Wealth International, Limited

Offshore News Digest for Week of August 23, 2004

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

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From the safety of a computer terminal halfway around the world from battle-weary Baghdad, Bill Burbank is betting that political and economic stability will reign in Iraq some day in the not-too-distant future. He has a lot riding on that hypothesis. Since October, when Iraq began circulating a new currency to replace its old bills, most of which contained images of Saddam Hussein, Burbank has spent close to $200,000 buying up new Iraqi dinar bills. Through a website based in Alpharetta, Georgia, the day trader and former Navy Seal runs a side business selling the new currency to the public. “It’s just so cheap at a tenth of a penny (per dinar),” he said. “If it just goes to a penny you make a thousand percent. I think there’s not too much downside in owning the currency and just holding.”

While most are betting far more modest sums on the hopes of economic recovery in Iraq, droves of investors are following a similar logic in buying up dinars. In response, a host of websites have cropped up to cash in on demand, most selling the currency at a steep markup to dinar street prices.

Marshall Donnerbauer, owner of the website Investindinar.com, says his biggest customers are U.S. soldiers and employees of Kellogg Brown & Root, a subsidiary of the contracting firm Halliburton that has a large workforce in Iraq. Still, no one is calling the dinar a risk-free investment. Given that the Iraqi dinar is not yet traded on major global currency exchanges, there is no guarantee that buyers of the bills will be able to easily sell them. History does provide examples of economies and currencies rebounding in the wake of turmoil, such as Kuwait and the Kuwaiti dinar following the 1991 Gulf War and Germany and the Deutschmark following World War II.

More on this story here.


The meeting between the leaders of Anguilla, the Cayman Islands, Montserrat, Turks and Caicos and the British Virgin Islands comes as some Caribbean territories push for more financial and political autonomy. Some in Anguilla, Montserrat and the Cayman Islands say Britain-appointed governors have too much power and want their duties scaled back. But others say changing the current role would be an unwanted step toward independence.

More on this story here.


In the eyes of many, the past 50 years have been a time of miraculous economic growth and performance in Puerto Rico. Others disagree, and say high unemployment and poverty levels, slow growth rates, and limited opportunities are the true faces of the island’s economic reality. In this special report, Caribbean Business examines Puerto Rico’s economy under commonwealth, presenting the economic strategies the government has implemented and their impact, as well as providing official statistics and data concerning the island’s economy since 1950.

Puerto Rico’s real rate of economic growth has been deteriorating since the early 1970s. The reduction in the growth rate per capita, which provides a clearer picture of the economy’s aggregate welfare than the total GP does, is even more dramatic. Commonwealth has counted on a strategy of granting perennial tax exemptions to selected economic sectors, transferring the burden to local corporations and individual taxpayers, but this has failed to reap the expected economic benefits for Puerto Rico.

The uncertainty from the lack of a stable, long-term economic strategy has also been a contributing factor to Puerto Rico’s economic performance under commonwealth. Until Puerto Rico resolves its political status, politicians will continue to pass the buck from the mainland U.S. to the island and back again. The economy will continue to languish as it has for decades, and because of the political status, Puerto Rico will continue to be unable to jump-start its economy.

More on this story here.


The Cuban government warned Sunday that it would cut off relations with Panama immediately if the Central American nation pardoned four Cubans who plotted to assassinate President Fidel Castro during the Iberoamerican Summit in Panama in 2000. The flare-up began when Havana accused Panama of considering pardons for the four men to curry favor with Cubans in Miami, where the men have become a cause celebre in some exile circles. Panamanian president Mireya Moscoso was offended by the accusation, and ordered Cuba’s ambassador to leave after Cuba made its threats. US Secretary of State Colin Powell asked President Moscoso to release the four during a visit to Panama for its 100th anniversary, a statement claimed.

In Miami, leaders of a group of Cuban exiles who have supported the four by raising $400,000 for their defense said they were “elated” with Moscoso’s announcement but denied reports that they had lobbied the Panamanian president for pardons. The twin actions by Moscoso, whose term expires next Monday, plunged Panama-Cuba relations to a historic low and may leave the incoming government of President-elect Martin Torrijos with a diplomatic mess on its hands.

More on this story here, here, and here.

Panama pardons Castro “plotters”.

The president of Panama has pardoned four men accused of attempting to assassinate Fidel Castro. It was not immediately clear when the men might be freed, though some local media reports said they had already been flown out of the country, possibly to Miami. After being arrested, the defendants said they were in Panama to help a Cuban general who had supposedly planned to seek political asylum. Cuba had tried, but failed, to extradite some of the Cuban exiles, including the alleged ringleader, Luis Posada, 76, who has been wanted by Havana for many years.

More on this story here.


Jeremy Peat, the Royal Bank of Scotland’s chief economist, was complementary about the Island’s decision to reduce corporation tax to zero per cent. He said the Isle of Man was much better placed than other offshore locations to cope with lower corporation tax revenue. He did, however, issue a warning that, despite economic theories to the contrary, extra business activity would not fully replace the estimated £23 million per annum losses in tax revenue. The Manx government has committed to implementing the zero tax regime by 2006 in line with European Union tax package initiatives.

Mr. Peat also had advice for the Isle of Man on how to combat the current trend in the UK for offshoring -- advocating that companies being undercut by offshoring competitors differentiate themselves through value and specialism rather than cost -- and forecast that that the price of oil would be down to $30-35/barrel by the end of the year. “The risk remains on the upside but there is no reason not to think this, based on financial projections,” he said.

More on this story here.


Capitalism is all about getting and spending. In America, where household debts amount to about 115% of disposable income, capitalism is often about spending rather more than you are getting. In recent months, however, American consumers have appeared uncharacteristically hesitant. Their spending fell by 0.7% in June and their confidence ebbed last month, according to the University of Michigan’s latest survey. But as Americans acquire new inhibitions about spending, the French are shedding some of theirs. France’s performance was not matched by Germany and other members of the euro area, however. The long-awaited European recovery may have peaked before anyone really noticed it had arrived.

Japan’s recovery, of course, has been much more noteworthy. But it too may have peaked. Again, Japan’s consumers may be partly to blame. The Japanese authorities have great difficulty stripping out the effect of deflation on their measures of output. However unreliable, the numbers cannot obscure the most important question hanging over Japan’s recovery: can it survive China’s slowdown? Chinese invested over $660 billion in fixed assets last year, dotting the country with industrial parks, steel mills and office towers. Qu Hongbin, an economist at HSBC, reckons that about $200 billion-worth of this investment is surplus to requirements.

Investment accounted for well over 40% of China’s GDP last year. If such an important yet volatile component of Chinese demand were to collapse, could consumption ever compensate? Even if it could, Mr. Qu argues, this would be cold comfort for Japan or for any other economy dependent on exports to the Middle Kingdom. What China buys from the rest of the world, after all, are commodities and machinery, not consumer trifles. If its growth were to shift from investment to consumption, its demand for the rest of the world’s products would slump, even if its growth did not slow that much.

More on this story here.


Gordon Brown’s intention to extract more tax from the “black economy” will not be diminished by just-released figures for government spending. They show that in the first four months of the financial year expenditure has been running above budget forecasts while tax receipts have been below. The problem is economists cannot agree how the black economy should be defined, let alone how big it is. An academic analysis being conducted for the Office of the Deputy Prime Minister has complicated things by suggesting that not all black market activity is bad. It argues that for some residents of deprived areas small amounts of cash earned from untaxed jobs are a “cornerstone” of how people cope. Other work in poor areas is more akin to charity work, it adds.

Ministers moved quickly to quash suggestions that they are actively considering turning a blind eye to tax fiddles and other aspects of the hidden economy in deprived inner-city areas as a means of helping them back on their feet, after reports said the study stressed the positive aspects of the hidden economy and said these should be built on.

More on this story here and here.


Justice Minister Christoph Blocher has said the government is in favour of easing restrictions on Swiss citizenship for second- and third-generation foreigners. But Blocher, who is known to be against the proposals, said he would not personally be campaigning for a “yes” vote in a nationwide ballot on September 26. Blocher -- a member of the rightwing Swiss People’s Party -- refused to divulge his personal opinion about the citizenship votes. But he said he would represent the government’s position only when required to do so.

Before his election to the cabinet in December 2003, Blocher voted in parliament against proposals to ease citizenship restrictions. But as a government minister, he is required to support the collective decision of the seven-member Swiss cabinet, which has come out in favour of making it easier for 2nd- and 3rd-generation foreigners to become Swiss. Last week a poll commissioned by the Swiss Broadcasting Corporation found that a majority of Swiss appear to be in favour of easing citizenship regulations.

