Wealth International, Limited

April 2005 Selected Offshore News Clips

(Especially noteworthy articles’ headings highlighted in gold.)


A U.S.-centric global economy continues to run on fumes. In the developed world, the current recovery has been notable for a lack of organic income growth – the wage earnings derived from productive employment. For Europe and Japan, this income shortfall has restrained domestic consumption – forcing these two economies to rely largely on external demand as their only real source of growth. America has been different: Consumption has boomed even in the face of subpar labor income growth. Can this anomaly persist?

The simple answer, in my view, is not for long. America’s income-short, consumer-led recovery is the aberration – not the norm – in this Brave New World. It is all about ever-declining personal saving rates, ever-widening current account deficits, mounting debt burdens, and increasingly wealth-dependent consumers. It personifies what I believe is one of the most precarious macro models that has ever existed for a major economic power. It is a model that not only puts pressure on future prospects in the U.S. but also underscores the tensions bearing down on the rest of the world. In my view, income-short growth models are not sustainable – the only question pertains to the circumstances of their demise.

Strong words, I realize that. The endgame is not in doubt, in my view. The American consumer will ultimately cave. It is the only means by which the US will ever “fix” its twin saving and current account problems. It is the timing and circumstances of that fix that we endlessly debate. But the clock is ticking – especially now as interest rates and energy prices rise. Yet another in a long string of crummy US labor market reports only serves to underscore the obvious: Excess consumption is on a collision course with subpar labor income growth. Courtesy of an unrelenting global labor arbitrage, the “big squeeze” is getting tighter and tighter on the world’s only real consumer.

Link here.


Want someone else’s Social Security number? It is $35 at www.secret-info.com, or $45 at www.iinfosearch.com, where users can also sign up for a report containing an individual’s credit card charges, as well as an e-mail with other “tips, secrets & spy info!” The Web site Gum-shoes.com promises that “if the information is out there, our licensed investigators can find it.” Although Social Security numbers are one of the most powerful pieces of personal information an identity thief can possess, they remain widely available and inexpensive despite public outcry and the threat of a congressional crackdown after breaches at large information brokers.

Brokers such as ChoicePoint Inc. and LexisNexis have pledged to restrict the availability of such data after personal information on more than 175,000 people was purloined from the two firms by identity thieves posing as legitimate businessmen. So far, neither those moves nor revelations of a series of breaches at major banks and universities has curbed a multi-tiered and sometimes shadowy marketplace of selling and re-selling personal data that is vulnerable to similar fraud.

A simple Internet search yields more than a dozen Web sites offering an array of personal data. Some are run by small data brokers and other re-sellers. Others are run by private investigators, many of whom have complained that recently announced restrictions on the availability of Social Security numbers would hurt their ability to assist law-enforcement, track down deadbeat dads or locate witnesses. Yet with only scant checks to verify whether someone requesting data is legitimate, several sites sell full Social Security numbers, potentially contributing to an epidemic of identity theft or fraud that touched about 10 million Americans in the past year.

No law prohibits the sale of Social Security numbers, but privacy experts and some government agencies have warned for years that the number is over-used and under-protected. Inaugurated in 1936, the nine-digit number was intended to match citizens to the retirement money they would eventually receive. Over time, the number became essential for getting or verifying credit and for employment background checks.

Link here.


Unfazed by the antiwar demonstrations that thronged the streets of London on the eve of war with Iraq, British Prime Minister Tony Blair was more concerned with the Pope’s disapproval as he prepared to meet with the Holy Father. After all, this was the man who had brought down the Soviet empire through the sheer power of his moral authority, and now he was threatening to strangle the emerging Anglo-American imperium in its crib.

“A defeat for humanity” is how John Paul II characterized the Iraq conflict. The Vatican rejected the arguments of neoconservatives, who sought to replace the “just war” theory that had ruled the Church since the time of St. Augustine with their own preemptive war doctrine, a throwback to the pagan era. As Bush and his British poodle prepared to go to war over nonexistent “weapons of mass destruction”, the Pope sent a message to Roman Catholic military chaplains attending a Vatican-sponsored course on humanitarian law expressing the great “comfort” given to him by the antiwar movement, which was taking to the streets in massive numbers: “It should be clear” at this point in human history, he declared, that a “large part of humanity” has rejected war as a means of resolving conflicts between nations. (Self-defense, he averred, is another matter). Hailing the “vast contemporary movement in favor of peace,” the Holy Father backed up his rhetoric with action, calling on Catholics to fast in protest against the coming war and sending a diplomatic mission to Baghdad.

“The Pope? How many divisions has he got?” That is what Joseph Stalin said to French Prime Minister Pierre Laval when the latter suggested conciliating the Vatican by going easy on Roman Catholicism in the Soviet Union. Half a century later, Stalin’s heirs discovered the essential error of Stalin’s thinking on this question as Karol Wojtyla went up against Poland’s Communist overlords and played a key role in the demise of the Soviet empire.

