Wealth International, Limited

Offshore News Digest for Week of March 14, 2005


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

Global Business Taxes Asset Protection Privacy Law Opinion & Analysis

GLOBAL BUSINESS

COMING TO TERMS WITH CHINA

In our media lives, Asia plays a remarkably small and fragmented role, given its growing importance in the world. In our press, coverage of Asia is a strange jumble of alarums, fears, and trends: the North Korean bomb, avian flu and SARS, the tsunami, the Taiwan “war bill”, the growth of the Chinese Navy, anime (and remilitarization) in Japan, the U.S. military in Indonesia, the possibility that the central banks of East Asia may dump dollars for euros triggering an economic cataclysm, and the normal run of monks, exotica, and strange customs – all adding up to conceptual chaos. Seldom do you find a piece that tries to put East Asia together, to lay out for us, in particular, the explosive nature of the U.S.-Japan-China triangular relationship, which in various combinations has in the past plunged us all into bloody war.

Below, Chalmers Johnson does just that and in monumental fashion. It is rare for us to take time out of busy lives to consider how exactly the dots might be connected, how the world actually works. I urge all of you to consider doing just that in the case of Johnson’s long essay. It will repay your time many times over. And while you are at it, any of you who have not laid your hands on the first two volumes of Johnson’s Blowback Trilogy on imperial America and the loss of our republic (the third of which is being written at this moment), should do so immediately. Both Blowback: The Costs and Consequences of American Empire, and The Sorrows of Empire: Militarism, Secrecy, and the End of the Republic are now available in paperback and are must reads. The first is a prophetic account, published in 2000, that lays out the background to the attacks of 9/11. The second focuses, as no one else has, on the dramatic story of the endless growth of our military and its bases abroad.

Link here.

Career bureaucrat named Hong Kong’s new leader.

Donald Tsang, a career bureaucrat who rose to the top of Hong Kong’s civil service and earned a knighthood under British rule, took office as the territory’s interim leader, even as China and its allies here signaled he did not enjoy their complete support. Tsang’s appointment came as the Chinese government accepted the resignation of his embattled predecessor, Tung Chee-hwa, and rewarded the former shipping magnate with a face-saving promotion to a national advisory body. Citing failing health, Tung resigned last week after China appeared to lose confidence in his ability to manage rising public demands for greater democracy.

Link here. Hong Kong people lost confidence in Tung Chee-Hwa – link.

PANAMANIAN COURTS IN FULL CRISIS WHILE HIGH-LEVEL CORRUPTION RUNS RIFE

For years, word on the streets has been that it usually costs $20,000 to bribe the Supreme Court to fix a serious criminal case. That is the figure that was cited in wiretap tapes played before the legislature and the Panamanian people during the impeachment trial of the late high court magistrate José Manuel Faúndes, who notwithstanding the damning evidence that he was bought to let a Colombian drug trafficker walk was acquitted when a less than sufficient majority voted for his acquittal. That is the figure that has been cited to this reporter by various prisoners, criminal defendants and lawyers over the years.

Since the Faúndes acquittal, the court has become ever more brazen in its pro-corruption decisions. The problem with that game --- other than the popular indignation that the collapse of the rule of law entails --- is that for a criminal organization the Supreme Court lacks the unity and discipline to prosper over the long term. As Mireya Moscoso was on her way out, the magistrates were embroiled in a bitter dispute over who would get to drive which of the institution’s luxury cars. And now, as Martín Torrijos is in the middle of an ambitious and politically risky legislative effort to change the nation’s tax laws, reform the Social Security Fund, negotiate a free trade deal with the U.S. and present a Panama Canal expansion plan to the electorate, the magistrates have had another, even more spectacular, falling out.

President Torrijos has advocated “orderly” changes in the justice system. What sort of changes? The president did not specify. However, last year’s constitutional amendments give the president and the legislature, which the president’s party firmly controls, the power to pack the high court by increasing the number of its magistrates. Given that the current National Assembly’s Credentials Committee has taken every opportunity to uphold politicians’ immunity and avoid action against corruption and that Torrijos has not seen fit to pressure them to do otherwise, the odds are that change will come neither by impeachments nor by a mass resignation, but by court-packing legislation or through intimidation by way of the threat of such a measure. It does seem, however, that there is a change on the way for Panama’s court system.

Link here.

Impunity, its appearance and its institutionalization.

The Panama News has reported and will continue to report cases of corruption that may or may not stand up in court, or even get to court. When there are allegations of corruption that are newsworthy, we will report them too. However, in any civilized legal system the principle of innocent until proven guilty prevails. No newspaper with reasonable ethical standards will take that axiom lightly. It makes for some difficult balances at times. Not every allegation of wrongdoing made against a public official over the past decade was true, but a lot of acts of government corruption really did happen.

Now comes President Torrijos, promising “zero corruption” and presenting new challenges for journalism and society as a whole. He appointed a former prosecutor as anti-corruption secretary, and gave us a new attorney general who appears to be a great improvement over the one we had. But as soon as Attorney General Ana Matilde Gómez issued a report indicating that certain criminal investigations would end up at former President Mireya Moscoso’s doorstep, Mireya reversed course and belatedly took her seat at the Central American Parliament (PARLACEN) and the immunity from investigation and prosecution that goes with it.

Recent Torrijos administration gaffes in appearing in public with questionable people pale beside the institutionalized incentives for corruption we have seen in recent days --- PARLACEN immunity and the willingness of the Panamanian courts to hear motions brought on behalf of fugitives from Panamanian justice. The current president did not create these situations. However, with his party in firm control of the National Assembly, he could do something to correct them if he so desires. At long last, Panama needs to quit PARLACEN, saving money, disassociating this country from a sordid and useless institution and in the process stripping away the veil of immunity behind which the likes of Mireya Moscoso hide. And though the courts seem unwilling to do anything that might make the rich and powerful accountable before the law to the extent that ordinary citizens are, the legislative and executive branches could and should act to restrict the judiciary’s power to hear motions and appeals by people who evade the courts’ jurisdiction.

“Zero corruption” means less than nothing so long as impunity is a reality. Even if there is some positive commitment to the president’s stated goal, people are not going to believe in it if the administration creates appearances to the contrary. Nor will the plea that the practices of the courts or the provisions of a treaty prevent action against public corruption sit well when the executive and legislature have the power to remove such obstacles to justice. So what will it be, Your Excellency? Will your administration really be any different?

Link here.

U.S. State Department reports on Panama’s human rights progress.

The Government generally respected the human rights of its citizens; however, despite some improvements, there continued to be serious problems in several areas. Overall prison conditions remained harsh, with reports of abuse by prison guards. Prolonged pretrial detention was a problem. The judiciary was subject to corruption and political manipulation, and the criminal justice system was inefficient and often corrupt. Despite these shortcomings, the Supreme Court ruled repeatedly that the statute of limitations would not bar cases involving killings and disappearances during the 1968-89 military dictatorship.

The media were subject to political pressure, libel suits, and punitive action by government officials. Women held some high positions in the Government, including the presidency for most of the year; however, discrimination against women persisted, and violence against women remained a serious problem. Trafficking in persons was a problem despite improved anti- trafficking laws and publicity and a government crack down on traffickers. Discrimination against indigenous people and minorities continued to be a problem. The Government improved its treatment of refugees and its attention to the persons with disabilities. Child labor was a problem.

Link here.

OUR CURRENCY, YOUR PROBLEM

Every congressman knows that the U.S. currently runs large “twin deficits” on its budget and current accounts. Deficit 1, as we well know, is just the difference between federal tax revenues and expenditures. Deficit 2 is generally less well understood. It is the difference between all that Americans earn from foreigners (mainly from exports, services and investments abroad) and all that they pay out to foreigners (for imports, services and loans). When a government runs a deficit, it can tap public savings by selling bonds. But when the economy as a whole is running a deficit – when American households are saving next to nothing of their disposable income – there is no option but to borrow abroad.

There was a time when foreign investors were ready and willing to finance the U.S. current account deficit by buying large pieces of corporate America. But that is not the case today. Perhaps the most amazing economic fact of our time is that between 70 and 80% of the American economy’s vast and continuing borrowing requirement is being met by foreign (mainly Asian) central banks. Let’s translate that into political terms. In effect, the Bush administration’s combination of tax cuts and a Global War on Terror is being financed with a multibillion dollar overdraft facility at the People’s Bank of China. Without East Asia, your mortgage might well be costing you more. The toys you buy for your kids certainly would.

Link here.

PREMIER SCOTT: BERMUDIANS WILL DECIDE INDEPENDENCE QUESTION

Government has a clear mandate to provide Bermudians with the necessary tools to decide on Independence – and until those tools are in hand no further discussion is required, Premier Alex Scott has said. After an article by former Caribbean diplomat Sir Ronald Saunders appeared on Caribbean Net News last week questioning why Bermuda would want to go Independent in light of global trends, Premier Scott was asked to respond to the sudden international interest in the debate.

