Wealth International, Limited

Offshore News Digest for Week of January 31, 2004

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

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Governor Sir John Vereker backed the Island’s Independence debate. In an address to HSBC banking titans and Government leaders gathered for a power dinner, Sir John told board members they had made a good choice in coming to Bermuda -- HSBC paid $1.3 billion for the Bank of Bermuda nearly a year ago -- but said he recognized that business likes certainty. Sir John cautioned that Bermuda was at a crossroads in terms of its relationship with Britain, with a debate on the issue of Independence being opened by Government after a change in administration in July, 2003.

“I am of course acutely aware that what business dislikes most is uncertainty, such as over Bermuda’s future constitutional relationship with the United Kingdom,” he said. “Let me say therefore, unequivocally, that I think the Government of Bermuda is right to bring that issue into the open and to a conclusion,” he told the gathering which included Premier Alex Scott and HSBC chairman Sir John Bond.

Link here.


With its sparkling turquoise waters, unblemished string of white-sand islands and location in the middle of the world’s 3rd-largest coral reef, the 40-island archipelago of Turks and Caicos in the British West Indies possesses a physical beauty that, until the past decade or so, had gone largely unnoticed. True, the islands acquired a bit of international notoriety in the 1990’s when they became a haven for drug smuggling, and serious scuba divers have long known about the exceptionally clear waters surrounding the archipelago. But until relatively recently, most mainstream tourists from the U.S. -- especially those seeking the kind of luxury they could easily find on the nearby Bahamas -- have stayed away from the islands, only eight of which are inhabited. The reasons were simple: Few major airlines flew there direct, and with the exception of a Club Med on the developed island of Providenciales, there were very few places -- especially upscale resorts -- to stay.

All that began to change in the early 1990’s, with the arrival of a handful of luxury hotels, and it is certainly no longer the case. In the past year, there has been a 25% increase in flights, most of it from the U.S., which translates into 1,000 more seats a week, and new hotels are opening at an exuberant pace. With such attention, the islands have sealed their reputation as an exclusive destination, attracting an affluent crowd that, at least for now, is not much of a crowd at all, with only 154,961 visitors in 2003 -- a mere drop in the bucket compared with 4.95 million visitors to the Bahamas in the same year.

But awareness of the islands is growing, especially among American travelers, who have contributed to the roughly 90% growth in tourism there over the last 10 years, according to Caesar Campbell, executive director of the Turks and Caicos Hotel and Tourism Association. To satisfy that demand, development has been brisk. “In the last 10 years, we’ve gone from 1,000 hotel rooms to about double that number,” said Mr. Campbell. And the building boom continues.

But to visitors like Tammy Peters, an avid Caribbean traveler from New York, there have been a few too many changes since she first visited the Turks and Caicos in the early 1990’s. “It was really a divers’ paradise back then,” she said, adding that when she went there last spring, “I was pretty surprised that there was so much construction going on.” Terry McCabe, a travel agent, also thinks that the Turks and Caicos should be cautious. “This is not the undiscovered paradise that it once was,” she said. “If they’re not careful, they’re going to become the Miami of the Caribbean.”

Link here.


The deficits, disclosed in reports filed with China’s interbank market that were seen by Bloomberg News, follow the introduction of new accounting rules that require brokerages to recognize past trading losses and declines in the value of stock investments. The reports by three of China’s biggest brokerages suggest the industry’s losses from a 4-year stock market slump have been understated. China’s about 130 securities companies lost money for the past three years running as the benchmark Shanghai composite index fell to little more than half its 2000 high, according to the Shanghai stock exchange. “The problems of China’s securities industry are much worse than their financial reports show,” said Wu Chuanyan, a banking analyst at Everbright Securities in Shanghai. “There are many smaller companies that do not publish reports. And the whole industry is unprofitable.”

Link here.


In 1897, Britain celebrated Queen Victoria’s diamond jubilee with grand ceremonies, lavish parties and parades that stretched for miles. It was all in tribute to a monarch who had reigned for 60 years, but it was also a celebration of Britain’s unrivaled world power and success. Never before had an empire been as wealthy or as vast, spanning a quarter of the world’s population and land mass. Yet within 50 years, the British Empire would vanish. No living memory survives to compare the speeches, parade and celebrations surrounding President Bush’s inauguration with those of Queen Victoria’s day. But the president’s triumphal tone in his Inaugural Address was just one of a growing number of factors that evoke shades of empires past.

Today the United States is the unrivaled world leader in commerce and political and military force. As such, it faces many of the same questions that have concerned powerful nations for centuries. Obviously, it is not destined to undergo precisely the same experience as, say, imperial Britain or the Soviet Union. But the history of great powers, particularly in the modern era, offers lessons worth considering in navigating the future.

In an 1987 book, The Rise and Fall of the Great Powers, Paul Kennedy, a history professor at Yale, formulated the concept this way: “Without a rough balance between these competing demands of defense, consumption and investment, a Great Power is unlikely to preserve its status for long.” The British Empire was crushed by its unsustainable spending on World War I and World War II. For the Soviet Union, the cold war ultimately proved too much for its planned economy to support. Today, the U.S. faces its own difficult choices between the competing demands of security, consumption and investment. Niall Ferguson, a history professor at Harvard who has written at length about the British Empire, put it this way: “There’s a very big difference between declining in the next five years and the next 500 years. I shouldn’t think Americans would like to live through what the British did.”

Link here.

True globalists (should) reject empire.

In In Praise of Empires: Globalization and Order, Deepak Lal writes as a convinced advocate of American Empire. But in the course of the book, he undermines his own reasons for defending imperialism and offers a devastating criticism of democratic imperialism and of Woodrow Wilson’s Utopianism. Lal’s basic argument for empire is straightforward: International trade is essential to prosperity. But given a high degree of disorder, large scale trade cannot occur, or at least will be greatly impeded. Throughout history, empires have been the main means by which order has been preserved and trade promoted. “By creating order over a large economic space, empires have inevitably generated [Adam] Smithian intensive growth” (p. 43).

Applied to the present, Lal’s argument becomes that international trade requires an imperial power. Only the U.S. has the resources to maintain hegemonic control. Therefore, the U.S. ought exercise imperial power. Lal attempts to refute in advance an obvious counterargument. What about the evils of empire? Have not many empires tyrannized and exploited those whom they have conquered? Even if Lal is right about the benefits of empire, must not its costs be set against these?

Link here.

The empire has no clothes.

Students of history are often amazed how empires sometimes came into being almost accidentally. Rome, during its early Republican years, often grew by being attacked by its neighbors and vanquishing them. The Victorian British originally sought to protect trade and overseas interests before waking up one day and realizing that they controlled a quarter of the world’s land, people and all of its oceans. Others, of course, are a more deliberate project, an attempt to create a world of their making. Whether their motives are benevolent or otherwise, the end result is always the same, the fall.

Though it might come as some surprise to Americans, they long ago embarked on the building of an empire and also face the prospect of the eventual lose of their power -- sooner, in fact, than they think. Decades ago the U.S. abandoned its traditional hatred of foreign entanglements, alliances and a large standing military and now fings itself with a global empire. That is the charge that Ivan Eland makes in The Empire Has No Clothes: U.S. Foreign Policy Exposed, the clearest, most cogent and strongest case against America’s interventionist foreign policy to come from either the political left or right in recent years.

Link here.

Is American power good, bad, or distressingly reluctant?.

Writing of Britain’s Victorian empire, James (now Jan) Morris observed that the imperial experience released emotions “laced with the hope of profit, the pleasure of authority and the chance of doing good.” He added that “the theme grows heavier as it progresses, an instinct matures into a duty, a duty curdles into a craze, a craze becomes a burden.” By the end of the cycle, the empire, accepted at the start, is “utterly discredited”.

Those emotions of empire, this time the American version, are captured, separately, in David Frum and Richard Perle’s An End to Evil: How to Win the War on Terror, Rashid Khalidi’s Resurrecting Empire: Western Footprints and America’s Perilous Path in the Middle East, and Niall Ferguson’s Colossus: The Price of America’s Empire. Frum and Perle see American domination as an opportunity to do good. Khalidi fast-forwards to the discredit ultimately heaped on empire. Ferguson provides a partial synthesis of the two perspectives (minus Khalidi’s animosity). Conscious of how the American empire blends the hope of profit with the desire to do good, as well as the pleasures and rights of authority, he worries that the U.S. may be dangerously ignorant of its imperial fate.

Link here.


Pushing Austria’s government to the brink of collapse, the conservative Freedom Party angrily accused its coalition partner yesterday of breaking up the alliance. It blamed the center-right People’s Party for trying to push through reforms aimed at moving the country toward an all-volunteer army. Uwe Scheuch, the Freedom Party’s general secretary, issued a statement lashing out at the People’s Party and accusing its leadership of being “intoxicated by power”. He also said the party “busted” the coalition with “single-handed” reform attempts.