I am glad the Holy Father refrained from taking the advice of the Wall Street Journal editorial page, which opined that it was okay when he exerted his power to thwart the power of the Kremlin, but that it was time to defer to secular authorities when it concerned the U.S. government. But of course the Vatican would not kowtow to any temporal authority, least of all the contemporary equivalent of a Roman emperor with Caligula-esque delusions of grandeur. Spreading “democracy” at gunpoint is not covered in the Catholic scheme of things – and thank God for that.

John Paul II is a unique figure, a giant of a man who towers so high above his critics that to focus on the latter is, in a sense, an injustice. But somebody ought to remind the world of the sins of his detractors (even as today, they praise him, or hold their tongues), and it might as well be me, a sinful unbeliever. The Holy Father defended the Palestinian people, and tried to shield them from the relentless cruelty of their tormentors. He spoke out against the symbolic evil of the “wall of separation”. But as detractor Eli Wiesel ultimately conceded, “He tries now to bring people together – for the honor of humanity, not just Christianity.” Yes, that is why he was against the wall, the Iraq war, the War Party, and earned the respect of many millions – and that is why, in the end, his spirit and cause will prevail.

Link here.


One of the most notorious practices of the ancient world was tax-farming – private collection of alleged tax debts. Private tax collectors were notorious for assaulting citizens, seizing property, destroying homes, and raping women – with little-regard for what taxes were actually due. The Roman historian Livvy wrote, “Where there was a private contractor, there was no effective public law and no freedom for the subjects.” Ultimately, virtually all governments abandoned tax farming not out of compassion for their citizens, but because tax farmers ended up keeping most of the money, and their brutal practices were destroying society and creating utter contempt for the law.

Now President Bush has proposed reviving this reviled practice. In his last budget proposal, Bush recommended that the IRS be allowed to subcontract collection of taxes to collection agencies – you know, those guys who call you in the middle of the night and demand you immediately pay a debt you never heard of before. This proposal destroys the government’s promise that your private tax information would be kept confidential. In this age of epidemic identity theft, the idea of making your tax records available to collection agencies with no real protection for your privacy is truly frightening. In the past, IRS employees who allowed tax records to fall into private hands were routinely sanctioned, fired, and even criminally prosecuted. Now Bush wants to legalize this crime so the government can wring even more money out of you.

Link here.


Whether they are driving through a tunnel or taking a cigarette break, Americans are finding even their most mundane movements captured on video. Since the September 11, 2001, attacks, corporations and government entities have been on the alert for possible security threats, including among previously ignored civilians. And makers of surveillance equipment are cashing in on the growing budgets of the U.S. Department of Homeland Security and its local counterparts. “We’ve become a video camera society, and the market has absolutely been turned upside down,” said global security analyst Scott Greiper of C.E. Unterberg Towbin. “You don’t notice them right away, but you look up and they’re there.”

The surveillance camera market has swelled to between $5 billion and $6 billion from about $2 billion before Sept. 11 – and will grow at 25% a year, Greiper said. While privacy advocates have expressed concern and question the cameras’ effectiveness in deterring crime and terrorism, they also acknowledge that, since the 9-11 attacks, Americans have become increasingly tolerant of having their movements recorded. In fact, an October survey of 1,030 Americans conducted for Tyco International’s ADT Security Services unit found that about 90% approved of the use of security cameras in airports, retail establishments and government buildings.

New technology allows cameras at sensitive federal buildings, major ports and transit hubs to differentiate between people and the objects they carry. If someone leaves a briefcase in an elevator at the Pentagon, for example, the camera will look back to find who left it and send the person’s picture to a guard’s hand-held security device.

Link here.


For all his success in modernizing the tiny principality of Monaco, Prince Rainier III, who died this week at the age of 81, will be best remembered for marrying one of Hollywood’s legends, Grace Kelly. The fairy tale marriage in 1956, soon after the Prince met the star during the filming of Alfred Hitchcock’s Riviera thriller To Catch a Thief, propelled into the headlines a fading Mediterranean gambling resort. The unexpected death of Princess Grace 26 years later in a car accident added a tragic twist to the Monégasque dynastic saga that has continued to provide compelling material for the world’s paparazzi.

But the glamorous shadow of Grace Kelly should not dim Prince Rainier’s achievements in transforming the postage stamp principality into a modern and economically vibrant state. Born in Monaco on May 31 1923, educated in Britain, Switzerland and France, Prince Rainier succeeded his grandfather Prince Louis II in 1949. Before that, he had volunteered for service in the French army in 1944 and took part in the Alsace campaign.

For generations Monaco, and its gambling center, Monte Carlo, was seen, in W. Somerset Maugham’s words, as a “sunny place for shady people”. From the beginning of Prince Rainier’s reign of more than half a century – he was the longest ruling European monarch of his time – he set about trying to change Monaco’s dubious image and adapt it to a fast changing 20th-century world. At the end of the 19th century, gambling and the principality’s belle époque casino accounted for 95% of the state’s annual revenues. Now the casino is owned by the Société des Bains de Mer and gambling accounts for 5% of Monaco’s income.

