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ASIA’S NEW BIG SPENDERS
The Chinese are now the “New Japanese”, meaning they are status-conscious, wealthy and hungry for brands, and are fanatical shoppers. That is why so many luxury labels are busy setting up shop in the major cities, including Louis Vuitton, which has just expanded its Shanghai store.
Vuitton, Armani, Prada, Ermenegildo Zegna, Rolex and Cartier are among the luxury names that have rushed in to take advantage of growing Chinese affluence and consumerism. While owning a designer item for the Chinese male consumer is still mostly about acquiring status, for many women, it is about achieving independence and feeling good. “Women in Shanghai are very sophisticated, we pamper ourselves and love designer brands,” said Vankee Wang, account manager for Metro-GC Advertising (Shanghai) Inc.
One major hiccup is piracy, which can pose a threat to the exclusivity of luxury brands. As the “factory of the world”, China has emerged as a center for counterfeit goods, producing imitations that are sold at a tiny fraction of the price of the real stuff. Piracy or not, the growing number of well-heeled consumers has ensured the survival of designer brands in China.Link here.
DEVASTATION AND DESTRUCTION LINGERS ON IN GRAND CAYMAN
Hurricane Ivan’s impact on the 76 square mile Caribbean Island (normal population 45,000) must rank as the most underreported story of the season. “It’s like a nuclear bomb without the radiation,” said one businessman who wanted to remain nameless. Those Caymanians sufficiently recovered from shell shock to explain what has happened to their country typically describe what they are seeing in such terms. And it is hard to disagree -- physically, and visually, the scene is apocalyptic. Three quarters of the coastline is one endless series of ruin. Dozens of neighborhoods have been depopulated with residents living in hurricane shelters or evacuated off the Island.
On a Saturday morning tour of about half of the Island we saw no more than about 200 people -- the Government’s ballpark estimates is that between eight and ten thousand people left the Island after the hurricane could be grossly understated. Most of the evacuees left after Ivan and are yet to return perhaps because of the “fright of what happened” one woman said. Those that stayed in their neighborhoods are doing what they can to repair their homes and return to some semblance of normality. But it is clear that full restoration will take years without additional help.
At South Sound, an affluent neighborhood with beachfront palatial mansions, not one house escaped severe damage. The once tree lined main road, about a mile and a half long, is denuded. A rumour that made the rounds was that the bodies of 250 people who died in the storm were being hidden in freezers in a supermarket. That was, of course, also vigorously denied by government officials, but residents are finding it hard to reconcile the storm’s fury with the official death count of just two people. To appreciate their scepticism, consider that 8-foot high waves were lashing houses 15,000 feet from the coastline. Consider also that Ivan unleashed its wrath for a full 36 hours, and that for about four hours the vast majority of the Island was flooded. And consider that about half of the Island’s 14,000 registered cars have been totaled -- many as a result of salt water damage, but many others from being tossed around the Island.Link here.
Liquidity Crisis? (Humor)
Hurricane Ivan ripped through the Cayman Islands at 150 miles an hour. I saw it on television with Bootstrap McDoogle. “No, no, no,” he said, sticking his head into his hands.
“No one likes hurricanes,” I told him, “but it’s an act of God.”
He said, “My money is in an offshore bank account there and now it's floating out to sea.”
“I thought tax shelters were insured in the Cayman Islands.”
“They are,” he answered, “but not for water, wind or tree damage. My safe deposit box was two feet above sea level, and I thought it could withstand any storm.”
“Why didn’t you wrap your bills in Saran Wrap?”
“People with offshore accounts think a hurricane is going to hit the guy in the next safety box, not them.”Link here.
FOREIGN INVESTMENT HAS A LIFELINE
Research Worldwide believes countries today that are dependant on foreign direct investment (FDI) to sustain economic lifeblood and contribute substantially to their gross capital formation, should remain as foreign investor friendly as possible. It might be noted that for the most part, developing countries require FDI net inflows to contribute at least 10% toward their gross capital formation or gross domestic investment. Commercial real estate tends to benefit a great deal from this inflow of FDI as gross capital formation includes fixed assets such as land improvement, offices, commercial and industrial buildings, private residential buildings, schools, and hospitals.Link here.
SOME THOUGHTS ON LATIN AMERICA
Much of Latin America is a bunch less developed than North America and Western Europe. On the whole, the región does not suffer a lot from pollution. There are exceptions like Mexico City and Sao Paulo. But they are exceptions to the rule. When you live in an environment that tends to be less industrialized and cleaner than regions in the developed world, you feel more at ease after a while. I am not saying that the less developed a country is the more you feel at ease there and the more quality of life it offers. Instead, in the course of time yours truly has learned to appreciate the quality of life in countries that show characteristics of both the developing and the developed world. Countries like South Africa and Mexico. There are loads of those countries in Latin America.
Knowing a few spots all over the globe to which you can withdraw to enjoy an upmarket and quiet lifestyle at the same time makes life very pleasant as well. Spots like Waiheke Island in New Zealand and the Channel Islands in the English Channel. Or Teopan Island in Latin America. Teopan Island is located in El Salvador, a little less than an hour from the country’s capital San Salvador. Teopan Island may be described as an exclusive resort that tends to attract high net worth local as well as international folks. The beautiful resort is situated in a volcanic crater. If you are into things like unspoiled nature, it may be your cup of tea. The climate deserves to be called virtually perfect throughout the year. The resort is virtually a secret. The residents there so far tend to be well heeled movers and shakers from El Salvador and Central America in general. In a nutshell, Teopan Island resort attracts folks who value nature, privacy and exclusivity.
Since the financial meltdown in Argentina and the trouble in Venezuela, investors have looked at Latin America as a whole rather critically. As far as investing in Latin America is concerned, there appear two prevailing moods. The thundering herd either sees vast opportunities or insurmountable obstacles. It may be a good idea to reckon that the truth is somewhere in the middle. It may also be a good idea to keep a healthy distance to the thundering herd. However, let us keep one thing in mind. The región is producing millionaires at a rate five times that of the United States or Europe. Latin America’s high net worth individuals represent 3% of the world’s high net worth individuals, but they hold about 13% of that group’s wealth. Do you reckon that these figures contain a message about Latin America’s potential?Link here.
UP TO ONE MILLION SWISS COULD BE FORCED TO RELINQUISH A PASSPORT
Triumphant after voters threw out proposals to ease citizenship restrictions last month, the People’s Party has now set its sights on abolishing the right to dual citizenship. The law was revised in 1992 since when Swiss citizens have been allowed to hold more than one passport. Reversing the legislation would affect about a million Swiss citizens, taking into account the approximately 434,000 dual citizens living abroad.
In most countries, citizenship has historically been based on one of two principles: the right of territory (“jus soli”) or the right of blood (“jus sanguinis”). Countries like the United States and France adhere to the former, granting citizenship almost automatically to anyone born in the country. They usually also permit citizens to hold more than one passport. The U.S. prefers a “don’t ask, don’t tell” approach, treating all citizens as Americans, and ignoring the fact that a citizen may be in possession of another passport. Indeed, U.S. legislation contains no provisions governing dual nationality. Germany and Italy, by contrast, have historically granted citizenship only to people who can prove they are “German” or “Italian” by blood.
Switzerland’s Federal Office of Immigration, Integration and Emigration (IMES), says tightening the rules regarding dual nationality is fraught with problems. Attempts in neighbouring Italy to outlaw dual citizenship failed because the rules proved impossible to enforce. And even if countries successfully compel citizens to choose one nationality, there is nothing to prevent them from re-gaining the one they gave up at a later date.Link here.
Rightwing risks wrath of Swiss abroad.
Expatriate Swiss have vowed to give the rightwing People’s Party a bloody nose if it pushes ahead with plans to end dual nationality. Jean-Paul Aeschlimann, vice-president of the Organization of the Swiss Abroad, said that such a move would incense the 600,000-strong community.Link here.
CHINA EASES CONTROL ON OVERSEAS INVESTMENT
China has announced a marked easing of its controls on overseas investment by local companies and has streamlined application approval procedures. The new regulations, issued by the Ministry of Commerce, are an attempt to support Beijing’s “Go Out” policy of encouraging overseas investment. Officials see the strategy as a way of ensuring that China’s strongest companies can better tap overseas markets and international expertise by helping them to acquire or develop operations abroad.
Many Chinese corporate leaders harbor ambitions to become global players, not just low-cost export manufacturers. Beijing also hopes that its state-controlled oil groups and other resource companies can secure overseas reserves. China Minmetals, the country’s flagship metals group, is in exclusive talks to acquire Noranda, the Canadian metals producer, for an estimated $5.5 billion. Under the new commerce ministry rules, the government will no longer judge the feasibility of overseas investments, leaving such judgements to the companies involved. Despite official backing, investment overseas by Chinese companies remains far outweighed by inflows of foreign funds -- which reached over $50 billion last year, making China the world’s biggest recipient of foreign investment.Link here.
Hong Kong land sale sets record post-1997 price.
