Wealth International, Limited

Offshore News Digest for Week of November 10, 2003


A violent campaign ends as Guatemala votes

Guatemalans voted for president in huge numbers -- turnout was close to 80% by most estimates -- on Sunday, and early returns on Monday showed the people repudiating a former dictator backed by the ruling party. Initial returns, surveys of voters leaving the polls and projections by international election observers all showed the former dictator, Gen. Efraín Ríos Montt, out of the running. The former mayor of Guatemala City, Oscar Berger, was leading, but appeared short of a majority, and headed for a runoff against a businessman, Álvaro Colom. At least 27 people died in election-related violence, most of it wrought by Mr. Ríos Montt’s supporters, before the voting began.

The ballot was Guatemala’s second since 36 years of civil war ended with peace accords in 1996. Many of the promises made in that agreement, including limits on the political power of the Guatemalan military, remain unfulfilled. In the capital, many voters expressed pleasure at their ability to vote without fear, after two generations of political violence and repression.

More on this story here.

Colombia: On the path to recovery ...?

For years, Colombia’s drug-fueled conflict raged, with Marxist rebels and right-wing paramilitaries gaining ground and growing ever more violent as the United States spent billions trying to control the mayhem. But now, 15 months in office into a four-year term, President Álvaro Uribe is taking actions that suggest he is ready to be bolder than past leaders in dealing with this country’s seemingly intractable violence.

Unlike his predecessors, who proved ineffectual at taming the war, Mr. Uribe has come up with a coherent plan that sets out how Colombia might be extricated from its morass. Under his “democratic security program,” steps have been taken to weaken the rebels, disarm the death squads and install a state presence in long forgotten regions of this country of 40 million people.

Colombia has pulled itself from a long recession, exceeding predictions and posting a 3 percent economic growth rate last year. Economists say that the country is beginning to restore investor confidence, largely because of Mr. Uribe’s image as a prudent fiscal manager bent on establishing security. It helps that the president and his advisers cast him as a workaholic, uncompromising wartime president who makes tough choices and avoids the usual trappings of power. Gone are the big state dinners and long trips to European capitals. Instead, Colombia has a president who practices yoga and rises to work before dawn.

More on this story here.

Or not? Military aide quits, joining 3 Others in Colombia’s shake-up.

The commander of Colombia’s armed forces said Wednesday that he was resigning, joining three cabinet ministers who have stepped down in a shake-up marring President Álvaro Uribe’s administration. Though top-ranking generals usually serve short stints, General Mora’s resignation raised suspicions because it came during a troubled time for Mr. Uribe that began on Oct. 25 when his efforts to win broader control over state spending were rejected in a national referendum. The resignation, the latest in a series, made it appear that the administration was stumbling and losing direction -- contrasting sharply with the image Mr. Uribe has carefully cultivated in 15 months of office as a steady war-time president more capable than his predecessors of leading the country.

More on this story here.

Brazil under Lula: Still, crime and (no) punishment

Most readers outside Brazil probably have no idea of how prevalent corruption is, and the extent to which it affects the lives of Brazilians. Hardly a day goes by without the media unveiling some new scheme or scam to plunder the public and private sector. Although companies and private individuals are ripped off the public purse is usually an easier target. Virtually no part of the public sector is free of corrupt practices: the military have been caught using air force planes to carry drugs, police are often punished for taking payments from criminals and drug traffickers... I could fill pages with similar examples.

There are many reasons for this endemic corruption, all linked to a grinding bureaucracy, form an ideal environment for corruption. Brazilian bureaucracy is the worst kind. It is performed by people who are often poorly educated, badly paid, interested only in getting a cushy lifetime job with nice benefits, and open to corruption or easily enticed into it. This can be done by either turning a blind eye, or taking a more active role.

The other side of the coin is crime. Nowadays, crime is becoming as ubiquitous and omnipotent as corruption. Private individuals have no protection against the thieves and murderers who roam the streets. In fact, the criminals are now so sure of their strength that they have started to threaten the State and its institutions.

Of Brazil’s main political parties, Lula’s PT is probably one of the most honest -- or least corrupt -- and should have the moral stature to launch a crusade against corruption. However, it has not done so. Probably Lula knows that a fight against crime and corruption is unwinnable at the moment.

More on this story here.

A rising star in Mexico.

His industry and astuteness have turned Mexico City mayor Mr. López Obrador, a pragmatic left-winger, into the rising star of Mexican politics. The next presidential election is not due until 2006. But already the mayor is seen as the man to beat. His manic work habits are reminiscent of Álvaro Uribe, Colombia’s president. But the Latin American leader Mr López Obrador is most often compared with is Lula, Brazil’s moderate left-wing president.

He owes this inflated status in large part to the political vacuum created by the failure of Mexico’s president, Vicente Fox, to fulfil promises of reforms and economic growth. While other politicians bicker, the mayor presents himself as a man who gets things done for the capital’s 8.8 million people.

More on this story here.

Largest financial scandal in Chile’s history hits US shores.

Chilean government business development agency Corfo has undertaken legal action in both Miami and New York to trace a series of money laundering operations undertaken by the local Inverlink financial holding. Inverlink allegedly laundered as much as $100 million in stolen certificates of deposit from Corfo in moves which include triangular operations in accounts from the American banks Pine Bank and Bank of New York, as well as the New York subsidiary of the Banco de Chile.

Both the unprecedented sophistication with which the fraud was committed and the fact that Corfo has had to track the money offshore led the government agency to hire renowned U.S. lawyer firm Greenberg Traurig as well as risk consulting company Kroll, which alone is in charge of looking for half the stolen capital in offshore accounts.

Both banks and analysts have stricken back at any claims of dealing in bad faith by blaming the government for lax regulations in the financial industry. This issue has in turn raised a debate over the potential frailty of what was once considered both domestically and abroad as one of the Chilean financial system’s most priceless assets: probity and competent management. Chile’s main weaknesses in a recent “growth competitiveness” ranking are claimed to stem from a growing wariness against government misspending and politicians in general.

More on this story here.

Argentine judge to subpoena foreign bankers in investment scam investigation.

Subpoenas will go to German, American and Swiss bank executives for questioning about an alleged multi-million-dollar asset-stripping scheme that hurt thousands of Argentine and Uruguayan investors. These bankers are expected to appear before Judge Maria Servini de Cubria, who is investigating illegal wire transfers suspected of having led to the bankruptcy of Argentina’s Banco General de Negocios, or BGN.

The bankers are: Bernd Fahrholz, of Germany’s Dresdner Bank; William Harrison Jr., of U.S.-based JP Morgan, and Lukas Muehlemann, of Switzerland’s Credit Suisse. The three sat on BGN’s board as representatives of their financial institutions.

More on this story here.


Thai prime minister targets 10% GDP growth by 2005.

Thai Prime Minister Thaksin Shinawatra has outlined an ambitious vision for Thailand’s already buoyant economy, saying he was gunning for GDP of 10% by 2005 and total GDP to reach Bt8,000bn ($200 billion) within five years. His administration has a far-reaching infrastructure development plan, which will be one lever to push the economy forward.

Thailand’s economy is now being driven by brisk consumption and surging exports, although investment remains weak due to lingering excess capacity. Investment is expected to pick up next year, and most independent economists believe Thailand can sustain long-term growth of between 6 and 8%. However, Mr. Thaksin has routinely -- and correctly -- been more optimistic about Thailand’s potential. Yet growth of 10% would mark a return to the frenzied pace of expansion at the peak of Thailand’s long boom prior to 1997, raising concerns about a repeat of the ill-considered overinvestment that lead to the devastating financial crisis.

More on this story here.

Asian investors set to be new “Guardian Angels” of international markets.

Speaking at the Ashburton Annual Investment Conference in Jersey, the firm’s global investment strategist, Peter Lucas, suggested that Asian investors and consumers are likely to take over from the US consumer as the “guardian angels” of the international markets, driving growth. “The Asian crisis represented a massive transfer of wealth from East to West. With the baton now passing from America to Asia, this process is going into reverse with very positive implications for Asian stockmarkets,” he explained.

More on this story here.

China: Another false dawn for political reform?

Every five years, urban Chinese go through the ritual of voting for candidates selected by the Communist Party and about whom they are told next to nothing to fill seats in the district congresses. This time several Beijingers are determined to break with tradition and get their names on the ballot sheets without the party’s prior endorsement. Remarkably, the campaign has been given favorable coverage in official newspapers. Could it be that China’s sweeping change of leadership in the past year, including the appointment of a new party chief, president and prime minister, has also broken taboos against political reform?

The kind of reforms that mainstream intellectuals want to see pale in comparison with the radical views expressed on campuses in 1980 or on the streets during the Tiananmen protests of 1989. For all that, many Chinese outside and inside the party recognise that inflexibility, secretiveness and lack of oversight in the political system have become dangerous liabilities. Corruption and the abuse of power are widely seen as threats to the wealth of a fast-growing middle class.