The tourist business changed from what was once a winter resort into a year-round destination. The Prince also encouraged expansion into services and banking. But more than anything else, he sought to cut the principality loose from its territorial constraints by launching ambitious projects that earned him the nickname “the builder Prince”. Resorting to land-filling and grabbing bites from the sea, he managed to expand Monaco by 23%. In spite of his efforts to ensure a balance, the principality has paid a price with a characterless skyline of high-rise blocks – a mini Mediterranean Manhattan. The principality’s “tax efficient” system, as it coyly likes to describe its tax haven status for all but French nationals, has brought both benefits and problems.

Prince Albert is expected to pursue his father’s task of ensuring Monaco’s continued prosperity. It will be a hard act to follow. Anachronism or no, Monaco cannot escape the caricature of the man who broke the bank of Monte Carlo. Prince Rainier did his best, but never quite succeeded.

Link here.


Along with several other radical organizations, the European-based Tax Justice Network hosted a Capitol Hill briefing on “Offshore Tax Evasion”. Members of the Coalition for Tax Competition commented on the biased briefing and asked important questions that almost surely will not be addressed by any of the participating organizations.

Andrew Quinlan, the president of the Center for Freedom and Prosperity Foundation, remarked, “The organizations participating in today’s one-sided briefing are defending the statist policies of France and Germany. These same groups have contempt for America’s commitment to free markets and individual responsibility – an approach these left-wing groups sneeringly refer to as the ‘Anglo-Saxon’ economic model.” Quinlan added, “Do these organizations really think that nations should return to the days of 70% tax rates and the other growth-destroying fiscal policies that existed before tax competition forced governments to behave more responsibly?”

Veronique de Rugy, research fellow at the American Enterprise Institute, added, “The Tax Justice Network assumes that low-tax nations have an obligation to enforce the bad tax laws of high-tax nations. This assault on sovereignty is disturbing, particularly since it is an effort to promote the interests of relatively wealthy white nations like France and Germany at the expense of low-tax jurisdictions. ... [I]f they believe that nations have an obligation to always enforce each other’s laws, does this mean they want to extradite Tiananmen Square protesters back to China? Would they have sent women seeking a college education back to the Taliban?”

It is also safe to assume that the participants will not address the fact that so-called tax havens are platforms for investment in the U.S. economy. Caribbean jurisdictions, for instance, invest more than $1 trillion in America according to the Treasury Department. It is also likely that participants will ignore the vital role of tax competition in promoting the flat tax reforms in Eastern Europe. These sins of omission are not a surprise since, as Mr. Quinlan notes, “The Tax Justice Network is a hard-left organization trying to prop up Europe’s inefficient welfare states.”

Link here.


A government plan to embed U.S. passports with radio frequency chips starting this summer is being met by resistance from travel and privacy groups who say the technology is untested and could create a security risk for travelers. The embedded chips are designed to make passports work more like employee ID cards that can be passed over an electronic reader to gain access to a building. State Department officials said the new technology, commonly known as radio frequency identification (RFID), would allow customs agents to quickly process passengers at airports and borders. The passports are to be issued to diplomats starting in August, and then the program would expand to applicants for new passports over the next year.

State Department officials said the chips are part of a global effort to prevent passport fraud. Each chip will contain a digital record of all information printed on the passport, including the holder’s name and document number. The chip will also contain the passport holder’s photograph, enhanced by facial recognition technology. That way, even if the paper passport is altered, customs agents would be able to compare the information on the chip with the person presenting it.

Groups representing travel-related businesses and privacy advocates say the high-tech chips would do more harm than good. Each chip has a built-in miniature antenna that uses radio waves to transmit information to a machine reader. Critics contend that terrorists or thieves could use hand-held chip readers to identify U.S. citizens, even on a crowded street, anywhere they travel. Such readers are available for $500 to several thousand dollars, depending on the level of sophistication. “If you’re walking around in Beirut, it would be well worth Al Qaeda’s money to use one of these readers to pick out the Americans from the Swedes without any problem,” said Barry Steinhardt, director of the ACLU’s technology and liberty program.

Link here. The The State Department wants to turn all U.S. passports into terrorist beacons – home page for campaign against RFID chips in passports here.


For the past 40 years or so of Gore Vidal’s prolific 59-year literary career, his great project has been the telling of the American story from the country’s inception to the present day, unencumbered by the court historian’s task of making America’s leaders look like good guys at every turn. The saga has unfolded in two ways: through Vidal’s series of seven historical novels, beginning with Washington DC in 1967 and concluding with The Golden Age in 2000; and through his ceaseless essay writing and public appearances across the years. Starting around 1970, Vidal began to offer up his own annual State of the Union message, in magazines and on the talk circuit. His words were always well-chosen, provocative, and contentious. “There is not one human problem that could not be solved,” he told an interviewer in 1972, “if people would simply do as I advise.”

