Wealth International, Limited

Offshore News Digest for Week of May 3, 2004

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

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The addition of 10 primarily central and eastern European countries to the already 15-strong European Union not only raises the number of EU states, but it also increases the union’s surface area by 23% and its population by 75 million to number nearly 400 million. These newcomers will change the dynamics of the entire continent, stretching it farther east than it has ever been. And they are bringing with them a wealth of new tourist destinations, further diversifying Europe’s already eclectic history, language and culture. A brief guide to Europe’s new gang follows.

More on this story here.

New immigration laws come into effect in Guernsey.

New rules have been introduced to stop nationals from new EU entrant countries living off the state in Guernsey. They allow EU nationals into the island as long as they can prove they are self-sufficient or have a job.

More on this story here.

Border town laments new EU “curtain”.

The shadow of the old Iron Curtain grew darker for residents along the Ukraine-Slovakia border, even as millions of people elsewhere celebrated the EU’s enlargement with 10 new nations. Since the time of Stalin, a barbed-wire divide has run through main street in the small village of Szelmenc, trapping friends and family members on opposite sides. But a 60-year quest by villagers to have a border crossing in the town became a lot more complicated when Slovakia and nine other countries became members of the EU. Szelmenc exemplifies a larger issue facing Europe.

More on this story here.

EU adopts “Green Line Regulation” for Cyprus accession.

The recent meeting of EU Justice and Home Affairs Ministers has resulted in the approval of a “Green Line Regulation” which establishes the legal framework for the crossing of goods, persons, and services between Turkish-occupied north Cyprus and the Greek Cypriot-controlled south of the island following the country’s accession to the EU on May 1. Reports in the regional media revealed that the regulation stipulates that the “Green Line” between the two sections of Cyprus does not constitute an external border of the EU.

More on this story here.

Switzerland stands alone in heart of new Europe.

As the European Union expanded to the south and east over the weekend, non-member Switzerland stood out as an exception in the heart of the new Europe. 63% of younger Swiss would reject EU membership, according to an opinion poll for Swiss television released as 10 new eastern and southern members joined the Union on May 1. Yet, the poll also betrayed doubts about the choice. 43% of the 18 to 30 year-olds surveyed acknowledged that staying out of the EU would bring difficulties, against 22% who felt there would be no problems.

More on this story here.

Switzerland faces ambiguous role in enlarged EU.

Now that the EU has expanded, Switzerland risks becoming less important in the eyes of some neighboring countries, says Franz Blankart, the official who led Swiss negotiations over the European Economic Area. Blankart, a former state secretary for economic affairs, warns that the ambiguous position Switzerland has taken on the EU is not sustainable in the long term. A sense of fatalism, a wish to avoid queues at the Swiss-German border or discrimination are not good enough reasons for joining the EU, he added.

More on this story here.


Martin Torrijos, the son of the late dictator General Omar Torrijos who ruled Panama from 1968 until his death in 1981, won Panama’s first presidential elections since the handover of the Panama Canal and withdrawal of US troops in December 1999, electoral authorities said. “I invite everyone to join in a new social pact against poverty, corruption and despair,” he continued. “It will be a social pact of solidarity, social justice, opportunity and prosperity.”

Campaign officials said the US-educated Mr Torrijos would focus on tax and spending reform, negotiating a free trade agreement with Washington, and improving the canal. Voter turnout in the nation of 2.8 million reached nearly 80%, despite the fact that both leading candidates were heavily associated with the country’s troubled past.

More on this story here and here.

Panama leader to decide on canal expansion.

Should Panama launch a multibillion dollar canal expansion project aimed at keeping the waterway competitive? The question has been a key debate in the presidential race leading up to elections Sunday, and the decision will be a defining moment for the country, which has formally run the canal for less than five years.

More on this story here.

Panama is paradise for retirees.

Panama is one of the best places in the world for retirees today, combining a low cost of living, near-perfect weather and one of the world’s best discount programs for retirees, with up to 50% off everything from public transport to movies, mortgage rates, doctor’s visits, electricity, restaurants and airfares. When you compare Panama with its neighbors, you will see that it has more amenities than traditional retirement spots such as Mexico and Costa Rica, but costs and crime rates are lower. In Panama, you will encounter less red tape and less interference from local authorities.

More on this story here.


Premier Alex Scott declared “mission accomplished” after completing a whirlwind tour of Washington and New York aimed at blunting criticism of Bermuda as a financial center. And Mr. Scott assured influential business leaders in New York that if Bermuda goes independent, it will not jeopardize the Island’s thriving offshore sector.

More on this story here.


In its latest semi-annual report, the International Monetary Fund praised Botswana and Mauritius within the context of wider economic growth in Africa, holding both countries up as comparable to developed countries in many regards. The IMF suggested that their success was less to do with better macroeconomic and trade policies, or better economic, social and geographic inheritance (although such factors were acknowledged as an influence), and was more to do with the quality of institutions in the two countries in question. The IMF concluded by suggesting that institution building is a prerequisite for strong long term economic performance in Africa generally.

More on this story here.


According to the US-based think tank the Milken Institute, Hong Kong occupies the top spot on its 2004 Capital Access Index. The index, which measures the openness and efficiency of the world’s capital markets, revealed Hong Kong to be the most “mature” market in the world. The other countries occupying the list’s top 5 were the Netherlands, the United Kingdom, Singapore and Switzerland. The United States, meanwhile dropped three places to 6th, mainly because of corporate governance issues, and China improved by one place to 32nd. Canada and South Korea fell the most.

Among “frontier” capital markets, Bahrain, Kuwait, Slovenia and Latvia ranked high and improved. The Ukraine, Romania, Pakistan, Croatia and most of Africa fell further behind.

More on this story here and here.


In the early 1990s, accountant Tim Clissold was on the brink of becoming very rich. He and his partners had raised $400 million and their company, Asimco, was riding high on China’s foreign investment boom. Everything was done by the book: he learned Mandarin, they always bought controlling stakes and assiduously courted their hosts.

What they had not counted on was China: when a factory manager absconded with $5 million, an anti-corruption official said he would investigate only if he was given “a car and some working capital”. Meanwhile, the company’s millions drained away, leaving a trail of furious investors. But all was not lost: in 1995 they bought a string of Beijing breweries. This is Clissold’s story of what happened next. (Extract from Tim Clissold’s new book, Mr China.)

More on this story here.


Russia’s stock market suffered heavy losses amid rumours that billionaire metals magnate Vladimir Potanin, controlling shareholder of Norilsk Nickel and the new part-owner of Gold Fields, had been hauled in for questioning or even arrested. At the center of the drama was Potanin’s role in the purchase by Norilsk last month of a 20% stake in South Africa’s Gold Fields. To finance the deal, he borrowed $800 million from Citibank in apparent contravention of Russian central bank regulations and spent $316 million in Norilsk Nickel cash.

More on this story here.


Nearly every day on the campaign trail, John Kerry has said a version of this: “We’re going to shut down any incentive, any reward or any kind of benefit for any Benedict Arnold company or CEO that takes American jobs overseas and sticks the American people with the bill.” Benedict Arnold. This Revolution-era general wanted to hand West Point over to the British in exchange for cash and other inducements. He is the most famous traitor in American history. So Kerry has routinely accused American businessmen of treason.

Kerry has released a plan to deal with the issue of “outsourcing.” One would think it would involve jail, or re-education camps, or at least the mandatory recitation of the Pledge of Allegiance -- sans the phrase “under God,” of course -- by everyone heading an American business. Instead, Kerry is proposing changing the mix of tax incentives for American corporations. On Kerry’s own terms, this is absurd -- like offering Benedict Arnold increased child tax credits, free dental care and college aid for his five children to try to keep him from betraying his country. Unless Kerry’s “Benedict Arnold CEO” line is a ridiculous, demagogic and unworthy smear of American business. His own tax plan exposes it as exactly that.

More on this story here.


Rather than tackling with first-world nations like the United States, The Bahamas should establish a Bahamian-led International Financial Centers Organization to deal with “increasing and ceaseless arbitrary cross-border regulatory demands.” Ron Pinder, Member of Parliament for Marathon, put forward this position while debating in the House of Assembly.

