Wealth International, Limited

Offshore News Digest for Week of September 13, 2004

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

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Lebanon, once a byword for terrorism, is in the midst of an extraordinary boom in tourism, real estate construction and development, thanks, officials here believe, to -- terrorism. “After the 11th of September, everything changed,” Pierre G. Achkar, president of the Lebanese Hotel Association, said. He and others say this beautiful but battered country, not long ago the stomping grounds of hijackers, kidnappers and suicide bombers, has turned into the destination of choice for wealthy families from Saudi Arabia and the Persian Gulf emirates, bringing in billions of dollars.

After 9/11, Lebanese officials and Arab visitors here say, many wealthy Saudis and gulf Arabs no longer felt welcome on their customary trips to Europe and the United States because of harsh questioning at airports and suspicion on the streets. Further, many worry about political unrest and attacks inspired by Al Qaeda in their own countries and see second homes here as a possible refuge. “I used to go to the U.S. a lot, but after 9/11, no,” said Alsamawal Joharji, a 34-year old Saudi who studied at a technical school in Denver and loved the nearby skiing. “The visa was a nightmare. They ask so many questions, I feel like everybody’s under investigation.”

Now the coast and mountains that were bloody battlegrounds for rival militias in the civil war from 1975 to 1990 sparkle with new marble-filled hotels, and luxury residential dwellings are going up with names like Beirut Tower, Marina Tower and, not least, Platinum Tower. Marinas dock $60 million yachts. For the first time in three decades, tourists to Lebanon numbered more than one million last year and more are expected this year. Middle East Airlines, the national carrier, has turned a profit for the first time in years. Hotels are nearly all fully booked this month-many in the Hamra district flying the green flag of Saudi Arabia-and at night the cafes and streets of the mountain resorts of Aley and Bhamdoun pulsate with Arab music until 3 a.m.

Since the civil war ended in 1990, Lebanon has been mostly stable under de facto Syrian rule. The Oslo agreement between Israel and the Palestinians raised hopes for a new era of tourism and prosperity in the area, with travelers making a circuit of historic and religious sites in the previously hostile countries. Lebanon’s billionaire prime minister, Rafik Hariri, almost single-handedly rebuilt the shattered downtown in the late 90s with his own company. When matters turned even more sour, with al-Qaeda attacks in Saudi Arabia and elsewhere in the past couple of years, Beirut’s restored downtown along with newfound stability put Lebanon in a strong position. Gulf Arabs flocked there to build and vacation.

More on this story here.


Despite an 11th-hour barrage of innuendo and scandal aimed at them, democracy-oriented candidates appeared to benefit Sunday from a record voter turnout in an election viewed widely as a symbolic clash between the differeing value systems of China and Hong Kong. Reliable exit polls for much-anticipated legislative elections, and a record turnout of 1.56 million people (nearly half of registered voters), have democrats claiming a popular, albeit toothless mandate for greater fairness and political self-rule. Still pro-democracy forces called the election an important next step toward the right to choose their leaders in future votes. However, a leader among the democrats, Martin Lee, expressed disappointment in exit poll results, blaming it on the electoral system.

More on this story here, here, and here.

Beware Beijing’s backlash.

As befits a place more interested in money than ideals, Hong Kong has never set much store by elections -- this (then coming) weekend’s poll is only the seventh ever to be held in the former British colony. This time, however, will be different. The significance of Sunday’s vote lies less in who is being elected -- the 60 members of the Legislative Council (Legco), Hong Kong’s pseudo-parliament, have little real power -- than in the message it will send China about the desire of the territory’s 7 million-odd people to preserve, and indeed increase, their political freedom. It may not be a democratic vote, but it will be a referendum on democracy.

The reason is that the political climate in Hong Kong has changed out of all recognition since the last election four years ago. Under the Basic Law, the constitution drafted in the run-up to the colony’s 1997 handover to China, Hong Kong was to move towards full democracy, while its current political rights were preserved -- an arrangement summarized by the slogan “one country, two systems”. In practice, the population cared little about politics as long as everyone continued to get richer.

But following a long economic slump, the local government (instructed by Beijing) last year made a clumsy and ultimately unsuccessful attempt to force through an anti-subversion bill, known as Article 23, which would have given it the power to search without a warrant. That sparked a groundswell of democratic feeling culminating in huge demonstrations in July 2003 and again this year. China’s response has been club-footed. On the one hand, Beijing has taken a walk softly approach. Still, the mainland authorities have little overall progress to show for their generosity, and they have thus increasingly resorted to hardline tactics and direct intervention in the elections -- which is starting to worry international observers as well as locals.

Success for the pro-democracy camp would reaffirm the view in Beijing that further political concessions would cause Hong Kong to slip away on a path to independence, just as Taiwan has. And that is something the current regime in China can never allow, because it could, Mao forbid, spill over into calls for freedom on the mainland itself.

More on this story here.

Hong Kong needs U.S. support.

Tung Chee-hwa, Hong Kong’s chief executive, says that more democracy will not happen any time soon. In this, Tung echoes his masters in Beijing, who fear that truly democratic elections in Hong Kong will raise embarrassing questions in mainland China about the rule of the unelected Chinese Communist Party. Despite hands-off pledges and the much ballyhooed “one country, two systems” formula, PRC interference in Hong Kong has grown ever more persistent year by year since the territory handoff from Britain in 1997.

Beijing insists that U.S. officials have no business speaking up on Hong Kong’s behalf. But certainly the U.S. should speak out in support of democratic development in Hong Kong, undeterred by Chinese grumbling about “interference in internal affairs”. Hong Kong, whose present status is the result of international agreements registered with the United Nations, cannot be considered simply a Chinese internal affair. America should no more hesitate to point out Chinese violations of obligations toward Hong Kong than to point out Chinese violations of human rights and fundamental freedoms at home. It is high time we shined a spotlight on China’s broken pledges -- whether Beijing likes it or not.

More on this story here.

Hong Kong democracy forces earn modest gains in vote.

With most of the vote counted, advocates of greater democracy appeared to have scored modest gains in elections here on Sunday, but fell short of winning a majority in the legislature. Democracy proponents captured a less sizable majority than expected of the popular vote, which elects half the legislature. But democracy supporters fared better than expected among previously pro-Beijing professional groups and industries that choose the rest of the legislature’s members.

The pro-democracy opposition captured 24 seats. Candidates leaning toward the democracy camp took two additional seats, while two independents who occasionally side with the democratic side were re-elected. The democrats have controlled 22 seats for the past four years. The loss of several seats in the 60-member Legislative Council still leaves Beijing fairly able to retain control of legislative developments in Hong Kong, although local leaders may have to make more concessions to prevent defections.

At least one of the territory’s Beijing-backed chief executive Tung Chee-hwa’s most acerbic critics, Leung Kwok-hung, an activist with waist-length hair who describes himself as a Marxist, appeared to have won a seat in the legislature. His election promises to make debates more interesting, as well as giving the Democratic Party another ally on democracy issues.

More on this story here and here.

China celebrates over HK election.

Chinese leaders can pride themselves on successfully weathering what had been brewing up to be a nasty political storm on their southern border, a typhoon of the kind that can cause considerable havoc deep inside China itself. In the end, the rulers of the world’s last major communist country have proved themselves experts at the election game. They took a series of measures to help Hong Kong’s economy out of the doldrums, sent in their victorious Olympic team and some Buddhist remains to induce feelings of patriotism and helped publicize -- if not actually create -- various scandals involving their once famously clean-living opponents. China was helped, admittedly, by electoral rules that mean the biggest vote-getters are not always the overall winners.

The pro-democracy parties did, however, win a majority of the vote -- and they now have more seats than they have ever held before. But the fact that the election ended in a virtual stalemate may have increased the possibility, according to some analysts, of Beijing finally agreeing to open a dialogue with Hong Kong Democrats -- or at least some of their more moderate allies. If its political enemies had done better at the elections, they say, China would have reacted by taking a harder line than ever.

