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Offshore News Digest for Week of July 5, 2004

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

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In A quirk of time and space, a motorist can leave France’s A8 motorway near Nice and, without seeing so much as a welcome sign, downshift into a jet-age version of the 12th century. But the 900-year-old enclave of Monaco is an anachronism at risk as a different sort of Europe takes shape. Medieval Monaco, with its storybook palace looming on a rock above the high-roller casino of Monte Carlo, is in some danger of melting away into France. Rainier III, the ramrod-straight prince who spent 50 years turning an oddment of history on a speck of barren Riviera coast into a sparkling hideout for the eccentric rich, is 81 and ailing.

The world is changing quickly around Monaco. Its French neighbours now belong to a 25-nation European Union bent on eradicating old anomalies. To survive, it is likely to need a tough-minded ruler. French authorities refuse comment on the status of Monaco, but a message was sent in 1962, when President Charles de Gaulle resolved an economic dispute with a bald show of force, and Rainier backed down in a face-saving compromise.

Monaco’s independence is in many ways a state of mind. It issues passports and postage stamps. An elected legislative council drafts bills for the prince to sign. The principality belongs to the United Nations. But even before the EU abolished checks at French road borders, visitors breezed into Monaco without realizing it. The currency is now the euro. And Monaco’s prince chooses his prime minister from among three Frenchmen picked in Paris. Quietly but increasingly, people speculate that a future French government will be tempted to exert sovereignty in the absence of a strong leader.

More on this story here.


China bluntly ruled out greater democracy in Hong Kong soon and said those pressing for what was impossible were being unwise. Hong Kong democracy activists have been campaigning to have the city’s leader elected directly in 2007, when a new chief executive is due, but a Beijing representative said there would be no change to a decision by China’s parliament ruling that out. Hong Kong was promised a high degree of autonomy under a “one country, two systems” agreement between former colonial ruler Britain and China that paved the way for the city’s return to Chinese rule in 1997. But China is believed to fear that the growing demand for democracy in Hong Kong could spill over into the mainland and threaten one-party communist rule.

More on this story here.

Hong Kong reasserts its “people power”.

Doubts about the ardor of Hong Kong’s residents for greater freedoms may have been settled Thursday on a stiflingly hot and muggy day as at least 400,000 people marched quietly from a sports park to central government offices, starting at 2:30 p.m. and continuing well past dark. The stunning turnout on the first anniversary of Hong Kong’s “people power” movement destroyed key assumptions held in official circles that last year’s epochal march of 500,000 of was due only to frustration over the handling of the SARS epidemic and a bad economy. Thursday’s turnout of grandmothers, young parents, punk-rockers, and stockbrokers was twice the size organizers had predicted. And it took place in spite of -- or because of -- China’s campaign this spring to nullify the calls for voting rights expressed by prodemocracy factions. The march ensures that Hong Kong will continue to be a thorn for Beijing. For defenders of the status quo in the former British colony, Thursday represents something of a wake-up call, analysts say.

More on this story here.

Voting with their feet in Hong Kong.

This time last year, more than half a million Hong Kongers took to the streets -- an astonishing figure, given the total population of 6.8 million population -- to voice their opposition to Article 23, Beijing’s national security legislation for governing Hong Kong, as well as Chief Executive Tung Chee-hwa’s inept response to the SARS epidemic and his poor economic record. On July 1, 2004, the seventh anniversary of Hong Kong’s handover to China, things had changed. The threat of SARS has receded, the economy is on the rebound, and the marchers were demanding universal suffrage in the 2007 and 2008 elections, which was effectively ruled out by Beijing in April. Currently, Hong Kong’s chief executive is chosen by an elite group of 800 appointees.

Many saw the rally here as a showcase of democracy to mainlanders in China. As a mainlander who studied in the U.S. for the past three years, I am proud of Hong Kong’s return to China. And I believe such a peaceful and ordered demonstration is a good thing for Hong Kong. However, I worried how rally organizers, among whom are pro-democracy legislators, would bridge the gap between Beijing and Hong Kong. Rallying a huge crowd in what might turn out to be an annual celebration of people’s power is one thing. It is a different challenge for pro-democracy legislators to figure out how to hold an effective dialogue with the central government and the executive branch in Hong Kong in order to reach an accord that is in the best interests of Hong Kong and its future.

More on this story here.

Hong Kong shapes its own identity.

Notwithstanding the hottest July 1 in 120 years, the protest turned out to be an extraordinarily disciplined affair -- not a drop of blood was shed, not even an extra piece of litter dropped. All that one could see on the sweaty faces of the demonstrators was resolve -- and hope. The show of popular will so moved tycoon Li Ka Shing, whom no one could mistake for a progressive or liberal activist, that he declared publicly last year that he was proud of this spirit of Hong Kong. Many more felt the same this year.

Mr. Chan Chi Yuen, a political columnist, said the march marked Hong Kong’s transition from an immigrant society in which people cared very little for the place where they lived to one with core values that they treasured and were prepared to fight for. It was time, he said, to bury the saying that Hong Kong people were apolitical or cared only about making money. The middle class, long considered by sociologists as the stabilizing force of any society, made up 65 and 55% respectively of participants in last year’s and this year’s marches.

A banner hoisted by one of the demonstrators last Thursday said it all: “Love for the country? Certainly ... Love for Hong Kong? Absolutely ... Love for the Chinese Communist Party? Depends on its performance ... Love for Dictatorship? No way ... Never be a slave!” Chances are that if Beijing fails to return to the more tolerant spirit of the “one country, two systems” unification model, local identity will sink even deeper roots. The last thing anybody would want is for the people’s movement to become a resistance movement.

More on this story here.


Police seized vital computer servers during a raid on the Moscow headquarters of YUKOS on Saturday, which company officials said could force an immediate halt to oil output. Russian officials occupied the building housing YUKOS, which produces a fifth of Russia’s oil, two days after a court froze its assets and gave it until next week to pay a $3.4 billion tax bill.

YUKOS produces about 1.72 million barrels of oil a day -- more than Libya -- but Russia’s pipeline monopoly has said its contribution to exports could easily be replaced by crude from other firms if production were to stop. The raid only adds to the uncertainty surrounding the future of YUKOS and its founder, Mikhail Khodorkovsky, who is in jail on charges of fraud and tax evasion.

More on this story here.

OECD slams Yukos trial.

The OECD has criticized Russia for pursuing oil company Yukos through the courts and pushing it to the brink of bankruptcy. “It is clearly a case of highly selective law enforcement,” the OECD said. It added that the courts and prosecutors are “highly politicized”. Despite President Putin’s pledge not to destroy Yukos, many analysts say its taxation woes are part of a politically motivated campaign against the company and its former chief executive Mikhail Khodorkovsky. The OECD is scathing about the motives behind the investigation.

The battle between the government and company have helped lift crude prices and hammered shares. Yukos stock has tumbled 50% since April, prompting outrage among investors. Wednesday afternoon investors seemed to be predicting better times as the stock was up 20%. Yukos, meanwhile, says its fate is in the Russian government’s hands, since a freeze on its assets means it cannot pay the tax bill.

More on this story here.


Offshoring in the financial services industry has happened much faster than anyone predicted with India accounting for four-fifths of the global market, a report prepared by well-known consulting firm Deloitte & Touche has said. Offshoring revolution in the financial services industry has happened much faster than anyone predicted and with far greater consequences with India currently accounting for around four-fifths of the global market, the report said. India has been gaining market share from established centers, such as Ireland, Canada and China. The closest competitor for now appears to be the Philippines, it said. However, some concerns has been raised that India’s success might complicate its future, as demand for skilled workers increases pressure on wages.

The numbers involved in offshoring, said Deloitte, are staggering. 2003 saw a 46% increase in the number of financial institutions with offshore operations, while the number of offshore jobs grew by 500%. The report predicted that by 2010 more than one-fifth of the overall industry cost base will have shifted offshore. This implies cost savings of more than $150 billion, a massive boon for the biggest firms, whose economies of scale tend to make them the predominant practitioners of offshoring.

More on this story here.


American companies are trying to conquer global markets, but many American executives are averse to overseas postings. As a result, a growing percentage of the executives working abroad for United States companies are either natives of those countries or expatriates of other nations, says Robert J. Freedman, chief executive of Organization Resources Counselors, which specializes in human resources management and is based in New York. Excerpts from a conversation with him follow.

More on this story here.


peaking last week, Japan’s new vice-finance minister, Koichi Hosokawa, reopened the debate surrounding a possible hike in the country’s consumption tax in a bid to help solve a growing fiscal crisis. Noting that Japan’s debt represents more than 90% of its GDP, he warned, “I think we are in a critical situation as to whether Japan can afford to let its debt-ridden finances continue.” Therefore it is important that the public debate into the raising of additional revenues, particularly through a possible hike in the 5% consumption tax, should continue, Hosokawa told a regular press conference.