“While I am not suggesting (that) smaller countries take on the larger countries of the world in the face of increasing demands that may undermine both our short-term and long-term legitimacy, I am suggesting that we strengthen the reputation of our institution, strengthen our capacity for research, strengthen our ability to develop an idea, research it, then deliver it as policy,” Mr. Pinder advised.

More on this story here.

Resort chain owner granted permanent resident status in Bahamas.

Multimillionaire hotelier Sol Kerzner’s request to become a permanent resident demonstrated his confidence in The Bahamas, Minister of Labour and Immigration Vincent Peet said. Mr. Kerzner, who through his vast Paradise Island hotel enterprise, is the second largest employer next to the Bahamas Government, was granted permanent resident status, with “his document” expected “to be executed [imminently],” Peet said.

Mr. Kerzner “qualifies clearly under the (approval) policy,” Mr. Peet said, having invested over $500,000 in a home and showing that he had the capacity to sustain himself through investments or other legal means. Mr. Kerzner also owns resorts in Mexico, Dubai, the United States, South Africa and Mauritius, with plans to establish a hotel in Morocco. His investment of large sums of money in a Bahamas-based home, is expected to attract more international investors interested in permanent residency.

More on this story here.


For years, Belize City has been known for drug-running, money-laundering and muggings. With tourism now in mind, the government is working hard to combat its unsavory reputation.

More on this story here. Belize profile here.


Joe L. Allbritton, head of the family that has controlled Riggs Bank for more than two decades, told the board of directors that he will relinquish his last official post with the company. Allbritton’s announcement that he will resign as vice chairman of Riggs’s parent company at the end of May came after a tumultuous year for the Washington financial institution, which is under federal and congressional investigation and faces multimillion-dollar fines for violating rules aimed at preventing money laundering.

The bank has warned shareholders that it expects regulators to impose civil fines on the bank that could significantly reduce company earnings and that regulators, having designated the bank a “troubled institution”, will have to approve dividends. And it said bank regulators are considering imposing civil fines for anti-money-laundering violations on individuals on the bank’s current board, some top managers and two former officers whom it did not identify.

Riggs, which has been known for cultivating business with embassies and other foreign officials, also formally announced yesterday that it plans to give up most of its international banking business by the end of September. The bank intends to sell its corporate jets, close the Miami office, sell its Channel Islands branch and most of its London operations. However, the bank said, it will keep a small embassy clientele it deems to be at low risk of engaging in suspicious transactions and, for that reason, will keep its London bank branch, with has assets of about $200 million, to service those customers.

More on this story here and here.


The Pacific island of Nauru has secured a reprieve from financial oblivion, with the promise of a loan from an Indian business group. Hiranandani Corp Worldwide (HCW), which owns commercial property across Asia, has said it will pay a Nauruan debt of A$239 million (US$172 million). In return, it will receive the remnants of Nauru’s overseas property, including hotels in Sydney and Melbourne. The deal, if completed, should allow Nauru to avert immediate bankruptcy. GE Capital, the US finance firm that bankrolled Nauru’s property empire, called in the receivers last month and threatened foreclosure.

The Hiranandani deal dovetails neatly with a recent expression of support from the Australian Government. Australia uses Nauru as a detention centre for asylum seekers, and has promised technical assistance in working out the island’s finances. But it said it would not provide cash to bail out its economy.

More on this story here.


Standard & Poors affirmed its ratings on Hong Kong, but warned that political turmoil could make it harder for the government to introduce policies such as tax reform. Public discontent over the pace of democratization and the run-up to the September Legislative Council election could undermine major initiatives, the US credit rating agency said in a statement. S&P kept its AA- long-term rating on Hong Kongs local currency, as well as its A+ rating on its foreign currency. It also maintained its negative outlook on the territory’s local currency.

Hong Kong’s GDP is expected to grow 6% this year, after expanding 3.3% in 2003. But the territory is facing a looming budget deficit, which came in at HK$49 billion or 4% of GDP last year, and is expected to rise to 6% of GDP in the year to March 31, 2005. S&P expressed concern that Hong Kong’s narrow revenue base, with 5% of income earners accounting for half the tax paid, made it vulnerable to shocks and economic cycles.

More on this story here.


Switzerland’s largest bank, UBS, has reported a record first-quarter net profit of SFr2.42 billion ($1.87 billion), double last year’s figure. UBS said the “extremely strong” result had been driven by excellent market conditions, but the bank warned they were unlikely to continue throughout 2004. The bank said net new money flows showed that its wealth and asset management businesses were growing fast. UBS, which is by far the world’s biggest asset manager, with SFr2.24 trillion ($1.73 trillion) in client assets, said the outlook looked positive.

The figures followed news that UBS was facing fines from the United States Federal Reserve after the discovery of illegal transfers of dollars from a Fed deposit at UBS to countries that are under a US trade embargo, including Cuba. UBS is one of only a few banks outside the US which acts under contract to the Federal Reserve to retire used banknotes and introduce new notes.

Credit Suisse, Switzerland’s second-largest bank, reported that its first-quarter profit had jumped more than sixfold to SFr1.86 billion ($1.45 billion). The rise was attributed to strong gains in wealth management fees and trading income. Chief financial officer Phil Ryan commented that the first quarter had marked the bank’s strongest operating performance since 2000, saying that it was “a great start to the year,” while cautioning that the bank was unlikely to repeat its solid first-quarter performance.

More on this story here and here.


Fifteen years ago, Central and Eastern Europe abandoned communism. Freed from Soviet shackles, the region set its sight on joining the European Union. At that time, the EU’s economic vitality and political harmony seemed almost too good to be true. Those days, however, are long gone and many people in post-communist Europe wonder if joining the EU was a good decision. What went wrong?

It is clear now there is no correlation between the membership of the EU and economic growth. Over the past decade, the approach of breaking down barriers to movement of goods, services, capital and labor has been superseded by increasing centralization of economic decision-making in Brussels and top-down harmonization of rules of production, delivery and sale. In effect, harmonization increases the costs of production throughout the EU to levels favored by high-cost producers in Western Europe. Some of the cost associated with accession to the EU well exceed financial aid from the West. Not surprisingly, the new members feel cheated. That feeling is exacerbated by the fact that, despite assurances to the contrary, their membership in the EU will be decisively second class.

As a result of increasing harmonization, the Central and Eastern European countries resorted to tax cuts to improve their business environments. Some current EU members see tax cutting as a threat and German Chancellor Gerhard Schroeder is trying to intimidate the new members into reversing their business-friendly economic policies. If he succeeds, the consequences for the new members could be devastating. The conflict at the heart of EU enlargement, therefore, could not be starker. As businesses throughout the enlarged EU choose where to invest, the conflict between the West and the East will be exacerbated.

More on this story here.

Schröder rails at new low-tax kids on block.

Cutting rates is the fashion in the fringe European states. Compelled to put their houses in order ahead of accession to the Brussels club, several new European states are not just implementing directives and planting blue flags. They are taking the EU seriously, in particular the words in the treaties about free movement of goods, labour and capital. They are getting ready to compete, not just in cheap labour but in a cheap fiscal regime.

For Herr Schröder, this is intolerable. The celebrations for EU enlargement are barely complete but the ragtag and bobtail from over the Oder are parading low tax rates, trying to lure German businesses eastwards. What is to be done? Schröder’s not very veiled threat was that Eastern Europeans could not count on the continued financial generosity of Germany if they engaged in “unfair tax competition”. With no strategy to promote growth at home, Herr Schröder wags his finger at the gang of ten as if they were beer-sodden youths on a stag weekend in Prague.

More on this story here and here.

Taxing Times: The fight for national sovereignty in Europe

Even before the EU enlarged by ten new states, Old Europe had started to pressure the new states to harmonize with its sclerotic ways. Wolfgang Clement, Germany’s finance minister, said last week that he wanted the new EU member states to increase their corporate tax rates or face a cut in EU aid. Harmonization by threat is an all-too-familiar Franco-German approach -- and its one the new states must fight hard to defeat.