“While many continue and may continue to weigh in on the subject of the method by which Bermudians may or may not choose Independence, the Government has made it clear that it will provide the people of this country with the requisite tools to make an informed decision,” he responded via an e-mail. “Until that effort has been completed there is no further discussion required. The Bermuda Independence Commission and its work will not be usurped by external opinions on what we should or should not do. Bermudians are quite capable of choosing their destiny and though all opinions may be heard, the final decision will not come from the outside but from within. Bermudian opinions are what we must ultimately hear.”

Link here. Ex-Caribbean diplomat joins chorus calling for Bermuda Independence referendum – link.

Insurance sector thrives in Bermuda.

As well as being a premier offshore financial center, Bermuda is one of the planet’s most isolated destinations – a group of Atlantic islands only 40 km sq and some 700 miles east of the nearest point of land, namely Cape Hatteras, North Carolina. It is home to about 65,000 people, many of whom work in the “international business” sector, as accountants, lawyers, insurance and investment professionals, among other roles. On weekends, these people play on Bermuda’s vast array of golf courses and tennis courts, spend time boating in the sheltered Great Sound and take in the vibrant restaurant scene.

With such a small and dynamic setting, it is no wonder there has always been a healthy interaction and co-operation between private industry and government. With a history of settlement of over 400 years on the island, this private-public partnership has continuously given Bermuda a keen eye for economic survival. Bermuda has been a provider of offshore financial services for more than 50 years, and still continues to improve its infrastructure and the services offered.

The Insurance Act 1978 is a good example of how this partnership works. The Insurance Amendment Act 2004 consolidates much of Bermuda’s good practice into statute and written guidance. It is expected the Act will enhance Bermuda’s regulatory regime without increasing the regulatory burden on Bermuda’s insurance companies.

Link here.

ISLE OF MAN MP WARNS AGAINST E.U. THREAT

“The world belongs to well-governed, self-governing communities which are not in any one trade bloc.” That was the message spelt out by David Heathcoat-Amory in the address to the Island’s Euroclub. The long-serving Conservative MP who is opposed to the UK adopting the euro, and to the new EU Constitution, added, “We have to think globally.” Mr. Heathcoat-Amory was one of the UK’s Parliamentary representatives to the Convention on the EU, which was responsible for developing the initial draft of the Treaty establishing a Constitution for the EU. He felt unable to sign the final report of the Convention and instead was one of a small group of members who submitted an alternative report entitled “A Europe of Democracies”, which called for a smaller, more democratic EU.

Mr Heathcoat-Amory told Euroclub that he was interested in the future of self-governing islands and their integration into the world order. Iceland was a good example of a successful island, which had come from poverty in the 19th century to achieve a high standard of living. This demonstrated “the death of distance” and the importance of what you do, as opposed to where you are. He said the EU was far too inward-looking and obsessed with internal arrangements and harmonization, rather than the real challenge of competing in the wider world. This was “a huge misallocation of effort”, he said. Turning to the development of the European Constitution, Mr. Heathcoat-Amory said this project had betrayed its mandate, which was to produce a simpler, more democratic Europe closer to its citizens. Instead it had tried to treat Europe as if it were a country like the USA, which it was not.

The Constitution consolidated more power to the center, to those very institutions which had created the problems of remoteness and isolation in the first place. It made the EU a legal body – with a single structure including foreign policy, justice and home affairs – that could operate as if it were a state.

Link here.

STUDY COMPARING EUROPEAN AND U.S. ECONOMIES COMES TO SOBERING CONCLUSION

While it is advisable to put behind us the hubris of the initial Lisbon targets “to become the most dynamic, most competitive economy by 2010 etc. ...”, it remains prudent to continue to compare the development of the European economy with the most vibrant economy in the world. At present, that means the U.S. In economic terms, there is no better international benchmark for the E.U. This document compares the E.U. to the U.S. in terms of GDP, R&D, productivity and employment figures, but does so in terms of the time distances between the two regions. It addresses questions such as “When, in its development, did the U.S. already achieve the current EU levels?” and “When, given recent trends, could the E.U. catch up with the U.S., and under what conditions of growth?” The results provide food for thought to all those concerned with European growth and employment.

In summary: 1.) It will take the E.U. until 2023 to reach U.S. levels of employment, and then only if E.U. employment growth will exceed that of the U.S. by 0.5% per annum. Europe’s employment level for 2003 was achieved by the U.S. in 1978. 2.) It will take the EU until 2123 to reach U.S. levels of R&D investment, and then only if E.U. investment will exceed that of the US by 0.5% per annum. 3.) It will take the EU until 2072 to reach U.S. levels of income per capita, and then only if E.U. income growth will exceed that of the U.S. by 0.5% per annum. (Since 1997, the average U.S. growth has been higher.) 4.) Europe’s level of productivity for 2003 was achieved by the U.S. in 1989.

Time for a fresh start. But time is not on our side.

Link here (PDF file).

ST. KITTS-NEVIS PM CALLS FOR CHANGES CARIBBEAN PRIVATE AND PUBLIC SECTORS’ MODUS OPERANDI

St. Kitts and Nevis’ Prime Minister Dr. Denzil Douglas has called for serious changes to be made in the way that the Private and Public Sectors in the Caribbean do business. “In both sectors, all activities and decision-making must be guided by principles of fairness, integrity, morality, and responsibility. Accountability issues must be systematic – regular and accessible – to both shareholders and taxpayers, so that they could be satisfied, and have the opportunity for input for their best interest,” Prime Minister Douglas told some 150 delegates from the region attending the Second Meeting of the Caribbean Corporate Governance Forum at the Eastern Caribbean Central Bank (ECCB).

Dr. Douglas said new and enhanced Corporate Governance processes must become enshrined in the policies and practices of both Governmental institutions and Private Sector companies and institutions to avert the debilitating fallout resulting from scandals of mismanagement and unethical corporate practices.

Prime Minister Douglas said his St. Kitts-Nevis Labour Government has been exerting great effort to enhance the corporate governance processes in public sector entities throughout St. Kitts and Nevis and that immediately after the last general elections in 2004, the ministerial portfolios of his Cabinet were rearranged to facilitate even greater efficiency, cohesiveness and accountability in the discharge of ministerial functions.

Link here.

TAXES

BEWARE OF CLEVER TAX SCHEMES

The opportunity to make big money in an investment scheme and avoid paying tax on it can be very alluring but often such offers are a downright scam. Goldhaven, an investor information and education service in U.S., offers some tips on how to avoid getting burned, starting with the timeless idea that if the opportunity sounds too good to be true it probably is.

At the best of times, schemes to avoid tax are a dangerous business. Take the case of music legend Willy Nelson, 71. At his peak Nelson made millions of dollars, and with the help of his advisers he entered into some complex transactions that enabled him to avoid paying all the taxes due. Many years later, now well past his earnings peak, the U.S. authorities nabbed him for tax avoidance and penalized him millions of dollars. Poor Nelson had to stage special concerts to try and repay the tax authorities. Tax law is not like the road code, where you either broke the law or you did not, because a lot in taxation is open to interpretation and it can take a lengthy court battle to decide who is right.

Link here.

FEDERAL COURT BARS THREE FROM PROMOTING “SHAM TRUST” TAX SCAM

The Justice Department announced last week that a federal court in Florida has permanently barred Fred J. Anderson and Deborah A. Martin, of Lehigh Acres, Florida, and Richard A. Walters, of Arlington, Texas, from promoting sham trust tax schemes or any other tax fraud scheme. The court also barred Martin, a tax return preparer, from preparing returns for customers that assert unrealistic positions. The court in January barred Tax Strategies, Inc., a company the three defendants ran, from promoting sham trust or other tax fraud schemes.

The court also barred the individuals from selling any type of asset-protection device – including trusts, limited liability companies or corporations, private foundations, or similar arrangements – that advocates or facilitates tax evasion or noncompliance with income tax laws. According to court filings, the defendants helped customers establish sham charitable foundations, trusts, and corporations that customers used illegally to eliminate or reduce their reported federal tax liabilities by claiming improper deductions. The government alleged that the defendants’ conduct cost the federal Treasury more than $7.5 million.

Link here.

AUDITORS FIND IRS WORKERS PRONE TO HACKERS

More than one-third of IRS employees and managers who were contacted by Treasury Department inspectors posing as computer technicians provided their computer login and changed their password, a government report said. The report by the Treasury Department’s inspector general for tax administration reveals a human flaw in the security system that protects taxpayer data. It also comes on the heels of accounts of thieves’ breaking into computer systems of private data suppliers ChoicePoint Inc. and LexisNexis.

The auditors called 100 IRS employees and managers, portraying themselves as personnel from the information technology help desk trying to correct a network problem. They asked the employees to provide their network logon name and temporarily change their password to one they suggested. “We were able to convince 35 managers and employees to provide us their username and change their password,” the report said. That was a 50% improvement when compared with a similar test in 2001, when 71 employees cooperated and changed their passwords. “With an employee’s user account name and password, a hacker could gain access to that employee’s access privileges,” the report said.

Link here.