More on this story here.


Beneath the surface the little island that houses more than £260 billion of its own kind of gold in offshore banking deposits and investment funds is facing a potentially massive upheaval that has ramifications for tax havens around the world. Its parliament will hear unprecedented claims the island could face “economic meltdown” in the face of local and international pressure to close loopholes that have made the island so attractive for tax exiles and offshore banks.

Since the 1970s Jersey has been a comfortable retreat for tax exiles and financial institutions. The very wealthy exiles, known as “11Ks”, of whom there are 160, have been able to negotiate their own tax rates. Others have been attracted by a 20% flat rate and an essentially British life in terms of language, currency and culture. Now the EU has signaled that it will no longer accept Jersey’s tax system. In response Jersey is introducing a zero corporate tax (10% for finance companies) in order not to scare away companies to other havens. This has created a £100 million hole in the island’s budget.

Stuart Syvret, one of the island’s most outspoken senators, told a meeting of exiles in London that “there are those of us who would much prefer to see a more balanced and less greed-oriented future for the island.” This could include a new university and a return to former levels of tourism. He will argue in parliament this week that, if the financial services industry were dramatically curtailed without other businesses in place, “the island would undergo economic meltdown.”

More on this story here.

Protests over tax proposals in Jersey.

About 1,000 people marched on the Jersey parliament in protest at service cuts and redundancies planned by the government to pay for a 0-10% corporate tax rate system, amid political and economic upheaval for the island. The £100 million hole in the island’s budget is to be filled by a sales tax, public expenditure cuts and plans to grow the economy by 2% a year. Also planned is the introduction of pay-as-you-earn and the phased withdrawal of income tax allowances for well-off households. Jersey’s 87,000 population is expected to pay a flat rate of 20 per cent in income tax but wealthy residents are able to negotiate their own tax rates.

But senators in the parliament are demanding that the government address the wider threat to tax havens, forcing a debate in the parliament yesterday on whether to hold a transparent inquiry into taxation policy. Stuart Syvret, who proposed the debate, said that even though the government voted down the inquiry, the issue of Jersey’s long-term tax future was now impossible to ignore.

More on this story here.


It would not be quite fair to call the Dalmatian coast of Croatia undiscovered, even if most Americans have at best a hazy idea of where it is. The Greeks discovered it 400 years before Christ, sprinkling its 1,100-odd islands with colonies. Since then waves of imperial sun-seekers have washed across its rocky shores, from the Romans to the Byzantines to the Venetians, all leaving behind splendid buildings to mark their landlordship. The Roman Emperor Diocletian spent his twilight days in the Croatian city of Split at what may be the biggest retirement home ever built, its main bedroom wing protected by a portico 517 feet long.

Dubrovnik, a Renaissance jewel 110 miles to the south, was shelled briefly by the Serbs in 1991 during the breakup of the former Yugoslavia. War has not cast a shadow on the region for almost ten years now, and Dubrovnik has been completely restored. Now Dalmatia’s storied coast is being discovered all over again, this time as the Mediterranean’s next Riviera -- and as an investment opportunity in the second-home sector. The old Riviera, of course, has not gone away. Come summer, hordes will infest the beaches of Spain, France and Italy. Miles of once-lovely coast now have all the charm of Atlantic City, with water so murky you can barely see your toes.

Croatia, meanwhile, has been waiting patiently. Communism and ethnic strife have kept it isolated and underdeveloped. Over here the Med (technically the Adriatic) still sparkles. Beaches may be rocky, but the absence of sand leaves the waters preternaturally clear. Steep limestone hills thatched with rosemary, olive trees and lavender loom dramatically out of the sea. Port villages boast fortresses, churches and palazzi, all built from the same stone. IberianSun, an English real estate agency that helped turn Spain’s Costa del Sol into a London suburb, has understandably been looking for the next candidate for overdevelopment. Compared with Europe’s A-list beaches, Croatia’s are still cheap. Modest stone houses on the islands can be had for as little as $70,000, and $150,000 buys a very comfortable 1,100-square-foot vacation home. But attempting purchase is not for the faint of heart

More on this story here.


To the millions of tourists who come through Dubai’s titanium-steel airport terminal, the city seems a chrome and glass fantasy, part Disney, part Scheherezade -- a vision built on sand. Compared to old regional capitals like Cairo, Beirut, and Damascus, Dubai is trendy, excessive, even synthetic. Behind the excess, there is an equally audacious initiative to transform Dubai from yet one more oil-dependent state into a world capital of media and commerce. Using its short-lived oil wealth, the emirate has built “free zones”, areas earmarked for economic liberalization, technological innovation, and political transparency.

Dubai’s success comes at an odd time for the Middle East. According to a recent UN Human Development Report, Arab countries have stalled in every conceivable area of progress, from literacy to women’s rights, while unemployment and population growth are soaring. The US believes that the future of the Arab world lies in democracy, starting in Iraq. Dubai offers another route: a model inspired not by Western democracies but by American-style enterprise -- free markets, open immigration, and satellite dishes. With its gilded hotels and oil wells, Dubai is not so much a city as an idea -- one that can spread and revive its neighbors, just as Dubai has revived a creed that has long driven Arab history: Not Islam. Commerce.

More on this story here.


South Africa’s ruling party has warned that it wants to get rid of foreign speculators as a way of tackling rising property prices. Property prices rose by a quarter in South Africa last year, partly because of foreigners buying properties on the coast. Kgalema Motlanthe, secretary-general of the African National Congress (ANC), said the party wanted to eliminate what he called “absentee landlordism”. Foreigners buy land for future sale at exorbitant prices and not job creation, he claimed. The ANC also wants to review the foreign ownership of fallow farmland. A decision on whether to restrict foreign landownership has not yet been taken.

More on this story here.

SA dividends taxation scares off multinationals.

The corporate tax rate applied to companies in SA is currently 30%. However, an additional secondary tax is imposed at the rate of 12.5% on any net dividends that are declared by a company. It was this secondary tax that was still undermining dividend remittance, said experts. The experts said that some multinationals were having second thoughts about repatriating profits back to SA as the costs were still too high.

More on this story here.


Kofi Annan’s special adviser on global anti-poverty targets Jeffrey Sachs first called on developed countries to cancel Africa’s debts. But failing that, he said Africa should ignore its $201 billion debt burden. Economic analysis, he said, had shown that it was impossible for Africa to achieve its development goal of halving poverty if it had to repay the loans. “The time has come to end this charade,” he said. “The debts are unaffordable. If they won’t cancel the debts I would suggest obstruction; you do it yourselves.”

Mr. Sachs insisted that such a response was serious and responsible, providing that the money was used transparently and channelled only into urgent social needs. And he denied that it would bar African countries from accessing money from the capital markets in the future. “They won’t be able to access those markets anyway until the debt is forgiven,” he explained.

More on this story here.


As the outsourcing debate continues, expatriate services firms have become the latest targets for outsourcing critics, who are branding them “unpatriotic”. However, in the long run, opponents of the offshore trend may find themselves unable to fend off the impact of globalization. Critics say the companies are taking money from the hard-working US tax payer and possibly doing US IT contractors out of a job. The anger being expressed by both state and government representatives is getting increasingly fierce, as they attempt to expose the next case of supposed unpatriotic villainy.

Of course driving this wave of anger is the continuing loss of US IT jobs to lower cost overseas countries. This is the real sticking point, because a lot of work performed by both US and non-US companies is being sent offshore by stealth. Being based offshore in Bermuda enables a company to avoid paying the 35% tax that the US government would charge on income earned overseas. This is perfectly legitimate, but what has really caused anger is that some of these companies have been shifting profits from the US over to tax havens to avoid paying tax at all. But when the arguments descend into accusations of “unpatriotic” acts and public officials berate the perceived lack of favoritism for local companies and workers, the overall strategy becomes clear: the US is putting up barriers to stifle competition from overseas, a contrived defence against the globalization process that will surely only do it harm in the long run.

More on this story here.


A leading attorney and the main opposition party in Grenada are warning that only an inquiry with the blessing of the advice of parliament should be instituted so as to determine what transpired in Switzerland between Prime Minister Keith Mitchell and fraudster Eric Resteiner. Attorney Anslem Clouden says Resteiner who is one of the central figures is a ward of the U.S. FBI and justice departments, and only such agencies would have access to him.