The European elite wants harmonization across the rich world. They argue that with out it, countries will continue to adopt diverse tax and regulatory structures, and the media (even if through glasses tinted with the soft red of mild socialism) will see the success of the lower-taxed, lower-regulated economies -- Iceland, Ireland, Luxembourg, Switzerland, Hong Kong, and Singapore -- as demonstrating that one does not need to be an economic giant to be economically successful.

Lower-tax countries have recently come under pressure to comply with OECD and EU concerns about tax evasion and money laundering. The claims of OECD and others have some legitimacy (especially in providing information about terrorists and other dangerous characters), but not much. And they must be fought. If we do not combat these messages more seriously, the world will be pushed by vested interests -- primarily in Europe -- toward a harmonized, homogenized global-governance structure that will slow world growth to European proportions -- something that aspiring nations cannot afford and we should not want.

Unfortunately, Europe is no longer an aspiring region. There are exceptions, of course, but the elite in Europe is generally happy with its lot and wants to keep it, and even export its own brand of fairness. It is tax harmonization that can lead to the greatest loss of national sovereignty. And that is where the position taken by the U.S. (and its allies) is so important. No other nation can restrict the activities of European regulators.

More on this story here.


According to the Halifax Daily News, Canadians can probably kiss their dream of an island paradise in the sun goodbye. Turks and Caicos residents contacted by the Daily News do not want anything to do with joining the Canadian federation. The Nova Scotia legislature recently passed a unanimous resolution urging talks with the Caribbean islands about becoming part of the province.

The Turks and Caicos, an archipelago of 30 islands east of Cuba, is a British colony with 250 miles of white beaches. Union with Canada was first floated in 1917 by Prime Minister Robert Borden. In the 1970s, New Democratic MP Max Saltzman, prompted by islanders themselves, introduced a private member’s bill proposing such a link. Island residents use U.S. greenbacks. And they do not pay any income or sales tax. Unlike 20 years ago, the economy is booming. Waitress Michelle Anderson fears her paycheck would shrink if Canada took over: “If Canada comes, we’re going to have to pay all this tax.”

More on this story here.


According to a US trade official, the WTO will soon release a final report on the case which is “largely unchanged” from the preliminary ruling in favour of the Caribbean jurisdiction issued in March. Antigua and Barbuda brought the case to the WTO in 2003, arguing that by restricting the internet gambling activities of US citizens, the United States was unfairly damaging the jurisdiction’s economy, in contravention of the General Agreement on Trade and Services (GATS). The revelation capped a bad week for the United States on trade and tariff issues, after a NAFTA panel ruled against it in a long standing lumber dispute with Canada.

More on this story here.


Some companies have discovered that the commonwealth has tax advantages without the political pressure that comes with moving to non-U.S. tax havens. While Puerto Rico’s corporate income tax is similar to that of the United States -- ranging from 22 to 39% -- industries that the commonwealth’s government wishes to attract to the island receive tax incentives. Those industries include manufacturing, tourism, agriculture, and exportation of goods or services. Companies in these industries may qualify for a rate on taxable income as low as 2% and no distribution tax, as well as a 60% exemption from the tax on gross receipts. The tax enticements have lured a number of pharmaceutical, medical-equipment, and biotech companies. Sixteen of the 20 top-selling drugs in the United States are made on the island, as are 50 percent of all pacemakers and defibrillators.

Companies should be cautious about chasing tax benefits to reduce costs, warns Brian E. Andreoli, a partner with Duane Morris LLP in New York. “Tax benefits can disappear overnight,” he says. Smart companies should open shop in a location because it makes business sense to do so, and treat tax benefits as a bonus, he observes. Puerto Rico’s capital, San Juan, was recently named by KPMG as the least-expensive place to do business among 24 U.S. and affiliated cities with populations exceeding 1.5 million.

More on this story here.


By moving out of the country, Americans are often seen by stay-at-home counterparts, and by U.S. officialdom, as somehow disloyal, unpatriotic, suspicious or, at worst, tax cheats who pay nothing for the privilege of U.S. citizenship. Those recurring perceptions are so strong that groups of Americans abroad meet to tackle them every year when they gather in Washington to lobby and educate lawmakers about why they should not be politically disfranchised.

Issues include why Americans living overseas should be counted, why they should have a voice in government policymaking, how Americans abroad help the trade balance and why they should have representation in Congress. Their most pressing practical issue is defending the exclusion from paying U.S. taxes on the first $80,000 of income earned outside the country. In the aftermath of the disputed 2000 presidential election, officials in Washington are more receptive to concerns of Americans abroad than perhaps ever before. They are mindful, as former Vice President Dan Quayle said in Berlin last week, that expatriate votes could be the deciding factor in the coming presidential election.

More on this story here.


For all those who have dreamed of investing in a private island of their own can now make that dream a reality with “The World”, a new offshore development by Nakheel comprised of 300 islands that resemble the actual shape of the world’s continents. In an announcement by Mr. Sultan Ahmed bin Sulayem, Chairman of Nakheel, all islands have just been made available for purchase.

“The World will be one of the most beautiful and exclusive destinations worldwide that captures the essence of the perfect getaway -- a private island paradise where life slows down, sunsets are theatre and rain rarely falls. It follows in the footsteps of another extraordinary Nakheel project, The Palm, whereby The Palm put Dubai on the map and now The World is putting the map on Dubai,” said Mr. Sulayem. According to Nakheel, there has already been extraordinary demand across the globe for investment in The World.

More on this story here.


Martin Torrijos, winner of Panama’s presidential elections, faces a range of thankless tasks when he takes office in September, and votes being counted on Monday showed he may lack a Congressional majority. Support in Congress will be crucial as Panama’s social security system is on the brink of collapse and a budget crisis could also be looming. Election officials said Torrijos’ centrist Democratic Revolutionary Party had secured at least 30 seats in Congress, but 14 of the races were still too close to call.

Torrijos was seen as the most “market-friendly” of the four major candidates, and Panama’s foreign-traded bonds have rallied this year as his victory looked like a lock. “Simply put, Torrijos looks like he is willing to do stuff, which is a departure from his predecessor,” said Michael Gavin, lead economist for Latin America at the UBS investment bank. “He seems to get along well with the business sector, and he is politically dynamic.”

Nevertheless, Wall Street’s main concern regarding Panama is the pension system, which is bleeding money and could be bankrupt in less than a decade without unpopular reforms. Any moves to fix the situation would almost certainly trigger massive street protests by Panamanian workers.

More on this story here.


IT vendors in New Zealand have joined forces to form Outsource2NewZealand, which as the name suggests, hopes to attract some of the UK’s IT projects to the land that gave us Gollum. The idea is that UK companies that are interested in outsourcing, but worried about handing their sensitive data to countries with less robust legal systems, will be encouraged to come to New Zealand.

“Our big pitch is that New Zealand is a safe destination,” said Jim O’Neill, a spokesman for the IT Association of New Zealand (ITANZ), which is backing the project. “Our legal systems are very much the same, we have a very deregulated economy. We’re a good place to send work.” He explains that he is not interested in the bulk, by-rote kind of outsourcing that is going to India. He is after interesting projects, and wants to get involved at an early stage. Outsource2NewZealand is targeting niche areas: R&D, architecture design, and anything that needs testing in live environments.

More on this story here.



According to the report published by the Treasury Inspector General for Taxation last week, the IRS reviewed one out of every 182 corporate tax returns in 2003, compared to one in 52 in 1997 -- a decline of 67%. While the TIGTA reserved some praise for the agency for improving its overall track record on enforcement since the nadir of the late 1990s, it was noted that this was largely at the expense of audits on relatively low-earning taxpayers on incomes of less than $100,000 per year.

Sen. Max Baucus, the ranking Democrat on the Senate Finance Committee, referring to TIGTA’s findings, said that it was unacceptable for the IRS to “bolster its audit figures” by targeting individual taxpayers. “Taxpayers making less than $25,000 a year are more likely to be audited than those making over $100,000” noted Baucus.

More on this story here.


