Wealth International, Limited

Offshore News Digest for Week of April 25, 2005

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

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Skeptics had reservations when Czechoslovakia launched its massive program in 1992 to privatize state-owned enterprises. The state’s voucher scheme gave almost every citizen a chance to own shares in one or more companies. But critics complained that having so many owners would mean that nobody would be in control. There would be no effective way for shareholders to manage the managers. However, hundreds of new investment funds emerged that traded their own equity for vouchers. That gave the funds the heft to bid for large blocks of stock in newly private companies and led to a greater concentration of ownership than expected. Whether it also leads to improved corporate governance is another matter.

One lesson to be taken from the program is the importance of small shareholders. In some markets a well-developed proxy system allows a stakeholder with less than majority ownership – for example, a bank in Germany – to solicit the support of small shareholders and thus exercise control even in the presence of high majority requirements. So far, small Czech and Slovak shareholders have not taken an active interest and their votes are essentially lost. The result is weaker shareholder control and – the ultimate penalty for the investor – lower share prices.

Link here.


Emerging sovereign debt investors will closely follow political developments in Ecuador and Belize this week while keeping an eye on the U.S. economy and equity markets for signs of inflation and economic slowdown. After the government tumbled in Ecuador and street riots in Belize killed at least one person, holders of emerging bonds are likely to step aside and wait for events to clear. Last week Ecuador’s President Lucio Gutierrez was forced out of office and replaced by its vice president, Alfredo Palacio, who appointed Rafael Correa as the country’s new finance minister. Correa’s economic views spooked Wall Street and widened the country’s credit risk. So far this month Ecuador’s debt has lost 10.5% in total returns. Former President Gutierrez and his family fled Quito for asylum in Brazil on Sunday after he was ousted by street protests against his increasingly unpopular government. Correa, however, arrived at his new job saying Ecuador should give priority to its domestic needs over debt payments as part of a more flexible approach to fiscal policy.

In Belize, meanwhile, army troops and police patrolled the streets of Belize City after one person died during anti-government protests and looting late last week on the government’s handling of the sale of the state-run phone company Belize Telecommunications Ltd. Belize’s growing liquidity pressures and worsening indebtedness, in addition to the downgrading of its credit rating by Standard & Poor’s early this month to “CCC” has precipitated a rise in political risk. “The [IMF] is halfway through a two-week technical assistance mission and is surely bemused by what it is witnessing,” said Richard Segal, head of research at Exotix Limited, a brokerage firm specializing in illiquid bonds and loan of emerging markets.

Link here.


The tiny Central American nation of Belize, rich in jungle and coral reefs, is in its worst crisis since independence from Britain in 1981 with riots, looting and strikes testing the government. Best known for its Caribbean beaches, scuba diving and Mayan ruins in dense jungle, Belize has been thrown into turmoil by a strike at the state telephone company and by opposition calls for the government to step down. Army troops are patrolling the streets after youths rioted and looted businesses late last week in Belize City, the largest town in this country of 270,000 people. The government said one man was killed. Telephone workers went on strike last week and sabotaged lines, leaving the country cut off from the rest of the world, and teachers are threatening to strike in coming days.

“The government must call for new elections now because they’ve lost their mandate, because they’ve lost the confidence of the people,” Douglas Singh, chairman of the opposition United Democratic Party, or UDP, told Reuters. Prime Minister Said Musa took office in 1998 and won a second 5-year term in 2003 for leading strong economic growth, largely from buoyant tourism revenues and agriculture. He blames the violence on opposition leaders hungry for power. “They know full well that in an election they would lose, they cannot win by ballot, so they are trying violent means, a violent overthrow,” he told local radio, warning teachers they faced suspensions and docked pay if they go on strike.

Belize boasts the second longest coral reef in the world and is an increasingly popular destination for scuba divers and cruise ships. But its tourist-friendly exterior hides social problems like poverty, corruption, unemployment and crime. Many of its famously laid-back residents, who usually ignore politics, say they want change. At a street corner card game in Belize City, players said it was time for new elections. The last serious riots in the country took place in 1981 and led to the country’s independence from Britain. Since independence, power has shifted between Musa’s People’s United Party and the UDP. Both parties have been accused of corruption and runaway budget spending. Rising oil prices and lower prices for bananas and sugar, its main exports, have also hurt the economy recently.

Link here. Belize vanishes from telecommunications topography – link here.


As many as 50 European laws could be scrapped by summer as Gunter Verheugen, EU enterprise commissioner, tries to signal a new era of lighter regulation from Brussels. Mr. Verheugen has ordered a bonfire of legislation that was proposed under the former administration of Romano Prodi, in one of the most thorough clean-outs of red tape ever conducted by the EC. His team is screening more than 300 laws in the legislative pipeline, and expects a battle with other departments as it seeks to withdraw proposals, many in the environmental or consumer field. “It could get messy,” said one official. “But we want to make a real impact:= we are hoping to identify at least 50 pieces of legislation to be scrapped.” Mr. Verheugen, who says the scrapping of red tape would be “his trademark”, announced last month, “Less bureaucracy means more jobs and growth.” Officials working on the red-tape blitz argue that although impact assessments on new laws were conducted during the 1999-2004 Prodi administration, they were less rigorous than today.

On the Commission’s hit-list are 344 draft laws that are still awaiting approval from EU member states and the European parliament. They will be subjected to an economic assessment to determine the harm they might cause business. The oldest among them dealing with a “statute for the European company” was proposed in 1970 and is still awaiting approval more than three decades later. In addition, the Commission has suggested it would withdraw or radically simplify a string of existing laws in such areas as medical devices, waste disposal, the approval of motor vehicles, company law and taxation. While Mr. Verheugen sets about axing legislation proposed during the Prodi era, the Barroso Commission has virtually frozen all new legislative activity.

Link here.


The last two weeks have seen a frenzy of activity in the region – India-Pakistan cricket diplomacy, Indo-China trade, U.S. and India opening up skies for unlimited flights, Burma’s emergence as a potential hydropower source and Bhutan readying for a new constitution to embrace the market economy. Nepal is sandwiched between India and China which seem ready to set aside their political rivalry to become the world’s largest trading partners over the next two decades. The idea is to beat Sino-U.S. trade volumes and the way these two economies are growing, there is little doubt that is where they are headed. These two territorially minded powers will even sacrifice their border disputes at the altar of economic growth.

In the midst of all this is Nepal. We can either hitch our wagons to these two locomotives or shunt ourselves to a siding. Surely, we have the advantage of geography. There must be some goods and services we can sell to both. The growing economies of our neighboring giants create wealthier people. This could be an opportunity for us to become an offshore financial center, a haven to manage money, like Luxemborg. Things are more complicated between India and Pakistan. But even here, there is tremendous bilateral business potential. Pakistan will soon have to find some other way to keep its army engaged if Kashmir is resolved. India and Pakistan need to conduct direct businesses because the costs of rerouting products into markets have skyrocketed.

The growing middle class in both India and China is pushing their governments to think beyond politics. They realize that as the composition of vote banks change, market economy will be the focus, not subsidies or free meals. For us, it is never too late to start all over again.

Link here.

Baker & McKenzie report rates China, India as best emerging markets.

China and India were rated the most attractive emerging markets for UK businesses in a report on the role of general counsel in emerging markets. The Baker & McKenzie report surveyed 51 board executives at FTSE 500 companies. Two-thirds of respondents were already operating in China, citing its benefits as cheap labour and a strong work ethic, and its disadvantages as IP piracy. India has a skilled, English-speaking and cost-effective labor force, with its weaknesses being its poor infrastructure and protected market. Investments in the two countries tended to be joint ventures or partnerships.

Russia, with its natural resources and growing consumer appetites, and Brazil, with political and economic stability, were the next most popular locations. Russia’s main downside was corruption and Brazil’s was strong local and U.S. competition.

Link here. India looks good in the longer-term – link.


At the end of last year, representatives from all 12 of South America’s countries signed an agreement establishing a South American Community of Nations embracing 361 million people. It creates a market with a GDP of $973 billion that exports goods and services worth $181 billion. The discussions covered integration along the lines of the European Union but only 8 out of 12 presidents attended the summit, with those of Argentina, Ecuador, Uruguay and Paraguay sending envoys instead. Peru and Brazil signed a $700 million agreement to create a road linking the countries by 2006, which is all well and good, but Brazil has its own crippled transport system to deal with which has 1.5 million kilometers of road of which only 11% is paved.

Perhaps help for Brazil’s roads and other important investments in infrastructure, including ports, is at hand. China, for much of recorded history, was the largest economy and until the 15th century had the highest income per head before becoming introspective. Today, $1 billion per week of foreign direct investment has seen the Chinese dragon overtake the Asian tiger and it is the largest consumer of oil after the United States. The biggest overseas investments made by Chinese companies are in Brazil’s iron and steel sector. Besides Brazil, there are manufacturing companies in Mexico while investments are increasing in railway projects and agribusiness-connected ventures with Argentina.