More on this story here.

Swiss voters in favor of joining EU’s accords on cross-border crime and asylum.

But the Swiss People’s Party voted overwhelmingly against both, in a move supporting its call for a nationwide vote on the issue. The poll results indicated that if a vote were held now, two thirds of voters would support Switzerland being part of Schengen and Dublin. A treaty to that effect was agreed between Switzerland and the EU last June, as part of a package of nine accords.

The findings are in line with another survey, published in June, on the set of nine bilateral treaties with the EU. They include controversial security cooperation as well as the taxation of EU residents’ savings income in Swiss banks.

More on this story here.

Report says extremism is under control in Switzerland.

Far-left groups represent the most serious threat to Swiss security, according to a Federal Police Office report on extremism. But no extremist group -- from the Left, Right or abroad -- poses an immediate threat to the safety of the country. It concludes that the activities of far-left groups pose a “serious” risk for the security of Switzerland “which should not be underestimated”. Since 1992, incidents involving the many extreme Left factions have risen sharply, along with a rise in violence and group membership. The report said around 2,000 militants now belonged to these groups.

The climate surrounding foreign, political or religious extremist groups is described by the report’s authors as “calm, but tense”. Certain groups, including Kurds and Tamils, could become a threat to Switzerland in the event of a destabilising change in their native countries, they argue. The report faults Swiss law for its inability to fight hooligans.

More on this story here.


South Korean companies poured more money into the Chinese market than Japanese and U.S. firms in the first six months of this year, according to a report by the Korea International Trade Association. South Korea’s direct investment in China was $3.52 billion between January and June, making it the third-largest foreign investor in mainland China after Hong Kong and the Virgin Islands, the report said based on data from the Chinese government. The figure represented a 54.4-percent jump from the same period last year. The United States was fourth with $2.95 billion, followed by Japan with an investment of $2.43 billion, it added.

“Given that Hong Kong and the Virgin Islands are leading tax haven designations, South Korea might be the de facto largest foreign investor in China in that period,” the report pointed out.

More on this story here.

Hong Kong will remain region’s business hub, government assures.

The Hong Kong government has rejected comments made by the former Singaporean Prime Minister Lee Kuan Yew, that the territory’s position as the region’s financial services hub is threatened by its close governmental ties to Beijing.

“As one of the freest societies in Asia, we can progress with creativity and entrepreneurship. We are strategically located to take full advantage of the prosperity and vast market potential in Mainland China,” a government spokesman commented at the weekend. “The benefits of the ‘One Country, Two Systems’ to Hong Kong are obvious and these are comparative advantages which no other Asian economy can lay claim to.”

More on this story here.

Hong Kong’s deflation reversed as consumer prices begin to rise.

After five years and eight months of steadily falling prices that dragged down salaries and destroyed the value of many apartments, inflation has finally returned here, government statisticians announced. The Consumer Price Index recorded a 0.9% year over year increase at the end of July, according to the Census and Statistics Bureau. The figures show that the rise in the CPI index was driven by a 13.5% increase in gas and water prices, a 7.5% increase in the price of clothing and footwear and a 3.1% hike in food prices. However, house prices remained depressed, sinking a further 2.8%, while durable goods prices also fell, by 1.8%. The deflation, which began in late 1998, has hit the property sector particularly hard, where prices have fallen some 70%.

Ma Jun, an economist at Deutsche Bank, said rising prices in China were starting to pull up prices in Hong Kong, an autonomous Chinese territory that buys much of its food and goods from the mainland. Yet not everyone is benefiting. At a bustling outdoor market along a steep street of cut stones, stall keepers were unimpressed by the government’s announcement. Clothing design shops and factories continue to move to the mainland, explained a textile seller.

Unemployment is still high, at 6.9%. Government statisticians classify an additional 3.5% of the labor force as underemployed -- in part-time jobs because they cannot find full-time work. But some industries that have benefited from an enormous influx of tourists from the mainland, after a liberalization by Beijing of exit visa rules for visits here, are prospering. Banking and other service industries are also thriving by tapping the mainland market. Hong Kong’s chief executive, Tung Chee-hwa, said in a speech that he thought that the territory could prosper by integrating its economy further with the mainland’s. But Mr. Tung acknowledged that the years since the handover had been difficult.

“When we look back on the past seven years, it’s hard to believe what we’ve been through: the bursting of the asset bubble, the collapse of the property market, years of deflation, the erosion of personal wealth, high unemployment, consumer pessimism, reduced public revenue and SARS,” he said. “It was enough to cause anxiety in even the most confident of communities, and it certainly put a crimp in Hong Kong’s style.”

Despite years of deflation, Hong Kong is still not cheap. Last year, Hong Kong lost its ranking to Tokyo as the world’s most expensive city for expatriates. But it still ranks fifth, behind Tokyo, London, Moscow and Osaka, Japan, according to an annual study by Mercer Human Resource Consulting. The cost of living in Hong Kong remains 9.5% higher than in Manhattan, Mercer found.

More on this story here.


The governments of the USA and the Republic of Panama announced that, together with The Nature Conservancy, they had signed a second round of agreements reducing Panama’s debt to the United States and generating nearly $11 million for tropical forest conservation over the next 12 years. The agreements were made possible through a grant of $6.5 million from the US government and a contribution of $1.3 million from The Nature Conservancy, and the funds will be used to conserve the biologically rich forest resources of the Darien National Park, bringing to $21 million the total funds made available to Panama for conservation purposes under the Tropical Forest Conservation Act.

More on this story here.


The overall income Americans reported to the government shrank for two consecutive years after the Internet stock market bubble burst in 2000, the first time that has effectively happened since the modern tax system was introduced during World War II, newly disclosed information from the I.R.S. shows. The total adjusted gross income on tax returns fell 5.1%, to just over $6 trillion in 2002, the most recent year for which data is available, from $6.35 trillion in 2000. Because of population growth, average incomes declined even more, by 5.7%. Adjusted for inflation, the income of all Americans fell 9.2% from 2000 to 2002, according to the new I.R.S. data.

While the recession that hit the economy in 2001 in the wake of the market plunge was considered relatively mild, the new information shows that its effect on Americans’ incomes, particularly those at the upper end of the spectrum, was much more severe. The unprecedented back-to-back declines in reported incomes was caused primarily by the combination of the big fall in the stock market and the erosion of jobs and wages in well-paying industries in the early years of the decade.

More on this story here.


The biggest takeover battle in Japanese history became even bigger as the Sumitomo Mitsui Financial Group sought to disrupt a rival’s expansion plans with a $29 billion hostile bid for UFJ Holdings. Sumitomo Mitsui, Japan’s third-largest bank, offered to exchange one share of its stock for each share of UFJ, a bid that values UFJ at about 3.2 trillion yen, or $29.1 billion, a 23% premium over UFJ’s share price on Tuesday. The deal, if completed, would form the world’s largest bank by assets, surpassing Citigroup.

The offer was an escalation in the battle for UFJ, the smallest and weakest of Japan’s top four banks. UFJ said on Aug. 12 that it had reached a basic agreement to be taken over in October by its preferred bidder, the Mitsubishi Tokyo Financial Group, Japan’s second-largest bank. By making a concrete bid, Sumitomo Mitsui is putting pressure on UFJ to consider its offer seriously, analysts said. In the last few months, UFJ has repeatedly rebuffed proposals by Sumitomo Mitsui to begin takeover talks.

The messy and public bidding war for UFJ is unusual in Japan’s chummy banking world, where mergers have usually been quietly negotiated, often under the guidance of government regulators.

More on this story here.


The country, squeezed between Switzerland and Austria, is attempting to rebrand itself. Companies spend millions polishing their images and products. Governments also periodically have a stab often with dismal results. But none has gone so far as Liechtenstein, which has enlisted the services of Wolff Olins, an international branding consultancy. In a sign of a developing trend, this company, whose clients include the Athens 2004 Olympic Committee, has since been hired to advise on the rebranding of New York City.

Undemanding company laws, minimal taxation and banking secrecy had made Liechtenstein synonymous with letter box companies, opaque foundations and impenetrable trusts. Those same attributes created a money launderer’s paradise. Recently, a constitutional crisis worsened matters. Change came with the election in 2001 of a new government. Legislation was passed to crack down on white-collar crime, and while financial services remain the key money spinner, ministers believed Liechtenstein could also attract more industry and tourism. But how does a country change its image? And can such efforts really be successful given that perceptions are built over years, if not decades?

