that will make up for what we can expect to lose in the process?”

“We have heard repeatedly the argument that the 11-piece financial services legislative package was negotiated with a gun to our heads. Have we not learned from this experience after almost three years? Have we not seen the decline in our financial services industry?”

“The right of confidentiality, particularly the right of financial privacy, is the most telling and compelling of all justifications to reject this Bill in its entirety. With other legal acts, and in particular the recent Patriot Act, supplemented by the Sarbanes-Oxley Act, 2002, the USA has virtually eliminated its citizens’ rights to financial privacy. That is no reason for The Bahamas to do the same.”

More on this story here.

COSTA RICA TO RECEIVE MAJOR NEW INVESTMENT FROM INTEL

Intel has announced a major investment in Costa Rica that is to be worth some $110 million over the next three years, after deciding to locate production of next-generation chipsets in the country. Bill Abraham, General Manager of Intel Costa Rica, commented that the Costa Rican plant was chosen for the new investment because “The plant has shown great discipline in increasing productivity, while at the same time managing to cut costs and maintaining an excellent safety record.”

More on this story here.

ASSETS UNDER MANAGEMENT IN JERSEY TOP $100 BILLION

According to the latest figures from fund research firm, Fitzrovia International, in the year to June 30, assets under management in Jersey increased 12% to $102.3 billion. Assets in private equity/venture capital funds domiciled in the jurisdiction rose from $10.0 billion in 90 funds to $14.0 billion in 108 funds.

More on this story here.

EUROPEAN ECONOMIC AREA THREATENED BY CONFLICT GOING BACK TO MEDIEVAL TIMES

It all seemed like a done deal. After half a year of tough negotiations an agreement on the enlargement of the European Economic Area, a free-trade zone that includes all EU countries plus Norway, Iceland and Liechtenstein, had finally been reached at the end of July. But that was before EU ministers and their counterparts from the EEA and the European Free Trade Area met to sign the agreement in Luxembourg in the middle of October. There, the re-emergence of an historic row between Liechtenstein and the Czech and Slovak Republics brought everything to an abrupt halt. Liechtenstein did not want to sign the deal.

The problems date back to when the nation-states of Europe did not even exist. Several centuries ago the ruling family of Liechtenstein owned huge chunks of land in what is now the Czech Republic and Slovakia, both of which are about to accede to the European Union. Wars, political changes and upheavals as well as changing borders resulted in more and more of this land being confiscated. Its former proprietors, the royal family of Liechtenstein, has only partially been compensated for the expropriations of land that have taken place over the last century in particular.

But the problems are not solely based on the issue of land -- difficult as that can be. Until this day the Czech and Slovak Republics question the legitimacy of Liechtenstein as a sovereign state -- partly out of fear of huge claims of compensation from the royal house of Liechtenstein for what it perceives as partially illegal land-grabs. This conflict that now threatens the whole future of the EEA-agreement. Thanks to little Liechtenstein the coming weeks could turn out to be far more exciting than what many in Brussels or in Oslo and Reykjavik would have liked them to be.

More on this story here.

GERMANY AND FRANCE APPARENTLY TO BE ALLOWED TO BREAK EUROPE’S BUDGET RULES

Nearly two years after euro banknotes and coins came into circulation, the mood has changed among countries taking part in Europe’s monetary experiment. More appear willing to let Germany and France off the hook for breaking the budget rules for several years. What at the beginning of the year was a chorus of protest by smaller countries has thinned into isolated dissent. Analysts say the last few months of negotiations over Europe’s Stability and Growth Pact, as the budget rules are known, have underlined the political nature of the agreement governing the single currency.

Finance Minister Karl-Heinz Grasser of Austria, one of the few remaining hard-liners on the pact, said “We all are obliged for our own credibility and the credibility of the euro to find a way out.” But he told Reuters, “The way out cannot be killing the stability pact and putting one pillar of our monetary union at stake.” He warned that violating the pact would lead to higher interest rates.

More on this story here.

DON’T PENALIZE COMPANIES FOR INVESTING IN AMERICA

Our tax code has many ridiculous features, but the booby prize may belong to a provision that discourages companies from investing profits in America and instead encourages them to keep money overseas. It is a 35% tax penalty imposed on American companies that dare to take money they earn in other nations and plow it back into our economy. Thankfully, Congress is considering whether to dramatically -- albeit temporarily -- reduce this penalty.

The tax penalty on repatriated profits is so high that companies keep most of this money offshore; the government collects very little. But if the tax rate is slashed to 5.25%, as advocates propose, corporations would bring funds back to America, and the government would get a piece of the action.

But giving the government more money to spend is the last reason to support this proposal. More importantly, it is a step toward good tax policy, and better tax policy will improve the economy’s performance. Many people find it hard to believe the tax code punishes companies for investing in America. But this is one of those “only-in-Washington” stories that develops when politicians try to fix one bad law by enacting another bad law.

More on this story here.

EU’S TAX CHANGES SCATTER CORPORATIONS

A number of large multinationals -- mostly American -- have moved their European headquarters and finance operations out of traditional European Union locales to Switzerland and Ireland, aiming to avoid costs associated with so-called tax harmonization -- the EU’s term for its effort to end competitive tax breaks among member states, a practice Brussels regards as harmful.

The corporate moves, by such big names as John Deere, Ralph Lauren and General Mills, are starting to resemble the burst of migration by multinationals to Bermuda and other tax havens during the 1990s. They are also fueling concern among business boosters and revenue officials in some EU countries, particularly the Netherlands and Belgium, which are losing their luster as tax havens.

High-tax France and Germany are suffering the most defections, but the phenomenon may also be spreading to the so-called Benelux region, whose business-friendly tax regimes have long made it the European base of choice for American multinationals.

More on this story here.

EXTENSIVE FLAWS AT MUTUAL FUNDS CITED AT GOVERNMENT HEARING

The mutual fund industry, plagued by a series of recent scandals, was battered on Monday by new details of widespread trading abuses, the removal of the top executive at a big fund company and the disclosure by federal regulators that the industry faced an imminent wave of government lawsuits.

On Capitol Hill, where federal and state officials testified on Monday at a Senate hearing on the mutual fund industry, lawmakers have begun to call for significant changes in regulating the industry -- which is in its greatest turmoil since it came under federal oversight more than 60 years ago.

More on this story here.

CENTRAL BANKER THREATENS STEPPED-UP GOLD SALES, SOMEDAY

It has long been a standard policy of central banks to sell gold and invest the money gained in interest-bearing securities, which are usually government bonds of their own national treasuries. These sales are applauded by those politicians who believe academic monetary theory, whether Keynesian or monetarist -- a small group, indeed. Nobody else in government pays any attention. Gold is regarded as a dead asset or an unproductive asset because it does not generate interest. It just sits there, gathering dust.

The number of people who feel that government currencies should be backed by gold are few and far between. I am surely not one of them. For almost three decades, I have called for exactly what is happening: the sale of stolen gold by central banks to the public, in order to get gold back into private hands. I even had an article published in The Wall Street Journal in the 1970’s that recommended this. The gold should be in private hands. Gold is too important to be left to the discretion of central bankers.