The Hong Kong government fetched HK$14.12 billion ($1.8 billion) from selling two residential sites at post-1997 record prices in its third land auction this year. The fierce bidding among property developers indicated their confidence that the real estate market was making a healthy recovery, analysts said. The sale, which raised 80% more than the minimum bidding prices, will also help reduce Hong Kong’s budget deficit which hit HK$40.1 billion in the last fiscal year to March.
Government land sales, which accounted for about 20% of its total revenue before 1997, were halted in November 2002 in a bid to arrest a 60% slump in housing prices. Following a strong rebound in house prices since the second half of last year, the government resumed land auctions in May, raising HK$3.7 billion from the previous sales. However, as house prices have risen 45% from a trough last year, concerns have been growing that the market may be facing a property bubble.Link here.
Higher home prices seen for Hong Kong.
The government’s HK$14.12 billion windfall from this week’s land auction may not immediately herald the specter of a property bubble, but a continued shortfall in the supply of residential units over the coming three years could embolden developers with stronger pricing power, at least in the short-term. “The government should sell more land to avoid a bubble,” Morgan Stanley analyst Kenny Tse said in a research report. “As Hong Kong is already facing tight supply up to 2007, further restraint in near-term land sales could potentially cause severe undersupply in two to three years’ time, given that land sold today will be completed only in 2008 at the earliest.”
At present, the annual supply of units is below 20,000, insufficient to meet the historical demand, which exceeds this number, Nomura International (Hong Kong) analyst Nicole Wong said. “In early 2005, the existing inventory will be able to offset some of the demand. But, from the second half of 2005 to early 2006, a short supply squeeze will mean that developers’ pricing power is stronger,” Wong said.Link here. Comprehensive records on secondary market property transactions in Hong Kong, retrievable by property type, available here.
15% of income tax collected in Shanghai is from expatriates.
Some 30,000 expatriates in Shanghai were responsible for 15% of the income tax collected during the first half of 2004. Expatriates from 102 countries and regions living and working in Shanghai paid 1.6 billion yuan ($190 million) in income tax revenue in the first six months of 2004, recent statistics show. Since the city officially started issuing expatriate work permits on May 1, 1996, some 59,384 people have found employment there.Link here.
PANAMA CONSIDERS $4 BILLION PLAN TO EXPAND CANAL
Panama is considering a $4 billion to $5 billion plan to expand the Panama Canal and may submit it to referendum as early as next year, Economy and Finance Minister Ricaurte Vasquez said. Some 14,035 ships sailed through 80-kilometer (50 mile) canal in the fiscal year ending September 30, up 6.7% from the year-ago period and traffic is nearing capacity, said Vasquez, who also serves as chairman of the Panama Canal Authority’s board of directors. The canal accounts for 8% of Panama’s $13 billion economy and nearly a third of GDP when indirect jobs are included. Expanding the waterway is essential to permit transit by larger ships and to keep that business from sailing other routes, Vasquez said.
Under the plan, a third set of locks would be added. The country may also build a reservoir and dam to increase the supply of water to fill the locks. Vasquez said the expansion will require the Panama Canal Authority to borrow on international financial markets. Panama had $6.5 billion of international debt at the end of 2003. Panama’s economy is expected to expand 5% this year. The country has an unemployment rate of about 13%.Link here.
DUTCH MINISTER CALLS FOR MOVE TOWARDS U.S. SOCIAL MODEL
The EU needs to move more towards the US social model if it is to close the productivity gap with America and reach its economic goals, the Dutch economics minister and Chairman of the EU’s competitive council said. Speaking at an event organized by the Lisbon Council -- a Brussels-based pro-reform think tank -- Laurens Jan Brinkhorst said, “I will argue that the updated European Social Model should differ distinctly from the current one. It will inevitably resemble the US model more than is the case today.”
A shift in the European social model is vital if the EU stands any chance of fulfilling its self-set economic goal to be the most competitive economy in the world by 2010 -- the Lisbon strategy -- said the minister as he sketched out how far the EU has slipped behind the US. “Only one member state -- Luxembourg -- could compete with most US states in terms of GDP per capita. The average person in France, Germany and Italy earns less than the average American in all but four of the US states (Arkansas, Montana, West Virginia and Mississippi),” he said. And this issue is all the more pressing given Europe’s ageing population, often described as the “demographic time-bomb”.Link here.
SOUTH AFRICANS REVIVING INTEREST IN OFFSHORE OPPORTUNITIES
South Africans are slowly re-awakening to offshore investment opportunities despite the lingering strength of the rand. This revival of interest -- the first hint of the reversal of a two-year trend -- has been identified by STANLIB, the country’s largest unit trust company. However, there are key differences from the rush into offshore markets of the late 1990s when US was the targeted market, the US dollar the favored currency and Dow Jones-listed equities the preferred asset class:
1.) Over-commitment to equities is studiously avoided, whether in the USA or other offshore destinations. 2.) Some exposure to Japan and South East Asia, while going underweight on the USA. 3.) Euro and sterling as the cash options because of their high yields, although recent resilience by the US dollar suggests it could be unwise to totally ignore the greenback.
Among retail investors a reappraisal seems to have been prompted by the likelihood of low local interest rates for some time yet. In addition, some offshore timing factors appear broadly favorable.Link here.
BAHAMAS OFFSHORE REGULATORY STRUCTURE SHOWS CONSIDERABLE PROGRESS, SAYS IMF
The Bahamas has made very substantial progress towards the development of an effective regulatory regime over the past two years according to the IMF in a just–released report titled “The Bahamas: Assessment of the Supervision and Regulation of the Financial Sector -- Review of Financial Sector Regulation and Supervision”. The report stated this progress is reflected in the body of legislation that has been enacted since December 2000 and in the structural and operational arrangements put in place by the agencies that have been entrusted with supervisory responsibilities.
The objective of the IMF report was to assess the extent to which the regulatory and supervisory arrangements in The Bahamas complied with certain internationally accepted standards and measures of good practice. The scope of the assessment included the banking, securities and trust and company service sectors.
The Central Bank of The Bahamas and the Securities Commission of The Bahamas were both given high marks by the IMF primarily owing to their strong leadership and professional, dedicated staff. “This process has placed a considerable burden on both the agencies themselves and on the private sector institutions that they regulate,” the report stated.Link here.
SWITZERLAND REMAINS COMPETITIVE DESPITE SLIP IN RANKING
Switzerland has slipped down another place in the global league of “most competitive nations” -- dropping one place to 8th after slipping from 6th the previous year -- in the latest Global Competitiveness Report, published by the Geneva-based World Economic Forum. Finland headed the rankings for the second year in a row, with the United States in second place.
The authors said Switzerland scored highly in terms of its national credit rating, political stability, low inflation, low corruption levels and lack of crime. But the report found there were still many areas where Switzerland fell down. “The principal brake on Swiss commerce comes from an inefficient bureaucracy,” said Augusto Lopez-Claros, director of the WEF report. “The high costs of its agricultural policy, the negative impact of customs barriers and the inequality of salaries between men and women [are also factors],” he added. Other criticisms included insufficient access to capital markets and “restrictive” employment legislation.Link here.
UK FIRMS URGED TO IGNORE AMENDED EU ACCOUNTING STANDARDS PROPOSAL
The UK’s Accounting Standards Board (ASB) urged UK firms to ignore an amended EU proposal on harmonizing accounting standards when it comes into force in under three months. On October 1, the EU voted to adopt an amended version of IAS 39 put forward by the EC, rather than the International Accounting Standards Board’s original version, which contained detailed requirements concerning accounting for hedging transactions and fair value measurements for derivatives and other financial instruments.
The changes were made as a result of lobbying activity by banking interest groups, especially those representing the French banking sector, which argued that the original version of IAS 39 “Financial Instruments: Recognition and Management”, which was based on US accounting standards, would disrupt the risk management practices of French banks.Link here.
U.S. TREASURY “LOWERS THE BOOM” ON THE VIRGIN ISLANDS
The V.I. did not end up with as much breathing room as anticipated once the final write-up of the congressional conference report surfaced last week. What was touted Wednesday as a year-long reprieve on new restrictions to the types of income eligible for 90% tax breaks under the territory’s Economic Development Commission program turned out to be no reprieve at all. And Congress voted 280 to 141 Thursday night to support it. However, the amendments to the American Jobs Creation Act of 2004 ended up far better than the original language, which would have made the new provisions for source income retroactive to Jan. 1, 2004, according to Peter Hiebert, Washington counsel for the V.I. government.
Still, the bill completely changes the federal tax laws applicable to the EDC program, according to Delegate Donna M. Christensen, despite the Treasury Department’s insistence that the bill merely modified existing law. And it appears that was not the only discrepancy in the ongoing drama that has been played out between Washington, D.C., and the Virgin Islands over the last four days.
On the upside, the V.I. did get a reprieve on the new residency requirements mandated by the Treasury Department. The new 183-day rule does not go into effect until Jan. 1, 2005. The other upside, according to Hiebert, is that even companies that will be required to pay full taxes on income not made in the V.I. from the time the bill is signed until the end of the tax year on Dec. 31 will pay those taxes into the V.I. coffers. But that is small consolation for some EDC beneficiaries, many of whom feel they have been blind-sided by the last-minute amendment added at the insistence of Treasury last weekend after lobbyists for the companies and V.I. representatives thought they had reached a completely different agreement.
