Wealth International, Limited

Offshore News Digest for Week of January 10, 2005

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

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Is Bermuda’s Independence near? Unlikely. The debate over Bermuda’s Independence continues with intensity, but without much success in a country that possessed self-rule for centuries. A May 2004 survey conducted by the Bermuda Sun newspaper and an independent Island polling firm found that 61.4% of Bermudians said that they were opposed to Independence, 21.4% supported the move, and 17.2% were undecided. Bermuda’s Premier Alex Scott leads the Independence movement, but according to polls, he almost goes out of his way to misinterpret public sentiment on the issue, which could politically cost him dearly. Were Bermuda to gain autonomy, little would in fact change, because when it comes to internal issues, its Government possesses plenary power.

The call for complete sovereignty is indisputably identified with Premier Alex Scott, who passionately believes that Independence would dramatically alter the tiny Island of just 20.75 square miles for the better. However, according to the polls, most Bermudians are happy with the political status quo and the relative prosperity it provides them. Despite declining approval ratings, Scott appears ready to put his political career on the line, willing to risk his personal political future in order to achieve Independence for Bermuda. Scott came to power in July, 2003, after the Progressive Labour Party (PLP) defeated the predominantly white United Bermuda Party (UBP) in parliamentary elections by 22 seats to 14.

Link here.

Premier explains why Bermuda should be Independent.

Critics accusing Government of wasting time on Independence are undermining the concept behind democracy, Premier Alex Scott has claimed. In an interview, Mr. Scott also discussed his own views on Independence, the views of outsiders, and the national discourse Government has initiated on the issue. Concerns that Government should be focusing on other, more pressing issues did not hold water with the Premier. “What -- we can’t chew gum and talk at the same time? Gee, how hard is it to discuss? Come on now,” he said.

Mr. Scott also hit back at the Washington-based Council on Hemispheric Affairs which, in a report, accused him of “purposefully misinterpreting” local polls allegedly revealing the lack of interest Bermudians have in Independence. Calling the council “some non-descript group from the U.S.”, Mr. Scott accused the media of giving more weight to some voices than to others. “When organizations such as the U.N. say Bermuda should consider Independence your paper, your editor, these establishments say ‘oh, an outside foreign body, what are they doing focusing on Bermuda?’” Nevertheless, all voices should be heard in a democracy, he said.

“As Premier it is my responsibility to point the way we might go,” he said. “It doesn’t help Bermuda if I follow the crowd. When I open up new avenues of thought and possibility for the country it is incumbent on me to do it responsibly, and that’s what I think we have done with Independence. We haven’t done it recklessly, we haven’t thrown the Island into a tailspin, we’re just saying now it’s time to discuss the components of Independence -- those things that will give us insight into what it will mean to remain as we are, a colony, or what it will mean for us to be a nation.”

Link here.


In 2004, the level in investments commitments in Singapore rose a significant 16% to contribute $6.34 billion in value-added per annum to the country’s GDP. However, the bulk of the growth was led by domestic investors, as foreign investment tapered off slightly. But that trend is reversing. The Economic Development Board (EDB), a trade promotion body, announced that of the total value-added to be generated, $3.9 billion would be derived from manufacturing projects and the rest from services projects in EDB promoted services. EDB chairman Teo Ming Kian told a news briefing that although the level of foreign investments in the manufacturing sector had decreased a bit, the quality of the investments remain strong.

For 2005, the EDB is targeting manufacturing investment of $4.9 billion, a touch lower than the $5 billion achieved in 2004, but still above the $4.5 billion of 2003 when the global economic slowdown and the SARS virus outbreaks led some companies to defer their factory spending. Within manufacturing, which contributes to about 25% to GDP, electronics investment continued to be the main contributor to manufacturing value-added per annum and manufacturing jobs created last year. Meanwhile, services investments continue to rise from $1.4 billion in 2003 to $1.46 billion in 2004, and the trend is expected to continue in the coming year.

Teo acknowledged that the investments in manufacturing were not creating as many jobs for the country as those in the service sector. “We have to be realistic and know where our strengths are in manufacturing. We will not attract labour intensive jobs in manufacturing,” he said.

Link here.


A law said to be the most important piece of commercial legislation ever passed in the Island cannot come into force because of an administrative blunder by the UK. The Competition (Jersey) Law was due to be ratified by the Privy Council in December and should have come into force this month but was inadvertently left off its agenda. It will now not be considered until February, delaying its introduction here until March at the very earliest -- some nine months after States Members passed it.

Local politicians are angry at the delay and the Bailiff has been asked to complain to the UK Department of Constitutional Affairs in the strongest terms. Senator Philip Ozouf, one of the driving forces behind the law, is even suggesting that new constitutional arrangements may be needed to ensure the Island’s legislative program is not held up at the whim of civil service errors. “We find ourselves with a system which is clearly past its sell-by date and something must be done about it,” he said. “This goes to the heart of our constitutional arrangements.”

Link here.


I know that I cannot live on Social Security in the U.S. so a couple of years back I decided to see what the rest of the world has to offer as a way of life. I went to England, France, Germany and Amsterdam but they are right up there with the U.S. Costa Rica I was not impressed with, Canada is way too cold, and I did live in Mazatlan Mexico for a year. Mexico is definitely out. The Bahamas and Virgin Islands are right up there with Hawaii and my last name is not Trump. I was stumped? One day checking my e-mail, an old friend sent me a note. We met while we were both living in Mazatlan but this message was not from Mexico -- it was from Margarita Island. Where in the world is Margarita Island? As it turns out my friend had been looking for the perfect place too. He had checked Central America, Equador, Argentina, and a friend of his had recommended this Caribbean island. To make a long story short, he went to visit for 6 weeks, came home, sold everything and moved back. Now he is recommending it to me. You make your own decisions. I have made mine.

Unbelievable property is available for unbelievable prices. Beautiful homes for the price of a small mobile. Maybe you do not want to buy? You can rent a nice apartment for $100 a month. You can rent a very nice security gated apartment for $200 and for $300 you will have the penthouse. Maybe rent for a year? If you are 65 or over the airlines have a “senior discount” with round trip airfare from Caracas to Miami for only $125. Miami is only 3.5 hours away. And they are adding a direct flight from Margarita to Miami early 2005 which will make the time even shorter. I am still trying to find a downside to Margarita Island. I mentally went through food, clothing, utilities, medical, rent/purchase, cars, TV, and all I could come up with was bowling? Then I remembered that I saw a beautiful bowling alley at one of the shopping centers.

Link here.

10 Years On Margarita Island, Venezuela.

After living some ten years on Margarita Island I can truly give an honest opinion about life here. First of all let me tell you that life on an island, especially a tropical one, is incomparable to life anywhere else! The daily routine is slow paced no matter how important the stuff you have to do. There is after all, always tomorrow. Because of the always shining sun people are chronically in a good mood and laid back. Everybody is willing to help you with about everything as long as you are not in a hurry to do so.

Living on Margarita is, as long as you have a job of course or some other kind of income, a dream come true. There are however some things you have to beware of. Given the fact that you are living in a relatively poor country, you should be aware of people trying to get hold of your money, which you must have in their opinion simply because you are a foreigner, so the first step is to learn the language. Once you can defend yourself in their language you are practically accepted as one of their own, making you a lot less vulnerable to financial risks.

Living a stress free life also means that you will have to adapt to that life! Through personal experience I can tell you that you should never try to close important deals on your own. Always take a person who you trust and who dominates the language with you to ensure that you really get the best deal you can possibly get on just about anything. Whether you want to buy some property, start a business, get your visa, or whatever else. Let me tell you something about myself and my experiences here.

Link here.


For the last 18 months, I have been living in Vienna, Austria. A few months ago, I read that Austria had done something absolutely unthinkable. For the first time in 50 years, the government actually lowered corporate income taxes, in response, according to the article, to a new “flat tax” initiative in Slovakia. After reading the article, I wanted to see an example of what the article called “harmful tax competition” in action. Slovakia is Austria’s northeastern neighbor, and its capital city, Bratislava, is only a 45-minute train ride from Vienna.

Once you cross the Danube from Austria into Slovakia, it is almost like entering a time warp. Immaculate Austrian villages give way to abandoned factories and dilapidated warehouses as you approach Bratislava. But, once you arrive at the railway station and take a taxi into the center, things change completely. Bratislava, or at least the center of it, is a picturesque old-world city of 400,000. There are beautifully restored Baroque area buildings…tree-lined piazzas and fountains…but I sensed something was missing. Austria and the rest of western Europe “Americanized” years ago. Vienna is chock-full of Starbucks, H&M Clothing stores and western-style residential high-rises, in addition to the wonderful old-world ambience of the former center of the Habsburg Empire. In Bratislava, you get the old-world ambiance…but not much more.

