Wealth International, Limited

Offshore News Digest for Week of October 4, 2004

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

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The package of treaties is expected to be voted on in December, but it is likely that the electorate will have the final say in a nationwide vote next year. The Swiss president, Joseph Deiss, said the new set of accords with Brussels was the only way for the country to avoid isolation in Europe. Non-EU member Switzerland agreed to the accords with Brussels in May after two years of tough negotiations, which became bogged down over disagreements on the taxation of EU residents’ savings income in Swiss banks and on the issue of banking secrecy.

The most controversial of the nine treaties is the Schengen/Dublin accord governing closer cooperation on security and asylum. But Foreign Minister Micheline Calmy-Rey said the accords were acceptable to both pro- and anti-Europeans, and added that Swiss business, finance and tourism sectors would benefit from their implementation. She also downplayed fears that the country’s internal security would be compromised by the extension of ties with Brussels and said that it was in Switzerland’s interest to cooperate more closely with its biggest trading partner. Parliament is being asked to consider each of the treaties separately, rather than as a whole package.

Deiss and Calmy-Rey said that the seven-member Swiss cabinet was ready to defend the accords in parliament. Justice Minister Christoph Blocher, a member of the rightwing Swiss People’s Party, has made no secret of his distrust of closer ties with Europe. But he said he would campaign in favor of Schengen/Dublin, even though his own party is threatening to force a nationwide vote on the accord.

Link here.

Rifts appear in Swiss power-sharing government.

Swiss President Joseph Deiss has rebuked the interior minister, Pascal Couchepin, for publicly attacking a cabinet colleague. Couchepin broke cabinet ranks, branding Justice Minister Christoph Blocher -- a member of the Swiss People’s Party -- a danger to democracy. A public spat between members of the country’s 7-strong cabinet is practically unheard of in Switzerland, where disputes normally take place behind closed doors. People’s Party president Ueli Maurer rejected Couchepin’s accusations, telling Swiss television that the People’s Party and Christoph Blocher put the highest value on democracy.

Link here.

Swiss People’s Party sees perpetual campaigning as key to success.

The rightwing Swiss People’s Party is permanently in campaigning mode, most recently against plans to ease citizenship restrictions, which voters threw out last Sunday. Political analyst Julian Hottinger said the party’s success was down to its formidable political machinery and disregard for consensus. The People’s Party pulled no punches in its efforts to persuade voters to reject two government initiatives to ease citizenship rules for young foreigners. And no sooner had voters thrown out the proposals than the party announced its next campaign -- against Switzerland joining the European Union’s Schengen accord on cross-border crime. Mr. Hottinger, a political analyst formerly at the Institute of Federalism in Fribourg, said that the People’s Party’s success masks contradictions that could return to haunt it.

Link here.

People’s Party demands end to dual nationality.

The People’s Party has called for legislation to prevent people holding two passports, warning it could demand a nationwide vote on the issue. It comes after Swiss voters rejected moves to make it easier for young foreigners to become naturalized. The People’s Party leaders want parliament to repeal the 1992 law on dual citizenship, which allows freshly minted citizens to keep their old passports. Previously, new Swiss had to give up their old nationality. The party has had dual citizenship in its sights since it issued its current political program in 2003. “You cannot buy Swiss citizenship, it must a real and conscious choice,” wrote its authors.

Link here.


It has been a long time in coming but Bermuda is now well-perceived and accepted in the European market as a leading risk market, according to insurance veterans Michael Butt and John Charman. The top AXIS Capital executives -- Mr. Butt is board chairman while Mr. Charman is president and CEO -- remarked that a once-sceptical perception of Bermuda and its reinsurers has been migrated to a widely-held attitude of acceptance that has paid off lucratively with exponential growth in business in the last five years. Both Mr. Butt and Mr. Charman are well-placed to speak to a shift in European perceptions on the Island, with the former having been the driving force behind XL’s expansion into continental Europe while the latter is a veteran of the Lloyd’s of London market.

Link here.


Government must move to create specific policies and a general Financial Services regime, that offer potential investors more clarity simplicity and certainty, a leading economist said. “Investors like to know clearly, straight forwardly what is the case,” said Dr Gilbert Morris, executive director of the Institute For Economic Freedom. “And the more there is confusion, the more there is multiple layers of approvals and the more there is more and more people to talk to,” the greater the level of discontent there would among them, he said.

He said the Bahamas should emulate some of the more investment savvy and productive U.S. cities such as Herndon, Virginia that predetermine what kinds of investment are allowed to develop in their jurisdictions. Such successes were due to planning and clarity, said Dr. Morris. “So you have to have a master plan, investors have to know where you and you have to stick to your master plan and the time sequences and schedules that you give.” Without such measures the countries’ economy would be negatively affected, he warned.

Because innovation was such an integral part of driving development, Dr. Morris said, it was important that The Bahamas make provisions to accommodate “new and unusual types” of investment. He cited Lending Tree, the Internet-based American bank, that allowed its customers to borrow money through Internet applications.

Link here.

U.S., Caribbean relations not broken says Bahamas Prime Minister.

Prime Minister Perry Christie said relations between the United States and the Caribbean is not broken, rather, there is room for improvement. Speaking on the topic, “Friend or foe: Can the Caribbean and the U.S. repair their damaged relations”, Mr. Christie said that he does not subscribe to such a view. He said that the topic is merely a provocative way of probing the state of American relations with the region and an invitation to address how such relations can be improved upon to the mutual benefit of both parties.

And furthermore, the fact that the Caribbean and the United States differ on issues relating to Haiti and communist Cuba has not changed the fundamental bases of that relationship, the Prime Minister said in response to a question from the press. He pointed out historic and close relationship between The Bahamas and South Florida, which dates back to the 18th Century. He also told of how Bahamians have contributed, directly or indirectly, so many influential figures in American life as well.

According to the Prime Minister, if sustainable development and economic viability are to remain within the grasp of small and more vulnerable states, “there simply has to be a reassessment of the direction in which free trade arrangements are headed and a more considered understanding of the potentially annihilating effects these arrangements may have on the national economic capacity of these smaller states.”

Link here.


Costa Rica needs to boost the number of English speakers in its workforce and ensure that tax rates remain competitive if the country is to increase levels of foreign direct investment, experts have concluded following the release of a UN report. According to the United Nations 2004 World Investment Report 2004, Costa Rica received $577 million in foreign investment last year, down from $662 million in 2002. This year the Central Bank is expecting foreign investment to increase to $585 million. Nevertheless, according to Tomas Gilmore, director of the Costa Rican Investment Board, the country needs an “aggressive plan” with “concrete steps” to improve its investment climate.

Gilmore noted that it is essential that Costa Rica remains attractive to multinational firms by improving the quality of its workforce, particularly with improvements in the teaching of English, the international business language. Gilmore also believes that the continuing delay in implementing the country’s long waited tax reform package is creating a climate of uncertainty in the investment arena that is holding back potential contributors to the Costs Rican economy. Under the plan, corporate income tax would gradually be reduced from 30% to 25%, and special tax breaks would also apply to small and medium-sized businesses in the hi-tech sector or located in under-developed areas. However, some argue that this rate will still be too high to attract foreign investors.

Link here.


Shadow chancellor Oliver Letwin told the Conservative conference Labour has given taxpayers poor value for money -- but stopped short of promising tax cuts. has eight “unfair stealth taxes” in his sights, including council and inheritance tax. But he said he would not make pledges now because too many politicians had broken their word on tax in the past. Earlier co-chairman Liam Fox said the “revitalized” Tories must end Labour’s “intruder state”. Dr. Fox sought to rally Tory activists after the party was pushed into fourth place in the Hartlepool by-election by the UK Independence party. He said they had to “reclaim” the red, white and blue of the Union Jack from the far right.

