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HONG KONG MARCHERS SEND BEIJING A MESSAGE ON DEMOCRACY
Thousands of demonstrators wearing black armbands marched through downtown streets Saturday afternoon in a peaceful protest to the Chinese government’s decision last Tuesday to limit further moves by Hong Kong toward democracy. After a large but violent demonstration in Taipei on Saturday over an election dispute there, the rally was another reminder of the strong democratic sentiments now bubbling around China’s periphery.
Organizers estimated that “more than 15,000” people participated in the march, while the police declined to provide a figure. The unexpectedly large turnout for an event scheduled just last Tuesday night and held in the middle of the four-day Easter holiday weekend was the latest sign of the growing politicization of a city once known for its preoccupation with material prosperity.More on this story here.
Tung Chee-hwa torn between Hong Kong and Beijing.
Apart from nursing a fragile economy, Tung has to answer pressing local demands for more democracy while trying not to alarm communist leaders in Beijing worried that these aspirations pose a challenge to its authority in the territory. While the 66-year-old Tung can in theory initiate reforms, his hands are tied and he is at the mercy of Beijing, which is greatly unnerved by growing calls in the past year in Hong Kong for universal suffrage from as soon as 2007. Beijing fears such ambitions could escalate into demands for independence, embolden Taiwan on a breakaway course and spawn similar grassroots movements on the mainland.More on this story here.
SINGAPORE BANKS TARGET WEALTHY ASIANS FOR GROWTH
Singapore’s three major banks -- DBS Group Holdings, UOB and OCBC Bank -- are targeting private banking, currently dominated by Swiss and U.S. banks, for fee income they hope will offset a decline in margins from traditional lending business. The banking industry estimates there are around 1.8 million wealthy individuals in the Asia-Pacific region, with up to $5.7 trillion in assets.More on this story here.
NO PERMIT, NO WORK: A PRICE OF JOINING EU
On May 1, Poland and seven former Soviet Bloc nations officially join the European Union along with the island states of Malta and Cyprus. Their citizens will be able to travel without passports or visas to EU countries such as Britain, but they will not be able to work without a permit.
Membership in the European body was heralded as a ticket to prosperity and geographic mobility. New workers from the East would help revitalize the stagnant economies of most West European countries, where birth rates are declining, the percentage of retirees is soaring and labor shortages are commonplace. But popular fears, often fueled by the tabloid press, that East Europeans would flood into Western Europe to grab jobs and welfare benefits have prompted 14 of the 15 current EU member states to adopt new restrictions designed to limit access to work for the newcomers. Ireland was the only nation not to adopt a provision under EU statutes that allow for such labor restrictions for up to seven years.More on this story here.
SOUTH AFRICA TODAY, 10 YEARS AFTER APARTHEID’S END
Ten years after South Africa began living Nelson Mandela’s dream, much has changed but too much still remains the same. The signal improvement is that all South Africans are free -- to move where they want, say what they want, vote for the party they support. After a decade of liberation, it is too easy to forget that until Mandela won power, most South Africans had never done these things. Since those historic first elections, the country has been ruled by the A.N.C., which spent over 80 years fighting the racist system imposed by the government of the white minority. The A.N.C. now governs under Mandela’s successor, Thabo Mbeki, who is expected to win a second five-year term in this week’s national election and be sworn in on April 27 as part of the main day of festivities in a yearlong celebration.More on this story here.
Mbeki cruises towards victory in election provisional results.
The African National Congress has consolidated its hold on power in South Africa by gaining nearly 69% of the national vote, provisional results of Wednesday’s general election indicate. The outcome marks the best electoral showing ever for President Thabo Mbeki’s ANC, which gained 63% of the national vote in 1994 and just over 66 per cent in 1999.
South Africa’s Independent Electoral Commission is expected to finish counting most votes on Friday. Tony Leon’s Democratic Alliance came in second nationally, with about 15% of the vote, according to the provisional results. If the result holds, it would mark a gain for the traditionally white-dominated party, which won just under 10% of seats in 1999’s general election. The Zulu-nationalist Inkatha Freedom Party, a bitter rival of the ANC, polled third with about 5% of the vote. The vote has taken on a special symbolism for South Africans as it comes ten years to the month after the end of apartheid. Preliminary figures pointed to a turnout of 74% of eligible voters, up from 68% in 1999.More on this story here.
PERSONAL RETIREMENT ACCOUNTS ADOPTION PICKING UP STEAM
According to Amy K. Frantz, a research analyst with the Public Interest Institute at Iowa Wesleyan College, “Since Chile’s adoption of a private retirement system, many other countries have followed, implementing plans to partially or fully privatize their own social security retirement systems.” Frantz reports the following countries also have successfully privatized: Great Britain, Mexico, Hungary, and former Soviet Republic Kazakhstan. Even China is making strides in pension privatization. “This Communist country has already adopted a personal account system for urban workers and is developing plans to extend the accounts to the entire country,“ notes Frantz.More on this story here.
A WASHINGTON BANK, A GLOBAL MESS
Riggs National Bank, which provides banking services to most of Washington’s foreign embassies and to American consulates worldwide, and Joe L. Allbritton, Riggs’s controlling shareholder and its chief executive until 2002, are swept up in controversy. Federal law enforcement officials, Congressional investigators and banking regulators are scouring Riggs accounts in a wide-ranging investigation revolving around the netherworlds of terrorist financing, money laundering and the seamier geopolitics of Big Oil.More on this story here.
PACIFIC ISLANDS POTENTIAL TERRORIST HAVENS?
Small Pacific Islands are potential havens for terrorists because of lax security and immigration systems, a Pacific leader and New Zealand Foreign Affairs minister Phil Goff are warning. Cook Islands Prime Minister Robert Woonton told The Australian newspaper that small Pacific nations were the “soft belly” of the war on terrorism because of a lack of computerized passport records and archaic security systems. “It may be happening already and unless we address security it will become a real problem.”
Mr. Goff said money launderers and organized criminals had already eyed vulnerable Pacific islands for their activities, and while they did not believe terrorists were operating now, the potential could not be ruled out. New Zealand is organizing a counter-terrorism seminar for Pacific Island officials next month, focusing on tough new requirements for passenger travel and trade instigated by the United States.More on this story here.
OECD STILL HAS EVIL EYE ON BARBADOS AND OTHER LOW TAX JURISDICTIONS
Two years after the OECD admitted it was wrong to label Barbados a “tax haven”, it gave the island’s offshore sector a clean bill of health in the recently-released 2004 Harmful Tax Practices Report. However, the OECD has cautioned Barbados and all other low tax domiciles of its intent to constantly watch their operations. Barbados was one of three jurisdictions, the others being Maldives and Tonga, which the OECD said were neither Participating Partners nor Uncooperative Tax Havens because they “no longer met the tax haven criteria”.
A number of Caribbean territories which were on the original list with Barbados are still under the microscope. These included Anguilla, Antigua and Barbuda, Bahamas, Belize, Dominica, Grenada, Montserrat, St.Lucia, St. Kitts and Nevis, and St. Vincent. The OECD said these countries continued to “engage in negotiations of bilateral agreements that will provide the legal framework for the implementation of effective exchange of information”.More on this story here.
IMF IMPLEMENTS ANTI-MONEY LAUNDERING RULE
International Monetary Fund policies towards borrower countries will henceforth be influenced by their capacity to implement Financial Action Task Force (FATF) recommendations on fighting money laundering. It noted many poorer countries have installed “the legal elements” of anti-money laundering regimes, but “implementation remains a challenge”. Noted problems include “poor coordination amongst government agencies, ineffective law enforcement, weak supervision, inadequate controls among financial firms, and shortcomings in international cooperation.”More on this story here.
FEDS TAKE ON CUBAN “GODFATHER”
A former Cuban policeman, who was captured by Fidel Castro’s soldiers at the Bay of Pigs , is facing trial in Florida accused of heading a multi-million dollar organized crime network known as The Corporation. But is Jose Miguel Battle Snr really El Padrino (“The Godfather”) or just a sick old man?More on this story here.
BERMUDA REPORT CALLS FOR HIGHER TAXES
Bermuda faces higher taxes, with across the board increases of between two to three percent -- but income tax is not on the horizon, according to Finance Minister Paula Cox. In revealing the long-awaited “Report on the Bermuda Tax System”, Ms. Cox said that Bermuda’s current tax system brings in a tax revenue of about 18% of GDP. But the report writers were given instructions by the Progressive Labour Party back in 1999 to find ways to raise taxes to become 24% of GDP. Ms. Cox said that Government had no intentions of raising taxes to this level -- but instead would like to see the level of taxes raised by between two and three percent to between 20% and 21% of GDP.
Many countries have taxes which reach the levels of 46% of GDP, said Financial Secretary Donald Scott, which meant that the increases still left Bermuda in the low tax bracket. The report was originally commissioned in 1997 by the United Bermuda Party, but it did not release the report before the General Election because it was such a sensitive document. When the Progressive Labour Partly swept to power, the authors of the report were asked to “improve the progressivity of the overall system of taxation” as well as increasing tax revenues to 24% of GDP.More on this story here. Summary of report recommendations here.
