Wealth International, Limited

Offshore News Digest for Week of February 14, 2005

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

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According to figures recently published by the Caribbean Development Bank, most Caribbean countries recorded healthy economic growth during 2004, despite the disruption caused by a spate of powerful hurricanes in the latter half of the year. Thanks largely to activity in the tourism and financial services sectors, initial estimates suggest that the highest economic growth rates were witnessed in Anguilla, which grew by 12% in 2004, Trinidad & Tobago (6.7%), Antigua & Barbuda (5.1%), Belize (between 4% and 5%), and Kitts & Nevis (3.9%). Elsewhere in the region, Barbados experienced growth of 3.9%, due mainly to strong performance in the tourism sector, while the British Virgin Islands grew by 2%, again due to a strong tourism sector, but also due to the strength of the financial services industry. However, the CDB noted that growth in the Cayman Islands, the Bahamas and Grenada was constrained following a particularly active hurricane season in 2004.

Link here.


Realtors have hit out at Government’s crackdown on property sales to foreigners which they say will only hurt Bermudians. And one estate agent has questioned the need to tackle what he believes is a nonexistent problem. Last week Government changed housing policy so that non-Bermudians can still buy homes with annual rental values above $126,000 -- but only from non- Bermudians. Condominiums can also be bought by non-Bermudians but only from other non-Bermudians. Government placed the 5-year ban, saying an $8 million decline in annual licence fee revenue indicated trusts were being used to front such sales to avoid the 22% sales tax.

Buddy Rego, president of Rego Realtors, said the new policy would mean foreigners would have a bigger market to sell their homes while Bermudians could only entertain offers from their compatriots. He said his firm sold 12 homes last year with ARVs above $126,000 and only two went to non-Bermudians. Of the ten top-end homes sold to Bermudians four were sold by foreigners. Asked Mr. Rego, “What is the problem? That end of the market is becoming increasingly Bermudian. Bermudian land owners are up in arms. My phone has been ringing since 7.30 this morning.” Mr. Rego also questioned Government’s claim that fake trusts were often being used to front sales of cheaper housing to foreigners.

Link here. Bermuda Government admits it failed to consult -- link here.


Following discussion at the September 2004 Overseas Territories Consultative Council in London, the U.K. government has issued a policy statement setting out its view on the method for Overseas Territories to move to independence, where that is an option. Mr. Bill Rammell, UK Minister for the Overseas Territories, said, “The UK Government need to be satisfied that, if a territory moves to independence, it does so on the basis of the clearly and constitutionally expressed wish of its people.”

The British Government confirmed that its preferred method for deciding the question of Independence is by way of a referendum. The announcement looks set to apply further pressure on Bermuda Premier Alex Scott and the Progressive Labour Party Government, who have made it clear they favor determining the question of sovereignty through a General Election. United Bermuda Party leader Grant Gibbons welcomed the announcement, arguing a referendum represented the clearest and most “unambiguous” method of unearthing Bermuda’s stance on the issue. Bermudians for Referendum organiser Michael Marsh was similarly enthused by the news, while revealing the group, which does not profess any affiliation to either political party, is half-way to its goal of securing 20,000 signatures on a petition to be submitted to Government in the near future.

Links here and here. Bermuda cabinet to discuss UK stance on referendum -- link.


The State Department eased a tough visa requirement for foreign science and engineering students that had been labeled the biggest obstacle to attracting the world’s most promising scholars to the U.S. The surprise move extends the validity of science-related visas up to four years, ending the need to reapplying each year. This makes it easier for visiting students and researchers to travel to academic conferences outside the U.S. or to make family visits. Academics and business leaders have warned that the U.S. risked losing its position as the top destination for promising international students with its onerous visa process.

Link here.


The fiscal 2006 federal budget is being billed as the tightest yet by the Bush administration. But the administration’s rhetoric does not match the budget substance. Overall spending is projected to rise 3.6% in 2006, but that follows an enormous 33% increase over the past four years. And tens of billions more will be needed for Iraq. At first glance the budget sounds pretty tough this year, with a promise to cut or terminate 150 federal programs. But even if Congress passed all those cuts, 2006 spending would be reduced by less than 1%. Last year’s budget likewise proposed terminating 65 programs, but only five were actually ended.

In prior years, Congress has ignored most of the limited cuts proposed by the administration because of a conflicted message from the White House -- namely, we want spending restraint, except in the many areas where we want increases. It is the same mixed message this year -- the budget’s 5-page summary begins with three pages of tough talk about spending restraint, but the last two pages offer a laundry list of 37 “program increases and new initiatives”. To give some credit, the Bush budget does include real cuts in some areas, such as housing, transportation and the Corps of Engineers. But do not hold your breath for out-year spending reductions. It is an old game to make the budget numbers add up by assuming that cuts will happen in later years, just not in the current budget year.

One reason that the Bush administration has made so little progress on spending restraint is because it continues to use the deficit as the bellwether of “restraint”. The deficit is expected to fall in coming years, but mainly because revenues will be rising so quickly. The focus on budget deficits implies that it makes little difference whether the government spends less or taxes more. In reality, the evidence is clear that higher tax rates discourage productive efforts, and that reduced government purchases and transfer payments have the opposite effect. Government purchases reduce the availability of labor, equipment and real property by raising their costs to private businesses. This “crowding out” is real, not financial. It is not reduced by taxing less and borrowing more. Government transfer payments are a disincentive not just for the taxpayers who fund them, but for those who receive them. These disincentive effects occur however transfers are funded.

Link here.

Bush’s new defense budget.

When the Bush administration released its budget for fiscal year 2006 recently, the news media, as usual, had a tough time in making sense of the government’s proposals for defense spending. To some extent, we cannot blame them for their confusion, because even people who follow this subject closely have trouble sorting out the government’s various ways of stating the defense budget. Figures that appear at one place in the budget documents are often difficult or impossible to reconcile with figures that appear at other places in the documents. Conspiracy theorists might easily conclude that the government deliberately tries to make a clear understanding impossible. More charitably, we might conclude that the government simply does not know how to keep a clean set of books.

The administration’s budget for fiscal year 2006, along with the shenanigans that strategically placed representatives of the military-industrial- ongressional complex invariably play, insures that the gravy train of military spending will continue to speed along the track. The taxpayers have no right to complain, however. As the president has made clear, they have already had their opportunity to participate in an “accountability moment”, and now, so far as George W. Bush and his lieutenants are concerned, that moment is gone forever.

Link here.


When the desert is cool, as it is now, illegal immigration becomes a flood. To avoid detection, smugglers now lead people through more demanding and dangerous terrain. More than 300 people died trying to cross last year. To help prevent death and deportation, the Mexican government has published a guide that advises its citizens on the intricacies of sneaking into the U.S. It also gives tips on how migrants should conduct themselves after reaching the streets of the promised land.

The 31-page pamphlet, Guide for the Mexican Migrant, has infuriated some American politicians and citizens who say the Mexican government is effectively encouraging a criminal activity that is fraying the American cultural fabric and draining state and local municipalities. The Mexican government says it is simply recognizing reality. Many illegal immigrants living in Los Angeles said they had heard about the booklet, but few had actually seen it. A group of Latino men, who freely admitted that they were in the U.S. illegally, flipped through the booklet for a few minutes before dismissing the effort of the Mexican government. “Useless,” said Jorge Castillo, 30, a Guatemalan who has made the desert trek seven times in seven years.

These men and a dozen others offered a portrait of the trip and practical advice on how to make it and how to live upon arrival in Los Angeles. The booklet warns the migrant that if he decides to use the services of a smuggler, he should not hand his children over to him, not carry packages or drive a vehicle for him, as they may contain drugs, and not trust his assurances. There is better advice that may save your life, the men said. “Never hire a coyote on the border,” said Mr. Castillo, a thickly built man with whiskers and gold teeth, referring to the smugglers who guide illegal migrants into the U.S. Have a friend recommend a contractor while you are in your hometown, he advised. “This way, if anything happens to you, your family knows his family.” Those who hire strangers at the border are more likely to be robbed, raped or held for ransom, Mr. Castillo said. It should not cost more than $2,000, he said, to go from the Mexican side of the border to Phoenix.

Crossing a river can be risky, the Mexican government guide says, “Heavy clothing grows heavier when wet, and this makes it difficult to swim or float.” Mr. Travolia, from Guadalajara, advised, “Try never to cross the river. Never do it. If you have to, write your name in your underpants in case you drown. Then they can find your family and you can be buried by a priest.” Mr. Castillo said that if migrants made it as far as an American river, that was not the time to be cheap. “Spend the $5 for an inner tube.” Apparently there are people waiting at the riverbanks to rent flotation devices to the traveler.

Link here.