Despite all the energetic thinking under way in the party, the Chinese are likely to be, as they have so often been before, disappointed by the results. Next year’s revision of the constitution will focus mainly on giving greater protection to private property rights and enshrining Mr Jiang’s contribution to Marxist-Leninist philosophy, a theory called the “Three Represents”, in the constitution’s preamble. Further expanding grassroots democracy is not on the agenda.

More on this story here.

South African FOREX amnesty deadline extended. Business urges relaxed exchange controls.

After receiving what he described as “significant interest” in the government’s Exchange Control Amnesty, South African Finance Minister Trevor Manuel has extended the due date of the amnesty from November 30, 2003 to February 29, 2004. Manuel said that the Treasury had received 5791 applications for amnesty as of November 6, and were currently receiving new ones at the rate of 300 per day. The amount of money involved in the applications was unknown, however, and would only be released once the amnesty period ended on February 29, 2004.

The statement presented an opportunity for business leaders to reopen the debate on exchange controls, with many repeating the call for more liberal rules to take pressure off exporters battling against what many consider is an over-valued rand.

More on this story here and here.

US judge set to reject apartheid lawsuit.

United States Judge John Sprizzo looks set to throw out a class-action lawsuit brought by victims of apartheid against major multinationals, including Swiss banks, saying he could not see how doing business with South Africa’s apartheid regime was a breach of international law. The litigation, filed on behalf of thousands of black South Africans, accuses more than 120 local and foreign firms of profiting from the apartheid system, which was abandoned in 1994. The South African government has urged Sprizzo to dismiss the lawsuits, arguing that the multibillion-dollar claims could hurt its economy.

More on this story here.

$170 billion owned by Nigerians in foreign banks.

ABUJA, Nigeria: Director-General of the Economic and Financial Crimes Commission (EFCC) Mr. Emmanuel Akomaye, said that the organization was worried over the estimated $170 billion stashed abroad by Nigerians. He told journalists, however, that the Commission has not got any mandate from government to investigate either those who own the funds or their sources. “[T]here is no categorization (which account was funded through legitimate earnings or corruption). Our worry is that even if the money is from legitimate means, we shouldn’t have that huge amount of money stashed abroad when we are junketing from one nation to another for investment funds. Our people can as well bring part of that money home and invest it at home.”

Speaking earlier at the opening of a three-day meeting of Inter-Governmental Action Group Against Money Laundering in Africa, Speaker of the House of Representatives, Alhaji Aminu Masari, called for a broad-based legislation which would be inclusive of not only money laundering but against siphoning of public funds from Africa to the developed economies of the world.

More on this story here.


German federal and state tax revenues set to plunge.

The German Finance Ministry revealed that federal and state tax revenues are set to fall by nearly €20 billion in 2003 and 2004 as rising unemployment and recession hit tax receipts. Tax revenues in 2003 are forecast to undershoot expectations by €8.2 billion, while next year the tax take will decline by a further €10.9 billion.

More on this story here.

Is the party over for Germany’s Little Monaco?

Norderfriedrichskoog makes an unlikely tax haven. The small German village, 200 kilometers north of Hamburg, consists of just 17 farmhouses which provide shelter from the bitter North Sea wind for the 45 inhabitants. Unlikely, yes, but thanks to the fact the local authority does not charge business tax -- the levy placed on company profits -- some 500 companies are located in Norderfriedrichskoog.

However, now the German Finance Ministry is accusing the village of supporting so called “Briefkastenfirmen” or companies which simply exist as a letter box without any real business running, just in order to save taxes. If Finance Minister Hans Eichel and colleagues can prove this, the loophole which allows companies to exclude themselves from the business tax will be closed and the boom times will be over.

More on this story here and here.

Germany plans to offer a tax amnesty to tax offenders with offshore assets.

The German Chancellor is trying to push through a tax amnesty that would enable tax offenders to repatriate assets but would still penalize them with 25% tax on past interest. However, the proposals have been temporarily blocked by the German parliament. Swiss banks seem untroubled, rightly expecting few Germans to respond to such an unattractive amnesty.

This proposal comes on the back of a tax amnesty in Italy that encouraged the repatriation of Italian offshore assets by offering a 2.5% tax penalty. The Italian amnesty had a considerable impact on Swiss private banks, which are very popular with Italians looking to move assets offshore. Julius Baer for example lost an estimated CHF1 billion in assets and subsequently opened up an office in Italy to chase the assets back onshore.

More on this story here.

Finland must lower tax to compete say business leaders.

Taxation was named as corporate Finland’s biggest business issue by the chief executive of the nation’s largest energy company at a seminar this week, where business leaders warned that the economy is at risk from high taxation.

The taxation issue is particularly timely at the moment as the government is due to make a decision this month on whether to lower the country’s flat rate of corporate tax, levied at 29%. It is also prescient given neighboring Estonia’s corporate tax rate of 26% to 27% which has led many Scandinavian firms to locate their headquarters in the Baltic state. 26.9% of Estonia’s foreign direct investment originates from Finland according to the Wall Street Journal.

More on this story here.

Irish finance minister says he is committed to path of low taxation.

Charlie McCreevy told the Construction Industry Federation business conference last Thursday that he has no intention of “rolling back” tax cuts and remains committed to a path of low taxation. “Lower taxation has been good for the country and I intend to stick to that path,” McCreevy declared.

More on this story here.

New Irish tax rules unfairly weighted against taxpayers, says expert.

When the new rules became effective on October 31 this year, Finance Minister Charlie McCreevy announced that the changes “will better balance the position of the tax claimant while safeguarding the position of the Exchequer”. However according to Pat Cullen, senior partner at Deloitte and Touche, “there is no doubt that this is a rebalancing which is weighted overwhelmingly in favour of the Revenue.” The changes mainly affect interest payments on overpaid or unpaid tax and the way payments are made to the Revenue by the taxpayer.

More on this story here.

Tax break in Irish CD market to draw investors.

The Dublin market in Certificates of Deposit is set to boom over the next couple of years as investors take advantage of the investment’s new DIRT-free status (Deposit Interest Retention Tax).

More on this story here.

Withholding tax route approved for Isle Of Man.

The Isle of Man’s parliament, the Tynwald, has given its formal approval for the jurisdiction to implement a withholding tax in the initial stages of the new European Savings Directive, which is set to be introduced in January 2005. In opting for the withholding tax over exchange of information, the island joins fellow UK crown dependencies, Jersey and Guernsey, which have attempted to draw up a joint strategy with regard to the implementation of the directive, in addition to Austria, Belgium, Luxembourg and Switzerland. The withholding tax regime will initially introduce a 20% tax rate on savings interest rising to 35% in 2011.

More on this story here.

Jersey takes lead on tax “black hole”.

Guernsey is unlikely to fill its financial “black hole” before business tax is axed in 2008. Laurie Morgan, president of Guernsey’s Advisory and Finance Committee, said no decisions would be taken until after next year’s general election.

Jersey yesterday announced that it would start compensating for the £100 million deficit caused by abolishing business tax with new measures, including VAT or sales tax, in 2007, two years before it moves to a zero corporate tax rate. Jersey’s Budget proposals contain warnings that the introduction of other taxes may need to be brought forward to address the hole left by zero business tax.

More on this story here.

Inland Revenue cracking down on “aggressive” tax planning.

Responding to the revelation that in the last budget, the government made some £66 million available over three years to fight tax evasion and “aggressive” tax planning, UK’s Association of Chartered Certified Accountants (ACCA) has suggested that the tax authority has been going after those who are lawfully minimising their tax liabilities. “The Inland Revenue has been blurring the boundaries,” Chas Roy-Chowdhury observed.

Deputy chairman of the Inland Revenue, Dave Hartnett dismissed this claim, arguing that: “We don’t muddle up avoidance and evasion and we don’t browbeat people.” However, he criticised those who employ “aggressive” tax planning measures, such as the creation of offshore trusts to receive income, the purchase and resale of shares at artificially different prices for tax purposes, and the exploitation of inappropriate tax breaks, arguing that individuals and firms which employ those measures increase the tax burden on others, and divert resources away from development.”

More on this story here and here.

House of Lords to hear frozen pension appeal by expat.

The lords have agreed to hear a further appeal in the frozen pensions case by Annette Carson, a British expatriate living in South Africa. Mrs. Carson lost her case against the British Government in the High Court in March this year and the Appeal Court upheld that ruling in June. She then petitioned the House of Lords, supported by funds partly provided by the Canadian government, and it was learnt last week that she has been granted leave for a further appeal to them.

Mrs. Carson is one of about 490,000 British expatriates in mainly Commonwealth coutries whose pensions are frozen while about 330,000 in the United States, Europe and elswhere have indexed pensions.

More on this story here.

New Zealand considering big changes in way that domestic investments are taxed.

The way domestic investments would be taxed was originally targeted only at the offshore sector, but the so-called “risk-free rate of return” method (RFRM) of calculating tax could now be applied to both domestic and offshore investments. The RFRM is calculated based on the value of shares held in an overseas account at the start of the year and then multiplied by the risk-free rate and then again by the investor’s tax rate.

