Wealth International, Limited

Offshore News Digest for Week of March 7, 2005

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

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A leading Swiss expert taking part in the International Conference on Federalism in Brussels says this system of government is not the answer to all problems. Former justice minister Arnold Koller says that increasing regionalization in the world could leave Switzerland more isolated. Koller, who heads a working group on federalism and international relations, was one of more than 600 politicians and experts from around 80 countries attending the conference, which ended on Saturday. Many argued at the 3-day meeting that federal forms of government could contribute to peace and stability. Koller is more cautious in his assessment.

Link here.

IMF says sound Swiss fiscal and monetary policy not enough.

The IMF has given Switzerland the thumbs up for its fiscal and monetary economic policies. But the latest IMF report also advised the Swiss to press ahead with structural reforms to increase sustainable growth and ensure the funding of the welfare system. The Swiss finance ministry said it agreed with most observations made in IMF report, in particular with its appraisal of a SFr3 billion ($2.6 billion) program of public spending cuts approved by parliament last year. The National Bank said it welcomed recommendations by the IMF to use the revenue from the sale of bank’s surplus gold reserves for debt reduction.

Link here.

Are the Irish richer than the Swiss?

If the OECD is to be believed, Ireland has overtaken Switzerland in terms of economic “wealth” -- pushing the once-mighty Swiss into 5th place worldwide. But Ulrich Kohli, a member of the governing board of the Swiss National Bank, told a conference in Zurich that a closer look at the figures made him “rather sceptical”. The OECD figures, based on data from 2002, have fanned the flames of the already lively debate about Switzerland’s economic “growth deficit”. Kohli questioned whether GDP was the most appropriate measure of national income, particularly in the case of Switzerland. And he said real annual economic growth in recent decades had probably been one to 1.5% higher than the GDP figures suggested -- due in large part to the Swiss economy’s dependence on exports. Kohli conceded that growth was still sluggish, but said, “It is probably only half as bad as it looks.”

Link here.

Swiss immigration boosts population growth.

The number of foreign residents in Switzerland rose by 54,200 people in 2004, according to official figures published this week. The Germans were the fastest growing foreign community, with their numbers increasing by 11,228 to 114,864. But the Italians remained the largest non-Swiss group, accounting for 20.1% of resident foreigners, ahead of people from Serbia and Montenegro, and Portugal. A majority of immigrants have passports from countries of the EU. Last year the final stage of an accord with the EU came into effect, easing access for foreigners to the Swiss labour market. About 30% of the newly naturalized Swiss were citizens from Serbia and Montenegro, and Turkey. The total population increased by 0.7% last year to 7.42 million. The figure does not include asylum seekers, foreign diplomats and officials.

Link here.


While the rest of Northern Europe languishes in winter’s clutches, daffodils pop up in cemeteries and bright primroses decorate the front yards of vacation cottages in Jersey, unseen and thus unappreciated by the sun-seekers of summer. Jersey is the largest of the Channel Islands, about 15 miles from France and 100 miles south of mainland England. Its climate is mild, tempered by the Gulf Stream. From May to September the average temperature is 68 degrees. In winter Jersey is often windy but rarely frigid, and snow rarely sticks. As a result, the island is a hothouse where flowers are so perpetual that Rebecca Ransom, co-director of one of Jersey’s major garden centers, calls them “white noise”.

Eric Young Orchid Foundation is one of Jersey’s -- and perhaps one of the world’s -- greatest floral treasures. The foundation is not as famous as other island attractions, such as the gentle Jersey cow and her sinfully rich dairy products, or Royal Jersey potatoes and Royal Bay of Grouville oysters. But orchid aficionados know the foundation because it wins awards at almost every competition it enters, including four gold medals from the Royal Horticultural Society at a recent Chelsea Flower Show.

Traded back and forth between England and France throughout its history, Jersey chose to ally itself with Britain in the 13th century and, as a reward, was granted the unique status of “crown peculiar”, which means it remains self-governing. It is subject only to the English monarch, not to the Parliament, though England handles Jersey’s affairs by treaty. The island has its own currency (which looks much like and is used interchangeably with British notes and coins, also accepted on Jersey), is blessed with some of the cleanest beaches in Europe (thanks to high-tech sewage treatment) and writes its own tax laws. Income tax is low -- 20% -- for its 90,000 residents, and there are no inheritance, capital gains or value-added taxes.

Link here.


Two huge negative ratings characterize the current state of mind of the Maltese population. The current administration’s performance gets a -24.33 rating and Prime Minister Lawrence Gonzi gets a similarly low rating of -23 on two separate 100-point Performance Indices. The survey was carried out by telephone among a representative sample of 300 households between February 22 and last February 27. A staggering 75% of the Maltese are not satisfied with the way Government is running the country at present, while 19.7% think otherwise and 5.3% uncommitted. Dissatisfaction runs high among all ages and socio-economic groups.

Among those who are dissatisfied, the reasons given (unprompted) were “the increase in the cost of living cannot be borne” (64%), closely followed by “too many new taxes” (55.6%). Other reasons included “the economy is stagnant” (14.2%), “there is no work” (11.1%), “decisions taken are not sensitive to popular needs” (7.6%). Since the Government has openly declared that the unpopular decisions that are being taken are necessary, all the respondents were asked to what extent they agree with the Government’s decisions. The overwhelming majority of the Maltese (58.7%) stated that they “tend to disagree” and 3.7% are in “total disagreement”.

Link here.


The super-rich have become even wealthier under New Labour, according to new analysis published. Experts claim the top 1% of the UK’s earners enjoy a bigger share of the nation’s wealth than at any time since the 1930s. At the same time, the gap between rich and poor has become wider than ever under Prime Minister Tony Blair. The 600,000 richest people in the top 1% doubled their total wealth to £797 billion in the first six years of Labour rule. While their share of the nation’s wealth has grown from 20% to 23% since 1997, the share belonging to the poorest 50% shrank from 10% in 1986 to just 5% iin 2002. Intriguingly, two of the top five people who have gained most under Blair are high-profile Labour donors.

Including council tax and VAT, the top fifth of earners pay a smaller proportion of their income in tax -- 34% -- than the bottom fifth, who pay 42%. The super-rich have seen their bank balances helped by a loophole known as “non-domiciled resident tax status”, which exempts those who spend fewer than 90 days a year in the UK from paying tax on any earnings overseas or from investments in offshore tax havens.

Link here.


Beijing is nimbly withdrawing its man in Hong Kong, and in doing so is subtly thumbing its nose at the one-country, two-system principle that guided Britain’s handover of the territory to China in 1997. Beijing has quietly leaked its decision to retire the unpopular Tung Chee-hwa, Hong Kong’s chief executive, to a ceremonial advisory body that is largely reserved for former politicians. Mr. Tung had clumsily made Beijing’s grip on Hong Kong too overt, causing massive unrest. He also mishandled the 2003 outbreak of SARS. Mr. Tung’s attempts to introduce “anti-subversion” legislation backfired, forcing mainland politicians to endure the spectacle of half a million Hong Kongers taking to the streets to protest the bill in July 2003. Last July 1, during the 7th anniversary of Britain’s return of Hong Kong to Chinese rule, close to half a million people took to the streets again, calling for democratic reform.

Beijing now wants a chief executive more skilled in the fine art of veiling the puppet strings it will be controlling. Donald Tsang, the chief secretary, appears to have what Beijing is looking for. But there is more to Beijing’s latest moves, however, than a desire to install a more able puppet-master. By in effect ordering Mr. Tung’s resignation now, before the current term of the Electoral Committee expires on July 13, Beijing is betting that it can stymie political reform. China’s wager could go awry. But while the outcome of China’s leadership shuffle remains uncertain, Beijing’s intentions are disconcertingly transparent.

Link here.


Should Bermuda -- a small island, British Overseas Territory (BOT) -- proceed to independence or not, and, what should be the process by which such a decision is made? These are two elements of a question that is being explored by members of the Bermuda Independence Commission (BIC), established by the government of the ruling Progressive Labour Party (PLP) led by Premier W. Alexander Scott. A poll conducted last month in Bermuda revealed that 65% of those polled are against independence and only 35% are for it. The views expressed in the poll are based largely on very politically charged arguments made by both the ruling PLP and the main opposition, the United Bermuda Party (UBP). The decision about independence is far too important to be made only on the basis of political rhetoric.

Bermuda is Britain’s oldest colony. Since February 2002, it has been designated as a BOT and is self-governing with a very high degree of control over its own affairs. Bermudans are entitled to be both Bermudan and British citizens with the right to live and work in the European Community as a whole. The island is often linked to the Caribbean, although it is approximately 1,000 miles away from the region. Its links to the Caribbean are recent and few. Its population of 65,000, comprising white and black people, enjoys one of the highest per capita incomes in the world, equivalent to that of the U.S.A. Its unemployment level is low at about 5% (2002 figures), and it has enjoyed an average growth of its economy of about 2% over the last six years. This is really quite remarkable since Bermuda has virtually no natural resources and virtually no industry.