A broad section of Belize’s government work force went on strike the last week in January, joining teachers, dock and energy workers who had walked out earlier to protest tax increases. A new budget passed by the Senate would increase taxes on business, land and imports to meet what the government says are rapidly rising debt costs. The extent of the walkout by government workers was not immediately clear in the Caribbean nation of 250,000 people. Nearly all schools were shut down. Teachers also are awaiting a promised 8% pay increase that the government now says it cannot pay all at once. Water service workers have been intermittently interrupting water service and the 150 members of the Belize Chamber of Commerce held a two-day work stoppage last week.

Link here.

Strike actions continue in Belize.

A general strike in Belize that began on January 20 is still not over. Although the situation remains confused, the bottom line is that no agreement has been officially signed to end an industrial action by any of the nation’s labor unions, and negotiations continue. Two government negotiators worked to chip away at the unions’ unity of the previous two weeks. After lengthy discussions, the leadership of the teachers’ union was to accept government’s offer and end the teachers’ walkout. But a gathering following the decision showed that the rank and file were not happy with their leadership. They and members of the National Trade Union Council of Belize (NTUCB) agreed to go forward with the demonstration planned for the following day. Teachers ignored the instruction to return to the classroom and joined the Belize City demonstration, which had representation from every union in the NTUCB.

Link here.


Bank of Ireland has made its Isle of Man subsidiary the head office for its offshore operations in a move which has seen staff numbers at its Guernsey base cut from more than 30 to eight, while Isle of Man has seen local staff numbers climb by nine to a total of 40 people. Bristol & West International, the bank’s Guernsey-based operation, has become a branch of the Isle of Man company and now deals purely with sales and marketing. Bank of Ireland closed down its Jersey operations four years ago, transferring the business to the Isle of Man.

Roly Alden, who heads up Bank of Ireland’s Isle of Man subsidiary, said the move was “quite a coup” for the Island. He said the key factors considered when deciding on the Isle of Man were the physical size of the existing premises and the skills and management competences of the two teams. Mr. Alden believes that the traditional perception of the Channel Islands having a higher international profile than the Isle of Man is waning. However, he felt it was critical that more is done to raise skills levels in the Island so that it can move up the value chain.

Asked about the likely effect of the EU savings directive which is due to take effect in July, Mr. Alden said, “I definitely feel there will be a diminution of personal account balances but the jury’s still out as to whether that is going to be 5-10% or 30% loss.” He questions whether the directive will in fact come into operation in July given that Italy and Greece have not yet begun work on the necessary primary and secondary legislation.

Link here.


I just got back from spending Chinese New Years in Hong Kong with my wife and son. Hong Kong is a great place, especially if you like good food. The second night we were there, we were treated to the Chinese New Yea’qs fireworks display. It was awesome. Imagine Disneyland’s biggest fireworks celebration, multiply that by five, make it 30 minutes long, and you can imagine what “Shock and Awe” really looks like. Actually, we spent the entire time staying in a hotel in Kowloon, which is just across the harbor from Hong Kong itself. Hong Kong rocks. What a fun town!

It had been about 10 years since I was last in Hong Kong. Things have changed so much. In spite of reverting back to the communist mainland, the economy of the entire area is booming. There are brand new buildings and skyscrapers going up everywhere. They have built a brand new airport about 30 minutes taxi ride into the city. During my first night at the hotel I sat at the coffee shop and was amazed at just how much of an international city Hong Kong really is. For you folks who have been there before, that will not surprise you, but it did me. For I expected that, since the communist mainland had taken back Hong Kong, it would have gone downhill somewhat. How wrong were my expectations....

Link here.


Switzerland’s second-largest bank, Credit Suisse, has taken a big step towards achieving its goal of catching up with main rival UBS. The CS Group surprised analysts this week when it announced net profit of SFr5.63 billion ($4.77 billion) for 2004 -- more than seven times what it earned in 2003. CEO Oswald Grübel said he was “confident” the group could reach its target of SFr8 billion annual profit by 2007. Doing so would put it on the same level as archrival UBS, the largest Swiss bank, which announced a record annual net profit of SFr8.09 billion just a week ago. But analysts point out that Credit Suisse still has some way to go before it can meet its goal, and point to some fundamental outstanding differences between the two.

Link here.



The staff of the Congress’s Joint Committee on Taxation recommended exempting dividends earned by “foreign” subsidiaries of U.S. companies from income taxation. The proposal could have major implications for Puerto Rico’s economy and its future political status. 42% of the economy is attributable to manufacturing by operations of companies based in the States. Most of the operations are, or are planning to be, organized as foreign subsidiaries.

The recommendation came in a package of options, others of which would also have substantial implications for Puerto Rico’s economy. The Joint Tax Committee staff act as advisors to the congressional committees that determine taxes, the House of Representatives Ways and Means Committee and the Senate Finance Committee. The other most significant proposal in the package for Puerto Rico would lower the excise tax on distilled spirits from the current $13.50 per proof gallon (a gallon based on the percentage of alcohol) to $8.40.

Earnings from “foreign” subsidiaries -- including those in Puerto Rico and other U.S. territories -- are currently subject to U.S. income tax when “repatriated” to parent companies. Until then, income tax is “deferred”. The recommendation to exempt foreign dividends from the income tax did not note that income from Puerto Rico and other U.S. territories is considered to be “foreign” If the proposal is applied to income from Puerto Rico -- as it would be under current law, in addition to economically affecting companies operating or locating in the territory, it could be used as an argument in the debate over Puerto Rico’s status as a U.S. territory.

The exemption would not apply to income from “passive” investments, such as interest from bank deposits, royalties that subsidiaries pay parent companies for assets such as patents, and intra-company sales. It would also be accompanied by tightened rules on shifting of income from taxed U.S. companies to untaxed foreign subsidiaries. These limitations would also likely affect companies in Puerto Rico which have used such devices to avoid U.S. income tax.

Link here.


Hong Kong’s Financial Secretary Henry Tang has pledged to leave tax rates on hold in next month’s budget presentation, although he sought to dampen expectations of any sweeteners in the form of extra tax relief measures, despite the possibility that the government’s finances could soon move into surplus. Although last year saw an acceleration in tax revenues flowing into the SAR government’s coffers, mainly as a result of unexpectedly strong economic growth during 2004 and the selling off of government land and various other assets, Tang has told taxpayers not to expect any tax cuts, as these revenues represent a short-term fix to the budgetary situation. Tang also reminded taxpayers that the $HK26 billion (US$3.3 billion) raised from a debt issue will ultimately have to be repaid by the government.

Link here.


U.S. President George W. Bush has signaled his intent to continue cutting taxes with proposals to make permanent the 2001 and 2003 tax cuts at a cost of $1.3 trillion over the next ten years. Among the more crucial tax cutting measures proposed in the 2006 budget are the making permanent of income tax cuts at a cost of some $502 billion through 2015, a permanent repeal of estate tax at a cost of $256 billion over the next ten years, and the permanent extension of the cut in tax on corporate dividends to 15%, costing $102.9 billion over the same period.

Additional measures to benefit businesses, including renewal of corporate tax credits such as the R&D credit, are also provided for in the budget document. There are also tax incentives in the budget to encourage saving, with the creation of two new tax-deferred savings accounts known as Retirement Savings Accounts and Lifetime Savings Accounts, which will allow tax-free growth and withdrawals.

Revenue raisers include measures to improve tax compliance, including a plan to limit related party interest deductions (raising $1.6 billion through 2015), and the closure of new investment plans that enlist charities to turn life-insurance policies into vehicles for professional investors, saving $323 million.

Link here.


The Torrijos administration’s tax plan was approved on January 31, and the president signed the measure a couple of days later. The measure, which amounts to a substantial tax increase, even garnered the support of three opposition deputies. Most of the changes will go into effect in 2006, but some of the procedural and record keeping provisions will have the force of law earlier than that. The main and most controversial tax was the IRMA, or minimum tax on a company’s gross receipts. Originally proposed at 2.0%, the law as passed set it at 1.4%. Businesses that do a high volume with a low per-unit profit are the ones that stand to be most affected, the conventional wisdom goes, and those with high per-unit profits will not feel the change very much.

The idea of a minimum tax on a business’s gross receipts is based on the idea that among legal tax breaks, cost structures that on paper eat up most or all of a company’s profits and outright tax fraud, a lot of businesses that ought to be contributing to defray the costs of government are not and have not been. But of course, IRMA’s effectiveness is predicated upon the notion that tax evasion and funny bookkeeping will be the rare exception rather than the rule, and in order to ensure that such is the case new record keeping rules are imposed on corporations and the accountants they hire.

A number of marginal businesses are likely to be forced to shut their doors or go into the underground economy not because of any new tax burden, but due to the added expenses of hiring CPAs to meet the paperwork requirements. As before, individuals making less than $800 per month will not pay income taxes, and those who make more than that will pay on a sliding scale that runs from 7.3 to 27%. Certain income from abroad that was formally exempt from Panamanian taxation will now be subject to taxes, and the law as written creates some ambiguities in this respect. The annual fee to keep a corporation in good standing will be raised $100 to $350, and the penalties for late payments will also be increased.

