Wealth International, Limited

Offshore News Digest for Week of December 6, 2004

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

Global Business Taxes Asset Protection Privacy Law Opinion & Analysis



The French Finance Ministers obsession with tax harmonization across the EU has now seen him consorting with others, in what can only be described as flagrant economic terrorism, the purpose, to force harmonization further up the EU’s agenda. Given that EU tax laws cannot be altered without the agreement of all the member states, has sparked a flurry of activity by certain EU finance Ministers to step up their campaign to have the right of veto removed, their behavior in this matter can only be likened to a bunch of terrorists launching a campaign in order to scupper resistance by those who have no wish to sign up to the horrifying and unworkable concept of tax harmonization.

Financial terrorism is now apparently an acceptable weapon used to impose the will of the failed stagnant economies of the EU on successful buoyant and well regulated economies of the offshore finance centers around the globe. The New Oxford English dictionary defines terrorism as “the use of violence and intimidation in pursuit of political aims” I can think of no better description to describe the methods used to impose the so called bi-lateral agreements recently demanded by the EU.

The EU knows that it cannot compete for business with its present high tax rates, while at the same time watching investment in Europe decline, so with its usual unimaginative zeal, they have decided that their only course of action is to extinguish competition elsewhere, wherever it exists. The European cartel can only work if all avenues of choice are choked off to businesses and citizens resident within the EU.

The current opening salvo from the EU on corporation tax is just one of many deliberate actions to come, the ultimate aim of this economic terrorism is to erode the competitive business climate built up over several years by the offshore dependencies, to the point where financial business takes flight to other less well regulated jurisdictions outside the EU.

Link here (PDF file).


People who are naturalized in Switzerland will soon only have to pay the administration costs of becoming a Swiss citizen. All extra charges are to be abolished. This means that the cost of becoming Swiss will no longer run into the tens of thousands of francs, as has been the case for many people in the past. The government decided that a modification of the law on nationality would come into force on January 1, 2006. The justice and police ministry said that cantons and municipalities would only be allowed to charge for the real processing costs.

The revised law will also make it easier for people with Swiss origins to become Swiss citizens. This category concerns mainly illegitimate children whose father is Swiss. Children with Swiss mothers automatically have Swiss citizenship.

Link here. Switzerland, the ultimate choice for your business and residence -- report here.


Swiss banking group UBS, the world’s largest wealth manager, announced it had strengthened its position in the U.S. by buying local rival Julius Baer’s U.S. wealth-management business. UBS did not disclose financial details of the deal, which gives the group control of a business managing $4 billion worth of private funds. UBS, which has group private banking assets of some SFr2.26 trillion ($1.98 trillion), has piled on niche acquisitions in the past year. “The acquisition demonstrates UBS’s commitment to high net worth clients in the Americas,” the bank said in a statement, adding it expected the deal to be completed in the first quarter of 2005. Julius Baer said in a separate statement it had sold the business as part of a shift in focus from private banking to institutional and mutual funds in the U.S.

Link here.

Credit Suisse to absorb investment bank.

Credit Suisse is to integrate its investment-banking unit, CSFB, into its private banking business, and will float insurance arm Winterthur on the stock market. Switzerland’s second largest bank said on Tuesday that Credit Suisse First Boston would focus on niche markets as part of the reorganisation. Analysts say CSFB has been slipping in the industry’s rankings and is no longer seen as one of the top five Wall Street players.

Link here.


The euro is rising to record levels against the dollar, winning favor as a reserve currency in central banks from Russia to China, and flexing its muscles in bond markets. Yet Europe’s common currency, which replaced marks, francs and other national currencies for 300 million Europeans in 2002, is not likely to reach the 75 million people in the newest EU countries for several more years. When Poland, Hungary, the Czech Republic and seven other nations joined the union in May, there was heady talk about advancing swiftly to the next step in European integration: the euro.

Now that enthusiasm has cooled. Several countries have pushed back their timetables for joining the monetary union until the end of the decade, while they struggle to clean up their red-ink-stained public finances. As the dates keep slipping, skeptics wonder how the 10 newest members will ever meet the economic conditions for adopting the currency. It is not just that the new arrivals are recognizing their shortcomings. Even if they were eligible, the Central and East Europeans have little economic incentive to rush into a club dominated by the lumbering giants of Western Europe. A strong euro may give Europeans bragging rights, but it has also hobbled their exports -- a fact not lost on the new members, with their faster-growing, export-driven economies.

Even some longtime European Union members have had doubts about the euro. Sweden voted last year not to adopt the currency, mostly out of fear of losing control over its economic policy, while Britain continues to ponder the matter and Denmark opted out. The European Central Bank has kept interest rates at historically low levels to prop up the fragile recoveries in Germany and France. That would be exactly the wrong tack for Poland, with its brisk growth and ballooning deficits.

The pessimism does not extend to all new members. Estonia, which already ties its currency to the euro and has spic-and-span public finances, plans to adopt the euro as early as 2006. Lithuania and Slovenia, which are also tied to the euro, aim to adopt it in 2007.

Link here.


The Association of Licensed Banks is calling on the Island’s finance sector to collectively seek measures to counter the “significant impact” it believes the EU’s savings tax directive will have on the Manx economy. Phil O’Shea, the association’s president, said because the EU savings directive is due to only take effect in July there was a danger of complacency taking hold in some circles. However, he stressed the government was doing everything in its power to negate the impact of the directive. Last month it appointed three international experts to advise Treasury on global taxation issues and market opportunities.

“We believe there are a number of significant issues that the Island has got to contend with if it is going to continue to be a viable and successful jurisdiction in five to 10 years time. Some of those issues have yet to manifest themselves. The association’s view remains that when banks in this jurisdiction and elsewhere start to communicate with their clients ... [the directive] will have a meaningful impact on our deposit base and the ability of banks to retain clients,” Mr. O’Shea said.

The EU directive, which is aimed at curbing tax evasion in the EU, will affect individuals who reside in an EU-member state and who hold savings accounts in another state. Under the directive, they must either pay an automatic withholding tax on their bank or building society interest or agree to allow information about their accounts to be sent to their national tax authorities. Together with other non-EU member territories, notably the Channel Islands and Switzerland, the Isle of Man has agreed to apply the directive to customers of its financial institutions.

However, the IoM and the Channel Islands aim to exclude from the directive people who are tax resident outside the EU, even if they are EU nationals. For example, a UK citizen who is tax resident in Hong Kong will escape. But UK citizens resident in Malta, Greece, Spain, Italy or France will be caught in the net. Funds held in trusts are a grey area and as the directive stands at present, money held in a life assurance bond does not have to be declared or be liable for withholding tax. Mr. O’Shea said it was difficult to calculate how much was likely to be wiped off the Island’s deposit base. “Based on the input we have had from our members we think it will be significant.”

He said the impact would vary depending on the type of bank. Savings institutions, particularly current or former building societies are likely to be hardest hit. “Similarly the clearing banks have got a lot of retail, individual client business -- quite a bit of which is in Europe. The clearing banks will probably be less impacted because they have had the opportunity to develop business in America, etc.” Private and trust banks are likely to be least affected.

Link here.


Like it or not, Frenc Alafi could become a EU passport holder sooner than he had expected. The 43-year-old tailor from Oradea, Romania situated just inside the border with Hungary is among at least 2.5 million ethnic Hungarians who could be offered dual citizenship by Hungary, depending on the results of a referendum held Sunday in that country. If approved, the Hungarian ballot could give Alafi, and tens of thousands like him, visa-free travel throughout the European Union, the prospect of better-paid jobs and, perhaps more controversially, a sense of national unity that Hungarians have not seen in 74 years.

But just as the referendum has encouraged a feeling of national pride among ethnic Hungarians throughout central Europe, it also has created unease among many people, Alafi included, reviving memories of the empire Hungary once had. The ballot is the project of the World Federation of Hungarians, an organization that fights for ethnic Hungarian rights, and has the support of the main Hungarian opposition party, the conservative Young Democrats-Civic Party. The two groups succeeded in gathering 200,000 signatures required for a national referendum. Final results were not expected to be announced for several days. But the measure appeared likely to be invalidated because of low voter turnout, the national election office said late Sunday night, after more than 90% of the votes had been counted.

