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OPPOSITION PARTIES GAIN IN EUROPEAN ELECTIONS
Governing parties in Germany, France and Poland have suffered big losses, while many eurosceptic parties have had their best result at the polls. European Parliament spokesman David Harley said turnout was “pathetically low” for many of the 10 new members. Updated election figures show that turnout among the new member states was just 26.4%, as against 45.3% overall. Scoreboard shows results so far. There are 732 seats in total. Some results are provisional. About 155 million people of some 350 milllion eligible voters in the 25 member states cast their ballots, making it one of the biggest democratic exercises in the world.
Germany’s governing Social Democrats recorded their worst result since World War II. Official results showed the party took just 21.5% of the vote, with the Christian Democrats set to be clear winners with 44.5%. In Britain, Labour and the Conservatives both saw their vote slump. With most results in, the two main parties looked set to secure less than half of the vote between them, for the first time ever. The Tories had 27.4% and Labour 22.3%, while the eurosceptic UK Independence Party was running third with nearly 17%. Some Labour party officials said they feared they might lose the next national election, expected next year.
Jose Luis Rodrguez Zapatero’s newly-elected Socialist government in Spain was one of the few to buck the anti-establishment trend. The heavy defeats for governing parties means the new European parliament will be dominated by opposition politicians and fringe groups. That makes it likely that the parliament, which shares EU legislative power with member states, could frequently find itself at loggerheads with national governments. Other far-right parties that also campaigned on a nationalist, anti-EU platform won more seats, notably the Vlaams Blok in Belgium, which won three seats. And a Dutch former whistle-blower’s presence in the next assembly could help maintain the pressure on parliamentary members to reform their generous system of perks.More on this story here, here, here.
Europe’s leaders rally behind EU constitutional treaty.
Europe’s political leaders vowed to press ahead with attempts to agree a new EU constitution this week, in the face of public apathy and hostility towards the EU. The full results of the European election showed voters across the EU punishing incumbent governments and an increase in support for eurosceptic parties. Turnout was a record low of 45.3%. But EU foreign ministers said the mauling made it vital that Europe should unite and agree the new constitutional treaty at the Brussels summit, starting this week.
The atmosphere at this week’s summit, scheduled to last two days, is likely to be tense, as Europe’s leaders meet for the first time since last week’s polls. Tony Blair of Britain, Jacques Chirac of France and Gerhard Schröder of Germany were among those humbled by the results. Several issues remain to be resolved, including a late German attempt to weaken the references in the constitution to the stability pact -- whose fiscal rules it is currently breaching.
Other questions on the operation of a new voting system, the legal status of the Charter of Fundamental Rights and the absence of a reference to God in the treaty are also still open. European leaders believe the constitution will help to address the democratic gap in the EU, by giving more power of scrutiny to national parliaments and the European parliament. However, the apathy and Eurosceptic gains raise questions about whether the constitution will ever be ratified, with up to 10 countries likely to hold referendums on the treaty.More on this story here.
Unhappy European voters send a message.
Another set of European Parliament elections, another depressing outcome. In the four days to Sunday June 13th, the 25 member countries of the newly enlarged EU held elections for the 732-member legislative body, which helps to make laws binding on all of the Union’s 450 million citizens. The parliament has steadily gained power over the course of the EU’s history but, sadly, its image has only suffered over time. It is perceived as being distant from voters, despite being the only EU institution with a direct democratic connection to them. Recent media exposés mean that the parliament is probably now best known for its members’ abuse of their perks.
It was therefore no surprise that just over 45% of the EU electorate turned out to vote; and that those who did so mainly used the chance to deliver an angry message to their national governments over domestic issues. The governing parties in Britain, France, Germany, and Poland were the most notable losers, while Eurosceptics plainly had a field day. Newish parties wholeheartedly opposed to EU membership did well in two of the Union’s biggest countries. In Britain, the UK Independence Party drew Eurosceptic voters from the main opposition Conservative Party to take 17% of the vote, entitling it to 12 seats in the parliament. In Poland, a traditionalist and ruralist party, Samoobrona (Selfdefence), came third, nabbing seven seats. The parliament’s new members will mostly sit in vaguely like-minded groupings.
What will it all mean for the overall future of the EU? The anti-establishment vote for Eurosceptics, nationalists and anti-corruption campaigners, as well as the low turnout, should serve as a wake-up call for Europe’s leaders. Much post-poll commentary has said that now, finally, Europe’s leaders must make voters feel connected to the EU. But will they? The backlash against the EU in the parliamentary elections may make it harder for the 25 leaders to reach an accord at the forthcoming summit this week in Brussels.More on this story here.
EU constitution: The endgame?
Disappointment will give way to dismay in the European political establishment if the apathy of the European elections is followed by a failure to agree a European constitution. The 25 EU leaders meet in Brussels on Thursday and Friday this week for what should be the decisive meeting to resolve a multitude of outstanding constitutional issues. It is likely that in true European style, the talks will go down to the wire.More on this story here.
The Trouble With the EU.
With the enlargement of the EU from 15 to 25 countries earlier last month, “the artificial division of Europe is finally and conclusively at an end” declared the Irish Prime Minister Bertie Ahern. He added, “The enlarged EU is also ready to play its part in bringing about a more secure, just and equitable world.” Unfortunately, the reality of this supra-state is far from its putative promise.
The twin goal of the EU, peace and prosperity, are certainly attainable for the European continent. They will not be reached, however, through the EU. The “social market economy” of Germany and its adoption by the EU should serve as a warning to all those counties who rush head-first into the depths of the World State.More on this story here.
SWISS BANKERS FACED WITH DILEMMA OF OVER-REGULATION
Criticism by Swiss bankers of the costly regulation of their sector rarely lets up, even though it is often the industry itself that is first to call for more rules. Two seminars were held last week in Switzerland on the subject, bringing together officials from the Swiss banking association and the Federal Banking Commission, the industry’s regulator. The rules Swiss banks are required to follow, either under Swiss national law or regulations imposed by international organizations, make up “millions of pages”, said Konrad Hummler of the Wegelin private bank. “Is it worth it, is the world better thanks to the rules?” he asked.
Swiss Private Bankers Association Niklaus Baumann said that costs related to regulations make up 9.8% of the total costs of a small bank and 4.1% for a big bank. The requirements involve mainly internal investigations when there is a suspicion of money laundering.More on this story here.
NEW FIGURES SUGGEST CHINA’S COMMUNISTS ARE STILL IN COMMAND OF THEIR ECONOMY
China’S growth in recent years has been nothing short of ballistic: 9.1% last year, and an annualized 9.8% in the first quarter of this year. But though missiles fly fast, they tend to cause a lot of trouble when they return to earth. For months now, economists have been mouthing aeronautical metaphors as they ponder whether China’s authorities can pilot the country’s rocketing economy to a soft landing. Whether the landing will be soft or hard, we still cannot say. But the latest figures reported by the Chinese media do at least show that the Chinese authorities’ attempts to slow the economy down have not been entirely in vain.
The output of China’s industries grew at an annual pace of 17.5% in May, slower than the 19.1% growth recorded in April. Investment in fixed assets -- the roads, steel plants and bridges that are turning China into the overheated workshop of the world -- grew by 18.3% in the year to May, down from a staggering 34.7% the month before. Inflation is still increasing -- consumer prices rose by 4.4% in the year to May -- but that is largely because of the volatile cost of food (prices were also unusually low this time last year thanks to the SARS outbreak). The prices of most manufactured goods actually fell.
Besides, inflation has never been the chief worry about China’s economy. The fear is not that China will overstretch its resources -- its 750 million-strong workforce in particular is far from fully employed -- but that it will misallocate them. A country cannot invest 47% of its income, as China does, without encountering steeply diminishing returns. Yet another Shanghai skyscraper or aluminium smelter plant is unlikely to justify the money lavished on it. But with money flowing so freely -- bank loans grew by 21% in the year to the first quarter -- investors have lavished away.
The methods pursued by China’s authorities to slow the economy may be clumsy. Nonetheless, they are proving effective. China’s authorities have proven they can slow the economy. Now they must show they can slow it without stalling it.More on this story here.
BEIJING SMOTHERS HONG KONG -- AND DRIVES TAIWAN FARTHER AWAY
Beijing’s increasingly heavy-handed tactics that undermine Hong Kong’s political autonomy are understandably causing discontent among Hong Kong residents. But those tactics are also having broader effects. In particular, they are alienating even the minority of Taiwanese who might be tempted to consider reunification with the mainland. They are strengthening the hand of pro-independence forces in Taiwan.
