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FINANCIAL SQUEEZE HITS THE EXPATRIATE LIFESTYLE IN JERSEY
Outwardly at least, life on Jersey and the immaculate streets of its capital was as affluent and relaxed as it has been for the best part of three decades, thanks to its status as an offshore financial nerve center. The island manages, invests and globally distributes enough money to make each and every one of its 87,000 inhabitants millionaires three times over.
But amid the conspicuous consumption and the buzz of high finance, there was a different noise emerging from Jersey this week -- that of protest. Away from the multitude of banks, trust funds and paralegal offices that oversee Jersey’s £256 billion banking deposits and investments, this quietly proud island is grappling with the most profound shake-up in its economic life for a generation. It is a state of turmoil which this week brought more than 1,000 protesters on to the streets in a community where activism is so alien it does not have any political parties. It has led to predictions of a social and economic meltdown. And it is all about one small word, “tax”.More on this story here and here.
TV drama reopens wounds in Jersey.
A story of secret romance and betrayal, Island at War, is being billed as ITV’s big gun in the battle of the summer schedules. But Channel Islanders fear that the drama based on their experiences of the Second World War, will put their reputation in the firing line. They already stand accused of collaborating with the five-year German occupation of the islands and of sending Jews to the gas chambers. The six-part series concentrates on the “Jerrybags”, the island women who struck up relationships with German soldiers and informed on their neighbors.
The islanders will be even more dismayed to learn that the cast have all read copies of Madeleine Bunting’s A Model Occupation, a book that led to howls of protest for suggesting that the islands had actively co-operated with the occupying forces. Islanders continue to deny that they collaborated, pointing out that Britain ordered them not to resist when the Germans invaded in 1940, that they were swamped with troops, and that the islands themselves are so confined there could have been no equivalent of the French resistance. Another point of controversy is the fact that the film was shot in the Isle of Man, partly because the Channel Islands are now too wealthy to suggest the faded ambience of the 1940s.More on this story here.
BELIZE MINISTER’S WIFE TURNED BACK AT MIAMI AIRPORT WITH $1.5 MILLION CASH
According to Guardian sources the Minister’s wife’s final destination was Cayman Islands. US Customs regulations require any amount of money in excess of $10 thousand being brought into the United States to be declared. Failure to do so renders the money liable to confiscation. Our sources say there was no forfeiture in this case because it was clear the money was bound for the Caymans. The US authorities nevertheless reportedly used the fact of non-declaration to send the money and bearer back to Belize. (A slightly different account of the same story indicates that the money might still be in the hands of US Authorities.)More on this story here.
SHADES OF ‘90S INSTABILITY RETURN TO RUSSIA
Russia’s image of order and stability, cited as President Vladimir Putin’s key accomplishment, faltered last week as bailiffs began dismembering the once-profitable oil giant Yukos and panicked depositors staged a run on several of the country’s top banks. Also, Paul Khlebnikov, a leading Western journalist who covered Russia’s secretive business community, was gunned down outside his Moscow office in an apparent contract killing. Though outwardly unconnected, these developments are fueling a sense of disarray among Russians worried the political and economic crises of the 1990s, which Mr. Putin appeared to banish, may be lurking beneath the surface.
The Yukos case has roiled Russia’s political waters since last year’s arrests of top shareholder Platon Lebedev and CEO Mikhail Khodorkovsky in connection with the shady privatization of a state-owned fertilizer company a decade ago. The endgame is fast approaching for Yukos. Last week the company failed to meet a deadline to pay a specially levied $3.4 billion tax bill, and the state froze some of its assets. Most experts believe the authorities do not wish to bankrupt the firm but rather to transfer ownership either to the state or to new, Kremlin-friendly businessmen. There seems little doubt that Yukos’s founder will be separated from his company and assets.
There were also echoes of Russia’s 1998 financial crash in Moscow last week, as depositors lined up outside major banks to retrieve their savings and the national currency tumbled. Banking troubles were triggered by the Central Bank, which last May accused the midsized Sodbiznesbank of money laundering and withdrew its license. What should have been an isolated event turned into a chain reaction as rumors spread and public confidence evaporated.
Funeral services for Mr. Khlebnikov, an American of Russian descent, were held in Moscow Sunday amid expressions of shock from Russian and foreign journalists. Last April he published a controversial list of “the 100 richest Russians”, which revealed that Moscow has more billionaires -- 33 of them -- than any other city on earth. Russia’s tycoons detest publicity about their wealth, as it can lead to visits from gangsters or the tax police.More on this story here, here, and here.
HIGH-PROFILE ACCOUNTANCY SCANDALS STILL BEING FELT LOCALLY, IN GUERNSEY
The Association of Chartered and Certified Accountants believed that new accounting and auditing standards would pose a problem to Guernsey businesses and practising accounting firms. A new “exposure draft” on audit ethics issued by the UK’s Auditing Practices Board suggested that accountants and financial advisors should no longer be able to provide audit services for those clients to which they also provide taxation and accountancy services. This could result in the loss of the valuable “one-stop shop” for businesses to seek reliable and credible advice.
Jonathan Beckerlegge, ACCA’s council representative for the Channel Islands said it was not the only important issue to face the profession. New international accounting standards, scheduled for 1 January, will also represent a challenge for businesses and accountants. Initially the move to using a single set of standards will affect only stock exchange-listed companies, but all others are expected to follow suit. Mr. Beckerlegge said that the change to IAS could be significant to reported earnings -- and therefore taxable profits -- and balance sheets.More on this story here.
SWISS DROP INVESTIGATION INTO MENEM DEALINGS
Swiss justice officials have suspended an investigation into money laundering allegations against Argentina’s former president, Carlos Menem. Christine Junod, the Geneva magistrate handling the case, said investigators had found no accounts linked to Menem in a Geneva bank. Argentina claims that Menem has $10 million (SFr12 million) on deposit at a bank in Geneva. It says he received the money from the Iranian government.
Menem is also the subject of two federal probes in Switzerland -- one into allegations of illegal arms exports, the other into bribe taking. Argentina suspects the former president of having accepted bribes from Iran in return for covering up its alleged involvement in a 1994 attack on a Jewish centre in Buenos Aires, which left 86 people dead. The Argentine authorities also accuse Menem of selling weapons to Ecuador and Croatia during the 1990s when both countries were subject to United Nations embargoes.More on this story here.
THE CHANGING FACE OF THE BAHAMAS CAPITAL MARKET
When the case was made for a domestic securities exchange over a decade ago, it was made with the determination that prescribed tangible benefits would lead to a successful capital market and act as a catalyst, encouraging the mobilization of local and foreign capital into productive sectors of the economy. It was envisioned that this in turn would set The Bahamas on a path to greater economic growth and job creation. Many tangible benefits were expected to be derived from the securities exchange were identified by the Securities Exchange Market Task Force of 1996. The tenets are very important today as they were expressed hopes nearly ten years ago. There is the capital market in The Bahamas in relation to past hopes and future desires. Since the report of Securities Action Task Force, several important milestones have taken place.More on this story here.
ASIA IS NOW THE THIRD-LARGEST AND THE FASTEST-GROWING MARKET FOR PRIVATE BANKING
With potential revenue growth for banks in the double digits, many are actively chasing high-net-worth clients in the region, with Japan and China seen as the two markets with the best potential over the coming years. Daniel Truchi, CEO of SG Private Banking (Asia Pacific), believes the potential in Japan is huge, pointing out the country has two times the wealth of the rest of Asia. According to Bain & Co., the average penetration of private banks in Japan of high-net-worth households is still low at about 25%, compared with a 60% penetration in the United States and Indonesia and more than 50% in Taiwan and Hong Kong. Penetration of private banking in China is about 5 to 6 percent.
“For some very strange reasons, the Japanese investors prefer to give their money to local banks, nearly paying interest to its bankers as he earns virtually nothing,” Rolf Gerber, chief executive officer of LGT Bank in Liechtenstein (Singapore) noted. Private bankers believe Japan investors’ lack of interest for private banking might start to change now that the local economy is doing better. However, Gerber warned it will take a “very long time” to change mentality.More on this story here.
FOREIGN DIRECT INVESTMENT IN CHINA INCREASES STEADILY
FDI in China maintained a stable growth rate in the first half of the year, a sign that measures to cool down overheated parts of the economy will not stem the flow of overseas cash. Actual FDI into China rose 12% to US$33.9 billion in the first six months of 2004, the Ministry of Commerce said on its website. Contracted FDI, which measures future trends, was up 42.7% year-on-year to $72.7 billion in the first half.
However, the cooling-down measures have had an impact on China’s money supply, according to statistics released by the People’s Bank of China, the central bank. Growth in China’s broad M2 money supply slowed to 16.2% in the year through June from 17.5% in the year through May, the central bank said, as the latest sign that credit-tightening measures are working.More on this story here.
