Wealth International, Limited

Offshore News Digest for Week of April 26, 2004

Note:  This week’s Financial Digest may be found here.

Global Business Taxes Asset Protection Privacy Law Opinion & Analysis



Sample articles from this issue include:

More On Living In New Zealand: The last time I answered questions, I said I would answer some related to immigration. Frankly, the immigration policies have changed so much since September 11 I am kind of out of it. Putting “immigration, New Zealand” into your search engine is the best place to start. The best way I know of is to have a job lined up and a letter stating that you have work, even if it does not pay! Another good and related idea would be to do a CELTA course (search engine again). CELTA qualification results in a certificate to teach English. It is the most respected in the world. “You can get a job anywhere in the world” with this, I was told! The following questions came mainly from a reader named Ted. ...

California Family of Four Follows Its Rainbow To a Remote Island in Panama: Shephard Johnson is no ordinary, developer of dreams. He is taking 25 years of California real estate experience and using it to build his dream development in Panama on an island called Solarte. Johnson, 48, and family -- wife Monte, a High School teacher, and young daughters Robin, 13, and Halley, 9 -- got their feet wet in Costa Rica, where they lived from 1992 to 1995. The idea in Costa Rica -- to use his California experience to build a residential community -- fizzled when that country hit a recession. But it is blossoming one Central American country to the south, on Isla Solarte.

Panama And Costa Rica -- Thoughts On Both: Both Costa Rica and Panama are made up of three major ethnic groups. White Spanish, Afro-Antilleans, and Indigenous people. These three groups were more or less separated by force in Costa Rica, unlike in Panama where the three groups mixed. The reason the separation was possible in Costa Rica and not in Panama has a lot to do with the geography of the two countries. The mountains of Costa Rica acted as a natural barrier between the different ethnic groups. Panama has fewer mountains; it is for the most part a lowland country and therefore it was much easier for different ethnic groups to mix -- and much harder to keep the groups separate. The mixing or not mixing of different ethnic groups has had an effect on the political development of both countries. Consensus in politics has been much easier to create in Costa Rica than in Panama, as well as consensus on things like morality, family and law.

Issue table of contents here.


The telephones had been cut off, the nation’s key assets were in receivership and a team of men in grey suits were next door doing “due diligence” on the books for a possible refinancing. Nauruans have not had a royalty payment on their phosphate since 2002, and on the island, people working for the Government had not been paid. There are problems, too, with getting fresh water and many people are sick, a legacy of a poor diet.

But Remy Namaduk, who is the Minister for Tourism, Environment, Trade, Economic Development, Transport and Island Development and Industry, remained sanguine about his country’s chances of revival despite the loss of more than $1 billion. On his own estimate, there was roughly $350 million left in value of what had been estimated at its peak in the 1970s to be $1.7 billion to provide for Nauru’s population once phosphate mining ended. But the assets, which include Nauru House, the Downtowner Motel in Carlton and the Mercure Hotel in Sydney, were mortgaged for $239 million to America’s GE Capital, which sent in the receivers on April 16.

Despite, or perhaps because of its crisis, Nauru is forging ahead with a strong new trading relationship with China, having switched its allegiance to the mainland away from Taiwan. Mr Namaduk described it as “a most opportune time”. It is probably just the latest effort by Nauru to hock itself out of trouble temporarily. In the 1990s, it set itself up as an offshore banking centre, allowing what some claim to be $470 billion in Russian mafia money to be washed through electronic accounts notionally held in a shed somewhere on the island. At another stage, it offered to sell citizenship, something the US stamped out after September 11 for fear of Nauru passports providing safe transit for terrorists.

More on this story here.


“I have never seen the need for the unholy rush,” said Deputy Laurie Morgan, as senior figures in Jersey effectively accused Guernsey of avoiding the issue. Some Jersey politicians want to know why their island is planning a sales tax to cover an anticipated £100 million. shortfall in tax revenues from 2008, when Guernsey has pledged not to place the tax burden on the electorate.

More on this story here.

Jersey economic statistics show healthy financial sector growth.

The latest series of economic statistics published by the States of Jersey have shown that the jurisdiction’s banking and fund industry are continuing to grow. Bank deposits in Jersey totalled £155.8 billion as of September 2003, a 14% increase compared compared to the same quarter a year earlier, while the number of banking licenses held steady at 55 in the third quarter of 2003. However, the number of banks has fallen steadily from a figure of 77 in September 1999.

Meanwhile, the value of collective investment funds held in Jersey by the end of 2003 stood at £108.2 billion, representing growth of 11.7% since September 2002. As of December 31 2002, there were a total of 449 funds based in Jersey, over one hundred more than the 344 recorded at the end of 1998.

More on this story here.


China’s parliament Monday dashed Hong Kong people’s hopes of directly electing their leaders in polls in 2007 and 2008, reinforcing Beijing’s full control over democratic progress in the territory. The decision came after top members of the National People’s Congress (NPC) had voted on political reforms for the former British colony, where calls have mounted for more voting rights out of growing frustration with the China-backed administration.

The move is part of a campaign by Beijing since the start of the year to contain Hong Kong’s democratic aspirations that it fears could produce leaders who will challenge its control. Apparently aware of the furor to be stirred, Beijing quickly sent three senior officials to Hong Kong to sell its decision.

More on this story here.

Hong Kong’s looming political crisis.

Pro-democracy advocates in Hong Kong say the central government’s position undermines the Basic Law and the “one country, two systems” policy it upholds. The Basic Law also calls for full elections of its leader by 2007. However the NPCSC expressed “concern” to Hong Kong’s government that electing the chief executive by universal suffrage in 2007 would go against the Basic Law’s principle of “gradual and orderly progress”.

Hong Kong’s current chief executive, Tung Chee-Hwa, originally promised last year to roll out a timetable for constitutional review. But in a policy address on 7 January 2004, Tung said he would delay the review. He also established a task force to consult Beijing before reviewing constitutional development. Pro-democracy advocates in Hong Kong want voting rights to be broadened to include the direct election of the chief executive and all 60 members of the Legislative Council.

“There are calls for democracy in the society, but Hong Kong should not place itself in opposition to the central government. The central government is actually very concerned about the development of democracy in Hong Kong,” Tung said in a statement asking for calm. Beijing also noted that Hong Kong’s system of partial democracy gives ordinary people more say than they had under 156 years of British colonial rule.

China’s step will lead to more confrontation between residents and Beijing, analysts and a democracy activist said. “There’s little room to maneuver now,” said Ma Ngok, a social science lecturer at the University of Science and Technology. “The ruling will aggravate the local governance crisis. There will be more confrontation between Hong Kong people and the governments of Hong Kong and China. Hong Kong people’s trust in Beijing will fall.”

More on this story here and here.

U.S. and Britain criticize China on Hong Kong democracy restrictions. China says MYOB.

The United States and Britain attacked China’s decision to rule out full democracy for Hong Kong in the near term, and Beijing responded by telling them to mind their own business, accusing both countries of holding China to a double standard after ignoring the lack of democracy in Hong Kong during more than a century of British rule.

The strong reaction was the latest sign of a growing assertiveness in China’s foreign policy, as Beijing has sought to position itself as a rising diplomatic power in Asia with influence to match its increasing economic might. Historians and politicians here noted that there was some truth to Beijing’s complaint of a double standard, with Britain and the United States showing little interest in democracy here except in the 1940’s and again in the 1990’s.

More on this story here and here.


As the country celebrated 10 years of freedom with the inauguration Tuesday of President Thabo Mbeki for a second and final term, it is worth recalling the early 1990s, when South Africa tipped toward civil war. Somehow this still deeply divided nation has become a secure democracy despite a record of injustice, sectarian conflict and social and economic deprivation. What explains South Africa’s success? Might there be lessons for other troubled states and those wanting to help foster what Tocqueville long ago described as democracy's “habits of the heart”?

First, leadership matters. When Slobodan Milosevic was choosing to consolidate his political base in the former Yugoslavia by appealing to ethnic nationalism, in South Africa Nelson Mandela was making the case for civic nationalism and a constitutional democracy with strict limits on executive power and his or any successor’s time in office. The landslide victory this month of the African National Congress reflects more than lingering appreciation for the party’s role in ending apartheid. Its collective leadership, which is racially, religiously and culturally diverse, has effectively marginalized those parties that have tried to win by appealing to sectarian pride and fear.

More on this story here.