Bermuda business leaders warn that higher taxes will increase the cost of doing business.
Bermuda business leaders have warned that higher taxes would increase the cost of doing business in Bermuda -- and could even ultimately lead to companies upping stakes and leaving. “A lot of businesses are here purely because they can save money here because of the tax structure,” said Charles Gosling, chairman of the Chamber of Commerce, “And they will look at what they have been saving and the costs and will make a decision accordingly. If they are not saving much compared to the costs, they will look at relocating elsewhere.”
And the Bermuda International Business Association chairman Greg Haycock also warned against increasing the cost of doing business. “We must be careful not to price ourselves out of the market and have potential investors go to our competitors because it costs them less to do business from those jurisdictions,” he said.More on this story here.
STATISTIC OF THE DAY: OVER $1 TRILLION PAID IN BRIBES EACH YEAR
More than $1 trillion is paid in bribes each year, according to research at the World Bank Institute (WBI). According to the institute’s director for governance, Daniel Kaufmann, the figure was an estimate of the actual bribes paid worldwide in both rich and developing countries. “It is important to emphasise that this is not simply a developing-country problem,” Mr. Kaufmann says.
Mr. Kaufmann said the $1 trillion figure, calculated using 2001-02 economic data, compared with an estimated size of the world economy at that time of just over $30 trillion and did not include embezzlement of public funds or theft of public assets.More on this story here.
GERMAN THREAT TO NEW EU MEMBERS
The European enlargement was supposed to be wonderful. The Central and Eastern European countries (CEECs) were to join a happy European family and partake in its riches and political stability. As it turns out, not only will the citizens of the new EU countries enjoy a second-class status by being kept out of the EU labor markets and exposed to unfair competition from over-subsidized French farmers, but they will also be subjected to blackmail from their traditional nemesis: Germany.
For CEECs continue to receive EU financial aid, they will have to march to the German drummer, for it is the German taxpayer who bankrolls much of the EU spending. To compensate for their shortcomings, some CEECs have chosen to cut their taxes as a way of improving their investment environment. Slovakia, for example, has introduced a 19% corporate and income tax. Investments started pouring in and many European firms, including German ones, are considering moving there. All that does not make Gerhard Schroeder happy. So now, in so many words, the CEECs have been told that if they do not put up their taxes, they will not receive the structural and cohesion funds that were promised to them in the first place.
The utter cynicism of Schroeder aside, the CEECs have to give serious consideration to their developmental policies. There is ample evidence to suggest that a welcoming business environment and low taxes are better at achieving economic growth than government-distributed financial aid. If it comes to that, therefore, the CEECs should be willing to jettison all EU aid, focus on keeping their taxes low and their vigilance high -- for it is certain that the Schroeders of this world will search for new ways to undermine them.More on this story here.
BERMUDA PREMIER TO SMOOTH U.S. TIES
Premier Alex Scott will lead a Government contingent to Washington later this month in a bid to step up diplomatic relations with the US. Government’s visit to the US follows tense relations with departing US Consul General Denis Coleman earlier this year, who rapped the Island for exploring air links with Cuba, after it said relations would be strictly “cultural”. Mr. Coleman said at the time that Bermuda was effectively “fostering economic relationships with Cuba” and “sticking a finger in the eye” of the US, whose policy is to isolate the Fidel Castro regime. Bermuda has also come under fire from leading Democratic Party members over so-called “offshoring”, in which US companies moved their places of incorporation to Bermuda while retaining their operating headquarters in the US.More on this story here.
Independence “lightly touched” in talks between Scott, Blair.
Alex Scott’s ministers had an hour to quiz Tony Blair on any subject they chose yesterday after the British Prime Minister attended the weekly Cabinet meeting. They did not raise the prickly subject of Independence from Britain, although it was “lightly touched on” during a dinner at Camden on Monday night, said Premier Scott.More on this story here.
Philip Barnes, managing director, Aon Insurance Managers (Bermuda) Ltd., question and answer session on the captive insurance business in Bermuda -- here.
JERSEY OUT TO LEARN GUERNSEY’S SECRETS
Guernsey has pledged to cut income tax paid by local firms to zero from 2008, with some finance companies paying 10%. It has also stated that personal income tax will not rise to cover the anticipated shortfall and ruled out the introduction of VAT. A delegation of Jersey politicians intends to visit Guernsey to find out why they do not feel the need to rush into “panic” changes to their tax structures in the build-up to 2008.More on this story here.
HUNDREDS OF DOMINICANS TO BENEFIT FROM CHINESE CASH BONANZA
Hundreds of Dominicans look set to benefit from an EC$16 million cash windfall from the Government of the Peoples Republic of China. Last month, the Government of Dominica severed ties with Taiwan and established diplomatic relations with the People’s Republic of China.More on this story here.
PUTIN AND THE REFORMERS
Several of the world’s most prominent free-market reformers spent more than four hours in a spirited dialogue about economic reform with Russian President Putin last week. They were in Moscow to participate in an important Cato Institute conference on economic reform co-sponsored by the Russian Institute for Economic Analysis and the Russian Union of Industrialists and Entrepreneurs, followed by another conference in St. Petersburg this week.
President Putin has received mixed reviews in the West. On one hand, he has been reforming Russia’s economy while retrenching on some press freedoms and democratic reforms. He has a very able team of market-oriented economists. His chief economic adviser, Andrei Illarionov, is highly regarded by many Western economists who have known or worked with him over the last decade. One of Mr. Illarionov’s favorite themes, presented at the Cato conference, is the optimal size of government. He has compiled an impressive amount of evidence that most governments, including Russia’s, are too large to maximize economic growth and popular well-being.
The Putin administration has the clear goal of greatly increasing Russia’s economic growth, from the respectable 5% to 6% range of the last several years, to 7% or more. Despite Russia’s recent economic successes, it is a laggard to its higher growth neighbors on the east and south, particularly China and India. Russia has, in part, been succeeding because of high oil, gas and metals prices, all of which it produces and exports in prodigious quantities. But these also make it very vulnerable to the next cyclical commodity price downturn. To achieve its goal of higher economic growth, Russia must create modern manufacturing and service sectors that it sorely lacks. Economic Adviser Illarionov and President Putin well understand part of Russia's problem is the excessive and stifling government bureaucracy.More on this story here.
CHINA’S ECONOMY SOARS DESPITE BEIJING’S CURBS
China’s economy grew at an official 9.7% in the first quarter of this year as ambitious local authorities went on an investment binge and banks continued to lend to a roaring property sector in spite of Beijing’s orders to rein in credit. Some independent economists use a range of proxy indicators to suggest that the official figures understate reality and China is actually growing at around an annualised 11 or 12%.
Although Beijing welcomes rapid growth as a means to resolve its unemployment crisis, official alarm over the unhealthy structure of the Chinese economy is growing. Of particular concern was runaway bank lending to questionable infrastructure and industrial projects that are driving up commodity prices and exacerbating power shortages. “Growth of investment in fixed assets remains too high and unreasonable investment in redundant low quality construction projects in certain industries have not been put under control,” said Zheng Jingping, spokesman at the National Bureau of Statistics, in an unusually candid admission of policy failure.
The main problem, officials said, was that local authorities were using their influence to extract loans from local banks to finance local steel, aluminium, cement, property and infrastructure projects. “The local governments are too powerful. If they want a loan, then local banks can’t really refuse,” said one official, who declined to be identified.More on this story here.
BIGGER EU PROMPTS SECOND THOUGHTS IN SWITZERLAND
With the European Union poised to welcome ten new members on May 1, Switzerland could be forced to reconsider its position on eventual membership. Switzerland submitted an application to join the Union 12 years ago, but has never officially pursued it. Pro-EU campaigners face an uphill battle in convincing a largely eurosceptic electorate of the benefits of joining. Fears that membership could undermine Switzerland’s unique system of direct democracy -- under which the people have the final say on policy -- and the country’s tradition of neutrality dominate the thinking of many Swiss, according to political analyst Karin Gilland Lutz.More on this story here.
EU HEADING FOR REFORM OR OBLIVION
For the courageous young reformers who transformed Eastern Europe from communist wastelands into thriving capitalist societies, there is nothing more irritating than EU officials trying to take the credit. But as enlargement day on May 1 draws ever closer, the authorities in Brussels were at it again last week. There would only be real, tangible economic benefits in joining the EU if membership were to facilitate flows of trade, investment and labor across Europe. But what supporters of enlargement always omit to mention is that trade between the applicant states and the rest of the EU is already almost completely free, as are investment flows. And with all existing members bar Britain and Ireland having imposed strict restrictions on the immigration of workers from Eastern Europe, accession will do very little to promote free markets. Around 95% of trade between the EU and the accession states is already completely liberalized. The accession countries’ trade integration with the rest of the EU is completely different from that of Spain and Portugal, which had largely been excluded from EU markets when they joined in 1986 and which benefited strongly from easier trade.