Meanwhile the main opposition party in Grenada says each government of the Caribbean Community must commit itself to the highest ideals of transparency and good governance.These ideals must be given legal teeth within the framework of CARICOM providing mechanisms for censorship and sanctions for breaches. These principals must characterize and give meaning to being a CARICOM member state.

Resteiner is the latest fraudster to bring Grenada into the news, following the Viktor Kozeny, Van Brink and Lawrence Rowe offshore banking fraud -- among others. In fact, things have become so bad over the past four or five years, that in the OECS sub-region the free press in Antigua and St. Lucia have been referring to Grenada as “Scandal-plagued Grenada”, when commenting on the Resteiner affair. As if the birds of one feather cannot resist flocking together -- the crows seem to be coming home to roost at the same time.

More on this story here and here.


A recent run on deposits by nervous clients finally caught up with Guta on Tuesday, forcing the bank to shut down its nationwide network of 76 branches and 400-plus ATMs. The shock move by the country’s 22nd-biggest bank by assets dealt a fresh blow to an industry already reeling from two collapses in as many months and stoked fears of a crisis not seen since the dark days of 1998.

Several banks, including Paveletsky and Dialog-Optim, have suffered liquidity problems since the Central Bank revoked the licenses of Sodbiznesbank in May and CreditTrust in June, which pushed up overnight rates and slowed interbank loans to a trickle. Most analysts said it was too early to write Guta off completely and that a full-blown banking crisis was unlikely. They also said, however, that there are widespread problems and that the Central Bank should step in with a strong hand to restore flagging confidence in the market.

More on this story here.


Despite the Bahamas having made “important progress” towards the enactment and implementation of tough anti-money laundering measures, the Financial Action Task Force is to continue monitoring the jurisdiction, citing concerns over its ability to cooperate internationally. In its Annual Review of Non-Cooperative Countries and Territories released last week, the task force noted that “In particular, the FATF remains concerned about the ability of the Bahamian authorities to adequately respond to foreign judicial and regulatory requests.” Since securing its removal from the FATF blacklist in June 2001, the Bahamas has put in place a number of regulatory measures to reduce the risks of money laundering activities taking place.

More on this story here.


An economic report published in Ireland this week has suggested that the government supplement its reliance on low tax policies by fostering growth and concentrating on training, research and development. Pointing to the recent downward trend in tax rates in the new EU member states of Eastern Europe, the report warned that Ireland may eventually lose its long-held advantage in terms of attractive tax rates and thus must begin to improve other areas of the economy to attract investment.

More on this story here.



For some time now, the IRS has been shouting from the housetops about its stepped-up efforts to go after tax evaders, protesters and shelter promoters. And while it is hard to assess the impact of these efforts -- since even the agency does not really know how much tax goes uncollected -- there are some signs that the message is sinking in. For example, earlier this month a 26-year-old man who had been resisting the IRS and making typical tax-protester-type arguments in the U.S. Tax Court to try to stave off collection of more than $3,000 in taxes and penalties, suddenly recanted all and promised to pay his tax, interest and penalties and never to “make these arguments in the future or appear in the (Tax) Court again,” according to the Tax Court ruling. The man’s about-face persuaded the court to drop an additional penalty -- as much as $25,000 -- for making frivolous arguments or using a court case as a delaying tactic. Instead, he got off with a warning.

While it was willing to be lenient with the repentant 26 year old, the Tax Court is showing an increased willingness to hand out real pain to those whom it regards as abusers of the system. In the case of a Florida software engineer last month, the court added a $20,000 penalty to the more than $300,000 in taxes and penalties already assessed by the IRS. The engineer had failed to file tax returns from 1987 to 1997, telling the IRS that he and his wife did not work or reside “in any territory which is, or was, under exclusive federal jurisdiction.” He also made other protester arguments.

Criminal charges against him were rejected by a judge who determined his non-filing and nonpayment were civil matters, but the Tax Court was not so sympathetic. It determined that the IRS had met its burden of proving fraud and upheld the agency’s assessment of back taxes and penalties. Then it added its own penalty.

More on this story here.


A recent report produced by the General Accounting Office (GAO) shows that the Cayman Islands is home to subsidiaries of more than 150 US corporations. Twenty-four of the 100 largest contractors with the US Federal Government, including Altria Group, Oracle and Procter & Gamble, have subsidiaries in the Cayman Islands according to the report by the GAO, the US Congress’s investigative arm. Those 24 companies received a total of $35 billion from the US government in 2001, the GAO found.

The 100 US contractors own 464 subsidiaries in offshore tax havens, according to the GAO report. The offshore subsidiaries often serve the sole purpose of allowing companies to avoid paying US taxes, said Senator Carl Levin, a Democrat from Michigan. JP Morgan Chase & Co estimated in a June study that $650 billion of profit earned abroad by US companies over decades had never been taxed by the US. That is up from a cumulative total of $500 billion cited by JP Morgan in a study a year ago.

In 2001, 47% of the money US companies earned money outside of that country was accounted for in offshore tax havens such as the Cayman Islands, which has no corporate income tax, said Martin Sullivan, a former US Treasury Department economist, citing Commerce Department data. As a result, companies did not have to pay the 35% US corporate income tax. Sullivan said his research shows the Cayman Islands is being used for US tax avoidance.

More on this story here.


The American Institute of Certified Public Accountants is urging Congress to reject a proposal contained in Senate tax legislation that restricts employer-provided housing benefit for workers based overseas. Under current rules, overseas workers are permitted to exclude up to $80,000 from American income taxes, and where employers pay for housing costs, individuals can exclude costs that are considered not to be “lavish or extravagant”.

However, under proposals advanced by Sen. Mary Landrieu (D-Louisiana), the employer-paid housing costs will be included in the $80,000 limit as part of a plan that is intended to help firms who continue to pay the salaries of National Guard and Reservists on active duty. Such a move is projected to raise $3.1 billion over ten years. The AICPA fears that if the proposal becomes law, it will lead to many foreign-based American workers losing their jobs, as firms will hire foreign employees in their place.

More on this story here.


An APA is an agreement between a taxpayer and the IRS (and in the case of a bilateral or multilateral APA, a foreign tax authority) in which a method for determining the transfer prices for specified cross-border transactions between affiliated companies is established in advance of the transactions. The updated procedures clarify and expand upon procedural guidance issued in 1996 and 1998. In particular, the procedures encourage bilateral and multilateral APAs, where possible, so as to avoid potential for double taxation.

More on this story here.


A federal judge has ruled that the accounting firm BDO Seidman does not have to turn over dozens of confidential documents in its fight against government accusations that it sold abusive tax shelters, giving the firm a partial victory. He ruled that the firm did not have to disclose more than 100 client documents sought by the I.R.S. as part of its investigation into the sellers and marketers of tax shelters it regards as questionable. The documents are protected by rules governing the confidentiality of written communications between lawyers and their clients, Judge Holderman wrote in his decision. Accounting firms have said that they are protected by such rules, known as attorney-client privilege, but the government has sought to challenge claims to that privilege in its investigation into tax shelters.

In his ruling, Judge Holderman upheld a government motion compelling Chicago-based BDO Seidman to turn over only 6 documents -- far fewer than the 110 sought by the government. BDO Seidman has already provided the six documents, edited by the firm, to the I.R.S. Those documents concern communications between BDO Seidman and three law firms regarding tax shelters, wealthy clients who bought them through BDO Seidman or both. The ruling contrasts with recent decisions in other tax-shelter cases that have reinforced the government’s efforts to compel firms to turn over scores of documents.

More on this story here.



The legendary numbered Swiss bank account is now a shadow of its former self following the introduction of a new money-laundering ordinance on July 1. The regulation forces Swiss banks to reveal the names of customers who transfer money abroad. Though the numbered account has not disappeared entirely, clients are no longer able to conceal their identity behind an anonymous set of digits when making transactions. The regulation was introduced in 2003 but Swiss financial institutions were only legally obliged to comply with it after the one-year transition period came to an end on June 30.

Geneva-based banking lawyer Carlo Lombardini questions the effectiveness of the new ordinance. He does not believe a regulation forcing remitters to reveal their identities will have any impact on the fight against money laundering. “It is completely useless, but unfortunately Switzerland had no choice because it had to introduce this provision based on international pressure,” Lombardini said. “Real criminals do not launder their money through banks... no money launderer is going to be stupid enough to make a transfer of funds in his own name along the lines of ‘please make this transfer in the name of [Colombian drug trafficker] Pablo Escobar’.”

Swiss banks continue to this day to defend the concept of banking secrecy amid fears that wealthy customers will desert the country if client confidentiality can no longer be guaranteed. But Lombardini rejects the suggestion that new regulations will automatically lead to a flow of money from Switzerland. “I don’t think there will be any significant impact... because there are always ways around the rules,” he said.