Some say those losses could far exceed the conservative $115 million estimates based on V.I. Bureau of Internal Revenue Director Louis M. Willis’s take that EDC beneficiaries contribute about 25% of the territory’s revenues. Hiebert said the potential losses created by the dramatic changes would be more than financial. He said the EDC program “brought increased intellectual capital and increased creativity, as well as financial resources.” But Hiebert and others do not feel the new regulations necessarily spell the end of the EDC program. Bona fide residents will restructure under the new guidelines and continue operating in the V.I., several people have predicted.Link here.
Uncertainty reigns as Congress fiddles with EDC.
The IRS, the Virgin Islands Bureau of Internal Revenue and acting U.S. Attorney Anthony Jenkins are all expressing concern that the Economic Development Company Program needs monitoring to run smoothly and within the law. Oddly, these concerns were expressed in press releases when some people are saying that actions by the U.S. Congress may bring the program to an end. How the change in EDC regulations actually affects V.I. businesses will be determined after the final language is determined. Claims about what the changes were and what they would mean to businesses have changed almost daily.
Meanwhile, on Thursday, the U.S. IRS and V.I. BIR announced a new partnership to work together on common tax enforcement issues. A press release from the IRS said the partnership effort is designed “to enable federal, territorial, state and local tax agencies to join together in ensuring all taxpayers pay the amount of tax they are legally obligated to pay. Like the other agencies, the V.I. BIR will be working with the IRS to combat abusive tax avoidance transactions by sharing information and leveraging resources.” A spokesperson for the IRS refused to answer questions about why this partnership was necessary or why it was made at this time.Link here.
Virgin Islanders coming to grips with new EDC rules.
A bill that has been seen by some residents as having the potential to kill the V.I. Economic Development Commission program had a hard time getting through the U.S. Congress. The bill, now referred to as Jumpstart Our Business Strength Act, was expected to be passed by the Senate last Friday. However, it took a rare Sunday session and an even more extraordinary holiday session on Monday to get it through the Senate.
Now that the time for possible changes has passed, Richard Difede, president of the Economic Alliance, a group which represents EDC companies, is looking for silver lining in this legislative cloud. According to Difede the new rules will only affect some EDC businesses and the scope of their business. He said that EDC businesses cover a broad spectrum and some may feel little effect from the new rules. Those businesses that will feel an effect, according to those who have analyzed the bill, are those that cannot connect their income to the Virgin Islands or do not have a strong residency connection to the islands.Link here.
EDC woes bring canceled hearings, analyst meetings on Virgin Islands.
No one doubts financial fallout stemming from recent legislation passed by the U.S. Congress is inevitable. The amendment added to the American Jobs Creation Act of 2004, and touted on the mainland as a move to close tax loopholes will, by all accounts, deal a stunning blow to the territory’s Economic Development Commission tax incentive program. How much and how soon are the only unknowns. One of the first indications of the fallout came when two public hearings, one on St. Thomas and one on St. Croix, slated this week to review eight applications for benefits, were postponed.Link here.
CONGRESS SENDS BUSH CORPORATE TAX BILL
Lawmakers hope the bill will end punitive EU tariffs that have been imposed against some U.S. goods since March. The tariffs, which started at 5%, have been rising monthly and now stand at 12%. The legislation, approved on a vote of 69-17, would repeal those illegal export subsidies and lower taxes rates for domestic manufacturers to 32% from the top corporate rate of 35%. Backers said the move would help U.S. manufacturing, which has lost millions of jobs in the last few years.
The $140 billion in new business tax breaks included many special interest provisions that drew sharp criticism from public interest groups and fiscal conservatives. Sen. John McCain (R-Arizona) called it “the worst example of the influence of special interests that I have ever seen”. The $140 billion cost was offset by repealing the export subsidies, closing some corporate tax shelters and other revenue-raising measures. But critics said some of those measures were gimmicks that mask the bill’s true cost.
The bill includes provisions aimed at discouraging U.S. companies from moving their headquarters to offshore tax havens to avoid paying U.S. taxes. It also aims to close abusive tax shelters and tightens rules on taking tax deductions for car donations to charities. The bill also includes tax breaks for U.S. multinational companies, some of which critics say will encourage companies to ship jobs overseas. A one-year tax holiday for multinationals was included that will allow them to return billions of dollars in profits back to the United States at a dramatically lower 5.25% rate instead of the normal 35% top corporate rate.Links here and here.
So much for making America’s tax code simpler, fairer and less distorting.
In America, says Willem Buiter, an economist, “fiscal policy is not made -- it happens.” Countless lawmakers in Washington have a hand in it; some of them even put their names to it; but none of them controls it. Like a force of nature, tax bills gather momentum in outlying committees, change shape as they approach the floor of the House or Senate, then hit the statute books with unintended and often damaging results.
Just such a bill is now about to become law. On Monday October 11th, with its members itching to set off on their re-election campaigns, the Senate passed a corporate-tax bill 650 pages long. Unless President George Bush vetoes it, which is unlikely, the bill will distort America’s tax code in favour of manufacturers, reward multinationals for avoiding taxes and dispense fiscal goodies to any number of firms with effective lobbyists. Needless to say, it was not originally intended to do any of these things -- the bill began as a worthy effort to end a long-running trade dispute with the EU.Link here.
How tax bill gave business more and more.
Senator Charles E. Grassley needed every possible vote to pass his mammoth corporate tax bill. So he was more than willing to accept Zell Miller’s plea on behalf of imported ceiling fans. Senator Miller, the Georgia Democrat who became a Republican hero at the party’s convention with his impassioned denunciation of Senator John Kerry, was determined to help Home Depot, the home-improvement chain based in Atlanta. And Home Depot, which sells about half of all ceiling fans in the United States, wanted an end to the tariff on imported fans, most of them from China. The Home Depot provision is just one tiny example of how the need to solve a narrow tax problem in 2002 gave birth to the biggest free-for-all in corporate lobbying that Congress has experienced in nearly 20 years.
“It was a perfect storm for pork, in that they added all these provisions that were really important to lawmakers in an election year,” said Keith Ashdown, vice president of Taxpayers for Common Sense, a nonpartisan public-interest group in Washington. “It will take days, if not months, to figure out everything that’s in here.” Within the Washington Beltway, the political logic was in many ways predictable. What was not predictable was how brazen and open the frenzy would ultimately become.Link here.
Bermuda finance minister sees silver lining in new U.S. tax bill.
Finance Minister Paula Cox says that the passage of a corporate tax break bill by the US Senate should resolve the controversy over corporate inversions “that has unfairly buffeted Bermuda over the last few years.” The bill, approved earlier by the House and expected to be signed into law by President George W. Bush within two weeks, was designed to settle a tax dispute with the EU. “The corporate inversion provision in the Act disallows corporate inversion for US tax purposes for tax years beginning after March 4, 2003. As such, it is not likely to impact any Bermuda-based companies since there have not been any known corporate inversions to Bermuda since 2002,” she said.Link here.
EU not ready to lift sanctions against U.S. just yet.
There will be no early end to punitive European tariffs on US products despite a decision by the US Congress to end a corporate tax subsidy ruled illegal by the WTO, Pascal Lamy, the EU’s chief trade negotiator, signalled. Despite welcoming this week’s legislative olive branch, Mr. Lamy said it was premature to expect Brussels to abandon the sanctions on some US products, imposed after the WTO ruled against the US tax scheme.
The bill provides about $137 billion of new tax breaks to business. The EU’s continued concern over the bill is entangled with the dispute between Airbus and Boeing, the aircraft manufacturers, over government subsidies. “The fact is that Boeing is the number one or number two beneficiary of this [Foreign Sales Corporate tax] system ... There are a number of issues that are not that clear for instance, on the treatment of options for selling planes. Depending on our findings and the fact that the Boeing issue has surfaced, we will need to see what to do,” Mr. Lamy said.Link here.
BELGIAN “FOREIGN TAX DODGE” LAW TAKES OFF
An increasing number of Belgian residents are taking advantage of a tax amnesty that allows them to repatriate savings stashed in illicit foreign bank accounts. The amnesty was unveiled in January and was designed to encourage Belgians and expats liable for tax there to stop ferreting undeclared earnings away in bank accounts outside of the country. Under the scheme, anyone who declares illicit foreign nest eggs and returns the money to Belgium will only have to pay a relatively modest amount of tax on the cash. But the amnesty only lasts until the end of this year. After that time anyone caught trying to dodge taxes by using foreign bank accounts will face very hefty fines.Link here.
Directors of a Belgian bank allegedly set up a scheme to help its customers evade income tax and, presumably, tax on savings by setting up accounts in its Luxembourg subsidiary. Several of the bank’s directors are under indictment -- although not much is likely to happen to them because legal proceedings in the case have become mired in the inevitable procedural quagmire. Moreover, most of the customers caught using the scheme got off with a slap on the wrist. The case against all of them was fairly clear -- and no one is very surprised that Belgians would be involved in some form of tax evasion. It is, to be sure, the national pastime.
