Wealth International, Limited

Offshore News Digest for Week of April 11, 2005

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

Global Business Taxes Asset Protection Privacy Law Opinion & Analysis



While the television plays vintage clips of the late Prince Rainier’s storybook marriage to the American actress Grace Kelly, the unspoken question hanging in this tiny principality’s crisp Mediterranean air is who the next princess will be. Prince Rainier’s enigmatic son, Albert, who assumed Monaco’s throne upon his father’s death last Wednesday, is unmarried and has shown no public inclination to produce a royal heir. Choosing a bride to replace his mother, who died in a car crash 23 years ago, is an almost insurmountable task, people in the principality say.

Prince Albert’s uncertain marriage plans, an echo of succession questions in Britain and many of the world’s other modern monarchies, are just one of the ways in which his ascension to the throne is making people uneasy. His father was a fighter who stood up to President Charles de Gaulle of France and the Greek tycoon Aristotle Onassis in defense of his tiny principality’s independence.

That uneasiness is partly the skepticism faced by all newcomers to power. But it is also a mark of an age when accountants and consultants wield as much influence as royalty did when places like Monaco were taking shape. Prince Rainier transformed his less-than-square-mile realm on the French Riviera from a seedy marina and gambling den into Monaco Inc., a booming tax haven for the world’s nouveau riche. Management is the order of the day now. Prince Albert, widely described as stuttering and shy, is not expected to rule with the firmness of his father, who reportedly decided everything from the color of parking attendants’ uniforms to the make of motorcycle used by the police.

Link here.

Why is Monaco a country?

Monaco is little more than a rock on the shore of the Mediterranean near the French-Italian border, smaller than Central Park in Manhattan or the Mall in Washington. Monaco has no mineral resources, arable land, army or income tax, and with 498 police officers for 33,000 residents, practically no petty crime. Its government is named by the ruling prince, now Rainier’s son, Albert II, 47, though there is a 24-seat elected Legislature.

Why is it a country? Because, like Luxembourg and Liechtenstein, it is a relic of Medieval Europe that more powerful neighbors allowed to survive. The House of Grimaldi, the clan that seized control of Monaco in 1297, adroitly played Italy, France and Spain against one another over the centuries and remained sovereign – to a degree.

Link here.


To take the public pulse on this April morning is to find much agreement with yesterday’s editorial that our country is clearly not the place it used to be. The combination of irregular government practices, political arrogance, infrastructure askew, and most recently, serious violent crime, has left this community reeling. In political meetings and in media discussion, the phrase “we have to take our country back”, or similar sentiments, is now being heard with a frequency and intensity that is unusual for our beloved Cayman Islands.

This newspaper, sharing the concern, is contending that a fundamental contributor to this dismal condition is the Caymanian reluctance to speak out, to stand up and be counted, to confront rather than be conciliatory. It is the Caymanian way to take a benign approach, and it is an integral part of the natural warmth of our people, but we cannot “take back our country” by simply uttering the phrase.

We are not proposing a nation of confrontational activists, screaming invective or burning tires in the streets. That is one end of the spectrum. But Caymanians are at the other end where, apart from a few talk-show calls, their voices on major issues are generally muted. In the language of Bob Dylan, “the times they are a changin” – indeed, and Caymanians have to change with them. If we decide not to, it will be at our own peril. The signs are already all around us.

Link here.


The remains of the HMS Sussex, a British ship that sank in 1694, could hold the greatest underwater fortune ever found. It is estimated to be worth about $4.5 billion. The United States Odyssey Marine Exploration carried out four expeditions in the area from 1998-2001, discovering the remains of a vessel the British government believes to be the Sussex. Experts say the vessel, resting on the Mediterranean seabed 800 meters down, was packed with gold coins, the value of which today is considered astronomical. According to international law, the remains of sunken ships belong to the nation under whose flag it sailed, which is why anything recovered from the Sussex would – London says – be British property. But while the British government and the salvage company have already divvied up the treasure, other interested parties are making a claim on the sunken goods.

Link here.


Now that each of the five islands has held a second referendum – after the majority choice of all to maintain the (restructured) Netherlands Antilles in the first one a decade ago proved impossible to execute – the talks on the constitutional future of the Dutch Kingdom can begin. The islands spoke about their relations not just with each other, but also with Holland, and as such negotiations with the Dutch Government will be involved.

What is obvious is that the Netherlands Antilles as we know it, despite Statia’s majority vote to remain part of it, is a thing of the past. Without the biggest islands in terms of revenues and economic activity, Curaçao and St. Maarten, each of which chose to become an autonomous country within the Kingdom, the Antilles cannot survive. It is as simple as that. The fact is that the referendum results are just the basis for negotiations. The politicians should take their time to negotiate the best possible results and then come back to the people for approval in another referendum, so they can indeed determine their own destiny.

Link here. Referendum spelled “relief” for Curaçao political parties – link (lower right corner).


Island of Enchantment, indeed! This U.S. territory of sandy beaches and lush rainforest, close-knit families and endless celebrations is home to the happiest people in the world, according to a new study. Never mind the low income or the high murder rate, the double-digit unemployment or the troubled public schools. Puerto Ricans say emphasis on extended family, an easy warmth among even strangers and a readiness to celebrate anything, anywhere, at any time, all contribute to the good life here.

The U.S. ranked 15th among the 82 societies in the study by the Stockholm-based World Values Survey, which was based on interviews with 120,000 people representing 85% of the global population. That put the U.S. ahead of Britain, Germany, France, Japan, China and Russia, but behind Mexico, Colombia and Venezuela, Ireland, the Netherlands and Canada. The subjective well-being rankings are one part of the largest social science study ever. The World Values Survey, an ongoing investigation by a global network of social scientists, measures social, cultural and political change on all six inhabited continents.

The subjective well-being rankings are based on responses to questions about happiness and life satisfaction. Generally, the wealthiest nations tend to be the happiest. But Latin American societies, particularly those around the Caribbean – Puerto Rico, the Dominican Republic, Colombia and Venezuela – prove an exception. In Puerto Rico, at least, Enrique Rodríguez said he knows why. “We are a small island, and people are nice to each other,” said Rodríguez, a retired government worker who lives in Old San Juan. “Everybody gets along. When we pass in the street, we say hello to each other.”

Link here.


Liechtenstein’s Prince Hans-Adam II made his first foray into hedge funds by investing in Long-Term Capital Management LP. Instead of retreating when LTCM collapsed in 1998, his family firm, LGT Capital Partners, put $2.5 billion more into such funds – including money from outside investors. In all, LGT Capital has swept in $6 billion for investment in buyout firms and hedge funds, unregulated investment pools that bet on falling as well as rising prices. Unlike royals who devote their time to ceremonies and charities, Prince Hans-Adam, 60, heads the foundation that owns LGT Group, parent of LGT Capital. “Prince Hans-Adam is unique in running this kind of business,” says Bob Houston, editor of Royalty Monthly magazine in London. “He’s the only one who has a proper job.”

Link here.


Swiss rents are the most expensive in Europe by a long margin, with tenants shelling out almost a fifth of their income on housing costs, according to a study. The Swiss Tenants’ Association (STA), which commissioned the survey, said that rental costs for flats and houses have rocketed by 85% in the past two decades. It found that rents in Switzerland are double the average paid by tenants in the EU and that the Swiss spend on average 18% of their gross income on housing costs. However, this figure soared to nearly 45% for people on lower incomes.

Link here.



Congress seven years ago ordered the IRS to enhance services to taxpayers, improvements financed by cutting enforcement of the tax laws to make sure telephones were answered and forms readily available. That era is ending. The IRS will close up to 105 of its 367 walk-in centers, which dispense forms and advice, said Mark Everson, the agency’s commissioner. Hours when the IRS answers telephone calls also will be reduced, he said. After the tax-return filing season ends this Friday, people with simple tax returns no longer will be able to file using a touch-tone telephone. Last year, 3.8 million taxpayers, most of them with low incomes, used this Tele-File system. President Bush, in his budget for the fiscal year that starts Oct. 1, wants to cut money to respond to taxpayer requests for help by 1.3% and money to reach out to taxpayers by 6.8%. The $57 million in proposed cuts is about one-half of 1% of the IRS’s $10.2 billion budget. The walk-in center closings and related cuts will save $17 million to $21 million annually, Everson said.

More service cuts are likely in future years because of tightening budgets. To save money, Everson said, the IRS will steer taxpayers to the Internet to obtain forms and automated answers. A major reason for the cuts, he said, is “the crazy way that Congress” evaluates the budget of the IRS, which in business terms is the government’s only major profit center. Everson said “the extra revenues you get” through helping cooperative taxpayers and enforcing the law against cheats are treated as costs without regard to revenues they generate. “That is a big piece of the problem,” he said.

Link here.