Whatever the results, most observers agree the vote has stirred up an uncomfortable debate between Hungary and its neighbors. Until 1920 Hungarians were united under the Austro-Hungarian Empire, but the victors of World War I broke up the empire and Hungarians found themselves in eight separate states. The largest group, around 1.5 million, lives in Romania. About 600,000 Hungarians are in Slovakia, 300,000 in Serbia and possibly 200,000 in Ukraine. Smaller numbers are in Croatia, Slovenia and Austria.

Most observers say this latest proposal has mostly to do with Hungary’s internal politics. Nevertheless, many of those who would benefit from the dual nationality say the proposal has put them in a difficult position. “I know I would benefit, but what about the people I live with,” said Alafi, referring to his Romanian neighbors. According to Mark Percival, director of the Romanian Think Tank, a political research center in Bucharest, Alafi’s concern is a common one.

Link here.

Socialists and Fidesz both claim victory in failed Hungarian vote.

Both major parties claim Sunday’s failed referenda on privatization of the health service and dual citizenship for ethnic Hungarian abroad a victory of sorts. While conservative opposition party Fidesz emphasized that the majority had voted “Yes” to both questions, Prime Minister Ferenc Gyurcsány of the Hungarian Socialist Party (MSzP) talked about the low turnout and the country’s overall rejection of Fidesz policies.

Link here.


I am a Panamanian resident and a foreign investor. My wife is a Panamanian and I have three Panamanian children. I am the developer of Valle Escondido residential development and resort in Boquete. Valle Escondido is a unique residential development in Panama because it focuses on bringing foreigners to Panama to retire. Most of the retirees are from North America, although a fair number are from Europe and Panama as well. The project began about three years ago, and consists of about 200 homes. As of this writing we have approximately 50 homes completed. We will construct another 150 over the next two to three years.

The fact that we are nearly sold out, in such a relatively short time, clearly demonstrates the dynamic attraction Panama has to the foreign market. It has been powerful enough to attract foreigners to leave their own countries and come live in Panama permanently. As a pioneer, among the first foreigners to develop in the interior of Panama, we have had to overcome a number of unnecessary obstacles. Under some circumstances, these obstacles could have ended the project. My purpose in sharing this information is not to point fingers at the guilty. It is instead to suggest ways the government could help facilitate the minimization of these obstacles for foreigners who invest here.

My presentation focuses on three main issues. First, the economic significance of this type of foreign investment and how it relates to tourism. Second, examples of the difficulties facing foreign investors from both government and the private sector. Third, what the government can do to facilitate this type of foreign investment.

Link here.



No new measures directly targeting the offshore finance sector were announced in the pre-Budget statement by Chancellor Gordon Brown. Both Walbrook Group head of tax compliance Jason Ward and KPMG’s managing partner Jonathan Hooley saw the statement as largely neutral. But Mr. Ward believed the announcement of a clampdown on certain avoidance schemes, identified under new disclosure rules introduced last July, was further proof of the UK Treasury’s resolve to close existing tax loopholes. This process could have more serious implications for the finance industry in the longer term.

Link here.


The recently signed American Jobs Creation Act of 2004 contains a number of provisions that affect United States citizens residing outside the U.S. Significant changes have been made to the foreign tax credit law, effective in calendar years 2007. Under current law, income and the foreign tax applicable to that income had to be allocated between nine so-called “baskets”. Under the new law there will be two categories of “basket”, a passive income category and a general category.

Under current law, foreign taxes accrued or paid in the current year that are unused, can be carried back two years, and then carried forward five years. Under the new law unused foreign tax credits can only be carried back one year, but can now be carried forward ten years. The prior tax law was of benefit to individuals who had extensive foreign business travel in the two years prior to a transfer to a high tax country. The new law will mitigate this benefit. However, individuals who currently reside in a high tax country will now have 10 years after their return to the United States to use up their carry forward credits versus five years under the old law.

The long promised relief from the alternative minimum tax is one year away. Under the current tax law, if your U.S. tax liability is $40,000, and all of your income is from sources from outside the U.S., and you paid at least $40,000 in income tax to a foreign country, your U.S. income tax after taking into account the foreign tax credit would be zero. However, under the alternative minimum tax, the foreign tax credit could only offset 90% of the alternative minimum tax, leaving you with a $4,000 tax to pay. Effective for calendar 2005, the 90% limit has been repealed.

If a U.S. citizen or resident alien has an interest or signature authority over a foreign account whose value exceeds $10,000 during the year, the individual must file Form 90-22.1 with the Treasury Department by June 30 of the following year. As a result of years of non-compliance, the penalty for wilful failure to file the Form 90-22.1 is now a minimum of $25,000 and a maximum of $100,000. The new law introduced a new civil penalty for non-wilful failure of up to $10,000, effective for 2004. If there is any doubt in one’s mind as to whether they need to file, do so.

Link here.


The government is discussing changes to the corporate tax system as a means of protecting the UK’s tax revenues from being undermined by future European Court of Justice rulings. Some drastic measures such as abolishing the ability to offset losses in one subsidiary against the profits of another are being considered as options if the government is forced to rewrite the rule book for corporate taxation. In a growing number of high-profile cases, the ECJ has decided that national tax rules are illegal under EU law.

As well as posing a threat to revenues, the ECJ’s dismantling of domestic tax laws that conflict with the EU treaty could be embarrassing for the government, which has resisted proposals to harmonize direct tax regimes across Europe. Several hundred multinationals are seeking tax refunds from the Inland Revenue estimated to total £10-20 billion in a series of challenges to rules that treat domestic and international transactions differently. But UK companies could face extra costs if the Treasury decides to remove tax privileges from UK-based organizations instead of extending them to non-UK companies in order not to discriminate against other EU companies.

Over the past 10 years, the ECJ has ruled in favor of the taxpayer in 85 out of 87 cases relating to discriminatory tax legislation. The government is starting to explore its options in case it loses a court battle next year with Marks and Spencer. The retailer wants to use the losses of its Belgian and French subsidiaries to reduce the taxable profits of its UK parent. If the government lost, it would be reluctant to harmonize the rules by allowing companies to claim tax relief for losses incurred by overseas subsidiaries.

This step, which critics say would amount to British taxpayers subsidising business failures in other parts of the EU, could lead to the loss of billions of pounds of tax revenues. Instead, the government could decide to remove companies’ ability to offset losses in one UK subsidiary against profits in another, a step the Confederation of British Industry has described as potentially “very, very bad news for the competitiveness of British industry.”

Link here.


Several important new tax laws that have passed Congress during this fall’s pre-election period. Two major tax laws have been approved: the Working Families Tax Relief Act of 2004 and the American Jobs Creation Act of 2004. Both new acts have important effects on your personal tax return. This article outlines the changes that impact your personal tax situation and recommends some initial steps that you might take to maximize your tax benefits.

Link here.


A federal judge has dealt a blow to the government’s efforts to curb tax shelters it considers abusive, lifting a rare freeze on more than $500 million in assets of thousands of doctors and dentists who invested through a company in San Diego. The order lifting the freeze, issued on Dec. 3 by Judge Burns of U.S. District Court in San Diego, reverses another federal judge’s order, issued on Nov. 4, which temporarily froze the assets while the government pressed its case against the company, Xelan. Judge Burns, and not the other judge, heard Xelan’s appeal of the original order because of court scheduling issues.

The order was described over the weekend by lawyers for each side. The lawyers said the judge had argued that the I.R.S. and the Justice Department had not yet proved that Xelan and several interrelated companies were selling questionable tax shelters. Until the I.R.S. rules that the transactions in question were invalid for tax deductions, freezing assets from those transactions is inappropriate, the lawyers said the judge reasoned. The government, which has sued Xelan, will continue its case, according to government lawyers. Xelan, which is in bankruptcy proceedings, is also the subject of a criminal investigation by a federal grand jury.

Link here.


One of Delaware’s cherished traditions -- the corporate tax shelter -- is under siege. So far, 12 states and the District of Columbia have passed laws aimed at Delaware investment holding companies, which have allowed corporations to shield investment and royalty income from other states’ taxes. Now, Delaware is fighting back with a strategy that state officials hope will add hundreds of jobs and tens of millions of dollars to the First State’s economy while preserving Delaware’s reputation as a corporate tax haven.

