|W.I.L. Home Page||Offshore News Digest Home|
|Sign Up||Finance Digest Home|
|Global Business||Taxes||Asset Protection||Privacy||Law||Opinion & Analysis|
A DIVIDED EUROPEAN UNION
For many centuries Europe was the world’s most powerful, prosperous and technologically advanced continent. That period of European cultural and political dominance came to a definitive end with the second world war. In 1945 Germany was defeated and in ruins, France was half-starved and humiliated, Britain was bankrupt and on the point of losing its empire, Spain was a backward and isolated dictatorship, and the countries of central and eastern Europe had been absorbed into a Soviet empire. Nobody would have guessed that Europe was at the beginning of a new golden age.
In 2004, a continent that had been wracked by war for centuries can look back on almost 60 years spent largely at peace. A continent that lay in economic ruins in 1945 is now prosperous as never before. A continent that in 1942 could list only four proper democracies is almost entirely democratic. A continent that was divided by the iron curtain until 1989 now enjoys free movement of people and common political institutions for 25 countries, stretching from the Atlantic coast of Portugal to the borders of Russia.
This new period of peace and prosperity has coincided with the rise of a new form of political and economic organization. The EU’s founding fathers were determined to build a new union in Europe that would banish conflict for good. The people who run the European Commission in Brussels like to believe that this golden age of peace and prosperity is directly linked to the rise of the EU. Yet this view is often contested. Indeed, say critics of the EU, far from promoting peace, prosperity and freedom, it now threatens all of these achievements -- and indeed the European project looks increasingly troubled. This survey will argue that many of the EU’s current difficulties stem from its past successes, and will conclude that the EU may indeed split, but that a split need not be a disaster.More on this story here.
OVERSEAS INVESTORS REMAIN CONFIDENT IN CAYMANS
The Cayman Islands Monetary Authority, reported that applications for the registration and formation of mutual funds and captive insurance companies, during its first three days of resumed operations in the aftermath of Hurricane Ivan, has been a key indicator that the Authority is steadily returning to business as usual. Although the hurricane ravaged the structural facilities of many financial institutions, forcing some to temporarily relocate overseas, their systems, records and data remained secure and intact.
As a result of business continuity plans and the use of servers and temporary facilities elsewhere, client services were only interrupted for a few days for many companies while some had virtually uninterrupted service. Those that had significant interruption to their services are endeavoring to get their services back to normalcy as soon as possible. “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, said Eduardo D’Angelo P. Silva, Director of the Cayman Islands Financial Services Association and President of the Cayman Islands Bankers Association.Link here and here.
Bermudians answer call to help Caymans.
More than 50 Bermudians are interested in traveling with the Regiment to help repair the hurricane-hit Cayman Islands. The group includes current Regiment soldiers, retired soldiers and civilians. The civilians who signed up will actually become Regiment soldiers for the duration of their stay in Cayman, and as such will be subject to military discipline. This week Governor John Vereker called on all able-bodied Bermudians to volunteer for the relief effort. 48 of the Regiment’s current soldiers will be going, with a further 10 to 15 civilians.
The soldiers do not have to take food and water, but were urged to bring anything that would make their stay in the battered islands more comfortable, including Camelpaks and toiletries. The Regiment will also be taking its own tools and two vehicles. Several of the civilians who signed up last night were tradesmen, and were asked to bring their personal tools on the journey as well.
Based on a report submitted by a team of officers who highlighted the main problems in the Cayman Islands, Col. Lamb said the main objective of the deployment is to help restore normal services by clearing roads, helping with the rehabilitation of housing, and repairing Government buildings and schools. Col. Lamb said up to 75% of home owners were struggling to make repairs. Portions of the island’s roads have been washed away and power lines are still down.More on this story here.
Cayman Islands general elections postponed following Hurricane Ivan.
The elections that were due to be held on November 17, 2004 have been postponed until next year. At a meeting between all 15 elected members of the legislative assembly and the Governor Mr. Bruce Dinwiddy on Tuesday, a consensus was reached that the general elections will now be held on May 17, 2005. It is understood that the ruling United Democratic Party had a preference for a November 2005 election, while the UK government suggested the May date. According to a spokesperson for the opposition Peoples Progressive Movement, the PPM’s preference was for an earlier date.More on this story here.
SWISS REJECT CALLS TO EASE RULES ON CITIZENSHIP
Switzerland rejected proposals to ease citizenship rules for foreigners, illustrating the cleft between Switzerland’s relatively liberal French-speaking west and its more conservative, German-speaking east. In a referendum, a majority of the population -- and most of Switzerland’s cantons -- rejected government proposals to ease citizenship requirements for second- and third-generation foreigners. A proposal to introduce paid maternity leave was accepted, but one on postal services was thrown out.
The rejection demonstrated the power of the ultra-nationalist Swiss People’s party, Switzerland’s largest political party. In recent weeks, the SVP has waged a highly controversial campaign -- through proxy organizations -- calling for the citizenship changes to be turned down. Critics said the decision would damage Switzerland’s reputation as an open and tolerant society and hinder integration.
The referendum proposed that children of foreign residents should face unified citizenship rules. Under the current rules, residency requirements and legal fees can differ widely between regions. The government proposal would also have made citizenship virtually automatic for third-generation foreigners. The decision highlighted the anomalous position of the SVP. Although notionally committed to reform because of its participation in the coalition government, senior party leaders came out against the plans in a well-funded and highly conspicuous campaign.
Switzerland has an unusually high proportion of foreign residents compared with neighbouring European Union countries. Most of the foreigners, who comprise 20% of the more than 7 million population, are originally from southern EU countries or, more recently, from the former Yugoslavia. While the relatively high proportion reflects Switzerland’s openness and need for foreign labour, it also demonstrates the barriers to gaining nationality in one of Europe’s richest states.More on this story here and here.
Swiss People’s Party slammed by rivals.
Three of Switzerland’s four main political parties launched an unprecedented joint attack on the rightwing Swiss People’s Party, ahead of last Sunday’s votes. In full-page ads in Swiss newspapers, they denounced the party’s descent into gutter politics. Political observers say the move marks a further erosion of Switzerland’s long-standing tradition of consensus politics. Swiss politics has been in transition for several years, following the rise of the People’s Party. The shift to the right in last year’s parliamentary elections led to the People’s Party gaining an extra seat in the seven-strong cabinet, upsetting the so-called “Magic Formula” that had been at the root of Swiss politics since 1959.
Emanuel von Erlach, a political researcher at Bern University’s institute of political science, told swissinfo that the joint newspaper appeal marked a new development in Swiss politics. “Possibly what has changed is that the latest campaign by the People’s Party has been particularly dirty, and many people right across the political spectrum have just had enough,” he added. However, von Erlach pointed out that there was a strong element of political manoeuvring on both sides.More on this story here.
Analysts fear vote outcome will dent Swiss image.
Political observers say Swiss voters’ rejection of proposals to ease citizenship requirements for foreign residents could damage the country’s image abroad. They fear that the double no vote will reinforce the view of Switzerland as a conservative nation leaning ever further to the right.More on this story here.
Press blame Right for swaying citizenship votes.
The press has blamed negative campaigning by the rightwing Swiss People’s Party for this weekend’s ballot-box rejection of proposals to ease citizenship restrictions. Newspaper editorials also reflected on the difference of opinion between voters in French- and German-speaking parts of the country.More on this story here.
PUTIN VOWS TO MAINTAIN DEMOCRACY (SO TO SPEAK)
Russian President Vladimir Putin has pledged to stick to democracy and a market economy, countering critics who see a return to authoritarian methods. Mr. Putin vowed to tighten the Kremlin’s grip over the regions, after the Beslan school hostage tragedy. Mr. Putin has proposed nominating top regional officials, including governors, before they are approved locally. The idea -- if implemented -- could increase the Kremlin’s influence on Russia’s local politics dramatically. Some observers say Mr Putin’s plans are reminiscent of the party loyalty and central control that characterized the Soviet system.Link here.
Developments in Russia are not taking place in a vacuum.
There is no doubt that Putin’s moves represent a disturbing revival of traditional Russian autocratic centralism. It is clearly in the U.S. interest to moderate any acceleration of this trend. Harsh words are unlikely to work. Instead, a moment of U.S. self-reflection may provide guidance about how best to achieve this interest. After all, the developments in Russia are not taking place in a vacuum. Over the past weeks, the Russian people have been subjected to terrorist assaults and losses on a scale broadly equivalent to 9/11. In critical ways, therefore, the two countries are coping with a parallel challenge. If Russia’s leaders looked to the U.S. response to 9/11 as a model, what would they see? Most likely, two core themes.
First, they would note that the American response to 9/11 has been almost exclusively military. Other instruments of American policy -- political, economic, social, allies -- have fallen by the wayside. All other priorities of government have been subordinated to the “war on terrorism”. Naturally enough, this approach tends to place increased power in the hands of the central executive, as many a frustrated member of Congress has observed. Time will tell whether this is a legitimate and effective response to terrorism. But if the United States chooses this path -- with all that implies for American leadership over the last 50 years, which resorted to war as a last option rather than as the default choice -- then others like the Russians can and will follow.