THE UNDERGROUND ECONOMY
Last week, the OECD issued a new report on the underground economy. This is only the latest study showing that a large fraction of employment and production in major countries as well as developing nations is taking place off the books, unrecorded in national accounts and untaxed by governments. According to the report, the underground economy varies from 1.5% of gross domestic product in the U.K. to almost half in the Kyrgyz Republic. The OECD does not present data for the United States, but there is much data showing that it is a growing problem here, as well. A recent book, The Shadow Economy: An International Survey by economists Friedrich Schneider and Dominik Enste, estimated the U.S. underground economy at between 6.7% of GDP and 13.9% in 1990, depending on the method used for calculation. By one estimating methodology, underground economic activity in the United States has probably risen sharply since 1990.
The former chief economist for the International Monetary Fund notes that the European currency, the euro, is now competing for the underground economy’s business by having €500, worth more than five times the U.S. $100, the largest bill printed by the Treasury in more than 50 years. He notes that $1 million in $100s would fit in a briefcase, but $1 million worth of 500 euro notes would fit in a purse -- a big advantage in the underground world.
The underground economy results from many factors, including criminal activity. But the bulk of it arises from ordinary businessmen and workers who are evading taxes and government regulations. The OECD downplays the importance of taxes and puts most of the responsibility on regulation. However, other studies have found that high tax rates are the most important factor in stimulating growth of the underground economy. A recent IMF study found that the composition of taxation was very important. High taxes on small businesses and the self-employed were most likely to lead to underground economic activity. Whether caused by taxes or regulations, it is clear that government is the prime cause of the underground economy.More on this story here.
10 TRUTHS ABOUT TRADE: HARD FACTS ABOUT OFFSHORING, IMPORTS, AND JOBS
As globalization sending the best American jobs overseas? If you get your news from CNN’s Lou Dobbs, the answer is “of course” and the only real issue is how many trade restrictions should be applied to stem the bleeding. But the recent scare about “offshoring” is just the latest twist on an inaccurate, decades-old complaint that global trade is stealing jobs and causing a “race to the bottom” in which corporations relentlessly scour the world for the lowest wages and most squalid working conditions. China and India have replaced 1980s Japan and 1990s Mexico as the most feared foreign threats to U.S. employment, and the old fallacy of job scarcity has once again reared its distracting head.
The truth is cheerier. Trade is only one element in a much bigger picture of incessant turnover in the American labor market. Furthermore, the overall trend is toward more and better jobs for American workers. While job losses are real and sometimes very painful, it is important -- indeed, for the formulation of sound public policy, it is vital -- to distinguish between the painful aspects of progress and outright decline. Toward that end, and to counter protectionist “analysis” masquerading as fact, here are 10 core truths about global trade and American jobs.More on this story here.
HONG KONG IN A BIND OVER CROSS-BORDER CRIMES
One of the dilemmas posed by Hong Kong and southern China’s increasingly close relationshipis how to police across a porous border. Beijing’s decision to relax visa restrictions on mainland travelers to Hong Kong, which has brought about two million Chinese visitors into the city since last summer, and growing business ties with southern China’s Pearl River Delta are putting new pressure on police, courts and the criminal justice system.
The most serious crime between China and Hong Kong involves the local mafia known as the triads, drugs and human smuggling, kidnapping and white-collar fraud. There is also an array of lesser offences. In the first five months of this year, 43% of crimes committed by mainlanders in Hong Kong, or 402 cases, were thefts. Last year, police handled 885 cases of theft involving mainland Chinese. Pickpocketing, prostitution and bizarre curbside swindles are common. Hong Kong deported about 10,000 mainlanders last year on suspicion of prostitution, up from 8,000 in 2002. Hong Kong residents are also frequently victims of crime -- often pickpocketing or kidnapping -- across the border in Shenzhen.More on this story here.
CAYMANS WANT FAIRNESS, NOT INDEPENDENCE
The Caymans Leader of Government Business addressed the EU in Brussels on July 8. In a lengthy speech, he addressed the islands’ situation vis a vis Great Britain and the EU.More on this story here.
FATF SNUBS THE BAHAMAS’ FINANCIAL SERVICES
The Bahamas financial services industry has received another snub from the FATF. The international body recently stated that while it has ended the formal monitoring process for other regional jurisdictions, certain situations within The Bahamas mandated continued monitoring. In its annual review of Non-Cooperative Countries and Territories (NCCTs) released earlier this month, the FATF noted that although The Bahamas had enacted comprehensive anti-money laundering legislations, established the Financial Intelligence Unit, and made other changes to remove itself from the NCCT list (blacklist) in 2000, concerns regarding the country’s adequacy in the area of international cooperation required continued monitoring by the organization.
The FATF report also revealed that three regional countries that were blacklisted along with The Bahamas or shortly afterwards and subsequently made changes to their legislations to remove themselves for the NCCT list -- Grenada, St. Vincent and the Grenadines, and Dominica -- would no longer be formally monitored by the international organization. The recent measure by the international body has prompted strong responses from members of the local financial community who believe that the international body may not be acting fairly.More on this story here.
FATF statement on the Bahamas criticized.
Dr. Gilbert NMO Morris, executive director of the Bahamian Landfall Center for Finance, Trade and International Affairs slammed the FATF for suggesting that the jurisdiction is unable to cooperate internationally to an acceptable standard with regard to money laundering matters. “One can only repeat that these ‘goal post moving’ statements will continue to come. And jurisdictions -- particularly ones festooned with overseas banks -- will face increasing risks if the FATF continues to ‘blind-side’ their efforts to comply with its ‘regulatory nebula’ by making comments which cast a cloud over particular jurisdictions,” he said, then going on to suggest that offshore centers should stand up for each other in the face of such statements by multilateral organizations.More on this story here.
Bahamas debates extradition amendment bill.
Debate on the highly anticipated extradition amendment bill was postponed in the House of Assembly on Wednesday until today. However, plans to delay debate did not sit well with Independent South Andros MP, Whitney Bastian, who claimed that the Bill was a “waste of time” and was only being brought to the House to please a foreign country. The Bill for an Act to amend the Extradition Act states that the amendment is to provide for an appeal to the Court of Appeal in any proceedings upon application for habeas corpus against an order for the release of the person restrained, as well as against the refusal of such an order. If passed, the bill would put The Bahamas’ judicial system on par with those in the United Kingdom and some Caribbean nations as it relates to the Court of Appeal.
Mr. Bastian expressed that he was totally against extradition. He said the Bahamian government was being “strong armed” by another country to pass the law to protect certain persons, and such a move was “unfair”. “No law should be retroactive. Amend the Constitution first. We are now putting the cart before the horse in dealing with this law,” he said, adding that The Bahamas had competent courts and Bahamians should be tried at home. “Bring the witnesses here to this country, and let us try them here. Let it be optional. If someone wants to be tried (outside of the country), then let them go, but if not, let them be tried here,” Mr. Bastian charged.Link here.
ADOPTING THE EU CONSTITUTION: A WIDE RANGE OF APPROACHES
The 25 members of the European Union can each choose their own way of approving the bloc’s first constitution. Some have already opted for a referendum, others for a parliamentary vote. Still others are so far undecided. All member states are supposed to ratify the text for it to come into force. Here is a summary of how each of them plans to gain approval.More on this story here.
Pressure for common EU tax base continues.
Pressing for a common EU corporate tax base, France and Germany have hinted that countries with low tax rates should receive limited Brussels aid, piling on the pressure for countries like Estonia. The finance ministers of France, Germany and Poland discussed the linkage during a meeting, and it appears that Poland has now given its tacit backing. This will add pressure on countries like Estonia, as it breaks the conception that the issue was Germany and France versus the new EU members. And it was Estonia that came directly into the firing line of French finance minister Nicolas Sarkozy who pressed the link between assistance and tax rates.More on this story here.
RIGGS BANK HID ASSETS OF PINOCHET, REPORT SAYS
Riggs Bank courted business from former Chilean dictator Augusto Pinochet and helped him hide millions of dollars in assets from international prosecutors while he was under house arrest in Britain, according to a report by Senate investigators. The report also says the top federal bank examiner in charge of supervising the District’s largest bank kept details about Riggs’s relationship with Pinochet out of the Riggs case file. That happened a few months before the examiner retired from the government and joined Riggs as a senior executive.
The report, which includes the first account of Riggs’s dealings with Pinochet, is the latest blow to an institution that once billed itself as “the most important bank in the most important city in the world.” In May the bank agreed to pay $25 million in civil penalties for what federal regulators called “willful, systemic” violation of anti-money-laundering laws in its dealings with the embassies of Saudi Arabia and Equatorial Guinea. Several other federal investigations continue into the bank’s activities, and Riggs has hired investment bankers to explore a sale of the company.More on this story here and here.
RUSSIAN BANKS: A CRISIS OR PANIC?