The first step was to set up the Image Liechtenstein Foundation group in March 2002, drawn from government, state agencies and leading trade associations and chaired by Otmar Hasler, the prime minister. But while members agreed that action was needed, there was initially little unity on how to go about it. The foundation proceeded on two parallel tracks: assessing domestic and foreign attitudes to Liechtenstein to pinpoint weaknesses, and defining what messages should be pushed. By May 2003, recommendations were ready. Some of these were obvious. The principality’s internet site was made over and public relations efforts were also stepped up. Classic diplomacy also played a part. But the boldest step was recognition that such a tiny country needed more than traditional public relations or public diplomacy to get noticed, let alone improve its reputation. “We realized we needed to start a branding process,” says Gerlinde Manz-Christ, the Liechtenstein government’s spokesperson and a driving force behind the branding initiative.

More on this story here.


The Isle of Man has finished third on an international shipping register designed to identify the world’s best marine administrations. The Paris Memorandum of Understanding on Port State Control (ParisMOU) is acknowledged as the global standard in shipping control. Part of its annual report is a monitor of registry quality excellence, known as the white list. The Island has finished third behind the UK and Sweden, ahead of 76 other countries, with only 11 detentions from 634 inspections. The result is a big boost for the Department of Trade and Industry and the Marine Administration.

More on this story here.


The Cayman Islands Acting Governor the Hon James Ryan, has called upon the governments of the UK’s Caribbean overseas territories to cooperate more closely to ensure their interests are represented in the global market place. Opening the Caribbean and Bermuda Overseas Territories Chief Ministers’ Conference, Mr. Ryan stated, “Coming together today we are reminded that individually our countries are small, but we also know that collectively we wield considerable power, for the strength of unity brings a resonance to our voice that the world cannot ignore.”

More on this story here.


Close inspection of the Argentine economy and presidential palace will reveal defects, despite economic growth last year of 8.7% and inflation remaining below 4%. Some buoyant analysts are comparing this reversal of fortunes with the country’s halcyon period between 1890-1914 when Argentina had the world’s sixth largest economy. But the Land of Sorrow is also the Land of Borrow where the largest sovereign default in history occurred after the government ceased regular payments on its domestic and external debt obligations (over $12 billion). Businesses looking for financing are having a hard time because banks are not offering credit; they remain in limbo, wondering whether the government will compensate them fully for the devaluation débàcle in January 2002. The same goes for securing foreign lending until Argentina resolves its public debt.

In Brazil, President Luiz Inàcio Lula da Silva’s economic policies during his first year in office have been praised. The Sao Paulo stock exchange more than doubled in US dollar terms (the country’s sovereign bond market has seen the highest return of any emerging market in 2003) and exports have increased from $58 billion in 2001 to an expected $82 billion this year. Unlike Argentina, banks are aggressively increasing their lending portfolios but rates remain high (perhaps the highest of any major economy in the world) because they reflect Brazil’s debt burden. At the end of the President’s first year in office Brazil’s net debt reached 58.3% of GDP (versus 55.5% in 2002). Besides fiscal reform, however, Brazil has to make a special effort to tackle judicial reform. A survey of Brazilian businessmen has suggested that GDP growth is 20% less than it might be because of an ossified judiciary.

Chile is also enjoying economic vibrancy, but is not suffering from debilitating public debt. It has an enviable credit rating because of a consistent economic policy and prudent fiscal management. Interest rates and inflation are heading towards historic lows and even unemployment at 7.4% is at its lowest level in five years. Social policies (labour laws and health reforms, for example) have been criticized, but President Ricardo Lagos says that 17 years of military rule has taken its toll and that more time is needed to remedy the social issues. The strong demand for copper -- mainly from China -- has seen prices close to a 10-year high but exporters are complaining about the increased value of the Chilean peso. The exchange rate appreciation might eventually have an adverse impact on GDP growth but so might external forces.

Argentina, Brazil and Chile walk on a tightrope trying to keep their economic balance and, so far, there has been a safety net of low US dollar rates and Chinese demand. But how secure is the safety net? An absence of investor funds and a drop in commodity prices would make that journey across the tightrope even more perilous.

More on this story here.



As the second employee of InfoSpace, Jean-Remy Facq saw the value of his stock inflate and then collapse. Now he is suing in federal court in Seattle for a $4.5 million refund of 1999 federal income tax. He is just one of 200 tech workers who have hired Seattle tax lawyer/CPA Brian G. Isaacson in the hope his novel theories will help them slash old (and sometimes unpaid) tax bills from their exercise of stock options for shares that later tanked.

Where they see relief, the IRS smells a rogue. It is examining whether Isaacson is liable for penalties for promoting abusive tax shelters or aiding the understatement of tax. In July it demanded the names of all his clients and of folks who filled out an options questionnaire on his Web site -- another 800 taxpayers, he estimates. And in March the IRS warned taxpayers they could face civil or criminal penalties for taking “frivolous” legal positions that sound like Isaacson’s. “It’s a bullying tactic by the IRS,” complains Don Paul Badgley, whose Seattle firm works with Isaacson’s.

The IRS should be able to find Isaacson’s clients in its computers--he says he signed all the returns, complete with his preparer ID, and disclosed the theories behind his claims. Disclosure makes it harder for the IRS to impose penalties, provided a taxpayer has some basis for his claim. Isaacson predicts perhaps half of his clients will end up in bankruptcy if his theories do not prevail in court.

It probably won’t fly, but who knows? In January Isaacson had a big procedural win when the U.S. Tax Court ruled that clients of his were entitled to a hearing before the IRS levied their property. The government had characterized their position as “nonsensical”.

More on this story here.


The IRS has issued final rules allowing taxpayers forced to sell their homes due to certain unforeseen circumstances to claim a capital gains tax break. The final rule defines these unforeseen circumstances as events “that the taxpayer could not reasonably have anticipated” before purchasing and occupying a residence. These could include a disaster such as a terrorist attack, redundancy or divorce.

Under the current rules, a single person can exclude profits of up to $250,000, while couples may exclude up to $500,000. Generally, these exclusions are granted provided the taxpayer has occupied the house for two of the last five years. Congress approved the capital gains break in 1997 as part of the Taxpayer Relief Act. The new rules will prorate the tax break based on the amount of time the taxpayer has lived in the house.

More on this story here.


The Federal Court of Appeals in San Francisco found in January 2003 that the lawyers had defrauded the court by making a corrupt deal with a few airline pilots who bought tax shelters in the 1970s and 1980s. Under the deal, no tax-collection actions in regard to the shelters would be taken against these pilots in return for testimony that would hurt the others. The court called this “extreme misconduct” and asked why the I.R.S. had not disciplined the lawyers, each of whom was paid a $1,000 bonus for his work on the cases.

Houston lawyer Michael Louis Minns, who represented 124 of the tax shelter buyers, then asked the I.R.S. in which state each was licensed so that he could seek their disbarment. The I.R.S. refused, saying disclosure of their law licenses would violate their confidentiality. The two men left the I.R.S. after their conduct came under scrutiny.

More on this story here.

Suspended IRS attorneys disbarred.

Arkansas has suspended the license of William A. Sims and W. Kenneth McWade was suspended by the Oregon Supreme Court.

More on this story here.


According to a report, Rose owes the IRS a total of $973,693.28 for years 1997, 1999, 2000, 2001, and 2002 (the lien notes that the IRS has “made a demand for payment of this liability, but it remains unpaid”). A tax lien covering 1998 was reportedly filed against Rose in California several years back.

More on this story here.


A bill that supporters said would prevent corporations from avoiding California taxes by setting up phony overseas headquarters was rejected by the state Assembly. State Treasurer Phil Angelides said the bill would prevent 18 corporations that have relocated their headquarters in name only to overseas tax havens like Bermuda and the Cayman Islands from avoiding their fair share of California taxes. Supporters said the bill would save the state $132 million over the next 10 years by making “inverted corporations” subject to the same state taxes as domestic companies.

More on this story here.


A federal jury has convicted five Utah lawyers and accountants for operating an illegal tax shelter that defrauded more than 75 investors of as much as $15 million. The case grew out of a tip from an informant in an undercover IRS investigation into offshore tax shelters that began in 1996. The next year, the FBI joined the case, looking into the Ponzi-type investment scheme that promised returns of up to 100% a year. The scheme was marketed as Anglo-American International of Provo. Clients were assured they would never lose control of their income and assets even as they realized significant reduction in their taxes.