Get a raise last year, or a bigger job, or make some extra money working overtime? You will pay the tax man. Too bad you did not get a job as a hedge fund manager. Hedge funds are unregulated investment pools open only to rich individuals and big institutions. They operate offshore. And for their managers, some of whom earned a half-billion dollars last year, taxes are deferred as long as they keep the hedge fund open and the profits offshore.

What few of us realize is that the U.S. has two income tax systems, separate and unequal. One system is for wage earners. Congress requires that your employer report your pay so IRS computers can check up on your tax return. Banks report interest. Brokerages report dividends. You must provide a Social Security number for each child you claim as a dependent. Congress does not trust you. The other system is for business owners, landlords and investors. Congress does not require such independent reporting, saying that would be a burden. These people do not escape all independent reporting. Anyone who sells stock, for example, has the gross proceeds reported to the IRS. But the investor is trusted to say how much the stock cost and, thus, how much profit or loss was incurred. Studies by the government show that investors understate their capital gains by close to $200 billion each year. The IRS has no mechanism – none – to check up on capital gains.

But IRS auditors will catch people who cheat, right? Not really. For more than a decade, Congress has steadily eroded the capacity of the IRS to enforce the tax laws, with one exception. Since 1997, Congress has approved more than $1 billion in extra funds to audit the working poor. The wealthy who mine the tax system face little risk of getting caught. Only 1 partnership in 400 gets audited, and agents say many audits are superficial and closed quickly to make statistical reports create the appearance of toughening enforcement. Charles Rossotti, the wealthy businessman who was IRS commissioner for five years beginning in 1997, in his new book Many Unhappy Returns, wrote that the IRS is “like a police department that was giving out lots of parking tickets while organized crime was running rampant.”

Link here.


The Treasury Department and IRS announced temporary and proposed regulations to provide guidance relating to U.S. possessions under section 937 and other Internal Revenue Code sections to reflect amendments made by the American Jobs Creation Act of 2004 (AJCA) and the Tax Reform Act of 1986. The income tax laws of the U.S. have long contained special provisions for the taxation of individuals residing in U.S. possessions and corporations created or organized in U.S. possessions. The Tax Reform Act of 1986 substantially revised these provisions. AJCA further revised certain aspects of these provisions to prevent individuals who live and work in the U.S. from taking advantage of these provisions to inappropriately reduce their combined U.S. and possessions tax.

Link here.


Pull out your tax return and glance at line 44 on Form 1040. “Alternative minimum tax”, it says in bold print, adding helpfully, “see instructions” and “attach Form 6251”, which the IRS says will take nearly four hours to complete. About 3 million taxpayers this year will fill in that line and pay more than they would under the ordinary income tax. For now, the AMT is a costly hassle for some high-end taxpayers, but this “class tax” will become a “mass tax” unless Congress fixes it. With all the wistful talk about tax reform and the approach of April 15, it is worth pondering how we ended up with this Acutely Messy Tax.

The AMT has morphed into a parallel income tax. Taxpayers are required to figure the tax they would owe under the regular income tax, then the tax they would owe under the AMT, and then pay the bigger of the two. The AMT does not just whack people with lots of sophisticated tax shelters; it wipes out widely used deductions for state and local taxes and the $3,100-per-child exemption. In fact, these two items accounted for three-quarters of the difference on 2002 returns between ordinary taxable income and AMT taxable income, the Treasury estimates. Today, the AMT primarily hits taxpayers with incomes between $100,000 and $500,000, especially those in the high-tax (and blue) states such as California, Connecticut, Maryland, Massachusetts, New Jersey and New York. The AMT also hits large families disproportionately. If the law is not altered, nearly all taxpaying families with three or more kids will be paying the higher AMT in a few years.

Links here and here.

A tax increase that Bush neglected to mention.

Cynics have long predicted that the Bush administration, plagued by budget deficits, will eventually start raising taxes. But now it is becoming clear how it would do so: the Alternative Minimum Tax. Baffling in its complexity and often bizarre in its impact, the AMT is a giant undeclared tax increase that will ensnare tens of millions of moderate-income families in the next several years. It was created in 1969 to prevent the very rich from using tax deductions to avoid paying a fair share of taxes. But when the deadline for filing income tax returns arrives on April 15, the AMT will require 2.9 million families to pay an average of about $6,000 more than what they would owe under traditional calculations.

That is just the start. If current law remains unchanged, the AMT is expected to wring an extra $33.9 billion from 18 million households in 2006. In 2010, it will rake in an additional $100 billion, and by 2015 an extra $200 billion. Make no mistake: no one says they want that to happen. But it is one thing to rein in or eliminate the tax itself, and an entirely different matter to give up the money that it would generate. President Bush has promised to fix the alternative minimum tax as part a fundamental overhaul of the tax code, and he has ordered a bipartisan advisory panel to come up with recommendations by the end of July.

But in giving the panel its marching orders, White House officials made it clear that they are counting on the extra money regardless of what happens to the alternative tax. Under the president’s instructions, the panel’s recommendations on addressing the AMT are supposed to be “revenue neutral”, neither raising nor lowering taxes, and to assume that his income-tax cuts will be made permanent rather than expire in 2010, as required under current law. Tax experts have long complained that the AMT is a “stealth tax increase”, one that Congress never intended and that is likely to catch millions of taxpayers by surprise. But a tax increase through tax reform could be even stealthier. If the alternative tax is reduced, the offsetting revenue increases are likely to be buried in so many other changes that most people would never know what hit them. Seen or unseen, the looming tax increases are almost as large as the president’s tax cuts.

Links here and here.


Double-check those returns: After years of decline, there are strong signs that the IRS is making a comeback in its enforcement efforts. After 1996, tax enforcement saw a serious decline. By 2000, the number of individual audits had fallen to 618,000, down two-thirds from the 1996 figure of 1.92 million. The number has been edging up since then, to just over one million in 2004 – still half of the 1996 number, but much higher than four years earlier. For high-income audits, the comeback is more complete. In 1996, the IRS conducted 210,000. That number fell to 100,000 in 2000 and dropped even further by 2001. Since then, high-income audits have been on the rise and stood at 195,000 in 2004. However, more audits are so-called correspondence audits, rather than the more rigorous face-to-face meetings.

Criminal tax prosecutions are also way up. For recent years, the low point was 2002, when there were just 2,133 such cases. In 2004, the number had risen by half to 3,037. That figure is still well below what it was between 1996 and 1998, but the enforcement trend is again positive, albeit following a long-term decline. Measured by revenue, enforcement is at more than its 1990s strength. For 2004, the IRS reports $43.1 billion in enforcement revenue. That is 28% higher than 2001.

Link here.

IRS promises to crack down on tax cheats.

There is a new, bolder IRS. As Americans submit their 1040s this year, the IRS is planning more audits and more criminal prosecutions of anyone trying to hide money from Uncle Sam. It is a reaction to a growing number of tax havens and schemes that cost the U.S. government more than $250 billion each year. Richard Yancy knows what it is like to be the most feared man in town. For 12 years, he was an IRS agent, going after tax cheats. “I learned very quickly that the best way to accomplish your job was to use these techniques of finding what someone really loves, or is attached to, and taking it,” says Yancy.

But in 1998, after hearing countless stories of an agency run amok, Congress ordered the IRS to back off and fire agents who harass taxpayers. Critics say the new kinder, gentler IRS went too far, cutting its enforcement staff by a quarter. Audits dropped by more than half in three years. Property seizures dropped too, from more than 10,000 in 1997 to only 440 last year. And that has led to an IRS shortfall. The amount of money the IRS should collect annually, but does not, stands at roughly $350 billion.

Now, the IRS is stepping up enforcement, including adding more agents, conducting more audits and targeting corporations – the wealthy and small business owners who illegally hide income. But the IRS’s independent taxpayer advocate, Nina Olson, says the IRS should not revert to its old tactics. “You need to be thinking of taxpayers as people complying with the law until it’s been proven otherwise,” says Olson. And from a former tax collector, comes some simple advice for how to avoid meeting with someone like him. “Just always tell the truth and be truthful with the IRS,” says Richard Yancy.

Link here.

The biggest tax cheats (according to a state-worshipping columnist).

How can we possibly reduce the federal deficit and find enough money for high-quality public services without raising everyone’s taxes? Actually, there is a remarkably easy solution. The government just needs to get serious about collecting money from tax cheats. And this does not mean audits of ordinary taxpayers or mom-and-pop businesses – that is not where the big cheating is. Much of it is in the form of very complex tax shelters, deliberately designed to make the tax evasion techniques so complicated that auditors have trouble figuring out what is legal and what is not. Much of the rest happens overseas, where affiliates of U.S. corporations arrange to book their profits in tax havens with which the United States has no enforcement treat

The IRS recently released a report estimating that taxes owed but not collected in 2001 (the last year studied) ranged from $312 billion to $353 billion. That did not even count much of the tax evasion by U.S. firms offshore. The Economic Policy Institute (on whose board I serve) pulled together a group of tax experts, including former IRS commissioners Donald Alexander and Sheldon Cohen, to make the case for better tax enforcement. “If you see someone breaking into your neighbor’s house, you call the police,” said Cohen. The IRS as good guys is, of course, a very hard sell politically. “Abolish the IRS” has become a leading applause line on the Republican right. But the more tax evasion is winked at, the more honest taxpayers are called on to make up the difference.

