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NAMIBIAN GOVERNMENT: WE WILL TAKE ANY FARM WE NEED
Lands Minister Hifikepunye Pohamba told a media briefing that no one -- black or white, Namibian or foreigner -- would be spared as the State prepared to expropriate any farm it identified as suitable for the resettlement of the needy. For the first time Government admitted that even productive farms were up for grabs, as long as those in power felt that “it can be used better”.More on this story here.
A SMEAR IN HONG KONG
Rather than accommodate itself to the democrats, in Hong Kong or Taiwan, new president of China Hu Jintao’s administration still seeks to control them though threats and intimidation. The new smear campaign appears designed not only to preempt any discussion about electoral reforms but also to head off a possible victory by the democrats in upcoming elections for the legislative council. Though only half the seats are chosen by popular ballot, the democrats have a chance to gain a majority; that might force some partial power-sharing. Beijing’s inability to recognize that such an experiment in pluralism could be worthwhile for both Hong Kong and China is a measure of how far Mr. Hu’s administration remains from accepting basic principles of human rights.More on this story here.
Hong Kong democracy leader shows faith in China.
In an interview with the Financial Times on his return from Washington, where he testified at a Senate hearing on the need for greater democracy in Hong Kong, Martin Lee, the veteran Hong Kong democracy leader said “We have confidence in the top two new leaders. These are the people who have been talking about democracy when they go overseas ... We are confident that the leaders will get it right.”
The conciliatory comments came amid increasingly fierce attacks by some Beijing officials and their supporters in Hong Kong on Mr. Lee and his delegation to Capitol Hill. One official labelled the delegation “clowns”, while another suggested its members were “dreaming”. On Sunday, protesters at the Hong Kong airport called Mr. Lee a “traitor”.More on this story here.
China moves to constitutionalize private property protection.
Wang Zhaoguo, vice chairman of the Standing Committee of the National People’s Congress (NPC), briefed lawmakers on the draft constitutional amendment at the on-going NPC annual session in theGreat Hall of the People in Beijing. The draft amendment suggests “legal private property is not to be encroached upon” and adds “the state should give compensation” to the current stipulation that “the state has the right to expropriate urban and rural land.”
“It is a substantive breakthrough in the history of the People’s Republic of China and that reminds me of the past old days when we were proud of being penniless and devoting all possessions to the country,” said Xia Bing, a lawyer who serves a Shanghai-based private law house. In the first 30 years after New China was founded in 1949, the predominant agricultural country had been engaged in a continuous campaign to turn its war-shattered economy into what the top leaders hoped to be superior to the world powers. But the drive was frequently pestered by uncertainties such as natural disasters and political movements such as the devastating “Cultural Revolution” (1966-1976).More on this story here.
SCOTIABANK REPORT SAYS ASIA SET TO OVERTAKE NORTH AMERICA IN EXPORTS
North American exports may soon be surpassed by the rapid export growth of Asia’s developing countries (which excludes Japan, Australia and New Zealand), most notably China, says the report. Shipments from “developing Asia” have rise an average of 8% annually over the past decade, compared with a 6% yearly rise in North America and 5% in the rest of the world, the report says. The region accounted for 18% of worldwide exports in 2002, up from 13% in 1992.
Adrienne Warren, senior economist at Scotiabank, said Asia’s growing importance in world trade has been driven by low production costs, large investments in value-added goods destined for export, as well as currency realignments. “But it also reflects a number of more fundamental factors, including the significant liberalization of trade and investment regimes, consistently strong economic growth, deregulation and privatization.”More on this story here.
DAMAGING CHARGES BY KERRY?
The No. 1 U.S. enemy is not al Qaeda, Libya, North Korea or Cuba. It is Bermuda. At least that is what John Kerry seems to want American voters to believe. At almost every campaign stop, he attacks “Benedict Arnold corporations” that move to Bermuda. One could almost conclude that Bermuda is a predatory regime that shelters scoundrels. These irresponsible charges recur on the Kerry campaign’s Web site.
It is difficult to decide which is most objectionable, Mr. Kerry’s smear of a friendly regime or his disregard for accuracy. The denigration of Bermuda is certainly reprehensible, particularly since the territory’s market-based tax policy and race relations are both much better than can be found in the United States. (It is worth noting, too, that Bermuda has much tougher anti-money laundering laws than the United States.) But Mr. Kerry’s inability to understand the issue also is troubling. He and his campaign staff make obvious errors with the simplest facts.More on this story here.
BERUNDA PREMIER WILL NOT RULE OUT INDEPENDENCE REFERENDUM
Government is open to hearing arguments for a referendum on Independence -- despite the Progressive Labour Party’s long-held position that Independence should be brought through a General Election, said Premier Alex Scott. Responding to criticism from the leader of the United Bermuda Party Grant Gibbons, Mr. Scott said he was serious about his call for an open national discussion on Independence. Dr. Gibbons called last week for the country to agree on the procedures to be used to go to Independence before embarking on an open discussion on the subject.More on this story here.
BERMUDA MAY JOIN WTO IN ORDER TO DEFEND ITS INTERESTS
Bermuda is considering joining the World Trade Organization to fend off unfair trading practices by certain US states. And Government is to spend $200,000 on lobbying Washington but Finance Minister Paula Cox played down the threat from Presidential hopeful John Kerry. “Bermuda must be ever vigilant in defending its national economic interests. Over the course of the last two years, individual US states have engaged in unfair and discriminatory trade practices that posed some risks to Bermuda’s international business sector,” she said.More on this story here and here.
BELIZE PM URGES CARIBBEAN CO-OPERATION OVER TRADE
Addressing the Council for Trade and Economic Development (COTED), the Prime Minster of Belize, Said Musa noted that “Perhaps, there has never been a time more demanding of Caribbean unity in trade negotiations than the present,” adding that a “mature” response is needed to the challenges posed within the Caribbean Community.More on this story here.
STUDY: NATIONS WITH FLEXIBLE TAXATION SYSTEMS BETTER ABLE TO WITHSTAND ECONOMIC SHOCKS
A study released by Standard & Poor’s has found that nations with inflexible taxation systems are less able to withstand sudden economic shocks. According to the report, Scandinavian countries, topped by Sweden, were found to have the most inflexible tax systems, characterized by their high rates of taxation, extensive and complex welfare provision and relatively efficient tax administration. Meanwhile, the US, the UK, Ireland, Canada, Australia and New Zealand were found to have above average levels of tax flexibility, allowing them to manipulate their tax laws and rates in response to changing economic conditions. However, topping the flexibility league table was South Korea.
Countries in the S&P study were found to have more flexible taxation systems if their laws contained more exemptions and loopholes, and if tax administration was poor. The ten EU accession states were given intermediate rankings.More on this story here.
ISLE OF MAN NEEDS NEW CORPORATE PRODUCT SAYS ASSOCIATION OF SERVICE PROVIDERS
The Association of Corporate Service Providers has called for the creation of a new corporate product that would stem the fall in new incorporations in the jurisdiction, and make the island better able to compete for international business. The paper argued that new reforms to the jurisdiction’s corporate legislation, much of which is based on a 1930’s statute, would enable the Isle of Man to “become the leading European jurisdiction of choice by some considerable margin.”
“Our current competitors in this arena are Jersey, Guernsey, Gibraltar, Cyprus, Malta and Madeira. All of these jurisdictions are compromised to some degree or another and have less attractive corporate vehicles than the vehicle (the ACSP has) proposed.”More on this story here.
HONG KONG’S FINANCIAL SECRETARY SETS TIMETABLE FOR INTRODUCTION OF SALES TAX
Hong Kong’s Financial Secretary Henry Tang announced that the introduction of a sales tax is likely to be at least three years away. As the government continues to grapple with a budget deficit that has grown to HK$50 billion, Tang used his maiden budget speech to make the case for the introduction of a GST-style indirect tax.
