Offshore News Digest for Week of March 22, 2004

GLOBAL BUSINESS

LUXEMBOURG AND THE EU

Looking back over more than 50 years of European history, one can admire the way Luxembourg has used its geographical and human assets to strengthen its own position and the process of European integration. It did so by the constant exercise of good judgment and an unswerving loyalty to Europe.

FEAR OF VOTERS PARALYZES SWISS GOVERNMENT OVER EU

The government’s ambiguous position on EU membership is becoming increasingly hard to sustain, says law professor Roland Bieber. He told swissinfo that in today’s expanding EU, there was no room for “exceptions” -- Switzerland had to be in or out.

HUMAN RIGHTS COURT AGREES TO SCRUTINIZE YUKOS PROBE

The Russian authorities are threatened with independent scrutiny of their high-profile investigations of the oil tycoon Mikhail Khodorkovsky after his lawyers said that the European Court of Human Rights had agreed to examine alleged judicial abuses. The decision is likely to trigger fresh tensions between Russia and Europe, and bring back into the international spotlight a case that has raised widespread criticism of the administration of President Vladimir Putin and concern over democracy, property rights and foreign investment in the country.

Ex-KGB men tighten their grip on Russia.

During extended visits to Moscow from 1989 to 1992, the KGB generals and colonels I met and socialized with made me understand a profound revolution was underway at Moscow Center. A younger generation of KGB, mostly from the elite 1st Chief Directorate that conducted foreign intelligence operations, had become totally disgusted by the corruption, cronyism and incompetence of the Communist party. Unlike party bigwigs, the intelligence people knew Russia was heading for economic collapse.

A decade later, KGB alumni have assumed total power under former KGB colonel Vladimir Putin. After 10 years battling corrupt bureaucrats of the Yeltsin years, ruthless gangsters, robber barons and rebellious regional governors, Russia’s security establishment -- known collectively as soloviki -- has consolidated its grip on power. Last week’s barely contested elections in Russia confirmed Moscow’s hard men are now completely in charge of a one-party state. President Putin has ruthlessly scattered Russia’s feeble democratic forces, brought the media totally under his control, broken the robber barons and crushed regionalism. He is now an absolute ruler.

Putin has turned out to be a level-headed, pragmatic leader who commands great respect from his people and manages to avoid censure for incessant national disasters. He has so far balanced ruthlessness with remarkable caution, using his mailed fist only rarely, but to great effect. Trite as it is to say, Russians do crave strong leadership -- and Putin is probably the most popular leader since Stalin.

SWISS MOUNT JOINT RESPONSE TO GERMAN DISPUTE

Switzerland’s federal and cantonal authorities have met to coordinate a joint response to a border dispute with Germany, ahead of high-level talks between Germany and Switzerland next month. Grievances at the German border began earlier in March, when Germany tightened controls at crossing points, causing long tailbacks on the Swiss side of the frontier. The move prompted concerns that Berlin was pressuring Bern to give way on stalled talks over a EU accord on savings taxation. However, Germany insists it is simply acting on its obligations set out in the Schengen accord aimed at clamping down on cross-border crime.

Switzerland sidelined by EU enlargement.

The EU’s upcoming enlargement is likely to put further distance between Bern and Brussels, according to the Swiss foreign minister. At a press conference, Micheline Calmy-Rey said that recent disagreements with Germany had underscored the impact of staying outside the bloc. “As the EU welcomes ten new members in May, its center of gravity will inevitably shift towards the east. And as a result, problems of national importance for Switzerland will take on only regional or local significance for our neighbors,” Calmy-Rey told reporters.

MOVE TO SINGLE REGULATORY BODY FOR THE BAHAMAS SHOULD BE AT MEASURED PACE

The best approach for The Bahamas to take as it considers the move towards establishing a single regulatory body is slow and cautious, says Andrew Law chairman of the Association of International Banks and Trust Companies. Mr. Law said that despite the pressure the jurisdiction may be receiving from external super national bodies to move towards this approach to regulating the financial services industry, The Bahamas is allowed to be cautious on this issue.

CITIZENSHIP ISSUE IS EXPECTED TO ROIL NEXT IRISH ELECTION

At justice minister Michael McDowell’s urging, Ireland is expected to hold a June referendum on whether to scrap a law granting automatic citizenship to babies born in Ireland to non-naturalized immigrant parents. The provision has existed since 1935. But in 1998 it was buttressed under Good Friday agreement-related legislation to help anyone from Northern Ireland to get an Irish passport, as opposed to the British passports usually granted in the British-ruled North.

But with Ireland’s Celtic Tiger economic juggernaut still roaring at the time, the country remained a magnet for immigrants from poor countries in Europe and Africa. And those immigrants, legal and illegal, who had children in Irish hospitals were granted immediate residency, but not citizenship. In 2001, 3,153 people got Irish residency that way. That number rose to 4,027 in 2002. Several Dublin hospitals say between 20% and 25% of all births last year were to non-nationals. McDowell’s defenders say the law change is needed to make sure immigrants do not abuse the system and deplete scarce resources. But critics say the referendum is poorly thought out and could feed racism that has flared periodically in the past few years, usually targeted at immigrants.

SWISS GOVERNMENT SEEKS TO OVERTURN GERMAN DECISION ON BANKING SECTOR

The Swiss government is to intensify its lobbying efforts over a German law set to come into force later this year, which would force banks based outside the EU and the European Economic Area to register with the German authorities before they are allowed to promote their services in the country. Although Germany’s Finance Minister, Barbara Hendricks has argued that the legislation is merely intended “to protect German consumers from dubious operators who are not accountable to German banking regulations”, Swiss banks feel that the government is simply trying to dissuade its citizens from banking offshore.

IN EUROPE, HOW TO STRETCH A WEAK DOLLAR

Many Americans heading to Europe as prime travel season gets underway will be disheartened by how little a dollar buys. The euro hit a five-year-high against the dollar in February, trading at $1.29, although it was down slightly to $1.24 in early March. But as recently as mid-2002, the euro was worth just 88 cents. That means in two years, European vacations have gotten over 40% more expensive for Americans. But experts say there are plenty of ways to make the best of a lousy exchange rate -- from getting all-inclusive package deals, to choosing destinations in Eastern rather than Western Europe, to using discount airlines and train passes for local travel.

Weak dollar to hit UK exports in a year.

The weakness of the dollar against the pound is likely to hit British exports in a year’s time, a U.K. Treasury official says. He added that the recent appreciation of the euro against the dollar posed a risk to the euro zone outlook.

IDEA OF UNION BETWEEN CANADA AND THE TURKS & CAICOS ISLANDS REMAINS ALIVE

Thirty years after it was first dreamt up, it would seem that the idea of a union between Canada and the Caribbean jurisdiction of the Turks & Caicos Islands remains a realistic proposition in the minds of some. One of the proposal’s firmest advocates is the Canadian Conservative MP Peter Goldring, who has organized a cross-party committee to examine the issue, and has previously stated that he would like the Turks & Caicos Islands to become Canada’s “eleventh province”.

A Caribbean NetNews report revealed that many islanders appear to be in favor of the proposition, and Goldring claims that the initiative would give Turks & Caicos the opportunity to expand and diversify its economy, in addition to providing greater regional stability. Moreover, he points out that the islands would provide Canada with a manufacturing and distribution hub for the Caribbean and South America.

ISLE OF MAN “UNDER THREAT FROM EU”

Tynwald has lost credibility because of the actions of the EU, an academic and businessman is claiming. Dr. Dick Horsnell said the Island’s “prosperous and caring society” is under threat from the EU and there are major issues which need urgent discussion. Dr. Horsnell chairs the Manx EU Realist Group, an organization formed last year to raise awareness of the impact of Europe on the Island.

Dr. Horsnell, who moved to the island in 1997 after working in Europe and America, said the situation in Europe has changed a great deal in the past few years. “In the last three years it has become clear to everybody that the EU is an unelected, undemocratic, super-national body controlled by a political elite committed to ever-closer political, economic, social and legal union of the member states,” he said.