Second, the Russians will see that, for U.S. policymakers, 9/11 legitimated unrelated policy objectives, notably the attack on Iraq. Conceived in the mid- 1990s, this neoconservative scheme for Iraq was based on a pipe dream of imposing U.S.-style democracy throughout the Middle East. A noble enough aspiration about which a national debate would have been in order, but one that the neoconservatives knew would never stand critical public scrutiny. Again, the Russians can claim they are just following the U.S. example of using terrorism as the justification to implement a long-cherished but unrelated objective -- for Putin, the chance to indulge his anti-democratic streak. None of this excuses Putin’s power grab or lessens the need for U.S. measures to deflect it. The real lesson is that the American actions cast a long shadow.More on this story here.
When Malaysian Prime Minister Abdullah Ahmad Badawi took over from Mahathir Mohamed last October, he quickly defied the skeptics who said he would do little to alter the legacy of his predecessor’s 22-year rule. Badawi mothballed questionable government megaprojects and clamped down on corruption. Perhaps most important, he promoted transparency in a bid to break the cozy ties between government and selected businessmen that typified Malaysia Inc.
However, even the most sanguine about Badawi’s ability to chart his own course were amazed when on Sept. 2, the federal court overturned the sodomy conviction of former Deputy Prime Minister Anwar Ibrahim. Anwar was Malaysia’s most famous prisoner, whose arrest and conviction were widely believed to be politically motivated and driven by Mahathir, who says he still believes Anwar is guilty. The consensus view is that Badawi did not interfere with the courts. The reversal is certainly a triumph for the rule of law. But less than two weeks later, an appeal to overturn a conviction (for which Anwar had already served his sentence) on corruption charges failed. He is thus barred from holding any political office until 2008. Keeping Anwar on the sidelines may turn out to be a good thing for Malaysia: he can speak out against injustice and corruption in a way that no political insider would dare do.
Meanwhile, Badawi has just come out with his first budget, and it signals an end to the aggressive pump priming that characterized post-financial crisis Malaysia. Badawi’s initiatives to divest some of the government’s holdings in private companies are also winning kudos. The Badawi government also seems intent on turning state investment arm Khazanah Nasional into a more independent, fiscally responsible body. People outside of Malaysia like what they are seeing. The country is undoubtedly on a roll. The trick will be maintaining the momentum.More on this story here.
BARBADOS ATTRACTING BUSINESSES
Barbados stands a good chance of wooing some of the offshore business which is presently domiciled in Bermuda, according to international consultant Geoffrey Bell, who remains upbeat about further development of the country’s international financial services sector. However, in an address to an audience of public and private sector officials, Bell said that the key for this country is to maintain the standards and to avoid any episodes that could negatively impact on this country’s reputation. Bell acknowledged that while Bermuda is the “king” of international insurance, problems with staffing availability and costs suggest that the opportunity to take some of this business to Barbados certainly exists.
Bell also said that Barbados must also tap into the area of international asset management and private wealth creation where impressive growth is taking place. According to him, “The British Virgin Islands and Cayman Islands, Dublin and the Isle of Man are examples of international financial centers where money managers domicile and administer funds. “This is happening in Barbados, but can grow as demand for internationally managed portfolios expand,” Bell said. “Moreover, Trust companies have a role to play and can be a central part of attraction of a particular international center.”More on this story here and here.
U.K. “BLACK ECONOMY” ABOUT £111 BILLION A YEAR, SAYS STUDY
A study, in the latest issue of the Economic Journal, estimates that the black economy comprises 10.6% of the U.K. GDP. A “hidden” economy of that magnitude would have been worth an extra £111 billion to the participants in 2002. This is a similar figure to the £116 billion handed over by the government in cash benefits such as state pensions, income support, disability benefits, tax credits and rent rebates. It is nearly half of the £237 billion paid in direct taxes.
But the estimate may understate the full extent of the problem. It is based on a detailed analysis of the levels and patterns of income and expenditure recorded in the Family Expenditure Survey conducted by the Office of National Statistics. That analysis is limited to households with married couples where the main wage earner has a job and whose main source of income is wages or self employment, so it excludes underreporting of income by single adult households, people over the official retirement age, the unemployed and the unoccupied. Between them, these categories account for around 60% of all households.
The government, which wishes to play down the true extent of tax dodges and benefit abuses, claims the black economy accounts for just 1.4% of GDP, but does not provide any statistical justification. Six previous independent studies gave estimates ranging from 5.5% to 13.2%, with an average of 9.3%.More on this story here.
BANKS WILL OFFSHORE MORE, ANALYSTS SAY
Almost one-third of the world’s financial institutions have outsourced work overseas, and the practice has spawned consumer and political backlash. But according to many analysts, the benefits outweigh the negative publicity incurred by financial services giants such as American Express and Discover. Offshoring not only will continue, but it will grow. Celent Communications of New York suggests that the trend will mean the transfer of $17.5 billion in operational and technical budgets overseas by 2010. There is a potential to send almost 1.5 million U.S. banking jobs offshore, the firm reports, but it expects only about 430,000 will have moved by 2010. Even with American banking employees being replaced by technology and automation, offshore outsourcing is still expected to grow at a rate of 24% per year, according to Celent.
Many companies, from mortgage loan providers to insurance underwriters, send paperwork to contracted vendors in Asia and Eastern Europe to save on processing. These foreign workers may occasionally make mistakes, but human error knows no geographic boundaries. The biggest risk is complaints by unemployed Americans and their legislative representatives. However, some financial services providers have ventured to locate their call centers offshore, trusting vendors to handle inbound customer service calls, cross-sell and up-sell product lines and make collections inquiries.
Alenka Grealish, manager of the banking practice at Celent, said, “A bank’s call center is one of the riskiest areas to offshore because it is a customer-facing channel.” Discover will not outsource its inbound customer service calls to vendors outside of the United States.More on this story here.
UK TO DECIDE ON BERMUDA INDEPENDENCE MECHANISM
Britain has admitted to having no clear policy on whether its colonies should choose Independence through elections or a referendum, but has promised to come to a determination by Christmas, said Bermuda Premier Alex Scott. He said Michael Misick, the Chief Minister of the Turks and Caicos Islands had supported his contention that colonies had always gone to independence via a General Election.
Bill Rammell, the British Minister with responsibility for Overseas Territories, had pointed out that a referendum was held in Scotland on devolution, but “Mr. Rammell then had to admit the British Government does not have a position and he would go away and consider a position by Christmas, and he invited us to submit our views to him.”More on this story here.
EXPATICA: A RESOURCE FOR ENGLISH-SPEAKING EXPATRIATES
Local and international news and feature articles on topics relevant to expatriates. Up-to-date listings cover the latest in travel, arts, shopping, dining and community events. Once a year Expatica publishes the Expat Survival Guide -- a different version for each country -- providing the basics for living abroad in a handy format. Expatica HR is an online magazine and newsletter covering international HR issues for human resources managers.Home page here.
NOBEL PRIZE-WINNING ECONOMIST JOHN NASH SAYS SWISS ECONOMY “GETS IT RIGHT”
The economic debate in Switzerland tends to be dominated by negative headlines about stagnant growth, spiralling health costs and lack of competition. But in an interview, Nobel laureate John Nash says Switzerland is the country whose economic policy “comes closest to getting it right”. Professor Nash, best known as the pioneer of game theory, made the comment in response to a recent survey carried out by The Wall Street Journal. Other Nobel laureates plumped for countries ranging from Norway to the United States and China.
Asked what he thought the Swiss do right, Mr. Nash replied that, “Quite simply, I think they don’t do ‘wrong’ things that others do, which are supposed to enhance the strength of an economy, but fail to be beneficial in the longer term. I think Switzerland has benefited enormously from having a currency of comparatively superior quality. This in turn has favored the local climate for enterprises such as those in the insurance or investment banking sectors. It is no coincidence that the financial services sector is so important in the Swiss economy -- it is not just cheese and chocolate that you export.”
Asked what the “wrong” things that the Swiss avoid, he replied that, “Some people might suggest that economic policy should aim to decrease the value of the Swiss franc, to help stimulate exports. Of course, there is some truth in this, but it ignores a very important factor, which is the reputation of a currency. For instance, the dollar is becoming gradually less respectable than it used to be ... Arguably, the Swiss franc is at the best level of all, and that is very important. In Switzerland, people are probably not thinking all the time that they would do better by putting their money in dollars in a foreign account.”More on this story here.