More on this story here and here.


It is not a Trust. It is not a Company. It’s ... a Foundation. This creature of civil law jurisdictions will be taking up permanent Residence in common law jurisdiction The Bahamas. Compliance Professionals working with Financial Institutions whose parentage is European, in particular Switzerland, are very acquainted with this hybrid creature. In light of The Bahamas’ own Foundations Bill which will shortly become law, BACO will be holding a seminar to acquaint its members and all interested persons with aspects of the Foundations Bill itself and specifically what is necessary to achieve due diligence. The Bahamas’ Bill is highly unique in some instances yet follows the traditional civil law model in many other instances.

More on this story here.


Since securing its removal from the FATF blacklist of Non-Cooperative Countries and Territories, the Caribbean jurisdiction of St. Vincent and the Grenadines has reported strong growth in the registration of international business companies. According to the International Financial Services Authority, by the end of April 2004, some 357 new IBCs had registered in the country, compared to 194 during 2003. The rate of renewals of existing companies is just a fraction higher than it was last year. The renewal rate is a very important indicator of the degree of sustainable business. The IFSA says that with a high standard regulatory regime in place, St. Vincent’s voice is now respected on the world stage, and at home, real income generated by the sector, as well as real jobs, is on the rise.

More on this story here and here.


The Foundations Act, 2003 provides for the establishment of Foundations in St. Kitts. The concept of a foundation consists of the endowment of a specific amount of assets for a specific purpose (object) determined in the articles of the foundation. An appointed body known as the Board of Councillors is entrusted to carry on the business and affairs of the Foundation and to pursue its objects. The person(s) who creates the endowment is known as the founder and the persons who benefit from the endowment are known as the beneficiaries.

Once the articles of the foundation are registered in the Register of Foundations, the property endowed or to be endowed becomes an estate separate and apart from that of the founder by acquiring a judicial personality of its own, thus becoming a foundation. The information concerning the names and the rights of the beneficiaries of the foundation is usually provided to the Board of Councillors by means of a private and confidential document (which does not have to be registered) known as the By-Laws which may include regulations providing for these matters.

Unlike the traditional corporation, the foundation does not have a share capital, it does not recognize shareholders and the founder does not retain or acquire any such ownership rights in relation to the foundation’s property. The law does recognize, however, the beneficiaries or the persons in whose benefit the foundation is created, which can include the founder. A foundation may be established for any purpose for which foundations are normally established, which purposes shall be spelled out in the articles of the foundation and are permissible under the laws of St. Christopher and Nevis. St. Kitts foundations cannot be simply profit oriented or used to carry on a particular business. A foundation may be used as a holding entity for underlying companies and it can in the course of the management of its assets, do such things as are necessary for the proper administration of its assets, including but not limited to buying and selling such assets and engaging in any other acts or activities which are not prohibited under the law of the Federation, provided that such acts and activities are ancillary or incidental to its main purpose.

More on this story here (reasonably nonintrusive registration required).


Nearly 50% of Americans bought something online last year, according to market consultancy JupiterResearch. Unfortunately, as many as 10% of those consumers were fooled. Instead of buying what they thought were genuine products, they ended up with counterfeits. Indeed, fakes of all shapes and sizes are proliferating online. On June 21, high-end jeweler Tiffany & Co. sued eBay, alleging that 73% of the Tiffany brand-name jewelry sold there was counterfeit. On June 17, the U.S. General Accounting Office issued a report showing that 4 of the 68 drug samples investigators bought in U.S. and foreign online pharmacies, were fake. Peter Neupert, chairman of online retailer Drugstore.com, partly blames mounting health-care costs, rising at double digits annually for prompting patients to seek cheaper alternatives for prescription drugs.

Overall, discerning a fake online is no simple task. You cannot finger the item as you might in a brick-and-mortar store. You cannot take a good look at the seller or his shop to see whether or not they look legit. However, the case for safe cyber-buying is not hopeless. Online consumers can take lots of steps to protect themselves from getting scammed by the charlatans. To help you in this effort, BusinessWeek Online has put together 10 tips from experts on how to avoid buying fake goods online.

More on this story here.


Liechtenstein has come to an agreement with the EU on the EU Savings Tax and will therefore retain the same withholding tax as Switzerland. As everybody expected, Liechtenstein developed within the frame according to what Switzerland has already worked out. Therefore a short look to what has happened in Switzerland is important to understand the treaty and the differences with Switzerland. Switzerland has finished its negotiations on the nine treaties called “Bilaterals II”. This article will only focus on the cooperation pertaining to the EU (European Community) savings tax (tax on interest of savings accounts of physical persons living in the European Community).

Instead of an automatic exchange of information between national tax authorities within the EU and relevant states being participants to this directive, Switzerland will withhold a 15% tax on interest for 3 years. This percentage will be increased to 20% for another 3 years, and after this period to 35%. This tax is due thereafter for any interest payments by a so-called paying agent to a physical person with tax relevant domicile in the European Community. 75% of the retained tax will be distributed by Switzerland to the EU member states. Liechtenstein will accept these percentages. However it is still not clear, either in the EU or here in Liechtenstein, what exactly a paying agent is. There is much interpretative room left. It is highly probable that the return on such a savings tax is smaller than the EU expects.

It has to be noted that Switzerland has to all intents and purposes practically given up bank secrecy whenever we talk about indirect taxes like subsidies, duties, VAT, excise tax on tabacco, alcohol or mineral oils. The practice of court rulings in the last years in Switzerland or in Liechtenstein has shown that attempts to avoid indirect taxation was usually accompanied with fraud or falsification, which led to co-operation with the foreign authority and remittance of documents abroad. However Swiss -- and especially Liechtenstein -- privacy laws do not accept that foreign tax authorities can move in freely on bank accounts of physical or juridical persons. Here such rights should not be touched and it should be the person’s right to decide upon the moment to disclose transactions.

More on this story here (reasonably nonintrusive registration required).


Nigerian authorities have arrested more than 500 email scammers, including some high profile people, and seized more than $500 million worth of their assets. The country’s Economic and Financial Crime Commission agency said it had more than 100 cases at various stages of prosecution. According to AFP, amongst those court in the net were 419 previously “untouchable kingpins” including legislators, lawyers, politicians, bankers and public functionaries. On June 3, Nigeria said that it planned to launch software that would help catch fraudsters who send scam letters via email and it was unclear if this was responsible for the high numbers of arrests.

More on this story here.


Trinidad Attorney General John Jeremie announced the latest development in airport corruption investigations, stated that the monies had been discovered in offshore bank accounts in the Bahamas 2002 but after initial corruption charges in March 2002, just under $1.3 million was transferred “ ... to a new bank account in Liechtenstein also alleged to be controlled by [the accused] and possibly others.” Liechtenstein was one of the last remaining countries which provided secret offshore accounts but anti-money-laundering laws has since forced them to comply with requests from various governments to disclose the accounts of account holders.

Jeremie stated in the release the lawyers acting at his directions “obtained an order from the Liechtenstein court system freezing the account and its contents.” He further stated that, “The Liechtenstein court also granted an order allowing the Government of Trinidad and Tobago to inspect the bank records to determine if the money is still in the account, or if it has been further transferred.”

More on this story here.


An emerging phishing technique: Phishers bait the hook by directing marks to a legitimate institution’s Web page that describes password security. A week later, the phisher sends the potential victim a “follow up” e-mail strongly encouraging the victim to create a new password using the guidelines that were pointed out the week before. It is just one more step in the social engineering of a scam designed to rip off even fairly well-trained Internet users. Until there is a reliable, authenticated method of communication for business, I will continue to deep-six unexpected messages that are supposedly from financial institutions I use.

More on this story here.



Delta announced that it will use radio frequency identification technology to track luggage throughout its U.S. network. The decision is aimed at helping the airline save money and decrease the number of bags that are lost every year. “Currently, less than 1% of all luggage is misdirected, and that cost the airline about $100 million annually,” said a Delta spokesman. The airline handles between 35 million and 85 million checked bags each year.

More on this story here.


The new technology will allow the authorities to filter messages using key words and to pinpoint “reactionary” text-senders. Reporters Without Borders condemns this new surveillance system. “The Chinese authorities are making ever greater use of new technology to control the circulation of news and information. In the past months we have been witnessing a real downturn in press freedom particularly on the Internet. The international community should react against this hardening by the Chinese regime,” said the organization.

More on this story here and here.


The head of Switzerland’s data protection commission says anti-terrorism measures and more e-government are undermining personal privacy. Hanspeter Thür also condemned the United States for ordering airlines to hand over sensitive personal data under tough new border controls. Speaking at the launch of the commission’s annual report, Thür said the new measures were neither appropriate nor useful. He told swissinfo that personal information about travelers should only be stored in biometric form in their passports and should not be stored on databases by the countries they are visiting.