Will there come a day when central banks will be able to conduct buying and selling activity without disrupting the market too much? How could that ever be? Only because the central banks will have sold their gold to the public. Well, not quite: to the public and to China’s central bank.

More on this story here.

OFFSHORE FIRMS RESPONDING WELL TO ONSHORE PRESSURE

In a study by the Legal Week news service, which examined the future of offshore in the face of seemingly non-stop legislation from national governments and multilateral bodies, it was suggested that “it is business costs rather than business flows which have been hit.”

The managing partner of Guernsey’s Carey Olsen explained that: “The major impact of much stricter regimes -- and you have to comply with them, there is no way out -- has increased our back-office expenses. But the way forward is to take that as a given, accept it, which then allows you to grow your turnover much larger than your compliance issue expenses.”

More on this story here.

INDUSTRY GROUP WARNS ABOUT EFFECTS OF UK MONEY LAUNDERING REGULATIONS

Freelance group, Shout 99 has warned that the UK’s Proceeds of Crime Act 2002, and the forthcoming Money Laundering Regulations 2003 are likely to sour the relationship between tax advisers and their clients. “Money laundering now includes possessing, or in any way dealing with, or concealing, the proceeds of any crime. This is a very wide definition. Professional bodies such as the Institute of Chartered Accountants in England and Wales (ICAEW) have tried in vain to persuade the government to introduce a de-minimis level below which reporting is not required.” However, these attempts have been unsuccessful, and accountants are likely to be required to report any suspicions at all regarding their clients.

More on this story here.

EU SPAM LAWS COME INTO FORCE

The EU has announced that its new Directive on Privacy and Electronic Communications has come into force. Under the terms of the legislation, EU member states will be obliged to ensure the security and confidentiality of communications over European electronic networks.The directive ensures that cookies and other tracking devices used to collect information on internet browsing habits, can only be employed if internet users have given their informed consent. With a limited exception, covering existing customer relationships, marketing via e-mail, SMS messages, and other electronic messages sent to any mobile and fixed terminal, is only allowed with prior consent.

The new rules also specify that location data generated by mobile phones can only be passed on with the explicit consent of the phone’s user, with the exception of situations in which the emergency services need access to the data, and for the purposes of national security and/or criminal investigations.

More on this story here.

FROM NIGERIA WITH LOVE

Who hasn’t received one of those beguiling get-rich-quick e-mail pitches? Just supply your bank account number so a despairing former oil minister or influential lawyer writing from Africa can collect the millions of dollars that he or a dead former client has been wrongly denied. Most of these messages originate in “boiler room” operations, typically in Nigeria, that randomly target tens of thousands of people, said Edward J. Nasiatka, a retired United States Secret Service supervisor who was head of the interagency West Africa Task Force in New York. “They send out these letters and hope to hook someone, and somewhere along the way they’ll ask you for money,” he said.

Curious about the depth of human guile and gullibility, I decided to respond to one such message that landed in my in-box recently. The following e-mail trail, edited slightly for readability but including some original misspellings, suggests that digital con artists are skilled not only in reeling in their marks, but in knowing when to cut them loose.

More on this story here.

SECRET 9-11 CASE BEFORE HIGH COURT

It is the case that does not exist. Even though two different federal courts have conducted hearings and issued rulings, there has been no public record of any action. No documents are available. No files. No lawyer is allowed to speak about it. Period.

Yet this seemingly phantom case does exist -- and is now headed to the US Supreme Court in what could produce a significant test of a question as old as the Star Chamber, abolished in 17th-century England: How far should a policy of total secrecy extend into a system of justice? While secret trial tactics have reportedly been used by federal prosecutors to shield cooperating drug dealers, it is unclear whether the high court has ever directly confronted the issue. But that may change if they take up MKB v. Warden (No. 03-6747).

Despite the heavy secrecy, a brief docketing error led to a newspaper report identifying MKB by name in March. The report said MKB is an Algerian waiter in south Florida who was detained by immigration authorities and questioned by the FBI. MKB’s legal status remains unclear, but it appears unlikely from court documents that he is connected in any way to terrorism. He has been free since March 2002 on a $10,000 bond. The case is significant because it could force a close examination of secret tactics that are apparently becoming increasingly common under Attorney General Ashcroft.

More on this story here.

THE PLUNGE PROTECTION TEAM: URBAN MYTH

I have had so many letters of late asking me what I think of and/or know about the existent of the so-called Plunge Protection Team, that mysterious group of government officials who secretly prop up the stock market when it drops too much, that I am going to jump in where wiser minds would just leave the subject alone. It will offer a good opportunity for you to understand concepts of arbitrage and how the markets really work. Plus, if you can prove me wrong, I will show you how to get a quick $100,000.

Every time the market drops and then “mysteriously” rallies, knowing individuals look at each other and nod, seeing the handiwork of the PPT (plunge protection team). Let’s say it straight out. The plunge protection team does not exist. It is an urban myth. Let me step by step prove it does not exist, and see if we can learn something in the process.

More on this story here.

The Defense Responds: Not so fast, buster

I have the utmost respect for John Mauldin of FrontlineThought.com. His grasp of investment-financial affairs is encyclopedic, and the service he offers to the public is superlative. I read him with great pleasure every week. But I definitely must take issue with his recent essay on the existence of the Plunge Protection Team in which he declares the PPT to be impossible -- in his words an “urban myth”. I believe Mr. Mauldin has bought into the warped vision of CNBC’s Art Cashin, and in so doing has come to a very wrong conclusion about the reality of the PPT.

The problem with relying on the view of Art Cashin to determine the validity of the PPT’s existence is that you are asking a CNBC employee about the credibility of Wall Street as an institution. CNBC is a total captive of Wall Street. It could no more bite the hand that feeds it, than it could climb to the moon on a rope of sand. In other words, asking a CNBC employee about the existence of the PPT is like asking an IRS agent about the existence of Constitutional violations in their operation -- you are not going to get an objective answer.

After consulting with Cashin, Mauldin has concluded beyond all doubt that the market could not be manipulated. But is this true? Let’s examine these assumptions and see if they have merit. Let’s see if indeed the market is too huge to manipulate, and if it would actually require massive losses.

More on this story here.

Ron Paul: Abolish the Federal Reserve

The congressman’s speach announcing his September 2002 introduction of legislation to abolish the Fed, along with an attached article by Lew Rockwell, president of the Ludwig Von Mises Institute, which explains the benefits of abolishing the Fed and restoring the gold standard, here. The speach concludes: “I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans’ standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.”


SWITZERLAND, THREE OTHER COUNTRIES BLOCK AUSTRALIAN TAX AVOIDANCE SURVEILLANCE

Australian Treasurer Peter Costello admitted that Switzerland and three other countries had vetoed the Government’s attempts to make them co-operate with tax avoidance surveillance. Labor assistant treasury spokesman David Cox said the failure of an OECD plan to lift bank secrecy meant the Government no longer had any way to tackle tax havens.

