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LOST IN A HEAT HAZE OF TROPICAL HOOEY
“No property taxes, no personal income taxes, no corporate taxes... no capital gains taxes, no inheritance or estate taxes...” No wonder residences in Veranda, a luxury resort village in the Turks and Caicos Islands, a British dependency in the Caribbean, are changing hands so fast. Last month, 45 were sold within 45 minutes, in a frenzy of buying that echoed the excesses of the dotcom boom. It is a tropical Eden from which the taxman has been banished, like Lucifer, never to return. Perhaps the oddest thing about Veranda is that it does not exist -- or not yet. Building starts this April and will be completed by December 2005. So the punters who have already snapped up more than half the 116 properties in Veranda are not buying bricks and mortar. They are buying a concept, a vision, a blueprint.
So why are people doing it? Partly for hard-headed financial reasons. The Turks and Caicos are not just a tax haven, but a fast-growing property market, with prices rising by 20% a year. You may never clap eyes on your luxury home, never set foot in the Turks and Caicos, yet still make a handsome profit. But also, one suspects, because Veranda has been so slickly and skilfully packaged. Properties are not given numbers, but names redolent of the tropics. Hibiscus, Oleander, Spider Lily, Bananaquit... Images of an exotic lifestyle are force-fed to would-be purchasers. The fact that Veranda is just one new development among many on Grace Bay gets lost in a haze of tropical hooey.More on this story here. CIA background publication on the Turks and Caicos here.
UBS SUCCESSFULLY ESTABLISHES WALL ST. BEACHHEAD
For much of the past decade, Europe’s leading investment banks have spent billions of dollars chasing a dream: to build global businesses and to take on the bulge bracket US giants on their home turf. For most, the dream proved elusive. The Wall Street elite -- Goldman Sachs, Morgan Stanley and Merrill Lynch -- seemed unassailable. Now, finally, Swiss banking group UBS appears to have realized the dream and created a premier league investment bank up there with the giants. “I think we have got the last seat on the bus in terms of creating a globally diverse investment bank which can compete with the US banks,” says John Costas, the chairman and chief executive of UBS Investment Bank.
In 2003, UBS was the fourth biggest investment bank, according to figures announced last week by a consulting firm. It had a 5.6% share of the global market, based on fee income; in 2002, it was ranked seventh, with 4.8% of the market. UBS has overtaken Morgan Stanley, JP Morgan and Credit Suisse First Boston. It now trails just Citigroup (with 6.3%), Goldman Sachs (6.2%) and Merrill Lynch (a fraction over 5.6%).More on this story here.
UBS expands European wealth management base.
Switzerland’s biggest bank announced that it had agreed to buy the British-based financial adviser, Scott Goodman Harris, for an undisclosed fee. Scott Goodman Harris is a leading life and pensions adviser, largely serving executives and company directors. The announcement comes just days after the bank bought Britain’s Laing & Cruickshank Investment Management for £160 million. The purchase doubled the bank’s assets under management in Britain to £10 billion.More on this story here.
POLICE NET WIDENS ON PARMALAT FAMILY
Italian police today arrested the son and a daughter of Calisto Tanzi, the disgraced founder of Parmalat, the dairy group at the heart of one of Europe’s biggest ever frauds. The arrests, along with six others, brought to 18 the total number of people in detention in connection with the scandal, dubbed Europe’s Enron. The arrests came as investigators in Parma put the amount of cash diverted from Parmalat at about €900 million, including €400 million into travel and tourism assets.
“The siphoning off of funds into the tourism firms was done through payments with false accounts from both [Parmalat and the tourism companies],” an investigative source said, adding that the books of Cayman Islands unit Bonlat were then used to hide the cash.More on this story here.
SHAREHOLDERS OVERWHELMINGLY APPROVE SALE OF BANK OF BERMUDA TO HSBC
In total, 91% of 83.8% of the bank’s shares were voted in favor of the sale to multinational banking giant HSBC Plc. Following the result last night chairman Joseph Johnson, flanked by CEO Henry Smith and COO Philip Butterfield, said he was very pleased with the result and the strong turnout -- with 650 shareholders coming to the special general meeting. He also pointed out that it was a “sad day” and the end of a tradition, with the Bank of Bermuda having offered banking services as an independent entity for 114 years.
While the sale of the bank and the disbursement of shareholder cheques will move quickly ahead this week, Bank of Bermuda chiefs today said that customers should expect changes to the bank itself to be more gradual.More on this story here and here. History of the deal summarized here.
SURVEY RESULTS OPTIMISTIC ABOUT BRITISH VIRGIN ISLANDS FINANCIAL SERVICES INDUSTRY
The Deputy Chief Minister and Minister of Finance of the BVI believes the findings of a recent opinion survey of individuals who work in the financial services sector are crucial for the continued development of the industry in the BVI. The first, and in many ways the most significant finding, according to the Minister, is that the members of the financial services sector are optimistic -- both about where the sector is today and where it is heading in the future, as 80% of the respondents said it is headed in the “right direction”.More on this story here and here.
BERMUDA MONETARY AUTHORITY CHIEF PROPOSES HEDGE FUND REGIME CHANGE
Addressing delegates at a recent Bermuda International Business Association meeting, Cheryl Ann Lister, Chairman and CEO of the BMA, acknowledged that while the island had been successful in developing an alternative investments industry, there were certain areas in which the 1998 regulatory framework was falling short. The reforms would introduce a licensing system for fund managers, although from an institutional standpoint, the BMA notes that regulation will be “much lighter”. In a bid to win a larger share of the growing hedge fund industry, the BMA has been proactively selling the jurisdiction by sending representatives to major international financial centers over the past twelve months.More on this story here.
GUERNSEY FUNDS UNDER MANAGEMENT HIT RECORD LEVELS
The total amount of funds under management in Guernsey has for the first time surpassed the £55 billion mark as the Financial Services Commission recorded further growth in its fourth quarter 2003 investment statistics. Open and closed-ended sectors combined reached an end-year 2003 value of £41.8 billion, an increase of 26.6% for the year. The GFSC noted that the figures were attributable to both improving capital values as markets recovered, and the growing reputation of the jurisdiction as a well administered and reputable financial center.More on this story here.
BERLUSCONI WARNS OF EU “BIG MESS”
Italian Prime Minister Silvio Berlusconi said the EU faced a big mess if its three biggest countries tried to dictate to the rest. On the eve of a summit between Germany, France and Britain, Mr. Berlusconi launched the strongest attack yet by a European leader on what he portrayed as efforts by the three to create a “directorate” for the EU. Despite their assurances to the contrary, concerns have been mounting among their peers that the “Big Three” are engaged in power play to prevent their influence from being diluted when the EU expands from 15 to 25 members on May 1. “Directorate” or “directoire” is the term for the five directors who ran France after the post-revolutionary Terror in the 1790s.More on this story here.
Six EU member states reject “reforms” to stability and growth pact.
In a letter sent to the EU, Italy, Spain, Poland, the Netherlands, Portugal and Estonia issued a warning that the Stability and Growth Pact reforms sought by France and Germany, both of which have breached its terms, should not be necessary. “Economic recovery must respect the principles of macroeconomic stability. Our commitment to sound budget policies should not be questioned,” the letter observed.More on this story here.
FEBRUARY ISSUE OF ESCAPE FROM AMERICA MAGAZINE IS OUT
Sample articles from this issue include:
Living In New Zealand, Answers & Anecdotes Part 1: Many who responded to the my article are parents and, interestingly, writers, teachers and those with education. As the new school year has just begun in New Zealand, and a teacher myself, I will start with those questions relating to education.
An Introduction to Living in Hanoi: When most people, westerners at least, hear the word Vietnam what goes through their head is, probably, thoughts about a war and a time back then when things really spun out of control; all to the backing of a Jimi Hendrix track. What most people do not think of (and by the way its called the American War over here) is the fact that Vietnam is a truly beautiful country, which, due to the Vietnamese Government’s relatively recent “Open Door” policy, has rarely if ever been easier to live in. Spared the sticky heat of Saigon (Ho Chi Minh City), Hanoi’s three and a half million residents enjoy a city which is liberally sprinkled with lakes, parks, coffee shops, and a surprisingly cosmopolitan range of bars and restaurants. It is a small city, with all the benefits that brings, and we enjoy four seasons.
