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WHY ABOLISHING GOVERNMENT WOULD NOT BRING CHAOS
I wrote recently that government should be abolished. Among the responses to the article were objections of the sort shared by most who encounter for the first time the prospect of living without forcible government. The most common objections are fundamentally similar to each other: Violence would rule the day; corporations would run over us little people; foreign governments would invade; big neighborhoods would pillage small neighborhoods; etc. The books I linked in the previous article answer these objections, but I will address those objections briefly here and provide links to online articles wherever possible.
The pervasiveness of these objections makes it worth addressing them, as does the fact that it seems counterintuitive to assert that abolishing government would bring more peace, security, and abundance -- just as it seems counterintuitive that the way to reduce gun violence is to allow everybody to own guns.More on this story here.
ILLUSIONS OF GOVERNMENT POWER
One way to think about government is as a rat wandering through a maze with no escape. There is no magic solution to getting around basic economic laws. All lunches must be paid for by someone, prices cannot be both high and low at the same time, and all attempts to coerce generate counter-reactions. In short, there is no alternative universe in which the fantasies of politicians come true. But try telling that to the political class. The last thing they want to hear is that their power is limited, that their will is not a way.
Governments have a propensity to overreach in so many areas of life that their exercise of power itself leads to their own undoing. The overreach can take many forms: financial, economic, social, and military. I believe this is happening in our time. It may not be obvious when taking the broad view, but when you look at the status of a huge range of government programs and institutions, what you see is a government that is at once enormously powerful and rich, but also fragile and teetering on the brink of bankruptcy. Despite the exalted status of the state today, the vast and sprawling empire called the US government may in fact be less healthy than it ever has been.More on this story here.
LAWLESS SUPREME COURT
Lawlessness usually conjures up images of a wild frontier or mobs in the streets. But the painful reality is that the supreme examples of lawlessness in our times are in the august and sedate chambers of the Supreme Court of the United States. If you think the issue in the recent Supreme Court decision upholding campaign finance legislation is whether campaign finance reform is a good idea or a bad idea, then you have already surrendered the far more important and more fundamental idea of Constitutional government.
The Constitution says plainly, “Congress shall make no law abridging the freedom of speech.” Just what part of “no law” do the Supreme Court justices not understand? The sad -- indeed, tragic -- fact is that they understand completely. They just think that this legislation is a good idea and are not going to let the Constitution stand in their way. Moreover, they know from experience that if they can snow us with huge amounts of pious rhetoric, saying the kinds of things that the mainstream media will echo, that their wilful exercise of power will go unchallenged. In short, the Constitution be damned, we’re doing our own thing.
At least the people who engaged in wild west shootouts or lynch mob violence spared us the pretence that they were upholding the Constitution. Other courts, taking their cue from the top, have likewise behaved like little tin gods, imposing their own notions disguised as law. One of the tragedies of our time, and a harbinger of future tragedies, is that court decisions at all levels have come to be judged by whether we agree or disagree with the policy that is upheld or overturned.More on this story here.
Getting back our liberties.
Last week’s column, “Let’s Do Some Detective Work,” provided unassailable evidence that the protections of liberty envisioned by the Constitution’s Framers mean little today. I was pleasantly surprised by the responses from fellow Americans expressing disgust and fear over what our nation is becoming. Several asked how we can regain our liberties. My short answer is: I am not sure they can ever be recovered. Let’s look at it ...
Many people might argue that it is the U.S. Supreme Court that decides what is constitutional or not. Here is what Thomas Jefferson said about allowing the Court to hold a monopoly on the interpretation of the Constitution: “... the opinion which gives to the judges the right to decide what laws are constitutional and what are not, not only for themselves in their own sphere of action but for the Legislature and Executive also in their spheres, would make the Judiciary a despotic branch.” The history of the Court, not to mention last week’s decision on the constitutionality of the McCain-Feingold campaign finance reform that attacks free speech, is proof that Jefferson was right and Alexander Hamilton wrong in his Federalist Paper No. 78 prediction that the judiciary would be the “least dangerous” branch of government.More on this story here.
Memo to President Bush: Please veto the next unconstitutional bill to reach your desk.
When the McCain-Feingold so-called campaign reform act reached your desk you said you thought it was unconstitutional. But you signed it anyway. Next time a bill reaches your desk you think is unconstitutional, please veto it. We can no longer depend on the Supreme Court to uphold the Constitution.More on this story here.
HEROES AND VILLAINS
Cartoons (the good ones) are just old myths in modern dress. Cartoons and comics generally have a Hero and a Villain. Villains almost always suffer from the same problem: they want to conquer the world. Why? Because they are afflicted with the sin of Hubris, of thinking they are gods. They lie, murder and steal. They are greedy, ambitious and vengeful people who want power over the lives of others, who exist for them only as a means to their ends. This archetype of the Villain, of the would-be world conqueror, would not exist unless it was based on a certain type of unpleasant and troublesome human, one who appeared in the earliest literature. Think of Herod, Caligula, and, a few thousand years later, Hitler, Stalin and Pol Pot.
The Hero, on the other hand, does not want to conquer the world. He knows it cannot be done. Even if it could, he would not do it, knowing that liberty is moral while slavery is not. Instead of being afflicted with Hubris, he tries to be modest, because he understands he is not a god, and instead as a human, is imperfect and limited. The Hero does not murder, or steal, or tell lies against his neighbor. He believes, like Superman, in Truth and Justice (and what used to be the American Way). He is not greedy, ambitious or vengeful. He does not see people as instruments for his use.
So if Villains are liars, murderers and thieves who see others as means to their end of conquering the world, who, today, could be these people? It is pretty clear. In the US it is the neocons, people like David Frum, William Kristol, John Podhoretz and Douglas Feith. Who today are the Heroes? Anyone who believes in liberty, who sees people as individuals and not as means to an end, and who does not murder, steal or tell lies against his neighbors.More on this story here.
FREE STATERS RECRUIT ANGRY RESIDENTS IN SOUTH CAROLINA TOWN
The Free State Project, which aims to bring 20,000 liberty-minded people to New Hampshire to work for smaller government and greater individual liberties, will run an ad in a weekly newspaper in Goose Creek, S.C., where police with guns drawn ordered more than 100 high school pupils to the floor and restrained some with plastic handcuffs during a Nov. 5 raid in which no drugs were found. The project says that whenever there is such an “egregious overstep” of government powers, it will run ads that essentially say, “Come to New Hampshire, we don’t have this problem.” So far 6,000 people have said they are committed to moving to New Hampshire.
Ed Haas, spokesman for the South Carolina Libertarian Party, doubts the project will find any new takers in the southern state. “What is mind boggling to me is how many people down here are actually in favor of what [happened],” said Haas, who issued a statement condemning the raid.More on this story here.
ON THE “GUNS VS. BUTTER” MYTH
With federal spending up by 7.6% a year over the past two years, even before the staggeringly expensive Medicare and energy legislation the White House supported, it is hard to quarrel with the idea that President Bush is the biggest spender since LBJ. It is much easier to quarrl with the universal misuse of the economic concept of a guns and butter tradeoff, particularly when used to blame inflation on supposedly inadequate taxes during the Johnson administration.
Real federal purchases, consumption and investment excludes transfer payments such as Social Security benefits and farm subsidies. Transfer payments are larger and may have a larger impact on the economy, but in a different way. Transfer payments discourage productivity activity among those who receive them, because you have to promise to not work, save or plant crops in order to get the check. Transfers also discourage those paying for them, namely taxpayers.
Federal purchases, on the other hand, use resources that would otherwise be available to private business. Federal consumption mainly means salaries. Increased federal hiring, whether civilian or military, reduces the supply of private workers and makes labor costs higher than otherwise. Federal investment means buildings and equipment, including military equipment. Increased federal buying of land, equipment and office space also makes those resources more scarce and expensive. The resulting increased costs to business translate into reduced profitability and therefore less investment. “Crowding out” is real, not financial.
Although some of the rapid rise in real purchases in the past few years may be necessary for defense, it is nonetheless limiting future economic progress by absorbing labor, land and equipment. But if inflation ever does accelerate again as it did after 1967, don’t blame guns and butter. Blame the Fed.More on this story here.
IT DIDN’T BEGIN WITH THE FED
Before there was the Federal Reserve there was the second Bank of the United States (1817-1836). Since the late nineteenth century, historians and economists have lauded this institution for its salutary control over the currency, its regulation of the state banks, its prudent stewardship of the government’s funds, and its example of a fruitful private/public partnership in the field of central banking.
Contemporary hard-money critics saw the bank in a different light. Their critique reveals an institution that was as inflationary as the state banks, frequently abused its power, did not prevent the destructive business cycle, and inhibited the emergence of a system of noninflationary private banking. It was an institution that behaved much as the Federal Reserve System does today.More on this story here.