The PRC’s recent actions are especially disturbing. The April 26 decision by the Standing Committee of the National People’s Congress to bar direct elections for Hong Kong’s chief executive in 2007 and the full legislature in 2008 was bad enough. But when protests erupted in Hong Kong over the decision, Beijing’s response was less than subtle. The communist regime dispatched eight warships to make a show of force in Victoria harbour. At about the same time, some prominent pro-democracy advocates in Hong Kong reported threats of violence against themselves and their families. Then, in early May, Beijing escalated the pressure, warning pro-democracy legislators in Hong Kong’s Legislative Council that they were violating the law merely by proposing measures to criticize the decision of the Standing Committee.
All of this seemed to violate the spirit, if not the letter, of the autonomy that Beijing promised when it regained sovereignty over Hong Kong from Britain in 1997. Watching with growing interest and alarm from the sidelines were the people of Taiwan.More on this story here.
Hong Kong immigrant investment scheme attracts HK$1.3 billion.
The Hong Kong government has revealed that its Capital Investment Entrant Scheme has brought around HK$1.3 billion in investment into the city (US$166.7 million) in its first seven months. The program requires that applicants make a minimum investment of HK$6.5 million in real estate or securities in return for the granting of Hong Kong residency status. By the end of last month, the government of the SAR had approved 111 such applicants who have already invested a little under $HK800 million.More on this story here.
HOUSE PANEL VOTES TO BLOCK ACCENTURE’S U.S. VISIT PACT
The House Appropriations Committee voted to prevent Accenture Ltd. from holding the systems integration contract for the Homeland Security Department’s multibillion-dollar virtual border system because it is based in Bermuda and is a tax exile. The panel cleared an amendment to the DHS’ fiscal 2005 appropriations bill offered by Rep. Rosa DeLauro (D-Connecticut) that would bar companies that use loopholes to avoid paying federal taxes from holding homeland security contracts. An Accenture spokesman denied that the company, based in Hamilton, Bermuda, is a tax exile and noted that many steps remain before the provision becomes law.More on this story here and here.
Homeland Security bill targets corporate tax cheats; protects Accenture contract.
Companies that shift their headquarters offshore to avoid paying taxes could be banned from getting contracts with the federal Department of Homeland Security, under legislation moving through the House. But the GOP-controlled House took steps to preserve a $10 billion contract awarded to Accenture LLP, a company critics say moved its headquarters to Bermuda to reduce its taxes.
U.S. Rep. Rosa DeLauro, who has waged a two-year struggle to punish companies that move their tax status offshore, tried to block the Accenture contract in the bill, saying the government has the power to cancel the contract, which is for tracking visiting foreigners.“These companies have an obligation to the United States of America to pay their taxes,” DeLauro said. “If you want to feed at the public trough, you have to pay your taxes.”
But company supporters won a 234-197 vote, largely along party lines, to strip the Accenture language from the bill. The Accenture contract would benefit a wide array of subcontractors, and is strongly supported by the business community and the House Republican leadership.More on this story here.
SWISS BANKS FACE TOUGH TIMES AHEAD
Top bankers in Switzerland warn that the banking sector is likely to shrink by 15% over the next few years and that salaries will be pegged back. They also predict that the importance of banking secrecy to the country’s position as a leading financial centre will diminish by 2010. They say legislation in other countries will gradually undermine the sacred cow of Swiss banking and any competitive advantages it brings.
Professor Beat Bernet, director of the Swiss Institute of Banking and Finance at the University of St Gallen, said that the function of banking secrecy and its significance had to change. “I think banking secrecy will become weaker. Because we know that it could become weaker, we have to change the importance of it for our industry and that’s exactly what’s happening,” he said. “Banks are seeing that... competitive advantage cannot be built only on banking secrecy,” he added.More on this story here.
PUTIN: NO MASS PURGES OF BANKS
Russian President Vladimir Putin moved to calm nerves in a financial market still shaken over the sudden revocation of Sodbiznesbank’s license, telling Central Bank chief Sergei Ignatyev that there should be no mass purges of the banking system. His comments came at the end of a tense week in which banks began closing some credit lines to each other and interbank lending rates soared amid fears the Central Bank could be on the verge of a witch-hunt to rout out problem banks. The Central Bank also moved to ease the situation, pumping liquidity back into the interbank lending system.
Putin’s remarks and the Central Bank's measures should start to defuse a growing crisis of confidence in the banking system, which remains plagued by oversight problems, analysts said. The jitters began last month when the Central Bank for the first time flexed the powers of new money-laundering laws and revoked the license of Sodbiznesbank, a medium-size bank that the Central Bank alleged was involved in legalizing illicit funds. Analysts said other banks were spooked by the Central Bank’s sudden action to revoke Sodbiznesbank’s license because it left them unsure about the legality of some banking operations.More on this story here.
BUSH, KERRY AND THE CRUCIAL EXPAT VOTE
American expats have never felt so wanted -- or so powerful. With the US presidential election less than six months away, both Republicans and Democrats are working hard to secure expat votes. This massive surge in activity is because many people believe expats could decide the election this year. The 2000 vote was the closest in American history, with George W Bush gaining a margin of 537 votes in the crucial Florida count. With around six million Americans living abroad, there are enough voters to make up a 51st state. But US voters are registered in the county and state in which they last lived. And it was the absentee votes (and the way they were counted) that made the difference in the crucial states in 2000.More on this story here.
THIRD WORLD LEADERS SAY FREE TRADE MUST BENEFIT DEVELOPING NATIONS
Uganda’s president and the Dominican Republic president-elect insisted that developing countries must receive social benefits from free trade instead of simply opening Third World markets to multinational corporations. Addressing delegates at a 180-nation U.N. trade and development conference, Ugandan President Yoweri Museveni said poor countries must be assured better market access to developed economies and financing from their rich counterparts for education and infrastructure improvements.
Market access is a key issue in ongoing talks to liberalize trade around the world, but many delegates at the United Nations Conference on Trade and Development say poor countries should not drop trade barriers unless rich countries commit to helping the developing world eliminate poverty. “We cannot sanction a trading system that produces advantages for some and adversities for others,” Museveni said.More on this story here.
CAPTIVE INSURANCE MANAGEMENT FIRM LAUNCHED IN BAHRAIN
The first captive insurance management company in the Middle East, Ensurion was officially launched, following the granting of a license by the Bahrain Monetary Agency. The historic launch of the company will pave the way for a new and highly profitable financial sector in Bahrain that has the potential to employ a sizeable number of locally trained talent within the next few years.More on this story here.
CHINESE GOVERNMENT OFFICIAL VISITS DOMINICA
Dominica is all set for the visit of a high-ranking government official from the People’s Republic of China. In March, 2004 Dominica severed ties with Taiwan and established relations with the People’s Republic of China. As part of the agreement for the establishment of diplomatic relations, Dominica has received the sum of $6 million from the Government of the PRC. The PRC has also agreed to fund four major infrastructure projects valued in excess of EC$300 million. A number of Dominicans are being offered scholarships to study in one of the fastest growing economies in the world (China), starting in the academic year 2004/2005.More on this story here.
GIBRALTAR’S CHIEF MINISTER PETER CARUANA DEFIANT IN FACE OF EUROPEAN OPPOSITION
Mr. Caruana indicated that the government is considering a complete withdrawal from the EU in the light of the Commission’s recent decision regarding corporate tax reform. The proposed reforms aimed at abolishing the current 35% corporate tax rate and replacing it with a payroll tax and a business property occupation tax -- both capped at 15% of profits. However, after lengthy deliberation the Commission decided that this would give companies domiciled in Gibraltar an unfair advantage over their counterparts in the UK and effectively suggested that for taxation purposes, the jurisdiction should be considered part of the UK.
The EC also took issue with the fact that since the taxes are based on payroll and the occupation of business premises, offshore companies registered in Gibraltar would be unlikely to incur any tax liability. The Rock’s government has since argued that the ruling is “wrong both as to material selectivity and as to regional selectivity”, and announced that it will be challenged in the European courts. Mr. Caruana warned: “If the European Court of Justice were to uphold the Commission’s position ... then it would have grave implications for the whole economic model of Gibraltar.”More on this story here. Gibraltar votes Tory for European Parliament -- story here.
BRITISH EXPATRIATES FAVOR SPAIN, FRANCE AND PORTUGAL
When it comes to retirement, many expatriates find Britain less than enticing. A high cost of living, overcrowding and a deteriorating healthcare system combined with a desire for fun in the sun and lower living expenses are driving an increasing number of retirees abroad. With myriad attractive locations to choose from, how does the savvy retiree determine where is the perfect little piece of paradise in which to spend their twilight years? Close to home is always a good place to start. Steve Travis, overseas manager of the international division at taxation and financial planning specialists Wilfred T Fry, points out that the most popular destinations for British expatriates remain Spain, France and Portugal.
Other niche retirement spots include Italy, particularly Tuscany, which attracts culture vultures who retire there for the lifestyle, and Malta with its variety of tax exemptions. For non-residents, there are numerous advantages of buying property in Malta, including local mortgage facilities offered by the major banks, and the fact that all deeds and documents are read and published in English.