Vive la Difference!: When moving abroad the to-do list is endless: packing, shipping, new schools for the kids, accommodation in the new country. It goes on forever, but is either taken care of, if you are lucky, by your company, or yourself with the help of endless checklists. However, one thing is often being neglected, even though vital to making your overseas experience a happy and successful one: learning about the cultural etiquette of the country you are going to be living and working in.
The Dangers Of South Africa: For foreigners, the climate, the scenery, the people and the opportunities available must seem boundless. However, I feel that if one considers relocating a family or business, one has to know and be prepared for the reality of life in the country that has the highest murder, rape and AIDS statistics in the world. Were the crime alone resolved, I know of South Africans who would return in droves to re-establish themselves and their businesses there. I would love to return and take my children back to experience their culture and live the reality of it.
Teach English Worldwide: People from all walks of life are heading to the heart of Europe to begin their adventure of teaching English abroad. Prague, in the Czech Republic, is the perfect setting to begin teaching English as a foreign language (TEFL). In just 4 weeks you can become certified by TEFL Worldwide to teach English and receive job placement assistance worldwide.Issue table of contents here.
TIME RUNNING OUT ON US EXPORT SUBSIDIES, EU TRADE COMMISSIONER WARNS
Pascal Lamy warned that the United States faces a race against time to thwart multi-million-dollar sanctions over illegal tax breaks for US exporters. But he played down talk of a new trade war erupting unless the US Congress failed to repeal the Foreign Sales Corporation (FSC) law in time to avoid the World Trade Organisation-backed sanctions by a March 1 deadline.More on this story here.
SOUTH AFRICA TO LET FOREIGN GROUPS RAISE FUNDS ON CAPITAL MARKETS
In a partial easing of its stringent exchange controls, South Africa will allow offshore companies to tap its stock and bond markets. The move will be particularly welcome to foreign-listed mining companies, some of which have shelved South African deals after failing to raise capital locally.
The JSE, hit by falling trading volumes, is looking to draw in new business, including through a planned pan-African board. But in a potential setback for mining companies, finance minister Trevor Manuel confirmed the government plans to introduce a sales-based royalty charge in 2009. Changes to the tax regime would “provide an opportunity to review the industry’s tax dispensation as a whole”, he said. Mining companies, already under pressure from the strong rand and high transport costs, urged the government to reconsider its tax plans. They have lobbied unsuccessfully for a royalty formula based on profits.
Despite the global bull market for precious metals, several South African companies have reported sagging profits or scaled back investment plans in recent months. South Africa is the world’s largest exporter of platinum and gold, and the second-largest source of diamonds for De Beers, after Botswana.More on this story here.
HONG KONG REMINDED THAT CHINA IS IN CHARGE
China’s central government has issued a string of increasingly blunt reminders that it retains the final say over how Hong Kong is governed, seeking to douse activists’ hopes for rapid accession to full democracy in the former British colony. The latest warning came in the form of an interview attributed to a senior Chinese official in which he warned that Beijing would be forced to act if the Legislative Council gained a pro-democracy majority in upcoming elections. Wen Wei Po, a newspaper that relays official Chinese views in Hong Kong, said the unnamed official declined to specify whether that meant dissolving the 60-member legislature, leaving the possibility open and reinforcing the gravity of his warning. “I have a knife,” Wen Wei Po quoted him as saying. “Usually it is not used, but now you force me to use this knife.”
The warning was interpreted by Hong Kong democracy advocates not as a realistic threat but as part of an escalating campaign to stop their attempt to have the territory’s chief executive chosen by direct elections in 2007 and the Legislative Council by a similar vote the following year. Ostensibly a constitutional argument, the struggle has swelled into a broader and sharp-edged debate about Hong Kong’s status in the “one country, two systems” arrangement put into place when Britain returned the colony to Chinese rule in 1997.More on this story here.
POLITICAL BREAKTHROUGH IN CYPRUS?
After a breakthrough at the UN, fresh peace talks on the divided island of Cyprus have begun, and will be followed by a referendum. If all goes well, the whole island will join the European Union on May 1st -- also boosting Turkey’s chances of joining eventually.More on this story here.
JEROME SCHNEIDER PLEADS GUILTY IN TAX FRAUD CASE
A leading promoter of the use of offshore bank accounts to escape taxes, Jerome Schneider of Vancouver, British Columbia, has pleaded guilty to one felony tax charge. Under a plea agreement with prosecutors, he faces up to 24 months in prison and potentially far less if he helps in the prosecution of his clients. He remained free on $100,000 bail. Mr. Schneider, who bought ads in newspapers and magazine promoting tax evasion, was indicted in December 2002 along with an associate, Eric Whitmeyer, a lawyer in Los Angeles.
Schneider admitted he and Witmeyer ran a scheme in which they offered for sale the stock of Nauru trading corporations licensed as international banks and other offshore corporations. Schneider admitted he told his clients their ownership of these offshore entities, with documents prepared by Witmeyer, would let them hide from the IRS whatever assets they put into these entities’ names. Investors paid Schneider from $15,000 to $60,000 to buy interests in the offshore businesses, and then paid Witmeyer about $15,000 to decontrol, or mask their role.More on this story here and here.
U.S. VIRGIN ISLANDS A HAVEN FOR MAINLAND-BASED TAX CHEATS, AN IRS CASE SUGGESTS
The IRS has landed its first guilty plea in a Caribbean scheme estimated to have cost the U.S. Treasury Department up to $100 million. A surprise twist: This offshore tax haven was on U.S. property -- St. Croix in the Virgin Islands. A second surprise twist: The tax-evasion scheme involved a legal tax shelter set up by the IRS itself. IRS officials say the shelter, designed to assist island residents in terms of economic development, was being abused by mainlanders looking to hide income from Uncle Sam.
The defendant was an insurance salesman, Gary Payne, who evaded U.S. taxes by becoming a limited partner in something called the Virgin Islands Industrial Development Program, which is legally entitled, under Internal Revenue Code, to extend a 90% tax reduction to its partners. But the tax benefits only apply to income generated in the Virgin Islands, and the recipients must live there. He did not actually earn the money in the islands but funneled his U.S. income into the partnership there. The partnership claimed that it had hired him to manage his insurance business. The indictment alleged that that was a ruse designed to allow him to shift his U.S. income offshore. He faked residency in the Virgin Islands by registering to vote there, getting a Virgin Islands driver’s license and renting an apartment there, while rarely ever visiting St. Croix, according to the indictment.More on this story here. Business information for the U.S. Virgin Islands here.
COURT BACKS IRS EFFORT TO GET TAX SHELTER FILES
A federal judge in Philadelphia rejected a motion to dismiss an I.R.S. summons to an investment company to hand over documents, including a list of clients who bought the tax shelter from a company that caters to doctors and dentists. The I.R.S. has recently stepped up its efforts to require accounting firms, law firms and, in some cases, investment firms, to reveal the identities of tax shelter buyers.More on this story here.
PRIVACY LAWS PREVENT US CRACK-DOWN ON TAX-DELIQUENT DEFENSE CONTRACTORS
As government officials revealed last week that the Department of Defence is powerless to prevent contracts from being awarded to tax delinquent firms, due to the existence of strict privacy laws. The fact has come to light following the release of a General Accounting Office report, in which investigators found that some 27,000 defence contractors owed the IRS a total of $3 billion in unpaid taxes. However, the GAO report also spotlights a failure on the part of government agencies to withhold 15% of a firm’s payments if they are found to owe taxes.More on this story here.
HIGH TAXES SPUR UNDERGROUND DIAMOND TRANSACTIONS IN CANADA
A study of the Quebec diamond market found that 75% of diamonds are sold underground through a parallel network of jewellers. “The effect of taxes in Canada accounts for a large part of the underground sales. The sales declared [by jewellers] do not reflect the value of the market,” according to the report. The report noted that federal and provincial taxes add more than 25% to the price of diamonds in Canada, compared with an extra 6% in the United States. The study found many other problems plaguing the industry, including artificially inflated prices and a lack of proper quality control.