Why should Bermuda want independence from Britain? Of the BOTs, it enjoys more self-government than any other, and it does not have to bear the cost of its external relations and defence. Indeed, as one of its former Premiers, Sir John Swan, famously put it in 1982, “With the Americans to feed us and the British to defend us, who needs independence?” The answer to this question is complex. In part, it relates to the racial divide in the country. For the most part the white population opposes independence while a significant number of the black population (though not an overwhelming majority) support it. The PLP obviously feels that there is some political mileage to be derived from an independence platform.

If years of experience has taught Caribbean Community (CARICOM) countries that “going it alone” is not a viable option in today’s global community, Bermudans should be given the right of a referendum to choose their path. And, they should be fully informed of all the benefits and pitfalls that surround the question of independence on which they are asked to decide.

Link here. BIC report says independence may boost economy -- link.


The Republic of South Africa, located at the tip of Africa, is the world’s new favorite tourist and migration destination. As other countries around the globe make it more and more difficult to migrate to, South Africa has eased its restrictions. The intention of the South African Government is to attract skilled workers to the country. South Africa is short of 500,000 graduates in various fields including IT, Engineering, Business and many other technical fields. One of the strategies is for South Africa to become the call center capital of the world. This requires skilled people and investment.

As a tourist destination, South Africa is “a world in one country”. It is a relatively inexpensive country to visit, and a great country to invest in or immigrate to. South Africa is made up of nine provinces. All provinces have modern cities and beautiful game reserves.

Link here.


U.S. firms are increasingly looking to the new EU member states as places to invest and away from traditional hubs such as Germany, a new report has shown. The report, unveiled March 8 by the American Chamber of Commerce and the Boston Consulting Group, shows that 26% of U.S. firms see Eastern Europe as the best region for business investment. This rate has doubled in the past year. Eastern Europe is winning business not just from industrial sectors such as car manufacturers but also in the service sector, especially in IT support or call-centers. U.S. companies see Poland, the Czech Republic and Slovakia as the most attractive labor markets in Europe -- followed by the U.K. and Ireland, the report revealed, adding that American firms are attracted to the new member states because of low wage costs and a light regulatory regime.

Link here.


The Isle of Man has often struggled to keep pace with recent pressures to evolve, but as the competition for offshore business hots up, the island is diversifying its economy and shaking out its legislative structures to keep a competitive advantage. It may be a cliche, but it is difficult to avoid the conclusion that the Isle of Man is going through a defining period of change -- and opportunity. The island has recently spent several years on the back foot, reacting to the international drive for transparency and the erosion of “harmful tax competition”, largely at the behest of supra-national organizations such as the OECD, the IMF, and the EU. On the regulatory side, this has resulted in the introduction of strict anti-money laundering requirements, the regulation of fiduciary service providers and enhanced supervision of financial services companies.

On the tax side, steps have been taken to eliminate ring-fenced tax regimes, to implement the EU Savings Directive and to settle the terms of bilateral tax information exchange agreements. Fortunately, this whirlwind of change now seems to have subsided and the Isle of Man, in common with other offshore financial centers, can plan for the future. Ironically, many of the changes that have been forced upon the island are now key aspects of its economic strategy for the next 10 to 15 years. With its AAA credit rating, adherence to international regulatory standards, English-based common law legal system and a zero-rate corporate tax strategy from 2006, the island should be well placed to attract business from discerning international players looking for a tax neutral jurisdiction from which to do business.

Link here.



Claims that Treasury is implementing tax reforms to soften the impact of zero corporate tax without proper public consultation have been refuted by the new tax assessor Malcolm Couch. Mr. Couch was responding to comments made by senior tax advisers on the Island about the need to educate the general business community about the impact of any changes in tax law. The amendment will seek to ensure that companies in the Isle of Man distribute 60% of their profits to shareholders or face a tax on those profits. The tax will equate to 10.8% of profits for trading companies and 18% for investment companies.

Phillip Dearden, tax director with PKF, said the government had a public relations problem as many company directors and advisers still believed that corporate tax would be totally abolished in 2006. Dr. Couch has highlighted several areas of the proposals that he believes have been misunderstood by advisers and emphasized the fact that the changes would benefit the Island and that Manx residents would not be disadvantaged. “In the hands of shareholders, dividends are taxed now and will continue to be taxed in the future as part of the person’s income. As the (Treasury] Minister announced in the Budget, we will deliver the 0/10 tax system for companies next year (from April 6], meaning that for most companies, their profits will be taxed at zero percent.”

He added that the new system for companies was designed with three objectives: “To be compliant with the EU Code of Conduct on Business Taxation, which put simply says that all companies must be within the same tax regime, so tax exempt, international limited liability and international business companies must be phased out in due course. To maintain as far as possible the advantages of doing corporate business in the Isle of Man and to move to an even more dynamic tax environment that would encourage inward investment.” A major reason for the new regulation will be to stop companies deferring income tax payment until they receive a dividend. Although the charge only relates to Manx shareholders, dividends payable to non-resident shareholders will be subject to tax in their country of residence.

Link here.


One of the great success story in European racing in recent decades has been the incredible expansion of the Irish bloodstock industry. Before the 1960s, Ireland had earned a reputation for stallions which produced fine hurdlers and steeplechasers, but not many Flat champions. Then in 1969 by Charles Haughey, who was then finance minister, purshed through the Irish parliament a bill that made stud fees exempt from tax. The result, 35-odd years on, is that Ireland has come from nowhere to become the 3rd-largest thoroughbred producer in the world -- after the US and Australia -- with a breeding industry turnover of around €330 million each year.

The Irish exchequer gain €37.5 million in tax income from those who work in the industry, while the cost of the stud fee exemption is just a few million euros. Crafty old Haughey! But the powerful EU commission is at the heart of a serious threat to the tax break system on which the Irish breeding industry’s success rests. The EU does a great deal of good -- after all, members have not bombed one another for 60 years. But you do not have to be a Little Englander to be concerned about the commission poking their noses into a tax regime which is in its 4th decade of operation.

Several mostly left-wing Irish politicians are queuing up to urge the EC to end the tax break scheme, saying that rich people should be made to pay a proper tax on stallion fees -- to finance hospitals and the like. But you do not make poor people richer by making rich people poorer. In any case, Ireland’s wealthiest stallion owners will simply siphon money into their offshore tax havens, as they have done for years. But the vast majority of studs in Ireland are small-scale operations, which depend on the tax break to make a profit. Without any doubt, stopping the stallion fee exemption will lead to studs closing and jobs disappearing, leading in turn to a massive loss of tax income -- which will far outweigh the cost of the present system.

Link here.


Enacting a major tax reform bill will be a challenge, but the president has been remarkably successful with his tax agenda so far. Income tax rates have been reduced, dividend and capital gains taxes have been cut, and the tax rules on retirement savings vehicles have been liberalized. However, the tax system remains terribly complex and inefficient. The number of pages of federal tax rules has increased 48% in the past decade. The complex alternative minimum tax will hit about 35 million households by the end of the decade if not repealed. The high-rate U.S. corporate income tax is under growing pressure as global investment capital has become more mobile. This study looks at possible changes to address those problems. It identifies three goals for tax reform: simplification, efficiency, and limited government. The latter goal focuses on tax code features such as visibility and equal treatment that cultivate an understanding of the high cost of government.

This study examines reform options including a flat tax, a national retail sales tax, and a savings-exempt tax in reference to those goals. It also proposes a new option, a “dual-rate income tax”. This revenue-neutral option would convert the individual income tax to a two-rate system that eliminates most deductions and credits and allows nearly all families to pay tax at a low 15% rate. A 27% rate would kick in for earnings above $90,000 (single) and $180,000 (married). To promote growth, the maximum individual rate on dividends, interest, and capital gains would be 15%. The corporate tax rate would be dropped to 15% and interest made non-deductible. These changes would equalize and cut the combined top income and payroll tax rates on wages, dividends, interest, and small business income to just under 30%, compared with between 35 and 45% under current law. The dual-rate tax plan would create a simpler and more efficient taxcode within the structure of today’s system.

Link here. Full text of policy analysis here (PDF file).


Early each year, as the annual chore of filling out tax forms begins, the federal government announces indictments of tax evaders, hoping to deter anyone who may be tempted to cut a few corners. Last week in Washington, the government indicted a man it said was the biggest known tax cheat in history: Walter Anderson, 51, a long-distance telephone entrepreneur and promoter of private space travel. From 1995 to 1999, the government said, he failed to pay taxes on at least $450 million in income -- a figure almost as large as the $550 million Congress gives the I.R.S. each year to conduct all criminal tax investigations.

I.R.S. commissioner Mark W. Everson later acknowledged that many people could be evading tax on the same vast scale undetected by the I.R.S., because the agency has little money and weak legal tools to hunt for them. Mr. Everson said that he and President Bush have repeatedly sought more resources to find high-income tax cheats, but that Congress has appropriated little of the requested money. His predecessor, Charles O. Rossotti, says that the I.R.S.’s enforcement strategy winds up scrutinizing ordinary taxpayers much more than the rich and powerful, who do not depend on wage income. In a new book, Many Unhappy Returns, Mr. Rossotti says the agency is “like a police department that was giving out lots of parking tickets while organized crime was running rampant.”