“Hong Kong’s tax base is narrow. In the long run, we need to broaden it to secure a steady source of revenue,” he observed. “In Hong Kong, non-tax revenue accounts for about 40% of total revenue, whereas the figure for OECD economies is around 14%. This shows that Hong Kong has a far heavier reliance than those economies on non-tax revenue, such as land revenue and investment income.” He estimated that, depending on any exemptions, a GST of 5% would generate around $20-30 billion revenue per year.
Hong Kong will also issue government bonds for the first time in more than a decade to raise funds for infrastructure projects and help develop a local bond market. Mr. Tang said the government planned to issue bonds worth up to HK$20 billion ($2.5 billion, €2 billion) in 2004-05. The figure is less than the HK$30-50 billion some observers had expected. Some observers had been hoping for more measures -- such as new taxes -- to help eliminate the government’s structural budget deficit. But with political opposition to tax increases and a row brewing over proposed democratic reforms, Mr. Tang, who is rumoured to be interested in becoming Hong Kong’s next chief executive, did not introduce any significant measures to raise additional operating revenues.More on this story here and here.
ARGENTINA PULLS BACK FROM THE BRINK OF ANOTHER DEFAULT, PAYS $3.1 BILLION TO THE IMF
After threatening to the last that it might not, on March 9th Argentina paid on time $3.1 billion in interest and principal it owed the IMF, so averting the biggest default in the institution’s history. But Argentina gets something in return: later this month the IMF will recommend to its board that Argentina is paid the money back again, part of a $13.5 billion facility agreed last September. Relief all round.
Currently Argentina is meeting its economic and budgetary targets with room to spare. But that will only increase the demands for more money for creditors -- so skirmishing is guaranteed here, too. Yet as one Fund staffer says, better skirmishes than nuclear war.Link here.
IRS TARGETS BELIZE GAMBLING OPERATION
Federal prosecutors in Pittsburgh have filed papers to seize nearly $5 million from various corporate bank accounts in Belize as part of an ongoing IRS investigation of a gambling business in Belize. According to forfeiture documents in U.S. District Court, the agency is investigating CaribSports & Casino, Carib International and other corporate entities. The government of Belize froze the bank accounts in Belize at the request of the U.S. in February, but the Supreme Court in Belize has since ordered them unfrozen until prosecutors indicate when they plan to file charges.
The forfeiture request is the second filing in the probe of CaribSports, which takes wagers online or over the phone from bettors in the United States. Last year, federal prosecutors moved to seize gold coins, a silver block and more than $1.6 million in cash from the controlling principals of the entities who, along with others named and unnamed, are under investigation for alleged unlawful transmission of wagering information, mail fraud, wire fraud and money laundering. The principals are also accused of diverting millions in illegal income from CaribSports and a gambling supply company they established in Florida for their own benefit.More on this story here.
80 Belizeans could lose jobs in gambling company, despite newest court ruling.
80 employees of an Internet gambling company operating out of the export processing zone at Data Pro in Ladyville, could still lose their jobs, despite a court ruling that now allows their employers unlimited access to three offshore bank accounts. Chief Justice Dr. Abdulai Conteh ordered that the freeze on the accounts of Carib Sports and Casino be lifted immediately. This frees the company to transfer its $2 million from Belize to another offshore bank in the region and close down its Belize operation.
Employees of Fulton Data Processing, an associate of Carib Sports and Casino, spent most of this Wednesday and last Friday in front of the Supreme Court building protesting what they described as the Belize government’s decision to bow to U.S. pressure by freezing their employer’s offshore bank accounts. It is generally conceded that the company’s Belize operations may sooner or later, grind to a halt. It has become common practice for companies operating within the Data Pro export processing zone to move on once U.S. law enforcement authorities begin to sniff around. They go to a different jurisdiction in the region to do business, said a former employee of an online gambling company. Many have packed up and are now operating out of Costa Rica.More on this story here.
BELIZE TELECOM CONTROLLING STAKE SOLD TO BELIZE GOVERNMENT
U.K. Conservative Party benefactor Lord Michael Ashcroft has sold his controlling stake in Belize Telecom for $57 million grossing the controversial financier a $40 million profit. The sale, by one of Britain’s richest men thought to be worth more than £500 million, of a 52% Belize Telecom stake by Ashcroft’s Carlisle group to the Belize government could help swell Tory Party coffers in time for the next General Election. Carlisle group still owns the Bank of Belize, and Ashcroft has most of his monetary affairs based there for tax reasons.
The stake sale follows claims that his firm was being unfairly excluded from government contracts. Ashcroft had proposed telecoms tariffs in the country be brought into line with international norms, but his arguments were rejected by the Belize authorities.More on this story here.
ILLEGAL MONEY TRAFFICKING NETWORK BETWEEN ITALY AND SWITZERLAND UNCOVERED
Around 100 officials at the Banca Fideuram have been placed under investigation, as well as nine of the bank’s clients. Dozens of financial advisers were allegedly involved in providing services through a Swiss subsidiary of the Banca Fideuram in order to avoid tax regulations. Italian investigators claim €23 million was illegally deposited in Switzerland. The cash was allegedly handled by Fideuram’s Swiss branch. Banca Fideuram, which has branches in Zurich and Lugano, has denied it breached regulations and said it would cooperate with investigators.
Some Italian politicians claim the Banca Fideuram case is the latest proof that a tax amnesty on savings held abroad launched in 2001 is being abused. It is thought that some of the money which was moved to Switzerland was legally repatriated into Italy under the tax amnesty. It has been reported that the money was either smuggled into Switzerland or transferred to accounts using sophisticated computer programs. Police say the funds were subsequently invested in Switzerland or simply repatriated under cover of the tax amnesty.More on this story here.
LAW FIRM SETTLES IN A TAX SHELTER CASE
The Dallas-based law firm of Jenkens & Gilchrist reached a $75 million settlement with investors who had filed lawsuits accusing it of designing and selling questionable tax shelters, which the IRS subsequently determined were not legitimate.More on this story here.
RUSSIA ACCUSES DELOITTE AND TOUCHE OF TAX EVASION
Russia has accused the international accounting and consulting giant of tax evasion and has opened a criminal investigation into the matter. The case appeared to be the first time Russian authorities have targeted a Western firm in their campaign against tax evasion ahead of the March 14 presidential election, expected to be swept by incumbent Vladimir Putin.More on this story here.
TIME FOR SINGPORE TO PHASE OUT TAX HOLIDAYS?
With the rate of corporate tax having been reduced in the recent Budget to 20%, the question now is whether 20% is the end of the road, or whether the tax rate can go lower still. The big question worth asking now is, Why not 15% -- or even l2%, as in Ireland? In reality, a lot of companies in Singapore already pay less than 20% tax. Companies that enjoy pioneer incentives (or tax holidays) do not pay any tax for a certain period, nor do many SMEs, which have been granted generous tax breaks in previous Budgets. Overall, therefore, the effective rate of corporate tax in Singapore is already well below 20%.
As Singapore moves to becoming a more entrepreneur-driven economy, rather than big-company driven, there is a case to be made for changing this state of affairs by lowering the headline corporate tax rate, while at the same time simplifying the tax regime by phasing out special incentives for favored activities and selected groups of companies.More on this story here.
EU ANGRY AT SWISS FAILURE TO AGREE TO SAVINGS TAX
EU finance ministers will express growing anger at the failure of Switzerland to conclude a deal paving the way for a new EU savings tax. At the monthly Ecofin council meeting in Brussels, ministers will be told that Swiss authorities are still blocking a deal, in the hope they can extract concessions from the EU on other issues.
Switzerland agreed in principle last year to levy a withholding tax on the savings of EU citizens in Swiss banks, but is now holding back on finalizing a deal. It wants reassurance from the EU that its separate negotiations on the Schengen agreement, which removes borders in Europe, will not lead to an erosion of traditional Swiss banking secrecy. The Swiss fear that by accepting Schengen as it stands, the second definition in Article 51 would give foreign legal authorities much wider rights to seek information about bank accounts than under current reciprocal co-operation agreements. The EU is insisting there be no link.
Ministers avoided, however, reviving past hints of retaliation if the Swiss do not sign on before the end of June -- the point at which EU ministers aim to decide whether their long-debated plan can proceed.More on this story here, here, and here.