These days Vidal, who has moved full-time to his home in Los Angeles, speaks mostly through his essay writing about the foreign and stateside adventures of the Bush administration. In the past five years he has published one major nonfiction collection, The Last Empire, and a book about the founding fathers called Inventing a Nation: Washington, Adams, Jefferson. But mainly he has stayed busy producing what he calls his “political pamphlets”, a series of short essay collections called Perpetual War for Perpetual Peace: How We Got to Be So Hated (2002), Dreaming War: Blood for Oil and the Cheney-Bush Junta (2003), and Imperial America: Reflections on the United States of Amnesia (2004). Last month at Duke University, he produced a short run of On the March to the Sea, an older play about the Civil War that he has rewritten entirely. I spoke to Vidal, who will turn 80 this October, by phone March 9.

Link here.


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

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

Link here.


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

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

Link here.

In case of possible ID theft, take immediate action:

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

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

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

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


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

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

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

Link here.


Double-check those returns: After years of decline, there are strong signs that the IRS is making a comeback in its enforcement efforts. After 1996, tax enforcement saw a serious decline. By 2000, the number of individual audits had fallen to 618,000, down two-thirds from the 1996 figure of 1.92 million. The number has been edging up since then, to just over 1 million in 2004 – still half of the 1996 number, but much higher than four years earlier. For high-income audits, the comeback is more complete. In 1996, the IRS conducted 210,000. That number fell to 100,000 in 2000 and dropped even further by 2001. Since then, high-income audits have been on the rise and stood at 195,000 in 2004. However, more audits are so-called correspondence audits, rather than the more rigorous face-to-face meetings.

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

Link here.


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

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

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

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

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

Link here.


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

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

Link here.


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

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

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

Link here.


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

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

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

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

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

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

Link here.


What does the phrase “tax justice” mean? A definition is important because some groups claim to favor “tax justice” but really want to increase taxes on productive people and transfer resources to the state. Webster’s, in part, defines justice as “the assignment of merited rewards or punishments”. There is an organization called the “Tax Justice Network”. Many of its leaders are, or have been, associated with the Fabian socialists in Britain and other socialist groups around the world. Yet, this group just held a “briefing” for members of the U.S. Congress and their staffs. The organization strongly opposes tax competition between governments and has a “manifesto for tax justice”, with the underlying goal of increasing global tax revenue.

Virtually every serious study of global taxation has concluded tax rates in almost all countries are above the welfare and revenue-maximizing rates, and that the size of government in most countries is well above the growth-maximizing level. Thus, how can increasing government tax revenue be “just” if it is likely to do more harm than good in most places? The authors of the “tax justice manifesto” aim “to eliminate cross-border tax evasion and limit the scope for tax avoidance, so that large corporations and wealthy individuals pay tax in line with their ability to do so.” (Shades of “From each according to his ability, to each according to his need.”) They also want to increase corporate tax rates worldwide and taxes on the “wealthy” as part of their antitax competition and tax harmonization proposals.

Reading through their program, one becomes curious about how little they seem to know of real world economics and how little regard they have for individual liberty. Among other proposals, the authors of the manifesto want to “prevent the further privatization and degradation of public services.” Somehow, these self-proclaimed “tax justice” advocates miss the undeniable fact socialism has failed almost everywhere tried. Despite the high-sounding rhetoric, the Tax Justice Network is only a collection of socialist-no-nothings – or worse – whose policies, if enacted, would destroy economic growth, financial privacy, civil society and individual liberty.

Link here.


After building a long-distance phone business in the early days of Washington’s telecom frenzy, Walter C. Anderson did something unusual: He all but gave the company away. On the verge of a deal that would pay Mid Atlantic Telecom Inc. shareholders about $6.7 million, Anderson transferred his controlling interest to a company called Gold & Appel Transfer SA, based in a Caribbean tax haven. When Mid Atlantic was sold, it was Gold & Appel that reaped the gain.

Prosecutors now allege that the 1992 transfer was one of the first steps in a long-running scheme to cloud ownership of Anderson’s assets and escape taxes. All told, the government alleges, Anderson hid more than $450 million in offshore companies such as Gold & Appel. From 1995 through 1999, prosecutors allege, he dodged more than $200 million in personal income taxes in what they describe as the largest individual tax evasion case in U.S. history. Anderson has pleaded not guilty and said in an interview shortly after his arrest that the assets he controlled in offshore holding companies were to benefit a Panamanian foundation he created to advance human rights, arms control, family planning and the development of space.

In ordering Anderson, 51, held without bail last month, a federal judge cited his “considerable experience in conducting business abroad and moving money and assets across borders without detection.” In fact, Anderson left an extensive paper trail. Whether he was bidding on art at Christie’s, investing in telecom companies during the market bubble, attempting to privatize the Mir space station or paying a former girlfriend $2 million for the rights to water on a farm her family owned in Brazil, Anderson had millions of dollars at his disposal. However, it was often unclear where ultimate ownership or control of the assets rested. A tax-exempt private foundation he created and presided over in the United States became entwined in his business affairs in a variety of ways, using (and ultimately losing) some of its assets as collateral for an Anderson loan, funding research that could support Anderson’s profit-making designs on Mir, and lending money to Gold & Appel, which Anderson controlled.