Recently The New York Times reported on a Bush administration plan that would give the government access to hundreds of millions of international banking transactions in an effort to track money-laundering by terrorists. Ironically, the same administration, in its first weeks in office, sidetracked an agreement negotiated by the Clinton administration that would have produced greater tax collaboration among nations. The agreement would have required the reporting of financial transactions with nations used as tax havens. But this sort of international enforcement is strenuously resisted by America’s blue chip trade associations, corporate lobbyists, and their political allies. “This is a crime wave,” says Robert McIntyre of Citizens for Tax Justice, “facilitated by the most prestigious accounting firms and law firms, with ordinary taxpayers footing the bill.” The Bush administration is willing to invade privacy when the purpose is thwarting terrorists but abets criminals when the purpose is corporate tax evasion. As the folk song Pretty Boy Floyd put it, “Some will rob you with a six-gun, some with a fountain pen.”

Link here.

Tax code kills civil liberties.

Many Americans filing their income taxes are appalled by the large amount of earnings taken by the government. The income tax is also appalling from a civil liberties perspective because of its inequity, complexity and intrusiveness. While President Bush cut taxes, the tax code remains a monument to social engineering run amok. A low-rate, consumption-based tax would go a long way toward reducing the following civil liberties abuses of the current tax regime.

Link here.


Working and residing outside the United States for a foreign corporation presents a challenge for a US citizen with respect to the reporting of taxable income. If you do not receive a Form W-2, this column will explore what items of income should be reported. The most obvious items of income to be reported on your US tax return are salary and bonus. This list can then be expanded to other cash compensation such as a home leave allowance, a car allowance, a mortgage subsidy and a cost of living allowance. Most stock option plans outside the U.S. are non-qualified plans. As such, the difference between what you will pay to purchase your employer’s stock, and the fair market value of the stock on the date of purchase, is considered compensation, and not a capital gain.

Non-cash compensation could take the form of residing in a residence owned or leased by your employer, use of a leased company car, or access to a country club. The actual cost to the employer is considered to be taxable income to you. You have an obligation to ascertain the value of these benefits and to report them in your taxable income. If your employer makes a payment on your behalf, you realize a taxable benefit on your U.S. tax return. Two common items in Bermuda are the employer payment of the employee portion of the Bermuda Social Insurance and the Bermuda salary tax. While these items must be included in your taxable income, you may be able to claim these as a foreign tax credit.

Most pension plans in Bermuda are not “tax qualified” plans under U.S. law. As such, if you are vested in your pension, you have immediate taxable income when your employer makes a contribution to the plan, and also of the investment income in the plan. Several employees in Bermuda have a U.S. tax qualified pension plan such as a 401(k) plan that their U.S. employees participate in that allow the employee to defer payment of US income tax on the employee and employer contribution to the plan, and on the investment income in the plan.

Link here.


The ongoing uncertainty surrounding tax breaks for film productions staged in the UK could result in many big-budget productions moving abroad in the future. It has been widely reported in recent times that the attractiveness of the UK as a production location is being challenged by the government’s decision to tighten up the tax regime relating to the financing of film production which, coupled with an uncertain future over the Section 48 tax breaks and the strong pound has prompted a fall in the number of foreign films being shot in Britain.

According to the Daily Telegraph, the recent decision by the producers of the £67 million project The Watchmen to halt production at the world famous Pinewood Studios, located just outside London, attests to the increasingly unfavorable tax and cost climate. Producer Lloyd Levin was quoted by the paper as saying the “loss of certain rebates” in the UK along with the weak dollar in relation to the pound had forced Paramount to explore alternative “shooting scenarios”. The ongoing uncertainty surrounding the longevity of tax breaks for the film industry in the UK has also sparked speculation that Warner Brothers will switch production of the fifth Harry Potter movie, The Order of the Phoenix, to the Czech Republic from Scotland and Leavesden Studios in Hertfordshire.

Link here.


The House passed legislation that, beginning in 2010, would permanently repeal the estate tax. The vote was 272-162, with 42 Democrats joining in support. Rep. Jim Leach of Iowa was the only Republican to vote no. “The death tax is wrong,” said Rep. E. Clay Shaw Jr., Florida Republican. “To go in and tax almost half of someone’s estate because they’ve accumulated a lot, and to make death an instrument of taxation, is wrong.”

Republicans argued that the tax levied on estates after an owner dies particularly hurts small businesses and family farms, while most Democrats complained the bill would only help the rich. That money, they say, should instead be used for other purposes, such as helping stabilize the Social Security system. The House has approved legislation to permanently repeal the estate tax in the past, which died in the Senate, but because last year’s election increased the Republican majority in the Senate, some say it now may get through.

House Minority Leader Nancy Pelosi, California Democrat, said the House-passed Republican bill basically uses funds that working Americans are paying into Social Security. “What Republicans are doing today is putting their hand into that pot and saying, ‘We’re taking that money and we’re subsidizing the super wealthy,’” she said. But Rep. Lynn Westmoreland, Georgia Republican, saw it differently. “Cutting taxes does not cost the government money,” he said. “It allows people who earn that money to keep more of it.”

Link here.



ChoicePoint, a consumer data vendor, hands over personal information on at least 145,000 people to criminals posing as small businesses. Hackers swipe the personal information of 32,000 people who use the database Lexis-Nexis. Bank of America loses backup tapes containing 1.2 million federal employee records. Every day, it seems, a new identify theft incident is reported (or occurs, without being reported) followed by new rounds of questions: Should data vendors be regulated? Can identity theft hurt e-commerce? How do individuals protect themselves? Unfortunately, suggest Wharton faculty and others, no simple answers are available, especially when personal information is so easily available through search engines.

Meanwhile, the cost of identity theft escalates. According to a Federal Trade Commission survey released in September 2003, the latest year available, nearly 10 million Americans have been victims of some form of identity theft, resulting in $47.6 billion in damages accruing to businesses. Victims spent an average of 30 hours trying to fix the damage and suffered losses totaling $5 billion.

Link here.

GM MasterCard holders exposed to possible ID theft.

About 180,000 General Motors rewards credit cardholders will be notified that someone might have stolen their personal information in a data breach that could affect an even bigger number of MasterCard and Visa customers. Cards by HSBC, the bank that issues the GM MasterCard to about 6 million customers, were used at a U.S.-based retailer that neither MasterCard nor Visa would identify. However, the retailer was identified as Ralph Lauren in a Wall Street Journal article. HSBC has been sending out letters this week to the 3% of those cardholders whose plastic was used at the anonymous retailer between June 2002 and December 2004. The letters notify them of the problem and offer new replacement cards to any customers who want them. The problem arose because the retailer’s computer system retained credit card numbers in its memory after the transactions were completed. Newer systems – which the retailer installed in late 2004 – scan, transmit and then purge credit card numbers.

The problem is not unique to GM MasterCard holders and potentially affects any customer who used any kind of credit card at this particular retailer during the time specified. “Because of the nature of the ongoing investigation, MasterCard cannot disclose specific details,” the company said in a statement. There have been no reports of fraudulent activity on any affected HSBC-issued MasterCards, Nicholson said. While HSBC issues other so-called affinity cards, GM is by far its largest portfolio.

Links here and here.

In case of possible ID theft, take immediate action:

1.) Contact the fraud departments of any of the three major credit bureaus – Equifax at 800-525-6285 or here, Experian at 888-397-3742 or here, or TransUnion at 800-680-7289 or here – and ask them to place a fraud alert on your credit file. That alert asks creditors to contact you before opening any new accounts or making any changes to existing accounts. As soon as the credit bureau confirms your fraud alert, the other two credit bureaus will be notified automatically to place fraud alerts, and all three credit reports will be sent to you free of charge.

2.) Immediately close the accounts you know or believe have been tampered with or opened fraudulently.

3.) File a police report. Get a copy of the police report to submit to your creditors and anyone else who may require proof that a crime has been committed involving your identity.

4.) File a complaint with the Federal Trade Commission. The FTC maintains a database of identity theft cases that law enforcement agencies across the country use to investigate identity theft. More information is available here.


Data wholesaler LexisNexis, a division of Reed Elsevier, has admitted that personal information concerning 310,000 U.S. citizens has been stolen. In March, the company admitted to losing data related to only 32,000 victims. It has since transpired that unauthorized users breached the system 59 times using stolen passwords, and grabbed data belonging to an additional 278,000 people. The disclosure mirrors the ChoicePoint debacle, in which only 35,000 victims were acknowledged initially, a number later rounded up slightly to 100,000.