BERMUDA REGISTERED COMPANIES DOWN BY 343 VS. A YEAR AGO
Bermuda has 343 fewer companies than a year ago, according to the latest Government statistics. Incorporation activity in the second quarter was on par with a year ago, with 323 new companies being added. But the net number of firms registered in Bermuda slid significantly, dropping to 16,219 registered companies compared to 16,562 a year ago. Broken down by type of company, there were 61 local companies set up during the period, 250 exempted companies, 12 exempted partnerships and no non-resident entities registered in the second quarter. Those numbers compared to 56 local companies being on the register a year ago, 250 exempted firms being added to the register, 17 exempted partnerships and nine non-resident companies. While there were fewer companies, workers in those companies were better paid, Government figures revealed.More on this story here.
FORMIDABLE CHALLENGES THREATEN SMALL STATES, SAYS ST. KITTS AND NEVIS PM
St. Kitts and Nevis Prime Minister and Minster of Finance, Dr. Denzil Douglas said that the global economic system continues to throw up new and extremely formidable challenges to small states that quite often threaten the very survival of such nations. He told delegates to a Meeting of Ministers of Finance from the 53-nation Commonwealth being held in St. Kitts, that the countries of the Organization of Eastern Caribbean States (OECS), which all have relatively open economies and, “the volumes of trade, investment and tourist arrivals have swayed back and forth in response to the uncertainties and gyrations in the international economy, especially in the US economy.”
He said that the geopolitical climate and the impact of terrorism have high explicit and implicit costs for small countries. He cited the costs of potential negative impacts on the tourist industry, the major foreign exchange earner and the increase in the price of oil, the major import commodity.
“The explicit cost of increasing the level of security at our airports and harbours, and of putting regulations in place to combat terrorist financing and money laundering, also increase the huge burden that small islands states must now bear. Of course, it can be argued that all countries -- large and small -- must incur such costs, but these costs include a huge fixed component that does not vary with the size of the country so that the burden borne by small states is grossly disproportionate to size and population,” said Prime Minister Douglas.More on this story here.
FOREIGN TAX HAVENS COSTLY TO U.S. TREASURY, STUDY SAYS
America’s biggest corporations are increasingly funneling profits earned in the US to tax havens around the globe, depriving the US Treasury of anywhere from $10 to $20 billion in lost tax revenue each year, according to a new study. The study says that US multinational corporations shifted $75 billion in domestic profits last year to no-tax and low-tax foreign havens like Bermuda and Ireland. The study’s author, Martin A. Sullivan, said that in theory no taxes are owed to the United States government on the shifted income; however, the shifting is more likely to result in annual tax losses to federal coffers of the above amounts. He claimed that at least some of the transfer probably occurred through questionable tax shelters.
In a related study published earlier this month, Mr. Sullivan concluded that that profits reported by American multinational companies from their foreign subsidiaries, and not from their operations based in the United States, soared 68% since 1999, to $149 billion last year. The earlier study said that the rise in foreign earnings was not accompanied by any gain in real economic activity in the tax havens, suggesting that multinationals were increasingly using offshore tax shelters to shield earnings.
Under current tax laws, American companies can defer taxes on profits earned offshore as long as those profits are not returned to the US. An updated study by J. P. Morgan Chase in June 2003 said that $650 billion held offshore by American corporations like Exxon Mobil and General Electric was waiting in accounts to be repatriated to the US if proposed legislation enacting a highly reduced rate is enacted. Mr. Sullivan’s new study did not mention any companies by name. In their public filings, companies are often unclear about what percentage of their profits comes from domestic operations as opposed to foreign operations, and they almost never discuss profit-shifting.More on this story here.
For next president, tax havens will be a challenge.
In a worrisome trend bound to confront the winner of November’s presidential election, U.S. multinational corporations increasingly are shifting more of their global profits to such tax havens as Ireland and Bermuda. The practice promises to accelerate the nation’s shrinking corporate tax base and risk the loss of billions in federal tax dollars. Combined with the recent flurry of federal tax cuts for U.S. households, the decline of corporate taxes raises a big question. How will the federal government, already facing a hefty deficit, fund itself and its many obligations in the coming years?
Nor are dwindling tax dollars the only issue. As long as corporations can preserve so much more of their profits overseas, then those companies are far more likely to expand and hire more employees outside the United States. That means national tax strategies -- not just wage scales -- are becoming a bigger factor in the overseas outsourcing of U.S. jobs.
Perhaps the United States does not want to tax its corporations the old fashioned way. One possible alternative tossed around in tax circles is the VAT, or value-added tax. That is a consumption tax, popular in Europe, on a product levied at each stage of production and based on the value added to the product at each stage.More on this story here.
PENDING INCOME TAX AGREEMENTS AND TAX TREATY NETWORK EXPLAINED BY U.S. TREASURY
Testimony of Barbara M. Angus of U.S. Department of the Treasury before the Senate: “Mr. Chairman and distinguished Members of the Committee, I appreciate the opportunity to appear today at this hearing to recommend, on behalf of the Administration, favorable action on two income tax agreements that are pending before this Committee. We appreciate the Committee’s interest in these agreements and in the U.S. tax treaty network, as demonstrated by the scheduling of this hearing.
“This Administration is dedicated to eliminating unnecessary barriers to cross-border trade and investment. The primary means for eliminating tax barriers to trade and investment are bilateral tax treaties. Tax treaties eliminate barriers by providing greater certainty to taxpayers regarding their potential liability to tax in the foreign jurisdiction; by allocating taxing rights between the two jurisdictions so that the taxpayer is not subject to double taxation; by reducing the risk of excessive taxation that may arise because of high gross-basis withholding taxes; and by ensuring that taxpayers will not be subject to discriminatory taxation in the foreign jurisdiction. The international network of over 2000 bilateral tax treaties has established a stable framework that allows international trade and investment to flourish. The success of this framework is evidenced by the fact that countless cross-border transactions, from investments in a few shares of a foreign company by an individual to multi-billion dollar purchases of operating companies in a foreign country, take place each year, with only a relatively few disputes regarding the allocation of tax revenues between governments. ...”More on this story here.
TORIES PLEDGE TO CUT UK INHERITANCE TAX
The Conservative Party is currently examining ways in which thousands of households can be relieved from the Inheritance Tax burden should the party win the next general election. Inheritance Tax is currently paid at 40% on the value of homes over £263,000. Although the Chancellor, Gordon Brown, raised the threshold in his most recent budget, it has been rapidly outpaced by strong house price inflation in recent years, pushing many families on modest incomes into the IHT net, especially in the south east.
In 1997 when the Labour Party came to power, only one town had an average house price higher than the inheritance tax threshold, compared to 86 towns today, according to the Tories. “Inheritance tax has become plain unfair. Once only the very rich paid it, but under Gordon Brown it is hitting ordinary families all over Britain,” commented Shadow Chancellor Oliver Letwin.More on this story here.
BERMUDA PREMIER REBUFFS INCOME TAX FEARS
Premier Alex Scott strongly rebutted reports that his administration was on a wealth redistribution agenda. “We are not talking about the redistribution of wealth, we are not talking about income tax, we are not talking about taking wealth from the rich and giving it to the not rich,” Mr. Scott said yesterday. Any suggestions to the contrary was an attempt to mislead the public, he added. And he repeated a now well worn slogan that Government’s social agenda would ensure that “haves will continue to have and the have-nots will have more”.
He said the plan will involve recruiting from within corporate Bermuda “mentors and role models” with skills essential for the Island’s continuing success. “That’s not talking about wealth redistribution,that’s talking about mobility.”
In its report last week of a speech the Premier gave to Overseas Territories conference on Sustainable Development, the Mid-Ocean News said that Government was now set on redistributing wealth and, in an attempt to address social pressures of growth, appeared to be reverting to its “more socialistic ideological roots, with a ten-year social engineering plan and a dose of redistributive taxation.” That interpretation was echoed by Opposition Leader Grant Gibbons but Mr. Scott stressed that that there was no mention of income tax in his speech which was sent to all of Bermuda’s media verbatim.More on this story here.
IRS AGENT ADMITS HELPING DANCERS FOR SEXUAL FAVORS
An IRS employee pleaded guilty to federal charges in connection with a scheme to trade IRS information for sexual favors from three topless dancers who needed help with federal tax problems. Charles G. Herndon, a tax examining technician at the IRS center in Austin, Texas, pleaded guilty to a felony count of making a false statement in IRS records, a felony count of disclosure of tax information, a felony count of unlawful solicitation by an IRS employee and six misdemeanor counts of unauthorized computer access.
Herndon admitted to soliciting private dances, dinner dates and sexual favors from three topless dancers in exchange for assisting them with their federal income tax problems, federal prosecutors said. Herndon faces up to 19 years in federal prison.More on this story here.