More on this story here.

SWISS MONEY LAUNDERING LAWS FACE NEW CHALLENGES

The Swiss government’s annual report into combating money laundering says measures are continually being revised in order to meet new threats. When new legislation on money laundering was introduced in 1998, it was said that disposing of dirty money in Swiss banks would become almost impossible. But money launderers have found many other ways to clean their cash: through casinos or hotels, or through life insurance policies. New legislation to cover these loopholes will oblige casino operators and insurance salesmen to report suspicious transactions.

But officials insisted Switzerland did not intend to become a model for the rest of the world when it came to combating money laundering. Switzerland’s reputation as a safe and discreet place to invest money also needed to be preserved, said Alexander Karrer of the finance ministry.

More on this story here.

THE OECD IS IMPOSSIBLE TO PLEASE

The OECD claims to seek a level playing field for the financial regulation of all jurisdictions, but it is unlikely to be an impartial referee when 80% of the market is dominated by OECD members. A report titled “Towards a Level Playing Field”, prepared last year by the international law firm, Stikeman Elliott, makes it clear that not only is corporate transparency in the offshore financial centers already at a far higher level than that applicable in most OECD jurisdictions but, further, there appears to be no pressure from the OECD jurisdictions to improve their own transparency to a similar level.

No doubt should exist that these new standards of transparency have resulted from the highly successful OECD initiatives and in part from the pressure applied by the FATF with regard to money laundering. But given that those standards have now been introduced, why is it the case that no one has yet turned off the spigot that controls the negative information used to shape public opinion prior to these initiatives?

Few in recognized offshore centers had supposed that aiding and abetting crossborder tax evasion was either sensible, sustainable or permissible in light of the suspicious activity reporting obligations introduced in the mid 1990s. Yet press releases that emanate from treasury departments still relentlessly press on the subject of the offshore money laundering scourge. If this were an even-handed and objective debate, the offshore jurisdictions should now be anticipating from the OECD a more mature recognition of that which has been achieved -- but it seems that the offshore financial centers are entitled to no such recognition from the G7 countries nor their treasury departments.

An analysis of why the negative campaign continues follows.

More on this story here.

OECD council makes clear what it means by improving access to bank information.

The OECD Council discussed a draft recommendation on improving access to bank information for tax purposes. In 2000 the OECD Bank Report has set out an ideal standard of access to bank information, namely, that “all Member countries should permit access to bank information, directly or indirectly, for all tax purposes so that tax authorities can fully discharge their revenue raising responsibilities and engage in effective exchange of information with their treaty partners”. The Council noted, however, that a draft was put for decision by Council and that there was no consensus on it.

More on this story here.

PROSPECTS FOR OFFSHORE FINANCIAL CENTERS IN EUROPE LOOK BLEAK

Little is known about offshore financial centers (OFCs) and the business environment in which they operate. This article analyzes the concerns often raised with OFCs -- money laundering, financial instability and harmful tax competition -- but puts them in relation with the global competition for the location of financial services. It also provides a survey of the major European offshore centers.

International actions targeting OFCs are partly motivated out of genuine concerns. Rich, industrialized countries fear erosion of their tax bases. They claim that OFCs may offer a safe harbor for money launderers. Finally, they claim that OFCs may endanger international financial stability. As a result, OFCs have faced attacks from the OECD on tax matters, from the Financial Action Task Force (FATF) on money laundering and the Financial Stability Forum (FSF). In addition, European centers are being pressured by the European Union (EU) to engage in information exchange.

The actions aimed at curbing OFCs also have to be read through the prism of the cut-throat competition between financial centers for the location of lucrative financial services. Over the last 20 years, OFCs have managed to carve out a sizeable market share in private wealth management. While the world’s roughly 70 OFCs only make up 1.2% of the world’s population and 3.1% of the world’s GDP, they are managing one-quarter of the world’s financial assets. In that context, the main beneficiaries of curbing them will be the leading onshore financial centers, primarily the City of London and New York.

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ISLE OF MAN APPOINTS E-GAMING AMBASSADOR

The IoM’s Department of Trade and Industry announced that it has appointed former Rank Interactive Gaming island director, John Gilmore, as the jurisdiction’s new e-gaming Ambassador. According to the Department, Mr. Gilmore will be addressing the issues which have led several of the island’s online casinos to leave for other jurisdictions, and looking for appropriate solutions. He will be working closely with all interested parties, in both the public and private sectors, in order to develop the jurisdiction as a leading e-gaming centre.

More on this story here.

EUROPE WARNS U.S. IS FACING CONSEQUENCES OVER TRADE

Europe’s top trade official said in Washington on Tuesday that the United States could look forward to up to $6 billion of trade sanctions if President Bush failed to lift steel tariffs and Congress did not eliminate overseas tax shelters for American exporters. Two months after global trade talks fell apart in Cancún, Mexico, and with Democrats attacking free trade agreements in the presidential campaign, Pascal Lamy, the EU’s trade commissioner, said Europe had shown enough patience with the United States over these issues.

Three years ago Europe won its case against the United States regarding the tax issues and has waited for Congress to change the law. The House and the Senate are considering two competing bills that neither chamber has voted on. Next Monday, the World Trade Organization will decide whether to uphold its earlier ruling against the United States on the year-old steel tariff

More on this story here and here.

AS TYCOONS SLIP OVERSEAS, PUTIN APPEARS TO LAY SIEGE

A lawyer for the embattled Russian oil tycoon Mikhail Khodorkovsky said Tuesday that a court in Moscow would decide Nov. 11 whether to release him on bail. Pressure on his company and others continued, with some top executives leaving the country and President Vladimir Putin publicly criticizing one businessman. In an interview, Mr. Putin expressed blunt displeasure about what he called tax evasion that had been practiced by an unidentified executive connected with Mr. Khodorkovsky’s company, Yukos Oil.

The scandal over Yukos, which Mr. Khodorkovsky founded, has not only left its founder in jail, but has also put three Americans at the helm of the company. As many as five of Russia’s dozen or so tycoons are out of the country in what aides say are coincidental, and temporary, absences. While a vast majority of Russians barely noticed the arrest of Mr. Khodorkovsky on Oct. 25 on tax-evasion and fraud charges, the political scandal has sent chills through Moscow’s elite. But instead of protesting, business executives remained silent.

The charges against Mr. Khodorkovsky arise from the mid 1990’s, when laws were badly written and poorly enforced. The state was selling valuable companies cheaply, and executives acquired vast interests. Executives are therefore nervous that the investigation of Yukos Oil will spread, despite Mr. Putin’s assurances to the contrary.

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JUST WHAT TAX OBLIGATIONS APPLY TO FOREIGNERS LIVING IN RUSSIA?