AMERICA’S BODY COUNT OF IMMIGRATION SUICIDE
Arnold Toynbee observed that all great civilizations rise and fall. Vandals invaded Rome by marching over the Romans’ superb road systems. Today, extremist Muslims used our own airliners in an opening salvo by hitting our World Trade Towers. But even more sobering is what Toynbee said about how nations fall: “An autopsy of history would show that all great nations commit national suicide.” Today, America is committing immigration suicide. Legal and illegal aliens pour across U.S. borders at the rate 2.3 million annually. Our schools, infrastructure and language can not cope with their sheer numbers. Already at over ten million illegals, our congress, president and corporations sit in their insulated and isolated “luxury” box seats in Washington, DC, while average Americans suffer the “body counts”.
At current rates, more than 115 million immigrants will be added to America in a short 50 years. The new Globalism is another form of Marxism. It reduces a citizen by economic gunpoint of sheer numbers. On the education front, a republic can not exist without an educated population with a similar moral and ethical foundation -- and the same language. A nation that does not think and speak together can not and will not stand together. Multiculturalism is an experiment and we are the guinea pigs, but the experiment has already failed in dozens of other countries down through time.
By the time this experiment is in full swing, you will be lucky to obtain a minimum wage job at Wall Mart or Home Depot. You too, will learn what it is like to live in China. I have been there. It is beyond depressing and spiritually exhausting to live at the lowest rung of subsistence and be at the mercy of the government for your very existence. If the middle class continues to sit back with a remote in hand, one by one, each in his or her time, will become a part of the American Body Count of national suicide.More on this story here.
DRAFT CHARTER SLIPS AWAY; EUROPE ASKS, NOW WHAT?
One day after a European summit meeting to adopt a draft constitution ended in failure, Europe was struggling Sunday to decide which way to go next. The leaders of 25 current and imminent European Union countries stumbled over the problem of how to apportion voting power among large and small states. Perhaps predictably, there were cries of disaster. There was finger pointing.
Others were more sanguine. “Life is going to go on despite these difficulties,” Britain’s foreign minister, Jack Straw, said in an interview with BBC television. Mr. Straw was less confident in predicting when debate of the constitution would resume.More on this story here.
A constitution in tatters ... victory for good sense.
After 18 months of hard work by the 105 delegates from 25 countries who drafted the proposed constitution for the EU, followed by months of discussions between national governments, the EU’s leaders gathered in Brussels at the weekend to iron out their remaining differences and agree a final text. But by lunchtime on Saturday December 13th, it had become clear that no agreement was possible on the main sticking-point -- member countries’ voting strengths -- and the talks collapsed. Now the proposed constitution may not be revived for months, if not years.
Ironically, the proposition on voting arrangements that sank the draft constitution was one of its more sensible ideas. In most other respects, the document was a disaster. As the convention members tried to satisfy everyone, their draft constitution ended up riddled with botched compromises, anomalies and absurdities.More on this story here.
Spain and Poland may pay financial price.
Germany has issued dark hints that Spain and Poland will be punished financially for blocking the deal on a new EU constitution. Germany, the biggest net contributor to the budget, says it wants to keep spending pegged to just 1 per cent of the EU’s GDP, or roughly €100 billion ($117 billion) a year. That is about €25 billion a year less than many inside the European Commission argue is needed to sustain aid to the poorest EU regions, including southern Spain and all of Poland.More on this story here.
A prolonged period of political wrangling now seems inevitable.
And that might worsen the EU’s most worrisome problem: its increasing unpopularity. This month the EC’s own opinion polls showed that less than half of EU citizens (48%) agreed that their country’s membership was a good thing, the lowest level ever recorded. Even the euro, although strong on the foreign exchanges, is losing its appeal. Another poll this week showed that only 52% of users of the single currency consider it “advantageous overall”, down from 59% in September 2002. It does not look like being a very happy new year for the EU.More on this story here.
11 member states slammed for failure to implement EU laws.
The EC has threatened legal action against 11 member states over their failure to implement various pieces of EU legislation into their national laws, with only Germany, Austria and Italy escaping the EC's wrath.More on this story here.
What Constitutional crisis?
The European Union’s attempt to manufacture an impossible consensus on an incomprehensible constitution came to a predictable sputtering halt last week. The various peoples of Europe would have breathed a deep sigh of relief had they not been yawning as their leaders busied themselves with an exercise more akin to an exchange of incompetent sleight-of-hand tricks than statecraft.
The representatives of the 15 current and 10 future member states of the EU, embroiled in the desperate final stages of fashioning (when not resisting) an ingeniously opaque enabling document designed to unleash a pseudo-nation on an unsuspecting continent, suddenly acknowledged the futility of the effort at this juncture and went their separate ways to ponder What Comes Next.
The European identity, for want of a better term, is one defined by location and varying degrees of interdependence, not one born of a shared and natural polity. Europeans are not European in the same way that Americans are Americans: Americans are citizens of a single, distinct nation, and have been from the moment we started to steal the place fair and square from the natives. No summit or charter will alter the reality of the European identity, even though the EU constitution was clearly intended (but seldom admitted) to lay the foundation for a superstate somehow capable of exerting sufficient influence to challenge the United States as a global force.
It is as though Europe’s governments are entering into a process of merger and acquisition in a bid to compete with American Foreign Policy, Inc. But as a purely economic entity, today’s EU, operating without the supposed benefit of a constitution, is already immensely successful. Tomorrow’s enlarged EU, with an expanded pool of affordable labor and resources but still no constitution, will be even more so. Nevertheless, despite the initial setback, the desire amongst the would-be European Founding Fathers to have a Philadelphia Miracle of their own will impel them back to negotiations in a matter of months.More on this story here.
THE REAL COST OF OFFSHORE OUTSOURCING
There appears to be a general assumption that dramatic savings can be made by sending software development to countries where IT salaries are 10% or 20% of similar IT professionals in the USA or Europe. That assumption is quite invalid according to those who have tried it, in fact they claim that savings rarely reach 30% and it can take years before even that level of savings materialize. According to them, a multitude of other costs, beyond the obvious cost of salaries, are often forgotten when considering sending work offshore. In this article I want to outline some of these forgotten costs so that we have a better understanding of the complete picture.More on this story here.
Exporting high-tech jobs: The tipping point.
Citing research by International Data Corp., the Wall St. Journal estimates that by 2007, 23% of all information-technology services jobs will move to “emerging markets”. If the trend continues, we may see a dramatic shift in the labor landscape: more retail jobs, fewer knowledge jobs.
Understanding this impetus begins with a recognition that we do not have a free market. Like the Aliens in the Sigourney Weaver sci-fi films, the tentacles of the interventionist state innervate and enervate everything. Because we live and work ensnared in a seamless web of statism, market solutions are often circuitous responses to the government’s laws and wars. These statist assaults on our prosperity ought to be the proper focus of the fight.
Without belaboring how government spending and the Federal Reserve System brought about the current state of affairs, suffice it to say that if not for the inflation caused by their money-printing, credit-creating profligacy, U.S. wages and domestic prices would probably be falling now, making offshoring far less attractive. If the ratio of lawyers to engineers in an economy is a measure of statism, then the preponderance of lawyers we suffer gives our competitors yet another edge. When indicting culprits who gum up the economy and drive business offshore, please find against tort lawyers.
There is something to be said about the concept of a “tipping point”. It is not one thing that causes a rivet to pop in an economy, but many (although the state is invariably involved) -- and it is not their added effects that bring about a fundamental change, but their synergistic workings over time.More on this story here.
URUGUAY’S OIL VOTE A SIGN OF THE TIMES
The question facing Uruguayans in a referendum on December 7th seemed dry: should they strike down a new law ending the monopoly of the state-owned oil company and opening it up to outside investors? The implications were not, and 60% of the electorate voted to repeal the law, aborting a timid liberalization of the energy industry. Uruguay is a small and tradition-bound country, whose economy has suffered a slump induced by Argentina’s woes. But its vote was a clear sign of the times across Latin America. Retreat from free-market reform is starting to turn into its reversal, though so far only in small, isolated steps.
In Uruguay, one of the region’s sturdiest democracies, the vote to re-impose the oil monopoly may foreshadow another nudge in Latin America’s current drift to the left. It was a protest against threats to the country’s European-style welfare state.More on this story here.
CHINA, LACKING A KEY PORT, LOOKS LONGINGLY TO RUSSIA
With a 10-mile-wide sliver of Russian territory blocking Manchuria from the Sea of Japan, China is drawing on its own history for a solution, pushing Russia to sign a 49-year lease to convert the midsize cargo port on Trinity Bay here to a Chinese economic enclave, a Hong Kong of Russia’s Far East. So far, the Russians have not agreed. But the Chinese are making their intentions plain: they have built a six-lane highway to the door of the border crossing closest to here and, according to Russian officials, ordered Chinese companies to boycott Russia’s ports in the Sea of Japan until Moscow agrees to the scheme.More on this story here.
EU SAVINGS TAX DIRECTIVE DESIGNED TO LIMIT COMPETITION TO HIGH TAX COUNTRIES
The directive aimed at low tax jurisdictions such as Bermuda is entirely politically motivated says Cato Institute Fiscal Policy Analyst Veronique de Rugy. This directive would mandate automatic and unlimited exchange of information between nations with regard to nonresident savings.