Link here.


Allan Bell, Treasury minister, announced the plan to make the island more attractive to prospects wanting to reduce their income tax and capital gains tax bills as part of the island’s annual budget. The island has always attracted tax exiles because of its 18% maximum rate of income tax on a resident’s worldwide income. However, the Manx government is proposing to introduce a maximum tax cap in an attempt to attract more high net worth individuals. Mr. Bell said attracting more wealthy people would be good for the local economy because they not only bought local goods and services, but frequently invested in more significant ways.

The Isle of Man, whose economy has been growing considerably faster than the UK economy for many years, has been cutting the rate of corporate taxation steadily since 2002 and plans to introduce a standard zero rate of income tax for businesses by 2006. It has already introduced a zero rate for the fund management, space and satellite and shipping industries. Yesterday it extended the zero rate to several other sectors, including films and e-gaming. One Isle of Man tax expert said that the proposal to cap personal tax liabilities fit in with the government’s plans to boost the island’s role as a ship management center and could appeal to London-based Greek ship owners who were concerned by the UK government’s plans to tighten tax rules for non-domiciled residents.

Under current rules, foreigners are not liable to pay UK tax on non-UK investment income, earnings and capital gains, provided these monies are not brought into Britain. Non-domiciled residents are also not liable for UK inheritance tax on overseas assets. It has been estimated that a tightening of the system could net the Treasury up to £1.5 billion a year in additional revenue. However, there have been concerns that changes in the tax treatment of London-based ship owners could lead to them transferring their business elsewhere.

Links here and here.

Isle of Man bid to tax company dividend could backfire.

The Income Tax division of the Treasury issued a consultation document last month that aims to force trading companies in the Isle of Man to distribute 60% of their profits to shareholders. Any companies not doing this will be classified as “non-distributing” and will, if the shareholder is a Manx resident, be subject to tax of 18% on that proportion of its profit, which equates to 10.8% of the entire profit made. Treasury is aiming to pass the legislation this month as part of the Income Tax Amendment Bill 2005 and it has been seen in many circles as a roundabout way of mitigating the loss that will result from the zero corporation tax measures due in 2006.

Phillip Dearden, tax director with PKF, said that the government faced a public relations problem, as many company directors and advisers still believe that corporation tax will be totally abolished in 2006. Mr. Dearden added that the consultation document had a number of errors and oversights that would make the tax very difficult to implement. He says that one of the areas that needs clarification is the tax liability due to non-Manx resident shareholders. The document states that they are exempt from any tax, but Mr Dearden says that separation of profits within a company is not done that easily. “If an Isle of Man company is owned totally by non-residents they will be outside the scope of this bill. If you have a company owned by a Manx person and a foreign person, it could be quite messy.” Greg Jones, tax director at KPMG, echoed Mr. Dearden’s view that the general public might be misguided regarding the future of corporation tax.

Malcolm Couch, government assessor of income tax, said the legislation is designed to protect cashflow to the Treasury and to avoid the situation where people can avoid income tax at 18% by leaving money in a company. He believes that a comprehensive consultation process with industry has already taken place.

Link here.


On January 26, the Presidency issued a Decree which establishes certain tax incentives for the repatriation of capital (tax amnesty) and certain tax compliance alternatives (tax anonymity) for individuals with foreign source income. This was done to promote the repatriation of productive capital and increase the security of taxpayers derived from their individual tax compliance obligation. From a private wealth management perspective two items are worthy of distinction:

1.) The Decree establishes that income, dividends and retained earnings from indirect investments held outside Mexico in preferential tax regimes, including the black-listed tax havens and jurisdictions in which the tax rate is lower than 75% of Mexico’s Income Tax Rate (i.e., 22.5% in 2005), including those generated in 2005, which are repatriated to Mexico for their investment, will be allowed to acknowledge as taxable income only 25% of said income, dividends or retained earnings which are repatriated. To access such benefit, the repatriation must be performed through financial institution in Mexico and abroad. The repatriated funds must be invested in certain legal entities or instruments.

2.) Mexican resident individuals that obtain foreign source income for interest, dividends or profits which is subject to tax in Mexico, will be able to comply with their income tax payment obligation through any entity which comprises Mexico’s financial system without said entity having to disclose the name of the individual taxpayer. Said payment will be considered a final payment and relieves the Mexican resident of having to comply with formal obligations for said income. However, financial entities must retain records of the individual taxpayers identity for a 5-year period.

Link here.


Owners of small businesses make ripe targets for all sorts of unscrupulous tax preparers and tax promoters offering to set up tax shelters, said tax specialists. That is because many small businesses often lack the internal financial controls found at big corporations and their executives are too willing to delegate tax decisions to others, the specialists said. The Justice Department and the I.R.S. began a joint initiative in 2000 aimed at fraudulent tax shelters and preparation, but the enforcement has been ramped up significantly in the last two years.

The Justice Department said it sued 58 tax promoters last year, compared with 19 in 2002. The number of injunctions obtained to stop abusive tax practices in those cases rose to 49, from 16. In January, the department said, it sued four more tax promoters. An agency spokeswoman, Jaclyn Lesch, said those figures did not count cases against individual tax preparers who were not involved in widespread fraud.

In the case of Joe Polish, a marketing consultant in Arizona, a mutual friend introduced him to a tax promoter named Daniel A. Fisher. Mr. Polish said Mr. Fisher “proposed a tax structure that he said was completely legal and ethical and would allow me to get back taxes that had been paid and save taxes in the future.” Mr. Polish signed numerous papers, including what turned out to be a power of attorney, which enabled Mr. Fisher to file amended returns for past years. Later, he had an accountant examine a partnership that Mr. Fisher had set up for Mr. Polish, who found blatant fraud.

The I.R.S. relied on Mr. Polish’s testimony in court when it prosecuted Mr. Fisher last fall for tax fraud amounting to more than $10 million. Mr. Fisher was convicted of fraud in federal court in Dallas, and is now in jail awaiting sentencing. In other recent actions, the Justice Department has indicted a company that offered fraudulent home-office deductions, has sued tax preparers for hiding clients’ income and has pursued a firm that preyed on blacks owning businesses. The I.R.S. annually publishes a list of the 12 most egregious schemes, including fraudulent trusts, offshore transactions and failure to pay obligations like the federal payroll tax. In its lawsuits, the department seeks to force the accused tax preparers or promoters to turn over their lists of customers. Business owners named on those lists can find themselves ensnared in lengthy and costly audits.

Business owners considering a tax shelter might consider, at a minimum, obtaining a second opinion on the legality of the structure, according to Kevin Brown, commissioner of the I.R.S. division for small businesses and self-employed people. It should raise red flags if the promoters of the tax shelter discourage this practice, he said.

Link here.



Trusts are one of the most enduring European cultural remnants of mediaeval times. But if you thought that family trusts were the exclusive domain of the wealthy elite, think again. For expatriates around the world, trusts are one of the easiest and most inexpensive forms of financial planning which, like good investment vehicles, are designed to save you money. The concept of a trust is quite simple. Assets such as property, shares, cash and so on are transferred by the legal owner, known as the “settlor”, to a legal entity known as a Trust. The Trust is managed by trustees, who become the legal owners of the assets. A “letter of wishes” confers both powers and restrictions on trustees and also identifies the beneficiaries, who can receive financial benefit through income generated from trust assets and/or receipt of trust capital.

One of the simplest financial planning applications of trust law is “writing a policy into trust”. To take a common example, the proceeds of an insurance policy written into trust are not included in the estate of the deceased. This is useful but has limited scope for comprehensive financial planning. Some countries have ancient laws that prevent disinheritance of children and spouses. Assets that have been legitimately transferred to a legal trust are no longer the property of the deceased and so would be beyond the reach of such laws. Such trust assets can then be disbursed in accordance with the wishes of the settlor.

When a settlor dies, the trust assets do not form part of the estate. Therefore the trust does not become subject to the time-consuming and distressing effects of probate. Being a separate entity, the trust continues to run, providing income to beneficiaries and eventually distributing the capital to them, unaffected by the death of the settlor.

Link here.


After nine years of failed attempts to rewrite the nation’s bankruptcy laws by making it harder for people to escape their debts, Senate Republican leaders confidently predict they now will succeed, citing their new majority of 55 Republicans, 44 Democrats and one independent. Banks and credit card companies, which have poured millions into lobbying for the bill, say it would stop abuse by debtors who shirk their debts.