THE TAX POLICE VS. RAGNAR DANNESKJOLD

The feds are very upset with Walter Anderson, whom they are accusing of being the “biggest tax cheat in American history.” They say he evaded taxes on $450 million in income, although he cannot be all bad because in 1998 he paid $494 in income taxes. So, the feds are now going after him, perhaps as part of their customary “Pay your Taxes” advertising campaign prior to the upcoming April 15 tax deadline. Have you ever noticed how public schoolteachers and textbooks extol the virtues of America’s Founders in the 1770s for being tax rebels – you know, people who broke the law by avoiding taxes on tea, tobacco, et cetera (Remember the Boston Tea Party?) – but today the rebels’ successors are treated as evil, immoral beings for depriving the government of money to support its welfare-warfare state? I wonder how many public school students ask about the difference in treatment. Probably not very many.

There is a bright side to the Walter Anderson story. He reminds us of what life was like before the enactment of the 16th Amendment in 1913. You will recall that from the nation’s founding in 1776 until 1913, Americans were free to keep everything they earned because the American people knew that that was an essential aspect of being free. Thus, there was no IRS and income taxation for almost 150 years of our nation’s history. And contrary to what is taught in every public school in the nation, when Americans were free to accumulate unlimited amounts of wealth as part of their overall freedom, the resulting massive accumulation of productive capital, combined with unbelievably high outpourings of voluntary charity, did more for the poor than socialist-welfare-state programs such as Social Security, Medicare, and public housing ever have.

Why are the feds really so angry at Walter Anderson? I suspect it has to do with more than just cheating the U.S. socialistic-interventionist welfare-warfare state out of badly needed moolah. I think what actually might have caused them to go ballistic against him was something else: Among the many aliases he used, the most intriguing alias listed in court papers is Ragnor Danksjold, a variation on the character Ragnar Danneskjold in the Ayn Rand novel Atlas Shrugged. Danneskjold is a sort of Robin Hood in reverse who steals from the ships of socialist governments and gives the booty to the rich, returning to them what had previously been stolen from them. According to court papers, Mr. Anderson’s Gulfstream IV jet was owned by a company named Dankjold Reed, another variation on the name.

Link here.

Tax case defendant denied bond.

The man accused of being the biggest tax cheat in U.S. history will have to stay in jail until his trial either in late spring or early summer, a federal judge ruled. Telecommunications tycoon Walter Anderson, 51, has been in custody since he was arrested February 27 at Dulles International Airport as he returned from a trip to London. He faces charges of concealing roughly $450 million in personal income in offshore shell corporations and failing to pay more than $200 million he owed in federal and District taxes over two decades. U.S. District Judge Paul L. Friedman ruled that there was “ample reason to doubt that Mr. Anderson would appear for trial if released.”

Anderson, who was seeking to be released on bond, and his attorney argued in a hearing last week that he had been a lifelong resident of the Washington area and wanted to vigorously defend himself against the government accusations. Anderson told The Washington Post in an interview that the government’s charges are inaccurate and that all the income was not for his personal use but for the benefit of a charitable foundation that he managed.

“The nature and the circumstances of the offense with which Mr. Anderson is charged demonstrate not only his considerable incentive to flee and evade prosecution, but also his considerable experience in conducting business abroad and moving money and assets across borders without detection,” the judge wrote. Friedman’s decision means Anderson, a resident of Georgetown, will likely remain in D.C. Jail until his trial, unless he accepts a plea agreement.

Link here.

ASSET PROTECTION

JERSEY IS SET TO CLARIFY AND UPDATE ITS TRUSTS LAWS

Jersey first introduced legislation in relation to trusts in 1984 with the Trusts (Jersey) Law. Since coming into force, the law has been amended three times – in 1989 to clarify and update certain aspects, in 1991 to harmonize the law with the provisions of the Hague Convention on the law applicable to trusts and on their recognition, and in 1996 to facilitate the creation of non-charitable purpose trusts. In November 2004, the States of Jersey published a consultation paper in relation to additional proposed amendments to the law, and invited comments prior to 18 February, 2005. It is hoped that, following receipt of comments, a draft amendment to the law will be produced for further consultation in early to mid 2005. The proposals put forward cover the areas below, which includes enactment of a new law to provide for Jersey Foundations.

Link here.

WEALTHY U.S. CITIZENS MAY CHECK OUT AT ANY TIME, BUT THEY CAN NEVER LEAVE

For more than a decade Congress has obsessed over the fact that a handful of rich folks were able to escape U.S. income and estate taxes by renouncing their citizenship. So in October, as part of a big corporate tax act, the politicians took yet another shot at fleeing turncoats. They tightened up a 1996 law that is supposed to extract 10 years of taxes from tax-motivated expatriates as they head for the airport. The new, tougher version will cause pain for some moderately well-off expatriates. But the truly rich and tax averse will still be able to plan around it.

Under the old law expatriates could apply to the IRS for a ruling confirming they had left the U.S. for nontax reasons and were therefore exempt from the 10-year levy. That was a loophole through which you could sail a 100-foot yacht. The ruling loophole is now closed. Under the new law, which is retroactive to June 4, 2004, anyone who expatriates and has assets of more than $2 million or paid more than $620,000 in federal income taxes over the five years before leaving is presumed to have left for tax reasons. Expatriates who do not fit one of the narrow exceptions will owe U.S. income tax on a wide range of U.S. source income and estate and gift taxes on U.S. assets for 10 years. If they spend more than 30 days in the U.S. during any one of those 10 years, they will be taxed that year just like U.S. citizens, on all their income from any source. Warning to ailing expatriates: Do not come here for medical treatment. If an expat dies in a year where he has spent 30 days or more here, his entire estate is subject to U.S. estate tax. The new law also requires post-June 3, 2004 expats to file extensive disclosures – worldwide income, days in the U.S., etc. – with the IRS, annually, for 10 years.

The good news, if you are contemplating leaving for tax reasons, is that the new law is not the feared “exit tax” that was passed by the Senate. And it still leaves holes that the rich and well-advised can use to avoid paying U.S. tax. E.g., he can minimize his estate’s potential bill by using some of the same techniques wealthy U.S. citizens use, such as family limited partnerships.

Link here.

AND THE OSCAR FOR THE BEST RESULT FROM AN OFFSHORE INITIATIVE GOES TO… THE CAYMAN ISLANDS

Notwithstanding every indication on the introduction of the Cayman legislation, the offshore industry in the territory appears to have expanded throughout 2004 at an unprecedented rate. Cayman Islands incorporations were up during 2004 by 26%. More than 1,000 new hedge funds were established in that year, taking the total to approximately 6,000 regulated funds. The Cayman Islands insurance industry is now the fastest growing offshore, second in overall size to that of Bermuda, and bank deposits and interbank bookings now exceed $1 trillion. However, it is in the application of the Cayman legislation to investment funds that the territory has improved its position. In introducing the Cayman legislation, the surprising result for the islands, which some estimate are the domicile of 75% of the world’s hedge fund vehicles, is that virtually all of Cayman’s hedge funds with their paying agents in Cayman should fall outside its scope.

In agreeing to implement the Cayman legislation as a measure equivalent to the EU Savings Directive, the Cayman Islands Government was able to gain important concessions from the UK. These included the recognition of the Cayman Stock Exchange (CSX) by the Inland Revenue, and a commitment by the UK to allow the CSX to become a designated investment exchange. It is anticipated that these will enable the CSX to build on its position as an offshore exchange for listing of hedge funds and structured debt products. All in all, a far better result that was anticipated 12 months ago.

Link here.

SENATE PASSES TOUGHER RULES ON BANKRUPTCY

The Senate passed on Thursday a bankruptcy bill that would require thousands more debtors to repay some of their debts to their creditors. The legislation is backed by the credit card industry, banks and other credit institutions. It would prevent many families earning more than their state’s median income from erasing their debts through bankruptcy and order them instead to follow a strict five-year repayment plan. After two weeks of partisan debate, the Senate approved the bill 74-25.

Pointing to a steep rise in bankruptcy filings over the past decade, Senate Republicans say reform is needed to curb abuses of the bankruptcy system by high-income filers. Consumer groups and many congressional Democrats say that these abuses are rare and that the bill unjustly targets people plagued by skyrocketing medical bills. Democrats also argue that the bill would not stop wealthy debtors from hiding assets in elaborate trust funds and would do little to address high interest rates and penalty fees that credit card companies charge to customers, which the Democrats say contribute to the increase in bankruptcy filings.

Link here.

INLAND REVENUE PROBE PUTS GUERNSEY IN A GOOD LIGHT

The island is a popular base for offshore funds with a UK investment adviser and the Revenue is concerned whether the level of profit recognized in the UK is commensurate with the level of activity there. Mark Boardman of Deloitte said, “This is a marketing opportunity. Guernsey is, without doubt, the best-placed location to operate robust structures which will stand up to the scrutiny by the most sophisticated revenue authorities.” Mr. Boardman was a tax inspector with the Inland Revenue for 15 years, partly specializing in investigation work with the special compliance office (SCO) and special investigations section.

Mr. Boardman gave advice on what to do if the SCO did decide to pursue an investigation and included a warning about giving away too much information. “It is important to obtain advice from an early stage – don’t be complacent where SCO are involved,” he said. “I have seen cases move from avoidance to fraud because someone hasn’t handled it properly. They are not entitled to everything and I could dine out on the stories about people handing over information without realizing that.”

Link here.