“The underlying assumption is that low tax countries are engaged in unfair tax competition with high tax nations. As such, the Savings Tax Directive is designed to create a tax cartel and is a significant threat to market-based policy and fiscal competition,” Ms. de Rugy said. “Bermuda is not the European Union’s priority but the E.U. is really bothered by Bermuda because it is such a strong competitor. Most European countries are doing very, very poorly with high tax rates, high unemployment, slow economic growth, massive brain and capital flight both legal and illegal.”
Ms. de Rugy said the reason why the U.S. and the E.U. want to export their bad tax policies is because they do not have the political courage to do the right thing at home. Bermuda must vigorously defend itself from attacks portraying it as tax evading jurisdiction she suggests. She observed that although the EU rarely “takes no for an answer” on these matters, she contended that the policy will be ultimately self-defeating, as capital will take flight to a location beyond the reaches of European political influence.More on this story here and here.
Still no decision on Bermuda chief justice.
If Britain does not appoint a Bermudian Chief Justice it will show there is not true partnership between London and Bermuda, said Premier Alex Scott. Mr. Scott has strongly lobbied the Foreign and Commonwealth Office to overrule the recommendation of Governor Sir John Vereker that English Judge Richard Ground gets the post ahead of Puisne Judge Norma Wade Miller.More on this story here.
NEWS AND SPECULATION FROM THE SWISS POLITICAL CAULDRON
Opinion is divided as to whether Swiss People’s Party leader Christoph Blocher’s election to the government will have an impact on Switzerland’s relations with the European Union. The arrival of the populist in office could threaten a set of bilateral agreements in force since June 2002. Meanwhile, an analyst says that Blocher’s election to the seven-strong cabinet marks a clear shift to the Right for Switzerland’s consensus government, in which the Social Democrats, Christian Democrats, Radicals and Swiss People’s Party all share power, and that his cultivated image as a politician who is a square peg in a round hole is likely to be called into question in the medium term -- if he accepts the rules of collegiality he could come to resemble those politicians he has previously criticized from the outside.
Blocker was elected to the cabinet as justice minister while the other People’s Party member elected to the cabinet, Hans-Rudolf Merz, was put in charge of finance. The decision by the incumbent members to hold on to their ministries meant that Blocher and Merz had only the finance and justice portfolios to choose from. The justice minister responsibilities include asylum policy. The announcement was certain to alarm civil liberties’ groups, which have accused Blocher and his Swiss People’s Party of seeking to stir up xenophobia in a country where foreign nationals account for 20% of the population.More on this story here, here, here, and here.
Switzerland denies being soft on al-Qaeda.
A UN report has accused Switzerland of being soft in applying sanctions against the al-Qaeda network and Afghanistan’s Taliban. The UN’s sanctions’ observers said Switzerland was serving as a conduit for limited weapons smuggling and that financial support for the two groups was transiting via Swiss-based institutions.
Swiss diplomats told the organization’s sanctions’ committee there was no factual basis for the weapons claim. There is apparently also no reason to believe suspected al-Qaeda and Taliban financiers have assets such as property in Switzerland.More on this story here.
Switzerland releases part of former Nigerian dictator, Sani Abacha, millions.
The money is part of the SFr800 million frozen by the Swiss authorities in 1999 after Nigeria asked for assistance in investigating the financial network allegedly set up by Abacha. Nigeria believes that Abacha, who died in 1998, siphoned off almost SFr4 billion, which he invested in Britain, Luxembourg, Jersey and Liechtenstein as well as Switzerland.
A British financial intermediary who “... supported Abacha’s criminal organization and took part in money laundering activities ... has been charged with a fine of SFr400,000” the case’s chief prosecutor said, without giving further details.More on this story here and here.
A SURGE IN NON-EU IMMIGRATION HAS TRANSFORMED IRELAND
Forget those sepia-tone images of Dublin. The prewar city of James Joyce is, of course, long gone. Even the mid-1990s seems a distant memory on Moore Street. Dublin today is the base of an immigration surge that is transforming Ireland at a rate un-paralleled in speed and scale anywhere in Europe. And that has made the Emerald Isle a test case for how Europe will deal with one of its greatest dilemmas: the need for, and discomfort with, immigrant labor.
Ireland was until recently a nation of emigrants, and one of the most homogenous states in the European Union. As late as the 1980s, with the economy sagging, one sixth of the republic’s population emigrated, peaking in a 12-month period in 1988-1989, when 70,600 Irish, or 2 percent of the population, went abroad. Today the trend has reversed. The country of 4 million people is absorbing nearly 50,000 immigrants a year. Per capita, that is four times the immigration rate in what we think of as the world’s greatest melting pot, the United States. One example: in 1997 one Dublin secondary school took in its first non-Irish student ever, a boy from Angola; today 25% of the student body is foreign-born.
Perhaps that is what the country needs. Ireland needs workers. Like the rest of Europe, it is in a demographic bind, with fewer and fewer young people supporting more and more old folks. Unemployment has been at historic lows in recent years, so there is very little elasticity in the labor market. But the reshaping of the job market, and the rapid cultural transformation that has come with it, has caused resentment among natives.More on this story here.
€ Billions of Irish money still held in off-shore accounts.
According to the latest figures, there is more than €6 billion currently held by Irish banks and building societies in the Isle of Man. Despite a number of high-profile crackdowns by the Revenue Commissioners in recent years, it appears that over €1.25 billion of that was deposited there last year.More on this story here and here.
GLOBAL ECONOMIC RECOVERY PREDICTED TO FUEL HONG KONG TRADE GROWTH IN 2004
Hong Kong’s merchandise exports will continue to grow in 2004, but at a more modest pace than thatin 2003, said the Trade Development Council’s (TDC) Chief Economist. Presenting the Council’s report for 2004, Edward Leung said total merchandise exports in 2004 are expected to rise by 7% in value, or 7.5% in volume. Leung said Hong Kong’s export growth in 2004 would be driven by a faster global economic recovery fuelled by the United States.More on this story here.
OFFSHORE AMNESTY MADE SOUTH AFRICA A BETTER PLACE TO LIVE
What started off as the simple concept of an offshore amnesty has tied up vast resources this year. We must now ask the question: “Was it worth all the fuss?” No numbers on the amounts involved are in, but a good guess is that the amounts involved will be fairly insignificant in the context of state tax collections.
But the offshore amnesty’s benefits cannot be measured in terms of numbers. The question of the offshore millions posed a major problem. South Africa would have become frustrated and bitter without the offshore amnesty. Simply put, the amnesty made South Africa a better place to live.More on this story here.
Germans want to invest $20 million in commercial property in Cape Town.
Amid ongoing inquiries for commercial property investments from a number of leading, mainly UK-based international players, Golding Commercial Properties has been approached by a major German financial institution wanting to invest $20 million in prime commercial property for a closed-end fund. Price is not the issue, says Peter Golding.
Golding says that following hard on the heels of an influx of Irish investors, and with growing international interest in the South African property market -- particularly that in Cape Town -- there appears to be significant potential for further investment by German-based global players in the market. “With its high appeal and tremendous international exposure, Cape Town continues to be seen in an extremely positive light by potential offshore investors, who perceive tremendous capital growth in the property market.”More on this story here.
IS THE YUKOS SAGA THE END OF AN ERA IN RUSSIA?
The arrest of Mikhail Khodorkovsky, former Yukos CEO and Russia’s richest man, and his resignation from the company on Nov. 3, have generated financial ripples capable of destabilizing the nation’s political and economic life as pundits accuse the authorities of lacking control over the secret services. Russia’s nascent investment-oasis image has suffered a setback. Critical reactions condemning the arrest came fast and have continued.
A disenting voice comes in the person of a Western investor, who had suffered from the oligarchs. He opined that the oligarchy constitutes a tangible threat to the economy, calling the arrest of its representatives a “blessing” to the nation. However, he called on the government to be consistent in its approach, without regards to class or creed, “because any selective application of justice on the oligarchy will only undermine the Kremlin’s long-term strategy on the issue.”More on this story here.
An economist argues that a tax on oligarchs could right wrongs in Russia.
Two grievous economic policy errors were committed during Boris Yeltsin’s presidency. The first, as I argue in my book Globalization and its Discontents, was to create incentives that led to asset stripping rather than wealth creation. The other was to squander the few positive legacies left from the communist era. One squandered legacy was a high level of human capital, especially in technical and scientific areas, much of which was lost, as many of the country’s most talented people emigrated. Another such legacy -- with serious political consequences -- was the relative equality that communism managed to generate.
Politics and economics are inextricably linked here: the erosion of the middle classes, which accompanied the rise of a few enormously wealthy oligarchs, and the descent of millions into poverty, made creation of a democratic society and the rule of law much more difficult. The reason is simple. It is not the Rockefellers and the Gateses of this world that are the strongest advocates of a “level playing field” and respect for law (including the law of competition). Historically, it is the middle classes that have an inherent stake in fairness and equality, thus playing an instrumental role in instituting the rule of law.