The next decade could see China become the world’s largest exporter and importer with the possibility of overtaking the U.S. as the world’s largest economy. China is one of the world economy’s emerging giants, along with India, Brazil and Russia. Significantly, besides having a bigger GDP than the other three combined, it is also more integrated into the world economy. As China’s door opens wider to the world, it comes at a time when many trade regimes are being liberalized across Latin America and China recognises that direct investment there will guarantee a steady source of supply for its expanding economy. Relations with China and Latin America, however, have their problems and jobs are one of them. China’s cheap labor has already hurt Mexico’s exports to the U.S. Argentina, to take another example, is worried about competition in its shoe, toy and textile industries. China, however, is a seductive trading partner and Argentine concerns are countered by Chinese plans to invest about $20 billion in the country during the next decade.

Link here.

U.S. and China on a collision course.

Hubris and myopia on both sides are pushing China and the United States toward a confrontation over trade from which the rest of the world will be an equal loser. The issue may be less the stuff of headlines than the China’s furor over Japan’s past and future roles in Asia. But that is an issue which, at least in the short run, can be turned on or off. The trade problems go deeper – to the heart of politically driven economic policy misconceptions. As a result both countries’ economies are, for now, growing at rates that are unsustainable and are storing ever bigger problems for the future.

Let no one mistake the dangers when both parties in the U.S. Congress take aim at China trade in a way that could threaten the whole WTO structure and when China makes the issue of its currency value into a matter of national dignity. China has consistently failed to grasp the currency nettle despite years of promising a more flexible policy and after more than two years of growing international disquiet about global imbalances arising in part from currency misalignments of which the yuan is the most significant. China’s success has blinded it to the dangers of international reaction against its trade and currency policies.

There has been a mix of reasons for China’s failure to change: bureaucratic inertia, an indecisive new leadership, fear of the impact on employment and the financial system. But the most important factor now seems to be reaction against U.S. pressure. Nationalism has been on the rise as China’s pride has been swelled by foreign adulation. Unfortunately for China there is now no way that it can continue on a course of reliance on a U.S. export market which, one way or another, is likely to be cut back to bring the trade gap down to sustainable levels.

As for the U.S., its assumption that it can have continuous 3% GDP growth based almost entirely on other nations’ savings is even more remarkable. The buyers of U.S. debt – mostly Asian central banks – have helped sustain U.S. illusions about its economic prowess. More the fool they. But the U.S. itself is mainly to blame for abusing the role of the dollar to buy growth. China is right that the trade deficit is a U.S. problem that will not be solved by a yuan revaluation. Indeed it could make it worse and create inflation, not jobs, in the U.S. Nothing but a rise in savings – which means a sharp fall in consumption - can solve the deficit problem. In other words, the U.S. must face up to the necessity of a recession or prolonged minimal growth if balance is to be restored. Policies under Bush/Greenspan have delayed the day of reckoning. But it is coming.

Link here.

U.S. needs clear and consistent set of policies for China.

If you have been following the news in recent days you might have concluded that China resides in two parallel universes. First, there is the geo-economic universe in which China, the rising economic power with a huge current account surplus that is being urged by members of the Group of Seven (G-7) leading industrialized nations (whose finance officials met in Washington two weeks ago) to adopt a more flexible exchange rates. Then there is the geo-strategic universe in which China the emerging Asian military power is targeted by the U.S. as a potential strategic competitor while it is viewed by many Japanese as a future threat to core national interests, a perception that has been accentuated by the recent anti-Japanese demonstrations in China.

And, indeed, one sometimes gets the impression that whether it is in Washington or for that matter in Tokyo or Brussels, policymakers seem to believe that there is no linkage whatsoever between what is happening in their relationship with China on the geopolitical front and the developments that are taking place in the geo-economic arena. The conventional wisdom assumes that the U.S. and other nations can trade with and invest in China and deal with the policy repercussions of those economic exchanges – that help transform China into a global political power – without considering their impact on their diplomatic and military ties with Beijing.

Even more amazing is the way American officials tend to de-link certain policy issues even when they operate in these parallel geo-strategic and geo-economic universes. Hence the Americans expect the Chinese to go out of their way to press their ally Pyongyang to rejoin the five-party talks on the North Korean nuclear crisis, while at the same time they are trying to project a tough American posture on Taiwan and even encouraging Japan to form with the U.S. a common front over the issue. But as U.S. policymakers had concluded during the Cold War as they managed their relationship with the former Soviet Union, you cannot avoid employing a policy linkage when you are dealing with other powers. It did not make sense then to de-link U.S. nuclear arms negotiations with Moscow from the issue of Soviet expansionist policies in the third world regions of the world. In fact, such linkages permitted the Americans to deal more effectively with the Soviets and provided opportunities for “package deals”. If the U.S. and other leading economic powers want China to respond to their concerns they should treat it like a leading economic power and invite it to join the G-7/8 club and ASAP.

Link here.


Mexican President Vicente Fox, responding to growing protests, asked Congress to change criminal statutes that supporters of Mexico City Mayor Andres Manuel Lopez Obrador said could prevent him from running for president. Fox, 62, addressed the nation three days after hundreds of thousands of protestors rallied in Mexico City, saying the president was putting at risk the nation’s democracy by leading a campaign to stop Lopez Obrador’s 2006 presidential bid. Fox’s 2000 election win ended 71 years of rule by the Institutional Revolutionary Party.

The president’s televised speech was an effort to answer accusations made against him at weekly protests in Mexico City over the past month as Congress stripped Lopez Obrador, 51, of immunity and the attorney general’s office brought contempt of court charges against him. Jose Luis Barraza, president of the Business Coordinating Council, is among critics of the mayor who say Lopez Obrador would abandon Fox’s policies that helped narrow the budget deficit, bolster trade and lure foreign investment to Latin America’s largest economy. Mexico’s economy is growing at the fastest pace in four years after expanding 4.4% in 2004.

Link here.


Panama is one of the best places in the world for retirees today, combining a low cost of living, near-perfect weather and one of the world’s best discount programs for retirees, with up to 50% off everything from public transport to movies, mortgage rates, doctor’s visits, electricity, restaurants and airfares. When you compare Panama with its neighbors, you will see that it has more amenities than traditional retirement spots such as Mexico and Costa Rica, but costs and crime rates are lower. In Panama, you will encounter less red tape and less interference from local authorities.

To encourage long-term foreign investment, Panama requires no special authorizations, permits or prior registration for foreign investors. The Investment Stability Law, passed in 1998, protects foreign investors from any change in tax, customs, municipal and labor rules for a period of 10 years after an investment is registered. Major companies doing business in Panama include Federal Express, DHL, Sears, Price Costco, BellSouth, Kansas City Southern Railways, Continental and American Airlines, Warranty Company of the Americas and Hutchison Whampoa. Plus, you will find just about every American franchise you can imagine on the streets of Panama City. [And their point is? – Ed] And there are other incentives for foreigners to spend time here, invest here … or even live here.

Link here.


Carlos Ghosn is a Brazilian who, from next month, will be spending 40% of his time in Paris as the new boss of Renault, 35% in Tokyo where he will continue as the head of Nissan, and 25% elsewhere, most of it in America. Jean-Pierre Garnier is a Frenchman who heads a British drugs company (GlaxoSmithKline) but spends up to 70% of his working life outside Britain and France. Who is first in line for the tax on these executives’ not inconsiderable incomes? And, er, have they got the necessary work permits? These two bosses are the most visible examples of a growing army of mobile workers who are giving human resources (HR) departments a new sort of headache: how to track where they are and when, for tax and visa purposes. Gone are the days when working abroad was merely a matter of signing a formal expatriate package – with an allowance for differences in the cost of living and the quality of life – before waving goodbye for three years.

Today’s global business is creating a new sort of worker, termed the “stealth expatriate” in a recent worldwide survey by Cendant Mobility, a firm that helps firms to relocate employees. The survey found that 78% of HR departments either have, or suspect they have, stealth expats within their firm. Yet 83% of these companies admit that they do not have systems in place to track such people. Stealth expats come in two main varieties: one is the cross-border commuter, a growing phenomenon particularly in the EU, where the relaxation of border controls and spread of low-cost airlines have made weekly commuting between cities such as Brussels, London and Paris almost commonplace. The other is the accidental expat – someone who goes on so many business trips or temporary assignments that he inadvertently incurs new fiscal liabilities or overstays his welcome as a foreign worker.

Stealth expats, though, are increasing for several reasons. The popularity of offshoring and cross-border joint-ventures requires more executives to go on short-to-medium-term assignments abroad – a flow that goes in all sorts of directions. Multinationals are organized more along business lines these days than on geographic lines – business units are run by globe-trotting teams, the members of which may live in a number of different countries. The tax rules applicable to stealth expats can be fiendishly complex. Governments will need some stealth of their own if they are to catch up with the reality of these taxpayers’ working lives.

Link here.