In less than seven weeks’ time it has been revealed that, in addition to privacy invasion outfits ChoicePoint and LexisNexis, payroll handler PayMaxx, Bank of America, health care heavyweight San Jose Medical Group, California State University at Chico, Boston College, the University of California at Berkeley, and a large shoe retailer called DSW, have all lost control of sensitive data concerning millions of victims. One can only guess at the impact of similar incidents that have yet be reported.

Link here.

It is official: ChoicePoint, LexisNexis rooted many times.

Privacy invasion behemoths ChoicePoint and LexisNexis have lost control of sensitive data in the past, but deliberately covered it up because no law required them to come clean, executives from both outfits confessed this week during Senate Judiciary Committee hearings on the recent epidemic of ID theft plaguing the USA. Numerous past breaches went without notification, ChoicePoint President and COO Douglas Curling admitted under questioning from Committee Chairman Arlen Specter (Republican, Pennsylvania). Curling explained that after notifying the relevant law enforcement authorities, “no one was made aware; law enforcement didn’t tell us anything.” The ChoicePoint person in contact with law enforcement simply did not appreciate the importance of the situation, he wined.

Specter wondered aloud how a company official with enough authority to serve as liaison to law enforcement in such a matter could fail to appreciate its significance and inform others. “I can’t explain it,” Curling allowed. However, there have been only “45 or 50 breaches”, in all, he added. LexisNexis has also experienced a slew of security breaches followed by a slew of cover-ups, division CEO Kurt Sanford admitted. “All but 4 or 5 of the breaches were due to compromised passwords,” he noted. Speaking of the most recent debacle, in which the personal records of 310,000 victims fell into the hands of potential ID thieves, he said that the first irregularities surfaced in February of 2004. Specter wondered why it should have taken until April of 2005 for the public to be notified, but Sanford, for all his obvious intelligence and business acumen, was unable to explain this.

The admissions – under oath, finally – that these companies gladly covered up their blunders and misdeeds, until required by California law to notify victims, proves that regulation is essential to keeping them honest. Unfortunately, when no California residents are affected by such an incident, the public has no guarantee that the truth will ever emerge. Vermont Attorney General William Sorrell emphasized that point, saying that without the California disclosure law, ChoicePoint and LexisNexis would likely never have notified anyone outside of law enforcement.

Sorrell observed that ID theft can be especially crippling because it is an attack on credit availability, and for most Americans, access to credit is more valuable than their other assets (rather a sad comment on U.S. economics when you think about it). He urged Congress follow California’s lead in requiring notification of important data security breaches. But the regs should be crafted to let states be more protective if they wish. The notoriously toothless U.S. Federal Trade Commission (FTC) is the watchdog apparent for any such regulatory regimen. After all, FTC is the outfit that discovered in 2003 that 10 million people, or 4.6% of the adult population, had become victims of identity theft in a single year, and has yet to do anything to impede it. Still, FTC Chairwoman Deborah Platt Majoras advised the Committee to avoid over-notification. “Consumers will become numb to notices,” she said.

Actually, she has a point. When the California disclosure law forced ChoicePoint to notify victims of its blunders and negligence, most had no idea that they had a very important, albeit involuntary, “business relationship” with the outfit, and tossed the notices in the bin unopened, assuming them to be junk mail.

Link here.


As Monaco prepares to bury Prince Rainier III, it would be easy to assume that his only son and heir, Albert, has it made. But the death of the 81-year-old Grimaldi dynast on April 6 has prompted renewed questions about Monaco’s attitude to money-laundering and tax evasion – subjects Rainier had fought hard to close. Dealing with them could be Albert’s first test as sovereign. “Money-laundering casts shadow over principality,” proclaimed an irreverent headline in French daily Liberation the day after Rainier died, while Le Parisien, another popular title, called Monaco “A very opaque haven”. Despite repeated assurances that it is now tackling the dirty money head-on, the critics say, Monaco still deserves the description writer W. Somerset Maugham gave it decades ago – “a sunny place for shady people”.

Arnaud Montebourg, a French Socialist lawmaker, coauthored a June 2000 parliamentary report that accused the Riviera enclave of turning a blind eye to tax evasion, drug trafficking and the mafia. Later that year, two more reports by the French justice and finance ministries bemoaned Monaco’s “very inadequate” anti-money laundering controls and its “significant gap between law and reality”. The late Prince Rainier reacted angrily by demanding more independence for his French protectorate – Paris supplies the principality’s police, judges and civil servants – but soon afterward returned to the table with concessions, including a pledge to collect France’s wealth tax from its Monaco-based nationals.

Observers say Albert, 47, will build on his father’s efforts to portray Monaco as a haven for legitimately earned wealth where ill-gotten gains are not welcome. But Monaco is likely to come under pressure to be a little less welcoming to overseas tax dodgers and their savings – which it still refuses to consider ill-gotten. A lot is at stake for Monaco. Its cooperation with France already means that “the French business as far as the banking community is concerned is close to nil,” said Jean-Claude Eude, head of the banking association. So while Monaco is anxious to show that its banking secrecy will not hamper probes into money-laundering and other serious financial crimes, its banks still draw a firm, unrepentant line at routing out mere tax dodgers. “Confidentiality stops where there is wrongdoing from the point of view of money-laundering and the like,” Eude said. “But we don’t mix that with tax evasion.”

Link here.


Maurice “Hank” Greenberg, ousted from AIG amid an accounting probe, transferred $2.2 billion of AIG shares to his wife’s name four days before he stepped down as chief executive. The gift of 41.4 million shares represented 96% of Greenberg’s direct ownership stake in the company, according to a filing with the SEC Greenberg made the transfer to Corinne P. Greenberg on March 11, the filing said. Greenberg, ousted last month, may be seeking to shield his wealth from lawsuits that could come from the accounting investigation, said former federal prosecutor Christopher Bebel. Shares of New York-based AIG, the world’s largest insurer, have declined 27% since the company disclosed subpoenas from New York Attorney General Eliot Spitzer and the SEC on Feb. 14, erasing almost $52 billion of market value.

Greenberg, who ran AIG for almost 40 years, today invoked his Fifth Amendment right to avoid self-incrimination on virtually all questions asked during an hour-long deposition with examiners for Spitzer and the SEC. Regulators and prosecutors are studying whether AIG and Greenberg used improper reinsurance transactions to inflate the insurer’s net worth and smooth earnings. Greenberg’s refusal to testify may hurt his defense in potential civil cases in the future, Bebel said.

Transferring wealth to his wife may not serve to insulate the couple’s wealth, said Robert Weisberg, a professor at Stanford Law School. “If it’s transparently a gift to his wife, it presumably wouldn’t work,” Weisberg said. “The courts are going to say phony baloney – we’ll simply take the stock from the wife same as we’d take it from the husband.” Greenberg may also lose the stock if he is convicted of a financial crime, Weisberg said. In addition, prosecutors can freeze assets before a trial gets under way, he said.

Link here.



Your mother’s maiden name is not the secret you think it is. That sort of “personal identifier” being used by banks, credit agencies, doctors, insurers and retailers – supposedly to protect you against the theft of your identity – can be found out in a flash from a member of the new security-industrial complex. There goes the “personal identifier” that you presume a stranger would not know, along with your Social Security number and soon your face and DNA. In the past five years, what most of us only recently thought of as “nobody’s business” has become the big business of everybody’s business. Perhaps you are one of the 30 million Americans who pay for what you think is an unlisted telephone number to protect your privacy. But when you order an item using an 800 number, your own number may become fair game for any retailer who subscribes to one of the booming corporate data-collection services. In turn, those services may be – and some have been – penetrated by identity thieves.

The computer’s ability to collect an infinity of data about individuals – tracking every movement and purchase, assembling facts and traits in a personal dossier, forgetting nothing – was in place before 9/11. But among the unremarked casualties of that day was a value that Americans once treasured: personal privacy. The first civil-liberty fire wall to fall was the one within government that separated the domestic security powers of the F.B.I. from the more intrusive foreign surveillance powers of the C.I.A. But the second fire wall crumbled with far less public notice or approval: that was the separation between law enforcement recordkeeping and commercial market research. The hasty, troubling merger of these two increasingly powerful forces capable of encroaching on the personal freedom of American citizens is the subject of two new books.

Link here.


A proposal to build a centralized database of detailed dossiers on every college and university student in the nation is under study by the Education Department and the congressional committees that oversee $80 billion in federal spending on post-secondary education. The idea has split the ranks of educators. Some see a threat to student privacy. Others applaud the plan, saying it would allow them to correct misleading and incomplete information on graduation rates and improve policy at both the federal and state levels.