DELAWARE HOLDS STRONG ATTRACTIONS FOR FAMILY TRUSTS

For decades, U.S. corporations have set up necessary operations in Delaware to take advantage of the state’s tax code, friendly business climate, and sophisticated legal environment. Increasingly, families looking to protect their fortunes from onerous tax burdens and complicated trust law are following Corporate America’s cue. As long as their family trust’s trustee has a base in Delaware, the family can enjoy the financial benefits of the state from anywhere in the U.S. – and, in some circumstances, the world. Delaware’s tax-free status makes it something of a duty-free zone between New York and Washington.

A Generation Skipping Trust – also called a dynasty trust – allows an individual, while they are alive, to pass part of their estate while alive down to future generations while minimizing the tax. In many states, the trusts have a terminus point at which future generations will be taxed. Delaware Dynasty Trusts overcome this issue because the state allows perpetual trusts with no end date. The trusts face no future estate, gift or generation-skipping taxes as long as the assets stay in trust.

Foreign Trusts set up by non-U.S. residents enjoy the benefits of a GST while preventing creditors from taking possession of the assets in the trust, similar to an offshore haven – but being in the U.S. are unlikely to raise the same eyebrows as more notorious tax havens. Delaware Statutory Trusts are a great tool for individuals who wish to set up a tax-advantaged trust with diverse objectives because they can be designed for multiple participants with different needs. Total Return Trusts permit a trustee to tap into the principal of a mandatory pay-out trust to deliver a preset amount even if trust income alone is insufficient.

Link here.

OFFSHORE ACCOUNTS: NO LONGER AN EASY OPTION

I have spent a lot of time in Switzerland over the years, including two semesters of college. But not much in recent times, when most of my travel and living has been in less developed countries. I did, however, log a few days in Zurich before Christmas to renew some old acquaintances. Some readers may remember when, during the monetary crises of the ‘70s and early ‘80s especially, Switzerland was viewed as a logical, even the premier, refuge for Americans. Numerous privacy and investment seminars were sponsored here for Americans. Swiss insurance annuities had substantial tax benefits (which they have subsequently lost). Swiss bank accounts were the sine qua non of financial privacy. And second homes in Switzerland were sought after. You do not hear much about any of these things now.

I think having a bank relationship in Switzerland still makes a lot of sense, though, because the Swiss live up to their reputations for stability, competence and reliability. Americans should only consider banks that have no assets in the U.S. – although, for reasons I will discuss below, that distinction is not as important as it once was. Unlike U.S. banks, which will promiscuously disclose absolutely everything they know about their clients to the most casual inquirer (forget about a government agent), and then sell the customer’s name to a mailing-list operation for good measure, Swiss banks really do maintain confidentiality. Accounts actually are private, unless proof is presented of an offense that is a crime in Switzerland. And tax evasion is a civil, not a criminal, matter here. Unlike the U.S., the burden of proof rests on the state.

I do not talk about things like “bank secrecy”, the more benign-sounding “financial privacy” or even completely legal “tax avoidance” in my newsletter or anywhere else these days. One reason is because even mentioning these things can draw official attention. And someone who talks about them in a favorable light can easily be accused of abetting “money laundering” or any number of other artificial crimes. Anyway, why bother discussing purely academic concepts? In today’s world, secrecy and privacy really only exist in people’s imaginations. And Boobus Americanus is suspicious of anyone who would have it otherwise.

Perversely, though, the more inconvenient and potentially dangerous it becomes to have a financial presence offshore, the more important it is. As outlandish as it may sound now, after the world has been financially and economically liberalizing in most regards over the last 20-some years, I expect the U.S. to come up with a regime of foreign exchange controls at some point in the fairly near future. One stable datum that you can plan your life around is that government will never control itself when it can get what it wants by controlling its subjects. That is why when the current dollar crisis really gets out of hand, and it almost certainly will, you can expect controls on sending money out of the country without strict approval. At that point, if you do not already have a crib abroad, as well as fully stocked bank and brokerage accounts, you can forget about them.

Link here.

Swiss banking chief attacks City Of London.

The president of the Swiss Bankers’ Association Pierre Mirabaud, called the City of London “a money-laundering paradise”. In the interview with the newspaper Berner Zeitung, Mirabaud said that British trust law was the culprit, since it allows the settlors of a trust to remain anonymous, which Mr Mirabaud says amounts to a sort of banking secrecy of sorts. Mirabaud also said that exchanges of information between the British and authorities in other countries as a “farce”. “Any investigations [into wrongdoing] by the authorities are fruitless because the [British] banks do not really know their clients,” said Mirabaud. The opposite was true in Switzerland, he claimed.

The British Bankers’ Association, contacted by swissinfo, said it viewed Mirabaud’s comments “with interest”. “London has one of the best regulated banking sectors in the world,” said spokesman Brian Capon. “Banks have stringent and enforceable anti-money laundering procedures in place and regulators require banks to undertake detailed ‘know your customer’ checks for every customer,” he added.

Link here.

PRIVACY

BRITISH BANKS CONSIDER EASING ID RULES

Bank customers will no longer need to produce several forms of identification to open an account, under industry proposals published this week. The Joint Money Laundering Steering Group, which represents banks, building societies, investment companies and other financial services firms, published a suggested shake-up in rules that are aimed at preventing money laundering and the financing of international terrorism. The JMLSG says it wants to allow firms to focus their resources on the minority of customers who carry a higher risk and simplify the document requirements for individuals and firms when proving their identity.

Although all new customers of banks and building societies have been required to give proof of identity since 1994, the rules were tightened under the UK Money Laundering Regulations 2003 and the Proceeds of Crime Act 2002. The industry has since been criticized for applying draconian checks on customers. They are frequently turned down even if they show a UK passport, with bank staff asking for more than one type of ID. The rules were said to be contributing to increased “counter rage” in branches.

Link here.

THE DAMNABLE MODERN PASSPORT

Early humanity, like the birds and beasts of the field, roamed at will over the land – always given the proviso that humans, like many other mammals, are a jealous territorial species. This early freedom disappeared with the raising of walls and creation of early states and ministates. “Let letters be given me to the governors beyond the river,” we read for our edification in Nehemiah, II, 7, circa 300 B.C. The Magna Carta of 1215 granted the Englishman his freedom of movement and departure. What one Law giveth the other Law taketh away, and a rascally English statute of 1381 limited these same rights to peers, merchants and soldiers. The Prussian Imperial Police Ordinance of 1548 imperiously banned beggars and vagrants as threats to domestic peace, law and order. The implied inevitable causation, it seems to me, is more forced than real. The panhandler, also a member of the jealous territorial species, normally prefers to work alone on his own turf.

The basic issue is that the state lodges a robust claim on our taxes in times of peace and yet still more taxes and a rapacious demand for our bodies in times of war. The history of state busybodies in pursuit of these two charming aims is long, instructive and makes for generally painful reading. The French Revolution is a case in point, and “passports and certificates of residence became extremely important documents as conscription became a way of life.” It did not begin that way. Early French revolutionaries overflowed with the love of mankind, and they were full of good intentions.

The outline of our future is reasonably clear. The newly declared War on Terror (10 years? 50 years?) signifies the retention of portentous and overt controls, no matter how paltry the discoveries made by the police. The abominable passport, especially the machine-readable passport, will be the rule in the 21st century. One hundred countries, including such apparent technological vacuums like Albania, Jamaica and the Maldives, now issue them. Millions of citizens will spend billions of dollars to identify themselves to the police in an intricate process which assumes that they are malcontents, criminals and terrorists unless they can prove otherwise. There goes the assumption of innocence. Whether the new passports can be forged or not remains to be seen. Ominous straws in the wind indicate otherwise. Identity theft is currently the crime of choice of the criminal classes, and it is growing faster than any other.

The forthcoming U.S. entry/exit system will record the entry and departure of every non-U.S. citizen arriving in the U.S. and will notify the Immigration and Naturalization Service whether foreign nationals departed under the terms of their visas. The provision requires that the information obtained from the entry/exit system be interfaced with intelligence and law enforcement databases. In order to focus on those few who do pose a threat, the authorities will need to know who does not pose a threat, which surely includes all the rest of us. How brilliant, brave, indomitable, resourceful, and lavish with our money after the fact are our masters. Beware. It is the least you can do.

Link here.

JOHN GILMORE CANNOT TRAVEL BECAUSE HE WILL NOT PRESENT A GOVERNMENT–APPROVED ID

John Gilmore’s splendid isolation began July 4, 2002, when, with defiance aforethought, he strolled to the Southwest Airlines counter at Oakland Airport and presented his ticket. The gate agent asked for his ID. Gilmore asked her why. It is the law, she said. Gilmore asked to see the law. Nobody could produce a copy. To date, nobody has. The regulation that mandates ID at airports is “Sensitive Security Information”. The law, as it turns out, is unavailable for inspection. What started out as a weekend trip to Washington became a crawl through the courts in search of an answer to Gilmore’s question: Why?