Twelve months ago, Europe’s leaders celebrated the EU’s “big bang” expansion from 15 to 25 states, the continent’s historic reunification half a century after it was ripped apart by war. A year later they are staring into a black hole … at its center a French vote threatening to rip apart their grand plans overnight. The EU newcomers – Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia – of course have much to celebrate after joining the rich club they had worked towards for so long. But even those wanting to fete the first birthday of the enlarged bloc admit that it is clouded by the looming May 29 French referendum on the EU’s new constitutional treaty.

The constitution, signed among much fanfare in Rome last October after some four years of wrangling, is designed to prevent decision-making gridlock in the expanded Union. To come into force it must be ratified by all 25 EU states. Diplomats have long conceded that it could be rejected in a small number of countries, but have suggested ways of getting round the problem could in most cases be found. But a “non” in France, a founding member of the European project in 1957 and long a driving force of the EU along with Germany, is another matter entirely. “There is a strong chance that France will vote ‘no’, which would probably kill off the treaty for good,” said Daniel Keohane of the Centre for European Reform.

The current threat of a French no, while unexpected, did not come completely out of the blue. The fireworks which erupted across Europe last May 1 rapidly came down to earth barely a month later, when European Parliament elections confirmed two trends which have long threatened the EU, euro-apathy and euroskepticism. Then came the fiasco surrounding the nomination of a new EU commission, centered on the unedifying spectacle of EU leaders horse-trading to avoid an openly anti-gay commissioner being put in charge of civil rights across Europe. But undoubtedly more controversial was the EU’s decision in December to give Turkey a green light to start talks on joining the bloc. The prospect of the vast Muslim majority country one day becoming the EU’s biggest state only fueled anti-EU feeling among those concerned that the EU was going too far beyond its original aim.

Link here.

Europe is not working, but investors are not as worried as politicians.

Chicken Little would feel at home listening to the political class in Europe as the French prepare to vote on the proposed European constitution. A no vote on May 29 would create a “political cataclysm”, said Jacques Delors, a former president of the European Commission. Romano Prodi, the commission’s president when the constitution was written, made Mr. Delors sound sanguine, saying, “The problem won’t be just a catastrophe for France, but the fall of Europe.”

But while the politicians fret, the financial markets go on about their business. Since March 18, when the first poll indicated a defeat was likely, European stock markets have done a little worse than those in the U.S., but better than the Japanese market. The euro has lost a little ground, but remains high. In 2005, European shareholders have lost less than American or Japanese investors. Some point to widening interest rate spreads between Germany and Greece as a sign of growing alarm, but you need a magnifying glass to find the evidence.

The reality is that Europe is not working, at least not the way it was supposed to when politicians were campaigning for ratification of the Maastricht Treaty, which led to the adoption of the euro in much of the Continent. Some thought the euro would force economic reform, but the pace of change has been slow at best. Instead, there are signs that the inability to adjust exchange rates within the euro zone is making some areas, notably Italy, less competitive relative to Germany, which itself is facing economic stagnation. The news within many a European country is of various groups and unions fighting to preserve and expand their benefits, with no regard for the country’s overall competitive position, let alone that of the Continent.

It is not that French voters are really upset about what is in the proposed constitution. It would establish a method for making decisions in the EU that would please Rube Goldberg, even though it is said to simplify the process. Its defeat would leave things as they are, with a possible paralysis of decision making in Brussels. That prospect may alarm politicians more than voters. Instead, Western European voters seem united in opposition to whatever party is in office and in fear of new competition, whether it is from Chinese textiles or from workers from the Eastern European countries that joined the EU a year ago.

The dream of the EU was to make Europe a strong world player, able to compete with Japan and the U.S., with its national governments not needing to do much to promote the process. Europe may do better if that dream is downsized, leaving each country with the responsibility to put its own house in order.

Link here.



On 20 April 2005, weeks before the controversial directive is due to come into force (1 July 2005), bankers in Luxembourg have threatened to pull out of the measure because of fears that it will not be uniformly implemented. The directive ensures that details of income from savings accounts held by non-residents are passed to their home tax authorities. Banks have been uneasy about losing out to tax havens and EU ministers only agreed to the measure on the basis that the same rules would be followed by neighboring non-EU states such as Switzerland and Monaco and tax havens like Guernsey and the Isle of Man.

Link here.

The taxation of savings income in the form of interest payments – agreement between the European Community and the Principality of Liechtenstein

Liechtenstein, which will pay attention to the further steps taken by Switzerland and which drafted its agreement with the European Community on the basis of the Swiss agreement, will also use the implementation guidelines issued by Switzerland on 19 October 2004 on this EU savings tax directive. This article will highlight some points of major importance to the Liechtenstein trustee services providers and their clients living in the EU.

Persons falling within the agreement are individual beneficial owners who are residents of a EU member state and who receive interest payments from a paying agent resident or established on the territory of Liechtenstein are subject to the taxation. Beneficial owner is a person who receives or secures an interest payment for his or her own benefit. The following provisions must therefore all be fulfilled: It must be a physical person, this person must be resident in a EU member state, the payment must be qualified as an interest payment in the meaning of the agreement, and this person must receive or secure the interest payment for his or her own benefit. If one of the criteria is missing, the payment to the physical person is not subject to the agreement.

Link here. EU Savings Tax Directive text here.


Russia’s president has said tax inspectors should not “terrorize” firms, and that the country’s tax regime needs to improve. President Vladimir Putin’s annual state of the nation speech also stressed the need to persuade Russians to stop salting away their money abroad. The economic policy portion of his speech aimed to reassure foreign investors by promising clearer rules. Mr. Putin suggested a 3-year time limit on back tax claims. But much of his wide-ranging speech was also aimed at encouraging Russians to support the economy by investing at home. His remarks ran the gamut of macro-economic issues from taxation policy to the need for Russia’s breadwinners to drink less and have more children.

Foreign investors were alarmed by back tax claims totalling $27.5 billion against oil giant Yukos. Other firms to face significant, though smaller, back tax claims include TNK-BP, the Russian joint venture half-owned by British oil group BP, and Russian oil firm Sibneft. Yukos’s main production unit was auctioned off by tax bailiffs – and eventually passed back into state control – to cover massive back tax claims. Mr. Putin said it was right to favor Russian control of some economic sectors but the “rules of the game need to be very clear”. Yukos’s ex-boss Mikhail Khodorkovsky is on trial on separate tax fraud charges and could face 10 years in jail when the judge gives her ruling this week.

Link here.


Although the IRS refers to them as “offshore jurisdictions”, what we used to call tax havens can be found all over the world. Even if you are not going to invest abroad, many of them are delightful to visit – a rewarding way to use your refund. We asked William Diamond, preeminent expert in international taxation, for his picks. He and his wife, Dorothy, have written 81 books, including the three-volume “bible” Tax Havens of the World. Taking time out from his forthcoming memoir – One of a Kind: Learning Secrets of World Leaders – he spoke with Anne Goodfriend for USA Today.

The 10: Anguilla, The Cayman Islands, The Bahamas, Singapore, Nevis, Luxembourg, Malta, Ireland, Estonia, and The Seychelles. [This article is definitely on the lightweight side. It may help you decide where to visit on your next vacation – Ed.]

Link here.



Two San Diego entrepreneurs have come up with a very literal twist on offshoring software development jobs. This pair wants to get their hands on a 600-cabin cruise ship and park it off the coast of El Segundo, California, just over the 3-mile border that marks international waters. They will pack the boat with engineers who will write code day and night. The two founders of SeaCode, David Cook and Roger Green, are confident their plan will float. All they need to do is classify their workers as “seamen”, so that they are protected by international maritime laws that skirt the need for those pesky immigration visas. The workers will fly in and out of Los Angeles and board the ship with a sailor’s card from the Bahamas, where the ship likely will be registered. This lets the company avoid U.S. payroll taxes on the foreign coders. Cook, a former supertanker skipper, plans to dock in Long Beach once a month to resupply and dispose of waste.

Programmers – sorry, seamen – hired from places like India and Russia would have their own cabins, work 8- or 10-hour stretches on either a day or night shift and have the rest of the time to sleep, play shuffleboard or take a water taxi to shore. Cook imagines a 4-months-on, 2-months-off work cycle. Take-home pay will be about $1,800 a month, compared with $500 per month for an experienced engineer in India. SeaCode’s pitch is that it will still charge the same rates as developing-world firms (Green says Indian firms hide behind amazing markups) while offering clients freedom from killer flights to India, Israel and other faraway destinations to check in on projects. Work will also get done faster with two shifts.

As much as it sounds like a joke, the plan could work. “Nothing tells me that it’s flatly prohibited,” says San Francisco maritime lawyer James Walsh. That is because a “seaman” can be defined broadly as anyone who works on a vessel. But do not count on locals to be happy about a colony of programmers floating just over the horizon. “It’s not my prerogative to tell them to take a hike. I’ll leave that to the Coast Guard,” says El Segundo mayor Kelly McDowell.

Link here.