“It is now the case that more than 60% of new UK laws come directly from the[EC] and are not subject to any UK parliamentary scrutiny. Further it is not possible for any changes to be made by the UK government to these laws and directives,” he said, adding “This would not matter to the Island if it had not been for the June 2001 white paper produced by the commission entitled European Governance. This requires the member states to act as enforcers of the commission’s will throughout their sphere of influence. Dependent territories are regarded as within the sphere of influence of the British Government.”

HONG KONG: AMENDED COMPANIES ORDINANCE CREATES MORE BUSINESS FRIENDLY ENVIRONMENT

On 2nd July 2003, the Hong Kong Legislative Council passed the “Amendment Ordinance”, amending the Companies Ordinance of Hong Kong. The amendments include, among other matters, enhanced shareholders’ rights, changes in requirements regarding directors and shareholders, and procedural improvements. The purpose of this article is to outline briefly several of the most important elements of the Amendment Ordinance, discuss the impact of the Amendment Ordinance particularly in relation to the Closer Economic Partnership Arrangement between Hong Kong and the People’s Republic of China and consider several outstanding issues not addressed in the Amendment Ordinance.

Taiwan fails to pass independence referendum.

After surviving an assassin’s bullet, Taiwan’s President Chen Shui-bian has been narrowly re-elected. But he lost a referendum that Beijing feared would cement Taiwan’s independence, encouraging Hong Kong and other Chinese regions to seek more freedoms. Taiwan has enjoyed de facto independence since the end of the Chinese civil war in 1949, when Chiang Kai-shek’s Nationalist forces retreated to the island after being defeated on the mainland by Mao Zedong’s Communists. Nowadays, most western countries do not formally recognize Taiwan as an independent country, though in practice they deal with it as if it were. China continues to regard Taiwan as a rebellious province and threatens to retake it by force if it ever formally declares independence.

The 23 million Taiwanese are divided over whether they are a separate people to the mainland Chinese. The population is a mix of the Mandarin-speakers who arrived with Chiang in 1949 and their descendants, plus those descended from two groups that immigrated from the mainland in earlier centuries, each with its own regional language. On the mainland, Beijing’s view that Taiwan is a province of China is widely supported by the public.

While regaining its “rebellious province” is vitally important in itself for China, the authorities in Beijing also worry that the more Taiwan asserts its independence, the more encouragement this gives to pro-democracy campaigners in Hong Kong and to those demanding greater autonomy in two troublesome western provinces, Tibet and Xanjiang (or East Turkestan, as it once was and is still called by its large Muslim minority). Having crushed an incipient pro-democracy movement in Tiananmen Square in 1989, the Communist Party leaders in Beijing continue to have nightmares about Taiwan’s pro-independence drive and Hong Kong’s pro-democracy movement undermining their monopoly on power and causing China to unravel.

BERMUDA BUSINESS LEADER: WE MUST DO BETTER

Bermuda must improve customer service if it is to remain a leading business jurisdiction, according to a Bank of Bermuda CEO Philip Butterfield. Having worked for many years overseas, Mr. Butterfield, who was appointed bank CEO last month after its $1.3 billion sale to HSBC, said returning to the Island was a culture shock. Referring to a bad experience with a company salesman, Mr. Butterfield said he was dismayed to be dealing with a sales representative who clearly did not “share the same values”. And recounting the story to friends simply elicited a “welcome back, this is Bermuda” response. “This does not have to be Bermuda. We do not have to accept this standard,” he said.

WTO SAYS U.S. HAS NO JURISDICTION OVER ANTIGUA BASED ONLINE GAMBLING

Antigua and Barbuda has won a World Trade Organization ruling in a finding that U.S. legislation criminalizing online betting violates WTO commercial services accords. Antigua filed a complaint with the WTO about a year ago concerning the United States’ position effectively banning Internet gambling. The U.S. position has slashed revenue in Antigua, which developed online gambling to boost an economy whose main income, tourism, suffered after a series of hurricanes. Some gaming observers say the ruling may have limited affect on the longstanding position of the U.S. government that Internet gambling is illegal.

The ruling -- which only applies to Antigua and not to other Internet gambling jurisdictions worldwide -- comes as federal prosecutors have threatened legal action against such media companies as Clear Channel and the Discovery cable network for doing business with online gambling sites. Experts also are unsure how the WTO, which has the authority to impose sanctions against the United States, could enforce the ruling.

Before the U.S. prohibitions, Antigua’s Internet gambling industry employed 5,000 people in the country in 119 companies. That dropped over three years to 1,000 people in 30 companies as a result of the ban. “The U.S. is under an obligation to repeal their laws, but they will probably appeal and delay for as long as possible,” Sir Ronald Sanders, Antigua’s ambassador to the WTO, said in a telephone interview from London.

Antigua’s incumbent party suffers first electoral defeat in 28 years.

Outgoing Antigua and Barbuda Prime Minister Lester Bird conceded defeat early Wednesday after his incumbent Antigua Labour Party (ALP) suffered its first defeat in 28 years in Tuesday’s general elections. United Progressive Party (UPP) leader Baldwin Spencer is set to be sworn in as prime minister later Wednesday by the Governor-General.

The UPP’s campaign centered on wiping out corruption, reviving the ailing tourism-dependent economy, stimulating private investment and providing help to the poor and jobless. Antigua and Barbuda, a former British colony in the north-eastern Caribbean, has a population of 68,000 and a voting population of some 43,000.

SWISS CANTONS CALL FOR NEW DEBATE ON EU MEMBERSHIP

At the cantonal governments’ conference 12 cantons expressed support for EU membership, eight were opposed to it and five abstained. “This is a clear sign that there shouldn’t be any more bilateral agreements with the EU,” said Christian Democrat parliamentarian Georg Hess. Most cantons believe that it is important for Switzerland to join the club if it wants to remain competitive. “Switzerland can no longer go it alone, as it is already too much integrated into European policies,” said one parliamentarian. The cantons further agreed on the need for headway in Swiss-EU relations, and called on the federal government to examine more fully the option of joining the union.

TAXES

GUERNSEY FINANCE INDUSTRY NOT QUAKING IN ITS BOOTS OVER BROWN DIRECTIVE

Anti-tax avoidance moves launched by UK Chancellor Gordon Brown hold no fears for the local finance industry. But accountants will be waiting for the detail of the Finance Bill in the next few weeks. “This could be a storm in a teacup or it could be a wide-ranging remit that covers pretty much everything we do,” said Jason Ward, head of tax compliance at Walbrook Tax Advisors. “We know something’s coming up and now we need to look at our practices. It’s a good opportunity to sit back and take stock of what we do.” Mr. Ward said that established tax-avoidance measures could still be sustained in the wake of a crackdown from the Inland Revenue, but local businesses might have to reflect on riskier strategies.

But they foresee more scrutiny from the Inland Revenue.

Local finance professionals were given the warning at a seminar arranged to discuss the new offshore arrangements project designed to identify perceived tax evasion. It questioned the ability of the Revenue to access information relating to offshore centers and whether or not it was attacking the islands unfairly, given the history of compliance and co-operation with the UK authorities.

Aileen Barry, a tax partner at Deloitte in London, said that the UK tax authorities could be over-estimating the extent of any abusive practices; nevertheless, many island operations could expect significantly greater scrutiny in the future. As such, where there is any UK link, structures and operations should be reviewed to ensure that any earlier planning is still relevant and robust, documentation is updated and procedures are properly followed.

IRS OPTING NOT TO GO AFTER MANY SCOFFLAWS

Struggling with rising workloads and stagnant staff levels, the IRS walked away from more than 2 million delinquent tax accounts last year, totaling nearly $16.5 billion, according to the Treasury Department. Last year, the IRS opted not to pursue 2.25 million tax cases, costing the government $14.1 billion in individual income taxes and $2.3 billion in corporate taxes, the Treasury document states. The median size of the delinquent accounts was $14,000. The largest account not being pursued involved more than $50 million.

Deputy Treasury Secretary Samuel W. Bodman used the escalating delinquencies to renew a Bush administration push to bring private debt collectors into the IRS tax collection process. Many of the scofflaws would pay up if they were simply contacted by telephone, Bodman said.

IRS aims to fill new agent jobs.