The two parties have shared power in an uneasy alliance since 2000. Tensions soared last week after Defense Minister Guenther Platter, a member of Chancellor Wolfgang Schuessel’s People’s Party, formally proposed shortening obligatory military service from eight months to six and halving the federal army’s ranks from 110,000 soldiers to 55,000. The shortening of mandatory service is a step toward Austria’s eventual goal to shift to an all-volunteer military.

Link here.


China’s vice premier and the president of the EC offered glimpses of where the global economy is going, a tableau of wildly varying fortunes. First up was Chinese Vice Premier Huang, who predicted that China’s per capita income will triple over the next 15 years, continuing a blistering expansion that is turning China into an economic powerhouse. By 2020, Huang said, China’s per capita income will likely top $3,000, triple the 2003 figure. Growth in 2004 exceeded 9%, well above forecasts of both the government and analysts.

The new president of the EU executive Commission, speaking just hours later, went on at length about Europe’s stuttering growth -- barely 2% last year -- and governments’ failure to make good on their promise to make Europe the “world’s most competitive economy in the world” by 2010. A review last fall said the EU was falling far short of its targets and called for a renewed commitment by governments.

Link here.


Kiwi shoe polish, Callaway Golf clubs, Intel computer chips, Bosch power drills, BP oil. Pick any product from any well-known brand, and chances are there is a counterfeit version of it out there. Of course, as anyone who has combed the back alleys of Hong Kong, Rio, or Moscow knows, fakes have been around for decades. Only the greenest rube would actually believe that the $20 Rolex watch on Silom Road in Bangkok or the $30 Louis Vuitton bag on New York’s Canal Street is genuine.

But counterfeiting has grown up -- and that is scaring the multinationals. “We’ve seen a massive increase in the last five years, and there is a risk it will spiral out of control,” says Anthony Simon, marketing chief of Unilever Bestfoods. “It’s no longer a cottage industry.” The World Customs Organization estimates counterfeiting accounts for 5% to 7% of global merchandise trade, equivalent to lost sales of as much as $512 billion last year -- though experts say this is only a guess. Seizures of fakes by U.S. customs jumped by 46% last year as counterfeiters boosted exports to Western markets. Unilever Group says knockoffs of its shampoos, soaps, and teas are growing by 30% annually. The World Health Organization says up to 10% of medicines worldwide are counterfeited -- a deadly hazard that could be costing the pharmaceutical industry $46 billion a year.

The scale of the threat is prompting new efforts by multinationals to stop, or at least curb, the spread of counterfeits. Companies are deploying detectives around the globe in greater force than ever, pressuring governments from Beijing to Brasília to crack down, and trying everything from electronic tagging to redesigned products to aggressive pricing in order to thwart the counterfeiters. Even some Chinese companies, stung by fakes themselves, are getting into the act. China is key to any solution. Yet slowing down the counterfeiters in China and elsewhere will take heroic efforts, because counterfeiting thrives on the whole process of globalization itself. Globalization, after all, is the spread of capital and knowhow to new markets. The result is a kind of global industry that is starting to rival the multinationals in speed, reach, and sophistication.

Link here.


Free trade negotiations between the U.S. and Panama are held behind closed doors and are by all accounts very complex. Yet from statements to various media attributed to people on the respective sides, mid-January 7th round of the U.S.-Panamanian free trade negotiations broke up without a deal struck mainly because Panama is reluctant to agree to opening our marketplace to U.S. pork, chicken, rice, potatoes, onions and cooking oil as widely as the Americans want, and the United States does not care to let this country’s farmers sell as much Panamanian sugar or coffee to the U.S. market as the Panamanians would like.

While an impasse went unresolved over agricultural issues, it was also reported that U.S. automakers pressed to get Panama to waive the duty on U.S.-made cars and American bottlers pressed for the elimination of this country’s duties on beer and soft drink imports. Given Panama’s current tax structure, the Torrijos administration would not likely back down on motor vehicle or alcoholic beverage import revenues.

The U.S. is Panama’s biggest trading partner, with nearly half of our imports coming from the USA. In monetary terms the U.S. exports roughly six times as much to Panama as this country exports to the USA. All told U.S.-Panamanian trade amounts to about $2.1 billion, which is an insignificant percentage of total U.S. foreign trade.

Link here.


Mutual funds are closing in on the 6,000 mark with 25% growth, while new captives grew 7% to 693 in 2004. Banking and fiduciary services held their own with total year-end footings of licensed banks projected to be over $1 trillion. This momentum confirms the financial services sector is hot, in spite of Hurricane Ivan. “We are very encouraged to see the impressive growth of these two sectors of international business in 2004, despite the unforeseen burdens imposed by Hurricane Ivan,” said Timothy Ridley, Chairman of the Cayman Islands Monetary Authority. “Our service providers and their client base remain committed to the jurisdiction as evidenced by the strong licensing and registration activity in the final quarter.”

Link here.


4 35 S, 55 40 E, lies a group of islands in the Indian Ocean, northeast of Madagascar. They comprise over 100 islands and are the only mid-ocean granite islands in the world. The Republic of Seychelles was a settlement established by the French in the mid-eighteenth century with only 15 Europeans, five Malabar Indians, and 7 seven Africans. From this, the population grew to 3500 by the time the Seychelles was ceded to Britain in 1814. A single party state, led by Albert Rene, gained power in a coup d’etat from its democratically elected predecessor, fronted by James Mancham, shortly after Seychelles was granted independence from Britain in 1976. During that time, a “campaign for democracy”, based in London and supported by James Mancham, railed against the perceived injustices going on in Seychelles. Besides widespread disappearances, occasional killings, the suppression and eventual expulsion abroad of all dissenting voices, these included further spates of land acquisitions. In 2004 President Rene resigned, to be succeeded by his deputy, James Michel.

Since their independence, per capita output in this Indian Ocean archipelago has expanded to roughly seven times the old near-subsistence level. Growth has been led by the tourist sector, which employs about 30% of the labor force and provides more than 70% of hard currency earnings, and by tuna fishing, and export of cinnamon bark and copra. In recent years the government has encouraged foreign investment in order to upgrade hotels and other services. Private foreign investment is encouraged in tourism, manufacturing and petroleum exploration. The Seychelles International Business Authority set up by the government in 1995, offers incentives and tax concessions to foreign investors. Over 1,000 international companies are registered in the country.

The Seychelles is a signatory to the Lome TV convention benefiting from the provisions of the convention, a member state of the African Caribbean Pacific countries, and a signatory to the Multilateral Investment Guarantee Agency, which protects all investors from expropriation. Offshore banking in Seychelles is possible with few questions asked. In fact, I read somewhere that the president, in an attempt to boost the country’s economy, announced that for $10 million, the Seychelles would grant immunity from prosecution for all criminal proceedings whatsoever.

Link here. The CIA’s World Factbook on the Seychelles is here.


The proceeds from the sale of 1,300 tons of surplus gold in Switzerland are to be divided among the federal government and the cantons. The cabinet announced the decision this week, ending an 8-year debate over what to do with the Swiss National Bank’s excess. According to the finance ministry, the cantons will receive SFr14 billion ($12 billion), while the federal government will get SFr7 billion. The finance ministry said the government had chosen to distribute the money because it did not see any legal reason for the Swiss National Bank to hold onto it.

Link here.


Claims that the Channel Islands could go it alone if the UK adopts the euro have been rubbished. Economics specialist Professor Michael Oliver believes that Guernsey and Jersey should either each set up their own currency or have a joint Channel Island one. But Treasury and Resources believes the island should continue to have the same currency as its main trading partner, the UK. “The option of continuing with sterling, or even our own currency, in the event that the UK adopted the euro is not a particularly realistic one,” said a department spokesman. “It has been the view for some time that the economy in Guernsey, or even the Channel Islands, is simply not large enough to support its own currency.”

Link here.


Narcotics-related corruption and associated arms trafficking, and money laundering and financial crime constitute a “growing threat” to the small island states of the Caribbean, according to a new report published by the independent, anti-corruption group. The report warned that the “urgent nature” of the narcotics threat derives from the fact that about 35 metric tons of cocaine originated from, was destined for, or transited through the Eastern Caribbean in 2002.

The Bahamas was in the top 21 of countries in the world in terms of cocaine interceptions in 2002, and almost half of the cocaine introduced into the U.S. and 30% introduced into Europe comes through the Caribbean corridor, said the report. Three of the countries studied in the report -- Antigua-Barbuda, the Bahamas and Dominica -- are regarded as major money-laundering territories “whose financial institutions engage in currency transactions involving significant amounts of proceeds from international narcotics trafficking.”