For most taxpayers, there is little opportunity to cheat significantly without detection, because their wages and salaries, interest and dividends are reported independently to the I.R.S. by their employers, banks and brokers, making it possible for the agency’s computers to spot discrepancies. So, too, with their biggest deduction, home mortgage interest. But Mr. Rossotti notes that business owners like Mr. Anderson are largely in control of what the I.R.S. knows about their finances. Apparently, it was a tip from the public that put the I.R.S. on Mr. Anderson’s trail. Many such tips fail to pan out, but even when one does, prosecuting a criminal tax-evasion case is costly and time-consuming. The investigation that led to Mr. Anderson’s indictment took five years and required cooperation among at least seven governments.

Link here.


The Supreme Court eliminated some of the secrecy faced by Americans taking tax disputes to the U.S. Tax Court, ruling that factual recommendations in the proceedings must be disclosed. While the official opinions of the tax court are made public, people are not allowed to see recommendations by specially appointed judges who hold trials in cases involving more than $50,000, and who also write detailed reports. In a 7-2 decision, the court said that was wrong, finding it to be a violation of tax court rules. It noted that initial findings made by magistrate and bankruptcy judges in other proceedings are open. “The commissioner may not rely on the tax court’s arbitrary construction of its own rules to insulate special trial judges from disclosure,” Justice Ruth Bader Ginsburg wrote for the majority.

Taxpayers fighting with the IRS may use traditional courts if they pay the IRS first, then sue to recover the money. The U.S. Tax Court is available to people who want to contest IRS findings before paying any cash. The case involved a pair of appeals that stem from accusations that a real estate executive and a prominent, now-deceased tax attorney with ties to Hollywood, were part of a kickback scheme. The IRS sought $30 million in back taxes and penalties.

Link here.


They are a done deal, but that does not mean that the recently enacted fiscal reforms are no longer a topic of discussion. And so it was that an audience of students, faculty and a few members of the general public gathered in the auditorium of the grad school of Panama’s Catholic institution of higher learning, the Universidad Santa Maria la Antigua (USMA) to hear a young defender of the Torrijos administration’s reforms get triple teamed by skeptics in panel discussion.

Carlos Guillermo Rognoni Arias, of the nation’s Office of General Revenue (DGI), began by asserting that the government’s motive is rooted in years of neglect and special interest politics, in which tax breaks and exonerations were handed out to the most vocal and powerful lobbies, and accounting stunts that put conspicuous consumers into paper penury for tax purposes were developed and accepted, to the point that the tax system could no longer serve the basic function of raising enough money to pay for essential public services.

The Torrijos reforms were not about creating new taxes, Rognoni argued, but collecting existing ones by closing loopholes. Few small businesses that now pay taxes will see an increase, he said. The young man from the DGI also pointed to a lowering of property tax rates, a reduction of the top income tax rate from 30 to 27% and an appeals process that allows businesses that would suffer a special hardship from the alternate minimum tax to get some relief. But former Treasury Minister Menalco Solís was not buying those arguments. Arguing that the rationalization of public spending somehow got lost in the mix, he characterized the reforms as a tax hike of one of the worst sorts. Mostly, however, Solís had procedural objections. “The government had to pass this law,” he said, “but the way they did it wasn’t uplifting.”

Link here.


Tax time fast approaches and, with it, the need for an honest re-evaluation of who is in the middle class and who pays most of the income taxes. Perhaps no other public policy area is more clouded by myths than our federal tax system. That is why last week’s latest “Tax Watch” study from the nonpartisan Tax Foundation is a timely breath of fresh air, and should be required reading on Capitol Hill and in every news bureau. For example, did you know, this year, a record 44 million Americans will file tax returns but not have to pay any income taxes (because of growing deductions and credits that have effectively removed them from the tax base)? Did you know, as a result, the richest 20% of taxpayers -- those making more than $68,000 a year -- will pay 82% of all federal income tax revenue, also a record? These are among the little-known facts about American taxation that Scott Hodge, the Tax Foundation’s president, includes in his eye-opening report.

Here is the dilemma any tax reform faces, says Mr. Hodge: “If the goal of fundamental tax reform is to expand the tax base and lower rates, how do you craft a tax reform plan that (1) does not raise taxes on the 44 million Americans who now pay nothing, and, (2) does not ‘cut taxes for the rich’ who now pay everything? There is no easy answer.” This, of course, raises the interesting and rarely asked question (at least in the news media) about who makes up the rich in today’s economy? If you believe Democratic leaders, who continue to say Mr. Bush’s tax cuts favored the rich, you might think the country is awash in millionaires.

But the taxpayer profile put out by Mr. Hodge’s group shows a growing number of taxpayers in today’s two-income family economy have left the statistical middle class and have become, well, sort of rich. So the next time you see a news report about “the disappearing middle class”, remember: The middle class has not lost ground ... it has moved up to a higher income level, and, unfortunately, a higher tax bracket.

Link here.


Tax reform is back in the news, brought to the political forefront by a recent meeting of the president’s advisory panel on tax reform. Once again, politicians and former politicians are lamenting the complexity of our tax laws, as though their own spending measures have nothing to do with it. But we have heard this song before. In fact, we have been promised a simpler, fairer, and better income tax system many times, most recently in 1997 and 1986 when Congress made relatively significant changes to the tax code. Yet the federal tax system remains an embarrassment, both in terms of the tax burden itself and the outrageous compliance costs engendered by its complexity.

Lew Rockwell offers a very simple test for any tax reform proposal: Does it reduce or eliminate an existing tax? If not, then it amounts to nothing more than a political shell game that pits taxpayers against each other in a lobbying scramble to make sure the other guy pays. True tax reform is as simple as cutting or eliminating taxes. No studies, panels, committees, or hearings are needed. When reform proposals seem complicated, they almost certainly do not cut taxes.

Link here.


A few years ago, Martin Bruncko studied the flat tax at Harvard University. Today, the 28-year-old is flying to European cities to promote the idea, which he made a reality in his native Slovakia. “In theory it was interesting, but we never thought we could do it in practice,” says Mr. Bruncko, recalling class discussions at the Kennedy School of Government. “So it was fun to see that you actually can do it.”

What flat-tax advocates like Steve Forbes and the Hoover Institution’s Alvin Rabushka have been pushing in the U.S. for decades, Bruncko and a team of Western-educated wunderkinds in this country of 5 million achieved in one year. Last January, Slovakia became the 6th Eastern European country to adopt a flat tax. US conservatives, meanwhile, hope the experience of flat-tax countries like Slovakia - which the World Bank named top economic reformer last year - will persuade President Bush to implement a flat-tax of his own.

Link here.


China’s top tax official, Xie Xuren, the director of State Administration of Taxation, admitted that the government had yet to find a formula to end the special status enjoyed by foreign investors, nearly two years after Beijing committed to changing the policy. China has given foreign companies tax breaks in China for more than two decades to attract investment, an advantage that increasingly aggravates the local state-owned and private companies they are competing with. Local companies are charged a top rate of 33% while foreigners pay as little as 14-15%. China formally decided to change the policy and equalize the two rates in October 2003 but has not yet done so, partly for fear of discouraging foreigners from putting their money in China. Cheng Faguang, a delegate to the National People’s Congress, told, Xinhua, the official news agency, that the two rates might not be unified until 2008. “This was my most optimistic forecast,” he said.

Tax advisers to multinational companies in China said that their foreign clients were not yet budgeting for a change which is likely to increase their tax bill because of the government’s hesitation at fiddling with a policy that has been so successful. China attracted just over US$60 billion in foreign investment last year, the highest of any country. Although this was only a small percentage of China’s total investment, foreign investment is considered crucial for bringing new technology and management skills into China and for powering the export sector. The Chinese government is also not short of revenue at the moment. China’s national tax revenues are now equal to about 20% of GDP, about double the rate of the mid-90s.

Link here.


In 2001, President Bush signed the Economic Growth and Tax Relief Reconciliation Act of 2001 into law. The good news is that the bill included the biggest tax cuts since Reagan. The bad news is that the tax cuts are not permanent. Some of the reforms are set to expire while others may not even take effect at all. One change that might not take place is the loudly advertised abolition of the estate tax -- also called the death tax. The president’s tax package designed a gradual repeal of the estate tax. Once again, U.S. policy makers may want to learn from reforms in other nations. Hong Kong is actually in the midst of a major debate about its death tax system. Aware that a competitive global economy demands constant improvements, the Hong Kong government is considering whether to abolish permanently the misguided levy.