The IRS has launched a major hiring initiative in search of finance-minded people with a penchant for law enforcement. The federal tax collection agency wants more than 500 people to work as criminal investigation agents in offices around the country, investigating crimes such as money laundering and tax fraud. The IRS looks for people with training or experience in financial work. Those hired attend six months of training in Georgia and finish authorized for duties such as making arrests, executing search warrants and seizing property through forfeitures.

EU TAX DEAL LEAVES SWISS BANKING SECRECY INTACT

An agreement between Bern and Brussels on savings taxation is likely to be reached -- after nearly 14 years of deadlock -- now that EU members have struck a deal. The breakthrough came after Italy agreed to drop its opposition in exchange for concessions on the unrelated issue of milk quotas. The Swiss will not go so far as to exchange information but may agree to levy a withholding tax on EU citizen’s savings income, and transfer the money to Brussels. Non-EU members -- so-called third countries, such as Switzerland -- are now expected to comply with the new rules or face possible sanctions. Bern is expected to demand a tax exemption for transfers of dividends, interest payments and license fees between Swiss company headquarters and their units in the EU.

Swiss Bankers Association dismisses idea that banking secrecy is unethical and unfair.

The chief executive of the association, Urs Roth, said banking secrecy was not to blame for tax evasion and he rejected suggestion that it was the sole competitive advantage for the Swiss banking industry. Roth said the banking customer legislation was in the interest of clients and was consistent with other Swiss law aimed at protecting the privacy of citizens. His comments came in response to criticism by the honorary chairman of the Julius Bär banking group, Hans J. Bär.

BOLKESTEIN SPEAKS ON TAX “PROGRESS” IN EU

When does it all end (one might ask)?

Frits Bolkestein outlined the progress made in the various tax initiatives currently in place or under consideration within the European Union. “The last years have been exceptionally active on the tax front with the Commission presenting many legislative proposals and some significant new initiatives,” said Mr. Bolkestein, adding, “We cannot rest on our laurels just yet. The next few months are a crucial time in the tax field and a time where Parliament has to play a key role. We recently made a number of tax proposals and more will follow, for which Parliament’s opinion is urgently required.”

THE ECONOMICS OF TAX COMPETITION: HARMONIZATION VS. LIBERALIZATION

Tax competition exists when people can reduce tax burdens by shifting capital and/or labor from high-tax jurisdictions to low-tax jurisdictions. This migration disciplines profligate governments and rewards nations that lower tax rates and engage in pro-growth tax reform. Like other forms of competition, fiscal rivalry generates positive results. People get to keep more of the money they earn, and economic performance is enhanced because of lower tax rates on work, saving, and investment. The capital mobility that defines tax competition also protects against government abuses. People can guard against corruption and protect their human rights more effectively when they know that they and/or their capital can flee across national borders.

The thought of losing sources of tax revenue scares government officials from high-tax nations, who vociferously condemn tax competition and would like to see it reduced or eliminated. Working through international bureaucracies like the EU, the UN, and the OECD, high-tax governments are promoting various tax harmonization schemes to inhibit the flow of jobs and capital from high-tax jurisdictions to low-tax jurisdictions. These proposals are fundamentally inconsistent with good tax policy. Tax harmonization means higher tax rates, but it also means discriminatory and destructive double taxation of income that is saved and invested. It also means extraterritorial taxation since most tax harmonization schemes are designed to help governments tax economic activity outside their borders.

Tax competition should be celebrated, not persecuted. It is a powerful force for economic liberalization that has helped promote good tax policy in countries around the world. Even OECD economists have admitted that “the ability to choose the location of economic activity offsets shortcomings in government budgeting processes, limiting a tendency to spend and tax excessively.”

DEATH OF MANY U.K. TAX AVOIDANCE STRATEGIES AT HAND

At a meeting held on March 19, the death of the EBT and various other IR35 avoidance measures were signaled. The meeting was to set out further details of the Chancellor’s proposals for greater transparency in the market for tax avoidance schemes and arrangements, and of the steps which will be taken to prevent forestalling of the new regime. Punitive penalties do seem to doom schemes ranging from EBT’s, rapidly depreciating foreign currency loans, complex shareholder arrangements and the like. The only thing left now seems to be to arrange ones business affairs in such a way as to be seen to be “self employed” rather than “employed”.

DEFICITS MAKE ESTATE TAX REPEAL LESS LIKELY

Three years ago, Congress passed legislation phasing out the estate tax, which is levied on the assets of high-worth individuals when they die. But estate tax repeal came with a catch -- the tax is scheduled to disappear in 2010, but return in 2011. Estate tax opponents, including most small business groups in Washington, have been fighting ever since to make the repeal permanent.

It is a tough sale, however, because of the $477 billion budget deficit the federal government faces this year. The estate tax generated about $20 billion in revenue last year. “Do we like other taxes better?” asks Paul Volcker, former chairman of the Federal Reserve Board and an opponent of estate tax repeal.

Several members of Congress who once favored repeal now say raising the estate tax exemption is more realistic. This would free most families from having to worry about whether the next generation can come up with the cash to pay Uncle Sam when a wealthy parent dies. But small business groups are in no mood to settle for anything less than repeal. They say many family-owned businesses -- auto dealerships and restaurants, for example -- are asset-rich but cash-poor and would have to pay the estate tax even if the exemption were raised.

HOUSE COMMITTEE CHAIRMAN LAMBASTS US FIRMS FOR OBSTRUCTING NEW INTERNATIONAL TAX BILL

ouse Ways and Means Committee Chairman Bill Thomas (R–California) accused corporate America of standing in the way of a major international taxation bill that will repeal the Extra Territorial Income Exclusion Act. “The question is, are you going to continue at this conference to lament through seminars and discussions the horrendous condition of the international tax code?” Thomas asked, going on to add that if attitudes did not change, the business community was about to “watch us lose an opportunity, both in the House and the Senate” to pass major international tax law changes this week that will avert prolonged EU tariffs on US exports. Thomas singled out US corporate giants Microsoft, Boeing and Caterpillar as particular culprits in obstructing the path of new tax legislation.

U.S. TREASURY WARNS THAT BIG CHANGES NEEDED TO FIX AMT TAX PLAN

Fixing the parallel individual income tax system called the alternative minimum tax may require major changes in the U.S. tax code, the Treasury Department’s second-in-command warned. “Because of the revenues involved in any significant reform of the AMT, and the number of taxpayers affected, any long-term solution to the AMT could well require significant changes to the regular tax code as well,” Deputy Treasury Secretary Samuel Bodman said in prepared remarks to a conference sponsored by the Tax Executives Institute.

The Treasury is in the midst of a review of possible options to overhaul the AMT, which requires upper-income and an increasing number of middle-income taxpayers to calculate their tax bills two different ways, and pay the higher bill.

The IRS gets one right.

Joseph W. Barr served the shortest term of any U.S. Treasury secretary. But thanks to the Alternative Minimum Tax, which he inspired, Barr may cast a long shadow over the finances of middle-class America. This is a cautionary tale about how tax-the-rich rhetoric can rebound on the middle class. The story also shows that even the IRS can get one right.

Inspired by Barr’s testimony, in 1969 Congress enacted a “minimum” tax of 10%, a complex device theoretically designed to capture revenue from the 155 “rich” people who would otherwise exploit loopholes to escape income taxes. Swatting at a gnat with a baseball bat, they swung and missed. In 1976, Treasury reported that 244 taxpayers who earned over $200,000 in 1974 had owed no income tax.

This sparked the first of multiple revisions (i.e., compounded complexities) in what became known as the Alternative Minimum Tax. In 1999, Congress voted to phase out the tax, but Clinton vetoed the bill. The tax survived. Now it is swinging toward a target it can actually hit: the middle class. In her latest annual report to Congress, IRS National Taxpayer Advocate Nina Olson called the AMT “a time bomb on a short fuse.” Advocate Olson recommends that Congress repeal the AMT. Politicians who reject this recommendation may find voters rejecting them.

PROGRESS MADE IN ELIMINATION OF “HARMFUL TAX PRACTICES”, SAYS OECD

Member nations of the OECD have made great strides in eliminating harmful tax practices and abolishing preferential tax regimes, stated a report released by the organization. “We’re pleased with the progress that OECD countries have made in eliminating harmful tax practices as they relate to their preferential tax regimes and with the progress that we are making in establishing a co-operative working relationship with non-OECD countries and jurisdictions,” stated Bill McCloskey, Chairman of the OECD’s Committee on Fiscal Affairs.