In post 9/11 America, asking “Why?” when someone from an airline asks for identification can start some interesting arguments. Gilmore, who learned to argue on the debate team in his hometown of Bradford, McKean County, has started an argument that, should it reach its intended target, the U.S. Supreme Court, would turn the rules of national security on end, reach deep into the tug-of-war between private rights and public safety, and play havoc with the Department of Homeland Security. At the heart of Gilmore’s stubbornness is the worry about the thin line between safety and tyranny.

“Are they just basically saying we just can’t travel without identity papers? If that’s true, then I’d rather see us go through a real debate that says we want to introduce required identity papers in our society rather than trying to legislate it through the back door through regulations that say there’s not any other way to get around,” Gilmore said. “Basically what they want is a show of obedience.” As happens to the disobedient, Gilmore is grounded. He is rich – he estimates his net worth at $30 million – and cannot fly inside the U.S. Nor can he ride Amtrak, rent a room at most major hotels, or easily clear security in the courthouses where his case, Gilmore v. Ashcroft, is to be heard.

Gilmore will show ID for an international flight because he does not expect to set the rules for other nations. “I will show a passport to travel internationally. I’m not willing to show a passport to travel in my own country,” Gilmore said. “I used to laugh at countries that had internal passports. And it’s happened here and people don’t even seem to know about it.”

Link here.

U.K. GOVERNMENT TO SACRIFICE ID CARD BILL

The Labour government is set to lose its controversial flagship bills on ID cards and the reform of Britain’s gambling laws unless it can cut deals with the Conservatives and Liberal Democrats before a widely expected May general election closes off all room for manoeuvre. Though ministers seem resigned to losing former home secretary David Blunkett’s pet project – a British ID card to counter fraud and terrorism – they will fight to save Tessa Jowell’s gambling bill, if necessary by warning Liberal Democrats it is “all or nothing”.

Link here.

“KNOW YOUR CUSTOMER” RULES DISCRIMINATE AGAINST LESS WELL OFF, AND DON’T WORK

Not having a bank account means you must go to check cashing services that charge a substantial premium over what a bank would charge, and you cannot get a credit or debit card. Not having a credit or debit card means you cannot rent a car, and find it increasingly difficult to stay in a good hotel or obtain an airline ticket. In addition, you are at increased personal danger by keeping large amounts of cash on hand. The situation is not unique. Millions of U.S. citizens and legal residents are now excluded from getting bank accounts – they are trapped.

Not having a bank account means you have to go to a “money transfer company” to send your parents money. However, the banks are increasingly shutting down the accounts of “money transfer companies” because they do not “know” the customers of these businesses and, hence, feel increasingly at risk from the financial regulators. Not only banks are rejecting customers because of the “know your customer” rules and other financial regulations. Now brokerage firms, pawnbrokers, real estate companies and even auto dealers are subject to some of these rules, which means they often decline to deal with totally honest, responsible people who lack bank accounts and must deal in cash. The banks, other financial institutions and many businesses are losing customers and are at greater risk of being indicted for not following complicated, costly and often vague and unclear regulations – they are trapped.

Regulators feel forced to continue on this destructive path by politicians frightened that if there is another major terrorist incident (or just ongoing drug and financial crime) they will be blamed, even if the “solutions” they enact hurt the innocent and destroy personal liberties and do almost nothing to prevent terrorism. Most politicians who have honestly looked at the mess they have created know it is destructive and becoming more so. People are driven into the high-cost and high-risk cash economy where criminals have easy pickings while, in fact, good public policy should be directed toward making it easy for everybody to get into the digital economy using digital money. The solution is for the government to stop delegating its crime-fighting responsibilities to businesses. Are there no political leaders with the courage to get us out of the trap we have created before disaster befalls us?

Link here.

DATA BROKERS VOW TO PROTECT PERSONAL INFORMATION, BUT WANT TO KEEP SELLING YOUR SS#

Two captains of the information- broker industry told a congressional panel that they would support new regulations to better protect sensitive personal data that they collect and sell on virtually every adult American. But the executives balked at what appears to be a growing bipartisan consensus among key House and Senate members that the sale of Social Security numbers for commercial purposes should be banned unless individuals give their permission. Rep. Joe Barton (R-Texas) said Congress would probably consider a measure to require permission for the trading or sale of such data except to law enforcement agencies, in addition to other steps to increase oversight of the largely unregulated data-broker industry that has been rocked by a series of security breaches.

Last month, ChoicePoint Inc., one of the nation’s largest brokers, announced that personal information on at least 145,000 consumers was bought from the company by thieves who masqueraded as legitimate business people. Last week, LexisNexis Group, another big broker that specializes in business and legal data, announced that its systems had been penetrated by thieves who obtained data on 32,000 consumers.

Kurt Sanford, chief executive of LexisNexis Corporate and Federal Markets, said banning all sales of Social Security numbers would be a mistake, because “there are circumstances where the sale is in the consumers’ best interests.” For example, he said, independent investigative agencies might need such data to help fight identity fraud. Businesses, he added, need it to help collect unpaid debts. Derek V. Smith, chief executive of ChoicePoint, agreed. But several members of the House subcommittee on commerce, trade and consumer protection were unimpressed by the companies’ efforts.

Link here.

LAW

U.S. AIMS TO RETURN ILL-GOTTEN GAINS TO VICTIMIZED COUNTRIES

The luxury Key Biscayne condominium owned by a corrupt Nicaraguan official had everything: a wine room, beachfront access and breathtaking views of the ocean. It was a perfect hideaway for someone accused of helping steal more than $100 million from his own country. But instead of serving as a getaway, the condo was seized by U.S. officials and sold – and the $2.7 million in proceeds were set aside to build four modern public schools in Nicaragua for about 2,100 students by the end of 2005. The case brought by U.S. Immigration and Customs Enforcement against Byron Jerez, the former Nicaraguan tax chief, is one of about two dozen ongoing investigations involving eight Latin American countries in which Miami-based agents are trying to track and seize real estate, bank accounts and other assets bought with money stolen by corrupt officials.

The stepped-up law enforcement initiative coincides with a broader effort by banks and investment houses to prevent people known in the trade as PEPs – for “politically exposed persons” – from using U.S. accounts to launder or hide ill-gotten gains from foreign countries. For decades, many banks allowed corrupt officials to open and use such accounts with no questions asked. In one sign of the increased scrutiny, the number of “suspicious activity reports” filed by banks and other financial institutions with the government rose by 25% over the first half of 2004 compared with the same period the year before.

The prevalence of corrupt foreign money in the U.S. gained renewed attention earlier this year when Riggs Bank, a venerable Washington institution that once held dozens of accounts for foreign embassies and individuals, agreed to pay $41 million in fines after pleading guilty to failing to report suspicious transactions involving former Chilean dictator Augusto Pinochet. Miami has long been a gateway for smugglers, embezzlers and drug dealers to launder their ill-gotten gains, particularly those from Central and South America. Some officials steal money from their own governments and relocate to South Florida, snapping up luxury homes, buying expensive cars and aircraft and living in high style.

Link here.

BLAIR RELENTS ON TERRORISM BILL

Tony Blair’s emergency anti-terror powers finally became law last Friday night after an extraordinary constitutional showdown forced him to give parliament the right to alter or tear up the legislation in just over a year’s time. At the end of a dramatic week in Westminster, in which MPs and peers had wrangled day and night for 32 hours, the prime minister caved in to opposition demands by offering a new bill next spring. Lord Falconer, the Lord Chancellor, assured peers on Friday night that Parliament would at that point have the right to amend or repeal the current measures, which limit the liberty of suspected terrorists without trial. The compromise ended a marathon parliamentary “ping-pong” match, which constitutional experts said was unprecedented. The Lords broke records to clock up their longest ever sitting, in which they defied the government no fewer than four times since Thursday morning. The prime minister, who was roundly attacked by opposition MPs for announcing his change of heart to the media rather than to the Commons, accused the opposition of playing “daft games with the nation’s security.”

Link here.

8 terror suspects freed by Britain.

A British judge released 8 terrorism suspects from prison on Friday – including an Islamic preacher accused of helping inspire last year’s train bombings in Madrid – while Parliament broke a deadlock after a marathon all-nighter and passed the government’s proposed new anti-terror law. The suspects, foreign citizens who had been held without charge or trial for as long as 3 1/2 years, were freed by a special immigration appeals judge. But he imposed restrictions that include night-time curfews, electronic tagging, regular searches of their homes and a ban on the use of cell phones and computers. All were taken to undisclosed locations.

Civil liberties advocates, who had branded the men’s continued imprisonment “Britain’s Guantanamo,” welcomed the release. But police officials, including the current and former heads of Scotland Yard, said the men remained a security threat and would have to be closely monitored. The releases followed a ruling by a panel of British justices in December that the government’s emergency powers, used to hold the men without trial, violated human rights and were discriminatory because they applied only to foreigners.

Link here.

Chaos ensues as first terror orders are used.

Lawyers acting for 10 former detainees released on bail last week, following the dramatic passage of new anti-terror laws through Parliament, have already identified a series of serious problems with the new system, which also applied to British subjects from yesterday. On release, the foreign nationals discovered that a hotline set up to keep them in touch with the Home Office had not been activated. One man. known as B, who did not wish to be released from Broadmoor high security psychiatric hospital, is reported to have suffered a further mental breakdown as a result of being moved.