For this reason, coming to terms with the illegitimate privatizations of the 1990s, which are at the root of wealth inequality in Russia, is something that still needs to be done -- and not only as a matter of justice; it is important for the long-term performance of Russia’s economy. I think that it will be far easier to address this problem now than, say, in another decade. Once Khodorkovsky and his ilk sell their stakes to foreign interests and take their money out of Russia, there will be little that can be done. A tax could be imposed, say, at the rate of 90%, on the “excess” gains from the acquisition of state assets -- e.g., on gains in excess of 10% cumulative returns on original equity investments. The tax would be payable either when the company is listed on a stock market or when the assets are sold. Such a tax would leave the oligarchs with plenty, and could even compensate them for their efforts at restructuring enterprises.More on this story here.
Russia’s gold, hard currency reserves top $70 billion.
The reserves have risen by $5.8 billion since the arrest of oil tycoon Mikhail Khodorkovsky, signaling that a buoyant oil export boom is helping to outweigh any capital flight that might have occurred. Economists noted that dollar weakness on global markets and fast depreciation against the ruble were also encouraging more people to start shifting their savings away from the dollar, further strengthening the ruble.More on this story here.
Putin signs currency regulation bill into law.
The bill stipulates that after its adoption the government and the Central Bank of Russia will have only two means of currency regulation, for use in emergencies. The first would be the option to set special conditions for capital operations, such as the introduction of a mandatory deposit of 100% on the capital operation sum for up to two months. Second, the CBR may require that 20% of capital brought into Russia be deposited for up to one year. However, even these two means of regulation would be phased out in 2007.
Mandatory dollar revenue sales, which are expected to be reduced to 30% of the total revenue from the current 50%, would also be in force only until 2007. The bill also stipulates opening special accounts to carry out transactions that are subject to government control and restrictions.More on this story here.
UKRAINIANS SHOULD GET READY TO BREAK OUT THE CHAMPAGNE
Ukrainian taxpayers will usher in a joyous New Year as the Ukrainian government is set to reduce the income tax rate to a flat 13% starting 1 January. This limit on the scope of governmental taxation will have important consequences for the quality of the economic life of citizens, and, most importantly, our children and grandchildren. It will pay off in a big way for the Ukrainian government, too.More on this story here.
NAURU REMOVED FROM OECD BLACKLIST; ANDORRA, LIECHTENSTEIN, AND MONACO STILL ON IT
Nauru’s removal follows the government’s effective “elimination” of the offshore banking sector earlier this year, and its commitment to work with the OECD to improve transparency and put in place effective information exchange systems with OECD member states by 31 December 2005. The five jurisdictions which remain on the OECD blacklist are: Andorra, Liberia, Liechtenstein, the Marshall Islands, and Monaco.
In a letter to the OECD, Nauru President Rene Harris said the offshore financial industry had been a key contributor to the Nauruan economy and he asked that the cost be taken into account when determining development assistance.More on this story here and here.
Australia sends emergency cash aid to Nauru.
Australia sent $1.2 million to Nauru so it can pay its public servants before Christmas in a move Foreign Minister Alexander Downer says illustrates the need for long-term solutions to the island-state’s deep-seated problems. Mr. Downer said Australia was responding to a personal plea from Nauruan President Rene Harris.
Mr. Downer also briefed Mr. Harris on Australian plans to draw up proposals for Nauru’s future, including options of offering the entire 12,000 population Australian citizenship or resettlement on another Pacific island. It is believed Mr. Harris did not rule out any of the options, although he told
The Agehe personally was not interested in Australian citizenship. More on this story here.
FOR DEMOCRATIC PRESIDENTIAL CANDIDATE DEAN, “CAPTIVE INSURANCE” A VERMONT BOON
Howard Dean is fond of criticizing politicians who provide tax breaks to “large corporate interests”, and one of his favorite campaign lines is a blast at the Bush administration for doling out tax cuts to top executives of Enron Corp. But during Dean’s 11 years as Vermont governor, he enacted tax breaks that attracted to the state a “Who’s Who” of corporate America -- including Enron -- to set up insurance businesses. Indeed, Dean said in 2001 that he wanted Vermont to “overtake Bermuda” as the “world’s largest” haven for a segment of the insurance industry known as “captives”, which refers to firms that help insure their parent companies.
With little notice then -- and barely any mention now in the Democratic presidential campaign -- Dean succeeded in turning Vermont into the kingdom of captives. Vermont has more of these companies than the other 49 states combined. As part of the enticement, Dean led efforts to cut state taxes of such companies, and he helped defeat a Clinton administration effort that would have eliminated $100 million worth of federal tax deductions given to the industry.
Dean spokesman Jay Carson said there is no contradiction between Dean’s complaints about President Bush’s corporate tax breaks and the former governor’s own efforts to help the captive insurance industry. “This is a legitimate industry, perfectly legal. It helped the economy here, and Governor Dean is going to make no apologies for that,” Carson said.More on this story here.
US TREASURY ANNOUNCES REVISED TEMPORARY “CORPORATE INVERSION” RULES
The Treasury Department announced a revision to temporary regulations that require US corporations to notify the IRS and the firm’s own shareholders when moving the company headquarters offshore, or when they are acquired by a foreign company.
“The prevalent and increasing use of foreign related-party debt in inversion transactions demonstrates the importance to these transactions of the tax reductions achieved through interest deductions and the need to act now to eliminate this benefit. Accordingly, we propose statutory changes to tighten the interest disallowance rules of section 163(j) in several respects,” said the announcement.More on this story here.
SURVEY: INVESTOR CLASS CRITICAL OF BUSH ECONOMIC POLICIES
Nearly 60% of America’s “investor class” give President Bush’s economic policies fair-to-poor marks, according to a new survey from Money magazine. While 73% of investors polled said they gained personally from the Bush tax cuts in 2001 and 2003, 84% said they would have rather had the money used for something else. More than 50% said they would have preferred additional spending for Social Security, Medicare, job creation, health insurance or education.More on this story here.
INVESTORS SHOULD UNDERSTAND THE BASICS OF PORTFOLIO MANAGEMENT
Understanding the basics of portfolio management is critical if investors are to avoid managers who do not even make enough to cover the fees they charge for running a badly- performing fund. Recently, I read a horrifying account of an expatriate couple who opted for an enthusiastic 25-year-old who had no experience of prolonged bear markets, and after much aggressive churning and some forays into US over-the-counter technology stocks, the couple’s $25 million had halved to $12.5 million. The couple believed their savings would perform better in the hands of the professionals, but they would have done better with a direct, balanced investment in shares, bonds, property and gold.
The reasons behind poor performance by even the bluest of blue-chip managers are simple. When a fund outperforms the rest, it is commonly because the fund happened to be in the right market at the right time. But fund managers are rarely able to take advantage of neglected, udervalued opportunities as they are seldom fleet of foot, owing to structural constraints. There are also human constraints: fund managers are likely to stay with sectors they are familiar with. The fact that their sector happens not to be performing well is of secondary importance. Another law of fund management is that low returns are an inevitable product of risk-averse fund managers, who will be striving to avoid criticism from clients, their own managers, their peers and perhaps even regulators. Finally, fund managers are generally optimists.
Market studies emphasise that index tracker funds will outperform an individual portfolio manager more than 90% of the time. Trackers will also be cheaper. A manager of managers will discuss your objectives and market strategy. The best adviser will custom-manage your portfolio. The alternative is an investment off the shelf.More on this story here.
CHINA TO LOOSEN EXCHANGE CONTROLS
China plans to step up promised reforms of its rigidly regulated foreign exchange system while tightening controls on foreign currency transactions, state-run media reported. The report did not did not indicate any change in the government’s policy of keeping China’s currency, the yuan, pegged at a rate of about 8.28 yuan per U.S. dollar. U.S. officials contend that the exchange rate keeps the yuan at an artificially low level, giving China’s exporters an unfair advantage by making their products cheaper in overseas markets.
During a recent state visit to Washington, Premier Wen Jiabao repeated to U.S. President George W. Bush Beijing’s pledge to eventually loosen exchange controls. So far the Chinese side has given no timetable for doing so.More on this story here.
UK GOVERNMENT TAKES STEPS TOWARDS FORMATION OF PROPERTY TRUSTS
The United Kingdom could soon see the introduction of tax-friendly property investment vehicles similar to real estate investment trusts (REITs) operated in the United States and elsewhere. As the government tries to find a way out of the country’s boom and bust property market, a recent Treasury report concluded “that a tax-transparent property investment trust would improve liquidity, transparency and scrutiny, provide access to property for long-term savings and could expand the private rented sector.”More on this story here.
Reforming the British housing market.
Since Gordon Brown became chancellor in 1997, the economy has grown without a break. But this gratifying picture of overall economic stability has been marred by the renewed volatility of the housing market. In the past six years, house prices have boomed. Now the specter of a possible bust hangs over the economy. The chancellor blames much of the volatility of the housing market on a failure to build enough new homes. That diagnosis was confirmed in a report to the Treasury.