Under a law adopted this year by the General Assembly, businesses can shield themselves from taxes in other states as they can with the Delaware holding companies. Where the new law differs, however, is that the businesses have to add jobs or increase spending on services provided by Delaware bankers, lawyers and accountants. The job and spending requirements have a dual purpose: benefit Delaware’s economy and bolster the company’s argument for tax exemption in other states.

Holding companies exist almost solely on paper, with perhaps a semiretired, part-time accountant in a small office serving as the only Delaware officer of the “corporation”. Sometimes, the holding companies do not directly employ anyone, but instead rely on Delaware firms specializing in corporate services to provide a part-time employee. Delaware holding companies have become targets for legislators and tax collectors in other states, who attack the tax shelters as “sham transactions” and “shell corporations” whose only purpose is tax evasion. Delaware officials believe the new tax-savings vehicles, called headquarters management corporations, woill not be as susceptible to challenge because they will have “economic substance” -- jobs and real estate -- behind them.

Link here.


The Supreme Court justices are considering whether the tax court withholds important information, making it hard for taxpayers who lose to challenge decisions. Taxpayers fighting with the IRS may use traditional courts if they pay the IRS first and then sue to recover the money. The U.S. Tax Court is available to people who want to contest IRS findings before paying any cash. The president names the 19 members of the tax court.

Although the official opinions of the court are made public, people are not allowed to see recommendations by specially appointed judges who hold trials in cases involving more than $50,000 and write detailed reports. Justice Ruth Bader Ginsburg told a Bush administration lawyer that it appeared people were being deceived by the behind-the-scenes work. Justice Sandra Day O’Connor told Thomas Hungar, deputy solicitor general, “It’s such a strange procedure. ... Wouldn’t you like to see (a report) if it went against you?”

Link here.


Jerome Schneider, the nation’s most prominent seller of offshore banks in tax evasion schemes, was sentenced to six months in prison by a federal judge in San Francisco. He also released documents identifying Manhattan lawyers who worked with him. The sentence imposed by Judge Susan Illston reflects a deal that Mr. Schneider, 53, made with the Justice Department and the I.R.S. to cooperate in prosecuting his clients and associates and in seeking payment of the taxes the clients evaded.

Mr. Schneider said that the Justice Department and the I.R.S. broke a promise to ask that he spend no time behind bars in return for his cooperation. The Justice Department recommended that he be sentenced as a Level 8 offender, which means from zero days behind bars up to six months. “They tricked me,” Mr. Schneider said, adding that unless the government seeks a reduction in his sentence to no jail time, “I won’t cooperate with any of their prosecutions.”

Mr. Schneider also made available a complete set of documents to set up what he has admitted was a fraudulent tax evasion scheme. The documents, including contracts, legal opinions and forms, were prepared by Ford Marrin Esposito & Witmeyer, a Manhattan law firm that has since been renamed Ford Marrin Esposito Witmeyer & Gleser.

Links here and here.


The new standards attempt to discourage people from designing and peddling shelters that have no apparent purpose other than to dodge taxes. IRS officials are focusing on tax professionals, since that is where taxpayers -- both wealthy individuals and businesses -- typically hear about shelter ideas in the first place. The rules take aim in particular at a widely used tool in selling complex tax shelters, vaguely worded “opinion letters” that are written by lawyers and accountants and used to assure investors a transaction is legitimate. Many investors assume, often wrongly, that an opinion letter -- especially one written on the stationery of a blue-chip firm -- will protect them against stiff financial penalties in case the IRS decides to attack a shelter. The theory is that, even if a shelter is ruled invalid, the investor can argue he or she acted in good faith, because the transaction had been blessed by a professional.

Lawyers say many opinion letters are practically worthless because of their ambiguities and because they do not address all the details of the transaction involved. Reputable tax advisers urge people to obtain independent evaluations from qualified tax experts who have no financial stake in the proposed transaction.

Another potential pitfall: Never listen to a promoter who insists on complete confidentiality before disclosing details of a shelter idea. A carefully crafted legal opinion from a reputable tax adviser with no financial stake in the matter can be useful in protecting investors from penalties in case the IRS later attacks. The new rules aim in part at making clear what kinds of opinion letters work, and which do not.

Links here, here, and here.



Measured by total assets (i.e., offshore deposits and mutual funds) Jersey is by far the largest of the British Isles offshore jurisdictions. At €329 billion, it is more than twice the size of Guernsey and nearly ten times that of the Isle of Man. The latter, however, has been growing most quickly, at around 12% per annum since 1999. Though competitors in the British Isles are relatively relaxed about the implications of the Patriot Act, more than 90% of executives surveyed see a negative impact arising from the EU Savings Tax Directive. Concerns center not just on a loss of tax competitiveness, but on the effects of a perceived loss of confidentiality among clients.

Link here.


The meaning of “offshore” has never been precise. Indeed it has often been contradictory, when countries such as Luxembourg and Switzerland have been included in the description. Essentially, the idea of an offshore center was derived from the now outdated idea of tax havens and at its simplest, still implies an opportunity to be able to take advantage, with the right corporate and trust structure of a foreign country with different tax laws. This description does incorporate one of the most noticeable characteristics of an offshore center, that is that there is some tax advantage in setting up there some income earning feature.

At first the idea of “tax havens” implied tax was negligible and that with a minimum of formalities, the investor could establish a moneybox structure and there accumulate wealth and defy his home tax authorities. It may also be used where an investor or corporation can see an advantage in setting up in countries which do not have offshore advantages generally but offer special advantages such as those offered to some nonresident operators in the UK.

Handbook introduction here.


At the funeral of my wife’s cousin, I was going over notes for my eulogy when a man approached and handed me an envelope. I knew him only as one of the cousin’s more frequent visitors. The cousin had asked him to give me the envelope at the funeral, he said. I took the envelope and continued to prepare for the eulogy. After the service, I opened the envelope. It contained a will, handwritten by the cousin and witnessed. It was dated 20 months before his death. The only will my wife and I knew about had been executed much earlier, right after the cousin had become ill and unable to care for himself. He had no immediate family, and my wife was the only one in a position to help. Take care of me, he said, and I will leave everything I have to you. His will had formalized that commitment.

My wife did her part, devoting thousands of hours to visiting him, taking him to doctor appointments and occasional social events, negotiating lower drug prices, refinancing his mortgage, paying his bills. She also hired a home health aide, who had been recommended by a friend who is a nurse, to prepare evening meals and give the cousin his baths. The aide was the primary beneficiary in the will I was holding. She was to receive the cousin’s townhouse, worth $140,000. My wife would receive the home’s contents, worth a few thousand dollars.

The health aide immediately changed the locks on the townhouse and moved in. Then she probated the handwritten will, taking it to the clerk of court and having it recorded so it became official. My wife sued to contest that will, on several grounds, and 15 months of litigation began. Just as the cousin had demanded constant attention the last five years of his life, he continued to demand it. Almost every day there was some detail needed to keep the suit moving. The suit failed. The health aide kept the house. My wife kept all the feelings of betrayal, which overran the pleasant memories of her cousin’s life.

AARP and the National Alliance for Caregiving report that 44 million adults, about one in five, are caregivers. Most care for older relatives who do not live in the same home. Because they average more than 20 hours of caregiving a week, it is no surprise what tops the list of caregivers’ problems: “Finding time for myself.” One way they do that is to hire a third party, such as a home health aide, to help. If you are at that point or expect to get there soon, understand the risk: Your elder may develop an inappropriate attachment.

The relationship may be an entirely wholesome one. But it also can take a wrong turn, with the elder bestowing substantial money or property or making other decisions that extend well beyond the bounds of a professional relationship. It can happen either because the third party exerts undue influence, or because he or she simply allows it to happen. If the elder has dementia, the risk grows to a new order of magnitude. But sometimes people who are well within the medical definition of mental “capacity” make decisions that would horrify their families. Lawyers, medical and social services professionals, and others interviewed for this article shared stories of caregivers wrongfully enriching themselves. Sometimes it is an outsider, sometimes an unscrupulous relative. There is no legal recourse called “that’s just not right”. Indeed, the law gives every benefit of the doubt to the elderly, just like all other adults, in the choices they make.