CANADIAN PARTY LEADERS EVIDENTLY HAVE AN INTIMATE KNOWLEDGE OF TAX LOOPHOLES
Two of the largest federal political parties in Canada might end up being run by leaders with an intimate knowledge of methods of not paying everything they would normally have to. Prime Minister Paul Martin, leader of the federal Liberal party, has had a family business that has long been taking advantage of a corporate tax dodge by registering its ships outside this country. Using offshore tax havens has protected those vessels from having to pay bushels of Canadian tax, and has also crewed the ships with cheaper non-Canadian labour. Martin does not own the company right now, but the tax loopholes have been in place for years, even when Martin was this country’s finance minister.
Meanwhile, a candidate for leadership in the federal Conservative party is Belinda Stronach, daughter of auto parts magnate Frank Stronach. Now, the Tories have attacked Martin for his use of offshore tax havens on a fairly regular basis. What might not be as easy to stomach is that Frank Stronach, whose Magna International companies make the vast majority of their money in this country, has avoided paying taxes on some $198 million in income over the last nine years or so by means of a different tax shelter -- by moving his principal residence to Switzerland. He is paid the bulk of his income through Magna’s European subsidiaries, meaning the money never even comes within reach of the normally rapacious Canadian tax authorities. Yes, both of the tax dodges are legal. And yes, in both cases it is just businessmen taking advantage of what the government offers.More on this story here.
SENATORS STEP UP PRESSURE ON LEASING SCHEMES
Senior Senators on the tax-writing Finance Committee, warned colleagues last week that the continued use by local governments and corporations of leasing arrangements will cost the government many billions in tax revenues over the coming years.
According to the latest findings of Senators Chuck Grassley (R-Iowa), chairman of the committee, and Max Baucus (D-Montana), ranking member, leasing deals cost the federal coffers $2 for every $1 that the cities and their agencies receive in fees from the promoters of such deals. “City infrastructure items, such as transit systems, are often built with federal funds. Therefore, the US Treasury takes a double hit under leasing deals: one hit for contributing to the project construction, and another hit for federal taxes lost via such tax shelters,” the Senators observed.More on this story here.
LOOKING FOR WAYS TO AVOID THE ESTATE TAX? CONSIDER LIFE INSURANCE
As governments around the world run increasingly large budget deficits, so they are stepping up their efforts in tax collection. Asia is not immune from this as traditionally low-tax jurisdictions move to raise more money. The beady eyes of the tax collectors are increasingly falling on the assets of wealthy individuals who often get stung with large estate duties.
However, solutions to this issue do exist. We talk to John Stone and Paul Rust of Lombard International Assurance, a Luxembourg-based life insurance company that offers an innovation called privatbancassurance. Founded in 1991 by Stone, Lombard has been building up business in Europe over last twelve years. In the last two or three years the business has come to Asia and Rust was brought on board a year ago to spearhead the development.
Stone says life insurance does not really resemble any form of insurance you have ever seen before. A key element to the plan is that the private banker keeps control of the assets and remains the asset manager. In some countries such as Japan and Taiwan, life insurance policies are exempt from estate duty, so in those countries where estate duty is 50%, if a client has his assets in a life insurance policy, then on his death his children will inherit estate duty free assets. It is a simple as that. But most private bankers do not like life insurance as it means they lose control of the assets, and they tend to regard life insurance as being a retail product, not suitable for high net worth clients.More on this story here.
U.S. SENATE CONSIDERS ESTATE TAX RELIEF BUDGET MEASURE
While legislation enacted in 2001 will lower estate taxes, cutting them to zero in 2010, the same law will also reinstate the tax at pre-2001 levels in 2011. However, the Senate Budget Committee voted 12-10 to pass a budget resolution for the years 2005 through 2009 that will cut the tax to zero a year earlier. What is to happen beyond this date however, is unclear. While many conservatives favour a permanent repeal of the tax, some Republicans are now somewhat ambivalent given the perilous state of the government’s finances. Others think axing the estate tax is unfair.More on this story here.
TAX HAVENS EXPLOITED BY US BUSINESSES
US businesses are sheltering an increasing amount of money offshore from the taxman, with 46% of the estimated $233 billion earned abroad by American-owned multinationals in 2001 being held in foreign tax havens, up from 38% in 1999 and 23% in 1988. The report from Martin A. Sullivan, an economist and columnist for TaxNotes, a daily journal on tax law and legal issues, said that 11 tax havens held this money, such as Luxembourg (0.9% of earnings) and the Cayman Islands (5.2%). Meanwhile, US Treasury officials say fraudulent accounting has gone up and blame tracking problems on increased globalization, and reporting laws that need reforming.More on this story here.
BOLKESTEIN URGES EU MINISTERS TO STICK TO THEIR GUNS OVER SAVINGS TAX DIRECTIVE
The impasse between Switzerland and the European Union over the implementation of the EU’s Savings Tax Directive looks set to deepen after Internal Market Commissioner, Frits Bolkestein urged the EU to stick to its guns. “The Swiss government is maintaining the position of trying to link the savings tax agreement to other issues. The Commission and the Council (should) stick to their guns and ask Switzerland to sign an agreement without any further delay.”
However, according to reports, Swiss Foreign Minister Micheline Calmy-Rey revealed that Switzerland will be standing by the linking of the Savings Tax Directive with the signing of various other accords. “In this way, banking secrecy shall be maintained as part of a balanced outcome which also takes into account Swiss interests,” she explained.
At a meeting of EU finance ministers, the United Kingdom and the Netherlands announced that all of their dependent territories had agreed to implement either the withholding tax or information exchange options contained within the directive. However, in addition to Switzerland, several other third party countries (Liechtenstein, Andorra, San Marino and Monaco) have not yet signed deals with the EU, which is a precondition of the legislation coming into force next January.More on this story here.
Advice to EU: Reconsider the Savings Tax Directive.
High-tax nations like France and Germany hope fellow members of the EU will vote this June to approve a directive governing the taxation of interest payments. This savings tax directive (STD) is designed to slow the flight of capital to low-tax jurisdictions and would require all EU nations -- and selected non-EU jurisdictions such as Switzerland and the United States -- to participate in a savings tax cartel. If the STD is implemented, nations will have two choices:
1.) Collect information about interest payments made to nonresident investors from EU nations, and then provide that information to the tax authority of the investor’s government so it can be taxed; or 2.) Impose a withholding tax on interest payments to nonresident investors from EU nations, and then provide the lion’s share of the money to the tax authority of the investor’s government.
High-tax governments think that the STD will help them track down money that their citizens have deposited in places like Luxembourg and Austria, but this naively assumes that the money will no flow someplace else. In reality, financial capital is extremely mobile, and a few clicks of a computer keyboard are all that it takes for investors to shift their funds to a safer environment. EU officials think they have solved this problem by requiring the participation of Switzerland, Monaco, Andorra, San Marino, Liechtenstein, and the United States. They even require EU nations to compel their territories to participate, thus roping “offshore” jurisdictions such as the Cayman Islands into the cartel. This sounds like good news for revenue-hungry politicians, but they shouldn’t count their chickens before they hatch. They may have grandiose dreams of having more money to spend, but there are three reasons the STD probably will not work -- and one big reason why it will backfire if it does work.More on this story here.
IRELAND’S TAX AUTHORITY TURNS UP THE HEAT ON OFFSHORE ACCOUNTS
The Revenue Commissioners recently advertised their intention to investigate all offshore accounts and investments of Irish resident individuals, starting March 29. Revenue intends to pursue tax, interest and penalties on undeclared income or capital gains. As a result of recent Finance Acts, the Revenue now has extensive powers which it has successfully used in the past to obtain High Court Orders requiring financial institutions in Ireland to provide information. Impending legislation will also allow Revenue to obtain information from Irish financial institutions about account holders in their offshore subsidiaries. Revenue is also receiving information from other jurisdictions about assets held by Irish citizens.