Four years after the Soviet collapse in 1989, Slovakia split from the Czech Republic and decided to remain a “socialist paradise” rather than embrace capitalism as the Czechs were doing. But instead of getting better, things got worse. Factories closed…young people started leaving in droves…and Slovakia got a reputation as being the “rust belt” of eastern Europe. Finally, in 1998, Slovakia began throwing off five decades of socialist economic dogma and tried a new approach: to lower taxes and cut regulation in an effort to turn Slovakia into Monaco on the Danube…or at least, Detroit. And in 2002, it enacted a truly radical law -- a flat 19% tax on all income -- both business and corporate—capital gains and value-added tax. The results of these efforts are nothing short of breathtaking.

The world is starting to take notice. The World Bank ranks Slovakia highest among world economies in creating the most beneficial conditions for doing business. In May 2004, Slovakia became a member of the EU. Moreover, the enthusiasm young Slovakians have for free markets and for Western influences is amazing. For instance, the demand for native English-speakers is nearly insatiable. Indeed, the head of the American Chamber of Commerce in Slovakia told me that he could find a native English speaker a job teaching English in a reputable school in one day. Talk about an opportunity for a young (or young-thinking) person seeking adventure and profit. Land in Bratislava one day…and be earning enough money to support yourself the next!

And, speaking of the cost of living, while it is no longer possible to buy a one-bedroom apartment in a restored mansion for $15,000, or buy a pack of cigarettes for $1, like you could two years ago, you can still live well on an income of $1,500/month. Slovakia lacks so many things, and it is so eager to embrace western ways. It is also centrally located and within a two-hour plane flight for nearly 500 million people. It is educated, democratic, free market, and primed for fast growth. Now is the time to get in on the ground floor of opportunity.

Link here.


“Nicaragua? Why Nicaragua?” The question has been asked over and over by everyone I have come in contact with since I returned from vacationing and investigating investment opportunities at a new development called Rancho Santana in this economically downtrodden Central American country. A year earlier, I had have asked myself the same question. Now, my response would read something like, “Because I see a good opportunity there, and a country abundant with untapped natural resources and beautiful coastline that’s been compared to the likes of California in its infancy or more recently, an up and coming Costa Rica.”

And still they would ask, “But what is it about Nicaragua? Is it not dangerous?” The worst appears over. There is a conscientious new government in place determined to rebuild and restructure, there is an economic upswing on the horizon, there is neighboring country support, there is a great potential for a boost in tourism, and, above all, Nicaragua still offers one of the few commercially unspoiled locations that is reasonably affordable for new people interested in buying or living overseas. For all of those reasons, visiting Nicaragua made sense to me. The people are welcoming of Americans and seem to remain as unspoiled as the landscape they inhabit.

Link here.


Let all Panamanians start from one common understanding: it is not the role of the U.S. government to resolve Panama’s corruption problem, and any expectation on the part of Panamanians that the Americans will deal with it is a demeaning example of a servile mentality. And let all Americans understand that the U.S. is powerful but not invulnerable, and that obnoxious international displays of political hypocrisy weaken the U.S. position in the world and make the American homeland more vulnerable to attack by the likes of Osama bin Laden. From either the Panamanian or American perspective, the presence of our former President Mireya Moscoso at the recent swearing in of new U.S. senators was an unwelcome event.

The appearance is that it was one more celebration of her act of pardoning a group of anti-Castro activists who had intended to set off a bomb in a University of Panama auditorium. In short, despite all the American talk about a war on terrorism, it appears that Mireya Moscoso’s presence in the U.S. Senate was an official American celebration of the most bloodthirsty sort of state-sponsored terrorism. Here in Panama, there have been the futile motions of a criminal investigation into the release of those anti-Castro terrorists. It seems that the pardons were legal even if they were repugnant, and that the investigation has mainly been a show for the benefit of the Cuban government.

Unfortunately, there is a substantial minority of Panamanians who look to the U.S. to solve all of our problems. Mireya Moscoso’s presence in the U.S. Senate will inevitably be taken by such people as an American endorsement of the woman and her presidency. The likes of Mireya Moscoso should not be guests of honor in Washington. Such people should not even be given visas to enter the U.S. Mireya and her inner circle are a mess for the Panamanian people to clean up, and a contaminant for American people to exclude.

Link here.


Despite objections posed at a January public hearing by the world shipping industry and the governments of Ecuador, Peru, Chile and South Korea, it appears that the Panama Canal Authority (ACP) is set to enact a toll increase of about two-thirds for container ships, to be phased in over three years. The proposed toll hike includes not only a change in the way that the tonnage that forms the basis for canal transit fees is measured, but also charges for on-deck container carrying capacity whether or not it is used and a surcharge for extra pilot services whenever containers on a ship’s deck obstruct the view of the pilot on the bridge. Thus, although at first glance the increase would amount to some 65%, in many cases it would be more.

Since control of the Panama Canal passed into Panamanian hands at the end of 1999, the waterway has been ruled under an organic law that makes the ACP a for-profit state-owned corporation, and the authority and its supporters have backed the proposed toll hike with arguments that the ACP owes the Panamanian people the best returns that the market will bear.

Link here.


A faint absurdity hangs in the air whenever the Grand Duchy of Luxembourg takes on the rotating presidency of the EU. Now that the EU has enlarged to 25 countries, with a total population of 455 million, it seems more ridiculous than ever that Luxembourg -- total population 451,600, of whom only 277,400 are citizens -- should be charged with running its affairs. If the presidency were purely honorific, the prospect of Luxembourg taking over might not be so striking. But it is in fact a job with increasingly onerous responsibilities. During the six months that a country holds the presidency, its ministers chair all EU meetings and broker all deals to keep the show going. The presidency shapes the agenda and represents the EU to the world. Thus, when President George Bush visits Brussels next month, his counterpart will be Jean-Claude Juncker, prime minister of Luxembourg. It is as if the U.S. were to decree that, for the next six months, all foreign leaders would have to deal with the mayor of Fresno, California.

To be fair, the Luxembourgers have some compensating advantages. As founder members of the European club, they have had plenty of practice in the chair. The official literature promoting their presidency claims that their chief national characteristic is “an almost obsessive search for consensus”, as well as noting that “a touch of paradox characterizes the local gastronomy”. The ability to find a compromise, even a paradoxical one, is essential to steering the EU. Luxembourg’s role of honest broker is enhanced by the fact that it has few national interests, save for bank secrecy, to protect. Patriots point out that Luxembourg has been building Europe for decades. It has provided two presidents of the EC. And Pierre Werner, a former prime minister of the Grand Duchy, wrote the first report proposing European monetary union.

Jean-Claude Juncker, the current prime minister, is in the classic mould of the Luxembourg fixer. A man with a magnificently old European attitude to the consumption of alcohol and cigarettes, he is never happier than when locked in a marathon European negotiation. But Mr. Juncker and the tiny team around him will carry a huge burden. Besides the overall size of the EU budget, there are even bigger issues to be settled over its distribution. Mr. Juncker also faces the discouraging possibility that his presidency could coincide with the rejection of the painfully negotiated EU constitution, in a referendum held somewhere in the EU. Luxembourgers have scant resources to deal with the crisis that a no vote would provoke, although they do have a long historical memory. In 1980 -- when Luxembourg was president -- Mrs. Thatcher demanding her money back, France was opposing any further enlargement of the EU and “an air of gloom and pessimism predominated”. Some things never change.

Link here.



Belgium’s tax amnesty on undeclared foreign assets is expected to add around €300 million in revenues to the government’s coffers, a source close to Finance Minister Didier Reynders revealed earlier this week. While the amount is considerably lower than the €850 million projected by the government at the start of the year-long amnesty, it is nevertheless better than the finance ministry expected after a lack of initial interest produced poor returns for the scheme. The Belgian tax amnesty allows citizens to disclose their previously undeclared assets held abroad without facing criminal sanctions, in return for paying a tax of between 6% and 9% on the declared funds.

Link here.


Low-tax jurisdictions such as the Turks & Caicos Islands are under attack again. Like the movie vampire that never quite dies, the European Union’s “Savings Tax Directive” appears to have come back to life, and is apparently due to come into force on July 1, 2005. The Directive is the widely-reported process by which the high-tax governments of Europe are hoping to stop their citizens from sheltering their savings in low-tax countries like the Turks & Caicos Islands. If the plan comes into effect, then affected countries will have to either charge tax on all interest payments to EU residents (and pay it over to the EU governments) or automatically report the amount of interest paid to the recipient’s national tax authority so that they can tax it themselves.

Automatic reporting would make it easy for the investor’s home authority to impose tax, but would run against the tradition in many countries of protecting investors through client confidentiality and banking secrecy. Taxing interest payments to EU residents might therefore appear at first sight to be more attractive, but the EU clearly sees this as merely a temporary measure. The rates demanded are 15% for the first three years of operation of the system, 20% (the international norm for tax deductions from bank interest) for the next three years but a clearly punitive 35% thereafter. Tax will be deducted from interest payments by the payer (whether a bank or other entity), and 3/4 of the tax must be paid to the investor’s home government.