Report preparer Kate Barker will make her policy recommendations next spring. The report suggests that she will argue for further steps to release more land together with reforms to ginger up the industry and tax incentives to encourage more institutional investment in property. But increasing housebuilding will be a long haul, not least since the industry already suffers severe skill shortages.More on this story here.
TEAM OF US INVESTIGATORS COMBS OVER 50 COUNTRIES FOR SADDAM’S MISSING $40 BILLION
Only a small fraction of the funds Saddam Hussein and his late sons are estimated to have stolen up to during their years in power has been recovered since US investigators began an international search at the end of the war in April. A team of experts from the U.S. is on the ground in Iraq and fanning out in more than 50 countries in an attempt to locate what might be left of the funds. Brandishing the threat of sanctions, the team is demanding that governments, banks and businesses reveal the extent of their dealings with the deposed regime and the funds that they may be holding. But it is a tangled web.
Studies estimate that between 1997 and 2001 alone, Saddam skimmed off $6.6 billion in the form of kickbacks and back-handers from the sale of Iraqi oil under the United Nations oil for food program, aimed at selling oil so Iraqis could be fed. But the family earned more from the illegal sale of oil to Jordan, Syria and Turkey during the sanctions period, and it is thought to have made millions more from the illicit import of cigarettes to a country that ranks as one of the heaviest-smoking in the world. In the way of dictators, the family also used the central bank as a piggie bank, frequently helping themselves to as much as $US5 million at a time.
Just how much of the $40 billion may have been squandered on the Hussein family’s indulgent lifestyle or how much has been converted to gold, diamonds or art can only be guessed at. The New York investigative firm Kreindler & Kreindler says a conservative estimate would be more than $10 billion. Mr. Aufhauser said the greatest challenge for investigators now was to identify and trace the flow of Iraqi funds that Saddam had stolen and injected into the global financial system, hiding them behind a wall of straw men and front companies. One of the difficulties for the investigators is of the US’s own making: its failure to prevent the looting of Saddam’s palaces and government buildings after the fall of Baghdad makes it difficult for the investigators to find key elements of the paper trail.More on this story here.
NEW REPORT FINDS DIAMONDS COULD BE A TERROR FINANCING MECHANISM
A new report by the US General Accounting Office investigating terrorist funding finds that diamond can be used by terrorists as an alternative financing mechanism to earn, move and store money. The report says that terrorist organizations have reportedly traded in precious stones such as diamonds to launder money or transfer value because it is easy to conceal these materials and transfer them. Diamonds have high value and low weight and are untraceable and odorless: a pound of diamonds in 2002 was worth around $225,000, compared with a pound of cash that was worth $45,000 and a pound of gold, which was worth $4,800.
The report says, “The international diamond industry is fragmented, with numerous small mining operations located in remote areas of Africa, in countries that have porous borders and no rule of law. There is limited transparency in diamond flows owing to the complex way in which diamonds move from mine to consumer, the existence of significant data inconsistencies, and the industry’s historical avoidance of close scrutiny.”More on this story here.
INLAND REVENUE BLITZES INHERITANCE TAX TRUSTS
The Inland Revenue plans to impose a harsh new tax regime on thousands of homeowners who have set up so-called “home-loan schemes” to avoid inheritance tax on their houses. The clampdown will impose income tax on people who enjoy the use of assets they have given away. The action is highly unusual in that it applies to existing schemes, even those set up some years ago.
So-called “home-loan schemes” help taxpayers to circumvent the Revenue’s “gifts with reservation” rules and avoid the inheritance tax net by allowing them to sell their house to a trust in return for an IOU. This IOU is then passed on to the heirs of the house via another trust while the taxpayer continues to dwell there. Those who have taken out such schemes will have until April 2005 to dissolve them, after which individuals will be taxed based on the estimated benefit of continued occupancy of the house. With many homeowners finding themselves with property valued way above the inheritance tax threshold of £255,000 thanks to the house price boom, Lawyers and accountants that market the schemes claim that up to 20,000 taxpayers could be affected by the proposals.More on this story here and here.
Tax bombshell awaits U.K. self-employed.
A popular route for self-employed business people in the UK is to form a company, which allows them to receive income in the form of dividends, which attract a lower rate of tax than salaried income. However, contained within Gordon Brown’s recent pre-Budget report is the statement: “The government is concerned that the longstanding differences in tax treatment between earned income and dividend income should not distort business strategies, or enable reductions by tax planning of individuals’ tax liability.”
The report continues by revealing that the government intends to bring forward a proposal earmarked for the 2004 budget that will “ensure that the right amount of tax is paid by owner managers of small incorporated businesses on the profits extracted from their company.” An accountant warned that this could have serious implications for those who have already incorporated. Incorporation is relatively straightforward but unincorporating is much more difficult, she warns.More on this story here.
Millions more in UK could soon pay top tax rate.
More than four million Britons could find themselves paying the top rate of tax by the year 2008 as a result of fiscal drag, according to the Institute of Fiscal Studies. Since 1996/1997 the number of taxpayers paying the 40% top rate of tax in the UK, which kicks in on income earned above £30,500, has increased from 2.1 million to 3.3 million as wages rise faster than the inflation-linked increases in the tax brackets. This trend is set to continue, the Institute warns.More on this story here.
STATE TAX AGENCIES WORSE THAN THE IRS?
Congressional hearings in the mid-1990s revealed that the IRS regularly disclosed confidential taxpayer information, improperly calculated tax liabilities, arbitrarily enforced tax laws, and even conducted armed raids on innocent taxpayers. Although the worst excesses of the IRS have been curbed -- for now -- thanks to reforms enacted in 1998, taxpayers around the country face a new threat from inept and increasingly aggressive state tax collectors.More on this story here.
BUSH SIGNS BILL EXTENDING FBI POWERS
President Bush has signed legislation making it easier for FBI agents investigating terrorism to demand financial records from casinos, car dealerships, and other businesses. The changes were included in a bill authorizing 2004 intelligence programs. Most of the details of the bill are secret, including the total cost of the programs, which are estimated to be about $40 billion.
Under current law, “national security letters” can be issued to traditional financial institutions, such as banks and credit unions, to require them to turn over information. The bill expands the definition of financial institution to include other businesses that deal with large amounts of cash. More on this story here.
FBI applies new rules to surveillance, circumventing regular courts’ oversight.
The FBI has implemented new ground rules that fundamentally alter the way investigators handle counterterrorism cases, allowing criminal and intelligence agents to work side by side and giving both broad access to the tools of intelligence gathering for the first time in decades. The result is that the FBI, unhindered by the restrictions of the past, will conduct many more searches and wiretaps that are subject to oversight by a secret intelligence court rather than regular criminal courts, officials said. Civil liberties groups and defense lawyers predict that more innocent people will be the targets of clandestine surveillance.
The new strategy -- launched in early summer and finalized in a classified directive issued to FBI field offices in October -- goes further than has been publicly discussed by FBI officials in the past and marks the final step in tearing down the legal wall that had separated criminal and intelligence investigations since the spying scandals of the 1970s, authorities said. To civil libertarians and many defense lawyers, the changes pose a threat to the privacy and due-process rights of civilians because they essentially eliminate, rather than merely blur, the traditional boundaries separating criminal and intelligence investigations.More on this story here.
The administration quarantines dissent.
When Bush travels around the United States, the Secret Service visits the location ahead of time and orders local police to set up “free speech zones” or “protest zones” where people opposed to Bush policies (and sometimes sign-carrying supporters) are quarantined. These zones routinely succeed in keeping protesters out of presidential sight and outside the view of media covering the event.
Is the administration seeking to stifle domestic criticism? Absolutely. Is it carrying out a war on dissent? Probably not -- yet. But the trend lines in federal attacks on freedom of speech should raise grave concerns to anyone worried about the First Amendment or about how a future liberal Democratic president such as Hillary Clinton might exploit the precedents that Bush is setting.More on this story here.
“FREEDOMS AND SECURITY MUST CO-EXIST EQUALLY” SAYS GOVERNMENT REPORT
The United States needs to guard against acts of terrorism without sacrificing civil liberties, undermining law enforcement or spending money unwisely in pursuit of unattainable security. Those conclusions drive a provocative farewell package of recommendations from a national commission led by former Virginia Gov. Jim Gilmore.
At the same time, the panel has concerns about the loss of momentum in efforts to help state and local governments prepare for terrorism. The panel wants the White House to coordinate homeland-security initiatives, consolidating all grant programs under one office and setting better priorities for funding. Foremost among the panel’s recommendations is the creation of an independent oversight board to make sure that the war on terrorism does not become an assault on civil liberties and individual privacy.More on this story here.
COUNTY COUNCIL IN WASHINGTON STATE BACKS PATRIOT ACT CHANGES
The Metropolitan King County Council voted 13-0 to join a growing bipartisan movement to soften some of the most controversial provisions of the USA Patriot Act. The council called on Congress to pass the Security and Freedom Enhanced (SAFE) Act, sponsored by a group of Republican and Democratic U.S. senators. Among other changes to the Patriot Act, the SAFE Act would restrict the use of so-called “sneak and peek” search warrants in which suspects are not informed at the time that a search is being made of their property.