Suspects must phone a private tagging company before they leave the house. But in one case, suspect P, who has no arms, was supplied with a phone that had not been adapted for his disability. Lawyers acting for Abu Rideh, a Palestinian also held at Broadmoor said police had told him that they knew he was no danger to the public. The mother of one former detainee visiting from abroad had been thrown out of the family house because she was not on a list of people authorised to visit the suspect under the terms of the control order.

A solicitor who represents most of the detainees said the system had already descended into mayhem. “Another hideous experiment has begun and once again the government is using human guinea pigs.” Meanwhile, it has emerged that the intelligence services did not demand draconian powers to detain terror suspects but merely advised ministers on the level of the threat to national security.

Link here.

U.S. PUTS OUT LIST OF MAJOR MONEY LAUNDERING COUNTRIES

Every year, U.S. officials from agencies with anti-money laundering responsibilities meet to assess the money laundering situations in 200 jurisdictions. The review includes an assessment of the significance of financial transactions in the country’s financial institutions that involve proceeds of serious crime, steps taken or not taken to address financial crime and money laundering, each jurisdiction’s vulnerability to money laundering, the conformance of its laws and policies to international standards, the effectiveness with which the government has acted, and the government’s political will to take needed actions.

Link here. Comparative country table here.

British dependent territories vulnerable to money laundering says U.S.

Despite making strides in anti-money laundering, many British-dependent territories remain vulnerable to the crime because of their significant offshore sector and their tax free jurisdictions – so says U.S. State Department officials, in their recent International Narcotics Control Strategy Report, which recommended that Anguilla, Bermuda, the British Virgin Islands, the Cayman Island, The Turks & Caicos Islands and Montserrat, continue to strengthen their regulations to prevent and inhibit money laundering and terrorism finance. In Anguilla, U.S. officials claimed that while the financial sector is small in comparison to other jurisdictions in the Caribbean, the ability to register companies online and the use of bearer shares make Anguilla vulnerable to money laundering.

While Bermuda was lauded for the integrity of its financial regulatory system and for the fact that its government cooperates with the U.S. and the international community to counter money laundering and terrorist financing and continues to update its legislation, U.S. officials urged for the enactment of measures to detect/monitor cross-border transportation of cash and monetary instruments. But the BVI, according to U.S. researchers, remain vulnerable to money laundering despite many laws to counter the crime. The Cayman Islands, while lauded for continuing to make strides in its anti-money laundering program in 2004, remain vulnerable to money laundering due to their significant offshore sector. Montserrat, one of the smallest financial sectors of the Caribbean overseas territories of the U.K., was dubbed as a major attraction for money launderers because of a lack of regulatory resources.

Links here and here.

Bermuda’s anti-money laundering regime outlined.

Bermuda’s present legislation is derived in large part from the money laundering regime in force in the UK prior to 2003. In this brief we shall summarize the existing regime and indicate some of the changes that are occurring and are likely to occur over the coming months to increase the standard of regulation in Bermuda. The existing regime includes Confiscation Orders, which allow for the seizure, detention and forfeiture of cash which is being exported from Bermuda, and is reasonably suspected of being the proceeds of crime, or is intended for use in any criminal conduct. The money laundering offences apply to persons generally, although attorney client privilege is preserved and an attorney does not have an obligation to disclose such information where it comes to him in the course of advising a client.

Link here.

St. Kitts and Nevis receives unfavorable narcotics report.

A 2005 International Narcotics Control Strategy Report released by the Bureau for International Narcotics and Law Enforcement Affairs has given St. Kitts and Nevis and unfavorable report. According to the Report, seven Eastern Caribbean countries (Antigua and Barbuda, Barbados, Dominica, Grenada, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines), “form the eastern edge of the Caribbean transit zone for drugs, mostly cocaine and marijuana products, traveling from South America to the U.S. and other global markets,” and that “approximately 30-35 metric tons of cocaine originate from, are destined for, or transit through the Eastern Caribbean (from Puerto Rico east and south) annually to the U.S. Eight to nine times that amount transit the Eastern Caribbean to Europe annually. Illicit narcotics transit the Eastern Caribbean mostly by sea, in small go-fast vessels, larger fishing vessels, yachts and freight carriers.”

The Report further stated that “South American traffickers deliver drug loads either over the beach or else they offload their illicit cargo to smaller local vessels for delivery ashore.” The Report also warned that “Drug trafficking and related crimes – such as money laundering, drug use, arms trafficking, official corruption, violent crime, and intimidation – have the potential to threaten the stability of the small, democratic countries of the Eastern Caribbean and, to varying degrees, have damaged civil society in some of these countries. Regional and international drug trafficking organizations (DTO’s) and various organized crime groups have infiltrated many of the Eastern Caribbean nations, corrupting officials and contracting the services of local criminal organizations, some of whom are now sufficiently trusted by major DTO’s to be given narcotics on consignment. There are reports that Colombian nationals are residing in some Eastern Caribbean countries and organizing drug trafficking operations.”

The failure of regional governments to bolster their drug law enforcement capabilities is highlighted. Their “maritime establishments are chronically under-resourced and several have lost their U.S. security assistance funding as a result of not concluding with the U.S. bilateral International Criminal Court non-surrender agreements. Routine drug law enforcement patrolling, particularly at night, is intermittent and the establishments as a whole do not have a reputation for consistent drug law enforcement aggressiveness or effectiveness,” and that “police drug squad effectiveness in the region also suffers from a lack of resources, including in some cases insufficient equipment and vehicles or dispiriting office infrastructure,” the Report said. The report on St. Kitts and Nevis was no less different.

Link here.

U.S. DRAFTING NEW BANK SECRECY GUIDELINES

U.S. regulators are drafting new guidelines for banks to comply with a law to stop money laundering, a Federal Reserve governor Susan Schmidt Bies said in remarks prepared for delivery to a banking conference. Bies did not talk about monetary policy in her prepared remarks. Bies’s remarks concern the Bank Secrecy Act, which directs banks to file reports about suspicious activities by customers. Some banks, she said, are concerned that failing to file reports required by the law could result in a criminal prosecution. Some are also avoiding customers who present perceived heightened risks, she said. Regulators will also issue comments about the existing capital rules, she said.

Link here.

U.S. TAX PROFESSIONALS IMPACTED BY PATRIOT ACT

The US Patriot Act, passed in the wake of 9/11, has resulted in major changes to the Bank Secrecy Act, particularly for Money Service Businesses (MSBs) and the tax professionals who advise them. A recent IRS-sponsored panel described these changes. The panel encouraged tax practitioners to help their business clients meet recent changes in BSA requirements brought on by the USA Patriot Act in a national effort to crack down on money laundering activities that can be used to fund terrorist activities. “The USA Patriot Act may be even more sweeping than the Bank Secrecy Act itself at its inception,” said Don Temple, Director of Anti-Money Laundering Investigations, Commerce Bank.

According to the IRS and tax professionals, tax practitioners need to help their business clients pay close attention to the BSA’s definition of an MSB and file accordingly. MSBs have very specific registration and reporting requirements. An MSB is defined as any business that offers one or more of the following services: money orders, traveler’s checks, stored value, check cashing and currency dealing and exchanges; and conducts more than $1,000 in money services business activity with the same individual, in one type of activity, on the same day; or provides wire or money transfer services in any amount. A business qualifies as an MSB even if the MSB activity itself is ancillary to the primary business, e.g., a travel agent selling traveler’s checks or a convenience store selling money orders.

Link here.

PINOCHET HELD 125 ACCOUNTS IN U.S. BANKS, REPORT SAYS

A Senate committee report suggests that the ties between the former Chilean dictator Gen. Augusto Pinochet and American financial institutions were deeper and more extensive than previously disclosed. Senate investigators found that General Pinochet was able to move millions of dollars through more than 125 bank accounts held in the U.S., based on new information handed over by the institutions. The report showed that the money-laundering scandal that initially focused on Riggs Bank, a Washington institution that linked the financial and political worlds, had broadened to involve at least eight other institutions that operate in the U.S. and around the globe.

In July, the Senate’s Permanent Subcommittee on Investigations concluded that Riggs executives and bank regulators, even after September 11, 2001, failed to monitor suspicious financial transactions involving hundreds of millions of dollars. At the same time, the committee identified accounts showing that Riggs had an eight-year association with General Pinochet. But the new report says that both Riggs and Citigroup had ties to him that went back more than two decades, with accounts totaling at least $9 million held by members of his family, close associates or by him personally. The report also says that accounts at Bank of America, Banco de Chile in the U.S., Espirito Bank in Miami and four offshore private banks could be linked to the former dictator.

“The only way we can protect our financial system from the bad guys is if the banks and our securities firms know their customers,” said Senator Carl Levin, a Democrat from Michigan who helped lead the investigation. “Our banks either knew their customers in the case of Riggs” but nonetheless courted the business of General Pinochet, he added, “or in the case of Citibank, they did not know their customers or should have known their customers. They should have known the source of the money.”