In his keynote conference speech, Mr. Letwin complained that some pensioners were paying a third of their disposable income on council tax and that in some parts of the country someone expecting to inherit an ex-council home had to pay death duties. Mr. Letwin dismissed Gordon Brown’s civil service cuts as a “sham” and argued the Tories could at the very least stave off Labour third term tax rises by cutting bureaucracy.

Labour Chief Secretary to the Treasury Paul Boateng said the Tory figures did not add up. “Far from guaranteeing to cut taxes, the only cut that’s guaranteed from the Conservatives is an immediate and massive cut in public spending on schools, hospitals, transport, the police, and other vital public services,” he said. Liberal Democrat spokesman Vince Cable said his party had offered hard policies on simplifying taxes. “All we have had [from the Tories] is vague aspirations,” he told BBC News 24.

Link here.


Oleg Deripaska is a very brave man, in all likelihood. When Ernest Hemingway wrote Death in the Afternoon, his study of Spanish bullfighting, almost 75 years ago, he made a point of appreciating the quality of bravery in both bullfighters and bulls. A quality of the matadors he knew, he wrote, “is the ability not to give a damn for the possible consequences; not only to ignore them, but to despise them.”

In the 15 months since Russian President Vladimir Putin began his campaign against oil company Yukos and the oligarch who controlled it, Mikhail Khodorkovsky, Kremlin officials have speculated whether it was a one-off affair or whether Putin would move against other oligarchs whose record of capital accumulation is similar to Khodorkovsky’s. Over time, Kremlin factions have come to believe that Putin’s crusade is here to stay. They have therefore begun to speculate about which oligarch will it be next. Not a single oligarch has shown the bravery as Hemingway described as verging on contempt for the consequences. Unlike Khodorkovsky, most of them have prepared their exits from Russia if things get too hot.

For some time now, many have held that Deripaska -- the controlling shareholder of Russian Aluminum (Rusal), the world’s third largest producer of aluminum, and Basic Element, a holding that includes auto, paper and pulp, insurance, electricity and other assets -- is more vulnerable to Kremlin attack than his fellow oligarchs. But until very recently this was cheap talk. On September 6, however, a new government document appeared that might challenge the president to crack the whip again. Rusal is revealed in the document to be under official investigation for tax optimization practices which, according to a source, cut the group’s tax payments in 2003 to just 2% of its declared sales revenues. In contrast, Yukos, whose principal shareholders are in prison facing trial on charges of fraud, forgery and tax evasion, paid 38% of its annual sales revenues on tax in 2002, and again in 2003.

Link here.


Eduardo D’Angelo Silva, President of the Cayman Islands Bankers Association, will later this month, at the upcoming OffshoreAlert 3rd Due Diligence & Asset Recovery Symposium in Florida, reassure the international finance community over the state of the Cayman Island’s offshore industry post Hurricane Ivan, according to a local news source.

Link here.


The government has canceled 121 diplomatic passports issued by the previous presidential administration, including one extended to actor Sean Connery. The cancelations came as part of a massive effort to clean up and update the Foreign Relation Department’s files, according to Vice President Samuel Lewis Navarro. The vice president said that the former President President Mireya Moscoso had issued these to various “artists, businessmen, politicians and other people on account of them being international promoters of culture, health, business, tourism or athletics,” all of which now stand repealed.

Links here and here.


The Island’s per capita national income is 10% above that of the EU average, according to the latest figures from Treasury. GDP rose by 5.9% during the period 2002/3, resulting in a 20th successive year of increases. The Treasury report said the figures were a reflection of how well the business community in the Isle of Man had responded to tightening overseas market conditions resulting from the global economic slowdown and international political uncertainties.

Treasury Minister Allan Bell said record growth in engineering, financial services, ICT and professional services during the period had seen the economy expand more than previously expected. “Given the difficulties and uncertainties arising from the global economic and political situation it would have to be said that the economy performed very well and indeed continues to do so.” He added a note of caution about the potential for disruption that rapid growth and change can cause.

Link here.


The tight race between Republican President George W. Bush and his Democratic rival John Kerry is being closely followed by the four to 10 million Americans living overseas. Democratic and Republican activists say they are witnessing record turnouts at their vote drives and rallies.

On a recent weekday afternoon, a steady stream of Americans flocked to a voter registration rally, hosted by Democrats Abroad at an American-style restaurant in downtown Paris. Although Democrats Abroad is a partisan group supporting Democratic candidates, the rally was aimed at getting expatriates of all political leanings to register to vote in the November presidential elections. Judging by the turnout in France and in other countries in recent months, these sorts of efforts are succeeding.

From Paris to Budapest, from Tel Aviv to Hong Kong, Republican and Democratic activists say American expatriates are turning out to register for the November elections. Like their counterparts at home, Americans overseas appear to be motivated by strong feelings, pro and con, about the Bush administration and about the war in Iraq. Meanwhile, Democrats and Republicans Abroad associations are also active as never before. And a rash of new Internet sites, making voter registration easier and offering their views on the candidates, are revolutionizing this year’s campaign.

Link here.


Reinsurance company Swiss Re says it expects claims from four recent hurricanes in the United States and a typhoon in Japan to total $750 million (SFr947.7 million). Swiss Re said that the last major hurricane, Jeanne, which devastated Haiti, would probably result in claims of $150 million alone. In a statement from its Zurich headquarters, Swiss Re insisted it was still aiming to hit its operating target for the year as a whole, but analysts said the size of the estimated claims cast doubt on whether it could now achieve that.

The company is aiming for a combined ratio -- a key measure of profitability in the property and casualty insurance business -- of 96. A ratio below 100 indicates that the insurance business’s costs plus paid and estimated losses were below net premiums. Swiss Re also announced that it would dip into its funds for unforeseen estimates -- known as equalization reserves -- if claims estimates remained at present levels. “If we should use equalization reserves, then we expect that the equalization level will be on the level or around 96%, which we communicated with our half-year results,” commented company spokesman Henner Alms.

Link here.


For much of the 20th century, immigrants into Britain followed, in reverse, the paths trodden by imperial administrators. Ex-colonies in Ireland, the West Indies and the Indian subcontinent supplied the largest groups of settlers. But history and proximity matter less these days. Since 1999, countries outside the Commonwealth and the European Union have been larger net exporters of people to Britain than the other two sources combined.

The 1991 census recorded fewer than half as many black Africans as Afro-Caribbeans in Britain. In 2001, the numbers were 485,000 and 566,000. Since then, the balance has tipped. Four out of the past five quarterly Labor Force Surveys estimate the black African population as equal to or greater than the Afro-Caribbean population, and the most recent survey puts them well ahead at 618,000. The oldest ethnic minority group to arrive in Britain in any numbers has been overtaken by the newest.

Immigration and asylum are part of the reason: last year, African settlers outnumbered West Indians by almost ten to one. But the way the groups behave in Britain also explains the speed of change. Many newly arrived black Africans have large families, while West Indian households are as small as those of whites. That helps to explain why, in 2001, 55% of black Africans in Britain were under the age of 30, compared to just 37% of Afro-Caribbeans. Eventually, weight of numbers will force engagement. Simon Woolley, head of Operation Black Vote, a non-partisan group, says that black Africans are becoming more politically engaged, although they still lag far behind other minority ethnic groups.

Link here.


Political scientist Luke Le Rendu’s book Jersey: Independent Dependency? The Survival of a Microstate was launched this week. D.r Le Rendu said that, “Looking at the situation from a political angle, whatever it says on paper, the UK has many levers of control over Jersey it could use to get its way. At an extreme level, if Jersey’s government were seen to be out of its depth in dealing with some serious situation, such as terrorism, I think that the UK could just intervene and take over control of the Island.

“In less dramatic circumstances, we need to remember that the offshore finance center is essentially dependent on the City; tourism is largely about people coming from Britain, and agriculture about selling potatoes to Britain. All these things can be used to make the Island do what Britain wants. The Queen is the ultimate head of state for the Island, and, being a constitutional monarch, she defers to what the Prime Minister says.”