More on this story here.

New Zealand government considers tax breaks to entice foreign workers.

The New Zealand Revenue Minister and Associate Revenue Minister released a discussion document containing proposals for tax breaks aimed at helping firms recruit workers from overseas. “The idea is to benefit New Zealand businesses recruiting overseas workers,” the Ministers explained in a statement. “Reducing some tax costs for those workers will make it more likely that New Zealand businesses can hire the best people for the job, at the right price. The government is proposing a temporary exemption from New Zealand income tax on the overseas income of people who come here to work as employees.”

More on this story here.


Report finds weakness in IRS e-file security.

A recent report by the Treasury Inspector General for Tax Administration has identified security lapses in the IRS’s e-file system that can allow individuals to participate in the program without meeting the necessary screening checks. Consequently, the report found that the e-filing system is open to abuse by those who wish to place fraudulent tax returns, and in one instance the Inspector General’s Office uncovered a case were an electronic return originator had filed around 9,000 fake returns over a three-year period, netting the culprit some $7 million in refunds in the process.

More on this story here.

Call for increased tax shelter penalties in U.S.

Senator Carl Levin (D-Michigan), called for increased penalties against accounting firms that design and sell abusive tax shelters and announced Congressional hearings next week to spotlight the firms, their executives and their sales practices. Mr. Levin said that a one-year Congressional investigation into tax shelters had found a significant and alarming change in sales practices -- that whereas in previous years tax shelters were something that individuals and corporations entered into after seeking advice from their accountants or lawyers, shelters today are more likely to be sold to individuals or companies using elaborate mass-marketing efforts “like late-night, cut-rate TV bargains.”

The business of finding tax loopholes for big business “is massive. It involves tens of billions of dollars each year. It goes on across the country and around the clock,” Levin said.

More on this story here, here, and here.

IRS criticized for failing to police tax preparation industry.

According to the findings of a recent investigation conducted by the General Accounting Office, the IRS has imposed some $2.4 million in fines against tax preparers in the last two years, but has collected just a fraction of the amount due. This has led to calls from the Senate Finance Committee for the IRS to devote more resources to policing the tax preparation industry, given that more than half of US taxpayers now use a paid preparer. The report suggests that by turning a blind eye to the misdemeanours committed by tax preparers, the government is sending a “mixed message about whether poor performance by preparers will be tolerated.”

More on this story here.

Anatomy of an aggressive tax shelter.

In 1997, Congress gave retirement savers an attractive deal: put after-tax dollars into a Roth I.R.A. and withdraw all future investment gains and contributions without ever paying another penny of tax. For some people, that is apparently not enough. They have sought to put in money on which they have never paid taxes, vastly exceed the annual contribution limit of up to $3,500 and reap much greater wealth.

The IRS, as part of a crackdown on abusive tax shelters, has been pressing an action against one of the country’s biggest accounting firms, Grant Thornton, to force it to disclose the names of clients it advised to shelter millions of taxable dollars in Roth I.R.A.’s via shell corporations. How such a shelter worked and how it was promoted is vividly detailed in a lawsuit brought by a former Silicon Valley executive against Grant Thornton over the shelter he was sold.

More on this story here.

IRS wants law firm to name names.

In another move against what it sees as abusive tax shelters, the IRS has sued Sidley Austin Brown & Wood, seeking the names of clients who paid the firm to organize such tax schemes. It is the second time this year the IRS has filed summonses against law firms seeking the names of clients.

Both law firms argue that under rules of attorney-client privilege, they do not have to answer the IRS summonses. Tax lawyers have different opinions on the cases’ confidentiality issues. Some, mostly academics, argue that releasing the names of clients does not violate confidentiality rules. Alternatively, others hold that while client names may not be confidential, there may be privilege protections for any advice given in lawyer-written tax opinions. However, in both filings the IRS sees the law firms as “organizers” of tax shelters, who by law are required to register certain tax shelters with the IRS and to maintain a list of investors, to be provided to the IRS upon request.

More on this story here.

After IRS revamp, the focus is on tax cheats.

Six months into his five-year term as commissioner of the IRS, Mark Everson says his administration has three themes: Reinforce and build on the restructuring efforts that have significantly improved the agency’s historically dismal customer service record; fix technological problems that have dogged the agency despite the billions of dollars spent to modernize its systems; and aggressively pursue tax cheats.

No one has a clear picture of how many tax cheats are out there, or how much their cheating costs the government. But nearly everyone agrees that both run-of-the-mill underpayment and outright fraud have soared in the last half a dozen years, after an IRS restructuring effort geared at creating a “kinder and gentler” tax collector -- a restructuring that reduced dramatically the number of IRS examiners and has led to a steady decline in audit rates.

More on this story here.

Flat-tax making a comeback.

The flat tax is making a comeback. Banished to the political wilderness after Steve Forbes made it the central issue of his losing U.S. presidential campaign in 1996, interest is perking up again. Estonia established a flat tax in 1994, Latvia in 1995, and Russia in 2001. Earlier this year, Ukraine adopted a flat tax beginning next year, and on October 28 Slovakia became the latest country to do so. China is said to be interested as well.

A key factor driving all of these countries to adopt radical tax simplification and a lowering of rates is tax evasion. They were simply unable to collect sufficient revenue under their formerly complex, high-rate tax systems. In every case, implementation of a flat tax caused collections to rise, as the benefit of evasion was reduced. While the flat tax has historically been a conservative issue, the fact that it has been adopted in several countries ruled by left-leaning parties shows that it cuts across ideological lines.

More on this story here.

If a flat tax is good for Iraq, how about America?

Few Americans would want to trade places with the people of Iraq. But come tax time next April the Iraqis will enjoy something we lack: a simple and fair tax system. Beginning in January, all Iraqis will pay a “flat tax” of 15%. President Bush’s administrator in Baghdad, L. Paul Bremer, recently approved this pro-growth tax system, which replaces Saddam Hussein’s soak-the-rich system that had tax rates as high as 45%.

An Iraqi flat tax is good news for the United States on several counts. Perhaps most importantly, it will advance our national security interests by boosting the Iraqi economy. But there are other benefits to Iraqi tax reform, including educating U.S. politicians.

More on this story here.


A loud silence from U.S. on Russian’s arrest.

In the two weeks since Mikhail Khodorkovsky was arrested and his oil company’s assets were impounded in Russia, President Bush and other top American officials have offered little public criticism of what many in the administration acknowledge has been an extremely worrisome development. Instead administration officials say that American concerns have been raised in private, avoiding any public comments that might anger President Vladimir Putin or jeopardize cooperation on a range of issues.

Administration officials say they are indeed highly disturbed about the possibility that Mr. Putin is becoming overly influenced by hard-liners, and is engaging in abuses of power and cracking down on dissent.

More on this story here.

Investors stick with Russia despite the Yukos affair, but some wonder if there is worse to come.

You might think the arrest of Russia’s richest man -- and the seizure of some $13 billion of his company’s stock -- would have a chilling effect on business investment in the country. But you would be wrong. When Russian President Vladimir Putin visited Rome last week for a European Union summit, Fiat used the occasion to sign a deal with a Russian car distributor and announce that it was thinking about building an assembly plant in Russia. Oligarch Mikhail Khodorkovsky, charged with tax evasion and other crimes, awaits trial in a Moscow jail, and his assets in Yukos -- the firm he built into Russia's biggest oil producer -- remain frozen. But if Fiat had any qualms, it was not letting on.

More on this story here.

Russia can cope with capital outflows out say economists.

The arrest of Khodorkovsky and the approach of national elections could send money fleeing abroad but probably not on a scale that would put the Russian economy at risk, economists said. They said they saw no short-term threat to financial markets or the rouble -- which last week was trading at about two-year highs against the dollar, largely due to high global prices for oil, Russia’s key export.

More on this story here.

Mr. Putin’s Neighborhood

Some in the West may still be wondering if there is really any larger meaning to the campaign being waged by Russian President Vladimir Putin against the country’s wealthiest private businessman, Mikhail Khodorkovsky. If so, they need only consult the would-be independent leaders of more than a half-dozen nations bordering on Russia, for whom the consolidation of KGB-style authoritarianism in Moscow this fall has been matched with an acceleration of Putin’s effort to rebuild an empire. While American and European leaders have been preoccupied with Iraq and the Middle East, a series of bald imperialist initiatives by Putin has passed nearly unchallenged during the past two months.

More on this story here.

The YUKOS Affair: Protecting Democracy, Private Property, and the Rule of Law

The Kremlin’s attack on YUKOS is a watershed event in post-communist Russia. This development has negative implications on several levels, and its ripple effects are far from over. Obviously, President Vladimir Putin has been listening to those who do not care about Russian integration into the global economy and who are undermining his stated goal of doubling Russian gross domestic product by 2008.