It is wiser to avoid getting into the position of trying to undo your elder’s decision. Instead, you can help to build a fortress around the elder’s best interests. One block in that fortress wall is estate planning. But do not think merely in terms of a will. Instead, consider a revocable or irrevocable trust. A trust allows your elder to reserve chosen assets for specific family members or other loved ones, shielding those assets from the effects of a changed will. That makes a good defense against the kind of thing that happened to my wife.

To do this, you need an attorney specializing in elder law to explain the options and write the trust document. But you need family solidarity on a couple of things. First, is everyone in the family and other interested parties willing to comply with the elder’s wishes? If there is disagreement, work it out before you hire the attorney. Second, agree on individual support roles. The elder should assign someone (and an alternate) to have “durable” power of attorney, the ability to make financial decisions after capacity is diminished (or sooner, if desired). Oh, and that long-lost cousin who suddenly takes an interest? Be careful if you let her inside the fortress.

Link here.


Many trust in God, but where money is concerned a bank is safer, and, when settled by trust deed, as discrete as a prayer. That is why millions use the City of London and English trusts to plan their finances. The sophistication and adaptability of the English trust has created an industry and made London a center for managing other people’s money. Unfortunately, the trustee can also provide discretion for a cast of (more) dubious characters. Tax evaders, drug barons, money launderers and, some would have us believe, terrorists find these legal arrangements useful. Trusts are amoral, the duties of the trustee are to act not saintly but discretely, and in the financial interest of the beneficiaries. That means keeping your beneficiaries out of the eye of authorities, such as the taxman and anyone else interested in prying into their affairs.

Not surprisingly, a lot of people have it in for trusts and the secrecy they provide. A host of regulations seeks to throw light into dark corners, forcing “know your client” rules not just on bankers, lawyers and trustees but on estate agents and casino operators, too. The EU is now debating the Third Money Laundering Directive and should you fall into one of the occupations listed immediately above, you should feel a bit nervous.

Draft article 19 of the directive requires that you rat on your client. You must blow the whistle, not just if you know your client to be a money-launderer and not just if you have reasonable grounds to believe he might be. Under the Third Directive you must shop him if you suspect something. This is dynamite for any profession in the business of dealing with a client’s money, because it transforms a relationship of trust into one of suspicion. It imposes a duty on you to know your client and what he is up to.

You might think the discomfort of lawyers is trivial when the prize is capturing drug barons and terrorists. But these regulations have little to do with catching crooks. They are about shifting responsibility from government to the private sector. The banks are worried; this is no longer a matter of keeping a list of dodgy dictators but a major forensic intelligence job, a task that might test the resources of MI6. And it will not stop money- launderers. Sani Abacha, the late Nigerian dictator, did not deposit his bag of swag in London banks under his own name. The purpose of this directive is not to fight crime but to deflect further embarrassment -- to shift blame from government and, above all, to mollify the rednecked regulators in Washington, the source of the hysteria over terrorist financing.

Link here.


Despite the huge inflow of foreign direct investment into China, investments by international venture capital and private equity firms have been relatively small when compared with similar deals in more developed countries in Asia. Most private equity firms are still not comfortable making substantial investment directly into companies in mainland China, and any involvement is typically undertaken through vehicles set up in offshore jurisdictions such as the British Virgin Islands, Bermuda, Cayman Islands and Hong Kong. The key reasons are the more established and flexible system of corporate law in these jurisdictions, as well as stronger corporate governance requirements and culture.

An offshore vehicle allows for investment structures such as convertible, preferred and/or redeemable shares, which are not available under Chinese law. The usual structure is for both the investors and the Chinese founders to invest in the offshore vehicle and for this vehicle to hold the Chinese operating company. However, the Chinese authorities have to approve the establishment of offshore units by Chinese groups. Although this procedure has been relaxed, it is still useful to check whether the Chinese shareholders already have an offshore vehicle that may be used as a shareholder in the new offshore company.

In terms of exiting the investment, private equity firms usually focus on trade sales and obtaining an overseas listing, usually in Hong Kong. A domestic listing as an exit route is difficult because of stringent domestic requirements and restrictions. An offshore investment vehicle can facilitate a potential exit as, generally, the sale of an interest at the offshore level does not need mainland approval.

Link here.


During these past 7 years our commentaries have addressed a broad range of issues (but always within the context of the offshore financial services industry) and although some of the issues were fleeting, others are perennial. It was felt appropriate in this issue to look at some of these evergreens. During a recent conference in Panama at which I spoke, I discussed the progress so far made in bridging the gap between Panama and the OECD in relation to international tax harmonization, a subject also covered in the September issue of the OPQ. In May, 1998, the OECD said that a campaign should be launched to stamp out tax havens and a target of 7 years was set in which to achieve this. With just a few months remaining before the target date is reached, it will be clear to readers of the OPQ and others that the OECD was overly optimistic. Despite, admittedly, some significant success, the OECD has, to quote Robert Browning, let its reach exceed its grasp.

Offshore financial services are important to Panama. During the last 5 years, for example, some 1500 companies per month on average have been registered and in the last 3 years revenue from this source has earned the country $67 million Reconciliation with the OECD remains a distant goal especially when Panama is commonly seen as a pure Cayman-style tax haven whereas it has a tax system under which local operating companies, for example, pay income tax of 30%; ironically, the equivalent corporate rate in Ireland is only 12.5%. Sovereignty has helped Panama in its dealings with the OECD. No developments have caused me to waver in this conviction. Quite the opposite.

In centuries past the Catholic church amassed a fortune from wills which left money for prayers to be said for the souls of the departed. In today’s world, salvation can concern temporal matters as well, and needs the intercession of not just prayer if one has assets offshore. A lot of personal wealth is held in companies registered offshore, but what happens to the assets when the owner dies? Although Plato contends that nothing in the affairs of men is worthy of great anxiety, I can guarantee that not getting your affairs in order before your rendezvous with death can cause great anxiety for those left behind. If a will exists, it will be either a domestic or an offshore one -- there may be both kinds. In any case, control of the deceased’s offshore assets will pass to his executor upon his demise. If there is no special offshore will covering the company assets, there will be a delay while the domestic will is dealt with and the executor obtains the court’s authority to represent the deceased’s estate (a grant of probate or its equivalent) in the place where the will is registered. The ensuing passage of time might impact on the operations of the offshore company managing the assets. Then there is intestacy which is the worst-case scenario.

Very often, the far-sighted company owner has established either a trust or a foundation. A trust, among other things, is a will with all the extras, you could say, but without the need for probate. Usually a special offshore trust has been created to set out clearly the manner in which the offshore company assets are to be managed and how they are to be dealt with after the owner’s death. Offshore foundations are popular, especially in Panama which has particularly attractive laws concerning them. It is the civil code equivalent of the common law trust and performs the same functions. It is more akin to a company, however, except that instead of having shareholders, the foundation has beneficiaries. The frequent failure to cover the contingency of death, either onshore or offshore, is what I describe as the Achilles’ heel of estate planning. Some common sense from the Book of Common Prayer says it all: “We have left undone those things which we ought to have done; and we have done things which we ought not to have done”.

But even with intestacy avoided and a plan of succession in place, that does not mean that anxiety will not follow. The actual (though disguised) case below clearly shows why. So look for experience in a practitioner. Fly with a pilot who has taken off, flown and (especially) landed in all kinds of extreme weather than with one who has always enjoyed smooth conditions. That applies, of course, to domestic and offshore pilots.

Link here.


The proposed comprehensive economic co-operation agreement (Ceca) between India and Singapore would include a revamp of the double taxation avoidance treaty (DTAT) on the lines of the treaty with Mauritius. The idea is to establish another major tax-saving route for foreign investors in the Indian economy. Mauritius tops the foreign direct investment (FDI) chart in India accounting for 36% of the total inflows, thanks to DTAT.

A more effective DTAT with Singapore assumes significance as it implies that the government is no longer unsure of the legal tenability of such treaties. Reports suggesting a relook at the DTAT with Mauritius had resulted in a dip in FDI flows from that country in the second half of 2003. For a brief while, the U.S. had surpassed Mauritius as the top FDI investor in India. But a Supreme Court ruling which said that certificate of residence in Mauritius was sufficient evidence for availing of tax benefit accelerated the FDI flows from Mauritius again, helping it to regain the number one slot in India’s FDI chart. Currently, India has DTATs with as many as 67 countries including the U.S. and the UK. FDI inflows into India rose by 68% to $2.38 billion in the first half of the current fiscal.