For several years now, Hong Kong has ranked as the world’s freest economy. Not surprisingly, the territory also has one of the best tax systems in the world -- a simple and fair flat tax. But, Hong Kong is committed not to rest on its laurels. One of the weaknesses in Hong Kong’s current system is its death tax. Hong Kong’s death tax is rather mild compared to those of the U.S. and Western Europe. And it is modest compared to its competitors in Asia. Japan, Korea, and Taiwan for instance have estate tax rates of up to 50% while the territory’s rates rage from 5 to 15%. However, even a modest death tax is bad tax policy because of the adverse impact on saving and investment.

Tax policies that punish savings and investment are counterproductive. As such, the estate tax is one of the most destructive taxes. Because the estate tax falls on assets, it reduces incentives to save, invest, and build wealth. As with the income tax, the estate tax helps raise the tax rate on income from assets relative to income from working leading to an inefficient mix of capital and labor. Good tax policy also implies that people should not be taxed twice on their income. Because the death tax is imposed on taxpayers’ assets at the time of their death and given that assets are usually purchased with after-tax income, the tax is clearly a form of double -- if not triple -- taxation.

The people clobbered by the death tax generally are not the billionaires. The “super-rich” rely on accountants and lawyers to put together comprehensive tax-planning strategies. The cost of the tax falls disproportionately on entrepreneurs with medium-sized estates, and is particularly harmful to families that own businesses or farms. George Soros and Warren Buffet repeatedly oppose the repeal of the death tax. These multi-billionaires rarely have to pay for the tax as their families engaged a long time ago in effective estate tax planning to prevent the IRS from reaching into their graves. Finally, “the death tax rewards a ‘die-broke’ ethic, whereby the wealthy spend down their wealth on lavish consumption, and discourages intergenerational savings.” In other words, the death tax rewards unproductive consumption while it punishes parents who want to transmit some money to their kids in hopes that they will have a better start in life.

Link here.


Like the movie vampire that never quite dies, the EU’s “Savings Tax Directive” appears to have come back to life, and is apparently due to come into force on July 1, 2005. Although it is still not yet final and should be possible to avoid in its current state, it may well be pushed through and later extended. The OECD’s process has been slowed down by the concerted insistence by non-members on a level playing-field. Non-members must insist on the whole package being taken forward together and resist the current OECD moves to drive through information exchange on its own while effectively dropping those parts that would harm its own members. A change in government in the USA could also give new force to the OECD. The process was started under the Clinton government and lost speed when the Bush administration signaled a lack of enthusiasm.

Overall, there needs to be continued co-operation between low-tax jurisdictions like the Turks & Caicos Islands and their friends and supporters in Europe and the USA. It is important for all of us that the European governments do not win this fight, not just to preserve the sovereignty of small nations but also for the sake of investment and the global economy. [Good outline of the Directive’s history constitutes the main body of the article.]

Link here.



Jailed and held without bond in the nation’s largest alleged personal tax-evasion scheme, telecom investor Walter Anderson says the federal government has got it all wrong. He is not a tax cheat, he said in a conference room at the D.C. jail. Sending millions of dollars to offshore havens -- which the government alleges he did to evade around $200 million in taxes -- was part of a legitimate and long-standing plan. He was going to use the money to change the world. To fight for arms control and human rights. To promote family planning and space exploration. He was going to give the money away, starting next year.

U.S. Magistrate Judge Alan Kay ordered Anderson held at the D.C. jail until a March 11 hearing. He decided Anderson posed too high a risk of fleeing the country. Anderson angrily stood up during the hearing to complain about the prosecution. “The government’s allegations are inflammatory,” he said. “I’m trying to run legitimate businesses, and I don’t intend to let the government ruin my credibility.” It was not his first complaint about the government. In the 1980s, he launched a campaign against high-occupancy-vehicle lane restrictions on Interstate 66 and was repeatedly ticketed for violating them.

At times referring to notes scribbled on the back of his indictment, Anderson said the assets the government claims he hid belong to the Smaller World Foundation, which he controls and endowed with full ownership of various companies he runs, such as Space Inc. and Iceberg Transport SA. The plan was for the foundation to begin giving money away in 2006, after the assets had had time to grow, he said. Anderson said he lost any personal interest in money some time ago, as long as he had a place to live and enough to buy dinner.

Despite the arrest, he said, he has no motivation to disappear. “After all I’ve achieved in my life, I’m not going to be satisfied to weave baskets in some backwater country because I can hide from the government,” he said. But Anderson would not address some topics, including his alleged use of the name Mark Roth to incorporate a Panamanian holding company. He said he registered his Smaller World Foundation and holding companies in offshore havens for legitimate tax savings and privacy, partly to avoid being inundated with solicitations for contributions. He said he made a good-faith effort to file tax returns on time and accurately, and added, “I am not a tax resister.”

Link here.


Naturally, privacy advocates are drawn to the remaining offshore financial services centers which still offer confidentiality. In Miami Latin American clients find a friendly and familiar environment in which their instinctive desire for privacy heightened by their concerns over security (wealthy Colombians, for example, fearing kidnapping) can be met. The city is a financial hub and a large number of corporations doing business in Latin America have established their regional headquarters there. It follows that this financial services prominence leads to interaction with offshore financial services centers.

Many of the opulent homes in Miami in areas such as Key Biscayne, according to public records, are registered in the names of offshore companies. Foreign property buyers from all over the world often use offshore companies in order to buy their Florida homes so that they can legitimately shelter assets from estate duties. The use of such companies is sometimes frowned upon because the actual owners can remain unknown and this can be of concern, for example, to the Financial Crimes Enforcement Network, an agency of the U.S. Treasury. The associate director for regulatory policy of FinCEN has said that although there are legitimate uses for such companies, “there is an opportunity for abuse when you can’t get to the real owners”. That may be true, but there is also an opportunity for abuse when you can get to the real owners. Ask those who have suffered from frivolous and groundless lawsuits.

The head of the Miami-based Washington Economics Group, Tony Villamil, has said that Miami is, basically, a Latin American city that happens to be in the U.S. But before you go comparing, say, Panama’s or Liechtenstein’s financial services with those offered in Miami, ask yourself why some locals and not just some foreigners have their Miami properties registered in the names of offshore companies. It is because Miami, although it could be described as a Latin American city, is, as Tony Villamil has said, still in the U.S. where the government’s mood since 2001 has made many people uneasy and its actions to thwart terrorism have caused some to remember the words of Edmund Burke: “True danger is when liberty is nibbled away for expedience and by parts”. I would say that Miami is not the center of the New World, but it is certainly a gateway both to the Americas and the New World. This New World, however, bears no resemblance to the one European seafarers discovered in centuries past. This world might, in fact, be described (with apologies to Aldous Huxley) as a Grave New World. Henry Kissinger’s words are an uncomfortable reminder: “The illegal we do immediately. The unconstitutional takes a little longer.

International bankers with many years of experience of financial crime issues argue that a lot of the rules introduced since 2001 to prevent terrorists using the mainstream financial system will not achieve their objective. They see customers having to pay more for services due to the cost of mandatory new extensive checks. When the FBI tried to design a profile of how a bank might be used by terrorists it only came up with one main characteristic: large deposits with withdrawals of cash in a series of small amounts. According to the head of anti-money-laundering at one large American bank, such a profile matches a quarter of the customers of most banks. No wonder some fear that their bank accounts run the risk of becoming frozen, if not literally. Lord Bowen may have been giving his definition of philosophy, but for me his words have most resonance when applied to the plight of inexperienced regulators coming to grips with the subject of offshore services: “A blind man in a dark room -- looking for a black hat which isn’t there.” Meanwhile, back in Florida with its strategically-located elevators, several banks have recently felt the tightening of the regulatory screws and more are expected to receive visits from regulators. Gateway to the New World, indeed.

Link here.


If you were thinking about filing for bankruptcy to clear your debts, you might think twice ... or act twice as quickly. A bankruptcy reform bill, up for a vote in the Senate today and expected to become law, will make filing for bankruptcy more difficult. And it will give creditors more recourse in some instances. Under current law, the majority of consumers who file for bankruptcy do so either under Chapter 7 or under Chapter 13. In a Chapter 7 bankruptcy, your assets (minus those exempted by your state) are liquidated and given to creditors, and many of your remaining debts are cancelled, giving you what is known as a “fresh start”. In 2004, over 1.1 million people filed for Chapter 7, accounting for roughly 72% of non-business bankruptcies.

Since many Chapter 7 filers do not have assets that qualify for liquidation, credit card companies and other creditors sometimes get nothing. In a Chapter 13 bankruptcy, you are put on a repayment plan of up to five years. Any debts not addressed by the repayment plan do not have to be paid. Last year, there were 445,574 Chapter 13 filings. If the bill passes into law, fewer people will be allowed to file under Chapter 7; more will be forced to file under Chapter 13. Lawmakers who favor the legislation argue that it would prevent consumers from abusing the bankruptcy laws -- using them to clear debts that they can afford to pay. Consumer advocates argue that the bill is a gift to creditors -- particularly the credit card industry.