Link here.


At the British Conservative Party conference in Bournemouth Jonathan Evans, the leader of the Conservative members of the European Parliament, thanked Bernard Hazell from the Gibraltar branch for the outstanding election result there in June, where the party achieved a massive 70% of votes cast. Later in the day shadow Foreign Secretary, Michael Ancram, made the strongest commitment yet to the people of the Rock in his speech saying, “We will end the betrayal and deceit of the last seven years. ... I would never negotiate on sovereignty unless that was the wish of the people of Gibraltar themselves. ... Within a week of winning the election I will formally repudiate the dishonorable agreement reached with Spain by this government to share sovereignty over Gibraltar.”

Link here.


“A year ago, when we at Treasury spoke to many of our colleagues around the world about remittances, why remittances were an important public policy issue, and why remittances were a focal point for the US Treasury, our colleagues looked at us quizzically. You, the members of this audience, have a keen appreciation of the importance of remittances, and I’m pleased to say that now, so do most of our colleagues. ...

“Remittances are different than the financial flows we in the United States are used to dealing with. We have huge computer systems for moving large and small amounts of money around domestically. I can send money anywhere in the US virtually cost free.

“But the cost of international transmission of money can be much higher -- often up to $30 on a transaction of $150 to $300. Why is it so costly? Simply put, the financial infrastructure for moving money efficiently across borders, especially small scale flows, is often weak. ...”

Link here.


Low-key Caribbean can be defined by this round little British West Indies island, 200 miles south of Puerto Rico. Only seven miles long and five miles wide, Nevis is big on natural attractions. There are stunning green mountains and lush rain forests. There are white sand beaches fronting shallow ocean water. There are green monkeys (they came over with British sailors from Africa centuries ago). And there are sheep, lots of sheep, and goats, too -- more sheep and goats than the 10,000-person populace.

It is hard to believe that in the late 17th and early 18th centuries the value of exports from Nevis surpassed those from the colony of New York. In the early 19th century, Nevis actually led the world in sugar production. Today, the main business other than tourism is offshore banking. Religion is big here, too. The island is home to more than 55 churches, including the oldest in the Caribbean still in use -- the 1643 church is on a hillside near the Four Seasons.

A trip into the mountains at least for a day is highly recommended. On this island there is no fast food. There are no casinos. There is little shopping. But there are other delights.

Link here.



Jersey Finance Limited, the finance industry’s representative body in Jersey, in association with the Jersey Bankers Association has released an 8 page guide to the EU Savings Tax Directive for international investors. According to Jersey Finance, the Guide is designed to help clients of financial institutions based on the Island to understand whether they might be affected by the Directive and, if they are, what options they have. In addition to providing answers to frequently asked questions on the topic, a number of technical terms are explained, including the definition for “savings income” and “paying agent”. Several possible case study scenarios are also outlined.

Link here.

New tax measures in Jersey will crack down on avoidance.

Tougher provisions are to be brought in within the next two years to strengthen the anti-avoidance powers wielded by the Comptroller of Income Tax. The provisions are part of a range of proposals being put forward as part of the changeover to zero corporate tax.

Comptroller Malcolm Campbell confirmed that although companies controlled by Jersey residents would pay zero tax (apart from regulated financial services firms, who will pay 10%), under new look-through provisions the profits would be imputed to Jersey-resident participators, which includes any resident who has the power to enjoy the company profits. “... Jersey resident will be assessed on that income, no matter what structures are placed between him or her and the profits, and no matter whether those profits are to be enjoyed as a director, individually, or in the future,” he said.

Link here.


One of the best freebies in the tax code is a provision, passed in 1997, that lets folks exclude $250,000 ($500,000 per couple) of capital gains from tax when they sell their principal residence, provided they have lived in it for two of the past five years. Those who do not meet the two-year test can claim a pro rata share of the exclusion if forced to move by health, a job change or “unforeseen circumstances”. What might that be? In December 2002 the IRS proposed defining it as an event you did not anticipate before buying and occupying the residence. Sounds like a definition you could drive a mobile home through. So taxpayers tried.

Callers started asking the IRS if they could get a partial gains exclusion because their houses had -- unexpectedly -- skyrocketed in value. Others wondered about big raises, or if they should win the lottery. And those who asked are the compliant folks; one can only imagine the justifications given by taxpayers who simply claimed the exclusion.

Finally in August, seven years after the law was passed, the IRS came out with final rules redefining “unforeseen” as an event you could not “reasonably” have anticipated. Death, job loss, divorce, multiple births and a broken marriage engagement all qualify for the break. Marriage, adoption, and an improvement in financial circumstances do not qualify.

Link here.


Britain’s Caribbean tax havens are set to come under renewed pressure from Brussels to lift their jealously guarded banking secrecy. In a document on corporate and financial malpractice, the EC has called time on the opaque financial laws of such offshore investment magnets as the British Virgin Islands and the Cayman Islands. The move comes in the wake of the scandal over Parmalat, the Italian dairy giant that abused the protected status of offshore subsidiaries to hide its financial position. The Commission paper suggests introducing banking transparency into existing EU trade and aid deals with African, Caribbean and Pacific countries and territories. This would give Brussels the power to use such things as banana quotas and development grants as bargaining chips over access to financial information.

Brussels is also offering “economic support” to help “co-operative” territories that open up their financial sectors to scrutiny. Offshore financial centers may have few reasons to surrender to such an approach but the hope is their need to protect a small number of rich people may be dwarfed by the need to access European markets and EU handouts.

The suggestion from Brussels is the latest addition to international lawmakers’ efforts to target offshore financial centers. The Paris-based rich nations’ club, the OECD, has already drafted a blacklist of uncooperative tax havens. Earlier this year, the EU agreed to new laws that require its countries and territories to tax the savings income of foreigners from other European states.

Link here.

John Kerry pledges to wage war on tax havens.

Citing recent studies that show US companies are sheltering profits and shipping jobs overseas to avoid paying US taxes at a record rate, Democratic US presidential nominee John Kerry yesterday pledged to do what President George Bush has not -- crack down on corporate loopholes to save US jobs and taxpayer money. While George W. Bush has chosen fantasyland rhetoric over doing something as jobs have been lost and even pushed for more incentives for companies that export jobs, Kerry said he was offering a new choice and a plan that will create millions of good paying jobs.

Link here.


Both Malta and Switzerland have taken issue with a September 21 report in the UK’s Guardian newspaper entitled “Havens that have become a tax on the world’s poor”, which suggested that the world’s offshore jurisdictions are “locked in a desperate competition” to attract tax evaders from onshore countries.

Responding to the report, which was spurred by the Tax Justice Network’s launch of an international secretariat in London, chairman of the Malta Financial Services Authority, Professor JV Bannister observed that, “By any international definition, Malta is not a tax haven. There is no banking secrecy. Malta’s levels of professional confidentiality are no different from those found in London, Frankfurt or New York. All entities are subject to tax and the basic rate of tax is higher than in the UK.”

Equally incensed was Swiss Ambassador to the UK, Bruno Spinner, who especially objected to the report’s suggestion that assets looted by former Nigerian dictator Sani Abacha had not been returned to the Nigerian people. “Thanks to the tightening of laws against financial crime and their systematic enforcement, the highly performing Swiss financial system has become a high-risk place for illegal funds,” he wrote, explaining that. “For example, the Swiss authorities have ensured that £75 million looted from Nigerian coffers by Sani Abacha have been returned to Nigeria. Another £220 million has been frozen pending the conclusion of legal proceedings instigated by Mr Abacha’s family.”

Link here.

Tax haven debate rages on in The Guardian.