A recent Statistics Canada report said Canada is poised to become the world’s third-biggest producer of diamonds, accounting for almost 15% of the world’s diamonds by value -- ahead of South Africa, but behind Botswana and Russia.More on this story here.
THE STORM OVER TAX HAVENS
There is nothing subtle about this tax haven. Websites boast how easy it is to create a limited-liability company here in 24 hours, by phone, by fax or online -- no need to show up in person. Unlike some other offshore centers that require at least two people to form a corporation, only one is needed here. And for a fee, anonymity is assured. “We have a large database of shelf corporations available so that you can establish a history for your company,” touts an ad for one service firm on the territory. Cayman Islands? Monaco? The Bahamas? No, it is the U.S. state of Delaware, and the services offered there are entirely legal. No wonder success is so elusive in the growing international effort to crack down on tax fraud: one man’s shady haven is another man’s low-tax financial-services center.
Tax havens have been around almost as long as taxes. They have mushroomed in size and importance since the 1970s, when large corporations and international banks started developing sophisticated offshore financial markets out of the reach of national regulators. Last week tax officials from the U.S., Germany, France and four other Western countries met in London with representatives from seven havens in an attempt to revive talks about increasing cooperation and transparency.
Much of the offshore money is legitimate, but it is certainly a tempting political target. The U.S. alone estimates that it loses between $54 billion and $70 billion in tax revenues to tax havens every year. Of the more than 30 tax havens originally identified by the O.E.C.D. in 1998, only five have yet to agree to open up their books a bit. Even those efforts have stalled. One reason is that some havens now feel they are being discriminated against; while they have started to clean up their acts, they argue, places like Switzerland and Delaware have not. At a tense meeting in Ottawa last October, the havens insisted that the rules they signed up for should apply to all.More on this story here.
Antigua protests at OECD’s stance on level playing field issues.
“The government of Antigua and Barbuda wishes to place on record our dismay at the way in which agreement is being sought on these terms of reference,” wrote Antigua and Barbuda’s chief foreign affairs representative, Sir Ronald Sanders, In a letter to the secretary-general of the OECD Donald Johnston. “The issue to be addressed is simple. Is there, or is there not a level playing field amongst those jurisdictions that make up the Global Forum, OECD and non-OECD alike, who have made commitments to the principles of exchange of information and transparency?”More on this story here.
John Kerry sets sights on Caribbean tax havens.
In a speech to supporters, Kerry singled out Bermuda and the Cayman Islands, which are both British-owned as he promised to tackle tax evasion and banking secrecy. “There are enough brass-plate companies down in the Cayman Islands to make anybody sick when they look at their own tax bill,” he said. [Note: In fact, “brass-plate” companies are now banned in the Caymans.]More on this story here and here.
JERSEY PLANS TO TAX CONSUMERS
Jersey residents have heretofore been spared the burden of a VAT, because the island remains outside the EU, but pressure from Brussels and Westminster to end “harmful tax competition” is forcing Jersey into a tax upheaval. The Jersey exempt company, a corporate vehicle that pays no tax on profits earned abroad, is to be abolished. In order to remain competitive, Jersey will end exempt status by abolishing company tax altogether, including that on conducting business in Jersey.
According to Senator Frank Walker, the change will cause a significant downturn in tax receipts because some 40% of island revenue comes from corporations. The gap is to be filled with a levy, possibly 10%, on the profits of financial services companies, the island’s principal industry, and some form of sales tax. Both measures are likely to be unpopular.More on this story here and here.
EU AND SWISS STILL DEADLOCKED OVER TAX EVASION
A visit by the Swiss president, Joseph Deiss, to Dublin has failed to break the deadlock over a series of stalled bilateral treaties with the European Union. Deiss told the Irish government (Ireland currently holds the EU’s rotating presidency) that Bern would only sign an agreement on tax evasion in concert with eight other other agreements governing issues, such as cross-border fraud and asylum, being negotiated. Deiss added that the Swiss had already given ground by agreeing in principle to the taxation accord and that now it was the EU’s turn to make concessions.
Correspondents say the negotiations are reaching a crucial point because the 15-nation bloc will shortly take in ten new members and Brussels will want the taxation issue resolved before then. Laurent Goetschel, a European political expert at Basel University, warned that negotiations could drag on for months, if not a year, before reaching any conclusion.More on this story here.
EU hits Switzerland with new tax.
In a unilateral move by Brussels, starting March 1 a new tax is to be levied on products exported from Switzerland to the EU which were made using raw materials imported from EU member states. Stephan Schmid, a spokesman for the State Secretariat for Economic Affairs (Seco) in Bern, said Switzerland would fight the decision and confirmed that an explanation had been sought from the authorities in Brussels. According to the economics ministry, the new tax will affect a large number of sectors -- including the textile, chemical and pharmaceutical industries -- which rely on raw materials from EU member states.
Luzius Wasescha, a senior Swiss official with responsibility for the country’s international trade relations, does not believe the EU’s decision to impose a tax on re-exports is related to the continuing deadlock over a series of stalled bilateral treaties between Brussels and Bern.More on this story here.
CAYMAN ISLANDS YIELD TO EUROPEAN UNION SAVING TAX DIRECTIVE
The Cayman Islands will fall in line with the EU’s Saving Tax Directive effective 1 January 2005 following a vote in the Legislative Assembly last Friday. The opposition People’s Progressive Movement abstained from the vote that allows the EU to impose taxes on income earned from savings of EU citizens with accounts in Cayman. The leader of Government Business, Mr. McKeeva Bush advised members of the Legislative Assembly to accept the motion, in a move that is in stark contrast to his earlier position on the matter, saying “I am not one that is normally pushed around. I believe that you can only push so much. In effect then, our two alternatives are that we either reject the proposal and allow the UK government to put it in to place, or we agree, take what is offered and say, ‘I live to fight another day.’”
The about-face move by the United Democratic Party Government comes after Mr. Bush received a letter from the UK Paymaster General, Dawn Primarolo on 12 February, where she said that the Cayman Islands Government has until the 20 February to make every effort to ensure the legislation is enacted by the 30 June, or face direct legislation by the UK government.More on this story here.
UN Secretary-General calls for decolonization of Caribbean territories.
Kofi Annan has reiterated the call for decolonization of remaining listed territories, including seven in the Caribbean, saying that “In the twenty-first century, colonialism is an anachronism.”More on this story here and here.
PBS SPECIAL INVESTIGATES TAX SHELTER ABUSE
In “Tax Me If You Can”, airing Thursday, February 19, at 9 p.m. on PBS (check local listings), Frontline correspondent Hedrick Smith investigates the rampant abuse of tax shelters since the late 1990s. Through interviews with government officials, tax experts, and industry insiders, Smith uncovers an avalanche of bogus transactions created by some of America’s biggest and most-respected accounting firms, law firms, and investment banks that were then aggressively marketed to big corporations and wealthy individuals.
“These were close to sham transactions -- some were clearly sham transactions, [that] had nothing to do with investment,” says John “Buc”q Chapoton, former treasury department policymaker in the Reagan administration. “They simply were financial mechanisms for creating losses -- tax losses, not economic losses.” To overcome this problem, former IRS commissioner Charles Rossotti asserts that Congress must now enact sweeping legislation to ban any tax shelters that do not have legitimate business purpose, and he warns of the danger of inaction.More on this story here.
EU COMMISSION MAY REJECT GIBRALTAR’S TAX REFORMS
A Gibraltar government spokesman has indicated that the EC will announce its rejection of the jurisdiction’s proposed tax reforms on the grounds that they breach EU state aid rules. The reform would abolish taxation of company profits and replace it with a payroll tax (a fixed tax per employee) and a business property occupation tax. In addition, two sectors, financial services and utilities, would be subject to “top up” taxes on their profits at a rate of 8% and 35% respectively.