One of Thür’s main concerns was that sensitive personal data could be misused if it was stored on a database. The report also found that the US authorities stored data for too long and noted that the US did not have a data protection law comparable with the one in Switzerland. Switzerland is now negotiating an accord with the US. Until this is finalized, a temporary solution will permit data to be transmitted to the US authorities with the agreement of passengers.

Switzerland’s drive for more e-government also came in for criticism. Thür said the authorities’ tendency to put everything online could lead to personal data being published on the internet, which could then be easily accessed via search engines. The commissioner told the government to take into account the privacy rights of the individual, which are guaranteed under the Swiss Constitution.

More on this story here.


Recently, the EC announced -- over vocal objections by the European Parliament and its own advisory group -- that it will permit the U.S. government direct access to airline passenger data. This means that before you fly to or via the United States, details of your reservation, including credit card number, flying history and even meal preferences, will be transmitted to the US government for “screening” and will be retained in a database for a minimum of 3.5 years up to an indefinite period. This is not the time to be turning over the personal data of European residents to the American government.

First, there is no evidence that collection and monitoring of personal information does anything to stop terrorism. The next terrorist is more likely to be an undocumented student from rural Pakistan than a convicted criminal. He is not going to have charges from Osama’s Live Bait and Fertilizer Shop on his American Express card or a subscription to Terrorist Weekly.

Second, and more seriously, is that the United States has a long -- very long -- history of abusing personal information and surveillance powers for political purposes to the detriment of the entirely innocent. Whether we are talking about FBI surveillance and intimidation of suspected communists in the 1950s and 1960s or physical abuse of French journalists arriving in the US in 2003, America has a problem distinguishing real threats from imagined ones. The US has long had a problem respecting other nationalities. Its conviction that it alone holds the ideals of truth, justice, freedom and democracy is both wrong and dangerous. As part of this lack of respect, official degradation and humiliation of foreigners by those in positions of authority seems to be an important ritual, whether it is Najaf or New York.

If you have every tried to have your credit report corrected, you will agree that software and bureaucracy can create a disaster waiting to happen. Except this time it is not a loan you will be denied when a mistake is made -- it will be your liberty. We -- whether US citizens or not -- did not elect the American administration to watch over the world and collect this information. It is neither accountable nor in any way transparent as to its methods, objectives and results. Information is power, and the US is grabbing fistfuls of it to our peril.

More on this story here.


When everything is working right, an e-mail message appears to zip instantaneously from the sender to the recipient’s inbox. But in reality, most messages make several momentary stops as they are processed by various computers en route to their destination. Those short stops may make no difference to the users, but they make an enormous difference to the privacy that e-mail is accorded under federal law. The ruling was a surprise to many people, because in 1986 Congress specifically amended the wiretap laws to incorporate new technologies like e-mail. Some argue that the ruling’s implications could affect emerging applications like Internet-based phone calls and Gmail, Google’s new e-mail service, which shows advertising based on the content of a subscriber’s e-mail messages.

“The court has eviscerated the protections that Congress established back in the 1980’s,” said Marc Rotenberg, the executive director of the Electronic Privacy Information Center, a civil liberties group. But other experts argue that the Boston case will have little practical effect. The outcry, said Stuart Baker, a privacy lawyer with Steptoe & Johnson in Washington, is “much ado about nothing.” Mr. Baker pointed out that even under the broadest interpretation of the law, Congress made it easier for prosecutors and lawyers in civil cases to read other people’s e-mail messages than to listen to their phone calls. The wiretap law -- which requires prosecutors to prove their need for a wiretap and forbids civil litigants from ever using them -- applies to e-mail messages only when they are in transit.

But in a 1986 law, Congress created a second category, called stored communication, for messages that had been delivered to recipients’ inboxes but not yet read. That law, the Stored Communications Act, grants significant protection to e-mail messages, but does not go as far as the wiretap law -- it lets prosecutors have access to stored messages with a search warrant, while imposing stricter requirements on parties in civil suits. Interestingly, messages that have been read but remain on the Internet provider’s computer system have very little protection. Prosecutors can typically gain access to an opened e-mail message with a simple subpoena rather than a search warrant. Similarly, lawyers in civil cases, including divorces, can subpoena opened e-mail messages.

But Mr. Baker said that another federal appeals court ruling, in San Francisco, is already making it hard for prosecutors to retrieve e-mail that has been read and remains on an Internet provider’s system. In February, the appeals court ruled that e-mail stored on the computer server of an Internet provider is indeed covered by the Stored Communications Act, even after it has been read. The court noted that the act refers both to messages before they are delivered and to backup copies kept by the Internet provider. Defining more e-mail as “stored communications” is restricting access to e-mail in a wide range of cases in the Ninth Circuit, and could have a far greater effect on privacy if courts in the rest of the country follow that ruling.

More on this story here.

Close the email wiretap loophole [and encrypt your email until and when].

Last week a Federal District Court in Boston decided that when someone reads your private email without your permission and before you receive it, it does not violate federal wiretap law. The ruling perfectly illustrates how we can frustrate the entire purpose of a statute simply by reading it too carefully. The statute in question distinguishes between communication “in transmission”, which is protected by the law, and one that is in “storage”, defined as “any temporary, intermediate storage of a wire or electronic communication incidental to the electronic transmission thereof.” Based on this language, the court held that, even though the ISP diverted the incoming emails and read them before the recipients even knew they were there, they did not “intercept” them in transmission, and therefore violated no law. The problem in the Boston case is that the ISP’s reading of the email was as close to contemporaneous as you can get with the Internet.

The troubling aspects of the Boston decision were even apparent to the judge, who pointed out, “[T]he storage-transit dichotomy ... may be less than apt to address current problems. ... Technology has, to some extent, overtaken language. Traveling the internet, electronic communications are often -- perhaps constantly -- both ‘in transit’ and ‘in storage’ simultaneously, an linguistic but not a technological paradox.” The court also noted, “The Wiretap Act’s purpose was, and continues to be, to protect the privacy of communications.”

It is time for Congress to step in on this one, and change a poorly written law that is ill adapted to current technology. This it should do quickly. This “loophole” threatens to extinguish the entire wiretap law, and acts as an open invitation to government agencies, ISPs, and others to read e-mails anywhere they are stored -- even temporarily.

More on this story here.


The Justice Department has asked the Senate for help in extending hidebound, phone-company style wiretap capability into new Internet-based phone calls (called “VoIP” for Voice over Internet Protocol). They argue leaving the new technology unregulated would make it harder to monitor possible terrorist communications. Meanwhile, some states hope to regulate these same phone services so they can collect taxes from and otherwise control them. To its credit, a skeptical Senate is considering legislation to prevent such interference with VoIP. Telling opportunistic states to back off is straightforward. But Washington’s desire for easy surveillance, and the ways it is increasingly facilitated, is a tougher problem.

Real-time monitoring of our conversations, whereabouts, movements or transactions is already at hand. VoIP wiretapping is just the latest. Washington must better explain its philosophy regarding surveillance technologies. At the very least, new surveillance powers should apply only to terrorism, not to routine criminal investigations. Unfortunately, law enforcement infrastructure like Internet phone wiretaps will ease the monitoring of nonterrorists. Perpetrators of victimless crimes will surely find themselves under renewed scrutiny, however beyond the rationale of combating terrorism.

With regard to the new phone-tapping campaign, Privacilla.org founder Jim Harper noted, “The law enforcement cart is coming before the civil society horse. The communications infrastructure is being created with eavesdropping in mind before there is any evidence of [the need for] it.” Besides, Mr. Harper notes, criminals will use offshore VoIP or open source VoIP instead of major carriers. As a practical matter, enhanced Internet phone surveillance could mean costly equipment upgrades and industry regulation to run the scheme.

More on this story here.


More than 2,500 Northwest Airlines frequent fliers have volunteered for the test of the Registered Traveler program, which the Transportation Security Administration hopes will speed up security screening for those willing to hand over their personal information to the government for checks against terrorist watch lists and law enforcement databases. After being cleared, travelers at the Minneapolis-St. Paul International Airport will be given a card with their fingerprint or iris print electronically embedded in the card. Though the test airports will have dedicated lanes for registered travelers, participants will still have to go through the same metal detectors as regular passengers. They will, however, be immune from the current passenger-profiling system’s extra screening process.