China’s leaders would be even more relaxed, an analyst said, if they thought the Hong Kong administration was in capable hands. Chief Executive Tung Chee-hwa is regarded by Hong Kong people of almost all political persuasions as incompetent and has become an embarrassment to his Chinese masters. A local opinion poll recently showed that most Hong Kong people prefer China’s leaders, for all their ideological differences, to their own.

More on this story here.

Hong Kong holds off on strict internal security laws.

Tung Chee-hwa, the chief executive of Hong Kong, ruled out trying to pass internal security legislation any time soon, a strong sign that his backers in Beijing have decided to take a conciliatory stance here after legislative elections last Sunday. Mr. Tung had tried to push stringent security laws through the legislature in July 2003, but shelved them after the plans set off huge street protests. He then reserved the right to re-introduce the proposal some day.

The controversy that summer, along with Beijing’s more recent efforts last April to limit future moves here toward greater democracy, had been expected to hurt Beijing’s defenders in legislative elections here on Sunday. But pro-Beijing candidates did better than expected, capturing two-fifths of the vote and retaining a narrow majority of the seats in the legislature, a combination possible because of a complex voting system designed to limit support for democracy advocates.

Emboldened, the two largest pro-Beijing parties said that they would support legislation against sedition, subversion, treason, the unauthorized disclosure of state secrets and other offenses if Mr. Tung reintroduced it. With the issue suddenly at the forefront again of public attention, Mr. Tung took the rare step of unexpectedly coming downstairs at government headquarters and telling a hastily gathered group of local reporters about his opposition to any action on the issue in the near future. Jean-Philippe Béja, a China specialist at the Center for International Studies and Research who has been in Hong Kong to observe the elections, said that it was surprising that Beijing was not using Mr. Tung to push through the laws.

More on this story here.


After more than a dozen years of stagnation, Japan is growing again. The world’s second-largest economy is finally adding jobs, fostering consumer spending and shaking off its identity as a chronic drag on global prosperity. Government data released last week showed 1.3% growth from April to June -- less than anticipated, but the fifth consecutive quarter of expansion. Corporate profits leaped by nearly half over that period.

For a world trying to bounce back from a downturn, genuine recovery in Japan’s $4.3 trillion economy would provide crucial support, undergirding the rest of Asia and sparking increased trade and investment in the United States, the European Union and elsewhere. Already over the past year, as much as $227 billion has poured into Japanese stocks, as investors sense value where they had previously seen bad debts and weak companies.

Only one question remains: Can it last?

More on this story here.


In July, the passage of the Fiscal Reform Package was halted after the Constitutional Chamber of the Supreme Court, Sala IV, accepted an action by two deputies who accused the former president of the Legislative Assembly, Mario Redondo, of violating the Constitution by acting with secrecy and without the required approval of two-thirds of lawmakers in an attempt to accelerate the debate on the tax plan last March. However, Sala IV has rejected all of the actions brought by the deputies, clearing the way for the proposals to be put before a Legislative Assembly vote.

The former Finance Minister Alberto Dent, a supporter of measures who recently resigned, was quoted as observing, “We took a plan that was completely stalled, completely dead, and have practically steered it to its final phase.” He continued, “I believe it’s worthwhile because it not only allows for fair taxation by ensuring those who have the most pay the most, it also stabilizes the country by practically eliminating the (fiscal) deficit.”

More on this story here.


Ireland’s Department of Finance has taken out an advertisement in the national press inviting comments on how best to achieve simplification and consolidation of its financial services legislation. According to the government, the new Bill is intended to complement 2003 and 2004 legislation, which established a new regulatory structure for the financial services sector. The first phase of this project -- an informal updating and consolidation of existing legislation -- has been completed and is available on the Department of Finance website.

More on this story here.


The Isle of Man government has been actively pursuing measures that could propel the Island towards assuming the mantle of the world’s IT disaster recovery hub in the field of financial services, the local media has reported. In a bid to achieve this, the Island’s authorities are seeking to agree memoranda of understanding with multiple offshore jurisdictions which would allow firms using an Island-based disaster recovery service to operate under the same regulations as in their home jurisdictions. The initiative is to target offshore jurisdictions that may be vulnerable to natural disasters, such as the Caribbean Islands, in addition to locations vulnerable to attack by viruses or hackers.

More on this story here.


Grand Cayman was submerged in a 15 to 20 foot tidal surge as the storm passed Sunday. The island was for a time split into two, as the ocean swept across the west coast at Seven Mile Beach, said Gray Smith, a partner in Maples and Calder, the largest law firm on the island. Smith spoke by telephone from the firm’s London Office. Smith said power and telephone service remains out, and more than half the island’s buildings lost their roofs as the hurricane swept through. The Caymans have not experienced a storm of this ferocity since 1932. In that year, an era before hurricanes were given names, one storm made a direct hit, taking hundreds of lives.

Expensive yachts were beached, tossed to the shore like toys. Well-built homes were reduced to splintered wood, or left without roofs. Utility poles and palm trees were snapped in two or uprooted. Widespread destruction was visible from an airplane chartered by The Associated Press that overflew the island Monday On Grand Cayman’s famed Seven Mile Beach, one hotel was partially smashed. Many others were damaged, including some missing roofs. Debris was everywhere.

Thousands of people are homeless on Grand Cayman, the capital of a territory of 45,000, said Pilar Bush, islands tourism director, speaking from New York, where her government sent her to meet with the media in case of disrupted communications. The government was looking at available hotels and school dormitories to house the displaced people, she said.

More on this story here.

No permanent damage expected to Cayman banking industry.

Hurricane Ivan has temporarily knocked the Cayman Islands’ offshore banking industry out of service, but the Caribbean financial haven should not sustain any permanent damage from the storm. Because of their vulnerability, most Cayman financial institutions have post-storm strategies that include backing up files and moving operations temporarily to other offshore financial hubs like the Bahamas or the Channel Islands in Europe.

Eduardo D’Angelo P. Silva, president of the Cayman Islands Bankers Association, said most banks sustained limited damage, such as flooded offices or breached roofs. The biggest challenge for reopening, he said, will be the restoration of power.

More on this story here and here.

Banks scramble in Caribbean.

Some Canadian banks and accounting firms with operations in the Cayman Islands say they are scrambling to ensure the safety and security of several hundred employees stranded in the hurricane-ravaged region. The tiny Caribbean archipelago was virtually flattened when Hurricane Ivan struck last weekend. But word of the devastation is just now reaching the outside world as communication lines are restored. Meanwhile, reports out of the islands late Wednesday suggested a security crisis as the small local police force, backed up by 80 British Royal Navy officers, was unable to contain looting and rioting. Earlier in the day, the Canadian office of the international accounting firm KPMG said it was working on a variety of initiatives, including sending a chartered flight to the Caymans to bring back as many as 100 employees.

More on this story here.


Chinese businesses heard how Hong Kong is the ideal gateway for mainland firms wishing to gain access to the global market place during a presentation by the Hong Kong government’s investment promotion body. Speaking at the 8th China International Fair for Investment and Trade (CIFIT) in the Chinese province of Fujian, Mike Rowse, Director General of Investment Promotion at Invest Hong Kong told more than 120 executives of Chinese enterprises, “We are committed to ensuring that Hong Kong enhances its attractiveness to Mainland investors, particularly as the leading financing centre in the region. Our regulatory framework for financial markets meets or exceeds international standards in providing a fair, transparent and efficient market place for financial transactions.”

More on this story here.

London Stock Exchange to open Hong Kong office.

The London Stock Exchange is planning to open a Hong Kong office later in the year in an attempt to attract more listings from mainland companies.

More on this story here.


Kolkata turned into a Hong Kong-style free port and international trading bourse? Absolutely preposterous? In fact, what is preposterous is that it was not done some 50 years ago when the idea was tentatively -- and abortively -- considered just before India’s Independence. The logic then was clear and simple. Asia needed an open trade window to the West. British-run Hong Kong was a borrowed place, on borrowed time, as was the Portuguese colony of Macau. Singapore was not a gleam even in Lee Kuan Yu’s eye and was derisively dismissed by the British as a no-account place comprising “Chinks, stinks and drinks”.