The spokesman confirmed that “any such conclusion would amount to a decision that Gibraltar is not entitled to have a different tax system to the UK”. He added that this would be an “unsustainable proposition” for Gibraltar.More on this story here.
US ISSUES GUIDANCE ON ABUSIVE FOREIGN TAX CREDIT TRANSACTIONS
The Treasury Department and the IRS issued two notices that address issues surrounding the administration and regulation of the foreign tax credit rules while also forbidding transactions designed to generate credits for foreign taxes paid on gains that are not subject to tax in the United States. Commenting on the notices, Treasury Assistant Secretary for Tax Policy Pam Olson observed “The foreign tax credit serves the important purpose of eliminating potential double taxation. It was never intended to eliminate tax altogether.”More on this story here.
NEW ZEALAND TO REQUIRE CHARITIES TO REGISTER TO BE TAX-EXEMPT
The Government plans for the register of charities to start in 2005 and a tax-exemption provision for charities to come into force a year after that. Charities are currently exempt but there is no registration regime. When the new exemption rules come into force charities will qualify only when they are registered.More on this story here.
IRS’S CRIMINAL INVESTIGATION SIDE KICKS INTO NEW GEAR
In the anti-tax atmosphere of the late 1990s, criminal investigation, along with the rest of the IRS, took its lumps. The Senate Finance Committee in a series of hearings pictured the division as a bunch of jackbooted thugs trampling on the rights of honest taxpayers and small businesses. The parent IRS was similarly demonized, and has spent much of its time, effort and money in the intervening years working on being a “customer service” agency.
Now the IRS is rediscovering its law enforcement function. The person the agency has picked to lead this charge is Nancy J. Jardini, 39, a 15-year veteran of law enforcement posts, who was promoted last month from deputy to chief of criminal investigation. Jardini is the first woman to hold that job, and she said she is thrilled to have it. In remarks she said she considers law enforcement “great fun”.More on this story here.
ANATOMY OF THE FIRST INTERNATIONAL BANK OF GRENADA FRAUD
Six years after its inception, federal agents say Van A. Brink’s offshore bank, the First International Bank of Grenada, was an elaborate scheme that defrauded more than 4,000 investors in the United States and Canada out of $206 million. The bank collapsed in 2000, and a Canadian liquidator says there is little money left to recover. A 147-count federal grand jury indictment in Portland, Oregon accuses Brink and his partners of conspiracy, mail and wire fraud, and money laundering. Three people have been arrested in Nevada and Florida and have pleaded not guilty. Brink and Douglas C. Ferguson remain fugitives.
The government says Brink and other bank officers solicited investors through church groups, get-rich-quick seminars, the Internet and shady financial advisers. They promised interest rates of up to 300%, deposits 100% guaranteed and that the bank was backed by a $20 million ruby carved into a statue of a boy riding a water buffalo. David Marchant, editor of OffShoreAlert, said investor confidence in the bank was boosted by Michael Creft, then Grenada’s top banking regulator, who several times publicly supported the bank.
Federal agents say Brink, 53, is in Uganda, where officials say he once lived in the palace of former Ugandan dictator Idi Amin. They also say he married a Ugandan woman in an effort to remain there, as the United States has no extradition treaty with Uganda. In an e-mail to an Internet chat room and in a recent interview, Brink denied stealing anything.More on this story here.
BRITISH EXPATS ADVISED TO TAKE PROTECTION INTO ACCOUNT IN CHOOSING BANK
Greg Heath, director of Booth Financial Management, advises that “The Financial Services Authority regulates the advice of UK-based advisers recommending offshore funds, but offshore based advisers and some offshore based funds are not always subject to the same level of regulation. This may be important to expatriates who feel comfortable with the UK regulations. However, many of the more established tax havens have comparable consumer protection.”
Many expats seem to leave their common sense at home when they move abroad, said Chris Blampied of Royal Bank of Canada Global Private Banking, and fail to find out whether they are dealing with a reputable institution before handing their money over. “A flashy website is fine but what about the institution that stands behind it? Is it strong? What’s its credit rating? Above all else I think you need the peace of mind that you have selected the right provider to meet your needs,” he added.More on this story here.
AUSTRALIAN TAX OFFICE INVESTIGATING FOREIGN TRUST TAX AVOIDANCE SCHEMES
The ATO warned that it is investigating foreign trust arrangements in a bid to stamp out tax evasion. Under scrutiny are activities which involve the creation of a trust in New Zealand that agrees to provide staff and other services at cost price plus a mark-up to an associated Australian company. The Australian-based business then claims tax deductions for the cost of these services. The Tax Office points out that no tax is paid by the trust or its beneficiaries on this service income either in Australia or New Zealand, and has observed that service fees are paid into a bank account controlled by the trust to which the owners of Australian businesses also have access.More on this story here.
ASSET PROTECTION THROUGH SWISS INSURANCE POLICIES
When a person residing outside of Switzerland -- the “policy owner” -- purchases a life insurance policy from a Swiss insurance company and designates his or her spouse and/or descendants as beneficiaries of the policy, or irrevocably designates any other third party as beneficiary (e.g., a legal entity such as a trust), the insurance policy is protected by Swiss law against any debt collection procedures instituted by the creditors of the policy owner and also is not included in any Swiss bankruptcy procedure in this regard. Even when a foreign judgment or court order expressly decrees the seizure of the policy or its inclusion in the estate in bankruptcy, the policy may not be seized in Switzerland or included in the estate in bankruptcy.
Creditors may only seize the policy or have it included in the estate in bankruptcy when the purchase of the policy or the designation of the beneficiaries is considered to be a fraudulent conveyance under Swiss law. This condition is fulfilled, e.g., when the policy owner has designated the beneficiaries not more than one year before the initiation of debt collection proceedings that eventually lead to a bankruptcy decree against the policy owner or to the seizure of the policy owner’s assets.
The Swiss insurance company can only act upon orders of the owner if his or her actions are deemed not to have been made under duress. If there is any evidence that an order has been forced upon the owner, the insurance company cannot follow the instructions so issued. In such a case, the beneficiaries should inform the insurance company. In case of bankruptcy of the policy owner, protection is also guaranteed because ownership is transferred to the beneficiaries automatically. Any instructions from the original policy owner that are forced upon him or her can no longer be acted upon; only his or her beneficiaries, as the new owners, can give instructions to the insurance company.
Unlike many other foreign annuities, Swiss annuities are not subject to the 1 percent U.S. excise tax on the purchase of foreign annuity and insurance premiums, due to the adoption in 1998 of a new Swiss-U.S. Double Tax Treaty. Most foreign fixed annuities are no longer tax deferred in the United States (see IRS regulations, “Tax Treatment of Certain Annuity Contracts,” IRC §§ 163(e) and 1271 through 1275). Accordingly, the owner of a Swiss fixed annuity (as well as other foreign annuities that are seen as debt instruments) pays tax on the income that accrues, including currency gains if the annuity is denominated in a foreign currency. The inside buildup of a foreign variable annuity continues to be tax free, subject to certain conditions being met.More on this story here.
THE NETHERLANDS RETHINKS ITS OFFSHORE TRUST INDUSTRY
For decades, the Dutch trust industry was almost entirely unregulated, but a host of outside interests have become increasingly concerned about the possible abuse of shell companies here and elsewhere for fraud and money laundering. Parmalat issued some $6 billion in bonds through its shell subsidiaries in the Netherlands. The bonds are now all but worthless. Their dealings are the subject of a formal securities investigation in the Netherlands.
On March 1, new regulations will take effect that the government hopes will restore confidence in the industry without threatening the hundreds of trust office jobs it creates and the billions of euros in taxes it pays to the Netherlands. For the first time, the central bank will have formal authority to oversee the entire industry. Trust offices will be required to obtain permits to operate, and when money flows through the shell companies they oversee, they will be responsible to a certain degree for knowing where the money is coming from and where it is going. These rules come on top of EU guidelines requiring that trust offices verify the identities of their clients and report any large cash transactions to regulators.More on this story here.