Meanwhile, five jurisdictions including Andorra, Liberia, Liechtenstein, the Marshall Islands, and Monaco remain on the OECD’s blacklist of Uncooperative Tax Havens, but the OECD said that it is continuing to seek their cooperation.

FIX ECONOMY BY TARGETING TAX CHEATS, SAYS ROBERT KUTTNER

He manages to hit just about every major cliché in a short article.

The budget deficits now appear so immense that Kerry cannot both reduce the deficit and act on his new spending priorities, even if he carries out his promise to repeal tax cuts on people making more than $200,000 a year. But there is an ingenious way out of this fiscal trap. A Kerry administration should go after tax cheats, both individual and corporate, who now cost the US Treasury something like $300 billion a year. Going after major tax cheats would be good politics as well as sound policy.

Corporate and individual tax evaders are overwhelmingly wealthy. They are either overt criminal tax evaders or corporate money launderers who take advantage of gaps in reporting requirements to hide profits in tax havens. A Kerry administration should restore enforcement on tax cheats so it does not need to raise tax rates on law-abiding taxpayers. And there is a second front where the Bush administration is even more vulnerable to criticism.

In early 2001, one of Bush’s first actions was to kill a joint effort by the U.S. and its European allies to crack down on offshore tax havens. But the Bush administration put the tax- avoidance interests of its corporate allies ahead not just of the solvency of the US Treasury but of the war against money laundering by terrorists. So a Kerry administration should put the US-European initiative against tax havens back on track.

CONGRESSMEN URGE SNOW TO WITHDRAW INTEREST REPORTING REGULATION

Led by House Banking and Financial Services Committee member Mark Green, 28 Members of the US House of Representatives have written to Treasury Secretary John Snow urging him to “quickly withdraw” the IR’qs interest reporting regulation. The regulation, which was initially proposed during the final days of the Clinton Administration and then cosmetically modified in 2002, would require banks to report interest paid to nonresident aliens.

The IRS initiative has generated considerable opposition sparked by fears that many foreigners would withdraw their money from American banks, thus harming America's economy and undermining the competitiveness of US financial institutions. “This is bad economic policy, bad regulatory policy, and bad tax policy,” the letter stated, adding, “this policy does nothing to aid in job creation or economic growth, and is a direct threat to America’s long-term economic interests.” The signatories observed that it is “disturbing... to see the IRS attempt to overturn the democratic process with bureaucratic edict.”

CALIFORNIA TAX BOARD ANNOUNCES CPA FIRMS TARGETED IN TAX SHELTER CRACKDOWN

The Franchise Tax Board (FTB) announced that it is urging partners and some other high-level employees of major accounting and law firms who may have used abusive tax shelters to correct their tax filings. These employees may have used the same abusive transaction they sold to their clients to improperly reduce their personal tax liabilities.

California has obtained thousands of tax shelter leads from the IRS, other states, and other sources of information. These leads help to identify taxpayers, promoters, and the tax schemes involved in improperly sheltering income. The FTB has contacted more than 31,000 potential clients and promoters of abusive tax shelters to amend their tax returns and reverse the abusive transactions. California is offering abusive tax shelters investors a chance to correct their returns and pay the tax and interest owed before the FTB steps up enforcement action. The program, known as the Voluntary Compliance Initiative, runs through April 15. To date, this program has collected more than $136 million.

FEDERAL GRAND JURY INDICTS IRWIN SCHIFF

A federal grand jury in Las Vegas indicted Irwin Schiff, who has been accused of helping thousands of Americans evade income taxes in the last nine years, on tax evasion, conspiracy and other charges that could send him to prison for 43 years. His former girlfriend and an employee were also charged. Mr. Schiff, 76, whose psychiatrist has determined that he holds a deluded belief that he alone can properly interpret the tax laws, said he was certain no jury would convict him. He said that the indictment -- which he learned about from a reporter -- was “itself a fraud”.

The indictment charges Mr. Schiff with tax evasion, conspiracy, preparing at least 4,950 returns that fraudulently listed zero income, failing to report $3.7 million in sales at his bookstore from 1997 through 2002 and using offshore accounts and an illegal “Christian Patriot Association” bank in Oregon to hide income and assets. The Oregon bank’s owners were convicted of tax crimes in June 2002.

Lawrence Cohen, 63, an employee of Mr. Schiff’s bookstore, Freedom Books, was charged with conspiracy, preparing fraudulent tax returns and tax evasion. A trial will be “a good opportunity to prove whether or not there is a law that requires anybody to pay an income tax,” Mr. Cohen said.

Mr. Schiff said, “I have done everything in the open, so what crime can I have committed if I did everything on the open? I have no income in the constitutional sense. I have no income. I have filed my tax returns and reported zero income because I have no income in the constitutional sense. The government has fraudulently gotten an indictment and the claim that I owe taxes is false. The indictment is a fraud and I will file a motion to dismiss.”

Anderson’s Ark client pleads guilty to filing false tax return.

Terry Lynn McNight, 47, of Hudson, Florida faces up to three years in prison, a $250,000 fine and one year of court supervision. McNight lied about advertising expenses on his chiropractic clinic’s 1999 federal income tax return. According to a plea agreement filed in Tampa federal court, McNight admitted to claiming more than $80,000 in advertising expenses for his practice, when, in fact, he spent almost nothing.

McNight told federal prosecutors he used a Costa Rican group, Anderson’s Ark, that sells, implements and manages so-called tax reduction strategies to falsify his clinic’s return. Complaints pending in federal court say the organization obtained approximately $28 million in illegal tax refunds for more than 1,500 clients from 1998 to 2001.

WHITE HATS TAKE TO THE WEB TO DISPEL ANTI-TAX SCHEMES

Several tax lawyers and accountants have also taken to the Internet to counter bad tax advice. Quatloos.com, for example, includes a forum where people can debate the theories of so-called tax deniers. Taxprophet.com includes his essays on tax cons. Daniel B. Evans, a lawyer in Philadelphia, maintains a Web site (evans-legal.com/dan/tpfaq.html) where he debunks tax-denier theories, citing court decisions.

Dick Adams, a retired University of Baltimore accounting professor, said he and a friend started the moderated group because the tax-denier arguments were “clearly drowning out serious discourse.” Occasionally Professor Adams posts a notice in the misc.taxes and us.taxes groups, sometimes joining Mr. Evans, in pointing out fallacies in tax denier arguments. Others who joust with the tax deniers often post references to the Quatloos, Tax Prophet and Evans Faq Web sites, which explain what the law actually says or how judges have ruled against tax deniers.

In the moderated news group (misc.taxes.moderated), Professor Adams usually rejects proposed postings spouting tax-denier theories. But advice given by lawyers, accountants and other experts sometimes sparks vigorous, though civilized, debate. Many postings are met with requests for more details because, Professor Adams said, “the real answer to 99 percent of all tax questions is, ‘It depends.’” Given enough back-and-forth, however, the tax professionals in the moderated group tend to come to agreement on the right answer to even complex issues.

A TAX CORPORATE AMERICA SHOULD CARE ABOUT

As the president and Congress celebrate another round of badly needed tax cuts, their focus on cutting income and dividend taxes ignored what is arguably the most regressive and economically significant tax -- the Social Security payroll tax. A recent study by the National Bureau of Economic Research noted that over the past two decades, Social Security has grown to be the largest tax two thirds of American families pay. The economic effects of this are seen in a study by the National Association of Manufacturers which noted that increases in the payroll tax between 1984 and 1997 had cost the U.S. economy more than a million jobs and lowered the GDP by $80 billion.

Payroll taxes have already gone from 2 percent of the first $3,000 of income in 1935 to 12.4% of the first $87,000 today. Unfortunately, in order to close the pending shortfall in Social Security, these taxes would have to increase from 12.4% to over 18%. Fortunately, there is a better way. It is an idea that builds on Corporate America’s own shift away from traditional defined benefit plans to 401(k) and similar defined contribution plans. It is called Personal Retirement Accounts.