The Kremlin’s attempt to dismantle YUKOS will have several long-range consequences: Drying up domestic and foreign investment, undermining the rule of law, increasing the power of unelected bureaucrats from secret police and law enforcement, withering sources of funding to democratic parties and charities, and weakening civil society.

More on this story here.

Russians laud Ivan the Not So Terrible.

For centuries, he has been called one of the most villainous of the many villains in Russian history, a blood-soaked tyrant who murdered his son, created the country’s first secret police force and personally took part in its massacres. Even the name by which he came to be known tells bluntly of his legend: “Ivan the Terrible”. Now a loose coalition is pressing the Orthodox church to canonize the notorious czar.

While publicly dismissing Ivan’s supporters as a fringe movement, church leaders fear it is turning into a popular cause among the millions of people who have returned to the Orthodox church in the dozen years since the Soviet Union collapsed. Their enthusiasm taps a deep strain of mystic nationalism that has proved a powerful force at odds with the country’s official turn toward integration with the West.

More on this story here.

Analysts: Trial likely for Khodorkovsky.

It would be the most momentous trial since the heyday of the Soviet Union. Little more than two weeks after the arrest of Russia’s richest man, on charges of tax evasion and fraud, analysts believe little can be done to prevent a trial. Proceedings could shed light into some darker corners of Russia’s newly emerged, freewheeling brand of capitalism. “This has gone too far for a nice solution,” said an investment banker with contacts in the Russian government. “It is starting to look difficult to avoid a trial getting started.”

Khodorkovsky, who quit as YUKOS chief executive after his arrest, remains its biggest stockholder, though his shares have been frozen by prosecutors, a move preventing him selling them. If convicted, a Russian court may have trouble seizing his YUKOS shares, held in trust through offshore companies.

More on this story here.

Russia’s economy: False calm

President Putin has reassured foreign investors that all is well in Russia. It isn’t.

More on this story here (premium content).

Bill proposes sweeping new powers for the Russian Tax Ministry.

Tax Minister Gennady Bukayev said in the latest issue of the ministry’s internal publication, the Russian Tax Courier, that he would like to see the ministry have the ability to “inventory taxpayers’ property, interrogate witnesses [and] seize documents and objects.” He also wants to see a two year extension to the length of time official investigations can last, currently three years.

Unsurprisingly, the proposals have sent a chill down many a spine, not least those of Russia’s business community. “It looks like an effort to significantly reduce the role of the courts in this process, which we would hate to see because we’ve been encouraged by the neutrality of the courts in tax disputes in recent years,” said Andrew Somers, president of the American Chamber of Commerce in Russia.

More on this story here.

Khodorkovsky’s prosecutor warns other big businessmen they could be next.

“Those who are not yet jailed must think hard about what it is they are doing,” Deputy Prosecutor Vladimir Kolesnikov said. He accused Khodorkovsky of stealing the salaries and pensions of average Russians in fraud and tax evasion schemes worth $1 billion. Among other things, Khodorkovsky is charged with cheating the state out of $1 billion through fraud and tax evasion. Kolesnikov said new charges might be brought against Khodorkovsky in the course of the investigation. As a result, he said, Khodorkovsky’s pre-trial detention could stretch up to two years.

Yevgeny Volk, head of the Heritage Foundation in Moscow, noted that comments such as the warning to other big businesses are the kind of populist rhetoric that can be expected during an election season.

More on this story here.


The price of a seat on the exchange -- actually the cost of a license to do business there -- has fallen by 35% since the disclosure of the payment of $139.5 million to Richard A. Grasso, who was forced to resign as the exchange’s chief executive.

Seat prices have historically been far more volatile than stock prices. They reflect expectations about how healthy the stock market will be and how successful the exchange will be in getting business and conducting it in a way that will be profitable to the traders. Now there are worries that tougher regulation will send trades to other markets and reduce the profitability of the trades that remain. The decline in seat prices from the peak, reached in 1999 at $2.65 million, is now 51%. Such a fall in stock prices would stun investors. But it is not that unusual for seat prices.

More on this story here.


Mention “free-market economics” to a member of the lay public and chances are that if he has heard the term at all, he identifies it completely with the name Milton Friedman. However, instead of the common response of reverence and awe for “one of our own who has made it”, libertarians should greet the whole affair with deep suspicion: “If he’s so devoted a libertarian, how come he’s a favorite of the Establishment?” In fact, in this as in other such cases, suspicion is precisely the right response for the libertarian, for Professor Friedman’s particular brand of “free-market economics” is hardly calculated to ruffle the feathers of the powers-that-be.

More on this story here.


Defense is supposed to be different. We all want it. But something in the nature of things is said to prevent us from organizing it ourselves. We need government to do it because defense is a “public good”, something the market cannot provide for a variety of convoluted reasons (free rider problems, non-excludability, high cost, etc.). It is believed that we would rather be taxed to have bureaucrats defend us. This belief is held across the political spectrum. The arguments about defense and security and military budgets never go to the core.

What if the conventional theory is wrong? What if it turns out that the private sector can provide national defense, not in the sense of contracting with private companies to build bombs at taxpayer expense, but really provide it to paying customers at a profit? The argument of the explosive new book edited by Hans-Hermann Hoppe and published by the Mises Institute, is precisely that it can. If you have never before considered the idea, or considered it but wondered if you were crazy, you need The Myth of National Defense: Essays on the Theory and History of Security Production.

The bias in favor of government provision of defense, and the taboo about other alternatives, has been, of course, entrenched, for hundreds, even thousands, of years. And certainly since Hobbes, just about every political philosopher has conjured up nightmare scenarios about the consequences of life without government defense, while ignoring the reality of the actual nightmare of government provision.

More on this story here. The quickest route to defense privitization discussed here.


Palestinian Authority Chairman Yasser Arafat has diverted $800 million of funds into private bank accounts and transfers $100,000 a month to support his wife’s lavish Paris lifestyle, according to a CBS News Sixty Minutes investigative report. The report confirms a September audit of PA funds conducted by the IMF, which revealed that Arafat had diverted some $900 million to a special bank account he controlled.

According to the CBS report, Arafat diverted more than $300 million of Palestinian Authority funds into a previously undisclosed Swiss bank account and the money can no longer be traced.

More on this story here.


The Bahamas has a golden opportunity to reclaim its sovereignty and restore its flagging economy. The Prime Minister should inform the OECD that the Bahamas is no longer obligated to eviscerate its tax and privacy laws for the benefit of high-tax nations.

This step is desirable for three reasons. First, it may be a simple matter of national financial survival. Second, the Bahamas should tell the OECD to go jump in a lake as part of the global fight to preserve fiscal sovereignty. Finally, the Bahamas should withdraw its commitment to the OECD because the contingencies upon which the agreement was based have not been met.

More on this story here.

The Bahamas is FATF compliant.

Attorney General Alfred Sears completed his tenure as chairman of the Caribbean Financial Action Task Force (CFATF), saying that The Bahamas stands at the forefront of international standards in anti-money money laundering efforts and combating the financing of terrorists.

More on this story here.


Dissenting shareholders see numerous problems with the proposed sale of the bank, which was announced just over a week ago. Besides the fact that many see the $40 share offering as too low, concern has also been raised about investment banker Merrill Lynch, who drafted a formal opinion about the fairness of the deal, even though HSBC is a longtime client and joint venture partner.

Oppostion to the deal among shareholders is steadily revealing itself. Since the proposed sale came to light, an Internet discussion list has exploded with postings -- many of them negative -- about the deal. In a letter to the Bermuda Sun, James Ellman, president of the San Francisco based Seacliff Capital, an investment fund that has bank shares, described the deal as “outrageous”.

More on this story here.

Foreign investment: How much can Bermuda take?

Government is looking into how much Bermudians are prepared to see foreign investors “own” Bermuda’s businesses and how many more foreign workers the community can bear to have working here, according to Bermuda’s Attorney General and Education Minister, Paula Cox. Government has pledged to expand the financial services sector, an area it has picked out as a possible growth area and ownership of companies has become a hot topic since the huge multi-national bank HSBC put in an offer to buy Bank of Bermuda.

More on this story here and here.

Finance Minister: Despite Fabian, Bermuda’s economy is on track.

Despite the huge cost of Hurricane Fabian, a forecast drop in visitor numbers and therefore visitor spending and inflation expected to stay at three percent until the end of the fiscal year, Finance Minister Eugene Cox said that real GDP would increase by between one and 1.5 percent -- in line with earlier Government predictions. In his mid-year review of the economy, Mr. Cox said that the damage to infrastructure, buildings, and equipment by Hurricane Fabian was estimated at $46 million in total, but $30 million of this would be covered by insurance.

More on this story here.


As Westminster City Council announced it had frozen up to £30 million of her assets, more than 14 years after she was accused of masterminding Britain’s biggest local government scandal, the so-called Westminster “homes for votes” affair, Dame Shirley Porter’s estimated riches of £300 million looked to be in danger for the first time. Her lavish lifestyle may now be under threat following a painstaking hunt by private investigators and debt recovery specialists, a feud between her son John and a rival businessman, and not least a succession of court cases in London, Guernsey and the British Virgin Islands.