This year’s Sunday Times Rich List of the 1,000 wealthiest people in Britain contains a record number of billionaires. The past year saw a 23.3% increase, the highest rise in a year ever recorded, giving the top 1,000 a staggering £250 billion between them. When Tony Blair’s Labour government took office eight years ago, the wealth of the richest 1,000 stood at £99 billion. In the past eight years, the super-rich have accrued more wealth under Labour than they did under the previous Conservative government. In 2005, the top 10 alone are worth £53 billion, £10 billion more than the top 200 were worth under the Tories 10 years ago.

As a result of Labour’s economic policies, the top 1% of society has seen its share of the national wealth rise to a proportion greater than at any time since the 1930s. According to the Office for National Statistics, the 600,000 people who make up this group doubled their wealth to £797 billion in the first six years of the Labour government. The share of national wealth for the super-rich grew from 20 to 23%, while that for the poorest 50% shrank from 10% in 1986 to 5% in 2002.

The focus for much of this wealth is London. The Sunday Times calculates that 503 of the top 1,000 live in the capital or its surrounding areas. As an article in the New Statesman pointed out, “London is said to have 40 billionaires, 13 of whom are foreign. There is no place in the world like it. They are welcomed with open arms. The capital has become the world’s most significant tax haven. Theirs is a parallel world, in which the purveyors of yachts, private jets and other accoutrements cannot keep up with demand. Where else in the world could you acquire a diamond-encrusted swimsuit for £15 million?”

Under the rules for “non-domiciled resident tax status”, those who spend less than 90 days a year in the UK are exempted from paying tax on earnings from overseas investments in offshore tax havens. The beneficiaries of this loophole pay tax on UK earnings, and therefore dole out very good money to accountants to keep this portion of their income to a minimum. Up to 100,000 people are said to benefit from this provision, which is unique in Europe.

Link here.


Fake checks have been the stock in trade of online fraud artists for years. Now authorities are noting a surge in schemes involving sophisticated counterfeiting of a different form of payment: United States postal money orders. And the fleecing of victims often begins in an email in-box. In the last six months, the F.B.I. and postal inspectors say, international forgers – mostly in Nigeria, but also in Ghana and Eastern Europe – appear to have turned new attention to the U.S. postal money order. More than 3,700 counterfeit postal money orders were intercepted from October to December, exceeding the total for the previous 12 months, according to postal inspectors.

Moreover, 160 arrests have been made in the United States since October in cases where people have been suspected of knowingly receiving fraudulent postal money orders or trying to cash them, Paul Krenn, a spokesman for the U.S. Postal Inspection Service, said. “The quality of what they are producing is very good,” he said, adding that ordinary consumers can easily be fooled. “They are not going to know what they are looking at,” he said.

Despite the arrests, however, the schemes often do not involve attempts by the fraud artists to cash the postal money orders. In many cases, unwitting victims, often contacted by an e-mail message or in an online chat room, are deceived into accepting the bogus money orders as payment for items they are selling, or into cashing the orders in return for a fee. It is the latest twist in a long series of Internet schemes that use bogus financial instruments to bilk unsuspecting victims out of merchandise and cash. The U.S. Postal Service would not estimate the dollar value of the counterfeit postal money orders it has intercepted. But law enforcement officials estimate that the amount runs into the millions of dollars.

The trend is significant, because unlike private business checks or even other money orders, the postal money order is generally regarded as one of the more difficult financial documents to counterfeit because of its watermarks, security threads and a rainbow of inked patterns and tones. The best way to identify a genuine postal money order, postal service officials say, is to look for the telltale watermark, which, when held up to the light, should reveal an image of Benjamin Franklin. Genuine postal money orders also have a security strip running alongside the watermark, just to the right. If held to the light, a microfiber strip will show the letters “USPS” along its length.

Link here.


High-value investment fraud is one of the financial crimes most likely to affect the Isle of Man according to internet fraud experts Colin Holder and Paul Renner. Mr Holder, an ex-Scotland Yard detective, said that fraudsters played on the two emotions of greed and fear when conducting investment scams, allaying fears and provoking greed. He said high-yield investment programs (HYIP) were the most common form of financial fraud at the moment and the majority of victims were highly qualified professionals.

“You might say how can anybody believe that people can make that sort of interest, how do they fall into these frauds? The fraudster allays your fears and provokes your greed, they entrap you by befriending you, they say the investment is riskless then they talk about returns. The majority of victims are professional business people – lawyers, doctors and charities because they are intelligent, they think they should understand what they are being told and don’t want to shout out that they don’t, so they go along with it. High-value corporate bonds offer 6, 7 or 8% interest, HYIPs talk about 20/40/50 or 100% returns,” he said.

Mr. Holder added that most of the modern schemes are versions of old frauds, first committed more than 100 years ago. They are known as Ponzi Schemes after a 19th century fraudster named Charles Ponzi who was offering a 50% return on investment in just 45 days. He said the fraudster draws victims in by honoring the agreed interest for the first few instalments, then drawing more and more money from them as they start to believe they are on to a sure thing. It was a case of “robbing Peter to pay Paul” as the fraudster meets the initial interest payments by taking investments from other victims who have heard about the scheme. Mr. Renner runs a website that tracks fraudsters and holds details of scams, he also recommended several other websites for anybody worried about falling victim to financial fraud.

Link here.


When Ron Rowell signed up for Juniper Bank’s new Sea Miles credit card in hopes of spending his way to a free Carnival cruise, he got something he had not bargained for: a 2% fee on purchases made outside the USA, even when the souvenirs are priced in U.S. dollars. By the time Rowell received his first bill, that $1,100 black coral necklace and ring he bought during a Carnival stop in Grand Cayman had lost some of their luster. And the retiree from Cape Coral, Florida, was determined to use another card that “isn’t a rip-off.”

Many American travelers using credit cards are discovering that their overseas jaunts are getting more expensive. The culprits: higher card fees combined with changes in the ways purchases made in a foreign currency are converted to dollars. Starting this month, Visa replaced its 1% charge for changing foreign currencies into dollars with a 1% “transaction fee” that applies to all purchases in another country, regardless of whether the sale is completed in dollars or in a local currency. MasterCard charges 1% for foreign currency transactions and nothing if the international purchase is made in dollars, but it has announced a similar fee change effective October 1. Both association’s fees are imposed on the issuing banks, though banks typically pass them along.

In the past, those fees were simply absorbed into the final price shown on consumers' monthly statements. But after complaints from consumer advocates and a string of lawsuits charging that the practice was deceptive, more credit card issuers are breaking out the fees as separate line items on monthly statements. Several card issuers, most notably Diners Club and MBNA America, are increasing fees, as well. Diners Club charges personal cardholders 3% on foreign purchases, up from 2%. (Corporate customers still pay 2%.) Starting May 25, consumers will pay 3% when using an MBNA-issued card abroad, up from 1%.

Another potentially costly wrinkle: A small but growing number of international merchants as diverse as Harrods and Hertz are cashing in on new technology that lets them convert the price of an item or service from the local currency to dollars. Called “dynamic currency conversion”, the process is aimed at travelers who want to know upfront what a cashmere sweater or weekly car rental will be in greenbacks. But that optional convenience costs travelers an average of 2% to 3% in merchant-imposed fees. And on top of those fees, the credit card issuer may impose its own charges.

Link here.


Chris Keeley went on a shopping spree last Christmas Eve, buying $230 in gifts with his debit card. But the New York University student’s holiday mood soured a few days later when he received a notice from Pittsburgh’s PNC Bank that he had overdrawn the funds in his checking account. While PNC allowed each of his seven transactions to go through, it charged him $31 a pop – or a hefty $217 in fees for his $230 worth of purchases. Keeley, who insists he had never requested any so-called overdraft protection on his account, says he wishes the bank had simply rejected the transactions. “I can’t help but think they wanted me to keep spending money so they could collect these fees,” he fumes. PNC insists it is doing a service by covering checks and purchases that would otherwise bounce. “It helps our customers avoid the embarrassment of having a transaction rejected,” says Dan Tuccillo, senior vice-president for product marketing at PNC. Later, the bank halved Keeley’s overdraft charges.

Keeley’s experience is becoming commonplace as more banks turn to service fees to maintain their profits as the mortgage boom subsides. This fee frenzy may seem paradoxical with so many banks trying to lure new customers with offers of “free” checking. But according to Edmund Mierzwinski, U.S. consumer program director for Public Interest Research Group, a Washington consumer-advocacy outfit, “Banks are making their money on the back end from hidden fees.” Industry groups contest that viewpoint. “The vast majority of people who are managing their finances well are not incurring a lot of service charges,” says Keith Leggett, a senior economist at the American Bankers Assn.