However, given that EU membership means signing up to the common agricultural policy, the most economically destructive system of farm subsidies ever devised, it would have been much better for Eastern Europeans to try to achieve agricultural free trade through the World Trade Organization. There also remains a need to deregulate trade in services; but while gradually improving, the current situation in the EU is hardly ideal, and the WTO too is pressing for liberalization. For some countries, such as Estonia, which actually abolished all its agricultural subsidies and declared unilateral free-trade several years ago, joining the EU will be a debilitating case of reregulating agriculture and reimposing tariffs on non-EU trade, in exchange for virtually no better access to Western European markets.
In fact, it is conceivable that Eastern Europe’s economic integration with the EU may already have peaked before actual membership. In the future, dynamic eastern Europeans will probably find more trading opportunities with Asia and North America than in the sclerotic and declining European markets. The real impact of enlargement on the European economies will be an unavoidable clash between the more free-market countries, such as the UK and some of the Baltic States, and the traditionally dirigiste countries, including France and Germany, will determine whether the EU is able slowly to reform its economies or whether it will continue down its present road to long-term oblivion.More on this story here.
JUST WHAT DOES IT TAKE TO KILL A PROPOSED REGULATION?
An independent study says a proposed IRS regulation will drive $87 billion out of U.S. banks and raise interest rates. The report also confirms that the agency abused the regulatory process.
The IRS’s proposed interest reporting regulation (REG-133254-02) will cause significant and measurable damage to the U.S. economy. This is the finding of a study on the economic consequences of the proposed IRS rule completed by Dr. Jay Cochran of George Mason University. The 15-page report, entitled “An Economic Analysis of the Proposed IRS Rules Governing the Reporting of Deposit Interest Paid to Nonresident Aliens”, estimates that more than $87 billion of capital will be withdrawn from US financial institutions if the regulation is finalized. The study also warns that interest rates will rise and that the regulation will have an adverse effect on investment and the value of the dollar.
House of Representatives Small Business Committee Chairman Congressman Don Manzullo, an outspoken critic of the proposed rule, said, “Capital is the life-blood of small business, which is why I strongly oppose the IRS interest-reporting regulation. The Mercatus study provides additional evidence that this Clinton-era scheme will cause capital flight if it is ever implemented. As Chairman of the Small Business Committee, I once again call on the IRS to withdraw this burdensome regulation.”Link here. Study report here (PDF file).
DETAILS OF PHONY TRUSTS IN IRS ACTION
IRS and Justice Department officials last week began arresting people connected with the Aegis Co., a suburban Chicago firm that the IRS alleges has for the past decade been marketing phony domestic and foreign trusts through which some 650 wealthy clients hid hundreds of millions of dollars in income. The IRS put the government’s tax losses at $68 million, which it said makes this one of the largest such schemes the agency has encountered. The eight individuals indicted were associated with marketing the scheme or advising clients, rather than clients themselves. Six others were indicted earlier, the IRS said.
According to the IRS, the scheme dates to 1994 and involved trusts sold primarily to self-employed people for fees from $10,000 to $75,000. The trusts were variously dubbed “common law business organizations”, “business trusts” and “CBOs”. The suspects helped transfer the clients’ businesses, homes and other assets into these trusts, or to trust bank accounts, the IRS said. They then allegedly helped their clients file tax returns for the trusts on which they deducted ordinary living expenses such as household utility bills, repairs and lawn maintenance costs for the clients’ personal residences, which had been designated the trust’s “world headquarters”.
Other devices included sham charitable deductions, including write-offs of vacations to Hawaii under the guise of seeking potential charities to which to contribute, the agencies said. The wealthiest clients were helped to transfer or appear to transfer assets offshore, and through a series of trusts back again, so that the owner continued to have access to them, the agency said.
Michael Vallone, an Aegis founder and its executive director, was charged with 37 counts, including filing false tax returns, tax evasion, wire fraud and mail fraud. Also charged were five others associated with the company, Edward Bartoli, Robert W. Hopper, Timothy Shawn Dunn, William S. Cover, and David E. Parker. Prosecutors are asking a court to order forfeiture of $4.1 million from Vallone, Bartoli, Dunn and Cover. They also seek forfeiture of Vallone’s home, Dunn’s home, Indiana real estate owned by Dunn and three Lincoln limousines and a Lotus auto also owned by Dunn.More on this story here and here.
IRS EXPANDING AUDITS OF CORPORATE EXECUTIVES
The IRS plans to increase audits of corporate executives after exploratory examinations uncovered significant problems. “We did a quick check on returns and filing patterns, and we were surprised at the number who were not filing tax returns,” said Keith Jones, director of IRS field specialists. Jones said that the agency expects to send a memo to all agents next week instructing them to inspect corporate executives’ returns at twice the current rate, including scrutiny of such corporate perks as stock options, private jets and luxury apartments.
The IRS started examining corporate compensation last year after an explosive growth in the perquisites accompanying executive salaries. The IRS audited 24 major corporations in a sampling of industries and locations to see if they were following the rules when compensating their executives. That study led them to look into tax returns filed by some corporate leaders. They discovered that some had not filed returns at all.
The agency has identified eight areas that need more oversight, including the improper use of family limited partnerships as a way to transfer compensation to other family members and an offshore employee leasing practice that improperly hides money abroad.More on this story here.
THE TROUBLE WITH TAXES: TOO HARD AND THEY MAKE NO SENSE
Congress has approved billions of dollars in tax breaks in the past decade, all with the same goal in mind -- getting more money in the pockets of taxpayers. But experts say the result has been just the opposite. The tax code has become so complex that millions of taxpayers routinely overlook tax credits and make costly mistakes that can delay their returns for weeks or even months.More on this story here. Last-minute tips and options here.
IF YOU ARE GOING TO BE A “TAXREBL”, BE READY FOR JAIL
If you are thinking about not filing your taxes this year, you may want to review the story of Helen M. Smith and Leroy Sbrusch, who were awarded two years in federal prison and nearly a half million dollars in fines for their decision to not pay federal taxes. It seems Sbrusch and Smith can spend some of their prison time writing letters of thanks to tax activist Lynne Meredith and her “We the People” organization. Meredith and seven of her associates are currently under indictment in California on 35 tax-related charges. She drives a 1973 Corvette Stingray with license plates that read “TAXREBL”.Full editorial here.
INTERESTING INTERVIEW WITH PRO-TAX NEW YORK TIMES REPORTER
Award-winning NYT reporter David Cay Johnston’s recently published book Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else has been an immediate bestseller. John Kerry took two days off of campaigning in February to read it. Ralph Nader to Lou Dobbs have endorsed the book. The book argues that the myth that the rich are heavily taxed to benefit everyone else is untrue and that the middle class and the upper middle class -- those making $30,000 to $500,000 -- are heavily taxed to subsidize the super rich. And further, the tax burden for the richest Americans has been falling sharply while everyone else’s has risen.
Perfectly Legal shows how the IRS has been cut in size and then handcuffed, ordered to go after the working poor and to ignore tax cheating by the politically connected rich. And it names names throughout. In a 2-part interview Mr. Johnston discusses his findings.
[W.I.L.’s appraisal: Based only on the interview, we see grave defects in Mr. Johnston’s philophical premises (for starters he should be made to write “Taxation is theft” 1,000 times on a blackboard), his reasoning vis a vis history and economics, and his apparent faith in democracy and the political process. Nevertheless, his book appears exemplary and valuable in its exposure of the corruption of the current system and how the politically connected steal from the politically undefended. Unfortunately he seems utterly unaware of the possibility that those manifested defects lie in the very nature of centralized state power -- that the institution is flawed in its essence and is thus beyond reform.]Part I here, Part II here.
CORPORATE RISK OF A TAX AUDIT IS STILL SHRINKING, I.R.S. DATA SHOW
Since taking office, the Bush administration has been saying it has ended a long slide in enforcement of tax laws. But an independent analysis of new I.R.S. data shows that tax enforcement has fallen steadily under President Bush, with fewer audits, fewer penalties, fewer prosecutions and virtually no effort to prosecute corporate tax crimes. The audit rate for the 11,200 largest corporations, which pay nearly all corporate income taxes, has fallen by almost half over the last decade, as has the audit rate for unincorporated businesses.
The I.R.S. data reviewed at Syracuse University showed that in the 15-month period that ended on Dec. 31, 2003, convictions had been obtained against six corporate officers in five cases in which the I.R.S. was the lead investigative agency. That was barely more than one-half of 1 percent of such cases, indicating that the law enforcement focus remains on individuals.
Separate data from the Justice Department show a long trend down in federal tax prosecutions. The department, citing United States court records, says that total federal tax prosecutions declined to 483 in 2003 from 1,431 in 1981. IRS officials sharply disputed the assertion that administration officials have overstated efforts to put the tax cop back on the beat. But the IRS did not dispute the data, which it supplies annually to the Syracuse clearinghouse. And those statistics indicate that tax scofflaws still have little to fear.More on this story here and here.