“Yes, we must be safe so we can be free,” said newly elected Council Chairman Larry Phillips, D-Seattle. “We must also be free so we can be safe.”More on this story here.
Patriot Act criticized during petition rally in Oregon.
The USA Patriot Act was conceived under the cover of darkness and it has remained there ever since, Rep. Peter DeFazio told a crowd of people who attended a rally at the Douglas County Courthouse. The Springfield Democrat one of just 66 representatives and one senator to vote against it. “I hadn’t had time to read the act, nor did any other member of Congress,” he said. “Many of my colleagues now view this as a vote they wish they could take back.”
The rally marked the kick-off to a petition drive asking the county Board of Commissioners to work for the repeal of the Patriot Act and any executive orders that violate rights guaranteed by the Constitution.More on this story here.
COURT SAYS BUSH CANNOT DETAIN U.S. CITIZEN SEIZED IN U.S. AS AN ENEMY COMBATANT
The U.S. Second Circuit Court of Appeals, in a 2-1 ruling, said only the U.S. Congress can authorize such detentions and it ordered the government to release Jose Padilla from military custody within 30 days. The court said that the government can transfer Padilla, a U.S. citizen who has been held incommunicado in a Navy prison, to a civilian authority that can bring criminal charges against him.
“Presidential authority does not exist in a vacuum and this case involves not whether those responsibilities should be aggressively pursued, but whether the President is obligated in the circumstances presented here to share them with Congress,” the court said. “Where, as here, the President’s power as Commander-in-Chief of the armed forces and the domestic rule of law intersect, we conclude that clear congressional authorization is required for detentions of Americans on American soil ...”More on this story here. Background article here.
Secret universe holds U.S. terror suspects.
Saddam Hussein is now prisoner No. 1 in what has developed into a global detention system run by the Pentagon and the CIA, according to government officials. It is a secretive universe, they said, made up of large and small facilities scattered throughout the world that has sprouted up to handle the hundreds of suspected Qaeda terrorists, Taliban warlords and former officials of the Iraqi regime arrested by the United States and its allies since the Sept. 11 attacks and the war in Iraq.
Many of the prisoners are still being held in a network of detention centers ranging from Afghanistan to the U.S. Naval base at Guantánamo in Cuba. Officials described it as a prison system with its own unique hierarchy, one in which the most important captives are kept at the greatest distance from the prying eyes of the public and the media. And it is a system in which the jailers have refined the arts of interrogation in order to drain the detainees of critical information.More on this story here.
RETIRING BATF HEAD RECRUITED BY RIAA -- SATIRE (KIND OF)
Bradley A. Buckles, director of the Bureau of Alcohol, Tobacco, Firearms, and Explosives, has announced his plan to retire in January and enter the private sector. He will head the Anti-Piracy Unit of the Recording Industry Association of America, which has already filed some 300 lawsuits, in just six months, against computer users who may have used the Internet to share copyrighted music files. “We’re thrilled to have Director Buckles joining us,” announced RIAA spokesman Norm DePlume. “He brings to the RIAA the gravitas that will strike terror in the hearts of all who might contemplate the illegal copying of music.”
DePlume explained that “Thanks to the ATF, every American now knows that simply being charged is practically a guarantee that your life is ruined. The agency’s pioneering use of techniques such as entrapment and hiring informants to commit crimes others can be charged with -- well, it has all but eliminated the uncertainty of being able to convict anyone you like without specific evidence of wrongdoing. Those are techniques we hope will transfer successfully to the civil cases we need in order to make examples of ... well, just about anyone will do. Hang enough of ‘em out to dry and you’ll see people falling in line, believe me.”
Asked whether juries present an obstacle to the ATF techniques just described, DePlume laughed. “Juries? They’re a joke. First, the government gets to stack the jury with only those who say they could convict -- the process is called ‘voir dire’. Then the judge instructs the jury that they can’t follow their consciences, but must accept the law as he interprets it for them. That’s in criminal cases; in civil cases we have the advantage of a relaxed standard of evidence: you can convict on a ‘preponderance of the evidence’ rather than ‘without a reasonable doubt.’ Here’s just one example, the Georgia Militia case of ‘96.”More on this story here.
FRAUD ALERTS AND NEWS
Fake emails purporting to be from e-gold.
There are numerous fraudulent emails in circulation spoofing e-mail addresses in the e-gold.com domain. These emails direct you to log into your account to verify information or update information and they usually operate on greed or fear in order to entice victims to click a hypertext link. These emails may say your account has a value limit, you have received fraudulent funds, your account will be closed for inactivity, or that e-gold is paying monthly interest payments.
Regardless of the subject line of the fraudulent emails, they always have one thing in common. The hypertext link in the email will appear to be to the e-gold website, but if clicked, it directs the victim to a fraudulent website, designed to ensnare the careless by mimicking the appearance of the real e-gold website. [Note: This is now a common scamming technique.] The technique used to obscure the true destination of such hypertext links is via the use of HTML formatted e-mail. The ultimate goal of the criminal is to entice his victims to enter their e-gold account number and passphrase while on the fraudulent website. Once the criminal has gained this information, he has everything he needs to log in to the victim’s e-gold account on the real e-gold website and divert the value.More on this story here.
Australian man uncovers scam. Bank does not care.
An Australian who received an email promising him money for nothing and replied with his details to the sender of the email appears to have uncovered a curious scam. The scam, as detailed here involves the scammers depositing money in the bank accounts of those who send in their bank details; the recipient is then allowed to take 10% and return the remainder to the perpetrators by Western Union. In essence, it is money laundering.
But apparently it runs a bit deeper, according to this man -- the money which is being deposited comes from the bank accounts of those who have been already lured to websites which trap their online banking details. The man responded to one such email and provided the details of one of his bank accounts which had lain dormant for a long time. Within a couple of hours, he found that there was $23,000 in the account and he received an email giving him an address to which he should send 90% of the amount.
It frightened him to the extent that he got in touch with the bank in question, and the Australian Federal Police. The bank froze the account so that no money could be withdrawn. He then reasoned that if the scammers could be lured into sending money to a dummy account, the bank and police would be able to trace the origin of the money and alert those whose money was being stolen to change their online banking details. However, the man said he was disappointed with the bank’s reaction because it had failed to respond to his inquiries.More on this story here.
Bank scam comes to the Scottish Highlands.
At first sight, the Continental Trust Bank (CTB), which also goes under the name Continental Trust Brokers, looks impressive. It claims to be one of the biggest private banks in Britain with assets of more than £30 billion ($50 billion) and over 70,000 clients worldwide. The bank boasts of affiliate branches in Asia, America and various offshore countries. The giveaway is that instead of basing itself in London or Frankfurt, it has chosen the Highlands of Scotland. Despite this unlikely HQ, the scam has taken in investors from as far afield as New Zealand, Norway, and the US.
One of its victims is from the US state of Wyoming. He told the BBC that it all started when he received a phone call, “from a fellow in Nigeria, saying I had inherited an oil company and everything that went along with it.” They told him he would inherit $42 million, the value of the company, if he paid some money up front. The Nigerian fraudsters said that as a non-resident, he had to pay $57,000 in tax into a CTB bank account in Scotland to release the millions ...More on this story here.
Hawaiian woman defrauded victims of almost $67 million in high yield scam.
Montez Salamasina Ottley, 59, of Laie was found guilty of defrauding nearly $67 million from thousands of investors in a “Cayman Islands Investment” scam. Federal prosecutors characterized Ottley as one of two people who came up with the Ponzi scheme that attracted 5,000 investors, who were promised 8% returns weekly over 13 weeks for a minimum investment of $1,000. Witnesses called by the government testified that interest payments were paid out of money collected from new investors. The scheme ran for more than a year until it was shut down in October 1998. Paul Lazzaro, Ottley’s partner in the investment scheme, pleaded guilty to similar charges. He is awaiting sentencing.More on this story here.
INVESTORS BEWARE OF “THE CHINA PLAY”
The brokers’ circulars have long been dusted off for the punt of the century: the China Play. It is, if memory serves, the third instalment and was the punt of the last century too. Twice before, in the early and mid-1990s, have investors found the lure of China irresistible. In the first euphoric wave, Barton Biggs, Morgan Stanley’s head strategist, pronounced himself “maximum bullish” on the country and its stockmarkets. Suffice to say that this did not turn out to be the wonderful investment opportunity for which he had hoped. Nor did the second wave.
But the China story is back, and so are the hoards of foreign investors, unable to resist the lure of shares of leading companies in the world’s most populous, dynamic economy -- and one, furthermore, that is set to be the world’s biggest in not too many years. So-called H shares -- companies that are based in mainland China but listed in Hong Kong -- have doubled this year, outperforming the Hang Seng index by 55%. China Life, an insurance company, last week raised $3 billion in the biggest IPO in the world this year, and will be listed in New York and Hong Kong. So great was the deal’s allure that several local brokers ran out of cash to lend to Hong Kong-based investors who wanted to buy on margin. The company received orders for some $80 billion of stock.