Calcutta -- as it was then known -- would be the ideal fallback after Hong Kong. It had English-speaking skills far superior to Hong Kong’s, and a history of trade going back to the setting up of the East India Company. Today, most of those arguments in favor of Kolkata transforming into a capitalist bastion still hold good. For all its newfound capitalist ways, China remains a totalitarian state, the antithesis to the free market.

Glitzy Singapore lacks the sheer size of the Indian market -- second fastest growing in the world -- to back it. Kolkata is run by Marwaris (as the resident comrades know only too well), who are the canniest traders going. Forget industry, Kolkata’s core competence has always been trade.

More on this story here.

New Indian private banks push overseas.

The new private sector banks led by IDBI Bank and IndusInd Bank are queuing up at the doors of the Reserve Bank of India for licences to set up overseas branches to tap global Indians. Indian residents can invest $25,000 annually overseas. These banks want to tap this business. Private banks are planning to set up branches in tax havens to ensure that these deposits will have no tax issue or double taxation.

More on this story here.


“The advantages of going offshore, the security of being home,” boasts the Puerto Rico Industrial Development Company, and apparently biotech firms are believing it. The IPA has announced that four medical device manufacturers are expanding in the region. Puerto Rico is home to 67 medical device manufacturers and its scientific instruments sector, to which medical device companies belong, generates 15 thousand jobs or 13% of the commonwealth’s manufacturing positions. Medical device firms exported $18 billion of goods in 2003, a 30% increase over 2002. The commonwealth produces half of the pacemakers and defibrillators that are sold in the United States and ranks eigth in the world for medical exports.

More on this story here.


Thousands of Gibraltarians dressed in the Rock’s national colors -- red and white -- celebrated their annual National Day Friday September 10 under the banner “self-determination is democracy”. As 30,000 balloons were released into the skies Peter Caruana, Chief Minister, declared that Gibraltar is happy to have good relations with Spain but not at the price of Gibraltarians giving up deciding their own future.

The celebrations mark the day in 1967 when Gibraltar held its first referendum when Spanish sovereignty was rejected. Besides a brief political rally attended by British and European Members of Parliament who support Gibraltar, most of the day saw fireworks displays, fun-fairs and concerts, the highlight of which was an Elton John concert which was attended by over 10,000 people.

Asked after the rally about Spanish Foreign Minister Miguel Angel Moratinos telling the Spanish daily El Pais that the objective of talks would be joint sovereignty and that this was now a question of how and when, Mr Caruana put this down to Madrid having to have its own public relations exercise.

More on this story here.

Caruana confident Gibraltar can keep exempt company status.

Gibraltar’s Chief Minister Peter Caruana is “quietly confident” that the jurisdiction’s Exempt Company regime will be allowed to continue while the European Court considers the validity of the jurisdiction’s new fiscal regime under regional selectivity rules. Caruana warned that failure to reach an agreement on interim arrangements would be “hugely disruptive, threatening and challenging,” to the economy of the Rock.

Earlier in the year, the EC decided that Gibraltar effectively constituted part of the UK and therefore new tax measures introduced as part of the jurisdiction’s offshore regime must be dismantled. The new measures abolish the 35% corporate tax rate, replacing it with a payroll tax and a business property occupation tax -- both capped at 15% of profit. The Gibraltar government is attempting to contest the decision in the European Court of Justice.

More on this story here.


Faced with an outflow of traditional manufacturing jobs to the East, and a retrenching in some types of service jobs, the Leeds, England area set out to forge innovative ways to even out the employment landscape. Instead of only griping about unfair competition, the region moved aggressively to do something about it, implementing retraining programs for workers who have lost jobs as the economy became stretched. Eventually, analysts say, Europe’s larger economies may need to steer toward a similar style of proactive model to stay competitive.

In many parts of continental Europe, unemployment remains chronically high, and competition from Eastern Europe is sometimes singled out as the culprit. Britain, with a flexible labor market and relatively low taxes, has had no trouble attracting foreign investment or creating jobs. Though it has lost three-quarters of a million manufacturing positions since 1997, many of them to Eastern Europe, Britain has been better than most of its neighbors at replenishing its overall jobs pool. In the case of Leeds, microtargeted initiatives have helped the region create 10,000 information technology jobs alone since the mid-1990s.

The entrepreneurial spirit and job creation schemes are still sorely absent in much of Europe. The 10 relatively low-wage and low-tax countries that entered the EU on May 1 were already luring Western companies, and they may well yet offer even sterner competition for jobs and investment. A likely solution, analysts say, is that more continental countries will shift towards the British model and edge away from the “social-market” economies that have ensured a half-century of labor tranquillity. Lawmakers in the core economies of the euro zone have been unable to persuade voters to embrace radical overhauls of labor markets and fiscal policies that analysts say would raise competitiveness, and so have wound up dealing with the threat mostly by tinkering. But some smaller countries among the 15 pre-existing EU members, such as Austria and the Netherlands, are breaking ranks.

More on this story here.


Swiss banking officials say the sector appears to have turned the corner after several lean years, predicting moderately improved end of year results. The Swiss banking sector is the single largest contributor to Swiss GDP -- accounting for nearly 11% of the total.

Pierre Mirabaud, chairman of the Swiss Bankers Association (SBA), said that while the period 2001-2003 had seen overcapacity followed by reduced staffing levels, a sector-wide survey showed that this trend had ended in 2004. The SBA chairman added that Swiss banks had already “consolidated” much more than neighboring European countries during the 1990s, and that the process was now largely complete.

More on this story here.

Fame and fortune are passports to Swiss citizenship.

According to Justice Minister Christoph Blocher, obtaining “Swiss citizenship entails far greater rights and obligations than is the case in other countries.” And if his People’s Party has its way in this month’s vote on granting citizenship to second- and third-generation foreigners, it will stay that way. And yet, when they want to, the authorities can and will move heaven and earth to smooth the way. Those with conspicuous talent or ability can find themselves on a fast track to naturalization, and this is not just true of sports figures -- if you are rich or successful, the path to a Swiss passport appears somewhat smoother.

More on this story here.



The IRS has announced a new string to its e-services bow with the launching of an online transcript request service enabling tax practitioners to obtain copies of their client’s tax records within minutes instead of days or weeks. The Transcript Delivery System (TDS) is the latest in a series of e-services and is being delivered through the IRS Business Systems Modernization program.

Authorized tax practitioners use the new electronic tool to order tax account and tax return transcripts and other tax information for their business and individual clients. The documents are returned to the practitioner’s computer through a secure online connection within minutes. Paper requests for the same information can take days or weeks to complete. Tax practitioners use transcripts when representing their clients before the IRS. Transcripts are printouts of a taxpayer’s account that show actions taken by the IRS or the taxpayer and any tax, penalties or interest assessed.

More on this story here.


Residents of New York pay the highest state and local taxes in America, according to a new study examining the tax burden and competitiveness of each US state. The study, undertaken by the Massachusetts Taxpayers Foundation, found that New York taxed its citizens most heavily, with taxpayers contributing $132 for every $1,000 in income in 2002. This compares to the $84 tax for every $1,000 income in the least taxed state of Tennessee.

More on this story here.


Canadian taxpayers are facing weeks of disruption in their dealings with the Canadian Revenue Agency after the tax department’s employees began to walk out on strike this week. The Public Service Alliance of Canada revealed that over 4,000 employees of the Revenue Agency began picketing in British Columbia with employees also setting up picket lines in other cities, including Toronto. In all some 22,000 tax agency employees will be on a rotating strike over a wage dispute with the government department responsible for collecting income and Goods and Service Tax.

More on this story here.


In the year 2004, The Bahamas is one of the few countries that is still without income tax, but lately, representatives from the entire political spectrum have pointed out that the country needed to expand its revenue base. Governments in need of more money, and budgets showing deficits are by no means a new phenomenon, nor are they a strictly Bahamian one, and governments, often criticized for a lack of imagination, have displayed amazing creativity in tapping into new sources of income.