THAT GIFT THAT NEVER STOPS TAKING: OPRAH’S CAR GIVEAWAY TURNS INTO A TAX NIGHTMARE
Pontiac decided to give away 276 “free” G6 cars to the studio audience on Oprah Winfrey’s September 13 show. Yet while the folks on “Oprah” screamed with excitement over their new rides, out in the real world, tax professionals were trying to calculate the wreckage come April 15. Of course, there ain’t no such thing as a “free” car. And even if Pontiac were to pay not only the sales tax but all the various income taxes that the recipients will owe on the value of their new cars, there would be taxes due on the value of any “free” tax payments too, a calculation known as a gross up. Brenda Schafer, a manager for tax analysis and advice support at H&R Block, has heard stunned prizewinners wailing before. Whether they got a “free” new face on Miami Slice or a new wardrobe on Queer Eye for the Straight Guy or had their $50,000 ranch house turned into a $300,000 mansion -- they will have to pony up to the IRS.
According to Ms. Schafer’s rough calculation, someone in the 15% federal bracket (making, say, $28,000 as an individual, or $56,000 if filing jointly) and a 5% state bracket who gets a $30,000 car (the figure for the G6 is about $28,500) will owe an extra $6,000 in taxes. For a single earner in the 33% bracket kicking in at $143,500, the car adds $12,000 in tax. OK, just sell the car, you say. But there is no escaping the tax consequences of first owning it. And what will be the effect of the added income on winners who are, or were, eligible for the earned income tax credit, child tax or education credits, or even welfare payments? Ms. Schafer’s estimate is that a married person with two children and an income of $18,000 who receives a car worth $30,000 “will lose over $4,000 in refundable tax benefits plus have a tax due of $1,170,” and that is ignoring state tax.
Apparently some winners have already glimpsed the downside of their new tax status and are exploring the possibility of not taking possession of their cars until next year. No way, says Ms. Schafer. You got it when you got it. You see, there is this thing called the “doctrine of constructive receipt” ...More on this story here.
RUSSIAN ECONOMICS MINISTRY WANTS TOUGHER PUNISHMENT FOR TAX EVASION
The Ministry of Economic Development and Trade has asked the government to tighten punishment, including criminal punishment, for tax evasion. The Ministry of Finance has drawn the government’s special attention to measures to improve the information activities of tax authorities. Its specialists want more active information exchanges among the tax agencies, police and the customs. The list of proposed measures to improve tax administration includes the formation of a special register of payers of indirect taxes. The creation of such a system of electronic accounting of taxpayers will help resist tax evasion, specifically the emergence of dummy firms.
A government source has said the Cabinet will pay special attention to the creation of an electronic database of lost passports. If tax authorities have such a database, it will be far easier to upset the emergence of dummy firms, often registered to lost passports. According to the source, over one million legal entities cannot be tracked down.More on this story here.
Russia to simplify tax rules.
Deputy Prime Minister Alexander Zhukov came out for simpler tax administration rules. According to him, this will help improve investment climate. Mr. Zhukov said rules of VAT administration should be simplified in the first place. In particular, the government will consider the taxation of advance payments, capital construction and VAT returns to exporters. Government officials agreed with Mr. Zhukov and approved in principle the proposed measures to simplify tax administration rules.
Mr. Zhukov also proposed expanding the powers of regional authorities. In his opinion, a number of additional powers should be delegated to regional administrations, together with the necessary funds.More on this story here.
USE OF TAX HAVENS IS LABELED “THE GLOBALIZATION OF THEFT”
You can run a business in one country, or even run a highly profitable multi-national business, but if you register your company in an offshore tax haven, you do not have to pay any national taxes. This method of tax evasion [sic] has grown so extensively over the last three decades, that it has now become a serious threat to development, and yet another burden on the already bent backs of the world’s working poor.
This month, the Tax Justice Department, formed by tax experts, and economists worried about the trend, and its devastating effect on the world’s economy, launched an international secretariat in London, that will work with the UN, and other international bodies to reverse the practice of hiding money from governments worldwide. John Christensen, co-ordinator of the secretariat says, “The remedies have to be global, and the UN is the only body able to do it, the WTO has failed.”
The Economist estimated that in 1999, African leaders had $20 billion in secret bank accounts, twice the amount the whole of Sub-Saharan Africa spends on servicing its international debts. Tax havens are distorting the world economy, assisting corrupt politicians in stealing public funds, and have accelerated the process whereby millions of pounds are being removed from the very countries that need them most.More on this story here.
UK GOVERNMENT AMENDS TAX AVOIDANCE SCHEME DISCLOSURE REGULATIONS
The Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations 2004 set out the conditions for arrangements based on employment and financial products that must be disclosed. According to the government, these types of schemes expose the Treasury to “substantial risk from serious tax avoidance.”
The amendment attempts to make it clear that there is no requirement to disclose straightforward tax planning advice, and as a result, seeks to introduce new filters to focus the requirement to disclose on innovative and sophisticated arrangements to gain a tax advantage, and amend the definition of a premium fee to clarify that the amount of the fee must be attributable to the tax advantage.More on this story here.
IRS MEASURING EFFECT OF “10 DEADLY SINS”
The IRS and the Treasury Department’s inspector general for tax administration have taken preliminary steps to evaluate the Section 1203 process, a series of 10 regulations that are designed to protect taxpayers from improper actions by IRS employees. The Government Accountability Office released a report about the rules, dubbed the “10 deadly sins” by IRS employees, but the watchdog agency declined to make specific recommendations, instead citing the steps already being taken by the IRS.
Section 1203 was created as part of the 1998 IRS Restructuring and Reform Act. The 10 infractions, include providing a false statement regarding a taxpayer, intentional failure to get proper signatures before seizing a taxpayer’s property, failing to file a tax return on time and threatening to audit a taxpayer for personal gain, and can result in an IRS employee being fired. After Section 1203 was implemented, however, lawmakers and IRS officials worried that the regulations could intimidate tax enforcement officials and prevent them from performing their jobs effectively. In its latest report, GAO found that the agency has taken initial steps to measure the effect of the rules, but has not launched a comprehensive effort. The report noted, however, that the IRS is considering such a survey.More on this story here.
IRS fired 126 employees for misconduct between July 1998 and April 2004.
The GAO report revealed that 149 IRS employees who were under investigation during this period resigned or retired, a further 50 cases were closed because the worker separated “for other reasons,” while an additional 257 staff were penalized.
It appears that the majority of the disciplinary actions were taken against employees due to non-compliance with federal tax laws. In 115 cases, dismissals were prompted by the employee’s failure to file a tax return, or for understating tax liability. Meanwhile, 5 employees were dismissed for threatening to audit taxpayers for personal gain, whilst other offences ranged from falsifying or destroying documents to harassment and assault.More on this story here.
SWISS STAND TRIAL OVER ELF CORRUPTION SCANDAL
Five Swiss appeared in a Geneva court this week charged with money laundering in connection with France’s Elf Aquitaine bribery scandal. They are accused of overseeing illegal transfers of SFr46 million ($36 million) from Liechtenstein to Switzerland and face up to five years in jail. 50 witnesses are expected to testify during the trial, which is due to last two weeks. The 5 accused -- four men and one woman -- allegedly acted on behalf of former Elf director Alfred Sirven, who was sentenced to 5 years in jail by a French court in November. He was found guilty of embezzling funds from the former state-owned oil giant for the purposes of bribery.
According to the indictment, “defendants engaged in deliberate acts to prevent identification of the source, discovery or confiscation of large sums of money they knew or had reason to believe were the proceeds of a criminal act.” Court documents allege that millions of francs were transferred from Liechtenstein to Switzerland via “a complex financial network”. The Swiss authorities seized SFr11 million in spring 2001 following lengthy investigations.More on this story here.
Switzerland hands “Angolagate” files to France.
Switzerland has given the French authorities bank documents seized in an investigation into alleged money laundering linked to illicit arms sales to Angola. The justice ministry said that the files included information on seven frozen bank accounts, but declined to give further details. The decision came after the cabinet rejected a final appeal to block the handover.
“Switzerland’s interests would be compromised if money possibly arising from criminal acts could be deposited in Switzerland without foreign authorities being able to gather information,” the government said in a statement. “Switzerland’s financial sector must not be used for criminal ends.”
The French investigation centers on the sale of $500 million in illegal arms to Angola, allegedly brokered by billionaire businessman Pierre Falcone. The probe has also targeted the son of the late French president François Mitterrand, Jean-Christophe Mitterrand, who served as an adviser on African affairs from 1986-92 under his father, and is alleged to have received $1.8 million in illicit commissions from Falcone between 1993 and 1998 during Angola’s civil war. The two-decade conflict ended last year.More on this story here.
NEW MALTESE TRUST LEGISLATION SEEKS TO END OFFSHORE REGIME
Trusts in Malta are currently based on the Offshore Trusts Act 1988 which stipulates that trusts must have non-resident settlors and beneficiaries. However, under the new Act, Maltese residents and companies will for the first time be permitted to use local trusts. “The purpose of this new law is to continue the process started in 1994 where the offshore laws are eliminated and Malta re-directed to the development of an onshore financial center,” MFSA chairman Joe Bannister said.