Are foreigners living and working in Russia obliged to pay tax on income paid to them from an offshore tax haven and received by them in a bank account in an offshore tax haven? Tim Carty, tax partner at Ernst & Young, writes: “Sadly, this is usually the case. Tax residents of Russia (those present here for more than 182 days in a calendar year) are taxable on all income received regardless of the location in which this happens. However, tax non-residents are taxable on Russian-source income only.”

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SLOVAKIA INTODUCES FLAT RATE INCOME TAX

In one of the Slovakian government’s key economic reforms intended to attract higher levels of foreign investment, the parliament has passed a new bill which introduces a new flat rate of income tax for both individuals and businesses of 19%.

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THE OFFSHORE INSTITUTE LAUNCHES CHAPTERS IN NEVIS AND MAURITIUS

International press links that report on the TOI event in Nevis here, here, here, here, and here. The International Financial Intermediary, the official on-line magazine of the Offshore Institute, home page is found here.


BRITISH VIRGIN ISLANDS CLARIFIES NEW REGULATORY REGIME FOR BEARER SHARES

The International Business Companies (Amendment) Act 2002 Act introduced sweeping changes to the jurisdiction’s controversial bearer shares regime, immobilizing the flexible shares, and requiring them to be held in the custody of an “authorised” or “recognised” custodian in the future. The legislation also provided for companies to amend their memoranda and articles of association, which are what allow an IBC to issue bearer shares. The main recommendation put forward by a panel appointed by the BVI’s Financial Services Commission (FSC) was for a seven year transition period before the new law takes full effect.

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HONG KONG BUSINESS COMMUNITY IN FAVOUR OF TAX-FREE ENTERPRISE ZONE

The majority of those in Hong Kong’s finance, legal and accounting industries are in favor of a special economic zone offering tax incentives to business on the border region between the SAR and mainland China, according to a survey undertaken by the Hong Kong division of accounting firm CPA Australia. The results of the poll, which last month involved the questioning of 272 professionals, managers and executives, revealed that 77% were in favor of such a proposal, while 62% felt that the government should introduce further tax breaks to attract more business to the territory.

More on this story here and here.

BURMA GETS BELATED ATTENTION FROM FATF

An FATF deadline for Burma to clean up its act and develop new laws to prevent money laundering passed. The FATF said: “Burma has failed to establish a framework to engage in effective international cooperation in the fight against money laundering. Its anti-money laundering law continues to lack the implementing regulations necessary to make it enforceable.”

After seeing no improvement the FATF has now called for its 31 members states to act against the regime. As well as Burma, the FATF’s “uncooperative” list also includes Egypt, Ukraine, Guatemala, Indonesia, Nauru, Nigeria, the Cook Islands and the Philippines.

More on this story here.

BOTSWANA REMAINS AFRICA’S MOST COMPETITVE ECONOMY, FINLAND WORLD’S

Botswana has once again surpassed all other African economies according to the latest Global Competitiveness Report published by the World Economic Forum this week. In the current survey, Botswana was ranked 36th in the Growth Competitive Index which measured conditions in 102 countries. Notably, this places Botswana above neighboring South Africa, and higher than many European nations including Italy. Meanwhile, Finland topped the table as the world’s most competitive economy, above the United States, Sweden, Denmark, Taiwan and Singapore.

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GRIEVANCES THAT CAN BRING GLOBALIZATION TO GRIEF

LA PAZ, Bolivia: A natural resource coveted on the international market was sitting in the ground, and the Bolivian government wanted to exploit it with the help of foreign capital. But after widespread public protests over the terms of the deal, the president was forced to drop it. The deal failure exposed what is fast becoming the Achilles’ heel of globalization, in parts of Latin America at least. Though political authority may have finally been democratized here after the end of military rule 20 years ago, economic power remains in the hands of a small Europeanized elite that the impoverished Indian majority does not trust.

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MUTUAL FUNDS: THE REGULATORS’ NEW WHIPPING BOYS

As the big Wall Street investment banks have already discovered to their cost, America’s fund managers are learning that once the regulators start scrutinizing industry practices, one discovery tends to lead to another. When Eliot Spitzer, New York’s attorney-general, and William Galvin, Massachusetts’ state regulator, started to poke around the trading practices of the mutual fund industry, the big players reacted indignantly. But the scandal has spread quickly. As any Wall Street investment banker will tell you, if you let abuses spread to the point where they are pretty much standard practice, regulators will inevitably go for the jugular when they find you out.

There is no way that the industry will emerge unscathed from this regulatory scrutiny. Mr. Spitzer, who extracted $1.4 billion from investment banks for alleged conflicts of interest between their research and banking arms, has said he intends to get fund managers to repay all fees earned in funds engaged in dubious trading practices. The SEC, which was made to look flat-footed by Mr. Spitzer during the investment-banking probes, will not want to be left behind. The scrutiny is bound to lead to an overhaul of industry practices, including more transparency in fees and more of an arm’s length relationship between fund trustees and fund managers. This, in turn, is likely to reduce the industry’s fat profit margins.

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LAS VEGAS FBI USED PATRIOT ACT IN LOCAL CORRUPTION PROBE

The FBI used the USA Patriot Act to obtain financial information about key figures in its ongoing political corruption probe centered on strip club magnate Michael Galardi, federal authorities confirmed Monday. Investigators “used a section of the Patriot Act to get subpoenas for financial documents,” said Special Agent Jim Stern, a spokesman for the Las Vegas field office of the FBI. “It was used appropriately by the FBI and was clearly within the legal parameters of the statute.”

The Patriot Act was originally trumpeted by the government as a powerful tool that would assist federal law enforcement officials in combating and preventing terrorism. But the Bush administration has increasingly attracted criticism from civil libertarians for employing the wide-ranging act to crack down on everything from drug traffickers to child pornographers. The provision used to obtain the information in the Galardi investigation allows federal investigators to obtain information from any financial institution regarding the accounts of people suspected of being terrorists or laundering money.

One investigation target’s attorney said it is an outrage that the FBI is using anti-terrorism measures in an effort to gather information on his client. The executive director of the American Civil Liberties Union of Nevada, Gary Peck, agreed.

More on this story here.

A CONSTITUTION OF CONVENIENCE

The U.S. Constitution is the document that created the federal government. In broad general terms, it sets forth the government’s powers, establishes limits on those powers, and guarantees rights to all persons under the government’s jurisdiction. The most potent of the government’s domestic powers are the powers to enact federal criminal statutes and prosecute violations of them. Since the Constitution is the sheet anchor of the government’s powers, one would expect that the government would contend that it exists and subsists wherever the government wants to enforce federal law. But the government only wants to enforce part of the Constitution.

Just last year, the government successfully argued to four federal courts that the U.S. Constitution does not apply at American military facilities in Cuba and, thus, no American court has jurisdiction over the acts of the U.S. government and its personnel there. Comes now the same government a year later to argue that while one is not entitled to the protections of the Constitution when one is at an American military base in Cuba, one can still be prosecuted pursuant to powers given by the Constitution while at an American military base in Cuba.