The developments in the Russian banking sector in the past two weeks look very much like an unplanned event in the circus: an acrobat performs his stunt carelessly, almost falls from the trapeze and makes the audience’s heart leap in horror. In this case, the Central Bank of Russia, the country’s chief bank authorized to revoke licenses, has been the clumsy acrobat. A month ago it revoked the license of Sodbusinessbank, a medium-sized credit institution in terms of assets. The media reported at that time that the claims to Sodbusinessbank were legitimate -- the bank had been used by various structures in their money-laundering schemes. The collapse of Sodbusinessbank was followed by the collapse of Kredit Trust -- both banks had the same owner. However, when Central Bank chairman Sergei Ignatyev announced in the State Duma the so-called “white list” of banks, which, in his opinion, had nothing to fear about, people, naturally wanted to know what would happen to other banks and what banks would be included in the black list.
The Central Bank’s purge of financial institutions is proceeding according to plan: in the past six months, licenses have been revoked from almost 30 non-viable and actually non-operating banks and no crisis has resulted from these measures. The Central Bank is scrutinizing banks in terms of sustainability in compliance with the law on individual bank deposit insurance, which came into effect on December 27, 2003. At the same time, the Central Bank announced that far from all banks wishing to join the deposit insurance system would be able to qualify for it. After depositors took into account the facts relating to Sodbusinessbank and the prospect of the collapse of other banks on the financial market, they started to panic. On top of that, by some fatal coincidence, head of the department for struggle against money-laundering Mr. Zubkov came up with a statement that there was a list of ten banks awaiting the fate of Sodbusinessbank. The Central Bank did not disprove this information.
After hearing about the list of ten unnamed banks, depositors who were not accustomed to sharp regulatory actions by financial authorities and who had learnt much from the bitter experience of the August 1998 default and collapse interpreted the situation differently. Therefore, they were gripped by the desire to withdraw their savings from banks as soon as possible. But the main thing is that banks have stopped to trust each other. Frightened banks have begun to lend very selectively, choosing only the most reliable borrowers. The shortage of borrowed funds also pushes loan interest rates up. Banks engaged in encashment operations have raised the fees for their services. Apart from that, if the crisis situation leads to loan defaults on the inter-bank market, banks may again start to raise interest rates in order to make up for such losses. All these factors triggered a failure in the operation of the banking system. Can this failure be called a crisis? One thing is clear: this period cannot be called favorable in any way. However, its impact on market participants is different.More on this story here.
WILL A PROPOSED MEGA-MERGER MARK THE END OF JAPAN’S BANKING CRISIS?
It would create the world’s biggest bank, with assets of ¥190 trillion ($1.7 trillion). More important, the proposed merger between Mitsubishi Tokyo Financial Group (MTFG) and UFJ, two of Japan’s four biggest banks, would be a good thing. The couple announced that UFJ, the smallest and weakest of the four, had proposed marriage to MTFG, which is widely considered the strongest of the bunch. MTFG is smaller than Mizuho, currently Japan’s and the world’s largest bank, but it is well-capitalized by Japanese standards and has a healthy corporate-lending business. Both banks’ shares rose sharply on the day the news broke, even as the broader Japanese market fell. The banks said they aimed to agree on merger terms by the end of the month and to complete their fusion by September next year.
MTFG is in far better shape. It cut its non-performing loans to 2.9% of assets in March, down from 8.1% two years earlier. Its tier-one capital is 7.1% of its assets, against UFJ’s 4.7% and around 6% for the other two big banks. A stronger capital base, courtesy of MTFG, should allow UFJ to write off its worst loans. Ned Akov, an analyst at ING Barings, reckons that within two to three years, given MTFG’s stronger finances, the merged bank should be able to repay the ¥1.4 trillion of public money that the government has injected into UFJ in exchange for preferred shares.
What does MTFG see in such a partner? The answer is UFJ’s retail business. Although it is solid enough, by Japanese standards, in corporate lending, like all Japanese banks MTFG faces a hard time making decent returns. Corporate loan demand is weak and net interest margins are thin. To boost profits, the banks must rely at least in part on retail and small-business customers. Traditionally, the job of big banks was to funnel money to companies, not to waste their time on the lowly individual customer. Now times are changing and banks are trying to build retail businesses. MTFG is still weak here, but UFJ has a large customer base. This suggests that MTFG is interested in UFJ for business reasons. There seems to be no undue pressure from regulators. Nor, believes Mr Akov, are the banks being lured by the perverse incentive to get together in order to be judged as too big to fail. That marks a big shift from the 1990s. The proposed merger demonstrates, of course, the troubles of UFJ. But it also shows that the main question now facing Japan’s big banks is no longer “How do we survive?” but “How can we make money?”More on this story here.
TREASURY, IRS STREAMLINE REPORTING OF SIGNIFICANT BOOK-TAX DIFFERENCES
According to the US tax authorities, some taxpayers engaging in abusive transactions have benefited from the different rules for financial, or book, accounting and tax accounting by claiming tax benefits that have no corresponding financial cost. The new Schedule M-3 requires all C corporations under the jurisdiction of the IRS Large and Mid-Size Business Division (LMSB) to disclose detailed information about book-tax differences as part of their tax returns for 2004 and later taxable years. These corporations will then be treated as satisfying the disclosure requirements under the return disclosure regulations by completing the new Schedule M-3.More on this story here.
MUST EXPATRIATES PAY RUSSIAN INHERITANCE TAX ON PROPERTY THEY INHERIT IN RUSSIA?
Inheritance tax is payable by expats who have been bequeathed taxable property located in Russia. In fact, even if you have never been to Russia but have been left an heirloom by a distant Russian relative, you are liable to pay the tax. However, there is a different regime for immovable property (a house, land, ship or aircraft registered in Russia, etc.) and movable property (motor vehicles, works of art, jewelry, precious metals and stones, securities, bank deposits, etc.).More on this story here.
GE SEEKING LAW TO END U.S. TAX ON OVERSEAS INCOME
Since 1999, General Electric deferred U.S. taxes on as much as $21 billion in income earned overseas. Congress is now considering changing the law so the company may never have to pay those taxes. GE, which spends more on lobbying than any other U.S. company, has pressed lawmakers for two years for the relief. The House approved the measure last month as part of a broad tax bill; the Senate excluded the provision in its version. House and Senate negotiators this month will begin negotiating a compromise. The provision would allow GE, the world’s largest company by market value, to bring home income it earns in nations such as Ireland and Singapore without being taxed again in the U.S. Those countries’ corporate tax rates are as low as 10% compared with 35% in the U.S. GE gets about 45% of total revenue from abroad.
Overall, the accrued $21 billion GE has deferred ranks third among U.S. companies, behind Pfizer’s $38 billion and Exxon Mobil’s $22 billion. GE gained about $200 million a year from the export subsidies that the WTO struck down, according to a General Accounting Office estimate. The company would likely benefit even more from the proposed legislation, because GE could lock in savings it has generated by basing some of its financial services businesses in low-tax countries.More on this story here.
NATIONAL TAXPAYER ADVOCATE’S FY 2005 OBJECTIVES REPORT TO CONGRESS
National Taxpayer Advocate Nina E. Olson has delivered a report to Congress that calls for enhanced protection of taxpayer rights by tax administrators and improvements in the offer-in-compromise, collection due process and tax e-filing programs. “This year’s Objectives Report focuses on the protection of taxpayer rights as a mandatory component of tax administration,” said Olson. “Aggressive enforcement of taxpayer rights assures taxpayers that the IRS’ aggressive enforcement of the tax laws will be balanced and fair.”Report here (PDF file).
COURT RULES IN FAVOR OF TAXPAYERS IN VALUING FAMILY BUSINESSES FOR ESTATE PURPOSES
Suppose Success Co. is correctly valued (for tax purposes) at $5 million, the market value of specific assets that Success Co. owns is $3 million, but their book value is only $2 million. So, if Success Co. were to sell the assets or actually liquidate, there would be a $1 million profit. Say the tax on the profit would be $400,000. The question that faced the court was, should the value of the corporation be reduced by $400,000 to $4.6 million?
“Yes,” said the court, turning thumbs-down on the IRS’s claim to ignore this built-in gains discount (actually the potential tax due for an asset sale or corporate liquidation). As a practical matter, this case allows you to take three distinct valuation discounts. After these three discounts, a $6 million company may only be worth in the $3 million to $3.5 million range for tax purposes. Truly a great victory!More on this story here.
CHOOSING WHERE TO LIVE, WORK AND INVEST WITH TAX BURDENS IN MIND
From a laid-back lifestyle in the Caribbean, to the precision of Switzerland, if you have got money to spare, there are plenty of countries that are keen to attract it. Monaco, the UK’s Channel Islands, Isle of Man, the Bahamas, the Cayman Islands, and the Virgin Islands all have low or in some cases zero income tax rates. Even a number of South Pacific nations, including the Solomon Islands, are eager to get in on the act. At all of the above destinations you can create an offshore account and reap the benefits, although there is one country where there is no escape from the taxman -- the United States.
The problem for many international business people is that they have their wealth spread across a number of countries. This can end up creating a complex tax situation that is expensive to administer. Although offshore banks are keen to ensure your privacy, they are far more regulated than they used to be. High profile cases of tax evasion, as well as a crackdown on questionable funds have led to a greater degree of scrutiny and transparency.More on this story here.