The European Commission (the EU’s bureaucracy) has been pushing for such a scheme for 15 years, but the process was held up primarily by two members of the EU that effectively act as on-shore tax havens. Luxembourg, despite its small size, has a massive financial services sector, fuelled by its tax exemptions for interest payments. It is therefore unwilling to agree to anything that would risk losing any of this business. Indeed it was the loss of tax revenue to the German government through its citizens putting their money into Luxembourg banks (a process made easier by the removal of border controls in the EU and by the introduction of the Euro) that arguably started this whole process. The UK, whose massive $3 trillion Eurobond market is tax-free -- which allows mainly U.S. and Japanese companies to raise money more cheaply by paying interest to investors without deducting tax -- brings in much wealth and financial sector jobs, was the other objector. The Savings Tax Directive would damage both of these countries’ economies. However after several years of strong pressure they extracted valuable concessions (including an exemption from the new rules for existing Eurobonds) and finally gave way.

One of the strongest arguments used by the UK and Luxembourg was that the Savings Tax Directive would do only harm, not good -- if all savings within the EU were taxed, then investors would simply move their money outside. The agreement between the EU member governments therefore made the Savings Tax Directive conditional on its rules also being accepted by various non-EU countries, specifically the main non-EU European tax havens -- Switzerland, Liechtenstein, San Marino, Monaco and Andorra, and “dependent or associated territories” of EU members -- the Channel Islands, Isle of Man, the Dutch Antilles and Aruba, and the UK’s dependencies in the Caribbean (including the Turks & Caicos). The EU has no formal jurisdiction over these countries, but they were clearly chosen because the EU felt that it could pressure them into agreeing to its demands, either due to geographic proximity or political or economic ties. The Turks & Caicos Islands accepted the inevitable and agreed to sign up to the EU’s proposals on January 26, 2004, after pressure from the UK Treasury that even the UK’s Foreign & Commonwealth Office regarded as excessive.

The Savings Tax Directive is a current danger to low-tax jurisdictions. Although it is still not yet final and should be possible to avoid in its current state, it may well be pushed through and later extended. Overall, there needs to be continued co-operation between low-tax jurisdictions like the Turks & Caicos Islands and their friends and supporters in Europe and the USA. It is important for all of us that the European governments do not win this fight, not just to preserve the sovereignty of small nations but also for the sake of investment and the global economy.

Link here.


The revival in global foreign direct investment, confirmed by the UN, is likely to intensify competition between governments seeking to attract new investors. Many countries intent on increasing their appeal to foreign businesses have embarked on legal and regulatory reforms designed to create a sounder business climate. But in addition, tax has become one of the most popular weapons at governments’ disposal -- as illustrated by several prominent examples over the past year.

Economists have traditionally disapproved of the use of tax incentives to attract business, on the grounds that they do not usually justify their cost by creating a sustainable increase in investment. Other factors, including infrastructure, political stability and the cost and availability of labor, are considered more important. But there are exceptions. The realization that lower tax countries may be luring investment away from their neighbors has prompted many governments to redesign their tax policies. A fear that the proliferation of tax breaks will lead to a “race to the bottom” has prompted several attempts to achieve greater co-ordination of corporate income taxes. In the late 1990s, both the EU and OECD introduced forms of co-operation, designed to counter what was seen as “harmful” tax practices. Similarly, several West African countries have been undertaking a joint effort to harmonize their tax incentives for FDI in one unified investment code.

The OECD identified 47 tax regimes that potentially resulted in tax-induced distortion of investment flows. The EU’s Code of Conduct initiative listed 66 measures, mostly “ring-fenced tax breaks”, that constituted harmful tax competition. Such exercises, coupled with the EC’s clampdown on illegal state aid, have prompted changes. Belgium was forced to overhaul its tax regime for “coordination centers”, which offered favorable tax treatment of financial, accounting and administrative operations. Ireland has phased out its low 10% corporate tax rate for manufacturing, but introduced a general 12.5% corporate rate. But governments still face tough political and economic challenges in reducing the distortions caused by tax incentives.

Link here.


Every few years, American politicians vow to fix the tax code -- to simplify it, reform it, or abolish it altogether. In Congress, they push through their “tax amendment to end all tax amendments”. Feeling morally vindicated, they castigate the IRS as the source of all confusion. At reporting time, Americans find themselves entangled in a new web of accounting rules, reporting requirements, instructions, schedules, and worksheets. Unable to disentangle themselves through the more “customer friendly” IRS, they turn to American politicians, who begin the process anew. Now, conforming to this ritual, the Bush administration has vowed to fix the tax code -- to simplify it, reform it, or abolish it altogether. Before entering the path of political circularity, it should pause and reconsider what has caused all the confusion. It is not the IRS, but the politicians themselves. How have they contributed to tax complexity, and how can the problem be fixed?

Since the present tax code was instituted in 1913, legislators have transformed it from a fiscal instrument to a tool of social and economic policy. Accompanying this metamorphosis has been a host of new exclusions, deductions, credits, and accounting methods. Should the tax code serve to influence investment decisions or reengineer society? Or should it purport to promote tax neutrality and equitably distribute the tax burden? Second, legislators have periodically granted tax concessions to narrow constituencies and special-interest groups. These concessions have riddled the general law with countless exceptions, exceptions-to-the-exceptions, conditions, and provisos. Such measures not only subsidize activities that may be unprofitable, but also add to the complexity of convoluted provisions.

Third, since the mid-1970s, Congress has tied tax rates and schedules to short term fluctuations in projected budget deficits. This linkage, complicated by politics and legislative procedure, has saddled simple rules with onerous phase-ins, phase-outs, effective dates, and sunset provisions. Such lack of uniformity makes tax planning a nightmare for the average citizen. Finally, legislators have enacted provisions on a piecemeal basis, without adequately considering their relationship to other sections of the tax code. This shortsightedness has resulted in striking inconsistencies in statutory definition, application, and operation. Inconsistencies such as these garnish complexity with incoherence. Ultimately, tax reform begins and ends with politicians.

Link here.

U.S. National Taxpayer Advocate calls for tax code to be simplified.

The complexity of the Internal Revenue Code is the most serious problem facing both taxpayers and the IRS alike, according to a report released to Congress by the National Taxpayer Advocate, Nina E. Olson, who called for tax laws to be simplified. According to the report, the alternative minimum tax (AMT), the earned income tax credit (EITC), and the large number of provisions designed to encourage taxpayers to save for education and for retirement are cited as the major sources of complexity, helping to swell the tax code to around 1.4 million words.

Olson also noted that the IRS is trying to compensate for budget constraints by expanding its use of centralized, automated examination and collection processes, while simultaneously limiting processes that require human intervention or contact, a move she suggested “can create problems for the tax system as well as for taxpayers.” To help protect taxpayers, Olson urged the IRS to bolster support for “safety valves” like the offer in compromise program, collection due process proceedings, the Taxpayer Advocate Service (TAS), and an independent Office of Appeals. However it is the AMT that is cited as one of the largest problems in terms of taxcode complexity, and Olson says the issue has not been adequately addressed. Additionally, the report recommends that Congress simplify certain tax burdens on small businesses, streamline and simplify tax incentives for education savings and spending, and streamline and simplify tax incentives for retirement savings.

Link here.

IRS chief supports simplifying tax code.

IRS Commissioner Mark Everson said he favors simplification because complexity discourages taxpayer compliance. “If the code is too complex, people will throw up their hands and say, ‘Why bother,’” said Everson. “Simplification is a worthy goal that I think should be pursued.” Bush this month named a panel of business leaders, academics and former government officials to study tax-code simplification.

Everson, in Phoenix for a meeting with foreign tax-collection chiefs, also said the IRS is not planning special scrutiny of charitable-donation deductions for tsunami relief in the Indian Ocean region. Congress last week hastily approved an unusual plan to allow retroactive tax breaks for people donating cash to U.S.-based charities that provide aid in the region. The break applies to those who itemize and make a cash donation by Jan. 31. Taxpayers can take the deduction in 2004 or 2005. As general goals, he said the IRS continues to work on improving service to taxpayers, modernizing its operations and combating illegal tax shelters. The agency is auditing more people, Everson said, especially those with relatively high income. The IRS last year conducted audits of nearly 200,000 households with income above $100,000. Total audits topped 1 million for the first time since 1999. In keeping with IRS practice, he declined to specify which red flags might trigger an investigation.

Link here.

Congress not interested in real tax reform.

It is tops on the president’s agenda, and a very good idea: tax reform. Americans spend an estimated $183 billion every year just to comply with our horrendously complicated federal income tax code. What is the best way to reform the tax system? There are two leading contenders. Each promises it will replace the current level of tax revenue we need in order to keep our promises to defend our country, pay interest on the national debt, and try to keep Social Security and Medicare solvent. And each promises a greater degree of fairness and transparency, along with a far lower cost of compliance. The first method is the national sales tax. Let us just get rid of the income tax. And while we are at it, let us get rid of the IRS. The idea is so pleasing that you might be tempted to accept it at face value. Think again. It seems to me a national sales tax is a particularly regressive tax on the younger generation.