The Independent has learnt that a series of “sham trusts” allegedly set up to conceal the former Tory council leader’s wealth will form the centerpiece of a fresh legal battle to recover the £36 million fine imposed for her role in the scandal. However, Westminster’s legal chief warned that despite the breakthrough in identifying and freezing her assets, it could take up to 18 months to recover the money owed.

Meanwhile, Scottish land sales that profited Dame Porter will be investigated by Westminster Council as it pursues the surcharge owed to the local authority. The council’s interest in the land deals has been sparked by the Sunday Herald’s “Who Owns Scotland” investigation, which revealed that Porter sold several Scottish forestry plantations to offshore companies registered in foreign tax havens as the legal net began closing around her.

More on this story here, here, and here.


Anyone who tries to tell you that moving your assets to an offshore trust can eliminate a big chunk of your tax bill is either deluded or a scamster. Congress and the IRS have tightened the screws since A.N. Pritzker (see next story) established his trusts. A U.S. citizen setting up a Caribbean trust today should gain some protection from future creditors, but will rarely save income or estate taxes. Not legally, that is. The main exception: when all beneficiaries are foreigners.

As for trying to evade taxes by using offshore trusts, the penalties are harsh, and the IRS has beefed up its once-meager ability to detect offshore cheats -- thanks to the new reporting requirements Congress adopted in 1996 and new information-sharing agreements with tax-haven countries.

Today, if you park assets in an offshore trust with any possible U.S. beneficiaries, the law automatically treats it as a “grantor” trust. That means all income earned by the trust is taxable to you personally, as the grantor, each year, even if it is left in the trust to grow or is distributed to other beneficiaries. Moreover, you will have to file annual returns (on Forms 3520 and 3520A) with the IRS. The penalty for failing to report a transfer of assets to an offshore trust is 35% of the amount moved; each year you fail to report income from an offshore grantor trust brings the risk of civil, even criminal, penalties.

More on this story here.

Pritzker vs. Pritzker

Feeling cheated by her own flesh and blood, Liesel went to court, looking for money and answers. What turned up was a huge family stash, protected by one of the sweetest tax deals ever. Do the Pritzkers hate paying taxes more than they seem to despise one another? Can they bust up the family fortune without the IRS finally breaking down their doors? It is anybody’s guess at this point.

More on this story here.


An Amsterdam resident pleaded guilty in Manhattan yesterday to agreeing to launder more than a million dollars and was promised a sentence of 1 to 3 years behind bars. Mathew Jean, 27, was caught in a sting after posting an ad on an Internet financial services message board that offered to help people anonymously open and fund offshore bank accounts, the Manhattan District Attorney said in a statement.

In June, an investigator from the DA’s office responded to the ad, pretending to be involved in the bootleg CD and DVD industry, thereby needing millions of dollars laundered, authorities said. Through e-mail and phone contact, Jean and the undercover investigator conspired to open a shell company in Montenegro and a bank account for the company in Vanuatu. “Jean promised the undercover that he would be able to access his money in these offshore accounts by using an ATM card,” the DA’s office said. In September, Jean flew to the states and met the investigator. They discussed the plan for laundering the funds, and Jean accepted three bags that he thought contained $1.2 million, officials said.

More on this story here.


In his second major policy speech in three months, former vice president Al Gore took aim yesterday at what he said was the Bush administration’s exploitation of the terrorist attacks of 2001 to justify an undemocratic suspension of domestic freedoms and to create a government built on “secrecy and deception”. Gore told 3,000 cheering supporters -- and innumerable others who watched on cable and a webcast -- that President Bush was taking the wrong approach to protecting the nation from terrorist threats. Describing himself as “a recovering politician”, he urged Congress to repeal the Patriot Act.

There is reason to worry, Gore said, that the Bush administration’s actions may represent the beginning of a new and lasting era of repression. For one thing, he said, “the new technologies of surveillance, long anticipated by novelists like Orwell and other prophets of the ‘Police State’, are now more widespread than they have ever been.” For another, he added, the threat of terrorism is so open-ended that it offers Republicans a grand opportunity “to use fear as a political tool to consolidate its power and to escape any accountability for its use.”

More on this story here and here.

ACLU leader criticizes Patriot Act.

“The Bush and Ashcroft assault on civil liberties has been relentless and insatiable,” sais executive director of the American Civil Liberties Union Anthony Romero ahead of his keynote address at the ACLU of Michigan’s annual dinner. “We need to engage this debate.”

Membership in the ACLU has increased 33% since the Sept. 11 attacks, Romero said. The 82-year-old organization has filed more than 40 suits over alleged abridgments of civil liberties under the Patriot Act, including a legal challenge filed by the Michigan ACLU in federal court.

More on this story here.


Setting the stage for a historic clash between presidential and judicial authority in a time of military conflict, the Supreme Court agreed on Monday to decide whether prisoners at the United States naval base at Guantánamo Bay, Cuba, are entitled to access to civilian courts to challenge their open-ended detention.

The court said it would resolve only the jurisdictional question of whether the federal courts can hear such a challenge and not, at this stage, whether these detentions are in fact unconstitutional. Even so, the action was an unmistakable rebuff of the Bush administration’s insistence that the detainees’ status was a question “constitutionally committed to the executive branch.”

In accepting the cases, the court moved from the sidelines to the center of the debate over whether the administration’s response to the terrorist attacks of Sept. 11, 2001, reflects an appropriate balance between national security and individual liberty. While the court does not indicate why it grants review in a particular case, the justices might well have been persuaded that no matter what the ultimate answer to the question of whether judicial review is even available, they are the ones who have to provide it.

More on this story here.


A decision by a federal appeals court allowing the government to detain material witnesses pursuant to grand jury investigations is a significant victory for the Bush administration. The 2nd U.S. Circuit Court of Appeals agreed with Southern District U.S. Attorney James Comey that the material witness statute, 18 U.S.C. § 3144, is broad enough to allow the detention of witnesses for more than pretrial proceedings.

The decision in United States v. Awadallah, 02-1269, reversed the controversial ruling of Southern District Judge Shira Scheindlin, who found that the statute, which concerns the detention of witnesses to secure their testimony for a “criminal proceeding”, does not include grand jury testimony because a grand jury is a non-adversarial, non-criminal proceeding. Robert Boyle, one of three lawyers who argued for Awadallah, said: “We’re disappointed because we believe the decision sanctions an unwarranted expansion of the government’s arrest power.”

More on this story here.


If a politician or government official were to tell me the time, I would check my watch for confirmation. And the basis for my wariness gets reconfirmed each day, as members of the political establishment announce new falsehoods. Most people misunderstand why governments continually lie to their own citizens. It is too often explained that dishonesty in high office is brought about by disreputable, ambitious men and women attracted to positions of power; that if honest and principled persons could be persuaded to seek high office such problems would be resolved.

This attitude completely misconceives the symbiotic nature of political systems and untruthfulness. Lying is more than just an easy or habitual course of conduct to the state. It is so intrinsic to and ingrained into the system that truth operates as a kind of virus to its well-being. The very existence of the state is postulated on an intricate network of falsehoods; each one depending upon and, at the same time, supporting, the others. Should any one proposition fail, it might -- like a house of cards -- bring about the collapse of the entire structure.

Among the more prominent lies are those defining the state as the product of a “social contract” -- implying a voluntary social arrangement binding only upon those who chose to be bound. Such a lie clouds the truth that all political systems have arisen by violent conquest. Written “constitutions” are held up for our consumption, telling us that state power has been limited therein, while our individual liberties have been protected. But because the state is the body that interprets this document, its powers have consistently been given an expansive definition, and our liberties a restricted one.

More on this story here.


If you spend all your money on gold, you will have none left for silver. Which should you choose? The one that will rise fastest and farthest. I believe that will be silver, but how do we make that decision? Is there some measure, some clue other than our bald opinion?

Throughout history silver has served mankind as the primary monetary metal. However, unlike fellow monetary metal gold, most silver use is non-monetary. But the key to the silver price is monetary demand. Other categories of demand alter only slowly over time due to technological or economic changes.

Compared to gold silver is a tiny market, so the same amount of money drives silver much higher. That is why you expect to see silver rising faster than gold in a bull market -- the gold/silver ratio ought to be trending down as both metals rise. Today silver is on sale against gold. In the last precious metals bull market, silver lagged gold about three years, and then passed gold without ever looking back. I will be first in line to admit that the gold/silver ratio chart has been very, very hard for me to interpret lately -- maliciously tricky.

More on this story here.

How to buy gold and silver.

When to buy is the eternal question. What to buy is probably just as difficult. There are many different ways to purchase actual gold and silver such as: bullion coins (my favorite), bullion bars, legal tender coins and numismatics (collectibles). The key thing to remember here is value. I believe in getting as much gold or silver as possible for price. Rest of this how-to here.

Introduction to silver futures and options here. Introduction to precious metals certificate programs, with the metal stored either domesticly and overseas here.