HUSBAND OF SPY RECEIVES STIFFER PRISON TERM FOR UNDERREPORTING INCOME
The husband of a former American University researcher, who was sentenced to seven months in prison for selling sensitive technology to China, got a stiffer sentence yesterday than his wife did -- a year in prison -- for failing to report the income on their taxes. U.S. District Judge T.S. Ellis III grappled for nearly three hours with the case of Xue Donghua, 41, trying to find a way that his guilty plea to a misdemeanor tax charge would not result in more prison time than that of his wife, Gao Zhan. Gao gained international notoriety first when she was detained by Chinese authorities for nearly six months in 2001, and then again last year when she was charged by U.S. authorities with exporting technology to China that could be used in weapons systems. Xue plead guilty to not reporting the $539,000 proceeds from the sale of 80 microprocessors to a Chinese government procurement agency.More on this story here.
GOOD NEWS AND BAD FOR LUXEMBOURG 1929 COMPANIES
Luxembourg is expected to implement the EU’s Interest and Royalty Directive shortly, under which withholding taxes are abolished in respect of payments of interest and royalties between associated EU companies. Two companies are regarded as associated companies when one has a direct minimum holding of 25% in the capital of the other, or when a third company has a direct minimum holding of 25% in the capital of both companies. Both companies must be subject to corporation tax.
However, Luxembourg is proposing to go further, and exempt all nonresidents and Luxembourg 1929 holding companies, who will no longer be taxed on Luxembourg-source royalty income. Currently, royalties are subject to a 10% withholding tax. The term royalties refers in this respect to any payment made to nonresidents for the use of, or the right to use, any copyright on literary, artistic or scientific work, as well as any payment made to nonresidents or to Luxembourg 1929 holding companies for the use of, or the right to use, any patent, trademark, design or model, plan, secret formula or process, or any other similar right, and any information relating to industrial, commercial or scientific experience. In fact, under most of Luxembourg’s tax treaties (which follow the OECD Model Treaty), Luxembourg-source royalty payments usually are subject to tax only in the beneficiary’s residence state, resulting in a zero (or reduced) withholding tax rate.
It is not all good news, however. Luxembourg is being forced to comply with the EU’s Code of Conduct Committee’s campaign against “harmful tax practices” by modifying the dividend taxation regime for 1929 holding companies. Under draft legislation, a 1929 holding company will lose its tax-exempt status if at least 5% of its dividends received relate to foreign participations that are not subject to tax at a rate comparable to the Luxembourg corporate income tax rate of 11%.More on this story here.
BUSINESSES CRACK THE U.S. TAX CODE
The San Francisco Bay Area’s largest corporations will save about $6.8 billion for 2003, thanks to tax breaks, tax shelters and the vagaries of accounting and tax rules. In fact, 14 of the region’s largest companies -- each of which posted multimillion-dollar profits -- will pay nothing in taxes this year or even get money back from the government for taxes paid in the past, according to a San Francisco Business Times study of 50 of the largest Bay Area companies.
The actual tax rates paid by large corporations in the Bay Area reflect the fall of U.S. corporate income taxes to historic lows. Corporate income taxes as a proportion of gross domestic profit fell to just 1.2% in 2003 from 4.1% in 1960. Meanwhile, individuals now provide an increasing portion of federal income tax revenue. By 2002, corporations provided just 14.7% of all income taxes collected by the IRS, compared with 57.3% in the 1940s, according to government data.
Recent tax breaks meant to spur investment during the recession are in part responsible for lower corporate tax rates being paid today. But aggressive tax sheltering, the shifting of profits to lower tax jurisdictions overseas and the use of stock options to compensate employees have also combined to drive down corporate taxes.More on this story here.
JUDGE UPHOLDS I.R.S. IN ILLEGAL SHELTER CASE
A federal judge in Texas effectively upheld the I.R.S.’s efforts to obtain the names of two clients of the accounting firm KPMG who bought a tax shelter that the agency has said is abusive. The decision was a setback for the two investors, who sued KPMG in September 2003 hoping to prevent the disclosure, and for other wealthy investors who have filed similar lawsuits against other firms. The names of the investors who filed the suit have not been made public.
The decision said that the identities of the two KPMG clients “are not protected by the taxpayer federally authorized tax practitioner privilege” found in the tax code. That privilege is broadly similar to attorney-client privilege, which concerns confidential communications between individuals and their lawyers. The I.R.S. issued a summons to KPMG in the spring of 2002 requesting the names of customers who had bought the tax shelter involved in the ruling. The shelter, known as “Son of Boss”, involved trading strategies that used short sales of options to create paper losses that were used to offset legitimate, taxable income. The shelter was formally declared illegal by the I.R.S. in August 2000.More on this story here.
OFFSHORE STRATEGIES PROMOTER FACES A POSSIBLE FIVE-YEAR PRISON TERM
A businessman who openly promoted his strategies for avoiding federal taxes plead guilty to conspiring to defraud the United States and faces a possible five-year prison term. Terry Neal of Gresham, Oregon had emerged as a prominent force in the antitax movement. He wrote The Offshore Advantage and four other books, many of them primers on lowering tax obligations. Neal liked to call himself a political moderate and patriot. But he argued that the country was in the midst of a revolution.
Aaron Young, one of Neal’s co-workers, also plead guilty to a charge of counseling a client to file a false tax return. Neal’s son-in-law, Lee Morgan, is expected to plead guilty to related charges, prosecutors said. Authorities also are pursuing Neal’s former clients. Three plead guilty to charges of filing false tax returns. IRS officials said they expect as many as 14 former clients eventually to make plea deals.
“Terry Neal and his associates will be held accountable for their efforts to secretly funnel money offshore and undermine our tax system,” IRS Commissioner Mark Everson said.More on this story here.
EX-I.R.S. AGENT ADMITS AGENCY CONCENTRATES INTIMIDATION, CONFISCATION ON LITTLE GUYS
For nearly 13 years, until October 2003, I was a tax collector for the IRS. I was a field officer, spending the majority of my time making unannounced visits to businesses and individuals who owed federal taxes. I never expected a warm reception and rarely did I receive one. And whose doors did I knock on? The carpet installer, the day-care center operator, the Wal-Mart clerk, the carpenter, the print shop owner. The majority of the taxes I collected were from the small-business owner with fewer than 20 employees. I long ago lost count of how many weed-choked fields I have trudged across to inspect some broken-down piece of farm equipment; how many musty warehouses, dilapidated mobile homes, cluttered shops and offices reeking of sweat and that peculiar odor of human desperation I have sat in; the number of ill-educated tradesmen, struggling entrepreneurs and desperate homemakers I have interrogated, demanding the impossible and promising the full fury of my federal power when my demands could not be met.
The individuals and businesses I encountered during my career did not have an army of tax lawyers, certified public accountants and lobbyists to guide and protect them. Most netted less than $30,000 per year. Most operated out of rundown store fronts in tired strip malls. Most were honest people who knew my arrival was the death knell of their American dream. It should come as no surprise: the I.R.S. goes where the money’s owed, and the money is owed by the little guy. When the service was reorganized in the late 1990’s, it moved collection personnel to the small business/self-employed division; the other compliance division, which handles medium and large businesses, has no collection employees at all. Squeezed between a complex tax code that favors big business and an agency that marshals the entirety of its resources against him, the little guy does not stand a chance. He does not have the money to pay or to find a way out of paying.
Reforms notwithstanding, inside the service the bully culture endures. The truth is that most I.R.S. employees fear their employer more than the average taxpayer does. Most middle- and upper-level managers rose to power long before 1998, men and women (but mostly men) who learned as front-line employees the spoils of civil service (promotions and awards) come in direct proportion to the amount of power they exerted over taxpayers, invariably in the form of confiscation. As my on-the-job trainer informed me early in my career, if I wanted to advance my career in the I.R.S., I had to seize assets. And it did not matter what I seized -- the I.R.S. could always make equity.
Thus those who wield true power within the I.R.S. -- the elite who determine policy, organization and procedure -- perpetuate the culture of fear and intimidation, for it is the only way of life they have ever known. Fear and intimidation got them where they are -- why should they change? Congress can rewrite the laws, but it cannot change human nature or the nature of power. The result is some of the worst collection statistics in the agency’s history and a decimated, demoralized rank-and-file squeezed between the demands of the bullies above and the rights of its “clients” below.
Only the little people pay taxes, Leona Helmsley once said. It is true. Our government makes sure of it.More on this story here.
IRWIN SCHIFF AND TWO OF HIS ASSOCIATES APPEAR IN FEDERAL COURT
Irwin Schiff and two of his associates appeared in U.S. District Court on charges they helped thousands of taxpayers file bogus returns. Schiff told U.S. Magistrate Judge Peggy Leen that he would plead guilty if federal prosecutors could show a tax requirement exists. “I will not accept your plea of guilty at this time,” Leen said and entered a plea of not guilty on his behalf.
A 33-count indictment issued last month charges Schiff, Cynthia Neun and Lawrence Cohen with aiding and assisting in the preparation and filing of fraudulent tax returns. Schiff, the 76-year-old author of The Federal Mafia: How It Illegally Imposes and Unlawfully Collects Income Taxes, and Cohen, a 63-year-old employee of Schiff’s, also were charged with tax evasion. Neun, Schiff’s 50-year-old girlfriend who helps him conduct seminars, also was charged with willfully failing to file federal income tax returns, Social Security disability fraud and theft of government property.