Here is an alternative. Take a postcard and write down how much you earned this year. Then multiply by 20%. That is your tax. Send in the postcard, and use your computer to send your tax payment to the government. Lower-income families would have one simple exemption. Enough money would be collected to make up for our current complicated tax system, and huge costs would be eliminated. There would be no deductions -- not even for mortgage interest or charitable gifts or profits on the sale of your home. No special rates for capital gains or dividends. No more complicated IRA deduction and withdrawal rules, or corporate investment tax credits. I can hear the squealing now from all the special interests. But isn’t it tempting? No more accountants, no more tax preparers, no more agonizing over the tax implications of simple business decisions. Flat-taxers predict the economy would boom.

Whether you are for the national sales tax or the flat tax or some variation, I think there is one big reason why it will result in a lot of talk but not action. Did you ever wonder why Senate and Congressional candidates spend millions to buy a job that pays only a pittance? It is because of the power that comes with that job, the power to dole out favoritism in government taxes and spending. A simple tax code would eliminate half that power. And that is The Savage Truth.

Link here.


As trade and investment barriers fall, investors are able to take advantage of an ever increasing number of investment opportunities. That sounds like good news, does it not? The problem with this scenario, if you are one of the bloated, high-tax Western European welfare states, is that you are witnessing an exodus of investment capital to jurisdictions that are more tax friendly. ... If private parties engage in rate fixing, they are subject to fines and jail, but when government officials do basically the same thing, it is perfectly legal. Why is that? Their excuse is that they are doing it in the public interest. But how is it in the public interest to raise tax rates?

There is an inverse relationship between the rates a government charges and the rate of economic growth. Countries that have the lowest tax rates tend to have the highest economic growth. One reason for that is because investment capital tends to flow into low tax countries and out of high tax countries. Since low rates foster economic growth and the expansion of employment, and since these are among the OECD’s stated goals, it seems inappropriate that it should be targeting low tax countries instead of high tax countries. Targeting low tax countries makes the OECD’s claim that it is not trying to raise tax rates very difficult to believe.

Link here. Link to full paper here.


Businesses and individuals in Panama will soon be paying higher taxes after the government ushers in a series of “drastic” reform plans designed to put the country’s fiscal house back in order. While Panama’s economy, which grew at a healthy 5% in 2004, received an upbeat assessment by the IMF last year, the country has nevertheless incurred heavy levels of debt which it is now struggling to service. A statement indicated the severity of the situation, warning, “If we continue with this pace of indebtedness and the consequent interest payments, it will become very difficult, if not impossible for the country to pay its creditors.”

The statement went on to outline a proposal for a new tax on the Colon Free Trade Zone -- the largest free port in the Americas -- at a level that will collect revenue equal to 1% of the zone’s annual revenue. Additional proposals seek to close tax loopholes for wealthy individuals and reduce tax breaks from income earned outside the country. Moreover, fees paid by corporations would rise to $350 from $250, and new taxes would also be applied to winnings from casino slot machines.

Link here.


Let’s face the truth. The current method of funding the needs of government using the income tax system is living hell. It has reached a point where the taxpayers no longer can comply and the revenue authorities can no longer administer the law. Taxpayers have long protested the flaws of the income tax system. Now, even the government recognizes its failure. A Treasury Memo was recently published which set out the reasons “why the current tax system must be reformed”, and outlined five options for fundamental federal tax reform. The Memo, in remarkably clear and simple language, sets out the purpose of the tax system: “The fundamental purpose of the tax system is to raise sufficient revenue to fund essential government functions.” With the size of the deficit, there is no doubt that the government does not raise sufficient revenues. However, when looking at the budget, it is obvious that the spending by the government goes far beyond “essential” functions.

What are the failures recognised by the Treasury? First, instead of being simple, the current tax system is needlessly complex, making it susceptible to abusive tax avoidance schemes. Second, instead of being efficient, it penalises hard work, discourages savings and investment, and hinders the international competitiveness of US firms. Third, instead of being fair, it is out of line with our basic values and undermines our sense of fairness. And fourth, instead of being predictable, it is highly unpredictable. Taxpayers find that they cannot comply with the requirements of the tax law as enacted and interpreted, cannot afford the costs of compliance, and see the tax law as unfair. The Treasury on the other hand has the same problems to deal with: a tax law that it cannot possibly administer, afford the costs of compliance, or apply so that taxpayers are treated equally. Both the taxpayers and the Treasury are victims of the Legislature.

The need to change the US tax system has been recognised by the OECD. Recently, Jeffrey Owens, Director of the OECD’s Center for Tax Policy and Administration, pointed out that tax reform in the U.S. has been incremental. Fundamental tax reform can be achieved through the reform of the current income tax, but Owens said that to do so, the United States must look at how it defines the tax base and the tax rates. And, he noted, that if the United States eliminates the income tax system entirely for a consumption tax, such as VAT, it would have, “a rich vein of OECD experience upon which to draw.” That may be true in a rational world, but in the U.S. it is all politics.

It is clear that virtually everyone who has any involvement in Federal tax knows the current income tax system is a failure. The current income tax system is no longer defendable. Any transition from one tax system to another will be disruptive. The politics involved will, without question, reach new lows in rhetorical hostility and new heights of hypocrisy. But it is clear, that to have a better future we must have a new tax system.

Link here.



As the tax-filing season began, a top IRS official issued a warning for tax cheats. “Criminal enforcement is back at the IRS,” Nancy Jardini, chief of criminal investigation at the agency, told a crowd of about 200 professional tax preparers. Evidence of the crackdown, she said, is a 50% jump in the number of referrals that the agency’s civil enforcement unit made for criminal investigation. The referrals arose out of IRS audits and efforts by revenue agents to collect taxes. But the increase, which was for October through December 2004 compared to the 2003 period, does not mean every mistake will bring a criminal investigation. “A taxpayer is not accidentally going to stumble into a criminal act,” said Jardini, who graduated from Villanova Law School in 1988. The key is willful and intentional evasion of taxes. “It’s lies,” she said.

One focus for the agency’s criminal investigations is abusive trusts, frequently offshore, that evade taxes. Promoters of these illegal trusts charge $25,000 to $50,000 to set up a trust, which is then moved to some other country that does not have treaties with the U.S. That means income that goes into these trusts is not reported to the IRS for tax purposes. The beneficiary of the trust still has access to the money -- in some cases through an international debit card.

In fiscal 2004, 45 people nationwide were sentenced in abusive-trust cases, with 74% of them receiving jail terms averaging three years. In another case of criminal enforcement, a federal jury in Seattle convicted six defendants last week in a tax-shelter scheme that helped 1,500 people take $120 million in false deductions from 1997 to 2001. The overall average sentence for people convicted of tax crimes last fiscal year involving legal income was 18 months, Jardini said.

Link here.


In recent years there has been a noticeable increase in smaller countries competing for a larger slice of the growing offshore financial market. While many smaller countries were once under large countries foreign empirical control, they are now independent and free to plot a self-directed course by which they can grow and prosper. Many of these small countries aggressively look for ways to open their economies beyond the traditional markets that have for centuries been dictated by foreign governments. The advantage they now have over the older established offshore financial havens is by studying the existing havens’ histories they can gain insight into what has (and has not) worked. They can then create more up-to-date legislation improving on already existing laws. They may also elect to fill a specialty niche or offer the financial services that are most in demand.

These newer and lesser known international business centers are eager to gain their share of the offshore market finances, and this shows in their aggressive offers to the financial communities. Panama is one such country. Panama currently offers huge tax incentive and residency programs to anyone wishing to invest in tourism, teak reforestation, or historical district renovations. Panama also has a very attractive pesionado program for those wishing to retire to Panama’s tropical climate and beaches. Panama is known mostly for their shipping canal but has many other products and services which have served to produce a long term healthy, and stable economy. Panama currently supplies over 80% of the world demand for teak wood. It has the second largest duty free zone in the world, second only to Hong Kong. Panama has grown to be one of the most stable, leading financial business centers in the world. It’s estimated that 80% of its economic income is from the services sector, a large portion of which is financial services.

Panama has some of the strongest banking privacy laws in existence, dating back to over a quarter of a century. Their ships and mortgages registration law dates back to 1927. There are over 80 banks from which to choose including some of the largest in the world, Barclays and HSBC. Panama financial and business community offers legal entities such as trusts, IBCs, foundations, and century old asset protection laws, all protected by very strong and well maintained privacy laws, violation of which is punishable by incarceration and $50,000 fines as well as corresponding civil liability.