Mr. Bannister added that the bill eliminates the nominee company regime, and furthers Malta’s international obligations on non-discrimination, transparency and prevention of money laundering. Another purpose of the legislation is to ensure that trusts will not create any anomalies in the taxation of income. “The tax implications have been worded in such as a way that the new law may be used as a tax planning tool but not for tax avoidance. Any transfer of assets into a trust or any change of beneficiaries within the trust will be treated as taxable,” stated Kevin Valenzia, a partner at PricewaterhouseCoopers.More on this story here.
SURVEY SHOWS DROP IN SUPPORT FOR SWISS BANKING SECRECY
A survey by the Swiss finance ministry found that 51% of those questioned favoured maintaining banking secrecy in its present form, compared with 57% a year ago. “The last four years have seen a clear polarisation of opinions,” said a spokesman for the ministry. Almost a third of the 1,516 people interviewed said they would like to see banking secrecy lifted in cases of tax evasion, as well as for fraud (compared with 30% in 2003 and 25% in 2001). 15% favored the scrapping of banking secrecy -- up from 11% last year.More on this story here.
Swiss senate rejects plan to use excess gold for pensions.
The Senate has rejected a proposal to use most of the proceeds from the sale of Switzerland’s excess gold reserves to help prop up the state pension scheme. Parliamentarians voted in favour of giving the cantons two-thirds of the funds raised, with the remaining third for the federal government. Earlier this year Switzerland’s other parliamentary chamber, the House of Representatives, supported a proposal to invest the bulk of the proceeds in the old-age pension scheme. The difference of opinion between the two chambers is nothing new. Parliamentarians have been trying in vain to decide what to do with the proceeds from 1,300 tons of excess gold since 1997.More on this story here.
HOW TO MIMIC THE WEALTHY WHILE SAVING ON COSTS
Maybe you can live -- and die -- without them. Wealthy Americans often use a fistful of trusts to slash estate taxes, avoid probate and control how their money is divvied up. But if your worldly assets are shy of seven figures -- meaning you are unlikely to get hit with estate taxes -- you may want to consider some cut-rate alternatives. To be sure, sometimes a trust really is your only option, especially if you are leaving money to young children or you are trying to provide for a second spouse while ensuring your assets eventually go to your kids. In other cases, however, you may be able to mimic the estate planning of the rich without incurring all the costs associated with setting up and running a trust. Intrigued? Here is how.More on this story here.
WEALTHY FAMILIES SET UP NEW FOUNDATIONS IN MARYLAND
The number of new foundations in Maryland nearly doubled in the past six years, fueled largely by wealthy families who see them as an increasingly attractive way to channel their giving. Nearly 570 foundations were created in Maryland from 1996 to 2002, representing 41% of the 1,376 foundations in the state in 2002, according to the Association of Baltimore Area Grantmakers, using data from the IRS.
In the 1970s and 1980s, foundations were “a small and virtually unknown way to invest money,” said Douglas Freeman, chairman and national managing partner for IFF Advisors LLC, a philanthropic consulting firm in Los Angeles. “For the most part, it was just an opportunity for the very, very rich to utilize. Since then, it has become a more accessible and visible means for philanthropy.”More on this story here.
SPY IMAGERY AGENCY WATCHING INSIDE U.S.
In the name of homeland security, America’s spy imagery agency is keeping a close eye, close to home. It is watching America. Since the Sept. 11 attacks, about 100 employees of a little-known branch of the Defense Department called the National Geospatial-Intelligence Agency -- and some of the country’s most sophisticated aerial imaging equipment -- have focused on observing what is going on in the United States. Their work brushes up against the fine line between protecting the public and performing illegal government spying on Americans.
Roughly twice a month, the agency is called upon to help with the security of events inside the United States. Even more routinely, it is asked to help prepare imagery and related information to protect against possible attacks on critical sites. For instance, the agency has modified basic maps of the nation’s capital to highlight the location of hospitals, linking them to data on the number of beds or the burn unit in each. To secure the Ronald Reagan funeral procession, the agency merged aerial photographs and 3D images, allowing security planners to virtually walk, drive or fly through the Simi Valley, California, route. The agency is especially watchful of big events or targets that might attract terrorists -- political conventions, for example, or nuclear power plants.
The agency is not interested in information on U.S. citizens, stresses Americas office director Bert Beaulieu. “We couldn’t care less about individuals and people and companies,” he said. But that is not good enough for secrecy expert Steven Aftergood, who oversees a project on government secrecy for the Federation of American Scientists. “What it all boils down to is ‘Trust us. Our intentions are good,’” he said.More on this story here.
NON-VISA TRAVELERS TO U.S. WILL FACE TIGHTER SECURITY
The new measure affects visitors from Britain, Germany, Japan and 24 other countries. Already, post-9/11 security requirement have sparked protests particularly in western Europe where travelers have grown used to easy U.S. admission -- merely by presenting their passports on arrival. The new requirement is a compromise over a more stringent measure that non-visa travelers carry computer-readable passports -- delayed until next year. The measure is also part of increased scrutiny of foreign nationals. At least two terror suspects boarded planes to the United States on their European passports. The singer once known as Cat Stevens, boarded a flight to the United States on his British passport last week -- but the aircraft was diverted to an alternate airport and Stevens, now Yusuf Islam, was deported when his name was discovered on a watch list.More on this story here.
US defends new fingerprint border checks.
A US official defended a new border control system requiring all European travellers to be fingerprinted on arrival in the US, denying that it will treat foreigners like criminals. The official said the new measures were simply an early example of the use of so-called biometric technology -- reading of such traits as fingerprints, eyes scans or facial reading -- being introduced worldwide. He said the United States is introducing the new technology earlier than many other countries because of the relatively higher security threat, predicting that in a year’s time it will be much more widespread.More on this story here.
Will new US fingerprint law work?
All British travelers to the US will be fingerprinted and digitally photographed as part of new security measures. Previously, this only applied to visa holders but the American Department of Homeland Security has decided to include travelers arriving in the US under the visa waiver program. The Association of British Travel Agents has said the new law could result in even longer queues at American airports but that travelers’ safety would “probably be enhanced”.
Will the new fingerprint law make travel safer? Or will it deter people from visiting the US? Would you like to see similar arrangements in the UK? The following comments reflect the balance of opinion the BBC has received so far.More on this story here.
Foreign travelers face fingerprints and jet lag.
A click of a camera and sharply conflicting emotions greeted foreign visitors across the country as they arrived at American airports, where officials for the first time began photographing and electronically fingerprinting travelers from 27 industrialized nations, including longtime allies like England, France, Germany, Spain, Japan and Australia. The policy shift will affect about 13 million visitors each year from 22 European countries as well as Brunei, Singapore, Japan, Australia and New Zealand, who can currently travel to the United States for up to 90 days without a visa.
The change was made after intelligence reports indicated that terrorists might take advantage of that provision, which allows travelers from Europe and other industrialized countries to travel to the United States with little scrutiny. Last year, American embassies and consulates around the world began collecting digital fingerprints from foreigners applying for visas. And beginning this fall, officials will require overseas visitors at some airports and seaports to be fingerprinted and photographed before they leave the United States to monitor whether visitors are in fact returning to their home countries.
Reaction from foreign governments was mostly muted. But some officials said the policy raised privacy concerns. Japanese officials said they had asked that the fingerprints and photographs be deleted when their citizens leave this country. “What’s next? Are they going to take pieces of my hair, too?” asked Marleen Maas, 43, a homemaker from Frankfurt, who flew into Miami to visit her daughter. “It didn’t take long, but it made me feel like a criminal.”More on this story here.
SWISS COMPUTER SPECIALIST WANTS TO IMPROVE AMERICAN VOTING SYSTEM
Beat Fehr wants to export Switzerland’s voting system to the United States to make US elections much more reliable. He argues that he could save the Americans millions of dollars, as well as promote confidence among voters that the elections are secret and secure. Switzerland’s system of direct democracy means that voters go to the polls at least four times a year to decide on issues ranging from changes to the federal constitution to whether to build a local car park. Fehr believes this expertise could help avoid a repeat of the 2000 US presidential election, which highlighted the weaknesses of the present system. Up to six million votes -- or 6% of the total -- were lost, and there was electoral chaos, particularly in Florida, which called the final result into question.
Fehr, who set up his Swiss Voting System company in July, says the US system is still far from perfect. “In the past two years they have spent $4 billion to enhance their voting systems under the Help America Vote Act. No one is really happy about the procedures in their voting system and no one has faith in them, especially e-voting,” he said. The Organization for Security and Cooperation in Europe (OSCE) said Florida had not corrected the “weaknesses” in its voting system. The OSCE is sending a delegation led by Swiss parliamentarian Barbara Haering to monitor November’s presidential elections.More on this story here.
E.U. ASKS U.S. FOR NEW DELAYS FOR IMPLEMENTATION OF BIOMETRIC PASSPORTS
“Member states of the EU will not be ready to start issuing biometric passports until the end of next year,” EU home affairs commissioner Antonio Vitorino said at a joint news conference with US Attorney General John Aschcroft. “We welcome very much the decision of the US congress to postpone the biometric passports from October this year to October next year. We are still pushing ahead, asking our American friends for a new delay,” he added.