“It is therefore no exaggeration to suggest,” said the report, that “drug trafficking, official corruption, [and] violent intimidation have the potential to threaten the stability of the small, democratic countries of the Eastern Caribbean and to varying degrees have damaged civil society in all of these countries.” On the positive side, the eight “micro-states” studied in the report “perform relatively better than most countries" in Latin America and elsewhere in the Caribbean region. The reason for this is because they have free and independent media, effective superior courts, a civil society with "latent anti-corruption potential,” and, most recently, have established more “stringent regimes against money laundering and financial crimes.”

Link here.

China seeks expanded trade links with Caribbean.

The China-Caribbean Economic and Trade Co-operation Forum in Kingston, Jamaica is expected to boost trade ties between the two sides. The forum will focus on identifying issues that need to be addressed to increase trade and investment levels between the Caribbean and China. In 2004, the trade volume stood at $2 billion, rising 42.5% year-on-year but only accounting for 4% of total Caribbean regional trade. A number of Caribbean countries are abundant in mineral, fishery and tourism resources, whereas China has comparative advantages in capital, products and techniques.

Link here.


Despite recent unflattering portraits of The Bahamas, it is important to concentrate on the positive when it comes to the relationship that The Bahamas shares with the U.S., said Minister of Immigration and Labour, Vincent Peet while addressing the Rotary Club of Nassau. According to Mr. Peet, the government is dedicated to working along with the U.S. to resolve common issues, such as the anti-drug effort, illegal Haitian immigration and economic trade investment. He added however, that as friends, both countries could speak frankly to one another and protect one another’s interest, no matter what the forum is. “There is a level of trust between The Bahamas and the United States that undergirds the relationship,” he said.

Link here.


Indian Ocean island-nation Mauritius is vying for the attention of South African residential property investors following the introduction of a government incentive aimed at boosting the economy. Its opening gambit is impressive. For R5 million (apx. $820,000), you can buy an exclusive family villa with swimming pool, access to a private beach and near a golf course development. Compare this to Cape Town, where wealthy holidaymakers are paying upwards of R5 million for seafacing flats along the well-developed Atlantic Seaboard and asking prices in the region of R14-25 million are not uncommon.

Under Mauritius’s Integrated Resort Scheme (IRS) law, non-Mauritian individuals or companies are allowed to purchase properties which are part of an IRS (IRS) while receiving full title to the property. Foreigners can sell their properties to anyone in the world and can remove all their money from the country as there is no exchange controls. The schemes are aimed at creating employment as well as luring well-heeled individuals to the island so they can spend their cash and think up more money-making opportunities for the locals.

An IRS, said Giraud, must have certain characteristics that ensure that they are upmarket, for example services like gardening, chaffeurs, security and catering. This creates permanent jobs, while local suppliers and contractors do the work associated with these developments. Mauritius has an estimated 700,000 tourists a year and, though there are many resorts on offer, demand for the island is expected to grow as the government promotes tourism.

Link here. CIA World Factbook on Mauritius here.



An influential congressional committee has dropped a political bombshell by suggesting that a tax originally created to pay for the Spanish American War could be extended to all Internet and data connections this year. The Joint Committee on Taxation, deeply involved in writing U.S. tax laws, unexpectedly said in a report last week that the 3.0% telecommunications tax could be revised to cover “all data communications services to end users,” including broadband, dial-up, fiber, cable modems, cellular, and DSL links. Currently, the excise tax applies only to traditional telephone service. But because of technological convergence and the dropping popularity of landlines, the committee concluded in its review of tax law reforms that it might make sense to extend the 100-year old levy to new technologies. The committee did not take a position on whether Congress should approve such an extension and simply listed it as an “option”.

The congressional report comes not long after the IRS and Treasury Department said they were considering how the excise tax should be reinterpreted “to reflect changes in technology” used in “telephonic or telephonic quality communications”. Tech companies including Microsoft, Intel and Skype slammed that idea in a September letter, asking the IRS to “refrain from any attempt to extend the excise tax to VoIP services.” The discussion in the tax committee’s report, however, ventures far beyond VoIP. “Extending the tax to all communications requires taxing Internet access, bandwidth capacity, and the transmission of cable and satellite television,” it says.

Technology trade associations were instantly critical. “We need to be careful in trying to stretch a taxation system this old to be a catchall for all modern technology,” said Jonathan Zuck, president of the Association for Competitive Technology. “We need to avoid starting down a path of overtaxing nascent forms of communication.”

Link here.


A tax amnesty for multinationals is expected to bring approximately $100 billion of foreign exchange earnings into the U.S. over the next few months after a stronger-than-expected take-up by companies last week. The flow of money, triggered by tax breaks in the controversial American Jobs Creation Act, is so large that many currency strategists expect it to give noticeable support to the dollar.

Companies are keen to take advantage of the amnesty because it allows them to make full use of money curre.S. government, rather than the more normal 20-25%, for bringing these funds into the U.S. More than $700 billion is believed to have been accumulated in offshore bank accounts and investments, often in a strategy to keep tax rates low. Analysts predict up to half of this will be repatriated this year. A survey of clients by JPMorgan predicts that about one third of an estimated $300 billion in repatriations will need to be converted into dollars from other currencies.

Link here.


In an interview at the World Economic Forum’s annual meeting in Davos, Deputy Prime Minister Alexander Zhukov sought to allay fears of growing government intervention in the Russian economy following the Yukos affair, and other highly publicized company tax investigations, by revealing that the government remains committed to its policy of privatization. Nevertheless, Zhukov conceded that Russia’s standing in the international investment community has suffered as a result of the tax probes, which have predominantly taken place in the oil sector, but have also been witnessed in other areas of the economy, affecting the country’s second largest mobile telephone company Vimpelcom. In a bid to regain the trust of foreign investors, the Deputy Prime Minster told the Wall Street Journal that government is due to consider changes in the coming weeks that could limit the broad powers used by tax inspectors in back tax investigations. As a result, their ability to extend probes over long periods, conduct repeat audits and demand large volumes of documents from taxpayers at short notice could be curbed.

Link here.

“Climate of fear” puts brakes on Russian economy.

A surprise slump in Russia’s recently booming economy has growing numbers of businesspeople, economists, and even a few officials warning that the bill may be coming due for the Kremlin’s often heavyhanded treatment of private companies. Anatoly Chubais, architect of Russia’s privatizations during the 1990s, said last week that a “climate of fear” has descended over Russian business. The culprit: aggressive Kremlin policies, such as the effective renationalization of the oil giant Yukos, reports that Russia’s secret police are spying on private businesses, and an official reassessment of the way major companies acquired their property.

At the Davos World Economic Forum in Switzerland this week, Kremlin adviser Arkady Dvorkovich admitted what many economists have suspected for months, that Russia’s economic growth has plunged since last summer, and next year’s forecast is around 4%, half the rate of growth during President Vladimir Putin’s first year. Mr. Dvorkovich added that, “We need to restore confidence in what the state is doing.” The news could hardly be worse for Mr. Putin. He came to power five years ago pledging to kick-start Russia’s flagging Soviet-era economy through reforms and market-driven modernization. Instead, perceived bureaucratic abuses, especially the state takeover of Yukos -- which Putin had sworn to prevent -- appear to have deflated business confidence and triggered an exodus of desperately needed investment capital.

Link here.


Figures published by the EU’s statistical office, Eurostat, show that the overall tax burden across the EU25 increased slightly in 2003 to 41.5%, up from 41.3% in 2002, although tax burdens in individual states continued to vary widely. Sweden recorded the highest tax-to-GDP ratio in 2003 at 51.4%, followed by Denmark (49.8%), Belgium (48.1%), France (45.7%) and Finland (45.1%). The lowest ratios were observed in Lithuania (28.7%), Latvia (29.1%), Slovakia (30.9%), Ireland (31.2%) and Estonia (33.4%). The tax burden rose in 17 Member States between 2002 and 2003, with the highest increases in the tax-to-GDP ratio recorded in Cyprus (from 32.5% to 34.3%), Ireland (from 29.8% to 31.2%) and Estonia (from 32.4% to 33.4%). Conversely, the tax burden fell in seven countries, and the largest reductions were observed in Slovakia (from 32.5% to 30.9%), Greece (from 39.8% to 38.6%), and Finland (from 46.1% to 45.1%).

Link here.