The Panamanian Private Foundation legislation was originally inspired and modeled after the Liechtenstein Family Foundation -- due to its immense popularity in Europe. The group of attorneys who drafted the Panamanian legislation were not satisfied with the many alterations in the Liechtenstein legislation which now contains bits and pieces of various other laws. The creators of the Panamanian law set out to create an entirely new piece of legislation broadening the scope of the Panamanian Private Foundation in order to bring forward a more flexible and modern foundation.

Link here.



The European Commission has begun work on an EU-wide visa information system for travelers visiting the bloc’s so-called “Schengen area”, in which internal border checks have been abolished. The Schengen rules at present cover most of the old EU countries, while most new member states are expected to join by 2007. Once the new system is up and running -- also expected in 2007 -- every visitor issued with an EU “Schengen” visa will be fingerprinted, and have his or her picture taken. This, EU officials say, will put an end to fraudulent visa applications.

Frank Paul, an E.C. official, today describes how the new joint visa information system will work. “The visa applicant will have to leave his fingerprints and a digitized image of his face will be taken. That information is sent in parallel to the national visa information system of every member state and the central unit of the visa information system. While the national visa information systems do all kinds of background checks on the applicant -- whether he has a criminal record, whether he has by that country already been refused a visa, etc., etc. -- in parallel, the central system will be checked for the history of the visa applications of that person [across the entire Schengen area],” Paul says.

Link here.


The EU is poised to accept that its current plans for biometric visas are unworkable, reports Statewatch. Last year a Council of Ministers technical group concluded that multiple RFID chips in passports would render the whole snooping match unreadable, which effectively killed a plan everybody had been poised to sign off. Now the Luxembourg incoming Council presidency has accepted this, and tentatively recommended two possible ways forward that were proposed by the technical group.

Both of these are silly, each in its own way. Option one keeps the visa RFID away from the passport by putting it onto a separate smart card. Thus, instead of having the visa tidily stuck or printed into your passport as currently, your visiting non-EU passport holder would get a visa in two bits, one sticker in the passport and one piece of plastic that is going to get lost. Or broken. You could of course make it harder to lose it if you kept it (and any other biometric smartcard visas you might have collected on your travels) alongside your passport in a nice wallet. So it would be sitting next to the RFID chip in the passport and all of the other visas and then none of them would... Ah, yes. And what do you do if the biometric visa breaks anyway? A virtue of the UK ID scheme (there are so few we thought we would mention it) is that the whole shooting match is under the control of one authority and most of the bearers are in the one country, so it is at least theoretically simple to replace broken ones. The logistics of a smart visa scheme with its bearers spread across the world are an entirely different matter.

Option two takes its cue more from the UK ID scheme’s central non-virtue, and unhappily -- as it appears to involve putting things off for a bit -- it currently seems to be the more attractive one to “the majority of the delegations”. This option abandons the RFID biometric visa in the passport, and instead relies on the biometric data that will be held centrally in Europe’s Visa Information System, which is due to come into service in 2007, but which probably will not.

Links here and here.


Thanks to Congress, today no American can get a job, open a bank account, get a professional license, or even get a driver’s license without presenting his Social Security number. One of the most disturbing abuses of the Social Security number is the congressionally-authorized rule forcing parents to get a Social Security number for their newborn children in order to claim the children as dependents. Forcing parents to register their children with the state is more like something out of the nightmares of George Orwell than the dreams of a free republic that inspired this nation’s founders. Congressionally-mandated use of the Social Security number as an identifier facilitates the horrendous crime of identity theft. Thanks to Congress, an unscrupulous person may simply obtain someone’s Social Security number in order to access that person’s bank accounts, credit cards, and other financial assets. Yet the federal government continues to encourage such crimes by mandating use of the Social Security number as a uniform ID!

Nationalizing standards for driver’s licenses and birth certificates creates a national ID system pure and simple. Proponents of the national ID understand that the public remains wary of the scheme, so proponents attempt to claim they are merely creating new standards for existing state IDs. However, the “intelligence” reform legislation imposed federal standards in a federal bill, thus creating 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. The national ID will be used to track the movements of American citizens, not just terrorists. Subjecting every citizen to surveillance diverts resources away from tracking and apprehending terrorists in favor of needless snooping on innocent Americans. This is what happened with “suspicious activity reports” required by the Bank Secrecy Act.

Some members of Congress will claim that the federal government needs the power to monitor Americans in order to allow the government to operate more efficiently. I would remind my colleagues that, in a constitutional republic, the people are never asked to sacrifice their liberties to make the jobs of government officials easier. We are here to protect the freedom of the American people, not to make privacy invasion more efficient.

Link here.


Washington, D.C. Mayor Anthony A. Williams cited the “urgent need” to collect revenue in his recent request to continue the city’s automated traffic-enforcement program, which just added four new cameras, despite previous assurances that use of the technology is driven by concerns for safety, not profits. A spokeswoman for Mr. Williams said that the mayor’s views about red light and speed cameras have not changed and that he probably should have included “an extra sentence about public safety”.

The District will issue warning citations for the next month before fining speeders nabbed at the four new locations. Since August 2001, speed cameras have been placed in eight police cruisers that monitor 75 designated spots throughout the District. The program has generated more than $63 million in fines. In addition, fines from red-light cameras at 39 intersections have totaled more than $28 million since 1999. The huge windfall for the District has led to criticism of the city’s motives by the motorist club AAA Mid-Atlantic.

Link here.


If you are ticketed by Green Bay police, you will get more than a fine. You will get fingerprinted, too. If you are caught speeding or playing your music too loud, or other crimes for which you might receive a citation, Green Bay police officers will ask for your drivers license and your finger. You will be fingerprinted right there on the spot. The fingerprint appears right next to the amount of the fine. Police say it is meant to protect you -- in case the person they are citing is not who they claim to be. But not everyone is sold on that explanation.

Police say they want to prevent the identity theft problem that Milwaukee has, where 13 percent of all violators give a false name. But in Green Bay, where police say they only average about five cases in a year, drivers we talked with think the new policy is extreme. Citizens do have the right to say no. “They could say no and not have to worry about getting arrested,” defense attorney Jackson Main said. “On the other hand, I’m like everybody else. When a police officer tells me to do something, I’m going to do it whether I have the right to say no or not.” Which is exactly why many drivers are uneasy about the fine print in this fingerprinting policy.

Link here.


Outgoing Homeland Security Secretary Tom Ridge said the U.S. should put the fingerprints of citizens traveling abroad on their passports. “If we’re going to ask the rest of the world to put fingerprints on their passports, we ought to put our fingerprints on our passports,” Ridge told a room full of homeland security experts. Asked what advice he would give to newly nominated Homeland Security secretary Michael Chertoff, Ridge added, “Be aggressive. ... It’s a lot easier to negotiate with your allies if you’ve already done what you’re asking them to do.”

Link here.


As the nation prepares for President Bush’s inauguration next week, privacy activists on both sides of the political spectrum are bracing for a White House push to augment controversial domestic surveillance powers gained under the Patriot Act and other legislation passed since 9/11. “The administration has made it clear that they do intend to continue their move to dramatically reduce privacy and constitutional protection for our citizens,” said former Republican congressman Bob Barr, who now works as a speaker and consultant to organizations like the ACLU. But surveillance legislation is not the only concern on the minds of privacy advocates. They are also looking at technologies and services coming out of the commercial sector that could seriously affect civil liberties.

Some of the important issues to watch this year include Patriot Act enhancements, data mining, a de facto national ID card, privacy legislation and states’ rights, DNA databases, and RFID tags. Marc Rotenberg, executive director of the Electronic Privacy Information Center, expects 2005 to be a busy year for privacy advocates. But he hopes that individuals will not leave it to organized activists to do all the work to protect privacy rights or think that because a specific right does not pertain to them that it is OK for others to lose it. “It’s a mistake to think that privacy is an individualist or atavist right,” Rotenberg said. “I really view privacy as a collective right. When someone else is forced to give up their privacy, yours could be the next to go.”

Link here.



The Swiss finance ministry said it was looking to step up the international fight against money laundering and the financing of terrorism. The measures will ensure Switzerland’s full compliance with recommendations laid down by the FATF in 2003. The cabinet proposals aim to extend the list of crimes connected with money laundering to include commercial piracy, fake goods, human trafficking and certain forms of smuggling, in addition to insider trading. Under the proposals, property managers, traders in precious stones and precious metals as well as art dealers would have to meet the legal standards and apply due diligence procedures. Accountants and notaries would be among other businesses affected by the new measures.

Link here.

Swiss private bankers fear new controls.

The head of the Swiss Private Bankers Association said that its members are facing a squeeze because of regulatory costs, and fear new moves by authorities to boost money laundering controls. Expenses caused by regulation already eat up an average of 9.8% of overall expenses for small private banks, more than double for those of big commercial banks, which average 4.1%, said Niklaus Baumann, association president. “The meekness with which Switzerland modifies its laws as rapidly as possible to conform to international norms and other standards also has perverse effects,” Baumann said. “We always want to be the best.” The private bankers’ position is contrary to that of the Federal Banking Commission, which says banking remains less heavily regulated than many other industries.