Biometric passports contain indicators -- such as a digitally encoded record of the bearer’s face and possibly fingerprints -- on a computer chip. They are to become a requirement for visa-free visits from the 27 countries currently enrolled in the so-called Visa Waiver Program. Initially, the EU had asked Washington for a two-year delay and this was backed by the Bush administration but voted down in Congress. The current deadline gives the 27 countries until October 26, 2005 to issue biometric passports so their citizens remain eligible for travel to the United States without visas.Link here.
RFID HAS POTENTIAL -- TO DISAPPOINT
By 2007, at least 50% of RFID projects will fail. Within three years, according to Gartner Inc., a lot of companies will burn through plenty of money testing the new technology. Jeff Woods, a Gartner research analyst who researched ongoing radio frequency identification projects for a recently released report titled “Prepare for Disillusionment with RFID,” said the 50% failure rate estimate is optimistic. “What we tell customers is if you want to be really strategic -- you really believe there is a business case -- you have to have a lot of money. And, oh, by they way, you have to have an appetite for risk that most people don’t have; then RFID is for you,” he said.
There are many reasons so many RFID projects do not live up to their billing, including the fact that many companies have unrealistic expectations -- often provided to them by enthusiastic system integrators -- on the technology. Another simple fact, Woods said, is that sometimes bar codes work best.
RFID tags are microchips that can pick up signals from objects -- cases of consumer goods, for example -- and send those signals to a reader. This provides the sort of drill-down data that, for example, Wal-Mart said is going to eliminate waste from its supply chain and keep its shelves stocked, but not overstocked. “There are a lot of people right now who have been forced-marched in RFID,” Woods said. “Many of them are just furious.” However, Woods agrees with many industry analysts who said RFID can live up to its billing -- in about three to five years.More on this story here.
FORMER U.K. BANKERS AT CENTER OF ENRON-RELATED EXTRADITION TEST CASE
Three former UK bankers are facing possible extradition to the US to face charges connected with the collapse of Enron, in a test case which has put the spotlight on Anglo-American legal procedures. In a case that begins in London this week the trio are alleged by the Enron Task Force to have “deprived” NatWest in the UK of millions of pounds after a deal in 2000 involving a Cayman Islands limited partnership. It is claimed David Bermingham, Gary Mulgrew and Giles Darby, in partnership with Enron’s then-chief financial officer Andrew Fastow and global financial chief Michael Kopper, deceived a subsidiary of NatWest to line their own pockets.
However, although the alleged perpetrators and victims are based in the UK, the Crown Prosecution Service has not brought any charges against the three. The three have called on the UK’s Financial Services Authority (FSA) to bring charges against them, but say the FSA has not done so. They have also written to NatWest asking them to bring civil proceedings against them “if you consider we have committed an offence,” but say there has been no action and the bank is still providing financial services to them. Instead, the US Department of Justice has brought seven indictments of “wire fraud” relating to the deal, covering emails and faxes sent between Houston, London and the Cayman Islands four years ago. Each indictment carries a maximum of five years, meaning a possible sentence in Texas of 35 years.
As well as the Enron connection, the proceedings have been attracting attention because they are the first to have been brought under Part 2 of the new Extradition Act 2003, which came into effect this January. The new act has been attracting attention from civil liberties groups, because of changes from the previous act. Part 2 grants 42 countries, including the US, a fast track process by the UK, which allows them to provide “information” rather than “prima facie evidence” that a crime has been committed.
Alun Jones QC, counsel for the bankers, had expressed concern about relations between the US and UK authorities under the terms of the Extradition Act, and the fact it does not require the US to produce evidence of crimes alleged. The next stage of the hearings, scheduled for 28 September, will hear arguments that may block the extradition, such as the time elapsed since the alleged offences and matters of human rights. If eventually extradited they would be placed in a US jail for up to 18 months before trial, have to conduct their defences -- using separate counsel -- from custody. They say they could be bankrupted by the costs, none of which would be recoverable, even if declared innocent.More on this story here.
U.K. FINANCIAL REGULATOR GETS MIXED REVIEWS OF LATEST YEAR’S PERFORMANCE
Callum McCarthy and John Tiner, who last week celebrated their first 12 months as chairman and chief executive respectively, have administered 25 fines totaling £27.3 million. Messrs McCarthy and Tiner have been given a mixed verdict on their first year in the job.
The recent fines record was dominated by the £17 million penalty meted out in August to Shell for repeatedly misleading shareholders over its oil and gas reserves. Other fines were for breaching money-laundering rules, mis-selling of precipice bonds, compliance failings, misleading advertising and inadequate record keeping. Excluding the Shell penalty, which was four times bigger than any other imposed by the FSA, average fine sizes have actually come down in the past year -- from £958,000 to £411,000.More on this story here.
FBI BACKLOGGED IN TRANSLATION OF COUNTERTERRORISM WIRETAPS
The FBI has failed to translate hundreds of thousands of hours of wiretap recordings from counterterrorism and counterintelligence investigations since the Sept. 11, 2001, attacks, despite steep increases in funding for new linguists and other translation services, according to a report. An audit by Justice Department Inspector General Glenn A. Fine also found that more than a third of al Qaeda-related audio recordings were not translated within 12 hours, as mandated by FBI Director Robert S. Mueller III. Many of the recordings were not even received at FBI headquarters within that time frame, the study found.
The findings -- which were completed in classified form in July but not released publicly until Monday -- show the persistent problems that the FBI and other U.S. intelligence agencies have faced in attracting and retaining translators with expertise in Middle Eastern and South Asian languages. Mueller and other U.S. officials have repeatedly said that recruiting qualified linguists is among their top priorities in the fight against al Qaeda and other terrorist groups.
The report also underscores the extent to which the Justice Department and FBI rely upon special intelligence wiretaps authorized by the secret Foreign Intelligence Surveillance Court, which oversees warrants for terrorism and counterintelligence investigations. Such warrants now outpace the number of traditional criminal wiretaps nationwide. Sen. Patrick J. Leahy (Vermont), the ranking Democrat on the Senate Judiciary Committee, said in a statement that “the Justice Department’s translation mess has become a chronic problem that has obvious implications for our national security.”More on this story here.
HOUSE 9/11 COMMISSION BILL INCLUDES PATRIOT II, NATIONAL ID CARD
In addition to additional law enforcement powers, like those granted in the original 2001 USA Patriot Act, the new bill in the House of Representatives to implement the recommendations of the 9/11 Commission would likely create what amounts to a national identification card, and would harm basic fairness in the nation’s immigration system, the ACLU said. “Republican leadership is either trying to torpedo the 9/11 Commission’s recommendations with a poison pill, or is attempting to muscle through a narrow policy agenda using must-pass legislation,” said Laura W. Murphy, Director of the ACLU Washington Legislative Office. “Both scenarios are unacceptable.”
At issue is the House version of legislation drafted in response to the recently completed 9/11 Commission. Though the commission notably did not include any recommendation that the Patriot Act be extended, or that due process and judicial review in the immigration system be curtailed, House Republicans included such provisions anyway. The inclusion of some parts of the Patriot II legislation is drawing increasing criticism, especially after a group of 9/11 widows appealed to lawmakers this week to not let such divisive provisions derail the bill.More on this story here.
ABN AMRO’S NY OFFICE CUTS TIES WITH NEARLY 100 BANKS DUE TO PROBE OF SOURCE OF FUNDS
The New York branch of Dutch bank ABN Amro has cut ties with nearly 100 banks in Russia, Eastern Europe and the Caribbean, according to a published report that says it faces probes by regulatory and law-enforcement officials into its dealings with those institutions. The Wall Street Journal reported that the Federal Reserve alleged that ABN Amro was improperly moving funds of questionable origin through the financial system. The bank cut the ties with the overseas banks as part of an agreement the bank quietly signed with regulators in July, according to the paper.
“We can confirm we have closed a number of correspondent banking accounts during the course of the last two years,” Steven Blaney, a spokesman for ABN Amro, told the paper. “These accounts were held in many markets and the decision was taken for a number of financial and structural reasons,” he added. “These include our business strategy, regulatory considerations and the closing of inactive accounts.”
The paper said the crackdown is a blow to a struggling Russian banking industry, leaving many smaller Russian banks without access to the U.S. market and unable to conduct international transactions in dollars. Amro is the world’s 20th-largest bank with some $600 billion in assets.More on this story here and here.
KEY PART OF PATRIOT ACT RULED UNCONSTITUTIONAL
A federal judge in New York ruled that a key component of the USA Patriot Act is unconstitutional because it allows the FBI to demand information from Internet service providers without judicial oversight or public review. In a sharply worded 120-page ruling, U.S. District Judge Victor Marrero found in favor of the ACLU, which filed a lawsuit on behalf of an unidentified Internet service provider challenging the FBI’s use of a type of administrative subpoena known as a national security letter. Such letters do not require court approval and prohibit targeted companies from revealing that the demands were ever made.