The real scandal, then, is that these bank officials and their customers would have to resort to potentially criminal activity to get around an oppressive and counterproductive tax regime -- one that hurts the Belgian economy and keeps its citizens from improving their lives.
Investing and saving can be tough in Belgium. Want to buy a house? You have got to pay a tax of as much as 17% of the purchase price up front. This is not a down payment. It is money that goes straight to the government, never to return. Want to save money in the hope of, say, coming up with that ludicrous front-end tax on a home purchase? Your interest earnings on a savings account, if you have any money left after social security and income taxes, etc., is also taxed. It is no wonder people are socking their cash away in Luxembourg, the Channel Islands or just about anywhere else with less onerous fiscal constraints.
In an effort to combat tax evasion, Belgium has taken some semi-laudable actions. Its prime minister has fought to lower the tax burden on individuals, to around 50 percent -- and even doing that has earned him the nickname Baby Thatcher from friends and foes alike. Also, the country recently offered a tax amnesty, giving individuals the chance to declare all previously hidden money and pay a lower tax on it, plus a minimal penalty, before the new, EU-“harmonized” rates kick in.
In the late 1980s Ireland had a tax amnesty that repatriated an unexpectedly high €650 million. Dublin had the good sense to follow up this policy by lowering tax rates on both individuals and businesses so that the money stayed in Ireland. Until Belgium and the rest of Europe follow suit and simplify their tax codes, they will be watching a lot of money fly out the window.Link here.
TAX TREATIES AND HOW THEY AFFECT THE INDIVIDUAL
The goal of this article is to provide a comprehensive checklist of information for the individual to consider prior to filing a tax return. It is not designed to teach you the technical competence required to perform self-compliance; however, it will certainly arm you with what you need to know to determine if your US tax preparer knows all that they should to provide you with adequate professional services.
The US, and various other countries, have negotiated income tax treaties based upon preset international models, one being the OECD Model Tax Convention. One purpose of the tax treaties is to avoid double taxation when the tax laws of two or more countries become punitive. For the purposes of US nonresident and resident aliens alike the articles listed below have been highlighted as possibly providing you relief. Typically in the case of US persons -- citizens and green card holders -- the US has conveniently slipped in to most income treaties a provision usually, under Miscellaneous Rules, to enable them to continue to tax their people as if the income tax treaty did not exist. This is typically referred to as a “Savings Clause”. So US persons should get individual consultation as to which income tax treaty articles may or may not apply to them.Link here.
U.S. SENATE APPROPRIATIONS BILL WOULD REVOKE OECD FUNDING OVER TAX POLICY
The U.S. Senate Appropriations Committee has approved S. 2809, a funding bill that contains language barring the U.S. government from funding the OECD if the OECD has tried to identify, report on, or penalize any country that encourages foreign investment through tax incentives. The United States currently contributes approximately US $60 million to the OECD, or 25% of the multinational organization’s budget. The full Senate has yet to consider S. 2809.
Dan Mitchell, an economist at the conservative Heritage Foundation think tank in Washington, and Andrew Quinlan, president of the Center for Freedom and Prosperity, along with a contingent of pro-market tax groups, have been lobbying the U.S. government for several years to take the OECD to task for what Mitchell calls its “anti-U.S. agenda”. Nevertheless, the Senate committee’s action took them all by surprise. Mitchell said, “... the whole purpose is to send a shot across the bow and let the OECD know that we’re getting a little bit tired that they continue to push these antimarket initiatives.”Link here.
TALES FROM THE LOONEY FRINGE
Should men pay an extra tax, just for being men? The Swedish post-communist Left Party thinks so. The extra tax is meant to compensate women, all of whom are thought structurally oppressed by the male collective. All men are responsible for the actions of some, especially for those who physically abuse their wives and girlfriends. We should all therefore take collective responsibility for the financial costs of male violence toward women. This is not a joke.
A few days ago, the idea resulted in a bill to Parliament. Its main sponsor is Gudrun Schyman, the former leader of the Left Party. Ironically, she had to step down from the party leadership last year after a tax scandal. She was nearly forced to resign seven years earlier, when she got spectacularly drunk at a movie premiere. Quickly, she admitted to being an alcoholic and checked into a rehab center. After that incident she bounced back. The party soared in the polls. She is now talking about starting a new party, a one-issue party that would only deal with feminist issues. The tax on men might be a step in that direction, as was a speech a while ago, where she compared Swedish men with the Taliban. Same oppression here as there, so to speak.
The new proposal calls for an investigation into the costs of male violence against women. With a clear price tag on the problem, the government can figure out a way of transforming collective guilt into cash flow. The bill is not going to pass, but many left leaning talking heads defend the underlying thought. You would think that the Left Party’s peculiar collectivism and tax on men should propel it into orbit far from the political power center. But the party is more influential than ever.Link here.
TAX SHELTER LAWSUIT PAPERS SAID TO SHOW SUBSTANTIAL EARNINGS FOR TAX LAW FIRM PARTNER
Tax law can be lucrative. Just how lucrative can be seen in a proposed settlement between a law firm and disgruntled investors who sued the firm after they were sold tax shelters that were later invalidated. A tax partner in the Chicago office of the law firm, Jenkens & Gilchrist of Dallas, earned $93 million in fees from 1999 through 2003 -- about $19 million a year on average, according to people who have seen documents in connection with the proposed settlement of the class-action litigation being overseen by the Federal District Court in Manhattan.
Much of that income came from his work designing and selling questionable tax shelters to more than 1,100 investors, as well as writing legal opinions declaring the shelters valid, when they were later found not to be, according to the people who have seen the documents. The judge in the case has ordered the documents labeled confidential until a settlement is completed. The details that are emerging from the court documents cast a fresh light on the multibillion-dollar market for questionable tax shelters, which last ramped up in the mid-1990’s and is now under intense government scrutiny. Despite the huge income generated by the questionable tax shelter business, the settlement calls for the partner to contribute just $3.9 million to the $75 million settlement.Link here.
SENIOR MEMBER OF HOUSE COMMITTEE URGES WITHDRAWAL OF IRS INTEREST REPORTING REGULATION
Florida Congressman Clay Shaw, the third most senior Republican on the Committee on Ways and Means, and chairman of the Social Security Subcommittee, urges Treasury Secretary John Snow to withdraw an IRS proposed regulation that requires banks to report deposit interest paid to nonresident aliens.
“This proposed rule is contrary to America’s national interests and could lead to substantial capital flight from US banks. The Mercatus Center, for instance, estimates the regulation -- if implemented -- would cause $87 billion of capital to flee the US economy,” the letter said. “This is an unacceptable risk and could threaten the nation’s economic recovery. My state of Florida would be particularly impacted, especially if the IRS follows through on its reported intention to apply the regulation to depositors from Latin America.”
“This regulation also should be withdrawn since it seeks to use regulatory decree to overturn 83 years of existing law. If the IRS truly believes that foreign governments should be able to double-tax income earned in America, it should submit legislation rather than pursue a policy change through the regulatory process,” the letter continued.Link here.
PRIVATE BANKS OVERSEAS AIM AT CHINA’S WEALTHY
Private banking refers to the confidential and private banking service provided to wealthy individuals or families. Such service is usually provided by international financial groups and requires a minimum of $500,000 to open an account. Tempted by the quickly growing wealthy population in China, private banking sectors overseas have in recent years tried to squeeze into the Chinese market by any means possible.
According to statistics, the American private banking sectors registered an annual average profit of 35% and an annual average income growth rate of 12-15%, exceeding by far those of other banking services. Private banking covers helping clients to manage their large assets including investment and tax planning, and preparing proposals and finding targets for mergers and acquisitions. They even go as far as going to auctions on behalf of their clients to bid for antiques. Often times, clients themselves will not show up and, instead, instruct their financial advisors to come to their doorsteps.
In accordance with the agreement reached when it joined the WTO, China will have to open its market to foreign financial institutions in private banking by the end of 2006. However, private banking sectors of many international financial groups cannot wait any longer. Notably, private banking, due to its private and confidential nature, has become the major channel for transferring bribes.Link here.
KERRY MADE 1983 INVESTMENT IN THE CAYMAN ISLANDS COMPANIES
Documents obtained by the Boston Globe detail John Kerry’s 1983 investment of between $25,000 and $30,000 in offshore companies registered in the Cayman Islands. The document, signed by Kerry, shows his pledge to purchase 2,470 shares of Peabody Commodities Trading Corp. through Sytel Traders, registered in the Caymans.Link here.
ONE PARADISE -- TWO BENEFITS
Here is a way to combine two great offshore benefits into one very appealing package: international real estate investing and a second passport. Both come from a stunningly beautiful and peaceful Caribbean tropical paradise -- St. Kitts & Nevis. These two sister islands form a federation that has been independent from Great Britain since 1983. Located about 1,400 miles southeast of Miami, world travelers often describe them as a corner of the South Pacific in the Caribbean. Densely forested mountains, waterfalls, brilliant tropical flowers and crystal-clear waters abound. The truly appropriate motto of the local tourism authority is: Two Islands -- One Paradise.