ASSET PROTECTION

CREATE YOUR OWN TAX-FREE OFFSHORE COMPANY -- YEAH ... SURE

Get some advice and think twice before buying into this promotion: An offshore auction allows you to buy and sell over the internet in a Jurisdiction that charges no taxes on the profits you make. With an offshore debit card you can bring the funds home with no paper trail.

“Zauction Offshore makes setting up your own offshore company unnecessary, in order to buy and sell in a tax haven. You do it on the internet. No matter where the goods changes hands, the sale did not happen in a high tax jurisdiction. People could do most of their buying and selling online. ... [Zauction] is the world’s first of its kind tax haven auction site. The closer we get to April 15th in the USA the more popular this site is destine to get. Why? Because you can buy/sell, make a profit, and decide for yourself what you intend to do about income tax.

“The website takes advantage of an offshore currency called E-gold. What is E-gold? It is ... the ownership of gold used to buy and sell over the internet. ... E-gold is 100% backed by gold. That is the only currency allowed on Zauction Offshore. No paper trail, when you buy and sell.

“Fred Michaeis is the director of Zauction Offshore Inc. This offshore auction is incorporated in the island nation of Antigua. The site is hosted on a server in Hong Kong. E-gold is the only currency that the auction will accept. There are revolutionary reasons that you should be interested in going to the trouble to convert your fiat money into E-gold currency and use this auction. Why? Well, the USA monetary system is trillions of dollars in debt, and if you use the US dollar, sooner or latter, someone is going to levy a tax on you and expect you to pay it.”

CANADIAN INVESTORS LIVID OVER FEDS’ LAXITY

Small investors who were fleeced in a $25 million investment scam expressed outrage that federal income-tax authorities did not do more to alert securities regulators or police to suspicious dealings at Bear Bay Holding Canada. In February 2001, Bear Bay was fined $600,000 after pleading guilty to tax evasion from 1996 through 1999 involving the sale of unregistered offshore investments offered by a Bahamian corporation. At the time, the tax department put out a press statement trumpeting the judgment, but did not inform fraud watchdogs, a Canada Customs and Revenue Agency spokesperson acknowledged.

More than a year later, in May 2002, the tax department issued a second press statement about another Bear Bay-related tax-evasion judgment when a Quebec City businessperson, Marc Asselin, was fined $41,857 for evading taxes on interest generated by offshore investments that were obtained through Bear Bay. Yet, well into 2003, investors continued to entrust their savings to investments that were offered by the now-closed company.

Bear Bay principals Armando Ferrucci and Victor Lacroix have disappeared, leaving scores of small investors mostly in Montreal’s and Laval’s Italian-Canadian community with tens of millions of dollars in losses. Some of those investors said yesterday that if the tax department had seen fit to advise authorities, their money might not have been lost.

SURVEY REVEALS LEADING TRUST JURISDICTIONS

According to a recently completed survey of City of London lawyers, jurisdictions which have traditionally led the field as preferred locations for the establishment of trust arrangements continue to be the top choices, despite increasing regulation. The results of the survey, sponsored by legal firm Bailhache Labesse revealed that when recommending jurisdictions in which to establish a trust, 87% of the 100 lawyers questioned chose Jersey, 81% Guernsey, 49% Bermuda, 42% Cayman Islands, 36% New Zealand, 12% Isle of Man, 10% Singapore, 9% British Virgin Islands, 9% Mauritius and 9% others.

Asked to identify the factors that influenced their choice of jurisdiction, the respondents to the survey selected the maturity of the legal system (62%), the regulatory regime (56%) and political stability (51%) as the top three. Although confidentiality was cited by 74% of respondents as an important concern, the survey results pointed to an increasing awareness that total confidentiality is no longer achievable.

PRIVACY

CHECKING YOUR PRIVACY TODAY?

Airline passengers already are giving up convenience, time and their patience to wade through extra security checks. Are they now prepared to sacrifice their privacy to color-coding? The government wants to offer low-risk, frequent fliers expedited screening. They would avoid extra inspections by volunteering to pay a fee and submit to background checks. The theory behind the plan is sound. Drain the pool of people who pose no threat, and it is much easier to target those who do.

The American Civil Liberties Union worries that passenger information might be used for purposes other than screening -- that it might fall into unauthorized hands or that the government might store the data after the flight. The ACLU’s objection was expected. But the General Accounting Office, Congress’s own investigative body, studied the system and was just as skeptical. The GAO worries about the ability of federal and private databases to target the right people and not confuse identities. Questions about privacy protections have no answers, the auditors said, noting that many of the operational details still are sketchy.

There is the legitimate fear that information about a passenger could find its way into a computer and take on a life of unknown duration in cyberspace, where identity thieves always are searching for prey. Custody of the profiles is a major issue and probably will depend on public-private partnerships, hardly a thought that inspires confidence. And what if the government goes beyond terrorist watch lists and uses the data to track people for other things -- such as tax evasion?

Travel industry groups welcome TSA proposal.

The Transportation Security Administration plans to start testing a registered-traveler identification program in June, which will let those who volunteer for a background check avoid tight screening at the airport. While civil liberties groups have questioned the plan’s merits, travel industry groups have welcomed it, calling the proposal a way to expedite travel and increase security without the costs and privacy concerns associated with CAPPS II, the TSA’s ongoing attempt to create a new computerized passenger-screening program.

Currently, passengers who book one-way flights, pay with cash or buy their tickets close to their departure date are flagged by a computerized passenger-screening system as potential terrorists. Those passengers, along with a random selection of other travelers, have the code “SSSS” printed on their boarding passes, which leads to intensive scrutiny that can cause them to miss their flights.

ACLU OPPOSES THE NEW ASHCROFT INTERNET SNOOPING REQUEST

John Ashcroft is asking the FCC for sweeping new authority to regulate the design of Internet communications services to make them easy to wiretap. If implemented, this plan would dramatically increase the government’s surveillance power and risk making surveillance and privacy violations much more widespread. It would force technology companies to build “backdoors” in their systems for wiretapping and thereby create weaknesses that hackers, thieves and rogue government agents could exploit to invade your privacy and conduct identity theft.

The government already has more than enough power to spy on individuals suspected of wrongdoing. This measure is the equivalent of requiring all new homes be built with a peephole for law enforcement agents to look through. A sweeping increase in law enforcement’s surveillance powers such as this should be reviewed by Congress, not issued by fiat by the Justice Department with the approval of the FCC. This is especially important since this Department of Justice has demonstrated it has little respect for privacy rights and instead wants to dramatically increase surveillance of regular people.

UK PROPOSES “HARD” E-SURVEILLANCE FOR EUROPE

British home affairs minister David Blunkett is proposing that Europe’s mobile phone operators and internet service providers stockpile communications logs to be accessed by police and intelligence agencies. British officials argue that such electronic communications data was used in the FBI’s investigation into September 11, 2001 attacks.

“This is an important tool in the fight against terrorism,” said an EU diplomat. “We have got to learn lessons when they come through.” Mobile telephone records would reveal numbers called and give the geographical location of suspects being tracked by EU security agencies. Internet logs would yield up names and addresses, and the source and destinations of emails and websites used. The move is set to run into opposition from some EU capitals -- Sweden, Germany and Denmark would have to overturn domestic privacy laws to implement the surveillance measure.

BLUNKETT BID TO “FAST TRACK” ID CARDS SPLITS U.K. CABINET

The Home Secretary’s decision to publish a draft bill which could be introduced before Easter has prompted some Cabinet members to write to him protesting that his actions are“qnot in line with what colleagues agreed earlier”. The plans, which include giving Mr. Blunkett the power to introduce identity cards after a single vote in the Commons and without another act of Parliament being passed, have enraged several members of the Cabinet.

ALL OUR LIVES ARE ON FILE, FOR SALE

Every time you visit an Internet site, apply for credit or send in a product registration card, you leave behind bread crumbs of information that are swept up, compiled and stored by people you do not know. Hundreds of companies are selling and swapping information -- everything from your phone number to what you buy at the supermarket -- and storing it in databases to be cross-referenced again and again.

Much of the information is publicly available or handed over willingly by you. But even those who believe this data should be accessible agree its aggregation is cause for concern. As companies race to become market leaders in the multibillion-dollar information industry -- capturing the attention of Wall Street along the way -- they are creating bigger, faster, more precise databases about you. Equally troubling, privacy experts agree, is people’s ignorance of who is collecting their data and where the information is stored.