One investor lost his entire life savings, about $250,000. But most victims did not complain to authorities because they knew they were evading income taxes. The defendants set up what they promoted as offshore trust accounts. In fact, most of the money never left the US and promoters spent it on houses, furniture and cars or squandered it on ill-conceived business ventures, investigators said.

More on this story here.


If the Barbados government is serious about converging tax rates, there will have to be considerable research done, including a survey of offshore companies. So says Heinrich Funk, Managing Director of offshore bank Mancal Bank (Barbados) Inc. Government and private sector representatives have on various occasions alluded to a possible simplifying of the Barbados tax system involving the removal of preferential tax rates for international businesses. This would mean a tax rate somewhere between the 2.5% for offshores and the 25% currently paid by domestics. Funk tells Business Monday he is somewhat concerned by the fact that, even though the issue of convergence has been talked about for some time now, government seems not to be engaging seriously with the issues surrounding it.

It is not simply a matter of having the lowest rate, Funk explains. The 2.5% rate for international business can hardly be lower. But with increasing pressure from the OECD can make a destination like Barbados less attractive for international businesses. OECD countries like Canada and the United States construe countries with different tax rates for domestic and international business as conducting unfair tax competition. They say such differences constitute a kind of protectionism of the offshore sector and essentially draw tax revenues from OECD jurisdictions.

More on this story here.


The 6 entered their pleas on to charges of attempting to defeat or evade taxes, making false statements and fraud. Senior Trial Prosecutor D’Ann Read said while the group’s tax protest is not associated with that of former Carlsbad police Officer Debra Kupcak, the point behind it is. Kupcak was recently found guilty of three counts of tax evasion and not guilty of three counts of making false statements. She contended that she did not have to pay income taxes and contended that no law exists that proves she had to provide taxes out of her income. Kupcak was at the plea proceeding and spoke with the group afterward at the county courthouse.

This group’s claim started years ago, with all six stating they did not owe taxes, Read said. The claim is nonsense, she added. She said she is angry over their claims. She said living and working in the United States are privileges and that paying taxes is one of the things that makes life in this country better than the standard of living in much of the rest of the world. She said the life Americans enjoy should not be taken lightly.

They will be given indeterminate sentences of anywhere from one to five years in prison, a fine of up to $5,000 or some combination of these, she said. Indeterminate sentencing allows prison officials to determine when to allow an inmate out of prison and is generally imposed in felony cases in which the defendant will be sent to prison.

More on this story here.


President Bush’s 2001, 2002 and 2003 tax cuts gave the wealthiest taxpayers the biggest tax break -- but the wealthiest taxpayers continue to pay the biggest share of federal taxes, and the tax cuts lowered tax rates for all income brackets, a report released this week by the Congressional Budget Office shows.

More on this story here and here.


Following concerns expressed by the UK’s accounting community with regard to the government’s new rules on the disclosure of tax avoidance arrangements, which came into force at the beginning of this month, the Inland Revenue this week announced that, “In accordance with assurances given by the Paymaster General during the Finance Bill process, we remain committed to ensuring that everyday tax advice does not trigger a disclosure obligation. From responses we have received since the revised regulations were published, we are confident that the financial product regulations are now more tightly targeted at innovative avoidance schemes.”

Responding to concerns expressed by the Chartered Institute of Taxation on behalf of its members, the Inland Revenue announced that, “We recognize the concern that the Institute has for its sole practitioner and smaller firm members in relation to the giving of tax advice. We confirm the assurances we have given in the past, that where a person merely provides advice as to how the tax system operates in particular circumstances then that activity on its own does not trigger a disclosure requirement on the part of the adviser.”

More on this story here.


It sounds surprising at first blush, but the people working the hardest to save the federal estate tax, or “death tax”, are some of the country’s richest. Indeed, the membership of the pro-death tax Committee for Responsible Wealth reads like a Who’s Who for a Vanderbilt birthday party. There are reasons for that. For example, famed investor and outspoken death-tax proponent Warren Buffet makes money by selling “death tax insurance” to small businesses. He also makes money by buying small businesses (at fire-sale prices) when they have to be sold to pay taxes because their founder died without such insurance. Much to Buffet’s chagrin, as things stand now, the death tax is, well, expiring. It will be completely phased out by 2010.

However, unless Congress takes action, it will rise from the grave in 2011. That means if someone dies in 2010, his estate will pay nothing in inheritance taxes, but if he survives until January of the following year, the estate will have to turn over more than half its assets to Uncle Sam. Because this would provide a perverse incentive for wealthy individuals to die during 2010, economist Paul Krugman has jokingly called this the “Throw Momma from the Train Act of 2001”.

So why maintain a death tax at all? ...

More on this story here.


When a passage from House Speaker Dennis Hastert’s recently published memoir was leaked to the media on August 2, outlining his goal of abolishing the IRS and ditching the current income tax code, some were inclined to write the idea off as the product of a slow news day. Yet the next week a supporter of President George W. Bush asked him about the idea at a re-election rally in Florida, and the president said it is worth serious consideration. Speculation quickly turned to whether this idea would have a place in the president’s GOP convention speech. It soon became obvious that this idea was touching a nerve with voters. What gives?

Anyone who has ever filed a tax return would likely have some sympathy for what Hastert is proposing. The complexity of the tax code saps entire days from our lives: By the government’s own estimates it takes taxpayers 28 hours and 30 minutes to complete an average tax return -- 42 minutes longer than last year. The official tax rules now span more than 60,000 pages. Reading them front to back would be akin to reading War and Peace 40 times -- and about as enjoyable.

In fact, the tax code is so complex even the IRS cannot figure it out. A Treasury Department investigation discovered recently that IRS help-center employees provided the correct answers to tax filers only around 50% of the time. You could get just as good an answer to your tax question by simply flipping a coin. But what if you could get rid of the forms and the fuss? ...

More on this story here. The Flat Tax : Issue Homepage here.



A new software tool from WholeSecurity can spot fraudulent Web sites used in online cons known as “phishing” scams, according to a statement from the company. The new product, called Web Caller-ID, can detect Web pages dressed up to look like legitimate e-commerce sites. WholeSecurity is marketing the technology to banks, credit card companies, and online retailers as a way to prevent unwitting customers from accessing false sites, to reduce fraud, and increase confidence in online commerce, the company says.

Phishing scams are online crimes that use unsolicited commercial, “spam”, e-mail to direct Internet users to Web sites controlled by thieves, but are designed to look like legitimate e-commerce sites. Users are asked to provide sensitive information such as a password, Social Security number, bank account, or credit card number, often under the guise of updating account information. Reports of phishing attacks have skyrocketed in recent months, according to the Anti-Phishing Working Group (APWG), a joint industry-law enforcement group. There were 1422 new, unique attacks reported to the APWG in June, a 19% increase over the previous month. Since the beginning of 2004, reports of the attacks have grown by 52% a month on average, the group says.

More on this story here.

DIY phishing kits hit the Internet.

Anyone surfing the Web can now get their hands on these kits, launch their own phishing attack and potentially defraud computer users of the contents of their bank accounts. These DIY kits contain all the graphics, web code and text required to construct bogus websites designed to have the same look-and-feel as legitimate ecommerce sites. They also come with spamming software.

More on this story here.


Among the most innovative changess are the continuation of an IBC as a Bahamian company under the Companies Act, an arrangement that does not exist elsewhere, and the ability of an IBC to register its mortgages and charges for shares with the Registrar of Companies. Since there have never been direct taxes in The Bahamas, an IBC and its shareholders are exempt from income tax, corporation tax, capital gains tax or any other tax on income or distributions accruing to or derived from the IBC or in connection with any transaction to which the IBC or shareholders are party. An IBC is exempt from the payment of stamp duties in The Bahamas except in respect of real property, and from business license fees. While no changes to the IBC tax status is contemplated, tax holidays have been reintroduced through these amendments for a period of 20 years from the date of incorporation of the IBC.

More on this story here (registration required), here, and here.