Marrero ruled that the provision in the Patriot Act allowing such letters “effectively bars or substantially deters any judicial challenge” and violates free-speech rights by imposing permanent silence on targeted companies. Writing that “democracy abhors undue secrecy,” Marrero ruled that “an unlimited government warrant to conceal ... has no place in our open society.”
“Under the mantle of secrecy, the self-preservation that ordinarily impels our government to censorship and secrecy may potentially be turned on ourselves as a weapon of self-destruction,” Marrero wrote. “... At that point, secrecy’s protective shield may serve not as much to secure a safe country as simply to save face.” The judge ordered the Justice Department to halt the use of the letters but delayed the injunction by 90 days to allow for an appeal. The government is reviewing its options, a Justice Department spokesman said.
The ultimate impact of the order is unclear. In addition to having time to pursue an appeal, the government will view the ruling as applying only to New York’s Southern District in Manhattan, legal experts said. A Clinton administration Justice Department official said Marrero’s order is unlikely to have any effect until an appellate court rules. But the ACLU argues that Marrero’s ruling is a warning to the government about some of its tactics in the war on terrorism.More on this story here and here.
Ashcroft says PATRIOT ACT in line with Constitution.
Attorney General John Ashcroft dismissed a US federal judge’s ruling which found that parts of a provision passed in the wake of the September 11 attacks were unconstitutional. “We believe the act to be completely consistent with the US constitution,” Ashcroft told a press conference after an informal meeting with the EU ministers of justice and home affairs here. Ashcroft played down the ruling, saying it was only the opinion of one district court of which the US has hundreds.More on this story here.
Federal judges remain our last-ditch defense against being pushed around.
Snooping and secrecy can help the government catch terrorists. But they also can also let government employees sniff around your private life without your even knowing about it. At least one federal judge thinks the snooping and secrecy allowed by the laughably named “Patriot Act” go too far. Let us hope other judges agree with Victor Marrero, and that Big Brother will at least have to get a court order before he secretly investigates your e-mails and Internet use.
Judge Marrero ruled in New York Wednesday that it was unconstitutional for government agents to snoop in personal computer records without being able to prove to a judge that such an extraordinary invasion of personal privacy was justified. He also noted that by barring an Internet provider from telling a customer that the FBI had been poking around, the law violates those companies’ rights of free speech. As if to prove the judge right in this very case, the “Patriot Act” required that even the filing of the suit against it be kept secret.
The Bush administration may well appeal this decision. If it does, our traditional rights, and the rights of our descendants, will be riding on the common sense and courage of other judges. Despite their failings and the failings of the system that puts them on the bench, federal judges remain our last-ditch defense against the natural tendency of politicians and bureaucrats to push us around -- for their benefit, rarely ours.More on this story here.
Nevada ACLU likes federal court ruling against Patriot Act.
Nevada representatives of the American Civil Liberties Union are hailing a federal judge's ruling against part of the Patriot Act that the FBI used to get casinos and airlines to turn over records of thousands of Las Vegas visitors. While U.S. District Judge Victor Marrero called national security of “paramount value”, he also called personal security equal in importance and “especially prized in our system of justice.”
Richard Siegel, president of the ACLU of Nevada, said the ruling protects the resorts “from a situation that they had suffered from, where they were ordered by the FBI to turn over all kinds of customer information, completely erode their privacy rights.” Gary Peck, executive director of the ACLU in Nevada, said the FBI’s demand for guest and passenger information from Las Vegas hotels and airlines flying into Las Vegas represented the broadest case of “data mining” by the agency under the Patriot Act.
Siegel also said the resorts benefited from a Nevada Gaming Commission decision last week to drop two of three counts of a complaint filed against the Hard Rock Hotel & Casino in Las Vegas over a series of provocative ads. The commission dismissed the two counts filed by its enforcement arm, the Nevada Gaming Control Board, in a case that raised First Amendment questions about regulators’ control over advertising content.More on this story here.
THE CONSENT OF THE GOVERNED
Do you believe “Governments are instituted among Men, deriving their just Powers from the Consent of the Governed?” It is not just the overwhelming majority of Americans who believe in this statement from the Declaration of Independence, but as evidenced by the global rise in democracy, a majority of the world’s population now subscribe to this statement. According to Freedom House, 65 percent of the world’s people now live in at least limited democracies, where they are free or partially free, and their laws and rules are established by consent of the governed. Yet, at the same time, international organizations have arisen, which increasingly establish rules and regulations not consented to by the governed.
According to Freedom House, 65% of the world’s people now live in at least limited democracies, where they are free or partially free, and their laws and rules are established by consent of the governed. Yet, at the same time, international organizations have arisen, which increasingly establish rules and regulations not consented to by the governed. Just in tax and financial regulation, the organizations include entities such as the UN, IMF, World Bank, OECD, and the FATF. In addition, national governments, such as the US government, and governmental federations, such as the EU, increasingly assert they have tax and financial regulatory powers over individuals and institutions that are neither their citizens nor residents.
All these organizations have gone well beyond their original mandates and exercise or try to exercise powers over institutions or individuals who neither directly nor indirectly voted to be so regulated. What the world faces is the danger U.S. Founding Father and President James Madison warned of two centuries ago. Madison opposed French philosopher Jean Jacques Rousseau’s proposal for a supranational political council empowered to prevent war. Madison argued such a council would become a despotic superstate, cutting off the last hope of the oppressed.More on this story here.
PRESIDENT BUSH’S “OWNERSHIP SOCIETY” DEBATED
Defining an “Ownership Society”.
President Bush says he wants America to be an “ownership society”. What does that mean? People have known for a long time that individuals take better care of things they own. Aristotle wrote, “What belongs in common to the most people is accorded the least care: they take thought for their own things above all, and less about things common, or only so much as falls to each individually.” And we all observe that homeowners take better care of their houses than renters do. That is not because renters are bad people; it is just that you are more attentive to details when you stand to profit from your house’s rising value or to suffer if it deteriorates. Just as homeownership creates responsible homeowners, widespread ownership of other assets creates responsible citizens. People who are owners feel more dignity, more pride, and more confidence. They have a stronger stake, not just in their own property, but in their community and their society.
The United States today has the most widespread property ownership in history. This year an all-time high of 68.6% of American households own their own homes. Even more significantly, increasing numbers of Americans are becoming capitalists -- about half of American households are stockholders in some form. That is up from 32% in 1989 and only 19% in 1983, a remarkable change in just 20 years. The best thing we could do to create an ownership society in America is to give more Americans an opportunity to invest in stocks, bonds, and mutual funds so that they too can become capitalists. And the way to do that is obvious.
Right now, every working American is required to send the government 12.4% of his or her income (up to about $88,000) via payroll taxes. That is $4,960 on a salary of $40,000 a year. But that money is not invested in real assets, and it does not belong to the wage-earner who paid it. If we want to make every working American an investor -- an owner of real assets, with control of his own retirement funds and a stake in the growth of the American economy -- then we should let workers put their Social Security taxes into private retirement accounts, like IRAs or 401(k)s. Then, instead of hoping someday to receive a meager retirement income from a Social Security system that is headed for bankruptcy, American workers would own their own assets in accounts that could not be reduced by Congress.
The many benefits of an ownership society are not always intuitively obvious. John Kenneth Galbraith wrote a bestselling book in 1958 called The Affluent Society, in which he discussed the phenomenon of “private opulence and public squalor” -- that is, a society in which privately owned resources were generally clean, efficient, well-maintained, and improving in quality while public spaces were dirty, overcrowded, and unsafe -- and concluded, oddly enough, that we ought to move more resources into the public sector. Thousands of college students were assigned to read The Affluent Society, and Galbraith’s ideas played a major role in the vast expansion of government during the 1960s and 1970s. But Galbraith and American politicians missed the real point of his observation. The more logical answer is that if privately owned resources are better maintained, then we should seek to expand private ownership.More on this story here.
“Ownership society”: Why the US allegedly cannot buy in.
Many Americans -- perhaps most of them -- are not ready for President Bush’s “ownership society.” The idea sounds good. Employees could shift a portion of what they pay into Social Security and put it into individual accounts that might gain higher returns in, say, the stock market. They could also reduce their tax bill by starting Health Savings Accounts, Retirement Savings Accounts, and Lifetime Savings Accounts.
These options reflect a certain conservative logic. Rather than having the government or your company decide how much retirement money or healthcare you get, you can decide for yourself. The flaw in this logic is Americans’ lack of financial sophistication. For example: Less than one-quarter of working-age people characterize themselves as “knowledgeable investors”, according to surveys. Even this minority shows “considerable confusion”. That does not mean Americans are stupid. They just have better things to do. Moreover, many Americans would have trouble reading the documents involved in such decisions. Even reasonably literate people would find financial reports and documents difficult.