WHEN SHREWD FINANCING MEETS TAX EVASION
A crackdown on abusive and fraudulent offshore trusts began in the late 1990s. Those kinds of trusts, and related offshore financial manuevers, account for one of the largest losses of tax revenue each year, experts say. Despite the increased scrutiny, new offshore trust promotions pop up weekly on the Internet. And the secrecy that shrouds many foreign banking systems makes convictiond the exception, not the rule. Most people get away with it.
The mention of offshore bank accounts often evokes images of drug dealers or the ultrarich stashing loads of cash and other assets in some tropical paradise. Setting up and managing such trusts was thought to be complicated, time consuming and expensive. No more. Tax havens such as Belize, Grenada and Aruba have made moving money out of the IRS’s grasp as easy as renting a car, according to Donald Barlett and James Steele in The Great American Tax Dodge.
It is not illegal for Americans to move money into offshore accounts, but anyone who opens one must, by law, report it to the IRS. And any investment income earned from the assests in the trust must also be reported because it is taxable. Shifting untaxed income into a tax haven without declaring it to the IRS is tax evasion. [Ed: This is an oversimplification. Go here for a comprehensive overview.] The problem for investigators is following the money. The tax havens have strict confidentially laws about disclosing financial and banking information. For the most part, the countries do not require that the trusts be recorded, so tracking a specific trust is close to impossible.More on this story here.
DIRTY CASH RULES PERPLEX SCOTTISH SOLICITORS
Scottish solicitors find themselves on the horns of a dilemma in attempting to comply with recent money laundering legislation, according to Joe Platt, president of the Law Society of Scotland. He says they were praised last summer by the National Criminal Intelligence Service (NCIS) for the number and quality of their disclosures since the Proceeds of Crime Act came into force early last year, but they nevertheless face difficult professional questions in trying to make the law work.
Solicitors, he says, are aware of the need to avoid becoming the unwitting dupes of criminals with dirty money to process, for whom a respectable legal practice would be an ideal medium for converting their cash into assets about which few questions would be asked. But the duties imposed by the Act go far beyond that basic scenario and strike at the heart of the traditional solicitor-client relationship. Failure to disclose criminal conduct could incur penalties of up to 14 years in prison. So could a failure to act on discovering that your client, suing for loss of earnings following an accident, has managed to make a few pounds doing odd jobs without telling the authorities. Even a suspicion is enough.More on this story here.
PICK YOUR PILL: WHAT IS WRONG WITH THE “MATRIX” PROGRAM ANYWAY?
I received a note from a someone who seemed earnest and willing to hear more, but who had a number of questions that obviously were causing him some concern. The writer was respectful, but he disagrees with many things things I have said and information I have posted about the MATRIX (Multistate Anti-Terrorism Information Exchange) Program. He asked me to clarify my position. I am sharing his questions and my answers with you because I think what he had to say is pertinent.More on this story here.
THE MASSACHUSETTS DEPARTMENT OF REVENUE IS WATCHING YOU
If you get the urge to fudge a bit on your taxes this year because you think, “Who is going to notice?” think again. The Massachusetts Revenue Department has launched a technology offensive with the goal of pulling together stray bits of information about every state taxpayer, searching for clues that would indicate who is not paying the taxes they owe.
State officials dismiss the notion they are playing Big Brother, but the potential is rather Orwellian. In theory, said Revenue Department Commissioner Alan LeBovidge, the state may eventually be able to track down so much information about a resident’s finances that the state, rather than the individual, could complete the individual’s tax return. It works by linking information the state has on each taxpayer to more than a dozen public databases to complete a financial puzzle, piece by piece, about each individual. The databases have been around for years, but new technology is allowing the state to assemble and review the information in a time-efficient manner.
The data-crunching can flag someone who declares a $4,000 painting to US Customs when reentering the country but neglects to pay tax on it. An individual reporting only $20,000 in annual income yet identified by Registry of Motor Vehicle records as having a $60,000 car would merit a second look. So would a plumber with a low reported income but a lavish lifestyle. The public databases include information from the IRS, Customs, state licensing boards, the RMV, state incorporation records, and other sources LeBovidge will not even discuss.More on this story here.
Massachusetts seeks to sue Internet cigarette retailers for customer names.
The Massachusetts Revenue Department says it plans to start suing Internet cigarette retailers in a bid to track down customers in the state who are not paying the $1.51-a-pack state excise tax. The Revenue Department also said it has already asked three shipping companies for the names of Massachusetts residents who had received deliveries of cigarettes from out-of-state Internet vendors. One of the shipping companies has already turned over records to the state and the other two are expected to do so shortly. UPS and other delivery companies say they are required to comply with requests from law enforcement agencies, but many consumers have seen the release of information on their purchases as a violation of their privacy.More on this story here.
U.K. DATABASE TO LIST UNPROVEN CHARGES PROVOKES FEARS
A national database containing the details of people accused of unproven allegations, and the subjects of failed police investigations, is planned. Teachers’ leaders and civil liberty campaigners warned the move could cause false and malicious claims. In one scheme piloted in the West Midlands, police have listed names and addresses of all suspects who have been accused of wrongdoing, but have not been convicted.
The retention and availability of so-called “soft intelligence” was among police failings highlighted after the Soham case. Ian Huntley, sentenced to life for murdering Jessica Chapman and Holly Wells, was able to work with children despite having been accused of nine sex crimes, including four rapes, and the indecent assault of an 11-year-old girl. The force had destroyed the intelligence on Huntley, saying all the allegations were unproven, but the Home Office is working on two national database systems, and is reviewing police practice, to ensure such a mistake is not repeated.More on this story here.
MILITARY LOOKS TO SHRINK SURVEILLANCE PLANES DOWN TO THE SIZE OF A BEE
Bath University will study the flight of insects and birds in a series of research projects over the next two years to find ways to extend the range and improve manoeuvrability of micro-planes, borrowing from techniques that have evolved over millions of years. The goal of the researchers is to develop mini-planes weighing about 50 grams and capable of staying aloft for up to an hour and flying a few miles.More on this story here.
EC WANTS BIOMETRICS ON PASSPORTS
The European Commission outlined how a coherent, pan-European approach to security will mean that all citizens will need two biometric identifiers in their passports. Current rules mean that only one, a photograph, is compulsory, but the new proposal makes fingerprints’ inclusion mandatory. It also leaves scope for governments to require further identifiers, such as iris scans, should they deem it necessary. The proposal is yet to be passed by the European parliament. However, with the US now requiring biometrics from tourists and other visitors, and the UK’s decision that passports issued after 2007 must contain a chip with biometric and other data, it seems unlikely that the recommendation will go unheeded.More on this story here and here.
From EU passport to European fingerprint database.
Legal “creativity” has overcome barriers to plans for high-tech EU passports heralding moves to a central European database of fingerprints. The security measure has faced a major legal obstacle -- “harmonized” or EU passports are explicitly ruled out under the existing European Nice Treaty. And in a bid to sidestep EU law Brussels has been forced to include the passport under Schengen border cooperation; a body of European law excluding the UK, Ireland and Denmark. Civil liberties and privacy campaigners are set to raise the alarm over related plans to set up a database containing the fingerprints and photos of all EU passport applicants.
“At EU level, a centralized, biometrics based ‘EU passport register’, which would contain the fingerprint(s) of passport applicants& could be created,” states the commission proposal. Proposals to introduce an EU-wide biometric identity document are to be presented to Europe’s justice ministers on February 19.More on this story here.
PATRIOT ACT SCARES OFF FOREIGN DEPOSITORS
America’s war on terrorism is complicating operations of Montana’s Glacier International Depository, which was created to attract overseas deposits. The depository was chartered under the Blackfeet Indian Tribe’s regulations to cater to foreigners who want to keep their deposits and identities confidential. Depository chairman Robert Doore Sr. said it has a dozen customers from areas including Japan, Hong Kong and London. It has five employees. Doore said the Patriot Act and other homeland security measures require so much scrutiny on international transactions that several of Glacier International’s customers have decided to keep their money closer to home. “We had a lot of interest coming out of the Far East and the Middle East,” but now “those are the areas that foreign policy is most affecting,” he said.More on this story here.