The ATO will investigate hundreds of secret Swiss bank accounts and target tax havens this year in a crackdown on offshore tax-evasion. In the wake of the scandal surrounding disgraced stockbroker Rene Rivkin’s activities in Switzerland, the ATO will analyze transactions involving accounts in that country, as well as in Singapore, Austria, Belgium and Luxembourg. Banking secrecy provisions there allow tax cheats and corporate criminals to hide income and evade the scrutiny of Australian authorities. Meanwhile, treaty negotiations are under way with tax havens Jersey, Guernsey, Antigua and Barbuda, Bermuda and the Isle of Man. Australia wants to secure information-sharing agreements that would help it prevent residents squirrelling away funds out of reach of the ATO.

More on this story here.


The biggest house in Liechtenstein is the hilltop castle belonging to the principality’s ruler, Prince Hans-Adam, which overlooks the tiny capital, Vaduz. It is not thought to be for sale.

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The famously feuding family seemed to be preparing for a public offering of its largest asset, Hyatt Corp. Still, there might never be a sale of any kind if the family cannot resolve who owns what. Siblings Liesel and Matthew Pritzker, 20 and 22, sued their older cousins in Chicago, claiming they are each owed at least 4% stakes in Hyatt and Hyatt International. Last April a Cook County judge allowed the sibs’ case to proceed. But he cited jurisdiction limits, dismissing matters involving family trusts offshore that control Hyatt International and other companies. The new legal fight, filed under seal in Nassau in April, deals with those offshore trusts, controlling assets totaling some $3 billion.

More on this story here.


The Anguilla Financial Services Association (AFSA), which is comprised of legal and accounting firms, trust and insurance companies, company managers, commercial banks, and stock brokerage service providers and promotes Anguilla as an international financial services center, in addition to representing its members on financial services regulatory issues, last week announced the launch of its new website. AnguillaFinance.com includes information on financial services and products offered in Anguilla, as well as links to AFSA member firms, and links to Anguilla government, business and news sites. The website also includes a “Members Only” section, where AFSA members will be able to access industry news and information. According to the AFSA, the site will be updated regularly with the latest news and information on Anguilla and international financial services, and will feature articles written by AFSA members.

More on this story here.


The Isle of Man government has passed legislation that will allow firms in offshore tax havens to transfer their IT operations to the Isle in an emergency, without losing any of their offshore benefits. They will allow firms that relocate their IT systems to the Isle of Man in an emergency to operate under the same regulations as their home-offshore centre. Offshore locations such as the Turks and Caicos, Bermuda, and the Channel Islands, offer businesses generous tax breaks and higher levels of business confidentiality that are attractive to financial firms. Tim Craine, director of e-business said that the Isle of Man, would prove attractive to businesses as a back-up center because of its secure power supplies, low-cost telecoms links, and security from natural disasters and terrorist attacks.

More on this story here.


The recent regulatory challenges of the OECD, the EU, the Edwards Report, the Financial Stability Forum (FSF) and the IMF may be viewed as part and parcel of an ongoing dynamic interplay between the regulators of capital and the very developers of capital itself. 2004 has witnessed this interplay in virtually all jurisdictions that facilitate creative strategies for the enhancement of private capital.

In Europe, the questions surrounding the reporting of information vis-à-vis its verification and clarification will no doubt continue to pose challenges, as implementation of the European Savings Tax Directive into national law continues to take effect. While Europe makes these strident efforts to buttress and control the funds industry, the smaller independent Caribbean jurisdictions continue the quest to start such an industry. With the exception of the two British Dependent territory members, the Organisation of Eastern Caribbean States (OECS) states have not yet developed as sustainable an international business sector as is being currently pursued. The OECS has, however, developed new legislation to facilitate a sub-regional mutual funds industry administered by Eastern Caribbean Central Bank.

Mutual funds represent a well-regulated industry in Bermuda and Cayman Islands with many of the world’s largest fund managers based there. For a new jurisdiction in this area to enter this industry they would need to identify niche areas that Bermuda and Cayman for various reasons do not rigorously pursue. One such area which still has room for sound orderly growth is fund administration. This current year will test the ability of these jurisdictions to take a creative opportunity into a lucrative development reality. Allied to the funds industry is the potential further development of e-commerce during 2004. In many jurisdictions already, the use of e-banking for large legitimate transactions is taking place at a surprisingly high level of sophistication.

The moving trust

The trust, unlike the fund industry, however, has a different kind of flexible response to regulatory challenge. It remains a very useful and important tool in the preservation of private wealth and protecting capital while at the same time granting access to capital. It has developed from its traditional use of protecting the young, the unborn, the divorced and the vulnerable, to more broad ranging purposes related to charities, employee benefits and public pensions. However, it too has not managed to escape regulatory scrutiny. In the UK, its ancestral home, certain proposals are currently seeking to restrict the use of some types of trusts.

Essentially these proposals may be summarised as impacting several areas, including taxation, trustee liability, and ownership assignment. The trust nevertheless remains as flexible as it is rigorous, and in the US such flexibility has taken the asset protection trust to the stage of the new “dynasty trust”. Such a trust has stretched the conceptual limits of the original doctrine, since it may be established without the traditional requirement that the trust have a termination date. Such trusts may have very sound commercial purposes, but it is not infrequent that such trusts exclude all of the trust assets from the estate of the settlor. It is not merely idle musing to consider whether in 2004 a court in one of the dynasty states will reject or accept a judgement in another state or indeed a federal court, which seeks to attach trust assets so as to satisfy the claims of a creditor. There are many additional legal issues and sub-issues which emanate from this potentially exciting area of conflicting laws.

More on this story here.



Backed by a phalanx of civil liberties groups, civil liberties iconoclast John Gilmore on Monday relaunched his legal campaign against the federal government’s requirement that airlines ask passengers for photo identification in order to board a plane. Gilmore, who began his fight against the identification requirement in the summer of 2002, filed suit last week in San Francisco, asking the court to force the government to reveal the requirement and to declare it an unconstitutional burden on the right to travel. The government will have 60 days to respond to the complaint. The suit is a continuation of Gilmore’s original challenge (Gilmore v. Ashcroft), which he filed without backing from civil liberties groups in U.S. District Court in July 2002.

Although a traveling tips page on the Transportation Security Administration website advises travelers to “keep available your airline boarding pass and government-issued photo ID for each adult traveler until you exit the security checkpoint,” government lawyers refused to tell the judge in the original case whether or not the requirement existed. Government lawyers argued the government does not require passengers to show identification to fly and that “the challenged requests for identification are of central importance to achieving the government’s objective of preventing air piracy.” But the government acknowledged that if the requirement did exist, it would be in a secret security directive that had to be challenged in an appeals court, an argument heeded by the judge when she finally dismissed the original lawsuit on jurisdictional grounds 14 months after hearing arguments in the case.

Gilmore, who made millions as the fifth employee of Sun Microsystems, has not flown or taken an intercity bus or train domestically since July 4, 2002, when he was not allowed to fly on Southwest Airlines without showing identification, despite having gone through the screening process. Gilmore says he does not have a state-issued identification or driver’s license and that the identification rule, unlike searches for weapons in carry-on bags, does not make the country safer. “I’m not willing to show my passport to travel in my own country,” Gilmore said in an interview. “I am not willing to have my rights taken away by bureaucrats who issue secret laws in the dead of night.”

More on this story here. John Gilmore on inflight activism, spam and sarongs, here.

When should the government be able to demand our papers?

John Gilmore, whose legal fight against airline identification requirements was detailed in a Reason cover story, is claiming that the airlines’ often contradictory demands for ID before they let you fly -- connected to federal mandates that are so secret the Justice Department’s lawyer would not even tell them to the judge in Gilmore’s original suit -- constitute a violation of his right to travel, peaceably assemble, and be free from unwarranted searches and seizures. He further argues, among other things, that the secret directive violates due process and is inherently void due to vagueness. His appeal brief provides an impressive array of arguments and past precedent for these assertions, too long to summarize adequately here. One touches on the “no-fly” lists, made recently famous when they snared Teddy Kennedy. Gilmore claims that, “A No-Fly rule directed at a specific group of people is equivalent to a bill of attainder unless with each person there is an associated judicial warrant or conviction. Yet judicial involvement in maintaining the lists is highly unlikely...”

When Gilmore started this fight, he was a lone wolf on a far frontier of privacy. No more. What has changed in the meantime? For one, there was the Supreme Court’s Hiibel decision in June, which upheld a widespread right of cops to ask you to identify yourself on pain of arrest. But what Hiibel did not do -- because even the five Supremes insensitive to Mr. Hiibel’s privacy rights realized this would hit a tripwire in the American political consciousness -- is demand that that ID had to be state issued. They refused to extend too far the areas in which a citizen must have a government-issued ID.