None of the new fees is more controversial than bounce protection. Howard K. Mason, a banking analyst at Sanford C. Bernstein & Co., estimates it generates $8 billion in income for banks – making up nearly 30% of all bank service fees. Critics point out that bounce-protection fees, as high as $37 per transaction, are little more than high-priced credit. Regulators are particularly worried that some banks provide the service even at automated teller machines (ATMs). Customers with $50 in their accounts and $300 in overdraft protection could be told at an ATM that they have $350 available. Most troubling to consumer activists is that most of the new fees fall on the poorest consumers. Regulators are starting to act. That backlash could hurt the industry’s bottom line.

Link here.



Leading online discount broker Ameritrade Holding Corp. said last week that it had informed about 200,000 current and former customers that a backup computer tape containing their personal information has been lost. The company realized the tape was missing in February, when the package it was in was damaged during shipping between vendors, spokeswoman Donna Kush said. Of the four backup tapes in the package, three were found, but the fourth is still missing, she said. Information on the tape was for people nationwide who may have been Ameritrade customers from 2000-2003, she said. The data was different for each client and may have included their Social Security numbers, among other information, Kush said. The tapes were not marked and unless special equipment was used, the compressed data could not be extracted. Kush said she has not heard of any misuse of the information.

The news comes as several companies have experienced their own database violations, and some thefts. Database giant LexisNexis announced it had started alerting about 280,000 people that their personal information may have been accessed by unauthorized individuals who were using stolen passwords and IDs. Ohio-based DSW Shoe Warehouse said that thieves had accessed a database with credit card records on about 1.4 million customers. The company said it has contact information for about half of those people and started sending letters notifying them of the thefts, which happened at 108 stores in 25 states between November and February. Data broker ChoicePoint, based in suburban Atlanta, said in February that information on some 145,000 consumers nationwide was taken by thieves who opened up dozens of accounts and went undetected for more than a year.

Link here.

DSW data theft larger than predicted.

Thieves who accessed a DSW Shoe Warehouse database obtained 1.4 million credit card numbers and the names on those accounts – 10 times more than investigators estimated last month. DSW Shoe Warehouse said that it has contact information for about half of those people and started sending letters notifying them of the thefts, which happened at 108 stores in 25 states between November and February. A list of the stores is available on the company’s Web site.

The stolen information did not include home addresses or personal identification numbers, the company said in a statement. Besides the credit card numbers, the thieves obtained driver's license numbers and checking account numbers from 96,000 transactions involving checks, the company said. Customer names, addresses and Social Security numbers were not stolen, DSW said. The Secret Service is investigating the DSW theft. DSW’s corporate partent, Retail Ventures, also operates the Value City and Filene’s Basement discount chains.

Link here.

When are free annual credit reports available?

Eligibility for an annual free credit report is determined by your state of residence based on the rollout schedule set by federal law. Look below to see when a free credit report becomes available in your state through this website.

Link here.


Senate Minority Leader Harry Reid said that Democrats will have to accept the Real I.D. Act – written by House Republicans to limit asylum claims and crack down on illegal immigrants obtaining driver’s licenses – as part of the final emergency war-spending bill. Negotiators are trying to hammer out a compromise between the Senate’s $81 billion supplemental spending bill and the House’s $81.4 billion version this week. House Republicans have said they will insist the immigration security provisions remain in the bill. Mr. Reid, Nevada Democrat, said his party will not be able to stop them. “They did it on purpose,” he told reporters, “They put it on a supplemental which they knew you couldn’t stop. I’ve had a senator come to me and say, ‘We’re going to filibuster this.’ I said, ‘Get real. It’s not going to happen. It’s a defense bill.’”

Under Real I.D.’s provisions, the secretary of Department of Homeland Security could waive laws in border areas, allowing completion of a section of border fence near San Diego; judges would have more discretion in deciding asylum petitions; and the categories of those who can be deported for association with terrorist groups would be expanded. But the most wide-ranging provision would set standards for government-issued IDs. The standards would include ensuring the holder is legally present in the U.S. The 10 states that do not meet those standards would not be forced to change, but residents could not use their IDs for federal purposes such as boarding an airplane. The Senate has never voted on Real I.D.

During the debate on the spending bill, Sen. Dianne Feinstein, California Democrat, wanted to offer an amendment putting the Senate on record opposing the measure, but her amendment fell outside the narrow rules for amendments. Opponents, including immigrant rights advocates such as the National Council of La Raza, said the Senate would have defeated Mr. Isakson’s amendment if it had come up for a vote.

Link here.


Following criticism from computer security professionals and civil libertarians about the privacy risks posed by new RFID passports the government plans to begin issuing, a State Department official said his office is reconsidering a privacy solution it rejected earlier that would help protect passport holders’ data. The solution would require an RFID reader to provide a key or password before it could read data embedded on an RFID passport’s chip. It would also encrypt data as it is transmitted from the chip to a reader so that no one could read the data if they intercepted it in transit.

Frank Moss, deputy assistant secretary for passport services, said that the government was “taking a very serious look” at the privacy solution in light of the 2,400-plus comments the department received about the e-passport rule and concerns expressed last week in Seattle by participants at the Computers, Freedom and Privacy conference. Moss said recent work on the passports conducted with the National Institute of Standards and Technology had also led him to rethink the issue. “Basically what changed my mind was a recognition that the (reading distance) may have actually been able to be more than 10 centimeters, and also recognition that we had to do everything possible to protect the security of people,” Moss said.

The government had long maintained that the passport chips to be used could be read from only 10 cm away. But at least one test showed that a reader could read a passport chip from 30 feet away. And Barry Steinhardt, director of the Technology and Liberty Program for the ACLU, demonstrated a chip being read from two to three feet away at the Computers, Freedom and Privacy conference last week. Because the government had decided not to encrypt data contained on passport chips, the chips exposed passport holders to privacy risks, such as skimming and eavesdropping. Skimming occurs when an intruder with a reading device in the vicinity of the passport holder surreptitiously reads the electronic information on the chip without the passport holder knowing. Eavesdropping occurs when an intruder intercepts data as it is being transmitted from the chip to an authorized reader. It turns out, however, that a solution to prevent skimming and eavesdropping was actually proposed a while ago, but U.S. officials rejected it.

Link here. How RFIDs work – link. ACLU comments on electronic passports to State Department here.

A Wired reader’s thoughts on the matter.

I found the article on the State Department rethinking RFID passports interesting. I am still not impressed with the solution the government has come up with, and will therefore wrap my passport in tinfoil when I get one with an RFID. Why? Because skimming has not been prevented. A person can still sit in an airport and skim the RFID chips of everyone walking by. Maybe they don’t have the key, but how hard will it be to guess it? … In the time it takes you to get your latte on the way to the gate for your international flight, someone sitting at a table sipping their coffee will have all of the information about you that is stored in your passport up on their screen, and you will never know it.

Link here.


Pressured by anti-terror laws, banks will be spending billions of dollars over the next few years on software to counter money laundering. The software will automatically track suspicious financial transactions, but it will also monitor millions of innocuous ones, and may make it harder to cheat on your taxes. Thanks to the stringent requirements of the Patriot Act, enacted after 9/11 to choke the supply of terror funds, and the unambiguous threats of steep fines and even imprisonment of bank directors if their organizations facilitate money laundering, U.S. financial institutions are very enthusiastic about installing anti-money-laundering software. By 2006, 94% of large financial institutions in the U.S. will have installed anti-money-laundering, or AML, technologies, according to Celent Communications.

Already, the U.S. is the global driver of anti-laundering software. And the number of transactions reported to government agencies, like the U.S.’s Financial Crimes Enforcement Network, is growing fast. In 2004, banks reported 14.8 million transactions to FinCEN. “AML software will change international banking forever,” said Suheim Sheikh of SDG Software, an Indian software firm hoping to tap into the big new market. “Governments across the world will have their eyes on bank customers,” he added. “Since the software can monitor so many accounts, so many transactions, all kinds of people will be scrutinized, even those who in theory are just regular people. By default, not just money laundering but anything that violates the law, like tax evasion, will be hard to hide.” As a consequence of AML surveillance, even citizens with no criminal intent or ties will have to become more efficient law abiders, bank officials said. Small breaches of the law, or just indifference, will no longer go unnoticed.

“Chances are that most of the time the software will catch not a money launderer, who is always wary, but a regular person,” said one bank official who did not want to be named. “If you got a fat birthday gift from your brother who works in the Middle East, would you like to get calls from the bank or the government asking for an explanation? In theory, that can happen.” Even small transactions may be flagged as suspicious. Terror funds are known to be small, as the withdrawals and deposits of 9/11 terrorists showed. Being small does not mean being invisible. “Any unexplained deposit will get you calls from the bank or the authorities, and you better have the correct answers,” said Cherian Varghese, chairman of Union Bank of India.

Typically, an anti-laundering system pulls in customer data; classifies each into varying levels of suspicion, from high risk to low; builds patterns of customer behavior; and searches for anomalies within those patterns like sudden surges in funds or huge withdrawals. The software also keeps a lookout for blacklisted names, or “specially designated nationals,” in the parlance of the U.S. government, and takes note of transactions from countries that are perceived to be hostile to the host nation. The software reports suspect transactions and customers to bank officials, who then forward the information to the appropriate government agency, like the FinCEN.