The government knows that it cannot escape the Constitution merely by leaving the U.S. mainland because the Supreme Court has told it so. Does the government really expect Americans to believe that nothing restrains it, and it need not respect our rights, when it leaves U.S. soil? The government’s argument is nonsense. Wherever the government goes -- even to the moon -- the Constitution goes with it. Unfortunately, the government’s selective defense of the Constitution is not surprising or novel.

More on this story here.

FEDERAL COURT BLOCKS SALE OF EXPATRIATION SCHEME

A US District Court in Colorado has blocked Austin Gary Cooper and his wife, Martha E. Cooper, from selling an “expatriation” scheme. A preliminary injunction bans the pair from advising US taxpayers to renounce their United States citizenship for “American” citizenship, purportedly in order to avoid US taxes. Justice Department estimates suggest that the Colorado-based couple had sold the expatriation-repatriation scheme to around 2,000 individuals, at nearly $1,600 apiece.

However, Mr Cooper argued that he did not recognise the authority of the federal authority imposing the order. “We charged them with treason,” he told the AP.

More on this story here and here.

MONEY LAUNDERING COMPLIANCE CHALLENGE FOR BANKS

Financial services institutions face significant challenges in complying with the USA Patriot Act and other anti-money laundering requirements, with most projecting an increase in compliance costs over the next year, according to research conducted by Deloitte & Touche. The survey of 167 US executives demonstrate that financial services firms still have numerous issues to address, and will need to deploy significant resources in areas where they have anti-money laundering (AML) responsibilities. These areas include restructuring business processes, increased staffing, employee training, purchasing or developing new technology, and enhanced monitoring of regulatory developments.

With almost 40% of financial services executives reporting an increase in the number of suspicious activity reports filed within the last six months, financial firms urgently need to accelerate their AML compliance efforts, says the consultancy.

More on this story here.

E-VOTING NEWS

Campaign calls for safe E-voting in Europe.

A coalition of technical, legal and political experts launched the free e-democracy project to ensure that electronic voting can be trusted by voters and politicians across Europe. Voters and candidates must be able to feel certain that voting intentions are accurately recorded. If any doubts arise then all interested parties must be able to verify and audit all aspects of the election, the project says. The campaign calls on all concerned European citizens to sign up to a resolution demanding a voter-verifiable audit trail.

More on this story here.

Digital Ballots: Where is the Backup?

Tuesday was Election Day in the U.S., although in an odd-numbered year, many contests are local city council affairs that do not capture national attention. But some localities are experimenting with electronic voting machines for the first time, hoping to roll out the technology in time for next year’s highly anticipated presidential election. It is hard to imagine an election causing more controversy than the U.S. presidential contest of 2000, which highlighted the antiquated voting system used in many Florida counties. But with a contentious election looming next year, some voters are concerned about the speedy deployment of electronic voting machines with touchscreen technology and questionable security safeguards.

Most election officials concede there is no surefire way to prevent voter fraud. But most of the electronic voting machines on the market today cannot generate a paper copy of a voter’s choice for both the voter and the election official. Without a paper copy of an individual’s vote, election officials cannot recount votes in the case of a close election or unforeseen irregularities.

More on this story here.

California voting machine called into question.

As voters in California go to the polls, the state is launching an investigation into alleged illegal tampering with electronic voting machines in a San Francisco Bay Area county. The voting machine fracas involves Diebold Election Systems, whose machines are in use by four of California’s 58 counties and will be used by three more next year.

More on this story here.

Uncertified code used in California voting.

An investigation by California’s secretary of state has revealed that Diebold Election Systems placed uncertified software on electronic voting machines in Alameda County, a densely populated region in the San Francisco Bay Area that includes the cities of Berkeley and Oakland. A Diebold touch-screen-voting system utilizing uncertified software in Tuesday’s election and in last month’s gubernatorial recall election. Doug Stone, spokesman for the secretary of state, said voters should not worry about the integrity of the election results, saying that the state tested the software. But he did not elaborate on when that testing occurred.

More on this story here.

Diebold Voting Case Tests DMCA.

Can Diebold Systems use copyright law to pressure Netizens into removing links to online discussion archives stolen from the company in March? That question is before a federal judge. The stolen archives contain conversations from online bulletin boards in which Diebold employees discuss problems with the company’s electronic voting systems. The ruling will test the limits of the controversial Digital Millennium Copyright Act (DMCA), says one legal expert. Diebold is invoking the copyright law in the cease and desist letters it has sent to universities and ISPs that linked to copies of the internal documents. Colleges Discuss

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DATABASE TO GIVE DOSSIER ON EVERYONE IN UK?

A plan to build an electronic database of life events -- births, deaths and marriages -- could result in a compulsory dossier on every citizen, warned the Foundation for Information Policy Research yesterday in its response to Government proposals. The proposals include allowing the registration of births and deaths on-line and over the phone, as well as in person and information will be held in a central database.

The intention is to create a “through life record” by joining up all the existing records, making it easier for people to verify their identities, or have their identities verified for them, by the Passport Agency, DVLA or even insurance agencies. But the FIPR is concerned that the proposed database will develop over time to include other information. Fraud and crime prevention could be argued to justify the inclusion of information relating to social security benefits, tax, passports, drivers’ licences, criminal records and more, says the rights group.

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CANADIAN SUPREME COURT BACKS DNA SEIZURES BY POLICE

Seizing bodily samples from crime suspects to analyze their DNA does not violate their constitutional rights, the Supreme Court of Canada ruled 9-0, saying that the benefits to be gained from obtaining DNA samples clearly outweigh concerns about self-incrimination and privacy.

The case involved a 14-year-old Alberta girl who became pregnant. Under questioning, the girl named a one-time boarder in her family home as the man who had made her pregnant. After the girl had an abortion, scientists compared DNA from the fetal tissue to DNA they seized from the man under Criminal Code provisions. The defendant was ultimately convicted of sexual assault, and sentenced to six years in prison.

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WAL-MART’S LITTLE SECRET: HUNDREDS OF ILLEGAL IMMIGRANTS WORKED AT ITS STORES

Federal agents raided 60 Wal-Marts on Oct. 23 and arrested 250 janitors as being illegal immigrants. Yesterday, the company acknowledged that it had received a target letter from federal prosecutors accusing it of violating immigration laws and saying that Wal-Mart faced a grand jury investigation.

Company officials deny having known that illegal immigrants worked in their stores, saying they required their cleaning contractors to use only legal workers. But two federal law enforcement officials said in interviews that Wal-Mart executives must have known about the immigration violations because federal agents rounded up 102 illegal immigrant janitors at Wal-Marts in 1998 and 2001.

The use of illegal workers appeared to benefit Wal-Mart, its shareholders and managers by minimizing the company’s costs, and it benefited consumers by helping hold down Wal-Mart’s prices. Cleaning contractors profited, and thousands of foreign workers were able to earn more than they could back home. But the system also had its costs.