Transactions at the heart of the prosecutors’ case appeared in the public record and attracted suspicion in the business arena long ago, evidence of how hard it can be for the government to determine whether sophisticated and successful people are paying their share of taxes. “The story underneath it that is so shocking is how long it has taken IRS to get its act together and make the case,” said Washington lawyer Jack A. Blum, an expert on international taxation and money laundering who believes that many Americans use foreign havens to evade taxes. “If anybody looked at the paper trail and put the pieces together, used some common sense, he would have been up on the front burner a long time ago. Why it took so long and why the system can’t produce a result in a reasonable amount of time is utterly beyond me,” Blum said. “What in the hell are they going to do about all the other guys who are doing this who haven’t been quite as flamboyant?”

The IRS’s chief of criminal investigation, Nancy J. Jardini, said such criticism is unfair considering, in Anderson’s case, the sophistication brought to bear in trying to obscure the ownership of funds. The IRS is keeping up with tax evaders and has over the past couple of years “really started to extend our enforcement operations to be much, much more international,” Jardini said. The agency now conducts undercover operations in foreign countries, “something that we did not do previously,” she said. But generally speaking, she said, “in those cases where we have to start from ground zero and attempt to construct a financial history of these individuals and trace these funds and trace the nominee names and trace the layered transactions, that is a very tedious time-intensive effort and it can take years.”

Link here.


It was not too long ago that, for me, life was a hum drum “status quo” existence which was far underperforming my own personal expectations of what I had envisioned for myself in my youth. How many of us feel “trapped”, or at best “limited” by life and how we have positioned ourselves in it? Of course as much as we try to look elsewhere for causes, we only have ourselves to blame. That was the war cry for me. “I” was the only one who had the power to change it and I did. The life of international travel had always appealed to me. Exploring other lands, people, cultures, cuisine and philosophies was always intriguing and seemed exotic for this country boy from Minnesota.

My studies (well into my adulthood) took me to writers like W.G. Hill (Perpetual Traveler), Adrian Day, Ayn Rand, Marshall Langer (The Passport Report), Peter Trevellian (The Invisible Investor) and many others who knew too well the dangers of being ‘stuck in the mud’ with nothing but your native domicile. History is all too blunt to show us the suffering that has been imposed on “homebodies” who never had the foresight or vision to ‘diversify’ their interests and assets for their own well being. Now you might be asking yourself, “what assets?” Believe me, you have plenty to protect above and beyond any cash, businesses or holdings of tangible value. You have assets such as your “domicile” legal status, business base, citizenship, banking & finance center, and more.

The objective for me had been set: I was determined to achieve the “PT” lifestyle. For those familiar with W.G. Hill and Harry Schultz, you would relate to “PT” as being something along the lines of a, “Perpetual Traveler”, a “Previous Taxpayer”, a “Permanent Tourist”. I will not recap his wonderful book here, but the idea is simple. As a “PT” you always appear to be from somewhere else!

Have you ever noticed that “tourists” are always handled with extra special TLC from the host government? It’s true. They want the tourism profits, the good image and they want you to come back again with your friends next time. Often, they will overlook slight indiscretions in favor of this mantra and you go on your merry way. Further, if you understand commercial law and how your local State Department of Motor Vehicles ties you into their corporate body politic to extract revenue, subservience and ultimate control over your person and your property, you would understand that the regulatory code they use for this tyranny is applied by the jurisdictional clauses in the statutes which are applied against: “residents” and “persons engaged in business(commerce)” in their jurisdiction.

I left my old country of domicile (It felt like a prison escape!) seeking business and ways to support myself along the way as I was not wealthy nor even close to retirement and had no certain income. I knew a business structure was important and so was properly structuring the banking. Now was my chance to implement the “5 flag philosophy” I learned from W.G. Hill.

Link here.


Located in the Balkan Mountains in South Eastern Europe, one of Europe’s poorest countries is now in a period of transition with major investment helping its economic growth with predicted membership to the EU on course for 2007. The Republic of Bulgaria covers an area of 110,910 square miles with a population of over 7 million. It boasts 354 kilometers of dramatic coastline along the non-tidal Black Sea. Its tourist industry is flourishing as people flock to the clear waters of the Black Sea and temperatures that beat the Mediterranean in the summer months.

Interest in Bulgaria has been growing rapidly as investors look for the next “big thing”. The country is on course to enter the EU in 2007 and as a result money to develop its banks, telecommunications and transport is being splashed around. New Embassies, offices, conference centres, hotels and motorways are being built and international firms are moving to the capital Sofia. In short Bulgaria offers an almost unrivalled quality of life and investment opportunity.

Link here.


Was I in Miami or Central America? Weaving through the streets of picturesque Bella Vista in downtown Panama City, Elias Mizrachi of Procasa Realty was chatting me up about ocean views and tax benefits… I was staring out the window in the back of his BMW sedan at a city that seemed to have grown up since I was last there. What a fantastic time to buy in Panama City. Two weeks before I had been bit by the bug again … so I booked my flight, contacted some developers, and headed down for a long weekend. I kept quiet this time; I hate getting the obvious question – “Why are you going there?” I made a tentative itinerary to meet with two developers of new condo projects and another developer who specializes in the renovation of colonial quarter residences … fairly ambitious for a short trip, but worth the rush.