“A good AML software is a very complex tool,” said Hanuman Tripathi, managing director of InfrasoftTech, another of India’s software vendors eagerly eyeing the AML market. “Its job is not to churn out data. Instead, it makes intelligent use of data.” For example, Tripathi said, the software will remember that a customer is a 30-year-old engineer who is paid on the 5th of every month. “It will study the profiles of other engineers in the same age group and build a pattern based on common traits like, say, the monthly periodicity of salary,” said Tripathi. “If another customer comes along, says he is an engineer and receives deposits every week, the software will raise what we call a red flag. He is suspect.”

Link here.

One Wired reader’s thoughts on the matter.

… Oh yeah. I think busting every guy who makes a mistake on his tax return will tax this country’s resources more than can be handled. But you do have a way out of this whole privacy scare: offshore banking.

Link here (scroll down).



Experts in financial topics asserted that the fragility of the economies of the countries of Central America and the Caribbean makes countries from these regions vulnerable to money laundering operations. The statement came from a discussion session between participants in the 26th Meeting of the Caribbean Financial Action Task Force (CFATF) in Guatemala this week. Guatemalan Bank Superintendent Willy Zapata stated no one can deny that nations of the region are vulnerable, but defended them, saying that there is a commitment by governments to fighting money laundering.

Panamanian Bank Superintendent Delia Cardenas stressed that it should be taken into account that globalization makes all countries potentially vulnerable. “The financial system is so divided into regions, that we cannot talk about one single country in particular, but about regional threat,” Cardenas, current CFATF President, pointed out. The meeting, which FATF Resident Director Jean Louis Ford and representatives from the United Nations, the World Bank and the IMF are also attending, analyzes new trends to fight money laundering and other activities.

Link here. U.S. State Department report on money laundering and financial crimes for Panama – link.


The U.S. Department of the Treasury utilized USA PATRIOT Act powers to designate two Latvian financial institutions as “primary money laundering concerns”. Multibanka and VEF Bank were named pursuant to Section 311 of the Act for money laundering activities and financial abuse by account holders and owners. “The Treasury has judiciously and strategically utilized the power of Section 311 to isolate rogue actors that present money laundering concerns and risks to the U.S. financial sector,” said Treasury Secretary John W. Snow. “Our use of this authority also alerts our global counterparts of specific concerns about real threats to the integrity of the international financial system.”

In conjunction with this designation, Treasury’s Financial Crimes Enforcement Network (FinCEN) issued proposed rules that when made final will prohibit U.S. financial institutions from establishing, maintaining, administering or managing any correspondent account in the U.S. for or on behalf of these two banks.

Multibanka is the oldest commercial bank in Latvia and is among the smaller of Latvia’s 23 banks. The Notice of Proposed Rulemaking issued today identifies several reasons for the designation of Multibanka as a primary money laundering concern, among them that Multibanka offers confidential banking services and numbered accounts for non-Latvian customers. Reports substantiate that a significant portion of its business involves wiring money out of the country on behalf of its accountholders.

Link here.


When it comes to dual citizenship, the world is divided: there are countries whose citizenship regulations allow its own citizens the acquisition of another citizenship without loosing their citizenship. On the other hand, there are countries which do not allow the acquisition of another citizenship, i.e. where the acquisition of another citizenship will lead to the loss of the present citizenship. Accordingly, the acquisition of an alternative, second citizenship is only legally possible for citizens of those countries which allow dual citizenship. Note that regulations regarding citizenship are changing in many countries. India, for example, has recently switched from banning dual citizenship to allowing its citizen to acquire another citizenship without loosing their Indian one. The following is an overview of citizenship regulations in selected countries.

The following countries allow the acquisition of another citizenship: Bangladesh, Italy, South Africa*, Brazil, Jordan, Spain (only in certain cases), Canada, Latvia, Sri Lanka, Colombia, Lebanon, Sweden, Cyprus, Lithuania, Switzerland, Egypt, Macedonia, Syria, El Salvador, Malta, Turkey, France, Mexico, U.K., Greece, New Zealand, U.S.A., Hungary, Pakistan*, Western Samoa, Ireland, Portugal, Israel, Serbia and Montenegro, and India. (* Persons retain their former citizenship if they apply to retain their existing citizenship prior to taking out another citizenship.)

Link here.


I am revisiting the impact on Caribbean tourism of the U.S. government requirement that Americans have passports to re-enter the US because the matter is urgent. In just eight months time, on January 1st 2006, U.S. Citizens re-entering the U.S. from the Caribbean must be in possession of a valid U.S. passport. This is an extremely short period in which to prepare. In a nutshell the problem is a significantly reduced number of U.S. visitors to the region, a significantly reduced number of airlines and cruise ships coming to the Caribbean, and a significant reduction in jobs and the amount of money earned from tourism by the region. In other words, it can be catastrophic.

Only 15% of Americans have passports. This means that most US tourists to the Caribbean have been in the habit of travelling to the region mostly on drivers’ licences. The Director of Tourism of Jamaica, Paul Pennicook, confirmed that more than 50% of U.S. visitors to Jamaica in 2004 travelled without a passport. The Tourism authorities in the Bahamas are also aware that US Citizens travel with birth certificates and a government-issued photo identification. Given these realities, it is evident that the requirement for a passport will greatly reduce the number of cruise ship passengers and passengers on airlines who visit the region. Spontaneous travel will be particularly affected.

As the number of people who can travel declines, so too will the number of flights and cruise ships into the region. Neither planes nor cruise ships will fly or sail without an optimum number of passengers, so that even where U.S. persons have passports, their opportunities for travel to the region will be decreased. It requires no great genius to see that if the number of passengers on planes into the Caribbean is reduced by the U.S. government requirement that such passengers should have passports, airlines that are already in financial trouble will reduce flights in to the region. The Caribbean-owned airline industry – BWIA and Air Jamaica in particular – will also face serious difficulties.

While it is understood that it is U.S. concern about its security that is pushing the need for better identification of persons entering the U.S. as U.S. citizens, the U.S. also needs to take account of the high reliance of many Caribbean countries on tourism, and the consequences that a decline would have on their economies and on the U.S. itself. These consequences include higher unemployment, more crime including a vulnerability to aiding drug trafficking to the United States, and higher immigration into the U.S.

Dealing with the problem is urgent and the support of all groups within society should be garnered to help deal with it. But the focus must be in the U.S. itself, and this work should start immediately.

Link here.


The Supreme Court ruled that people who cheat foreign governments of tax revenue can be prosecuted under U.S. law for wire fraud. In a 5-4 decision, the court upheld the fraud convictions for three men accused of sneaking thousands of cases of whisky, vodka and rum into Canada from the U.S. and avoiding millions of dollars in Canadian taxes. Canada did not pursue the trio for tax evasion, but American prosecutors did and the three were sentenced to prison. The U.S. wire fraud law bars the use of interstate wires, such as phones and computers, to carry out “any scheme” to defraud. Justices ruled U.S. prosecutors can use the law to pursue charges when a scheme involves defrauding foreign governments, which are barred from using American courts to collect lost revenues.

“It may seem an odd use of the federal government’s resources to prosecute a U.S. citizen for smuggling cheap liquor into Canada,” Justice Clarence Thomas wrote for the majority. “But the broad language of the wire fraud statute says so.” Chief Justice William Rehnquist was the deciding vote in upholding the convictions. He read filings in the case to get caught up on the issues. Justices John Paul Stevens, Sandra Day O’Connor and Anthony Kennedy also joined the majority opinion.

In a dissent, Justice Ruth Bader Ginsburg argued that U.S. courts have no place enforcing the tax laws of a foreign country, particularly when it chooses not to pursue prosecution. She was joined in her dissent by Justices Stephen Breyer, Antonin Scalia and David Souter. The U.S. government contends two brothers headed an operation that shipped about 40,000 cases of liquor from stores in Maryland to the black market in southern Ontario, from 1996 to 2000, avoiding nearly $6 million in taxes.

Link here.


On December 31, sixteen portions of the USA Patriot Act are set to expire – or, in legal parlance, “sunset”. Currently, Congress is holding hearings on the Act. It is considering, among other issues, whether to amend it to curb the broad surveillance powers the Act bestowed on the federal government. For example, under the Act, the government can now monitor an individual’s web surfing records. It can use roving wiretaps to monitor phone calls made by individuals “proximate” to the primary person being tapped. It can access Internet Service Provider records. And it can even monitor the private records of people involved in legitimate protests.

After September 11, 2001, when the Act was passed, the Executive argued that these broader powers would be used to put terrorists behind bars. In fact, several of the Act’s provisions can be used to gain information about Americans in the context of investigations with no demonstrated link to terrorism. For this reason, I will argue, the Act should be amended. The USA Patriot Act as a whole includes important powers. But as written, the Act goes far beyond its justification: terrorism prevention.