The Finance Bill will contain measures to aid the Revenue’s inquiry into the abuse of single-premium insurance policies which was set up last year. The Public Accounts Committee was told last year that up to €30 billion was invested in single-premium products between 1988 and 2001, and that the tax owed could be over €1 billion. Single-premium policies were investment products aimed at investors with significant lump sums. They were an attractive home for hot money as the insurance company paid the tax on the profits from the policy, and there were no liabilities associated with the funds paid out when the policy matured.

The investigation into the abuse of these policies is modeled on the successful investigation into offshore assets carried out last year. In order to facilitate this investigation, the Revenue Commissioners were given the right to apply to the High Court to force banks to hand over information held by their offshore operations. The new measures announced will include powers to get information about offshore accounts. Tax officials will also be given enhanced powers of criminal investigation, including access to telephone records and the power to question people in Garda custody.

Link here.


The IRS is stepping up its fight with multinationals accused of avoiding taxes by manipulating tax rules on internal transactions. Litigation between companies and the IRS over transfer pricing -- the method of allocating profits for tax purposes between different part of a group -- is likely to escalate this year, according to Transfer Pricing Journal. Such lawsuits are the most visible sign of widespread tension over the tax implications of international transactions between different arms of multinationals, which account for more than 60% of world trade.

Governments accuse companies of minimizing their worldwide tax bills by shifting profits to low-tax jurisdictions even if they carry out little business in that country. The IRS reckons multinationals’ use of “inflated and undervalued’ transfer prices allowed them to avoid $53 billion in U.S. taxes in 2001. There has been a particularly marked clampdown over the past three years, following a political outcry over tax avoidance by large U.S. companies that had reincorporated in tax havens and manipulated transfer pricing rules to boost their tax savings.

The increasingly vigorous approach is worrying companies, which view transfer pricing as one of their most problematic tax issues. As well as the risk of an investigation, they are concerned about the cost of complying with transfer pricing rules. These oblige them to assess “arm’s length” prices for transactions based on the amount that would be paid if the two companies involved were independent rather than part of the same group. Companies are reporting increased challenges from tax authorities throughout Europe as well as the U.S., according to Danny Beeton of Grant Thornton, a UK tax adviser.

Link here.



Despite the recent headline-grabbing cases of tax fraud -- by the likes of Enron, WorldCom and Parmalat -- boards of directors and the World Economic Forum do not consider tax non-compliance as part of the corporate social responsibility agenda in the business world, said Swiss expert Andreas Missbach. This is a serious matter, considering that “aggressive tax avoidance” by transnationals means “huge tax revenue losses for developing countries,” an estimated $50 billion that is essential for overcoming poverty, said Bruno Gurtner, an economist with the Swiss Coalition for Development Organizations.

The issue of Corporate Social Responsibility (CSR) is on the agenda of the 34th annual WEF, under way last week in the Swiss alpine resort of Davos, bringing together heads of state, corporate executives and experts to discuss the state of the world economy. Missbach pointed out that on the WEF website there are 86 pages which refer to CSR, but only three pages on tax avoidance. Nor is tax avoidance mentioned in the WEF’s “Partnering Against Corruption Initiative”, he added, “despite the clear evidence that much tax avoidance is linked to illegal transactions, banking secrecy, offshore trusts, fraud and illicit capital flight.”

Few people seem concerned about tax evasion despite the recent scandals that called attention to the mechanisms used to avoid fiscal responsibilities, such as transfer-pricing, re-invoicing, offshore “special purpose vehicles”, corporate inversions, dubious charitable trusts and other vehicles for tax abuse, claims Missbach. He cited the example of the U.S. energy firm Enron, whose executives were regular attendees of the Davos Forum, until the fiscal debacle that erupted in December 2001. But until then, the corporation was held up as a model for the business world to follow in the 21st century. Enron had 811 offshore subsidiaries, including 692 in the Caribbean tax haven of the Cayman Islands, which were used as part of an elaborate tax evasion strategy.

Link here.

Swiss reject Chirac’s tax on banking secrecy.

Representatives of the Swiss government and banking industry have reacted with a mixture of anger and bemusement to French President Jacques Chirac’s proposal for an international tax, including a charge on countries retaining banking secrecy, to help alleviate third world poverty. In a speech to the World Economic Forum in Davos last week, Chirac suggested a number of “experimental” measures, such as a tax on international financial transactions or airline tickets, to raise up to $10 billion in funds which would be used to fight the AIDS epidemic gripping certain poor nations. However, Chirac’s proposal to impose a charge on countries which retain banking secrecy, intended to recover revenues lost from tax evasion, have provoked the ire of the Swiss.

Link here.


Research and government reports suggest hundreds of thousands of American citizens are unknowingly lending their identity to illegal immigrants so they can work. And while several government agencies and private corporations sometimes know whose Social Security numbers are being ripped off, they will not notify the victims. That is, until they come after the victims for back taxes or unpaid loans owed by the imposter. It is a thorny problem that cuts to the heart of America’s undocumented worker issue.

Either way, immigrant imposters with the least nefarious of intentions -- simply a desire to work -- often unknowingly victimize the rightful Social Security number holders. The problem is compounded by how often ripped-off numbers are used. James Lee, chief marketing officer for private data collection firm ChoicePoint, said the average victim of immigrant-based identity theft sees their Social Security number shared about 30 times. “People need to wake up to this problem,” said Richard Hamp, an assistant attorney general for the state of Utah who has prosecuted several cases involving stolen IDs and illegal immigrants. “They are destroying people’s credit, Social Security benefits, and everything else. This problem has been ignored by the federal government, and it’s enormous.”

But could the victims be warned by the government? They seem to have no problem finding them when they want their money. Melody Millet’s husband Steve was the victim of immigrant identity theft. None of the agencies involved are trying to tackle the problem because they all benefit from it, as does corporate America, she said. The IRS and Social Security collect extra taxes, lenders sell more loans and employers get inexpensive workers. Fixing the problem and telling all the victimized consumers would upset the delicate apple cart that is America’s immigration policy, she said.

Link here.


Have you bought a variable annuity yet? If you are a baby boomer and your answer is no, get ready for the hard sell. The promoters of these savings vehicles will prey on your insecurity about not having enough money for retirement to get you to sign up for what could be a costly investment. Even if you already have a variable annuity, someone may try to convince you to trade in your existing contract for one with new bells and whistles -- in which are buried higher fees. The problem with variable annuities is they are often a high-cost answer to a problem that may have simpler, cheaper solutions, such as fully funding your tax-deferred retirement accounts or assembling a portfolio of reliable dividend-paying stocks. Still, through Sept. 30, 2004, variable annuity sales were $98.4 billion, about 4% higher than during the same period in 2003. It is insurance salespeople, not Wall Street brokers, who are making most of the sales. Financial planners in particular have been cool to the product. Variable annuities “are tax-inefficient, difficult if not impossible to understand, and have high costs,” says Warren McIntyre, a financial planner in Troy, Michigan.

Sure, potential buyers can ignore the sales fluff and dig into the fine print to figure out if an annuity is right for them. But that can be a real slog. The prospectus for MetLife’s Preference Plus Select Variable Annuity runs over 500 pages, so you know why most buyers wind up relying on a sales spiel. The legions of sales folks are spending time and money to refine their pitches. In February, for instance, at the annual marketing conference of the National Association for Variable Annuities (NAVA) in Tucson, one session will cover, according to the program, “the hot buttons that drive baby boomers’ long-term financial decisions and how to connect the benefits of variable annuities to these hot buttons.”

What exactly is this product that so many are eager to sell? A variable annuity is a contract with an insurance company designed to beef up your assets before you retire. You buy the annuity, either with periodic payments or in a lump sum, and then invest the money by choosing from a selection of stock, bond, and money-market funds, or in annuity parlance, “subaccounts”. It is a “variable” annuity because the returns vary depending on how the underlying investments perform. Many variable annuities also offer an option of a minimum guaranteed rate of return. At some point, perhaps when you are ready to retire, the idea is that you annuitize the cash you have accumulated over the years.

Link here. Some terms you need to know: a crib sheet on variable annuities here.


Recently in Russia there has emerged the almost daily problem of domestic and foreign companies being landed with tax claims from legislative and other government bodies. There was, for example, recently the case of the Interior Ministry starting up a case against one of the largest tobacco manufacturers in Russia -- JTI Marketing and Sales, a subsidiary of Japan Tobacco International. The reason for the authorities’ actions stems largely from the company’s practice of using offshore funds and other lucrative tax-saving financial instruments. In the eyes of the tax authorities, it was not fair for the company to seek out schemes that would “veer profit away from taxation,” even if those schemes were perfectly legal.