Business travel groups and members of Congress have pressed for a registered-traveler program since 2001, but the TSA’s first director, John Magaw, argued the program could be infiltrated by stealth terrorists. Civil liberties activists, such as Electronic Frontier Foundation lawyer Lee Tien, say the voluntary program is not much better for privacy than the controversial and much-delayed CAPPS II program that would force all passengers to turn over more information to the government.

“This is about inducing people to trade privacy for convenience,” Tien said. “The whole thing is set up because the TSA has a stupid system in the first place. Forcing everyone to go through something painful that is of uncertain utility, and then promising to relieve the pressure for some of you if you give us a lot of personal information and authorize checks -- that’s not the right way to do security or privacy.”

More on this story here.


I am in a supermarket called the Extra Future Store in Rheinberg, Germany, 40 kilometers north of Düsseldorf, jonesing for a bit of Philadelphia cream cheese. I feed my request into the touchscreen console on my shopping cart, and up pops a map showing the optimal path to the dairy section. I steer over and grab a box -- regular in name but far smarter than the average cream cheese. The package carries a computer chip that talks to a 2-millimeter-thin pad lining the shelf under the box. When I pick up the cheese, sensors in the pad notify the store’s database that the box has been removed. I exchange the plain for the mit Kräuter (with herbs) then, wracked with indecision, snag the low-fat version. It turns out it is not really all that low-fat anyhow, so I put it back down. My waffling will produce a flurry of data back at Kraft Foods headquarters. The company, which gets this information in return for subsidizing the smart shelf and the microchips attached to the packages, will use the data to analyze my behavior. The marketing department will likely draw some kind of conclusion from my skittishness -- a hint that maybe “low-fatness” is too Spartan a theme for a hedonistic schmear anyway. Of course, they will also have serious insight into my personal shopping habits.

The star of the show is the radio frequency identification chip -- a piece of circuitry about the size of a grain of sand. Thanks to the coordinated efforts of the world’s biggest retailers and manufacturers, not to mention the persistence of former lipstick marketer Kevin Ashton, these little tags are about to infiltrate the world of commerce. Depending who you ask, RFID tags constitute 1.) the best thing to happen to manufacturing since the cog, 2.) the biggest threat to personal privacy since the crowbar, or 3.) the near-exact fulfillment of the Book of Revelation’s description of the mark of the beast. There is a compelling argument for each of these perspectives -- including number three.

More on this story here.



To months ago, I traveled from London to Los Angeles on assignment for a British paper, The Guardian, believing that as a British citizen I did not require a visa. I was wrong. As a journalist, even from a country that has a visa waiver agreement with the United States, I should have applied for a so-called I (for information) visa. Because I had not, I was interrogated for four hours, body searched, fingerprinted, photographed, handcuffed and forced to spend the night in a cell in a detention facility in central Los Angeles, and another day as a detainee at the airport before flying back to London. My humiliating and physically very uncomfortable detention lasted 26 hours. I have since learned that mine was not an isolated case.

“We are an open society,” Robert Bonner, the commissioner of Customs and Border Protection declared, “and we want people to feel welcome here.” This claim could be disputed by American businesses, which have lost $30.7 billion in the last two years because of visa delays and denials for their foreign partners and employees, according to a survey sponsored by eight business organizations. With or without the special visas, journalists are now scrutinized by the Department of Homeland Security, which questioned me in detail in Los Angeles, and by the State Department, which -- when I reapplied to travel back to the United States -- asked me whom I was going to interview in the United States, what the nature of my article was and even what fee I would be paid. There is a turf war between the two departments, usually won by the former. Even with a visa, one can be turned back at any port of entry.

By requiring foreign journalists to obtain special visas, the United States has aligned itself with the likes of Iran, North Korea and Cuba, places where reporters are treated as dangerous subversives and disseminators of uncomfortable truths. But in truth, journalists and writers are not being singled out for their political views.

More on this story here.


Bermuda’s Financial Investigation Unit is to be beefed up. Inspector Gary Wilson currently heads a team of five but further posts are to be created following recommendations by the Foreign and Commonwealth Office-inspired KMPG review and a 2003 review by the IMF. More investigators will be added as well as an accountant, a forensic accountant, an analyst and administrative support. Insp. Wilson said the workload is up because of the improved quality of Suspicious Activity Reports (SARs), most of which help unearth crime. However, the number of reports has fallen due to the closure of the Western Union wire office which used to regularly report on suspected drug dealers.

Less than ten of the 275 reports last year were unsubstantiated, although some of the reports could be about the same individual, said Mr. Wilson. He said with only five staff the Financial Investigations Unit (FIU) has to be selective in what it investigates. Under section 46 of Proceeds of Crime Act 1997 professionals in the finance sector must report suspicious activity to the FIU. Inspector Wilson said there was a rough split between reports of suspicious activities on individuals and entities here and abroad. However, there are no reports of money laundering for terrorism in Bermuda -- mostly it is drug trafficking. He said, since the closure of the Western Union money wiring agency, the trend had shifted to human couriers and a few bank drafts to get cash abroad to buy assets and more drugs. Legislation allows seizure and eventual forfeiture of cash and assets if it is proved to be linked to criminal activity.

More on this story here and here.


June 21, 2004 is the date the U.S. Supreme Court put the nail in the coffin of the Bill of Rights. For all practical purposes, we can declare them dead -- and, similarly to what happened to Tom Paine, the death seems to have been largely unnoticed. The Hiibel case is the one that killed the Fifth Amendment, which had been struggling on life support for a while. I really cannot say any more about this one, except to point you to a very compelling essay by Mr. Hiibel himself. He says it much better than I could. I have not seen any mainstream (that is, nonlibertarian) coverage of the thorough destruction of the Bill of Rights. The magnitude of the task before those of us who love freedom has been revealed, in the yawning indifference of Americans to this decision. On June 21 the Supreme Court killed any pretense that may have remained of protecting the Constitution, and thereby U.S. citizens, from abuse at the hands of the state. And most of America scratched, belched, and turned on the TV.

More on this story here.


Transportation Security Administration officials are changing the Code of Federal Regulations to shield eight information systems from Privacy Act provisions. Published in the Federal Register last week, the move allows TSA officials to withhold records about active investigations. Although the Electronic Privacy Information Center (EPIC) does not view the rule change as a clear violation of the Privacy Act, privacy advocates consider it part of a trend by DHS officials to claim more latitude in classifying information.

TSA officials cited eight systems for exemption, including ones that detail inspection systems for all transportation modes governed by TSA. But other systems -- such as the General Legal Records System, which has data on many matters filed in the Office of the Chief Counsel -- seem to imply a broader exemption. System accuracy may also be at stake, according to EPIC general counsel David Sobel, who argued that people whose information is contained in the system will not be able to confirm that they are on the list or correct inaccuracies. In many ways this re-creates the conditions that led to the Privacy Act, said Peter Swire, who was the Clinton administration’s chief counselor for privacy in the Office of Management and Budget. The Privacy Act was created in 1974 to stop the collection of secret files about U.S. citizens by J. Edgar Hoover and the FBI.

More on this story here.


A U.S. Congressional Conference Committee, and now the House of Representatives, has passed an Intelligence Appropriations bill that gives the FBI the power to search through the consumer records of a wide variety of businesses without the benefit of a search warrant, as required by the Fourth Amendment of the Constitution’s Bill of Rights. All that remains between passage into law is the vote of the Senate and the signature of the President. What is at issue is the definition of “financial institution” as defined by the so-called Financial Privacy Act, which gave the FBI the power to subpoena bank records without a warrant from a federal judge. Under the Intelligence Authorization bill, that definition of “financial institution” would expand to include 26 kinds of businesses, including a pawnbroker, a jewelry dealer, a travel agency, a telegraph company, and a business engaged in automobile or boat sales.

National Security Letters are like administrative subpoenas, in that they are pieces of paper signed by FBI agents with no judicial review, compelling disclosure of documents. They are issued in intelligence investigations, which are broader than criminal investigations. In the Patriot Act, the three existing NSLs (for credit reports, bank records, and telephone and Internet billing, and transactional records) were expanded by removing the requirement that the government had to have specific facts giving reason to believe that the records being sought pertained to a suspected spy or possible terrorist.

Federal agent may already have used NSLs to seize non-financial consumer records under the rubric of “transactional records”. The American Library Association reports that the Justice Department’s Assistant Attorney General Daniel Bryant has said that the Letters seem to have been used to look at library records. If that is the case, it would explain the discrepancy between the reports of several librarians that records were seized by agents citing the PATRIOT Act (which has National Security Letter provisions) and the insistence of Attorney General Ashcroft that no library records had been seized under another section of USA PATRIOT.

More on this story here.