Jim Grant: Go long silver, short Fed arrogance.

Grant self-deprecates about the continued postponement of his forecast for the Fed to finally overplay its hand, but he has a point that we are currently witnessing one of the great monetary dramas of all time and he makes a very persuasive case for being long precious metals.

More on this story here.


Osama bin Laden has an awful lot of friends in Saudi Arabia. In the mosque, among the disenchanted youth, among the security forces, even -- and this is what the West declines to discuss -- within the royal family. Saudi ambassadors routinely dismiss these facts as “unfounded”, but Sunday’s attack in the capital, Riyadh, is part of a growing insurrection against Bin Laden’s enemies in the House of Saud.

Crown Prince Abdullah, the effective ruler of Saudi Arabia, must be feeling some frightening winds blowing across the Saudi desert. For Bin Laden’s aim to destroy the royal family is shared by the American right wing. When Laurent Murawiec, friend of the then US defence policy board chairman Richard Perle, gave his odd but damning assessment of Saudi Arabia as an enemy of the US and the “Kernel of Evil”, he might have been Bin Laden spokesman. Murawiec, who works with the Rand corporation and has been an executive editor of Executive Intelligence Revue presented a slide show to the Pentagon last year with titles that included “taking ‘Saudi’ out of Arabia”.

Could the Americans sit back and watch al Qaeda take over the nation’s oil wells? There are those in the House of Saud who fear that now the US is in Iraq, it can -- in the event of a revolution -- just seize the oil fields in northern Saudi Arabia, leaving Riyadh and other cities to whichever Arabian ruler takes control.

More on this story here.

How safe is the House of Saud?

Suicide bombers will probably not topple the Saudi regime, but they could tempt it to slow or reverse what passes for reform in the kingdom. In the long term, the monarchy’s best chance of survival is to become less autocratic, and for some of its members to become less ostentatiously corrupt. It seems secure at the moment, buoyed by high oil prices, but the legions of unemployed Saudi youths may not always sit idly by as yet more princes award each other lavishly paid jobs.

More on this story here.


When the contenders announce their bids by November 20, advocates for both places will lay claim to being the true gateway of the Americas and the site that most deserves to house the bureaucratic center of a 34-nation free trade area, which excludes only Cuba.

Miami has the money, marketing savvy and experience of playing host to big events. It also has plenty of political muscle behind it, as Gov. Jeb Bush has made snaring the permanent secretariat a priority. But Panama, an isthmus of 2.9 million people and home to the famous American-built canal is an upstart rival. Its air and shipping links are among the most extensive in Latin America; its banking and telecommunications systems are advanced. And whether there will, in fact, be a hemispherewide free trade area is still very much in doubt.

More on this story here.


FORT LAUDERDALE, Florida: A financier accused of creating hundreds of offshore tax shelters went on trial Monday on charges of scheming with two father-and-son groups to evade U.S. taxes. But defense attorney Joaquin Fernandez said Harris was helping small businesses do what multinationals have been doing for years -- using foreign subsidiaries to lower their taxes. He said the attention was misplaced in a complicated case.

Harris, a former Miami accountant who boasted of managing $1 billion in assets, was expelled from Nicaragua in June years after U.S. investigations targeted his Harris Organization. His operations in Panama and Montserrat have been shuttered by government action.

More on this story here.


For the past two decades, Europe has lived through a series of economic lies. The single market would boost economic activity. The euro would turbocharge growth. The expansion of the Economic Union to the East would make Europe mighty again. The bitter reality is that today, the EU is the globe’s also-ran economy par excellence, lagging behind the U.S. for the second decade running. This year, even Japan is growing more than twice as fast.

There is not yet much good news to relieve the gloom. But at least Europe’s leaders, and many of its citizens, are finally getting scared: They realize they need to start shaking up the postwar European welfare state or fall so far behind the U.S. that they can never catch up. The other piece of good news: Europe can find the solutions it needs within Europe. Faster-growing countries on the periphery, such as Finland, Ireland, and Spain, have been experimenting with pro-growth policies for years. A radical shift like massive deregulation of labor markets is unlikely. Yet if Europeans took some short-term steps to reform, they might see a tangible payoff in higher growth rates.

The political costs of no growth are rising dramatically already. The idea of “Europe” is becoming increasingly synonymous with slow growth, high unemployment, protection of sunset industries, and a Brussels bias toward France and Germany. The smaller nations have done their bit. It is high time for the most important members of the European family to do theirs.

More on this story here.

Why the ambitious regions of Europe have lost faith in Brussels.

Across Europe, governments and regions still squabble over how power should be distributed. Thus in Germany, the only big west European country with a long-established and reasonably settled federal system, the regions (Länder) complain that their powers are being simultaneously eroded by Brussels and Berlin. In France, the government is committed to decentralization, but its devolution plan for Corsica was messily rejected in a recent referendum.

Where does the EU fit into this back-and-forth struggle? Many European regionalists have long seen it as a natural ally against the centralism of nation-states. But some regional enthusiasts now see the European Commission as an enemy. The European institutions in Brussels have reasons of their own to be wary of regionalism.

More on this story here.


The EU does well over $380 billion of trade with the United States. Less than 5% of that trade is contested. But with world trade talks stalled, trade disputes are coming to the fore. Steel is one, beef hormones and modified genes two more. But the biggest and longest dispute of them all rages over more than $4 billion of tax breaks for American exporters.

Broadly speaking, America taxes its citizens and businesses wherever they may roam. EU countries, by contrast, only tax what is earned and sold in their territories. As such, they do not impose value-added tax (VAT) on goods sold abroad. This helps their exporters no end and puts America at a disadvantage. The United States tries to compensate by sparing from taxation some of the profits its companies earn overseas. For over 30 years it has been looking for a way to do so without falling foul of global trade rules, which outlaw export subsidies. The resulting dispute is, says Gary Clyde Hufbauer of the Institute for International Economics, like a Russian novel that never seems to end.

As for America’s steel tariffs, they currently stand at 24% on the most significant imports (such as flat-rolled steel), down from 30% in 2002, and they will fall further next year. But they are not due to expire until March 2005. The stated rationale for the tariffs was to give the industry breathing space in which to restructure. In trying to square the tariffs with his professed commitment to free trade, Mr Bush offered not the familiar “infant industry” argument, but a “mature industry” argument: the steel industry is buckling under the “legacy costs” of paying the pensions and health care of retired workers. It is also suffering from overcapacity: too many firms, operating on too small a scale.

More on this story here.

European Union strikes back at US tax subsidy.

U.S. tax law allows domestic exporters to set up mailbox companies in tax havens, and the company’s exports are then processed via this offshore address which offers more favorable tax conditions. In May 2003, the WTO gave the EU the final go-ahead to impose duties of up to $4 billion following the failure of the United States to comply with the previous WTO rulings against these subsidies.

Under the proposed plan, the countermeasures will be introduced gradually starting from March 1, 2004. U.S. ambassador to the EU, Rockwell Schnabel, called Brussels’s approach “unhelpful”. He repeated the U.S. stance that any solution needs to be phased in over three additional years.

More on this story here.

WTO rules US steel tariffs illegal... again.

The World Trade Organization ruled against the United States for the last time with regard to the Bush administration’s decision to impose tariffs of up to 30% on steel imports in order to protect the US steel industry. According to a Wall Street Journal report, the White House’s attitude following the WTO decision was initially defiant. However, there is said to be division within the administration. It appears clear that whatever President Bush’s final decision, it is likely to have far-reaching consequences, both economically and politically.

here and here.


Christoph Blocher is bidding for a seat in the seven-member Swiss cabinet, following his party’s success in last month’s parliamentary elections in which they gained 26.6% of the popular vote. As well as heading the party’s Zurich branch, Blocher is also a billionaire industrialist who heads the chemical company, Ems Chemie.

Blocher, who is vehemently opposed to closer integration with the European Union, was keen to stress that he is a cosmopolitan person. He says he is globally aware, has companies abroad and does not see himself as narrow minded. He objects to being compared to far-right European politicians, and claims he is not a demagogue but rather tries to “convince” people.

More on this story here.


To rapturous public applause, sociologist and author Jean Ziegler, a Swiss UN ambassador, railed against capitalism and the elites -- Bush, Sharon, Putin and bin Laden -- as well as the UN and IMF during a speech at the World Social Forum (WSF) in Porto Alegre, Brazil.

“Since the implosion of the Soviet Union the capitalist world order is spreading like bushfire,” said Ziegler. “In the industrialised countries their weapon was unemployment. In the countries of the South, the noose is the economy of debt. A small group of men has been born,” he continued. “They have more power than the Kaiser or the Pope ever had.” Ziegler said that the footsoldiers of this “oligarchy of transnational funds” were the IMF and the WTO.