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IDENTITY THEFT CRACKDOWN PROMOTED

As identity theft becomes the fastest-growing crime in the United States, some companies endorse legislation requiring them to disclose theft of personal data, while privacy advocates urge lawmakers to go even further to protect consumers. At a Tuesday hearing called by the bill’s author, Sen. Dianne Feinstein (D-California), witnesses applauded S. 1350 as a much-needed first step in guarding against increasing security breaches on databases.

Under the bill, companies must notify customers whenever their personal data--such as Social Security, driver’s license, credit, or debit card numbers--are compromised through computer hacking or other unauthorized access. The bill leaves enforcement to the Federal Trade Commission and the state attorneys general -- none of whom is equipped for the job, say privacy advocates.

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RADIO-FREQUENCY IDENTIFICATION (RFID) TAGS: PROMISE AND PERIL

Every new technology embodies new risks. RFID tags are increasingly popular, having made their debut in retail security tags for high-dollar merchandise. Unlike the little magnetic slugs in self-adhesive plastic packages (as you might find on CD cases), RFID tags are nearly flat and can do far more than set off an alarm as they pass through a door. A scannable badge that lets you into your building at work and an E-ZPass or similar device that lets you drive on toll roads without stopping to pay are examples of RFID technology. But as the technology gets smaller and less expensive, these applications are the tip of a huge iceberg. We are moving toward a world where many semiconductor devices can be printed instead of grown and etched in silicon by expensive equipment.

The privacy angle. Now suppose that a market research company parks a van outside the supermarket and uses a directional antenna to scan your cart as you wheel it to your car. The grocery store has already done its research, but are your purchases fair game after you've left the store? Could a high-powered illuminator and a high-gain antenna inventory the contents of your home? It is certainly possible. If you are wearing or carrying anything with an embedded RFID tag, you could conceivably be tracked wherever you go. Stores could disable RFID tags as a customer leaves, as they do with today’s security tags. That would ensure your privacy but would render the tags useless for home recordkeeping and convenience applications.

More on this story here.

Wal-Mart to hold RFID tag meeting.

Wal-Mart Stores and its largest 100 merchandise suppliers plan to meet this week to plot the implementation of a new high-tech inventory-tracking system, a project expected to send ripples across the retail industry. Among the companies congregating in Bentonville for a full briefing from Wal-Mart are industry giants Kraft Foods, Procter & Gamble, Tyson Foods and Unilever. Some big names in information technology will also be in town, with IBM, Intel, Microsoft, Philips Semiconductor and SAP participating in an RFID “tech expo” Wednesday.

More on this story here.

IN THE NAME OF NATIONAL SECURITY ...

Nobody likes to be criticized in public, especially all those politicians in Washington, who fervently hope to be re-elected. But the Bush administration has taken the desire to avoid critical commentary to an extreme. In incident after troubling incident, federal agencies have been quietly censoring information that previously had been available on their Web sites and otherwise curbing public oversight. About a week ago, the U.S. Army surreptitiously pulled the plug on one of its more popular Web sites, call.army.mil, after The Washington Post wrote about a report that had been posted on it. The report was not classified. It was merely a sober analysis of the Army’s problems in Iraq.

This is not an isolated example. In the two years since the 9-11 terrorist attacks, the Bush administration has systematically reduced the amount of information available to the public, which in turn has made government officials less accountable to taxpayers. National security was hardly at risk in the case of the Army and other now-unavailable sites.

In the last two years the government has extended secrecy far beyond what recent predecessors have dared. There are legitimate reasons for secrecy, but using the excuse of terrorist attacks to shield officials from embarrassment and critical scrutiny is unconscionable. The public deserves better.

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RESOURCE REVISITED: VERNON K. JACOBS LEGAL TAX AVOIDANCE ARTICLES

It seems that a lot of taxpayers are frustrated with the high taxes imposed by the US government and have sought relief with the help of various promoters who advertise on the Internet. The problem is that a lot of the web sites that claim to offer help to save taxes are hustlers and con artists or just uninformed. This web site presents an extensive collection of articles about legal ways to save taxes without getting into a dispute with the IRS that you cannot win. One of the links below also provides an extensive collection of articles about illegal methods of tax avoidance that should be avoided by those who do not want to get into a dispute with the IRS that cannot be won.

Article index here.

21 Legal Ways to Save Taxes; and Protect Your Assets Offshore

A lot of Americans seem to be very interested in going offshore to save taxes. There are only a very few legal ways to save taxes offshore that are not also available “onshore”,i.e., in the U.S. For those who also want to move their money offshore for 1.) investment opportunities that are not available in the USA, 2.) business opportunities in other countries, 3.) personal and family reasons, 4.) a general concern for international diversification, or other reasons as described in Why Go Offshore, it is possible to combine domestic tax strategies with offshore asset protection methods.

More of this report here.

BERMUDIAN PREMIER SEEKS TO RESTORE ISLAND’S REPUTATION TO US

In the latest throne speech setting out the government’s legislative program for the coming year, Bermudan Premier Alex Scott strove to calm the fears of American lawmakers by highlighting tough new domestic laws designed to crack down on fraud and money laundering activity.

More on this story here and here.

Are more Bermuda banks ripe for takeover?

With the sale of the Bank of Bermuda to multinational banking giant HSBC, the question on many lips is whether or not rival Bermuda banks will now be targeted by other global financial institutions. That prospect has not been ruled out, but neither are those close to the industry saying further takeovers are a sure thing.

More on this story here.

UK INVESTIGATORS FREEZE Ł30 MILLION IN OFFSHORE CASH STEMMING FROM 1980S SCANDAL

Investigators have frozen up to Ł30 million of the hidden fortune amassed by Dame Shirley Porter and her family in their quest to recover the millions squandered by her in the Westminster “homes for votes” scandal in the 1980s. After a hunt spanning three continents and lasting two years, City lawyers have uncovered millions of pounds in numbered bank accounts in Guernsey and a family trust in the British Virgin Islands. A small fortune is also hidden in Switzerland where authorities are resisting approaches from the investigators.

The former Tesco millionairess, now living in Israel, has resisted paying a surcharge imposed by the House of Lords which now amounts with interest to Ł37 million. She claimed that she had assets of only Ł300,000. Until now the main item seized by the investigators was a gold toilet seat.

More on this story here.

CAYMAN SHARE OF OFFSHORE HEDGE FUND MARKET IS APPROXIMATELY 65%

Given the protracted bear market in US and European equity markets in recent years, it may be surprising to the casual observer to discover that hedge funds and in particular offshore hedge funds have continued to expand and attract investors. The figures released by the Cayman Islands Monetary Authority continue to reflect a strong demand for offshore services, in particular regulated mutual funds have grown by 50% over the figures for 2000. The appeal of hedge funds is that they aim to provide returns regardless of prevailing market conditions. The appeal of Cayman is a combination of factors.

More on this story here.

PRIVATE BANKING: WEALTH MANAGEMENT SECTOR CONSOLIDATING

The private banking industry is strongly fragmented and it appears that banks are now snapping up small rivals on the cheap as the markets hint at a recovery. With large players wanting to keep up with their peers, and numerous opportunities still to be had, this could be the start of a second wave of consolidation. Recent weeks have seen a flurry of acquisition activity in the European and offshore wealth management markets. Last week alone saw three major acquisitions.