To understand the data mining business, it is helpful to understand who is working to acquire your information and what they do with it. Here is a glimpse of four such players. Every day, an army of paid workers like Pam Mosley fan out to the courthouses of America. While more courthouse clerks are putting data online directly, much still has to be hand-collected...

BUSH ADMINISTRATION ASKS FOR EXTENSION ON PASSPORT DEADLINE

The Bush administration this week asked Congress to give other countries two more years to issue biometric passports for entry to the United States, saying it is clear that none of the 27 countries entitled to issue the advanced technology passports will be able to meet an October 26 deadline. The administration earlier had supported the October deadline, saying passports with machine-readable fingerprints or some other form of biometric identifier would help prevent terrorists from entering the country.

PRIVACY MAVEN NOW WORKS FOR FEDS

The Transportation Security Administration has appointed a vocal critic of its privacy practices to write its privacy policies, perhaps in a move to placate congressional critics and privacy advocates. Lisa Dean, who has worked as the Washington policy liaison for the Electronic Frontier Foundation since June 2003, is scheduled to start as the chief privacy officer of the TSA as early as this week. Just weeks ago, Dean organized a coalition of privacy groups to ask Congress to hold hearings on the TSA’s proposed passenger-screening system, known as CAPPS II. The system would search travelers’ backgrounds before boarding by sifting through government and commercial databases. Now, Dean’s job will be to make sure the program’s privacy protections are strong enough that Congress would not step in.

COMPUTER SPYWARE MUST BE STOPPED, SAY MEMBERS OF SENATE SUBCOMMITTEE

Programs that secretly track computer users’ activities are becoming an online scourge rivaling spam and should be outlawed before they prompt consumers to abandon the Internet, members of the Senate communications subcommittee said. But a bill sponsored by committee members will need to define the problem precisely to avoid outlawing pop-up ads and other annoying but essentially harmless technologies, consumer and business advocates said. “We really have to spend a little time, take a deep breath and define what we’re after here,” said Jerry Berman, president of the Center for Democracy and Technology, a consumer-advocacy group.

Some online advertisers and song-swapping networks like Kazaa place programs on users’ computers to monitor their activity, or harness their processors for other activities. Other programs secretly track user’q keystrokes to lift passwords and credit-card numbers, or sell “fixes” for software problems they create. At least one state legislature has already passed an anti-spyware bill, prompting a business group to call for a national law to avoid conflicts.

EU PLANS REGISTER OF AIR ARRIVALS FROM US

The EU is planning a new central register of information on airline passengers arriving from the US, following Washington’s moves to monitor travellers from EU destinations as part of its “war on terror”. As part of that agreement, EU passenger reservation information can be passed to US customs officials but not information related to race, religion and health because of EU data protection laws. By June, the European Commission is likely to present a specific proposal on how to set up a central European register of passenger name records (PNRs).

However, the idea of a register is for the moment likely to be overshadowed by next week's vote in the European Parliament on whether to endorse last March’s agreement with the US. Deputies are concerned that the European Commission caved in to excessive US demands, both in terms of how much passenger data will be gathered (34 separate items) and the fact that such data will remain available for 3½ years.

While the parliament cannot block the deal outright, some deputies want to use the institution’s legal power to seek a ruling from the European Court of Justice on whether the agreement violates EU privacy law. If the EU’s highest court agrees, it could nullify the agreement.

FEDERAL SCREENERS MAY GET THE GATE

Major airports, including the ones in the Washington area, are considering replacing their federal passenger screeners with private companies, which monitored passengers and baggage before the September 11 terrorist attacks. The legislation that created the federalized screeners gives airports the option of using private companies beginning Nov. 19 if they can demonstrate security would not diminish.

Airport managers have been expressing frustration over growing lines at security checkpoints monitored by federal security screeners. As passenger traffic returns to pre-September 11 levels, the Transportation Security Administration (TSA) has not increased its staff of screeners. Officials at the Washington area’s three major airports are monitoring the TSA’s screener staffing and any new rules it develops before deciding whether to switch to private security firms, their spokesmen say.

Rep. John L. Mica, a Florida Republican and critic of the federalized screener work force, predicts about 100 airports will switch to private security companies. Mr. Mica, chairman of the House Transportation and Infrastructure aviation subcommittee, said private security firms would do a better job at a cheaper price by eliminating unnecessary bureaucracy. “The ineptness of TSA to staff these airports is legendary already. They’ll never get it right because it’s big government,” he said.

TRACKING TAGS MAY GET CONGRESSIONAL SCRUTINY

Sen. Patrick Leahy, D-Vermont, called for the hearing during a speech at Georgetown University. He suggested that use of the technology, known as radio frequency identification (RFID), may need to be regulated at the federal level. “We are on the verge of a revolution in micro-monitoring -- the capability for the highly detailed, largely automatic, widespread surveillance of our daily lives,” Leahy said. “RFIDs seem poised to become the catalyst that will launch the age of micro-monitoring,” he added.

THINKING ABOUT THE PENDING U.K. NATIONAL DATABASE AND NATIONAL ID CARD

The expectation is that legislation to create the national database whose physical manifestation will be a national identify card will be upon us in a matter of weeks, and it is a good idea to be ready in case they do not give us much time to comment.

As things are, the £3 billion start-up cost is an awful lot of money for a piece of technology no one can really be sure will work as advertised, especially when British residents will additionally have to pay nearly £100 to get a card. The Law Society, for example, has challenged the Home Office to produce clear evidence that the ID card will be successful in preventing identity fraud. Plus, the group goes on to say, criminals and terrorists find it easier, not harder, to move successfully around the world using faked high-level identity cards than they do now. And blank cards are increasingly easily available, as the technology gap between government and criminals narrows.

LAW

TEXT OF THE US STATE DEPARTMENT’S REPORT ON PANAMA’S ANTI-MONEY LAUNDERING EFFORT

The economy of Panama is services-based and heavily weighted toward maritime transportation, commerce, banking, and financial services. Tourism is taking a prominent role as Panama’s cruise industry gains stature internationally. Despite significant progress to strengthen Panama’s anti-money laundering regime since October 2000, money laundering remains a serious problem in Panama and is a potential threat to the stability of the country's legitimate financial institutions. ...

THE LEGAL CLIQUE DEFENDING AMERICA’S CORPORATE ELITE

What Paris was to artists in 1865 and Vienna was to psychologists in 1900, New York is to white-collar defence lawyers in 2004. It is history in the making. For one moment, the most prominent legal legends are working side by side in lower Manhattan on behalf of the best, most reviled clients they are ever likely to see. For all the play-by-play during recent headline-grabbing cases, little light has been shed on the art of American white-collar criminal defence. To understand what makes a performance great -- or inept -- involves digging into the tactical challenges unique to this practice.

THE RUNNING DOG LAW ENFORCERS OF THE STATE

On June 17, 1999, in Shawville, Quebec (about 70km north of Ottawa), Lynn Wilson was harassed by a woman inspector from the Quebec Office de la langue française (OLF, the government bureau in charge of “protecting” the French language in the province), relatively to her shop’s English-only signs. The confrontation ended with several townspeople following the language cop around. Ms. Wilson was charged with refusing to provide information to the language cop, and has just been acquitted.

The defendant’s lawyer, Mr. Brent Tyler, was later interviewed and publicly told the Quebec government that they should now “call off the dogs.” The precious OLF bureaucrats found this “offensive,” and have complained to the Quebec bar. Mr. Tyler claims that he did not really mean that the OLF bureaucrats are dogs. All this is very funny. Or is it?

Even if they are often nice, girl-next-door types of people, bureaucrats must realize that they are morally responsible for their collaboration in destroying our traditional liberties. If they do not understand, we are completely justified to “denormalize” them (as the feds want to do to smokers and their suppliers). In fact, it is a social responsibility, if there is such a thing. Hippolyte Taine, the 19th-century conservative philosopher, compared the state to a guard dog “that must remain chained up in its kennel.” It is urgent to chain up the dog.

TROOPS DEPLOYED IN THE USA?