Switzerland has tightened its regulations in recent years in a bid to shake the country’s reputation as a haven for shady money, but the private bankers say the new FATF regulations would hamper the banks’ ability to compete. Baumann said it was essential to avoid a situation in which regulations dominated the landscape and led to a perception of state-control. “An over-regulated economy generally stagnates,” Baumann said. “And an over-regulated banking sector paralyses the entrepreneurial spirit in other branches of the economy.”

Baumann said the process of drawing up new regulations should be carried out in a transparent way and open for public debate. He argued that the number of regulations affecting the banks also hurt the rest of the Swiss economy, and complained that by introducing new regulations, some government bodies were simply justifying their existence, adding that there was a “growing perfectionism” on the part of lawyers who knew little of economic realities.

Links here and here.

Abacha son arrested on Swiss money laundering charge warrant.

The Swiss justice ministry has confirmed reports that the German police have arrested the son of the late Nigerian dictator, Sani Abacha, on a Swiss warrant. The ministry said Bern was seeking the extradition of Abba Abacha -- whose father is said to have stashed millions of dollars in Swiss bank accounts -- on alleged money laundering charges.

Last August Switzerland said it would hand back to Nigeria SFr622 million ($500 million) belonging to Sani Abacha and his family. The authorities said that most of the money was of “criminal origin”. The move was a milestone in the 6-year search for up to an estimated $3 billion in assets allegedly embezzled and transferred abroad by the late dictator. The money was part of the $700 million frozen by the Swiss authorities in 1999 after Nigeria asked for assistance in investigating the financial network said to be set up by Sani Abacha.

Link here.


Despite evasive answers to questions about his role in creating a pervasive policy environment that made the U.S. government’s torture of prisoners just good, clean fun, White House Counsel Alberto Gonzales seems poised to win Senate approval as Attorney General. That shocking outcome would reaffirm that the politically minded Congress often takes a distorted view of what this country is supposed to stand for.

In the past, Congress has meted out punishments to presidents or their prospective appointees for far lesser transgressions than culpability in torture. For example, President Bill Clinton was impeached -- a rarity in American history -- by Congress for having sex with an intern and lying about it. Although Clinton was guilty of bad behavior, this breach of ethics nowhere approached the severity of enabling the brutal treatment of prisoners in the government’s custody. Similarly, Congress denied Judge Robert Bork a seat on the Supreme Court, not because his sentencing of prisoners was too harsh, but because it merely viewed his policy views as out of the mainstream.

Although I dislike the term “un-American” -- since throughout U.S. history it has often been applied to people who disagreed with whatever war was then the rage -- I think the term can safely be applied to torture. Congress should deny high office to anyone who helps create a bureaucratic climate that implicitly endorses such reprehensible behavior. Gonzales has done exactly that.

Link here.


The Supreme Court made it easier for prosecutors to win money laundering convictions, ruling unanimously in a large religious scam case, Whitfield v. United States, 03-1293, and Hall v. United States, 03-1294, that the government does not have to prove “overt acts” by defendants. Justices upheld the convictions of two people accused of pocketing more than $1.2 million as part of a nationwide religious investment scheme. David Whitfield and Haywood “Don” Hall were convicted in Florida of conspiracy to commit money laundering. They were leaders of the Greater Ministries International Church, which told people during roadshow meetings that God would double their money.

The church, which targeted Mennonite, Amish and Christian fundamentalist communities nationwide, took in hundreds of millions of dollars from 1996-99 and donors got little if any money back. Other church leaders were convicted of various charges. The Supreme Court used appeals by Whitfield and Hall to clarify a matter that has divided lower courts, the proof required in money laundering conspiracy cases. Justice Sandra Day O’Connor, writing for the court, said that because the federal law does not “expressly make the commission of an overt act an element of the conspiracy offense, the government need not prove an overt act to obtain a conviction.”

Link here.

Analysis: Conspiracy without an act

Throughout U.S. history the government relied on a general conspiracy statute to prosecute conspiracies. But in 1992 Congress enacted a money-laundering provision. In her unanimous opinion, Justice Sandra Day O’Connor pointed out that the 1992 provision simply provides that any person “who conspires to commit any offense defined in (two earlier provisions) shall be subject to the same penalties as those prescribed for the offense the commission of which was the object of the conspiracy.”

O’Connor rejected an argument by money-laundering defendants in Florida that the government still must prosecute conspiracies under the old general conspiracy law and that the 1992 provision merely enhances the penalty for money-laundering conspiracy. The old general conspiracy law contained a requirement of proof of an overt act. O’Connor said the text of the 1992 provision “is sufficient to establish an offense” and makes no reference to the old law. Even though the unanimous Supreme Court ruling was not unexpected, U.S. prosecutors should breathe easier now that it is on the books. During trial the men’s attorneys asked a judge to instruct the jury that it had to find an overt act was committed as part of the conspiracy. The judge refused.

Link here.


Ever since the Sept. 11 attacks, the U.S. has sought to stop the flow of funds to terror groups and now, as militants hone their ability to hide and move money, the fight is expanding beyond banks to businesses such as jewelers and car dealers. Once limited to the financial sector -- from banks to money transmitters like Western Union -- the scope of the U.S. war on dirty cash is growing and increasingly touching citizens’ everyday lives. “A year from now, most Americans when they go buy a boat or plane, book an airfare, buy some jewelry for the missus, buy a car, they are all going to have to deal with compliance requirements and it’s going to impact their everyday living,” said Kenneth Bryant, an anti-money laundering consultant. “They are going to have to show who they are, and what the source of funds is. Not all of those industries have fallen under the legislation yet. But it’s coming, and it’s being talked about,” he said.

The regulatory moves, many of which flow from the 2001 USA PATRIOT Act and cover businesses from small family operations to multinational corporations, are primarily focused on the U.S., but the ripple effects are felt worldwide. All U.S. companies and all foreign firms doing business in the U.S. must comply. Many others do so voluntarily to facilitate dealings with U.S. partners. Spending on anti-money laundering and anti-terrorist financing programs has ballooned since the Sept. 11 attacks. International auditing and accounting group KPMG said in its 2004 global anti-money laundering survey that compliance spending at financial institutions had soared by an average of 61% over the past three years. In North America, about 30% of respondents reported a rise of more than 100%.

Protective measures in various industries include keeping tabs on suspicious activities, stepped-up identity checks for customers and the origins of their cash and regular reports to regulators. Experts say many large or high-profile firms adopt the safeguards voluntarily to avoid hefty future costs to their business and reputation if there is a lapse. Even companies with less tangible products -- such as Internet service provider America Online, and information group Reuters -- have also implemented strictures to avert abuse. America Online spokesman Nicholas Graham said the company had compliance teams and worked closely with law enforcement to keep its thousands of chat rooms, message boards, online payment systems and other services safe from abuse by militants.

Critics question whether the stepped-up vigilance will actually reduce terror financing, arguing that criminals quickly learn to circumvent new restrictions. Others say safeguards required by the U.S. Treasury may involve too many industries and may impose excessive costs. “All they really do is inconvenience a lot of people and create more paperwork for someone in Washington to ignore,” said Alan Feldman, a spokesman for the Mirage casino in Las Vegas. “The notion that someone is money laundering in a commercial casino today is simply laughable.” Proponents say that is a price worth paying, and praise regulators for keeping compliance demands in check while consulting relevant industries before finalizing rules.

Link here.


British Attorney-General Lord Peter Goldsmith unveiled plans for an FBI-style agency to fight organized crime. Prosecutors will work closely with investigators to implement new powers such as disclosure notices forcing individuals to answer questions or produce documents, he said. The use of immunity and sentence reduction for those cooperating with investigations or pleading guilty will also be increased, as will confiscation orders and the freezing of assets. Director of Public Prosecutions Ken MacDonald said the new powers of the Serious Organized Crime Agency would allow “audacious” crime fighting.

Organized crime is such a threat “we will not be forgiven if we fail to take up and wield every weapon at our disposal,” he said. Goldsmith said organized crime such as drug and people trafficking, fraud and money laundering costs the UK at least $40 billion a year.

Link here.


The ACLU urged the D.C. Court of Appeals to reinstate the case of former FBI translator Sibel Edmonds, saying that the government is abusing the “state secrets privilege” to silence employees who expose national security blunders. “The government should be applauding, not punishing, employees who risk their jobs to expose threats to our nation’s security,” said ACLU Associate Legal Director Ann Beeson. “If the lower court ruling stands, many thousands of government employees will be unprotected from retaliatory dismissal, with no recourse in the courts, and others will be even less willing to risk exposing misconduct or corruption.”

Edmonds, a former Middle Eastern language specialist hired by the FBI shortly after 9/11, was fired in 2002 after repeatedly reporting serious security breaches and misconduct in the agency’s translation program. She challenged her retaliatory dismissal by filing suit in federal court. Last July, the district court dismissed her case when Attorney General John Ashcroft invoked the so-called state secrets privilege. The ACLU is representing Edmonds in the appeal. The ACLU has announced its willingness to support other national security whistleblowers and has encouraged others to come forward.