Since 1984, the St. Kitts & Nevis Citizenship Act has allowed foreign investors who acquire qualifying real estate to obtain citizenship and a passport. This makes it the oldest existing citizenship-by-investment program. To apply for citizenship, you must invest a minimum of US$250,000 in real estate. In addition, government fees of US$35,000 or more apply, depending on the number of applicants. Offsetting this, St. Kitts & Nevis has some of the Caribbean’s most stunning beaches and some beautiful real estate developments, with prices steadily rising in recent years.
From its inception, the St. Kitts & Nevis economic citizenship program has been one of the most expensive. But it is also one of the only two programs that remain in existence (the other being Dominica). Most of the discontinued programs have been shut down because of scandal, resulting in a diminished reputation for the passports of the issuing countries. However, the St. Kitts & Nevis program has always been operated to the highest standards. It has never been easy to qualify -- all applicants must undergo a thorough background check -- and the relatively high cost of the program means that only a small number of passports have been issued. Among other requirements, applicants must provide bank references and letters of recommendation and demonstrate a clean police record (extract from the register of criminal convictions) of their home country. The result is that the St. Kitts & Nevis passport remains a highly respected travel document, permitting visa-free travel to more than 90 countries, including the United Kingdom, Canada, Switzerland and many others. The passport issued as a result of economic citizenship is the same as for all other citizens. Indeed there is no difference in the citizenship status whatsoever.Link here.
THE END OF EXIT TAXES IN EUROPE?
The European Court of Justice rendered a judgement on March 11, 2004 concerning the exit tax which is imposed in France on holders of substantial participations who give up their residence and move abroad. The court ruled that the exit tax provisions of this kind restrict the freedom of movement (Article 43 of the EC Treaty). This decision will have considerable impact on the current exit tax regimes in existence in various E.U. countries, e.g., Germany or the Netherlands, and will probably even apply with regard to taxpayers moving to Switzerland, one of the most attractive locations for business and residence in Europe.Link here (PDF file).
CONGRESS CLOSE TO ESTABLISHING NATIONWIDE RULES FOR DRIVER’S LICENSES
The House and Senate are moving toward setting rules for the states that would standardize the documentation required to obtain a driver’s license, and the data the license would have to contain. Critics say the plan would create a national identification card. But advocates say it would make it harder for terrorists to operate, as well as reduce the highway death toll by helping states identify applicants whose licenses had been revoked in other states.
The Senate version of the intelligence bill includes an amendment, passed by unanimous consent on Oct. 1, that would let the secretary of homeland security decide what documents a state would have to require before issuing a driver’s license, and would also specify the data that the license would have to include for it to meet federal standards. The secretary could require the license to include fingerprints or eye prints. The provision would allow the Homeland Security Department to require use of the license, or an equivalent card issued by motor vehicle bureaus to nondrivers for identification purposes, for access to planes, trains and other modes of transportation.
The bill does not give the department the authority to force the states to meet the federal standards, but it would create enormous pressure on them to do so. After a transition period, the department could decide to accept only licenses issued under the rules as identification at airports.
The House’s version of the intelligence bill would require the states to keep all driver’s license information in a linked database, for quick access. It also calls for “an integrated network of screening points that includes the nation’s border security system, transportation system and critical infrastructure facilities that the secretary determines need to be protected against terrorist attack.” The two versions will go to a House-Senate conference committee.Link here.
THE 9-11 Intelligence Bill: More bureaucracy, more intervention, less freedom.
Rep. Ron Paul, MD, Before the US House of Representatives, October 8, 2004
Mr. Speaker, the 9/11 Recommendations Implementation Act (HR 10) is yet another attempt to address the threat of terrorism by giving more money and power to the federal bureaucracy. Most of the reforms contained in this bill will not make America safer, though they definitely will make us less free. HR 10 also wastes American taxpayer money on unconstitutional and ineffective foreign aid programs. Congress should make America safer by expanding liberty and refocusing our foreign policy on defending this nation’s vital interests, rather than expanding the welfare state and wasting American blood and treasure on quixotic crusades to “democratize” the world.
Disturbingly, HR 10 creates a de facto national ID card by mandating new federal requirements that standardize state-issued drivers licenses and birth certificates and even require including biometric identifiers in such documents. State drivers license information will be stored in a national database, which will include information about an individual’s driving record!
Nationalizing standards for drivers licenses and birth certificates, and linking them together via a national database, creates a national ID system pure and simple. Proponents of the national ID understand that the public remains wary of the scheme, so they attempt to claim they’re merely creating new standards for existing state IDs. Nonsense! This legislation imposes federal standards in a federal bill, and it creates a federalized ID regardless of whether the ID itself is still stamped with the name of your state. It is just a matter of time until those who refuse to carry the new licenses will be denied the ability to drive or board an airplane. Domestic travel restrictions are the hallmark of authoritarian states, not free republics.
The national ID will be used to track the movements of American citizens, not just terrorists. Subjecting every citizen to surveillance actually diverts resources away from tracking and apprehending terrorists in favor of needless snooping on innocent Americans. ...Link here.
TRAVELERS TO U.S. FROM ABROAD FACE NEW SCRUTINY
Travelers from some of America’s closest allies, including wealthy countries in Europe and Asia, can no longer just present their passports to an immigration inspector on arrival in the United States and expect to be admitted immediately. Now they also must be fingerprinted and photographed. The new system went into effect last week at 115 airports across the country -- part of a growing body of immigration restrictions enacted after the Sept. 11, 2001, terrorist attacks.
“The first day has gone extremely well,” said Zachary Mann, Miami spokesman for Customs and Border Protection, the Homeland Security agency that now oversees immigration and customs inspectors. “It only adds about 20 seconds to the passenger’s processing time, which is less than two minutes total, as long as everything is in order.” Some German passengers interviewed at Miami International Airport, one of the country’s busiest ports of entry, said they did not mind the new procedures -- though two noted the program is controversial and would probably upset them if enacted at home.Link here.
U.K. ID CARDS TO BE ISSUED WITH FIRST BIOMETRIC PASSPORTS
What is left of the “voluntary” figleaf to the UK’s ID scheme will erode in the next few months, when Home Secretary David Blunkett introduces legislation that will allow implementation of the scheme and include provision for a rolling program to issue ID cards along with passport renewals. The new model passports are closely linked to the scheme anyway, so even without the ID card, being issued one would mean you were added to the national identity register, but the arrival of an actual card along with the new passport will make its presence far more visible, far earlier, to the general public. Previously the Home Office had said it would designate passports and driving licences as ID documents, but had not mentioned issuing actual ID cards with them.Link here.
Hi-tech passports “Need more civil rights safeguards,” says Labour M.P.
Labour MEP Michael Cashman welcomed plans to introduce “biometric identifiers” such as facial, iris and fingerprint recognition, for all EU passports. But he warned the technology was in danger of being abused at the expense of civil rights. Committee member Mr Cashman said, “By making it almost impossible to forge passports and ensuring that the person in question is who they say they are, biometrics have a huge potential to help in the ongoing fight against organised crime, terrorism and illegal immigration.
“But biometrics also have the potential to be seriously abused. We should not, for instance, go down the road of creating a centralized EU database of passports containing everybody’s biometric data. The personal information that is collected must be for the specific purpose of verifying that the document is genuine and that the holder is who they claim to be. It should not be used for any other reason, particularly hidden surveillance, and biometrics must not ‘creep’ into our daily lives via the commercial world.”Link here.
U.K. government hires agents to plug ID cards.
The Home Office is spending hundreds of thousands of pounds on recruiting an elite marketing team to convince the UK it needs ID cards. The campaign is to persuade the public, MPs and public sector groups on the benefits of cards, before legislation for the scheme passes before Parliament. Under the proposed bill, the government will set up a population database containing the details of every citizen and unveil the biometric cards in three years. By 2007, new passports and drivers’ licenses will double as ID cards ensuring government can make the scheme compulsory, after its approval from Parliament.
But opposition from inside the Chamber has accused the Home Office of jumping the gun by recruiting marketers to plug the scheme before the legislation is unveiled. Top of the list to mastermind the scheme, is Head of Marketing, advertised at a salary of £66,000. The role is the latest addition to the growing number of programme workers, already offering a network of support. Home Office figures show that by the end of March, 23 civil servants and three full-time secondees were working on the ID program.Link here.
U.S. FUNDS CHAT-ROOM SURVEILLANCE STUDY
Chat rooms are the highly popular and freewheeling areas on the Internet where people with self-created nicknames discuss just about anything: teachers, Kafka, cute boys, politics, love, root canal. They are also places where malicious hackers have been known to trade software tools, stolen passwords and credit card numbers. The Pew Internet & American Life Project estimates that 28 million Americans have visited Internet chat rooms. Trying to monitor the sea of traffic on all the chat channels would be like assigning a police officer to listen in on every conversation on the sidewalk -- virtually impossible.
Instead of rummaging through megabytes of messages, Rensselaer Polytechnic Institute professor Bulent Yener will use mathematical models in search of patterns in the chatter. Downloading data from selected chat rooms, Yener will track the times that messages were sent, creating a statistical profile of the traffic. If, for instance, RatBoi and bowler1 consistently send messages within seconds of each other in a crowded chat room, you could infer that they were speaking to one another amid the “noise” of the chat room.