Russian oil giant Yukos has admitted it could go under if the government presses ahead with a crackdown on its tax affairs. “There’s no way Yukos can win a pitched battle versus the government,” said Yukos finance chief Bruce Misamore. “If the government wants to put the company out of business, the government will put the company out of business.”

The Russian authorities have sent Yukos a bill for $3.5 billion in unpaid taxes. Yukos, Russia’s second biggest oil firm, says the tax claim is groundless, and is challenging it in court. The company says it should be able to pay this bill, but Mr. Misamore worries that it will not be the last tax demand to come. The government’s aggressive pursuit of the case has unnerved investors, and prompted a sharp downgrade in Yukos’ credit rating.

More on this story here.


China’s economy is overheated, its banks are shaky, and hot money continues to pour in. Can the new leaders rein in a runaway financial system? The world has known for months that China is white-hot. What the world was not expecting was that it would keep getting hotter. The government of President Hu Jintao and Premier Wen Jiabao has been signaling since last summer that it is time to ease up on growth. People’s Bank of China (PBOC), the central bank, has said it wants to crack down on reckless lending. But the numbers remain explosive. On April 15, Beijing revealed that the economy grew 9.7% in the first quarter; the target was 7%. First-quarter loan growth grew 21% over last year, and the broadest measure of the money supply, or M2, rose 19.2%. Fixed-asset investment -- spending on plants, equipment, roads, and other infrastructure -- is up 43%. The average in Asia is more like 20%. Inflation of 2.8% does not look too bad -- until you consider that a year ago it was under 1%.

The system is clearly out of whack. Yes, China is regarded as a country with first-world manufacturing prowess, the planet’s workshop. But that industrial might is hitched to a broken, third-world financial system. When the heat turns up, things can get ugly. And because it is so big, an overheated China takes on enormous global importance. Not since the boom-bust cycles of the fast-growing U.S. economy in the 19th century has the world seen such a phenomenon.

A runaway China -- or a China hit by a temporary but dramatic crash -- would have far more impact on the global economy than it would have had 10 years ago, when the mainland had its last great crisis of overheating. That is why Beijing’s ability to engineer a soft landing is possibly the most important issue in global finance this year. If the government can slow down growth to, say, 7%, commodity prices will ease worldwide, pressure on the yuan will subside, and Beijing will keep generating jobs for the 10 million Chinese who enter the workforce every year.

More on this story here.


A very high profile delegation out of Bermuda is to go to New York this week to promote the Island as a good place to do business. Premier Alex Scott, Finance Minister Paula Cox and chairman of the Bermuda Monetary Authority Cheryl-Ann Lister top the list at the day-long discussions and talks aimed at asset managers, private client lawyers and hedge and trust funds managers as well as media sessions in the afternoon. It is the first time in four years that the “Bermuda Briefing” is taking place and is back because of demand from industry professionals in New York.

More on this story here.

Bermuda premier on a US charm offensive.

US Democratic presidential candidate John Kerry’s attacks on Bermuda are not gathering much support in Washington, Premier Alex Scott said after a day of intensive lobbying on Capitol Hill. The Premier and Finance Minister Paula Cox met around 30 congressmen as part of a campaign to counter the “misinformation” from Sen. Kerry. Mr. Scott said the public relations blitz had been a success and he had been assured by leading congressmen that Sen. Kerry’s attacks on Bermuda were little more than election hype.

More on this story here.


The most powerful banker in Spain has been ordered to stand trial charged with misappropriation of bank funds. Emilio Botin, chairman of Santander Central Hispano, Spain’s largest bank, has also been accused of irresponsible management. In a separate case, he will have to defend allegations that he helped clients to evade taxes.

More on this story here.


European Union enlargement probably will create new pressures on western European countries to reduce corporate tax rates in order to keep businesses investing, a study from KPMG LLC showed. Poland and Slovakia, two of the 10 states due to join the 15- nation union this weekend, have in the past year made the biggest cuts to their corporate tax rates out of 69 nations surveyed, the accountancy firm said. “I don’t think there’s any accident their tax rates have gone down” in the same year they enter the EU, said John Battersby, KPMG’s head of strategic tax policy, in an interview. This may “lead to increased tax competition. Practically every country in the world is aware that businesses have the option to do business somewhere else.”

Rates in Germany, France and the U.K., the EU’s biggest economies, are all 30% or more. In Poland and Slovakia, levies on corporations have been slashed to 19% this year. Hungary’s corporation tax rate has been cut to 16% and the Czech Republic has lowered its rate to 28% from 31%, KPMG’s study showed.

More on this story here.

Belgian Brew-Ha-Ha

Belgium is a small country that is often ignored by its bigger European brothers on economic and business issues -- and on just about everything else, for that matter. Yet this nation is a center of excellence in certain fields such as high-technology and, perhaps more notably, brewing.

So it came as a body-blow to the national psyche when word came that Interbrew, a beer company with a more than 600 year history in Belgium, was considering leaving the country for more tax-friendly shores. One possible new headquarters for the company is neighboring Luxembourg. The company is not threatening to decamp simply because it prefers the weather in the Grand Duchy. It just wants a better business climate. First, the company would pay significantly less corporate tax in Luxembourg. And second, Luxembourg has more flexible takeover laws.

More on this story here.

Economic summit warns of public fear of EU enlargement.

Representatives from more than 40 countries met for a three-day economic summit in the Polish capital on Wednesday to a chorus of concern that the European Union’s May 1 enlargement could leave ordinary people alienated unless it helps put money in their pockets. Speakers were heavy on caution, pointing out that once the Cold War division of Europe had been swept away on Saturday, hard economic catch-up work would remain. A similar note of caution ahead of the historic exercise came from Portuguese President Jorge Sampaio, who pointed to a major gap between the EU and ordinary people, which only economic growth could help bridge.

More on this story here.

Czech president attacks EU.

Czech President Vaclav Klaus, an avowed eurosceptic, has launched a scathing attack on the European Union just days before his country joins the club. Writing in Handelsblatt, Mr. Klaus says, “The EU does not consist of freedom and openness but rather of bureaucracy, regulation and harmonization.”

His comments follow others he made last week when he claimed that his country would “cease to exist” as an independent entity once it joined the EU. Mr. Klaus’s outspoken comments are likely to have an influence on the celebrations for enlargement day which are set to be more downbeat.

More on this story here. Test you knowledge of the Czech Republic with this quiz.

Blair is right to propose a national referendum on the draft EU constitution.

After months of rejecting the idea, Tony Blair conceded that British voters should have the final say over whether to adopt the new EU constitution that heads of government hope to agree in June. Britain thus joins a growing list of countries -- the Czech Republic, Denmark, Ireland, Luxembourg, the Netherlands, Portugal, Spain (almost certainly), Poland (probably) and, after Mr Blair’s move, maybe France as well -- in putting the document to a popular vote.

A British referendum increases the risk that the constitution (more properly called a constitutional treaty) may never come into force. But it is right to hold one, for two main reasons. The first is that there is still time to improve the text. The other is to simplify the hotch-potch of arrangements governing the EU; to present a shorter constitution that would be easily intelligible to the layman; and, above all, to clarify and settle the balance of powers between the centre and member governments.

Editorial here.


Looking at the growing bulk of the EU surrounding them -- and at the pressures it is exerting on their defiantly independent nation -- the Swiss are starting to think that joining the union may not be such a bad idea after all. As the EU prepares to add members in Eastern Europe on May 1, a glance at the map of Europe underscores Switzerland’s isolation as the holdout in a vast expanse covered by the blue and gold EU flag from the Atlantic Ocean to deep into former Soviet bloc territory.

The edginess in Switzerland was obvious last month when, without warning, Germany started intensive border checks on cars entering from the northern Swiss city of Basel, causing long traffic jams where most drivers were used to being waved through with scarcely a glance. The German move was read as growing impatience with the country’s reluctance to join foreign alliances, based on Swiss neutrality first recognized by other European nations in 1648.

The Swiss note that as the border checks were going into high gear, German Finance Minister Hans Eichel singled out Switzerland in declaring that “no country in Europe can be allowed to make a living in part by being a refuge for tax evaders.” Switzerland is willing to meet the EU demands by handing over to EU governments the 35% tax withheld from interest paid to their citizens on Swiss bank accounts, but they want more freedom for the 7.3 million Swiss to cross EU borders in exchange. The EU insists that there cannot be a link.