More than 3,000 people died in political violence in the Pinochet era and tens of thousands more were tortured, imprisoned and exiled as the military suppressed opposition. Pinochet, 89, kept his money hidden until last July when the Senate panel revealed he had stashed some $8 million at Riggs. In January, Riggs pleaded guilty and agreed to a $16 million fine for violation of the U.S. Bank Secrecy Act. This related both to the Pinochet accounts and those of officials of oil-rich Equatorial Guinea. Riggs also agreed in February to settle a Spanish lawsuit by paying $8 million into a fund for victims of the ex-dictator. The scale of the transactions and bank secrecy rules in other nations limited the panel’s ability to determine the total amount of Pinochet-related funds that moved through the U.S. system, Senate staff said. Levin said the total was at least $15 million and could be much higher.

Links here and here.

WILL AMERICANS EVER AGAIN CLEARLY SEE THE IMPORTANCE OF PROPERTY RIGHTS?

Reading the official ballot arguments for and against Measure A, the April 5 initiative that will determine whether developer Michael Harrah will be allowed to build a 37-story office building in downtown Santa Ana, California, I am left wondering what happened to the political IQ in this country. Neither side is wrestling with the central issue at stake. When faced with a potentially complex issue – should this particular building be built or not? – it is best to start with the fundamentals. The obvious first questions: Who owns the land? Is the developer seeking city subsidies? Is the city proposing to use eminent domain to help acquire the property for the developer? In fairness, we must also ask if there is some significant nuisance to consider or mitigate, such as the Disney Hall’s heat-generating stainless-steel shell that is requiring sandblasting to keep from cooking the residents of a nearby building in downtown Los Angeles.

Go into a kindergarten classroom, and any kid will tell you that he can draw a picture on his own desk if he owns the paper and the crayons. Yet supposedly intelligent adults do not even confront these basic ownership issues as they spend a half-million bucks fighting over whether to allow a new building or not. Harrah owns the land. He is not seeking subsidies; in fact, he is one of the few developers who maintains an entrepreneurial independent streak, rather than lobby City Hall for favors. Eminent domain is not being used. Harrah is paying nearly $13 million for surrounding street improvements to deal with the additional traffic caused by his building. That is a reasonable amount of mitigation. End of story.

Do I like tall buildings? Yes, but that is irrelevant. Do I like this particular design? It looks decent, but, again, a nonissue. It is all about property rights, period. I wholeheartedly support the project, regardless of my personal opinion of it, just as I wholeheartedly support my neighbor’s exterior paint project even though I do not like the trim color he chose. This used to be common thinking, but now everyone wants to vote on everything anyone else might build. Even supporters of Harrah are not making the right case. Consider the ballot arguments published on the Registrar of Voters’ Web site. According to the influential crew that signed the ballot argument (including the mayor, the president of the Chamber of Commerce and the executive director of the High School for the Arts), residents should vote “yes” so they can “make Santa Ana Number One NOW.”

We’re No. 1? What is this, a football game? And I have seen good master plans, but mostly bad ones. Finally, while I am all for new construction jobs, I strongly oppose job-producing developments if, say, they are built on property taken by force by the city. Opponents, including a councilwoman and various neighborhood association representatives, are even dopier in their opposition. “Santa Ana must have the right development to create sustainable growth,” they wrote. Sustainable growth, by the way, is whatever proponents say it is. What we are witnessing is a transfer of power from individuals, who should get to make their own decisions about their own land, to “stakeholders”, i.e., anyone who might have an opinion on the project, for whatever reason. They are the ones who, in this new and disturbing worldview, get to decide consistency and proper density.

There should not be a vote on whether Harrah can build his new office tower. Democracy is a decent enough way to elect leaders, but it is not the right way to make fundamental decisions about life, liberty and property. There used to be a time when most Americans understood that private meant something, that not every decision should be subjected to the subjective ideas of the public. That time is long gone, and Measure A is just the latest reminder that when private property does not count for much, the tyranny of the majority quickly can follow.

Link here.

OPINION & ANALYSIS

DRIVING THE BAD GUYS CRAZY

Now that just about four months have passed since the release of The Politically Incorrect Guide to American History and much of the frenzy surrounding it has begun to die down, I have had a few moments of leisure to consider the response to it, and what it all means. The favorable responses have been gratifying, and come from such sources as Congressman Ron Paul, Liberty magazine, the Mackinac Center for Public Policy, Gary Bauer (who called it one of the top five books of 2004), Pat Buchanan, Ralph Raico, Paul Gottfried, The American Conservative, Human Events, the Mises Review, the California Literary Review, and the Weekly Standard (that is not a misprint – their print edition published a favorable review). The Times of London ran a favorable piece about me, and Brazil’s Folha de S. Paolo kindly published a verbatim interview. The Washington Times and the Pittsburgh Tribune also ran sympathetic interviews.

The New York Times editorial page, on the other hand, solemnly warned Americans about my dangerous views, as did Reason magazine contributing editor Cathy Young in the Boston Globe. (Two weeks later, though, the New York Times proved that miracles are possible by publishing a very favorable profile of me: “Revisionist History? A Professor Hopes So.”) The Claremont Institute did not care for it (surprise). Neither did the Council on Foreign Relations’ Max Boot or, more recently, Communist-turned-neoconservative Ronald Radosh.

One thing Beltway libertarians share in common with neoconservatives is that both go berserk whenever the South is treated with anything other than contempt. Even though a genuine libertarian would be hard pressed to find anything else in the book with which he might disagree, major Beltway libertarians have condemned me because my Civil War chapter was not sufficiently anti-Southern, and because I committed the unpardonable offense of suggesting that there might be something of value in the Southern tradition. In the old days, conservatives and libertarians freely debated the Lincoln legacy and similarly controversial questions in the pages of National Review. Today, positions that were defended with skill and precision by distinguished scholars of the past are enough to get you smeared in the pages of the very magazines for which those scholars used to write.

The left’s response to the book was predictable enough: smears, incredulity that I dared to criticize their favorite presidents, and outright lies about the book’s contents (it was obvious that most of them had not read it, since much of the time they attributed positions to me that were exactly the opposite of those in the book). The fact that some leftist bloggers actually linked to Max Boot’s critique of my book speaks volumes. In spite of the smears, the book, now in its eighth printing, spent three months on the New York Times bestseller list. Murray Rothbard was right – it sure is fun driving the bad guys crazy.

Links here and here.

MORNING IN THE ISLAMIC WORLD?

President Bush has been crowing about how the policies of his administration are responsible for “democratic” developments in the Islamic world, but like most politicians, he is claiming credit for progress that has been overstated, that he had little to do with, and that may likely be reversed. In his second inaugural address, President Bush loudly proclaimed his desire to democratize the world. But Bush’s touting of his progress toward this goal, and the media’s willingness to indulge in the democratic euphoria, are misplaced.

In Iraq, a democratic election was held more than a month and a half ago, but no government has yet been formed. This delay is one indicator of the depth of Iraq’s ethnic and religious cleavages. Another sign is a stepped up Sunni insurgency that is increasingly targeting Shi'ite targets in order to ignite a full-blown civil war. In Palestine, U.S. policy had little to do with the flowering of yet another attempt to negotiate an end to the decades-old Israeli-Palestinian conflict. The death of Yasser Arafat and his replacement by Abu Mazen, who is more willing to negotiate with Israel, was the crucial factor, not U.S. pressure. In Lebanon, the initial flowering of opposition to the Syrian military presence was caused by the assassination of Rafiq Hariri, an anti-Syrian former prime minister, not U.S. policy. Furthermore, opposition demonstrations were dwarfed in size by a later march supporting Syrian influence conducted by Hezbollah, the radical Shi’ite Islamist group. If true democracy flowers in Lebanon, the negotiated balance among various religious groups would likely be upset, and Hezbollah would be the main beneficiary.

U.S. support for democracy in Islamic countries is often regarded as selective and thus hypocritical. Increased U.S. support for Pakistan, a country that has proved useful in the administration’s “war on terror”, has coincided with a strengthening of the Musharraf dictatorship. Even some opponents of the U.S invasion of Iraq are marveling about its alleged democratic ripple effects in the Middle East. Yet the specific mechanism by which the invasion led to such effects is never identified, and many of these developments can be explained by other causes – and the U.S. is so hated in the Islamic world that many pro-democratic groups there try to distance themselves from U.S. policy. Perhaps the U.S. would be better served by resurrecting its founders’ policy of promoting freedom through leading by example.

Link here.

THE STILLBORN EMPIRE

Did I miss something? Where did all the “not since Rome” bombast, talk of America’s “benevolent global hegemony”, “Pax Americana”, and the New World Order disappear to? Whatever happened to the “jodhpurs and pith helmets” crowd? Just a year ago, in the Irving Kristol Lecture at the annual AEI dinner, columnist Charles Krauthammer rhapsodized about America’s “global dominion” and our having “acquired the largest seeming empire in the history of the world.” We have “overwhelming global power,” said Krauthammer. We are history’s “designated custodians of the international system.” When the Soviet Union fell, “something new was born, something utterly new – a unipolar world dominated by a single superpower unchecked by any rival and with decisive reach in every corner of the globe. This is a staggering new development in history, not seen since the fall of Rome. ... Even Rome is no model for what America is today.”