Real estate is booming in Panama. Rich Latin Americans as well as baby boomers from the States are buying up condos in Panama City. Like all cities, Panama is running out of land to develop within the city limits. Moreover, the Panamanian government passed a favorable tax law that exempts owners from paying property taxes for 20-years if they purchase a development constructed in 2005. Consequently, every major developer in the city is trying to squeeze a condo project anywhere they can find space.

Panama City is a growing town. The new casino business is booming, the banking sector is as strong as ever, the Canal is – as ever – a tremendous revenue source, tourism is on the way up, and foreign capital is flowing into the country. I saw far more Americans on this trip than the last. Panama is entering the mainstream. As baby boomers retire and seek to extend the purchasing power of their dollar, Panama will inevitably be high on the list. There is no currency fluctuation (Panama is on the dollar), the weather is as warm as the people, you can fly anywhere in the world (direct flights to several cities in the U.S., Latin America, and Europe), the shopping is as extensive as most major western cities, and the cost of living is very low. I determined that, with an income of $2000 monthly, one could live exceptionally well in this beautiful, modern city (the average Panamanian makes significantly less than $10,000 annually).

Link here.


A plan to force banks into disclosing hundreds of millions of wire transfers to help fight terrorist financing would overwhelm bankers and regulators and add questionable value to the war on terrorism, experts and officials say. The proposal is being studied by the U.S. Treasury and would grant the government unprecedented access to banking records. Banks wire more than $6 trillion across the globe each day, the bulk of it in and out of the U.S. While counterterrorism officials are eager to tap into this mother lode of financial information, some officials, bankers and experts question whether authorities can actually glean pertinent information from the flood of data, while protecting the privacy of banking clients.

“The big provisos are whether that data can be obtained in a cost-effective way that doesn't overburden the private sector, doesn’t choke the government, and in a way that it can be ... used without running roughshod over privacy and civil liberties concerns,” said Joseph Myers, a former National Security Council official under President Bush. One current counterterrorism official said, “With a billion additional reported transactions a day, yo’qre just increasing the amount of hay in the haystack. You’re not getting any closer to finding the needle.” Many officials and experts, including Myers, say wire transfers might contain useful information to track down terrorists and believe the idea of reporting some of those flows merits study, as long as the challenges are clear.

A sweeping intelligence bill passed by the U.S. Congress in December to overhaul the U.S. spy community called on the Treasury to study whether the proposal was useful and feasible. A Treasury spokeswoman said, “Information collected from certain cross-border wire transfers could be incredibly valuable to our efforts to starve terrorists of funding.” Douglas Greenburg, who co-authored the Sept. 11 Commission’s landmark report on terrorism financing, pointed to Abdul Aziz Ali, a facilitator of the Sept. 11 plot who wired an estimated $120,000 from Dubai to the hijackers in the U.S. “If the government had a database they could search through by name to find what wire transfers he’s made, where and to whom, that could be extraordinarily useful,” Greenburg said.

Link here.


Seth Klarman is a value investor who has seemingly mastered the craft. Not only are his results strong – his Baupost partnerships have averaged returns of nearly 20% annually since their inception in 1983 – but he is also a graceful writer whose brilliance shines through in his annual letters to shareholders. Klarman stays out of the limelight and most investors have probably never heard of him. His annual letters are not widely distributed a la Berkshire Hathaway’s, and though he wrote a terrific book called Margin of Safety in 1991, it has long been out of print and is exceedingly rare (commanding prices north of $300). I was able to read his book for this issue, thanks to the kindness of a friend who loaned me a copy, and I also have his 2004 letter to shareholders. I would like to share with you some of Klarman’s insights.

Klarman’s own investment activities are shrouded in secrecy and his positions are not disclosed even in his letter. Categorically, he discloses the amounts he has invested in various asset classes. And one can see right away that Baupost is no run-of-the-mill value outfit. Baupost’s partnerships hold a wide array of investments. Their positions range from fairly traditional value stocks to more esoteric investments like distressed debt, liquidations, and foreign equities or bonds. Cash balances averaged 50% in 2004, reflecting Klarman’s inability to find what he considers reasonable values. “We are not seeking perfection in our investments,” he explains, “just acceptable return prospects for the risk incurred.” Klarman does not mind “doing nothing” on occasion. He is completely unperturbed by the idea of sitting on the sidelines holding cash whenever investment opportunities are scarce, though he recognizes that by doing so, his clients may be forced to accept lower returns. But Klarman is unrepentant about his recent inactivity. “Investors,” he observes, “confuse decisions with diligence, activity with insight, and a fully invested posture with a worthwhile portfolio.”

Investing, he cautions, is more than just producing absolute returns. Too often investors focus on that one easy number – return – and ignore the risks incurred to generate that number. Certainly, a 20% annual gain in a conservative value stock is a much better result than the same return generated by “naked” options trading. Part of the reason why investors focus so simplistically on return, Klarman thinks, is that risks are so hard to quantify. Some investors buy gold, for example, as a means of avoiding risk. But during some periods of time, owning gold can FEEL far riskier than owning tech stocks.