Billionaire industrialist Christoph Blocher, an outspoken opponent of the EU, and now justice minister in the Swiss Cabinet, continues to rail against the EU. But a poll in the weekly SonntagsBlick said two-thirds of Swiss now favor moving toward EU membership. Opinions on joining the EU were divided in the central Swiss heartland, long the basis of Blocher’s support and home of the legendary national hero William Tell.

More on this story here and here.

Swiss business stands to gain from EU enlargement, says British ambassador.

Britain’s new ambassador to Switzerland, Simon Featherstone, says Swiss companies are set to benefit when ten new countries join the European Union on May 1. But he said enlargement would also underscore the need for Switzerland to conclude a series of outstanding bilateral treaties with the EU.

More on this story here.


On Saturday May 1st, the enlargement of the European Union from 15 to 25 members will finally take place, with eight former Soviet-bloc countries and two Mediterranean islands joining the club (see map). They will all be members of equal standing. But it will take several decades more for them to become members of equal means: average GDP per head in the ten new countries is only 46% of the EU-15’s. Joining the Union is one thing; economic convergence another. The first, the theory goes, leads to the second. But when the raffish new members of the EU eventually catch up with the old money of Western Europe, they will do so largely through their own efforts -- because of what they do for themselves, not what Brussels does for them. It is what EU membership inspires -- political stability, economic openness, fiscal rectitude -- not what it provides that counts. What Brussels provides will, in any case, be miserly.

More on this story here.

Germany calls the tune in new EU.

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. No doubt, the bureaucrats who negotiated the EU expansion will go ahead with mutual backslapping tomorrow when the 10 states “officially” enter the EU. But there is no denying that the initial enthusiasm and naïve optimism that accompanied the enlargement negotiations in Central and Eastern Europe is petering 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.

More on this story here.

EU set to raise stakes in trade clash with US.

The EU is drawing up plans to retaliate against the US in a long- running trade dispute over an anti-dumping law by targeting producers in politically sensitive states. With US presidential and congressional elections less than half a year away, the move is likely to be seen as a provocation in Washington.

The European Commission has already told members that it plans to introduce punitive sanctions on the same list of goods it targeted in the trade row over US steel safeguards last year. The list was designed specifically to hurt the economies of politically sensitive states such as Florida, Ohio, Pennsylvania and Virginia -- some of which could prove crucial swing states in the presidential elections.

More on this story here.


The Panama Canal charges the very biggest liners around $250,000 per passage. But with as little as two feet to spare on each side, it can be a tight squeeze. With up to 38 big ships passing through it each day, the 90-year-old waterway is now at the edge of its capacity. Still more worryingly for its operators, those locks are too narrow to handle today’s biggest container vessels (of a size undreamed of by the canal’s engineers), many of them carrying Chinese exports. So Panama is increasingly missing out on some lucrative custom. To survive, the canal needs to grow. Whether it does so will partly be determined by whoever wins Panama’s presidential election on May 2nd.

About one-third of Panama’s GDP comes from canal-related revenues. And the current debate about the canal’s future will entwine it and the Panamanian government still further. Politicians on all sides seem to acknowledge that investing in the canal is “the manifest destiny of Panama’s geography”. Yet whoever wins will have a tough job selling the plan to the public. It might involve creating lakes to supply water to the new, bigger locks, and flooding land and displacing some of the poorest people in Panama. Activists and churches are already rallying to their cause. And the next government will have to champion the enlargement while staying strictly out of the canal’s finances.

More on this story here.



The four countries will set up a joint task-force to be based in New York in the next few months, to oversee implemenation of processes to detect tax avoidance and evasion schemes. The four-nation pact may eventually extend to other countries. Faced with pressures on budgets, each of the countries see a crackdown on tax dodgers as an opportunity to reap billions of dollars lost to taxation regimes.

More on this story here.


A report published recently by the Treasury Inspector General for Tax Administration has advised the section of the IRS responsible for monitoring the selling of abusive tax shelters to make greater use of internet searches, in a bid to weed out promoters of illegal tax planning advice. “If the Internet is not routinely monitored, the LDC (Lead Development Center) may not be timely identifying and detecting sites of a significant number of promoters of abusive tax schemes,” TIGTA’s report stated.

More on this story here.


A trove of money belonging to large multinational U.S. companies -- as much as $600 billion -- sits buried in foreign countries around the world. Many in Congress want to lure it back to America to boost the recovering economy. The plan is simple. Slash the tax rate for one year on the foreign profits if these companies bring them back to the United States. Winning the tax break -- one of the technology industry’s top priorities -- would be a boon to U.S. companies with large sales around the globe.

Supporters say the so-called tax holiday would give struggling Silicon Valley and the national economy a boost -- a huge infusion of cash that companies could use to build factories, hire workers, fund research and bolster their finances. “It is a money-maker for the federal government because this money is never coming back,” said Sen. Barbara Boxer, D-Calif., one of its leading advocates. But skeptics -- including Bush officials -- say the economic stimulus would be muted and temporary.

Currently, multinational companies park profits offshore for the same reason millions of Americans save in an individual retirement account: They can defer taxes. When companies turn a profit overseas, they pay tax immediately to the foreign government involved. But if that government charges less than the 35% U.S. rate, companies can defer the difference they would owe at home as long as they keep the money offshore. The proposal would slash the U.S. corporate tax rate to 5.25% for one year, drawing an estimated $135 billion to $300 billion back into the economy. Silicon Valley and other industries have pushed unsuccessfully for such a tax break for years. Now the proposal has new life because it is part of a complex corporate tax bill in the U.S. Senate designed to settle a tariff dispute with the European Union.

More on this story here.


The IRS has given the Wisconsin Department of Revenue the names of more than 300 firms and individuals suspected of being involved in abusive income tax shelters. Going after tax-shelter cheats produced big money in California, where its tax officials have collected $436 million. Acting on its own, the California Revenue Department sent letters to more than 17,000 firms and individuals. In addition, the IRS supplied 3,500 names to California officials. From that list, 242 individuals and 114 companies paid back taxes plus interest.

More on this story here.


“My predecessor Pam Olson and I have often spoken of the need to reform the international provisions of the tax code. A year ago, one commentator described the situation as perhaps the perfect storm that would at last result in sorely needed changes to our international tax laws. Unfortunately, so far the perfect storm looks more like a tempest in a partisan teapot. The complexity of the international rules -- that black box feel they have for everyone who doesn’t play in them regularly -- has left many legislators concerned that the much needed changes are in fact the recipe for shipping jobs offshore. Even reform stalwarts have expressed concerns about the potential effects of the changes. ...”

More on this story here.


To those for whom civic duty alone is not enough motivation to pay taxes, states are rolling out a new weapon: shame. A growing number of states are hoping to humiliate delinquent taxpayers by putting their names online. Used in at least 13 states and sporting zingy names like CyberShame and DelinqNet, the websites are giving state tax collectors a surprisingly useful tool for gathering old taxes. Some of the state websites are getting thousands of hits a day. It is a bit of legal snooping designed to “out” tax evaders.

In Georgia, the latest state to try online shaming, the debtor’s list includes two celebrities. The estate of the late rapper Tupac Shakur owes $85,260, and the estate of the late TLC member Lisa “Left Eye” Lopes owes about $550,000. “We don’t have the assets to go out and chase these 420,000 people ourselves,” said Georgia Department of Revenue spokesman Charles Willey.

The public humiliation tactic is not new, just in a new forum. Governments used to post debtors’ names in town squares or newspapers. “Humiliating folks to shame them into paying what they owe goes back a long time. It’s proven to be fairly successful,” said Sujit CanagaRetna, an Atlanta-based fiscal analyst for the Council of State Governments.

More on this story here.


KPMG, the professional services firm has produced its 11th annual survey of corporate tax rates across 69 countries. Ireland’s 12.5% was the lowest corporation tax rate of the 69 countries surveyed, however Cyprus has a rate of 10% but a defense levy of 3% is also applied to profits. Japan has the highest rate at 42% followed by Germany’s 39.6%.

The survey shows that corporation tax rates continue on a declining trend. Of the major industrial countries, only 3 (Canada, Germany and Italy) have reduced their rates between 2003 and 2004. Of the 69 countries surveyed, only 3 (Chile, Hong Kong and Peru) have increased rates. The average rate for the ten EU accession countries -- which is already low at 23.6% in 2003 -- will reduce further to 21.3% for 2004.