In a published letter which is likely to enrage Malta, Switzerland, and the other jurisdictions dubbed as tax havens still further, Tax Justice Network steering committee member, John Christensen and tax policy advisor to the Network, Richard Murphy issued a response to their arguments.

“We note the letters from representatives of the Maltese and Swiss governments... in which both countries protest that they are not tax havens. The claim is based on the fact that the money they handle is ‘clean’,“ the two men wrote, continuting, “The Tax Justice Network would not dispute that both territories have established systems to tackle money laundering. But that does not stop them being tax havens. They offer substantial incentives to previous non-residents to live in their territories and pay little or no tax. Both offer corporate structures that enable companies to divert their profits to their countries and avoid taxes elsewhere.

“We do not suggest tax haven activity is illegal. What is worrying is that so many countries and professional people around the world seek to divert income from one territory into another to avoid tax payments. ...”

Link here.


On the eve of presidential elections, American lawmakers are being urged to move with haste and approve the amended double taxation treaty between the US and Barbados. A similar urging came two weeks ago from Barbara M. Angus, International Tax Counsel in the US Treasury Department during testimony before the Senate Committee on Foreign Relations on Pending Income Tax Agreements.

On July 14 this year, following many months of negotiations, a second protocol to the 1984 treaty was co-signed by Minister of Industry and International Business, Dale Marshall and US Treasury Secretary John Snow. Offshore industry sources said US officials were keen to have the amended treaty voted into law there and by Barbados’ Parliament to “counter tax evasion”. In her lengthy testimony before the Senate Committee, Ms. Angus said the proposed protocol with Barbados was crucial because it was “negotiated in order to prevent the potential for exploitation of the US-Barbados treaty by US corporations to facilitate inappropriate US tax reductions”. She said the good news was that once ratified the second protocol would prevent “this inappropriate exploitation of the treaty ...”

Link here.


According to Owen Chan, a partner at E&Y, the government should take a progressive approach towards complete abolition of death duty when fiscal conditions permit, likely to be in 2008/2009. “There were changes in circumstances since Estate Duty was first introduced in 1915,” noted Mr Chan, adding that the original objective of the tax when brought in was to “enable the whole community to benefit upon the death of persons who had grown very rich partly through the appreciation in value of assets and the progress of Hong Kong to which the whole community contributed.”

Chan observed that the nature of Hong Kong’s economy has changed greatly during the past ninety years, particularly in the import/export and financial services sectors, and suggested that these changes affect the fundamental principle of the original objective of the tax.

Link here.


The Bush administration raised serious objections about congressional efforts to approve a corporate tax-cut bill this week, warning that the Republican-backed legislation risked growing from a narrow effort to help manufacturers into a complex assortment of special-interest tax breaks. As members of a House-Senate conference committee met last night to begin discussing a final draft of the proposal, Treasury Secretary John W. Snow wrote that the initial House and Senate versions of the legislation had included “a myriad of special interest tax provisions that benefit few taxpayers.”

The 633-page conference committee draft included 170 provisions that, along with helping old-line industries, give tax breaks to restaurant owners, filmmakers, brewers, distillers, bow-and-arrow manufacturers, tackle-box companies, native Alaskan whalers, NASCAR track owners, and importers of Chinese ceiling fans. Those sorts of provisions, Snow wrote to Senate Finance Committee Chairman Charles E. Grassley (R-Iowa), went far beyond the bill’s “core objective” of replacing a set of export subsidies for manufacturers with equivalent tax relief. The export subsidies have been ruled illegal by the World Trade Organization, and they had led the European Union to impose increasingly punitive tariffs on U.S. goods. That basic thrust of the legislation, important to those manufacturers who must keep paying the E.U. tariffs until the law is changed, may now be at risk.

Though Snow did not threaten a presidential veto in his letter and offered to help work out a compromise, sources familiar with the administration’s strategy on the bill said the letter was meant to slow the legislation down until at least after the election.

Link here.

House Republicans try to dilute tax shelter crackdown provisions in tax bill.

Despite widespread agreement that abusive tax shelters are costing the federal government billions of dollars a year, House Republicans are working to eliminate or dilute provisions in a new corporate tax bill aimed at cracking down on illegal shelters. The provisions, opposed by a range of business lobbyists and tax lawyers, are part of a larger battle in Congress over how hard to attack the rapidly expanding use of complex transactions that turn real-world profits into tax-world losses. The issue is coming to a boil in a House-Senate conference committee that has resumed considering a corporate tax bill that would provide up to $170 billion in tax breaks.

With only a few days left before Congress is supposed to adjourn, lawmakers are trying to make hundreds of last-minute changes that could affect tens of billions of dollars in tax revenue. Business groups, ranging from the National Association of Manufacturers to the Business Roundtable, have worked with tax lobbyists and accounting firms to protect the tax shelters.

Both the House and Senate have passed bills that would raise billions of dollars by shutting certain kinds of tax shelters. But House Republicans have balked at several provisions that the Senate passed with broad bipartisan support. One crucial Senate provision, for example, would greatly increase penalties on people who spin complex transactions that serve no other purpose except to avoid taxes. Representative Bill Thomas, chairman of the House Ways and Means Committee, said two weeks ago that the provision was unnecessary and would have a chilling effect on legitimate business deals. Mr. Thomas also opposes a provision in the Senate bill that would allow the IRS to demand that companies promoting tax shelters turn over a list of their customers.

Link here.


Back in 1998, a Virginia Beach restaurateur named John Colaprete appeared before the Senate Finance Committee to describe an IRS run amok, raiding his restaurant and home, terrorizing his family -- all because his former bookkeeper, whom he fired and accused of embezzlement, had run to the agency with a tale of drugs, money laundering and tax cheating. An eager Congress listened attentively to his testimony and that of several other individual taxpayers and businessmen, and in the aftermath voted to restructure the IRS and to pass legislation mandating the firing of any agency employees caught abusing a taxpayer. IRS law enforcement activities shrank sharply. Audit rates and levies, liens and property seizures fell to historic lows, and even now have not returned to their previous levels. Property seizures, which totaled 10,090 in fiscal 1997, dropped to 161 in 1999, and reached only 399 last year. These declines took place at a time when the U.S. economy was expanding rapidly and, as has now become clear, abusive tax shelters grew into a virtual industry.

Colaprete, his restaurant, and others sued the IRS and Virginia officials, seeking $20 million in damages. But the courts appear to have been less convinced than Congress. A federal district court dismissed most of the complaints in 2000, and last week the 4th U.S. Circuit Court of Appeals tossed out those the lower court had left standing. The appellate court found that IRS and other agents acted reasonably when they obtained the search warrant used in the raid. Even though Colaprete was never charged with anything and his records and computers were eventually returned, the court held that the bookkeeper had given the agents enough to support a warrant. The raid may have been a mistake, but agents operated within the law.

The picture painted by the court is hardly one of an agency raging around the country out of control and trampling taxpayers’ rights. Rather it looks more like a lone state trooper trying to enforce a 55 mph zone on a road where half the drivers go 80. But that seems to be what Congress wants. Last month the House voted to cut President Bush’s budget request for the IRS for next year by more than $380 million. The Senate has not yet acted, but if the House funding level becomes law, IRS Mark W. Everson wrote that it would “jeopardize ... enforcement initiatives” and “substantially reduce our ability to hire an additional 4,100 enforcement personnel” which the agency had hoped to do. In fact, the cut would leave the IRS $80 million short of what it needs to pay the enforcement people it hired this year, he added.

Link here.


A key measure in the Government’s strategy to tackle offensive tax avoidance schemes moved forward following the announcement of amendments to the tax avoidance disclosure rules. These changes put beyond doubt that that all promoters, including the legal profession, are able to comply with their obligations without revealing privileged information.