Well, reality does have a way of intruding upon one’s fantasies, and, looking at our world today, it would seem multipolarism is making quite a comeback. Castro, though literally on his last legs, yet defies the Americans and is about to be succeeded as the leading hemispheric Yankee-baiter by Hugo Chavez, the Venezuelan ruler who lately defeated a U.S.-backed recall. And as Chavez finds imitators in the Andean nations, the Mexican government instructs its citizens in how best to sneak across the border into the U.S. Our NATO allies, Tony Blair included, are lifting their embargo on weapons sales to China over the protests of President Bush. Old Europe remains adamant in its refusal to send troops to Iraq, as the Ukrainians and Poles, following the Spanish, quietly depart the beleaguered nation. The Iraqi elections appear to have deposed our client Allawi and empowered Shia parties with ties to Iran and Kurds who covet Kirkuk and its oil and look to ultimate independence. Whatever the neocons’ vision of Iraq – as strategic base camp for World War IV or crown jewel of Middle East empire – Americans seem to be looking for an exit.

As for the Bush Doctrine – no axis-of-evil nation will be allowed to acquire weapons of mass destruction – it is being tested by Tehran and defied by Kim Jong Il, who has crossed every red line Bush has put down and now claims to have nuclear weapons. America’s response? Please come back to the six-power talks. Russia’s Putin is consolidating power in the czarist tradition, seeking to resurrect Moscow’s old sphere of influence, and is conducting military exercises jointly with Beijing. And openly contemptuous China lectures us on our failure to rein in our voracious appetite for imports, which is sending the dollar the way of the peso.

Yet as one watches the Old Republic spend herself into bankruptcy, run up trade deficits that debauch her currency, decline to defend her own bleeding borders, permit rivals to loot her technology and cart off her manufacturing plants, America does in a way resemble Rome. But it is, unfortunately, the Rome of the late fourth century. For America 2005, unlike the America we knew not long ago, has become a newly dependent nation, dependent on the Gulf for oil to run our economy, on imports for the necessities of our national life, on Beijing and Tokyo to buy the bonds to subsidize our self-indulgent lifestyles.

Link here.

THE CONSTITUTION OR LIBERTY: CHOOSE ONE

If the federal government constrained itself to the limits the Constitution places on it: If Presidents did not go to war without a formal Congressional declaration, if Congress only exercised powers specifically enumerated in the Constitution, if the Bill of Rights, including the Ninth and Tenth Amendments, remained in force, and if the federal courts did not dishonestly claim that prayers in local public schools violate the First Amendment, whereas McCain-Feingold does not, would our country be much better off?

Yes, that would be much better, in theory. But even good Constitutions do not guarantee good outcomes. The War on Drugs, or Social Security, or No Child Left Behind, are not bad because they are unconstitutional; they are bad because they are tyrannical and socialistic. It is right and valid, of course, to point out their unconstitutionality; the further federal policy strays from the constraints of the Constitution, the greater our risk of sliding into despotism. But returning to the limits of the Constitution will not solve our problems. Remember the Mexican War, the Spanish-American War, and World War I. All declared by Congress through the legitimate, Constitutional means, and all wholly unnecessary and unjust. We are proud of our Constitution partly because of the difficulty in amending it. And libertarians and paleo-conservatives are dismayed that, instead of amending the Constitution, progressives and neo-conservatives just assume that what laws they pass and programs they establish are constitutional as long as the federal courts do not strike them down. But legitimate means do not “justify” – make just – the ends. Prohibition was wrong, and its legitimacy under the Constitution does not make it right.

The American people are as fully capable of oppressing themselves through taxation and Constitutional amendments, as they are through unconstitutional laws and Presidential fiat. This is no smear or criticism of the Constitution’s architects. Whether or not you agree that the Constitution was even necessary, it is safe to say that it is a brilliant plan for government. But no constitution, not even ours, is capable of protecting the people from their own fears, resentments, and prejudices. If people want big government, they will get it, Constitutionally or not. The Constitution is not the core of our argument. Liberty is.

Link here. Followup here.

THE CONSERVATIVE WELFARE STATE

The Social Security Administration has a Web page dedicated to the creator of modern government retirement programs, Otto von Bismarck, the late 19th century militarist chancellor of Prussia. The page explains, “Despite his impeccable right-wing credentials, Bismarck would be called a socialist for introducing these programs, as would President Roosevelt 70 years later.” Now, one might paraphrase about the current situation and say, “Despite his impeccable right-wing credentials, President Bush could be called a socialist for introducing his welfare programs, as was President Roosevelt 70 years earlier.” But considering the rich history of right-wing nationalist rulers from Bismarck to Bush, and their affinity to a certain type of socialism, perhaps “despite” would not be the most appropriate preposition to use in discussing Bismarck’s or Bush’s conservative welfare state.

In many ways, Bismarck is the inspiration behind America’s greatest socialist experiments: Social Security, Medicare, and nationalized public schooling. The German tyrant saw the people he ruled as a collective social organism, to be molded, conditioned and regimented toward the furtherance of Prussian nationalism and the consolidated state he envisioned. The central state would control people from cradle grave, take charge of the education and development of young people’s minds, consume a sizable portion of the private economy for its military conquests and promise to take care of the old when they retired. The nation-state ruled supreme; the people, mere cogs in the machine.

Bush’s expansion of Medicare, his housing subsidies, his federal subsidies for families and churches, and his desire to “save Social Security” are not leftist diversions from conservatism, nor are they reactionary diversions from Progressive welfare statism; Bush is simply the most passionate and consistent spokesman for the conservative welfare state that has occupied the White House in recent years. Republicans have always done a lot of meddling in the American economy. The regulatory neo-mercantilism of the Republican Party, especially as it ties in to the warfare state, has been a core feature of its program since the 1860s. Before that, it was the conservative Hamiltonians who desired a national bank and government funding for national infrastructure. In recent administrations, Republicans have been famous for agricultural welfare, corporate subsidies, and other giveaways to certain friends of theirs.

The purer welfare-state proposals, however, have not appeared as much on the foreground until recently. Bush’s talk about giving money to Africa, to religious charities, to single Americans on the condition that they marry – none of this sounds particularly Republican, even to many libertarians well versed in the historic evils of the party. It is too socialistic, too interested in social engineering rather than simply giving cushy contracts and pork to cronies. It is too idealistic, much like Bush’s war to make the world safe for American foreign policy, rather than more realistic but brutal, like Reagan’s funding of death squads in Latin America to contain Communism. And unlike his father, who, for example, raised unemployment benefits, Bush seems to believe truly in his own Great Society, as opposed to simply advancing the welfare state out of political pragmatism. If any of this seems confusing, it should not. Like Bismarck, Bush is a true believer in the right-wing welfare state. The welfare state is a right-wing invention, developed first and most characteristically by imperialist rulers as a method of shaping and controlling the masses. The Marxist dreams of abolishing markets, hierarchy and private property have little in common with the social engineering of the conservative welfare state, the one that we have here in America. Bush, like many conservative nationalists, sees the state as a foolproof instrument for managing and improving upon society, and he has acted upon that principle like no other president in recent history.

Link here.

AMERICA THE NOISY

Since 9/11, Americans have been in a more or less apocalyptic mood about their country. Either it is the greatest, freest, most wonderful country that has ever existed, destined to save the world, or it is the Great Satan, oppressing the poor and threatening life as we know it. The latter view is more prevalent among the sort of people who are for obscure reasons known as intellectuals, most of whom did not vote for President Bush last time. They are basically as jingoistic as Rush Limbaugh, but in reverse. They agree with him in principle that America is the center of the universe, only they use negative superlatives to describe it. My own view is that Italy is the center of the universe, but the Italians don’t brag about it. Only Americans seem to insist on describing their own country in ultimate terms. It is either heaven or hell.

Now this is, in all sobriety, an astonishing country. It has an absolutely unparalleled genius for invention, and its military power is an aspect of that genius. On the other hand, it is not the kind of country that produces Dantes, Shakespeares, and Mozarts. Good taste is not among our salient traits. We produce amazing audio equipment, and just listen to the stuff we play on it! America is surely the noisiest country on earth. This is probably the best country to be deaf in. If I could say one thing in sign language, it would be, “You’re not missing much.” In America, music has been reduced to loud, thumping beats and not much else. I have to laugh when Grammy Awards are given to rap records. You mean you can tell them apart? Talk about specialization! In a few years, I suppose, we will have radio stations for older folks that play nothing but soft rap.

Americans have notoriously short attention spans, so if you want attention you had better get it in a hurry. One of our allegedly “greatest” presidents, Franklin Roosevelt, was also the most short-sighted. His legacy includes deficit spending and budget-busting Federal entitlements, which got him reelected but now pose severe problems for the government itself. A more deadly part of that legacy is nuclear weapons, which slightly shortened World War II but are now available to petty tyrants around the world. Did Roosevelt think these monstrous weapons would remain an American monopoly forever? Did he even care?

No, America is not to blame for all of its own problems. Even if all our politicians were reasonably honest, there would be international frictions, nation-states being what they are. But America needs to learn to see itself with a detachment we do not find on either the jingoist Right or the America-bashing Left.

Link here.
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