More on this story here.


I have discovered a foolproof strategy for beating the income tax, the Social Security tax and the Medicare tax: Lower your income. Lowering your income is much easier than increasing your income. And it helps you avoid the nasty traps Congress sets to catch those foolish enough to earn too much money -- phasing-out deductions and exemptions, selectively repealing deductions with an alternative minimum tax, limiting the share of income you can put away in a 401(k) plan, and denying eligibility for tax-financed benefits such as student loans and scholarships. Lower your income and these problems disappear.

To do this comfortably, it helps to have some savings. This game is best played by previously industrious but frugal people now approaching the ripe side of mature. I have cleverly reduced my taxable labor income by 67% from 1997 to 2003. My Medicare tax likewise fell by the same amount, and the Social Security tax fell nearly as much.

Past efforts to tax my wife and me more ruthlessly in 1991-93 had the opposite effect. Yet Sen. John Kerry now imagines he can make us fork over a much larger share of investment income by reverting to taxing dividends at ordinary income tax rates. Ironically, that would cut my taxes, not raise them. Mature, educated taxpayers are not docile sheep but wily foxes. When tax collectors set out to punish extra effort and investment, we get the message.

More on this story here.



Much of estate planning consists of establishing trusts for the benefit of spouses, children, other dependants and even some strangers, e.g., charities. Most of the money is hard earned by the first generation, freely spent by the second generation and generally squandered by the third generation. Many estate planners feel there is a better way to not only preserve the family wealth but also to preserve the family. Over the years it has become apparent that successful families maintain their success by providing incentives to their children and training them for success. Many estate planners are now exploring strategies for the protection of wealth, which include not only minimizing tax but more importantly promoting a family’s work ethic and establishing a legacy of family values.

Incentive trusts can encourage certain behavior and can also be used to discourage certain behavior of the beneficiaries. How this is done is left only to the creativity of the estate planner to put into words the personal philosophy and ethics of the client. Typically, incentives are drafted to encourage children to succeed in their educational endeavors. For example, if a certain grade point average is achieved, then a benefit is given and as higher grade point averages are achieved perhaps the benefits will increase. Some incentives can be tied into educational careers such as, e.g., attending medical school or business school.

Not all children will excel in school or may even want to attend professional schools. In that case, incentives can be used to encourage all sorts of achievements in life. Some of the children may want to establish their own business. Some families may want to allow their children to consider other careers, which although may not be money making, do otherwise have socially redeeming value. Some families feel that they want to encourage their family members to participate in the family foundation and carry on the family legacy. Incentive trusts can help compensate for the enormous amount of time and effort it takes to participate in these worthwhile activities. It is also desirable to provide for negative provisions so that bad behavior, such as the abuse of alcohol or drugs, or suffering from a gambling addiction or similar types of problems, can be discouraged.

More on this story here.


Switzerland’s highest court has refused a request by Italy for access to bank accounts which were frozen as part of an inquiry into alleged multi-billion-dollar fraud at the Parmalat dairy empire. The Federal Tribunal ruled that unlimited access was unreasonable, and that only the Swiss federal public ministry was competent to judge the Italian request.

More on this story here.


The IRS is cautioning the small business community and public in general about schemes that create “sham” trusts in an attempt to evade federal taxes. Generally, a trust is a form of ownership that separates responsibility and control of assets from the benefits of ownership. Sham trusts deliberately hide the true ownership and control of the trust assets and income in order to avoid correct federal taxation rules.

In abusive trust schemes, bogus or inflated expenses are often charged against trust income. After the deduction of these expenses, the remaining income is distributed to another trust, and the process is repeated. The result of the distributions and deductions is a decrease in the amount of income ultimately reported to the IRS.

These schemes may be promoted with domestic components, offshore components, or a combination of the two. Often, the trusts involved in the scheme, whether foreign or domestic, are vertically layered with each entity distributing income to another layer. Nondeductible or bogus expenses are often charged against the income throughout the layers. No economic purpose or substantial change in the economic relationship is present, although they give the appearance the taxpayer or small business has given up control of the assets when in reality they have not. The result of these arrangements is intended to substantially reduce the amount of income reported to the IRS.

Taxpayers and/or small business owners should be aware that abusive trust arrangements will not produce the tax benefits advertised by their promoters and that the IRS is actively examining these types of trust arrangements. Furthermore, taxpayers, small businesses and/or the promoters of these trust arrangements may be subject to civil and/or criminal penalties.

Complete advisory here. IRS “Abusive Scheme Toolkit for External Stakeholders” here. IRS “Abusive Offshore Tax Avoidance Schemes -- Glossary of Offshore Terms” here.


A couple who advertised in Christian magazines has been charged with running a $5 million fraud by selling gold coins at two to three times their actual value. Customers claim the coins were actually worth as little as 10% of the sales price. The Miami couple lived the lifestyle of millionaires as complaints mounted against them in the operations of U.S. Coin Exchange Inc., Coin and Currency Clearing Corp. and Twenty-First Century Grading Service Inc. All three companies were controlled by Armand DeAngelis, who has a New Jersey securities fraud conviction on his record, even though the grading company was represented as an independent coin assessor, the indictment said.

Prosecutors have frozen all assets it knows of that are tied to DeAngelis and plans to go after his heavily mortgaged home, which is on the market for $3.5 million. DeAngelis could face up to 20 years if convicted of the fraud and money laundering charges.

More on this story here.


Bank of New Zealand says one of the key ways to stop online banking scams is not to divulge password information to anyone -- even bank staff. “No bank in New Zealand has had their online banking system compromised. It’s only through customers unwittingly providing their login IDs and passwords to fraudsters that money is stolen from customers’ accounts,” says Chris Walker, Head of Online Solutions for Bank of New Zealand. Mr. Walker offers people six security tips for minimizing all types of Internet Banking fraud.

More on this story here.



A South African banking customer writes: “My bank asks me to prove my identity via proof of ownership of my home. ... I don’t own my home. I rent it from a company owned by a trust. My bank asks for a utility bill. ... I live in a complex and pay a monthly levy as the utility bills are sent to the body corporate. The bank then asks for proof of my residence from a telephone account. ... My telephone account is sent to my postbox address.

“Result: I can’t prove who I am, so 30 bank accounts I operate for myself, my business and deceased estates and trusts are all frozen! The time has come for government to apply its mind to the realities of SA and to tell the US to worry about its own corruption and money laundering.”

More on this story here.


You have just been arrested for robbing a shop with a shotgun and dragged to the local police station. A sergeant takes a cloth helmet bristling with electrodes and pulls it over your head. Pictures of the crime scene are flashed before you on a computer screen: an image of the shopkeeper victim, a picture of a man standing in the store, a photo of the gun used in the hold-up. You remain silent -- but to no avail, for your brain has already revealed your complicity by emitting tiny electrical signals as each image matches your own memories of the robbery that you recently committed.

It sounds fantastic. Nevertheless, such scenes have already been played out in lawyers’ offices and police stations in the United States as the fledgling technique of brain fingerprinting has been introduced to solve crimes. Success suggests that in the near future criminals may betray their guilt not through physical evidence but through their own unconscious thoughts. “People remember the major events in their life, even a serial killer,” said Lawrence Farwell, the inventor of brain fingerprinting. “That tends to have a solid record in the brain.”

Unlike discredited lie-detecting techniques, which measure changes in breathing, heart rate and other variables to determine if suspects are trying to deceive their interrogators, brain fingerprinting is designed to discover if specific information is stored in a person’s brain. The technique exploits the fact that the brain emits an electrical signal known as a P300 exactly 300 milliseconds after it is confronted with a stimulus that has special significance to that individual -- for example, a victim’s face.

More on this story here.


When United States authorities announced this month that British and other travelers to the U.S. would for the first time be fingerprinted and photographed on arrival later this year as part of new security measures, the British response was surprisingly muted. But the absence of any great outcry about inconvenience or civil liberties made one wonder: Are Britons and other Europeans getting used to the growing inconveniences of the war against terrorism, or did the newest measures merely confirm their frequently expressed impression that American authorities have taken security to unnecessary, irritating extremes? The answer seems to be a little bit of both.

More on this story here.