The amended rules will require clients to make a disclosure in place of a promoter where the promoter believes the relevant information is covered by Legal Professional Privilege (LPP). The client would make the disclosure within five days of the first transaction which forms part of the scheme. Clients finding themselves in this position will have to start making disclosures to the Inland Revenue from 19 November 2004. The client would also have the option of waiving privilege, thereby allowing the promoter to make a disclosure on their behalf. The effect of these changes is to ensure the rules operate as intended and apply fairly to everyone in the business of promoting or advising on tax avoidance schemes, including accountants, financial institutions and lawyers.

Link here.



Last year I was the victim of identity theft, a sobering reality in today’s world. An unscrupulous criminal managed to social engineer his way past the formidable security checks and balances provided by my credit card company, my bank, and one of my investment accounts. He methodically researched my background and personal information until he could successfully impersonate me, and then subsequently set forth to change the mailing addresses of my most important financial statements.

It was a harrowing experience, and one worth explaining in the context of the online world. Numerous visits to the local police and the Canadian RCMP revealed some rather surprising things: identity theft is already so common that there are entire units within law enforcement that deal with this issue every day. But as capable as they may be, law enforcement is woefully ill-equipped to track down identity theft that starts online. As a security professional with a healthy dose of paranoia, I was confident that my online identity had not been compromised -- a more traditional approach had been used. But with the sophistication of today’s viruses, millions of others cannot say the same thing.

While not all identity theft starts online, the fact is that online identity theft is now incredibly easy to do. The same methodical, traditional approach that was used to steal my identity by placing phone calls is being sped up, improved upon, and made ever more lethal by first attacking the victim online. Your banking and credit card information can come later. We all know how commonplace these technologies already are: keyloggers, Trojans with remote-control capabilities and even webcam control, and backdoors that give access to all your files. There are millions of these installed on infected machines all over the world, lurking in the shadows. Ever do your taxes on your home computer? All it takes is one Social Insurance Number (or Social Security Number in America), plus some really basic personal information, and you are sunk. To those who still say there is nothing important on their computer that requires them to care about today’s worms and so on, the day their own information is stolen and used against them is growing ever more near.

Link here.


The UK banking industry has warned customers with online accounts to guard against a new wave of cyber fraud. Industry body Apacs said some 2,000 British online account holders had been taken in by scams in the past year, losing £4.5 million among them. Many were duped into revealing their account passwords by phoney e-mails purporting to come from their bank. Others had their computers infected with programs which allow fraudsters to record their log-in details. Apacs is launching a website, banksafeonline.org.uk, which tells online account holders how to protect themselves.

Apacs said account holders should treat all unsolicited e-mails with caution, and should make sure that their computers are fitted with the latest anti-virus software. According to an Apacs survey, 4% of the UK’s online account holders would automatically respond to e-mails that appeared to come from their bank. About a quarter of them have no updated virus checker on their computers, while more than 40% do not have an active firewall, the poll showed. Apacs spokeswoman Sandra Quinn stressed that online bank fraud remained far less widespread than credit card fraud, which has affected one in three of all British cardholders.

Online bank fraud is usually perpetrated by organized crime groups, often based in eastern Europe and the former Soviet Union. The proceeds of the scam are typically transferred to British accounts held by local accomplices, who then wire the money overseas in exchange for a commission.

Link here.


Rosemary Marr, Step chairman in Jersey, said that the Island was setting standards for the rest of the world in requiring practitioners to have a relevant professional qualification, at a time when the UK had not yet introduced regulation for trust providers. “It is comforting to know that, depending on when (not if) they implement the EU directive, the rest of Europe will have to catch up with us in order to achieve that famous level playing field,” she said.

Link here.



The US has reiterated that it wants EU states to be ready to abide by new US biometric passport rules by next October, after the EU requested a new delay in their implementation. The EC said that EU states will not be ready in time for the introduction of the smart passports, which include indicators such as a digital photos and fingerprints on a computer chip. But US Under Secretary for Border and Transportation Security Asa Hutchinson indicated no change in the US position. “The increased sense of urgency I think will move them forward and we expect full compliance with that, as Congress ... indicated, in October 2005,” he told reporters in Brussels.

The current deadline gives 27 countries in the so-called Visa Waiver Program until October 26, 2005 to issue biometric passports so their citizens remain eligible for travel to the United States without visas. Initially, the EU had asked Washington for a two-year delay from this October and this was backed by the Bush administration, but voted down in Congress.

Link here.

Kiwis to get biometric passports starting next July.

New Zealand Internal Affairs will start issuing New Zealanders with biometric passports from July next year. Each passport will have a microchip containing a digital photograph, eye coordinates along with an electronic copy of all the information printed in the passport. If the Kiwis do not do it, then New Zealand citizens who want to visit the US will have to travel to Auckland to sit an interview for an entry visa. Clearly the US is terrified of New Zealand terrorists who are legendary for being able to achieve much armed only with number eight fencing wire.

Link here.


Canadian Imperial Bank of Commerce Visa customers were sent an amendment to their cardholder agreement this month warning their financial information could be disclosed in accordance with U.S. laws. NDP MP Brian Masse criticized the Canadian government yesterday for not challenging controversial American legislation, such as the U.S. Patriot Act, which was passed in the wake of 9/11. Canada’s complacency, he said, could now lead to privacy violations. In recent years both CIBC and RBC Financial have outsourced their credit card operations to a Georgia-based company called Total System Services, which means that Canadian cardholder information now falls under U.S. legislation. Spokespersons with Scotiabank and Bank of Montreal said all their operations are in Canada so American legislation does not affect their customers. At TD Financial Group, only people holding the U.S. Dollar Advantage Visa are affected.

Masse interprets the notice to mean that Canadians are now affected by Section 215 of the U.S. Patriot Act, which greatly expands the powers of the FBI. A lawsuit launched by the American Civil Liberties Union, currently before the U.S. District Court in Michigan, strives to have that section of the act ruled unconstitutional.

Link here.


In an unassuming office building on a leafy street near Dane County Regional Airport, a couple rooms of computer equipment are quietly changing the nature of law enforcement in Wisconsin. When they are clicking into action, most people will not even know they are there. And that is the point. They are wiretap machines, meant to allow police to listen in on the private phone conversations of suspected criminals. For years, police here rarely resorted to wiretaps, which require a court order, and that was mostly limited to cases involving severe violence or the threat of it. On average, it happened less than twice a year.

Now it happens more than once a month, due in large part to new computer technology that has streamlined much of what officials describe as a cumbersome, painstaking process. It included tracking down the phone company’s switching equipment, setting up huge recorders and manually starting them with each call, and amassing half a room’s worth of tapes, then methodically indexing them all.

“You’d have to have three reel-to-reel recorders for every line you’d want to wiretap,” said Edward Wall, a special agent for covert surveillance in the state Department of Justice. Wall held up a disk drive from the new system he said could hold 900 hours of recorded conversations, indexed at least half a dozen different ways. It was a little bigger than two CD cases held together, and, he said, held the power to make Wisconsin investigators much more willing to ask for wiretaps to investigate crime. “When they find these are not as hard as they used to be, that mind-set is changing,” Wall said.

Link here.


The Bush administration -- specifically, the Department of Homeland Security -- wants the world to agree on a standard for machine-readable passports. Countries whose citizens currently do not have visa requirements to enter the United States will have to issue passports that conform to the standard or risk losing their nonvisa status. These future passports, currently being tested, will include an embedded computer chip. This chip will allow the passport to contain much more information than a simple machine-readable character font, and will allow passport officials to quickly and easily read that information. That is a reasonable requirement and a good idea for bringing passport technology into the 21st century.

But the Bush administration is advocating radio frequency identification (RFID) chips for both U.S. and foreign passports, and that is a very bad thing. These chips are like smart cards, but they can be read from a distance. A receiving device can “talk” to the chip remotely, without any need for physical contact, and get whatever information is on it. Passport officials envision being able to download the information on the chip simply by bringing it within a few centimeters of an electronic reader. Unfortunately, RFID chips can be read by any reader, not just the ones at passport control. The upshot of this is that travelers carrying around RFID passports are broadcasting their identity.