Also, Klarman feels that few investors are able to maintain a truly long-term focus and that the psychological pressure to generate near-term returns is great. We have all fallen victim to this, watching over our stocks, checking in on them several times a day. Klarman reminds us: “What matters is not who performs best during sequential short-term intervals, but the attainment of a successful long-term, risk-adjusted, cumulative result.” Returns are deceptive too, because some portion of it may be due to luck or short-term factors. Remember when Internet funds posted triple-digit annual returns?

The underlying methodology is a more important indicator of long-term success than the returns themselves. As Klarman writes, short-term results often belie the “absence of an investment philosophy that would suggest any replicability of results.” What does it take to succeed as an investor? According to Klarman, “analytical rigor, intellectual honesty, resolve, humility, sound judgment and a contrarian instinct.” Klarman also shares our preference for tangible assets. He writes in his book, “The problem with intangible assets, I believe, is that they hold little or no margin of safety. … Tangible assets, by contrast, are more precisely valued and therefore provide investors with greater protection from loss.”

Link here.


It is widely believed that the Chinese are eating our lunch. Their factories hum and belch smoke, while ours go silent and send up weeds in the parking lot. This phenomenon is commonly called “globalization”. But it is also commonly misunderstood. In the reverie of modern Americans, globalization means the rest of the world sends you things you do not have to pay for.

The world has been globalized for a long time. An Englishman in 1910 could sit in his parlor off St. James Park and drink tea that came all the way from Ceylon in cups that came all the way from China. Then, putting down his drink, he could pick up a Cuban cigar, put it to his lips … and perhaps sprinkle a few ashes on the carpet that he had bought in Egypt … or the leather boots he had ordered from a shop down the street that sold Italian goods. Globalization is nothing more than the extension of the division of labor across international boundaries.

There are really only two ways to get what you want in life. You can do so honestly, or dishonestly. You can get it by working for it, or by stealing it. You can get rich by “economic means” or by “political means”, as the great German sociologist, Franz Oppenheimer put it. Globalization is merely an elaboration of the economic means of getting things. It requires civilized relationships to make it work. People have to get along with each other in order to trade. They must rely on others – even other people in strange, faraway places – for their daily bread. They must also be able to count on the medium of exchange that they trade goods and services in. If they cannot trust the money, they are not likely to want to do business.

In 1914 a European war disturbed nearly 100 years of peace and progress. People thought the war could not happen. And if it did happen, they said, it would be short and sweet. They were wrong on both points. Globalization had entered a shrinking phase. Then, on April 2, 1917, Woodrow Wilson stood before Congress and announced that the world’s biggest economy was about to shift to “political means” to get what it wanted. Instead of merely doing business with the Entente powers, America, too, was going to get involved in killing people. This day marked not only another big setback for globalization … it also establishes a frontier for where one empire ended and another began. Britain ceased being the world’s hegemonic imperial power. Henceforth, the United States was the cock of the walk.

There are times when civilization goes forward. And there are times when it goes in the other direction. Woodrow Wilson slammed the United States into reverse in 1917. It has been backing up ever since, in the sense that Americans rely more on force and fraud to get what they want. Gun-toting soldiers now defend America’s many supposed interests all over the world – even in places where America seems to have no interests. The U.S. government takes far more of its citizens’ money than it did in 1917 … and provides detailed instructions to Americans on such a wide variety of matters that one can scarcely toss a chicken out the window or blow up an outhouse without asking permission of the authorities.

But while the U.S. Empire was growing, so was world trade. In the free world until 1989, and now almost everywhere, a “pax dollarum” greatly aided the cause of globalization throughout the second half of the 20th century. But this new globalized commerce has a fraudulent side to it. The hegemonic power is using political means, even while it shops. During the last big boost in the division of labor, in the 19th century up until 1914, the money in which transactions were calibrated was backed by gold. No country – not even an imperial one – could cheat. The dollar, on the other hand, is merely a piece of paper, backed by nothing more than the full faith and credit of the U.S. treasury. How good a promise is that? No one knows for sure.

The odd thing about the spurt of globalization in the last five years is that it is so lopsided. The U.S. takes – but does not give, borrows – but does not pay back, buys – but does not sell, imports – but does not export. The only reason foreigners put up with those shenanigans is because they receive paper currency in payment. They assume their dollars will be as valuable in the future as they are now. They assume that someone, somewhere, has the situation under control. And yet, “If the private market – which knows that with high probability the dollar is going down someday – decides that that someday has come and that the dollar is going down now,” writes Brad DeLong, “then all the Asian central banks in the world cannot stop it.” What will happen when the world figures out that the U.S. is pulling a fast one? We don’t know. But like the period following the sinking of the Lusitania, we are sure it will make the history books.

Link here.


The recent implosion of the global equity markets in 1999-2002 – from Hong Kong to New York – engendered yet another round of the semi-eternal debate: should central banks contemplate abrupt adjustments in the prices of assets – such as stocks or real estate – as they do changes in the consumer price indices? Are asset bubbles indeed inflationary and their bursting deflationary? Central bankers counter that it is hard to tell a bubble until it bursts and that market intervention bring about that which it is intended to prevent. There is insufficient historical data, they reprimand errant scholars who insist otherwise. This is disingenuous. Ponzi and pyramid schemes have been a fixture of Western civilization at least since the middle Renaissance.