SURVEY REVEALS CONCERNS OVER INTERNATIONAL TAX TASK FORCE
A survey published in the July-August edition of the newly launched Tax Business magazine has revealed the full extent of the unease felt by tax professionals in Australia, Canada, the United States and the UK regarding the tax avoidance task force established by the revenue authorities in the four countries. According to the results of the poll, the lack of information provided to the industry regarding the task force’s plans is the main concern, with 83% of those questioned calling for more consultation, and 54% suggesting that those behind the international initiative have no interest in the opinions of companies on the matter.More on this story here.
FINANCIAL PLANNING FIRM FILES FOR BANKRUPTCY AFTER RUNNING AFOUL OF THE IRS
Xelan Inc., founded in the mid-1970s, sells financial planning, insurance, investment and pension services to physicians. But recently, the company has been battling the IRS over some of its tax shelters. The company and four of its sister entities filed for bankruptcy June 30. In a court hearing yesterday, Xelan asked the bankruptcy court to approve the sale of the five Xelan companies to a competitor. But the IRS, the U.S. Bankruptcy Court trustee and some creditors objected to the sale, claiming that it might thwart investigations into Xelan and its related businesses.
According to the IRS, the five bankrupt firms are only part of the kaleidoscope of companies under the Xelan umbrella, some of which are based offshore. These Xelan entities are involved in four active lawsuits with the IRS, including court actions seeking to block the agency from examining Xelan tax shelters. Bankruptcy Judge Louise Adler blocked the sale, at least for now, until Xelan provides more information about what the companies do, what they are worth and how they are related to other Xelan businesses that have not filed for bankruptcy.More on this story here.
IRS CRIMINAL INVESTIGATIONS RISE WHILE NUMBER CONVICTED DECLINES
recent report compiled by the Treasury Inspector General for Tax Administration has stated that the IRS has begun to reverse the declining trend in the number of criminal investigations that it undertakes into non-compliance. In the report, TIGTA observed that starting in 2002, the agency’s Criminal Investigations division began to increase the number of cases it initiated against suspected tax crimes, while also devoting more time to individual cases. Despite the increased caseload, TIGTA noted that the number of convictions continues to decline. It added, however, that “we believe these downward trends reflect a timing issue.”
“Actions on criminal investigations may span more than one year, so the more recent declines in convictions and sentences are more likely to be a function of the decline of special investigations initiated in previous years,” stated the report. Nonetheless, the TIGTA report expressed concern that the reversal of the general trend may be compromised by prolonged staffing issues. Between, fiscal years 2000 through 2002, the Criminal Investigations department of the IRS increased the number of special agents employed by 6%, or 600 agents. However, the high turnover of staff in the division resulted in a net increase of only 161. Furthermore, this high rate of attrition contributed to a net decline in the number of special agents employed in the 2003 fiscal year and the first half of 2004.More on this story here.
THE IRS GRANTS A WISH
The ruling makes clear that the person who sets up the trust -- the grantor -- can pay the annual income taxes owed by the trust without the payment being treated as an additional taxable gift to the beneficiaries of the trust (say, the grantor’s children or grandchildren). In addition, the ruling explains how trust documents should be worded to avoid the horrendous result of having all of the assets in a trust included in the grantor’s estate when he or she dies. The way the math works, after 20 years of the grantor paying the income taxes for the trust, there could be twice as much in the trust as there would be if the trust paid its own taxes, says Bernard Kent, a tax partner with PriceWaterhouseCoopers in Detroit.
Grantor trusts are the bread and butter of estate planning for families with $5 million-plus in assets. It is common for a husband and wife to each set up a $1 million grantor trust to take advantage of the amount any individual can give away over his or her lifetime gift-tax-free. (That is in addition to the annual gifts of up $11,000 you can make gift-tax-free to as many recipients as you like.)
In a basic grantor trust, the grantor puts $1 million in cash or assets into a trust -- often choosing assets such as initial public offering stock expected to appreciate a lot -- and the money in the trust goes to the trustee after the grantor dies. A traditional trust itself pays taxes on its trust income while the assets grow. Or if the money is distributed, the beneficiaries pay the taxes. However, in the grantor trust version, the grantor pays the taxes on the income. This has two benefits: First, the money builds up faster; second, the grantor is getting additional money out of his/her own taxable estate.
Estate planners have been using grantor trusts for the past two decades, but they always had to warn clients that the IRS might consider the income tax payments by the grantor to be further taxable gifts to the beneficiaries of the trust. Worse, if the trust were required to reimburse the grantor for taxes paid, that could arguably cause the assets of the trust to be included in the grantor’s estate, essentially killing the whole strategy. The new IRS ruling, technically a “revenue ruling” that applies to all taxpayers, puts both these fears to rest.More on this story here.
IRS trust ruling puts certainty back into estate tax planning.
A new IRS ruling this week could have the effect of increasing the popularity of a tax planning method used to mitigate the effects of estate tax. The ruling relates to the use of a trust known as an “intentionally defective irrevocable trust” and specialists in the tax planning industry consider the decision will eliminate much of the uncertainty that has surrounded this tax strategy. Tax practitioners believe wealthy individuals will find it much easier to transfer property out of their estate in order to benefit their heirs. While the trust’s income is included on an individual’s personal income tax return, its assets are not included in their taxable estate.More on this story here.
WEALTHY SEEK SOLITUDE IN THEIR OWN LITTLE KINGDOMS ON PRIVATE ISLANDS
Wallace Tutt made a name and a fortune designing and building lavish homes for the glitterati -- Gianni Versace’s mansion in Miami Beach, houses for Cher in Florida and California. But when he searched for a location for his own ideal home, he chose a tiny private island where he takes refuge in solitude, lying in a hammock surrounded by turquoise waters far from the demands of society.
Caribe Cay, valued at $3.5 million, is one of dozens of private islands that dot the Bahamas and other countries across the Caribbean. Living such a life is pricey and logistically difficult, but in the past few decades a lucrative business has grown from selling and leasing islands to people seeking their own private paradises. It is not just in the Caribbean. Islands are for sale from Fiji to Nova Scotia, ranging from house-less islets costing less than $100,000 to sprawling islands with mansions or resorts priced in the tens of millions. The Bahamas has a particularly large number -- real estate agents estimate 60 or so are scattered across the archipelago of 2,700 islands and cays off Florida.More on this story here.
PROMOTING LABUAN’S OFFSHORE ASSETS
Since its establishment in 1990 with the aim of competing with Singapore and Hong Kong for the international offshore business, Labuan has continued to grow and diversify its activities. “Labuan IOFC recorded positive results in every sector of offshore business,” according to the Labuan Offshore Financial Services Authority (Lofsa) 2003 annual report. There was an increase in the number of offshore, trust, insurance, and leasing companies, as well as investment banks and fund managers. There were new listings on the Labuan International Financial Exchange and there was much progress in developing it as an Islamic financial centre. Nevertheless, there is a lot of scope for greater growth.
Moreover, not much has changed since 1998 as far as its international profile is concerned. Many still do not know what Labuan has to offer as a tax haven, and it remains off the beaten track in the offshore international map. As underlined by the findings of the recent Business Times survey, it is the lack of effective promotion that continues to inhibit its development. There is also a need to continuously improve infrastructure from providing broadband access to the “little things” like shopping and nightlife. With innovative and creative promotion, there is no reason why Labuan cannot give the bigger and more established offshore financial centers a run for their money.More on this story here.
NEW BILL AIMS TO FIGHT PHISHING SCAMS
Fraudsters who create authentic-looking Web sites in an effort to get customers of a legitimate e-commerce site to provide financial or other personal information could go to jail for up to five years under legislation introduced by a U.S. senator. The Anti-Phishing Act of 2004, introduced by Senator Patrick Leahy (D-Vermont), would define the so-called act of “phishing” as a federal crime. The bill would outlaw the act of spoofing a Web site in an attempt to “induce, request, ask, or solicit any person to transmit, submit, or provide any means of identification to another.”
The bill also prohibits the creation of e-mail that represents itself to be from a legitimate business but attempts to induce the victim to divulge personal information, with the intent to commit a crime of fraud or identity theft. Phishing scams cost U.S. consumers and businesses up to $2 billion in the last year, according to Leahy. Leahy’s bill protects free speech rights by leaving Web site parodies out of the definition of phishing. Current laws allow law enforcement authorities to prosecute phishers, but only after someone has been defrauded, Leahy said in his statement.More on this story here.
GLOBAL E-MAIL SCAMS LURE VICTIMS
Who needs the lottery? Anyone with an E-mail account is probably familiar with solicitations that are examples of the advance-fee fraud, or “419 fraud”, so-called for the section of the penal code that addresses fraud in Nigeria, where this scam is believed to have originated. Although the stories seem preposterous, some people cannot resist these get-rich-quick schemes, beckoned by visions of early retirement, an easy way out of debt, or a life of luxury. Someone wants you to become a partner in a business venture, or to help a member of royalty or the aristocracy, a deposed government official or a grieving widow transfer assets to a bank account in your name to keep it out of some government’s hands.