More adventurous and well-traveled retirees are looking further afield than Europe and are considering the exotic delights of Asia and South America, where a number of governments have been quick to recognise the advantages of enticing affluent retirees and are offering very attractive financial inducements. Belize is embracing retirees through a new law, which provides tax, and residency breaks to qualified retirees aged 45 and older who are citizens of the US, UK, Canada or Belize. Panama also offers an attractive incentive program for retirees.More on this story here.
GUERNSEY AND JERSEY ARE SET TO REACH NEW LEVELS OF COOPERATION
The islands could form a joint financial services commission, a combined competition regulatory authority, have a Channel Islands director of aviation and even establish a shared health service. Chief Minister Laurie Morgan has met Senator Frank Walker, president of Jersey’s Policy and Resources Committee, to discuss how the islands could save money by eradicating the duplication of time and resources. They have stopped short of supporting Senator Philip Ozouf’s proposal to create a standing Channel Islands Commission.
“Although not identical, both islands have very high and similar standards when it comes to our financial services commissions; therefore it would appear to be an obvious area for further discussion as there is a lot of duplication,” said Senator Walker. He added that health care was one area of major service provision where removing the duplication of time and resources could save money.More on this story here.
EUROPEAN FINANCIAL CENTERS COMPETING WITH THE CARIBBEAN FOR HEDGE FUND BUSINESS
With the current growing interest on the part of European investors in hedge fund investments, some European financial centers such as Luxembourg, Jersey and Dublin are attempting to woo hedge funds back onshore. Such efforts will ultimately be a challenge to many popular offshore financial centers in the Caribbean such as the Cayman Islands and the Bahamas.
According to a Cayman Islands based law firm, Maples & Calder, efforts made by some European financial centers to bring hedge funds back onshore are not likely to succeed. According to Gray Smith, a partner at the law firm, “Cayman rules are simple and flexible, there are no restrictions on investments, and investors are free to decide what they want to invest in. The legislation is geared up for people who can look after themselves.”
According to published news reports, about 80% of the global hedge fund companies are registered with the Cayman Islands Monetary Authority, the government agency charged with the registration of hedge funds and mutual funds conducting business in such jurisdictions. The Cayman Islands has significant support functions for hedge fund operations, such as back office protocols including accounting and legal expertise needed for the smooth running of offshore funds. There is also the added factor that the Caribbean jurisdictions have little, if any regulatory oversights for the offshore fund establishments.More on this story here.
HEARING ORDERED ON CHARGE THAT I.R.S. INFLUENCED JURY
A federal appeals court ordered a hearing into a Nevada couple’s claim that I.R.S. agents and Justice Department lawyers in a courtroom audience “glared” at jurors in a successful effort to intimidate them into reaching a guilty verdict. The decision could result in the overturning of the tax evasion convictions of Dr. Martin P. Rutherford, a Reno chiropractor, and his wife, Nanja. Pending appeal, their sentences of five months in prison each and payment of $141,813 in restitution for taxes owed in 1992 and 1993 have been stayed.
Dr. Rutherford said that, “Nine to 15 I.R.S. agents and Justice Department people sat in on our trial, which lasted 19 days, and then under oath some of then initially denied they had been there. Then they changed their story a bit to say they were there for training.” Dr. Rutherford said he and his wife were not tax protesters. He said they had retained a lawyer whose tax advice they followed only to learn later that he was not a lawyer. He said they then hired proper counsel but that the I.R.S. seized more money from their bank accounts and from insurance payments for treating patients than the couple owed in taxes.
One juror, Vicki Walker, wrote that “several jurors discussed the power of the I.R.S., the treatment of Dr. Rutherford and his wife by certain I.R.S. auditors and the possibility of retaliation on the part of the I.R.S.” Judge Reed, after the hearing, concluded that the I.R.S. and Justice Department agents did not intend to influence the jury. A three-judge panel of the United States Court of Appeals for the Ninth Circuit reversed that finding and said the wrong legal standard was applied. The issue, Judge Stephen Reinhardt wrote, is whether the jurors had reason to believe they were being tampered with, not the intent of the government agents.More on this story here and here.
IRISH FINANCE MINISTER OPPOSES CORPORATE TAX HARMONIZATION PROPOSALS
Irish Finance Minister, Charlie McCreevy announced that Ireland will continue to resist proposals for corporate tax harmonization within the EU, such as those recently put forward by France and Germany, saying that, “Ireland had successfully and determinedly pursued a policy of low personal and business taxation, including our 12.5% rate of Corporation Tax, with spectacular success. We have created a dynamic employment and investment-friendly environment in which over 300,000 new jobs have been created and countless tens of thousands of existing jobs maintained over the past 7 years.” Mr. McCreevy went on to add that while there were many reasons for the successful transformation of the Irish economy, the radical reform of the tax system was an absolutely crucial element.More on this story here.
Blair pledges to fight tax harmonization.
British Prime Minister Tony Blair has rejected calls from the Conservative leader Michael Howard for Britain to reject the European Constitution outright. During a heated Prime Minister’s Questions in the Commons yesterday, Mr. Howard accused Blair of surrendering Britain’s right to legislate in areas such as taxation and ridiculed the government’s so-called Constitution “red line”q calling them “red herrings”.
However, the Prime Minster dismissed the claim, and responded “We want a Europe that makes Britain stronger, safer and richer and which respects our sovereignty in vital areas such as tax.” Blair added that “there is no way we are going to have tax harmonization or other people deciding on our tax rights.”More on this story here.
11,000 TAX-DODGERS REPAY IRELAND $600 MILLION
About 11,000 residents of Ireland who were caught hiding huge sums overseas have paid $600 million in overdue tax and penalties under threat of legal action, Ireland’s tax collection agency said. The Revenue Commissioners said the tax-dodgers voluntarily paid that amount in overdue taxes and penalties rather than face larger fines, seizure of assets and potential criminal prosecution. The agency, which has probed account records of tax-haven banks from the Isle of Man to the Cayman Islands, last year wrote to more than 100,000 suspected tax evaders in Ireland and offered them the chance to admit their evasion voluntarily and pay up. The deadline for voluntary compliance was last Thursday.More on this story here.
Revenue Commissioners seeks Faldor data from British Virgin Isles.
The Revenue Commissioners have sought documentation from the tax authorities in the British Virgin Islands as part of its probe into Faldor -- the offshore investment scheme used by certain senior executives in AIB.More on this story here.
KPMG TAX SHELTER HELPED COMPANIES CUT TAX LIABILITY BY $1.7 BILLION
As tax shelters became the subject of increasing scrutiny, finding out who bought them became equally interesting to the IRS and the media. Newly disclosed KPMG documents show a client list of 29 prominent American business. Companies such as Delta Air Lines, Whirlpool, Clear Channel Communications, and WorldCom made use of a KPMG shelter known as CLAS, for “contested liability acceleration strategy”, to shave $1.7 billion in tax liability.
The IRS declared the tax shelter to be abusive in November 2003, after the 29 companies had bought it from KPMG. Still, “no one purchases a shelter like this without knowing they’re taking significant risks," said Joseph Bankman, a tax-law professor at Stanford University. “It’s a classic case of getting something for nothing.” A January 2000 KPMG slide presentation called CLAS “an aggressive strategy” and told tax partners and managers to target companies that had “implemented risky strategies in the past.”More on this story here.
HOUSE PASSES OVERHAUL OF CORPORATE TAX CODE TO STOP EU SANCTIONS
The House of Representatives voted to reorder the U.S. corporate tax code to halt rising trade sanctions imposed by the EU, by a vote of 251-178. It cuts taxes for manufacturers and companies expanding outside the U.S. such as General Electric. It raises taxes on large exporters like Microsoft, Boeing, and Caterpillar and penalizes U.S. corporations that use abusive tax shelters. Lawmakers are under pressure to restructure an export subsidy ruled illegal in 2002 by the World Trade Organization, which authorized EU sanctions that may reach $4 billion annually. The EU began levying the tariffs in March, starting with a 5% duty on products including jewelry, textiles and wood. Those tariffs are at 8% and accelerating by one percentage point a month.
Critics led by Democrats such as New York Representative Charles Rangel urged lawmakers to reject what they describe as a bloated bill filled with targeted tax breaks for special interests and rewards companies that shift hiring overseas. The beneficiaries would include makers of hunting and fishing equipment and owners of race cars. The bill passed largely along party lines. Of the 228 Republicans in the House, 23 voted against it. Forty-eight of the chamber’s 205 Democrats voted for it.
The two-year battle has pitted companies like Boeing and Caterpillar, which benefit most from the export tax break Congress must repeal, against multinational corporations like General Electric and Citigroup, which want Congress to change the way the U.S. taxes their global income to end what they say is double taxation. The bill replaces the export tax break with a new 32 percent tax rate for manufacturers. House passage of the bill would trigger the start of negotiations with the Senate on major differences in the two bill versions before it can be sent to President George W. Bush to be signed into law.More on this story here.