The use of registered offshore funds is a perfectly legal action. Taxpayers cannot be vilified by authorities simply because within their business structures there are companies that are registered on territories that offer favorable tax duties. It seems then that for a government it is the fact of the “veering away” from the tax obligations and not the legality of the methods used that is important. It is the aim of any business to make a profit, and the higher it is the more successful the business is regarded. So it follows that business will develop in places and in sectors which are favorable -- within legal limits. The legal system, in its turn, can set different conditions for different industry sectors, determining a situation that would prove beneficial for a country’s economy. The usage of offshore companies is not a criminal act.

For business to develop normally, legislature must clearly define the expected relationship between state and taxpayer. If there are special zones with favorable tax breaks taxpayers should not find themselves in danger of attack from the authorities for exploiting them. The logical conclusion would then be that business activities of Russian enterprises registered in this or another country should not be limited -- it is the illegal structures and their shady schemes that deserve focus. And that will assist in creating an attractive investor climate in the country.

Link here.


The Inland Revenue will shortly guidance on the “pre-owned assets tax” which is due to apply from 6 April. The new tax will affect UK taxpayers who derive benefit from assets they previously owned but which are now held in trust, such as property, art, and furnishings. It is aimed at people living in UK property who have used “home loan” schemes to try to reduce their tax bills. The new rules will be backdated to March 1986. Jersey specialists seem divided on the potential scope of the new tax.

Jason Laity, executive director of KPMG Channel Islands, said that straightforward structures should not be affected. However, Nick Cuttiford, of Walbrook Group, estimates that nearly one in five Jersey trusts with UK beneficiaries could be affected. He warns that in many cases tax will be charged at the higher rate of 40%, based on the annual value derived from the asset. To avoid it, beneficiaries will have to show the Inland Revenue that they are paying a market rent for the use of the assets, or that the total annual benefit is less than £5,000.

Link here.


U.K. legal profession service provider and consultant The Lawyer Group has released a series of summary reports on the statuses of the laws, taxes, and business environments of the offshore havens.

Links: Monaco, Isle of Man, Jersey, Guernsey, and Malta.



That plastic card, the one with the lousy photo that is jammed into your wallet or purse, is not just a license to drive. It is the green light to buy a drink, the ticket to federal benefits, the must-have document to board airplanes. Now it is also the flash point for an argument about how best to balance America’s security needs with worries that personal privacy could be swept away. The federal intelligence overhaul that became law last month, while creating a new national intelligence director and beefing up border patrols, aims to close loopholes for identity fraud that some of the Sept. 11 terrorists used to get aboard the jets they hijacked.

Privacy advocates warn that the new federal standards for driver’s licenses effectively will create a national ID card, centralizing information that can be misused -- by letting the government track the whereabouts of innocent people, for instance. Government officials say they are just making the cards more secure and that the worries are overblown.

The small provision in the massive intelligence overhaul does not take effect immediately. It requires 1 1/2 years of deliberation by state and federal officials and others. States can opt out -- refuse to make changes to their driver’s licenses that will be required under the federal law -- but then the licenses would be useless for any federal purpose, from getting benefits to boarding an airplane guarded by federal screeners. Civil libertarians warn that the push to make the driver’s license the “gold standard” for identification will only make it easier to steal someone’s identity -- and will increase the value of counterfeit licenses, undermining the hopes that these steps will provide better security.

Link here.


The Canadian government will revamp the wording of future federal contracts with the aim of countering U.S. powers, granted under anti-terrorism laws, to tap into personal information about Canadians. The move is intended to prevent the U.S. FBI from seeing sensitive Canadian data the government supplies to American firms doing business with federal departments in Ottawa. The government has also asked all agencies and departments to conduct a “comprehensive assessment of risks” to Canadian information they release to U.S. companies carrying out work under contract.

The Patriot Act gave the FBI broader access to records held by firms in the U.S. The FBI can apply to a U.S. court to have a company disclose records, including information about Canadians, to assist with investigations involving prevention of terrorism or espionage. Privacy Commissioner Jennifer Stoddart says that if a federal institution hires a U.S. company to process personal information about Canadians, then American laws apply to the data if the work is being done south of the border.

The federal Treasury Board leads a working group that is now busy finalizing special clauses to be used in future business proposal requests and contracts. Treasury Board spokesman Robert Makichuk said the changes would “further enhance and clarify existing protection” for such things as establishing custody and control of data, ensuring confidentiality of information and setting conditions related to use and disclosure. Makichuk said the overall goal is to try to ward off any concerns about how sensitive Canadian information will be used when contracts are contemplated.

Link here.


Proposals for ID cards which lie at the heart of Tony Blair’s pre-election program were dealt a devastating blow as senior MPs and peers declared they risked infringing human rights. Plans for compulsory biometric ID cards and a national identity database could breach the right to privacy and protection against discrimination enshrined in the European Convention on Human Rights, a powerful committee of MPs and peers said. A report by the Parliamentary Joint Committee on Human Rights, which checks that all law complies with the convention, warned that the legislation contained a string of potential breaches.

Human rights campaigners and MPs condemned ID cards for heralding a “surveillance society” and said the report struck at the core of the Government’s plans. But Downing Street insisted planned ID cards would not violate international human rights law. It warned that doubts had been raised about the use of cards in preventing terrorism or crime, one of the key justifications for ID cards in human rights law. Wide-ranging powers to hold information without consent, make cards compulsory for people applying for passports and allow organizations inside and outside government to access information about people all raised serious questions, the committee said.

The report rejected claims by ministers that ID cards would initially be voluntary, saying people would be forced to join a national identify database if it was linked to passport or driving licence applications. The committee also raised questions about information to be held on ID cards, which could include previous addresses, immigration history and details of previous requests to access information by police, prospective employers or other bodies. The report warned that the Bill was “potentially highly intrusive of private life”. The committee expressed concern at the lack of safeguards in the legislation and attacked the former home secretary David Blunkett, condemning as “deeply unsatisfactory” his failure to explain how the Bill conformed with human rights law.

Link here.



The U.S. Supreme Court recently ruled that if you are pulled over by the police for speeding or, say, not wearing your seatbelt, they may bring out drug-sniffing dogs to investigate your car without violating the 4th Amendment. On the Volokh Conspiracy blog, Orin Kerr observes that Justice John Paul Stevens, writing for the majority, indicated that the Fourth Amendment protects not against violations of privacy or invasiveness, but against violation of property rights. Since one cannot have property rights for illicit drugs, a search cannot violate the 4th Amendment.

It is a troubling precedent. It is hard to see how any police search would violate any rights under Justice Stevens’s ruling, so long as the search turned up something illegal. That sort of undermines what the 4th Amendment is all about. That case is just the latest in a number of court rulings and pieces of legislation that have been chipping away at the criminal justice rights of substance-abuse suspects. Ours is quickly becoming a 2-tiered criminal justice system, one in which there are one set of criminal protections for drug and alcohol defendants, and a broader set of protections for everyone else.

Last month in Virginia, pain physician Dr. William Hurwitz was convicted on dozens of counts of drug distribution. Prosecutors and the foreman of the jury that convicted him conceded that Hurwitz did not knowingly participate in a drug trade, but because the pain medication he prescribed made it to the black market, he was nevertheless found guilty. He faces life in prison. Proving intent -- as is required to secure a conviction in nearly every other crime -- apparently was not necessary.

The drug war has been eating at the Bill of Rights since its inception. Asset forfeiture laws, for example, allow law enforcement to seize the assets of suspected drug dealers before they are ever convicted of a crime. Even if the defendant is acquitted or the charges are dropped, the mere presence of an illicit substance in a car or home can mean the loss of the property, on the bizarre, novel legal principle that property can be guilty of a crime.

Link here.


A Florida judge once likened lawyers in a securities class action to “squeegee boys”, those urban entrepreneurs who splash soapy water on a driver’s windshield and then demand money to wipe it off. Now a detailed study of lawsuits in Delaware Chancery Court suggests the judge was onto something -- at least when it comes to the lucrative practice of suing over the terms of mergers and acquisitions. Lawyers tend to file such suits as soon as a deal is announced and then wait to see if the price rises. If it does, they claim credit and demand a fee. If it does not, they quietly drop the suit. The pattern led the study’s authors to conclude that in many cases lawyers are “exploiting their ‘license to litigate’ primarily to enrich themselves.”

Link here.


Sen. Panfilo Lacson sought the delisting of the Philippines from the blacklist of the FATF, saying that the country is now in close coordination with other nations in tracing laundered funds intended for terrorist groups and narcotics syndicates. “The Philippines already showed its full cooperation against money laundering by lowering the level of accounts targeted for investigation to P500,000,” Lacson said. He said compliance to FATF standards is a clear manifestation of the country’s resolve to eradicate money laundering schemes and prosecute perpetrators, including those in top leadership positions in the government.