In search of “hidden communities”, Yener also wants to check messages for certain keywords that could reveal something about what is being discussed in groups. Security officials know al-Qaida and other terrorist groups use the Internet for everything from propaganda to offering tips on kidnapping. But it is not clear if terrorists rely much on chat rooms for planning and coordination. Other cybersecurity experts doubted chat rooms’ usefulness to terrorists given the other current options, from Web mail to hiding messages on designated Web pages that can only be seen by those who know where to look.
Since they are focusing on public chat rooms, authorities are not violating constitutional rights to privacy when they keep an eye on the traffic, experts said. Law enforcement agents have trolled chat rooms for years in search of pedophiles, sometimes adopting profiles making it look like they are young teens. But the idea of the government reviewing massive amounts of public communications still raises some concerns.Links here and here.
COMPANY WINS PORTION OF U.S. RFID PASSPORT TRIAL AWARD
SuperCom, Ltd announced that the U.S. Government Printing Office (GPO) has informed that the Company’s proposal as a prime contractor for the integration of smart card technology in the US new electronic passports has been accepted for award. This project is considered to be the largest and most advanced smart passport project in the world to date. The US authorities have announced multiple awards for the implementation of the project that will include the production of smart inlay for the new passports with a sophisticated chip containing personal identification such as biometric data This type of passport will be difficult to forge and will replace the traditional passport that contained a printed personal photograph and was considered to be easy to falsify. The scope of the project based on the RFP is estimated at 50 million passports over the following five years.Link here.
FEDS PLAN TO TRACK EVERY CAR
A little-known federal agency is planning a new monitoring program by which the government would track every car on the road by using onboard transceivers. The agency, the Intelligent Transportation Systems Joint Program Office, is part of the Department of Transportation. According to an extensive report in the Charlotte, N.C., Creative Loafing, the agency does not respond to public inquiries about its activity.
According to the report, cutting-edge tracking technology will be used by government transportation management centers to monitor every aspect of transportation. Under the plan, not only will movement be monitored but it also will be archived in massive databases for future use. The paper reports a group of car manufacturers, technology companies and government interests have worked toward implementing the project for 13 years.
The agency’s website says its purpose is to “use advanced technology to improve the efficiency and safety of our nation’s surface transportation system.” Critics believe the program will be used to line the pockets of business interests that stand to gain from the sale of needed technology and that the government will use the data collected to tax drivers on their driving habits. Though the program has ominous privacy implications, Creative Loafing reports none of the privacy-rights organizations it contacted were aware of the government’s plans. At least one proponent of the plan is actually using the term “Orwellian” to describe it.Link here.
IMPLANTABLE MEDICAL ID APPROVED BY FDA
A microchip that can be implanted under the skin to give doctors instant access to a patient’s records yesterday won government approval, a step that could transform medical care but is raising alarm among privacy advocates. The tiny electronic capsule, the first such device to receive Food and Drug Administration approval, transmits a unique code to a scanner that allows doctors to confirm a patient’s identity and obtain detailed medical information from an accompanying database. Applied Digital Solutions plans to market the VeriChip systems -- the chips, scanners and computerized database -- to hospitals, doctors and patients as a way to improve care and avoid errors by ensuring that doctors know whom they are treating and the patient’s personal health details. Doctors would scan patients like cans of soup at a grocery store. Instead of the price, the patient’s medical record would pop up on a computer screen.
The approval was immediately denounced by privacy advocates, who fear it could endanger patient privacy and mark a dangerous step toward a Big Brother future in which people will be tracked by the implants or required to have them inserted for surveillance, identification and other purposes. “Once the technology is out there and is available, it raises the very real possibility that people in a position to require or demand it will begin to do that,” said Katherine Albrecht, who has campaigned against such devices. “It would obviously be possible to inject one of these into everyone. In the post-9/11 world, we are already racing down the path to total surveillance. The only thing missing to clinch the deal has been the technology. This may fill that gap.”Link here.
U.S. FEDS RAID JOURNALISTS’ SERVERS IN TEXAS AND U.K.
A Texas Internet company has been forced to hand over hard drives from a pair of its Web servers leased to online journalists to the Feds after receiving a court order under an international treaty governing investigations of crimes such as terrorism, kidnapping and money laundering. The Independent Media Center, whose London office leased the Web servers for affiliates in more than two dozen countries, says it has been kept in the dark about what the investigators might be looking for. The IMC, better known as “Indymedia”, is a loosely organised collective of online journalists and others posting information to Web sites.
The FBI also seized a pair of UK servers used by Indymedia after serving the subpoena in the US on Indymedia’s hosting firm, Rackspace. Rackspace UK complied with a legal order and handed over hard disks without first notifying Indymedia. It is unclear if the raid was executed under extra-territorial provisions of US legislation or the UK’s Regulation of Investigatory Powers Act (RIPA). Provisions of RIPA make it a criminal offence to discuss warrants, so Rackspace would not be able to discuss the action with its customer Indymedia, or with the media.
Rackspace US has issued a statement which says that the investigation “did not arise in the United States”, but which sheds very little light on the whys and the wherefores. While Indymedia is not exactly sure what prompted the action, the group does have one strong idea. A French Indymedia site last month posted photos of what it believed to be undercover Swiss police officers photographing protesters at a French event. Indymedia received a request from the FBI to pull those photos down, as they “revealed personal information” about the undercover police, said Indymedia press officer Hep Sano. Rackspace appeared to confirm that the photos were an issue with the FBI.
A FBI spokesperson told the AFP news agency that it was not an FBI operation, saying the order had been issued at the request of Italian and Swiss authorities. The seizure has sparked off protests from journalist groups. The UK site of Indymedia is back up and running but several of the other 20 sites affected are still offline. In the US, the civil liberties group, the Electronic Frontier Foundation (EFF) said it was working with Indymedia over how to react to the seizures.Links here and here. Indymedia announcement here.
FBI returns seized news servers.
Servers seized by the FBI from the alternative media network known as Indymedia have been returned. The servers in the outskirts of London were taken last week by the FBI which said it was acting on behalf of Italian and Swiss authorities. Indymedia hosts sites, news and radio feeds for anti-globalisation groups and other campaigners for social justice. The media group is now taking legal advice about what action it can take over the seizure of its hardware. Indymedia said some of its local affiliates, notably Uruguay, Italy, Western Massachusetts and Nantes, lost data because of the seizure.
The drives were seized from the London offices of a San Antonio-based company called Rackspace that hosts the Indymedia sites. Rackspace said the legal justification for the raid included a gagging order that prevented it revealing details. The servers were apparently seized under the Mutual Legal Assistance Treaty which is typically used by nations co-operating to investigate cross-border crimes such as terrorism, kidnapping and money laundering.
In a statement posted on its main website Indymedia said evidence was emerging that four different countries, the US, UK, Italy and Switzerland, were behind the server seizure. Italian authorities were reportedly investigating the Italian Indymedia group for “supporting terrorism”. Swiss authorities said the raid could help its investigation of Indymedia coverage of 2003’s G8 Summit in Evian.Link here.
FAULTY “NO-FLY” SYSTEM DETAILED
The federal government’s “no-fly” list had 16 names on it on Sept. 11, 2001. Today, it has more than 20,000. The list, which identifies suspected terrorists seeking to board commercial airplanes, expanded rapidly even though the government knew that travelers were being mistakenly flagged, according to federal records. The records detail how government officials expressed little interest in tracking or resolving cases in which passenger names were confused with the growing number of names on the list.
More than 2,000 people have complained to the Transportation Security Administration. Airlines, at one point, were calling the agency at least 30 times a day to say that they had stopped a passenger whose name was similar to one on the list but after further investigation was determined not to be a terror suspect, according to a TSA memo. More than 300 pages of documents related to the no-fly and related lists were released by the TSA and the FBI in response to a federal court order. The American Civil Liberties Union had filed suit on behalf of Jan Adams and Rebecca Gordon, two peace activists who wanted to know why their names had turned up on a no-fly list.
The documents reveal early symptoms of what are now known to be flaws with the watch lists. Travelers who were flagged by the lists said they now foil the system by altering how their names are spelled on their tickets -- adding their middle initials, full middle names or titles, for example. The information revealed by the documents is “not very comforting”, said Thomas R. Burke, a San Francisco attorney representing the peace activists and the ACLU.Link here.
Secret rule requiring ID for flights at center of court battle.
John Gilmore, a tech-industry millionaire and privacy advocate, set out two years ago to challenge a basic element of airline security. On July 4, 2002, he refused to show a photo identification when checking in at Oakland, California, for a flight to Baltimore on Southwest Airlines. The same day, he declined United Airline’s demand to present an ID for a flight from San Francisco to Washington. In both instances, Gilmore, 49, was prohibited from boarding and was informed by the airlines that a federal security rule required passengers to show an ID in order to fly. However, no airline employee could cite the rule.