OFFSHORE FINANCIAL CENTERS AFFECT CROSS-BORDER CAPITAL FLOW IN CHINA
According to a research report completed recently, a number of offshore financial centers like the British Virgin Islands, Cayman Islands, Western Samoa and Bermuda have become important sources of foreign investment for China, and the fast-growing investment from these regions have become quite prominent in the capital inflow that China has experienced in recent years. By actual investment amount, in 2002 and 2003, the British Virgin Islands ranked the second largest source of foreign investment for Mainland China. And now there are “tens of thousands” of Chinese offshore companies registered at offshore financial centers.
Dr. Mei Xinyu, author of the report, notes that we cannot afford to neglect the effect of offshore financial centers on cross-border capital flow in China. Why do so many Chinese enterprises go to such distant islands -- “offshore financial centers” to register “offshore companies”, and then make a “detour” to invest in China? Dr. Mei sees five motives behind this moves, and at least five problems associated with the moves.
Some Chinese companies were using offshore operations as a short-cut to listing on foreign stock exchanges as the Chinese regulations for a domestic firm to list overseas were very complicated and strict, Xinhua said. Offshore operations could also be used to disguise non-performing assets and debts by removing them to a firm set up in those regions where the company’s financial situation would be kept secret, he said. They could also be used for illegal transfers of state assets by corrupt officials or managers of state-owned enterprises.More on this story here and here.
IRS OFFSHORE FINANCIAL ACCOUNT REPORTING DEADLINE IS JUNE 30
By June 30th all US persons must report to the IRS all offshore bank or investment account(s) if their aggregate value exceeded $10,000 at some point during 2003. If any accounts were denominated in a foreign currency the (often drastic) currency value swings may have pushed the total over the limit at some point during 2003. If you are a U.S. taxpayer, you already should have indicated the presence of these accounts on IRS Form 1040B.IRS Form 1040B instructions here. IRS Form 1040B here (PDF file). Treasury Form TDF 90-22.1 here (PDF file).
LAUGHING ALL THE WAY FROM THE BANK: CRIME DOES PAY IN THE CITY OF LONDON
When Joyti De-Laurey left Southwark Crown Court on Monday, she did not return to the respectable life she had built for herself and her family in the well-heeled town of Cheam. She will, in fact, be away from her husband and six-year-old son for quite some time -- seven years, to be spent in one of Her Majesty’s prisons, for stealing £4.4 million from her former employer, the investment bank Goldman Sachs. The prison sentence was the culmination of an in-depth investigation by the City of London Police, and punishment for fooling some senior individuals in the world of banking.
The fantasy land of the super rich that De-Laurey so wanted to be part of must seem a long way away now, as she prepares to serve her sentence. Yet, it is quite possible that much of that life of luxury might be waiting for the 35-year-old -- who has also worked on a market stall and run a sandwich shop in the course of her eclectic career -- when she is freed. That is because tracking down assets gained by illegal means is a hugely difficult task, and the legal hurdles to gain access to suspected criminals’ personal financial information are often insurmountable.
There is no doubt that being convicted of any crime takes its toll on the individual. Yet, for those who can look forward to a stash of cash or other goodies they have hidden away until after they have served their time, it would appear that crime pays in the City.More on this story here.
THE PENTAGON -- SPYING IN AMERICA?
Without any public hearing or debate, Defense officials recently slipped a provision into a bill before Congress that could vastly expand the Pentagon’s ability to gather intelligence inside the United States, including recruiting citizens as informants. Ever since the 1970s, when Army intel agents were caught snooping on antiwar protesters, military intel agencies have operated under tight restrictions inside the United States. But the new provision, approved in closed session last month by the Senate Intelligence Committee, would eliminate one big restriction: that they comply with the Privacy Act, a Watergate-era law that requires government officials seeking information from a resident to disclose who they are and what they want the information for.
The CIA always has been exempt -- although by law it is not supposed to operate inside the United States. The new provision would now extend the same exemption to Pentagon agencies such as the Defense Intelligence Agency -- so they can help track terrorists. A report by the Senate Intelligence Committee says the provision would allow military intel agents to “approach potential sources and collect personal information from them” without disclosing they work for the government. DIA officials say they mainly want the provision so they can more easily question American businessmen and college students who travel abroad. But Pentagon spokesman Bryan Whitman concedes the provision will also be helpful in investigating suspected terrorist threats to military bases and contractors inside the United States.More on this story here.
24-HOUR CAMERA SURVEILLANCE IN BALTIMORE IS PART OF BIGGER PLAN
From the Inner Harbor to the Bay Bridge, Baltimore and Maryland homeland security authorities are beginning to build a regional network of 24-hour surveillance cameras that will first go live this summer. A $2 million federal grant will expand the cameras into downtown’s west side by early November. What of privacy concerns raised by groups opposed to cameras constantly monitored by retired police officers or college students? “We’re at war,” said Dennis R. Schrader, director of homeland security for Gov. Robert L. Ehrlich Jr.
The network is part of a comprehensive strategy in the Baltimore area to spend $25 million in homeland security grants this year and next to improve regional cooperation on terrorism concerns. The idea stemmed from a regional group of leaders that is jointly acquiring decontamination equipment and backups for 911 and power systems. The network of cameras will be placed in downtown’s west side because it has light rail and Amtrak lines, federal and state government buildings, and many cultural institutions.
The city wants companies capable of building the system to submit bids by the end of this month. “The purpose of the ... system is to provide for the homeland defense ... while also reducing crime and public disorder,” reads the request for proposals. “Cameras will only observe and record that which a police officer or private citizen could legally see.”More on this story here.
RFID’S: CONSUMER FRIEND OR PRIVACY FOE?
Antoine Hazelaar has a chip on his shoulder -- or rather just beneath the skin of his left arm. It is a piece of silicon the size of a grain of rice, and it emits wireless signals that are picked up by scanners nearby. Ever since the 34-year-old Web-site producer had the chip implanted in his arm, he has enjoyed VIP status at Barcelona’s Baja Beach Club. Instead of queuing up behind velvet ropes, Hazelaar allows the bouncer to scan his arm, and strolls right in. If he wants a drink, the bartender waves an electronic wand that deducts from the €100 tab on Hazelaar’s chip. Such sci-fi clubbing is made possible by Radio Frequency Identification, or RFID, technology -- tiny digital chips that broadcast wireless signals. RFID tags are cheap and small enough to be disposable, and they are getting cheaper and smaller by the day.
The technology has the potential to transform our relationship to the objects around us. In theory, stores could dispense with checkout counters -- instead, you would grab items off the rack or shelves and walk out the door, while an RFID reader takes note of the items and takes the money right out of your e-wallet. The prospect is exciting, but it raises troubling questions about the invasion of privacy. For now, businesses see it as a way to save money and improve service. RFID will also help combat theft and counterfeiting, problems that cost businesses $500 billion a year.
Privacy implications remain a big obstacle. The fear is that companies or governments could use the tags as a means of surveillance. “Supermarket cards and retail surveillance devices are merely the opening volley,” says Katherine Albrecht, founder of the U.S.-based privacy group caspian. “If consumers fail to oppose these practices now, our long-term prospects may look like something from a dystopian science-fiction novel.” Proponents counter that RFID tags transmit for only a few meters, and the data can be encrypted or deactivated once a product leaves the store. Nevertheless, caspian and other watchdog groups have won concessions from retailers. In any case, ubiquitous chipping is years away.More on this story here.
Putting drinks on the cuff.
Precision Dynamics Corp., an automatic-identification wristband system provider, announced that it has licensed Intelli-Check ID-CHECK software to enhance its wristband identification system. The PDC AgeBand Electronic Age/ID Verification System uses the ID-CHECK software to verify that an ID card is not expired or counterfeit, while the PDC software prints the ID information onto a wristband. The primary purpose of the AgeBand system is to verify a customer’s age. But with the inclusion of an RFID chip in the wristband, the system also can be used for a variety of functions such as tracking customer purchases and serving as an e-wallet.
To use the AgeBand system, a customer presents an ID the entrance of an event or business. The system, which comes with a bar code scanner and magnetic stripe reader, uses ID-CHECK to analyze the encoded data in mag stripes and two-dimensional bar codes on government-issued IDs from approximately 60 states and provinces in the U.S. and Canada to determine if the content and format is valid. If the ID is valid and the customer is found to be old enough to enter, the AgeBand system prints the customer’s name, the words “Age ID Verified 21” and other information from the ID onto a plastic wristband that cannot be removed without being damaged or destroyed.More on this story here.
Using RFID to manage evacuations.