The FATF had sent an evaluation team to the country last week to examine how the Philippines was implementing the Anti-Money Laundering Act, which it earlier criticized as inadequate. FATF earlier said the Philippines will remain on the list of non-cooperative countries and territories until it has implemented effectively its new anti-money laundering legislation. Other countries included in the “non-cooperative list” were Cook Islands, Egypt, Guatemala, Indonesia, Myanmar, Nauru, Nigeria, and Ukraine.

Link here.


It is interesting to note the broad electoral base, internationally, which is exercising its newly established right to vote in the Iraqi elections. And while the democratic process is a positive and wonderful thing, if also dangerous within Iraq itself at the moment, the Iraqi elections have highlighted an issue within the U.S. that has been around for sometime, but has existed well under the radar until now. The issue involves “dual citizenship”. No doubt in an effort to expand the Iraqi electorate as much as possible, especially the expatriate electorate that would likely be more inclined to vote “democratically”, the electoral officials (sanctioned by the U.S., of course) have been quite liberal in who qualifies to vote as an eligible “Iraqi”. It has been reported that even children of Iraqi parents born in the U.S., who are native-born U.S. citizens, are eligible to vote in the Iraqi election.

Clearly, Iraqis who are still Iraqi citizens and are aliens residing in the United States are allowed to vote in the Iraqi elections. Former Iraqi citizens who are now naturalized U.S. citizens are also allowed to vote. Clearly, the highest level of the U.S. Government appears to support this “dual citizenship” concept, at least for the Iraqi elections. This dual voting process is not new. Expatriates from a variety of countries who are now naturalized U.S. citizens have been voting in their “home” country elections for many years. On the surface, is this really something with which to be concerned? Does voting in another country’s election not jeopardize a naturalized U.S. citizen’s citizenship? If voting in the Iraqi national election is considered a demonstration of allegiance and fidelity to Iraq, how can a naturalized U.S. citizen so voting not be violating, or at least reneging on, their oath of U.S. citizenship?

Link here.

Mexicans may be able to vote in U.S.

Mexican citizens across the country soon may be able to vote in their homeland without returning there to do it. There are at least 10 million Mexican citizens in the U.S. While many have lived here for years, they retain a stake in what happens south of the border. Nationwide, Mexicans send home about $13 billion a year to family members. Mexico’s congress is expected to approve the necessary legislation soon after it reconvenes this week. Americans living abroad have been able to vote in American elections for decades.

The impact could be substantial. About 15% of the Mexican electorate may live in the U.S., potentially making it a powerful bloc. Many also can vote in the U.S. under a Mexican law that allows its citizens to hold dual citizenship. “The Mexican election could spark significant public awareness,” said said Mark Krikorian, executive director of the Center for Immigration Studies, a Washington, D.C.-based think tank. “Mass political Mexican rallies in the United States and lines of people for 20 blocks ... is going to make dual citizenship an issue.”

He agreed that knowledge or interest in dual nationality and/or dual citizenship is limited because other countries that recognize it do not have such large numbers of citizens here. The federal government has said little about dual nationality but Krikorian says it is time to start enforcing the notion of oath and allegiance. “... Americans who engage in affirmative acts, such as voting in a foreign election, using a foreign passport or enlisting in (foreign) military service ... should be stripped of their citizenship,” he said.

Link here.


A federal judge has ruled against the Bush administration, declaring that detainees at Guantánamo Bay, Cuba, were clearly entitled to have federal courts examine whether they have been lawfully detained. The judge, Joyce Hens Green of Federal District Court in Washington, rejected the argument that federal courts could not issue writs of habeas corpus for Guantánamo that would require the government to justify the detentions before a judge. Judge Green said that although the Guantánamo base was in Cuba, the Supreme Court definitively ruled in June that it was not out of the reach of American law as administration officials have argued.

Judge Green also declared unconstitutional the tribunals that the military established over the summer to review the detentions in the hope of satisfying the Supreme Court ruling. In addition, she questioned whether some of the information used against the detainees had been obtained by torture and was thus unreliable, the first time that problem has been brought up in a judicial opinion. The Justice Department has contended that federal courts should steer clear of involving themselves in the detention of terror suspects because that is left to the sole discretion of the president in his constitutional role as commander in chief.

Although her ruling was a setback for the administration, it was balanced in some sense by a favorable ruling that the Justice Department received this month from another judge in the same courthouse. Two weeks ago, that second judge, Richard J. Leon, ruled that the Guantánamo detainees, now believed to number about 545, could not be granted writs of habeas corpus and have their detentions examined in federal court. Judge Leon said the Supreme Court opinion guaranteed only that the detainees could use habeas corpus to file for such relief but that as foreigners detained at Guantánamo, they could not be given any judicial relief. The different rulings will have to be reconciled in the appeals court, and, many lawyers say, ultimately in the Supreme Court. Judge Green noted that no one would be set free as a result of her opinion.

When the cases were argued in December, a sharp contrast between the judges’ approaches was noticeable. Judge Leon, appointed to the court by President Bush, was solicitous of the government argument. Judge Green, appointed by President Jimmy Carter, appeared receptive to the detainees’ lawyers.

Link here.


Brussels is being warned that a draft EU law to combat money laundering and terrorist financing could inflict “drastic damage” on the workings of bond and equity markets in London, the continent’s premier financial center. The law, proposed by the EC last year, forces a range of financial services providers to ensure that they know the identity of their customers as well as the ultimate beneficiaries of the transactions they undertake. Some experts now warn that the legislation has made a potentially far-reaching error by extending this obligation to trust services -- a legal instrument widely used in the UK bond market. Trustee relationships are also used in the equities markets, where the draft law could cause similar problems.

Theresa Villiers, a Conservative member of the European parliament who represents the City of London in parliament, said that the draft law “would make many standard bond market practices impossible”. Trustees could, for example, be required to identify the “beneficial owners” of an asset. “In this context, that means the ultimate bond holders. This process of identification would be virtually impossible with bonds changing hands frequently in the secondary market.” The law already has the backing of EU member states, and now requires the support of the European parliament before it can enter into force. This means there is still time to amend the draft legislation.

Link here.


Be careful what you wish for. After months of demanding (publicly, at least) that the Americans release the remaining four British prisoners from the Guantánamo Bay detention camp, the British government has got its way and the detainees have been sent back. So guilty were the men that the police released them immediately. The detainees’ arrival compounds the embarrassment caused by the Law Lords, when they ruled last month that the indefinite detention of foreign terror suspects was illegal because it was “disproportionate” to the supposed threat and discriminated against foreigners. 16 have been held without trial, mainly in Belmarsh high security prison, for up to three years, while 11 remain.

Charles Clarke, the new home secretary, faces the familiar post-September 11th dilemma. Should he accept that, since the evidence against some terror suspects would not stand up or would be inadmissible in a normal court of law, they must be released? Or does terrorism pose such a danger that the criminal justice system’s usual safeguards should be dispensed with? Mr. Clarke’s instinct is to take the latter path. His instinct is wrong.

Nobody should be locked up indefinitely, inside their home or out of it, when they have not faced a trial in which they have been given the opportunity to defend themselves publicly. Otherwise, any of us could be. There are certainly weaknesses in the criminal justice system that hamper the fight against terrorism. Strengthening the prosecution’s hand, however, is a long way from imprisoning people who have not been tried. Tony Blair says he wants to make the world a better place. Yet in its treatment of terrorist suspects, Britain, like America, has undermined the values it purports to uphold. A little more commitment to those values at home might mean a little less scepticism about British and American motives abroad.

Link here.

Blair defends house arrest plans.

The prime minister has defended plans for keeping terror suspects under house arrest, insisting the measure was indicative of “extreme circumstances”. Tony Blair said he was trying hard to strike a balance between protecting national security and civil liberties. He was being challenged by both Tory and Liberal Democrat leaders in the Commons over plans for new “control orders” which include home detention. The government proposed the “control order” idea and a range of other new powers, including tagging of terror suspects and curfews, after the law lords said current detentions without trial broke human rights laws.

Blair said the security services must be allowed to do their job, adding, “Nothing must stand in the way of protecting the security of our people.” Michael Howard replied that, “Of course we must fight terrorism,” but added that there were “even greater difficulties with detention without trial. It is of the utmost importance that in doing what is necessary to protect life we don’t lose sight of the need to protect our way of life.” Mr. Blair said he was desperate to avoid a situation where in the future people say “we could have averted a terrorist attack.”

Link here.