Link here.



Bankers Systems has formed an exclusive alliance with World-Check to provide a unique screening service for high-risk customers. World-Check is unlike any other because it allows you to retrieve customer data -- from around the world -- on a real-time basis. World-Check allows financial institutions to conduct enhanced due diligence on higher-risk customers -- including those customers that have not yet established an identity in the U.S., or those without a history that allows risk assessment through more traditional means.

World-Check’s global network of researchers and technology specialists monitor the public domain and collect data on individuals and businesses that are known to represent risk from more than 230 countries and territories around the world. World-Check then analyzes the data and compiles detailed, yet easy-to-understand profiles on each entry in its database. The World-Check database is derived from over 100,000 different data sources and is updated twice daily.

Full announcement here.


Compulsory fingerprinting for EU citizens is set to be fast-tracked by Europe’s justice ministers. The move has angered MEPs after national governments linked quick European Parliament approval for digital “biometric” passports to new justice powers. Ministers are also to push through controversial measures compelling data retention of telecoms traffic data. The move will depart from existing EU privacy law to allow access to SMS, mobile phone and internet records by police and security agencies. MEPs have expressed anger that both measures are being pushed through during heightened anti-terrorist scares and without proper democratic scrutiny by national or the EU parliaments.

Link here.


As the House and Senate in this week’s “lame duck” session wrangle over differences on immigration and Pentagon authority in the intelligence overhaul bill, civil libertarians should be very concerned about another section of the bill that many members of both bodies seem to agree on. The intelligence bill seeks to end the “sunset” clause of what experts say is one of the most privacy-harming sections of the USA PATRIOT Act, allowing it to be extended permanently without congressional review. This is the section of the bill supposedly designed to fight money laundering by forcing businesses to conduct even more routine customer surveillance. And it does so even though the 9/11 Commission report casts heavy doubt on the effectiveness of know-your-customer type programs at fighting terrorism.

Title III of the PATRIOT Act required a broad category of businesses defined as “financial institutions” to set up anti-money laundering programs similar to those already in existence for banks. From the definitions of the PATRIOT Act and other statutes, These “financial institutions” specifically include auto dealers, jewelry stores, travel agencies, and financial service providers, as well as any other type of business the Treasury Department regulators deem to have a connection to money laundering. Like the banks, these new businesses are being forced to report transactions that meet an arbitrary and secretive definition of “suspicious activity,” which regulators have sometimes defined to mean anything that deviates from a customer’s normal transactions.

To assuage privacy concerns, the writers of the PATRIOT Act’s Title III put in a clause called section 303 that put the provisions up for congressional review “on and after” Jan. 1, 2005. While not as strong as the sunset clauses contained in other parts of the law up for review next year, it does create a procedure to repeal Title III if just one House or Senate member introduces a joint resolution. If introduced, the repeal legislation receives “expedited consideration”, ensuring it will receive a vote and not be bottled up in committee. But even this mild privacy safeguard will be killed if the intelligence bill in its current form passes. The bill clause’s title makes its intentions clear. It is called “Repeal of Review”.

Links here and here. The USA PATRIOT Act lets the feds spy on your finances. But does it help catch terrorists? -- link.

Ron Paul denounces national ID card provisions of intelligence bill.

Congressman Ron Paul strongly denounced the national ID card provisions contained in the intelligence bill being voted on in the U.S. House of Representatives, while urging his colleagues to reject the bill and its new layers of needless bureaucracy. “National ID cards are not proper in a free society,” Paul stated. “This is America, not Soviet Russia. The federal government should never be allowed to demand papers from American citizens, and it certainly has no constitutional authority to do so.”

“A national identification card, in whatever form it may take, will allow the federal government to inappropriately monitor the movements and transactions of every American,” Paul continued. “History shows that governments inevitably use such power in harmful ways. The 9-11 commission, whose recommendations underlie this bill, has called for internal screening points where identification will be demanded. Domestic travel restrictions are the hallmark of authoritarian states, not free nations. 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.”

“Those who are willing to allow the government to establish a Soviet-style internal passport system because they think it will make us safer are terribly mistaken,” Paul concluded. “Subjecting every citizen to surveillance and screening points actually will make us less safe, not in the least because it will divert resources away from tracking and apprehending terrorists and deploy them against innocent Americans! Every conservative who believes in constitutional restraints on government should reject the authoritarian national ID card and the nonsensical intelligence bill itself.”

Link here.

U.S. to specify documents needed for driver’s licenses.

The intelligence agency overhaul given final approval by the Senate also reorganizes the way the states grant driver’s licenses, a change that civil liberties advocates and some security experts say could have far-reaching consequences. Issuing driver’s licenses has always been mostly a state function, but the new law requires the federal Department of Homeland Security to issue regulations on what documentation a state must require before it can grant a license. It also requires that the licenses be “machine readable”, which will probably be accomplished through a magnetic stripe or a bar code or both.

The printed format of the piece of plastic will still be under state control. But to a person equipped with a reader, that will make little difference, because Washington will set the minimum national requirements for the machine-readable data. The federal government will gain control through airport checkpoints and other places where federal agencies demand identification. After a phase-in period, the government will refuse to accept licenses that do not comply with the standard. The same rules will apply to photo identification issued by states to nondrivers.

“We’re really looking at a national ID system,” said James C. Plummer Jr., a policy analyst at Consumer Alert. “Basically, each state might have the name of the state written in a different font on the front, but there will be a magnetic stripe on the back containing virtually identical information.”

At the American Civil Liberties Union, Greg Nojeim, associate director of the Washington legislative office, said, “Licenses that purport to meet the federal standard will become the gold standard.” But Mr. Nojeim and others say they may not be nearly as secure as some people assume, because the “source documents”, including birth certificates and Social Security numbers, are so easily faked. “It’s a garbage-in, garbage-out situation,” he said. “The same people who manufacture fake driver’s licenses today will be manufacturing fake national driver’s licenses tomorrow,” Mr. Nojeim said, although the price will increase, he predicted.

Link here.

Conference report and text of the Intelligence Reform bill available here. Summary of intelligence bill provisions here.

ACLU disappointed with “Intelligence Reform” Bill passage.

In their haste to reach an agreement on intelligence reform legislation, lawmakers failed to protect freedom and privacy. While some extreme anti-immigrant measures were rejected, the bill does include several unnecessary surveillance and other Patriot Act-like provisions not found in the recommendations of the 9/11 Commission, but included at the insistence of several House members.

This restructuring will centralize the intelligence community’s surveillance powers, increasing the likelihood for government abuses, without creating sufficient corresponding safeguards. In one of the biggest disappointments, the compromise bill severely watered down a strong, independent review board designed to protect civil liberties. On one hand, lawmakers want to vastly increase the government’s power; on the other, they want to diminish oversight. The civil liberties board, as it currently stands, it little more than window dressing and a token nod to the freedoms that are an essential part of our society.

The final bill also lays the foundation for a de facto national ID card. Opposition for the intrusive measure came from the ACLU and numerous groups across the political spectrum, including the American Conservative Union and the Free Congress Foundation. A national ID card is unproven to deter terrorism or weed out terrorists, but it would strip away our privacy and inch us closer to a “Big Brother” society.

Finally, the intelligence reform bill unnecessarily expands upon law enforcement powers -- several of which were seen in the draft Patriot Act 2 -- a measure so controversial, it was never considered by Congress. It should be remembered that the 9/11 Commission did not call for any of these provisions in its report.

Link here.


The simple existence of a connection to an event may be a personally tragic and heartrending thing, but it does not bestow carte blanche moral authority upon one’s beliefs. My grandfather, for example, was shot several times during the course of the Korean War, but that does not suddenly make any opinion I have about that war sacrosanct. Likewise, if my father were to die in a hot air balloon accident, I might criticize the company that made the basket or the sandbags or whatever failed, but I would not instantly become a qualified expert on how to reform the hot air balloon industry.

No one with a conscience would ever attempt to downgrade the pain and horror the families and friends of those murdered on September 11 have gone through. They have been caught up personally in a terrible moment of history. For the rest of us, the terrorist attacks are a national tragedy. For them, it is personal, with the world events since inevitably colored by their own shattered lives.