In this column, I will focus on just a few of the Act’s sunsetting provisions – each of which, in my view, should be repealed or, at a minimum, allowed to expire this December. (Section 212, regarding emergency disclosure of consumer records, has been amended by Section 225 of the Homeland Security Act (HSA) of 2002, which is not sunsetting. Accordingly, although I believe this section is very problematic, as I discussed in an earlier column, I will not discuss it here).

Link here.

Senate panel questions Patriot Act uses.

Members of the Senate Select Committee on Intelligence pushed the nation’s top law enforcement and intelligence officials to share more information on the use and effectiveness of the most controversial provisions of the USA Patriot Act. “I think we need to have more public disclosure in examining and assessing its impact,” Sen. Olympia J. Snowe (R-Maine) said. “We are to some extent doing oversight in the dark,” Sen. Ron Wyden (D-Oregon) said.

Members at the sparsely attended hearing told Attorney General Alberto R. Gonzales, FBI Director Robert S. Mueller III and CIA Director Porter J. Goss that the public is not comfortable with roving wiretaps, delayed notification searches and new authorities to obtain the library, credit card and health records of individuals who are not the subject of a criminal investigation but who might be of intelligence value in terrorism probes.

But none of the members at the hearing, one of a series in recent weeks to consider reauthorizing 16 provisions of the act due to expire at year’s end, suggested they were concerned enough to vote against renewing the provisions or making them permanent. “From last week’s hearings, it appears that there’s broad support for the proposition” that the act’s provisions should be made permanent,” with some changes, said Sen. John D. Rockefeller IV (D-W.Va.). Gonzales has proposed some technical modifications. Civil rights groups and politicians, including conservative organizations, have criticized some provisions as lacking enough checks to avoid abuse. Members said their constituents continue to have fundamental questions, as Sen. Barbara A. Mikulski (D-Maryland) put it, about “what agencies within the federal government can, quote, spy, or place American citizens under surveillance … Who does what, when?” It was a question easier asked than answered.

“So can the CIA spy on the American people?” Mikulski asked Gonzales. “The primary responsibility falls upon the Department of Justice, not the CIA.” She tried again: “Can the CIA spy on the American –”. “No,” answered Gonzales, only to be amended later by Mueller.

Link here.

Patriot Act vote key to Feingold’s presidential ambitions.

Russ Feingold is running for president. Not officially, not formally, but he is running. He has begun speaking in the appropriate places, talking to the appropriate people and winking and nodding as his political supporters post advertisements of his availability on the appropriate Web sites. Now, the challenge is to forge the themes that will make it viable. If Feingold is smart – and it should be accepted by now that the man who has beaten political expectations in three U.S. Senate contests is smart – he will maintain his maverick ways. He should not run a campaign that borrows from the failed catalog of policies and platitudes that has diminished and derailed so many previous progressive candidacies for the presidency.

To begin to compete with more prominent and politically connected contenders for the Democratic nomination in 2008, Feingold will need to find new ground on which to stand. He will need to excite the imaginations not just of the circle of liberal Democrats who have already been excited by his anti-war and anti-corporate votes. To do that, he needs to go to his place of greatest strength: the memory of his lonely vote against the Patriot Act. That vote, in the fall of 2001, was supposed to spell his political doom. Instead, it marked Feingold as the most courageous and consistent defender of the Bill of Rights. It is from that position that he should run for the presidency.

America is ripe for a renewal of the commitment to founding principles. Indeed, after eight years of listening to George W. Bush prattle on about human rights and liberty – while undermining both – American voters will be ready for a leader who understands and values the real thing. There is a model for such a campaign playing out right now, in this spring’s campaign against Bush’s closest ally, British Prime Minister Tony Blair. The Liberal Democrats are making freedom a central tenet of their campaign against Labor and the Conservatives, both of which have backed assaults on basic liberties that mirror those implemented by the Bush administration over the past four years. A headline in London’s Guardian newspaper says it all: “Lib Dems to fight on freedom platform”.

In announcing his party’s freedom platform – a series of commitments to protect civil liberties in Britain – Lib Dem leader Charles Kennedy declared, “There is an important division emerging here in British politics – which supercedes the old language of left or right. It is a division between ‘liberal’ and ‘illiberal’; between those whose instinct in dealing with complex problems is authoritarian, and those who seek an effective balance between our rights, responsibilities and security.” The insurgent party leader’s “clarion call for liberty” speech struck a note that has been too long lost from the American political discourse – or what passes for discourse in presidential campaigns.

Link here.


In early March, the New York Times reported on April 7, one girl’s parents “went to the local police station house” in the Queens Village neighborhood because “their daughter … had defied their authority.” Things calmed down and the parents, believing their daughter had been scared straight, asked the NYPD to forget the whole thing. It was too late for that.

Without a warrant, NYPD detectives and federal agents burst into the girl’s home – no wonder they have no time to look for Osama! – where they “searched her belongings and confiscated her computer and the essays that she had written as part of a home schooling program,” say her family. “One essay concerned suicide … [that] asserted that suicide is against Islamic law.” The family is Bangladeshi. They are Muslim. That, coupled with the mere mention of suicide bombing in her essay, was enough to put the fuzz on high alert.

Although she is conservative and devout, the girl and her parents vigorously deny that she is an Islamist extremist (not that such opinions are illegal), but this is post-9/11 America and post-9/11 America is out of its mind. Based solely on an essay written by one of the two, the FBI says both girls are “an imminent threat to the security of the United States based upon evidence that they plan to become suicide bombers.” But the feds admit that they have no evidence to back their suspicions. Nothing. “The arrests took place after authorities decided it would be better to lock up the girls than wait and see if they decided to become terrorists,” a Bush Administration official told the New York Post. The same logic could be used to justify locking up any Muslim, or anyone at all. Heck, maybe that is the idea.

The Bangladeshi girl, who was homeschooled and wears a veil, says she never even met her outgoing and more Americanized “co-conspirator” from Guinea before the cops accused them of plotting to do … something. Maybe. When this story first broke I did not write about it because I assumed that a public outcry would soon lead to its reasonable resolution. Sadly, this has not happened. Homes searched without a warrant, kids thrown in prison for thoughts real and imagined, people’s lives destroyed by an out-of-control federal government – will Americans speak up for what is right? Please call and write your congressman and senator to demand the release of the two girls from Queens.

Link here.


Last week I had a letter from my accountant to say that, like all other accountants, solicitors and bankers, she is now bound by the new Money Laundering Regulations 2003 and the Proceeds of Crime Act 2002. If she suspects that any of her clients are even considering an act of tax evasion (or any criminal offence, such as a breach of health and safety regulations), she must now report this to the National Criminal Intelligence Service or risk being sent to prison for up to five years. Furthermore, it becomes a criminal offence for any accountant, solicitor or banker to tip off their clients even that such a “suspicious transaction report” (STR) has been made.

This marks an astonishing breach in the code of confidentiality which governs the relationship of professional advisers and their clients. The professionals are being forced to act as (unpaid) government informers. What most people caught up in this new legal minefield do not realise is that the Money Laundering Regulations went through parliament under the European Communities Act, to implement EC directive 2001/97. It is alos the EC’s legislation which now makes it impossible to open a bank account without particular proofs of identity.

Certainly it is a twilight world this is leading us all into, as can been seen from the National Criminal Intelligence Service’s website relating to STRs. On the face of it, if you give your solicitor money to put into a client account, he must hold the money back until he has secretly reported it to the NCIS and been given permission to pay it in. But if in the meantime you wish to know what has happened to your money, he will be committing a criminal offence if he tells you. National? Perhaps. Criminal? Probably not. Intelligence? No sign of it. Service? You must be joking.

Link here (scroll down).



The College of Cardinals wisely and swiftly chose precisely the right candidate to continue John Paul’s conservative policies and keep the Mother Church from being torn apart by doctrinal rebellions and geographical or cultural divisions. Ratzinger was John Paul’s closest friend, collaborator and confidant. In effect, he was longtime CEO to John Paul’s chairman. Who better to take the helm of the world’s oldest organization? Any other choice risked being seen by the many Catholics who venerated John Paul as a saint as repudiation or dilution of his policies. The outpouring of emotion over John Paul’s death stunned even the church and made any change of policy unacceptable.

The choice of Ratzinger was wise for another reason. The church’s growth areas are Latin America and Africa, where ardent Catholics abound. The church’s main problem on both continents is the faith being mutated by local cults and customs. In Europe, by contrast, Christianity is withering. So the church’s most urgent task was not to play to robust believers in the Americas or Africa by naming a pope from those regions, but dealing with the crisis of faith in increasingly apostate Europe. It is no coincidence that Cardinal Ratzinger chose the name Benedict, the patron saint of Europe.

As John Paul made clear, it is not Islam that challenges Catholicism but lack of spirituality, the rampant consumerism that has replaced faith, hedonism, the cult of selfish, instant self-satisfaction, and the foolish leftist dogma that men and women are intellectually and emotionally the same. The real issue is not gay priests or Catholic voodoo rites. It is faith. If you want to be Catholic, act like one. Otherwise, join one of those generic drive-in religions where anything goes.