The bill would end the ability of consumers to use Chapter 7 of the federal bankruptcy code to wipe out credit card bills and other loans unsecured by a house or other asset. Instead, those debtors would have to file under Chapter 13, which requires a court-approved repayment plan. A bankruptcy court would then apply a means test -- taking into account medical expenses, elderly parent support or care of grandparents and disabled children -- to determine whether the debtor has enough money to repay.

Link here.


Starting in April, UK residents could be subject to income tax on any benefit they derive from any assets they previously owned which are now held in trust. It will include property they live in or have use of, stocks and shares, furnishings and art. Changes could see income tax on art charged at up to 2% of its market value a year. Gavin St. Pier, deputy chief executive and tax director at Walbrook Group in Guernsey, said the change was likely to have far-reaching consequences for beneficiaries and the local industry because of its retrospective nature.

The new rules apply to any assets transferred into trust since March 1986, which would affect many local trusts. “The rules are complex and broad. There is a lot of work that needs to be done between now and April,” said Mr. St. Pier. “The first step is obviously to identify any trusts that will be affected by the new rules and then assess the likely income-tax liability, which could be substantial.” But KPMG tax director David Knight said the company was still waiting for the UK Inland Revenue to issue guidance notes later this month before it could assess the real impact.

Transferring ownership of property and other assets to trust has been a long-established and acceptable way of avoiding inheritance tax. Mr. St. Pier said offshore trusts owning an offshore company that in turn owns a UK property are now vulnerable and need to be reviewed. Many trusts now need to be restructured to mitigate any new income tax liability on the beneficiary, which will be a considerable workload for many trust companies. He estimated that between 10% and 15% would be affected, many of which are well-established trusts that normally required relatively little management.

Link here.


Her innate business sense could have seen her excel in any industry. Margaret McDonald, product of a middle-class home and convent education, chose to go into prostitution. At 45, she is thought to have been one of the world’s most successful madams, managing 500 callgirls in 25 countries and building a multi-million-pound fortune. Her reign ended with a 4-year jail sentence for pimping. But released early, she was unrepentant, bragging of the empire she had built up and how she had hidden away her millions. She told interviewers for a documentary about her life that she was 33 when she started charging men to have sex “for fun”. Soon she had built a business that spanned Europe, in which movie stars and international businessmen would hand over £650 for a single hour with one of her girls. “For me it was just like setting up a company,” she told the interviewer. “I see myself as the Bill Gates of the escort world.”

It all came to an end when a German callgirl was detained by police. McDonald was arrested in Paris in May 2002, convicted in October 2003, and served half her sentence before being released in May 2004. French police believe she amassed millions of pounds. McDonald herself admits she made £20,000 a month tax free. “I’m not telling you where the money is. I’m not telling anyone. It’s tucked away offshore, very safely. I’m not a resident in England, in case the tax people are watching,” she told the documentary makers. In fact, the money is in several accounts in Jersey.

Link here.


Nick Poole, marketing director of the Jersey branch of Panamanian law firm Mossack Fonseca, has been visiting Guernsey regularly to drum up support for foundations. They are similar to trusts, but operate like a company and are currently used only in Panama, Liechtenstein, Austria and Curacao. The Jersey Financial Services Commission is in the middle of a consultation process on foundations. Mr. Poole urged Guernsey’s regulator to consider foundations as a way of diversifying in the finance industry.

The Jersey consultation document sets out general principles for the introduction of foundations, which have been formulated by a steering group. It believes that there is a strong commercial demand for them there, particularly from clients in civil law jurisdictions who may not feel comfortable with trust structures.

Link here.


The S.E.C. sued Northshore Asset Management, a Chicago hedge fund, and three of its principals, claiming the group misled investors, diverted $37 million in fund assets and refused investor requests to have their money returned. According to the suit, which was filed in U.S. District Court in New York, the three principals of Northshore, bought Ardent Funds from its founder, Francis Saldutti, for $12 million in April 2003 and then used the cash in the funds to make investments in, or make loans to, entities in which the executives had an interest.

Link here.


While President Bush renews his bid to eliminate the federal estate tax, thousands of families are taking matters into their own hands -- moving money into long-lasting trusts that can avoid those taxes forever. In recent years, a wave of states started allowing so-called dynasty trusts to last for hundreds of years -- or even forever -- undoing a centuries-old law that prevented perpetual trusts. Now, new research has found that about $100 billion in assets has flowed into personal trusts in those states from the time the laws changed through 2003. For the financial services firms administering them, the trusts amount to about a $1 billion in annual trustee fees.

The study comes at a time when such trusts are facing congressional scrutiny. The Joint Committee on Taxation staff, in a report on options to improve tax compliance and shut tax loopholes, described a way to crackdown on dynasty trusts by limiting the perpetual tax breaks associated with them. However, there have been no bills considered by congressional committees on the matter this year. Some estate planners are encouraging clients to fund their dynasty trusts now, in case the trusts’ tax advantages go away. However, “we are being very careful to be balanced on this and trying not to create fear that’s unwarranted,” says Robert S. Keebler, a tax partner with accounting firm Virchow, Krause & Co., in Green Bay, Wisconsin.

The dynasty trusts have other benefits as well. For example, assets in the trusts are generally protected from creditors in the case of lawsuits, bankruptcy or divorce. As a result, dynasty trusts still might remain viable even if Congress repeals the estate or generation-skipping taxes, or limits the trusts’ perpetual tax benefits. Although dynasty trusts have been heavily promoted by banks and trust companies, until now nobody had quantified nationally how much money has moved into the states that have loosened their trust laws to allow them.

Link here.


For all those Americans who, disgusted by the results of last Novembe’qs presidential election, are threatening to move to Canada, here is an activity to occupy them as they make the great trek north: They can wave at all the Canadians moving south. Though most of the attention of late has been focused on Americans planning to defect, the fact is that hundreds of thousands of Canadians spend much of the year in the U.S. There are so many of them that there is a term for those indulging in the southward migration -- “snowbirds”. Not surprisingly, the movement has its own advocacy group, the Canadian Snowbird Association.

There is also a book. Idle perusal of the shelves of a Victoria, B.C. bookstore turned up The Border Guide: A Canadian’s Guide to Living, Working and Investing in the United States. It was written by Robert Keats, himself fittingly cross-border, with dual citizenship and certification as a financial planner in both countries. Keats, whose financial planning business is based in Scottsdale, Arizona, says there are two prime motivations for Canadians to move to the U.S. One, not surprisingly, is weather. “The’qve had enough of snow and ice,” he says. The other is taxes. “The U.S., believe it or not, can be a tax haven for Canadians,” Keats says.

Because of treaties, the U.S. can actually offer a lower income tax rate for Canadians than some better-known havens. Canadians, Keats notes, face higher marginal income-tax rates than Americans, have few opportunities for tax-free income such as bonds and do not get the same level of deductions -- no home mortgage interest write-off, for example. (Those who plan to move from the U.S. to Canada are in for a shock when the tax bill comes, he says.)

Link here.



Congress is considering legislation that conservatives and libertarians warn will create a national ID card system, calling it a backdoor attempt to remove privacy protections gained in a law passed only last year. The Real ID Act of 2005 (H.R. 418), introduced Jan. 26 by House Judiciary Committee Chairman James Sensenbrenner (R-Wisconsin), would eliminate existing privacy protections and give the secretary of Homeland Security expanded powers to control states’ driver’s licenses and ID cards, and the data collected while issuing them.

The proposal would replace a more restrictive 2004 law and give the federal government additional control over the design and content of driver’s licenses and ID cards, limit to whom and under what circumstances states are allowed to issue them and mandate participation in a network of identification databases open to some foreign officials. Rep. Ron Paul (R-Texas) wrote a “Dear Colleague” letter to House members (see item below) entitled “What will you tell your constituents?” Paul shared his belief that the Real ID Act could “make terrorism and illegal immigration more likely.”

The congressional maneuvering takes place as governments are growing more interested in implanting technology in ID cards to make them smarter and more secure. The U.S. State Department soon will begin issuing passports with radio frequency identification, or RFID, chips embedded in them, and Virginia may become the first state to glue RFID tags into all its driver’s licenses.

Links here and here.

A National ID Bill masquerading as immigration reform, says Ron Paul.

Before the U.S. House of Representatives, February 9, 2005

Mr. Speaker:

I rise in strong opposition to HR 418, the REAL ID Act. This bill purports to make us safer from terrorists who may sneak into the United States, and from other illegal immigrants. While I agree that these issues are of vital importance, this bill will do very little to make us more secure. It will not address our real vulnerabilities. It will, however, make us much less free. In reality, this bill is a Trojan horse. It pretends to offer desperately needed border control in order to stampede Americans into sacrificing what is uniquely American: our constitutionally protected liberty.