Think about what that means for a minute. It means that passport holders are continuously broadcasting their name, nationality, age, address and whatever else is on the RFID chip. It means that anyone with a reader can learn that information, without the passport holder’s knowledge or consent. It means that pickpockets, kidnappers and terrorists can easily -- and surreptitiously -- pick Americans or nationals of other participating countries out of a crowd. It is a clear threat to both privacy and personal safety, and quite simply, that is why it is bad idea.

The Bush administration is deliberately choosing a less secure technology without justification. If there were a good offsetting reason to choose that technology over a contact chip, then the choice might make sense. Unfortunately, there is only one possible reason: The administration wants surreptitious access themselves. It wants to be able to identify people in crowds. It wants to surreptitiously pick out the Americans, and pick out the foreigners. It wants to do the very thing that it insists, despite demonstrations to the contrary, cannot be done.

Links here and here.


Finally, someone has articulated a reason why it is good that companies will spend billions of dollars to put radio-frequency identification (RFID) tags on absolutely everything ever sold. It has nothing to do with Wal-Mart -- the most powerful entity in the universe -- ordering suppliers to adopt RFID. Nor does it have anything to do with supply chain management, logistics, enterprise resource planning or any other topic that could clear a barroom if brought up in conversation. RFID will be worth it so we can have a pickup robot.

Although the pickup ‘bot is probably more than a decade away, here is how it might work: Every item in your house -- socks, eyeglasses, Cheez-It boxes, hockey sticks -- will eventually come from the store with a tiny, almost invisible RFID tag attached. The tag will contain some information about its item, like “I am a box of SpongeBob Cheez-Its that expired last February.” The tag will be able to transmit that data wirelessly over a short distance. This will be the norm in 10 years. Though these days you hear a lot of debate about RFID’s cost and its privacy issues and other messy details, the technology will happen.

Anyway, once RFID is on everything, you might buy a robot -- perhaps a squat dervish that looks like a Roomba vacuum cleaner, but with pincer arms that can telescope to reach high shelves. And it would come outfitted with an RFID reader. Maybe this pickup ‘bot will be called the Fetch-ba. The first day you get a Fetch-ba, you clean the house and make sure everything is in its place, Ashton says. You turn on your Fetch-ba and set it to “learn” mode. It traverses your house, picking up RFID signals and learning where every item belongs. Once that is done, you set the robot to “fetch” mode. The Fetch-ba wanders the house. When, for example, it goes into your kid’s room and finds that a bulldozer would be necessary just to clear a path, the Fetch-ba reads the RFID signal of each strewn item, cross-checks the information with its knowledge of where things belong, then picks up the items and puts them away. Voilà! Major parenthood problem solved.

Link here.


The ACLU of Northern California, the American Arab Anti-Discrimination Committee, the Bay Area Association of Muslim Lawyers, and the National Lawyers Guild announced that they will closely monitor a new government plan to use “aggressive -- even obvious - surveillance” tactics in advance of the November 2nd general election. “The sweeping nature of the government surveillance plan focuses broadly on mosques and individuals who are unlikely to have any connection to criminal activity,” said Dorothy M. Ehrlich, Executive Director of the ACLU of Northern California. “Whenever there is a terrorist threat, we want the government to do everything it can to protect us, but casting blanket suspicion on an entire religious and ethnic community is poor law enforcement as well as counterproductive.”

The civil rights groups are urging individuals to consult with a lawyer before talking with agents, and are distributing 20,000 “Know Your Rights” brochures in Arabic, Urdu and English, which explain what to do if the FBI or immigration agents contact persons for questioning.

According to several national news reports, the FBI plans to launch aggressive and open surveillance of persons and their families suspected of being terrorist sympathizers, but who are not suspected of any crime. The reports say that mosques will be revisited and worshippers questioned. This is particularly disturbing for the Muslim community, which is beginning Ramadan this month, and has also been controversial within the FBI. As part of the plan, the Bureau of Immigration and Customs Enforcement has begun a new round of questioning and arrests of persons suspected of immigration violations.

Link here.


A Senate bill would let government counter-terrorist investigators instantly query a massive system of interconnected commercial and government databases that hold billions of records on Americans. The proposed network is based on the Markle Foundation Task Force’s December 2003 report, which envisioned a system that would allow FBI and CIA agents, as well as police officers and some companies, to quickly search intelligence, criminal and commercial databases. The proposal is so radical, the bill allocates $50 million just to fund the system’s specifications and privacy policies. The bill is sponsored by Joseph Lieberman (D-Connecticut) and Susan Collins (R-Maine), and was based on recommendations of the so-called 9/11 Commission.

To prevent abuses of the system, the Markle task force recommended anonymized technology, graduated levels of permission-based access and automated auditing software constantly hunting for abuses. An appendix to the report went so far as to suggest that the system should “identify known associates of the terrorist suspect, within 30 seconds, using shared addressees, records of phone calls to and from the suspect’s phone, e-mails to and from the suspect’s accounts, financial transactions, travel history and reservations, and common memberships in organizations, including (with appropriate safeguards) religious and expressive organizations.”

But task force member James X. Dempsey, director of the Center for Democracy & Technology, says the commercial records involved are more limited public records, such as home ownership data, not information about what mosque someone belongs to. The proposed network would not look for patterns in data warehouses to attempt to detect terrorist activities, Dempsey said. Instead, an investigator would start with a name and the system would try to see what information is known about that person. But critics say the Senate is moving too fast and the network could infringe on civil liberties. Despite being a supporter of increased information sharing, Robert Griffin, president of Knowledge Computing, criticized the proposal for trying too much too soon and relying too heavily on commercial data. “The next Mohammed Atta is not going to be found in commercial databases,” Griffin said.

Link here.


A state appeals court ruled that prosecutors did not violate the privacy rights of Rush Limbaugh, the radio commentator, when they raided his doctors’ offices and seized his medical records while investigating his use of painkillers. Investigators raided the offices in November to see whether Mr. Limbaugh had engaged in “doctor shopping”, illegally seeing different doctors to obtain duplicate prescriptions. Mr. Limbaugh, 53, has not been charged with a crime. The investigation was awaiting a decision on the records, which prosecutors have not been allowed to examine.

The Court of Appeals for the Fourth District rejected Mr. Limbaugh’s contention that his privacy rights trumped the power to seize his files and said prosecutors did not have to notify him of the search warrants or let him challenge them. Mr. Limbaugh’s lawyer said he would appeal.

Links here and here.



Criminals and terrorists are devising new ways to launder money and move it around the world, even as authorities are tightening the rules to stop them, bankers, regulators and investigators say. At a conference in Vienna this week, speakers noted that, at the most primitive level, this can mean physically smuggling cash across borders, especially using high-denomination notes like €500 bills. At its most sophisticated, it may involve recruiting legal and financial professionals as “gatekeepers” to set up complex webs of holding companies via offshore tax havens.

Over three days of meetings, some bankers voiced frustration at the cost and complexity of implementing anti-money laundering rules, including the constant lookout for transactions by individuals designated as terrorists on international sanctions lists. “You will never find an account ‘Osama bin Laden. Profession: terrorist. Address: Kabul,’” said Albert Cluckers, a senior compliance official at Dutch bank ING. “It’s purely a political issue. Economically speaking, it’s a huge investment for a very, very low result. At the end, it’s the customer who is going to pay for all this.”

In the EU, a new directive due for approval this year will force banks to scrutinize more closely the ultimate beneficial owners of accounts. EU anti-money laundering rules already apply to professions including lawyers, accountants, estate agents, art dealers and casinos and will be extended to cover anyone accepting cash payments over €15,000. Experts said such measures, while essential, would mean money-launderers would seek new ways to circumvent the system.