All colleges and universities would be required to provide each student’s name, Social Security number or taxpayer identification number, birth date, address, race and ethnicity, gender, citizenship status, academic record (including number of courses and credits attempted and major field of study), attendance record, and information on degree completions, participation in varsity sports, tuition and fees paid and any financial aid from federal, state or institutional sources.

In response to “persistent congressional pressure” for better information on student graduation rates and performance, three major educational organizations urged that the feasibility study be done. But a fourth group, the National Association of Independent Colleges and Universities, is voicing strong objections. “The idea that students would enter a federal registry by going to college, and could be tracked for the rest of their lives, is chilling,” said David Warren, NAICU president.

Link here.


Mandatory fingerprinting of new UK passport applicants is to begin next year, as a “building block” for a future ID card scheme. The Government’s ID Card Bill was spiked after the election was announced, but the Government is said to contend that as passports are issued under royal prerogative, it does not need legislation to demand fingerprints from passport applicants.

So it is all going to be the Queen’s fault, apparently. The intention is to require fingerprints from all those applying for their first passport from next year, with fingerprinting of those renewing existing passports to be phased in subsequently. First time applicants will have to attend one of 70 new passport offices for interview from next year, and can therefore be fingerprinted at the same time. From the point of view of passport security, interviewing of first time applicants is quite possibly a sensible move, because it will tend to reduce the success rate of fraudulent applicants. Hoovering up fingerprints at the same time, however, is quite another matter.

Provided it wins the election Blair’s Labour Party intends to reintroduce its ID card plans, but it would then have to draft a new Bill and steer it through the new Parliament successfully, so going ahead with a major building block anyway seems just a tad presumptuous. But we have what we think is a highly plausible Black Helicopter scenario here – what if the national fingerprint database is not necessarily just a building block for an ID card scheme? The Government would therefore have biometric-linked data for everyone who has a passport or has been arrested (they get to keep the prints even if you are innocent), which would take it most of the way towards the national identity register even if it never quite got around to passing ID card legislation.

It is possible that those pushing for the rapid expansion of a fingerprint database see it as providing some kind of crime-solving magic bullet. Such a belief, however, requires a substantial level of technical illiteracy.

Link here.


They passed an American electronics base, a circular grid a quarter of a mile wide floating in the haze and known locally as the elephant cage. Giant bodkins marked the perimeter, and at the middle, surrounded by webs of strung wire, burned a single infernal light like the promise of a future war.” ~~ John le Carre, The Honorable School Boy

When John le Carre wrote those words it was 1974 and the Vietnam War was still on. But today that promise of a “future war” has been fulfilled, and installations such as he described, part of a vast electronic eavesdropping system, are much more sophisticated than they were 30 years ago. But then the value of “SIGINT”, spy-speak for intelligence gathered from electronic signals, is far more problematical in the war on terror than it was during the Cold War. Elephant cages are in fact Wullenweber antennas, which, as author James Bamford described, are constantly engaged in “plucking” signals out of the sky “regardless of origin”. They are part of the National Security Agency’s worldwide SIGINT web, which can listen in on telephone conversations half a world away.

The National Security Agency was born in secrecy in 1952. As Bamford wrote in his seminal 1982 book The Puzzle Palace, there was “no news coverage, no congressional debate, no press announcement, not even the whisper of a rumor.” It was so hush-hush that wags said NSA stood for “no such agency”. And although the NSA has come somewhat into the light since its cloaked inception, the network, linked to other country’s intelligence networks by a computer system code-named Echelon, is still entombed in the darkest secrecy. Even the code name is secret.

This is described in a new book on the secret SIGINT world by a Yale law student, Patrick Keefe, called Chatter: Dispatches from the Secret World of Global Eavesdropping. Chatter is the word used for electronic intercepts that indicate that terrorists may be up to something. But, as Keefe points out, it is often “fickle, misleading, most often inconsequential.” Even if Echelon can target and disseminate an enormous number of communications from all over the world’s surface, so has the world’s chatter grown to swamp the capabilities of the eavesdroppers. It is not to downgrade the importance of SIGINT to point out that what is woefully lacking in this new war is, of course, “HUMINT” – human intelligence coming from old-fashioned spies and informers.

Link here.


The conviction of Kamel Bourgass for terrorism offences prompted some spectacular spin from the security services, an al-Qaeda ricin feeding frenzy in the press and – of course – claims from U.K. Home Secretary Charles Clarke that the case highlighted the need for ID cards. The snag is that there was no ricin, the security forces’ case for an al-Qaeda link had been discredited in an earlier court case last week, and a further eight individuals claimed as co-conspirators were cleared or had charges against them dropped.

One man with a ricin recipe but no ricin, and no established al-Qaeda connection is not much of a result from something that two years ago was claimed as an international terror conspiracy poised to mount attacks on London. These claims were used by Tony Blair to show there was a threat of weapons of mass destruction in the U.K. and deployed by Colin Powell to back his case to the UN for war against Iraq. But despite the fact that the security forces had their chance in court to show that there was more to the conspiracy than fevered imagination, and blew it, here we go again with a justification for ID cards and, it would appear, for control orders. Neither of which, as it happens, would have been of the slightest use in this case. We will get back to that, but we will deal with the non-existent ricin and the equally non-existent al-Qaeda link first. …

(Equally puzzling was the reaction of the Ghost of Home Secretaries Past, D Blunkett, to news of the industrialization of postal ballot rigging the other week. This too, said our David, illustrated the need for ID cards. Postal ballot fraud happens when somebody takes somebody else’s postal ballot form, fills it in and, er, posts it. Blunkett neglected to say where in this process you could could possible shove an ID card. Readers with suggestions should send them to him, not us, please.)

Link here.

Labour promises “voluntary” compulsory ID card.

The “voluntary” ID card returned with the publication of the Labours Party’s election manifesto, but it is once again rather difficult to find out what is voluntary about it. According to the wording, “We will introduce ID cards, including biometric data like fingerprints, backed up by a national register and rolling out initially on a voluntary basis as people renew their passports.” So, what is voluntary here? A Labour Party spokesman told us first, “It’s voluntary. You don’t have to carry it.” This seemed doubtful to us, but we asked if, in that case, you were still going to be registered for an ID card when you registered for a passport. He said he would call us back.

Later, he explained that ID cards would initially be “piggybacking” on passports, and that you would be offered an ID card along with your passport. Which, we suggested, you could always refuse? But you would still be registered for an ID card, right? Possibly. He conceded that the data collected for passports would be pretty similar to the data collected for ID cards, but pointed out that “we’re not at the stage of having worked out all the details of how it would work. But it would work at passport renewal.”

We suspect that it is “voluntary” in the sense that it is a matter of personal choice whether or not you want to have a passport, and that if you choose not to have a passport, nobody will force you to register for an ID card until, er, they do. We have heard this somewhere before.

Link here.



The Bush administration is developing a plan to give the government access to possibly hundreds of millions of international banking records in an effort to trace and deter terrorist financing, even as many bankers say they already feel besieged by government antiterrorism rules that they consider overly burdensome. The initiative, as conceived by a working group within the Treasury Department, would vastly expand the government’s database of financial transactions by gaining access to logs of international wire transfers into and out of American banks. Such overseas transactions were used by the Sept. 11 hijackers to wire more than $130,000, officials said, and are still believed to be vulnerable to terrorist financiers.

Government officials said in interviews that the effort, which grew out of a brief, little-noticed provision in the intelligence reform bill passed by Congress in December, would give them the tools to track leads on specific suspects and, more broadly, to analyze patterns in terrorist financing and other financial crimes. They said they were mindful of privacy concerns that such a system is likely to provoke and wanted to include safeguards to prevent misuse of what would amount to an enormous cache of financial records.

The plan for tracking overseas wire transfers is likely to intensify pressure on banks and other financial institutions to comply with the expanding base of provisions to fight money laundering, industry and government officials agreed. The government’s aggressive tactics since the attacks of Sept. 11, 2001, have already caused something of a backlash among banking compliance officers – and even some federal officials, who say the effort has gone too far in penalizing the financial sector for lapses and has effectively criminalized what were once seen as technical violations.

Terrorist money has been difficult to identify, much less seize, in part because terror operations are conducted on relative shoestring budgets. The 1998 embassy bombings in East Africa cost only $10,000. While counterterrorism officials have made some inroads in tracking terrorist money, clear successes have been few and sporadic, experts say, and a number of recent reports have pointed up concerns about the government’s ability to deter and disrupt such financing.

Links here and here.

U.S. banks, government team up to track terrorists.

In August 2001, U.S. officials were scrambling to hunt down two suspected terrorists who had arrived in the U.S. A month later, the two men were among the hijackers in the Sept. 11 attacks. Knowing the names of Khalid al-Mihdhar and Nawaf al-Hazmi had not been enough. Had officials also known the men had U.S. bank accounts and were using debit cards to pay for hotels, they could have worked with banks’ high-tech computer systems to track the pair. But back in the summer of 2001, nobody had heard of “financial tracking”. Today, this little-publicized technique that marries financial systems with nuggets of specific intelligence from the government is one of the most valuable tools in the fight against terrorism financing, helping officials track down militants, watch their moves and thwart attacks, officials and experts say.