“Where does hope remain?” Ziegler asked, answering that it was not to be found in the UN. “The UN is suffering from schizophrenia. Whatever its sub-organizations manage to do, it’s always destroyed by the IMF or the WTO,” he said. Ziegler said that hope lay only in the work of Karl Marx, even though his name was seldom mentioned in respectable political circles. The solution, according to Ziegler, is the dismantling of the IMF and World Bank and an end to offshore funds.

More on this story here.


A Paris court handed jail terms to three former top executives at the French oil giant Elf, bringing to a close a trial that exposed a massive system of government-sponsored corruption at the once state-owned firm. The criminal court sentenced former chief executive Loik Le Floch-Prigent, 60, and his deputy Alfred Sirven, 76, to five years in prison, while Elf’s so-called “Mr. Africa” Andre Tarallo, also 76, was handed a four-year jail term. All three also were ordered to pay heavy fines.

The three senior Elf officials were found guilty of amassing small personal fortunes -- to the tune of a total €305 million -- by skimming off the top of illicit slush funds run by the company. The court was continuing to read out the verdicts against 34 other defendents in the case, one of the biggest ever corruption trials in France.

More on this story here.


William J. McDonough, 69, chairman of a new board created by Congress to oversee the accounting profession, might face the toughest job in the country: convincing investors that corporate accountants will not lie. At stake are the future of the stock market and the credibility of corporate America. Whether the board, known as the Public Company Accounting Oversight Board, can restore order and faith is not certain. Early signs are not encouraging. The panel has formidable foes in cynicism and greed.

More on this story here.


Two of the three major credit-reporting agencies, each holding detailed files on about 220 million U.S. consumers, are in the process of such outsourcing, and a third may follow suit shortly, industry officials acknowledge for the first time. “A hundred percent of our mail regarding customer disputes is going to go to India at some point,” said David Emery, executive vice president and chief financial officer of TransUnion in Chicago.

Privacy advocates say the outsourcing of files that include Social Security numbers and complete credit histories could lead to a surge in identity theft because U.S. laws cannot be enforced overseas. For their part, the credit agencies say the trend is a necessary cost-cutting move in light of new legislation that would allow all consumers to obtain free copies of their credit reports.

More on this story here.


United States consulate in Vancouver has begun fingerprinting visa applicants as it embarks on a new biometric identification program. Consular chief Bradford Johnson said the fingerprinting affects the 26,000 immigrants and Canadians who seek a visa each year from the Vancouver office to enter the U.S. for work or study. The program does not apply to Canadian citizens travelling to the U.S. on vacation.

Johnson insisted the fingerprinting system is merely an identification process and will not be used for criminal record checks. John Dixon, vice-president of the B.C. Civil Liberties Association, said the fingerprinting system does not raise the same magnitude of privacy issues as a system that would rely on retina scans or DNA samples. In addition, Dixon noted, the fingerprinting system is essentially voluntary in that you do not have to participate if you do not wish to to apply for a visa to go to the U.S.

More on this story here.


UK home secretary David Blunkett rolled out his plans for national ID cards. In his statement to parliament he also seemed to suggest that costs might be offset by “benefits in the commercial world”. Which could be both a worry and a script for disaster, depending on what he means. Earlier Blunkett put his personal ID card stake in the ground, saying biometric identifiers on ID “will make identity theft and multiple identity impossible, not nearly impossible, impossible.” That one is tougher to stand up than you think, David, and we are going to hold you to it.

More on this story here and here.


In 1982 and 1983, the federal court in northern Virginia -- the same hang-‘em-high court the feds now use to try terrorism cases -- along with courts in New York and Texas, sentenced Edwin Wilson to a total of 52 years in prison for selling arms, including 22 tons of explosives, to Libya. He was also convicted on shaky charges of attempted murder. Wilson, now 75 years old, has served 20 years in a maximum security prison. Last week, Houston Federal District Judge Lynn Hughes threw out Wilson’s two-decades old conviction. She wrote: “Government knowingly used false evidence against him,” concluding “honesty comes hard to government.”

Victim of a CIA change in policy vis a vis Libyan strongman Moammar Khadafy, Wilson and his operations partner, Frank Terpil, were cut adrift and proclaimed outlaws. During numerous trials after his capture, Wilson maintained he had been working for the CIA. But he was not allowed to cross-examine CIA witnesses for “security reasons” -- shades of today’s terrorism trials. A high-ranking CIA official provided a false affidavit to U.S. Justice Department prosecutors that the agency “had no knowledge of Edwin P. Wilson.” Judge Hughes called the case “double-crossing a part-time, informal government agent.” She aptly used the term “framed” to qualify this disgusting legal outrage.

The Wilson case should remind us of all the Justice Department’s recent and ongoing “terrorism” prosecutions, where individuals, mostly foreign-born, poor, and uneducated, have the book thrown at them and are threatened with life terms if they do not confess to crimes. While truth is the first victim of nationalist hysteria, justice is always the second.

More on this story here.


The first hint that their group had been infiltrated came when they saw the dead man’s picture in the newspaper. The story about his demise in a motorcycle accident said his name was Aaron Kilner and that he had been a detective with the Fresno County Sheriff’s Department. But members of Peace Fresno, an anti-war group formed soon after the Sept. 11, 2001, terrorist attacks, had known the nice young man as Aaron Stokes, “the guy with the short hair and the goatee who sat in the corner,” as one member described him.

Fresno County Sheriff Richard Pierce has had little to say about the incident, other than declaring that Peace Fresno is not under investigation by his department and that his detectives operate within the law. But peace activists and law enforcement officials agree that the monitoring of anti-war groups and other activists has stepped up since the terrorist attacks of two years ago. And Attorney General John Ashcroft last week issued new guidelines on anti-terrorism investigations that critics contend will give the FBI more leeway in spying on anti-war groups and others.

Justice Department officials say the guidelines, by strengthening the FBI’s ability to look for evidence of possible terrorist planning, help law enforcement protect Americans. But the move comes on the heels of several incidents in the past year that have made civil libertarians wary of renewed government spying.

More on this story here.


Under political pressure to increase profitability and security, the United States Postal Service is introducing new technology that can trace the progress of mail from sender to recipient and record the identity of both parties. Bulk mailers -- such as mail-order services, credit-card companies and online DVD rental services -- already use an “intelligent mail” offering to confirm the check really is in the mail and to speed up outgoing shipments of The Postman Always Rings Twice.

Critics, however, say new tracking technology could spell the death of anonymous love letters and anonymous documents mailed off in plain wrappers by whistleblowers. Intelligent mail also would create a massive data trail documenting intimate details of Americans’ everyday lives, a rich vein that law enforcement would certainly want to mine. For their part, postal officials are resisting far-reaching suggestions from politicians and homeland security officials that all mail should be tracked and the sender of every piece of mail be identified. The head of the Postal Service’s technology drive and its chief privacy officer say they have no plans to implement such a system. But several powerful bureaucracies are pushing the USPS to trace mail.

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The Constitution of the United States of America was in some ways a good idea: Put in writing some specified powers and limitations of a central government, a government created only to preserve the liberty to which we have rights by virtue of being human, and do this by making the states play fair with each other economically, speak with one voice internationally, and pool their resources should the need arise for defense. In other senses, the Constitution was a bad idea: The same founders who reserved the right to overthrow a government that did not suit them turned around and instituted one in a Constitution that in principle limited the liberty and bound the loyalty of subsequent generations who did not have the option to sign it or vote on it before being bound by it. The 19th-century attorney Lysander Spooner has made this point already.

Walter Williams proposed a year or two ago that we would have been better off without the 2nd amendment -- indeed, without all of the first ten. His reasoning was that the Bill of Rights, by enumerating certain inalienable rights over which Congress had no power, left the door open for the government to erode all other rights not mentioned in the first 10 amendments. As he put it, if you are granted by your government the right to play hopscotch, that means you have no particular right to play jacks. Then again, whether we would have been better off without the Bill of Rights is debatable, since Congress has sorely abridged even the right to keep arms. We are allowed to own only those weapons Congressmen and state legislators want us to have.

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Yes, it’s true, I recently worked in a Bush administration for some 16 months as chief economist in the United States Department of Labor. I took a walk on the dark side, you might say, eager to sip from the cup of power.

Condemn me if you must, yet I saw economic policy and propaganda being made in close relief. My conclusion? The low opinion I held of government before I went to Washington was not elevated by participation in it. I saw a complete disconnect between reality -- the economics of the business slump -- politics, and proper policy. I repeat: there was a complete and total disconnect between economics and politics.

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At 9:00 a.m. September 11th 2001, President George Bush sat in an elementary school in Sarasota, Florida, listening to seven-year-olds read stories about goats. “Night fell on a different world,” he said of that day. And on a different America. Francis Fukuyama, a professor at Baltimore’s Johns Hopkins University, suggested that “America may become a more ordinary country in the sense of having concrete interests and real vulnerabilities, rather than thinking itself unilaterally able to define the nature of the world it lives in.”