Link here.

Two Swiss found guilty of money laundering in corruption scandal.

Two Swiss found guilty by a Geneva court of money laundering in connection with France’s Elf Aquitaine bribery scandal have been given suspended sentences. Two co-defendants were acquitted of the same charges, which related to the illegal transfers of SFr46 million ($36 million) from Liechtenstein to Switzerland. The five Swiss were accused of acting on behalf of former Elf director Alfred Sirven, 77, who was sentenced to five 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. “Without a doubt, both understood that the sums involved were the proceeds of a criminal act,” said Judge Antoinette Stalder.

Link here.


A New York judge did the right thing last week when he threw out a USA-PATRIOT Act provision that forced ISPs to secretly co-operate with the FBI, and gave them no obvious avenue for appeal. It is “under the pressing exigencies of crisis that there is the greatest temptation to dispense with fundamental constitutional guarantees which, it is feared, will inhibit government action.” In essence, the court objected to the USA-PATRIOT Act’s thesis that the enemy of the US government was a bunch of old men in robes. No, not the Taliban -- the federal judiciary.

There are many ways for the government to get your ISP information. They can simply ask for it, and in many cases, ISPs have been more than willing to pony it up. If there is a criminal investigation, they can get a search warrant from a magistrate. They can issue a subpoena in the name of a federal or state grand jury. For foreign espionage and related cases, they can get a warrant from a special “FISA” court without having to show that there was a crime committed. In civil cases (say, your average defamation case, or copyright infringement) they can just issue a subpoena duces tecum to the ISP. Finally, many government agencies have the authority to -- on their own, and without the courts -- issue what are called “administrative subpoenas”, which do not require a judge’s approval in advance, but still cannot be enforced without going to court. So the old guys in the black robes can eventually get involved in all of these methods of getting your ISP information.

Let’s face it, terrorism investigations are a special breed, and disclosure of their existence and direction can imperil not only the investigation itself but also the lives of government agents, sources, cooperating witnesses, and potentially thousands of innocent potential victims of future terrorist attacks. Courts may not always appreciate the sensitivity of individual pieces of information, and certainly ISPs are unlikely to be able to discern what information should be secret, and what information may safely be revealed. Thus, there is an understandable justification for the government’s desire to protect these sensitive investigations. But the Patriot Act completely bypassed the federal judiciary. The courts had essentially no role in the process. They were precluded from determining if the government’s claim that there was a terrorism investigation was supported by any evidence at all. And there are no sanctions if the government is wrong or deceptive. By taking the courts completely out of the loop, Congress went too far.

Link here.

ACLU blasts Justice Department’s attempts to manipulate truth about Patriot Act ruling.

In what appears to be a concerted campaign to mislead the American public, the Department of Justice and some of its Republican allies in Congress are attempting to minimize the impact of landmark ruling against so-called National Security Letters and the provision of the Patriot Act that broadened their use by the FBI. “The Justice Department should spend less time spinning this landmark decision and more time trying to fix the law,” said Anthony D. Romero, Executive Director of the American Civil Liberties Union, which brought the successful challenge to the Patriot Act provision along with the New York Civil Liberties Union.

At issue is a Sept. 29 ruling by a federal court striking down a provision that gave the FBI virtually unchecked authority to issue “National Security Letters” to obtain sensitive customer records from Internet Service Providers and other businesses without judicial oversight. The Patriot Act dramatically expanded that provision by permitting the FBI to obtain records of people who are not suspected of any wrongdoing.

A Senate Republican Policy Committee analyst claimed that news reports that the ruling had invalidated a Patriot Action provision were “false”. The analyst said that because the court’s ruling also struck down the underlying 1986 law that the Patriot Act amended, the decision should not be viewed as a blow to the Patriot Act, as reported by many national newspapers. ACLU Associate Legal Director Ann Beeson called the e-mail message a desperate attempt to insulate supporters of the Patriot Act from criticism. “There is no question that the court struck down a provision of the law that was dramatically expanded by the Patriot Act.”

Link here.


Government regulations to prevent money laundering and isolate enemies have been in effect for years. But their scope was extended by the USA Patriot Act after 9/11. Today, nearly every financial transaction in the country is subject to review to ensure it is legitimate and does not involve a proscribed person or organization. Direct marketers who never considered themselves part of the financial industry now are obligated to perform such checks, under threat of severe penalties if they make a mistake.

The burden of surveillance falls directly on the businesses themselves. Other than making its various watch lists available and setting basic rules, the government largely relies on each firm to execute the requirements as it sees fit. Only suspicious activities are reported to the authorities. For people concerned about the government spying on them, this is good. So long as they are not already on a watch list and do not do anything unusual, the government never hears about them. Thus, the threat to privacy is minimized. The government’s ability to identify suspicious behavior is minimized as well, but the practical difficulties of doing this are so great that this probably does not matter.

Businesses, which have to do the work, may see fewer advantages to this approach. In a way, it is amazing that the economy has not ground to a halt with all the extra checking that’s supposed to be going on. Maybe the requirements are less burdensome than they seem. Or maybe a lot of businesses just are not complying and the government has not insisted. Most likely, it is a bit of both. Though the government has been clear about the penalties for letting a forbidden transaction slip by, it has been vague about what constitutes an acceptable level of diligence in preventing such mistakes.

Link here.


Despite three years of outcry from activists who say the Bush administration has been sacrificing basic individual rights in the name of preventing terrorism, other issues in the presidential campaign have drowned out the protection of civil liberties. Senator John F. Kerry, determined to demonstrate that he can be trusted to protect the country from terrorists, says little on the subject beyond using “end the era of John Ashcroft” as a generic applause line and calling for modestly stronger oversight of a few of the new police powers provided by the USA Patriot Act, a law Kerry voted for.

President Bush, meanwhile, has staunchly defended the Patriot Act, and his administration has asked Congress for even greater surveillance powers to fend off potential terrorist attacks. In the immediate aftermath of Sept. 11, two out of three Americans said some civil liberties had to be given up to fight terrorism. But a recent Pew Foundation poll indicated that half as many Americans now hold that view. Still, protection of civil liberties does not rank high as a concern among most voters this year. The Iraq war and the US economy are the big issues. For civil libertarians who have spent the past three years trying to raise public awareness of the risks that go along with new police powers, that sentiment is frustrating.

Link here. The Democratic candidate is no friend to the Bill of Rights -- link here.


Characteristically, Mr. Kerry now denounces the Patriot Act, although he voted for it. “Most of [the Patriot Act] has to do with improving the transfer of information between CIA and FBI, and it has to do with things that really were quite necessary in the wake of what happened on September 11,” Mr. Kerry bragged to New Hampshirites on August 6, 2003.

Members of the new Coalition for Security, Liberty and the Law unswervingly advocate the Patriot Act as a shield against homicidal Islamofascism. “We write to express our strong support for the U.S.A. Patriot Act and concern about misinformation about the necessary legal tools it provides to battle al Qaeda and other terrorist enemies,” states a Sept. 23 letter to congressional leaders signed by former New York City mayors Rudy Giuliani and Ed Koch, ex-CIA chief James Woolsey, actor Ron Silver and 66 other leading Americans. By boosting penalties for terrorism, dragging analog-era surveillance laws into the digital age and tearing down the wall that divided American spies from cops, the Patriot Act has helped thwart numerous terrorist conspiracies.

Civil-libertarian purists nonetheless see the Patriot Act as the birth certificate of an American police state. But the Justice Department’s inspector general found only 17 Patriot Act-related complaints through December 2003 that merited investigation and substantial review. That is a rather low error rate, given millions of contacts over two years between Justice employees and average citizens.

Link here.