Legislation for a national identity card scheme will be put before Parliament this autumn, Home Secretary David Blunkett said. Mr. Blunkett made clear that after consultation on technical issues, Parliament will quickly be asked to process a full Bill so that the scheme can become a reality within a few years. Mr. Blunkett’s determination to press ahead quickly alarmed civil rights campaigners, while others questioned its likely effectiveness against terrorism. A pilot scheme to test the technology gets under way tomorrow, when participants will have biometric details taken for the first time. It will gather facial scans, iris scans and fingerprints from 10,000 volunteers.

More on this story here and here. U.K. identity cards Q&A here.

ID cards to use “key database” of personal information.

David Blunkett published his draft bill paving the way for a compulsory UK ID card, and reports over the weekend claimed that cabinet opposition had drawn some of the scheme’s fangs, the draft suggests that it will be more extensive than expected in several key areas. Blunkett is pitching the scheme far more widely than simply as an entitlement, immigration, crime or terror control mechanism. Rather, it is intended as the cornerstone of identity and identity-management in the UK. The draft bill covers the setting up of a national identity register, which is described as “the key database of personal information which the biometric cards would link to,” and envisages the creation of “a ‘family’ of ID cards, based on designated existing and new documents.”

This suggests far broader purposes than simply identifying individuals, and the Home Office announcement makes no bones about this: “ID cards will help tackle the type of serious and organized crime which depends on being able to use false identities -- terrorism, drug trafficking, money laundering, fraud through ID theft, and illegal working and immigration. They will also enable people to access services more easily, and prevent access to those with no entitlement. And crucially, the cards will help people live their everyday lives more easily, giving them a watertight proof of identity for use in daily transactions and travel.”

Blunkett is really talking about something that will need substantially more networked checking points than something that was just “son of passport”, and about a lot more data, accessed by a lot more different government and non-government organizations, held centrally. And if it leads to more data on the card itself that can be used without further and/or biometric validation, then the cards themselves will tend to become more worth stealing. This is surely recklessly ambitious. More so because Blunkett still shows little sign of having a sound grasp of the actual capabilities of ID systems.

Privacy International described the scheme as “draconian and dangerous”, and “a disgrace to democracy.”

More on this story here. Draft bill and consultation here.

Personal data checks to follow ID card lapses.

Police would have the power to order citizens who failed to produce a compulsory identity card to have their physical characteristics checked against a national register. The home secretary disclosed the police powers ahead of this week’s publication of draft legislation to introduce identity cards. The cards would not be made compulsory for at least seven years and only then after a parliamentary vote. But if, as David Blunkett hopes, people are eventually obliged to have an ID card, those failing to produce one could be escorted to a police station to have “biometric” data such as fingerprints and iris scans checked against a national database.

Details of the police powers are expected to intensify concerns about civil liberties. Several members of the cabinet, most notably Patricia Hewitt, the trade and industry secretary, have objections to compulsory cards.

More on this story here and here.

Students will need ID cards to get loans, says Education Secretary.

Charles Clarke will tell a Commons select committee investigating the ID card proposals that students should obtain an ID card before they can qualify for grants in further and higher education. The ID cards could also be required for school staff, including caretakers, who have contact with children as part of the efforts to tackle identity fraud in the wake of the Soham murders.

Home Secretary Mr. Blunkett admitted that ID cards may not have stopped the terrorists who were responsible for the Madrid bombings, but he said they could be used to tackle terrorism, illegal immigration and stop abuses of public services such as health, education and social security.

More on this story here.


The Homeland Security Department is establishing a new committee that will provide advice and guidance on key privacy issues, said DHS Chief Privacy Officer Nuala O’Connor Kelly. The committee is not being created in response to any particular incident, but will tackle controversial subjects such as personal information sharing between the government and private companies, she said. The committee will advise her office and DHS Secretary Tom Ridge on issues affecting individual privacy, data sharing and interoperability.

More on this story here.


Recent government reports on the failure of American airport screeners to detect threat objects at security checkpoints may provide ammunition for proponents of the controversial Computer Assisted Passenger Prescreening System (CAPPS II) database solution, which is currently stalled by myriad snafus too numerous to mention.

CAPPS II is one of the worst possible solutions to airport security. It will not prevent terrorists from flying; rather, it will increase the probability of another successful attack using commercial aircraft. The reason is painfully obvious: a group can very conveniently use the system to pre-screen its members and discover which of them have profiles that result in extra scrutiny. Thus CAPPS II is a superb tool for terrorists to use in assessing airport defenses. The closer CAPPS II comes to achieving its stated goals, the more effective it will become as a terrorist tool. So it is indeed good that its development is going poorly. The problem, however, is that the recently publicized failures among human screeners will provide rationale to rush it into service.

More on this story here.

U.S. to consider alternatives to sky marshals.

The United States is ready to consider alternatives to armed sky marshals to ensure security on transatlantic flights, in the face of resistance from some EU countries, the US under-secretary for homeland security said. Britain and Germany have responded positively to U.S. demands for armed officers to be put on flights to and from America that are judged to be high-risk, but Italy and other EU states said they did not have the resources to train and employ sky marshals.

More on this story here and here.


In the wake of 9/11/01, like many people, I have felt a growing unease about actions taken -- and events set into motion -- by this strange cast of characters we call (for lack of better words, or fear of being too interesting when we use them) our government. The charade we have all witnessed regarding National Security, for example. Harassing nursing mothers and disabled war veterans at the airport is not going to make anyone safer, and we all know it. A recent headline on Drudgereport.com made something click and it finally dawned on me why I have been so agitated and angry: I have seen it before, felt it before. The headline read “Man Allegedly Uses GPS To Stalk Ex-Girlfriend -- Tracking System Found In Her Car”. Damn. That is exactly what my ex (RIP, or not) would have done. It also foreshadows what our government (see the above disclaimer) is proposing to do -- to all of us.

More on this story here.


In a biometrics face-off between facial recognition and hand geometry, hand geometry wins hands down. For now. The two technologies, which can be used with smart cards, were compared at the CardTech-SecurTech show in Washington. Hand geometry, in use since 1986, is the oldest practical biometrics technique. Recognitions Systems Inc. of Campbell, California, claims the technology has a 45% share of the access control and time-and-attendance markets, said RSI marketing director Bill Spence. The equal error rate -- the point at which false positives match false negatives -- is about 0.1%.

More on this story here.


The technology Canada is planning to use to guard against passport theft and fraud involves a series of confounding algorithms that will help confirm every traveler’s identity, without disturbing the traveler. Canada plans to spend $10-million on “facial biometrics” -- the method of identification chosen by the International Civil Aviation Organization to harmonize passport information globally. The investment is part of a $700-million plan for fighting terrorism that Ottawa unveiled this week.

Border authorities and airport staff have always relied on faces to confirm identity by simply eyeballing a match between a person and their passport photo. The new technology will do the same thing but at a much deeper level. It involves three components, a camera or “reader” to capture the person’s image, computer chips embedded in passports to carry information about the passport holder and a database to verify the passport’s authenticity along with that of its bearer. Although fingerprinting and iris recognition are precise, both require individuals to make contact with readers -- something people may find intrusive. Iris recognition can also pick up information, such as whether a woman is pregnant or if someone is using drugs, which is considered by some to be a violation of privacy.

More on this story here.


The company behind the biometric technology being used by the UK passport office says biometric IDs will happen -- and they will happen with the blessing of the majority of UK citizens. NEC technology is being used by the UK government in the roll-out of biometric IDs and, having already been involved in similar schemes worldwide, the company is confident that the UK implementation will be a success despite vocal opposition from “a noisy minority”.

About 80% of 1,000 British adults recently surveyed say they want a biometric identification card, citing concerns about illegal immigration and identity theft. The survey also found that an equal number would be “happy to carry the card at all times,” though half would not pay for it, and few were very familiar with the cards. Concerns about Big Brother? Try “bumbling brother,” with 58% of surveyed Britons predicting the government will not be able to roll out new ID cards smoothly, and one-third saying their stored information will not be safe. Still, most support such cards, principally to tackle illegal immigration and identity theft.

By contrast, U.S. government national-ID card discussions often invoke terrorist threats. Britain survived decades of Irish Republican Army terrorism without such ID. In fact, Privacy International recently studied the 25 countries most affected by terrorism since 1986 and found 80% -- including Spain -- already have a national ID. National ID proponents counter that most of those cards do not contain biometric information, making true ID validation difficult.

More on this story here.

Draft UK identity card law published.