... H.R. 418 does nothing to solve the growing threat to national security posed by people who are already in the U.S. illegally. Instead, H.R. 418 states what we already know: that certain people here illegally are “deportable”. But it does nothing to mandate deportation. Although Congress funded an additional 2,000 border guards last year, the administration has announced that it will only ask for an additional 210 guards. Why are we not pursuing these avenues as a way of safeguarding our country? Why are we punishing Americans by taking away their freedoms instead of making life more difficult for those who would enter our country illegally?

H.R. 418 does what legislation restricting firearm ownership does. It punishes law-abiding citizens. Criminals will ignore it. H.R. 418 offers us a false sense of greater security at the cost of taking a gigantic step toward making America a police state. I urge my colleagues to vote “NO” on the REAL ID Act of 2005.

Links here and here.

The beast is back: “Real I.D.” for an all too real world.

Even in a relationship that has clearly gone somewhere beyond abusive, it can hurt to be reminded how little our “partners” in D.C. -- supposedly our agents, in fact, representing our own interests and using only powers we have delegated to them -- really respect us. No matter how loyal and supportive we try to be -- they ask us to trouble ourselves to vote, and more than half of us do, and it seems to make them so proud -- well, every once in a while the velvet glove comes off and we get bitchslapped hard with an open iron slap. Not a fist -- that would acknowledge that they actually think we are formidable enough in our own defense that serious force is required.

Such a moment is H.R. 418, the “Real I.D. Act” passed by the House last week. (It features even tougher and more objectionable federal requirements on state driver’s licenses than the Intelligence Reform bill Bush signed in December -- here is a chart comparing them.) No, it most definitely does not create a national I.D. card -- at least not by direct order. No, Real I.D. only forces states to follow federal guidelines in setting up its driver’s licenses by essentially making all that state’s citizens exiles in their own land if the states do not go along. Starting two years from this bill’s becoming law, if it does, all state driver’s licenses must follow certain requirements, which if they do not they will no longer suffice for federal identification purposes -- such as getting on a plane.

America at large, meet John Gilmore, who seems more and more wise and prescient in his (so far losing) legal fight for true freedom to travel, unimpeded by demands that he show I.D. Such policies were indeed a way station to an official mentality that has always been the very definition of sinister, officious authoritarianism: “your papers, please”. The Real I.D. act in effect declares that we cannot live in this country anymore without a federally specified biometric I.D. -- even though there is not any act of suicidal terror (remember 9/11!) I can imagine that could not be done, if needed, by someone with a perfectly legal passport or domestic I.D.

Laws like H.R. 418 are designed to severely tighten those gaps in which we can live and do business, with our government or with others, with privacy and dignity intact. Oh, there is much ruin in a nation, and Americans have had their virginity as a supposedly free people violated so often that outraged cries are, perhaps, more ironic indulgence than a source of believable moral dudgeon. Still, it feels good to say that, even though H.R. 418 is not the law of the land yet, the fact that a majority of our elected representatives in the House voted for it is a disgrace.

Link here.


Proposals to sacrifice civil liberties during wartime, as has occurred during past wars, will remain unsettling to many Americans, however, and nowhere is this more clearly the case than with proposals to demand that all Americans carry national IDs. National ID cards are not a new idea. As was discussed in a 1995 Cato Policy Analysis, national ID card proposals were most recently considered as a possible solution to illegal immigration. Similar national identifier proposals have arisen in debates over gun control, national health care, and Social Security reform. Moreover, many other countries currently require that their citizens carry some type of identity card.

What is new about the various national ID card proposals is that they have become more technologically sophisticated. If Americans are concerned about the recent proliferation of traffic surveillance cameras on roadways and sidewalks, then they ain’t seen nothin’ yet. But while the technologies may have changed, the fundamental problems with national ID cards have not. The most serious problem with national ID mandates remains the troubling ramifications for civil liberties.

While proponents of national ID cards will contend that civil liberties and privacy concerns are overblown, there is no denying that a national ID card could become the equivalent of a domestic passport that citizens are required to produce for the most routine daily tasks. The other serious problem with national ID cards is more practical: They probably won’t work.

Link here.


The House of Commons has passed the controversial ID card Bill by a vote of 224 to 64. It hopes to see the introduction of biometric identity cards and a central database of all UK citizens by 2010. However, its primary sponsor, the Secretary of State for the Home Department, admitted that he expected the Bill to face stiff opposition in the House of Lords. Both the Conservative and LibDems have refused to support the Bill. Questions over biometrics reliability are also likely to be wide debate as the Bill progresses through the Parliamentary process.

The Identity Cards Bill would create a system of ID cards with embedded chips that carry personal information and biometric identifiers. Each citizen’s name, address as well as fingerprints, facial scans and iris scans will be included in a massive database called the National Identification Register. The system is expected to cost up to £5.5 billion to implement, and calls for a standalone biometric ID card to be issued alongside a biometric passport. It would become compulsory for everyone living in the UK, including children, by 2012.

Link here.


The 4th Amendment to the U.S. Constitution is supposed to be the one that protects people and their “houses, places and effects” against “unreasonable searches”. 42 years ago, the U.S. Supreme Court held that attaching a listening device to a public pay phone violated this provision because the Constitution protects people, not places, and because the 4th Amendment prohibits warrantless searches without probable cause if the target enjoys a reasonable expectation of privacy. Last month the Supreme Court effectively trashed this principle in a case that could have a profound impact on privacy rights online.

The case, decided by the court on January 24, had nothing to do with the Information Superhighway, but rather an ordinary interstate highway in Illinois. Roy Caballes was pulled over by the Illinois State Police for speeding. While one officer was writing him a ticket, another officer in another patrol car came by with a drug sniffing dog. There was absolutely no reason to believe that Caballes was a drug courier -- no profile, no suspicious activity, no large amounts of cash. Under established Supreme Court precedent, while the cops could have looked in the window to see what was in “plain view”, the officers had neither probable cause nor reasonable suspicion to search Caballes’s car, trunk, or person. Well, you know what happened next -- the dog “sniff” indicated that there might be drugs in the trunk, which established probable cause to open the trunk, where the cops found some marijuana.

Now here is where things get dicey for the internet. In upholding the dog’s sniff-search of the trunk, the Supreme Court held that it did not“qcompromise any legitimate interest in privacy”. Why? Because, according to the court, “any interest in possessing contraband cannot be deemed ‘legitimate’.” The search was acceptable to the court because it could only reveal the possession of contraband, the concealment of which “compromises no legitimate privacy interest.” The expectation“qthat certain facts will not come to the attention of the authorities” is not the same as an interest in “privacy that society is prepared to consider reasonable,” the court wrote. In other words, the search by the dog into, effectively, the entire contents of a closed container inside a locked trunk, without probable cause, was “reasonable” even though the driver and society would consider the closed container “private” because the search only revealed criminal conduct.

The same reasoning could easily apply to an expanded use of packet sniffers for law enforcement. Currently, responsible law enforcement agencies limit their warrantless internet surveillance to the “wrapper” of a message, ie, email addresses or TCP/IP packet headers, unless they have a court order permitting a more intrusive search. To peek inside the communication, i.e., read the content, required that you first get someone in a black robe involved. The experiences of Mr. Caballes changed all that. As long as the technology -- like a well-trained dog -- only alerts when a crime is detected, it is now legal. As context-based search technology improves, the government may soon have the ability to take Carnivore one better and deploy “intelligent” packet search filters that will seek out only those communications that relate to criminal activity. They may already have it.

Link here.


Though he foresaw many ways in which Big Brother might watch us, even George Orwell never imagined that the authorities would keep a keen eye on your bin. Residents of Croydon, south London, have been told that the microchips being inserted into their new wheely bins may well be adapted so that the council can judge whether they are producing too much rubbish. If the technology suggests that they are, errant residents may be visited by officials bearing advice on how they might “manage their rubbish more effectively”. In the shorter term the microchips will be used to tell council officers how many of the borough’s 100,000 bins the refuse collectors have emptied and how many have been missed.

While the move will be welcomed by environmentalists, it has sparked a row between the Labour-led council and Andrew Pelling, the Conservative who represents the area on the London assembly. He has tagged the microchips the “spy in your bin”.

Link here.


In the old days (before World War I) the traveler simply pulled his boots on and went. The idea that he might need a piece of paper to prove to foreigners who he was would not have crossed his mind. Alas, things have changed. In the name of security (spies then, terrorists now), travelers have to put up with all sorts of inconvenience when they cross borders. The purpose of that inconvenience is to prove that the passport’s bearer is who he says he is. The original technology for doing this was photography. It proved adequate for many years. But apparently it is no longer enough. At America’s insistence, passports are about to get their biggest overhaul since they were introduced. They are to be fitted with computer chips that have been loaded with digital photographs of the bearer (so that the process of comparing the face on the passport with the face on the person can be automated), digitised fingerprints and even scans of the bearer’s irises, which are as unique to people as their fingerprints.