The trend, recent investors in Chinese shares will be disappointed to hear, is down. But it is still better to cash out quickly, for as long-term investments the shares are eminently resistible. Of the country’s growth potential, there is little doubt. As ever with emerging markets, the question is whether investors will see any of this growth, and the question is especially pertinent with China, a perennial graveyard for foreign hopes. The answer is: almost certainly not.More on this story here.
NEW $20 BILLS CAUSING UNDERGROUND ECONOMY CASH HORDES TO BE SPENT?
The U.S. is making an incalculable profit on the roll-out of the snazzy new twenties, a profit that remains unarticulated in the Fed’s frontline campaign that explains the currency -- with its watermark, security thread and color-shifting ink -- solely as an anti-counterfeiting measure. What is not being said is that the new twenty puts the zap on the heads of people who routinely reintroduce hefty wads of currency from the underground economy to the aboveground one: money launderers and hoarders operating from considerable private cash holdings.
In New York City alone, wholesale drug resellers as close as two tiers above street-level distribution have begun asking buyers to separate older twenties from new ones to more quickly direct the old currency at laundering operations and retail purchases. The result is an accelerated rate of tax revenue for the U.S. government, one that it would not be enjoying if crime were not convinced that moving the old bills aboveground sooner rather than later means one less way to be detected by law enforcement. It is a dynamic similar to that which accompanied the introduction of the euro.
Is there a way to discover how much profit the U.S. is realizing from the accelerated exposure of previously underground money to taxation? Let us start by asking how much the underground economy is worth.More on this story here.
EC AGREES TO ALLOW US ACCESS TO EU CITIZEN PERSONAL DATA
The European Commission has struck a deal with the US Department of Homeland Security allowing the handing over of data on EU citizens traveling to the US by airlines. The US currently requires access to airlines’ Passenger Name Record (PNR) data, while EU privacy law forbids its transfer to the US. After some amendments which the EC describes as concessions, however, the US’s proposed treatment of this data has been deemed sufficient to rate an “adequacy” finding, and thus passes muster in the Commission’s view.
The US has agreed to delete combatting serious domestic crime from its list of uses for the data. This does not meet the EU objective of restricting the use of data to fighting terrorism. As the DHS says: “PNR data is used by [Customs and Border Protection] strictly for purposes of preventing and combating: 1) terrorism and related crimes; 2) other serious crimes, including organized crime, that are transnational in nature; and 3) flight from warrants or custody for the crimes described above.” That would seem to leave adequate scope for mission-creep.More on this story here, here, and here.
EU ignores law, gives America access to airline passenger details.
The EU gave way to American demands for access to almost all data known by airlines about passengers, including their home addresses, birth dates, credit card numbers and even special dietary requirements. The US has no general law on data protection, raising particular concerns about the use of passengers’ details. But faced with the prospect of a ban on flights, many European airlines have been providing the data since March in what the European Commission admitted was a contravention of EU law.
Tony Bunyan, editor of the Statewatch civil liberties magazine, said: “When it comes to big business, like the recent row over steel tariffs, the EU goes into bat. When it comes to citizens’ rights, the EU falls at the first hurdle. The Commission has completely ignored its duty to uphold EU law.” He said the Commission’s decision marked a step towards the “global imposition of the surveillance of travel”.More on this story here.
BIG BROTHER KEEPING TABS ON WANDERING BRITONS
In Britain, Big Brother really is watching you almost everywhere, according to civil liberties campaigners alarmed by the proliferation of spying machines in trains, buses, high streets, sports stadiums and perhaps soon even in clothes. “In terms of Western democracries, we are by far and away the most spied-upon nation,” Mark Littleton, of the citizens’ rights group Liberty, told reporters.
Britain is already home to 10% of the entire world’s close circuit television cameras. By 2007 it will have 25 million of them -- one for every two adults in the country -- Liberty claims, quoting industry forecasts.More on this story here.
MINNESOTA PRIVATE POLICE DATABASE SHUT DOWN
A massive state-run database of confidential police files was shut down Thursday out of concern it violated privacy laws, officials said. Through a password-protected Internet site, the system gave police access -- sometimes right from their squad cars -- to a deep mine of records that included the names of suspects, witnesses and those who have been arrested, convicted and sought gun permits. The network sometimes offered a physical description and also contained juvenile files.
Some saw it as the sort of tool that could help police protect citizens, but others decried it as a Big Brother network operating outside the bounds of state regulation. The nonprofit organization that owns the network voted to immediately purge the Multiple Jurisdiction Network Organization of its millions of police “contact” records. The records had been collected by more than 175 Minnesota police agencies and a handful in Wisconsin over several years. Scott Knight, who is police chief for the town of Chaska, called the shutdown “an absolute travesty and a major setback for law enforcement.”More on this story here.
NEW OBJECTIONS TO IRS PROPOSED INFORMATION SHARING REGULATION
Eight senior members of the House Ways and Means Committee have written to Treasury Secretary John Snow requesting the withdrawal of a proposed IRS regulation which would allow information sharing on non-resident alien bank deposit interest for tax purposes. According to the Center for Freedom and Prosperity six of the eight signatories to the letter have not previously expressed public objections to the proposed regulation. The CFP also revealed that this latest initiative brings the number of Representatives that have opposed the IRS plan to 66, along with 18 Senators who have also objected.More on this story here. Text of letter here.
GAO FINDS INCREASE IN TAX EVASION
A GAO report says the IRS recently told the White House that over the past two years it has linked more than 400,000 taxpayers to tax-evasion schemes that the agency says are likely to be found illegal. That number is considerably larger than the 131,000 the agency reported to congressional investigators this fall. More than two-thirds of the 400,000 taxpayers have established bank accounts in offshore tax havens and are using debit and credit cards to easily access money that has never been taxed, the IRS has found.
IRS documents cited by the GAO indicated that these tax-evasion techniques and others reduce taxes collected by up to $40 billion per year, yet efforts to shift resources to the problem have slowed considerably, even as the extent of the problem has unfolded. The report comes at a time of growing congressional interest in curbing tax evasion, a remarkable switch from 1997 and 1998, when a wave of anger at alleged IRS abuses prompted Congress to pass restraints on tax collectors.More on this story here.
BAHAMAS COMMITS TO INFORMATION SHARING AGREEMENT WITH UNITED STATES
The Bahamian House of Assembly unanimously approved a bilateral Tax Information Exchange Agreement (TIEA) with the United States, with the new legislation set to come into force on January 1, 2004. The conclusion of the agreement means that the Bahamas will achieve permanent Qualified Jurisdiction status. One of the major advantages of this for Bahamian firms will be a 50% reduction in withholding taxes on US-sourced investment income. The US gave The Bahamas provisional QJ status in 2000, but made an extension to the full six years conditional on The Bahamas signing a TIEA with the US before the provisional period expired. The TIEA will not be retroactive and will only apply on criminal matters from January 1, 2004. Civil tax matters will be covered by the TIEA from January 1, 2006.More on this story here.
FROM THE HORSE’S MOUTH: FATF SPECIAL RECOMMENDATIONS ON TERRORIST FINANCING
“Recognising the vital importance of taking action to combat the financing of terrorism, the FATF has agreed these Recommendations, which, when combined with the FATF Forty Recommendations on money laundering, set out the basic framework to detect, prevent and suppress the financing of terrorism and terrorist acts.”More on this story here.
KENYA TRIES TO LOCATE AT LEAST $1 BILLION STOLEN BY FORMER GOVERNMENT
Kenya’s assistant minister of justice, Robinson Githae, says the government has hired an international financial consultancy, Kroll Inc., and other experts to find the money allegedly moved overseas by officials of the former government led by Daniel arap Moi. The amount could add up to between one and $4 billion. “Some money has been stashed away in Switzerland, in Cayman Islands and Monaco. But now intelligence reports say that there have been massive attempts to transfer that money to some African countries,” he said, referring to African countries that have not signed the U.N. International Convention against Corruption which Kenya signed earlier this month. Those countries include Zimbabwe, South Africa, and Botswana.More on this story here.
PREPAID PLASTIC GROWS ATTRACTIVE FOR TRAVEL MONEY
The traveler’s check, a standard vehicle of the security-conscious tourist for more than 100 years, is getting new plastic wheels and vrooming into ATMs. The electronic version works like a prepaid gift card, a magnetic-striped card loaded with money. As you spend it at shops, hotels and restaurants or insert it into ATMs to withdraw cash, its value decreases. Last year, $250 million worth of travel-oriented prepaid cards were sold. Sales are expected to increase by nearly 50% this year, according to a newsletter that tracks the industry.
There are several reasons to consider slipping a prepaid travel card into your wallet, including theft protection, security, budgeting and convenience. Unlike debit cards, prepaid cards do not provide access to your personal bank account; you use a separate PIN to draw on a virtual account. Before you order a prepaid card, check out the fees.More on this story here.
Yahoo says it will launch an international money transfer service.