Axcess International, a Dallas-based provider of RFID-enabled personnel access control, asset management and surveillance systems, recently marketing a new use for its RFID tag system, ActiveTag: emergency-evacuation management. The ActiveTag system, which is in use by the U.S. military to track vehicles, personnel and missiles, as well as being tested by businesses, was designed to help track movement of office personnel for security reasons. But the company maintains that its system can provide an effective way for businesses and organizations to track their employees’ evacuation of a facility in the event of a fire or some other disaster.More on this story here.
FAST-TRACKING FREQUENT FLYERS
The Transportation Security Administration is finally taking a significant step toward speeding the security process for at least some flyers. Aviation sources say that the TSA will announce the launch of a three-month trial of its Registered Traveler program, which will start at five airports, beginning in Minneapolis-St. Paul and then in other cities, including Los Angeles and Houston. A sort of fast track for frequent flyers, the program aims to let approved passengers use less crowded lanes to the security checkpoints and possibly avoid such routine security measures as removing their shoes and coats. To gain that privilege, passengers must submit to an extensive background check, including searches of commercial and government databases. After being approved and paying a small annual fee (yet to be determined), they would be issued a card -- containing a biometric identifier (a fingerprint, for example) and personal data -- that shows they are entitled to the special security treatment.More on this story here.
U.S. DELAYS BIOMETRIC PASSPORT DEADLINE
The House of Representatives has voted to delay for one year the deadline for 27 countries to provide their citizens with tamperproof passports that can be read by machine. The vote responds to complaints, mostly from European nations with visa waiver agreements with the U.S., that they will be unable to meet the October 26 deadline for issuing new biometric passports. It also challenges administrative assertions that other countries need an extra two years to overcome technology problems such as chip durability and resolve privacy questions. The bill must still be taken up by the Senate.More on this story here.
GOVERNMENT “SPY” PLANS CAUSE PROBLEMS IN AUSTRALIA
One of Australia’s leading betting operators, Tab, have released comments regarding new proposals by the Australian government concerning business. These proposed changes ask businesses like real estate agents, jewelers, lawyers, accountants and bookmakers to survey their clientel in an attempt to increase monitoring of money laundering within the country.
Reactions from all industries potentially affected by the possible changes have been fierce, with reservations being expressed across the board. The proposal requires banks and other businesses dealing with large cash transactions to monitor any clients who may seem suspicious and maintain secret files about them. Any particularly or suspiciously large transactions are then to be communicated to AusTRAC, the national financial intelligence unit. The reservations expressed so far since the planned intentions of the government have become known, concern mainly the costs of introducing such a scheme to their business practices, potential professional liability, and unclear customer confidentiality issues.More on this story here.
MGM MIRAGE CASINO CUSTOMERS GAMBLE WITH PERSONAL DATA
This treasure trove of data can include guests’ names, addresses, birth dates, Social Security numbers and driver’s license numbers. Frequently, the info is compiled as people register for so-called players clubs, which allow gamblers to accrue points for free meals and hotel rooms based on money spent at the tables. The company says it does not sell or disclose guests’ personal information to third parties. But -- and this may be a fuzzy distinction for many people -- it does share guests’ info with “strategic partners.”
Who exactly are these strategic partners? Yvette Monet, an MGM Mirage spokeswoman in Las Vegas, is not saying. The practice of sharing information with undisclosed corporate recipients might strike some as a decidedly less-than-transparent way of doing business. Then there is the matter of all but disowning responsibility for people’s personal info once it has been handed to a “strategic partner”.More on this story here.
BREAKING CODES: AN IMPOSSIBLE TASK?
Recent reports that the U.S. had broken codes used by the Iranian intelligence service have intrigued experts on cryptology because a modern cipher should be unbreakable. Four leading British experts said that the story, if true, points to an operating failure by the Iranians or a backdoor way in by the National Security Agency (NSA) -- the American electronic intelligence organization.
Simon Singh, author of The Code Book, a history of codes, said, “Modern codes are effectively unbreakable, very cheap and widely available. I could send an email today and all the world’s secret services using all the computers in the world would not be able to break it. The code maker definitely has a huge advantage over the codebreaker.” It is probable, though not certain of course, that Iran was using what is called public-private key or asymmetric cryptography. In this system, the message is encoded by someone using a freely distributed public key. This can be decoded only by someone using a different private key.
Ross Anderson of the Computer Laboratory at Cambridge University said that, “As the former chief scientist of the NSA once remarked at one of our security workshops, almost all breaks of cipher systems are due to implementation errors, operational failures, burglary, blackmail and bribery.” Professor Fred Piper of the Royal Holloway College made the same point strongly: “There is a difference between breaking a code and breaking a system. In general it is true that a system using a practically unbreakable cipher might be broken though a management fault.” The three “Bs” -- burglary, blackmail and bribery -- might have to be employed if there is no other way of getting at the decryption mechanism. We are back to the world of spies. Simon Singh says that sometimes there is a “backdoor” way in through deliberately corrupted software.More on this story here.
FREQUENT FLIER REGISTRATION PROGRAM TO BE TESTED
Travelers who fly regularly out of five major U.S. airports including Reagan National will be able to apply for a quick pass through security lines this summer in an experimental program announced yesterday by the Transportation Security Administration. In return for being able to use a special security lane, avoiding the slower standard checkpoints, travelers will have to provide the agency with their name, address, phone number, date of birth, digital fingerprint and iris scan. The so-called registered traveler program aims to identify passengers who pose less of a security threat to airlines and to move them swiftly through security. With those travelers out of the way, the TSA said security screeners can focus on other travelers who might pose more of a risk.
The program’s debut is a reversal for the TSA. The TSA’s first leader, John W. Magaw, said he opposed the creation of the program, then called trusted traveler, for fear that terrorists could join and become a “trusted” part of the system to take advantage of the limited screening. TSA’s acting administrator, David M. Stone, said the program would still check every passenger and his or her belongings with an X-ray machine and metal detector.More on this story here and here.
US-EU DEAL ON FLIGHT DATA LEADS TO DISPUTE
A controversial Europe-US agreement on air passenger information was in the eye of the storm again because of mounting pressure from the European parliament. EU governments and the European Commission have assented to Washington’s request to pass on data on transtlantic air passengers as part of the “fight against terrorism”. But the outgoing European parliament has consistently maintained that the deal with the US breaks EU data protection law, in spite of a finding to the contrary by the EC. The parliament’s legal affairs committee has now called for the European Court of Justice to annul both the finding and the US-EU agreement itself.
A majority of the parliament’s groups have pressed for an appeal, but the conservative European People’s party thinks the decision is so important that it should be decided by newly-elected members of the parliament.More on this story here.
U.S. SPOOKS WORRY ABOUT INTERNET CALLS: UNREGULATED NETWORKS COULD RESIST TAPPING
A Justice Department official told a Senate panel -- at a hearing on a bill aimed at ensuring that Internet-based phone services are not subject to the same regulations that govern traditional telephone networks -- that law enforcement officers might lack the authority to monitor the phone conversations of terrorists and criminals under the proposed law governing calls that travel over the Internet. Deputy Assistant Attorney General Laura H. Parsky said the growing popularity of Internet-based telephone services presents a new threat to law enforcement officials who are already struggling to keep up with an increasingly complex world of wired, wireless and Internet communications.
Parsky said the deregulatory approach of the bill could undermine the legal authority of law enforcement officials seeking to investigate criminal activity. She also said the Internet-based phone technology could provide a haven for criminals seeking to avoid the kind of surveillance allowed on regular telephone systems. Sen. Ron Wyden (D-Oregon) asked Parsky if investigators had ever been hampered in their efforts to track the Internet communications of criminals. Parsky offered no specific examples. “You are now looking for a solution for a problem that has not been documented,” Wyden said.
Internet-based phone technology allows users to make telephone calls over the Internet. The technology makes it more difficult, but not impossible, for law enforcement officials to listen to conversations.More on this story here.
SWISS PARTIALLY UNBLOCK YUKOS FUNDS
Switzerland’s Federal Court has ordered officials to unblock $1.6 billion (SFr2 billion) in funds frozen as part of a probe into the Russian oil company, Yukos. The move comes after the court accepted an appeal brought by lawyers representing the jailed former boss of Yukos, Mikhail Khodorkovsky. The Federal Court disclosed that it had upheld one of a series of appeals against the freezing of bank accounts blocked at the request of the Russian authorities, but gave no further details. Five other appeals connected to the case have been rejected, while four more are still pending.More on this story here.
Russian court axes judge in Yukos appeal.
A Russian court removed the judge hearing Yukos’s appeal of a demand to pay more than $3 billion in back taxes, an apparent blow to the oil company beleaguered by a complex investigation that many believe is politically motivated. The removal was made at the demand of the Tax Ministry, which contended Moscow Arbitration Court judge Natalia Cheburashkina had demonstrated bias by not rejecting Yukos’ appeal outright. The ministry had said that the signature on Yukos’ appeal did not come from an appropriate person, the Interfax news agency said.