In 1902, German Emperor Wilhelm II, grandson of Queen Victoria, had ambitious plans to build a navy that could compete with that of Great Britain. To finance this undertaking, he introduced a tax on champagne and other sparkling wines. While the British Royal Navy sank most of the Emperor’s ships in World War I, after which monarchy was abolished in Germany, Germans today are still paying the tax. This should demonstrate how it is easy for governments to introduce new taxes, but near impossible for the public to have taxes, which were designed to be temporarily and meant for a specific purpose, lifted. Neither the imperial government, nor the three following systems of government ever thought of depriving themselves of this convenient source of income; on the contrary, it has been raised some 10 times.

When I read in a book on Bahamian history (Chronological Highlights in the History of The Bahamas: 600 to 1900, by Patrice M. Williams) that The Guardian in 1876 suggested the introduction of income taxes, I was surprised. To find out more about it, I went and did my own research. Reading the articles and editorials of 1876 I was immediately reminded of this year’s budget debate in Parliament.

More on this story here.


According to researchers at non-partisan think-tanks, if current laws are not amended, almost 30 million will fall into the AMT net by 2010. If temporary tax cuts enacted in 2001 and 2003 are extended, this number will grow to 40 million by 2014 and the AMT will account for 11% of federal tax revenues, studies show. For some, the AMT is already beginning to bite, with figures suggesting that those falling under the regime this year will pay on average $6,000 more in tax.

The AMT was introduced to prevent investors and the wealthy from sheltering too much of their income from taxes. After factoring in a standard deduction which this year is $58,000 for a couple and $40,250 for a single person, a special tax rate of 26% is then applied on the first $175,000 and a 28% rate applied on income above this amount. The total is then compared to the tax paid under the regular method and the higher amount is what is paid. However, in their wisdom, the lawmakers who introduced the tax omitted to index it to inflation which means AMT is beginning to affect more and more middle income taxpayers.

Currently, the highest incidence of AMT is to be found in the $200,000 to $1 million income bracket. But by 2010, more than half of tax returns with incomes between $75,000 and $100,000 will be affected, the think-tanks have predicted.

More on this story here.


In response to concerns about job outsourcing, Senator John Kerry has proposed changes to the corporate income tax. His plan includes a small cut to the corporate tax rate, but would impose higher taxes on the foreign subsidiaries of U.S. companies. Unfortunately, that would likely kill U.S. jobs, not create them. If taxes on subsidiaries were raised, U.S. firms would lose sales to less-taxed foreign competitors, and would have to cut back on U.S. headquarters jobs in research and other activities.

Nonetheless, Senator Kerry deserves credit for addressing the tax rules on foreign investment, which his campaign notes are “almost completely broken”. President Bush promises to consider tax reform if re-elected, but he does not have a corporate tax plan, and he is letting expire a pro-growth tax provision that allows firms to deduct, or “expense”, half the cost of qualified capital investments. The Bush administration has also shown little leadership on the corporate tax bill being considered in Congress, which would not alter the critical need for fundamental corporate tax changes in any case.

In 64 A.D. Emperor Nero was blamed for doing little as Rome was engulfed in flames. Similarly, federal policymakers have fiddled as U.S. tax competitiveness has gone up in smoke. While the U.S. led the world with a corporate tax rate cut in 1986, today it has the second-highest corporate tax rate in the 30-nation OECD and Development. The U.S. corporate rate is 40%, including the 35% federal rate and the average state rate.

More on this story here.

Tax reform is a real issue for presidential campaign.

Instead of silly arguments about what Kerry and Bush did more than 30 years ago, the Wall Street Journal opines that the election debate should be about important issues like tax reform. If countries like Hong Kong, Russia, and Slovakia can have a flat tax, why not America?

More on this story here.


Harmonization of direct taxes in the EU would prompt increased spending by governments of member states, while competitiveness of the EU economy and efforts to conduct immediate social and economic reforms would falter, say analysts from the Lithuanian Free Market Institute (LFMI), a leading think-tank in Lithuania, a new member state. LFMI urges EU authorities to abandon attempts at harmonizing taxes whatsoever and breaking up the European tax cartel.

Initiatives to harmonize corporate taxes, recently stepped up by some old member states, are adequate to calls for creating a cartel among EU governments, which would make life easer for national governments at the expense of European people. Undermined tax competition would markedly reduce incentives of EU governments to enhance performance of the public sector and to collect and allocate EU budget more effectively. For this reason, LFMI encourages governments of the EU member states to discard plans to harmonize direct taxes. Instead, governments should take measures to carry out social and economic reforms, which would lead to more favourable conditions to boosting people’s initiatives and economic growth.

More on this story here.



Wealthy South Koreans are voting with their feet against the government of President Roh Moo Hyun, which has encouraged populist attacks on the upper classes. Business elites are leading the exodus, fearful that Roh’s pro-union stands will undermine their livelihoods. Those who cannot move overseas are often spending large sums to buy houses or businesses in places like Los Angeles, New York or Shanghai as a safe means of parking their money for retirement -- which has, in turn, inspired a government crackdown on illegal capital flight. “The overall anti-business and anti-rich atmosphere in Korean society is accelerating capital flight,” says economist Jo Ha Hyun at Seoul’s Yonsei University. “The money drain is hurting Korea’s already sluggish economy.”

The numbers tell the story. During the first half of this year, money transfers by Koreans resettling overseas rose 24% from a year earlier to $867 million, and the amount of money sent to overseas relatives rose 15% to $5.8 billion. And those are just the legal transfers that the central bank can record. This exodus is a shock to a newly developed nation like South Korea, which for years restricted foreign travel and money transfers in order to harness savings and capital to the job of building industry at home. Seoul began to ease those restrictions with the rising wealth of the past decade, and today the caps limit spending on overseas education at $100,000 per student, and on money transfers to overseas relatives at $10,000 per year. To dodge the rules, some business people channel money through front companies or under false names.

More on this story here.


In 2002, American companies took $149 billion of profits in 18 tax-haven countries, up 68% from $88 billion in 1999, according to Tax Notes, which analyzed the most recently available Commerce Department data. This compares with a 23% increase in total offshore profits earned by American multinationals during the same period. According to Commerce Department data not cited in the study, American companies took 17% of worldwide profits in tax havens in 2002, up from 10% in 1999.

Analysis of the data in Tax Notes shows that for each dollar of profit taken in Luxembourg in 1999, American corporations took $4.56 of profit in 2002. The figure for Bermuda was $2.96, for Ireland $2.01, and for Singapore $1.72. These countries are considered tax havens or partial tax havens. For Britain, each dollar of profit taken in 1999 was equal to 67 cents in 2002, and for Germany it was 46 cents. The study was conducted by Martin A. Sullivan, who as a Treasury Department economist specialized in international taxation. Tax Notes is a nonprofit journal that reports on tax systems worldwide.

Mr. Sullivan noted that the sharp rise in profits taken in tax havens like Bermuda had no relationship to economic activity there. American companies took $25.2 billion in profits in Bermuda in 2002, yet total revenues there were only $34.3 billion. Many companies try to lower their taxes by setting up foreign subsidiaries and using internal lending so profits are taken primarily in tax havens and costs are incurred in high-tax countries. 58% of offshore profits are now taken in tax havens, and that is “a seismic shift in international taxation,” Mr. Sullivan said, because “subsidiaries of U.S. corporations now generate profits mainly in tax havens rather than in locations in which they conduct most of their business.”

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Bermuda finance minister lashes out at “tax haven” label.

A damning report in the New York Times revealed the findings of a study that labels Bermuda as a “pure tax haven”, saying profits posted by corporations from the Island bear “no relationship to economic activity.” But Finance Minister Paula Cox said such reports were not always based in reality, pointing out that anyone who does their research will see that Bermuda as an international business jurisdiction should not be labeled “a tax haven”. “Bermuda companies do have a presence here. It is relatively easy to rebut that kind of allegation.”