All you have to do is pay “upfront fees” so that a bank account can be opened in your name and the funds transferred there. The trouble is, the scam artists keep coming up with additional fees, until they have cleaned you out of your savings -- or until a light finally goes on and you realise that you have been had. The FBI’s Internet fraud complaint center estimates that victims of 419 fraud lose an average of $3,400 each. Advance-fee fraud has now spread beyond Nigeria to South Africa, Dubai and Iraq, among other countries. It is one of the most elaborate and lucrative Internet scams. The scheme has been around for years, law enforcement officials say, originally in the form of letters or faxes. It has spread like a computer virus with the growth of the Internet.More on this story here.
5 THINGS ABOUT OFFSHORE ASSET PROTECTION EVERY INTERNET MARKETER SHOULD KNOW
Offshore instruments of asset protection no longer belong in the realm of the wealthiest individuals with high paid financial advisors. Thanks to the internet and globalization of financial markets, there are plenty of firms that can help just about anyone “go offshore”. What follows is a brief introduction to some of the most popular tools of offshore asset protection and how they can be used by online business people and internet marketers like yourself to protect and grow your business.More on this story here.
DEBUNKING SIX MYTHS OF BIOMETRICS
It is probably the hottest sector in the security field today. Yet the biometrics industry, which produces human-based identification systems, is weighed down with claims and counterclaims, fallacies and myths. We present an article arguing against some of the criticisms faced by the technology.More on this story here.
U.K. biometric ID cards do little to cut fraud, warns IT organization.
Biometric ID cards will do little to combat identity theft, fraud or terrorism, the Institute for the Management of Information Systems will tell the government next week. Imis, which represents 14,000 IT professionals in the UK, will argue that the government’s real priority should be tightening identity checks before issuing passports and driving licences.
In a formal response to the Home Office’s draft Identity Card Bill, Imis will claim that biometric ID cards are unlikely to be any better at protecting against fraud, terrorism or reducing crime than the non-biometric cards used in other countries. Imis said the real problem is that current system of issuing passports and driving licences -- which will form the basis of the ID card scheme -- is open to abuse. The institute believes this raises questions about their value for establishing identity.More on this story here.
CELL-PHONE 411: BOON OR BANE?
Cell-phone users may soon get calls from old friends, long-lost cousins and acquaintances they thought they had ditched, when a consortium of wireless providers launches a wireless 411 service early next year. Privacy and consumer advocates are already pushing for federal legislation to make sure that people’s numbers are not included in the proposed directory unless they specifically request it, since many people only give out their cell numbers to friends -- and unlike land-line phones, cell-phone users generally pay for incoming calls.
The Cellular Telecommunications & Internet Association says there is no need for government regulation since the wireless-assistance database will be opt-in, meaning no number will be listed unless a customer asks to be included. Nor would the directory lead to telemarketing calls, since telemarketers are already banned from calling cell phones. Cell-phone users can get additional protection by adding their wireless number to the FCC’s do-not-call list.
The centralized directory will work much the same as other directory-assistance services, allowing anyone to call from any phone and get a person’s cell number if they have enough information to help an operator find the person in the database. But the industry says it will not publish anything like a phone book. The directory will likely increase the number of cell-phone calls and could earn the industry billions of dollars in revenue each year.More on this story here.
A GATHERING TO HACK THE SYSTEM
An ominous drawing of a face sporting Hitler’s moustache and a vampire’s coif was emblazoned on the bright red banners that hung behind the speakers’ podiums. Printed underneath the grim visage was a warning, “Big Brother Is Watching You”. The event was the fifth annual Hackers on Planet Earth gathering, held over the weekend, where attendees discussed computers, control, privacy and politics. There was a darker note than usual at HOPE this year, with many workshops and panel discussions dedicated to tips on how to evade survelliance, avoid lawsuits and stay out of jail. These issues are often covered at hacker conferences, but at HOPE 5 there seemed to be a sense of fear, frustration and sadness.
The U.S. government’s crackdown on hacking through legislation, such as the Patriot Act, combined with the ever-growing threat of corporate litigation aimed at squashing any discussion of product security flaws, sparked many workshop discussions and private debates on whether hacking is a dying art. Most agreed that any light glimpsed at the end of this tunnel was more likely to be an oncoming train rather than the glow of freedom’s fires. Most people believed that the entertainment industry will work with technology vendors to lock down computer capabilities that allow users to copy, share and alter information anonymously. And should there be any misconceptions that we have traded privacy for safety, security researcher and author Bruce Schneier discussed the ineffectiveness of most post-9/11 security measures.More on this story here.
Hactivism and how it got here.
Hacktivism is not found in the graffiti on defaced Web pages, in e-mail viruses bearing political screeds or in smug take-downs of government or organizational networks. These sorts of activities are nothing more than reverse censorship and “the same old cheap hacks elevated to political protest,” according to Cult of the Dead Cow member Oxblood Ruffin. Hacktivism, as defined by the Cult of the Dead Cow, the group of hackers and artists who coined the phrase, was intended to refer to the development and use of technology to foster human rights and the open exchange of information. Speaking this past weekend at the Hackers on Planet Earth gathering, Ruffin pointed to the growing partnership against censorship between hackers, human rights activists and the academic community as proof that real hacktivism -- grass-roots resistance enabled by technology -- is a viable way to battle repression.More on this story here.
U.S. CENSUS BUREAU AMERICAN COMMUNITY SURVEY GOES WAY TOO FAR
You may not have heard of the American Community Survey, but you will. The national census, which historically is taken every ten years, has expanded to quench the federal bureaucracy’s ever-growing thirst to govern every aspect of American life. The new survey, unlike the traditional census, is taken each and every year at a cost of hundreds of millions of dollars. And it is not brief. It contains 24 pages of intrusive questions concerning matters that simply are none of the government’s business, including your job, your income, your physical and emotional heath, your family status, your dwelling, and your intimate personal habits.
The questions are both ludicrous and insulting. The survey asks, for instance, how many bathrooms you have in your house, how many miles you drive to work, how many days you were sick last year, and whether you have trouble getting up stairs. It goes on and on, mixing inane questions with highly detailed inquiries about your financial affairs. One can only imagine the countless malevolent ways our federal bureaucrats could use this information. At the very least the survey will be used to dole out pork, which is reason enough to oppose it. Keep in mind the survey is not voluntary, nor is the Census Bureau asking politely. Americans are legally obligated to answer, and can be fined up to $1,000 per question if they refuse!
One of the worst aspects of the census is its focus on classifying people by race. The census also represents a form of corporate welfare, since the personal data collected on hundred of millions of Americans can be sold to private businesses. At least the national census has its origins in the Constitution, which is more than one can say about the vast majority of programs funded by Congress. Still, Article I makes it clear that the census should be taken every ten years for the sole purpose of congressional redistricting (and apportionment of taxes, prior to the disastrous 16th amendment). The founders never authorized the federal government to continuously survey the American people.
More importantly, they never envisioned a nation where the people would roll over and submit to every government demand. The American Community Survey is patently offensive to all Americans who still embody that fundamental American virtue, namely a healthy mistrust of government. The information demanded in the new survey is none of the government’s business, and the American people should insist that Congress reject it now before it becomes entrenched.More on this story here.
AIRLINE SCREENING SYSTEM DELAYED
A controversial and much-delayed proposed airline screening system may face further delays as the Transportation Security Administration restructures the system to better protect privacy and civil liberties, a senior homeland security official told Congress. Adm. David Stone, acting administrator for the TSA, told members of the Senate Commerce Committee that the Computer Assisted Passenger Pre-Screening System II, known as CAPPS II, “is not going forward as previously briefed.” He said the rethinking was in response to a February report critical of the program, as well as the TSA’s own privacy concerns.
The TSA had hoped to start testing the program with real passengers this summer. Stone did not estimate how long the delay would be. The system, as originally proposed, would require all passengers to provide extra information when booking a ticket -- information that airlines do not currently ask for, like addresses, phone numbers and dates of birth. The system would then check that information against databases of criminals and terrorists and assign each passenger a green, yellow or red score, according to perceived risk. Civil-liberties groups from the left and right have gained powerful allies on Capitol Hill by arguing the system is both too invasive and ineffective.
According to Stone, the agency is reconsidering validating travelers’ information against commercial databases, criminal records and the government’s terrorist watch list. It is also reconsidering the color-coding scheme. CAPPS II is intended to replace the current system run by airlines that checks names against a no-fly list and picks out passengers for extra screening based on behaviors such as paying with cash.
The Transportation Security Administration had budgeted $60 million for CAPPS II next year alone. “It was falling under its own weight -- not just the privacy concerns, but the sheer impracticality of it,” said Barry Steinhardt of the American Civil Liberties Union. “It was always a question of when they were going to pull the plug.”More on this story here, here, and here.
“HOMELAND SECURITY” BEYOND U.S. BORDERS
Earlier this month CNN reported that police officers across the United States are carrying handheld wireless computers on which they can access private details from large commercial databases about anyone they encounter on their beat. Emboldened by their role in the U.S.-led “war on terrorism” security and intelligence agencies are exploring new electronic technologies that will enhance the collection and dissemination of the private records of citizens across international borders.