The publication of the draft Identity Cards bill presents a paving bill for Ministers to establish the legal framework for the planned UK identity card scheme coupled with a national database. Most of the detail is left to unspecified future regulations. Unsurprisingly it was met with withering criticism from civil rights groups.

More on this story here.


Manalapan, Florida -- about 15 miles south of West Palm Beach and one of the nation’s wealthiest towns -- will soon have cameras and computers running background checks on every car and driver that passes through. Police Chief Clay Walker said cameras will take infrared photos recording a car’s tag number, then software will automatically run the numbers through law enforcement databases. A 911 dispatcher is alerted if the car is stolen or is the subject of a “be on the lookout” warning.

Next to the tag number, police will have a picture of the driver, taken with another set of cameras -- upgraded versions of the standard surveillance cameras already in place. If there is a robbery, police will be able to comb records to determine who drove through town on a given afternoon or evening. Manalapan’s town council authorized $60,000 in security upgrades last week after three burglaries this winter robbed residents of $400,000 in jewelry.

More on this story here.



House Majority Leader Tom DeLay, Majority Whip Roy Blunt, Republican Conference Chairman Deborah Pryce and Chief Deputy Majority Whip Eric Cantor urged Treasury Secretary John Snow “to permanently withdraw” the IRS’s interest reporting regulation (REG 133254-02). The leadership members explain that the “misguided, Clinton-era regulation” is “burdensome and unnecessary but also potentially harmful to the current economic recovery and future efforts at tax reform.”

Andrew F. Quinlan, president of the Center for Freedom and Prosperity, stated, “We hope Secretary Snow and the others at Treasury take this opposition seriously. President Bush’s biggest supporters in Congress want this Clinton-era regulation to die a well-deserved death.”

The IRS interest-reporting regulation was first proposed three days before President Clinton left office in January 2001. It would require banks to report interest paid to nonresident aliens, even though the interest on such deposits is not subject to U.S. taxes. Many believe that this would harm America’s economy and undermine the competitiveness of U.S. financial institutions.

More on this story here.


The American Civil Liberties Union released an item-by-item rebuttal to a slew of false claims that President Bush made in Buffalo this week about the controversial USA Patriot Act. “The president’s speech was misinformation, pure and simple,” said Anthony D. Romero, ACLU Executive Director. “The administration is making a series of deliberate misstatements to deceive the American public.”

In response to the president’s new campaign to remove the Patriot Act’s sunsets, the ACLU said it would prepare and release periodic detailed rebuttals on White House misinformation. Romero noted that the ACLU has taken similar issue with information presented by Attorney General John Ashcroft and produced a report, Seeking Truth From Justice: The Justice Department’s Campaign to Mislead The Public About the USA PATRIOT Act. (The point-by-point rebuttal follows.)

More on this story here.

Despite criticism, Patriot Act gaining popularity.

Only months ago, Democrats were targeting the controversial USA Patriot Act as an ideal issue to use in their campaign against President Bush, assailing the law as an intrusion on civil rights. But in a turnabout, the act suddenly has emerged as a cornerstone of Bush’s re-election campaign, while Democratic rival Sen. John Kerry and others have toned down their criticism.

The Patriot Act is proving to be more popular in opinion polls than once expected, given its diverse range of critics. Also, both Democratic and Republican strategists now believe public debate over the Patriot Act and other aspects of the nation’s response to terrorism only enhance Bush’s national-security credentials while threatening to paint Kerry as soft on terrorism. As a result, the Democrats have lost what once seemed like a useful tool against the president.

More on this story here.


The federal judiciary is getting better and better at protecting states’ rights under Article X of the Bill of Rights, and the most recent decision by U.S. District Judge Jeremy Fogel in San Jose, California confirmed what a previous federal appeals court found, being that where no commerce is involved, the federal Controlled Substances Act that bans Marijuana has no jurisdiction. When the previous appeals court decision was handed down, Congress made an end run around Article X by claiming federal law can use the Commerce Clause of the Constitution to ban certain substances.

A little history is required here to bring you first-time readers up to speed. Back when Prohibition was enacted, Congress wisely passed a constitutional amendment giving the federal government the power to ban the manufacture and distribution of alcohol. They did that because they had to. The Constitution does not give the federal government the power to regulate a substance like alcohol, and Article X simply states that if the Constitution does not explicitly give the federal government such a power, then that power is the exclusive province of the individual states.

But when Congress decided to ban certain substances like Marijuana and other drugs, they did not pass a constitutional amendment giving them that right. Instead, they claimed they already had that right under the Commerce Clause, since they had the right to regulate commerce anyway, and because most “illegal” drugs are assumed to have been “sold”. Well, that little end run has cost the feds dearly, and this decision confirming the previous appeals court ruling spells real trouble for the feds in the future.

More on this story here.


“Banks should implement strong controls to reduce a potential surge in the proceeds of crime placed into and passing through European banks when the EU expands on 1st May,” according to Graham Dillon, Deloitte’s specialist advisor on anti money laundering.

“The accession states comprise some of the most fertile environments for organized crime and its proceeds, partly because of the failure of some of these countries to implement strong anti-money laundering policies. On joining the EU, customers of banks residing in accession states will join the existing European customer base. Criminals in the joining countries may capitalize on the perceived ‘whiter than white’ status of an EU bank account and will be opening more accounts in anticipation of accession. ...”

More on this story here.


A former Clinton businessman was sentenced to 15 months in federal prison for presenting a bank with fake letters claiming he would soon receive $1.9 million from an offshore account to cover growing debts. He must also pay back the $37,610 that the Clinton bank could not recover. The bank allowed Modlin and his company, Clinton Furniture Manufacturing Co., to overdraw a checking account at the bank by $155,000 on the promise of money contained in the fake letters, according to court testimony.

More on this story here.


Does the president have the power to order the military to seize an American citizen on American soil, declare him an outlaw to the Constitution, and lock him up for the duration of the war on terror -- in other words, forever? That is the stark question the Supreme Court will be examining today, April 28, when it hears oral argument in Padilla v. Rumsfeld.

The principle the government is advancing is broad indeed. It amounts to the assertion that the executive branch can serve as judge, jury, and jailer in cases involving terrorist suspects. Of all the powers claimed by the president since September 11, that power is the one most to be feared -- not least because, due to the nature of the war on terrorism, it is a power unlikely ever to be relinquished. Moreover, it is a power that cannot be found in the Constitution. The Bill of Rights does not come with an asterisk reading “unenforceable during time of war.”

Congress can suspend the writ of habeas corpus under very narrow circumstances “when in Cases of Rebellion or Invasion the public Safety may require it.” But Congress has made no such attempt here -- instead the president has unilaterally stripped Padilla of his rights, holding him without even a semblance of due process. The government justifies its confinement of Padilla by citing a five-and-a-half-page “Declaration” by Michael Mobbs, an obscure Pentagon bureaucrat who has never been cross-examined by Padilla’s attorneys. A look at the Mobbs Declaration reveals just how far down the rabbit hole we have traveled.

The Bush administration has repudiated that theory of limited executive power in favor of one that is essentially limitless. Thus far, President Bush has wielded this vast power sparingly. But he will not be the last president to wield it. The proponents of this sweeping claim of executive power have no answer to that, save to urge us to elect good men. Our entire constitutional structure is based on a repudiation of that fond notion.

More on this story here.


Federal bank regulators are preparing to impose on Riggs Bank what could be the largest civil penalty ever against a financial institution for violations of anti-money-laundering laws, sources familiar with the discussions between Riggs and government officials said yesterday. The fines being contemplated by regulators could top $25 million, the sources said. The penalty will be imposed for what the bank acknowledges have been years-long deficiencies in complying with the Bank Secrecy Act, which requires financial institutions to report suspicious activities to federal authorities.

More on this story here.


Federal criminal law has overstepped its proper bounds, prescribing draconian punishments for offenses that should be handled at the state level or that should not be considered crimes at all. During the last century, especially in the last three decades and in the aftermath of the September 11 attacks, Congress has made federal crimes out of an astonishing array of behavior, much of which is already prohibited by state law, could be better addressed with civil penalties, or is considered wrongful not because it violates anyone’s rights but only because Congress says so.

When Congress creates a federal penalty for actions traditionally prosecuted at the state level, it violates the core constitutional principle of federalism, which prohibits Congress from legislating on local matters. Such laws also burden the federal court system, promote selective prosecutions, and stack the deck against defendants. In addition to duplicating state law, Congress has created derivative offenses, such as racketeering and mail fraud, an approach that makes convictions easier to obtain because the offense consists mainly of otherwise innocuous behavior.