As Gilmore has argued, real security does not often have a great deal to do with knowing who someone is, or who a card says he or she is. (Even the most biometrically sophisticated of modern ID documents will be potentially forgeable for those with a strong incentive to do so.) Real security has much more to do, in Gilmore’s airline context, with making sure people, whatever their card says, do not bring weapons or bombs on planes -- or making sure that trustworthy people on planes, whether pilots or air marshals, are empowered to resist miscreants. (After 9/11, normal citizens have almost certainly gotten the message to resist at all costs.) The government still does not want to allow the good guys to defend themselves on planes effectively, and thus are all the more insistent on the security theater of showing an ID card.

More on this story here.


Former Rep. Lee Hamilton, D-Indiana, in his capacity as vice chairman of the panel that investigated the Sept. 11, 2001, terrorist attacks, also urged the federal government to set standards for issuing identification documents such as birth certificates and driver’s licenses. The hearing focused on the future of the FBI, border security and the anti-terrorism law known as the USA PATRIOT Act, and intelligence experts reported on their efforts to make improvements over the past three years. As Congress considers the so-called 9/11 Commission’s recommendations, average citizens soon may be impacted.

He said the al Qaeda terrorist network exploited U.S. systems to enter the country, noting that their tactics included making false statements on visa applications, breaking immigration laws, and providing false employment and education information. Had intelligence systems been in place in 2001, as many as 15 of the 19 hijackers could have been detected, Hamilton said.

More on this story here. Experts respond to an online tech magazine’s readers, here.

The government says we need more government.

The 9-11 hearings amount to nothing more than current government officials meeting with former government officials, many of whom now lobby government officials, and agreeing that we need more government! The current and past architects of the very bureaucracy that failed Americans so badly on Sept. 11 three years ago are now meeting to recommend more bureaucracy. Why on earth do we assume that former government officials, some of whom are self-interested government lobbyists, suddenly become wise, benevolent, and politically neutral when they retire? Why do we look to former bureaucrats to address a bureaucratic failure? The 9-11 Commission report is several hundred pages worth of recommendations to make government larger and more intrusive. Does this surprise anyone?

More on this story here.


At first glance, it might seem like the simple extension of a standard tool in the fight against the bad guys, but in fact, wiretapping Internet phones to monitor criminals and terrorists is costly and complex, and potentially a big burden on new businesses trying to sell the phone service. Earlier this month, the FCC voted unanimously to move forward with rules that would compel the businesses to make it possible for law enforcement agencies to eavesdrop on Internet calls.

But developing systems to wiretap calls that travel over high-speed data networks -- a task that the companies are being asked to pay for -- has caused executives and some lawmakers to worry that helping the police may stifle innovation and force the budding industry to alter its services. That requirement, they say, could undermine some of the reasons Internet phones are starting to become popular: lower cost and more flexible features. Regulators will now hear three months of public testimony on the ruling. Few expect a resolution of the issue this year, but it is not hard to figure out who will ultimately pay for the wiretapping capability.

Tapping Internet phones is far more complicated than listening in on traditional calls because the wiretapper has to isolate voice packets moving over the Internet from data and other information packets also traveling on the network. While traditional calls are steady electronic voice signals sent over a dedicated wire, Internet calls move as data packets containing as little as a hundredth of a second of sound, or less than one syllable, which follow often-unpredictable paths before they are reassembled on the receiving end to form a conversation. The costs could run into the millions of dollars, depending on the size of the Internet phone company and the number of government requests.

More on this story here.

FBI push for eavesdropping capabilities for push-to-talk technology now could hurt industry growth.

At stake are walkie-talkie-like services from Verizon Wireless, Sprint and AT&T Wireless. These networks currently cannot be bugged, making them a target for law enforcement agencies that portray them as havens for criminals and terrorists. Unlike Nextel, other carriers rely heavily on equipment suppliers, giving them less control over wiretap compliance and throwing a potential monkey wrench into their efforts to take on the market leader. Ongoing push-to-talk wiretap problems could dampen industry projections. A quarter of all cell phone subscribers are expected to use such services by 2008, generating up to $30 billion in revenue per year worldwide.

To see just how successful these services can be, look no further than Nextel. Three-fourths of the company’s 13.5 million subscribers use push-to-talk, generating the highest average revenue per user in the cell phone industry. Those numbers have drawn the envy of competitors, which are racing to create their own national push-to-talk networks. Verizon and Sprint rolled out push-to-talk services last year, and AT&T Wireless began building its network in the middle of 2004. Meanwhile, Sprint and AT&T Wireless have asked the FCC to extend compliance deadlines, most recently seeking a waiver that would give them up to 10 months to meet requirements.

More on this story here.


Advocates of technologies like radio frequency identification tags say their potentially life-saving benefits far outweigh any Orwellian concerns about privacy. RFID tags sewn into clothing or even embedded under people’s skin could curb identity theft, help identify disaster victims and improve medical care, they say.

Critics, however, say such technologies would make it easier for government agencies to track a person’s every movement and allow widespread invasion of privacy. Abuse could take countless other forms, including corporations surreptitiously identifying shoppers for relentless sales pitches. Critics also speculate about a day when people’s possessions will be tagged -- allowing nosy subway riders with the right technology to examine the contents of nearby purses and backpacks. “Invasion of privacy is going to be impossible to avoid,” said Katherine Albrecht, the founder and director of Consumers Against Supermarket Privacy Invasion and Numbering, or CASPIAN.

But on top of civil liberties and other policy issues, such technologies face visceral objections from many people who frown on the idea of being implanted with tags that can track them like migrating tuna. Complaints have led several companies to abandon plans to use RFID technologies in products, much less in human bodies.

More on this story here.


In a test project, the government has offered passengers a swift pass through security checkpoints in exchange for submitting to iris scans and digital fingerprinting. The Transportation Security Administration and select airlines are cooperating on the program, which will last 90 days at airports in Washington, Boston, Los Angeles, Houston and Minneapolis. The aim at Reagan National is to sign up members of Congress and frequent fliers and speed them through a special security lane equipped with scanners. More than 7,000 passengers across the country have signed up so far, and the TSA said hundreds of passengers use the designated security lanes each day.

But the success of the pilot project since its launch in July has been uneven. The Northwest Airlines program in Minneapolis proved so popular that it exceeded its target enrollment, an airline spokesman said. Northwest had offered 1,000 frequent-flier miles to invited passengers who signed up. United Airlines, however, did not offer free miles and had less success in Los Angeles when it launched its program last month. When passengers only trickled in to the sign-up counters, the TSA extended the enrollment period an extra week. No members of Congress had signed up yet but 312 passengers had registered so far over the two days of the program at Reagan National, a TSA contractor said.

The program offers the first wide application of iris-scanning technology, which had previously been used only for government employees with access to classified sites or for employees with access to nuclear facilities, said Paul Mirenda, director of field operations for LG Electronics, one of the TSA’s contractors that makes the scanners. The technology takes a close-up photograph of the iris, which has more unique characteristics than a fingerprint, and applies digital codes to the photograph to store it as a bar code. The photograph and fingerprint are then stored in a file along with other information about the passenger.

Some security experts worry that terrorists could apply to become a registered traveler and score an easier pass through security checkpoints. “Registered traveler is simply putting hijackers on airplanes faster,” said Billie Vincent, a former Federal Aviation Administration official. “If you look at 9/11 hijackers, some of them would have qualified as frequent fliers. All they had to do is run a few tests and find out what the parameters were and get people registered.” The TSA said the program is just one of many security layers. Registered travelers will still have to pass through a metal detector and have their luggage inspected.

More on this story here.



The 9/11 Commission recommendation -- which would oversee all antiterrorism information-sharing among government agencies -- is gaining support and could be implemented relatively soon, government officials and outside observers say. But it remains to be seen just how much power the commission would have, and whether it would be accountable to the president or Congress. As with many of the commission’s other recommendations, the task facing Congress is figuring out how to write legislation that would appease the backers of President Bush or John Kerry, should he win the election.

Also unclear is whether the commission would oversee activities like data sharing, or more contentious issues like the status of detainees in Guantanamo or the FBI’s domestic surveillance guidelines. Regardless of the complexities and turf battles that need to be hashed out, two members of the 9/11 commission made clear at a Friday House hearing that a civil liberties board was not an optional accessory to its homeland security plans.