But the questionable accuracy of the information stored in files collected on citizens, the lack of clear protocols governing their use by police and security officials and the reliance on racial profiling to detain citizens with Third World backgrounds at airports concerns civil libertarians like Roch Tassé, coordinator of the Ottawa-based International Civil Liberties Monitoring Group (ICLMG), a coalition made up of NGOs, churches, unions, environmental and civil rights advocates and groups representing immigrant and refugee communities in Canada.
The role that information sharing between Canada’s lead police agency, the Royal Canadian Mounted Police, and its U.S. counterparts played in the detention of Canadian citizen Maher Arar is now being probed by a government appointed inquiry in Ottawa. Arar was seized by U.S. authorities in a New York airport in 2002 on suspicion of being a terrorist and subsequently deported to Syria, his country of birth, where he says he was tortured for nearly a year.
Lloyd Axworthy, a former Canadian foreign affairs minister, says he wonders if Arar’s treatment can be connected to the cross-border agreements Canada and the United States entered into starting in December 2001, which he says give police and immigration agencies all kind of leeway on cooperation, including information-sharing. A York University professor is suggesting that Ottawa seriously examine the relationship between Canadian and U.S. police and intelligence authorities, particularly when officials north of the border are kept “out of the loop 90% of the time” on security matters involving the neighboring United States.More on this story here.
RFID USERS SAY NO TO PRIVACY LAW
Retail giant Walmart has said a US law enforcing privacy rules for RFID is not needed because companies experimenting with the technology are committed to protecting privacy. Wal-Mart Stores continues to move forward with plans for case- and pallet-level tagging of products with RFID chips. But item-level tagging, where individual products are identified with RFID chips, is about 10 years away, Linda Dillman, executive vice-president and chief information officer of Wal-Mart, told the US House Subcommittee on Commerce, Trade and Consumer Protection.
Privacy advocates said that legislation is needed to protect consumers from potential uses of RFID. They offered few current examples of privacy concerns caused by RFID, but as the range of RFID scanning grows beyond the current 10-20 feet RFID could allow corporations and governments to track people’s movements and purchases, they said. Defenders of RFID said the technology has great potential to lower supply chain costs, reduce theft and counterfeiting, improve the rate of products being in stock and even track livestock diseases.More on this story here.
RFID: The Revolution Awaits
Radio frequency identification is being touted as the next big revolution in commerce. The technology, which is already being used in highway toll collection systems, could, its proponents say, do a far better job than bar codes of monitoring goods from production to consumption. RFID has some big backers, and some perhaps equally large obstacles to overcome. The technology has raised the hackles of privacy groups who see the prospect for Wal-Mart snooping in consumers’ cupboards. But RFID is hardly ready for that kind of workout.
In this special report, we look at some of the opportunities for RFID technology, as well as the obstacles. Bookmark this page to check back for updates.More on this story here.
EFFORT TO WATER DOWN PATRIOT ACT VOTED DOWN
House Republicans, under strong pressure from the White House, narrowly defeated an effort yesterday to water down the Bush administration’s signature law to combat domestic terrorism. By a 210 to 210 tie vote that GOP leaders prolonged for 23 tumultuous minutes while they corralled dissident members, the House rejected a proposed change to the USA Patriot Act that would have barred the Justice Department from searching bookstore and library records. White House officials, citing the nearly three-year-old law’s importance as an anti-terrorism tool, warned that an attempt to weaken it would be vetoed. Under House rules, a tie vote meant the measure was defeated.
But the victory came only after GOP tactics infuriated Democrats and a number of Republicans. The vote, scheduled to last 15 minutes, dragged on for 38 minutes despite outraged shouts and a unified chant of “shame, shame, shame” from Democrats across the aisle. Rep. C.L. Butch Otter (R-Idaho), a conservative and an advocate of the defeated provision, told reporters after the vote, “You win some, and some get stolen.”
The floor fight was reminiscent of November’s vote on a Medicare prescription drug program, when GOP House leaders kept the vote going for nearly three hours while they persuaded reluctant members to support passage of the bill.More on this story here, here, and here.
Ed Meese argues against changes to the Patriot Act.
Critics argue the various provisions of the Patriot Act greatly infringe upon American liberties while failing to deal effectively with terrorism. Its very name now serves as a symbol for all domestic antiterrorist law enforcement actions. It has become convenient shorthand for any questions that have arisen since September 11 about the conflict between civil liberty and national security.
Too much of the debate, though, has focused not on what the Patriot Act truly does, but on what some people perceive it to do. Most of the proposals for reform mistake the appearance of potential problems and abuse (the myth) with the reality of no abuse at all. Factual analysis, however, shows the case for change has not been made. The proposed amendments are emblematic of this trend. They purport to provide necessary changes, yet their major provisions lack any factual basis for concluding that changes are necessary.More on this story here.
Billions of dollars later, are we any safer from terrorism?
In the last two years the Department of Homeland Security has spent $70 billion making the country more secure, with $40 billion requested for 2005, not to mention the money that businesses have paid to comply with the Patriot Act and other new laws. Whether we are any safer from terrorism is still an open question. Herein, the economy’s choke points -- rated from yellow (elevated risk) to red (severe risk).More on this story here.
The Patriot Act went too far.
In the wake of Sept. 11, 2001, many Americans believed that limitations on freedom were necessary. But after some reflection, those opinions are starting to change. The horror of the Sept. 11 terrorist attacks succeeded in damaging much more than just buildings, people, our economy and the U.S. government. They also led some Americans to reverse their long-standing support for the cornerstone of our democracy -- the First Amendment to our Constitution. The results -- albeit somewhat predictable following Sept. 11 -- scared constitutional experts and those who work tirelessly to preserve our Bill of Rights more than two centuries after its creation.
Many citizens understandably feared that our country’s freedoms enabled terrorists to work in our midst without detection. Thus the Patriot Act was born with good intentions perhaps, but raises questions of how far we should go when weighing security versus freedom. Now, a 2004 follow-up survey conducted by The First Amendment Center and American Journalism Review shows just 30% of Americans believe the First Amendment goes “too far”. Nearly three years later, they have come to understand why our forefathers created the Bill of Rights.More on this story here.
Justice Department claims Patriot Act helped FBI unravel a bizarre “cyberterror” plot. Scientists’ assessments differ.
Attempting to highlight uses of the USA Patriot Act, the Justice Department has disclosed new details about a bizarre “cyberattack” on the U.S. government’s South Pole research station. Officials say that Eastern European hackers penetrated the station’s computer system and threatened to sell research data to a foreign government. FBI officials quickly concluded that the South Pole station’s “critical infrastructure” support systems were not endangered. But FBI cybercrime agents moved quickly to unravel the plot. According to the Justice report and an FBI official, agents used a little-known provision of the Patriot Act that allowed them to immediately obtain normally confidential data from Internet service providers in emergencies -- without a court subpoena. That helped them to trace the e-mail to two young hackers at a cybercafe in Romania.
The Justice report, entitled “Report From the Field: The USA Patriot Act at Work”, portrayed the emergency Internet provision of the Patriot Act, known as Section 212, as critical to cracking the case. But others familiar with the South Pole case say it is unlikely that the Patriot Act would have made that much difference. Bureau agents, they say, would have had no trouble getting the Internet service provider records with a normal subpoena and the National Science Foundation, as a federally funded entity, would have had no reason not to voluntarily cooperate with the FBI by turning over records.
In addition, the portrayal of the South Pole case as cyberterrorism met with some skepticism from scientists. In addition, the portrayal of the South Pole case as cyberterrorism met with some skepticism from scientists. The actual data from the South Pole station that could have been downloaded by the cyberattackers was almost entirely highly technical astrophysics research. But Justice Department spokesman Mark Corallo said the Internet-service provision of the Patriot Act was still crucial in this and many other cases being prosecuted by Justice. “In terrorism cases, it’s about speed. In a lot of these cases, yo’qre talking about life and death. This is about saving lives.”More on this story here.
Ashcroft’s Patriot Act report to Congress omits key information, ACLU says.
A report submitted to the House Judiciary Committee by Attorney General Ashcroft on the government’s use of the Patriot Act omits key information and avoids any mention of numerous controversial provisions of the law, the American Civil Liberties Union said. “President Bush and Attorney General Ashcroft need to spend less time waging public relations campaigns and more time responding to the specific, legitimate concerns of the American people,” said ACLU Executive Director Anthony D. Romero. “It’s astounding that the Attorney General could release a 30-page report on the Patriot Act and never mention some of the provisions that are most controversial.” The report sidesteps the most serious concerns raised by the ACLU and many other organizations and individuals from across the political spectrum.More on this story here.