There is a voluntary disclosure mechanism, whereby a taxpayer freely discloses default to Revenue before Revenue begins its investigation. The advantages of making a voluntary qualifying disclosure include reduced penalties, non-publication in the Tax Defaulters List, and non-prosecution in most circumstances as far as tax is concerned. However, there are also important legal issues, and any disclosure made must encompass all sources of undeclared income and gains, and not only those of an offshore nature.More on this story here.
Ireland’s Revenue Commissioners announced they have collected €9 million in tax arrears as a result of their offshore crackdown. More on this story here.
UK LOOKS AT TOUGHER REGIME ON TAX AVOIDANCE
Gordon Brown, UK finance minister, is considering new ways to crack down on tax avoidance, seeking to recoup the billions of pounds lost to the treasury every year through complex accountancy schemes. As he prepares to deliver his eighth budget next week, Mr. Brown is under pressure to maintain a tight grip on public spending and borrowing to meet his fiscal rules. But he is also being urged to introduce sweeping new legislation that will crack down on Britain’s aggressive tax avoidance industry.
In his six years as chancellor, Mr Brown has closed tax loopholes every year, saving an average of some £400 million with each budget. But he is being told that tax avoidance is getting worse, not least because the Inland Revenue’s powers to close schemes are too limited. The government has no clear definition of “tax avoidance” or any mechanism for ruling schemes legitimate or illegitimate, thus the Inland Revenue has to challenge schemes on a case by case basis in the courts. Mr. Brown is therefore being urged to consider far more sweeping tax avoidance legislation amid signs that Britain could move to the tougher legal framework that operates in Australia and the US.More on this story here and here.
HIGH-INCOME TAXPAYERS FACED MORE AUDITS FROM IRS
In an effort to concentrate scarce audit resources in the most fruitful places, the IRS has focused its enforcement efforts on high-income taxpayers, corporations and offshore tax-evasion schemes. Audits of taxpayers earning $100,000 or more increased 24% in 2003, the IRS said. Revenue from IRS collection activities hit its highest level in a decade, signaling a reversal in the decline that began when Congress ordered the agency to turn its attention from audits to taxpayer service. Collections increased 9% to $35.5 billion.
Overall audits increased 14% from the previous year, though the odds remain low that a taxpayer’s return might be selected for audit. Other details from the audit report show that the number of levies, or property seizures, increased more than 30%. Criminal prosecutions begun against taxpayers increased 32%.More on this story here.
U.S. CORPORATE TAXES AMONG HIGHEST IN WORLD
The United States imposes on its businesses and workers one of the highest corporate tax rates in the industrialized world. In addition to this high tax rate, rising health care costs, virtually unlimited liability exposure and the outdated manner in which U.S. businesses are taxed on their worldwide income have combined to put American companies and American workers in a dangerously uncompetitive position.More on this story here.
TOP 10 OVERLOOKED TAX BREAKS FOR U.S. FILERS
Even some tax professionals miss opportunities to reduce a taxpayer’s tab. Here is the scoop on the top 10 most overlooked tax credits and deductions. Among them are self-employed health insurance, and worthless stock deductions. Even if your stock share stubs are not technically worthless, selling them to a non-related person (such as an in-law) will allow for the deduction in the year of sale.More on this story here.
CLASS WARFARE REDUX: KERRY PROMISES TO SOAK THE RICH
Wealthy Americans would pay the same tax rates as those seen under the Clinton administration, according to plans promoted by Democratic presidential candidate John Kerry this week. “I intend to return tax fairness to America,” declared Kerry, addressing labor leaders via a video conference from Chicago on Wednesday. He continued, “With George Bush’s tax cuts, the top one percent of taxpayers have received almost 40% of the breaks. Meanwhile middle class working people have seen their share of the tax burden go up, not down.”
Kerry went on to claim, “If you add up the true costs of this President’s economic policies, you get a Bush Tax of higher property taxes, higher fees, higher health care costs – at the same time middle class incomes are going down.” He alleged that state and local property taxes have increased in thirty-two states, taking an average of $3,500 in income per year from the pockets of middle class earners.More on this story here.
MANY US GOVERNMENT CONTRACTORS USE TAX HAVEN UNITS SAYS STUDY
Fifty-nine of the top 100 publicly traded federal contractors have set up subsidiaries in offshore tax havens, according to a report by the General Accounting Office. The GAO’s study did not determine whether the companies had in fact reduced their overall tax burden as a result, but did find that some of the biggest federal contractors in the government’s 2001 fiscal year had dozens of subsidiaries in countries which impose no taxes, or nominal taxes, on corporate income.
While having these subsidiaries is not illegal, “tax haven subsidiaries are designed to duck taxes,” said Sen. Carl Levin (D-Michigan), who plans a bill to fight offshore tax haven abuses and illegal tax shelters.More on this story here.
HOW GREAT IS THE NEED TO HAVE A PRIVATE BANKER?
BY 2007, Asia’s rich should be worth some US$8 trillion. Over the next few years, many of these individuals with millions or even billions in investable assets would be inclined to park a major part of their funds with their private bankers. But do they really need one? And if they do, how does one choose an appropriate private banking institution and adviser? Here is what the bankers from Citigroup Private Bank, HSBC Private Bank, JP Morgan Private Bank and DBS Group Private Banking have to say.More on this story here.
If Australian authorities are successful, the Swiss could help provide the necessary documentary evidence against Trevor Kennedy, with Swiss court sanctions, that the Australians can then confidently present to the local courts in future prosecutions. That battle looks set to pit the highly paid Swiss and local lawyers engaged by the Australian businessman against the Swiss district attorneys for the best part of the next 12 months. But it is a long game. The fieldwork in this ground-breaking case in the history of “mutual assistance” between Australia and Switzerland is being done in the office right above Dave Zollinger, the suave, multilingual head of international mutual assistance for the Canton of Zurich. He is the modern face of Swiss co-operation in the post-September 11 world.
He and his team of powerful district attorneys could hold the key to the relationship being built with the Australian Securities and Investment Commission and the Australian Government. And between them they are likely to determine the fate of investigations into the dealings through Swiss bank accounts by Kennedy, Rene Rivkin and Graham Richardson. Not only does the trio’s fate rest on this new alliance; the outcome will also set the ground rules for future investigations into dealings by other wealthy Australian individuals on a host of other matters involving Switzerland -- most significantly tax.More on this story here.
Swiss banks freeze $5 billion in Yukos cash.
Russian prosecutors say Swiss bank accounts containing $5 billion have been frozen as part of a probe into the Yukos oil company. Swiss officials would not confirm reports that accounts belonging to 20 Russian citizens, including the former head of Yukos, Mikhail Khodorkovsky, had been blocked at the request of the Russian Prosecutor General. The news comes a week after Swiss police carried out raids on companies across Switzerland as part of an ongoing investigation into the embattled oil giant.More on this story here.
GOVERNMENT OFFICE TO TARGET TERRORISTS’ CASH (AND DOUBTLESS IT WON’T STOP THERE)
The Office of Terrorism and Financial Intelligence will be housed at the Treasury Department. It merges three sections and will include a new undersecretary at Treasury. Currently, Treasury has an undersecretary for domestic finance and international affairs. The office “will enhance the precision of our relentless fight to dismantle the terrorists’ network of financial and logistical support and disrupt their plans to harm America and all other nations,” a senior administration official, who spoke on condition of anonymity, said Sunday.
Since the Sept. 11, 2001, attacks, 351 individuals and groups have been singled out for financially supporting terrorists. Approximately $200 million in terrorist-related assets have been frozen or seized, according to Treasury data. The new office will also be responsible for enforcing economic sanctions and stopping other financial crimes, such as money laundering, that involve detailed tracking of financial transactions. It also will oversee the freezing of assets from Saddam Hussein’s regime.More on this story here.
BEWARE OF THE BEARER SHARE FOREIGN CORPORATION SCHEME/SCAM
A non-resident alien (including a non-resident foreign corporation) can invest in U.S. stocks and any gains (or losses) are not subject to U.S. taxes. Investments in U.S. government securities or certain kinds of U.S. bank or S&L obligations do not result in any tax to the foreign investor. In addition, any income or gains from investing in any non-U.S. investments would be tax free if the corporation were domiciled in a tax haven. A great many U.S. taxpayers would like to be the owner of a foreign corporation that can generate tax free investments -- but they clearly are not aware of the complicated obstacles the Congress has put in their path.