In the indictment, prosecutors allege the three were responsible for nearly 5,000 tax returns that fraudulently reported no income. The “zero returns” included zeros on every line related to income and expenses and often claimed a full refund of all federal taxes withheld or paid. After filing the “zero returns”, many of Schiff’s clients faced IRS audits and tax collections.
The indictment says Schiff’s Freedom Books business generated $3.7 million from 1997 to 2002. Schiff did not report any income on federal tax returns from 1987 to 2002, and placed money in an offshore bank account, according to the indictment.More on this story here.
“ASSETS WILL BE TRANSFERRED OUT OF EUROPE”
“If a comprehensive exchange of data in matters of finance develops within Europe and if taxes continue to increase, these assets will be transferred out of Europe, possibly to Singapore or Hong Kong,” said the reigning Prince of Liechtenstein, Hans-Adam II, in an interview published in last week’s issue of the Austrian news magazine Profil.More on this story here.
OFFSHORE ACCOUNT HOLDERS COULD ESCAPE IRELAND’S TAX AUTHORITY
Many offshore account holders may escape the Revenue because the tax authorities have no power over customers of foreign-owned banks. At least four of the 10 Irish financial institutions that agreed to co-operate in the recent trawl of offshore accounts are subsidiaries of foreign banking groups, and as a result, they will not come under new Revenue powers granted in the Finance Act 2004, which facilitates the clampdown on offshore accounts. According to a report, this could thwart efforts to collect up to €1 billion in outstanding penalties and tax.More on this story here.
OFFSHORE CORPORATIONS: DISMANTLING THE HYPE
The actual process of going offshore is simple. It is purposely kept convoluted and obscure so that the average client believes they need expensive advice. An IBC is a paper interface that acts to separate an individual from direct ownership of assets. The fact that the IBC is a legal entity means that it can conduct business, just as if it were a man, or a group of men. One might say that the IBC has all of the rights that a man does, but actually an IBC has more rights (greater liberties in the world of commerce). The man might be from Libya and be subject to very strict Libyan and Islamic laws. The IBC may be Panamanian and have no such restrictions on its business behavior. If the Libyan man benefits directly or indirectly from the activities of the IBC he can do so without being attached to the IBC. In fact a man can control an IBC even if he does not own it, but we will get to that in a moment.
What is crucial to understand is that an IBC is a legal entity that can conduct business and that it can do so on an international scale. There are residual benefits of this process that are important byproducts. An IBC operates under the laws of the jurisdiction in which it was formed (just as if the man lived there). Each jurisdiction has a different set of laws, and much of the hoopla on typical asset protection websites involves the differences between these laws.
Panamanian IBC’s are gaining favor because most of the former British Colony tax havens have rolled over on their clients, revealing, if not all, more than should have been revealed. Unless you are a multi-million dollar corporation, Panama is the jurisdiction of choice. Panama is a 100% Tax Haven: Non-resident Panamanian IBC’s and Private Interest Foundations do not pay tax on any of their income (as indicated below), nor do they have any reporting requirements to the Panamanian government. What is crucial to understand is that this also applies to anything owned by the IBC, including real estate, a Panamanian brokerage account, a website, a boat, a business, or you name it. An IBC is usually formed by a board of directors, and in many cases owned by a large group of stock holders. Most, but not all, offshore IBC’s are closely held IBC’s that are not publicly held. Some have dozens of owners who are partners, some are only owned by one person.More information here.
Earn up to $80,000 abroad tax free -- shelter the rest in an IBC.
According to the IRS, your tax home is specified by where you work and not by where you live. If we lived in Mexico and drove across the border each day to a job in the United States than we would not qualify for the $80,000 exclusion. Further, if we work and live outside the United States, but we maintain a residence inside the United States; the IRS construes this to mean that we are disqualified from the exclusion. In order to qualify, we must establish both a principal place of business and an absolute residence outside of the United States. For someone who maintains their US citizenship to qualify for the $80,000 exclusion they must have their primary place of residence outside of the United States. To pass the IRS test on this issue, we must be outside of the United States for 330 days out of every 12 consecutive months. We have heard that the IRS actually has a number of rules for counting days. If we are to use the $80,000 exclusion we must learn the IRS rules and comply with them. If the taxpayer prefers, the IRS is also willing to use a subjective test, rather than counting the days to determine foreign residency, but it involves so many personal questions that we would have to be a total fool to consider it. It involves questions I would not tell a Priest or a Rabbi, let alone some young kid with an IRS badge trying to act like Dick Tracy.
If we are self-employed there are additional tax exclusions. For self-employed individuals it is net income that is applied towards the exclusion limit and not gross income. One can get housing deductions, use more than one offshore residency and claim both as exemptions, self-employment benefits, and so forth. This can also include: rent, utilities, insurance, lease fees, rent for furniture and accessories, repairs, parking fees, employee payroll, and whatever operational expenses you deem appropriate to include.
There is another way to make more than $80,000 net and still reduce taxes to zero. By using offshore eCommerce coupled with a Panamanian International Business Corporation (IBC), we can make any amount of money into the IBC and still keep our tax basis at zero. If we purchase our house in the name of the IBC, we can rent the house to ourselves, thereby increasing our tax exclusion by the amount of the rent, which is paid back into our own IBC bank account. Note that this modality is best used when you earn more than $80,000 net and cannot move the additional income into your IBC. The IBC acts as a buffer in this case by reducing the taxes on the amount of income that exceeds the $80,000. In cases where the majority of income enters the IBC rather than being paid to you individually, this modality is hardly necessary. You can live in the house rent free if your entire personal income is less than $80,000.More information here.
THE BEST TAX HAVEN GETAWAYS
Besides the obvious financial incentives, most tax havens offer plenty of other attractions as well. Most of them are located in exotic destinations with tough extradition laws and plenty of services that appeal to the wealthy, such as secretive private bankers, good personal security services, luxury housing, salubrious climates and better than average restaurants and nightclubs. Avoiding taxes, however, is no longer just a question of hopping on a plane and heading somewhere tropical. The U.S. government has been cracking down on tax exiles since 1996, making it increasingly difficult for individuals, as well as corporations, to get away with nonpayment of taxes. Many countries that once provided cushy welcomes for tax evaders have been read the riot act and rolled up the red carpet.
For people who think that they can still zip off to Panama or Switzerland to avoid paying taxes, think again. International tax lawyer Gary S. Wolfe says that while countries such as the Caymans do not impose taxes, that does not apply to U.S. citizens or residents. “The mistake that Americans make is that they go offshore and think that they don’t have to pay any taxes,” he says. “The reality is that U.S. citizens are taxable anywhere in the world.”
What John Ambrecht of Ambrecht and Associates, an estate planning and trust adviser, does recommend is using offshore havens to help with tax planning or asset protection in order to minimize taxes, not to avoid them -- particularly if you want to leave money to your family without getting in trouble with the IRS.
One may, after speaking with one’s trust and estates lawyer, decide that as satisfying as the idea might be, in the long run it is better to pay the taxes. That is why if you want to feel like a tax exile for only a few days, we recommend instead that you visit one of the tax havens on our accompanying list of top tax haven hotels ... assuming you have any money left after you have paid your taxes.More on this story here.
Destination of the Week: Fair Bermuda Princess
It is easy to see why Mark Twain supposedly said he would rather go to Bermuda than to heaven. Back when Twain visited, the only way to reach the former British colony was by boat, a trip that could take several days. People evidently thought it was worth the effort. Since the late 19th century, the island has consistently been a popular cold-weather getaway for those who appreciate its balmy climate, easy lifestyle, pink beaches and multitude of golf courses. One of the island’s most beautiful -- and oldest -- resorts is the Fairmont Hamilton Princess. Founded in 1885, the pink-hued hotel was named for Princess Louise, the daughter of Queen Victoria who first made visiting Bermuda fashionable.More on this story here.
ELABORATE STING NABS 20 AT FAKE ORLANDO PASSPORT OFFICE
For a U.S. citizen, two photos and a signed application is usually all it takes to obtain a passport. But national passport screeners flagged 100 applications from Central Floridians suspected of fraud. Some used fake documents; others used fake identities. “Those folks then received letters saying we’ve got a passport for you, all you have to do is come to mobile unit and pick it up,” explained United States Attorney Paul Perez.
About 30 responded, not realizing there is no such thing as a mobile unit. Once they arrived, federal agents weeded out the few who made honest mistakes. “The remainder were folks that were trying to commit criminal fraud by trying to obtain a passport,” says Perez. Thirteen will face federal prosecution. Seven more, who were in the country illegally, will be kicked out.More on this story here.
Austalian passports worth A$20,000 on the black market.