Americans have long been wary of the use of standing armies to keep the peace at home. Nonetheless, in the fight against terrorism, powerful public officials are exploring a dramatic expansion of the military’s role in internal security. For over 125 years, the Posse Comitatus Act has limited the federal government’s ability to use armed soldiers to “execute the laws” on American soil. But a month ago, a top Pentagon official told the National Commission on Terrorist Attacks that, when it comes to the war on terror, the act does not apply. Given the grave consequences of amending the Posse Comitatus Act, one would have expected at least some debate in the House and Senate.

COOPERATE -- OR ELSE!

The Fourth Amendment is the provision that places limits on the power of the police to detain and search people. The Fourth Amendment has gotten a bad rap. The Founding Fathers understood that a free society necessarily requires that the power of government to detain, interrogate, and search must be limited. It is a pity that so many Americans give the Fourth Amendment an adolescent -- “What’s the big deal?” -- shrug that runs something like this: I have never been searched or arrested and never will be since I am not doing anything illegal. Such a view misses the point. It is not so much how many times a person benefits from the Fourth Amendment that matters. Rather, the key point is that this constitutional safeguard will be there when you need it.

Larry Hiibel was standing next to his truck smoking a cigarette when a police officer approached him and demanded to know his name. Hiibel was taken aback by the demand, said he was doing nothing wrong, and refused to say anything more. The officer then placed Hiibel in handcuffs and took him to jail. According to Nevada’s prosecuting authorities, Hiibel’s silence “obstructed” justice.

When the police do not have an arrest warrant or a search warrant, they often try to get people to “consent” to questioning -- so that when the detention is later challenged in court they can say, “It is true we had no warrant, but this detention was voluntary.” Larry Hiibel made it very clear that he was not going to play that game. Hiibel withheld his consent -- and for exercising his right, he landed in a jail cell. Can standing quietly on a sidewalk possibly be a criminal offense in America? The Supreme Court will soon decide whether it was the police officer’s arrest, or Mr. Hiibel’s silence, that was unlawful. As Judge Learned Hand warned many years ago, “Liberty lies in the hearts of men and women; if it dies there, no constitution, no law, no court can save it.”

MORE PROSECUTORIAL OVERREACH: LOCK DOWN GAMBLING SITES, GO TO JAIL

A new Justice Department policy threatens to jail security professionals who help lock down online gambling sites anywhere in the world. US prosecutors are beginning to use the federal “aiding and abetting” statute to investigate and potentially prosecute those who, through perfectly lawful activities, assist online gaming companies that flout US law. This includes banks, broadcasters, ISPs and advertisers who help these casinos get their message out. The same net could easily snare information security professionals who, either deliberately or inadvertently, assist the gamers in their activities.

The criminal conspiracy statute, 18 U.S.C. 371, is known as “the prosecutor’s friend” because of its talent for incarcerating people even tangentially connected to criminal activity. Yet even this statute requires the government to show an agreement to commit a crime. The aiding and abetting statute requires no such proof. It only requires the government to show that, with knowledge (express or implied) that a party intends to commit a crime, the defendant provided material support for that person. And the punishment for aiding and abetting is the same as for committing the underlying crime. Applying this rationale to Internet crimes and information security professionals is a dangerous and inherently slippery slope.

TERROR WAR’S LEGAL COST

The Bush administration believes that habeas corpus is a luxury that the US cannot afford in its war against terror. Habeas corpus is the legal principle that is the foundation of Anglo-American freedom. It prevents the government from picking up a person and holding him indefinitely without charge. Joseph Stalin and Adolf Hitler were not constrained by habeas corpus. They were able to declare millions of people “enemies” and send them off to death camps. People were declared enemies because of their class and race, or simply because someone with the power to put their name on a list did not like them or coveted their wife or property. In the Soviet Union many people disappeared in “street sweeps” conducted by secret police under pressure to show results by arresting more “enemies”.

The Bush administration’s attempt to legally suspend habeas corpus in The Patriot Act was rebuffed by House Judiciary Committee chairman James Sensenbrenner. Now the Department of Justice (sic) and the Department of Defense are trying to assert the power to suspend habeas corpus by bureaucratic decree. The Bush administration claims the power to declare suspected terrorists “enemy combatants” and to hold them indefinitely without bringing charges, presenting evidence or permitting suspects contact with attorneys or any outside persons. The US Department of Justice (sic) recently told the US Supreme Court that “the Court owes the executive branch great deference in matters of national security and military affairs.” If the Court fails to preserve habeas corpus, the ancient right dating to the Magna Carta in 1215 will be vitiated.

There is more than one legal road to tyranny, and prosecutors and police are making sure all roads to tyranny are open. On March 22 the Supreme Court argued a case that will determine whether Americans still have the right to remain silent. The Supreme Court requires police to read your Miranda rights to you, but if you choose to remain silent, Nevada prosecutors will indict you for “obstructing an officer.” The pendulum has swung away from the rule of law. Arbitrary government power has made a comeback.

OPINION & ANALYSIS

ACLU SAYS FEARS SETTING PUBLIC POLICY

The American Civil Liberties Union joined other civil liberties experts in telling the United States Commission on Civil Rights that invasive security measures established after 9-11 threaten freedom and civil rights in the United States. “We run the danger of letting our fears, not our values, set public policy,” ACLU Legislative Counsel Timothy Edgar told the commission, which is an independent, bipartisan agency tasked with monitoring federal civil rights enforcement. “The American public deserves a government that preserves both their security and their liberty.” The briefing followed similar oversight hearings by the Senate Judiciary Committee, and increased public scrutiny of the security measures established after September 11.

3,500 YEARS IN TEN PAGES -- A MINI-HISTORY OF JAPAN

Japan, the world’s #2 economic power today, became a nation state about 300 BC. Buddhism was introduced around 540. This interesting synopsis fills in a few gaps.

IS SMALL BEAUTIFUL WHEN IT COMES TO NATION-STATES?

Of the ten richest countries in the world in terms of GDP per head, only two have more than 5 million people: the United States, with 260 million, and Switzerland, with 7 million. A further two have populations over 1 million: Norway, with 4 million and Singapore, with 3 million. The remaining half-dozen have fewer than 1 million people. What do such variations imply about the link between population size and prosperity?

People have been debating the optimal size of a nation-state since the days of Aristotle. Understandably, given the diminutive size of Greek city-states, he thought that “experience has shown that it is difficult, if not impossible, for a populous state to be run by good laws.” The Founding Fathers of the United States fretted about the excessive size of their new nation; but James Madison argued that large size might be an advantage in a democracy, because it reduced the likelihood that special-interest groups would be able to act in unison to suppress the rights of other citizens.

Now two economists, Alberto Alesina of Harvard and Enrico Spolaore of Brown University, explore the question in a new book on the subject, The Size of Nations. The book argues that the best size for countries is the result of a trade-off between the benefits of scale and the costs of heterogeneity; and that openness to trade alters this trade-off.

UNILATERALISM, NOT TERRORISM, SEPARATED EUROPE FROM AMERICA

The U.S. and Europe must find a way to fight a long war against terrorism without losing the advantages of open societies and globalization. They must concede that differences between them will continue, yet remain committed to a common goal. And they must create Marshall Plan equivalents for the Middle East to build modern economic and political alternatives for Arab children so they will not be drawn to a life of intolerance, ignorance, and suicidal fanaticism.

The March 11 Madrid bombings are an opportunity for the Bush Administration to reach out to Europe. It is a moment we must seize to build a broad, antiterrorist campaign with Europe with the scope of the Cold War. Yet Washington’s response to the horrors of Madrid has been strangely weak. There have been a few -- too few -- warm words of solidarity, but no grand gesture. The White House appears frozen, locked in Presidential campaign mode, unable to take advantage of what is a critical time for moving beyond differences that divide to common causes that unite Europe and the U.S.

EMPIRES, PAST AND PRESENT

The American republic was founded amid the misfortunes of two European empires. The failure of the British in the American war of independence demonstrated the limits of military power in an extended and discontented empire. The failures of the French empire demonstrated a more insidious condition, the political costs of imperial power, particularly in the Napoleonic period. Both spectacles were of intense interest to the American statesmen of the time, and they are of continuing interest, two centuries later, in a republican America which is apparently ever more preoccupied with its own imperial destiny.