Usually, the U.S. person who forms such an entity will fund it with cash. As with secret bank accounts or other secret investment accounts, transfers of large amounts will leave a trail for a nosy auditor but transfers of small amounts are not adequate to offset the fees to create and to maintain this entity. Earlier comments about how secret bank accounts or investments can be found out apply to the secret foreign corporation. It is something that is very hard to keep secret because of the phone calls, mail and travel to visit with the managers of the foreign corporation.
One of the more popular foreign tax schemes is to create a foreign corporation with bearer shares or with some kind of unsigned agreement with the person who is acting on your behalf. You can purchase an “off-the-shelf” IBC in most foreign jurisdictions that has been formed by a local attorney (or other professional person) who merely hands you the shares to this standby corporation for a fee. Then, if you wish, the promoter/lawyer will offer to act as your agent for the company. The problem with that approach is that the U.S. tax law includes provisions that give the IRS and the courts the power to disregard the legal formalities of an ownership arrangement that is inconsistent with the facts and to look at the substance of the arrangement. If someone else is acting as your agent, as a nominee or an intermediary, you will still be treated as the owner of that entity for tax purposes.More on this story here. “Legal Tax Angles: How to Save Taxes Without Going to Jail” Vernon Jacobs home page here.
BE AWARE OF IRS FOREIGN BANK ACCOUNT AND FOREIGN TRUST REPORTING RULES
You are required to report, using Form TD F 90-22.1, any foreign account when you own more than 50% of the stock in any corporation that owns one or more foreign bank accounts; or, at any time during the year you had an interest in or signature or other authority over a financial account (such as a bank or securities account) in a foreign country. The only significant exemption for the requirement for the typical person occurs if the combined value of the accounts was $10,000 or less during the whole year.
If you received a distribution from a foreign trust, you must provide additional information. A loan of cash or marketable securities generally is considered to be a distribution. Form 3520 has details. If you were the grantor of, or transferor to, a foreign trust that existed during 2003, you may have to file Form 3520.Instructions here. IRS Form 1040 here.
Expat US taxpayers reminded to file tax returns.
“Most people who leave their home country, such as the UK for example, cease to be taxable on their worldwide income in that country after a certain period of absence,” observes Andy Hodge, Tax Partner at Deloitte & Touche. “The US system requires its citizens to continue to file returns reporting worldwide income, regardless of the length of time that they reside elsewhere.” However, US taxpayers should also check whether they must meet any tax obligations in the country of their employment.More on this story here.
THE LATEST OFFSHORE PILOT QUARTERLY IS OUT
The always entertaining and interesting publication comments on the Cayman Islands, and now Turks & Caicos Islands, “tussles” with the British government over implementation of the European Union Savings Tax Directive; the OECD’s tussle with Switzerland and four other European offshore jurisdictions (Andorra, Monaco, Luxembourg, Liechtenstein) over the same directive; and how offshore centers are bearing the blame for activities of corrupt corporate officers, whereas the roles and rules of, e.g., Delaware are strangely overlooked.More on this story here.
BAHAMAS’ NEW FINANCIAL TRANSACTIONS REPORTING ACT DISCUSSED
A number of issues have been raised since the passage of the recent amendments to the Financial Transactions Reporting Act and the corresponding Regulations. Have the standards of verification been lowered? Are we in agreement with international best practice? Do we have to verify the identity of the facility holder of every account that exists even before the initial passage of the package of financial laws?More on this story here.
Bahamas financial professional: Privacy basically gone, and forget about it coming back.
s the gradual dissipation of banking secrecy continue to make traditional offshore structures less attractive, more emphasis needs to be placed on crafting transparent, tax compliant structures in order to maintain the edge The Bahamas currently has in the region in private wealth management, president of the newly formed Bahamas International Insurance Association said.
Hywel Jones firmly believes that secrecy as the world knew it has gone, never to be returned, in banking as well as every other area of one’s life. “There has been a major erosion of personal privacy,” Mr. Jones said. “It’s not just the changes in the Bahamian laws it’s computers... it’s everything. Global privacy has gone down and it’s never going to be the same again.” Mr. Jones said that this reality along with the continued changes in the American and Canadian tax laws are making traditional offshore structures less attractive to the country’s target market. His suggestion for continued survival of The Bahamas’ financial services sector is the development of offshore structures that are tax compliant and transparent.More on this story here.
SHUTTING SHOPPING BAGS TO PRYING EYES
Thanks to the power of pocketbook and protest, privacy advocates and concerned consumers are winning their war on RFID tags. On February 27, just hours before a protest, German supermarket giant supermarket giant Metro AG announced that it would stop testing RFID loyalty cards and replace the 10,000 that have already been issued with versions using old-fashioned bar codes -- a decision that makes it the latest retailer to accede to consumer concerns about the technology.More on this story here.
BRUSSELS “FLAGRANTLY BREACHED” EU PRIVACY LAW
The European Commission has “connived” at illegal handovers of air passenger data to US security agencies, argues a report. The European Parliament has voted by a large majority -- 439 in favour, 39 against with 28 abstentions -- for findings condemning Brussels’s enforcement of European data protection law. Commissioners, “guardians” of the EU treaty, along with some governments, have “flagrantly breached” both national and European laws, claim the Parliamant.
“The attitude of the commission ... has been basically to connive at this violation of the law and of the principle of legality,” says the report. The setback does not bode well for EU data protection chief Frits Bolkestein just weeks ahead of a key parliament vote on the commission’s 2003 decision to give controversial transfers the go ahead.More on this story here.
MATRIX PROGRAM EXPANDS TO WISCONSIN
Even as states retreat from participating in a controversial interstate antiterrorism database that holds billions of records of ordinary Americans’ activities, Wisconsin has decided to join the program. With access to the Matrix database, Wisconsin law enforcement officials can look up vast amounts of personal information culled from government and commercial databases. The information includes driver’s license pictures, addresses, professional licenses, names of neighbors and relatives, and even domain-name registration filings and hunting licenses.
The Wisconsin attorney general’s office confirmed that Wisconsin had signed on, but said its agents have not yet been trained and do not have access to the search tool. Wisconsin also has not agreed to feed its driver’s license and motor vehicle registries into the database yet.More on this story here.
BACKGROUND SCREENING GOES RETAIL
Check-in-a-box is, marketed by ChoicePoint and began selling alongside software for $39.77 late last year, points to new efforts by data vendors to market background screening as a consumer product. Shoppers browsing the aisles at some Sam’s Club stores will find something that is not usually sold at retail -- an employee background check in a box. “Make better hiring decisions,” says the package, a little smaller than a box of breakfast cereal. “Conduct background checks quickly and easily!” ChoicePoint -- with nearly $800 million in annual revenues, one of the nation’s largest vendors of personal, financial and legal data -- also recently began selling background checks via Yahoo’s HotJobs.com online employment board, offering job seekers the chance to vet themselves.
The new check-in-a-box, containing a CD-ROM that allows users to tap ChoicePoint’s online databases, gives small business owners access to an essential tool previously available mostly to big companies, say ChoicePoint and Wal-Mart, which is selling the product in 41 of its Sam’s Club membership warehouses in 26 cities. Privacy advocates object, cautioning that selling background checks over-the-counter could put personal information in the wrong hands. Some private investigators are critical, too, saying the check could undermine their own businesses. They also complain that ChoicePoint’s requirement that users have a business license is an inadequate control on information that should be parceled out much more carefully.More on this story here and here.
VISA PROGRAM ANGERS ALLIES
Some American allies are expressing anger at the uneven treatment that their citizens are getting when they visit the United States, while Europeans from nations with longer, but now more strained ties to America get no additional scrutiny at the border. Eastern Europeans who have helped out in the war in Iraq are taking particular issue with the requirement that tourists from their countries get fingerprinted and photographed at U.S. ports of entry.