A sensible precaution in a dangerous world, perhaps. But there is cause for concern. For one thing, the data on these chips will be readable remotely, without the bearer knowing. And -- again at America’s insistence -- those data will not be encrypted, so anybody with a suitable reader, be they official, commercial, criminal or terrorist, will be able to check a passport holder’s details. To make matters worse, biometric technology -- as systems capable of recognizing fingerprints, irises and faces are known -- is still less than reliable, and so when it is supposed to work, at airports for example, it may not. Finally, its introduction has been terribly rushed, risking further mishaps. The U.S. want the thing to start running by October, at least in those countries for whose nationals it does not demand visas.

Link here.



The Bureau of Immigration will relax the implementing guidelines of the Dual Citizenship Act after thousands of Filipino-Americans groups in the U.S. complained that the process of reacquiring Filipino citizenship was too tedious and onerous.

Link here.


The blacklisted countries are deemed to have failed to cooperate in the fight against money-laundering. The FATF says it has taken the decision after the three improved their monitoring of suspect transactions. These include strict customer identification, suspicious transaction reporting, bank examinations, and legal capacities to investigate and prosecute money laundering. The FATF blacklist used to comprise 20 countries but now includes only Burma, Nauru and Nigeria.

Links here and here. FATF home page here.

FATF decision to delist Philippines boosts market.

Share prices closed 1.12% higher after the Paris-based FATF removed the country from its blacklist of insufficiently cooperative states, dealers said. They said extended buying momentum from Friday lifted the key index to a fresh 5-year high, buoyed by expectations of an improved economic outlook, corporate earnings and consumer spending this year.

Link here.


Carnivore, the FBI’s controversial surveillance program that monitors e-mail and chat rooms, has been swept aside by newer, more effective technology, leaving some privacy experts to question if congressional oversight has kept pace with software advances. In fiscal 2002 and 2003, bureau officials did not use Carnivore, according to FBI reports submitted to Congress and obtained by the Electronic Privacy Information Center through a Freedom of Information Act request. The bureau is increasingly going directly to Internet service providers, said Paul Bresson, an FBI spokesman. “Our preference has been for the ISPs to conduct the intercepts,” Bresson said.

“When the FBI uses Carnivore or some sort of similar technology, there are reporting requirements to Congress,” said Marcia Hofmann, staff counsel of the EPIC. “When the FBI goes to the ISPs for information, we may not know as much about that in the future.” This lack of oversight is harmful to the FBI in the long term, said Ari Schwartz, associate director of the Center for Democracy and Technology. “There are going to be cases where the power is abused, and we’ll find out through some back channels,” and the public’s inevitable reaction will result in a severe clampdown on Internet investigation tools, he said.

Link here.


Hong Kong is getting set to toughen laws to prevent money laundering by monitoring more categories of financial transactions and hopes to submit a bill to the Legislative Council in the fourth quarter. One of the proposals would draw in five nonfinancial sectors as “gatekeeper”q against money laundering while another will authorize officials to stop visitors at border checkpoints and ask them to declare the amount of cash in their possession. The U.S. in particular has been pushing worldwide for tougher controls on money laundering as part of its campaign against terrorists since 2001 and anti-narcotics efforts.

The measures being considered for Hong Kong are in line with international recommendations. The new sectors to be included in the prevention of money laundering activities are real estate agents, dealers in precious metals and stones, trust and company service providers, lawyers and accountants, and casinos. Currently, only those working in the financial sector have been asked to report suspicious transactions to the police.

Commissioner for Narcotics Rosanna Ure said existing laws require everyone in Hong Kong to report suspicious transactions to the police. But the laws do not require business executives and professionals to verify the identities of their customers or to verify whether accounts are held in fictitious names. The new law will require those professionals to keep transaction records for at least five years should they be required by law enforcement agencies. Ure said she hoped the bill would be passed quickly because a team from the FATF will be in Hong Kong in 2007 to evaluate the territory’s compliance with anti-money laundering initiatives.

Link here.


President Bush on Monday urged the nation to stay the course in its “urgent mission” to fight terrorism, and he called on Congress to move quickly to extend sweeping law enforcement powers under the USA Patriot Act. “We must not allow the passage of time or the illusion of safety to weaken our resolve in this new war”q Mr. Bush said in a speech at the Justice Department. “To protect the American people, Congress must promptly renew all provisions of the Patriot Act this year.”

The president’s remarks came at the formal swearing-in of his friend and longtime adviser, Alberto R. Gonzales, as the nation’s 80th attorney general. Mr. Gonzales won Senate confirmation 11 days ago by a vote of 60 to 36 after a sharp debate that focused on the administration’s terrorism policies and their impact on the treatment of prisoners. Mr. Bush built his reelection campaign last year around the assertion that he was the candidate best able to defend the country against another terrorist attack. In taking on the subject of the Patriot Act once again, he showed no signs of backing away from that approach. The White House has signaled that it will veto any effort by Congress to rein in counterterrorism powers.

Links here and here.

ACLU calls for full discourse on Patriot Act powers.

Appearing before the Department of Justice, President Bush has yet again called on Congress to renew the Patriot Act. While 10% of that act is set to sunset at the end of this year, we should be mindful that Congress specifically designed those controversial provisions to expire so that cooler heads could examine, review, and -- if warranted -- amend and renew them. Indeed, the 9/11 Commission found that “a full and informed debate on the Patriot Act would be healthy.” The attorney general noted during his confirmation hearing that he is aware that “there are concerns about possible infringement of civil liberties.” Congress has a responsibility to thoroughly examine the Patriot Act’s effectiveness and its impact on our most fundamental freedoms.

Across the country, 371 communities in 43 states -- including four state legislatures -- have passed resolutions demanding that the Patriot Act be fixed and brought back in line with the Constitution. Some 56 million Americans live these communities. The president and the attorney general must realize that security and liberty are not -- and cannot be -- mutually exclusive. Most of the Patriot Act is innocuous from a civil liberties viewpoint, but a few select powers raise constitutional red flags. They should be fine-tuned to give law enforcement the tools they need, but also protect our freedoms and liberties. A system of proper checks and balances must be preserved.

Link here.


Testimony of Juan Carlos Zarate, Assistant Secretary Terrorist Financing and Financial Crimes U.S. Department of the Treasury Before the House Financial Services Committee Subcommittee on Oversight and Investigations.

“... Since September 11th, we have concentrated our attention on financially isolating those who support terrorism while building systems and capacities in the international financial system to heighten the risk and cost associated with moving tainted capital. Through an unprecedented global effort to shut down flows of money to Al Qaida and like-minded terrorist groups, it is now harder, costlier and riskier for terrorists to raise funds for their attacks. Terrorist assets and conduits of funding have been frozen, shut down or otherwise neutralized. Key facilitators have been captured or killed; otherwise sympathetic donors have been deterred or isolated, and through training and technical assistance we have increased the capacity of our global partners to combat terrorist financing.

“In addition to concentrating on the formal mechanisms used by terrorists and criminals to hide sources and eventual uses of money, we have known and addressed the various informal ways that terrorist groups around the world raise and move money. We have applied a consistent approach to dealing with the relevant systemic risks attendant to different sectors of the international financial system -- both formal and informal -- in order to bring greater transparency and accountability to financial transactions globally. ...”

Link here.


First they came for the communists, and I did not speak out -- because I was not a communist;
Then they came for the socialists, and I did not speak out -- because I was not a socialist;
Then they came for the trade unionists, and I did not speak out -- because I was not a trade unionist;
Then they came for the Jews, and I did not speak out -- because I was not a Jew;
Then they came for me -- and there was no one left to speak out for me.

    -- Pastor Martin Niemöller, 1945

Now they are coming for the lawyers, and we must all speak out. Last week, after 13 days of deliberations, prominent New York civil rights attorney Lynne Stewart was convicted of conspiracy, providing material support to terrorists, and defrauding the U.S. government. Her 7-month trial was held in the same federal courthouse where the Rosenbergs were tried for conspiracy to commit espionage more than 50 years ago. Stewart faces between 35 and 45 years in prison.

Stewart was indicted in March 2002, based on governmental monitoring of conversations between Stewart and her client, Shiek Omar Abdel Rahman, which occurred two and a half years before September 11, 2001. Rahman is serving a life plus 65-year sentence for conspiring to bomb several New York City landmarks and soliciting crimes of violence against the U.S. military and Egyptian President Hosni Mubarak. Beginning in 1997, the Bureau of Prisons, at the direction of the Attorney General, imposed special administrative measures (SAMs) on Rahman, limiting his access to the mail, the media, the telephone and visitors.

Stewart was obliged to sign an affirmation agreeing to be bound by the SAMs, before being allowed to see her client. She agreed “only to be accompanied by translators for the purpose of communicating with inmate Abdel Rahman concerning legal matters” and not to “use my meetings, correspondence, or phone calls with Abdel Rahman to pass messages between third parties (including, but not limited to, the media) and Abdel Rahman.”