For those people who have considered bankruptcy, the time to act may be now, consumer advocates say. Talk to a good bankruptcy lawyer, and if together you decide bankruptcy is the right call, you might consider speeding up your plans to file. If the bill is passed into law, its main provision will not go into effect until six months after passage. Typically, it can take a couple of weeks to file for bankruptcy, and a lot of people might be expected to file before the new provisions go into effect.

Link here.


Sonny Bill Williams has been offered a deal worth NZ$3.2 million (US$2.37 million) to play in Britain, but the teenage Bulldogs sensation is set to stay in the NRL for less than half that amount. The playing component of the three-year offer is £175,000 (NZ$460,000) a season plus match payments estimated to be worth a further £25,000 (NZ$65,700). The benefit to Williams was that £135,000 (NZ$355,000) of the £175,000 (NZ$460,000) contract money would have been paid into a legal tax-free trust. Williams would also have been be provided with a three- or four-bedroom house, a car, private health insurance and a return flight to Australia or New Zealand annually. The chairman of the offering team estimated that Williams would have to be on a gross package in Australia of A$900,000 (NZ$973,000) a year to earn the same after-tax income.

Link here.


In the 1997 movie The Spanish Prisoner, a con man played by Steve Martin establishes a numbered Swiss bank account with a few keystrokes on a laptop computer in New York. The new account belongs not to him but to his flattered victim. “All of 15 Swiss francs in it,” Martin’s character modestly tells his naive mark. “But you ever want to impress anybody, they can find out you have a Swiss account -- but Swiss law prohibits the bank from revealing the balance. Thus,” he says after a portentous pause, “are all men created equal.”

That bit of dialogue makes Francois Micheloud laugh. “No, no, no,” the Swiss account broker says. “You can’t open an account online.” He shakes his head good-naturedly as he talks from his office in Lausanne. He laments that movies give the impression that Switzerland is a no-questions-asked country. “But it’s not like this at all,” he adds.“qNo, no, no, not at all. The big motto of all banks here is, ‘Know your client’. They keep repeating it ad nauseam.” And in our popular culture, misinformation about Swiss banks is repeated ad nauseam. By adulthood, we have absorbed lore about Swiss bank accounts from movies, TV shows and spy novels.

Who opens a Swiss account? Swiss citizens, mostly. Nomadic consultants who hopscotch from Brussels to Lisbon to Berlin for a few months at each job. People who live in countries with unstable governments and shaky banks. And, yes, the occasional spy or tax dodger or doctor who worries about malpractice suits. Swiss banks prefer people to open accounts in person, but they will work with brokers such as Micheloud, who runs Micheloud & Cie., a company that helps foreigners open Swiss accounts by mail. Micheloud says he vets applicants as strictly as Swiss banks do. His credibility is on the line. Micheloud says his company rejects about half of applicants.

The Swiss numbered account looms large in the popular imagination. We think of spies and blackmailers and exiled dictators who demand to have money deposited in numbered accounts. If you believe that a numbered account confers anonymity, think again. There is no such thing as an anonymous account. When you have a numbered account, at least two bank employees know who you are: the manager and the director and maybe a few other high-level employees. Beyond those people, your identity is hidden. Bank documents are printed with the account number, not a name. You or a minion need not speak your name in dealings with the bank; the number is enough. A Swiss bank would be reluctant to open a numbered account with a balance of less than $100,000. Any less than that would be unprofitable, and bankers would wonder why you want to go through the hassle.

Banks raise the bar higher for private banking, in which the bank manages clients’ investments. The private banking departments of financial giants UBS and Credit Suisse might open their doors to someone with $200,000 to invest. Just make sure you walk through the correct door when you visit the bank to open your account. If you are looking for the retail banking lobby, do not walk into the private banking office. A private banker will turn you away politely. Then, after you leave, the bankers might share jokes at your expense -- in English, German, French and Italian.

Link here. Beware the hide-your-money-in-a-secret-offshore-account scam -- link.

Who needs a Swiss bank?

The Gnomes of Zurich. The Banques Privée. Swiss bankers. For centuries, banking has been as closely associated with Switzerland as fashion is with Paris and oil is with Saudi Arabia. Indeed, the roughly 350 banks in that country of fewer than 9 million people manage about $2.7 trillion, fully one-third of the entire world’s offshore wealth. But the formerly sedate and highly secretive world of Swiss banking is in the throes of a crisis, according to Ivan Pictet, a partner at Pictet & Cie., the Geneva private bank that is Switzerland’s third-largest investment manager. Swiss banks face growing challenges to their traditional offshore banking businesses, forcing them to attempt to expand their onshore, domestic private-banking efforts at home and abroad, in scores of countries, including the U.S. The bankers themselves realize that this realignment is perhaps a bit overdue. Pictet, for example, concedes, “We must admit that we have neglected the Americans a little bit.”

Will this transformation make Swiss banks more or less able to serve our needs? The answer lies in the two trends that are roiling the sector: increasing competition and decreasing bank secrecy. Swiss banks were once the only choice for affluent families in many parts of the world. But now, says Jeff Salzman, head of the Credit Suisse Private Client Group in the U.S., in many countries, “you can get all the private banking and asset management services you want from local, very large players.” Global institutions such as Citigroup, JP Morgan Chase and Deutsche Bank -- even Swiss standard-bearers Credit Suisse and UBS -- all have private banking operations tucked into their offices around the world. Traditional Swiss private bankers sniff at the idea that an institution can provide private banking services on a mass scale. But now the very affluent can have special treatment at a host of domestic banks, brokerages and investment management firms.

What none of these domestic firms can offer on par with traditional Swiss banks, however, is secrecy. But whatever the merits of bank secrecy, it is largely a thing of the past. As secrecy becomes less important as a competitive advantage for Swiss banks (whether they like it or not), these institutions face a new onshore world in which they are going to have to rely on service, investment skills and geography to attract our business.

Link here.

Swiss like their local banks more than the Swiss banking industry.

Swiss citizens are generally satisfied with their banks and describe them as reliable, trustworthy and competent. But the latest annual survey commissioned by the Swiss Bankers Association (SBA) also reveals a number of apparent contradictions in public attitudes towards the banking sector. For instance, while 79% of people surveyed say they have a positive or very positive opinion of their local bank, only 53% have a similar image of the Swiss banking sector as a whole. SBA spokesman James Nason said he was not surprised by the differences.

“These apparent paradoxes come up regularly in this type of survey and not just in the banking industry or in Switzerland,” said Nason. “Choosing a bank is a very personal decision, rather like choosing a doctor, and a client’s relationship with his main bank is much more personal and tangible than his or her relationship with the banking industry in general. Furthermore, Swiss banks strive to give good individual service and are fully aware that if a client is unhappy he will vote with his feet and switch his account to a competitor across the street.”

Another apparent paradox relates to the role banks should play in bailing out companies in trouble. One banking analyst points out that a similar paradox arose at the time of the financial collapse of former national carrier Swissair in 2001. A majority of people thought the big banks should help the airline out -- until the banks pointed out that they would be doing so with customers’ money.

Link here.


Offshore financial centers have faced heavy criticism over their confidentiality practices from the EU, OECD and U.S. But according to offshore lawyers, the compliance systems those jurisdictions have introduced have now put them ahead of their “onshor” competitors. By year end, the OECD will issue its widely anticipated Global Forum report. This will include a review of whether OECD members are on a level regulatory playing field with international (or “offshore”) finance centers (IFCs).

In its controversial report, Harmful Tax Competition: an Emerging Global Issue, the OECD has put very public pressure on various IFCs to reform their money laundering and “know your client” regulations. The 1998 report suggested that IFCs were using secrecy laws to assist OECD citizens with tax evasion. It imposed pressure on the larger IFCs to provide further information to OECD countries in order to assist with increased tax enforcement. In the economic reality of political negotiation, some say the IFCs have had little option but to comply with the all-powerful OECD demands.

Lawyers within and outside the IFCs both say the increase in regulations is beneficial to IFC countries. But lawyers within the more established IFCs say that their own day-to-day experiences reveal that they are now playing on anything but a level pitch. In a March 2004 report, the IMF found compliance levels in the IFCs were, on average, more favorable than in other jurisdictions. One lawyer says that when she recently set up an account in the U.S. for a client, “the almost complete lack of information we had to provide was astonishing. Had we been setting [the account] up in Jersey, we would have had to provide a lot more information.” And lawyers say the U.S. is far from being the only culprit in requiring less beneficial ownership information than the IFCs. “The OECD and [EU] have failed to tackle the culture of banking secrecy among European banks,” another says. “This is where there is a serious risk of money laundering.”

Link here.



A new smartcard, the type privacy advocates fear because it combines biometric data with radio tags, will soon be one of the most common ID cards in Washington. Department of Homeland Security workers in May will begin using the new ID card to gain access to secure areas, log on to government computers and even pay their Metro subway fares. The Department of Homeland Security Access Card, or DAC, will carry a digital copy of its bearer’s fingerprint and other personally identifiable information. It will use radio-frequency identification and Bluetooth technologies to communicate with reader devices at the department’s offices. “The card provides one type of authentication for all forms of access (physical, wired and wireless),” said DHS Director of Authentication Technologies Joseph Broghamer, who participated in a wireless technology conference in Washington, D.C., last week.