A federal judge granted some tax shelter clients of the law firm of Sidley Austin Brown & Wood a temporary reprieve yesterday from efforts by the Internal Revenue Service to obtain their names, effectively upholding a government order for Sidley Austin to turn over a broad list of client names, but then approved a request from a group of about 48 clients to stay the order pending an appeal.

The I.R.S. and the Justice Department filed court papers last fall ordering the law firm to produce the names of more than 600 clients that the government suspects bought abusive tax shelters from 1996 through mid-October 2003. Sidley Austin says it has turned over many, but not all, of the names. The group of 48 or so clients who sued to prevent the disclosure have said that their dealings with the law firm are subject to rules governing the traditional confidentiality between lawyers and their clients.

More on this story here and here.

Filing Says Bogus Tax Shelters Sold to 1,100.

New court papers say that the law firm of Jenkens & Gilchrist marketed bogus tax shelters to 1,100 clients over five years, nearly twice the number previously cited by the IRS, which is seeking client names from the firm. The new court documents were filed last week in connection with a proposed settlement between the firm, which is based in Dallas, and clients who filed a class-action suit against it over the shelters. The papers say that from 1999 through 2003, Jenkens & Gilchrist “issued opinion letters to over 1,100 clients who reside in 41 states.”

More on this story here.

KPMG told to name tax shelter investors.

A federal court on ordered accounting giant KPMG to release the names of its tax shelter investors to the IRS. The U.S. District Court for the District of Columbia rejected the firm’s claim that disclosing the investors’ identities to the IRS would violate confidentiality privileges between attorneys and their clients. The court gave the firm 10 days to comply.

The IRS had asked KPMG for information about some of the firm’s tax shelters in 2002. The Justice Department, on behalf of the IRS, sued the firm later that year to obtain documents needed for its investigation. “After carefully reviewing the entire record of this case, the court comes to the inescapable conclusion that KPMG has taken steps since the IRS investigation began that have been designed to hide its tax shelter activities,” the court said.

More on this story here.


Some corporate tax experts think so, and their concerns have gained a powerful voice in Democratic presidential candidate John Kerry. At issue are tax provisions that allow U.S. corporations to defer payment on profits made outside the United States. Companies owe the standard U.S. corporate tax rate of 35% on those earnings only if they bring the money here. As a result, most companies perpetually reinvest their foreign-earned profits outside the United States, an untaxed sum that has grown to an estimated $400 billion to $600 billion.

Some of that money already has been spent on factories, offices and equipment overseas. But a large portion is held by the U.S. companies’ foreign subsidiaries in cash or stocks. Often, corporations transfer these profits to holding companies in tax-haven countries, effectively shielding their foreign earnings from any taxation.

Kerry’s plan would give companies a one-year window during which they could return foreign profits earned in past years to the United States at a tax rate of 10%. After that, they would have to pay the full U.S. corporate tax rate on most overseas earnings in future years, whether the money is returned here or not.

More on this story here.


A federal judge sentenced Bedford businessman Richard Simkanin to seven years in prison for a tax protest that became a cause célèbre among anti-government groups. Simkanin, whose trial in January drew a crowd of sympathetic tax protesters from around the country, was convicted of 29 counts of violating U.S. income tax laws. As owner of a small plastics company that earned him about $400,000 a year, Simkanin declined to withhold taxes from his employees’ paychecks and filed claims for tax refunds. He stopped paying federal income taxes in 1996.

U.S. District Judge John McBryde said during the sentencing that Simkanin was “entrenched” in a “cultlike” anti-government group that “holds nothing but contempt for the laws of the United States.” McBryde ordered Simkanin to pay the government $302,076 in restitution. The judge said he had agreed with federal prosecutors to increase Simkanin’s sentence by two years because “it is likely he will continue committing tax-related crimes.” His seven-year sentence was the harshest federal officials could identify among a spate of recent tax-protester convictions.

More on this story here.

Lynne Meredith convicted on failure to file, other charges.

Lynne Meredith, 54, leader of the anti-tax group “We The People”, was convicted of conspiracy, four counts of mail fraud, two counts of using a false Social Security number, making a false statement in a passport application and five counts of failing to file a tax return, the U.S. attorney’s office said in a statement. Prosecutors alleged that Meredith earned more than $8.5 million from 1991 until 2002 and did not file a federal income tax return during those years.

Meredith wrote two books -- Vultures In Eagles Clothing and How to Cook a Vulture -- and gave seminars to hundreds of people on how to “legally stop paying taxes”. During the 13-week trial before U.S. District Judge Dean D. Pregerson, prosecutors presented evidence showing that Meredith held seminars at which she sold her books and bogus “pure trusts” to people who believed they could shield income and assets from taxation. Meredith caused thousands of taxpayers to file fraudulent income tax returns, with some seeking refunds for as much as $32,822. Six other defendants did not file or pay any income taxes they earned in the scheme, prosecutors said, and were convicted of failure to file and other charges.

More on this story here.


A fast-growing tax dodge occurs when wealthy donors inflate the value of gifts -- from rare violins to paintings, period furnishings and even fossils -- abetted by docile appraisers, weak tax enforcement and cultural institutions with little interest in making waves. By law, institutions that accept such gifts have no duty to inquire into either their value or into the tax deductions taken by donors, and the art world has fought past proposals to hold it accountable for facilitating tax fraud through donations. The I.R.S. has no uniform standard for appraising the value of works of art or other collectibles, making those valuations a time-honored way to cheat on taxes with little risk of detection.

More on this story here.


The IRS announced that taxpayers who used a tax shelter known as “Son of Boss”, which was marketed aggressively beginning in the late 1990s, can avoid some penalties if they come forward by June 21. IRS Commissioner Mark Everson said that the IRS knows or suspects taxpayers used the shelter in 5,000 instances to create a large, artificial loss so as to offset an unusual, one-time gain like the sale of a business or stock options. The loss canceled out the gain and taxes owed.

The IRS said it will aggressively pursue taxpayers who do not step forward. Those taxpayers can take the IRS to court, but IRS Chief Counsel Donald Korb warned that “taxpayers should not expect to settle court cases on terms more favorable than those offered in the IRS settlement initiative.” “Son of Bos” is a spinoff of another tax shelter known as “BOSS”, an acronym for Bond and Option Sales Strategy.

More on this story here.


People short of a pound or two often search in their sofas in the hope of finding a few coins. For chancellors in need of the odd billion or two to make their Budget sums add up, an assault on civil service costs or a blitz on tax avoidance offer similar hopes. Gordon Brown chose both options this year, but with improbably high targets for efficiency savings and an approach to tax avoidance that is excessive.

The government’s plans to curb artificial tax avoidance schemes already look oppressive. In the past there was a clear line drawn between tax evasion, which was illegal, and tax avoidance, which was not. As Lord Clyde said in 1929, “No man in this country is under the smallest obligation, moral or other, to arrange his legal relations to his business or to his property as to enable the Inland Revenue to put the largest possible shovel into his stores.”

That line has been blurred in the past 50 years as tax avoidance has become more sophisticated. Judges, for example, have tried to distinguish between schemes with no genuine commercial purpose and the conduct of business in a tax-efficient manner. Now firms that promote certain types of scheme to reduce direct tax bills are to be required to disclose them to the tax authorities in advance, with parallel provisions for businesses using certain value added tax arrangements.

Yet the principle that what is not illegal is permissible is an important one in British law -- even if it leads to lower tax receipts. The Treasury is right to close loopholes when it spots them, and judges are right to look through artificial transactions to see if they amount to law-breaking. But if the government wants to curb artificial tax evasion schemes, it should improve the quality of the legislation that allows them to flourish -- not demand pre-notification of schemes the promoters believe to be legitimate.

More on this story here.

Detox for the U.K. tax avoidance industry.

The chancellor’s announcement in his Budget speech that promoters of tax avoidance schemes would need to notify them to the Inland Revenue was greeted with a combination of astonishment and confusion. The regulations need to be published separately in statutory instruments to see the fully-clothed version. In future, the promoters of tax avoidance schemes will be obliged to register them when they are first available for implementation.