Unlike money laundering, which often triggers red flags that banks can detect, financial institutions struggle to spot terrorist financing proactively without government tip-offs. But if government officials can provide a specific morsel of intelligence – such as dates or transactions – that goes beyond the names and aliases they routinely provide, banks’ computers become a powerful search engine which can help monitor militants’ activities including where they are, what they buy and whom they know. “Probably banks’ most valuable role is in emergency situations when they can use their systems, together with a piece of intelligence from the government, to provide financial information helpful in tracking terrorists,” said Douglas Greenburg, one of the authors of the Sept. 11 Commission’s special report on terrorism financing.

Link here.


Banks and other businesses offering financial services are poised to simplify money laundering identification checks to improve relations with customers and reduce a “paper chase”. They are considering taking on board more of the risks involved in the checking process and ending the frustration of new business customers furious at being asked to parade all their directors and sometimes investors to open an account.

The more streamlined process now being debated is aimed at reducing documentation needed to verify identities, using electronic technology as one of the substitutes, and easing what many customers feel has been a heavy handed approach to implementing money laundering regulations. Thousands of longstanding bank customers have been alienated by being asked to produce proof of identity for simple transactions, while frontline staff have found themselves in an uncomfortable line of fire. Foreign companies have been bewildered after being told the only way they can open accounts is by parading the whole board before banking officials.

The suggested changes would mean ordinary customers producing either a passport or photo-card driving licence to establish identification, rather than utility bills. Checks made by other financial services business would also be taken into account.

Link here.


The U.S. General Accounting Office has estimated there are 1,800 Internet gambling operations. Most of them are based outside of the U.S., posing an enforcement problem for U.S. authorities. The U.S. can keep some restrictions on Internet gambling, a World Trade Organization appeals panel said, but also concluded that some U.S. legislation discriminates against foreign operators. Both sides – Antigua and Barbuda and the U.S. – claimed victory in the dispute over whether Washington should drop prohibitions on Americans placing bets in online casinos.

In its 138-page report, the appeals panel said the U.S. had demonstrated that the 1961 Wire Communications Act – which was written to cover sports betting by telephone and has been used to prosecute some Web site operators – “was necessary to protect public morals or maintain public order.” But the panel found against Washington in another respect, saying it failed to show that the Interstate Horseracing Act was applied equally to foreign and domestic remote betting services, therefore contravening international trade rules.

Link here.


Attorney General Alberto Gonzales recently assured the Senate Judiciary Committee that the Justice Department “has no interest in rummaging through the library records or the medical records of Americans.” This is pretty much the extent of the limits imposed by the USA PATRIOT Act on the FBI’s ability to peruse your personal records: It can do so only if it wants to. But if the FBI should one day take an interest in such potentially sensitive matters as your reading habits, health, finances, travel, gambling, Internet activity, firearm purchases, or pay-per-view orders, there is little in the PATRIOT Act to stop it from satisfying its curiosity. Regardless of how many times the privacy of innocent people has been compromised so far – a hard question to answer, given the secrecy that shrouds the government’s use of the law’s snooping provisions – the potential for abuse remains a serious concern.

At the same Senate hearing where Attorney General Gonzales sought to assuage Americans’ concerns about the privacy of their records, FBI Director Robert Mueller called for administrative subpoenas that could be issued unilaterally by the FBI, and they could cover any records it deemed relevant to a terrorism investigation. That prospect should worry anyone who values privacy and freedom. The wider the range of information that can be demanded, the more serious the First Amendment implications. According to accounts collected by the ACLU, the threat of investigation already has inhibited people “from publicly expressing their political views, attending mosque and practicing their religion, engaging in political activity, donating money to legitimate charitable organizations, and visiting particular websites.” Apparently they did not get the word that the Justice Department has no interest in their records.

Link here.

Better SAFE than sorry Patriot Act.

The most underreported political story of recent years has been that of the grass-roots revolt against the Patriot Act. In an unprecedented show of opposition to the Bush administration’s assaults on basic liberties, 5 states and 372 counties, cities, villages and towns have passed resolutions, ordinances or ballot initiatives condemning the law created by Constitution-crushing former Attorney General John Ashcroft and expressing their commitment to the values expressed in the Bill of Rights.

The outcry against the Patriot Act runs the ideological gamut, as is evidenced by the fact that the objections have come from both red states (Alaska, Arizona and Montana) and blue (Hawaii and Vermont), and from communities as diverse as Boise, Idaho, and Madison, Wisconsin. In all, states and communities in which a total of 56,988,807 Americans reside have jumped off Ashcroft’s bandwagon and signaled that they want Congress to clean up the constitutional quagmire created by the Justice Department and a pliant House and Senate in the aftermath of the Sept. 11 attacks.

When most of the media continues to neglect the loud cries of dissent, several senators have heard the call. This week, U.S. Sen. Russ Feingold, D-Wisconsin, the only member of that chamber who opposed the assault on liberty back in 2001, introduced a revised version of the Security and Freedom Enhancement (SAFE) Act, a measure designed to address the worst excesses of the Patriot Act. This time, Feingold did not stand alone. Even if most of the media has failed to catch up with the story, pressure from the grass roots has gotten Congress moving.

Link here.

What is not known feeds Patriot Act debate.

Time is not easing concerns over the enhanced law-enforcement powers of the USA Patriot Act, judging by the debate that is firing up on Capitol Hill over the renewal of its expiring provisions. President Bush calls the Patriot Act an invaluable tool in the war on terror, but, until this week, little was known about where, why, or how often the law has been applied. At the same time, confusion persists over what the law actually does. Critics sometimes conflate Patriot Act provisions with other controversial moves, such as indefinite detentions at Guantánamo Bay, Cuba, that have nothing to do with the act. Last week, Montana became the fifth state to pass a resolution critical of the Act.

But few cases of actual abuse of the law have surfaced. No one, for example, has come forward to claim the compensation provided in the law for abuse of civil rights. One reason, critics say, is that the most invasive powers of the Patriot Act are exercised secretly, some accompanied with gag orders. Before Senate oversight hearings on the Patriot Act, the Justice Department released some of this information for the first time: Roving wiretaps have been used 49 times under the law. The law’s new powers to seize personal records have been used 35 times, none involving medical, library, bookstore, or gun sale records. And delayed-notification search warrants, dubbed “sneak and peek” by critics, have been used 155 times. The new information, while answering some questions, has raised others.

Link here.


Changes to passports and border security passed by Parliament will protect New Zealand from fraudsters, Internal Affairs Minister George Hawkins says. The new law halved the life of a New Zealand passport to five years, though current passports can be used until they expire. It also requires travel document information be released for the Advance Passenger Processing (APP) border security system and allows passports to be refused or canceled in cases where New Zealand’s security was threatened. The APP system helps airlines identify people carrying unauthorized and stolen documents.

Also passed were tightened criteria and vetting procedures for citizenship. Citizenship must now be registered at birth. This is intended to limit the practice of women coming to New Zealand to give birth so their children can later access education and other benefits of citizenship. The legislation also increases from three years to five years the period of residence needed before citizenship can be granted.

The Green Party, the Maori Party and Progressive MP Matt Robson opposed both bills. Mr. Hawkins said the changes would improve New Zealand’s security, but Green Party MP Keith Locke said the Government had not put forward any valid reasons for any of the changes. “There’s all this stuff about security concerns but I don’t think we really think it takes five years to spot a terrorist in New Zealand,” he said. Mr. Robson said the ministerial right to withdraw an individual’s passport was an erosion of the rule of law, and extending the residence period required for citizenship was “a philosophy based on division”.

Link here.


After the outbreak of the American Civil War, President Abraham Lincoln, claiming emergency powers, suspended habeas corpus, a person’s right to have a judge determine the legality of his imprisonment. Lincoln authorized the military to arrest and indefinitely detain anyone suspected of aiding the rebels. This decision outraged many of Lincoln’s contemporaries, and has been a subject of debate for constitutional scholars ever since. Roger Taney, the Chief Justice of the Supreme Court during Lincoln’s presidency, voiced particular outrage in his Ex parte Merryman opinion. The following essay will summarize Taney’s arguments against Lincoln’s claim of executive power, arguing that Taney’s interpretation of the Constitution is superior to Lincoln’s.

According to historians David Donald and James Randall, Lincoln relied on arbitrary arrests for political expediency. If Lincoln had exclusively utilized the courts to judge cases of suspected treason, he would have convicted few, since the Constitution sets strict requirements for a treason conviction. Moreover, those who were convicted might become martyrs and incite more resistance. Therefore, Lincoln suspended habeas corpus and allowed the military to conduct arbitrary arrests.