GOVERNMENT DATA RULES ELIMINATE HOPE OF PRIVACY FOR US AIR TRAVELERS
Most airlines outsource their domestic reservation databases, known as Passenger Name Records. “With the cost of storage dropping, retention times have been increasing, but they’ve always been at least three to five years,” said Edward Hasbrouck, the travel guru at Airtreks.com, an Internet travel agency. “PNRs are kept in live storage until the completion of travel, after which they are moved to permanent archival storage.”
Since 9-11, the government has been closely eying that domestic travel data through the jurisdiction of the U.S. Patriot Act and other measures. As a result, travelers in the United States “shouldn’t have confidence in the privacy of their reservations,” said Hasbrouck. Experts believe that, unless the U.S. Congress passes an act to ensure privacy of travelers -- unlikely, due to national security concerns -- collection of data about travelers will intensify, giving government users and some commercial entities the ability to track your travels and expected comings and goings.
“There’s an ‘if you build it they will come’ aspect to data collection and maintenance in such systems,” said Hasbrouck. “Unless the records are destroyed, data can be used for purposes that weren’t anticipated or authorized when it was collected... The distinction between data retained by the government and by the private sector is largely meaningless in light of the Patriot Act provisions for the government to demand privately held data, in secrecy, without the need of a court order,” said Hasbrouck.More on this story here.
CRACKS IN AIRLINE SECURITY SYSTEM OPEN TO TERRORISTS
Imagine if Osama bin Laden attempted to board an airliner in the United States. Suppose he were clean-shaven, sporting short hair, wearing a pin-striped business suit and looked like so many other travelers that no suspicions were raised. How far might he get? If he used aliases such as names of family members he would be nabbed instantly and whisked away for questioning, because many of his relatives are on the FBI’s secret “no-fly list”, according to intelligence sources.
But suppose he boldly decided to use his own name. Would he be cleared to fly? That scenario was tested at a U.S. airport in the South during January, and the result was troubling. America’s most-wanted fugitive is cleared to fly. Osama bin Laden was punched into the computer by an airline official and, remarkably, that name was cleared at the security checkpoint all passengers must pass through before being issued a boarding pass.
As shocking as these revelations may seem, airline-security experts and privacy-advocate groups say they are not surprised. Kathleen Sweet, author of Aviation and Airport Security: Terrorism and Safety Concerns, said the incident confirms the vulnerability of the current system. Transportation Security Administration (TSA) spokesman Mark Hatfield simply acknowledges there are systematic flaws in the system and says that is why TSA proposed in January to build an upgraded version called Computer-Assisted Passenger Prescreening System II (CAPPS II).More on this story here.
Airport screeners slam TSA recertification program.
Through interviews, e-mail exchanges and documents, TSA screeners paint a picture of a testing regime that is based more on subjective criteria than TSA standard operating procedures, leading to confusion and fears that airport safety is being compromised. Screeners said a high number of workers failed the first time they took the recertification test, but passed the second time because TSA is watering down its testing standards.More on this story here.
DELAWARE DEBATES PATRIOT ACT
Two starkly different scenarios help illustrate a debate that is intensifying in Delaware and across the United States. Both involve security, safety and freedom. The first envisions exacting, covert and superior intelligence gathering that helps abort a terrorist attack somewhere in America. Quick and decisive action by government agents averts the slaughter of thousands of innocent people.
The second depicts dark characters invading an innocent person’s home, rifling through his belongings, tapping his telephone and seizing his personal records without probable cause or acknowledgement. The victim of the search can later be detained, spirited away in secrecy, without any disclosure of the grounds for detention. Both are possibilities under the USA Patriot Act -- depending on who is speaking.
As the debate continues, increasing numbers of local governments and some states have passed or are considering resolutions questioning the appropriateness of the act. Some ask that certain sections be deleted. Others seek further review. According to the National Council of State Legislatures, nine states -- Arizona, California, Hawaii, Illinois, Michigan, New Hampshire, Vermont, Virginia and Washington -- have bills asking Congress to revise portions of the act. Two municipalities in Delaware have followed suit.More on this story here.
Former Delaware governor speaks out.
Russell W. Peterson, a former Republican governor of Delaware, has published a stinging indictment of President Bush, the president’s closest advisers and what he calls the dangerous infusion of ultra right-wing philosophy into the American way. “Today is a frightening time for America,” Mr. Peterson, who became a Democrat in 1996, says in the foreword of his book, Patriots, Stand Up! This Land Is Our Land; Fight To Take It Back.More on this story here.
GOVERNMENT MISCONDUCT ACCUSATIONS IMPERIL TERROR CONVICTIONS
Three terrorism convictions in Detroit cited last year by Attorney General John Ashcroft as proof that the government’s war on terrorism is working are in jeopardy. The lead prosecutor in the first terrorism-related trial after the September 11 attacks was removed from the case, as was his boss. Justice Department lawyers and FBI agents in Washington and Detroit are looking into accusations of misconduct.
Seven months before the verdict, Mr. Ashcroft described the government’s key witness as a “critical tool” in the war on terrorism, a remark that brought the threat of a contempt charge by the judge. U.S. District Judge Gerald Rosen said Mr. Ashcroft had “exhibited a distressing lack of care” by making public statements about the then-pending case despite a gag order. “Despite his unquestioned duty to address the nation on matters of public concern, and his more specific responsibility to keep the nation informed on the war on terror, the attorney general has an equally vital and unyielding obligation, as the nation’s chief prosecutor, to ensure that defendants are accorded a fair trial guaranteed to them under our Constitution,” he said.
Judge Rosen also admonished federal prosecutors in the case for withholding documents he said “should have been turned over” to defense attorneys, and ordered the U.S. Attorney’s Office and the FBI in Detroit to determine whether other documents should have been made available.More on this story here.
MONEY TRANSMITTERS TO HEAR FROM IRS AT ANTI-MONEY LAUNDERING CONFERENCE
The IRS will talk to money transmitters and money service businesses about the regulatory examinations for their industry. This group is now covered under the USA PATRIOT Act Bank Secrecy Act, and they are required to register with the Dept. of the Treasury and to file Suspicious Activities Reports.
“The scope of the USA PATRIOT Act has expanded significantly. It now includes nearly everyone who does any type of financial transaction. If you are aware of suspicious or large cash transactions, you now have a legal obligation to report these transactions,” said Florida International Bankers Association’s Executive Director. “If you own a bank account, a brokerage account, a mutual fund account, an interest in a unit trust, or other type of financial account in a foreign country and the value of the accounts exceeds $10,000, you may be required to report the account yearly to the Department of the Treasury.”More on this story here.
“REFINEMENT” OF UTAH ASSET FORFEITURE BILL MAKES PROGRESS
Senate Judiciary Committee members have voted almost unanimously to send Senate Bill 175 to the Senate floor for debate. Sponsors of the bill say it will clean up the “unintended consequences” of a citizen initiative passed four years ago. In 2000, more than two out of three Utah voters approved Initiative B, the “Utah Property Protection Act”, to stop police and prosecutors from confiscating property in drug cases. Law enforcement officials and local governments say Utah has lost $4 million in forfeited funds since Initiative B passed.
Sponsors of SB175 claim it refines what voters meant with the initiative. Under the bill’s provisions, property seizures must be handled in court, and some property would be returned to the owners until cases are resolved if the loss causes a hardship. The bill also prohibits forfeitures when those accused are acquitted.
The legislation has pitted lawmakers against outraged property owners. Yellow fliers with pictures of Buttars and Utah Attorney General Mark Shurtleff were tucked under car windshield wipers Monday morning. “Warning,” the flier said, “Your home is subject to confiscation without due process.” Homeowners worried about “self-funding” police or drug-addicted family members implicating them by planting drugs in their homes filled a committee room.More on this story here.