The selection of Sen. John Edwards as John Kerry’s running mate has raised concerns inside the FBI and among civil-liberties groups that the North Carolina senator will use the campaign to promote his controversial proposal to create a new domestic spy agency. For the past 18 months, Edwards has been perhaps the Senate’s foremost champion of a much-debated proposal to strip the bureau of its intelligence-gathering functions and turn them over to a new domestic spy agency patterned after Britain’s M.I.5.

Edwards’s promotion of the idea has created friction between him and FBI Director Robert Mueller who, along with other bureau officials, has warned that such a move would spark renewed turmoil within the U.S. intelligence community that would hinder the war on terrorism. It also has stirred the fears of civil-liberties groups, who believe such an agency would inevitably end up spying on political dissidents and religious groups. But Edwards has refused to back down -- and there are signs that Kerry himself may be warm to the idea. “He thinks it’s still the way to go,” said Mike Briggs, Edwards’s Senate press secretary when asked about the M.I.5 proposal. Although Kerry himself has talked more vaguely about reforming intelligence in his major campaign speeches, a little noticed “Defending the American Homeland” plan on his campaign Web site seems to reach a similar conclusion as Edwards on the subject.

Since late 2002, in speeches and on the Senate floor, Edwards has argued that the failures of the FBI to pick up the trail of the 9/11 hijackers graphically shows the bureau’s fundamental deficiencies in intelligence gathering. As a law-enforcement agency, the FBI is by culture and practice focused on arresting, prosecuting and convicting criminals -- not collecting fragmentary bits of intelligence about potential terrorists and then analyzing the information to make sense of it, he has said. Kate Martin of the Center for National Security Studies said she hopes the Democratic candidates will await the full report of the 9/11 commission before pushing the idea any further and “not make this a political issue.”

More on this story here.


After 9/11, the word of the president was supposedly the only protection that the rights and liberties of the American people needed. After 9/11, President Bush granted himself unlimited, unchecked power over anyone in the world suspected of being a terrorist. The Supreme Court, in a series of rulings on June 28, 2004, trimmed that power by recognizing that in some cases enemy combatants may challenge in federal courts the label the Bush administration imposes upon them. But the president continues to hold far more arbitrary power then he did prior to 9/11.

The story of how Bush proclaimed and exploited the power with respect to enemy combatants vivifies the war on terrorism’s threat against the U.S. Constitution. On November 13, 2001, Bush issued an executive order establishing military tribunals for the trial and potential execution of any person he labeled an “enemy combatant.” He dictated that people classified as enemy combatants “shall not be privileged to seek any remedy … directly or indirectly … in any court of the United States.”

At the time that Bush issued his edict, he specified that it would apply only to “noncitizens”. His orders authorized the seizure of terrorist suspects within the United States and abroad and authorized the tribunal to “sit at any time and any place.” Initially, the order primarily applied to the roughly 600 persons seized in Afghanistan during the U.S. invasion. Those persons were transported to Guantanamo Naval Base in Cuba and kept in sometimes harsh conditions. In April 2002, the Pentagon revealed that one person being held at Guantanamo was actually a U.S. citizen. And two months later, Attorney General John Ashcroft announced that an American arrested in Chicago had been classified as an enemy combatant. The case of Jose Padilla sent shockwaves, in part because it made stark that there may be no limit on Bush’s power.

The Supreme Court’s June 28 decisions will not end the battles over who is an enemy combatant and how much arbitrary power the president should possess. This issue remains a live wire in part because top administration officials have repeatedly said that it is only a matter of time until another terrorist attack occurs. And a second major attack could result in a round of abuses that will make the post–9/11 actions look like a law-school picnic.

More on this story here.

The Enemy Within

It is true that liberty achieved a tenuous toehold on June 28. But the Supreme Court’s rulings, taken together, have more the feel of a defensive strike against the swipes taken by the Bush administration than a positive assertion of civil liberties. The court unequivocally demonstrated its institutional authority as a co-equal branch of government and made crystal clear that it will not tolerate disrespect for its oversight responsibilities; but what it did with its right hand, it virtually canceled with its left by leaving the practical exercise of this oversight ambiguous. Thus the power of the court’s lunge on its own behalf stands in striking contrast to the wishy-washiness with which it asserted citizens’ -- i.e., liberty’s -- interests. For that reason, the rights afforded those people designated enemy combatants will be worked out during long and complex future proceedings, effectively in the hands of the Fourth Circuit -- the most pro-government jursdiction in the land.

More on this story here.



The eulogies of Ronald Reagan remind me that liberals used to describe the Reagan years as “a decade of greed,” because Reagan was accused (falsely, alas) of slashing taxes and the welfare state. When voters vote to cut their own taxes, everyone calls it a “tax revolt” and liberals speak darkly of “an orgy of greed.” Nobody seems to notice that this stands the traditional meaning of greed on its head. The word used to mean wanting something that belonged to somebody else. Robbing a bank was greedy. Cheating people out of their property was greedy.

But in the twentieth century, the Age of Socialism, greed came to mean wanting to keep your own property, especially your money. The idea was that everything sort of belonged to everyone, and the government should decide who got what. It worked beautifully in Russia and China, where the toiling masses lived happily ever after, but for some reason Americans were not enchanted by all-out socialism, which was forced to adopt the piecemeal strategy of liberalism. But in a modified form, this idea caught on in America, whose tradition of rugged individualism tended to melt away when people were offered government checks, paid for by taxing “the rich”, the politicians’ nickname for “other people”. People who would never dream of robbing their neighbors at gunpoint found it acceptable to have a government bureaucracy doing the dirty work.

Coveting other people’s money through the medium of the state was never called “greed”. And the state itself was never called greedy, no matter how predatory it became. After all, everything belonged to everybody, which meant that there were no limits on how much the state could claim. The old morality of private property fell into decay. Governments did not stop at taxation; they also found other, subtler means of confiscation, such as inflation. So the state became a vast engine of greed, and in democracies most people shrugged and learned to live with it, knowing that they themselves would be accused of greed if they objected to it. We are living in an orgy of greed, all right: government greed.

More on this story here.


When in the Course of human events, it becomes necessary for one government to violently overthrow another sovereign government, and to assume via the fiat power it enjoys, a world democracy to which Presidential Edict and Congressional Acquiescence entitle it, a perfunctory acknowledgement of the opinions of the media requires that it should declare the causes which impel it to global and total dominance. ...

More on this story here.


This is going to be the column for libertarian readers everywhere to send to your conservative friends who feel you have gone off the deep end. We all know such people. Could be a co-worker, could be a person from church, it could even be a family member. You know the type I am talking about. They are good patriotic conservatives who love George W. Bush and have full faith in the war in Iraq. They are appalled by your position on the war. Maybe you even made the fatal mistake of respectfully questioning the merits of the federal Pledge of Allegiance. Sure they want to cut government, but you seem to really dislike government, and it is beginning to make them feel like you’re some kind of dangerous crazed subversive.

After a few more mistakes on your part, perhaps after criticizing Medicare or Bush’s education bill, all patience has been lost. They have reached the conclusion in the back of their mind... you are not a patriot! You do not love your country! You belong in France! You are dangerous! Or are you?

It is not unusual for anti-war and libertarian individuals to have their views denounced as “anti-American”. LewRockwell.com bills itself as an “anti-state, anti-war, pro-marke”q information and educational site. Many people, particularly conservatives, consider such notions unpatriotic and unappreciative of the American way of life. Therefore, it must be determined, does opposition to the State’s most sacred causes -- warfare, government spending, continual expansion -- equate to a hatred of one’s own country? We must soundly conclude that it does not. Not only is such a position ridiculous, it requires 100% devotion and trust for every single policy, whim, and desire of American politicians. Such a concept is more fitting for the Dark Ages than it is for the revolutionary spirit that gave America its national character.

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One of the preconditions for regaining some measure of our liberty is that the institutions of the Federal Government should be discredited in the eyes of the American people. Libertarians should thus welcome anything that exposes the venality and corruption that lurks behind the curtain of Oz. While watching Fahrenheit 9/11 this past weekend, I saw cause for hope that this goal is slowly being realized (though one must always remain skeptical... this establishment has shown remarkable ability to overcome obstacles in the past).

One of the ways that a governing system maintains power is to mythologize itself in the eyes of its subjects. The recent funeral of Ronald Reagan is a perfect example of how elites raise themselves to the level of Olympians in order to reinforce their vaunted status over those whom they rule. Even a man like Reagan, who at least preached the ideology of small government, was used by the system to achieve this propagandistic goal. But the curtain is slowly being pulled back, and the reality of that which lurks behind it is becoming too obvious for even the most concrete of mentalities to ignore. One by one, the institutions and individuals who make up this system -- the office of the Presidency, America’s intelligence apparatus, Congress, and (soon) the Federal Reserve -- are being exposed and revealed for what they truly are.