Hopefully the regulations will adequately distinguish which “schemes” need to be reported. Otherwise, the rules could end up like a detox regime and encourage all of us to cleanse ourselves through regular disclosure of our tax-planning ideas to the Revenue.

More on this story here.

Inland Revenue widens inquiry into accounting firms.

The Inland Revenue’s investigation into tax avoidance schemes has been widened to include at least one of the other big four accounting firms alongside Ernst & Young. Officials at the Revenue confirmed that at least one other firm among the big four had marketed an avoidance scheme “very similar” to the one devised by E&Y. E&Y refused to describe the scheme, but sources close to the firm confirmed that it relied on transactions in derivatives known as currency swaps to deliver big reductions in corporate tax for companies.

More on this story here.

The time has come to scrap the punitive U.K. stamp duty on shares.

The chart shows how stock market volumes have risen while the total raised from stamp duty on shares has fallen. This is a recent phenomenon, with the two locked together until 2000. Stamp duty rates have not changed and every investor in shares must pay it, so you would expect the tax take to change with volume, but before the Chancellor rushes to sock shares the way he has houses, he might wonder where the money has gone. The answer is into derivatives -- since stamp duty is only payable when a share purchase is registered, no change of registration means no stamp duty. If you merely buy the right to the same gain or loss as a holder of a share, the 0.5% tax is avoided.

On substantial deals, stamp duty is now over two-thirds of the transaction cost, so it is understandable that short-term investors seek ways to get round it. This taxing Chancellor’s first instinct may be to bring derivatives into his net, but in a world of free capital movement and instant communication, that would simply drive the whole market offshore. If anyone doubts this, they could study what happened with internet betting. This was eroding betting tax revenues so fast that Mr Brown had to abandon it entirely. There is a powerful case for doing the same with stamp duty on shares.

More on this story here.



Form 3520 must be filed by U.S. Persons to report certain transactions with foreign trusts, and receipt of certain large gifts or bequests from certain foreign persons. A separate Form 3520 must be filed for transactions with each foreign trust. Those who must file include:

Form 3520 instructions here. 1998 report on foreign trusts here (PDF file).


James Charles Reives, 52, the co-founder of the Raleigh, North Carolina-based Tri-Star Investment Group LLC, and who pleaded guilty to charges of operating an investment scheme that took more than $16 million from 900 investors in 37 states, has been sentenced to 5 years in prison. Jackie Dobson Pritchett, 40, the company’s office manager, was sentenced to 4 years, 9 months in prison.

Prosecutors say Reives marketed “high yield” investment opportunities to the public through an investment club with offices in North Carolina, Georgia and Texas. Reives ran the Raleigh office, Pritchett worked in Georgia and a third, unindicted coconspirator handled the Texas operation. The defendants solicited $10,000 investments and promised a 20% return per month from offshore investments. Investigators said the defendants created a pyramid scheme in which the first group of investors were paid from monies from the next round of investors. The defendants issued monthly statements showing a 20% return. Prosecutors say Reives spent more than $2 million on himself and others.

More on this story here.


Estimates of the losses from insurance fraud range as high as $120 billion a year. Fraud is any activity people engage in that deliberately tries to deceive in an attempt at unfair or unlawful monetary gain. People who would not dream of shoplifting do not think twice about padding a claim for the insurance company. That is simple fraud, a crime of opportunity that pervades the United States.

Studies by the Insurance Research Council show that significant numbers of Americans think it is all right to inflate their insurance claims to make up for all the insurance premiums they have paid in previous years when they have had no claims, or to pad a claim to make up for the deductible they would have to pay.

The trend toward fraud is increasing, but so are investigations at the state and corporate levels. Forty states and the District of Columbia currently have a fraud bureau or unit to follow up on the insurance companies’ referrals for possible arrests. The referrals come from the industry’s Special Investigations Units. Do not think that insurance company investigators cannot tell when the claim is not valid. Special Investigations Units are experts in arson, theft, medical claims and just about every kind of accident known to man. If they cannot figure it out, they will call in one of the accident reconstruction firms. And yet fraud is growing exponentially.

More on this story here.


The Swiss parliament has voted in favor of enshrining the concept of banking secrecy in the Swiss constitution. The proposals -- which now have to go before parliamentary committee -- are being seen as a symbolic stand against European Union interference. Jean-Christian Lambelet, a professor of economics at Lausanne University, said that parliament’s show of support sent a signal to the EU, but it does not have much practical significance.

More on this story here.


A financial adivsor explains how an annuity can help elderly parents qualify for Medicaid and preserve assets for their heirs. At its most basic, an annuity is a stream of income guaranteed by an insurance company. In exchange for a sum of money, the insurer promises to pay you a certain amount of income for a specified period of time. If you choose the “life” option, the income must continue as long as the annuitant (your dad, in this case) lives. When the annuitant dies, the income stops. Most annuities also give you the choice to receive income for a specific length of time, such as 10, 15, or 20 years. In this case, if the annuitant dies before the term is up, the payments continue to be paid to his beneficiary.

A “deferred” annuity is one where the investment is made today, but the income payments are postponed until some future date. Since you do not pay income tax on any gains your annuity investment may earn until you withdraw the money, this approach gives your original investment time to increase in value. With an “immediate” annuity -- the option being considered here -- you invest a sum of money and start receiving income from it right away. Now for the “Medicaid” part of the question. ...

More on this story here.


If you are fortunate or astute enough to have amassed wealth, how do you ensure that it stays in the family and is not frittered away in three generations, as an Asian proverb says? Give it away, says Terry Alan Farris, MeesPierson’s head of charity management. That may sound startling at first. But philanthropic efforts -- particularly when systematic -- produce a glue that binds families together much more than even a business can.

Says Mr. Farris: “MeesPierson has been around since 1720, and one of the things we’ve seen is that after three generations, the money disappears.” MeesPierson is a European private bank of the Fortis Bank group. “If you look at wealth succession, one of the missing pieces is value succession. And philanthropy is the greatest tool in helping to develop values.”

More on this story here.


A jaundiced and one-sided view of tax havens and the world of offshore finance, which nevertheless contains much interesting and useful history and information. Some of the attacks are also, doubtless, justified. The proposed solution to the problem of propping up the “dying principles of the welfare state” would appear to be giving more power to the IRS and other instumental agencies of tax collection.

More on this story here.


The six men and six women from Estonia, Latvia, Lithuania, Russia and Ukraine are alleged to have tricked dozens of people into revealing their online account details in a scam known as “phishing”. Officers raided addresses in London and Kent, seizing computers, passports, check books, bank cards, money and crack cocaine. The FBI and US secret service were involved in catching the alleged fraudsters, thought to have been obtaining and laundering funds for Russian organized crime syndicates.

More on this story here.


It is no secret that Accenture Ltd. set up its headquarters in Bermuda to reduce its overall tax burden. But now, Illinois State Comptroller Daniel Hynes has blocked more than $2 million in state payments to Accenture. The state’s Procurement Policy Board is now reviewing whether Illinois should be doing business with U.S. companies that choose to incorporate outside the country.

Hynes set the stage for this move back in November, when he announced an aggressive plan to “crack down on corporations that use offshore tax havens to avoid paying their fair share of state and federal taxes.” The plan includes legislation to prohibit so-called “expatriates” from doing business within Illinois. That legislation, however, remains stalled in the Illinois Senate. Hynes in November noted that American corporations with “paper” headquarters in Bermuda and the Grand Caymen Islands would “dodge roughly $4.8 billion in federal taxes over the next decade.”

More on this story here.



John Poindexter’s career has played out in the headlines: Iran-Contra conspirator, the Pentagon’s Big Brother in chief, godfather of a futures market to predict terrorism. But there is an alternate reality: The 67-year-old retired admiral is the only serious technologist ever to reach the highest circles of power in Washington. He is a Caltech PhD who two decades ago dragged the White House into the digital age, plugging in everything from fiber-optic video to email. He uses Groove Networks’ Workspace to keep in touch with friends and rhapsodizes about encryption like a cypherpunk. In the first interview since Congress forced him to step down last summer as head of DARPA’s Information Awareness Office, Poindexter speaks out about privacy, sim terrorists, and Iraqi WMD.