Although the Island has been cited in recent years as a magnet for so-called corporate inverters -- with the issue becoming a heated debate from US legislators, including presidential hopeful Sen. John Kerry, and in the American media -- after several high-profile companies shifted their headquarters offshore to shave US tax bills, Ms. Cox pointed out that there had been little to no corporate inversion activity on the Island for the last two years. She added that no decision had been made on whether the Bermuda Government would respond to the article, but she did say that the Island would not be undertaking any “high-profile” lobbying at this time.

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Legend has it (incorrectly, it seems) that infamous bank robber Willie Sutton, when asked why banks were his favorite target, responded, “Because that’s where the money is.” The modern-day Willie Suttons of the world target bank Web sites for the same reason. With online transactions, money is represented in the form of electronic records of ownership, which means online bank robbers can steal more money, in less time, than by stealing literal currency -- and they do not even need a getaway car. But that does not mean online banking necessarily has to be a riskier proposition.

“Internet banking is terribly secure,” says Brad Adrian, an Internet banking analyst with Gartner Group. “Financial services providers... make their systems as secure as possible.” But, he says, “unscrupulous people using phishing, keystroke collection, or similar activities” to steal your passwords or account numbers are a growing problem.

If your online bank does not offer the ultimate in verification security, there are still steps you can take to protect yourself. Make sure your online banking password is at least six characters long and includes both letters and numbers. Avoid using the same password you use for other sites, and avoid obvious combinations such as your street address or the combination of your first initial and last name. If your institution allows it, create a hard-to-guess user name as well. If you receive an e-mail allegedly from your bank, never click the link in the e-mail message. Instead, type the URL of your bank right into the browser’s Address bar yourself, and forward the e-mail to a known, legitimate bank e-mail address. Chances are excellent that, if you ask the bank if it sent the e-mail you received, you will find out it did not.

If you have an “always on” Internet connection, never store your online banking information on the PC. Adrian, the Gartner analyst, stores his online passwords in an encrypted area of his PDA. He also suggests using many different passwords, and keeping track of them with the PDA. Of course, you then have to worry about battery life, but in the long run that is less important than an unexpected, precipitous drop in your checking account balance. The bottom line is that online banking need be no more risky than its offline counterpart, as long as you take the time to protect yourself.

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Tens of thousands of people across the UK are being targeted by criminals who steal their identities in order to defraud banks, credit card issuers and other lenders of hundreds of millions of pounds. More than 100,000 cases of ID theft involving almost 43,000 people were reported in 2003, up from some 70,000 cases in 2002. According to Cabinet Office estimates, the cost of identity theft reached £1.3 billion in 2002, the last year for which figures are available. It is thought to be much higher today.

Detectives in the Dedicated Cheque and Plastic Crime Unit (DCPCU), a specialist team of 19 officers formed in April 2002, have uncovered worrying connections between card fraud and organized crime, including drug and people smuggling, money laundering and even terrorism. Cases have been linked to heroin trafficking in Turkey and Chinese Triad gangs. Specialists working for some of the UK’s banks and other financial institutions believe that other anti-fraud measures, such as new PIN and chip credit cards being introduced in the UK, close off more “traditional” avenues of card-related crime, crooks will turn more and more to identity theft.

The fraudsters are becoming more sophisticated. One increasingly common scam is to phone up a card issuer and say “you” are changing address. Statements are then sent to a new address and, in a sort space of time, a new card is requested to replace a “lost one”. The original holder may be unaware of the fraud -- as all statements are being sent to the new address.

Other tactics adopted by the ID thieves include “bin raiding”, where the fraudsters work through a householder’s rubbish to acquire personal information from discarded documents. One local authority recently discovered that homeless people were being paid upwards of £5 by fraudsters for each document they found in the rubbish. In 2002, Experian, a UK credit reference agency, carried out a test “raid” of 500 bins in the Nottingham area. On average, one in every five bins contained a whole credit or debit card number. This rose to two in five bins in more affluent areas. Experian’s Bruno Rost says, “In our experience, an identity thief can have a very long window of opportunity, with an average of 16 months between the initial theft and finally resolving the case.”

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U.S. IT technician admits huge ID theft.

A former New York computer help desk technician pleaded guilty to playing a key part in what prosecutors reckon is the largest identity theft case to date. Losses from the racket --- which ran for approximately three years -- are now estimated to exceed $50 million. Philip Cummings worked for Teledata Communications, which supplies software to link the systems of banks and credit reference agencies from mid-1999 until March 2000. He used this role to obtain confidential passwords and codes to download potential victims’ credit reports before selling them on to crooks. Cummings was paid $30 for each report. The information he sold enabled criminals to impersonate victims and obtain fraudulent loans, access bank accounts and run up unauthorized credit card bills in their name

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According to the latest official count, roughly 4,000 senior Chinese officials and managers of state-owned businesses have fled abroad over the past two decades with as much as $50 billion dollars in embezzled money. They are seldom caught, and the stolen loot is recovered even less frequently. China’s government-controlled media call the corruption “staggering”, and the matter is an Achilles heel for China’s rulers, who repeatedly announce campaigns against graft. With some regularity, corrupt officials are given lengthy jail terms, or even executed. But much of the citizenry doubts that the ruling Communist Party is making any headway.

In the latest pilot program, special teams are now interviewing some senior officials as they prepare to travel overseas, quizzing them about their motives for trips and the whereabouts of family members, according to the official Xinhua News Agency. If there is any good news in the outflow of stolen money, experts say, it is that some of the embezzled assets make a U-turn and return to China, the fastest-growing major economy in the world. That is one reason for an explosion of Chinese-controlled offshore companies in the Bahamas, the Cayman Islands, the British Virgin Islands, Samoa and other offshore banking havens.

Last year, the British Virgin Islands pumped $5.78 billion into China. Reasons for using the offshore corporations, Chinese experts say, include tax avoidance, concealing ownership and hiding assets stripped from state companies.

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Panama continues as one of the world’s best tax and asset protection havens, and it also offers several options for tax-advantaged residency. In the 1970s, I visited Panama several times. I did not return until 1999 and have been back many times since. The 30-year transition was truly amazing. From a sleepy American colonial town, Panama City has blossomed into a major urban center with a skyline dotted with huge hotels, international banks and countless condominiums. Urban, rural and ocean front real estate investment opportunities abound and retirement possibilities are everywhere.

Panama enjoys an impressive financial infrastructure with over 80 banks, including many local branches of global banks such as HSBC, Barclays and Dresdener. It also has a stable, democratically elected government; established asset protection laws dating back almost a century; legal entities including trusts, international business corporations (IBCs) and family foundations; tax free investment for foreigners—all protected by statutory financial privacy and banking secrecy. And it also offers an attractive pensionado residency plan for foreigners seeking to retire in a tropical climate where living is easy and costs are low.

Most appealing, Panama stands up for its sovereignty. Notwithstanding the 1989 U.S. invasion to oust dictator Manuel Noriega, Panama does not accept dictates from the United States. Nor is it under colonial control from London, as are the British overseas territories, once known as reliable offshore havens. The highly independent Panamanian government, regardless of the party in power, has consistently rebuffed the demands of the OECD and other global busybodies. From the outset of the OECD’s shameful “harmful tax competition” initiative, Panama has made it clear that it will not abolish bank secrecy and begin exchanging information about those who use its financial services with tax authorities in other nations until every other nation agrees to do the same. This “level playing field” scenario is highly unlikely to come to pass, particularly since the world’s largest tax haven, the United States, refuses to abide by it.

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Notes on Panamanian Private Interest Foundations.

The “Private Interest Foundation” (“PIF”) was created in Panama by Law No.25 of 1995. Its structure is similar in some aspects to that of the corporation, but may not engage in business. The subscriber in the corporation is the founder in the PIF. The Board of Directors is the Management Council. The PIF requires a founder, who decides which assets are incorporated into the PIF. The founder may be a corporation or a person and its name appears in the Public Registry. The members of the Management Council may be provided by the founder or nominees.