The government charged that Stewart allowed the Arabic translator to read letters to Rahman regarding Islamic Group matters, and to conduct a discussion with Rahman regarding whether Islamic Group should continue to comply with a cease-fire in Egypt. It also alleged that Stewart concealed those discussions from prison guards, and announced to the media that Rahman had withdrawn his support for the cease-fire, in violation of the SAMs. Stewart denied these allegations, and testified that she believed in good faith that relaying Rahman’s statement calling for more consultation about the Egyptian cease-fire did not violate the SAMs. Her good-faith belief, Stewart tesfitied, was based on actions of former U.S. Attorney General Ramsey Clark, another of Rahman’s attorneys.

Why did the government wait so long before indicting Lynne Stewart? According to Heidi Boghosian, executive director of the National Lawyers Guild, Stewart was a “prime target for the Attorney General, who needed desperately to show that the Justice Department was actively fighting terrorism.” When Stewart was indicted, John Ashcroft had arrested only one person since September 11 -- John Walker Lindh. “By indicting Stewart,” noted Boghosian, “Ashcroft effectively sent the dual message that he could indict other lawyers who represented clients with unpopular beliefs and that such clients do not deserve defense.”

Link here.

Stretching the definition of “terrorism” to new limits.

Stewart will be sentenced on July 15. She may serve up to thirty years in prison. Appeals are expected to consume years. In the meantime, Stewart will lose her right to practice law and face hard prison time. The eavesdropping on attorney-client communications that led to this prosecution would have been unimaginable before September 11. I will argue that this eavesdropping has a serious cost in inhibiting defense attorney’s ability to zealously represent their clients. This cost is of a constitutional dimension: The Sixth Amendment’s right to counsel cannot be served while the government is a third party present at attorney-client meetings.

Another problematic aspect of the Stewart prosecution is how far the definition of support for terrorism was stretched. Stewart never provided any financial support, weaponry -- or any other concrete aid -- for any act of terrorism. No act of terrorism is alleged to have resulted from her actions.

Link here.



The “oil for food” and other recent U.N. scandals made many aware the U.N. is quite literally out of control. What is not well known is that the U.N. is only one of now dozens of international organizations that increasingly exercise control over citizens in all countries and misspend taxpayer monies. From the end of World War II, many new multinational organizations have been created, most with the ideal of promoting world peace and prosperity in one form or another.

These organizations are set up and funded by the member governments, often accompanied by self-righteous announcements about all the good they will do. In reality, most often the organization is set up with a high-minded charter, a staff is hired to do the work, and the politicians who created the organization move on, giving it little, if any, oversight. These organizations’ professional staff quickly learn they are largely in charge of setting the agenda and operational structure. Being human, they often feel they know better than the founders what the agenda ought to be, and, of course, they want an organizational structure and physical environment comfortable for them. Usually, much time and money are spent meeting staff needs that may or may not be in the interests of the intended recipients or the client state’s taxpayers.

Bureaucrats, being bureaucrats, tend to want enhanced power and budgets. They can increase power by “mission creep”, expanding the original purpose, which requires more staff and money. They lobby donor government officials for more funds and look for independent ways to acquire resources. Both our liberties and our pocketbooks will face continued danger unless adequate oversight is brought to the international institutions.

Link here.


Forcible government cannot accomplish moral good. A reader informed me I was wrong about government because someone of her acquaintance was married with six children, and the acquaintance’s husband ran off with another woman. Without welfare, the mother of six “wouldn’t have survived.” Such a case always appears to be a powerful argument in favor of forcible, nannying, mothering government. But the counterarguments almost write themselves. There is no question the mother and her children would have been better off without having forcible government in their lives.

First of all, there are countless private charities, churches, and loving individuals who could have come to her aid. Friends, family, and community are what life is all about, and they all come free of charge if you will just get out of the house. Second, government assistance always comes with strings attached. Third, government assistance is morally wrong in and of itself. It can exist only when the earnings of others are taken from them involuntarily. You cannot accomplish a moral good by first committing a moral wrong. Fourth, government assistance always crowds out the private sector. In the private sector, it is common for 90% of funds collected to go to recipients -- almost triple the efficiency of government programs.

We see, then, that government cannot succeed at doing moral good even in the most obviously charitable of tasks. How much worse, then, is the case when the government forcibly confiscates our property and opportunities for projects not so obviously charitable? It is the nature of forcible government to force such things on everyone. Try as you might, there will never be a way to accomplish a social or moral good by first robbing innocent people, then giving their money and power to people who will never be held truly accountable.

Link here.


It seems my earlier article “I Am A Bum” has touched a nerve with modern America. Many readers out there seem to be inspired by my total lack of success. Cries for help have poured in from across the land. Here I thought I was just some crackpot spewing a heap of hooey. Ok, so maybe I am. Still, how can I sleep at night if I do not answer these desperate pleas for help? The Secret to becoming happily worthless needs to be shared. No self-respecting lay-about could sit back and let fellow humans wallow in the depths of prosperity. Well... actually I could but I do not have anything else to do.

So, here I must offer my 12-step manual for chucking it all and becoming a sincerely contented failure. After all, the true American Dream is not becoming rich and famous. That is the dream according to Hollywood and Corporate America. The reality is they are pulling a big scam on you to get your money. It is working too. Nope. Real Americans dream about the Endless Summer Vacation. It is a place where The Man cannot poke them with a cattle prod to stimulate production. So here is The Secret on how to do it (or not do it, as the case may be).

Link here.


If the history of the Republican revolution were being written today, a single overarching question would have to be answered: Whatever happened to the promise of smaller government? That question was asked again last week, when President Bush unveiled a $2.57 trillion budget for 2006, the largest in the nation’s history. The cuts he called for, in areas like veterans’ medical care, farm subsidies and vocational training, were met in Washington with doubts that they would ever get through the Republican Congress. “Republicans have lost their way,” lamented Newt Gingrich, the government-slashing firebrand of a decade ago.

In 1995, a band of 73 freshman Republicans swept into the House of Representatives, with Mr. Gingrich as their speaker. Flush with ideological zeal and determined to get government off the backs of the people, as Ronald Reagan would say, they pushed through a budget resolution that called for eliminating scores of programs and three federal departments. Their fervor was so politically potent that in 1996, a Democratic president, Bill Clinton, declared, “The era of big government is over.”

Yet government has only grown. The Cato Institute, a libertarian research institution, says overall federal spending has increased twice as fast under Mr. Bush as under Mr. Clinton. At the same time, the federal deficit is projected to hit a record high of $427 billion this year. “The era of big government being over is over,” declared Marshall Wittmann, a senior fellow at the Democratic Leadership Council, a centrist Democratic research organization. That would certainly seem to be borne out in the record of the Republican revolutionaries, known as the “Class of 1994”. Of the 30 who are still in the House of Representatives, 28 sponsored bills in the last Congress that would have increased government spending overall, according to the National Taxpayers Union, an antitax group.

Some of the expansion in government was beyond their control. Yet the old Gingrich revolutionaries have lowered their battle cry to a whimper. Instead of demanding that federal agencies be put out of business, they are fighting among themselves over small-bore questions of what to cut and what to keep. “The Gingrich revolution was about system change,” said Senator Lindsey Graham, Republican of South Carolina, a member of the Class of 1994. “Now we’re in the weeds of government, this program and that program, and we’ve lost the big picture.”

Brian M. Riedl, a budget analyst for the Heritage Foundation, says the Republicans lost their zeal for spending cuts after 1995, when Congress forced a government shutdown over a budget impasse with President Clinton. The effort came off as mean-spirited and petty, and Republicans took the blame. For Mr. Gingrich, the architect of the shutdown, the costs were especially high. He left government soon after, a reminder of how much easier it is to be a revolutionary than to govern. “Ever since the government shutdown was determined to be a political loser for Republicans,” Mr. Riedl said, “they have been tentative to take on spending.”

Link here.

Absorbed by the State.

If you have read the Screwtape Letters by C.S. Lewis, you know that the Devil is an expert in turning good impulses toward evil ends, and in leading people to misapply virtues in ways that serve the cause of evil. Well, so it is with the state. In every age, it takes the intellectual and political fashions alive in the culture, and turns them toward power for itself, money for itself, authority and affection for itself. The end is always and everywhere the same and as predictable as the tides. However, the means the state uses to achieve this end are forever changing in ways that surprise us.

This tendency takes peculiar turns in the course of Republican administrations, when the rhetoric of freedom, free markets, and limited government is used for the paradoxical purpose of expanding state power. The example of how the cultural conservatives are being absorbed is especially egregious. The list goes on. The anti-tax movement becomes a tax reform movement that ends up making government more expensive, and so forth.

Link here.