Homeland Security Department officials say that determining who must submit to the screening is not an arbitrary decision or one based on an ally’s loyalty, but on clearly defined standards. Although they acknowledge there have been some difficulties with the system, officials on both sides of the Atlantic say the program has been a success. Officials say the two-month-old U.S.-VISIT program, which uses a biometric system that examines characteristics unique to each human, has already processed 1.8 million people and has netted more than 150 watch list hits. A major reason Eastern Europeans have relatively high refusal rates is that they are more often cited as visitors likely to overstay their visas than citizens of richer Western European countries.More on this story here.
ACLU REPORT CITES DANGER OF THE U.S. TURNING INTO A SURVEILLANCE SOCIETY
The United States has now reached the point where a total “surveillance society” has become a realistic possibility, the American Civil Liberties Union warns in Bigger Monster, Weaker Chains: The Growth of an American Surveillance Society. “Many people still do not grasp that Big Brother surveillance is no longer the stuff of books and movies,” said Barry Steinhardt, Director of the ACLU’s Technology and Liberty Program and a co-author of the report. “Given the capabilities of today’s technology, the only thing protecting us from a full-fledged surveillance society are the legal and political institutions we have inherited as Americans,” he added. “Unfortunately, the September 11 attacks have led some to embrace the fallacy that weakening the Constitution will strengthen America.”
The report argues that even as surveillance capacity grows like a “monster” in our midst, the legal “chains” needed to restrain that monster are being weakened. The report cites not only new technology but also erosions in protections against government spying, the increasing amount of tracking being carried out by the private sector, and the growing intersection between the two.More on this story here.
THE TIA THING THAT JUST WON’T DIE
“The Thing That Just Won’t Die” has returned in mutated form to terrorize the people of the USA, gorging itself on gargantuan fistfuls of our First and Fourth Amendment rights. “The Thing” was once known as TIA -- Total Information Awareness -- the creation of John Poindexter, the disgraced, convicted, and totally loopy former operative from the Reagan White House. Brought in from the cold by George W., Poindexter set up shop in a wing of the Pentagon called DARPA -- Defense Advanced Research Projects Agency.
At DARPA Poindexter put together his TIA, a supercomputerized program to gather every scrap of data there is on everybody -- from our bank accounts to video rentals, our medical histories to photos of protests we have attended. All of this was to be sifted and sorted, ostensibly to detect suspicious behavior that would tag someone as a possible terrorist. Noting that this would make millions of Americans suspected terrorists and amount to a wholesale invasion of our people’s privacy, the public screamed, Congress cut off TIA’s funding, and Poindexter ultimately was forced back to Disgraceland.
But, wait ... TIA did not die. It metamorphosed from DARPA to ARDA -- Advanced Research and Development Activity. While publicly pretending to kill TIA, congressional leaders had quietly funneled money to ARDA to resurrect TIA as the Thing, which is now pursuing the exact same assault on our privacy as TIA was, even using some of Poindexter’s old crew. To help finally drive a stake through the heart of this Thing, call the Center for Democracy and Technology at 202-637-9800.More on this story here.
BRAIN-READING TECHNOLOGY BECOMES NEW TOOL IN COURTS
Now it may be impossible for even the best liars to conceal their crimes. The latest technology in forensic science uses details known only to investigators and the criminal to prove a suspect’s guilt or innocence. Developed by Harvard-trained Lawrence Farwell, brain fingerprinting uses brainwaves to measure what Farwell calls the “a-ha” of recognition. Traditional lie detectors rely on reading emotional reactions such as sweating or heart rate as a suspect is asked questions. The problem is that well-practiced liars can control these reactions before the polygraph has a chance to detect them. That is not a possibility in a brain fingerprint test, says Farwell, chief scientist and founder of the Seattle, Washington-based Brain Fingerprinting Laboratories.
The technology may sound like science fiction, but it has been tested by the FBI and used as evidence in U.S. courts. According to Farwell and his brain wave results, accused killer Terry Harrington did not have the details of the 1978 murder he was convicted of stored in his brain. An Iowa judge allowed the new technology into evidence in Herrington’s appeal in 2003 -- and now he is a free man. In Missouri, J.B. Grinder confessed and was sentenced to life in 1998 after Farwell’s test revealed he did have special knowledge of the 1984 rape-murder of which he was accused.More on this story here.
WHILE WE FRET OVER THE PATRIOT ACT, THE BUSH ADMINISTRATION IS AFTER MUCH BIGGER GAME
As everyone knows, “everything changed” on September 11, 2001, perhaps most worrisomely the rule of law. Indeed, among all the national-security measures taken since that fateful day -- including two major foreign wars and the establishment of the Department of Homeland Security -- none has been more controversial than the USA Patriot Act. Personally shepherded through Congress by Attorney General John Ashcroft, it authorizes the kinds of things that send shivers down civil libertarians’ spines: invasions of personal privacy, restrictions on financial transactions, racial and ethnic profiling, blurring the line between foreign intelligence and domestic law enforcement, and punitive registration requirements for immigrants and visitors. And that is just a partial list.
Yet the hue and cry raised over the Patriot Act has distracted most of us from the Bush administration’s far more dangerous assault on another class of liberties, which might be called “threshold rights”. After all, the Patriot Act can be rolled back if the people decide that the government has overreached or the emergency has receded, and some provisions of the act have automatic expiration dates. But threshold rights -- fair elections, open and publicly accountable government, judicial review of executive action, the right of the accused to a public jury trial, separation of powers among the three branches of government, and the rights to free expression and free association -- are structural, and therefore changes to them are more enduring. Once threshold rights are stripped away, the only thing that stands between any of us and arbitrary imprisonment is the good will of the president, the attorney general, and the secretary of defense.More on this story here.
INDIANA COURT: NO SEARCHES WITH SEAT BELT STOPS
Police who stop drivers for seat belt violations cannot legally ask to search their cars if they see no evidence of other crimes, the Indiana Court of Appeals ruled. Officers may not search vehicles in such cases -- even if drivers give their permission -- without violating the state Constitution, a three-judge panel unanimously ruled Wednesday.More on this story here.
WHAT THE MARTHA STEWART CASE MEANS TO YOU
The Martha Stewart guilty verdict is more than troubling. It is an outrage. The very case itself typifies today’s government -- an entity that is free to intrude in any area of your life, free to make up the rules as it goes along, free to allow prosecutors to make names for themselves in high-profile cases without facing any personal consequences, no matter what harm they do. I don’t know what kind of person Martha Stewart is, and I don’t care. But I care deeply about the kind of country America has turned into -- one in which there is no firm rule of law and anyone can be prosecuted at any time for any kind of offense that the government wants to invent.More on this story here.
Guilty beyond a reasonable doubt of being wealthy.
Stewart was not a “corrupt” executive, nor did she break the law when she sold her shares of the temporarily doomed ImClone stock. No, Stewart apparently committed the “crime” of being wealthy and well-connected. Furthermore, she sometimes was short and impatient with people, which is a trait that one of us in his brief career as a news reporter found to be endemic in people who were associated with the New York Times and other “elite” news outlets.
Had she instead been a journalist or a politician, she would have had a chorus of supporters among the political classes. Instead, she made the mistake of being a self-made billionaire, and now the journalists and the political classes are making sure that she is railroaded into a prison cell.More on this story here.
Another defeat for justice.
The Kafkaesque indictment, trial and conviction of Martha Stewart is a devastating blow both to the US legal system and to belief in the American socio-economic system. As Lawrence Stratton and I have demonstrated in our book, The Tyranny of Good Intentions, very little remains of the legal protections that once defined the Anglo-American legal system. Today hapless defendants are convicted not only in the absence of criminal intent but also in the absence of statutory felonies.
Martha Stewart was indicted for lying and obstructing justice. For these offenses to have any meaning, there must be a crime that she lied about and obstructed. The prosecutors presented no such crime. Stewart was indicted and convicted for lying and obstructing a crime when no crime happened.