Getting even further from the essence of criminal behavior, many federal laws impose criminal sanctions for so-called public welfare offenses. These laws often do not require a “guilty mind”, or mens rea, which historically has been an essential element in common law crimes. Indeed, public welfare “crimes”, such as violations of environmental regulations or insider trading laws, need not involve even unintentional harm to third parties. The overreaching of federal criminal law is especially troubling because institutional and procedural features of the federal system invite prosecutorial abuses, make convictions easier to obtain than in state systems, impose harsh mandatory sentences even for nonviolent acts, and result in disparate treatment of similarly situated defendants.

More on this story here.


The American Civil Liberties Union and New York Civil Liberties Union disclosed documents in an extraordinary sealed case in federal court involving the Patriot Act’s expanded “National Security Letter” power. The ACLU lawsuit challenges the constitutionality of a provision that allows the FBI to demand sensitive customer records from businesses without judicial oversight. The ACLU said it was forced to file the lawsuit about the National Security Letter power under seal to avoid penalties for violating a strict gag provision, which it is also challenging on First Amendment grounds.

The National Security Letter provision allows the FBI to demand the sensitive records of innocent people in complete secrecy, without ever appearing before a federal judge,” said Jameel Jaffer, an ACLU staff attorney. “Before the Patriot Act, the FBI could use this invasive authority only against suspected terrorists and spies,” Jaffer said. “Now it can issue National Security Letters to obtain information about anyone at all. This should be disturbing to all of us.”

The fact that the government agreed only under pressure to allow disclosure of parts of the legal complaint, the ACLU said, demonstrates that the gag order is unnecessarily broad and restrictive.

More on this story here and here.



“What I don’t understand,” Elizabeth began a conversation on our last day in Rome, “is why the barbarians -- the Huns, the Goths, the Vandals and so forth, wanted to destroy the empire? They could see that people lived better inside the empire than outside... I mean, they had central heating, warm baths, art... and just look at all those beautiful buildings. Wouldn’t it have made more sense for them to join it, rather than tear it down?”

We had no answer, save resignation. “Yes, well, you might as well ask why the Romans went to all the trouble to build up their empire in the first place? Wouldn’t it have been much more reasonable to enjoy life here in Rome...?” And here we offer readers a history of the rise and fall of the world’s greatest empire.

Empires, like bubble markets, end up where they began. Rome began as a town on the Tiber, with sheep grazing on the hills. A bull market in Roman property lasted about 1000 years -- from 700 B.C. to about 300 A.D., when temples, monuments and villas crowded the Palatine (the most important of the Seven Hills of ancient Rome). Then, a bear market began... which also lasted at least 1000 years. As late as the 18th century, Rome was once again a city on the Tiber... with sheep grazing on the hillsides, amid broken marble columns and immense brick walls. They had been built for a reason... but no one could recall why.

More on this story here.

“Empire” -- A Losing Political Issue

Not quite a year ago, when the euphoria over the U.S. military’s sweeping victory over Saddam Hussein’s armies was at its high point, Washington was consumed with talk of empire. And yet, the American people seemed unconvinced of the supposed benefits of empire. But while the president may shy away from the term “empire”, the conduct of our foreign policy is clearly guided by a presumption that the United States is, and should be, the world’s only superpower. The possession of a military force that is second-to-none might appear on the surface to be a manifestation of imperial domination, but the proponents of empire claim that the United States is not really an empire because it has noble intentions.

While citizens of Rome reveled in their glorious empire, and the British “hailed Britannia”, Americans have yet to embrace the term, or the concept behind it. And they are unlikely to do so. Most Americans, even those who did not pay attention during their high school history classes, will remember that America seceded from the British Empire. This is the part of our history that many modern-day imperialists would prefer to forget. For most of our country's history, Americans were guided by the Founders oft-stated warnings that a republican form of government was incompatible with an imperial foreign policy. The Founders feared empire because it subverts the freedoms and liberties of citizens at home while simultaneously thwarting the will of sovereign people abroad.

The general public is right to be skeptical of empire. On balance, the objections to an imperial foreign policy can be summed up in a single sentence: empire is problematic because it threatens our liberty and economic security at home, and it is counterproductive abroad. There is an alternative to empire, however -- one that is in keeping with America’s traditions and values. Beginning last summer, a group of scholars, policy makers, and concerned citizens formed the Coalition for a Realistic Foreign Policy. To counter the arguments of those who favor empire, the coalition holds conferences, and media events, promotes research, and communicates a vision of the alternatives to empire, including a restrained foreign policy that protects American interests.

More on this story here.


After spending 25 years observing the American educational system, including 12 years on various college campuses, I have come to believe that by any imaginable measure, our system is failing across the board. And while public schools are at the epicenter of the collapse, the gangrene has long since spread to many of our private schools and throughout our university system.

More on this story here.


A new poll shows that as of mid-March, 57% of Americans believed that Saddam Hussein had given substantial support to al-Qaeda. Worse, 45% actually say that “clear evidence” has been found in Iraq to support this allegation! As for weapons of mass destruction 45% say they believe Saddam had them before the recent war, and 22% say that he had a major program for developing them. There is no documentary or physical evidence for any of these assertions.

Why would so many Americans cling to patently false beliefs? One can only speculate of course, but one possibility that the two-party system in the US has produced a two-party epistemology. Epistemology is the study of how we know what we know. If it were accepted that Saddam had virtually nothing to do with al-Qaeda, that he had no weapons of mass destruction (nor any significant programs for producing them), and that no evidence for such things has been uncovered after the US and its allies have had a year to comb through Baath documents -- if all that is accepted, then President Bush’s credibility would suffer. For his partisans, it is absolutely crucial that the president retain his credibility. Therefore, rather than face reality, they re-jigger it to create a fantasy world in which Saddam and Usamah are buddies (as in the Jimmy Fallon/Horatio Sanz skits on the American comedy show, Saturday Night Live), and in which David Kay (of whom respondents say they have never heard) never recanted his earlier belief that the WMD was there somewhere. Of those who maintain that Iraq actually did have WMD, 72% say they are going to vote for Bush.

If nearly half the country cannot even see that things are going badly wrong in Iraq, one despairs that anyone will work up the political will to try to fix the problems before it is too late.

More on this story here.


At Versailles in 1919, delegates of four of the five victorious powers arrived with cold, clear ideas of what they must bring home. Japan, Italy, France, and Britain wanted territories, reparations, and a weak and nonthreatening Germany. What did America get? Woodrow Wilson had plunged us into the greatest war in history for abstract ideals. “We have no selfish ends to serve. We desire no conquest, no dominion. We seek no indemnities for ourselves, no material compensation for the sacrifices we shall freely make.” All very noble. We asked for nothing and got nothing, save 116,000 dead, a $25 billion debt and the ingratitude of Allies we rescued who mocked us as “Uncle Shylock” when we asked them to pay their war debts.

What causes one to recall this brief history is the clear echo of Wilsonian utopianism in president George Bush’s press conference of April 13. Pressed as to what we are fighting for, the president, again and again, invoked Wilsonian ideals. “We serve the cause of liberty," the president said, "and that is, always and everywhere, a cause worth serving.” I.e., “We are changing the world” -- that phrase or a variation recurred again and again.

Bush believes God has called him to liberate the repressed peoples of Iraq and the Islamic world, because freedom is God’s gift to mankind, and when men are made free, they do not war with one another. Yet, as one looks to Najaf, Fallujah and Sadr City, this seems not only naive but delusional. History shows that the liberated often turn to oppressing their oppressors. When we liberate a people, we liberate not only its democrats but its demons. When the ancien regime fell, there came the guillotine, the Terror and Bonaparte. When the Romanovs fell, Lenin crawled out of the rubble. Does he comprehend the world he claims to be changing? Or is he inviting the brutal epitaph of Kipling: “A fool lies here who tried to hustle the East.”

More on this story here.

“Been there. Done that,” say the ghosts.

We do not hasten to join the dead, but we seek their counsel. When corpses whisper, we listen. “Been there. Done that,” they often seem to say.