The Department of Foreign Affairs and Trade has revealed 32,479 Australian passports were reported lost or stolen either at home or overseas last financial year. With only 11% recovered, authorities fear a large number of stolen passports could end up in the wrong hands. Department passport branch assistant secretary Bob Nash said Australian passports were sought after as they were not closely scrutinized by foreign immigration control. “I can’t tell you how much they are worth, but speculation ranges from between $10,000 and $20,000 dollars,” he said, “But there is no real evidence of Australian passports being sold recently.”More on this story here.
TOURISM OFFICIALS WORRIED THAT U.S. SECURITY “WILL DRIVE VISITORS AWAY”
All Britons entering the U.S. after September 30 will have to be fingerprinted and photographed. With 13 million travellers a year entering the US on visa waivers, the Travel Industry Association of America believes simply the prospect of longer queues, delays and missed connections might be enough to make many of them take their money elsewhere. “We appreciate the rationale for the government’s action, but we are greatly disappointed and very concerned about potential negative reactions in key tourism markets, particularly Western Europe,” said William Norman, the association’s president and chief executive. “We are concerned that this will discourage visitors to the extent that they choose other destinations.”More on this story here.
U.K. OPPOSITION FIGHTS ID CARD PLANS
Shadow Chancellor Oliver Letwin has slammed plans to introduce ID cards, saying there is no evidence they would help fight terrorism. He warned the move could prove costly and affect civil rights, while its benefits were still questionable. Home Secretary David Blunkett has said proposals for ID cards should be published within a month. Mr. Blunkett admitted there had been Cabinet misgivings, but said it would help tackle the terror threat. But Mr. Letwin said the government had not produced “the slightest evidence” that ID cards would make a substantial contribution to the fight against terror.More on this story here.
AMERICAN AIRLINES RELEASED PASSENGER DATA
American Airlines became the third U.S. airline to acknowledge giving passenger records to the government, sparking denunciations from privacy advocates. The world’s largest airline said that in June 2002 it shared approximately 1.2 million passenger itineraries with the Transportation Security Administration and, inadvertently, four research companies vying for contracts with the agency.
The passenger data was turned over to the TSA by Airline Automation, a revenue-management technology provider hired by American. Then, at the behest of the TSA and without American’s consent, Airline Automation shared the passenger data with the four research companies -- HNC Software, Infoglide Software, Ascent Technology and Lockheed Martin, American spokesman John Hotard said. American had earlier denied releasing passenger records. The carrier only recently became aware of the situation after conducting an internal review prompted by similar disclosures by JetBlue Airways and Northwest Airlines, Hotard said.More on this story here, here, and here.
Data disclosure contradicts feds.
American Airlines’ announcement that it shared more than a million passenger itineraries with four government contractors reveals that Transportation Security Administration officials have repeatedly issued false statements about the development of the passenger-profiling system known as CAPPS II. American joins a growing list of carriers that have come forth in recent months to say that they have shared massive amounts of information about their passengers with the TSA. For the past eight months, TSA officials have repeatedly said they were not collecting this data, but American’s disclosure raises questions about why the department has given false information about its data collection.
The TSA also may have withheld information improperly from investigators looking into the agency’s practices.More on this story here.
SPANISH ROYALS IN US AIRPORT ROW
A diplomatic spat has erupted between Spanish and U.S. officials after staff at Miami airport insisted on screening Spain’s Crown Prince and his fiancee. Airport staff said the search had to be carried out after the couple failed to give the normal 72 hours notice. Miami-Dade’s mayor has apologized for the “apparent disregard for protocol”.More on this story here.
BRITAIN’S BIG BROTHER
Over the last three years, the number of closed-circuit television cameras in Britain has quadrupled to more than 4 million, making it the most watched country in the world, experts say. Many Britons now go about their daily lives like contestants in a reality-TV show, with cameras tracking their every move on residential and commercial streets, on buses, trains and subways, in offices, pubs and malls, even in churches and schools. Experts calculate that the average commuter in London is filmed 300 times a day.
Yet despite strong support for closed-circuit television, commonly called CCTV, as a crime-fighting tool, concerns are mounting that Britain is taking surveillance too far. With some observers predicting the country will have more surveillance cameras than people within a decade, civil liberty groups foresee a bleak, Orwellian future, where privacy is a thing of the past.More on this story here.
WHY PROTECT PRIVACY? BECAUSE LARY HOWARD’S STORY COULD BE YOURS
Those who wonder why average, law-abiding Americans should worry about the government grabbing more power to poke into the private corners of our lives should consider the case of Lary Howard. Howard, 56, of Canton Township, Michigan is a Livonia middle school teacher whose professional record is unblemished and whose public personal conduct is above reproach. Not the kind of guy who should ever have to worry about peeping through the wrong side of jail cell bars. Except that Howard has a bit of a pornography fetish. Howard isn’t proud of his predilection -- who would be? -- but he practiced it in the privacy of his own home.
“It certainly isn’t something I’d want my students to know about.” But now they do. On February 26, Canton police kicked down Howard’s door and with guns drawn arrested him and hauled him off to jail. They also seized his computer with its dirty little secrets. The charge: Child endangerment and possession of child pornography; six counts, each carrying a potential 20-year sentence. You can imagine what those charges will do for the career of a school teacher.
The evidence against Howard was delivered to police on a computer disc by his ex-wife at the end of a very bitter divorce. Canton police enlisted an expert, who initially decided that among the images on Howard’s computer were some that might be children. Howard swears he only visited adult sites that guaranteed their models were of legal age. After 26 days of hell, prosecutors agreed and dropped the charges. It is a lot easier to dismiss a criminal case than it is to restore a reputation.More on this story here.
A POST-PRIVACY FUTURE FOR WORKERS
Three-and-a-half years ago, when TVs were heavy and bulky, Faith Popcorn foresaw that one day they would be flat and hang on walls. Today, her prediction has come true. Popcorn, professional futurist and founder of marketing consultancy BrainReserve in New York, does not pull her predictions out of thin air: She uses surveys of 5,000 consumers a year and of experts worldwide to reach her conclusions. Then she stirs in a quite a bit of imagination. And lately, her imagination has been cooking up some thoughts about how the workplace will change in the future.
Here is one: Popcorn believes employers will soon monitor everything from workers’ stress to cholesterol levels -- and help them deal with such problems in order to increase productivity. Actually, researchers are already developing many of these technologies -- such as chairs equipped with sensors that measure your level of fatigue or attention. Sound like Big Brother? In fact, personal privacy will not exist, says Popcorn. Here are edited excerpts of her conversation with BusinessWeek Online.More on this story here.
BIOMETRICS: READY FOR PRIME TIME?
Despite all the hype, biometric technologies have been slow to take off. Cost issues, instability, lack of portability, interoperability problems and multiple standards have made them a hard sell. However, since Sept. 11, 2001, as a result of massive lobbying efforts by biometrics companies offering the holy grail of security in the fight against terrorism, they seem to be finally coming into their own. Numerous government initiatives around the world are in place to augment identity and travel documents, such as passports, with biometric identifiers. There are even calls for national ID cards in Canada, as well as in the U.S. and U.K.
So is the technology ready to do all this is being asked of it? Who will guard the chicken coop? Will biometrics obliterate identity theft? What does the future hold for biometrics? Any suggestion that biometrics alone will stop terrorism, obliterate identity theft, and convert hardened criminals to Buddhism is likely to be an expensive and vain exercise.More on this story here.
PIZZA DELIVERY LISTS MAY HELP TRACK DOWN STATE NONPAYERS
You are hungry and tired, so you pick up the phone and order your favorite pizza. If you owe fines or fees to the courts, that phone call may have provided the link the state needed to track you down and make you pay. That is one of the strategies of firms such as a company being hired by the Missouri Office of State Courts Administrator to handle its fine and debt collections. David Coplen, the state office’s budget director, said he found out pizza delivery lists are one of the best sources such companies use to locate people.
Just which pizza companies’ databases might be mined is unknown. Michael Daniels, a division vice president of Dallas-based ACS Inc., declined to reveal which companies’ databases ACS uses in its searches. Daniels said sifting through private databases, from pizza deliveries to magazine subscriptions, is just one piece of the work the company does to help states collect more money and make the process more efficient. The company’s clients typically see their collections rise anywhere from 33 to 100% in the first year of a contract, Daniels said.
Chris Hoofnagle, of the Electronic Privacy Information Center in Washington, D.C., said the use of such seemingly innocuous information is common. “Even if you are very careful in protecting your personal information, you give it to any business, they can turn around and sell it,” Hoofnagel said. “The first time your baby sitter orders pizza, that pizza delivery company has your phone number, address and name, and they sell it. They don’t have to tell you about it, either.”More on this story here.
IDENTITY CARDS THREATEN LAW-ABIDING CITIZENS MORE THAN THEY THREATEN TERRORISTS
Their introduction would signal the end of privacy -- and of England
The arguments in favor of identity cards are empty and false. The Prime Minister says there are no civil liberty issues involved in their introduction, when he means that nobody in his gutless Cabinet is prepared to put up a principled fight on this issue. He himself does not know what liberty is. Nor, clearly, does David Blunkett, who is planning to introduce legislation that could force everyone in Britain to have identity cards within five years. The Metropolitan Police Commissioner, Sir John Stevens, says he wants ID cards to combat terrorism and illegal immigration and urges us to accept his case because he is a senior policeman.