Yahoo announced that its international payments system, PayDirect International, will allow users to send money to 182 countries, regardless of whether the receiver has Yahoo, or even Internet access, effective immediately. After a user sends cash, the recipient would receive a bank card within five to seven days, usable at more than 800,000 automated teller machines worldwide. Yahoo said it is absorbing the costs of creating and sending the cards.
Yahoo has been operating a similar service in the United States. A typical transfer would cost the sender $5.95 and the recipient $1.50 per transaction with the card.More on this story here.
CAN WESTERN UNION KEEP ON DELIVERING?
A worldwide army of some 80 million work in one country and support dependents in another. Together they will send more than $150 billion in cross-border remittances this year, $100 billion of which goes anonymously to families in developing countries. To put the amount in perspective, that is more cash than international investors collectively invest in those countries’ bonds and equities each year. Talk about hot money. Indeed, remittances are such a hot business that Western Union, long dominant, suddenly has a lot more rivals. Commercial banks, credit unions, even supermarkets are trying to wrest share from the company.
It is no secret why Western Union, which started life in 1851 as a telegraph company, is coming under pressure. Commissions on most transactions run 10% or higher, making Western Union a most reliable profit generator for its parent, First Data Corp. Analysts expect the wholly owned unit, which almost collapsed a decade ago after fax machines undercut its Telex business, to make more than $1 billion in operating profits on revenues of more than $3.5 billion this year. Although Western Union controls 80% of the market in regions such as Latin America, it can no longer take its position for granted.
Of course, banks have long sent money across borders through standard interbank wire transfers for corporate and individual clients. But those transactions were limited to customers with accounts and government-issued identification -- in line with strict anti-money-laundering and, now, anti-terrorist regulations. Money-transfer outfits do not require I.D. for remittances under $1,000. That left the market to specialists such as Western Union, MoneyGram Payment Systems, and eBay subsidiary PayPal. But after September 11, when Mexican consulates in the U.S. began issuing so-called matricula identity cards to undocumented workers, Wells Fargo & Co. became the first bank to accept such cards as a basis for opening accounts. Since then, more than 150 other institutions have followed suit. In addition, as of Dec. 9, a select group of U.S. banks have been allowed to transfer funds to Mexico through the Federal Reserve’s National Automated Clearing House, which means transactions will cost little more than a transfer within the U.S. Assuming the scheme works well, it will be extended to all U.S. banks, probably late next year.More on this story here.
HOW BOEING BLEW IT
Boeing’s stature as the world’s leading manufacturer of commercial airliners -- the Boeing 747 stands with Coca-Cola and the Golden Arches as the best-known American products around the globe -- has collapsed in a mere half-decade. What explains Boeing’s fate? In a word: greed. Or rather, two words: greed and hubris.
Boeing was in many ways a perfectly successful company in the mid-1990s, dominant in commercial aviation with a thriving sideline in military and space contracts. But the company had also become arrogant and lethargic, unwilling to update production-line techniques that had barely changed since B-29s were built on the same site where 737 and 757 aircraft are made today. And Boeing was not about to acknowledge that upstart Airbus, the European-based jetliner maker, posed any real threat.
Boeing’s plummet matters in a big way, and not just for Boeing. The company has long been a major exporter. What is more, building a modern jetliner is an ambitious technical undertaking, which requires engineering skills that benefit the entire economy. And the sheer visibility of Boeing’s products has a kind of halo effect, enhancing America’s status in a way that hamburgers and soft drinks do not. Furthermore, goodbye to all the sweet deals the airlines extracted from Boeing or Airbus when the two were fiercely competing.More on this story here.
THE NOTORIOUSLY SECRETIVE PRIVATE-EQUITY INDUSTRY IS FACING PRESSURE TO OPEN UP
Since 1980, estimates Venture Economics, a research firm, more than $1 trillion has been poured into private-equity funds. Once the industry was clubby and opaque, the preserve of rich families and private endowments. To some it looks sinister, especially when private-equity firms have former politicians on their boards, presumably for their connections.
In any case, these firms are facing growing pressure to be more open, and not just from conspiracy theorists. The main reason for this is the industry’s own success. As it has grown, it has attracted a broader range of institutional investors, notably big public pension funds, lured by the prospect of decent profits not correlated with volatile stockmarket returns. Venture Economics reckons that pension-fund money accounts for two-thirds of current inflows. These institutions are themselves under growing pressure to reveal more information, and they need to know what their private-equity stakes are worth.More on this story here.
DECEMBER ISSUE OF ESCAPE FROM AMERICA MAGAZINE IS OUT
Sample articles from this issue include:
Living Large In Buenos Aires: At the moment it does not take much to live large in Argentina. Since the currency was devalued, just having dollars enables a nice standard of living. You get three times more bang for your buck than you did in 2001. My pal and host here earns California dollars as a Bay Area accountant but spends money and three quarters of his time here. He has a luxury apartment here for the price of a hovel in San Francisco. He does his work online and returns to the States only for tax deadlines. The lifestyle is not for everyone but it has its advantages.
Living in Pavones, Costa Rica has been a revelation to the writer in many ways. A “natural skeptic” from the north, he finds his world shaken in ways he did not expect.
Guatemala: The Country Of Eternal Spring: Guatemala, a country of 13 million people and an area of 108,890 sq km, covers a diverse area. Its year round temperate climate gives it the nickname “the country of eternal spring”. Although only slightly smaller than Tennessee, Guatemala has a wide variety of sights and activities to offer.
Two Years On In Thailand: We had been regular visitors to Thailand for years, so when we finally decided to make a permanent home here. We had an idea what we were letting ourselves in for. The low cost and the high standard of living attracted us, as well as the warm welcome offered to foreigners. We decided on the mountainous northern section of the country, because it offered the best climate for us, and was unspoiled and undeveloped. At the same time, it had all the modern conveniences we needed and was easy to get to. So, three years ago, for $13,000, we made an offer on 20 acres of a quiet corner of a mountain, 3 miles outside the regional capital, Chiang Rai. It was what we had always dreamed of. We couldn’t wait until it was ours.
A Tale of Two Asian Expat Havens: Thailand and Singapore are close geographically, share a hot, humid climate, and both are popular destinations for expatriates. Beyond these superficial similarities, however, the two countries are very different. If you are looking for a laid-back and inexpensive tropical lifestyle largely free of “Big Brother”, in an environment friendly to westerners, Thailand is worth considering. In contrast, the tiny island of Singapore is rigorously efficient. It is also one of the world’s cleanest places with an extremely efficient infrastructure and high quality of life. The price for this efficiency, though, is one of the highest costs of living in the world, along with a hefty dose of Big Brother.Issue table of contents here..
IRS TIGHTENS CONTROLS OVER TAXPAYER IDENTIFICATION NUMBER ISSUANCE
The IRS announced several steps to strengthen controls over the issuance of Individual Taxpayer Identification Numbers. Federal law requires individuals with US income, regardless of immigration status, to pay US taxes. The ITIN, a nine-digit number that begins with the number 9, was created for use on tax returns for those taxpayers who do not qualify for a Social Security Number. The IRS has issued 7 million ITINs since 1996.
However, some ITINs issued by the IRS do not appear in tax filings or tax reporting documents and may have been procured solely to serve as a form of identification. Earlier this year, the IRS issued letters advising that ITINs were not designed to serve as personal identification and would not be suitable for determining identification of applicants for driver’s licenses.More on this story here.
ST. KITTS AND NEVIS UNVEILS BUDGET WITH NO NEW TAXES
The Prime Minister and Minister of Finance, Dr. Denzil Douglas presented his 2004 budget, which contained no additional levies to be imposed on either individuals or businesses. “This government ... would only introduce tax measures as a last resort,” he announced. Among the changes unveiled was the refinement of the jurisdiction’s tax concessions regime in order to provide incentives for overseas investors to enter into joint ventures with local businesses and individuals.
“We have been insisting that foreign investors would only be permitted to open businesses in areas where, because of the required level of expertise or capital, locals could not operate effectively. But this is a defensive strategy that may not be sustainable in the context of globalization,” he explained. The Prime Minister also proposed the abolition of the Aliens Loan Levy for the 2004 fiscal year, explaining that the tax is no longer feasible in the current business climate.More on this story here.
WTO PANEL CONCLUDES FIRST ROUND IN DISPUTE BETWEEN US AND ANTIGUA & BARBUDA
The World Trade Organization panel examining the complaint brought by the Caribbean jurisdiction wrapped up its initial hearing in Geneva on Wednesday. “This has been a long uphill battle but we have overcome every obstacle so far,” Antigua and Barbuda’s Chief Foreign Affairs Representative, Sir Ronald Sanders commented last week. “These included the US attempt to stop the establishment of the Panel, then its failure to agree with us on the composition of the Panel, and finally its filing of a ‘no-case’ submission which was overturned by the Panel,” he explained.
Antigua and Barbuda’s government argues that the US is violating its commitment to the WTO General Agreement on Trade in Services by prohibiting the provision of cross-border gambling and betting services. However, in the eyes of Sir Ronald, the actions of the US amount to “simply protectionism, nothing more, nothing less”.More on this story here.
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