Many of Lincoln’s defenders concede the unconstitutionality of his suspension of habeas corpus, but argue that, although the suspension was dictatorial, Lincoln was a “good dictator”. James G. Randall even called Lincoln a “benevolent dictator”, a phrase many would consider an oxymoron. However, it is easy for those who never suffered the effects of Lincoln’s “benevolent” dictatorship to defend him. John Merryman, who was arrested in his home without probable cause, would disagree with Randall’s analysis. So would Francis Key Howard, who spent two years in military prison at Fort McHenry and wrote a book about his experience there called The American Bastille. Moreover, what is the Constitution worth if one man (the president), under a pretext of his choosing, can decide to ignore it?

After Taney issued his Merryman opinion, which President Lincoln ignored, the Lincoln administration increased its usurpation of judicial and congressional powers. Lincoln, incensed by Taney’s defense of civil liberties, issued a warrant for his arrest. Several sources corroborate this controversial warrant. Fortunately, no one could find a marshal who was willing to arrest an 84-year-old judge. Lincoln’s attempt to arrest Taney helps prove Taney’s accusation that Lincoln was willing to usurp judicial authority and endanger American liberty. Lincoln not only ignored an order from the Chief Justice of the Supreme Court; he even tried to have the judge arrested. If Lincoln had succeeded in arresting Taney, he would have virtually destroyed the separation of powers upon which this nation was founded.

President Lincoln’s suspension of habeas corpus lacked both moral and constitutional justification. The suspension was not only illegal. It was also dangerous, threatening the separation of powers that prevents any one branch of government from becoming too powerful. Moreover, his actions inspired future presidents to ignore the Constitution during times of crisis. Especially today, with the post-9/11 crackdown on civil liberties, Americans would be wise to reread Ex parte Merryman.

Link here.


Strange bedfellows Sens. Rick Santorum, Hillary Rodham Clinton and John Kerry have introduced a bill in Congress that would require employers to accommodate religious employees. “No American should have to face the choice between practicing their faith or working at their job. It’s that simple,” said Kerry. Meanwhile, some California legislators want to require pharmacists to dispense all lawful drugs, even if they have moral objections to birth control or to “morning-after pills”, which some people consider a form of abortion. What happens if Congress passes the Workplace Religious Freedom Act and California passes a law requiring pharmacists to fill prescriptions? In that case, a California pharmacist would apparently have both a right to exercise his moral beliefs in doing his job and a legal obligation to fill prescriptions even if they violate his conscience. So which is it? Does he get punished for not giving out the prescription, or do his employers get punished if they require him to fill the prescription to keep his job?

That is the problem with many of the new “rights” that legislatures like to hand out. A system of rights tells us what we may and may not do. Under the traditional theory of rights, as embraced by the founders of this country, every person has a right to “life, liberty and the pursuit of happiness”. Every right imposes a corresponding duty on others: If you have a right to property, that means that I cannot take your property. If I have a right to free speech, then you cannot forcibly prevent me from speaking. But when people talk about a “right” to education, or a job, what is the duty imposed on others? In those cases, it would have to be the duty to supply education, or a job. That is, if I have a right to education, then you have a duty to supply it (or to pay for it). Otherwise, it is no right. And that means that my “right” to education comes into conflict with your right to spend your money the way you choose.

We need a system of law that sorts out the rights and duties of employees, employers and customers. Fortunately, we have one. It is called the free market and contract law. Employees – such as pharmacists – decide what career to follow and where to look for a job. Employers – such as drugstore chains – decide what the rules are for people who choose to work in their pharmacies. And customers look for businesses that give them the services they want. No one is forced to do business with any other person, no one is forced to violate his conscience, no one can force others to do business on his terms. With sensible rules like that, we could have many fewer laws. We would have a simple set of rules that create harmony rather than conflict, and that allow all to act according to their own consciences.

Link here.



You will recall that two weeks ago, we wrote about some of America’s best presidents: Chester A. Arthur, Millard Fillmore, Warren Gamaliel Harding. While the clumsy giants left their deep footprints in the earth along Pennsylvania Avenue and trod upon practically everyone who got in their way, these midgets managed to make their way through the nation’s highest office leaving hardly a trace. That is, they left people alone … and left the nation as good as they found it. This week we write about one of America’s worst presidents, Thomas Woodrow Wilson. In the crowded contest for “America’s Worst President”, Wilson stands out. As a world improver, Wilson’s stature is world class. He was humorless, immodest, and self-righteous –- ranking along with the great scoundrels of the 20th century … Che, Mao, Lenin, Mussolini, just to name a few. Each was full of good intentions, or so they say.

America has come to such a position of prominence in the world. It is the world’s biggest debtor. It is the world’s biggest consumer. It is the world’s most aggressive and meddling military power. No country on earth is so godforsaken as to escape America’s notice, nor too poor to lend it money. We pause a moment and wonder how we got where we are. We go to the scene of the crime and look for evidence. There, we take a few samples … over to lab. And what do we find? That the DNA samples are those of Thomas Woodrow Wilson. We do not blame the man. Or hold him uniquely responsible. His protégé at the Navy Department, Franklin Roosevelt, was an eager accomplice. Lyndon Johnson drove the getaway car. Ronald Reagan, Alan Greenspan and George W. Bush were certainly members of the gang. But Wilson was the mastermind. It is he that gets our attention today.

“A mentally ill, pitiless, mythomaniac, … an enlightened man who believed himself in direct communication with God, guided by an intelligent power outside of himself…”. thus did the father of modern psychoanalysis describe America’s 28th president. But Freud’s judgment of the man was too generous. Wilson was a self-satisfied, sanctimonious delusional bungler, who almost single-handedly turned the country into a hollow, mocking parody of what it was supposed to be. We begin our inspection with a quotation, attributed to Wilson after his presidential election victory: “Remember that God ordained that I should be the next president of the United States. Neither you, nor any other mortal or mortals could have prevented this.” Is there any doubt that Wilson was mad?

He knew not only that he was destined to become president, but that he could build a world even better than the one God had given him – by replacing the private plans of millions of people with plans of his own. Where did those plans come from? How did he know that the world would be a better place if a Federal Reserve System were set up to control the nation’s money. Wilson’s judgment about nearly everything was atrocious. In his April 2nd, 1917 speech, in which he urged the nation to war, Wilson noted that the Russians had always been “democratic at heart”. Readers will rush to judgment themselves. “He made a mistake,” they will say. “Or, how could anyone know that the Russian Revolution would be followed by one of the most cruel and absurd episodes of bad government in the entire history of the planet?”

Of course, he could not know. But Wilson was not really thinking at all. He was just pawing the ground and looking for a head to butt or a purse to steal. And he did not particularly care whose. Later he even sent troops to Russia to try to beat back the Bolsheviks. But this was typical of Wilson. He seemed to want to intervene, not merely on one side – but sometimes both. And now, we pause again to wonder at the woebegone majesty of it all. For it is neither love nor money that makes the world go ‘round – but vanity. Wilson had no particular love … and not much money. But vanity he had in abundance.

Link here.


On April 6 one of Europe’s 10 monarchs – and one of the two ruling – passed away. Indeed Rainier III highly deserves to be named a Hoppean monarch. The long reign and rule of Prince Rainier III should be highly praised. Along with the Principality of Liechtenstein, the Principality of Monaco is one of the two of Europe’s 10 monarchies where the monarch not only reigns, but also rules. There are perhaps no words for how pleasing it is that, nearly nine decades after a world war – with the “good” help of Pres. Woodrow Wilson – ended the monarchical age, two princes still rule on the European continent.

How he successfully stood up against the attempted usurpations of democratic politicians in this age is impressing and delightful. Delightful it is too that democrats have no grounds at all for saying that Monaco is a terrible tyrannical place. Neither do they have such grounds when it comes to Liechtenstein. Although the Chief Minister must be chosen among candidates nominated by France, it is still up to the ruling Prince to choose. The executive power is vested in the Prince. In this democratic republican age this has become unacceptable, but it still is so in the Principality of Monaco. Every monarch is expected nowadays when the legislature comes and asks for his prerogatives to give way. Not so with Prince Rainier. He stood up to them and told them that those prerogatives were his.

In this age of ever-expanding government and high-tax nations muscling, His Serene Highness also stood up to claims by France to tax Monegasque residents. It was not a full victory, as France now has a right to tax her own who move there. Other residents are relieved of any direct taxation. Oh, what a tyrannical government! Let us hope that the worries that the new Sovereign will not be able to lead Monaco as his father did and keep the principality “off the rocks” will be proven groundless. Tax havens are sorely needed in this high tax world. So are undemocratic shining stars in this age of totalitarian democracy. We will miss the late Prince. If the worries are not proven groundless, we will miss him immensely.