The DAC will feature a high-resolution image of its bearer and a hard-to-duplicate holographic image. The key identifier stored on the DAC, however, will be a record of the bearer’s biometric data (in this case, a fingerprint) that can be read by special devices attached to DHS computers. For example, rather than entering a user name and password, DHS workers will log on to their computers by sliding their DAC into a special keyboard and pressing their finger on the keyboard’s fingerprint-reader pad. The keyboard will then authorize workers by comparing their physical fingerprint to the card’s fingerprint record.

The tens of thousands of people carrying DACs around Washington this year will help to prove or discredit predictions by privacy advocates that the RFID tags will be used to track individuals in public and private places. “We don’t see any sensible and offsetting reason for using RFID technology instead of another technology in identification cards and documents,” said Cedric Laurant, policy council at the Electronic Privacy Information Center, “except for surreptitiously tracking people’s movements with reader devices.”

Link here.


Set to roll out in 2007, ID cards can be seen as an intrusion of daily life and a step towards an Orwellian state or as a convenient and necessary part of modern life. An advocate of the former view says that these licences to citizenship -- in effect what they are -- are an infringement of our most basic right to freedom from interference. A licence is understandable for something like driving. If you are not properly qualified, you are a threat to yourself and to others. Forcing the population to carry ID cards is equivalent to assuming anyone and everyone is a threat to everybody else. It is tantamount to removing a presumption of innocence that so underlies (or used to) the principles of justice in the UK -- one should not have to justify oneself to anyone unless one breaks the law.

On the other hand, an ID card advocate says the cards will remove the attractive features in the UK’s social security system and immigration laws that the fraudulent exploit. And contrary to popular myth, ID cards are not in place to make life more difficult for the average man; quite the opposite: ID cards allow legitimate claimants easier access to services through one permanent record. He notes that throughout Europe ID cards are used without hesitation. Without compulsion France has a 90% uptake as the practical benefits are reaped by the public. Germany, Spain, Portugal and Greece amongst others all adopt some form of identity card system that is taken for granted. ID cards will simply organize the mess that is the government records. As the cliché goes, Big Brother is watching, but not any more than before. ID cards are simply him tidying up his desk.

Link here.


The chief privacy officer for the DHS is not a supporter of a national identification card. “I’m not a fan,” Nuala O’Connor Kelly said at a March 8 cybersecurity conference. “We have huge issues with managing identification and getting identification right,” Kelly added. For example, she said, there are many risks to privacy from possible misuses of “breeder documents” -- birth certificates and drivers’ licenses issued by state and local agencies that are used to apply for U.S. passports. “You have to be very vigilant and concerned,” Kelly said.

Proposals for secure national ID card systems have gained supporters, but civil libertarians say any security gains would be overshadowed by the risks of “Big Brother” infringements upon personal rights and freedom. Congress is considering legislation (H.R.418) introduced by Rep. James Sensenbrenner (R-Wisconsin), chairman of the House Judiciary Committee, that would give the DHS secretary authority to control states’ drivers’ licenses and identification cards, set up a national database to share drivers’ license information and loosen privacy regulations approved by Congress in 2004. But critics consider those measures a big step toward a national ID card system.

Link here.


The UK’s plans for biometric identity cards are a waste of money, one of the world’s leading experts on computer security said this week. In an interview with Computer Weekly, Bruce Schneier, security author and chief technology officer of internet security group Counterpane, said the programme could do more harm than good. “ID cards are a waste of money. The amount of good they will do is not nearly worth the cost. They will not reduce crime, fraud or illegal immigration,” he said. The adoption of ID cards would encourage criminals to attempt forgeries, he said, potentially exacerbating crime rather than reducing it.

“Every credential has been forged. As you make a credential more valuable, there is more impetus to forge it. The reason identity theft is so nasty now is that your identity is so much more valuable than it used to be. By putting in the infrastructure, we have made the crime more common. That’s scary.” He said the UK government, like other governments around the world, was investing in the technology as a form of control but marketing it as better security.

Schneier said that the U.S. plans to spend £10 billion on a program to build checkpoints at airports to prevent terrorists boarding planes are a similar waste of money. “If you had a list of people that were so dangerous you would never let them on an aircraft and £10 billion, would you build a series of checkpoints at airports just in case they happened to walk through them, or hire FBI agents to investigate those people?” he said. “We are building a security system that only works if the terrorist happens to choose the tactic of going on an aircraft, yet we are affecting the privacy of every airline passenger.”

Schneier said ID theft will only be solved when banks are given responsibility to prevent it. “As soon as it becomes the banks’ problem, it will be solved. The entity that is responsible for the risk will mitigate the risk.” Credit card fraud in the U.S. fell dramatically after the banks become responsible for refunding customers with losses of more than £25 caused by fraud, he said.

Link here.


The “suicide bomber” clips a shrapnel-filled belt around his waist and buttons up his jacket to conceal it. As he turns back and forth in front of a semi-circular white panel, about the size of a shower cubicle, a computer monitor shows the metal-packed cylinders standing out clearly in white against his body. This is no real security alarm, but rather a demonstration at the British technology group QinetiQ of a scanning device that sees under people’s clothes to spot not just metal but other potential threats like ceramic knives or hidden drugs. The electromagnetic technology is just one aspect of a potential revolution in security screening being pioneered at QinetiQ, formerly part of the research arm of the defense ministry.

Simon Stringer, new managing director of QinetiQ’s security business, notes that, “It’s slightly better than having him do it in the departure lounge or perhaps on the plane, but you’re still doing to have to deal with a significant problem.” Which is why, he says, the trend for the future will be to move the scanners outside the terminal building and operate them in “stand-off mode” -- checking people from a distance before they even set foot inside. The advantage is obvious: to spot potential attackers without alerting them to the fact, and gain precious seconds for security forces to prevent an attack.

Another prospect in store for air travelers is “hyperspectral sensing” that will check for chemicals called pheromones, secreted by the human body, which may indicate agitation or stress. The stress may have an innocent cause, such as fear of flying, but could also betray the nervousness of a potential attacker. The point is to alert security staff to something unusual that may need further investigation. As the passenger proceeds through the terminal, the next layer of surveillance could be carried out through “cognitive software” which monitors his or her movements and sounds a silent alarm if it picks up an unusual pattern. “Someone who’s been back in and out of the same place three times or keeps bumping into the same people might be something that’s worthy of further investigation. ... I think that’s really the sort of capabilities we’re going to be looking at,” Stringer said. But how will ordinary people embrace the prospect of surveillance technology that sees through their clothes, checks how much they are sweating and tracks their airport wanderings between the tax-free shops and the toilets?

Link here.



The U.S. banking system is exasperating Luz Igot. She and her husband have run a money-transfer company that sends cash to the Philippines from a small shop for the past seven years with few problems. Today, the war on terrorism is threatening to put them out of business. Last year, Chevy Chase Bank closed her accounts, she said. In the next few months, she set up accounts at Bank of America and later Wachovia. In short order, the banks closed those accounts, and all gave her similar reasons for their decisions. “The reason why they closed us is because they don’t know who are our customers,” Igot said. “I try to explain to them I have all the IDs and the [customer’s] information, but they said, ‘No’. It hurts the small ones like us. Where do we go from here?”

Their company, Jeci Cash Transfer, got caught in the limelight of a national debate about whether money transmitters are an easy tool for money laundering. Such companies came under new scrutiny when it was discovered that money transmitters were used to wire cash to the hijackers just days before the Sept. 11, 2001 attacks. A stream of new banking regulations in the USA Patriot Act of 2001 required banks to know their customers, which some banks interpreted as extending to the customers of their money- transfer clients. Some considered those clients too risky, and large U.S. banks began announcing last year that they planned to limit or end their relationships with small and medium-size money-transfer companies. No background check or bank account is required to use a money-transfer service and identification is required only to send more than $1,000.

Money-transfer companies, whose customers typically trade in cash, use bank accounts to deposit large sums of money each day and to wire money to accounts in foreign countries. Without bank accounts, they cannot operate. “This is devastating. ... It is a tidal wave. One bank after the other is closing them out. There is nowhere to go,” said Michael McDonald, a former IRS special agent who now consults with money-transfer companies. “Banks are being challenged by regulators for not knowing enough about the source of funds from these entities. How much does a bank need to know?”

Link here.


The Bush administration, locked in a battle with tiny Antigua & Barbuda at the WTO over its Internet gaming industry, says the island “remains susceptible to money laundering” because of gaming and “its loosely regulated offshore financial sectors.” That is according to the U.S. State Department’s Bureau for International Narcotics and Law Enforcement Affairs, in a report that charges that the islands’ Office of National Drug Control and Money Laundering Policy and its Financial Services Regulatory Commission are reportedly receiving approximately four suspicious activity reports from domestic and offshore gaming entities per week. Internet gaming companies in A&B are required to enforce know-your-customer verification procedures, maintain records relating to all gaming and financial transactions of each customer for six years and report anything suspicious to the FSRC and the ONDCP.