More on this story here.

TRANSFER PRICING HAS BECOME MOST IMPORTANT TAX ISSUE FOR MULTINATIONALS

The Transfer Pricing 2003 Global Survey by accounting firm Ernst & Young found that 86% of multinational enterprise (MNE) parent companies and 93% of subsidiaries considered the issue the most pressing international tax matter they were currently dealing with and reported that audits by the tax authorities are becoming increasingly common. Transfer pricing involves the price at which transactions between units of multinational companies take place, including the inter-company transfer of goods, property, services, loans and leases.

The E&Y survey revealed that 59% of all MNEs with revenues of more than $5 billion and 71% of all US-based MNEs regardless of revenues have been the subject of a transfer pricing audit at some point within their organizations since 1999. Meanwhile, 76% of respondents envisaged being the subject of an audit inside the next two years.

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LATEST FIGURES SUGGEST SWISS ECONOMY WILL GROW 1.5% NEXT YEAR

The recovery looks more certain thanks to a surge in growth in the United States in the three months up to September. Aymo Brunetti, chief economist at the State Secretariat for Economic Affairs (Seco), said that the economic policies adopted since the beginning of 2001 were beginning to bear fruit -- that the factors restraining growth were disappearing and that the overcapacity of the 1990s had been absorbed. Seco said it was looking more and more certain that the export-dependent Swiss economy would expand in 2004, though much would hang on growth in the eurozone and the strength of the Swiss franc.

More on this story here.

CHANCELLOR BROWN REITERATES OPPOSITION TO EUROPEAN TAX HARMONIZATION

Chancellor of the Exchequer Gordon Brown has once again spoken out against the idea of European tax harmonization, arguing against “ambiguities” contained within the draft European Constitution that could lead the UK down a path towards becoming a member of a federal superstate. Using familiar rhetoric, Brown contrasted the economic failure of the continental economies such as France and Germany with the situations of Britain and the United States, blaming the “rigidities, inflexibilities and lack of competitiveness,” of much of Europe, and arguing that tax harmonization is the wrong policy to enhance the EU’s global competitiveness.

More on this story here.

NEARLY HALF OF NEW HOUSE COSTS MADE UP FROM TAX SAYS IRISH BUILDERS’ LOBBY

In its pre-Budget submission to the government, the Irish Home Builders’ Association has calculated that taxes make up over 40% of the cost of a new house, representing a 6% increase in the tax take from a new-build. The builders’ lobby group is also strongly objecting to plans to allow local authorities to double levies placed on developers.

More on this story here.

US TAX COURT RULES ON NEW JERSEY CORPORATE TAXES

In a ruling issued late last month, a US Tax Court Judge stated that attempts made by the state of New Jersey to levy corporate taxes on businesses which draw revenue from the state but have no employees or tangible property there are in breach of the Commerce Clause of the US Constitution.

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AMERICA’S DETERIORATED FISCAL POSITION WILL NOT BE EASY TO REVERSE

While Team Bush touts tax cuts, it never mentions the other hallmark of this administration’s fiscal policy: soaring federal spending. For all his rhetoric about keeping Washington in check, Mr. Bush, as one Republican analyst puts it, has been spending like “a drunken sailor”. The widening war on terror, of course, accounts for much of that. But non-military discretionary spending has risen by 21%. Much of that increase is on homeland security, but not all.

The combination of a sharp economic slowdown, tax cuts and higher spending has transformed America’s budget. When Mr. Bush ran for office, the fiscal surplus was 2.4% of GDP, one of the highest among big rich countries. By fiscal 2003, the budget deficit had reached 3.5% of GDP. Next year, by official forecasts, it is expected to reach 4.3%. According to the Bush folk, this shift is unfortunate but hardly worrying. More sober analysts are worried. Who is right? The stakes in this debate are high, affecting not just America’s economic future, but the world’s. Deciding whether to be nonchalant or nervous means answering three questions. How bad is America’s fiscal position? What caused the deterioration? And how easily can it be reversed?

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FOUR ONTARIO RESIDENTS ARRESTED IN HIGH YIELD INVESTMENT FRAUD

HAMILTON: Four people were arrested in connection with an offshore investment scheme that allegedly bilked victims of about US$300,000 and possibly millions more. Police estimated there may be more than 70 victims in Canada and the United States with a total potential loss of approximately US$3 million. Police allege the accused used London as the base for their operation and enticed the victims to invest in a business known as Island Holdings Corp. that offered offshore investment opportunities. Victims were promised an overly attractive monthly return on their investments, but have received little or no returns and no refunds.

More on this story here.

LABUAN VOWS TO ATTRACT EU, US INVESTMENTS

Speaking at a seminar entitled “Maximising Benefits From Labuan -- Asia’s Premier International Offshore Financial Center”, head of the Labuan Offshore Financial Services Authority’s financial division, Md Yunus Atip suggested that the jurisdiction, although small, is ideally placed to attract investors from Europe and the United States.

More on this story here.

RETHINKING MILTON FRIEDMAN

In a 1970 lecture, “The Counterrevolution in Monetary Theory”, Mr. Friedman outlined 11 propositions about how monetary policy affects the economy. All were wildly controversial, almost disreputable, at the time. Most are accepted today. Among them was the proposition that monetary policy can affect real output only in the short run. Long-term economic growth depends on real factors like innovation, investment and entrepreneurship.

Today, most macroeconomists also accept Mr. Friedman’s most famous proposition: that inflation is always a monetary phenomenon. “Cost push” inflation was a myth -- pay and price increases did not drive inflation; they reflected it. The assertion that government deficits cause inflation only if they are financed by creating money remains under debate -- economists do not yet agree on the exact relation between unsustainable government spending and inflation.

Beyond these descriptive propositions, Mr. Friedman’s greatest monetarist legacy is a prescriptive one. “The most fundamental policy recommendation put forth by Milton Friedman,” Federal Reserve governor Ben Bernanke said, “is the injunction to policy makers to provide a stable monetary background for the economy,” avoiding both inflation and deflation.

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WHITE HOUSE TOLD TO JUSTIFY SECRECY BY SUPREME COURT

The Supreme Court announced that it wants the Bush administration to defend the secrecy that enveloped lower federal courts’ proceedings involving one of the 1,200 Arab and Muslim men detained by federal authorities after the Sept. 11, 2001, terrorist attacks. In a brief order, the court called on Solicitor General Theodore B. Olson to respond to a Florida resident’s claim that lower courts violated the Constitution when they agreed to keep even the existence of his case a matter of strict confidentiality. The court’s action comes a month after Olson informed the justices that he did not plan to respond.

The court’s order suggests that the justices are keeping a watchful eye on the government’s legal approach to the war on terrorism, including its assertion that much of that war must be conducted in secret, even though the court has yet to accept a case for full argument and decision. The case raises a the issue of whether the Constitution permits federal district and appeals courts -- presumably at the administration’s request -- to keep the public in the dark about an individual’s constitutional challenge to government detention, known as a petition for habeas corpus.