But have the past few years been significantly different from previous administrations? Have things gone qualitatively downhill? Are the times more corrupt now than in the past? I believe that they are not. I contend that the difference is the Internet. The stark reality is that the mainstream media has long since “gone native”. Our major media outlets, and the “journalists” who cover Washington, are now part of the establishment. Their central paradigm, whether conscious or subconscious, is to protect the system. Chances are that without any new media outlets, none of us would have ever heard of Monica Lewinsky, the Buddhist Temple campaign donations, or those missing FBI files. Nor would we have heard of the neocons, the Office of Special Plans, or the Project for the New American Century. The reason why everything is different now is the Internet.

In the days of the Roman Republic, the machinery of the state fell into the clutches of corrupt elites who used their power to loot the common citizens. In retaliation, the people demanded the creation of a new office: The Tribune of the People. Its sole purpose was to watch over the workings of the government, and to veto any act which was deemed harmful to the citizenry. In ancient Rome, the office of the Tribune was eventually corrupted by those in power. Thus, it is of utmost importance that Americans of all political stripes zealously guard the integrity and the free-wheeling nature of the Internet. For eventually, one way or another, Leviathan will move against it.

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Freedom, self-determination, and the end of allegiance to an unaccountable government: 228 years ago this week a handful of radical American colonists set forth their demands in the Declaration of Independence. They sought independence not only from English rule, but also from the feudal notion of obedience to King and Crown. Their views were not shared even by a majority of their fellow colonists, nor could they hope to match England’s naval and military power -- but their courage was undeniable.

A bloody conflict ensued, and the new Americans emerged victorious. But still we celebrate the 4th of July as the birth of our nation, rather than the date the Constitution was ratified. We celebrate the day our forefathers boldly proclaimed to the world that liberty was their goal, that the pursuit of individual freedom was paramount. Those who signed the Declaration of Independence envisioned a nation based on the rule of law and the right of individuals to live their lives free from oppression. To a degree perhaps unimaginable to that band of radical idealists, their vision has come to pass over these two centuries.

That vision has been challenged throughout our history, however. The nineteenth century held slavery. The twentieth century saw the rise of socialism and its sister, fascism. But rather than focus on where we have failed, we should stay focused on the ideal of freedom. The freedom we enjoy today is the direct result of the commitment of men and women who refused to compromise their ideals. Certainly they failed at times, but they understood that the goal was liberty. Today our government and society seem to have lost sight of this goal.

For more than six months of every year the average American toils not for his family, for his needs, or for his future. No, for the first six months of the year the average American works to pay the cost of federal, state, and local taxes and regulations. From New Year’s Day until about the 4th of July, you worked to pay for government. This is unconscionable. Our Founding Fathers no doubt would be embarrassed at our squandering of their vision. After all, they revolted at a comparable tax rate in the single digits or less. And yet we willingly suffer an effective tax rate of 50%, and much more in many cases. They tyranny of the Crown has been replaced by the tyranny of the federal government in Washington.

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Looking around at our enormous federal government, at courts that routinely usurp the rights of individuals, at a burgeoning “war on terro”q that expands police powers into every sphere of our life, and at a voracious welfare state that promises to meet every citizen’s every whim (paid for by somebody else), I am left wondering whether there is much here that would be recognized by the nation’s founders. And I haven not even mentioned the growth of the Nanny State, whereby modern-day Puritans tell us where we can smoke, what we can drink, how to raise our kids, what to pay our employees, what to do with our garbage, how much banks should charge in fees, what kind of vehicles we should drive, what we can build on our own land, ad infinitum. I often wonder whether Americans really understand and prize their liberties, or whether we are still a relatively free and prosperous land because we are living off the fumes of a once-great system.

If the nation were to dispense with the Constitution as it was written and replace it with something new that reflected the current values and outlook of the vast majority of Americans, what would we create? Most Americans would no doubt adopt, without much debate, the form of our current government. Some citizens would argue for a parliament or some other process, but I wager that we would end up with a Congress, an executive branch and a judiciary, much like we have today. Some amendments, perhaps the First Amendment with its establishment clause regarding religion and its protections for free speech and its right to a free press and free assemblage, would undoubtedly be accepted verbatim. But other amendments would not come out unscathed. Can you imagine modern Americans accepting a Second Amendment guaranteeing the right to keep and bear arms? Doubtful.

The big amendment that would never make it into any modern Constitution would be the Tenth Amendment: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.” Not that it would matter, given that no one follows it anymore anyway. Not many powers are specifically delegated to the federal government in the U.S. Constitution. The vast majority of what the federal government does would not pass muster -- if the intent of the founders, rather than the clever contortions of liberal courts, were the determinant of constitutional meaning.

Even more troubling, Americans would no doubt include in a new Constitution the “positive” rights the founders eschewed. It would be filled with “rights” to education and housing and health care and whatnot. The problem is that when the government promises things to people, someone else must be forced to make those things happen and the government gains power to impose its will on us all. America’s founders created a system of “negative rights” -- aka “natural rights”. “Negative rights” pertain to freedom from the uninvited interventions of others. Respect for negative rights requires merely that we abstain from pushing one another around. Notice the political debates in America today. They rarely center around the protection of our natural, or negative, rights; they almost always are about some interest group demanding rights to this or that, and how much force and public funds the government should use to secure those demands.

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After the War to Prevent Southern Independence and the assassination of Lincoln the federal government was said to possess a “treasury of virtue”. The Republican Party, which was the federal government, with a decades-long monopoly of power rivaled only by the Bolsheviks in Russia, made sure that the government-run schools would preach this Virtuous State Philosophy to generations of school children. And what did the Party of Virtue do with its “treasure”? A first order of business was to commence a campaign of ethnic genocide against the Plains Indians. The Party of Virtue also broke up the union, which it had supposedly just “saved”, by disenfranchising all the adult white male southerners and denying them congressional representation unless the southern states ratified the 14th Amendment. At the same time, every last adult male ex-slave was registered to vote Republican, and assisted in the Republican Party’s twelve-year plundering expedition in the South, also absurdly known as “Reconstruction”.

Then there was the massive corruption and criminality associated with building the government-subsidized transcontinental railroads, a project begun when Abraham Lincoln called a special session of congress to get the ball rolling just a few months after taking office. The infamous corruption of the Grant administrations was an inevitable consequence of these policies. The average U.S. tariff rate was escalated to nearly 50% during the Lincoln administration and remained in that range until the income tax was adopted in 1913. Thus, the Party of Virtue engaged in fifty years of legal plunder through protectionist trade policies.

In the post-war years the Democratic Party possessed most of what was left of the states’ rights, strict constructionist Jeffersonians in American politics. The party had its share of scoundrels, politics being what it is, but it still generally championed free trade over the legal plunder of protectionism, and laissez faire over Lincolnian mercantilism. Its greatest spokesman in this regard was President Grover Cleveland, who served two terms as president: 1885–1889 and 1893–1897.

Grover Cleveland was a principled classical liberal. But even while serving as president, his own Democratic Party was deserting him as the forces of statism and unlimited democracy, unleashed by the death of states’ rights in 1865, were beginning to dominate American politics. He was the last American president in the Jefferson/Andrew Jackson/John Tyler tradition, and the last good Democrat to serve in that office. For the most part, his successors (in both parties) have ranged from pathetic panderers to dangerous, megalomaniacal warmongers, or both.

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At the dawning of the year 2004, there were fifteen major wars in progress, plus twenty more “lesser” conflicts. Too much has been written throughout history that glorifies war and the warrior who is sent by the state to do its bidding. Dying for one’s country -- regardless of the circumstances that brought on the conflict -- is seen as the ultimate sacrifice. To protest the war is to be a traitor. Being a professional soldier is viewed as one of the noblest of occupations. The death of enemy combatants is celebrated. Civilian casualties are written off as “collateral damage”.

General descriptions of the horrors of war can be read in any military history by John Keegan or Martin Gilbert. But more and more specific accounts of the horrors of war are beginning to see the light of day. Two recent books explore the horrors of war from the individual soldier’s point of view. Chris Hedges’ What Every Person Should Know About War is a stinging indictment of the twin evils of the glorification of war and the concealment of its brutality. The recently published Intimate Voices from the First World War does all of those things and much more. This is the ultimate in primary source material. The horrors of war are described here as no historian writing in the twenty-first century could describe them. But in addition to the accounts of death, destruction, and starvation, Intimate Voices also gives us an insight into the role of the state in warfare, the religious ideas of the combatants, the war’s demoralizing effect on women, and the regrets of soldier and civilian.

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