By failing to recognize the political persecution in front of their noses, the Stewart jury demonstrated the extreme risks of a jury trial. The prosecutors only wanted a symbolic scalp and had offered Stewart a plea bargain deal -- a probation sentence in exchange for a plea that she made a false statement. Stewart, who has naïvely declared her belief in the integrity of the justice system, went to trial instead. Stewart’s conviction has made it even less likely that an innocent defendant will place trust in a jury. Already 95% of felony cases are settled with a coerced plea bargain, because judges and juries routinely fail in their function of protecting defendants from prosecutorial abuse. Time after time, innocent defendants are convicted on fabricated evidence while exculpatory evidence is withheld. Stewart’s conviction is a defeat for justice and the American way.More on this story here.
What is next for Martha Stewart?
After a six-week trial a New York jury convicted Martha Stewart on four counts -- all of which, in common language, amounted to lying. The obvious lesson was that lying is a crime. A little less obviously, the case against Ms. Stewart was built out of her own words to prosecutors. With clever legal advice these words could have been avoided. The trial will thus remind anyone accused of financial crime to call their lawyers sooner rather than later. More courtroom drama lies ahead, for appeals and civil litigation, and to determine the fate of her company, Martha Stewart Living Omnimedia.
Although sentencing is scheduled for June 17th, it is likely to be delayed pending appeal. Her lawyers may argue that Judge Cedarbaum damaged the defence effort by not allowing them to call experts to discuss why prosecutors had not charged her with insider trading. After the trial, jurors said they were frustrated that Ms. Stewart had not testified, and her lawyers may also point out to an appeals court that this is not supposed to weigh in a jury’s decision.
Ms. Stewart faces charges from the SEC, including insider trading. Because the case will be civil, not criminal, the burden of proof will be less: the balance of evidence, rather than beyond reasonable doubt. The SEC often attempts to bar defendants from executive positions, but as part of a negotiated settlement. Then Ms. Stewart will face the ultimate scourge of America’s legal system, plaintiffs’ lawyers seeking redress for money lost when her company’s share price fell. At times, even jail might seem a welcome relief.More on this story here.
FLORIDA BANKER ACCUSED OF HELPING FUGITIVE HIDE MILLIONS TO FLEE MURDER CHARGE
An international fugitive fleeing murder charges, former Palm Beach resident James Sullivan needed a little discreet help from a banker. So he turned to Michael Blank, a Palm Beach representative of Swiss Bank Julius Baer, according to a lawsuit filed by the family of the woman Sullivan is accused of killing. Blank, 55, helped Sullivan hide millions of dollars in offshore accounts while the multi-millionaire fled Florida for Costa Rica and then Thailand, according to the suit against Blank and the bank. Authorities caught up with Sullivan two years ago at a luxury beach resort south of Bangkok.More on this story here.
US BANKS STRUGGLE TO SPOT “TERRORIST FINANCING”
U.S. banks struggling with tough new laws to spot terrorist financing say they will be groping around in the dark until government officials provide more intelligence to narrow the search. Bankers, experts and industry advocates say that unlike money laundering -- which dominated dirty money searches before the Sept. 11 attacks -- terrorist cash flow has no unique characteristics that would help banks spot, track or avoid it.
One government official said on condition of anonymity: “You’re looking for a needle in a haystack. Unless you already know who the terrorists are, it’s hard to figure out what would be a distinguishing birthmark. There aren’t any.” Bankers say traditional indicators of financial crime -- such as large sums of money, multiple accounts, heavy transaction volumes, and flows to certain watchlist countries -- do not apply to terrorist cash, since sources and uses are often licit until the day of an attack.More on this story here.
J.P. Morgan facing heat of Patriot Act.
Manhattan District Attorney Robert Morgenthau has asked banking regulators to examine documents from the recent criminal conviction of an unlicensed money-transfer operation to determine whether J.P. Morgan Chase & Co. or its predecessor banks violated “know your customer” rules, according to the Wall Street Journal. JPM, which declined to comment on any possible rule violations, said it has been working with regulators to tighten its standards.More on this story here.
OUR SHADOW LEGAL SYSTEM
There is a deeper-held reason why we believe that Martha Stewart should be a free woman today. We hold that the federal criminal system that convicted her is an abomination to justice and is the destroyer of those precious “Rights of Englishmen” that this nation inherited from Great Britain (and especially the famed jurist William Blackstone) more than two centuries ago. What exists today in the federal courts is nothing less than a shadow justice system, an evil twin of the common law that served us so well for so long, a system that keeps the trappings of common law, but is more like Stalin’s Soviet Union than Blackstone’s England. Born of political expediency and of the Progressive Era of the late 19th and early 20th centuries, the federal criminal system is nothing less than a mechanism that permits prosecutors to do an end run around the Constitutional protections that the framers of that document believed were the natural rights of individuals.
Writers have found time and again that the system is utterly corrupt because there are almost no safeguards against federal investigators and prosecutors who step out of bounds. One of us spoke on the telephone recently to one of the prosecutors (who allegedly tried to frame one of his targets) named in a 10-part 1998 series on federal prosecutorial misconduct, and it was clear from our conversation that he believed he could do what he wanted, when he wanted, and that he was above the law.
The “Rights of Englishmen” are now dead. The federal courts have the looks and trappings of that once-magnificent system of laws that was part and parcel to the very meaning of the United States of America. But while it may seem that the modern system is a continuation of that system we inherited from Great Britain, the system inside is rotten. It does not protect citizens from the state; instead, it gives the state all of the weapons (federal prosecutors like to call them “tools”) it needs to declare everyone a criminal.More on this story here.
WHAT NAT KING COLE WOULD HAVE TOLD MARTHA STEWART
Nat King Cole was unquestionably one of the best, if not the best, crooners of his day. The unique record shape of the Capitol Records Building in Hollywood, has been called, the “House that Cole Built”. He was financially successful, ranking with the richest in Hollywood.
His complicated financial affairs, as might be expected, caught the attention of the federal government at times. His attorney instructed him to tell the feds, if they contacted him: “I will sing for you, but if you want to talk, you will have to talk with my attorney.” This lawyer told all his clients that they must never talk to a government agent under any circumstances, and if they did, he would withdraw from the case and they would have to find other counsel to represent them. This was not an idle threat -- in at least one case he did just that. Martha could have told the feds, “I will bake you a pie.”
It is hard to believe that Martha Stewart had not, in her long career in big business dealings, been similarly advised by the many high-powered, and high-priced, attorneys she must have dealt with over the years. Not just once, but maybe many times. On the same score, she must have been told that to act as your own attorney, is to have a fool for a client, and a legal quack for an attorney. Martha certainly must have heard those pieces of horse sense. When the victorious prosecutor spoke to the media on the courthouse steps, he said the case was all about lies. He was only half right; the other half of the case was about stupidity.More on this story here.
THE ROAD TO SERFDOM: A SIXTIETH-ANNIVERSARY APPRECIATION
Sixty years ago this month, in March 1944, The Road to Serfdom by F. A. Hayek was first published in Great Britain. For six decades it has continued to challenge and influence the political-economic landscape of the world. Hayek delivered an ominous warning that political trends in the Western democracies were all in the direction of a new form of servitude that threatened the personal and economic liberty of the citizens of these countries.
Hayek’s argued that German Nazism was not an aberrant “right-wing” perversion growing out of the “contradictions” of capitalism. Instead, the Nazi movement had developed out of the “enlightened” and “progressive” socialist and collectivist ideas of the pre-World War I era, which many intellectuals in England and the United States had praised and propagandized for in their own countries. His main point was that Germany’s tragic history was not unique or special to the German people. The institutional changes that accompanied the implementation of socialist and interventionist welfare-state policies potentially carried within them the seeds of political tyranny and economic servitude in any country that might follow a similar path.
Hayek died on March 23, 1992, at the age of 92. In the 12 years since his passing, The Road to Serfdom has come to be seen as one of the greatest political contributions of the twentieth century. Indeed, it played a very crucial role in stemming the tide toward totalitarian collectivism in the decades that followed World War II.More on this story here.