Banco de Chile, Chile’s second largest bank, has promised in agreements with U.S. bank regulators to close any accounts of former Chilean dictator Augusto Pinochet and one of his attorneys, and to take steps to correct deficiencies in the bank’s controls against money laundering. The Office of the Comptroller of the Currency, a Treasury Department agency, and the Federal Reserve announced the enforcement actions regarding Banco de Chile and its branches in New York and Miami, respectively. The bank was not fined but was ordered to “completely revamp” operations in the New York branch. The comptroller’s office said that former employees of that branch had concealed accounts of Pinochet “under the names of nominees and others acting under Pinochet’s direction.”

Similar allegations have been lodged against Riggs Bank, a U.S. institution, which last week pleaded guilty to failing to report suspicious transactions in the accounts of foreigners, including Pinochet, and agreed to pay a $16 million criminal fine. Under the new accords, Banco de Chile must immediately obtain certification from its outside counsel that it has closed any accounts held by Pinochet or the attorney, Oscar Aitken, and must not do any future business with them.

U.S. prosecutors and Senate investigators accused Riggs managers of using numerous deceptions to conceal Pinochet’s ownership of the accounts theres, including setting up dummy offshore companies and altering his name on some of his accounts. This occurred at a time when prosecutors in several countries were trying to freeze Pinochet’s assets and bring him to justice for alleged crimes against humanity.

Link here. OCC cease and desist order announcement here; Federal Reserve Board announcement here.


Bank of Nova Scotia may offer up controversial documents to government lawyers in order to head off another legal confrontation with the Royal Canadian Mounted Police over its probe into buildings product maker Royal Group Technologies Ltd. The RCMP staged an unprecedented raid on Scotiabank’s Toronto headquarters, armed with a 60-day search warrant seeking thousands of banking records relating to Royal Group and its controlling shareholder, Vic De Zen. According to the RCMP, Scotiabank withheld some documents from police last fall because of legal privilege, which prompted this week’s raid.

Scotiabank said earlier this week that it may refuse to hand over the material because of solicitor-client privilege. However, that could require the bank to go to court and argue its case in front of a judge. As an olive branch of sorts, the bank is now considering allowing lawyers from the Department of Justice to review the sensitive material and decide whether it should be given to the police, sources say.

A source said the RCMP’s decision to stage such a highly public raid was motivated in part by the bank’s lack of cooperation last year. The RCMP began investigating allegations of fraud involving Royal Group, Mr. De Zen, and other former company executives a year ago. They have denied any wrongdoing. The source described the bank’s legal stand as the “trigger” that pushed the RCMP to obtain a search warrant. There is no suggestion of any wrongdoing by Scotiabank. Rather, police have focused attention on it because it is the lead banker for Royal Group and many of the people under investigation. Scotiabank has been an underwriter and lender to the company for a decade and is one of Royal Group’s largest shareholders.

Link here.



Do you feel more or less free today than you did 10 years ago? If you happen to be a property developer, sit on the board of a public corporation, often travel by air, like to spend your own money supporting political candidates and causes you believe in, or are outspoken in your Christian beliefs, you almost certainly answered the above question, “Less free”. Our Founding Fathers and other political thinkers recognized that free peoples most often lose their freedoms not in one sudden blow, but by the endless erosion of liberties they once had. As a student in biology, you may have learned that if a frog is put in a pot of water slowly brought to a boil, the frog will not be aware of what is happening until it is too late. There is increasing evidence Americans, like the frog, are having their liberties slowly boiled away without realizing it.

Our very disturbing drift from freedom is reflected in the 2005 edition of the Index of Economic Freedom just published by the Heritage Foundation and the Wall Street Journal. A decade ago, the U.S. was rated as the 5th-freest economy, this year it has dropped out of the top 10 to #12 -- and we once were the role model for the world. As the authors of the Index of Economic Freedom note, the good news is that the world in general is becoming freer and, as a result, economic growth and prosperity have increased over the globe. The bad news is the U.S. has wallowed in past successes and allowed its competitive advantage to erode.

The reason to care is not only that a loss of economic freedom means less personal liberty, but the findings of this and similar studies confirm the following statement of the authors: “The countries with the most economic freedom also have the higher rates of long-term economic growth and are more prosperous than are those with less economic freedom.” The U.S. is on a government taxing, spending and, most of all, regulating, binge that in the long run is incompatible with a free and prosperous society. We now know poor societies can become prosperous within two generations as a result of free market economic policies coupled with the rule of law. We also know rich societies can quickly become poor -- Argentina was the 7th-wealthiest country on the planet in the early 1900s. Every time you vote for a politician who promises to make the government do more for you, he also is saying that same government will make you less free and ultimately poorer.

Link here.


Since ancient Rome, imperial republics have invariably felt a tension between cherished republican practices at home and distinctly unrepublican ones abroad. Put another way, if imperial practices spread far enough beyond the republic’s borders and gain enough traction out there in the imperium, sooner or later they also make the reverse journey home, and then you have a crisis in -- or simply the destruction of -- the republic itself. The urge of the Bush administration to bring versions of the methods it is applying abroad back home is already palpable. The urge to free the President, as “commander-in-chief” in the “war on terror”, from all the old fetters, those boring, restraining checks and balances, those inconvenient liberties won by Americans -- so constraining, so troublesome to deal with -- is equally palpable.

Back in the Watergate era, we had a would-be imperial president, Richard M. Nixon, who provoked a constitutional crisis. Actually, it amounted to a near constitutional coup d’état (see Jonathans Schell’s The Time of Illusion). Now, it seems, we are in Watergate II, but without a Democratic Congress, a critical media, or a powerful antiwar movement (yet). All we have at the moment is the constitutional crisis part of the equation, various simmering scandals, a catastrophic war abroad, and an ever more powerful military-industrial-security complex at home. And we are not just talking urges here, we are talking acts, programs, and the continual blurring of distinctions between the domestic and the foreign, the civilian and the military, between liberties at home and “securing the Homeland”. The problem is, we can only guess at the extent of that “securing” process because so much is clearly happening just beyond our sight (or oversight).

Below, in a two-part series, Nick Turse, who follows the military-corporate complex regularly for Tomdispatch, offers as solid a sense as we are likely to get right now of the outlines of the new Homeland Security State being created within the bounds of the old republic. This is frightening stuff, but too important not to read.

Part I, Part II.

Department of Terrifying the Homeland?

Michael Chertoff has his work cut out for him. President Bush’s nominee to head the Department of Homeland Security inherits an unwieldy bureaucracy of 22 agencies and 180,000 people with incompatible computer systems, unclear authority, and low morale. But the biggest challenge Chertoff faces is the Department’s strategy: it fails to acknowledge that the war on terrorism is - or at least should be -- a war against fear.

Terrorism takes its name not from violence, but from the emotion it provokes. By telling all Americans that they are possible victims of terrorism, the Department of Homeland Security plays into terrorists hands. If we are all afraid of terrorism, we are all terrorists’ victims. The National Strategy For Homeland Security, a document the White House produced in 2002 to guide homeland security, says that terrorists could strike “any time, any place” and then tells Americans to prepare evacuation plans and disaster kits. The same could be said about lightning, but the American government does not prepare everyone to be electrocuted.

Most Americans have a miniscule chance of dying from terrorism. In 2001, fifteen times as many Americans died in car accidents as from terrorism. As the political scientist John Mueller points out, deer in the road kill about as many Americans as terrorists. Even if terrorists do far worse than they did on September 11, statistically, Americans will still have far more to worry about from drinking, smoking, and bad diets than Al Qaeda. The Department of Homeland Security’s job is to protect, not to frighten. American leaders should never stop pursuing terrorists, but they should guard both the nation and the national psyche. We win the war against terrorists every day that we convince regular Americans to stop worrying about them.

Link here.

Abandoning liberty, gaining insecurity.

Should Americans have to give up the Bill of Rights in order to be “safe” from terrorists? Actually, it does not matter what Americans think. The trade has already been made -- and without any input from the people. The “democracy” that America is exporting is in fact a Homeland Security State with more surveillance powers than Saddam Hussein. Americans no longer have any privacy from government. You may not be able to find out about your daughter’s abortion or your son’s college grades, but neither you nor your children have any secret whatsoever from your government. Banks, airlines, libraries, credit card companies, medical doctors and health care organizations, employers, Internet providers, any and everyone must turn over your private information at government demand.

Government demand no longer means a court approved warrant. A myriad of intelligence, security, military, and police agencies can on their own volition mine your personal data and feed it into data banks. Your democratic government does not have to tell you. Your bank, library, etc., are forbidden to tell you. The government can monitor you as you use your computer, noting the web sites that you visit and reading the emails that you send and receive. Americans have privacy rights only against intrusions by private individuals and private organizations.