NEVADA MAN ARRESTED SOLELY FOR FAILURE TO PRODUCE IDENTIFICATION
In May 2000 Dudley Hiibel, 59, was standing around minding his own business when a policeman pulled-up and demanded that Dudley produce his ID. Dudley, having done nothing wrong, declined. He was arrested and charged with “failure to cooperate” for refusing to show ID on demand. And it is all on video. On the 22nd of March 2004, the U.S. Supreme Court will decide whether Dudley and the rest of us live in a free society, or in a country where you must show “your papers” whenever a cop demands them.More on this story here.
FBI REPORT LISTS AGENTS FIRED FOR CRIMES
An internal FBI report kept under wraps for three years details dozens of cases of agents fired for egregious misconduct and crimes, including drug trafficking, attempted murder, theft, misuse of informants and consorting with prostitutes. The report found that about one in 1,000 agents was dismissed for serious misconduct or criminal offenses by the FBI during the period examined, from 1986 to 1999. The average was between eight and nine per year. Although the numbers were small, the FBI’s attempts to prevent the report’s disclosure from the public and Congress since its completion in June 2000 is raising questions among FBI critics about an attempt to avoid embarrassment.More on this story here.
SPARE US ANY MORE “GREAT” PRESIDENTS
In the New York Times Magazine for December 15, 1996, Arthur M. Schlesinger, Jr., presented the results of a poll of historians asked to rank the presidents. One need not ponder the rankings long to discover a remarkable correlation: all but one of the presidents ranked as Great or Near Great had an intimate association with war, either in office or by reputation before taking office.
The lesson seems obvious. Any president who craves a high place in the annals of history should hasten to thrust the American people into an orgy of death and destruction. It does not matter how ill-conceived the war may be. Lincoln achieved his presidential immortality by quite unnecessarily plunging America into its greatest bloodbath -- ostensibly to maintain the boundaries of an existing federal union, as if those boundaries possessed some sacred status. Wilson, on his own initiative and against the preference of a clear majority of the American people, propelled the country into a grotesquely senseless, shockingly barbarous clash of European dynasties in which the United States had no substantial national interest. On such savage and foolish foundations is presidential greatness constructed.
Why do the historians, and following them the public, place on pedestals the leaders responsible for such utter catastrophes? Perhaps because left-liberal historians worship political power, and idolize those who wield it most lavishly in the service of left-liberal causes. How else can one account for the beatification of Lincoln, Wilson, and Franklin Roosevelt? Theodore Roosevelt, a bloodthirsty proto-fascist, evokes admiration because of his public flogging of big business, a perennial left-liberal whipping boy.More on this story here.
THE OPIUM OF THE INTELLECTUALS: WHY ARE UNIVERSITIES DOMINATED BY THE LEFT?
The hegemony of the Left over the universities is so overwhelming that not even Leftists deny it. Whether the institution is public or private, a community college or an Ivy League campus, you can with absolute confidence predict that the curriculum will be suffused with claims that can be, and have been, defended powerfully by thinkers as worthy as any the Left can muster. Yet you will, in the modern university, rarely hear these assertions seriously challenged. Each one is usually treated either as so obvious that any opposing view can be readily dismissed as motivated by ignorance or vested interest, or as so obvious that there is no opposing view worth the trouble of dismissing in the first place. What you will not encounter is a kind of diversity that matters most in the academic context: diversity of thought on the most fundamental issues of religion, morality, and politics.
What is surprising is how little attention is paid to the question of why the university has come to be so dominated by the Left. The question is considered in this two-part series, here and here.
Leftists have a natural affinity for the academic environment.
People with certain traits tend to choose particular occupations. Someone who is afraid of heights is unlikely to become a firefighter. Someone who is repelled by the sight of blood is unlikely to become a doctor. Someone who is impatient with details is unlikely to become a bookkeeper. A fancy term for this is “self selection”. If your temperament favors freedom without responsibility, then there are certain occupations that are a good fit. Academic life is one of them, as I pointed out in Real World 101. A professor has very little of what most of us would consider responsibility. Teaching, which is the most responsible activity that a professor must perform, is considered a minor part of the academic’s life. Almost all professors seek to lower these modest responsibilities even further by seeking reduced teaching loads.
The trick to having freedom without responsibility is to get paid without having to worry about where the money comes from. Most professors do not worry about fundraising or attracting tuition-paying students. In general, wherever creative individuals receive incomes without having to worry about the “business aspect” of their organizations, you have freedom without responsibility. In print journalism, reporting is kept separate from advertising or circulation. In the arts, commercial success is so difficult to predict that few writers, composers, or actors want to deal with the business aspect of their endeavors. Software programmers who want maximum freedom with minimum responsibility self-select into open source software, where you get to work on the aspects of a project that you find important or interesting, without having to be accountable to a business executive or a novice user.
When we see leftist ideology statistically predominant among college professors, news reporters, artists, or open-source software advocates, what we are seeing is self selection. What Richard Florida dubbed “The Creative Class” is a self-selected group that seeks freedom without responsibility in their professional lives. Thus, we should not be surprised that their ideological bent is toward modern liberalism, which translates this personal preference into a political platform. Freedom Without Responsibility may feel like a natural ideology for a cloistered academic. That does not make it an intelligent approach for public policy.More on this story here.
THE HAPSBURG DYNASTY HAS AN UNJUSTIFIED BAD REPUTATION
The Hapsburg dynasty has been about as popular as a pork sandwich in a mosque among the intelligentsia. This fact has influenced a great many of the attitudes prevailing in our mass media and what passes for our education system. We may be permitted to wonder, of course, how a family that was allegedly infested with dullards, imbeciles and lunatics managed to stay in the business of politics for more than six centuries, and in charge of half Europe for nearly five centuries.
Why are the Habsburgs resented so much? There are several reasons, but these can all be summed up in one sentence. The Habsburgs never bothered with political PR. The Habsburgs not only never got intellectuals’ approval, they never wanted it. Everything that intellectuals have demanded since the French Revolution either bored the Habsburgs or actively repelled them. Habsburg rulers’ public utterances, few enough in number compared to the verbal dysentery that afficts American and Australian leaders, dealt with the very concepts that most grate on intellectual, and especially liberal, nerves. The Habsburgs favored, not an interminable bill of rights, but a clearly defined set of reciprocal duties; not the brotherhood of men, but the fatherhood of God.
The Habsburgs’ government was not what we increasingly understand government to be, a gaggle of largely moronic and otherwise generally unemployable puppets obediently appeasing pressure groups and opinion pollsters. Government in the Habsburgs’ eyes meant the courage to persevere with policies that in the short term were sometimes unpopular, because the alternative was far worse. They scorned the modern idea that anything which calls itself a nation has an absolute right to exist, whether it be as productive and peaceful as Switzerland or as barren and enslaved to homicidal lunatics as Serbia, Croatia, Bosnia, Lebanon, Rwanda or Northern Ireland.More on this story here.
A BEST-SELLING AUTHOR FORETELLS RUIN FOR THE AMERICAN REPUBLIC
There was a time not that long ago when Chalmers Johnson might have fit in nicely with Bill O’Reilly out on the right flank of political discourse. He was, in his words, “a spear carrier for the empire.” So how did he wind up sounding like Al Franken? His book Blowback: The Costs and Consequences of American Empire, released in the spring of 2000, harshly criticized American foreign policy and warned that the country was ripe for retaliation. It took its name from a CIA term for the unintended consequences of covert actions, and it turned some heads. When terrorists flew airplanes into buildings on a blue September day a year later, he looked like a prophet. Blowback became a best seller.
Now he is out with a new book, The Sorrows of Empire: Militarism, Secrecy, and the End of the Republic. It is a scathing and scary indictment of America’s military expansion to all corners of the globe. He sees a future of perpetual war and constitutional ruin and financial bankruptcy. At public appearances, he is even more direct. Inevitably someone raises a hand and says, “OK, I buy your analysis, and I think the situation is serious, so what should I do about it?”
And Johnson, speaking in a resonant, almost musical voice cultivated over more than 30 years of lecturing in college halls, will sometimes answer: “If you have a little money, I’d prepare your escape route. You might want to go up to Vancouver and buy yourself a condo.”More on this story here.