Assets tend to accumulate in “asset stocks”. Residences built in the 19th century still serve their purpose today. The quantity of new assets created at any given period is, inevitably, negligible compared to the stock of the same class of assets accumulated over decades and, sometimes, centuries. This is why the prices of assets are not anchored – they are only loosely connected to their production costs or even to their replacement value. Asset bubbles are not the exclusive domain of stock exchanges and shares. “Real” assets include land and the property built on it, machinery, and other tangibles. “Financial” assets include anything that stores value and can serve as means of exchange – from cash to securities. Even tulip bulbs will do.

In 1634, in what later came to be known as “tulipmania”, tulip bulbs were traded in a special marketplace in Amsterdam, the scene of a rabid speculative frenzy. Some rare black tulip bulbs changed hands for the price of a big mansion house. For four feverish years it seemed like the craze would last forever. But the bubble burst in 1637. In a matter of a few days, the price of tulip bulbs was slashed by 96%! Uniquely, tulipmania was not an organized scam with an identifiable group of movers and shakers, which controlled and directed it. Nor has anyone made explicit promises to investors regarding guaranteed future profits. The hysteria was evenly distributed and fed on itself. Subsequent investment fiddles were different, though. Modern dodges entangle a large number of victims. Their size and all-pervasiveness sometimes threaten the national economy and the very fabric of society and incur grave political and social costs.

Link here.


Shares in a high-flying penny stock called Ionatron Inc. had been climbing for months on a steady flow of press releases about the company’s opportunities at the sword’s point of high technology in the post-9/11 world of homeland defense. Then suddenly, on March 18, with Ionatron’s shares having climbed to a high of $10.41, the company’s stock was hit with an avalanche of insider selling, as more than 50 Wall Streeters privy to Ionatron’s innermost secrets bailed out of nearly every share of stock they held, knocking more than 30% off the price in the days that followed.

Another cautionary tale from the pump-and-dump annals of the penny stock market? In fact, it is a lot more than that, for behind last month’s bailout at Arizona-based Ionatron lies an astonishing tale of taxpayer-financed intrigue on capitalism’s street of dreams. In reality, nearly every one of the more than four dozen insiders who dumped their Ionatron shares on March 18 have now been identified by The Post as employees of a secretive, Arlington, Virginia, investment group that is owned, operated and financed out of the black box budget of the C.I.A. The group, which calls itself a “venture capital fund”, and goes by the name of In-Q-Tel Inc., was set up in 1999 by the C.I.A’s then-director, George Tenet. His idea: that by investing in promising young companies in digital technology, the fund would be able to keep the agency abreast of developments in this fast-changing world while they were still on the drawing boards.

Whether Tenet was troubled by the many worrisome consequences of allowing the C.I.A. to become a force on Wall Street, he clearly saw at least one problem with the approach, and sought to address it by setting up the fund as a not-for-profit corporation – in this way presumably sanitizing it from any suspicion that employees of the spy agency might be using it to speculate with taxpayer money for their own personal benefit. Nonetheless, a review of various financial documents filed at the S.E.C. reveals at least three public companies in which the C.I.A.-backed fund has taken major equity positions. And in each of the three cases, the fund’s employees were able to stage an end-run around In-Q-Tel’s not-for-profit legal status and benefit personally from the fund’s investments.

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.


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.


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.


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.


The U.S. is not Argentina. Real wages in this country are not 20% lower than they were seven years ago, goods imported from Europe do not cost more than four times as they did then and 40 percent of the population is not living in poverty. Still, there are some disturbing parallels between the U.S. of today and the Argentina of the 1990s when the country was living well beyond its means, borrowing abroad to finance large budget and current account deficits, while government leaders ignored the urgent need for more prudent fiscal policies. And in the final pages of a new book that tells in exquisite and chilling detail the Argentine story of borrowing, boom and bust, Washington Post financial reporter Paul Blustein notes some of those parallels in terms of large foreign borrowing and the possibility of a shock associated with a reduction in such flows. “It could happen here,” Blustein writes in And the Money Kept Rolling In (And Out).

“Americans who give Argentina’s story fair consideration and conclude otherwise are deluding themselves. The risks are much lower for the United States than they were for Argentina, but they are unacceptably high. The words of Miguel Kiguel, Argentina’s former finance undersecretary, are apropos: ‘Once you know the markets are there, and there is financing, you behave as if financing will be there forever.’ The United States has shown every sign of having adopted that same cavalier, incautious attitude in the first few years of the twenty-first century,” Blustein says.

Argentina had its spree and since the end of 2001 has paid a horrendous price for its folly. It had borrowed in dollars and had not nearly enough to repay its exploding debt when foreign investors shut off the flow of new money. There has been no similar day of reckoning yet for the U.S., and the eventual price to be paid is unknown. It should not be on a scale vaguely comparable with that of Argentina’s, though it may be uncomfortably large.

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.


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.
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