But America has not become “a more ordinary country”, either in foreign policy or in the domestic arena. Instead, this survey will argue that the attacks of 2001 have increased “American exceptionalism” -- a phrase coined by Alexis de Tocqueville in the mid-19th century to describe America’s profound differences from other nations. The features that the attacks brought to the surface were already there, but the Bush administration has amplified them. As a result, in the past two years the differences between America and other countries have become more pronounced.

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It’s a scandal -- the misguided government policies and overzealous enforcement that have victimized ordinary Americans. That is the story Randall Fitzgerald tells in Mugged by the State. Fitzgerald uncovers example after example of government harassment, including: a woman taken to jail for not wearing a seatbelt; a family diner seized under eminent domain laws; a couple who found army helicopters hovering over their land in a dispute over wetlands; and others. Fitzgerald, a longtime reporter for Reader’s Digest, gives a voice to the countless Americans around the country whose freedoms are being violated by the very government that should be protecting them.

Further description here.

Excerpt 1: Mugged by the Drug War

John Clayton operated Uncle John’s Tavern, a small neighborhood bar in Seattle, Washington, for over four years without hearing any complaints from the police or the state liquor control board. An army veteran and a retired U.S. Public Health Service employee, Clayton had invested his life savings to renovate the bar and buy equipment. The business provided income for him and his wife, Louise, while realizing his lifelong dream to host a social gathering spot for his friends and neighbors.

All of his ambitions began to evaporate on July 20, 1995, with receipt of a registered letter from the Seattle Police Department warning that “drug activity has been reported” on or around his property. In early August Clayton met with representatives of the Seattle Police and received a “drug elimination plan” with a list of actions he must take, or face closure of his business and confiscation of his property under the state drug abatement law. That statute, passed by the Washington legislature in 1988, had been designed to seize and close crackhouses. After Mark Sidran became Seattle city attorney in 1990, he expanded enforcement of the abatement law to include nightclubs, bars, and restaurants.

More of this excerpt here.

Excerpt 2: Mugged by Monopoly Power

On a visit to New York City in June 1997, the Reverend Nathaniel Craigmiles, a church pastor from Chattanooga, Tennessee, happened to walk past a funeral casket store and noticed a steel casket with an $800 price tag. “Hey, look at this!” Craigmiles exclaimed to his wife, “This is the same exact casket we paid $3,200 for back in Chattanooga to bury your grandmother in.”

Back home Craigmiles, fifty-two years old, proposed to a member of his congregation, seventy-five-year-old Tommy Wilson, who had spent much of his life working as a nightshift ambulance driver for local funeral homes. These two men formed a storefront business, Craigmiles Wilson Casket Supply, and obtained business licenses from the city and county. From their savings they spent $6,200 to purchase eleven caskets, and on March 1, 1999, they opened for business offering caskets at prices half that charged by area funeral homes. Four months later Craigmiles received a letter from Arthur Giles, executive director of the Board of Funeral Directors and Embalmers, a state agency in Nashville with oversight of the funeral industry. “You must immediately cease and desist all sales of caskets,” read the notice, threatening them with prosecution. “Neither you nor Mr. Wilson hold current and valid funeral director licenses.”

More of this excerpt here.

Excerpt 3: Mugged by Eminent Domain

A newspaper reporter’s phone call first alerted Randy Bailey to the disturbing news that city officials of Mesa, Arizona had condemned Bailey’s brake repair shop under the state’s eminent domain law and intended to turn his land over to a hardware store owner. Bailey, forty years old, was aware that the hardware store owner had purchased land behind his brake repair shop. Bailey also suspected that the richer man coveted his quarter-of-an-acre corner lot, but he never imagined the city would or could intervene to favor one businessman over another.

Randy and his father began scouring every piece of vacant land in Mesa in an attempt to find a suitable site for relocating the shop. “We quickly found out we had no place to relocate for what the city was offering to pay us. There is simply no replacing our location because it’s at a major intersection. It would cost me another $250.000 in borrowed money to relocate. I can’t afford that. I would be out of business.”

More of this excerpt here.

Excerpt 4: Mugged by Zoning Laws

Tom and Doris Dodd walked into the Hood River County, Oregon planning department barely able to contain their excitement. For five years they had been working and saving to build their retirement dream house on forty acres they owned twelve miles outside the town of Hood River. The site offered a spectacular view of Oregon’s tallest peak, Mt. Hood. All they needed was a building permit.

But after looking up their land records an assistant county planner confronted them with stunning news. “You can’t build here. The area has been rezoned.” The Dodds, both fifty-seven years old, were thunderstruck. No one had ever informed them of any zoning change. Tom had quit a lucrative job with an oil services company in Houston so they could move to Hood River and start construction on the house.

The Dodds had received a series of communications from Hood River county offices affirming their right to build. In a January 24, 1984, notice, for example, the Hood River County Planning Commission informed the couple that their proposed dwelling conformed to statewide land-use regulations. The Dodds had been blindsided. On February 21, 1984, the county changed the zoning for their property to a Forest Zone, and on December 17 the count enacted an ordinance banning houses on tracts of forty acres or more located in such zones.

More of this excerpt here.

Excerpt 5: Mugged by Public Health Regulations

For nearly a century the McCurdy Fish Company had been an employment mainstay in the village of Lubec, Maine, processing smoked and salted herring caught by local fishermen. Ownership had passed down from grandfather to father and then to son John, who was sixty-four years old when the problems began. Herring smokehouses had been a foundation of Lubec’s economy since 1797, but by 1975 America’s eating habits had changed and McCurdy’s was the last commercial smoked herring processor in the nation.

At least once a year, the U.S. Food and Drug Administration inspected the McCurdy Fish Company’s facilities, and never in the company’s history had it ever been cited for a serious violation of health and safety regulations. Three outbreaks of botulism in 1981, 1985, and 1987, produced a total of eleven illnesses in New York City, had been traced to Great Lakes Whitefish which had been processed by layering ungutted fish in salt and then air-drying it. The FDA decided to ban the distribution of any fish that was salt-cured and air-dried prior to being gutted. In May 1990, just a few weeks before the fish season would begin, an FDA official visited John McCurdy and handed him an FDA Policy Guide regulation labeled 7108.17. As McCurdy read the regulation he knew immediately that it would put him out of business. To comply with the regulation he would have to purchase gutting machines and refrigerated salting tanks costing more than $200,000.

With his economic future hanging in the balance, McCurdy phoned FDA officials in Washington, D.C., to explain how there could be no possible comparison between the whitefish targeted by the agency and the herring he processed. Besides that, as the FDA conceded, not a single case of botulism had ever been reported in sea herring. Totally unmoved by McCurdy’s logic or his pleas for understanding, an FDA official restated his agency’s position.

Years later McCurdy remained understandably hurt and angry about his forced retirement. Those feelings are only compounded by the continued sale in the U.S. of Canadian herring using the exact process the FDA outlawed for American producers.

More of this excerpt here.


A little-noticed measure approved by both the House and Senate would significantly expand the FBI’s power to demand financial records. Traditional financial institutions like banks and credit unions are frequently subject to administrative subpoenas from the FBI to produce financial records in terrorism and espionage investigations. Such subpoenas, which are known as national security letters, do not require the bureau to seek a judge’s approval before issuing them. The measure now awaiting final approval in Congress would significantly broaden the law to include securities dealers, currency exchanges, car dealers, travel agencies, post offices, casinos, pawnbrokers and any other institution doing cash transactions with “a high degree of usefulness in criminal, tax or regulatory matters.”

Officials said the measure, which is tucked away in the intelligence community’s authorization bill for 2004, gives agents greater flexibility and speed in seeking to trace the financial assets of people suspected of terrorism and espionage. Critics said the measure would give the federal government greater power to pry into people’s private lives. Some Democrats have begun to question whether the measure goes too far and have hinted that they may try to have it pulled when the bill comes before a House-Senate conference committee. Other officials predicted that the measure would probably survive any challenges in conference and be signed into law by President Bush, in part because the provisions already approved in the House and the Senate are identical.

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Editorial: Better SAFE Than Sorry

The USA Patriot Act was a mixed bag when it was passed two years ago in the aftermath of the 9/11 attacks. There were necessary elements, such as some of the provisions authored by Senator Bob Graham allowing for greater cooperation in antiterrorism investigations among the nation’s intelligence agencies. But along with pluses came a number of encroachments on civil liberties that were not needed to ensure national security.

In an effort worthy of widespread support, a bipartisan coalition of lawmakers is now pushing to roll back some of the Act’s worst excesses. The Safety and Freedom Ensured (SAFE) Act, introduced by Sen. Larry Craig (R-Idaho) and Sen. Richard Durbin (D-Illinois) is supported by advocacy groups as disparate as the American Civil Liberties Union and the American Conservative Union. The bill would address the Act’s most controversial provision -- the FBI’s access to records of any sort. The bill would also narrow the use of roving wiretaps.

In the meantime, as the SAFE Act waits for action, it appears Congress is on the verge of giving the FBI even broader access to private records. The bill will soon come before the House-Senate conference committee,where lies the only hope of deleting the rash new FBI power. A responsible Congress would not go along.

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