Nevertheless, just as one can mourn Christopher Reeve without being morally willing to accept his call for embryonic stem cell research, there is no reason why those who see the obvious flaws in the current intelligence bill should feel as if they are somehow breaking faith en masse with the 9/11 families. Callous as it may sound, the vocal support of some 9/11 family members has no bearing whatsoever on whether the reforms in it are useful or not.

It is never a good sign when support for a measure is based on emotion rather than reasoned debate, and the intelligence bill is a textbook scenario. The bill’s supporters have been shamelessly exploiting select victims to intimidate anyone who dares to question the counter-intuitive wisdom of solving a bureaucratic problem by adding another layer of bureaucracy and politicizing defense intelligence funding. They want to equate dissent with attacking the victim, and it has been a successful ploy.

Aside from a few vague possibilities that may or may not come to fruition, I am still waiting for someone to show me the practical utility of the bill. But, then, there is plenty of regression and obstructionism in the bill, so it is not as if it will not accomplish anything. But beyond that, do today’s political powerbrokers really believe they are so touched with brilliance that they could have prevented all past wrongs, including Pearl Harbor? Do they really believe they alone can guarantee all future safety? One would think failure on so many fronts -- political, economic, social -- these last four years would eliminate some of the hubris. Instead, it only grows.

Were these or were these not the same lawmakers who sat on their hands throughout the 1990s in a rare example of bipartisanship as terrorists planned, plotted, threatened and attacked at will? These people’s words and deeds should deliver them shame, not trust; ridicule, not fawning respect. And we will never be safe so long as our leaders are so pathetically craven and weak.

Link here.


The U.S. security establishment is rapidly increasing its ability to monitor average Americans by hiring or compelling private-sector corporations to provide billions of customer records. The explosive growth in surveillance by government and business is creating a “Surveillance Industrial Complex” that threatens all of our privacy. This ACLU report makes the case that, across a broad variety of areas, the same dynamic of the “privatization of surveillance” is underway. Different dimensions of this trend are examined in depth in four separate sections of the report: 1.) “Recruiting Individuals”, 2.) “Recruiting Companies”, 3.) “Mass Data Use, Public and Private”, and 4.) “Pro-Surveillance Lobbying”.

Link here.


On Nov. 23, the British government announced plans to issue national identity documents for the first time since their post-World War II discontinuation in 1952. We would urge them to reconsider. We hope that the war on terror does not require a police state, nor the precursors to one. Unfree societies require the showing of “papers”, not free ones. The bad news is it seems the British are no longer convinced of that fact. We hope they are wrong. Shortly after the September 11 terror attacks, an overwhelming majority of Britons indicated support for ID cards -- about 85%, by one polling firm’s reckoning. Now, with the endorsement of both Queen Elizabeth II and Tony Blair, it is clear much of the establishment strongly favors the plan too.

Not all of it does. A revolt has been brewing in recent weeks among conservative opposition members of Parliament, civil libertarians and even members of Mr. Blair’s own Labor Party. Prominent among the revolters were former Shadow Home Secretary Lord Hattersley, a Laborite, who said the ID card plan went “too much in the direction of authoritarianism and too little in that of civil liberties,” and Liberal Democrat leader Charles Kennedy, who accused the government of trying to win votes by stirring fears of terrorism. Scottish leaders, too, are uncomfortable with the encroachment.

We cannot, in logic, categorically reject the prospect that it may become necessary, in the efforts to detect terrorist planning, for the government to keep track of a citizen's every action and purchase. But we are not at that point yet. And we hope national survival will never require said police-state conduct. Certainly the case has not yet been made. Britain should hold her historic freedoms tight and not yield them to shadow fears.

Link here.


From Theresa Villiers MEP, Conservative Member of the European Parliament.

Sir, European Union finance ministers reached agreement this week in Brussels on new EU rules on money laundering. Existing money-laundering laws are providing serious headaches, not just for bankers, accountants and lawyers, but for their customers as well. Few of your readers will have been able to escape demands for passports, utility bills and so on just to open a bank account.

In these circumstances one would have thought Gordon Brown and his fellow finance ministers would have been clarifying and stripping back rules that have led to these unintended consequences. Not so.

Instead they have agreed a new and more detailed third money-laundering directive. Admittedly, they have removed some of the more problematic aspects of the Commission’s original proposal for a new directive but they have failed to tackle the reform of existing rules that is so clearly needed. ...

It is not acceptable for laws that have such an intrusive role in the lives of ordinary people to be nodded through behind closed doors in Brussels. In the past, I have supported money-laundering legislation but I am fast coming to the conclusion that I was wrong and that these rules do almost nothing to catch criminals or terrorists and merely provide inconvenience to law-abiding citizens in carrying out innocuous everyday financial transactions.

Link here.



Starting January 1 it will be possible, under certain conditions, to sign contracts for transactions such as online credit loans, with the click of a computer mouse. People will also be able to sign up electronically for health insurance and apartments. But some official documents, for example wills or property deeds, will still have to be signed by hand. The move puts Switzerland among the first European countries to recognize e-signatures.

The provisions are compatible with European law and are aimed at contributing to the development of cyber administration and e-commerce, the purchase of goods and services on the internet. Under the new procedure, digital signatures will be based on an encryption system. The user will have a personal encryption key, which he can use to sign an electronic file. The receiver will be able to verify the signature with a public key.

Link here.


A bank teller found guilty of laundering some $136,000 was sentenced in the Supreme Court in Bermuda’s first money laundering prosecution. Shrika Ra Wanda Minors was given an 18 month suspended prison sentence for a total of 36 counts of money laundering involving money which was found to be the proceeds of drug trafficking. Minors had committed the offence while employed as a teller at a local bank.

The Police Service issued a warning stating the vase highlights a current trend in money laundering in Bermuda whereby people have been asked to conduct banking transactions involving cash on behalf of another person earning a small commission for doing so. Members of the public are warned not to handle lots of cash for a friend.

Link here.


EU governments backed a proposal to fight funding of terrorism and crime by requiring banks and attorneys to know more about customers and extending transaction-reporting requirements to retailers. The proposal, which seeks to enact recommendations by the Financial Action Task Force, won preliminary agreement of EU finance ministers in Brussels. EU governments will wait for the European Parliament to pass the legislation before formally approving it.

The legislation requires businesses such as jewelry dealers and art galleries to monitor suspicious transactions and report cash purchases of more than €15,000 euros ($20,000). Customer-verification rules for banks and attorneys would be tightened by requiring them to verify who owns the interests they represent.

Link here.


The story of American political history over the last century has been a story of the ever-increasing power of the executive branch at the expense of Congress, of private citizens, and most importantly, the rule of law. The current diatribes against the allegedly outdated restraints imposed by the Constitution coming from this administration’s supporters are anything but novel. Such claims from the White House began long ago, even before Lincoln, but the difference today, of course, is that when the American public hears such things, they actually believe it. All the equivocating about the Constitution being a “living document” and not something for limiting the powers of government has become most fashionable, even among those claiming to be part of some kind of “conservative” movement.

When you have entered into the age of mass democracy where the president is seen as the infallible voice of the people (consider all the convenient arguments of “mandates” emerging from every victorious administration for decades), and Congress is seen as little more than an inconvenient barrier to the president, the constitution must indeed become little more than a collection of general guidelines. Almost comical is the fact that the president takes an oath to uphold the constitution, but the constitution is largely “moulded by necessity”, and is thus more or less what the president has decided it is.

Not surprisingly, what presidents may deem to be necessary will more often than not be in direct conflict with the rights of the people. It is certainly no coincidence that these necessary assaults against the constitution have the effect of outlawing criticism of the government. Whether we are talking about Adams’ Alien and Sedition Acts, Lincoln’s suspension of habeas corpus, Wilson’s Sedition Act of 1918, or the many “anti-terrorism” efforts waged by recent administrations, justification for such expansions of government prerogatives require that one cast a jaded eye on the Constitution and the rule of law and instead fall in line with necessity and the mandate of the unchecked majority as manifested in the executive. The enemies of such abuses, whether they be the judges in their courts or dissenters in Congress are denounced as enemies of the people and as opponents of “progress” or “security” in the face of enemies real or imagined.