The ministry accuses the oil company of illegally using domestic tax havens to reduce its tax liability in 2000 and is seeking 99.4 billion rubles ($3.4 billion) in payment, a sum that Russia’s largest oil company says could drive it into bankruptcy. Yukos also is reeling from last year’s arrest and jailing of its then-CEO Mikhail Khodorkovsky and Platon Lebedev, one of the company’s largest shareholders, who are charged with tax evasion, embezzlement and fraud. Their joint trial is to begin this week.More on this story here.
IRELAND VOTES TO END BIRTH RIGHT
Irish voters have overwhelmingly backed the tightening of their citizenship laws, final referendum results show. With tallying completed in all 34 counting centers, 79% of voters wanted to end the automatic citizenship right for all babies born in Ireland. The government said change was needed because foreign women were traveling to Ireland to give birth in order to get an EU passport for their babies. Ireland has been the only EU country to grant such a right.More on this story here.
YOU HAVE RIGHTS -- IF BUSH SAYS YOU DO
This week, the U.S. Justice Department held an extraordinary news conference. After insisting for two years that details of the case of Jose Padilla, an American citizen accused of being an “enemy combatant”, had to be kept secret even from the federal courts, the Justice Department suddenly released detailed information on his interrogations and their results. What made this press conference particularly notable was its intended audience: the U.S. Supreme Court. The court is currently reviewing the Padilla case, with a decision expected in the next few weeks, and there is a growing question of whether a majority can be found to support President Bush’s claims of absolute authority to hold a U.S. citizen indefinitely without filing charges.
It is, of course, considered highly improper to stage such a news conference while a case is pending. Indeed, such a stunt is likely to outrage some members of the court. But the administration appeared to be playing for the one swing justice, Sandra Day O’Connor, who, during the arguments in April, was openly struggling to find any plausible rationale for giving a president absolute power over citizens. With the record now closed, the only realistic chance of getting such information to O’Connor was her morning newspaper.
In alleging that Padilla had planned to target apartment buildings and hotels, Deputy U.S. Atty. Gen. James Comey Jr. said the administration wanted to show that there were benefits to stripping citizens like Padilla of their rights. In a moment of extraordinary and chilling honesty, Comey explained that Padilla had to be stripped of his civil liberties because, if he used them (including his right to remain silent or his right to a lawyer), he might have been able to win his freedom. Thus, the government had to keep him away from lawyers and judges at all costs. Gone was the pretense of legality or principle. The Justice Department had finally found its natural moral resting point: Civil liberties are tolerated only to the extent that they will not interfere with the government’s actions.More on this story here.
Guantanamo: What the world should know.
Why Guantanamo represents everything that is wrong with the U.S. war on terrorism. A conversation with the Director of the Center for Constitutional Rights.More on this story here.
U.K. MONEY LAUNDERING REGULATIONS NOT COMPLETELY CUT AND DRIED
Three months into the new money laundering reporting regime, accountants are still hopeful of gaining similar protection for privileged information obtained from clients to that already enjoyed by lawyers. The accountancy profession seemed to have failed in its lobbying to have privileged information excluded when the statutory requirement to report suspicious activity under the Money Laundering Regulations and Proceeds of Crime Act came into force unchanged on 1 March.
However, last week Felicity Banks, secretary of the money laundering working party of the profession’s umbrella body, the Consultative Committee of Accountancy Bodies, confirmed that, “The situation described in our guidance to members in February remains the same. The privilege issue is still being discussed with government.” One window of continued opportunity is the draft third European Union directive on money laundering which is expected to be published before the summer. This was foreshadowed by the second directive of 2001 on which the UK’s new money laundering regulations were based.
It consolidates both the first and second directives and takes on board revisions made by the multinational Financial Action Task Force to its so-called “40 Recommendations” or principles for tackling money laundering to which the G7 nations, the EU and other countries are bound. The FATF’s Recommendation 17 says that “Lawyers, notaries, other independent legal professionals, and accountants acting as independent legal professionals, are not required to report their suspicions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege.” Accountants argue that they are certainly acting as legal professionals when advising on areas such as tax and the Companies Acts.More on this story here.
SINCE KING GEORGE III, RESISTANCE HAS BEEN THE U.S. LEGACY -- AND IT STILL IS
From the 18th century on, the people of this land have resisted government contempt for the rule of the law -- starting with King George III. But seldom before has there been so widespread a refusal to trust the national government -- cutting across political, religious, ethnic, and other divisions -- as the current rising refusal, even during a war on international terrorism, to yield to the Bush administration’s subversions of the Constitution in the urgent cause of national security.More on this story here.
THE REACH OF U.S. ANTITRUST LAW OVERSEAS IS LIMITED
The Supreme Court ruled in a closely watched international price-fixing case that federal antitrust law does not apply to transactions that take place overseas and that cause harm there unless a company's actions in the United States can be shown to have contributed to the harm. The decision, 8 to 0, overturned a ruling last year by the United States Court of Appeals for the District of Columbia Circuit that had caused considerable alarm among multinational corporations and foreign governments by significantly expanding the reach of American antitrust law and the jurisdiction of the federal courts to hear such cases.
The Bush administration had urged the justices to overturn the appeals court’s ruling, which came in a suit by foreign customers of vitamin manufacturers and distributors that were the subjects of a United States investigation in the late 1990’s into international price-fixing. That investigation led to guilty pleas and to the biggest criminal fine, $500 million, ever obtained by the Justice Department, in addition to heavy civil penalties imposed by the European Union and several foreign governments.
The case before the Supreme Court was a private lawsuit seeking triple damages against the same defendants. It was brought by five companies in Australia, Ecuador, Panama and Ukraine as a class action on behalf of overseas purchasers who use vitamins in a range of commercial applications, like animal feed and additions to breakfast cereal. Stalled by the issue of jurisdiction, the private lawsuit has not yet gone to trial. Writing for the court, Justice Stephen G. Breyer said that the Sherman Antitrust Act does not cover the foreign effects of anticompetitive conduct unless the defendants’ domestic behavior can be shown to have contributed to those effects.More on this story here.
THE SON OF PATRIOT ACT ALSO RISES
While activists and politicians work to repeal or change parts of the Patriot Act that they say violate constitutional rights, Patriot Act II legislation -- which caused a stir when it came to light last year -- is rearing its head again in a new bill making its way through Congress. The bill would strengthen laws that let the FBI demand that businesses hand over confidential records about patrons by assigning stiff penalties (up to five years in prison) to anyone who discloses that the FBI made the demand. The bill would also let the FBI compel businesses to cooperate with record requests, and it would expand the government’s secret surveillance powers over noncitizens in the United States.
“There is no reason for this legislation,” said lawyer Chip Pitts, head of the Bill of Rights Defense Committee of Dallas and a former constitutional law professor. “Given the expanse of powers and secrecy already granted in the Patriot Act, and given the unclear security benefits and possible security detriments of that legislation, why do we need a further amendment of the law to grant more powers to the government?”
The bill, HR 3179, was introduced last September by Rep. James Sensenbrenner (R-Wisconsin) and was co-sponsored by Rep. Porter Goss (R-Florida), chairman of the House Intelligence Committee and a possible contender to replace departing CIA chief George Tenet. It contains four sections that first appeared in a proposed piece of legislation dubbed Patriot Act II. That proposed law was discovered last year by the Center for Public Integrity just weeks before the invasion of Iraq. Patriot Act II, or “Son of Patriot” as critics called it, was written by the Justice Department to expand Patriot Act powers, but the department was forced to shelve the proposal after news of it created an uproar.
But critics, like conservative former Rep. Bob Barr (R-Georgia), say that rather than abandoning the legislation altogether, the department has been extracting provisions and having sympathetic lawmakers slip them one by one into new bills to pass the legislation piecemeal. At least five other bills pending in Congress also contain provisions from Patriot Act II, but HR 3179 is the one that is in imminent danger of being passed under the radar.More on this story here.
POST-9/11 LAWS EXPAND TO MORE THAN TERRORISM
Federal and state prosecutors are applying stiff antiterrorism laws adopted after the 9/11 attacks to broad, run-of-the-mill probes of political corruption, financial crimes and immigration frauds. If the government gets its way, even routine transactions of buying or selling American homes could soon come under the scrutiny of money-laundering provisions of the USA Patriot Act. The Treasury Department, which already has caught up financial transactions in casinos, storefront check-cashing stores and auto dealers for scrutiny, wants to expand Patriot Act coverage to home purchases as well.
Since 9/11, critics say the greatest effect of new state and federal antiterrorism laws has been on crimes already covered by other laws. The FBI has used Patriot Act provisions in a political corruption probe involving a Las Vegas girlie bar, and the Justice Department reported to the House Judiciary Committee last year that it used the new law in probes of credit-card fraud, theft from a bank account and a kidnapping.