The matter is supposed to be more urgent than it was because of the recent mass murder in Spain. The obvious fact -- that Spanish citizens have carried identity cards for years -- does not seem to have occurred to those pushing identity cards as a means of protecting us from terrorists. Nor do they seem to have considered that most of the 11 September hijackers were in the USA on perfectly valid visas. Professional terrorists, often with the aid of state sponsors, can usually be guaranteed to have the most convincing papers of anyone in the passport queue, and the cleanest records. It is you and I, normal human beings, who are the ones likely to be held up because some computer is convinced that our eyeballs do not match the records (the fabled biometric scanning technology is actually nothing like as infallible as its promoters claim).
As for illegal immigrants, the most significant thing about them is that once they are here it is all but impossible to send them home under existing international law. The government knows this but prefers to keep quiet about it. It is the failure to halt undocumented migrants at the frontier that needs to be remedied, a task which the government simply shirks. Identity cards are not even a substitute for a proper immigration policy. They are a wicked attempt to use New Labour’s own failure to justify a nasty attack on freedom. The other great argument, that compulsory registration would in some way combat crime, is similarly vacuous. What difference would it make? There is no evidence that it has any effect on crime levels in any of the many countries where cards are already compulsory. Too many of our politically correct police prefer to pursue the co-operative middle class than to confront actual, frightening wrongdoers. It is easy to guess who will be asked for papers and who will not, if they are ever imposed upon us.
The case for cards simply does not add up. It never has. That is because its real purpose is one nobody would ever vote for -- a profound change for the worse in the relation between the individual and the state. As things stand, any official has to justify himself to us. We need have no business with the state provided that we act within laws, which we have ourselves created to govern ourselves. The power that identity cards give to officials -- to interrogate, obstruct and pry -- is limitless, and they will use it.More on this story here.
A national ID Card would make the U.S. less safe, says security technologist.
As a security technologist, I regularly encounter people who say the United States should adopt a national ID card. How could such a program not make us more secure, they ask? The suggestion, when it is made by a thoughtful civic-minded person, often takes on a tone that is regretful and ambivalent -- yes, indeed, the card would be a minor invasion of our privacy, and undoubtedly it would add to the growing list of interruptions and delays we encounter every day; but we live in dangerous times, we live in a new world ... It all sounds so reasonable, but there is a lot to disagree with in such an attitude.
The potential privacy encroachments of an ID card system are far from minor. And the interruptions and delays caused by incessant ID checks could easily proliferate into a persistent traffic jam in office lobbies and airports and hospital waiting rooms and shopping malls. But my primary objection is not the totalitarian potential of national IDs, nor the likelihood that they will create a whole immense new class of social and economic dislocations. Nor is it the opportunities they will create for colossal boondoggles by government contractors. My objection to the national ID card, at least for the purposes of this essay, is much simpler: It will not work. It will not make us more secure.
In fact, everything I have learned about security over the last 20 years tells me that once it is put in place, a national ID card program will actually make us less secure. My argument may not be obvious, but it is not hard to follow, either. Security must be evaluated not based on how it works, but on how it fails. It does not really matter how well an ID card works when used by the hundreds of millions of honest people that would carry it. What matters is how the system might fail when used by someone intent on subverting that system: how it fails naturally, how it can be made to fail, and how failures might be exploited. When someone asks me to rate the security of a national ID card on a scale of one to 10, I cannot give an answer. It does not even belong on a scale.More on this story here.
PART OF PATRIOT ACT FOUND UNCONSTITUTIONAL
A federal judge in Denver has declared an anti-terrorism law unconstitutional in the case of a Somali man accused of illegally sending thousands of dollars to the Middle East. At issue is a 1992 law enacted as part of legislation aimed at punishing drug rings and money laundering. It was revised after the Sept. 11 attacks to make it a felony for anyone to transfer money without a state money-transferring license. The judge ruled that the law arbitrarily divided money-transfer operators into two groups -- those covered by state laws that punish failure to obtain a license and those who work in states that do not require a license.
“The difference is wholly geographic and arbitrary,” U.S. District Judge Lewis Babcock wrote in his ruling. “There is nothing at all to differentiate one group from the other except an operator’s presence in one state rather than another state.” The case involves Ismail Issa Barre, a 34-year-old Somali who is accused of sending hundreds of thousands of dollars to the United Arab Emirates without a transfer license.More on this story here.
IS TALKING ABOUT ONLINE GAMBLING ILLEGAL?
If you like to gamble, you might want to check out www.888.com, where you can play blackjack, poker, craps, slots, and roulette. If you prefer sports betting, try www.betonsports.com. According to the U.S. Justice Department, I may have just committed a felony. Federal prosecutors say helping Americans find online casinos or sports betting operations could amount to “aiding and abetting” illegal gambling, a crime punishable by up to two years in prison.
The campaign of intimidation already has yielded results. Since last fall several media companies, including Infinity Broadcasting, Viacom Outdoor, Discovery Networks, and Clear Channel Communications, have stopped running ads for online casinos and betting services. This month Google and Yahoo!, two of the most widely used Web search engines, also caved. Although Google was vague about its motivation, Yahoo! said “a lack of clarity in the environment” makes gambling ads “too risky”.
These companies have surrendered their First Amendment rights without a fight, allowing the government to silence speech it does not like by floating a legal theory that almost certainly would fail if it were tested in court. Their capitulation illustrates the chilling effect of vague laws in the hands of ambitious prosecutors.More on this story here.
ACLU CALLS ON BUSH TO RESIST CREATION OF SECRET POLICE
In rare agreement, the American Civil Liberties Union today joined with Justice Department officials and FBI directors from both the Clinton and Bush administrations in urging the White House to resist the creation of a domestic intelligence agency, which could easily employ the same kind of dirty tricks the CIA uses overseas here in the United States against American citizens. “Even during the most frigid days of the Cold War, we never saw the need to create a secret police force that would work outside of the constraints of the Constitution,” said Anthony D. Romero, ACLU Executive Director. “As the 9/11 commission has already shown, much of the government’s failure before 9/11 was related to a lack of skilled analysts, the enormous amount of threat intelligence that had to be analyzed and a culture of only telling people about things on a need-to-know basis,” he added.
At issue are reports that the president might endorse a series of recommendations that call for the transfer of the FBI’s traditional counter-intelligence and counter-terrorism functions, generally run by agents trained to protect essential constitutional civil liberties, to a more secretive domestic intelligence agency that would gather, analyze and disseminate information about Americans without any sort of law enforcement role. Not only have the Justice Department and FBI Director Robert Mueller strongly argued in the past against the creation of such an agency, their criticism was joined by Clinton-era officials, Attorney General Janet Reno and FBI Director Louis Freeh.More on this story here.
UTAH WITNESSES BLISTER PATRIOT ACT
At a hearing of the U.S. Senate Judiciary Committee, opponents from across the political spectrum voiced concerns that parts of the act are eroding civil liberties, and supported amendments to modify some of the surveillance and other powers given to law enforcement under the law, which was passed in the wake of the Sept. 11, 2001, terrorist attacks.“A public that is afraid that the government is seeking to obtain unchecked power will become suspicious even of legitimate antiterrorism efforts,” Dani Eyer, executive director of the ACLU of Utah, said at the hearing, which was held at the University of Utah.
Frank Mylar, a representative of Utah Grassroots, a conservative caucus, said a future administration could use the Patriot Act’s powers against conservative groups, such as anti-abortion organizations. And although he acknowledged that some of the act’s powers, such as the authorization of “sneak and peaks” in which the government does not have to inform suspects they are the target of a search, can be effective tools, their use will chip away at constitutional rights, Mylar said. Eyer and Mylar were among the opponents of some sections of the Patriot Act, which Utah senator Orin Hatch helped write and pass.More on this story here.
JUDICIAL ACTIVISM’S LATEST FOLLY
Judicial activism is the practice of judges ignoring the law and deciding cases based on their personal political views. Many federal judges have become de facto legislators in recent decades, substituting their self-presumed wisdom for the will of Congress. Activist federal judges often view the Constitution as an anachronism that stands in the way of their visions for “social justice.” They usually view European socialism very positively, and unconditionally believe in the United Nations and international law. Accordingly, activist judges increasingly are looking outside the US for guidance when deciding cases.
This latest brand of judicial activism has a name: “transjudicialism”. Transjudicialism means that American federal judges consider foreign and international legal sources when deciding cases, even though such sources often conflict directly with our own Constitution. As Robert Bork explains, six of the nine Supreme Court justices have either written or joined opinions that favorably cited foreign authorities. Simply put, these justices are making the incredible argument that American federal courts should consider sources other than US law when deciding cases. In the words of one justice, the Court “cannot afford to ignore the rest of the world.”
It is not hard to see the grave danger posed by this new trend. The US Constitution is the supreme law of the land in America. Congress needs to exercise its constitutional power over federal courts and send judges a strong message that Americans will be governed by American law only. I recently introduced legislation that forbids the Supreme Court and lower federal courts from citing any foreign or international laws, rules, policies, or court decisions as authority for their opinions.More on this story here.