In the brief filed, the ACLU sharply criticizes the government’s “radical theory” that every aspect of the Edmonds’ case involves state secrets and therefore it cannot go forward. In accepting the government’s theory, the ACLU said, the district court relied on the government’s secret evidence but denied Edmonds the opportunity to prove her case based on non-sensitive evidence. That approach, the ACLU said, “made a mockery of the adversarial process and denied Ms. Edmonds her constitutional right to a day in court.”

Link here.


The U.S. is said to be a free country. Its constitution has amendments (Bill of Rights) which, among other things, uphold free speech, the right of people to assemble peacefully, the right to be secure in your person, house, papers and effects against unreasonable searches and seizures, and the right to a speedy and fair trial by an impartial jury if you are accused of a crime. It also states that “all power is vested in, and consequently derived from, the people.” This is the received and perceived truth that many people who live both inside and outside of the U.S. adhere to. However, during the period from about 1947-1957, McCarthyism, given its name from Republican Senator Joseph McCarthy, maintained that communists had infiltrated the U.S. State Department. Repressive measures against people labeled as communists were rife. Many Americans had their civil liberties and rights undermined.

Professor Ellen Schrecker, a well-known historian and expert on McCarthyism, has written extensively on the era. She says that through “part myth and part reality, the notion that domestic communists threatened national security... based on a primarily ideological conception of the nature of the communist movement... came... the government’s attempt to mobilize public opinion for the Cold War.” During this repressive period, about 150 people were imprisoned, and Julius and Ethel Rosenberg were put to death. Most of the major punishments were of an economic nature, however. Schrecker notes, “People lost their jobs. The official manifestations of McCarthyism... the public hearings, FBI investigations, and criminal prosecutions... would not have been as effective had they not been reinforced by the private sector.” Targeted people were blacklisted, which meant that they were unable to find employment. This economic punishment extended to universities, colleges, the media, labour and the entertainment industry. In all sectors of society, the state got civil society to do its dirty work by firing and blacklisting people. It is estimated that 10,000 people may have lost their jobs during McCarthyism.

More recently, legislative proposals in response to the terrorist attacks of September 11, 2001 were introduced less than a week after the attacks. President George Bush signed the final bill, the United States Patriot Act, into law on October 26, 2001. It was introduced with great haste and passed with little debate and without a House, Senate or conference report. As a result, it lacks background legislative history that often retrospectively provides necessary statutory interpretation. It also does not provide for the system of checks and balances that traditionally safeguards civil liberties in the face of such legislation. The USA Patriot Act introduced a number of legislative changes which significantly increased the surveillance and investigative powers of law enforcement agencies in the U.S. Many of the foundations of American democracy are violated by the Patriot Act. Once again, the violations against the basic constitutional rights of Americans are being carried out in the name of national security and in the defence of waging a war. During McCarthyism, it was the Cold War. This time, it is the war on terror.

Link here.


On December 7, 1941, the Japanese bombed Pearl Harbor in Hawaii. 2,388 people -- mostly military personnel, but including civilian men, women, and children -- died. Fast forward some 63 years to today, and look at your calendar for December of 2004. On December 7, you will see that most calendars take note of the Pearl Harbor attack which is still remembered with surprising freshness by many Americans. That is why I found it especially ironic -- and more than a little painful -- that Americans were subjected to another sneak attack on freedom on that very anniversary. December 7, 2004 marks the moment when the House of Representatives passed legislation to provide for intelligence reform. The vote tallies were overwhelming. A day later, and by an even more lopsided margin, the Senate did the same.

The intelligence bill is just the latest fall-out resulting from the 9/11 attacks. Literally within days of the terrorist attacks another lengthy piece of legislation was rushed through Congress. Referenced by a singularly inappropriate acronym, the USA PATRIOT Act was heralded as necessary for law enforcement to prevent further attacks on American soil. The PATRIOT Act has been the subject of controversy ever since, with civil liberties advocates claiming it infringes mightily on American freedoms, and even members of Congress scrambling to defend their votes or to talk of reforms for various provisions of the Act. Of course, defending affirmative votes for the measure are limited to rationalizations of general notions rather than specifics. That is because the text of the USA PATRIOT Act was not available to members of Congress before they voted on it. One positive result of the ongoing controversy surrounding the USA PATRIOT Act seemed to be the demise of the so-called PATRIOT II legislation.

Whatever its reasons, the administration appointed a Commission to investigate the 9/11 attacks. The 9/11 Commission’s report made a number of suggestions for improvements in intelligence gathering and dissemination as well as offered ideas for the interdiction of terrorism within the US. That report ostensibly formed the basis for the intelligence bill recently passed on December 7 and 8. Unfortunately, while it does supposedly address what I personally think are some issues that did require reform, the legislation also allegedly contains some extraordinarily anti-freedom measures. Some of those are said to include the implementation of a de facto national ID card, rumored measures for widespread and inclusive Internet surveillance, the effective repeal of prohibitions to the CIA of spying on Americans in America, and broad opportunities for abuse by authorities.

Do I blame the administration for forcing the issue? Sure. Do I find fault with the people who wrote this legislation? From what I know of its likely content, you bet I do. But our supposed protectors from bad legislation -- the men and women who vote on it -- are the real villains here. The votes held on December 7 and 8 were a sneak attack on American liberty in more ways than one. It seems we do not know much of what is contained in this new legislation shortly to become law. It is also readily apparent that those concerns have no meaning for the many who are glossing over specificities by calling this bill “necessary to fight the War on Terrorism”, a phrase that is sounding more hollow with every passing day even as it is becoming more familiar with every passing bill.

Link here.



Only a small percentage of Americans would still be able to remember, with any clarity, the trials in Nuremberg, Germany at the close of World War II. The civilized world, led by the U.S., moved quickly to bring the criminals of WWII to trial. With America resorting to an aggressive war against Iraq, the ghosts of Nuremberg must surely be stirring about. There was a time in this country when the Golden Rule actually had meaning. We were quick to criticize those who would attack another sovereign nation without provocation. We used to call those who were attacked and were fighting to defend their country from such aggression, freedom fighters, or at least rebels. Now that we are the aggressor nation, those labels have been changed to “insurgents”, “militants” or “dead-enders”, but that was before God started dictating our foreign policy, using George W. Bush as his spokesperson. It sure changes things when “the big guy” is on your side. I really cannot see why Bush and company bothered with all those lies about WMDs and al-Qaeda connections. Perhaps the democrats would not accept divine intervention.

Back to the ghosts of Nuremberg: the trials began in November of 1945. The Chief Prosecutor, Robert Jackson, on leave from the U.S. Supreme Court, began the proceedings against twenty-one of Adolf Hitler’s top lieutenants, including Herman Goering, Wilhelm Keitel and Rudolph Hess, who stood accused by the world’s first international tribunal of masterminding horrific crimes. Among the charges listed in the long indictment were crimes against humanity and crimes against the peace. This crime against the peace was a brand new charge, never before seen in international law. American prosecutors, led by Justice Jackson, had a more sweeping view of justice in mind. They saw the supreme crime at Nuremberg not in any specific act of Nazi mass killing, nor in the construction of the death camps like Auschwitz. For American prosecutors, the supreme crime was a completely new criminal charge -- waging aggressive war, or the crime against peace.

Even though Winston Churchill, Henry Morgenthau and Cordell Hull advocated summary executions of those accused, and Stalin suggested that Nazis should stand trial with a presumption of guilt, and that judges presiding over their trials should concern themselves with determining the degree of punishment, Jackson, with the full support of President Truman, advocated that Nazi leaders be tried, but that they be subject to a fair trial. Individuals – political and military leaders -- were to be held accountable by an international authority for atrocities committed in the name of the State. It should be noted, opposition to the trials came from some heavy hitters in the American establishment. Chief Justice Harlan Stone of the United States Supreme Court and Justice William O. Douglas condemned the trial. The trials also drew political fire from Senator Robert A. Taft, a powerful politician and presidential candidate. Regardless of this opposition, the trials were held and precedent was set. Case law, the pundits call it.

Justice Jackson said, “Any resort to (aggressive) war, any kind of war is a resort to means that are inherently criminal as means. War inevitably is a course of killings, assaults, deprivations of liberty and destruction of property.” The prosecution would hold subsequent trials, for it was felt the criminal acts went far beyond the government and the military. Prosecutors thought that one trial of 21 Nazi leaders did not adequately address criminal guilt in Germany. The prosecutors felt the military/industrial complex of Germany was complicit in the conduct of the war, not just the military and its civilian leadership. The civilized nations of the world in 1945 saw that it took an entire country to commit the crime of “aggressive” war. One man, acting with the authority as leader, could not be the only culpable person in such a criminal endeavor.