In his biographical sketch on James Fenimore Cooper in The Conservative Mind, Russell Kirk highlights Cooper’s views on this particular phenomenon in a democracy: In democracies there is a besetting disposition to make publick [sic] opinions stronger than the law. This is the particular form in which tyranny exhibits itself in the popular government; for wherever there is power, there will be found a disposition to abuse it. Whoever opposes the interests or wishes of the publick, however right in principle, or justifiable by circumstances, finds little sympathy; for in a democracy, resisting the wishes of the many, is resisting the sovereign in his caprices… The most insinuating and dangerous form on which oppression can overshadow a community is that of popular sway.

In these comments we find the fundamental understanding of law common among defenders of liberty from early America. For Cooper, the danger in democracy lies in making the popular will stronger than the law. The law is of course not the public will, and most certainly not the government, but the body of established restrictions on governments and men. Modification of such law is to be approached with only the utmost care, and few are less fit for such a task than a democratic majority. The law is what stands between the state and men, between tyranny and liberty.

Link here.


Federal law enforcement officials estimate that between $100 billion and $300 billion is laundered in this country each year. While illegal drug trafficking accounts for much of the funds being laundered, other criminal activities, including terrorism and tax evasion, also account for an extensive amount. In the past two decades, federal law enforcement efforts to combat money laundering have focused on requiring financial institutions to report currency transactions that exceed $10,000.

Beginning in 1988, these reports have been supplemented by reports of suspicious transactions. Many of the transactions reported as suspicious involve individuals who appear to be attempting to avoid the $10,000 reporting requirement. However, any activity that deviates from the norm for a particular account can be considered suspicious. The Right to Financial Privacy Act, enacted in 1978, raised questions as to whether financial institutions were authorized to report suspicious transactions. To address these concerns, legislation has been enacted to provide protection against civil liability for institutions reporting suspicious transactions. Banks and other financial institutions report tens of thousands of suspicious transactions each year. The reports have led to the initiation of major investigations into various types of criminal activity.

However, because there is no overall control or coordination of the reports, there is no way of ensuring that the information is being used to its full potential. Financial institutions report suspicious transactions on a variety of different forms that provide different types of information and that are filed with different law enforcement and regulatory agencies. The form that is filed most frequently is filed with the IRS and kept on a centralized database. However, the form does not contain any information describing the suspicious activity that would allow law enforcement agencies to evaluate the usefulness of the information on the basis of the form alone.

Moreover, some institutions have been filing these forms erroneously. IRS and other federal and state law enforcement agencies use the database on a reactive basis; that is, to provide additional information on an investigation that has already been initiated. Other forms used to report suspicious transactions do describe the activity so that the information can be evaluated. However, these forms are filed with six different federal financial regulatory agencies. Because the forms are not maintained on a centralized database, they are not used on a reactive basis. Financial institutions filing this form are required to send a copy of it to the nearest district office of IRS’s Criminal Investigation Division.

The IRS does not have agencywide policies or procedures for managing suspicious transaction reports. Consequently, the extent to which special agents in the 35 CID district offices solicit, process, and evaluate the reports is up to the discretion of the district CID chief and varies significantly among districts. The percentage of investigations initiated on the basis of suspicious transaction reports also varies significantly among districts.

Link here.

New Jersey lawyer’s 18-year money-laundering sentence upheld.

A New Jersey appeals court has upheld the first known conviction of a lawyer under the state’s money-laundering law, and so has put lawyers on notice of the dangers of involvement in client transactions they should know are criminal. In State v. Harris, A-3470-02, decided last week, the court affirmed Irvington lawyer Sonia Harris’s conviction for her role in a land-flipping scheme. Harris was convicted and sentenced to 18 years for helping a developer buy, sell and refinance two properties in transactions that yielded more than $1 million.

The developer, George Shamond Scott, contracted to buy both properties. In one case, he never followed through with the deal but went ahead and sold the property three times -- twice to himself, using false documents. He also took out multiple mortgages using falsified title documents and without disclosing existing mortgages. In the other, he borrowed against the property before he owned it and, after acquiring it, resold it to himself. Harris, as Scott’s lawyer, passed illegally obtained mortgage monies through her attorney trust account, failed to file or record title documents and filed false reports.

The appeals court said Harris “engaged in transactions involving property known by her to be derived from criminal activity and engaged in transactions with the intent to facilitate or promote further criminal activity.” Her lawyer argued that the money-laundering statute did not apply unless there was proof of washing of illegitimate funds, generated in a transaction separate from the laundering itself, to make them appear legitimate. He also argued that the Legislature meant to penalize attempts to hide illegally obtained funds.

Link here.


The Identity (Citizenship and Travel Documents) Bill may be rushed through Parliament before Christmas despite being panned by most submitters to the government administration select committee. Business people are worried that extending the qualifying period for citizenship will put off skilled migrants. Migrant communities are up in arms at its inherently discriminatory nature. Civil libertarians are worried by the “Zaoui clause”, which uses the same vague concept of “national security” that is now detaining Ahmed Zaoui to justify giving the Internal Affairs Minister the power to cancel any New Zealand citizen’s passport. This bill is another example of the Government getting carried away with the war on terror.

This bill will probably mean skilled migrants will opt for more welcoming countries. For instance, across the Tasman new residents can become Australian citizens, and get a passport, in just two years. Those from rich counties do not usually find a delay too much of an issue because they can still travel freely on their existing passports. But people on Third World passports find it difficult to get a visa to enter developed countries.

Refugee organisations have also expressed concern at a national security clause in the bill that will allow the Internal Affairs Minister to refuse travel documents or passports without fully explaining why. Applicants could be knocked back on the basis of rumours they are not told about. We are not an uncharitable people. The Identity Bill and the wider policy of which it is a part are too hard-hearted to be New Zealand law.

Link here.


Federal marshals returned a former insurance executive from Central America to face charges in what prosecutors call a $3 million fraud scheme in seven states, including Colorado. James R. Harrold, 61, was scheduled to appear in U.S. District Court in Indianapolis, Indiana on charges including mail fraud, wire fraud and money laundering. The former Indiana sales manager for Columbus, Georgia-based American Family Life Assurance Co., better known as AFLAC, has been jailed in Belize since his Nov. 9 arrest on charges he fraudulently obtained a passport, prosecutors said. Harrold appeared before a Belize magistrate on Nov. 18 and agreed to return voluntarily to the U.S.

Harrold is charged with persuading people to invest in a scheme in which they would earn annual returns of 20% on minimum investments of $5,000. He is charged with having defrauded residents of Indiana, Ohio, Colorado, Nebraska, Minnesota, Missouri and Florida of about $3 million between April 1999 and November 2001. The indictment charges that Harrold used the money to pay his mortgages on a home in Indianapolis and condominiums and real estate in Illinois, Michigan and Florida, along with golf courses in Colorado. A federal arrest warrant was issued for Harrold in November 2001, but he remained a fugitive until his arrest.

Link here.



In 1958, Professor Cyril N. Parkinson explained most of the phenomena we observe in society with his law, “Work expands to fill the time available”. What a simple, yet profound, insight! The verification of Parkinson’s Law is most easily found in government. The professor pointed out that bureaucrats, usually complaining of overwork, want assistants, but not competitors. Thus a “busy” bureaucrat will not hire someone to share the work, but rather, a couple of assistants to help him, and compete with each other, not him. Parkinson also observed that bureaucrats make work for one another. Thus, assistant A will ask assistant B to check his research on a given subject. B will comply, asking A for a list of sources which he could use in his verification. A might reply with a list, asking B if he had any further suggestions, etc. A and B would, in short order, become so busy that each of them hired a couple of assistants, thus bringing to seven the number of people doing the work formerly done by one. And they would all be busy!

The good professor directed us to something very basic about human nature: we all attach great significance to our work, and tend to expand it as far as possible; and, as a sort of corollary, we make use of what opportunities arise. Recall the move made around the motto, “if you build it they will come?” It is the same idea.

There was an election recently. The candidates assured us that it was important that they be elected. And it was important -- to them. In truth, the job of president is not a big deal, at least according to the Constitution to which he swears allegiance. A long time ago presidents decided that it was unseemly, somehow, for them to simply sit around. They had to DO something. Ditto for Congressmen. Well, look around you and see what they have been doing. By expanding their “work” to fill the time available, and grabbing at every opportunity for advantage and self-aggrandizement, they have made their world a better place. But is it their world, or ours? Has the expansion of their work been a benefit to you? Next election, I will vote for the candidate who supports himself with a job in the free market, and promises to do as little as possible in his official capacity. Who might that be? I will write myself in!