Link here.

True liberalism.

We have already heard a thousand times or more that the new pope is a conservative. As counterintuitive as this may sound, I believe that insofar as the new papacy has implications for economics and politics, it is in the direction of a humane and unifying liberalism. I speak not of liberalism as we know it now, which is bound up with state management and democratic relativism, but liberalism of an older variety that placed it hopes in society, faith, and freedom.

When it was announced that Cardinal Joseph Ratzinger would take the name of Benedict XVI, the question immediately presented itself: Who was Benedict XV and what did he stand for? What does it imply for the future of this papacy that it would consider itself to be, in some sense, a successor papacy to that one? Benedict XV was pope from 1914 to 1922 – the pope who witnessed the age of peace, prosperity and hope turn to one of bloodshed, violence and the total state. He is remembered mostly for his anguished encyclical Ad Beatissimi Apostolorum, which sought to end the conflicts and battles that became what we call World War I, the war that so violently dashed the hopes of many generations of 19th-century classical liberals.

I think in particular of Lord Acton, who exemplified the spirit of his age. The temporal power of the papal power had mercifully come to an end, and at the urging of the liberal wing of the faith. They had placed their hope in the capacity of Christian faith to flourish in the absence of coercion, and in the capacity of the world to continue its progress toward peace and prosperity. It was to be a world of free trade, free thought, and religious orthodoxy. But it was not to be. The vision of liberalism in which they had placed their hopes was dashed, utterly and completely with the carnage of war.

We find it in documents of the Second Vatican Council, the most important event to shape the lives of both John Paul and the German theologian Joseph Ratzinger. This was the council that did not turn its back on religious freedom but rather embraced it more fully with a confidence that the setbacks that followed the end of the temporal power would be temporary. This council looked forward to a world of renewed spiritual and material progress in which a global order of freedom – along with technological advance – would serve all peoples in all places. It was the council that made it the church’s mission to not only care for souls but also for the well being of all societies in which people live and breathe.

At the time the council closed, many conservative Catholics had great doubts about the optimism at the heart of Vatican II, particularly that which motivated the church to embrace the modern world and more clearly define the need for religious freedom and human rights. But today, the wisdom is clearer. Communism and Nazism came and went. The other “isms” that dominated the 20th century seem also to be abating. We again live in times of new hope, similar to the ones that gave birth to the liberal vision of the 19th century.

This is a vision that was warmly embraced by John Paul II, and we can expect a full continuity with that vision under Benedict XVI. The very name of the latter gives us hope that the bloodshed between World War I and the fall of the Berlin Wall need not be our common destiny. Certainly Ratzinger has not contradicted John Paul II’s liberal teachings on economics, which found great merit in the market economy and even condemned European-style welfare states. Ratzinger has written very powerful condemnations of the total state as we know it and decried the way in which the secularist social-managerial project of the overweening state has displaced the Christian vision of unity in faith. Mostly, Ratzinger has written in defense of authentic freedom.

Link here.


The Bush administration is attempting to suppress key data showing that its Global War on Terrorism (or GWOT as government bureaucrats have dubbed it) likely has been counterproductive. According to Larry Johnson, a former CIA analyst and State Department terrorism expert who still has many sources within the intelligence community, Secretary of State Condoleezza Rice’s office is suppressing data showing that the number of major terrorist attacks worldwide exploded from 175 in 2003 to 625 in 2004, the highest number since the Cold War began to wane in 1985. U.S. officials said that when analysts at the National Counterterrorism Center declined the office of the secretary’s invitation to use a methodology that would reduce the number of terrorist attacks, her office terminated publication of the State Department’s annual “Patterns of Global Terrorism” report.

No matter what else George W. Bush does in office, historians will define his presidency primarily by his GWOT, initiated after the terrorist attacks of September 11. Yet the Bush administration is trying to hide important data that might very well lead historians and the American public to conclude that the GWOT has been disastrous for U.S. and global security. Critics have claimed that invading and occupying Iraq – a Muslim country – would inflame a radical Islamic jihad against the U.S. similar to that which afflicted another “infidel” nation – the Soviet Union – when it invaded and occupied Islamic Afghanistan in 1979. Already evidence exists, in the form of signature suicide bombings, that foreign jihadists from all over the world have streamed into Iraq to fight the U.S., much as they swarmed into Soviet-occupied Afghanistan during the 1980s.

The Bush administration has always maintained that drawing Islamic jihadists into Iraq is actually good because the U.S. would be better off fighting them there rather than in the American homeland. Unlike large enemy armies, however, small, agile terrorist groups can stealthily infiltrate all layers of defense and surface in the U.S. homeland. So we may very well have to fight them both in Iraq and at home. Also, the “fighting them there so that we don’t have to fight them here” logic assumes that the number of terrorists is constant. Critics have alleged that the invasion of Iraq has swelled the ranks of terrorists by converting many more fundamentalist Islamists into active warriors. The Bush administration is now suppressing government data that give credence to just that allegation.

Link here.


How inevitable is the continuing expansion of the domestic and international economy? Barring a major war and a major depression, and a policy response that repeats the errors of traditional countercyclical policies, I would say that continued world economic expansion is likely. For an Austrian all too aware of how governments can foil prosperity, that may sound like an optimistic prediction. But consider. With the fall of socialism, the world economy has opened up as never before. New technologies have wrought new efficiencies. Private enterprise has become ever better at mass marketing to the benefit of everyone. The division of labor is expanding internationally. No matter how hard the government continues to try, it just cannot seem to throttle the extraordinary power of the market economy.

And yet we cannot bar every contingency, particularly for the U.S. The economy is not depression-proof. If the government and the Federal Reserve are willing to work hard enough, they can kill off even the most robust economic expansion. From an Austrian perspective, the likely scenario is that the Fed will attempt to forestall recession via credit expansion which distorts production structures and makes the recession even deeper. I seriously doubt that our economic managers have learned enough about economics to avoid this fate. We still must grapple with the problem of the business cycle, which is a feature of the market economy insofar as it is fueled by fiat money managed by a central bank. Let me begin, then, with some background on the Austrian business cycle theory. …

Link here.

A critique of Neoclassical and Austrian monopoly theory.

One of the most controversial areas in Austrian economics, and one where even long-established Austrian theorists differ sharply, is monopoly theory. Indeed, as we shall see below, the differences are not merely semantic, nor are they confined to detail or some minor theoretical implication. Rather, there are major and fundamental disagreements between some of the leading Austrians, and these disagreements are created by wholly different theories concerning the definition of monopoly, the origins of monopoly, and the supposed effects of monopoly on consumer sovereignty and efficient resource allocation.

Link here.


There is a popular television show on FOX called 24. It is about a special agent from an imaginary Counter Terrorism Cell (CTC) who bends the rules to keep America safe from evildoers. Sounds like a show George and Dick might enjoy, right? Before I continue – I am not a 24 junkie. But I do know that each season takes a tour around the clock (24 segments). Every show is presented as a single consecutive hour in the day and night of national security. I watched last Sunday’s episode, and was amazed at its libertarian and anti-state message. It is a great day when one of the most popular TV shows in America might be viewed with appreciation by Thomas Jefferson and H.L. Mencken. Here’s why.

Individualism versus the state, in a hundred ways, in less than an hour. I do not like to recommend TV. I do enjoy Sponge Bob Square Pants, whose advice for his cohort who wishes to take over the world, is honestly and simply, “Good luck with that.” But 24 has real libertarian potential. Enjoy!

Link here.


Does it do all the taking and none of the giving? Has it become increasingly demanding and dependent? Does it refuse to admit being at fault? Does it always insist on being the dominant partner, while refusing to accept its own responsibilities? Does it run up huge bills and stick you with the payments? Is it secretive and evasive about its activities, while denying you your own space and privacy? Does it demand your undivided love, while remaining emotionally distant from you and indifferent to your basic needs?

If you answered yes to all these questions, you have a problem. In fact, you have the same problem every American taxpayer has. What is more, there’s no solution. If you had a spouse that behaved like your government, you could not only break free of the relationship, you might be able to collect damages or even have the offender jailed, or at least ordered to stay away from you. But the cost and inconvenience of divorcing your government is prohibitive. You have to leave your home, move far away, and start a completely new life.

For many people, the problem is aggravated by denial – the need to pretend that everything is all right because many other governments are even worse. They feel guilty if they criticize their own government, which constantly tells them how lucky they are not to be living elsewhere. It is as if an alcoholic, adulterous wife-beater were to keep reminding his wife that she is fortunate he is not O.J. Simpson. The modern state stands ready to release you from all your duties to your own family, while constantly increasing your political obligations. You can divorce your spouse, neglect your parents, abandon or abort your children. But you had better pay your taxes, most of which will be spent for the benefit of people you have never met and have never agreed to support.

Link here.
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