Gilmore sued several government agencies and the airlines, claiming the ID requirement infringes on Americans’ right to travel freely. The lawsuit, Gilmore v. Ashcroft, has forced the government to defend the existence of secret security rules that apply to millions of travelers. The Bush administration said in court filings that it cannot discuss the ID rule because it is outlined in a document that the TSA deems “security sensitive information”. For that reason, the government has petitioned the U.S. Court of Appeals for the 9th Circuit to file its documents so that they not be made public. The court is expected to make a decision soon.
The federal government’s requirement for passengers to show a government ID for air travel is relatively new. In the mid-1990s, the Federal Aviation Administration issued a secret temporary order, or “security directive”, to airlines that instructed them to request a photo ID from passengers. If passengers did not have an ID, they usually could still fly, but they often had to undergo additional security procedures. After the terrorist attacks in 2001, the TSA issued a new order directing airlines to require, not just request, an ID before boarding a flight. Until recently, however, it was unclear whether that order existed.
In court documents, the U.S. government at first said it could not confirm whether there was a security directive requiring passengers to show ID. In an about-face, the government last month acknowledged that the order existed in a new court filing. As it turns out, the order was mentioned in an obscure maritime security rule published in May 2004. If Gilmore succeeds in forcing the government to disclose what its secret law says, other attorneys worry it would set a dangerous precedent that could harm efforts to combat terrorism.Link here.
PATRIOT ACT “NOT A BLANK CHECK”, SAYS LAS VEGAS NEWSPAPER
In a thundering defense of the Bill of Rights, a federal judge threw out provisions of the Patriot Act the FBI had used to force airlines and Las Vegas hotels to turn over names, addresses and personal identification information on about 350,000 passengers and guests -- and subsequently to order those airlines and hotels to keep a lid on the whole thing. In a hard-hitting 120-page ruling, U.S. District Judge Victor Marrero struck down those sections of the Patriot Act as unconstitutional. And the ruling blocks the government from doing it again -- at least during a 90-day stay while the government decides whether it will appeal.
When Las Vegas casino executives were ordered to turn over the records during last year's Christmas holiday season, many balked at the demand and first insisted the FBI obtain national security letters compelling the release. After the letters were presented, the casino companies said they complied with the disclosure orders. But they also said they felt coerced into doing so. The judge ruled that such national security letters, bypassing the usual procedure of acquiring court-approved subpoenas, are indeed coercive and deter court challenges to the propriety of the demands for information.
The process violates the Fourth Amendment because such judicial review is essential in protecting the constitutional rights of the companies against unreasonable search and seizure, Judge Marrero ruled. Furthermore, the permanent ban on the companies talking about the information provided constitutes a prior restraint of free speech, which is forbidden by the First Amendment. Judge Marrero, of the U.S. District Court for the Southern District of New York, has gotten it right -- courageously, and with a vengeance.
Judge Marrero cites a recent U.S. Supreme Court ruling that held even a “state of war is not a blank check for the president when it comes to the rights of the nation’s citizens.” Courts must apply “particular vigilance to safeguard against excess committed in the name of expediency,” Judge Marrero noted. About time. America has survived mightier enemies than this in her 200-year history -- without giving up the liberties and constitutional safeguards that make us what we are.Link here.
AMSOUTH BANK TO PAY $50 MILLION IN FINES FOR FAILURE TO REPORT SUSPICIOUS ACTIVITY
AmSouth Bank agreed to pay $40 million for failing to report suspicious activity in connection with two customers’ scheme to cheat more than 60 investors out of their life savings. The agreement marks one of the largest forfeitures in U.S. Treasury history, following the $20 million paid last year by a defense contractor. AmSouth also has agreed to pay a $10 million civil penalty. The bank, which has $46 billion in assets, faces a federal charge for failing to report the suspicious activity, but that charge will remain on hold for a year then dropped if bank officials continue to cooperate with the ongoing criminal investigation, prosecutors said.
Indictments allege two bank customers, Memphis lawyer Louis D. Hamric II, 55, and Victor G. Nance, 52, of Jackson, an investment adviser employed by Mutual of New York, began using the bank in 2000 for a “Ponzi” scheme where early investors are paid off with money received from later investors to create the illusion of profitability -- a scheme authorities estimated took in $20 million. The two men started opening AmSouth bank accounts in 2000 to hold fraudulent notes Hamric owed. In 2002, he defaulted on promissory notes that were owed to dozens of investors. AmSouth officials say they have since settled much of the litigation related to those defaults.
Authorities said that AmSouth had a duty to recognize this suspicious activity and report it, particularly since some of Hamric’s promissory notes for the“qconstruction of medical clinics overseas” promised to give investors as much as 25% per month (or 300% a year). In return for handling the accounts for Hamric and Nance, AmSouth received a $2,000 fee per year per account. The bank ultimately filed a suspicious activity report, but it was nearly two years later and “mischaracterized the suspicious activity as check fraud and understated the amount involved in the fraud,” the statement of facts said. Under the Bank Secrecy Act, financial institutions must file suspicious-activity reports any time bankers spot transactions that may be illegal or illegitimate.Link here.
BANKS SHOULD APPLY TOUGH CUSTOMER CHECKS GLOBALLY, SAYS BANKING SUPERVISORY BODY
Banks must be ready to shut down operations in a foreign country if they cannot obtain key security information on customers there because of local secrecy or data protection laws, the top international banking supervisory body said. The Basel Committee on Banking Supervision, which groups central banks and regulators from 10 countries under the aegis of the Bank for International Settlements, urged states to remove legal obstacles hampering the flow of crime-busting confidential information within banking groups, in an advisory paper.
“If a bank is unable to access information on customer accounts held in foreign branches or subsidiaries as the result of insurmountable legal impediments, it should carefully consider whether it wishes to continue to operate in the jurisdictions concerned,” said Committee chief and Spanish central bank governor Jaime Caruana. The Committee wants headquarters of international banks to maintain global oversight over customer information throughout their group instead of relying on individual surveillance in each country. Where local “know-your-customer” rules differed between head offices and subsidiaries, banks “should apply the higher standard of the two”, it added.
Regulators have targeted banking secrecy rules in some offshore havens in the Caribbean, Pacific and Europe in recent years. But the Basel Committee’s measure could also concern data protection rules in a wider range of western countries, or in the U.S. state of Delaware, which might be invoked to prevent the transfer of information, experts said.Links here and here.
Bank spending on anti-money-laundering systems has rocketed.
New research by KPMG found 83% of the 209 financial institutions surveyed had on average invested 61% more money during the last three years combating money-laundering. The cost to banks is expected to rise by a further 40% over the next three years. The two biggest factors behind the rise have been the development of automated monitoring software and the training of staff in the specific anti-money-laundering (AML) rules and procedures.
One of the big findings of the research was a problem of global banks implementing their systems at a local level, resulting in disparate standards of application. The report states, “Criminal customers can end up being taken on in a jurisdiction where standards are less robust than elsewhere, thereby gaining access to a global bank ‘by the back door’.”Link here.
MONEY LAUNDERING PROCEDURES AT U.K.’S CITIZENS ADVICE BUREAU UNDER FIRE
The CAB has been identified as an unlikely weak point in the government’s crackdown on money laundering. Concerns were raised after one auditor, who wished to remain anonymous, expressed major concerns after being told there were no money laundering procedures in place. “The main thrust of the Proceeds of Crime Act is that if someone comes to us saying I want to fiddle my tax by £50 we must report to NCIS. The CAB does not have to do anything,” the auditor said.
He pointed out that, as well as giving legal and financial advice, the CAB, which has 3,200 outlets and a budget of more than £37 million, handles debts for individuals who put cash into its client deposit accounts. He cited examples of the CAB making payments on behalf of refugees in exchange for cash, because they did not have bank accounts -- potentially an ideal money laundering process.Link here.
THE HAMDI CASE MOCKS JUSTICE
Surrendering to the authority of the U.S. Supreme Court, the Pentagon and the Justice Department decided to release “unlawful combatant” and accused “terrorist” Yaser Esam Hamdi from the bowels of the Pentagon’s military brig in South Carolina. A few days ago, a U.S. military plane flew Hamdi to Saudi Arabia, where he was released from custody. In return, Hamdi agreed to give up his U.S. citizenship and promised not to engage in terrorism against the United States.
In July, I wrote an article entitled “Padilla, Hamdi, and Rasul: Charge Them or Release Them”, in which I argued that in the wake of the Supreme Court’s decision in Hamdi, the government should either charge Hamdi and other accused terrorists with a crime or release them. The question is, why did the government choose to release Hamdi instead of charging him with a crime, such as terrorism or treason? Keep in mind that in its ruling, the Supreme Court did not order the government to release Hamdi. Instead, it ordered that the government simply had to provide Hamdi, who was claiming to be innocent, with a hearing so that the courts could determine how then to proceed.
A criminal indictment of Hamdi would obviously have run counter to the Pentagon’s claim of omnipotent power to label and punish “enemy combatants” and “terrorists” without judicial interference. After all, by its very nature an indictment places jurisdiction over an accused in the hands of the U.S. federal court system. Moreover, any charge of terrorism or treason against Hamdi would have been very weak. His defenses could have put U.S. officials in uncomfortable or embarrassing positions.