Because it goes to the heart of the liberal-conservative divide over the role of government, the ownership society sparks political controversy. But judgment does not need to rely on rhetoric. The U.S. already has experimented with transferring the major responsibility for retirement savings from employers to employees. It is the 401(k) plan, which got going in the 1980s. ...More on this story here.
Moving toward an “ownership society”.
“Say this for Bush’s vision of an ownership society,” Yale political science professor Jacob Hacker wrote recently, “It is consistent with the direction in which the American economy has been heading.” What would an ownership society look like for government programs? It is hard to know exactly, but it is possible to make some educated guesses. For Social Security, it might include private accounts invested in stocks combined with cuts in existing benefits -- sugar to make the medicine go down more easily. Creating private accounts alone does nothing to cut Washington’s financial obligations. For Medicare, a system of personal savings accounts -- perhaps funded with fixed payments from the federal government -- would accomplish the same thing: push more risk onto the shoulders of beneficiaries while limiting Washington’s exposure.
Is it possible I am being too cynical here? Could the ownership society actually be something more than a thinly veiled scheme to trim the budget deficit and scale back government’s role in providing economic security? Maybe. But don’t bet on it. The bottom line of the ownership society may be that in the end, each of us will be on his own.More on this story here.
Bush’s ownership society: No taxes for owners, only workers.
“When you hear them say, tax the rich, be careful,” warned George W. Bush in a September 16 speech. “The rich hire lawyers and accountants for a reason, because they don’t want to pay. And you get stuck with the tab. But we’re not going to let him stick you with the tab.” Well, he ought to know about hiring lawyers and accountants. But the rest is pure deception.
In fact, the problem is the opposite of what Bush asserts. It is that his tax cuts that are shifting more of the burden of taxes to middle-class and working-class households. This is important because the Bush team is counting on buying millions of votes with their tax cuts. Most people know that the biggest chunk of the tax cut goes to the rich and the super rich: about a quarter of the 2001-2003 tax cuts went to just 1 percent of taxpayers. The real purpose of the Bush team’s tax policy was to rewrite the tax code to create, as Mr. Bush calls it, “an ownership society” -- one in which owners do not pay taxes, but workers do.More on this story here.
THE SEC DOES NOT WANT THE TRUTH TO GET OUT
Created in 1934, the Securities and Exchange Commission is the mother of all securities regulators. It has an annual budget of more than $700 million and more than 3,100 employees, including 1,150 attorneys on the enforcement staff. Securities regulation only came later to Canada. The Ontario Securities Commission was created in 1945, and its Quebec equivalent in 1955. Between 1945 (the earliest date for CANSIM data on the Montreal Stock Exchange) and 1955, the value of shares traded increased 308% at the MSE, compared with 134% on all U.S. exchanges. Not bad for a market without a government regulator!
U.S. financial markets do not owe their supremacy to the SEC. As noted by Paul Mahoney of the University of Virginia Law School, “[a]fter World War I and well before the federal legislation of the 1930s, New York assumed leadership of the world’s capital markets.” Through civil suits and administrative proceedings and orders, the SEC mandates securities registration, regulates brokerage, trading and disclosure, and helps enforce the prohibition of insider trading. It is now suing Martha Stewart and her stockbroker in civil courts. It scares large companies into settling suits without trial. The SEC regulates stock exchanges, which were historically private organizations. The SEC is starting to regulate hedge funds, which, by virtue of their well-known risk and sophisticated clienteles, had thus far avoided its regulation.
Theory and evidence point to the conclusion that state regulation of financial information is economically inefficient. The prohibition of insider trading, the regulation of disclosure and the concentration of information in government-determined channels reduce the flow of information to the market. Far from improving market integrity, these regulations have generated an artificial and misleading sense of confidence. More than protecting investors against fraud, the SEC is in the business of protecting the state and the establishment against financial freedom, entrepreneurship and freedom of information. And now they want to enforce their conception of ethics!More on this story here.
DO I FEEL A DRAFT?
Tumors are spreading wildly that the military draft is coming back, and will include women and well as men. Grabbing the issue and running with it, the Kerry campaign has raised the specter of young Americans being hauled out of college and sent off to die in a senseless war. But wait a minute. The guys calling for the draft in Congress are all Democrats. In the Senate, Ernest Hollings, Democrat of South Carolina a hawk, has introduced the legislation, while Charles Rangel, the ultra-liberal black Democratic Congressman from Harlem, has introduced it in the House because he thinks more whites should be getting shot at, a matter of equal protection. So when John Edwards gets up and says to a hooting crowd, “There will be no draft in a Kerry administration,” this has got to be chutzpah at its most extreme, since the Democratic legislation also requires Canada to return fleeing draft evaders.
In actuality, the Pentagon is opposing the draft, if you can imagine a building either opposing or supporting anything, because its bureaucratic managers know that a draft only dumbs down the military. But let us suppose that it happens. What can a person do to avoid its consequences?
One way out is insanity. Of course, the only ones who are insane are the ones starting the wars, but never mind. Another possibility is marriage. No, not straight marriage, but gay marriage. Since gays are officially banned from serving in the military, individuals with no desire to die for Bush or Kerry, could enter into same sex partnerships that could remain unconsummated without the Selective Service knowing it. Male and female alike, Americans from 18 to 26 could turn up for their examinations with their partners, preferably holding hands. The only way to draft these people would be to lift the ban on gays serving in the military. As no one is going to do this, for fear of ending up in the political graveyard, the coast is clear.More on this story here.
THE NEW DEAL DEBUNKED (AGAIN)
Macroeconomic model builders have finally realized what Henry Hazlitt and John T. Flynn (among others) knew in the 1930s: FDR’s New Deal made the Great Depression longer and deeper. It is a myth that Franklin D. Roosevelt “got us out of the Depression” and “saved capitalism from itself”, as generations of Americans have been taught by the state’s educational establishment. This realization on the part of macroeconomists comes in the form of an article in the August 2004 Journal of Political Economy entitled “New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis,” by UCLA economists Harold L. Cole and Lee E. Ohanian. This is a big deal, since the JPE is arguably the top academic economics journal in the world.
Per capita real GDP was 39% below trend at the trough of the Depression in 1933 and remained 27% below trend in 1939, the authors say. This should be no surprise to anyone who has studied the reality of the Great Depression, for U.S. Census Bureau statistics show that the official unemployment rate was still 17.2% in 1939 despite seven years of “economic salvation” at the hands of the Roosevelt administration (the normal, pre-Depression unemployment rate was about 3%). Per capita GDP was lower in 1939 than in 1929 ($847 vs. $857), as were personal consumption expenditures ($67.6 billion vs. $78.9 billion), according to Census Bureau data. Net private investment was minus $3.1 billion from 1930-40.
Cole and Ohanian write as though they were surprised -- “even shocked” -- to discover these facts, not so much because they were bamboozled by The Myth of the New Deal, but because of their devotion to “neoclassical model building” as opposed to the study of economic reality. The neoclassical theory of depressions might well be thought of as a Frankenstein Monster theory. As explained by Cole and Ohanian, “The weak recovery is puzzling because the large negative shocks that some economists believe caused the 1929-33 downturn -- including monetary shocks, productivity shocks, and banking shocks -- become positive after 1933.” Thus, according to neoclassical theory, the economy during a depression is somewhat like a prostrate Frankenstein monster, with economists playing the role of mad scientists who “shock” the beast into becoming a living being once again. They do this with various “injections” of government spending or easy credit that will supposedly cause a recovery.
“The monetary base increased more than 100 percent between 1933 and 1939,” the authors write, making the case that such a “monetary shock” should have returned the economy to normalcy. But as Murray Rothbard showed in America’s Great Depression, it was the easy money policies of the early and mid 1920s that created all the malinvestment that was the trigger for the Great Depression. The only wise thing to have done was to allow the liquidation of hundreds of overcapitalized businesses to occur. Instead, the Fed increased the monetary base by 100% in five years, causing more of the same overcapitalization problems that were the source of the problem in the first place. On top of that, virtually every single one of FDR’s “New Deal” policies made things even worse and prolonged the Depression. Austrian economists have known this for decades, but at least the neoclassical model builders have finally caught on -- we can hope.
The authors conclude that the abandonment of New Deal labor and industrial policies policies coincided with the strong economic recovery of the 1940s. In “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War” (Independent Review, Spring 1997), Robert Higgs showed that it was the relative neutering of New Deal policies, along with a reduction (in absolute dollars) of the federal budget from $98.4 billion in 1945 to $33 billion in 1948, that brought forth the economic recovery. In short, it was capitalism that finally ended the Great Depression, not FDR’s hair-brained cartel, wage-increasing, unionizing, and welfare state expanding policies. It is good to see that the Journal of Political Economy, the University of Chicago, and UCLA are finally beginning to catch up to libertarian scholarship. Better late than never.More on this story here.
|Previous||News Digest Home||Next|
|Back to top|