As part of the recent G7 jamboree, there was a nauseating display, to the accompaniment of Rock’s very own St. Francis -- U2 frontman, Bono -- of much hypocritical wailing on the problems of the world’s poor. [And this as if the twin evils of the West’s meddlesome foreign policy and its unyielding economic mercantilism were totally innocent of any role in helping successive swarms of tinpot militarists, local warlords, and tribal banditti from battening on the lifeblood of the Third World’s downtrodden producers and would-be property-holders!] So, the issue of forgiving some or all of the obligations owed by the most indebted pauper nations, either to sovereign governments directly or to their supranational arm, the IMF, arose once more, amid much high sounding self-congratulation.

How about mandating a complete debt forgiveness; liquidating the then-insolvent IMF and distributing any remaining gold, pro rata, to its owners -- the Western taxpayers; enacting a complete abolition of all trade tariffs, subsides, and quotas; then, as a quid pro quo, announcing an immediate cessation of all foreign aid? This would instantly encourage Third World entrepreneurship and stimulate mutually-beneficial global commerce (and so help dissipate international hatreds). Simultaneously, it would mean we desist from the practice of propping up “friendly” despots and that we no longer subsidize the no-less debilitating, if more outwardly humane, socialist boondoggles which such monies invariably underwrite in the hallowed “democracies” of the poor?

That would be a surefire way of unlocking more wealth than is contained in all the world’s hoards of gold, whether in or out of the IMF’s vaults. Maybe we could even get Bono to write a song about it...

Link here.


Harry G. Frankfurt, 76, is a moral philosopher of international reputation and a professor emeritus at Princeton. He is also the author of a book recently published by the Princeton University Press that is the first in the publishing house’s distinguished history to carry a title most newspapers, including this one, would find unfit to print. The work is called On Bull***. The opening paragraph of the 67-page essay is a model of reason and composition, repeatedly disrupted by that single obscenity:

“One of the most salient features of our culture is that there is so much [BS]. Everyone knows this. Each of us contributes his share. But we tend to take the situation for granted. Most people are rather confident of their ability to recognize [BS] and to avoid being taken in by it. So the phenomenon has not aroused much deliberate concern, nor attracted much sustained inquiry.”

The essay goes on to lament that lack of inquiry, despite the universality of the phenomenon. The balance of the work tries, with the help of Wittgenstein, Pound, St. Augustine and the spy novelist Eric Ambler, among others, to ask some of the preliminary questions -- to define the nature of a thing recognized by all but understood by none. “It is impossible for someone to lie unless he thinks he knows the truth,” Mr. Frankfurt writes. “A person who lies is thereby responding to the truth, and he is to that extent respectful of it.” The bull artist, on the other hand, cares nothing for truth or falsehood. The only thing that matters to him is “getting away with what he says”, Mr. Frankfurt writes.

And this makes him, Mr. Frankfurt says, potentially more harmful than any liar, because one is in danger of rejecting “the possibility of knowing how things truly are”. It follows that any form of political argument or intellectual analysis or commercial appeal is only as legitimate, and true, as it is persuasive. There is no other court of appeal. The reader is left to imagine a culture in which institutions, leaders, events, ethics feel improvised and lacking in substance.

Link here. On Bull****, the essay, can be found here.


Students of history inevitably think in terms of periods: the New Deal, McCarthyism, “the Sixties” (1964-1973), the NEP, the purge trials -- all have their dates. Weimar, whose cultural excesses made effective propaganda for the Nazis, now seems like the antechamber to Nazism, though surely no Weimar figures perceived their time that way as they were living it. We may pretend to know what lies ahead, feigning certainty to score polemical points, but we never do.

Nonetheless, there are foreshadowings well worth noting. The last weeks of 2004 saw several explicit warnings from the antiwar Right about the coming of an American fascism. Paul Craig Roberts in these pages wrote of the “brownshirting” of American conservatism. Several weeks later, Justin Raimondo, editor of the popular Antiwar.com website, wrote a column headlined, “Today’s Conservatives are Fascists.” His fellow libertarian, Mises Institute president Lew Rockwell, wrote a year-end piece called “The Reality of Red State Fascism”.

The warnings from these three writers would have been significant even if they had not been complemented by what for me was the most striking straw in the wind. Earlier this month the New York Times published a profile of Fritz Stern, the now retired but still very active professor of history at Columbia University. Stern had emigrated from Germany as a child in 1938 and spent a career exploring how what may have been Europe’s most civilized country could have turned to barbarism. In his Times profile, he sounds an alarm of the very phenomenon Roberts, Raimondo, and Rockwell are speaking about openly.

Link here.


One angry reader calls me an “appeaser” for a recent column in which I denied that al-Qaeda poses a “totalitarian threat” to this country. In this business one gets used to having one’s little feelings hurt, but the pain soon passes, often giving way to reflection. The word appeaser belongs to a legacy of slogans from World War II and the Cold War, which are being forced into service for the War on Terror, to which they do not apply. It is hardly “appeasing” an enemy to define him in his true dimensions. Jack the Ripper was a bad sort of person, but not a totalitarian threat -- just a brief menace to a certain class of women in a certain part of London.

Nevertheless, when people are frightened they lose all sense of proportion, and the Ripper’s fiendish murders terrified respectable people to whom he posed no threat at all. He probably sold millions of newspapers — the only mass media of his day. Imagine the impact he would have had in the age of television. Jack kept the public good and jumpy with periodic letters to the newspapers, rather like bin Laden’s occasional videos. Then, mysteriously, he stopped killing women. Did he change? We will never know. “Terrorists,” as the term implies, want to scare people. Television is extremely helpful to this purpose, especially when it can actually show us their crimes. The events of 9/11 were immeasurably less destructive than last December’s giant tsunami, but you would hardly know it from the media coverage.

Just before the November 2 election, Osama bin Laden released another video, causing speculation that he was trying, as his own words seemed to imply, to help John Kerry win, though some speculated that he was cleverly trying to help President Bush win by using reverse psychology. But the Egyptian newspaper Al-Ahram assesses that bin Laden is capitulating, withdrawing, or trying to “change his spots” from a jihad fighter to a politician, in telling George Bush, “Leave us alone, and we will leave you alone.” Is he reasoning that the time has come for a new strategy, of subtly offering to appease the U.S.? Or is he playing some other head game? In any case, it is fantastic to imagine him conquering America, let alone ruling it. Terrorists are rarely conquerors.

I have suspected for some time that al-Qaeda shot its wad on 9/11. This is impossible to prove, but the follow-up attacks we expected have not come to pass. Bush’s War on Terror has morphed into something completely different, a War for Democracy. The “terrorists” he now speaks of are those who want to disrupt this month’s elections in Iraq. Bush’s urgent alarms about post–9/11 dangers are already passé. The country was geared up for a phantom enemy and a huge war we never had to fight. And we are still fighting it.

Link here.


A few days ago a Reuters release appeared with the eye-grabbing headline “US Sees Threats from Terror, Iran, and North Korea”. I was wondering how Jonathan Swift might react if he saw such a headline and in the vein of the great satirist, I started to conjure up a modest proposal to submit to our Excellency, the honorable George W, Bush, emperor of these 50 United States and soon the rest of the world. As his recent State of the Union message revealed, no matter what platitude is uttered, no matter what deception is papered over, the assembled throng of senators, congressman, justices, cabinet members, and press lackeys rise to their feet in a thunderous ovation. So, my proposal is that he say the following at his next address just to test whether another standing ovation is in the offing.

Link here.


As I quickly learned upon the publication of The Real Lincoln, the first reaction of virtually all neoconservatives to a publication with which they disagree, from the Claremontistas to National Review, The Weekly Standard, and AEI, is: 1) to lie about the actual contents of the publication, and then attack their own straw-man arguments; 2) to wage a personal smear campaign against the author; and 3) to quote each others’ lies from #1. This textbook neocon procedure was on display again recently in a February 15 Weekly Standard online “review” of Tom Woods’s book, The Politically Incorrect Guide to American History, by Max Boot of the Council on Foreign Relations.

The Boot hatchet job is filled with lies, half-truths, and personal smears, absurdly claiming that the libertarian Tom Woods is “sympathetic to fascists” and, even worse, that Woods is supposedly “indignant” that Bill Clinton got America involved in the war in the Balkans. Tom Woods’s biggest “sin”, however, is that his writings seem to “seethe with hatred” for “everything that neoconservativism (and modern America) stands for.” Read The Politically Incorrect Guide to American History, and compare it to Max Boot’s rantings, such as this one, and you will learn who is really “seething with hatred”.

And let us not ignore that fact that Boot is simply delusional when he equates “modern America” with “neoconservativism”. To Boot and his neo-Comrades, so many of whom take great pride in being (supposedly) ex-Trotskyites, the world of “New York intellectuals”, as they call themselves, is America. By definition, anyone who disagrees with them is therefore a traitor. In short, these people are crazy.

Link here.
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