But the report also points out that “no known evidence of terrorist financing has been discovered in Antigua and Barbuda to date.” Still it urged the A&B government to “take the necessary legislative and regulatory steps to ensure its gambling sector is properly covered by anti-money laundering legislation and is strictly supervised,” and that “Antigua and Barbuda should vigorously enforce its anti- money laundering laws by actively prosecuting money laundering and asset forfeiture cases (and) should ensure that all offshore banks licensed there have a physical presence, consistent with international standards.”

Link here.


The report of the Africa Commission has called for rich countries, and particularly their financial services industry, to do more to fight corruption. Not only should they investigate and prosecute the givers of bribes and suborners of corruption, it says. They should also avoid being used as conduits for the laundering of ill-gotten gains. The UK in particular has been a magnet for this kind of abuse -- but just how much has it been at fault?

Cases of corrupt funds flowing through the UK are not hard to find. The most famous is that of the late Sani Abacha, the dictator who ran Nigeria from 1993 to 1998. More than £1.5 billion of his and other Nigerian leaders’ ill-gotten gains has been found in British bank accounts -- only a fraction of which has ever made it back to Nigeria. In contrast, the super-secret Swiss have promised to return almost $500 billion. And the use of the UK as a destination, or at least a transit point, for the proceeds of corruption continues. Almost £1 million is currently frozen as a result of investigations into the governor of Nigeria’s Plateau province, Joshua Dariye.

Why has London been such a magnet for the beneficiaries of corruption? For one thing, the sheer size of London’s financial services industry makes it a tempting target. On top of that, London has thousands of lawyers and accountants keen for all the work they can handle -- as well as myriad firms offering to set up and run the shell companies and tax-efficient trusts on which much money-laundering relies. Anti-corruption group Transparency International’s UK chapter, in a report published last October, pointed to the low levels of regulation of trust and company formation agents as a key factor in London’s money-laundering risk. Most agents, it said, were entirely above-board -- it was simply that there was little to stop the minority who were prepared to look the other way when corrupt or criminal money came their way.

For years, financial institutions have had to report when a transaction looks suspicious -- but now that responsibility is extended not only to lawyers and accountants, but also to estate agents, casinos and other places dealing in high-value assets and deals. But the expansion of the system of suspicious activity reports (SARs) is swamping the National Criminal Intelligence Service, the authority responsible for processing and analysing them and then passing them on to prosecutors and police.

Link here. Africa Commission report in full here (PDF file).


New money-laundering laws do not mean lawyers have to inform on clients, the Court of Appeal ruled. Both the Law Society, which represents solicitors, and the barristers’ professional body, the Bar Council, intervened in a test case to clarify what steps lawyers must take when suspicions arise. There were fears that the Proceeds of Crime Act 2002, aimed at tackling major fraud and terrorism, obliged solicitors to abandon client confidentiality and report any suspected illegality -- even minor tax evasion -- to the National Criminal Intelligence Service (NCIS). Lawyers feared that if they failed to report suspicions or even failed to spot an offence, they risked being prosecuted themselves.

These fears were aired during an appeal which was settled before it got to court but was allowed to continue because the issue of public law “is causing very great difficulties in solicitors’ offices and barristers’ chambers and in the orderly conduct of contested litigation throughout the country”, according to appeal judge Lord Justice Brooke who gave the ruling of the court.

Lord Justice Brooke said the three judge court was “of the firm opinion” that Parliament never intended that a solicitor, “in breach of his implied duty to the court, and in breach of the duty of confidence he owes to his own client as his litigation solicitor, to disclose to NCIS” suspicions aroused from studying documents released under compulsion by the other party.

Link here.


The House of Lords on Tuesday delivered further blows to the government’s anti-terror policies by opting for Tory proposals inserting a “sunset clause” into the Prevention of Terrorism Bill, meaning it would expire at the end of November. Peers also voted to give more rights to supects under control orders. The government’s showdown with Labour backbenchers and the House of Lords follows Monday’s vote by peers to decisively to water down the government’s plans. Peers backed by 249 votes to 119 an opposition amendment to give the courts rather than the home secretary the ability to issue all control orders, ranging from mobile phone bans to house arrest.

Lord Irvine, the Labour former lord chancellor, and Lord Condon, the former Metropolitan police commissioner, were among those who voted against the government. The Lords also backed higher standards of proof and assurances on the prosecution of terrorist suspects. Charles Clarke, the home secretary, must try to overturn the changes when the bill returns to the Commons, risking a further rebellion by Labour backbenchers.

Link here.

Blair defiant on terror measures.

Tony Blair has said he will not give further concessions on his anti-terror bill -- and dared opponents to block plans backed by security services. But Tory leader Michael Howard accused Mr. Blair of refusing to compromise so the bill would fail -- and he could then claim Labour were toughest on terror. Lib Dem Charles Kennedy said Britons’ civil liberties should be put before Mr. Blair’s personal political pride. The bill, which would bring in “control orders”, is now being debated by MPs.

Earlier, at prime minister’s questions, Mr Blair said if the Conservatives were to continue to vote against the bill and cause it to fall, he was “content” to let voters decide on the issue at the election. Mr. Blair said he would not agree to another Lords amendment this week on changing the burden of proof for a control order to be imposed from “reasonable suspicion” of involvement with terrorism to “balance of probability”. Mr. Kennedy called for further concessions and for those who have control orders imposed on them to be told what the allegation or evidence against them was. Mr. Blair said the security services had told him control orders and the proposed burden of proof were needed and that it would be “irresponsible” to go against that advice.

Links here and here.

Commons backs Blair, voting to strengthen anti-terror law.

The U.K. House of Commons backed Prime Minister Tony Blair’s proposed terror law, setting up a confrontation over the bill with the House of Lords. The Lords voted to introduce a “sunset clause” into the Prevention of Terrorism Bill so that it will expire at the end of November, requiring Blair to draft a new law in its place. The Lords also passed an amendments that would give judges, rather than the Home Secretary, the power to hold someone under house arrest, limit travel and ban mobile phone or Internet use. The Commons subsequently voted 340-240 to remove the sunset clause. Blair said the bill, which would allow the government to impose restrictions on terrorism suspects ranging from electronic tagging to house arrest, must be passed quickly because a law that allow him to hold 11 foreign suspects expires March 14.

Link here.


In the wake of the attacks of September 11th 2001, President George Bush and the British prime minister, Tony Blair, faced little opposition in arguing that tough measures had to be taken to counter the threat from al-Qaeda and other international terror groups, even if this meant compromising some basic civil liberties. Both countries rushed through new anti-terror laws and began interning suspects -- America mainly at its military base at Guantánamo Bay in Cuba, and Britain mostly at Belmarsh high-security jail in London.

But, more than three years after the attacks, both leaders have recently suffered setbacks to their anti-terror policies. American and British judges have ruled that their governments cannot go on detaining suspects without giving them acceptable recourse to the courts. In the latest such ruling in America, last week, a judge found that Mr. Bush had greatly exceeded his powers in continuing to detain without charge José Padilla, who is accused of conspiring to build a radioactive “dirty bomb”. And on Monday March 7th, the British Parliament’s upper house, the Lords, rejected some key measures in a new anti-terror bill that Mr. Blair is trying to rush in before he is forced by a court ruling to free the Belmarsh detainees next week.

Mr. Bush and Mr. Blair are in a bind. They face strong challenges to their anti-terror measures from judges, lawmakers and civil-rights groups, while knowing that their public will judge them harshly if another big terror attack occurs. However, harsh anti-terror laws are no guarantee that terrorism will stop. Worse still, they risk doing more harm than good. This was the case with Britain’s old Prevention of Terrorism Act, which was used during the Northern Ireland conflict to detain large numbers of people, most of whom were not subsequently charged with a terrorism-related offence. The resentment that this caused among the province’s Catholic minority only served to sustain support for the IRA, not deter it. Similarly, long detentions without trial at Guantánamo and Belmarsh risk serving as recruiting-sergeants for the terror groups that the measures are aimed at curbing.

Link here.


What if the government arrested you on terrorism charges? What if your lawyer was afraid to zealously defend you (as required by the Model Rules)? What if your lawyer was so afraid, he would not even tell you that he was not able to zealously defend you? This is the direction American criminal law is taking, according to defense attorney and civil rights activist Elaine Cassel, author of The War on Civil Liberties: How Bush and Ashcroft Have Dismantled the Bill of Rights.

Last month, a jury convicted Lynn Stewart, the lawyer for terrorist Omar Abdel Rahman, of five counts of “defrauding the government, conspiracy, and providing support for terrorism.” Elaine’s articles about the Stewart case are here and here. According to the U.S. government, she “conspired” to deliver a message to Reuters and she talked loudly about nothing while her client talked with the paralegal. She faces up to 30 years in prison. Stewart’s translator and paralegal are in deep trouble too.