THE “PUBLIC GOOD” IS A MEANINGLESS CONCEPT WHOSE TIME HAS GONE
I believe it is time to stop arguing the issues of degrees of enslavement and usurpation and to being putting liberty concepts into application through words and deeds. We have looked at history, we have looked at the existing systems, and we know by now, where we are headed if we do not commit our lives and resources to changing the course of tyranny that stalks the Earth. We must admit the futility of going back and visiting the earlier abuses against so many people, and earlier attempts to correct the abuses.
The Declaration of Independence was written to free humans from oppressive government. Unfortunately, it took only a few years for many of the same authors to decide to put into place a replacement government, organized and created with enough flaws to allow the present conditions to prevail. What happened to the unalienable rights elucidated in the Declaration? If there is one point we need to remember, it is this: if a conflict arises between individual and public good, then public good, existing as it does only as a fictional collection of the good of separate individuals, must be abandoned for the good of the individual. If individuals do not perceive a collective good as worthy of their voluntary participation and support, then that good does not serve them.
The misconception begins with the view that individuals are a collection of resources and assets to be controlled, allocated and directed by some other power-hungry and power-damaged humans who have elbowed their way into some political office or bureaucratic desk. The emperor of government and “public good” has no clothes, no chest hair, and a very scrawny and ugly body, besides.More on this story here.
MERCANTILIST STIRRINGS IN THE LAND OF LAISSEZ FAIRE
Mercantilist tendencies toward state meddling, preferential access to contracts and granted domain were supposed to be relegated to history’s dustbin. Alongside the banishing of such discredited and inefficient tendencies, America would topple those who would obstruct the market’s light from penetrating the darkest corners of a shrinking world. The last few years we have begun to ignore our own rules at home -- while pushing them increasingly selectively around the world. In so doing we have begun to set in motion the impulses and musing that may well end the recent era of US led globalization. The Adam Smithian torch risks being snuffed out by its guardians in a panicked rush to safeguard privileges and gain advantage. So it was that past eras of globalization degenerated into chaos, trade and military conflict. If this last comment strikes you as ludicrous, you might try a brief look back at the period leading up to WW I.
Recent policy on visa restriction of business persons, closed contract awarding, disqualification of non-US firms, steel and textile tariffs, stalled FTAA and WTO talks, ham handed diplomatic misadventure and heavy state tinkering with markets are noteworthy. While the impulses may be understandable, the likely cascade of retaliations and responses will cause great anger and risk escalating rounds of beggar-thy-neighbor retaliatory policy responses.
The present world economy has become dangerously dependent on this unsustainable dollar and debt bubble. Our response, abuse Fiscal and Monetary stimulus to extend the feeding frenzy and attempt to use our strengths to grab assets and limit access to the obedient and privileged. Handling of Iraq reconstruction contracts and copyright and trademark law are noteworthy examples. Our trade representatives, Treasury and Commerce officials have been sent out into the world to protect our great brand names as they look to license access to others who do the work of manufacturing. This is a tax for access to a restricted market. It reeks of the mercantilism that inspired Smiths’ critiques.More on this story here.
JOHN STOSSEL PROMOTES HIS NEW BOOK
“I’m a libertarian,” John Stossel proudly proclaims. “But I don’t often say that except to an audience like this because the term libertarian is confused with ‘libertine’ or even worse, ‘liberal’.” Addressing a lunch meeting, Stossel faced an appreciative audience ranging from school teachers to business executives who share his opinion that the least government regulation is the best. It is a point he has made in his witty new book, Give Me a Break ... How I Exposed Hucksters, Cheats, and Scam Artists and Became the Scourge of the Liberal Media.More on this story here.
BOSTON T. PARTY ARGUES FOR A FREE WYOMING PROJECT
If I worked my whole life, could I help achieve a Colorado as free as Wyoming is right now? That is a question I have been asking myself a lot lately, thanks in large part to Boston T. Party, author of the just-released novel Molôn Labé! If the answer to that question is “no”, as I think it is, then is there any other compelling reason not to move there?
When I first heard of the “Free State Project”, I was severely skeptical. Another hair-brained, silver-bullet, Galt’s-Gulch libertopia that would never get off the ground, I thought. It took me some months to take the idea seriously at all. But Boston’s Open Letter, along with his follow-up letter and now his novel, convinced me that a libertarian movement in Wyoming is quite possible. Even if the far-reaching gains Boston hopes for are never achieved, even a relatively small movement (which seems to be inevitable at this point) could achieve marginal gains easier perhaps than in any other location.More on this story here.
PATRICK BUCHANAN EVISCERATES FRUM AND PERLE’S BOOK
On the dust jacket of his book An End to Evil: How to Win the War on Terror, Richard Perle appends a Washington Post depiction of himself as the “intellectual guru of the hard-line neoconservative movement in foreign policy.” The guru’s reputation, however, does not survive a reading. Indeed, on putting down Perle’s new book the thought recurs: the neoconservative moment may be over. For they are not only losing their hold on power, they are losing their grip on reality.
“[A] radical strain within Islam,” says Perle, “ ... seeks to overthrow our civilization and remake the nations of the West into Islamic societies, imposing on the whole world its religion and laws.” Well, yes. Militant Islam has preached that since the 7th century. But what are the odds the Boys of Tora Bora are going to “overthrow our civilization” and coerce us all to start praying to Mecca five times a day?More on this story here. James Bovard does his own job on Frum and Perle here.
THE ORIGINS OF THE IDEA OF THE STATE AS GOD
Ferdinand Lassalle’s intervention in the the Prussian Constitutional Conflict of the 1860’s did not influence the course of events. But it foreboded something new; it was the dawn of the forces which were destined to mold the fate of Germany and of Western civilization. His brief demagogical career is noteworthy because for the first time in Germany the ideas of socialism and statism appeared on the political scene as opposed to liberalism and freedom.
Lassalle was not himself a Nazi; but he was the most eminent forerunner of Nazism, and the first German who aimed at the Führer position. He rejected all the values of the Enlightenment and of liberal philosophy, but not as the romantic eulogists of the Middle Ages and of royal legitimism did. He negated them; but he promised at the same time to realize them in a fuller and broader sense. Liberalism, he asserted, aims at spurious freedom, but I will bring you true freedom. And true freedom means the omnipotence of government. It is not the police who are the foes of liberty but the bourgeoisie.
And it was Lassalle who spoke the words which characterize best the spirit of the age to come: “The state is God”.More on this story here. Text of Omnipotent Government: The Rise of Total State and Total War, originally published in 1944 as the first full-scale examination of German-style National Socialism as a species of socialism in general, is available here. Second excerpt from the book available here.
THE WITHERING AWAY OF THE STATE, CONTINUED
Major security contractors in Iraq estimated in interviews that at least 40 private security companies and several thousand armed guards already are working in the country. So while at the micro level an American Army colonel has a mercenary security detail, at the macro level mercenaries are filling the gap between American military forces engulfed in their own war and the security units of Iraq’s Vichy regime, most of which are less than keen to fight. What does the return of mercenaries on a large scale, in a theatre of war, tell us? It tells us that state militaries have become so bureaucratic, expensive and top-heavy that they are losing the ability to fight.
As expensive as mercenaries are -- and the Washington Post quotes a figure of $1,000 per day for skilled bodyguards -- they are still cheaper than state military forces. This is not because the U.S. Army overpays its privates and sergeants, but because the $400 billion America pays each year for defense buys very few privates and sergeants in the combat arms, guys who can actually fight. Most of the money goes for overhead. If you want to imagine a modern state military (others differ from our own only in degree), think of a brontosaurus with three teeth. Think of what an organization like al Qaeda can do with a million dollars compared to what the same money means to the Pentagon.
But it is not just the passing of state militaries that we see in the rise of mercenaries. It is the withering away of the state itself. Mercenaries mark the state’s loss of its monopoly on war just as surely as do the rise of non-state actors. Mercs will work for whoever pays them, state or non-state player. The more roles they fill, the more irrelevant the state becomes.More on this story here.
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