While the Pentagon is now claiming that the true reason for its release of Hamdi is that his value as a source of intelligence had been exhausted, that claim is obviously nonsense. The real reason for Hamdi’s release is that the Supreme Court put the quietus on the Pentagon’s plan to incarcerate Hamdi forever, denying him a jury trial, habeas corpus, and other aspects of due process of law. The Pentagon also knew that if it continued litigating against Hamdi, an adverse judicial ruling would likely have put a final death knell on the Pentagon’s hope of exercising such power against others, including Americans.Link here.
THE WALL STREET JOURNAL’S EDITORIAL PAGE DISCREDITS REAL CAPITALISM
If socialists of old resented Pravda for giving them a bad name, free enterprisers ought to feel the same about The Wall Street Journal’s editorial page. Its defenses of profit, capitalism, and privatization often cry out for correction, if only to save the good name of free markets from being invoked to protect capitalists from careful moral scrutiny.
The editorial page come to the defense of Halliburton against attacks by Democrats. The page claims that the Kerry-Edwards ticket is criticizing this mega-well-connected, warfare state pillager as a proxy for all of American business. True or not, the Journal is guilty of something far worse: defending Halliburton on grounds that this parasite embodies the very heart of free enterprise.
To hear the Journal tell it, you might think that Halliburton was Federal Express picking up the pieces after the government failed, instead of the largest corporate welfare client in the history of the world. To look at the details (there are hundreds of sites and organizations that track its activities) is to see into the heart of the modern state run amok. The history of Halliburton makes the food-stamp program look like good government. Halliburton makes a mockery of the term private enterprise. The profits are private, to be sure, but the risk is socialized. It has very little to sell you and me or any other member of the consumer class. It has vast amounts of stuff to sell the state, and what it produces it does with that goal in mind.
Murray Rothbard asked the burning question in his 1974 book For a New Liberty: “How can the rightist favor a free market while seeing nothing amiss in the vast subsidies, distortions, and unproductive inefficiencies involved in the military-industrial complex?”Link here.
SO-CALLED CONSERVATISM’S 40-YEAR CLIMB TO DOMINANCE IN AMERICA
Conservatism’s rise began in 1964 with the landslide loss of Arizona’s Barry Goldwater. His campaign was the first stirring of a mass movement -- Nixon’s 1960 campaign attracted 50,000 individual contributors, Goldwater’s attracted 650,000. Conservatism’s 40-year climb to dominance receives an examination worthy of its complexity in The Right Nation. Its British authors, John Micklethwait and Adrian Wooldridge of The Economist, demonstrate that conservative power derives from two sources -- its congruence with American values, especially the nation’s anomalous religiosity, and the elaborate infrastructure of think tanks and other institutions that stresses that congruence.
Liberals, now tardily trying to replicate that infrastructure, thought they did not need it because they had academia and the major media. But the former marginalized itself with its silliness, and the latter have been marginalized by their insularity and by competitors born of new technologies. Liberals complacently believed that the phrase “conservative thinker” was an oxymoron. Johnson’s landslide win over Goldwater produced a ruinous opportunity -- a large liberal majority in Congress, and incontinent legislating. Forty years later, only one-third of Democrats call themselves liberal, whereas two-thirds of Republicans call themselves conservative. Which explains this Micklethwait and Wooldridge observation on the Clinton presidency: “Left-wing America was given the answer to all its prayers -- the most talented politician in a generation, a long period of peace and prosperity, and a series of Republican blunders -- and the agenda was still set by the right.”
The emotions underlying conservatism’s long rise include a visceral individualism with religious roots and anti-statist consequences. In America, conservatives much more than liberals reject the presumption of individual vulnerability and incompetence that gives rise to liberal statism. Conservatism rose in the aftermath of Johnson’s Great Society, but skepticism about government is in the nation’s genetic code.Link here.
It is a shame about conservatism. Yes, the old stick-in-the-muds were an impediment to progress. Yes, the old mossbacks were dull and predictable. Yes, their old knees jerked whenever they thought someone might be having fun. We despised them all. Still, we miss the old fuddy-duddies. Conservatives had out-moded ideas, but that was their charm. But as a creed, conservatism has lost all its adherents, in America at least. As a philosophy, it has practically disappeared. As a political movement, it has dropped dead. Everyone likes new things now. The codgers and grumps are voting for liberals this year, we are told. And what choice do they have?Link here.
WEALTH OF OTHERS HELPED TO SHAPE JOHN KERRY’S LIFE
The estate that belonged to John Kerry’s grandparents sits high on a bluff in a Brittany resort town, a massive stone house overlooking a stunning landscape of wind-tossed ocean and jagged headlands. It was here that the boy from Massachusetts glimpsed a much grander life than he had known back home, and began, perhaps, to acquire the sheen of privilege and sophistication that would become an inescapable part and a persistent liability of his life in politics.
Today, Mr. Kerry’s life is defined against similarly grand settings. In winter, he goes helicopter skiing while staying at his wife’s Idaho retreat, a 15th-century farmhouse transported from England and reassembled on the banks of the Big Wood River in Sun Valley. In summer, he windsurfs and sails off the coast of Nantucket, where she has another home. The couple have an 18th-century town house in Boston where the kitchen is two stories high. There is a 23-room town house in Washington, an 88-acre Pittsburgh area estate, a private Gulfstream jet and a personal staff of six, including caretakers and a cook.
Even adjusting for inflation, the Kerrys’ net worth far surpasses that of such wealthy predecessors as John F. Kennedy and his wife. In an election driven in large part by the candidates’ personalities, that extraordinary wealth and the air of privilege Mr. Kerry seems to carry with him have often been a stumbling block, exacerbating the perception that he is an aloof man whose elite tastes separate him from the concerns of ordinary people. Mr. Kerry’s friends and advisers say the patrician label is unfair. Unlike President Bush, he did not grow up rich. Even as a first-term senator, he was sometimes so short of cash that he slept on friends’ couches during weekends in Boston.
But Mr. Kerry’s elitist reputation goes deeper than his wife’s fortune, now estimated at $1 billion. Mr. Bush, despite his own family’s legacy of wealth and political power, manages to come off as a simple-hearted Texan who likes to clear brush and go bass fishing in his spare time, a man whose indulgences are barbecue and nonalcoholic beer. Mr. Kerry, by contrast, exudes a Brahmin reserve. Mr. Kerry and his wife are also cursed with the kind of good taste that suggests old money. If Mr. Kerry is more vulnerable to such impressions than many other politicians, perhaps that is because of his unusual background. He grew up in a family with little extra money, but he was constantly pressed up against the windows of a more glamorous and wealthy world, thanks to his mother, Rosemary Forbes.Link here.
REDUCING POVERTY BY REDUCING GOVERNMENT
Bob Herbert, op-ed columnist for The New York Times and perennial critic of the purported flaws of capitalism, has an article in the Times of October 8, 2004, titled “Working for a Pittance”. The article complains about the low wages of 9.2 million working families and the plight of the 20 million children in these low-income working families. It goes on to detail the high cost of housing, food, utilities, and transportation and notes the shock in store for such families this winter when price increases for crude oil show up in large increases in home heating bills. The clear implication of the article is that the federal government must do something to alleviate the plight of these families, such as sharply raising the minimum wage.
I accept the description of the facts of widespread poverty cited by Herbert, but I have a radically different solution for them than the kind that he and the rest of his colleagues at the Times would likely offer. If one wants to raise the wages of the lowest paid workers, do not raise the minimum wage. Raising the minimum wage would add to unemployment, because every rise in price serves to reduce the quantity of the good or service demanded. This is one of the best established laws of economics.
Instead of raising the minimum wage as the means of increasing the wage rates of the unskilled and poor, abolish prounion legislation. The repeal or liberalization of licensing legislation, which also serves artificially to reduce employment opportunities in many fields, would result in the same kind of improvement in wage rates at the bottom of the economic ladder as the repeal of prounion legislation. The take-home wages of all workers could be increased by the elimination of compulsory employee and employer contributions to various government programs, such as social security and medicare, which now amount to over seven and a half percent of a low-paid worker’s income.
So too the prices paid by all workers could be substantially reduced by the reduction of government interference. There is no good reason, for example, for the price of oil to be over $50 a barrel and rising. In a free market, that is, a market not hampered by such things as regulations driven by environmentalist hysteria there would be a substantially increased supply of oil from Alaska. The price of oil would also be reduced by removing the obstacles in the way of the production of atomic power and the strip mining of coal. The price of food could be substantially reduced by the abolition of government farm subsidies. The cost of housing could be reduced by the abolition of zoning laws and all other government interference serving to make land artificially scarce. There is no good reason for the cost of a day’s hospital stay being $2,000. All of this would benefit everyone, but it would especially benefit the lowest paid, poorest workers, who can least afford unnecessarily high prices.
The enemies of capitalism and economic freedom shed crocodile tears over poverty. Their policies do not alleviate it but worsen it. As I have shown, economic freedom, not government interference, is the means of overcoming poverty. Workers, the poor, and the public at large have been misled by generations of intellectuals, such as Herbert, into believing that poverty is the result not of the failure to produce wealth but of the success of those who do produce it.Link here.
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