According to the jury, Stewart violated her agreement with the government by talking loudly while her client was talking to someone else so the cops could not eavesdrop. Stewart’s violation of the agreement is also the basis for the fraud charges. The fact that this case ever got past the first preliminary hearing ought to be shocking to all Americans. How are lawyers supposed to represent clients if they cannot talk to them in private? According to Ms. Cassel, this conviction could lead to a chilling new reality for lawyers in “terrorism cases” from now on -- assuming, that is, that prosecutors do not just turn suspects over to the military because they do not have a case at all.

Link here.


One of the most deeply rooted principles in American jurisprudence is the concept of due process of law, which is enshrined in the Fifth Amendment to the U.S. Constitution: “No person shall ... be deprived of life, liberty, or property, without due process of law.”

Due process of law actually stretches back to the year 1215, when the great barons of England extracted an admission from their king that his powers over the citizenry were not unlimited but instead were limited by fundamental principles of fairness and justice. Included among the restrictions on power to which King John acceded in the Magna Carta -- the Great Charter -- was a prohibition against the exercise of arbitrary seizure of people or their property by government officials: No free man shall be seized or imprisoned, or stripped of his rights or possessions, or outlawed or exiled, or deprived of his standing in any other way, nor will we proceed with force against him, or send others to do so, except by the lawful judgement of his equals or by the law of the land. Over the centuries, that phrase -- “the law of the land” -- gradually evolved into the phrase “due process of law”, the same phrase our American ancestors insisted be made part of the Constitution through the adoption of the Fifth Amendment.

As Englishmen had learned throughout the centuries, both before and after Magna Carta, the matter of criminal justice was not so easy. For history and experience had shown that when government (i.e., the king) was vested with the unlimited power to arrest, incarcerate, and punish violent offenders, always and inevitably such power had been misused against the innocent, especially those who dared to criticize or challenge government policies or practices. The idea behind the “law of the land” provision in Magna Carta, which has been described as the cornerstone of English liberties, was to require the king to follow certain procedures as a prerequisite to seizing and punishing a person for a crime he had supposedly committed. Thus, over the centuries English and American courts gradually defined “due process of law” as a set of procedural rights or guarantees to which every person whom the government accused of a crime is entitled.

The core procedural requirements of due process of law were “notice” and “hearing.” An accused had the right, the courts held, to be advised of the specific nature of the offenses for which he was being charged. The other essential part of due process was “hearing” -- the right of the accused to be heard, which meant, in a criminal case, a trial. Not just any trial, however. The English common law gradually developed other aspects of due-process guarantees in criminal cases, e.g., the right to counsel and the right of trial by jury, both as enshrined in the Sixth Amendment.

How are due-process rights protected? Our English and American ancestors understood that the only effective way to secure the release of people who were wrongfully detained was through a legal process known as habeas corpus, which entitles a person held in custody to file a petition in court formally requesting the court to summon the accused and his custodian to court where the custodian will be required to show the reason he is detaining the petitioner. As a practical matter, the writ of habeas corpus forces government officials either to formally charge a prisoner or to release him. Given the government’s conduct in Iraq and Cuba, and given the Pentagon’s attempt to arrest and indefinitely detain and punish American citizens accused of “terrorism”, every American should be enormously grateful that our ancestors enshrined due process of law in the Bill of Rights.

Link here.



The idea that America is turning fascist has been popular on the Left for as long as I can remember. In the 1960s, when antiwar radicals raged against the Machine, this kind of hyperbole dominated campus political discourse and even made its way into the mainstream. When the radical Symbionese Liberation Army went into ultra-Left meltdown and began issuing incoherent “communiqués” to an indifferent American public, they invariably signed off by declaring, “Death to the fascist insect pig that preys on the life of the people!” Such rhetoric, too overheated for American tastes, was quite obviously an exaggeration. America in the 1960s was no more “fascistic” than miniskirts, Hula Hoops, and the rhyming demagoguery of Spiro T. Agnew. Furthermore, we were not even close to fascism, as the downfall of Richard M. Nixon made all too clear to whatever incipient authoritarians were nurtured at the breast of the GOP.

Back in those halcyon days, America was, in effect, practically immune from the fascist virus that had wreaked such havoc in Europe and Asia in previous decades. There was a kind of innocence, back then, that acted as a vaccine against this dreaded affliction. Fascism -- the demonic offspring of war -- was practically a stranger to American soil. After all, it had been a century since America had been a battleground, and the sense of invulnerability that is the hallmark of youth permeated our politics and culture. Nothing could hurt us ... we were forever young. But as we moved into the new millennium, Americans acquired a sense of their own mortality, an acute awareness that we could be hurt, and badly. That is the legacy of 9/11.

During the Civil War, Lincoln, the “Great Emancipator”, nearly emancipated the U.S. government from the chains of the Constitution by shutting down newspapers, jailing his political opponents, and cutting a swathe of destruction through the South, which was occupied and treated like a conquered province years after Lee surrendered. He was the closest to a dictator that any American president has come -- but George W. Bush may well surpass him, given the possibilities that now present themselves. From the moment the twin towers were hit, the fascist seed began to germinate, to take root and grow. As the first shots of what the neocons call “World War IV” rang out, piercing the post-Cold War calm like a shriek straight out of Hell, the political and cultural climate underwent a huge shift: the country became, for the first time in the modern era, a hothouse conducive to the growth of a genuinely totalitarian tendency in American politics.

It is difficult to imagine any scenario, after another 9/11, that would not lead to what we might call fascism. A bomb placed in a mall or on the Golden Gate Bridge, or a biological attack of some kind, could sweep away the Constitution, the Bill of Rights, and two centuries of legal, political, and cultural traditions -- all of it wiped out in a single instant, by means of a single act that would tip the balance and push us into the abyss of post-Constitutional history. The trap is readied, baited, and waiting to be sprung. Whether the American people will fall into it when the time comes -- that is the nightmare that haunts the dreams of patriots.

Link here.


Nobody would ever confuse the Massachusetts liberal Barney Frank with the South Carolina conservative Strom Thurmond. But when the tart-tongued Frank appeared on Fox News Sunday last winter, it sounded as if an aide had accidentally slipped him some of Thurmond’s talking points from the 1950’s, when he was a states’-rights segregationist. “Should the federal government say no state can make this decision for itself?” Frank asked, asserting each state’s right to marry gay couples. Frank is not alone. Last December, Andrew Sullivan argued in The New Republic, “The whole point of federalism is that different states can have different policies on matters of burning controversy -- and that this is O.K.” That same month, Paul Glastris, the editor of The Washington Monthly, posed the question, “Why shouldn’t the Democrats become the party of federalism?”

In some respects, they already have. Liberal energies once devoted to expanding the national government are being redirected toward the states. New York’s attorney general Eliot Spitzer, declaring himself a “fervent federalist”, is using state regulations to prosecute corporate abuses that George W. Bush’s Department of Justice will not touch. After Bush severely restricted federal stem cell research, California’s voters passed an initiative pouring $3 billion into laboratories for that very purpose, and initiatives are under way in at least a dozen other states. These developments may look like a desperate rearguard action against the conservatives’ grip on Washington. But in fact the well-known liberal liking for programs at the national level has long coexisted alongside a quieter tradition of principled federalism -- skeptical of distant bureaucracies and celebratory of local policy experimentation.

To understand liberal federalism, however, it is first necessary to understand its nemesis, Herbert Croly. A shy, obscure writer on architecture, Croly rose to fame in 1909 with “The Promise of American Life”, a long-winded manifesto calling for a strong national government. The book fell into the hands of Theodore Roosevelt and, with the Bull Moose as its promoter, it attracted a crowd of high-powered admirers, including the benefactors who bankrolled Croly’s new magazine, The New Republic.

Croly had a tendency to swing wildly and hard. His big target was Thomas Jefferson, a man of “intellectual superficiality and insincerity”. The sage of Monticello, Croly argued, had created a government suited for a bucolic era. But modernity, the birth of the corporation, the closing of the frontier and technological advances had reshaped America and rendered Jefferson’s governing vision obsolete. What America needed was centralization and efficiency, not antiquated state governments. The inefficiency of state governments, he said, was “one of the most fundamental of American political problems.” Croly accepted concentrations of power -- corporations, as well as a strong central government -- as immutable facts of modern life. Many of his fellow reformers, he charged, were clinging to an outmoded Jeffersonian affection for competition and equality. Croly, an unabashed elitist, preferred handing power to experts.

One suspects that many if not most of today’s liberal federalists are not true believers. Some have adopted the rhetoric of states’ rights because it provides psychic relief from the alienation they feel now that a majority of the nation’s voters has returned George W. Bush to office. In election postmortems, Democratic political strategists have urged the party to follow in the Truman-Reagan-Gingrich tradition and rail against the corrupt interests ruling Washington. Positioning the Democratic Party as the great modern-day defender of states’ rights against imperial Washington jibes neatly with this strategy. Progressives once championed states as laboratories of democracy. Now many of them are hoping these laboratories will produce the Democratic electoral cure.

Link here.
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