One question asked during the interview was “Are we managing [the security/privacy] balance well today?” His answer: “Not at all -- in a lot of ways we have the worst of both worlds: no security and no privacy.”

More on this story here.


Derek V. Smith sees bad people lurking everywhere: terrorists, sexual predators, quack doctors, identity thieves. And yet Smith colors himself an optimist, insisting that society can protect itself from such dicey characters, using information as a shield. In Smith’s view, if we did more to examine each other’s digital footprints -- addresses, employment records, credit data, lawsuits, criminal files, professional licenses, vehicle registrations -- the world would be safer.

Not surprisingly, Smith can supply much of that information -- he heads ChoicePoint, a leading electronic data warehouse regularly mined by companies and the government. ChoicePoint does 8 million background checks a year, serving more than half of the Fortune 500. Database aggregators like ChoicePoint have quietly become powerful arbiters, whirring in the background when people seek jobs, get on airplanes, apply for insurance, commit a crime or fall victim to one. ChoicePoint’s computers are packed with 19 billion public records. Smith, 49, says 21st-century data mining can restore feelings of security that permeated America’s small-town past.

More on this story here.


A circular to banks bearing guidance notes from the Financial Intelligence Centre (FIC) goes some way towards calming bankers’ fraying nerves ahead of the FIC’s June 30 deadline for compliance with “Know your customer” (KYC) legislation -- but bankers still want greater clarity from the FIC.

Countries that fail to adopt the laws risk being blacklisted or outlawed by the international community. One such local piece of legislation is the Financial Intelligence Centre Act (Fica) of 2001. Section 21 of the Act requires banks and other financial system intermediaries to establish and verify the identity of millions of existing clients before June 30. Though South Africa’s banks have worked diligently to advance the Fica verification process, it has not proved easy to perform it quickly among clients of varying degrees of sophistication.

More on this story here.


David Blunkett watered down suggestions that ID cards would stop terrorists as he set out plans to introduce a compulsory scheme within 10 years. The Home Secretary denied that the main reason for proceeding with the first ID scheme in 50 years was to counter terrorism. The card will carry biometric data like fingerprints and iris patterns. Critics have predicted it would do little to stop an attack -- any more than ID cards in Spain managed to prevent the Madrid train bombings.

Paul Wilkinson, a terrorism expert at St Andrews University, said that “The majority of the September 11 hijackers were traveling under their own names, so they wouldn’t have been picked up by an ID system.” Simon Davis, of Privacy International, said that of the 25 countries worst hit by terrorism over the last 20 years, 80% had national ID card schemes and almost two thirds of terrorists operated under their real identities.

More on this story here and here.

Id card iris scans thwarted by long eyelashes.

Technology being used to scan the irises of 10,000 volunteers for the Government’s national ID card project can be thwarted by long eyelashes or watery eyes. Shortcomings in the system being used to scan unique patterns in the eye were exposed as MPs took part in a pilot project at the UK Passport Service HQ in London. The trial is testing technology for the “biometric” ID card proposed by Home Secretary David Blunkett.

More on this story here.

Dual citizenship to UK Non-Resident Indians soon.

Non-Resident Indians holding British passports will soon be entitled to dual citizenship as the Citizenship Act was being amended to get regulations changed, Ronen Sen, Indian High Commissioner, has said.

More on this story here.


South Korea’s Board of Audit and Inspection has admitted that some of the government’s high-tech passports have erroneous identification codes. The government agency issued 154,191 passports with erroneous identification codes, and as a result some people have been denied entry when traveling overseas.

More on this story here.


In recent years, considerable information has surfaced regarding the development of powerful spy software by various governments. As a direct result, a growing number of individuals and advocacy groups are claiming that the use of this technology infringes on their right to privacy. Ultimately, the issue is one of competing interests in national security and privacy. Resolution will depend upon the efforts of lawmakers and activists, who must seek to establish a balance between the two ideals.

This article will identify the major spy programs that have fueled this debate in America and other countries around the globe. It will additionally highlight key events that led to the development of these programs. The following sections will set forth the particular characteristics of each program as well as the public reaction that each has garnered.

More on this story here.


The Treasury Department’s Financial Crimes and Enforcement Network plans to update its computer database next year with a new data retrieval system, along with applications that will perform deeper analysis and improve data-mining capabilities. Banks report suspicious activity and other data to FinCEN. Banks must report when customers make unusually large deposits or withdrawals.

Law enforcement agencies can access and download the confidential information in FinCEN’s database to help uncover and track terrorist financing. BSA Direct, which is basically a data warehouse, will make the information more easily accessible and understandable to law enforcement while securing the information from unauthorized users, according to FinCEN director William Fox. BSA Direct will also alert FinCEN to irregularities in Bank Secrecy Act reports submitted by financial institutions.

More on this story here.


The government will send teams of inspectors to airports abroad to screen visitors coming to the United States by plane. Customs and Border Protection Commissioner Robert Bonner said the agency would begin testing an immigration security initiative within the month at Poland’s Warsaw International Airport. A team of up to seven specially trained inspectors will be placed there. The primary mission will be anti-terrorism, such as preventing travelers who are on U.S. terrorist watch lists from flying, but the team will also perform more traditional roles, such as detecting fake travel documents.

More on this story here.


The United States has sought to allay Swiss fears that tightened border security checks could lead to the misuse of sensitive personal information. Officials said the collection and storage of biometric data -- including fingerprints and digital photographs -- would be rigorously protected. Washington’s decision to introduce stricter entry procedures for visitors has drawn criticism from Swiss politicians and data protection officials. The new rules come into force on September 30 and will apply to citizens from 27 countries who are currently permitted to travel to the US without visas for up 90 days.

More on this story here.


America is, both proverbially and in reality, a nation of immigrants. That is particularly true of its scientific community which has, since the second world war, attracted and relied on foreign talent to help create the world’s most formidable research machine. Since the country’s economic and military might depend in large measure on the success of that machine, anything which diminishes this flow of talent is likely to be bad for America. And a study released on May 4th by the National Science Foundation (NSF) suggests that delays in the processing of visas since September 11th 2001 are having just that effect.

According to the report, in 2001 the number of visas issued to foreign students fell by 20% from the previous year, with further falls since then. The State Department does not track science students separately from those in other disciplines, so it is impossible to work out the precise size of the decline in their numbers. However, the report concludes that “limits to entry imposed by US national security restrictions” are contributing to a declining inflow of science talent. Other surveys, such as one of more than 530 American universities conducted in February by a consortium of five large educational groups, point to similar conclusions.

More on this story here.


The pilot for the UK national ID card scheme ran into technical problems earlier this year, cutting the period of the trial from six to three months, Parliament’s Home Affairs Committee has been told. Home Secretary David Blunkett was himself giving evidence, and told the Committee that people would be “queueing round the block” for ID cards -- but we think he meant this would be because they wanted them, rather than because the issuing kit was broken.

The current breakages are of course of a trial system, intended to identify problems before the system goes live. However, the problem areas seem to have been all too predictable, which bodes ill for for the real thing. If the Home Office runs into enrolment problems with a system installed at the Passport Service’s HQ in London, dealing with only a few thousand volunteers, what chance does it have of handling millions of people via equipment at post offices, libraries, smaller offices...?

More on this story here.

Everything you never wanted to know about the UK ID card.

Do you know how the UK’s projected compulsory ID card will work, and what it will entail? If you do, you are significantly in advance of David Blunkett and the Home Office, because although a draft bill and consultation document was published at the end of April, these really only provide signposts to what the powers that be would like it to be able to do, and a little bit of evidence as to how they might propose to get it to do these things. But we are considerably further on in terms of information than we were before the draft, and it is not likely to get much better by the time the consultation period ends. So, as our small contribution to the democratic process, we present The Register Idiot’s Guide to the UK ID Card.

Guide here.