DUE PROCESS? CHECKS AND BALANCES? THEY SOUND LIKE GOOD IDEAS
On Tuesday, July 6, 2004, Judge Reggie Walton made a decision and ruled on my case. Under his ruling, I, an American citizen, am not entitled to pursue my 1st and 5th Amendment rights guaranteed under the Constitution of the United States. The vague reasoning cited, without any explanation, is to protect “certain diplomatic relations for national security”. Judge Walton reached this decision after sitting on this case with no activity for almost two years. He arrived at this decision without allowing my attorney and I any due process: NO status hearing, NO briefings, NO oral argument, and NO discovery. He made his decision after allowing the government attorneys to present their case to him, privately, in camera, ex parte; we were not allowed to participate in these cozy sessions. Is this the American system of justice we believe in? Is this the due process we read about in our civics 101 courses? Is this the judicial branch of our government that is supposed to be separate from the other two branches in order to protect the people’s rights and freedom?
This court decision by itself would have been appalling and alarming enough, but in light of all other actions taken against my case for the past two years it demonstrates a broken system, a system abused and corrupted by the current executive, a system badly in need of repair. Under this broken system the attorney general of the United States is being allowed to illegally gag the United States Congress regarding my case. And even worse, the United States Congress is readily complying with this illegal gag.
Under this broken system the attorney general of the United States is being allowed to hinder ongoing investigations such as those of the 9/11 Commission and the DOJ-Inspector General. Under this broken system the Attorney General of the United States is getting away with interfering and tampering with pending cases under the judicial process, such as my court cases and the lawsuit by the 9/11 victim families. On September 11, 2001, 3,000 lives were lost. Yet this administration has hindered all past and on going investigations into the causes of that horrific day for the sake of this vague notion of protecting “certain diplomatic and foreign relations.”More on this story here.
FORMER AUSTRALIANS GAIN CITIZENSHIP RIGHTS
The reforms -- announced on 7 July -- apply to those people who automatically forfeited their Australian citizenship when they acquired another citizenship before 4 April 2002. It was on that date when a section of law was repealed making it possible for Australians to acquire the citizenship of their country of residence without being stripped of their Australian nationality. But that hard-won amendment did not help those who forfeited their much-prized Australian citizenship prior to 4 April 2002 and remained abroad. The current resumption provision requires former citizens who lost their citizenship who are still overseas to declare an intention to return to reside in Australia within three years if they want their Australian citizenship back.More on this story here.
AMERICANS SPEAK OUT ON LIMITS TO THE FIRST AMENDMENT
A new survey of public attitudes about freedom of expression concluded that support for First Amendment freedoms has rebounded to pre-Sept. 11 levels, but a significant number of Americans favor further restrictions on entertainment content. The State of the First Amendment 2004 survey was conducted by the First Amendment Center (FAC) in collaboration with American Journalism Review magazine.
Some data in the report suggest the public does not have a very good understanding of the First Amendment. Just 1 percent of those asked could identify “petition” as one of the specific rights enumerated in the First Amendment. Fewer than half of those surveyed could name more than one of the five freedoms. 58% correctly identified speech as a guaranteed freedom, and 17% correctly identified religion as a basic constitutional freedom, 15% identified freedom of the press, and just 10% knew that Americans are free to assemble.
Although public tolerance for free speech is making a comeback -- following a post-Sept. 11 spike in public disapproval of unchecked free expression -- Gene Policinski, acting director of the FAC, said nearly one in three Americans still say there is too much freedom of expression. About four in 10 respondents said the press in America has too much freedom. The survey also included questions about free expression in U.S. entertainment and found significant numbers of people think government regulation of broadcasting should be stepped up.More on this story here.
FLORIDA SERVICE PROVIDERS BEING TRAINED AS SPIES
Law enforcement officials in central Florida are planning to train cable repairmen, exterminators and apartment managers to report signs of terrorism inside their clients’ homes. Supporters of the program say making private citizens the eyes and ears of the police will save lives. But opponents, like the ACLU, call the plan “un-American” and say it is a violation of privacy. Operation TIPS, a similar program proposed by President Bush, was withdrawn in 2002 after critics said it would lead to racial profiling.More on this story here.
BACK WHEN POLITICAL DUELS WERE REALLY DEADLY
On a bluff across the Hudson River from Manhattan, a vice president of the United States measured off 10 paces, turned and shot an acclaimed former U.S. Treasury secretary. Neither deficits nor tax cuts or vice presidential four-letter invective had a whit to do with it. When Aaron Burr shot his rival, tormentor and sometime friend Alexander Hamilton in a duel exactly 200 years ago Sunday, two men were destroyed. Hamilton’s wound was mortal; he writhed for a day before dying. Burr walked away unscathed but with his reputation dashed for eternity.
The lineal descendants of Hamilton and Burr plan to gather on the Weehawken, New Jersey waterfront and reenact this most famous of American duels. If both families are energetic stewards of their ancestors’ legacies, the Burrs are perhaps jauntier. They have been history’s black sheep for two centuries now -- this is their first invitation to attend an anniversary of the duel.
Born on the Caribbean island of Nevis to an unmarried Scottish father and a French mother, Hamilton came to this country as a student, served as an aide to Gen. George Washington, signed the Constitution, co-wrote the Federalist Papers and founded the central bank. He was a principal intellectual advocate of a strong federal government -- and a man who much feared the tyranny of the democratic majority. Burr, too, was a man of accomplishment although not so grand as Hamilton. Burr was a brave soldier, an able political operative and a tough lawyer. He tended toward a more participatory vision of democracy.
After the Revolution, the men became prominent New York lawyers when the city’s bar numbered about 35. They shared a love of smart clothes and beautiful women. Each man longed for fame, which Hamilton described as the “spring of action”. But by 1804, their reputations had darkened and jealousies arose.More on this story here.
IN PRAISE OF BORDERS
Borders play a critical role in our lives. Some of the borders that matter to us are ones we establish ourselves: this is my house and property, that is your house and property. By choosing what is mine and using the legal system to mark it off from what is yours, I create a border. While not quite as invulnerable as suggested by the maxim “A man’s home is his castle,” my property gives me a firm border against you. Borders come from property rights and are essential to a free society.
At the macro level we have political borders -- unrelated to property rights, more permeable than personal-level borders, but just as important to ensuring liberty. Other macro-level borders are less permeable. When I walk across the U.S.-Mexican border near my parents’ home in Yuma, Arizona, in one direction I must satisfy Mexican authorities that my purpose is legitimate. In the other, I must satisfy U.S. authorities that my return is legitimate. In both directions, people with guns are standing by, ready to keep me out should I fail to satisfy them about the legitimacy of my purpose. (Only the Americans with guns seem worried about who is entering the United States.)
Macro borders with competition enhance liberty. At the state and local level the only way politicians can prevent such competition is by eliminating borders. In Cleveland, “regional leaders” are pushing consolidation of local governments into one big entity as the solution to the exodus of population and investment to lower-tax jurisdictions. Fortunately, politicians’ self-interest also cuts against consolidation since it would mean fewer positions for them.
National borders are also important sources of liberty. The Mexican border, for example, offers a choice between a drug-regulatory regime that requires a doctor’s prescription for most pharmaceuticals and one that does not. Border-region residents can buy medicines either with the U.S. bundle of qualities, restrictions, and rights, or the Mexican bundle. Borders are thus friends of liberty in two important ways. First, without borders we would not have the competition among jurisdictions that restricts attempts to abridge liberty. The second way that borders further liberty is that they allow diversity in law and other community norms, letting each individual find the setting that most resembles the type of society he or she desires. Even though borders can be an excuse for reducing liberty, a world with lots of borders is nonetheless a far friendlier world for liberty than one with fewer borders. They promote competition for people and money, which tends to restrain the state from grabbing either.More on this story here.
THE LIFE AND DEATH OF CIVILIZATIONS
Only the most vacuous minds -- whose opinions are grounded in conventional delusions rather than empirical evidence and rational analysis -- can fail to recognize that modern civilization, as we have known it, has reached a terminal state. No amount of public opinion polling can reinspire its former greatness. The only question is whether its remnants can be transmuted into fundamentally new forms and practices making for a more free and productive society, or whether it shall continue its downward spiral.
Western civilization appears to be at a bifurcation point -- one of those conditions that eventually confronts systems. The study of “complexity”, or “chaos”, informs us that a complex system can be thrown into turbulent states to which it might respond either by actions (or inaction) that hasten its collapse into total entropy; or by the development of practices that allow it to adapt to the complexities it encounters. Such processes are seen in the efforts of biological systems to sustain themselves, in the mind’s debate between learning and ignorance, in the competitive success or failure of businesses, or in the life and death of entire civilizations.
Once vibrant social systems began producing their life-promoting values, the forces of death began to ooze up from the depths of humanity’s “dark side”. People who were incapable of creative acts themselves, or were envious of the successes and rewards enjoyed by others, resorted to violence to despoil others. From simple acts of piracy and pillaging, clever minds developed formal systems (i.e., governments) and intellectual rationales (i.e., political philosophies) that would institutionalize theft and the violent methods upon which thievery depends. It should come as no great news to report that when “dark side” forces begin to prevail -- whether within an individual or a society -- life-promoting qualities and values go into a decline.More on this story here.