Legal experts say they are not surprised that antiterrorism laws are being used for more than just terrorism. Peter Swire, a law professor at Ohio State University who worked in the Clinton administration, recalled that Congress adopted antiracketeering laws in 1970 with the intent to thwart mobsters, but the punitive laws have since been broadened and put to use in civil cases against corporations, and most recently against the organized campaigns of pro-life protesters against abortion clinics. Swire said one little-noted impact of that law on the judicial system is that prosecutors can add more charges against defendants, even when terrorism is not involved. Swire contends the Patriot Act has been so controversial that the Justice Department has been very cautious in using all of its provisions. “They are careful because they know people are checking to see if it is abused,” he said. “Once it becomes permanent, I think it will be used more widely.”More on this story here.
CRITICS TAKE AIM AT SECRET COURT
America’s most secret court approved an average of nearly seven spy warrants each weekday last year, allowing the FBI to covertly intercept communications of suspected terrorists within the United States. And that is about all that is publicly known about the Foreign Intelligence Surveillance Court. Even the identities of the 11 federal judges who meet in the court’s secure chambers in the Department of Justice headquarters were not generally known until government watchdog groups last year released membership rosters obtained through the Freedom of Information Act.
The court was created by the 1978 Foreign Intelligence Surveillance Act (FISA), which Congress passed to rein in domestic spying by the FBI on civil rights figures, Hollywood celebrities and other prominent citizens that came to light through investigations led by Sen. Frank Church of Idaho in the 1970s. Since its inception, the court has rarely rejected an FBI request for permission to spy on a foreign-born person living in the United States, a near-perfect acceptance rate the agency has pointed to as evidence that its counter-espionage surveillance passes constitutional muster.
With legislation now pending in both houses of Congress to give the court more authority, some lawmakers and civil rights groups also want more accountability, openness and congressional oversight of the surveillance authorizations, considered a basic tool of national security. But one of the FISA court’s most rigid defenders is Sen. Orrin Hatch, R-Utah. As chairman of the Senate Judiciary Committee, Hatch has kept bottled up for more than a year bipartisan legislation that would shine additional light onto the court’s proceedings, arguing the secrecy is vital to protect the country. But other committee members say they found rampant inaccuracies in warrant applications, ignorance of the law by top government attorneys, and sloppiness in executing the warrants. They say all this cries out for greater congressional oversight.More on this story here.
FEW TRIALS ACTUALLY GO IN FRONT OF A JURY
It is the centerpiece of America’s judicial process: the right to a trial by jury system that places a defendant’s fate in the hands of a jury of one’s peers. But it may surprise many to learn that nearly 95% of all cases resulting in felony convictions never reach a jury, but instead are settled through plea bargains, in which a defendant agrees to plead guilty in exchange for a reduced sentence.
For example, when Charles Gampero, Jr., was arrested and charged with murder in the second degree in 1994, the twenty-year-old insisted he was innocent. While admitting to having hit the victim while trying to break up a fight outside a bowling alley on the night in question, Gampero said the victim was very much alive when he left him. Gampero was convinced that a jury would believe his story and acquit him of the charges, but a jury would never hear his case. After jury selection had begun, Gampero and his family say the judge pressured the young man to accept a plea bargain that would send him to prison for 7 to 21 years. “[The judge] told me point blank -- he said, ‘I will give your son twenty-five to life, so you better take the plea, or if you don’t take the plea, he’s getting it,’” says Charles Gampero, Sr., whose son is now entering his 9th in prison. “We took the plea agreement thinking that the judge knew what he was talking about and my son would be home by the time he’s twenty-seven,” Gampero says. “It didn’t work out.”
To overworked and understaffed defense lawyers, prosecutors, and jurists, plea bargains are the safety valve that keeps cases moving through our backlogged courts. “The system would collapse if every case that was filed in the criminal justice system were to be set for trial,” says Judge Caprice Cosper of the Harris County Criminal Court in Houston, Texas. “The system would just entirely collapse.” Critics, however, contend that the push to resolve cases through plea bargains jeopardizes the constitutional rights of defendants, who may be pressured to admit their guilt whether they are guilty or not.More on this story here. Cato Institute report available here (PDF file).
THOSE UNITED STATES
Before the Civil War, the United States was a plural noun. The U.S. Constitution uses the plural form when, for example, it refers to enemies of the United States as “their” enemies. And this was the usage of everyone who understood that the union was a voluntary federation of sovereign states, delegating only a few specified powers, and not the monolithic, “consolidated,” all-powerful government it has since become. Maybe Americans prefer the present megastate to the one the Constitution describes. But they ought to know the difference. They should not assume that the plural United States were essentially the same thing as today’s United State, or that the one naturally “evolved” into the other.
The United States are no longer a “they”; they have become an “it”. Few Americans realize the immense cost in blood, liberty, and even logic that lies behind this simple change of pronouns.More on this story here.
NO SUCH THING AS PARANOIA, PART III: DISORGANIZED CONSPIRACY
It is important to recognize that words like conspiracy and paranoid have limited credible application in political analysis or in everyday life. Fusing them into a single concept vanquishes malign motives behind political and business decisions that affect the lives of ordinary people. In the Gilded Age, which produced a golden age of journalistic muckraking, the public knew that amoral greed resorts to subterfuge and conspiracy, as the press was not monopolized by people feeding at the same trough as the robber barons.
It is no mystery that citizens of a country methodically eliminating its social services, waging “preemptive” wars on behalf of corporate interests, defunding education, and building more prisons than hospitals view the prevailing power structure as a public menace; that many of those citizens who cannot afford health care, whose jobs have been exported to countries where slave wages and child exploitation are endemic, spill over the edge, embrace bizarre cultic notions, and believe there are “aliens among us”.
The word conspiracy reduces logical thought to paranoia, and it is misleading in a different sense too: Little of what we ought to know about the dealings of power is especially secret anymore. Much of the public does not have the ability to make obvious connections between available facts. Remove education from the public agenda and you replace the capacity for analysis with an atavistic belief in horoscopes and astrology, alien abductions and Zionist imperialism.
Actual conspiracies do not involve interplanetary visitors, pod people, and the other fantasies conspiracist analysts call “stigmatized knowledge”. They involve money and power, and the manipulation of appearances by powerful interests. Conspiracies can evolve over time, without highly organized or explicit planning. Indeed, the “disorganized conspiracy” transpires in increments over generations, with no consistent personnel, and requires only a continuity of anti-populist, authoritarian ideology.More on this story here. Parts I and III here and here.
THE DEMONS WITHIN
The unfolding story of American and British guards torturing prisoners at Iraq’s Abu Ghraib Prison has shocked the world. How could these governments have condoned or ignored such things? And what kind of disturbed and perverted individuals would inflict gratuitous pain on helpless victims? Sadly, the story is no shock to anyone familiar with the nature of man and government. Numerous controlled experiments have demonstrated that when given power, the instinct for inflicting injury, pain, and death, lies just under the veneer of civility.
The source of these sadistic tendencies is our evolutionary heritage. In her studies of African chimpanzees, primatologist Jane Goodall provided clear evidence that Homo sapiens closest primate cousins mutilate and kill other chimpanzees when the perpetrators are in a position of power. In an eerie reflection, the Yanomamo tribe of the Amazon exhibits similar behavior. Yanomamo men sneak up on a neighboring village and, after killing or chasing away the men, kill all the children. To the Yanomamo, this is exhilarating entertainment and a source of pride. The chilling similarity between the primate and Yanomamo bloodlust and the smiling braggadocio of the Abu Ghraib guards represents a genetic connection millions of years old.
Ten thousand years of civilization has tempered, but hardly eliminated, these violent instincts. And the overwhelming majority of the world’s population believes that government is the best means of suppressing their expression. Sadly, the opposite is true. The evolution of government has concentrated power in the hands of a few, teasing out the animal instincts of the few who wield that power. As Lord Acton warned, “Power corrupts, and absolute power corrupts absolutely.”More on this story here.
MURRAY ROTHBARD’S LIBERTARIAN MASTERPIECE, THE ETHICS OF LIBERTY, IS NOW ONLINE
The Ludwig von Mises Institute has made the book available online as a PDF file.More on this story here.
RATING THE PRESIDENTS
With the passing of President Reagan, historians, scholars and journalists have again taken to rating our presidents. Invariably, greatness is ascribed to only three: Washington, Lincoln and FDR. Which reveals as much about American historians, scholars and journalists as it does about American presidents. Certainly, Washington is our greatest president, the father of our country and the captain who set our course. But Lincoln is great only if one believes that preventing South Carolina, Georgia and the Gulf states from peacefully seceding justified the suspension of the Constitution, a dictatorship, 600,000 dead and a resort to a total war that ravaged the South for generations.