The U.S. has a tradition of counterbalancing government secrecy by protecting a free press, allowing citizens to converse without risk, and honoring the efforts of brave whistle blowers -- those who defy the culture of secrecy and leak information to the press to inform the public of governmental wrongdoing, mistakes, and deceptions. The Bush administration, however, is aggressively working to prevent such public scrutiny in four distinct ways: it has widened the range of classified and otherwise confidential (but non-classified) materials. It has expanded its ability to criminally prosecute government employees who leak such materials. It has signaled a willingness to move against reporters who publish those leaks. And, most significantly, it is using new “material support” statutes to do an end run around the First Amendment and criminalize many forms of political advocacy.

The Bush administration’s assault on free speech, free press, and free association threatens to constrict our “threshold” liberties. This category of liberty, which also includes the right to be free from arbitrary arrest and indefinite detention (see “Crossing the Threshold”), lies at the heart of what it means to live in a free society and is essential for our other institutions to function as intended. If the press is free, if open elections are held, and if the courts are performing their sworn duty, even a president who tries to assume the powers of an emperor can be dealt with. But the more the press, the public, and the courts allow a president to chip away at the threshold rights that restrain his or her powers, the less democratic, free, and safe the nation becomes.

A long and complex assault on liberty is under way -- an assault aimed not at the fringes of liberty, but at its core: the rights that form the threshold between freedom and tyranny, the rights that allow citizens to push back against government excess. And if we let that assault push us across this threshold, we will find it very difficult to return, for we will have lost the essential tools that free people have historically wielded. Even those who shrug at lost liberties -- who believe that it is worth paying the price of core freedoms to defeat terrorism -- would be wise to worry about these developments.

More on this story here.


The tiny Martha’s Vineyard hamlet of Tisbury, Massachusetts, became the 300th local or state government to denounce the USA Patriot Act, even as President George W. Bush was campaigning for Congress to make the Act permanent before its expiration next year. Tisbury’s voters joined New York, Los Angeles, and Chicago -- the country’s three biggest metropolises -- in approving a resolution condemning provisions of the Act as threats to basic civil liberties. The city councils of Pittsburgh and El Paso approved similar resolutions earlier in the week.

As of Thursday, the 300 local and municipal jurisdictions -- including the states of Alaska, Hawaii, Maine, and Vermont -- that have passed such measures represent more than 51 million people, or one in every six U.S. residents, according to the Massachusetts-based Bill of Rights Defense Committee which has been working with the American Civil Liberties Union (ACLU) and other groups to marshal public opinion against the Act.

More on this story here.


For the first time, the number of secret surveillance warrants issued in federal terrorism and espionage cases last year exceeded the total number of wiretaps approved in criminal cases nationwide, according to new statistics. The data provide further evidence of how the Justice Department and the FBI have shifted their focus from traditional criminals to suspected terrorists and their associates, and mark a milestone in the history of domestic surveillance by U.S. law enforcement agencies, government officials and legal and privacy experts said.

More on this story here and here.


The American Civil Liberties Union strongly urged the House Judiciary Committee to reject a proposed expansion of the USA Patriot Act. This new bill could be voted on as early as Wednesday, May 5. The new bill, called the “Anti-Terrorism Intelligence Tools Improvement Act of 2003” (H.R. 3179), includes many provisions of draft legislation leaked from the Justice Department last year. That bill was roundly criticized by both Republicans and Democrats and never moved beyond a draft.

This new proposal would increase the government’s powers to secretly obtain personal records without judicial review, limit judicial discretion over the use of secret evidence in criminal cases, eliminate important foreign intelligence wiretapping safeguards and allow the use of secret intelligence wiretaps in civil cases without notice or an opportunity to suppress illegally acquired evidence. The legislation builds on many of the most troubling provisions of the Patriot Act, which passed with minimal debate a mere 45 days after 9/11.

More on this story here. ACLU analysis of the new legislation here.


The detentions of Yaser Esam Hamdi and Jose Padilla present one of the most worrisome challenges to civil liberties of the post-Sept. 11 era: The government has held them both without charge and, for much of the time, incommunicado and without access to counsel. What is more, both of the courts of appeals that have considered the cases have flubbed them. Coherent guidance from the Supreme Court is needed.

The government contends that the courts should approve both detentions simply on its say-so. It submitted a hearsay affidavit in each case laying out a sketch of its evidence. In Mr. Hamdi’s case, the Court of Appeals for the 4th Circuit agreed that this was good enough. The court consigned him to detention until the end of hostilities -- whatever that means in a conflict such as this -- on the basis of a two-page document and without even hearing from him. To describe this proceeding is to reject it. A bedrock principle of U.S. law is habeas corpus, which allows courts to review the legality of detentions. All Americans who are locked up must have a meaningful forum in which to dispute the allegations against them.

The ruling in Mr. Padilla’s case is laudably protective of civil liberties: It would require that Mr. Padilla either be charged with a crime or set free. But it also infringes upon the president’s legitimate warmaking powers. The proper course for the Supreme Court is to reaffirm that an American who takes up arms against this country may be detained as an enemy combatant but must be given a chance to contest the designation, with timely access to counsel. It is not acceptable that a president can pluck people from the street, designate them enemy combatants and hold them forever with no judicial review.

More on this story here.


According to a survey of UK businesses, many firms which could be affected by the 2003 Money Laundering Regulations are unaware of the implications of the legislation. In addition to affecting financial service providers, the regulations, which came into force at the beginning of April, apply to “dealers in high value goods”. Although this has largely been taken by businesses to mean art and antique dealers, jewelers, and retailers of goods such as cars and boats, wholesalers and those dealing in low value goods such as clothing may also come under the umbrella of the regulations, if they receive sufficiently large cash payments (currently over £10,000).

More on this story here.


Frank Quattrone was convicted of obstruction of justice despite the fact that the stock allocation investigation he allegedly obstructed resulted in no substantive criminal charges being brought against him or his employer, Credit Suisse First Boston. Sound familiar? That is because Martha Stewart was recently convicted of lying to federal agents in an unrecorded, unsworn, and voluntary interview she gave about an insider trade for which she was never criminally charged, either. And retired NBA star Jayson Williams just went down on cover-up charges, too -- evidence and witness tampering -- even though the jury acquitted him of aggravated manslaughter and hung on reckless manslaughter -- the substantive crimes he tried to hide.

Getting nailed for the cover-up is nothing new. It has happened for years, Watergate being a memorable example. But the degree to which almost any behavior the government does not like can be recast as obstructionist is new. Watergate, after all, involved an actual burglary. The government has always hated being thwarted and has often reacted with bullying aggression. But in recent months it has gotten significantly worse. The message from the government is clearer than ever: Submit or we will nail you, innocent or otherwise, for even the most picayune dodging and weaving.

The war on obstruction represents an extremely authoritarian way of thinking (not a terrible surprise given that prosecutors are the ones doing the thinking). And it is a mind-set that might be well-suited for attacking a corporate entity. Arthur Andersen, for example, was convicted of obstruction, but not for any substantive crimes concerning its Enron audits. But it is significantly less palatable, and far more dangerous, when it is deployed against individuals.

The ugly truth of our world is that pretty much everyone obstructs everything all the time. Ever been pulled over for speeding and told the officer you did not see the sign, or that you did not think you were going that fast? Obstruction is a knee-jerk reaction, an almost conditioned response to the fear that comes from an accusation, baseless or justified. Martha, Frank, and Jayson panicked. Most of us would have too. That panic is human -- and though it might be something we punish, it does not merit the kind of witch hunts the government has recently engaged in.

More on this story here.



Like any historical moment, today’s imperial political culture has multiple dimensions. It is the product, in part, of a surprise attack on civilians, an increasing need for security, and the political economy of oil. But while these factors play a considerable role in determining U.S. policy, they do not explain entirely the politics and ideology of the imperial moment itself. To understand that dimension, we must examine the impact on American conservatives of the end of the Cold War -- of the failure of communism and the ascendancy of the free market.

For neoconservatives, who had thrilled to the crusade against communism, all that was left of Ronald Reagan’s legacy after the Cold War was a sunny entrepreneurialism and market joie de vivre, which found a welcome home in Bill Clinton’s America. While neocons are not opposed to capitalism, they do not believe it is the highest achievement of civilization. Like their predecessors, today’s conservatives prize mystery and vitality and are uncomfortable with rationalism and technology. Such romantic sensibilities are uneasy about the market but friendly to politics, particularly at moments when politics is consumed with questions of war. It is only natural, then, that the neoconservatives, enthralled by the epic grandeur of Rome, the ethos of the pagan warrior rather than the comfortable bourgeois, would take up the call of empire with a vengeance, seeking to create a world that is about something more than money and markets.