Reading Mrs. Oliphant’s history of the dead dukes -- or “Doges” -- of Venice, we felt as though we should send a copy to someone in Washington. “Read this. Spare yourself some trouble,” we might write upon the accompanying note. But who reads anything but newspapers in the capitol city? Who reads at all? In America, if it is not on the evening news, then it did not happen. Ancient history is something that happened last week.

Too bad. For many of the most preposterous ideas now emanating from the feverish swamps of the Potomac have already been tried out here in the feverish swamps of Venice, hundreds of years ago.

More on this story here.


Oh, how the neocons are squirming, and turning somersaults over Iraq, a performance the sight of which would be almost a pleasure to behold if not for the steep price of admission. Every bit of bad news, over the months, all the indications of impending disaster, have been routinely dismissed by National Review’s writers as due to “media bias”, the consequence of an antiwar conspiracy to hide the real truth about our supposed success in Iraq. But suddenly there appears an abyss….! Having pushed America into the Iraqi abyss, the neoconservatives blame others for making the prescient point that the only direction we can go is rapidly downward. Of course, they bear no responsibility.

The National Review solution is blood and iron. Reconciled to the reality -- that our crusade in Iraq is a futile one -- the last remnants of what had once been the conservative movement are reduced to the simple pleasures: “dealing harshly” with their perceived “enemies”. Especially their enemies on the home front. And that, I am afraid, is really the whole point.

The rising tide of bloodshed, the spiraling costs, the atmosphere of anticipatory terror in which we all live -- what is it all for? I would suggest that, of all the items at the top of the neoconservative agenda -- the defense of Israel, the elimination of the so-called “Vietnam syndrome”, the goal of “benevolent world hegemony”, as Bill Kristol describes the goal of American foreign policy, the defeat of an amorphous “terrorist threat” that seems to include any and all who resist the advance of American power -- the real goal is much closer to home. What the neocons are after is the final overthrow of our old republic, and the completion of the transition to Empire.

Who are these guys, anyway -- and what do they believe? This small but very influential sect of public intellectuals traces its origins to the radical left-wing of American politics. They started out as Trotskyites, morphed into Scoop Jackson Democrats, and, in the 1980s, found themselves in the right wing of the Republican party. Their theme, as long as the cold war lasted, had always been a bellicose foreign policy, animated by an obsessive hatred of their old enemies in the Kremlin. Adrift in the post-cold war era, the neocon movement seemed to wither on the vine, and was fast losing ground to a new “isolationism”. The Republican leadership opposed the Kosovo war, and was critical of every one of Bill Clinton’s foreign adventures. Many conservatives were close to endorsing non-interventionism in principle. Then came 9/11. The US, they argued Krauthammer had to seize this moment before it passed. Global hegemony was within our reach: we had only to reach out and grasp it to realize all the dreams of Alexander, Caesar, and Napoleon combined.

It is on the home front, however, that the real battle is being waged, and it is on this battleground that the neocons show their true colors. The Jacobins were the most radical -- and bloodthirsty -- faction of the French Revolution, and when they gained power they set up the guillotine in the public square, created a police state, and launched a furious pogrom that ended only when Robespierre met his end on the very guillotine to which he had condemned thousands. As the Robespierre of the neocons, George W. Bush is leading the charge to abridge if not abolish the Bill of Rights -- and sweep away the last remnants of constitutional government in America.

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By Condoleezza Rice

My heart goes out to the families and loved ones of all those who died on that terrible day. Our prayers continue to be with you. Unfortunately, there was absolutely nothing we could have done to predict al-Qaeda’s evil plot, without requiring many, many people to stay in the office past 5 p.m.

According to federal law, government employees must be paid time-and-a-half for any work hours beyond 40 and double-time on weekends. Ladies and gentlemen, preventing Sept. 11 would have required hundreds of thousands of unbudgeted overtime hours and, in several cases, overtime plus compensatory paid vacation. Again, may I address the family members of Sept. 11 victims: That tragic day changed us all, but you paid the highest price.

The world was a different place before the day of those horrific attacks. Due to tragic budget constraints before Sept. 11, it was impossible to authorize unlimited overtime pay to defend our country from international and domestic threats. Our nation was in the midst of a fiscal crisis and operating under massive jobs-and-growth tax-cut measures. Turning back the hands of time is impossible, just as it would have been impossible to find money to cover thousands of hours of intelligence-agency overtime. Truly, the bottom line weighed heavy on our hearts and minds. ...

Yes, Mr. Tenet and his top deputies did receive a briefing paper labeled “Islamic Extremist Learns To Fly” in mid-August. Yes, an in-depth investigation of Zacarias Moussaoui might have led the government to the al-Qaeda cell in Germany that planned the Sept. 11 attacks, but the fact remains that we can never be sure. I believe that, during investigations such as this, it’s important to stick with what we do know. Ladies and gentlemen: Had that lead been followed, a lot of people would’ve been working a lot of very long hours.

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A few years ago I was astounded to learn that during the War Between the States, many slaves fought for the Confederacy. It seemed a paradox, as if they were fighting against themselves. Since then I have come to see that it is not unusual for slaves to fight for their masters. No slave system can work unless the slaves accept their servitude and even regard their masters as benefactors. It is naive to imagine all slaves as shackled, grudging, and dreaming of liberty.

Less then a century ago, when chattel slavery was still rife in Africa (where remnants of it still exist), an English writer was startled to find that runaway slaves were despised by other slaves, who regarded them as ungrateful to their masters. This was true even though slaves were usually acquired in raids by neighboring tribes, who kidnapped them as infants. Unable to remember their own parents, they were raised to regard their kidnappers as virtual fathers.

There is ample proof closer to home. Many Americans see nothing wrong with servitude to the state -- in the forms of military draft, limitless taxes, or what is now being touted as “national service”. All these things presume that we belong to the state and must do whatever it demands of us. Are U.S. troops today fighting for what Thomas Jefferson would recognize as freedom? Or are they fighting for an empire -- not only a global military empire, but an enormous domestic system of unconstitutional laws, taxes, regulations, bureaucracies, and general infringements of the freedoms our ancestors took for granted? The answer is obvious. They are serfs fighting for servitude.

The North won the War Between the States. Chattel slavery was abolished. Political slavery prevailed. You may not belong to a private master, but you very much belong to the state. The chief freedoms you have left are merely things the government still permits you to do. Even these permissions are being steadily narrowed and revoked, because they are not yours by right. Jefferson understood that your government is, in the nature of things, your natural enemy and must be kept on a short leash. Today the U.S. Government keeps us all on a short leash. And some of us, who regard anything short of concentration camps and torture chambers as mercy, still think this is freedom.

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In 1850 there were few jobs requiring the very bright. Today they abound. Universities began to scour the country for the highly intelligent. These, once found, met each other at elite universities or, later, in the places where the bright concentrated to work: Laboratories, software houses, hospitals, magazine journalism, and occasionally law firms. They married each other. Their children tended to be bright. The result has been that the bright tend to live, play, work, and sleep almost entirely with each other.

An opposite concentration occurs at the other end of the curve. In the cities the bright among the ghetto rise and leave for the suburbs. Who is left behind? If, generation after generation, the smartest take themselves out of the gene pool, the results will be just what we see. This is the underclass. It exists. It is larger than most people suspect. It is dangerous.

“Underclass” is not synonymous with “blacks.” There is a large and, I gather, growing black middle class. There is a substantial white component in the underclass. In the barrios of California one encounters Mexican unsalvageables. Whatever their color, they share low intelligence, little education, and a tendency toward antisocial behavior. (Or, as we call it in English, “crime”.) They have no attachment to the standards that constitute civilization. They hate those above them.

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Forget about the gung-ho military warnings about “pacifying” the Iraqis and the arrogant assurances of what an “offensive” will look like. To be sure, the formidable array of weapons in the American arsenal guarantees that they could pulverize any Iraqi town, even heavily fortified ones such as Fallujah and Najaf. If victory were as simple as this, winning the war might be possible. In reality, however, heavy-handed military solutions are not only counterproductive to American strategy -- they are also fast becoming irrelevant, as the war spreads far beyond Iraq’s borders.

Those seeking the glory of militant martyrdom elsewhere are unimpressed by the much-vaunted displays of “shock and awe”. Now that new legions of terrorists are prepared to take the fight to Iraq’s myriad other battlefields, the mightiest country on earth can do little else but to keep inciting them. Will it take another massive terrorist attack somewhere along the vast, undefended Western front for people to realize that the Iraq invasion truly was the worst idea, ever?

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