Link here.


It is a credit to book buyers that Thomas Wood’s new work has turned out to be one of the fastest selling titles in the history of the Conservative Book Club. The book in question is The Politically Incorrect Guide to American History by this historian at Suffolk Community College and adjunct scholar of the Mises Institute. The title is also a bit misleading. Nor do I find the thesis or argument particularly “conservative”, if by that you mean Bush-style nationalism and cultural agitprop.

On the contrary, this is an amazing piece of scholarship -- compressed scholarship, to be sure -- that reflects vast reading in the best libertarian and Austrian scholarship available, a wonderful short history of the United States, revisionist in all the best ways, that integrates history, politics, and economics (the author is well schooled in the Austrian tradition). He begins in the Colonial period to give an account of David Hacket Fischer’s thesis about the four tribes that settled the Americas. The subject headings give the thesis and each is followed by a fast and energetic argument. So it goes throughout the book: the Constitution, the roots of big government, the Civil War, reconstruction, the robber barons, World War I and II, Hoover, the Great Depression, all the way up through the Clinton years, and all in 245 pages. In each section he chooses the best of the modern up-to-date information about each period.

The pace is remarkable. He shows that the Constitution was never understood to be a permanent union, that big government caused the North-South conflict, that Alexander Hamilton’s friends were racketeers, that the U.S. did not have to enter WW I, that Hoover was a big government conservative, that FDR made the Depression worse, that there really were Communists in government, that FDR made WW II inevitable, that the Marshall Plan was a flop, that the Civil Rights movement increased social conflict and made everyone worse off, that unions made workers poorer, that the 1980s were not really the decade of greed, that Clinton’s wars were aggressive and avoidable, and that his personal issues were a major distraction from the real problems of the 1990s.

The thesis of the book completely brushes off the naïve and ridiculous mainstream view of the main theme of American history that it is the story of one long, unrelentingly glorious march of the state from “people’s revolution” of 1776 through the ratification of the Constitution through the latest war on terror. Woods will have none of this prattle. Let me just assure you no matter how much you think you know about the history of American liberty vs. the American government, you will learn from him.

Link here.

Hooray for Tom Woods.

In a deservedly positive review on this website, Jeff Tucker sings the praises of Tom Woods’s The Politically Incorrect Guide to American History. Woods combines clear, forceful writing with the valorous attempt to clean up the fabrications about the American past that have come from professional historians. About 25 years ago, I took on this encrusted mountain of untruth but gave up in the end. Having written on the subject as editor of the historical journal, Continuity, I came to the view that there might be too much invented history here for any one practicing historian to refute. Alas the fictions kept building up, as American politics continued to move leftward and as those who approved of this tendency looked for a meaningful past to justify changes that were then underway. Woods resourcefully resurrects understandings of American historical developments that have fallen into oblivion or disrepute not because they are false but because they no longer serve current political agendas. And he keeps pointing out all the departures from plain historical facts that have taken place because of present reformist interests and programs.

Woods has done exactly and succinctly what neoconservatives warn against, opening historical questions that wise elites, which do not include us lesser breeds, have already decided. Tom has pushed into delicate areas that professional historians, almost invariably of the socialist, multicultural Left, have tried to place beyond discussion. Given this achievement, my young friend, who is teaching in a community college on Long Island, can no longer count on moving up into the academic big league. But he might take comfort from two things. Were he in Europe, and not an American, the situation might be worse. He might be forced to stand trial for criticizing received historical narratives. A second source of temporal comfort: he might reflect on what John Lukacs said to me about “something having to be gravely wrong with us if we were teaching history at Harvard.” Like John Lukacs and me, Tom will not have to face any painful question of moral self-identity.

Link here.


Today, class, we will continue our discussion of the decline and fall of the United States in the first quarter of the 21st century. Yesterday we discussed military adventurism and how the Imperialist Wars severely weakened the United States. Tomorrow we will discuss the economics of the fall. Today we will discuss my favorite aspect, the fractures in the political landscape.

Just as nobody expected the USSR to collapse back in 1980, nobody in 2004 expected the disintegration of the U.S. after the reelection of George W. Bush. In fact, the country did hold together for four more years after that, although the divide between the so-called “Red” and “Blue” states had been deepening. Legal scholars were researching, for the first time in a century and a half, the subject of secession, but nobody took the work as serious or threatening. Some libertarians expected that the Free State Movement in New Hampshire might result in secession, but they were beaten to it elsewhere. Even those expecting secession expected only two countries to result. Instead two countries that existed before the wave of secession, the United States and Canada, resulted in the over nine countries we have today. It was unforeseeable.

Link here.

An idea whose time has come back.

As everyone knows, the USA is no longer quite so united as it used to be. It is now divided into blue states and red states. The blue states tend to be liberal and Democratic and the red states tend to be conservative and Republican. The blue states, concentrated on the coasts, are upset that President Bush has been reelected -- or, as many blue-staters would say, elected. I cannot blame them; but then, the alternative scared me even more than Bush did.

Some blue-staters are even talking about seceding from the Union. To me this is the most heartening development in many years. I do not quite understand it, since the blue-staters usually favor a huge centralized government and Bush is certainly giving us that. One new book by two British observers argues that Bush has invented a new style of conservatism, which, instead of opposing big government, makes the most of it. Maybe his “big-government conservatism” is finally teaching liberals the virtues of small government. Anyhow, I am delighted to see them learning. I never expected them to rediscover Jefferson Davis, but perhaps the age of miracles is not past after all. Soon we may be hearing the rebel yell in staid Boston.

It is generally a healthy thing when people rethink their basic political assumptions, and it usually takes a shock to make them do so. A rethinking of mass democracy is long overdue. Faith in sheer majority rule was assuredly alien to the Founders of the Republic, which is why they called it a republic. For them, democracy meant mob rule, and it is one of the amusing turns of American history that the allegedly conservative Republicans have become the most ardent champions of the weird notion that wisdom resides in numerical majorities. The blue-staters have had the kind of trauma that leads to conversion. The scales of centralism are falling from their eyes. Sure, they want big government -- but not faith-based, anti-abortion, homophobic, war-mongering big government! They were thinking of something more, well, Scandinavian. Or Canadian.

Link here.


Here is what I like about Ebenezer Scrooge. His meager lodgings were dark because darkness is cheap, and barely heated because coal is not free. His dinner was gruel, which he prepared himself. Scrooge paid no man to wait on him. Scrooge has been called ungenerous. I say that is a bum rap. What could be more generous than keeping your lamps unlit and your plate unfilled, leaving more fuel for others to burn and more food for others to eat? Who is a more benevolent neighbor than the man who employs no servants, freeing them to wait on someone else?

Oh, it might be slightly more complicated than that. Maybe when Scrooge demands less coal for his fire, less coal ends up being mined. But that is fine, too. Instead of digging coal for Scrooge, some would-be miner is now free to perform some other service for himself or someone else.

Scrooge, by living in three sparse rooms, deprived no man of a home. By employing no cooks or butlers, he ensured that cooks and butlers were available to some other household where guests reveled in ignorance of their debt to Ebenezer Scrooge. In this whole world, there is nobody more generous than the miser—the man who could deplete the world’s resources but chooses not to. The only difference between miserliness and philanthropy is that the philanthropist serves a favored few while the miser spreads his largess far and wide. If you build a house and refuse to buy a house, the rest of the world is one house richer. If you earn a dollar and refuse to spend a dollar, the rest of the world is one dollar richer -- because you produced a dollar’s worth of goods and did not consume them.

Saving is philanthropy, and—because this is both the Christmas season and the season of tax reform -- it is worth mentioning that the tax system should recognize as much. If there is a tax deduction for charitable giving, there should be a tax deduction for saving. What you earn and do not spend is your contribution to the world, and it is equally a contribution whether you give it away or squirrel it away. Though Dickens might not have recognized it, the primary moral of A Christmas Carol is that there should be no limit on IRA contributions.

Link here.
Previous News Digest Home Next
Back to top