As for FDR, he was the greatest politician of the 20th century. But why call a president great whose government was honeycombed with spies and traitors, and whose war diplomacy lead to the loss of 10 Christian countries of Eastern Europe to a Muscovite despot whose terrorist regime was the greatest enemy of human freedom in modern history? FDR restored the nation’s confidence in his first term and won a 46-state landslide to a second. But by 1937, the Depression was back and we were rescued only by the vast expenditures of World War II into which, even admirers now admit, FDR lied his country. The man talked peace as he plotted war.
Now consider one of the men whom all the raters judge a “failure” and among our worst presidents, Warren G. Harding. Harding served five months less than JFK, before dying in office in 1923. Yet his diplomatic and economic triumphs were of the first order. Harding, Coolidge, Eisenhower and Reagan kept us out of war and presided over times of peace, security and often of soaring prosperity. Yet, the 20th century presidents who took us into war and who lost the fruits of war -- Wilson, FDR, Truman -- are “great” or “near great”. These ratings tell us less about presidents than they do about historians, scholars and journalists.More on this story here.
Down With the Presidency
The modern institution of the presidency is the primary political evil Americans face, and the cause of nearly all our woes. It squanders the national wealth and starts unjust wars against foreign peoples that have never done us any harm. It wrecks our families, tramples on our rights, invades our communities, and spies on our bank accounts. It skews the culture toward decadence and trash. It tells lie after lie. Teachers used to tell school kids that anyone can be president. This is like saying anyone can go to Hell. It’s not an inspiration; it’s a threat.
The presidency -- by which I mean the executive State -- is the sum total of American tyranny. The other branches of government, including the presidentially appointed Supreme Court, are mere adjuncts. The presidency insists on complete devotion and humble submission to its dictates, even while it steals the products of our labor and drives us into economic ruin. It centralizes all power unto itself, and crowds out all competing centers of power in society, including the church, the family, business, charity, and the community. I’ll go further. The US presidency is the world’s leading evil. ...More on this story here.
HAYEK THE CONSERVATIVE?
Friedrich August von Hayek, one of the 20th century’s great economists and philosophers, winner of the 1974 Nobel Memorial Prize in Economic Sciences, is generally known as one of the leading theoreticians of free market economics and, more broadly, of libertarian (he always said “liberal”) social thought. He was eloquent in his defense of the dynamic change that markets bring, but many people are less aware of a deeply traditionalist, conservative strand in his thinking, a strand that traces its lineage back at least to Edmund Burke, the 18th-century English philosopher and politician. Burke famously poured scorn on the French Revolution and its claims to be inventing a new and enlightened social order. The attempt to reinvent society on abstract principles would result not in utopia, he contended, but in tyranny. For Burke, the existing order might be flawed, even in some respects evil, but it had an organic sense to it; throwing the whole system out the window would bring greater flaws and larger evils.
Outside Britain and America, few people listened. The French Revolution inspired generations of reformers to propose their own utopian social experiments. Communism was one such, fascism another; today, radical Islamism (the political philosophy, not the religion) is yet one more. “The attempt to make heaven on earth invariably produces hell,” wrote Karl Popper, another great Austrian-British philosopher, in 1945, when the totalitarian night looked darkest. He and Hayek came of age in the same intellectual climate, when not only Marxists and fascists but many mainstream Western intellectuals took for granted that a handful of smart people could make better social decisions than could chaotic markets, blind traditions, or crude majorities.
It was in opposition to this “fatal conceit”, as he called it, that Hayek organized much of his career. He vigorously argued the case for the dynamism and “spontaneous order” of free markets, but he asserted just as vigorously that the dynamism and freedom of constant change were possible only within a restraining framework of rules and customs and institutions that, for the most part, do not change, or change at a speed they themselves set. “Every man growing up in a given culture will find in himself rules, or may discover that he acts in accordance with rules -- and will similarly recognize the actions of others as conforming or not conforming to various rules,” Hayek wrote in Law, Legislation, and Liberty. The rules, he added, are not necessarily innate or unchangeable, but “they are part of a cultural heritage which is likely to be fairly constant, especially so long as they are not articulated in words and therefore also are not discussed or consciously examined.” Like prices, the customs generated by societies over time may seem irrational or arbitrary. But the very fact that these customs have evolved and survived to come down to us implies that a practical logic may be embedded in them that might not be apparent from even a sophisticated analysis. And the web of custom cannot be torn apart and reordered at will, because once its internal logic is violated it may fall apart.
In his 1952 book The Counter-Revolution of Science: Studies in the Abuse of Reason, Hayek made a statement that demands to be quoted in full and read at least twice: “It may indeed prove to be far the most difficult and not the least important task for human reason rationally to comprehend its own limitations. It is essential for the growth of reason that as individuals we should bow to forces and obey principles which we cannot hope fully to understand, yet on which the advance and even the preservation of civilization depends. ...”
But the extreme Hayekian position -- never reform anything -- is untenable. And that point was made resoundingly by no less an authority than F.A. Hayek himself. In a 1960 essay called “Why I Am Not a Conservative”, he took pains to argue that his position was as far from that of reactionary traditionalists as from that of utopian rationalists. We must move ahead, he argued, but humbly and with respect for our own fallibility. Move ahead, but be careful.More on this story here.
ON THE DISAPPEARANCE OF THE AMERICAN DREAM
The end of World War Two in 1945 ushered in a mood of exuberance throughout America. Our soldiers returned home with visions of peace and prosperity. A catchy hit song that came out that year describes finding the right girl, traditional marriage, owning a home, and raising a family in a land of plenty. This was called the “American Dream”. Of course, from the prospect of 1945, it was not too far-fetched. Amazing technological advances were being made. Two parent families were the norm and only one parent had to work outside of the home. The wife kept house and cared for the children and the husband earned enough to support the family. In 1945, the American Dream was alive and well.
But in the decades following the end of World War II, America has been besieged with imperialistic escapades, dubious social theories, imprudent legislation, ill-considered Supreme Court decisions and unchecked immigration. I think it would be enlightening to examine a few of our government’s major blunders made during the 50 year period following the end of the World War II.
Government falls for every crackpot theory that comes along and has no compunction about spending our tax dollars to try to make it work. Even after a project has conclusively failed, government keeps funding it. And, like a herd of swine, snouts deep in the feeding trough, Congress continues to squander billions of our tax dollars on “pork barrel” legislation, whose only purpose is to get them re-elected. In 2003, pork barrel projects cost the taxpayers approximately $23 billion. We can only guess about the level of prosperity American families would enjoy today if trillions of our tax dollars had not been squandered on 50 years of imprudent undertakings. The United States Congress are supposed to be stewards of the American Dream. But rather than keep the Dream alive, they are hastening its demise.More on this story here.
WORSHIPERS AT THE SECULAR ALTAR
Everyone knows that the place of religion in the public sphere is facing serious challenges. There is some confusion, however, about where those challenges come from. Is it from civil libertarians? Atheists? Actually, no. What we are observing here is not what it may appear to be -- a struggle of religion against no religion. It is instead a battle pitting one religion, broadly speaking, against another. On one side we have, primarily, the biblical faith of Jews and Christians. On the other side, secularism. If you object that secularism has no deity, remember that other recognized faiths, for example Zen Buddhism, likewise lack a belief in God.
What is a religion? Simply, a system of beliefs based on stories that explain where life comes from, what life means, and what we, as living beings, are supposed to be doing with our few allotted years. Judaism and Christianity have their sacred stories -- the biblical account of creation, followed by Noah’s flood and on through the entire narrative of Scripture -- along with their codes of right conduct. For Jews and Christians, the meaning of human existence lies in communion with God in the context of eternal life.
For each element of Judeo-Christian faith, secularism has its counterpart. Like Christianity and Judaism, secularism promises eternal life -- well ... long life, which is the central point of the most common strain of secular faith and which explains the pop-cultural focus on moral commandments having to do with physical health: Thou shalt not smoke. Thou shalt not get fat. Thou shalt fight global warming by taking the bus to work. In secularist doctrine, a fat person is not merely unhealthy; he is a sinner in need of salvation. To address his situation, one secular gospel preaches the good news of the South Beach Diet, another that of the apostle Atkins. There is a secular creation account -- evolution through random mutation and natural selection.
It emerges that, in recent controversies surrounding the Pledge of Allegiance and the L.A. County seal (which includes a tiny cross), what we are seeing is an unacknowledged interreligious civil war. Centuries ago in Europe and the Middle East, intolerant faiths sought to suppress one another, erasing symbols of their rivals wherever possible. Churches were converted to mosques, their crosses removed. Synagogues were converted into churches, their Jewish symbols effaced. Today the church of secularism agitates against its rival, the Judeo-Christian tradition. In the interest of honest debate, at the very least it would be of benefit to recognize secularism for what it is: an aggressive religion competing for converts, a faith lacking the candor to speak openly of its aims.More on this story here.
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