The beneficiaries of the PIF are established in its By-Laws, which are not a matter of public record, but normally are notarized. The beneficiaries do not have control of the PIF and the Founder may change the By-Laws and beneficiaries at any time, and may withdraw any or all the assets from the foundation at any time if the PIF is revocable. The PIF has the advantage that its assets are not subject to liens or attachment, unless it is due to debts of the foundation itself or within three years of the transfer of assets to the PIF, when creditors may prove the transfer was made fraudulently by the Founder to avoid paying its creditors.

It is important to mention that the purpose of the Private Interest Foundation is as its name states, private (for estate planning and asset protection), and although it is a non-for-profit entity this is not a charitable foundation, therefore this type of foundation cannot be used to collect funds from the public. Charitable foundations in Panama have to go through a more rigorous procedure to be established and must be authorized by the Ministry of Government and then filed in the Public Registry.

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Vernon Jacobs on foreign foundation tax and reporting requirements.

If the foundation in question has one or more non-charitable beneficiaries, it is highly likely that the IRS would treat the foundation the same as a foreign trust. A U.S. beneficiary of a foreign trust (other than the U.S. grantor) is required to file a Form 3520 to report any distribututions received from the foreign trust and other transactions with the trust. Distributions received from a foreign trust may or may not be taxable to the beneficiary.

If a foreign foundation functions as a trust (rather than as a corporation), then the founder would most likely be treated the same as the grantor of a foreign trust. If the foreign foundation is operated like a corporation, the founder would most likely be required to file the same reports as the officer or shareholder of a controlled foreign corporation. The classification of a foreign foundation would depend on the specific facts and circumstances of the entity.

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There are more than 20 offshore financial centers (or “tax havens”) in the Caribbean and Central America, and some commentators are arguing that their day in the sun is nearly done. The list of adverse factors is certainly daunting. First of all, the gradual reduction in tariff barriers worldwide has undermined the Caribbean islands’ reliance on subsidized exports of sugar and bananas. Second, the attacks by the United States, the FATF and other bodies on money laundering and terrorist financing have forced the offshore financial centers to eschew many of their traditional clientele.

The OECD is pressing for harmonized onshore and offshore regimes, and to cap it all a majority of the offshore financial centers are dependent territories of Britain, and have been forced to adopt the EU Savings Tax Directive. It is this last problem that may turn out to be the most disastrous, at least in the short term, as investors shy away from the EU’s spotlight. Perhaps not coincidentally, the British Virgin Islands saw a drop in revenue from IBC registrations of 20% last year. With such a wide choice of offshore financial centers available world-wide, the uncomfortable demonstration that Britain’s dependencies had no choice but to knuckle under can hardly have helped them.

Still, the gloom and doom may be overdone, at least in many cases. The BVI still managed to grow last year, helped on by tourism, increased business in financial services, and substantial asset flows from booming China. The dark cloud of the Savings Tax Directive may not persist: in reality, it is easy to escape the Savings Tax in a number of perfectly legal ways, and the convenience of the Caribbean for United States and European investors may outweigh their concerns once the dust has settled.

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UK minister discusses constitutional arrangements with British Virgin Islands.

On his recent visit to the BVI, UK foreign Office Minister Bill Rammell reportedly indicated that the British government would have no objections to the jurisdiction pursuing a course that led to its political independence.

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The electronics industry is facing one of the biggest technology interoperability challenges over the planned introduction of biometric passports. The push for biometric passports is coming from the U.S., which wants all those entering the country to have them. Its original deadline for the passports was this year but it was forced to postpone this to October 2005 when it became clear this was not possible.

According an industry participant, the problem is not with the technology itself, but rather problems with specifications and regulations. “Standards are fine, but they always leave room for interpretation.” Added to this, not all the necessary standards have been set yet, and also the issue of future proofing the technology. “A passport has a 10 year life so it still has to work then, as well.”

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Only three weeks before sweeping policy shifts begin affecting foreign visitors at American airports, officials say they are intensifying their efforts to inform travelers from more than 20 industrialized nations to prepare for tough new entry requirements. By the end of September, tourists from 27 nations, including Britain, Germany, Japan and Australia, will for the first time be photographed and fingerprinted on arrival. And beginning at the end of October, passengers from 22 countries, mostly in Europe, must carry machine-readable passports in order to visit without visas.

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Airport security screeners will begin more thorough pat-downs of some passengers later this month in an effort to prevent terrorists from sneaking aboard commercial aircraft with explosives under their clothing. The Transportation Security Administration announced yesterday that checkpoint screeners will begin training next week for the stepped-up searches that will take effect at all U.S. airports by Sept. 20. Screeners will be permitted to pat down passengers who appear suspicious because of bulky clothing -- not just those who set off the metal detector.

As part of the new procedures, screeners will also be allowed to use the inside of their hands to conduct the searches. Current policy allows screeners to touch passengers only with the back of the hand. Both the new and old policy call for female screeners to conduct searches of female passengers. The changes are necessary “to respond to the existing threat, based on what we have seen in terms of the Russian planes and our intelligence streams,” Transportation Security Administration spokesman Mark Hatfield said. Investigators in Russia have not determined exactly how terrorists brought down two domestic commercial planes last month, killing 90 people on board. The high explosive hexogen, also known as RDX, was found at both crash sites and investigators focused on a Chechen woman on each plane. It is still unclear whether the women hid explosives in their clothing or placed bombs in suitcases or somewhere else.

More on this story here.

Reagan National Airport tests boarding pass screens.

Passengers identified for additional security screening at Reagan National Airport will now have their boarding passes checked for explosives using document-scanning machines installed at one of the airport’s checkpoints. The TSA said National is the first of four airports to begin testing the machines over the next 30 days. The machines can detect whether a passenger has recently handled explosive materials by analyzing residue passed from the hands onto the boarding pass. The document-scanning effort is the latest in a series of pilot projects involving explosive-detection systems that the TSA has undertaken this summer. The moves have come in response to the 9/11 Commission’s recommendations and criticism from members of Congress that U.S. airports have been slow to provide defenses against a suicide bombing attack.

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Documents released in the United States prove that British officials have been examining the introduction of compulsory fingerprinting of all visa applicants before they are allowed to travel to the UK. Under the plan the prints would be stored and checked against international databases of terrorists and criminals to prevent undesirables travelling to Britain in the first place. But the scheme was condemned by civil rights organizations, who said it was another step towards the Big Brother state, and pointed out that the UK objected to the proposed introduction of a similar scheme by the US to fingerprint British travelers.

The radical move to tighten the entry requirements for all visa applicants could also have dramatic repercussions for Scotland’s attempts to attract hundreds of thousands of new citizens into the country to combat the economic impact of a continuing decline in population. Last week the government announced plans to raise the cost of UK visas, in a move that could make migration to the UK even less attractive. Immigration minister Des Browne announced plans to raise visa fees by up to 300% to cover spiraling costs, including the bill for deporting illegal immigrants. But the government may have to find millions more to pay for the planned crackdown on all visa applicants.

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Some safety and privacy experts are reacting with apprehension, others with all out condemnation over a recent ruling by the National Transportation Safety Board to require electronic data recorders or “black boxes” in all new cars manufactured in the United States. “I take offense that this personal property of individuals is now being designed by the federal government,” said Jim Harper, privacy attorney and editor of Privacilla.org.

Black boxes, or “EDRs” have been fitted into every General Motors car in its 2004 line and is in a number of Ford models -- about 15% of all vehicles on the road today, according to road safety experts. EDRs are certainly not new. Information gathered on black boxes -- typically everything from speed, brake pressure, seat belt use and air bag deployment -- has already been used in determining guilt in criminal and civil cases across the country. Proponents, including the NTSB and road safety advocates, say the data collected on these black boxes is valuable for studying how accidents happen and how to make roads and cars safer. EDR data has been used for years to fine tune air bag efficiency.