American Civil Liberties Union legislative counsel Timothy Edgar said he wants a high-powered board that has security clearances, government-wide authority, and the responsibility for examining government investigations by other watchdogs, such as privacy offices or inspectors general. That, however, brings up separation of powers issues and may require separate boards, one to help shape policy ahead and another to conduct investigations. Above all, the ACLU wants the board to be independent of the presidency. That view is not shared by all, however.

More on this story here.


US Senator Ted Kennedy (Democrat, Massachusetts) was prohibited from flying because his name sparked a terror alert. Apparently, the Senator’s name came up on a terrorist watch list, or no-fly list, while attempting to board a US Airways shuttle out of Washington. A vigilant airline clerk refused to allow Kennedy to board. After numerous phone calls, the Senator did manage to get home to Boston, but the same comedy ensued as he attempted to return to Washington.

It is not known exactly how Kennedy became mixed up in a national terrorist database. In any event, the incident illustrates the preposterous susceptibility of national security databases to both snafus and deliberate abuse, though in this case it is not clear which to fault.

More on this story here and here.


The FBI knew about specific suspected al Qaeda fundraisers before the Sept. 11 attacks but failed to tackle the problem, the Sept. 11 Commission said in a staff report released this past weekend. In a broad critique of the government’s surveillance of terrorist financing, the report said “gaps appear to remain in the intelligence community’s understanding of the issue.” The report said the government should resist creating “a terrorist financing czar” or some other specialized entity to focus on the problem. Instead, it backed an existing interagency committee led by the National Security Council. “The total elimination of money flowing to al Qaeda ... is virtually impossible,” the report said.

The 9/11 plot cost al Qaeda $400,000 to $500,000, of which about $300,000 was deposited into U.S. bank accounts controlled by the 19 hijackers, the report said. Al Qaeda funded the hijackers using cash, travelers checks, wire transfers and credit cards in transactions so unremarkable that they largely went unnoticed, it said. Perceptions that Osama bin Laden personally bankrolled the attacks are incorrect, it said, concluding he had no access to significant personal wealth just before the attacks. “Rather, al Qaeda relied on diversions from Islamic charities and on well-placed financial facilitators who gathered money from both witting and unwitting donors, primarily in the Gulf region.”

More on this story here.


The government is using gag orders and secret evidence to keep the public in the dark about its use of the Patriot Act to investigate Americans, the American Civil Liberties Union said. In two legal challenges to controversial provisions of the Patriot Act brought by the ACLU and other groups, the government has filed secret evidence that it is refusing to disclose to the public and even to the attorneys in the case.

In its challenge to Section 215 of the Patriot Act -- which gives the FBI powers to access medical, library and other private records without a subpoena or a warrant based on probable cause -- the ACLU filed a motion to exclude classified portions of a government affidavit that were provided only to the court. The government has asked the court to consider this secret evidence in deciding whether to dismiss the ACLU’s constitutional challenge to the law.

In the second case, filed in April, the ACLU is challenging the FBI’s authority to use National Security Letters to demand sensitive customer records from Internet Service Providers and other businesses without judicial oversight. Here, the government has submitted a secret affidavit without providing any justification for the secrecy or any indication of the nature or scope of the evidence.

More on this story here.


The U.S. Department of the Treasury today designated two foreign banks -- First Merchant Bank of the “Turkish Republic of Northern Cyprus” (TRNC) and Infobank of Belarus -- as financial institutions of “primary money laundering concern”, pursuant to Section 311 of the USA PATRIOT Act. In conjunction with this designation, Treasury’s Financial Crimes Enforcement Network issued two Notices of Proposed Rulemaking (NPRM) imposing a special measure against the two banks that would prohibit covered financial institutions from establishing, maintaining, administering or managing in the any correspondent account in the U.S. for or on behalf of First Merchant Bank or Infobank. In addition, covered financial institutions would be required to apply special due diligence to their correspondent accounts to guard against their indirect use by First Merchant Bank or Infobank.

First Merchant Bank is a privately owned commercial bank licensed as an offshore bank in the “TRNC”, a jurisdiction with inadequate anti-money laundering controls, particularly those applicable to the jurisdiction’s offshore sector. First Merchant Bank is also involved in the marketing and sale of fraudulent financial products and services. US officials declined to say whether the bank had played any role in the UN oil-for-food program scandal. Infobank was designated for its complicity in laundering funds derived from fraudulent transactions involving Iraq.

U.S. financial institutions to take certain “special measures” against the designee. These measures range from enhanced recordkeeping or reporting obligations to a requirement to terminate correspondent banking relationships with the designated entity.

More on this story here, here, and here.

U.S. says Belarussian bank helped Hussein.

A Belarussian bank with connections to Russia laundered funds for former Iraqi dictator Saddam Hussein, enabling him to skirt UN sanctions, the U.S. government charged this week. Infobank, which the U.S. Treasury Department says is owned in part by the Belarussian government and a Libyan bank, categorically denies the claim. The allegations from the Treasury came only days after U.S. Senator John McCain, speaking in Latvia, assailed Belarussian President Alexander Lukashenko as running a dictatorship reminiscent of the Soviet Union.

The Treasury’s Financial Crimes Enforcement Network, FinCEN, claims that Infobank’s Moscow branch was reported using a correspondent account in the United States to carry out “activity indicative of money laundering.” The Moscow branch has since been closed. Several other banks and shell corporations were involved in the laundering, the Treasury said, without naming them.

“This is killing two birds with one stone: The old ghosts of the Iraqi Oil-for-Food program, and Belarus, which has a bad odor in the West,” said Vladimir Berezansky, vice president of PBN Moscow consultants.

More on this story here and here.


The Irish citizenship of fugitive Bahamas-resident Czech financier Viktor Kozeny granted under a controversial “passports for sale” scheme in 1995 should be revoked, opposition politicians in Ireland demanded. Labour Party justice spokesman Joe Costello said the step was “urgently required” after the Czech Republic state prosecutor’s office announced earlier this month that it was seeking the extradition of Kozeny from the Bahamas, where he is based.

Kozeny faces charges of large-scale fraud on both sides of the Atlantic, but has so far evaded prosecution despite an international arrest warrant. Known as the Pirate of Prague, Kozeny is wanted in the Czech Republic in relation to a coupon privatization scheme in which thousands of people lost money in the early 1990s. Kozeny was one of the world’s super-rich who were granted Irish citizenship under a now defunct “passports for sale” scheme that involved an investment of 1 million punts (€1.27 million) in the country. Costello said Kozeny is one of a small number of people who received citizenship who are now wanted for serious criminal offences and who may be using Irish passports to avoid arrest.

More on this story here.


Irwin Schiff believes the income tax is unconstitutional. He believes it so strongly that he has built a whole business out of promoting his theories. He has written books and lectures, and teaches seminars about how to pay zero taxes. The IRS, unsurprisingly, takes a dim view of this. Schiff is currently being prosecuted for tax evasion. The court has also issued an injunction that prohibits the sale of Schiff’s book, The Federal Mafia: How the Government Illegally Imposes and Unlawfully Collects Income Taxes. Earlier this month, the 9th Circuit upheld the injunction on appeal. Schiff claimed that the prohibition violated his right to free speech, since the book is primarily a political and historical argument. The court disagreed, saying that the book is commercial speech.

Commercial speech has historically been granted fewer protections than other kinds of speech. In particular, fraudulent and misleading advertising is illegal, whereas there is no law against false or misleading political speech. If a manufacturer claims his chocolate is fat-free when it really is not, he is in for some heavy fines. The line between commercial and noncommercial speech, however, is anything but clear. A movie with product placements for Pepsi surely should not lose its status as artistic speech.

The Federal Mafia is a political tract explaining Schiff’s views about United States tax law. Along with his legal theories, he alerts the reader to his other products, which are designed to help people apply his theories to their own tax returns. As the majority opinion, points out, “Schiff can relate his long history with the IRS and explain his unorthodox tax theories without simultaneously urging his readers to buy his products.” That may well be true. But in banning the book, the opinion does not make clear which portions of the book constitute commercial speech and which would be protected if published separately. Surprisingly, no material from The Federal Mafia itself is quoted in the opinion to establish that it contains commercial speech. Instead, the opinion quotes “inserts” from the book, which presumably could be easily removed, and advertising of the book itself from Schiff’s website and the cover of the book.

Unfortunately for free speech believers, a huge number of books take part in similar soft forms of advertising. And commercial speech can be critical to decision making in a free-market economy, just as political speech is critical to decision making in a democracy. Even more important, an expansive power to regulate and ban commercial speech could erase many of the protections we take for granted. In our society, speech has a commercial component more often than not. Irwin Schiff’s beliefs about the legality of the income tax may in fact be wrong and dangerous to others, but taking away his right to advertise those beliefs is even more dangerous.