BOOKS, ONLINE AND OFF

Many people find themselves mystified as to why the Mises Institute puts books online for free that it is also trying to sell. For example, here is Lew Rockwell’s Speaking of Liberty (which you can also purchase). Here is Hans-Hermann Hoppe’s The Myth of National Defense (which you can also purchase). And the most accessed of all, Ludwig von Mises’s Human Action, in many different formats with an interactive index, even as the offline Scholar’s Edition remains a bestseller on Mises.org. Below is a detailed account of how we arrived at the policy that as many books as possible should be made available online and offline -- and why we think it would be a good idea for all publishers to do the same. The point is to expand the market and not assume a fixed number of consumers.

WHY YOU SHOULD CONSIDER MOVING TO MONTANA

The freedom migration to Montana, Idaho, and Wyoming is under way. I live in Montana, and I would like to see some reinforcements coming in to transform an already independent and freedom oriented state into a stronghold for the maintenance and recovery of freedom. Montana is fertile ground for freedom activism.

ARE WE SERFS?

This year is the 60th anniversary of the publication of one of the 20th century’s most influential books, Friedrich Hayek’s The Road to Serfdom. Milton Friedman, speaking at a recent conference, said that at the time that Hayek wrote his book, most political policy rhetoric was pro-socialist, not only in England where Hayek then lived, but in America as well. Yet actual policy was very free market oriented. Today, Friedman noted, the rhetoric is more often pro-free market even though the policy reality in both America and Europe is overtly socialist. Following Ludwig von Mises, Hayek denied that piecemeal regulation could exist in the long run without becoming totalitarian and yet, it clearly does; and not just in the United States. How is this outcome possible? If we really are in a car with Hayek, traveling along the road to serfdom then, like the child in the back seat, we are compelled to ask, “why aren’t we there yet?”

Perhaps it depends on one’s definition of serfdom? Even though there is not total central planned control of the American economy, there is enough piecemeal control to make most of us think twice about not obeying the state. For some libertarians, this is more than enough to vindicate Hayek’s argument. We Americans have become but timid shadows of our individualist forerunners, always ready to bow down and comply, not even rhetorically willing to challenge, most of the time, the status quo our governments have arranged for us. This is no small, trivial development for it is the people themselves who, ultimately, are going to reverse -- or not -- this endless march into total government.

But the glass may well be half full rather than half empty. A significant -- and growing -- number of people do not accept the status quo as being the most desirable economic arrangement. It is especially heartening that, due to access to new and varied information sources, it is the young in America who have rediscovered our earlier political tradition and who, despite the state’s best efforts, somehow have managed to resist believing in the statist tide that has swept the nation since World War II. If it is true, as all the blithering candidates from all parties routinely claim, that “Our children are our future,” then perhaps we will turn out all right after all. We will never exit from it, but we will also probably never reach the end of Hayek’s road.

THE MARTHA STEWART DEBACLE... THE REAL SCANDAL

Watching the Martha Stewart circus on TV has been a disheartening experience, to say the least. It has been nauseating to watch the Jacobin glee that the press has expressed while marching this modern-day Marie Antoinette off to the gallows. This distaste for the whole affair has been made even worse by the fact that most Americans have completely missed the real scandal.

In October of 2001, ImClone completed its application to the FDA for approval of its promising chemotherapy agent, Erbitux. Since it was intended for advanced stage cancer patients, the FDA placed the drug on its “fast track” (which is moderately faster than its usual application process... as in “send us the paperwork in the Jurassic Era and we’ll get back to you by the early Bronze Age”). Due to some relatively modest problems with the application, it was rejected by the FDA. This rejection set into motion the chain of events that included the alleged insider trading by Martha Stewart.

ImClone reapplied in August of 2003, and received final approval from the FDA in February of 2004. The drug is thus safe and effective, even by the FDA’s often Byzantine standards. A drug that showed enormous promise for the treatment of advanced stage cancer patients was held up for almost 2½ years by the FDA while they nitpicked at its application paperwork. The media has focused on the persecuted “little guy” who lost money due to “greedy insider trading”. But what about the thousands of cancer patients who died between Oct of 2001 and Feb 2004 waiting for the FDA to approve Erbitux? Who is responsible for their deaths? Not Martha Stewart. And who caused the collapse of ImClone’s stock, which bankrupted thousands of “moms and pops”? Again, it wasn’t Martha Stewart... it was the FDA.

NOWHERE TO HIDE

How much do we really want people to obey laws? The combination of data bases, cameras, networks, and so on can, or could if put to the use, make it impossible to break large categories of laws without being caught. This level of surveillance is absolutely possible, right now, and is being put in place in bits and pieces. What would be the pros and cons?

A problem with strict enforcement of laws by unlimited surveillance is that it will inevitably be misused. For example, the British have cameras that automatically read the license plates of every car passing on a highway. At first the purpose was said to be the detection of serious crimes, such as car theft. Other possible uses were soon put forward: Finding people who had not paid their insurance, or who had outstanding tickets, or who owed wife-support. What starts with a noble purpose soon becomes a means of nannying everyone.

The Watchful State is not really here in force yet, but it is aborning. All the pieces exist. We may find that laws that made sense when they were not enforced very well become a smothering blanket when backed up by mindless software with police powers. A nation with no slop in the legal gears will be, I suspect, a nation of robots.

CANADA: THE LAND OF THE FREE

There is actually a little secret that most of us in Canada have not been conscious of: In most fields, we have been historically freer in Canada than they in “the land of the free”. The dirty part of the little secret is that the federal government, and sometimes the provincial governments, have been trying hard to create an equal playing field of tyranny.

COUNTERTERRORISM (BY GOVERNMENT) IS IMPOSSIBLE

At last the topic of 9-11 has shifted onto productive ground. Thanks to the efforts of former counterterrorism official Richard Clarke, some thought is being put into the government failures behind the attacks. “Your government failed you,” he says. Precisely, and in many more ways than he or anyone else at these hearings is willing to say.

Here is the problem. The core failure goes way beyond anything the current government managers -- however inept, distracted, or corrupt -- can correct. If you tell your dog to make you dinner, for example, you can observe later that the dog failed to do so, and have great regrets about this. But what you learn from this experience and how you proceed are the crucial questions. Does the dog need better tools, more scoldings, and a professional trainer? Better to observe that the dog is not the right one for the job. In the same way, the government is not the right one for the job of providing security for the American people.

9/11: 80 MINUTES OF UNILATERAL DISARMAMENT

Nineteen young Arab men reportedly armed with some really, really sharp razor blades wreak mass destruction in the homeland -- that is what government wants us to buy into. My reaction: you have got to be kidding! Your evidence had better be good, very, very good. Nineteen guys from the Middle East up against our Goliath Department of Defense with all its fancy hardware and (pretty damned capable!) personnel and the score? David 100, Goliath zip. Total humiliation for our military. C’mon! Goliath stutters and stumbles around for 80 minutes, doing his best Hamlet, and never gets it together? The skies over America totally undefended? In the biggest assault on the United States since Pearl Harbor? Even at Pearl, a couple of guys got up in the air, didn’t they? Agreed, government is incompetent but, pardon my prejudice, nineteen low-tech losers did all this? Really!? It is quite a story. And yet it is sacrilege to ask any challenging question about this story, government’s involvement or its holy war on terror, consecrated by the lives lost on 9/11.

Ask and you are in the cross hairs of the Bush slime machine. Ask former Treasury Secretary Paul O’Neill, former ambassador Joseph Wilson, or former counter-terrorism chief Richard A. Clarke, the latest in a growing line of former, now-critical government officials, what a nasty bunch this Bush group is. Therefore, I come to praise David Ray Griffin, a professor of philosophy of religion at Claremont School of Theology in southern California, for his enormous courage in writing The New Pearl Harbor: Disturbing Questions about the Bush Administration and 9/11.

Most importantly, The New Pearl Harbor puts all the tough issues into a dispassionate, scientific package. It follows the evidence where it leads and to put it mildly, finds the shifting government explanations wanting, preposterous for the most part. It is a rare book that can make a major difference in history. Yes, Griffin builds on the work of hundreds of other investigators but he is the first to put it all together in a coherent and well-written analysis.