Link here.


Supposedly, conventional wisdom among the military used to judge officers by two variables: by smart and stupid, and by active or lazy. Of course it is an oversimplification, but I have found using those variables is a good rule of thumb. The list would be like this: 1.) Stupid and Active, 2.) Lazy and Stupid, 3.) Smart and Active, and 4.) Smart and Lazy. The active and stupid are to be eliminated. That combination is very dangerous, so obviously it does not really need to be explained. But if it does, let us just say they will get many men killed in battle, or even training.

Lazy and stupid are the heart of the army, the kind who work their way up from the bottom. They are most of the officer corp. They are not dangerous, because they want to do as little as possible. Smart and active make good staff officers, but are not to be promoted, and they are never to be given supreme command. They are always coming up with bright ideas, but that does not mean they are good ones. To my surprise, the highest command goes to the smart and lazy. They come up with good ideas, but get others to carry them out. As best as I have been able to discover, it was Count von Bismarck who discovered these variables, when he realized the two most importance things in soldiers were their intelligence and their propensity to take action.

I operate on the assumption the military, having been around for thousands of years, knows what it is talking about. Since human nature does not change, you can take those variables and apply them to other fields. What about politics? If you do, you will encounter something pretty scary. George Bush is not a stupid man, but he does not use his brains. Even David Frum, himself close to an intellectual midget, accurately described Bush as “incurious”. Since Bush does not use his brains, he is stupid. He is also active, having been busy the past few years invading Afghanistan and Iraq, and is making noises about Iran and maybe Syria. In other words, he has unwittingly started World War III. That is what comes of stupid and active politicians.

We have a President who is stupid and active, and a Congress that is overwhelmingly smart and active. People who have no business being in their positions are in their positions, only because they have a talent for being politically popular. Hitler, for example, was a consummate politician, one who was described as half-genius, half-insane. Half-genius and half-insane makes him stupid and active, so it is not surprising when he was in the military his commanding writers wrote of him that they could not detect in him any qualities for being an officer. Although people think he never made it beyond corporal, he really never made it beyond private, first class.

Who stands behind Bush? Cheney? Rumsfeld? Rove? All these guys are smart and active, in many ways the guiding force behind Bush. Every one of the neocons in the administration is smart and active – the kind not only never to be given top command, but who should be removed if they ever make it there. Yet top command is what they have. Hayek was absolutely right – the worst do get on top. Politics is not our friend. The problem with politics is that it always attracts the active, whether they are smart or stupid. The public is the one that pays for their activity. If we have to have politicians, we need lazy ones. The best, of course, would be lazy and smart.

Link here.


Ever since 9/11, President Bush has been urging the use of American power to spread the allegedly universal principles of “freedom and democracy” throughout the world. On his recent European tour President Bush solicited the support of Europe in this cause, saying, “our ideals and our interests lead in the same direction.” What that direction is had been tellingly indicated just a few days earlier by Condoleezza Rice. Speaking in Paris, she said that the founders of the American and French republics were inspired by the same values, a statement that implied common origins in the same revolutionary spirit. Though historically wholly erroneous, this view was consistent with the ideology that the administration has enunciated. It should by now be obvious that, in his foreign policy views at minimum, the president of the U.S. is no conservative. He is a Jacobin nationalist.

Inspired, guided, and supported by the ubiquitous neoconservatives, President Bush has adopted and fostered an ideologically charged missionary spirit that bears a striking resemblance to that of the Jacobins who led the French Revolution. The principles of “freedom and democracy” are to be promoted around the world by virtuous American power. The French Jacobins, too, saw themselves as virtuous champions of universal principles, “freedom” and popular rule prominent among them. The neoconservatives have transformed the old American exceptionalism, which counseled isolation from the world, into an assertive, ideologically intense nationalism, whose smugness seems to know no bounds.

“Freedom” and “democracy” can mean radically different things. The president, his secretary of state, and their neoconservative idea-men have connected them with the Jacobin faith. The French Jacobins were followers of Jean-Jacques Rousseau, who argued, “man was born free, but he is everywhere in chains.” For men to be liberated, inherited societies and beliefs had to be destroyed. The French Revolution was an attempt to enact his ideas. The Jacobins dealt harshly with “evil”, guillotining conspicuous representatives of the old order and employing a general ruthlessness that culminated in the Terror. To France was assigned the mission of liberation. Europe and other parts of the world were thrust into protracted war.

Rarely has an ideology been so strongly entrenched in a country’s opinion-molding establishment. Especially with regard to foreign policy, the new Jacobinism is strongly represented in virtually all leading American media outlets. In the commentariat, neo-Jacobin thinking is today challenging an older, more diffuse and less vigorous liberalism for pre-eminence. It is omnipresent in the think tanks, especially those emphasizing foreign policy and national security. On television, the Fox News Channel pushes the neoconservative foreign-policy line most conspicuously and reliably, but it flourishes on all the networks and major cable channels. What goes curiously unnoticed is that, despite their label, the neoconservatives think of themselves as representing a progressive, revolutionary force. According to Irving Kristol, the reputed godfather of neoconservatism, today’s U.S. is “ideological, like the Soviet Union of yesteryear.”

The father of modern conservatism, Edmund Burke, was an English liberal – a Whig – who was very friendly to the American colonists. Like Burke, the Framers of the U.S. Constitution associated liberty with particular inherited traditions, limited, decentralized government, checks on power, self-restraint, moderation, and a willingness to compromise. Jacobin “freedom”, by contrast, justifies unchecked imperial power. That is the “freedom” for which George W. Bush has become the most prominent advocate.

Link here.


The Book of Genesis records Joseph’s administration of the bureaucracy under the Pharaoh. In preparation for a great famine, the Pharaoh taxed everyone except the priests at a 20% income tax rate. The tax was collected “in kind” – grain. This had been Joseph’s recommended strategy. Unlike all other central planners, according to the Bible, Joseph really did know that a famine was coming seven years before it came. There was something else. Joseph had been a slave in Egypt. He understood that the people worshipped Pharaoh as a god. It was a slave-based society. So, he dished out a little of what he had personally experienced. “You like slavery? Have I got a central plan for you! You believe in a divine ruler? Have I got a ‘Christmas club’ savings program for you!” And the famine came. The people came to the state’s warehouses for food. Joseph sold it to them, cash on the barrelhead.

The Genesis account is long, but it reminds us of what the state is all about: a strict taskmaster and a hard bargainer. Egypt became the model of tyranny for the Israelites. Again and again in the Bible, the writer invoked the tyranny of Egypt as the model of what God has delivered the people from. What was that? Slavery. Egypt was a massive bureaucracy that extracted 20% from all of its own people. The message was clear: avoid the Egyptian model. Today, to get the tax rate back to the tyrannical rate of 20%, the West’s governments would have to cut taxes by 50%. The voters do not care. They cannot distinguish between liberty and tyranny.

Sometime around 1,000 B.C., the people of Israel came to Samuel, who had served both as a prophet and a civil judge, and demanded a king, just like the other nations had. This was rebellion against God. Here was democracy in action. The people had spoken. God said to Samuel, “They deserve what they will get. I will give it to them good and hard.” Those who had been delivered out of Egypt were, once again, clamoring to get back in. They wanted the old tyranny. Samuel was told to warn them against this, yet do what they demanded: anoint a man to be their king. They would pay the price. The king would tax them unmercifully.

We read about this and cluck our tongues. The fools! God gave them good warning. Then we go down to the Post Office and mail in our tax forms. To get back to the tyranny of the kings of Israel, the Federal government alone would have to cut taxes by over 50%. That does not count the $400+ billion in borrowed money this year. Nationally, taxes would have to be cut by 75% to get back to Israel’s self-imposed tax tyranny. American taxpayers would thank God that they had been delivered – not out of tyranny, but into it. There is a pattern here. The voters cannot tell the difference between liberty and tyranny – not in Samuel’s Israel or our America.

Millions of Americans gamble. They know the games are rigged in favor of the house. Yet they go to the casinos and put their money down. If you ask why, they tell you: “It’s the only game in town.” They vote just as they gamble. They know that the tax collectors will keep their fair share – more than the casinos keep: in the range of 50%. They know that more tax money will flow into Washington than will flow back. They know that, as a nation, the taxpayers always lose. Yet the voters refuse to vote the Casino on the Potomac into bankruptcy. Voters are as fond of it as gamblers are fond of Las Vegas. “Shut down the game? Now? Are you crazy? I’m going to get my Social Security in a few years.”

What we see today is nothing new. We marvel at the seeming insanity of the self-abasing groveling Egyptians, who thanked the state for confiscating 20% of their property forever. Yet they actually did get a benefit: food during a famine. What do voters today get? A farm subsidy program that pays huge agribusiness firms not to farm – all in the name of saving the family farm. Yet we think the Egyptians were ninnies!

Link here.
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