More on this story here.



Most people alive in the early thirties will recall, if only from hearsay, many of the events in Nazi Germany prior to the belated realization by Britain and France that the little man with the funny mustache really meant what he was saying and writing. Adolf Hitler wrote Mein Kamf (My Struggle), wider reading of which just might have alerted the world to the dangers he would pose to peace in Europe and to the Holocaust that he would pursue so vigorously. Just after he took power in 1933, the SA (Sturmabteilung or Storm Troopers) cordoned off the main courtyard of Berli’qs Humboldt University, stacked high piles of books by Jewish, communist, and other so-called “degenerate” authors, and then set light to them. The burning included such authors as Albert Einstein, Bertold Brecht, Franz Kafka, Vladimir Mayakovski, to name but a few.

Heine or Brecht (the saying has been attributed to both) said that if you burn books today, you burn people tomorrow. Few at the time realized how true that statement was about to become. The man in charge of such activities, Dr Josef Goebbels, was officially Minister of Propaganda and National Enlightenment. As such he had two main tasks. Firstly, to ensure that nobody in Germany could read or see anything that was hostile or damaging to the Nazi Party, and secondly to ensure that the views of the Nazis were put across in the most persuasive manner possible. The assumption being that, if most people believed what they were told, then opposition would be insignificant and practiced only by those on the very extreme fringes of society, who would be easy to catch.

The above all came flooding back when, at the end of July, the US Department of Justice issued instructions to the Government Printing Office Superintendent of Documents to instruct depository libraries to destroy five publications the Department has deemed not weappropriate for external use”. The documents to be removed and destroyed include: Civil and Criminal Forfeiture Procedure, Select Criminal Forfeiture Forms, Select Federal Asset Forfeiture Statutes, Asset Forfeiture and Money Laundering Resource Directory, and Civil Asset Forfeiture Reform Act of 2000. The topics addressed in the named documents include such information as how citizens can retrieve items that may have been confiscated by the government during an investigation. Readers may be puzzled to learn that these documents have been in the public domain for as long as four years. Quite possibly, the action is simply another part of the effort to keep all US citizens in a state of suspended apprehension.

More on this story here.


Seventy years or so ago, Keynes saw that if Muhammad would not go to the mountain for a lower paycheck, the mountain must come to Muhammad. What Keynes realized was that if modern institutional arrangements and political short-termism were going to prevent wages from falling far enough in the bust in terms of the dollars and cents people were paid in (if wages were “sticky downwards” as economists have it) -- unlike the price of beach hats during a rainy summer, which, as far as politicians are concerned, can fall all they like -- he could achieve the same result by making the dollars and cents themselves worth less!

Monetary inflation can price people back into work so long as they are under the illusion that they are not suffering a real cut in their wages, concluded Keynes...and the message spread. Sooner, rather than later, of course, that illusion was dispelled. Soon, the workers and their representatives, not to mention the pensioners and welfare recipients, began to watch the published price indexes very closely and at the first hint of an uptick, they would all demand to be compensated for the loss to their purchasing power that that increase comprised. Indeed, before very long, they were making the process pretty much automatic, by building indexation clauses into working agreements and state benefit payments.

Inflation, then, was not reducing unemployment in anything like the manner the Keynesians had predicted, and this was solely because the plumbers had outsmarted the professors and the sausage makers had gotten a jump on the central bankers. In due course, this helped hasten the monetary breakdown of the early 1970s. Nixon put America into another partial default (FDR having been the first to do so) by closing the gold window.

In the oil price runup in late 1973 another blunder was made by unthinking mainstream economists, under pressure from their political masters. Instead of accepting that oil was henceforth going to cost more dollars than it had before, and instead of reigning back on the creation of money, so that the inflation that brought the price increase about might be slowed, energy costs were baldly dropped from the calculations. About this time, the concept of something called “core” consumer prices -- a measure excluding first energy, but later also food prices -- became the vogue. Most central banks, anxious not to see money diverted from domestic producers to the account of the foreign oil magnates, “monetized” the oil price rise, only making matters worse. Ultimately that and accompanying policies led to “stagflation” -- and a fairly horrid experience it was, too.

Link here (scroll down to piece by Sean Corrigan).


When it comes to government economic data, it is easy to get terribly confused. But in recent years, it has also become easy to be more and more suspicious of the numbers themselves. On the confusion front, almost every month now we go through the employment numbers dichotomy of “household survey” versus “payroll survey”. he difference between the two series has widened over the years, and the monthly differences are often very substantial, but they both purport to measure employment changes in the same labor force in the same country! As far as suspicion is concerned, I know absolutely no one who really believes their own cost of living is up the mere 3% over the last year that the Consumer Price Index is suggesting. And the CPI represents just one of several areas over which people manifest increasing suspicion about the accuracy and the intellectural honesty, if not the outright honesty, of government data. Enter Walter J. “John” Williams.

John has a long, distinguished record of following and critiquing the changes occurring over the years in the government’s reporting of the economic numbers that can and do influence our lives in a major way. The first installment of a probably 3 or more-installment series deals specifically with employment data. However, the introduction section serves this function for the entire series. Access, read and enjoy “A Primer on Government Economic Reporting -- Things You’ve Probably Suspected But Perhaps Were Afraid to Ask!” here.

More on this story here.


Iraq is a catastrophe, bloodier by the hour. Our Afghan proxy controls a full 10 yards of sovereign territory around his office in Kabul. The only successful war Bush has waged from the comfort of his ranch thus far has been an unremitting attack on the U.S. Constitution. The First, Fourth, Sixth, and Eighth Amendments in the Bill of Rights have already sustained serious injury. The usual method of redressing constitutional grievances is through the court system. But well in advance of the fait accompli, Bush’s fans in Congress derailed most of President Clinton’s judicial nominations. No member of the Senate was more fanatical in excluding qualified people from the federal bench than our current attorney general, John Ashcroft. The vacancies imposed by Ashcroft and other Senate evangelicals have now been filled by right-wing ideologues, who dominate seven of 13 federal appellate districts.

It is a small, telling measure of G.W. Bush’s contempt for the electorate that after Missouri voters chose to elect a deceased candidate rather than give Ashcroft another term, Bush promptly installed him as the country’s chief law enforcement officer. When sworn in, Ashcroft was, appropriately, anointed with oil by Justice Clarence Thomas. Ashcroft is, not to mince words, a lunatic. This would have been universally recognized at almost any other moment in American history. In the looking-glass world of “the war on terror”, however, Ashcroft’s religious manias have not excited even mild censure from anyone in government. By all reports, Ashcroft runs the Department of Justice like a Pentecostal revival meeting, enjoining his staff to raise their voices in righteous hymns of his own composition.

A curious feature of the Patriot Act is that it authorizes virtually nothing that would effectively prevent terrorists from hitting American targets. Like other “emergency” measures since 9-11, it attacks Americans. Naturally, putting these and similar “tools” in the hands of intelligence agencies and police officers guarantees their rampant misuse. Inflating ordinary misdemeanor crimes into “terrorist acts” does nothing to enhance security; it is a standard practice of police states, and will only benefit the corporatized prison racket. If “the war on terror” were serious and not a bait-and-switch operation to squash dissent and push an agenda long preceding 9-11, legions of “intelligence” personnel and presidential advisers would have been out of work on 9-12. Nobody in this administration has lost a job for failing to uphold the Constitution, ignoring the public interest, or exhibiting limitless incompetence.

The Justice Department would have it that numerous “sleeper cells” have been ambushed since 9-11. Fat chance. Plea bargaining, a judicial travesty designed to relieve our court system of its onerous duty to give defendants jury trials, and mandatory sentencing, which voids the discretion of judges to tailor sentences appropriate for individual defendants, have placed the fate of anyone charged with a crime in the total control of prosecutors. A probable cause hearing in most of the cases might have concluded that the defendants’ rights had been violated. It is more likely that these people are innocent than guilty. In the rare cases in which a defendant’s lawyer has managed to compel production of the state’s “secret evidence”, it proved so flimsy that charges were drastically lowered by the courts or simply thrown out.

What should have been a disaster for G.W. Bush’s presidency, then, has instead served as a pretext for conducting it like a dictatorship, with John Ashcroft’s Justice Department as its secret police.

More on this story here.
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