THE AMERICAN STATE RELIGION SHINE’S FORTH IN A SHORT STORY BY KURT VONNEGUT
Harrison Bergeron is from Vonnegut’s collection of short stories, Welcome to the Monkey House. It begins:
“The year was 2081, and everybody was finally equal. They weren’t only equal before God and the law. They were equal every which way. Nobody was smarter than anybody else. Nobody was better looking than anybody else. Nobody was stronger or quicker than anybody else. All this equality was due to the 211th, 212th, and 213th Amendments to the Constitution, and to the unceasing vigilance of agents of the United States Handicapper General. ...”More on this story here.
THE AMERICAN REVOLUTION’S FORGOTTEN HERO
If one were to inquire about George Mason today, one would receive very little response. Most people know only that he participated in the Constitutional Convention of 1787 and that he was one of those who refused to sign the first draft of the U.S. Constitution. Very few know it was Mason who was the first to draft a written constitution that included man’s inherent right to life, liberty, and the freedom to pursue and obtain happiness. This man, the author of the Virginia Declaration of Rights, had a profound influence on the making of the Constitution of the United States of America and specifically the Bill of Rights. His objections to the failure to include a bill of rights in the Constitution look particularly prescient.More on this story here.
TV PROGRAMMING IS DESIGNED TO SHEPHERD VIEWERS INTO COMPROMISING THEIR VALUES
Most Americans would disagree that our society has much if anything in common with the dismal despotism portrayed by George Orwell. But Russian anti-Communist Alexander Zinovyev, a world-renowned author who actually lived under such a regime, sees America descending into the same nightmare -- in large measure because of the influence of our popular media.
“It is enough to switch on the TV set, to go to the movies, to open a best-seller,... to listen to the ubiquitous music,” complained Zinovyev in the July 24, 1999 issue of France’s Le Figaro, “and you’ll find them propagating the cult of sex, violence and money. Noble slogans about tolerance and respect for others are concealing those three pillars of totalitarian democracy.”
Television emerged as a mass medium in the 1950s and quickly came to occupy a key role in an orchestrated campaign to eradicate conventional middle-class morals and culture. In his monumental 1966 study Tragedy and Hope, the late Georgetown University historian Carroll Quigley observed: “The period since 1950 has seen the beginnings of a revolutionary change in American politics. This change is not so closely related to changes in American economic life as it is to the transformation in social life.... What has been happening has been a disintegration of the middle class....”More on this story here.
ALL THE MONEY SPENT ON SECURITY SINCE 9-11 HAS DONE LITTLE TO MAKE US SAFER
Terrorist attacks are very rare. So rare, in fact, that the odds of being the victim of one in an industrialized country are almost nonexistent. And most attacks affect only a few people. The events of September 11 were a statistical anomaly. Even counting the toll they took, 2,978 people in the US died from terrorism in 2001. That same year, 157,400 Americans died of lung cancer, 42,116 in road accidents, and 3,454 from malnutrition.
One problem with securing the nation is the scope of the threat. Terrorists can attack airplanes, sports stadiums, water reservoirs, power plants, chemical storage facilities - the possibilities are endless. If you want to defend targets, you have to defend them all. Protect half the reservoirs and the others will still be at risk. Even defending against a specific threat is very difficult. Security is only as strong as its weakest link; three locks on the front door do little good if the back door is open. Likewise, the air transportation system is only as secure as the country’s most insecure airport.
Many of the security measures we encounter on a daily basis aim pinpoint the bad guys by treating everyone as a suspect. But that creates a problem similar to the one you see when airport security screeners waste their time frisking false alarms. Terrorists are so rare that any individual lead is almost certainly a false one. So billions of dollars are wasted with no assurance that any terrorist will be caught.
The only effective way to deal with terrorists is through old-fashioned police and intelligence work -- discovering plans before they are implemented and then going after the plotters themselves. More damage was done to al Qaeda by disrupting its funding and communications than by all the guards and ID checks in the US combined. Most of the government’s measures are bad trade-offs: They require significant sacrifices without providing much additional safety in return. And there is far too much “security theater” -- ways of making people feel safer without actually improving anything. Our money would be better spent tracking down terrorists abroad than on enforcing intrusive measures at home.More on this story here.
MARTHA THE SCAPEGOAT
For those who believe that mankind has abandoned the practice of throwing children from cliffs, or tearing out the hearts of young women on temple altars, all for the purpose of appeasing the gods, the conviction of Martha Stewart should inform you that this ritual has only changed form. Scapegoating remains an accepted ceremony, even though its more brutal expressions no longer appeal to us. It is now usually performed in a bloodless fashion, with the rites of procedural due process carefully observed.
Scapegoating, along with other forms of human sacrifice, is as old as human society. It is particularly evident during periods of political, economic, or social instability, when there is a failure of group expectations. The scapegoat serves two purposes during such periods: as an object upon which the fears, anger, and frustrations of a group can be directed. The scapegoat is also politically useful, during periods of turbulence, as a means of reminding people that the state retains the power of life and death over them. In the words of a nineteenth century tribal chief: “If I were to abolish human sacrifice, I should deprive myself of one of the most effectual means of keeping the people in subjection.” The scapegoat need not be innocent of any offense. If he or she is perceived to be guilty of some offense, so much the better to convince people of the propriety of the coercive action against the victim.More on this story here.
WHY THEY THROW ROCKS
As Martin van Creveld writes in his important book, The Rise and Decline of the State, the state arose, in Europe starting in the 15th century, to bring order. Not freedom, not capitalism, certainly not democracy, but order. Between the decline of the High Middle Ages and the rise of the state, Europe was plagued by disorder, often in the form of roving bands of armed men looking for employment as soldiers. Being skilled in the use of arms and semi-organized (and not having much to lose anyway), if they saw something they wanted, they took it. That meant not only money but the food a family had stored to get it through the winter, along with their warm house; women; boys and young men, to fill up their ranks; horses and other livestock; in short, anything. What they did not steal they destroyed, just for the fun of it. And seeing how long they could keep someone alive under torture often provided an evening’s entertainment. Life was Hobbesian -- nasty, brutish and short -- for anyone without a castle.
The state promised to restore order, and in time it did. As the state spread throughout the world, usually in the form of European colonialism, it made that same promise good beyond Europe. While the state added qualities beyond order as it developed, its legitimacy still depended on upholding its first promise, maintaining order. And it still does so depend. That is why, in countries such as Iraq and Haiti, the locals blame us when order breaks down. As the occupying power, we are responsible for maintaining order. That is true under international law as well as in the eyes of the local people. We are the state now in those places, and when order breaks down, we -- the state -- have failed.
It is not only “over there” where the state no longer brings order. In developed countries, including Britain and the United States, the state has also broken its contract. It no longer effectively provides order on its home soil. In Britain as in the United States, one of the fastest-growing industries is private security. Gated communities are the new castles. The state’s growing inability to maintain order, in Baghdad or in Washington, is a primary cause of its intensifying crisis of legitimacy.More on this story here.
UK’S CHIEF SCIENTIST SAYS CLIMATE CHANGE GREATER THREAT THAN TERRORISM
Professor Sir David King told a House of Lords committee that urgent action was needed “within the next few years” to avert the threat of sudden and severe climate change. He claimed that last summer’s heatwave was a man-made event and a warning sign of worse to come. And he defied Downing Street by repeating his charges that global warming is a bigger threat than terrorism, and that Washington is failing to tackle the problem. On a recent trip to America to talk about the threat of global warming, Sir David was warned by Downing Street to limit his contact with the media.More on this story here.
Study sheds new light on climate-change processes.
A new study from the University of California shows, for the first time, that the deep-ocean circulation system of the north Atlantic, which controls ice-age cycles of cold and warm periods in the Northern Hemisphere, is integrally coupled to salinity levels in the Caribbean Sea. This research reinforces concerns that global warming, by melting the glacial ice of Greenland, could quickly and profoundly change salinity and temperatures in the north Atlantic Ocean. One consequence might be much colder weather in northern Europe and Britain and perhaps even in eastern Canada and the U.S. northeast.More on this story here.
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