More on this story here.

PATRIOT ACT: LAW’S USE CAUSING CONCERNS

The investigation of Las Vegas strip club owner Michael Galardi and numerous politicians appears to be the first time federal authorities have used the Patriot Act in a public corruption probe. Two of Nevada’s lawmakers blasted the FBI for employing the act in the Galardi probe, saying the agency overstepped its bounds. Rep. Shelley Berkley, D-Nevada, said she was preparing an inquiry to the FBI about its guidelines for using the Patriot Act in cases that do not involve terrorism. The law makes it easy for citizens’ rights to be abused, she said.

But Mark Corallo, a spokesman for the Justice Department, insisted lawmakers were fully aware the Patriot Act had far-reaching implications beyond fighting terrorism when the legislation was adopted in October 2001. Gary Peck, executive director of the American Civil Liberties Union of Nevada, expressed outrage at Corallo’s suggestion that lawmakers were largely aware the Patriot Act’s provisions would equip the FBI with new investigative tools beyond the scope of terrorism investigations. “Those comments are disingenuous at best and do little to inspire confidence that the act won’t be systematically abused,” Peck said.

The attorney of one of the investigation’s targets said he plans to mount a legal challenge once he confirms the Patriot Act was used to investigate his client: “My research today indicates that this is the first time the government has used Section 314 in a purely white-collar criminal investigation.”

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Editorial: Patriot Act knows no limits.

Do FBI agents believe the surviving leaders of the elusive Osama bin Laden terror network have been conducting strategy sessions, while holed up in the basement of the Jaguars Gentleman’s Club, owned by Mike Galardi, near Sahara and Interstate 15? Are there reliable reports of al-Qaida weapons stashes there and at the Cheetah’s topless bar, just across the highway and also owned by Mike Galardi, in partnership with his father Jack?

Of course not. The Galardis and their lobbyist, former Clark County Commissioner Lance Malone, are under investigation by federal law enforcement agents who assert the bar owners paid off municipal officials here and in San Diego to create a more favorable regulatory environment for their establishments. So what on earth were FBI agents thinking when they cited Section 314 of the USA Patriot Act as their grounds for faxing subpoenas to two Las Vegas stockbrokers on Oct. 28, seeking financial information on many of those who have been targeted in the ongoing Galardi probe?

The Patriot Act provision “was used appropriately by the FBI and was clearly within the legal parameters of the statute,” argues Special Agent Jim Stern, a spokesman for the Las Vegas field office of the FBI. If that is true, then major portions of this law need to be promptly repealed, unless the high court can get at them and overrule them, first.

More on this story here.

UK DATA SURVEILLANCE COMPLAINTS HAVE ZERO SUCCESS RATE

The Investigatory Powers Tribunal was created in October 2000 to safeguard citizens from abuses of the controversial Regulation of Investigatory Powers Act (RIPA), which lets certain government authorities get access to private information about people’s Internet and mobile phone habits. Simon Watkin of the Home Office told a Parliamentary meeting on Wednesday that the Tribunal -- which is made up of senior lawyers and judges -- had considered some 470 complaints from people who claimed they had been unfairly investigated under RIPA’s powers, and had not upheld a single one.

According to RIPA’s opponents, this information adds weight to the argument that the existing Act, and the government’s current attempts to widen it, pose a significant threat to the privacy of UK citizens. But the Home Office says it is proof that RIPA is not being abused.

More on this story here.

UK CABINET POSTPONES ID CARD DECISION

The cabinet decided to put off a decision on whether compulsory ID cards should be introduced until later this decade -- but said a voluntary scheme could be brought in earlier. The prime minister’s official spokesman took the highly unusual step of issuing an agreed cabinet statement: “In principle, cabinet believes that a national ID card scheme can bring major benefits. In practice, given the size and complexity of the scheme, a number of issues will need to be resolved over the years ahead.

“So we intend to proceed by incremental steps to build a base for a compulsory national ID card scheme with a final decision to proceed to a compulsory card later, when the conditions for moving to a compulsory card are met.”

This is being presented as a decision “in principle” in favour of ID cards, but in practice is a reversal for Home secretary David Blunkett’s plans. He will now be forced to revert to an “ID cards by stealth” approach. He wins in that he has the in principle agreement to have a compulsory national ID card “sometime”, but he loses in that he cannot have it until it works, or until the cabinet can at least fool itself into thinking it is going to work. So maybe he has been saved from himself.

More on this story here and here.

BIOMETRIC PASSPORTS SUFFER BUMPY RIDE

Biometrics technology combines analytical software with devices that can scan physical characteristics like irises, fingerprints, or voices. It blends complex software algorithms with biological information to confirm an individual’s identity. Those matchmaking capabilities have spurred the U.S. and the E.U. to require the inclusion of biometric chips in passports. Through the 2001 Patriot Act, Congress mandated that Americans, and citizens of 27 mostly European countries that do not require additional visas to travel, will have to carry this new generation of passports by October 26, 2004. In September, the European Commission passed a recommendation to compel member states to issue biometric passports using face and fingerprint scans by 2005; that now goes to the European Council and Parliament. But many individual states began framing such legislation months ago, in order to comply with the American deadline.

While biometric technology is purported to work well in laboratory environments, real-world applications are trickier -- it has suffered notable failures in several prominent tests. Beside the technology shortcomings, there are concerns about how the data from these biometric identifiers will be aggregated and stored. Gartner Group analyst Anthony Allan “feels [that] biometric schemes are not feasible on a large scale for another four years and that is only if the problems are overcome.”

More on this story here.

OFFSHORE OUTSOURCING WILL AFFECT EVERYONE -- IT FOLK SHOULD CONSIDER BECOMING PLUMBERS

It is rare that a day goes by without US and UK reports of yet another company retrenching local staff and sending the work offshore. It could be in computing or in call-centers but the flow of work continues. Indeed, the recent announcement of an uptick in IT spending in the UK and US has been received in India with some delight because it should lead to even more outsourcing work.

It is clear that the subject of offshore outsourcing is a highly emotional one that is characterised by subjective and often dubious statements from both sides. One of the most interesting aspects of offshore outsourcing is the role played by the various governments. There was a time when a government supported its people either through favorable employment laws or through the support of businesses which in turn created employment for its citizens. This no longer applies in many countries because big business calls the shots and employing local citizens is not high on their agenda.

There seems little doubt that offshore outsourcing will continue to grow and it is difficult to argue with the costs and logic offered by those performing the work even if one should wish to. For those who are receiving the work their future looks assured. Indian companies have no trouble attracting employees but according to reports are having trouble keeping them because the employees quickly move to better opportunities in other companies. Those workers are thriving, their personal situation is improving and doubtless they are generally happy. The choices are far more limited for those who are at risk of retrenchment by offshore outsourcing.

More on this story here.
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