In 2000 Larry Stratton and I published a book documenting the erosion of all of the legal principles that protect the innocent: no crime without intent, the attorney-client privilege, due process, and the prohibitions against retroactive law and self-incrimination. The law was lost before the September 11 terrorist attack on the U.S. The Patriot Act and executive branch decrees have put paid to habeas corpus. The government can pick up anyone it wishes and hold them as long as it wishes without evidence or trial. The government can torture those so detained if it wishes or murder them and say it was a suicide. Saddam Hussein may have indulged in these practices in a more thorough-going way than the U.S. Homeland Security State has to date, but there are no essential differences in the police state powers.

Americans fearful of terrorism should keep in mind that their country is a very large place. If further terrorist attacks occur, very few Americans are likely to witness them except on TV. The police, however, are everywhere, and like all bureaucracies will have to show results for their new powers. If no real terrorists show up, our protectors will invent them, or they will interpret their powers expansively and apply them to ordinary felonies. Americans might never again experience a domestic act of terrorism except from their own police state.

Link here.


It is obvious to all but its most ardent defenders that the state is built and maintained by deception, disinformation, falsehood, and lies. But in addition to characterizing the state as the lying state, it can also be called the murdering state. When most people think of murderers they think of serial killers like Ted Bundy, Gerald Stano, Donald Harvey, John Wayne Gacy, Gerald Schaefer, Patrick Kearney, Dean Corll, or Jeffrey Dahmer. As horrible as the associated tales of murder, torture, and mutilation are, the state takes a backseat to no one when it comes to mass killings. In R. J. Rummel’s work Death by Government, his fourth book in a series on democide -- government sponsored genocide and mass murder, he documents the millions of people in history who have been killed by their own governments. This is the one book that all adherents to the “we need a government to protect us” mentality ought to read.

A recent book by Andrew Goliszek, In the Name of Science: A History of Secret Programs, Medical Research, and Human Experimentation, presents other ways in which the state kills its citizens. Goliszek is a professor at North Carolina A & T State University who teaches biology, human physiology, and endocrinology. He is a mainstream professor who has received biomedical research grants and done research projects sponsored by the National Institutes of Health. Although the body count in Goliszek’s book is much lower than the millions of deaths documented by Rummel, the conclusion is the same -- the state has blood on its hands.

Although many of the experiments on human beings that are recorded in this book were not carried out directly by the state, they were in most cases either state sponsored or state financed. It is the state that foots the bill through its grants and research projects. It is the state that controls medical research. It is the state that doles out taxpayer dollars to industry. It is not just the American government that is responsible for dubious and deadly medical research. The state is universally corrupt. Other countries indicted by Goliszek include Russia, Vietnam, Mexico, Malaysia, Chile, India, Bangladesh, Brazil, Japan, Great Britain, and of course, Nazi Germany.

Even if the most vocal critics of In the Name of Science are right, even if the author misinterpreted much of the evidence, and even if 90% of material in the book is pure fabrication, there is still enough irrefutable evidence that the U.S. Government knowingly, willingly, and systematically endangered the lives of American citizens. The state is the greatest murderer in history. If this book does anything, it reminds us that it is not just the state’s wars that result in the killing of innocents. So it is not just the state’s wars and foreign interventions that should be opposed, every facet of state intervention into society should be opposed as well.

Link here.


Our country has accepted obligations that are difficult to fulfill, and would be dishonorable to abandon. Yet because we have acted in the great liberating tradition of this nation, tens of millions have achieved their freedom. And as hope kindles hope, millions more will find it. By our efforts, we have lit a fire as well -- a fire in the minds of men. It warms those who feel its power, it burns those who fight its progress, and one day this untamed fire of freedom will reach the darkest corners of our world.” ~~ George W. Bush (Jan. 20, 2005)

Will Bush’s words be implemented? These words have received little attention from commentators. This is a pity, for they are not Bush’s words. They are taken verbatim from the title of a book written by the Librarian of Congress, James Billington, which he wrote before he went on the government’s payroll. What is significant is the subtitle of that book: Origins of the Revolutionary Faith. For a quarter of a century, I have regarded Billington’s book as the most important history book of the 20th century, the book without which you cannot understand either the 19th or 20th century. Billington traces the origins of Communism and Fascism: international revolution and national revolution. Both traditions began before the French Revolution and led to that conflagration. The book was published by the neoconservative publishing house, Basic Books, in 1980.

George H. W. Bush used to use one phrase over and over in his speeches: a new world order. His son returned to that idea and that language in his second inaugural address. This language was part of the Enlightenment’s revolutionary tradition. It even had some marginal influence in the origins of the U.S. President Bush has clearly announced a foreign policy of world transformation. And commentators have so far ignored what should be obvious, that it is an extension of his father’s vision of a new world order. In 1990, conservatives were more likely to recognize the vision of world transformation as being at odds with the American Constitutional tradition of limited government. Conservatives today apparently no longer have qualms about a President who commits the nation’s resources to the creation of a new world order.

Step by step, crusade by crusade, America has been dragged by its Presidents and its pundits into the old revolutionary tradition of world transformation through military action. President Bush has offered nothing new of substance in his second inaugural address. What was important about the speech was the openness of its author, whoever he was, in connecting the President’s foreign policy to the origins of the revolutionary faith that a century of American interventionism abroad has implemented. What is new is the degree of commitment by American conservatives to an ancient revolutionary program of world transformation through force of arms. The willingness of conservatives today to abandon their intellectual and moral roots in the anti-French Revolutionary tradition of Edmund Burke has now reached what may be a tipping point. The victims on their way to the guillotine are singing The Battle Hymn of the Republic. They console themselves, “It is a far, far better thing that we do now, than we have ever done before.” Include me out.

Link here.


One of the mysteries surrounding the 9/11 attacks and the frequent terrorist alerts ever since is the role played, if any, by American Muslims in supporting Al Qaeda operations. The US government acts as if there is a support base of some kind. White House Chief of Staff Andrew Card told a reporter during the Republican convention, “We know there are Al Qaeda cells” operating inside the country. During the early August scare about terrorists targeting financial institutions, newspaper reports often alluded to, but did not identify or describe, a support network or individuals living in the U.S.

The antiterror campaign has shaken the 5 million or so Muslims in the U.S., a large majority of whom are American citizens. Law enforcement agents have interviewed nearly 200,000 Muslims and others from predominantly Islamic countries. Hundreds have been deported or detained for long periods, thousands were subject to a “special registration”, and now hundreds have been indicted in widely publicized “terrorist” prosecutions. Charities and other social institutions have been shut down or disabled, and surveillance in these communities is now a given. But the cardinal question of whether domestic Muslim populations actually pose a security threat remains unanswered -- indeed, unarticulated -- in public discourse and official pronouncements.

The question is neither impolite nor unimportant. We know that most politically violent groups require a “social base” -- knowing supporters who do not participate directly in militant operations. Are radical imams preaching violence against America? Are Koranic schools training future terrorists? Are charities really supporting Al Qaeda, Hamas, or Chechen murderers? The evidence thus far indicates that Muslims living in America have not constituted a social base for Al Qaeda. It is striking, in fact, that so little illegality has been uncovered in a population so thoroughly investigated. The 9/11 commission itself found no evidence of a domestic social base knowingly aiding the hijackers prior to their attack. If Al Qaeda did not have such a support base in the US prior to the attacks, it is even less likely they have one now.

Link here.


Businessmen or manufacturers can either be genuine free enterprisers or statists. They can either make their way on the free market or seek special government favors and privileges. They choose according to their individual preferences and values. But bankers are inherently inclined toward statism. Commercial bankers, engaged as they are in unsound fractional reserve credit, are, in the free market, always teetering on the edge of bankruptcy. Hence they are always reaching for government aid and bailout. Investment bankers do much of their business underwriting government bonds, in the U.S. and abroad. Therefore, they have a vested interest in promoting deficits and in forcing taxpayers to redeem government debt. Both sets of bankers, then, tend to be tied in with government policy, and try to influence and control government actions in domestic and foreign affairs.

The strange historical fact, recounted at length and in detail by Murray N. Rothbard, is that the biggest capitalists have been the deadliest enemies of true capitalism. For virtually all of the alleged social “reforms” of the past 50 years were pushed not only by “idealistic” Leftists, but by the very corporate combines caricatured as the top-hatted, pot-bellied “economic royalists” of Wall Street. The neoconservative Right depicts the battle against Big Government as a two-sided Manichean struggle between the forces of light (that is, of capitalism) and the remnants of largely discredited Leftist elites. But Rothbard’s historical analysis reveals a much richer, more complex pattern: instead of being two-sided, the struggle for liberty pits at least three sides, each against the other. For the capitalists, as John T. Flynn, Albert Jay Nock, and Frank Chodorov all pointed out, were never for capitalism.

Link here.
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