The NTSB recommended in early August that black boxes be mandated, but critics say dealers are not now required to alert car owners that their car has the ability to collect the information. Currently only California has a law requiring car dealers to notify buyers when their cars are outfitted with an EDR. Owners also have no legal protections to keep them from being forced to hand over that information to another party if a court order demanded it. While privacy experts say jokes like “‘big brother’ is riding shotgun” are not funny, the technology already is being used to monitor certain drivers. They warn that once cars are outfitted for the most limited data recording, the government will find a way to argue it is for drivers’ “own good” to collect more.

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There is a growing number of examples of the reasonably benign -- depending on your point of view -- use of surveillance technology in the public sector. British school authorities are deploying new software that will detect whether Jonathan’s or Jillian’s ever so clever little treatise on the history of English hedgerows shows any signs of plagiarism. Tennessee is following Florida’s lead in using global positioning systems (GPS) to track the whereabouts of Tennessee’s paroled violent sex offenders. Researchers at the Intel lab in Seattle are coming up with acceptable ways to use radio frequency identification (RFID) on Alzheimer’s sufferers and other patients with a tendency to wander off.

Studies indicate there can be some real bottom line benefits of all this surveillance technology to the taxpayer. But there is a dark side too. It is detailed in a recent study by Queen’s University law professor Arthur Cockfield, which concludes that Canadian police and other legalized snoopers are not using the latest technology to their best advantage, yet are not up to scratch with systems that safeguard personal privacy.

Finland has a better idea. It manages to combine the use of leading-edge tracking technology with some of the world’s most specific and stringent privacy laws. Every citizen is assigned a national i.d. number consisting of their date of birth and four other digits. It uses these ID numbers on passports, driving licences and a growing number of other personal data files held by public authorities. At the same time, the government is constantly generating ever more detailed legislation limiting who can access what databases.

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Thomas Jefferson remarked that “The natural progress of things is for liberty to yield and government to gain ground. This is so because those who gain positions of power tend always to extend the bounds of it.” More recently, Rep. Ron Paul, (R-Texas) has pointed out that “the 9/11 Commission is nothing more than ex-government officials and lobbyists advising current government officials that we need more government for America to be safe. Yet it was that same government that failed so miserably.”

Those time-tested and common-sense observations have not stopped a number of Senators and Congressmen from uncritically accepting recommendations from the commission that would strip Americans of their privacy. So this week saw Sens. John McCain, Joe Lieberman, Arlen Specter and Evan Bayh introduce a measure consisting solely of slightly warmed-over and fleshed out commission proposals -- including standardization of state drivers’ licenses into a de facto national ID card -- and a series of internal highway checkpoints.

All this sponsored by Republican Senators -- and Congressmen -- just a week after the Republican convention adopted a party platform that proclaimed, “As tagging and tracking citizens is inconsistent with American freedom, we oppose the creation of a national identification card or system.” Also at the convention, California Gov. Arnold Schwarzenegger recalled Soviet checkpoints in his native Austria: “I remember how scared I was that the soldiers would pull my father or my uncle out of the car...” Yet checkpoints are also part of this “integrated screening system”. The McCain/Lieberman bill proposes the system “shall be designed to encompass an integrated network of screening points that includes the Nation’s border security system, transportation system, and critical infrastructure or facilities that the Secretary determines...”

And those are just two of the several provisions that have serious ramifications on citizen and consumer policy. Air-travel privacy faces a radical overhaul and devolution as well. Between an ever-present market for fake IDs among the college set and chaotic immigration policy, it is unclear that any of this will do much to catch the evildoers -- but it certainly will ratchet up the invasion of Americans’ privacy.

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Government and industry officials butted heads Wednesday over whether a 10-year-old law governing electronic surveillance is working -- and whether industries are meeting their obligations to help authorities catch criminals and terrorists in the internet age. Lawmakers are considering whether to update the Communications Assistance for Law Enforcement Act of 1994 (CALEA) to address the recent explosion of technologies such as packet-switched data. CALEA requires telecommunications carriers to design systems to meet wiretapping standards set by the government, but the law has long exempted “information services”, which now include certain voice-over-internet protocol, or VOIP, services.

In August, however, acting upon an earlier request by Justice Department agencies, the Federal Communications Commission proposed applying CALEA to VOIP services. The FCC has already classified cable-modem service as a “telecommunications service”, bringing it under CALEA’s umbrella. That standard, however, has no effect on independently offered VOIP services such as those offered by companies like Skype Technologies and pulver.com.

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The Central Bank of the Russian Federation has told banks to report all suspicious operations of their clients. Banks are also expected to report information on people connected with their clients. The new rules, aimed at fighting against the funding of terrorism and money laundering, will take effect in one week’s time. People conducting operations based on agency contracts, commission agreements, trust agreements, as well as those carrying out bank transactions and some other operations, will fall under suspicion.

Such methods have been used in many other countries for a long time, including the United States, where one of the most stringent financial control systems in the world has been applied for the last 30 years. Control over compliance with banking laws is exercised not only by the Federal Reserve System, but also by the Treasury Department, the Trade Department, the Commerce Department and the Federal Deposit Insurance Corporation. The Federal Bureau of Investigation also cooperates with them in certain cases.

Experts say the control system in Russia will be less stringent. According to the new rules, banks themselves will develop programs to check their clients and beneficiaries. The new rules oblige banks to identify both their new and old clients. Banks have one year to gather information and report it.

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The Lincoln City Council joined nearly 350 other local governments across the country in opposing portions of the Patriot Act, and by the slimmest of margins. On a 4-3, party-line vote, the council approved the Defense of Liberty Resolution that urges federal officials, among other things, “to change those sections of the USA Patriot Act that unduly infringe upon fundamental rights and liberties as recognized in the United States Constitution.” Council members voted after taking public testimony and asking questions for approximately five hours. Among the people who testified were Michael Heavican, U.S. attorney for Nebraska, and former U.S. Rep. Bob Barr, a Republican from Georgia who now works as a consultant for the American Civil Liberties Union.

Because the Patriot Act is a federal law, local governments do not have the authority to change it. Some council members argued it was not an appropriate issue for the council to formally consider. The resolution does urge local libraries to inform patrons of the law, including a portion that prohibits staff from informing them if federal agents have requested library records. It also calls on federal officials to periodically report the law’s effect on Lincoln residents, including the number of residents who have been arrested or detained by federal authorities as a result of terrorism investigations since Sept. 11.

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The Justice Department’s watchdog office is investigating whether the anti-terror Patriot Act was used improperly to arrest an Oregon lawyer in connection with terror bombings in Spain based on faulty FBI fingerprint analysis. The case of Brandon Mayfield is among three new investigations by the department’s inspector general, Glenn A. Fine, into potential civil rights or civil liberties violations by the Justice Department. The cases involve acts against Muslims, Arabs or other groups considered vulnerable to backlash in the war on terror.

Representative John Conyers of Michigan, senior Democrat on the House Judiciary Committee, said the Mayfield matter shows the secrecy used in terrorism investigations can be excessive, leading to the detention of many innocent people and improper secret searches of their homes.

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Lawyers in the United Kingdom are fighting plans by the Home Office to extend legal privilege to accountants and other tax professionals in certain cases. Under the UK’s new anti-money laundering laws, professional intermediaries are obliged to report clients to the Inland Revenue if they suspect that tax evasion has taken place, and to the National Criminal Intelligence Service if they suspect that the client has been involved in money laundering activity. Professionals who fail to make suspicious activity reports face prosecution themselves.

However, if a client is on the verge of making good a mistake in tax reporting, lawyers are exempted from the requirement to report them to the authorities under privilege rules. The government is currently consulting on the extension of this exemption to “other relevant professional advisers”, including accountants. Many in the legal profession have argued that extension of the exemption could undermine the purpose of the 2003 Money Laundering Regulations. “The decision that accountants may not have to disclose something should not be up to them. They should have to disclose everything,” said Bar Council spokesman, John Cooper.

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President Vladimir V. Putin ordered a sweeping overhaul of Russia’s political system in what he called an effort to unite the country against terrorism. If enacted, as expected, his proposals would strengthen the Kremlin’s already pervasive control over the legislative branch and regional governments. Mr. Putin, meeting in special session with cabinet ministers and regional government leaders, outlined what would be the most significant political restructuring in Russia in more than a decade — one that critics immediately said would violate the constitution and stifle what political opposition remains.