Is it any wonder that the U.S., led by George W. Bush, has said that we no longer believe in the role such as that taken by this country at Nuremberg. Bush says that no American soldier should ever face trial in anything but a U.S. court. Can we sentence citizens of Iraq to die for the sins of Saddam, by American bombs and missiles, and be accountable to no one? Would we have allowed the Germans to try their leaders and soldiers at the end of the war? What would happen if we no longer were the “superpower”? How would we defend our aggressive war in a Nuremberg-type scenario? Does might really make right?

Link here.


Friedrich A. von Hayek, one the giants of classical free-market economics, warned that “The Road to Serfdom” results from the unintended consequences of market interventions by governments, leading to economic distortions that ultimately lead to further interventions. He noted that liberty is lost -- gradually, incrementally, inexorably -- with each subsequent intervention descending down the road to serfdom. Is the United States heading down such a path? I hope not, but I have been worrying for some time that we might be. In the modern age the road to serfdom may not solely result from anti-market interventions but may also include the inability -- or unwillingness -- of political leaders to eliminate anti-market barriers already on the books.

In his book Hayek exposed the primary fallacy of central planning: the impossibility that all knowledge can be brought together in a few genius individuals, “the best and the brightest”. Economics, markets, statistics and history conclusively dispel any such assertion. Presently the American economy, despite its resilience and our nation’s entrepreneurial acumen, is suffering from a 75-year hangover remaining from a number of failed and failing socialist projects. The most evident examples are our ailing and out-of-date entitlement programs, our confiscatory tax code and increasing regulatory burden. As such, it is not enough to maintain the status quo. We must reform these systems, remove barriers and eliminate as much of this dead-weight loss from our economy as possible.

Last week the Wall Street Journal/Heritage Foundation released their annual Index on Economic Freedom, which concluded for the first time that America no longer ranks among the top 10 freest economies in the world -- despite the fact that our score remained unchanged from the previous year. Instead we fell in the ranking because while we were trending water, Chile, Australia and Iceland further opened their economies and surpassed us. America’s worst index category was the “fiscal burden” of government, due to Washington’s rapidly growing spending and one of the highest corporate tax rates in the world. Excessive regulation is another reason the U.S. failed to the make the top 10.

Link here.


Ask the typical undergraduate to discuss the ideas advanced in the Virginia and Kentucky Resolutions of 1798 and you may as well be asking for an overview of the Copenhagen interpretation of quantum physics. Yet these nearly forgotten documents fully merit a place among the most important political writings in American history, both in terms of the ideas they put forth and the influence they had on subsequent generations of American political thinkers. That is why William Watkins’s new book is something to celebrate.

The Resolutions in effect posed and sought to answer a series of fundamental questions. How is the central government to be restrained? Are frequent elections and internal checks and balances sufficient, or does the limitation of federal power require still more institutional safeguards? Which institution, if any, possesses the definitive word on constitutional disputes between the federal government and the states? To the suggestion that the Supreme Court was the ultimate arbiter, the drafters of these documents had yet another question: how can the federal courts function as impartial umpires between the federal government and the states when they themselves are part of the federal government?

Watkins skillfully guides the reader through the context within which the Virginia and Kentucky Resolutions were drafted. The Alien and Sedition Acts of 1798, passed during the Quasi War with France, alarmed Thomas Jefferson, James Madison, and the Republican Party in general. It was the prohibition of seditious libel that concerned them most. For Jefferson, it was not only that this prohibition would be enforced in a partisan way that made it objectionable -- though of course it was. And it was not that seditious libel could be arbitrarily or loosely defined -- although, again, in practice it was (a man who expressed the fond wish that the presidential saluting cannon would “hit [President John] Adams in the ass,” was fined $100).

The primary issue was the acts’ dubious constitutionality. Jefferson based part of his objection on their violation of the First Amendment, but noted that they violated the Tenth Amendment as well. Nowhere had the states delegated any authority to the federal government to pass legislation pertaining to the freedom of speech or press. In doing so, then, the federal government had encroached on a state prerogative. For Jefferson, who spoke of binding men by the chains of the Constitution, immediate action was necessary lest such federal usurpations begin to multiply. Was there a constitutional remedy -- that is, a solution short of the extreme measures of secession or violent revolution? As far as Jefferson was concerned, there had to be. And that constitutional remedy, as so often in Jefferson’s political philosophy, involved the states.

Certainly the federal government, which was merely the agent of the states, could not be permitted to have the exclusive authority to make authoritative judgments about the Constitution, since the obvious long-term consequence would be the eventual concentration of power in the federal government as it consistently handed down rulings in favor of itself. The states had to be able to make their own interpretations of the Constitution, to which they themselves had acceded, count for something. As far as Jefferson could see, the only way in which a state could both remain in the Union and retain its liberties in the face of an unconstitutional act on the part of the federal government was for the state to declare that by virtue of its being unconstitutional, the federal action was null and void and would not be enforced within the borders of that state.

An anonymous Jefferson (who was vice president at the time) penned what became known as the Kentucky Resolutions of 1798, which spelled out the objectionable aspects of the Alien and Sedition Acts as well as the states’ rightful response: nullification. Madison penned similar resolutions that were approved by the Virginia legislature. Although Virginia and Kentucky found little support in other states for these ideas in 1798, with the passage of time all sections of the country would appeal at one time or another to what became known as the “Principles of ‘98”. You may have noticed that these ideas are rather out of fashion today on both left and right. Watkins, however, identifies these ideas as absolutely fundamental to American liberty and as legitimate means, faithful to the spirit of the Constitution, of preventing the expansion of the federal government.

Link here.


This past week the TV screen has been full of pictures showing people in Southeast Asia returning to their villages after the tsunami, only to find their homes completely destroyed. Unfortunately, that is not the only place where people are returning to devastation. The same thing is happening in Fallujah, Iraq: Lakes of sewage in the streets. The smell of corpses inside charred buildings. No water or electricity. Long waits and thorough searches by U.S. troops at checkpoints. Warnings to watch out for land mines and booby traps. Occasional gunfire between troops and insurgents. ... The effort to win the hearts and minds of the local population has fallen flat as soon as returning homeowners see the burned buildings, piles of rubble, and heavy troop presence.

And speaking of the tsunami: As soon as someone could find George Bush at his Texas ranch and inform him of the disaster (he says he does not read newspapers or watch TV), he immediately announced that the U.S. government would donate $15 million in relief funds, and within days had raised that to $35 million. After he was accused of being too stingy, he upped the figure to $350 million. Of course, this was not his own money he was pledging. He was being generous with your money. And he had no authority to commit even $1 of federal money to anything that had not been approved by Congress -- which in turn had no Constitutional authority to commit even $1 of federal money to any charity, in the U.S. or overseas.

Wouldn’t it have been nice to see a truly American response by a U.S. president?: “The people of Southeast Asia have been hit with a terrible tragedy. My heart goes out to the families of the dead, and to those who have suffered such terrible destruction of their homes and other property. I hope that Americans will be generous in this time of need. I want to do my part, and so I have written a check for $10,000 as my contribution to the relief effort. I urge others to do whatever they can to help.” Of course, to do that an American president would have to have some idea of what once made America America.

Link here.


I was asked to write something to introduce my new book, Christianity and War and Other Essays Against the Warfare State, which is now available. These thirteen essays, although organized under four headings, have one underlying theme: opposition to the warfare state that robs us of our liberty, our money, and in some cases our life. Conservatives who decry the welfare state while supporting the warfare state are terribly inconsistent. The two are inseparable. Libertarians who are opposed to war on principle, but support the state’s bogus “war on terrorism”, even as they remain silent about the U.S. Global Empire, are likewise contradictory. Christians who condone the warfare state and its nebulous crusades against “evil” have been duped. There is nothing “Christian” about the state’s aggressive militarism, its senseless wars, its interventions into the affairs of other countries, and its expanding empire.

War is a subject that needlessly divides and sidetracks Christians. It is my contention that Christian enthusiasm for the state, its wars, and its politicians is an affront to the Saviour, contrary to Scripture, and a demonstration of the profound ignorance many Christians have of history. It is a disgrace that so many conservative Christians are apologists for George Bush and the Republican Party. But not only are Christians who make excuses for Bush and the Republicans a disgrace, they are hypocrites as well, for they are the ones who would scream the loudest if a Democratic president and the Democratic Party did the same things that Bush and the Republicans have done. As a conservative, evangelical Christian, I never thought I would miss those eight years of Bill Clinton’s regime.

The problem with pro-war, Bush-worshipping Christians is that they refuse to believe that Bush lied the country into war, loving one’s country has nothing to do with loving the government, being patriotic does not mean blindly following whatever the government says, and some of the greatest critics of the military have been in the military. As I state at the end of my introduction and quote elsewhere in the book, it is my desire in all of these essays to show, as Randolph Bourne said many years ago, that “war is the health of the state”.

Link here.
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