BREAK IT UP, AMERICA!
Break it up! That is the schoolyard cry when kids tangle and things get out of hand. But as America’s polarized political factions get down and increasingly dirty, some people want to break up not the fight, but the country folks are fighting over. The US government, born of secession from Britain, bases its legitimacy on the “consent of the governed”. It is clear that Americans are a fractious people and they consent to be governed in very different, and mutually exclusive, ways. Would it be so terrible if people got to live as they pleased with like-minded people? They would probably be happier to be governed according to their own values, and they might even get along better with one another if freed from each other’s conflicting ideologies.
True, the idea that people with different preferences might be better off negotiating an amicable political divorce does not square with fifth-grade Social Studies lessons about democracy. Generations of students have been taught that 51% of the population has the divine right to treat the other 49% like the losers in a playground game of kickball -- and the losers should suck it up. But as Enrico Spolaore and Alberto Alesina write in their 2003 book, The Size of Nations, “as countries become larger, diversity of preferences, culture, language etc. of their population increases. As heterogeneity increases, then, more and more individuals or regions will be less satisfied by the central government policies.” Mini-states do not just make their citizens happier; they can be prosperous, Spolaore and Alesina say, if they embrace free trade.
Which brings us back to the obvious fact that many Americans conceive of hell as a world in which they must abide by the values of some of their countrymen. This would not matter if the US still took federalism seriously. Then, constrained by constitutional protections for individual rights, states could continue to experiment with different systems within the same country. That is fine and dandy, but in modern America the political action is increasingly concentrated in Washington, D.C. As Professor Norman Barry, a political scientist at Britain’s University of Buckingham who writes extensively on federalism around the world, observes, “America is no help. Its Constitution clearly delineates (under the Tenth Amendment) the respective roles for the federal government and the states but that has not held.”More on this story here.
TEN REASONS TO FIRE GEORGE W. BUSH
And nine reasons why Kerry won’t be much better
If you are looking for reasons to be disgusted with George W. Bush, here are the top 10. Number 10 is: He is making me root for John Kerry. Making me root for a sanctimonious statist blowhard like Kerry is not the worst thing Bush has done to the country. But it is the offense that I take most personally.More on this story here.
Bettors: Election will be tight.
As Election Day approaches, the two presidential candidates are neck and neck again, as they were in 2000. And as in the previous election, the outcome could depend on what happens in Florida. If you thought 2000 was an exciting year for presidential politics, prepare for more of the same in 2004. With the election four months away, several online wagering sites are forecasting that this year’s race will stack up much the same as the 2000 runoff between George W. Bush and Al Gore.
Just like last time, Bush holds sway in the South and Midwest. The Democratic challenger, John Kerry, maintains a comfortable lead in the Northeast and along the West Coast. The leading indicators show the race could all boil down to the nation’s fourth-most-populous state, Florida, where polls show Bush running dead even with Kerry. The predictions for a too-close-to-call race are a marked change from a few months ago, when Bush was favored to win re-election.More on this story here.
WEB BECOMING LESS AND LESS WORLDWIDE
What you see and what you are allowed to do these days can depend greatly on where and even who you are. As so-called geolocation technology improves, websites are increasingly blocking groups of visitors and carving the Web into smaller chunks -- in some cases, down to a ZIP code or employer. Type “dentist” into Google from New York, and you will get ads for dentists in the city. Try watching a Cubs baseball game from a computer in Chicago, and you will be stymied. Pre-existing local TV rights block the webcast.
To privacy advocates like Jason Catlett, that technology can detect users’ whereabouts is not the most disturbing aspect of this trend. Rather, it is the fear that websites will try to mislead visitors. A company, for instance, might show different prices when competitors visit. A political candidate might highlight crime-fighting in one area, jobs in another. Alan Davidson, associate director for the Washington-based Center for Democracy and Technology, worries that governments will try to employ the technology to enforce their laws within artificial borders they erect. Such concerns, not entirely new, have grown with the technology’s reliability, he said.
A French court considered geolocation when it directed Yahoo in 2000 to prevent French Internet users from seeing Nazi paraphernalia on its auction pages. America Online sees geolocation as one way to comply with the French Nazi ban as well as a Pennsylvania child porn law. But for the most part, any online restrictions appear to come from commercial companies, not governments. (China and other countries that censor the Internet use filtering technologies rather than geolocation.) Here is how geolocation works ...More on this story here.
BUCKMINSTER FULLER GETS HIS OWN STAMP
US-born inventor and techno-utopian Buckminster Fuller is being honored by his own Postal Service. July 12 also marks the birthday of the great man, who died in 1983. Fuller’s actual inventions come secondary to his reputation as a popular, homespun philosopher of science. At times vilified as a fruitcake and a show-off, he later taught to appreciative audiences and represented the United States delegation in meetings with top Soviet scientists. Although it is true that Fuller’s reputation has never quite shaken off the hucksterism, and at times his writing reads like a very bad weblog, this was an extraordinary achievement. Fuller was a more profound critic of contemporary capitalism than any of the communists he can have met. That is because Fuller came to represent -- much to the horror of his peers -- the creativity and imagination that we like to think propels scientists at their best. And these are qualities we look for in vain from popular scientists and “futurologists” today.
Since biology sought to replace physics at the top of the “listen to us, or else!” scrap-heap, the business of science has been relegated to something of a clerk’s job. Once it used to be nutty physicists who demanded our attention, and they sure were fun. Now it is all about watching whitecoats map out a predetermined sequence, and that is no fun at all. But this reductionism is not really what science is all about, and it is hardly a vision to inspire our kids. As for today’s futurologists, or “big thinkers”, they are now indistinguishable from shifty financial advisors, and they are careful not to say anything that might disturb the next bubble. Which, they sincerely believe, will make us all rich and wise.
Fuller’s earlier inventions from the 1920s, ‘30s and ‘40s centered around a concept known as “dynamic maximum ions” or Dymaxion -- which referred to making the most of every available material. He created an air-liftable, easily assembled Dymaxion house, a pre-fab bathroom and a 10-seat, three-wheeled car. He also patented a Dymaxion 2-D map of the world without detectable distortion of the continents, now known as the Fuller projection. But the geodesic dome and the principles it embodied became his defining achievement. As a structure, the dome was Fuller’s inexpensive and simple solution to the housing crisis. Geodesic domes are composed of complex patterns of triangles that are able to distribute structural stress and enclose space without internal support. They are able to withstand winds of over 200 mph, and get proportionally lighter and stronger the larger they are.More on this story here and here.
BUSH’S TWISTED IDEA OF “SAFER”
President Bush gave a speech on Tuesday in which he made specific claims about how the United States is safer as a result of his military action. Americans are not safer, Mr. Bush. They face the threat of substantial narco-terrorism from Afghanistan. Iraq is a security nightmare that could well blow back on the American homeland. Pakistan remains a military dictatorship with a host of militant jihadi movements that had been fomented by the hardline Pakistani military intelligence. Saudi Arabia is witnessing increased al-Qaeda activity and attacks on Westerners. And the Israeli-Palestine dispute is being left to fester and poison the world.
These are not achievements to be proud of. This is a string of disasters. We are not safer. We face incredible danger because of the way the Bush administration has grossly mishandled the Middle East.More on this story here.
Bush: Safely in Denial
Back in the good ol’ days of the Cold War, I returned from a visit to East Germany and was instantly berated by one of its diplomats in Washington. He wanted to know how I could have written that East Berlin was bleak and dismal when everyone knew that West Berlin was really that way. For years, I have wondered what happened to that man. Now I think he is the president of the United States. When it comes to telling you right to your face that black is white, maybe no one compares with George W. Bush. Last week, for example, he responded to yet another report that Iraq did not have weapons of mass destruction by saying that it did not matter. “Although we have not found stockpiles of weapons, I believe we were right to go into Iraq,” Bush said. “America is safer today because we did.”
The statement ranks up there with the insistence that the sour East of Berlin out-dazzled the West. Just the day before, in fact, senior administration officials were saying that Osama bin Laden and his top guys were planning a terrorist attack in the United States sometime before the November presidential election. How is that for safer?
The most solemn obligation of a president is to keep us safe. This is something Bush has not done. Not only did Sept. 11 occur on his watch but nearly 900 Americans have been killed in Iraq, a war that could have waited ... maybe forever. At minimum, we could have used some allies besides Britain and we should have waited until bin Laden was either killed or captured. Instead, we went after Saddam Hussein, who posed only the remotest of threats -- he had no weapons of mass destruction, his army was a shambles and he himself was insanely writing romantic potboilers -- and effectively ignored the man who is a threat and who had already killed thousands of Americans on Sept. 11. We have got Saddam Hussein; we do not have Osama bin Laden.
Yet, for reasons that totally escape me, I am supposed to feel safe or safer. I don’t -- and the president’s downright East Germanish assertions make me feel even less safe. Bin Laden is still in the mountains and Bush, from what he is saying, is in denial.More on this story hrere.
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