Under his proposals, which he said required only legislative approval and not constitutional amendments, the governors or presidents of the country’s 89 regions would no longer be elected by popular vote but rather by local parliaments -- and only on the president’s recommendation. Seats in the lower house of the federal parliament, or Duma, would be elected entirely on national party slates, eliminating district races across the country that now decide half of the parliament’s composition. In last December’s elections, those races accounted for all of the independents and liberals now serving in the Duma.

In the wake of the school siege in Beslan, the downing of two passenger airlines and other terrorist attacks that have shaken the country, Mr. Putin argued once again that Russia was ill-prepared to fight terrorism and said the country needed a more unified political system. His proposals, however, made clear that for him unity means a consolidation of power in the executive branch.

In the wrenching days since the siege at Middle School No. 1 in Beslan, where Chechen and other terrorists held and ultimately killed hundreds of hostages, Mr. Putin has appeared publicly a handful of times and with unusual candor acknowledged the government’s failures and weaknesses in fighting terrorism. Until now, however, he had offered only the vaguest proposals to fix them, instead exhorting Russians to mobilize against the threats facing the country. In the years since Boris N. Yeltsin elevated him to the presidency on Dec. 31, 1999, Mr. Putin has steadily consolidated political power in the executive branch, often by the sheer force of his will. His new proposals, however, went further than any of other steps under his watch.

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Man with iron fist tightens his grip on Russia.

For many Russians it was a week of funerals, morning and horrified disbelief. The reaction of Vladimir Putin to the deaths in Beslan, however, has been rather different: to go on the offensive. The Russian president ordered his country’s Federal Security Service to offer an unprecedented reward of 300 million rubles (£5.7 million) for information that could help “neutralize” Shamil Basayev, the Chechen warlord said to have masterminded the school hostage siege in which more than 300 people died, and of separatist former Chechen president Aslan Maskhadov.

In words which echoed those of President George Bush after the September 11 attacks, Russia’s chief of general staff, Col-Gen Yuri Baluyevsky, also weighed in by declaring, “We will liquidate terrorist bases in any region of the world.” On the international propaganda front, Britain was blasted for granting refugee status to Akhmed Zakayev, an envoy for Maskadov.

The first consequence of the events in Beslan has been to make Putin even more determined to reject out of hand any modification of his long-standing policy to refuse all dialogue with Chechen separatists. No one doubts that Putin genuinely shares the public dismay that is sweeping through Russia as a result of the horrendous denouement at Beslan. Moreover, his hardline rhetoric has resonance with ordinary Russians, most of whom are much more concerned about their personal security than in negotiating with the Chechens. But Putin’s tough talk also has a deeper purpose. Calling on all Russians to rally round their leader in this hour of need, as Putin did in a televised address to the nation last week, happens to dovetail perfectly in to his own long-term plan to concentrate political and economic power in his own hands.

Since he became president, Putin has sought to stamp out any challenges to his power by creating a pliant parliament, imposing new restrictions on regional governors and cracking down on independent TV stations. It has now reached the stage where public criticism of him is muted; just how far was revealed in the remarkable unwillingness of leading Russian politicians and bureaucrats to make any public statements about the Beslan siege.

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Bush warns Putin of dangers to democracy.

US President George W. Bush delivered a rare public rebuke to President Vladimir Putin, warning that he risked undermining democracy in Russia by centralizing power. Mr. Putin unveiled plans this week to abolish direct elections for the country’s 89 regional governors, eliminate local candidates in parliamentary elections and strengthen the role of the security services. Western leaders have also questioned Russia’s policy in the Caucasus following the Beslan siege. The US president’s White House speech on the theme of liberty came just hours after Sergei Lavrov, Russia’s foreign minister, lashed out at the mounting foreign criticism of Mr Putin’s plans.

Mr. Bush says he has developed a close relationship with Mr. Putin and called him last week after the Beslan school massacre. But the US president, in the midst of his election campaign, is under pressure to speak out against the erosion of democracy in Russia. Senator John Kerry, his Democratic rival, has been outspoken on the subject, accusing Mr. Bush of “looking the other way” on Russia. Professor Peter Reddaway of George Washington University said US domestic politics were playing a big part in Mr Bush’s remarks. He said it remained to be seen whether the US would translate rhetoric into tougher action, for example over Georgia where the US sees Russia encouraging separatist movements in two provinces.

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When I write that I like Mexico, that it enjoys much that we have lost, that Latin societies are more livable if less prosperous than ours, dismissive letters arrive. They amount to the same letter: “If Mexico is so great, how come they all want to come to the United States?” The writers invariably believe that they have made a telling point. Mexico is not so great, of course. It has plenty of problems. But why do Mexicans swim the river? Money. Period. If asked, an immigrant will usually say that he seeks “una vida mejor”, a better life. He means “Money”.

An American explaining the attractiveness of his country will usually say, “I have a big house in the suburbs, three cars, a home theater, and 300 channels on the cable. I can drink the water, and in the mall I can buy anything, absolutely anything.” He may talk of freedom and democracy, often having only the vaguest idea of whether he actually has them or what conditions might be in other countries.

A Mexican is more likely to say, “They are such a cold people. They don’t know their neighbors. They don’t know their children. They have no fiestas. Rules and being on time are more important to them than other people. They have no religion.” (To a robust Catholic, bland agnostic Protestantism is not detectibly a religion.) Democracy means little to an illegal with a second-grade education; in any event, Mexico is probably as democratic as the United States. He knows the government left him alone in Mexico, which is his definition of freedom. And mine.

But money counts when you do not have any. It counts a lot. And so they come whether they like the country or not. Very often they do not. This is going to matter. Now, do the “all Mexicans” of my mail want to emigrate, to attach themselves to the northern nanny’s promiscuous dugs? No. Few do. Who then are the emigrants? Successful Mexicans do not want to go to the United States. Mexicans who are merely comfortable do not want to go to the United States. They like Mexico. The Mexicans who go north are the failures, the barely or non- literate ... those with little to offer.

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Our lunch conversation, as usual, had wandered finally to the upcoming presidential race. “All right,” said my exasperated conservative Republican friend, “I guess I’m resigned to the fact that you won’t vote at all in November. But you’re a politics junkie! Surely you’ll be rooting for someone!” And it dawned on me that, yes, despite 32 years of persistent nonvoting, I have usually rooted for one of the major presidential candidates, always seeing one potential master as slightly less odious than the other. Likewise, for purely strategic reasons in the struggle for liberty, there is typically been a reason to cast, if not a vote, then a hip-hip-hooray for one lying nitwit over another.

In September 1992, when Bush the Elder was defending his throne against Clinton the Pretender, the great Murray Rothbard discussed this issue of rooting vs. voting in the sorely missed Rothbard-Rockwell Report. He wrote, “Regardless of our hopes, no minor candidate will win, and the office of President, alas, will not be declared vacant. ... In 1992, I am indifferent to whom one votes for, but I’m definitely rooting for Bush over Clinton.” It was strictly a question of strategy, Murray said. “Under whose reign,” he wrote, “will we have a better chance to build up the paleo-movement...?” The proper strategy in that election, he believed, was to vote for Bush -- or not -- but in particular to root for Bush to pull out a victory so that, first, the socialistic hordes would be held back a while longer and, second, an organized paleo-right could be positioned to ride to power in 1996 on the back of a crumbling Bush Administration.

As usual, I will cast no ballot on November 2. But what is unusual this election year is that, for the first time since coming of voting age, I will root for no one. As my friend Butler Shaffer pointed out here a few weeks ago, the choice is between one Yale graduate, pro-war, pro-Patriot Act, pro-expansive state member of “Skull-and-Bones” and another Yale graduate, pro-war, pro-Patriot Act, pro-expansive state member of “Skull-and-Bones”. Is anything sadder than a man who will not vote -- and cannot even root?

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