LEARNING DISABLITIES IN HIGH PLACES
Rational people, acting as individuals or as a group, learn from their mistakes. They gather data, they make decisions, and they take actions. Then they assess the feedback from reality and adjust. For example, if you rely on a person and learn that he or she has lied to you, then you get rid of that person. If you hire people to do a job and they fail miserably, then you fire them and replace them with more competent people. If your adviser predicts one outcome and the opposite outcome occurs, then you dump your adviser. Well, the same people who failed to protect us in September 2001 are still where they were. So is Paul Wolfowitz, the architect of the Iraq War, who said we would be greeted with flowers and dancing in the streets.
Normally, when an individual disregards feedback from reality and keeps repeating the same actions that produce bad outcomes, he is pronounced insane. In the case of the Bush administration, its behavior just tells us that it is driven by ideology rather than by reality. An ideologue shares a lot of traits with the insane. His ideology provides him with all the answers to all the questions. When reality throws up facts that do not jibe with the ideology, he ignores reality and sticks with his ideology. Ideologues are dangerous, whether their ideology is the neoconservative variety, Zionism, communism or Islamic extremism. Their minds all work the same way: We know the answers; don’t try to confuse us with facts.More on this story here.
The March of Folly 2
What is happening now in Iraq was completely predictable. It is an exact repeat of all that happened to us in Lebanon . Otto von Bismarck once remarked that “A fool learns from his experience. A wise person learns from the experience of others.” If so, how to define President George W. Bush, who is not even able to learn from his own experience?More on this story here.
Test your Iraq IQ with this multiple choice quiz.
The Madness of President George
Bush should hold more press conferences, to provide us with ever more windows into the mind of one of the most dangerous men ever to occupy the White House. Why is he dangerous? He is willfully ignorant of what is going on in Iraq but cocksure that not only is he doing the right thing, but that God is blessing and directing his every decision, even to the point that he imagines himself to be infallible. By comparison to his predecessor in the White House, Bush is alarming, the kind of president who seems capable of blowing up the world and calling it good. People who are still defending George don’t need patient argument; they need shock therapy.More on this story here.
THINKING UNTHINKABLE THOUGHTS
Theologian Charges White House Complicity in 9/11 Attack
There is nothing the least bit wild-eyed or hysterical about David Ray Griffin. In person, he is disarmingly calm, and speaks in the unflappably precise and deliberate style of a lifelong academic. Which is exactly what Griffin is. A respected philosopher of religion at the Claremont School of Theology since the 1970s and longtime Santa Barbara resident, Griffin is now raising questions that even President Bush’s harshest critics are afraid to think, let alone ask aloud.
In his latest book, The New Pearl Harbor -- released just two weeks ago -- Griffin all but accuses the Bush administration of taking a dive on September 11 and giving al Qaeda terrorists an unobstructed shot at the World Trade Center. According to Griffin, a case can be made that the Bush administration arranged the attack, or allowed it to happen. He is aware that he may be dismissed as a conspiracy nut, but given the “transcendent importance” of the issue, Griffin is willing to assume that risk and has taken to repeating Michael Moore’s line on the subject: “Personally, I’m not into conspiracy theories except those that are true.” I met with Griffin over coffee to discuss his book and the September 11 investigation. The following is an edited account of the conversation.More on this story here.
White House edits August 6, 2001 presidential briefing, then claims it has been “declassified”.
Everyone is assuming that the Bush administration meekly complied with the outcry coming from both sides of the aisle in Congress, declassifying and releasing the Presidential Daily Briefing (PDB) for August 6, 2001, with uncharacteristic speed. Now it turns out they were not so forthcoming after all. No one should be surprised that this administration would dare to release an edited version of the Aug. 6 PDB while giving the appearance of cooperation. A cornered rat fights to the death, and do not think the Bushies and their neocon Svengalis are going to give up without a tremendous struggle. Getting at the truth about the crucial period leading up to 9/11, if it is going to be gotten out of them, will be like pulling teeth. Now is the time for the 9/11 Commission, and the Congress of the United States, to get out the pliers, and start yanking.More on this story here.
An Interesting Day: President Bush’s Movements and Actions on 9/11
The many accounts of what happened to Bush on 9/11 are riddled with disinformation of false threats, omitted details, fudged timing, and more. Around September 11, 2002, the heavily publicized first anniversary of the attacks, there was an obvious attempt to further rewrite the story. Needless to say, in the anniversary hoopla, Bush and other leaders were described as “resolute”, “brave”, “strong”, and so forth. Even the minor level of media criticism just after 9/11 that led to several reporters losing their jobs was absent. The topic of Bush’s behavior on 9/11 has been barely mentioned in the media since.
There are many questions that deserve answers. So many pieces of the puzzle do not fit. Simply by reading the mainstream media reports, we can see that mere incompetence does not explain what happened to Bush on that day. It is doubtful that the Independent Commission investigation will look critically at what Bush did on 9/11 and why he did it. Despite the contradictory reports, no one in the mainstream media has yet demanded clarification of the many obvious inconsistencies and problems of the official version. Anyone even asking questions has been quickly insulted as anti-American, accused of bashing the president in a time of war, or branded a conspiracy nut. Only a few relatives of the 9/11 attacks have been able to raise these issues publicly. But so far, few have listened to their concerns.
Because the media has failed in its role to ask these questions, much less attempt to answer them, it is now the responsibility of ordinary Americans to gather the information, look for answers, and sound the alarm.More on this story here. The 9/11 Commission just a sideshow -- story here.
THE TWO PARTY CHARADE
Senator John McCain, the Arizona Republican known for his straight talk, recently caused comment, but not enough, when he said, in reply to a reporter’s question, that, yes, he might “entertain” an invitation to be John Kerry’s running mate, but he stressed that it is very unlikely to happen. Well, why not? Such a ticket would be sensational -- two Vietnam war heroes on the same ticket! -- and it would be hard for two Republican stay-at-home hawks to beat.
But the subject was quickly dropped. Too bad, because McCain’s remark spoke volumes about our alleged two-party system. If, as they pretend, the Democrats and the Republicans are opposed in principle, why is it even possible, and not terribly unusual, for politicians to jump from one party to the other? Suppose we had two major parties who really stood for mutually exclusive principles: say, a Socialist Party devoted to expanding the power of the state and a Libertarian Party devoted to keeping state power minimal. Each party would vote against every measure the other party favored, and its campaign promise, every election year, would be to repeal every law the other party had passed.
In such a genuine two-party system, nobody would switch to the other party unless he had a virtual religious conversion, changing his entire philosophy. Otherwise he would appear a mere hypocrite and opportunist. An avowed Socialist and an avowed Libertarian would have nothing in common. It would be nonsense to ask a Libertarian senator if he might run on the same ticket with a Socialist. But it is not nonsense to ask a Republican senator if he could run on the same ticket with a Democrat. It is unlikely to happen, but only for practical reasons. Everyone accepts this, but few think about what it implies. When people talk about our two-party system, I sense that America no longer has a clear grasp of the word two. When I look at our parties, I only see one. My fellow Americans must be seeing double.
There is little false comity between Republicans and Democrats either. There is something worse -- real comity. These guys are all in the same racket. They are thick as thieves for the simple reason that they are all thieves. The only real issue between them is who will distribute the booty after November.More on this story here.
HOW THE U.S. GOVERNMENT EVOLVED
The US began with a libertarian vision. Our founders overthrew the only government they ever knew -- the equivalent of you and me marching on Washington, DC today and overthrowing our government. In 1775, the total tax burden imposed by the British on the colonists probably amounted to around 5% of personal income, maybe a little more. Today, many of us bear a total tax burden of 50% of our income. With one tenth our present-day tax burden, our founders were so enraged, so convinced of a breach of absolute moral standards -- natural rights -- on the part of the government, they premeditatedly endangered themselves and their families to set things right.
How did we get from there to here? What bloated our government this way, in the face of the safeguards the founders established to prevent the growth of government? The mechanism is self interest. Men, just like lions, tigers, bears, rabbits, and paramecia, act in their own self-interest. Among millions of men, there will be some who will use whatever advantage they can get, honest or not. The vehicle is the government’s legal power to use force to make us do whatever the government wants, whenever it says so.
The congressmen have the power to pass laws that are beneficial -- or harmful -- to certain businesses. Only the congressmen have the guns of government available to enforce their will. Hence, the congressmen are extorting everyone else. Scrupulous businessmen could simply refuse to participate (as Bill Gates did for a long time) in the bribing of congressmen, but with a population of millions of businessmen, there will be enough unscrupulous ones to take the bait. This system was put in place the moment the Constitution was ratified. Anytime anyone is allowed to use force over anyone else, natural human self-interest will take over. The market allows the self-interest of consumers to balance that of producers. When forcible government steps in, people in government are forced to take sides; they will generally take the side that benefits them. Defeat always results for one of the sides, while free markets tend toward win-win outcomes. Our government isn’t done “evolving” yet, either.More on this story here.
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