But this envisioned imperium may not resolve the challenges confronting the United States. Already the American empire is coming up against daunting obstacles in the Middle East and Central Asia, suggesting how elusive the reigning idea of the new imperialists -- that the United States can govern events and make history -- truly is. Domestically, the renewal that many hoped 9/11 would produce is proving difficult to achieve, the victim of a free-market ideology that shows no sign of abating. While it is still too soon to make any definitive assessment, there are already many signs that 9/11 will not -- and perhaps cannot -- bring about the transformation that the neocons have long desired.

More on this story here.


The US has a unique distinction: It is the world’s greatest prison state. The US, “the land of the free”, has the biggest prison population in the world and the highest rate of prisoners per capita of all countries -- including countries that President Bush believes need liberating by US armed forces. Even China, with one party rule and a population that is 4.5 times larger than the US population, has 30% fewer total prisoners than the US. China’s per capita rate is a small fraction of the US rate. The US prison population per capita is three times higher than “axis of evil” country Iran, five times higher than Tanzania, and seven times higher than a civilized European country like Germany. One out of every 142 Americans is in prison -- and this does not include military prisons or INS jails.

The conservatives’ war on drugs, launched during President Reagan’s first term, bears much of the blame. Between 1980 and 2000, a period during which the US population grew by 21%, the number of state and federal inmates soared by 312%. Almost one-half million Americans are in prison for drugs-only offenses. Many of them are innocent or were encouraged by federal agents or informers posing as friends to transport small amounts of drugs as a favor. Most government informants are real criminals who escape charges or are given lenient plea bargains in exchange for helping prosecutors boost their conviction rates by entrapping innocent people. It is a disgrace to the US legal system that judges permit such false convictions. Many other innocents are in jail because police dropped small packets of drugs -- or in the Texas cases bags of ground up wallboard -- into their cars when stopped, allegedly for traffic offenses.

With a legal system that mass-produces criminals, prisons are being constructed at a breathtaking rate. A number of states now have prisons in almost one-third of their counties. Another conservative idea -- prison privatization -- has created a contractual monster that must be fed with a constant stream of inmates. A variety of new police Gestapos have been created that help to keep the massive prison complex -- our own Gulag Archipelago -- filled. The most dangerous is Child Protective Services, created by Walter Mondale in response to his constituency of anti-family feminists and “child therapists” in need of employment. The war on crime has turned even parenting into a dangerous occupation. One cannot help but wonder whether the US itself is in need of liberation.

More on this story here.


Is Bush correct when he reassures his war fans that torture is not indicative of American values? Or is the US government merely treating Iraqis the same way it treated Randy Weaver’s family at Ruby Ridge, the Branch Davidians at Waco, Texas, and Gordon Kahl’s family at Medina, ND? Why expect the US government to show more restraint to Iraqis than it shows its own citizens?

The new aggressive spirit of America is embodied in the neoconservative ideology that drives the Bush administration. It is an imperialistic spirit whose arrogant moral purpose justifies mowing down whatever is seen to stand it its way. Some US soldiers have caught the spirit that Bush has infused into the conflict. If you pay attention to Bush’s speeches, you will see that he is trying to infuse this spirit into the American people.

Beware. It is an evil spirit. Because it brooks no objection, it will bring a police state at home and death and destruction abroad, just as the Jacobins brought to 18th century France and Europe. Americans must understand that the neo-Jacobin spirit that guides the Bush administration is anti-American. It is not unpatriotic to resist this spirit. It is the same evil spirit that motivated Deutschland uber alles (Germany over all). Just as the Nazi claim to be the master race trumped all traditional moral standards, the neoconservatives claim that America is uniquely virtuous justifies America’s domination over the rest of the world. Unless Americans stand firm against this spirit, Americans will endure endless wars and great disasters.

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The American “spoilt brat” ruling class.

The emerging American ruling class is made up increasingly of persons used to having the world cater to them. If others challenge their will, they throw a temper tantrum. Call this the imperialistic personality -- if “spoilt brat” sounds too crude.

Americans used to admire self-restraint, modesty, humility, and good manners. They were acutely aware of original sin. They feared the self-indulgent ego, in themselves and others. Americans of an earlier era stressed the need to check the darker potentialities of human nature, the unleashing of which could wreak havoc on the individual and society. They hoped that in personal life moral character would restrain the desire for self-aggrandizement, just as in national political life the checks and balances of the U.S. Constitution would contain the all-too-human desire for power. Personal self-control and constitutionalism were but different aspects of the effort to subdue the voracious ego. Human beings could not be trusted with unlimited power. The old Americans were not so foolish as to try to extinguish the will to power, but recognized the great danger of it being diverted from its legitimate ends and breaking free of checks.

For Christians, the cardinal sin is pride. Before them, the Greeks warned similarly of the great dangers of conceit and arrogance. Hubris, they said, violates the order of the cosmos, and inflicts great suffering on human beings. It invites Nemesis. On the Apollonian temple at Delphi two inscriptions summed up the proper attitude to life. One was “Everything in moderation”, the other “Know Thyself”. To know yourself meant most importantly to recognize that you are not one of the gods but a mere mortal. As for the old Hebrews, in Proverbs (16:18) we read: “Pride goeth before destruction, and an haughty spirit before a fall.”

To the new Jacobins, such calls for humility have the quaint sound of something long outdated. Why should those who know how humanity should live question their own ideas or right to dominate? The world needs “moral clarity”, not obfuscation. Many of those who shape the destiny of America and the world today are just such “terrible simplifiers” with absurdly swollen egos. How very different the personality that defined the old America and conceived the Constitution!

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The fall of the Roman Empire remains one of the great unsolved riddles of history. Rome rose from obscurity to dominate the ancient world until it became practically synonymous with civilization itself. Yet a few centuries later its terrified survivors, decimated by disease, famine, and infertility, eagerly laid their necks beneath the swords of barbarian conquerors. Why? The evils that Rome faced were not worse than those faced by other societies before or since. Political turmoil, civil war, invasion, plague, famine, and all the other scourges of the ancient world can be found abundantly in the histories of all societies, including modern and early modern Europe. Why in the seventeenth century did England not succumb to plague and civil strife, nor Holland to devastating, repeated invasion?

The disunited world of the ancient Mediterranean constituted a de facto free market. States, each one seeking its own interest, competed against each other, with none able to gain a lasting advantage. In this setting, commerce flourished. The population and prosperity of the Mediterranean basin increased dramatically. Little by little Rome swallowed up the states of the ancient Mediterranean, such as Marseille, Syracuse, Carthage, Athens, and Egypt. At first the benefit seemed enormous. The chronic war and piracy which had plagued the Greek world were suppressed. Briefly the world knew peace and order and was able to expand its infrastructure. The ancient world reached yet a new peak of population and prosperity. But the state which made this possible carried within itself the principle of its own destruction.

Long before the deposition of the last western emperor in 476, the de facto free market of the ancient Mediterranean had been replaced by a frozen society. With secret police, branded workers, and coercive family legislation, Rome was the first totalitarian state. The Dark Ages of Western civilization did not begin with the sack of Rome by the Visigoths in 410, but generations before with the self-strangulation of the Roman polity. The barbarians, who had been there all along, stepped into a vacuum created by the Roman state itself, not in spite but because of its might. Sunk in poverty, tyranny, and ignorance, the West was not to rise again for centuries.

Any society subject to the same restrictions as the Roman Empire would speedily fall into economic stagnation and cultural decadence. Ancient civilization was destroyed by unrestrained statism, which flourished in the absence of a principle of individualism. Modern civilization will not fall, because it has discovered the intimately related principles of commercial vitality and individual freedom. Will not fall, that is, unless those who ignore the lesson of the ancient suicide of the West triumph, opening the way to the new barbarians.

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