In America’s war on terror, cutting off the financial flow to the bad guys is a key goal. But it is a particularly elusive one. Even when a patriotic U.S. bank spots something suspicious, it may be hard-pressed to do much about it. And so it is that Citigroup, the world’s largest financial institution, finds itself confronting the fact that a bank it partly owned and managed in Saudi Arabia may have funneled thousands of dollars to terror groups and to the families of Palestinian suicide bombers -- at the behest of the Saudi royal family.

The allegations involve Saudi American Bank, also known as Samba, the Riyadh-based affiliate in which Citi had a 20% stake. In late 2002 Samba was added as a defendant in a federal lawsuit filed by relatives of Sept. 11 victims against prominent Saudis and charities to which they appeared to be connected. The suit, prosecuted by Washington, D.C. lawyer Allan Gerson, among others, alleges that Samba “participated in the fundraising campaign in Saudi Arabia for collecting donations to the heroes” of the Palestinian uprising. Samba has filed a motion to dismiss.

Now Gerson is eyeing an additional suit against Citigroup and has lined up as possible plaintiffs 450 people who have lost relatives or themselves been injured in terror attacks in Israel. Similar allegations could end up being made against a few other Western banks that own stakes in Saudi institutions. A weak point in the plaintiffs’ case is that there may be no evidence that any money went directly from their Saudi affiliates to terrorists. Yet another issue is that, given Saudi banking laws, any foreign bank could not have easily uncovered or thwarted such funding.

Citigroup had run Samba under a management contract since 1980. At one point Citigroup had 30 people at Samba, including the managing director, the treasurer and chiefs of a few departments. Samba was treated as a Citi outpost, with access to all parts of Citi’s network, auditing teams, new technology and marketing expertise. Samba, the second-largest bank in Saudi Arabia, with a 12% share of bank profits in the kingdom, earned $383 million in 2003. It was the linchpin of Citi’s close ties to the Saudi elite. Citigroup’s problems began in 2000, when Saudi Arabia’s royal family issued an edict requiring large banks in the country to create a charitable account that would channel donations to “martyrs” of the Palestinian uprising.

Link here.


One of the most controversial aspects of the war on terror proclaimed in the aftermath of the terrorist attacks of September 11 is the Uniting and Strengthening America By Providing Appropriate Tools Required to Interrupt and Obstruct Terrorism Act of 2001, which has been mercifully shortened for common reference to the USA PATRIOT Act. Passed with little debate in the aftermath of the attacks, and signed into law by President Bush on October 26, 2001, the act made a number of changes in federal laws regarding such things as immigration law to try to prevent terrorists from entering or remaining in the country; banking law, to try to detect money laundering to support terrorist organizations; and access to electronic information. One of the more controversial aspects of the Act is its effect on monitoring or disclosure of private communications by the government.

There have been numerous court challenges to some of the Act’s provisions. Last week a federal judge in New York ruled that an important component of the Act related to Internet service providers and telephone records was unconstitutional. The debate over the balance between giving law enforcement the tools to gather intelligence to fight terrorism, and the risk of abuse of constitutional privacy rights of American citizens will continue. Some of the more expansive provisions of the Patriot Act had “sunset” clauses, meaning they are set to expire on specified dates. Hopefully there will be meaningful debate over the wisdom of extending these laws or making them permanent so that these competing interests can be fairly weighed.

Link here.



When asked for their solution to the mess in Iraq, both of America’s presidential candidates -- Tweedledumb and Tweedlephony -- advance the same line, “train more Iraqi security forces.” Once enough Iraqis have been trained, they suggest, American troops can be withdrawn and our puppet Iraqi government can stand on its own six legs. Unfortunately, the problem is not training, but loyalty. All the training in the world is worthless if the people being trained have no reason to fight for those who are training them. And a paycheck is not much of a reason, especially when the fellow Iraqis they are to battle are fighting for God.

As is so often the case in Fourth Generation war, the most useful way to look at the situation is through the prism of John Boyd’s three levels of war, the physical, the mental and the moral. On the physical level, American-trained Iraqi security forces may have advantages over their Fourth Generation opponents. American training in techniques is often very good. While we are not giving the Iraqis equipment as good as our own (a big mistake on the moral level), it may be better than that of their enemies. With salaries of about $200 per month, our mercenaries are among the best-paid men in Iraq.

Unfortunately for us, as soon as we consider the mental and moral levels, which Boyd argued are more powerful than the physical level, the advantage shifts. At the mental level, the Fourth Generation elements have already gotten inside the heads of Iraqi police and National Guardsmen. How? By killing them in large numbers. More than 700 have died in the past year, with many more wounded. At the moral level, the position of the Iraqi police and Guardsmen is almost hopeless. They are being paid to fight their own countrymen and fellow Mohammedans on behalf of an occupying foreign power that is also (nominally) Christian. When Bush and Kerry argue that we can avoid defeat in Iraq by training more Iraqis to do the fighting for us, they are indulging in a grand illusion.

Link here.


Forty years ago, Phyllis Schlafly wrote a little paperback book, A Choice, Not an Echo. Four decades later, the choice is between Skull & Bones Member A and Skull & Bones Member B. Some choice. This year, it’s Yale vs. Yale. In 2000, it was Yale vs. Harvard. Some choice. Over the last four years, the stock market has gone nowhere. The official, on-budget Federal deficit has soared. The trade deficit has soared. The savings rate has tanked. Outsourcing is continuing. The nation is at war. What is the next President going to do about all this? President Bush says “More of the same, but this time, it will work.” Senator Kerry says “More of the same, unless I change my mind again, but this time, it will work.”

The fact is, the world economy is beyond the ability of politicians to shape, short of nuclear war. The more interdependent the economy is, the less influence that politicians in any nation possess to gum things up or make things better. The good news is that we are seeing the erosion of state power. It is happening slowly. Politicians gain votes by promising to make things better. The fact is, there is very little they can do to make things better. What is even more amazing, there is progressively less and less they can do to make things worse. The state’s loss of economic influence, one way or the other, upsets the socialists who write the textbooks. They prefer to ignore it. Meanwhile, the loss of state power seems unbelievable to anti-socialists, who have spent their lives battling the socialists who write the textbooks. They cannot admit that the system of government spending is in autopilot mode, no matter who wins elections.

This means that the Federal government cannot protect most Americans from the economic consequences of their individual actions. This is bad news for socialists, who believe in the creative power of the state. It is also bad news for people who are not able to compete economically. For tens of millions of American voters who still think that politicians are in a position to protect them from economic forces that seem to threaten them, a Presidential election year offers what they think is hope. The bad news for them is that it does not. Yet that is really not bad news. It is very good news. But it takes economic understanding to recognize this.

Every four years, American voters are given the opportunity to decide who will be President for a four-year term. Voters have no direct control over the real political rulers of America: five Supreme Court members. Similarly, voters have little control over the House of Representatives. Of the 435 seats, only about 30 are up for grabs every two years. The gigantic size of the Federal bureaucracy, with its predictable and ever-expanding budget, is barely affected by politics. The bureaucrats in fact rule America. The faces at the top change every four years or eight years. The actual operations of these bureaucracies change little. The system keeps rolling along. Voters have nothing to say about it one way or the other. Choice? No. Echo? Yes.

Voting is an act of promoting one’s religion, i.e., one’s worldview. It means picking up a ballot instead of a gun, so that people you approve of will possess the lawful authority to pick up a gun in your name. When push comes to shove, and political issues seem to be life-and-death issues, we go out and use our ballots to make sure that “our guys” have control of the guns. No candidate is willing to admit in public that he and his agents intend to stick guns in the bellies of the political losers, but this really is the plan. When a politician says “Trust me”, he means, “Trust me to use the gun on that guy over there, not you.” He is lying, of course. He intends to stick the gun in your belly, too. Voters are beginning to figure out that the guns will be used on them, no matter who is elected. The bureaucracy holds the guns, and no President can do much, one way or the other, to prevent the bureaucrats from using these guns in a way that is convenient to them. The system is too large to control.

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