Wealth International, Limited

Offshore News Digest for Week of May 30, 2005

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France decisively rejected a Constitution for Europe on Sunday, plunging the country into political disarray and jeopardizing the cause of European unity. The victory for the no vote – 55% to 45% – came in a nationwide referendum on the EU constitution after a bruising campaign that divided France and alarmed Europe. Foreshadowed in recent polls, the no vote could doom the 448-article treaty because all 25 members of the European Union must ratify it to take effect. The rejection could signal an abrupt halt to the expansion and unification of Europe, a process that has been met with growing disillusionment among the wealthier EU members as needier countries like Bulgaria and Poland have negotiated their entry.

The vote, which made France the first country to reject the treaty, has deeply wounded French president Jacques Chirac. More than 50 years ago, France was a founding member of the six-country precursor to the current European Union. Mr. Chirac had assumed that through the constitution, a document similar to the Constitution that binds the U.S. – France could promote a stronger, more unified Europe that could project not only economic but also political power around the world. He repeatedly spoke of a “multipolar world” with Europe as one of the poles capable of counter-balancing the United States.

After the vote, there were calls among some of the most extreme opponents of the constitution for Mr. Chirac to resign. About 70% of France’s registered 41.8 million voters voted, a high turnout on a Sunday that was also Mother’s Day here. Throughout the day in Paris, electronic billboards all across town said, “Don’t let the others decide for you. Go vote.” France’s no vote is the first rejection of the EU constitution by one of its members and follows ratification by nine members. The rejection also makes it more likely that the Netherlands, where polls show that 60% of voters plan to reject the constitution, will vote no in the referendum there on Wednesday.

The referendum polarized France, with extremes of both the left and the right aligning in the no bloc and the center-right in the yes camp. The Socialist Party was badly fractured. The schism was borne out in and around Paris, where wealthy neighborhoods seemed to vote yes, while poor neighborhoods voted no. At the polling place at the Karl Marx primary school in downtown Bobigny, a working-class suburb of Paris, there was no sense that Europe’s future hinged on the constitution. With 18% unemployment and a large ethnic Arab and African population, 72% of the voters there said no. Bernard Birsinger, the suburb’s Communist mayor, accused Mr. Chirac of fear-mongering and dissembling when he predicted political and economic doom for France if the country rejected the constitution. “We are already in a Europe of unemployment and regression,” said Mr. Birsinger, adding, “We know that the destiny of France is not threatened.” For him, this was a moment to say no to authority, just as the French did in the 1789 revolution. “Happily, certain people rose up and said no. They didn’t ask the king for permission to make a revolution.”

Links here, here, and here.

Will French rebuff influence Swiss voters?

Swiss discussions on France’s “no” to the European constitution have centered on how this might shape this Sunday’s vote on the Schengen/Dublin accords. Proponents of justice and asylum cooperation with the European Union stress the advantages of the bilateral approach, while opponents hope the French rejection will tip the scales in their favor. The views range from seeing the French “no” as bolstering the case against closer ties with the EU or having no effect whatsoever on the public’s voting intentions. Swiss Finance Minister Hans-Rudolf Merz was among the political players who welcomed the news of the French thumbs-down. “European integration that goes beyond economy and security stumbles at its borders,” Merz told the German-language daily, Blick. His view was that the French rebuff proved that Switzerland’s bilateral approach to relations with the EU was justified.

Link here. The potential cost to Switzerland of rejecting the Schengen/Dublin accords – link.

Dutch voters solidly reject new European constitution.

Dutch voters overwhelmingly rejected a new constitution for Europe on Wednesday, following France in undermining the region’s ambitions to play a stronger role on the world scene. The French repudiated the treaty on Sunday, setting off a crisis in the 25-member EU. According to unofficial results, 61.6% voted against the constitution and 38.4% in favor of it – a larger margin than in France, where 55% voted no. The double blow could prove fatal to the European charter, which was drafted in an attempt to streamline decision making in an expanded union but also would shift more power away from national governments.

“The Dutch people won against this crazy constitution,” said Tiny Kox, a member of the small Socialist Party, which was pivotal in the “no” campaign. “We had a great debate, and I’m really proud of the Dutch,” said Geert Wilders, a rightist populist who was one of the earliest and most vociferous anti-charter campaigners. “These results are overwhelming. In Parliament, two out of three members were in favor, but two out of three citizens have now voted against.” Prime Minister Jan Peter Balkenende, who had campaigned for the constitution, expressed disappointment with the result, saying, “Europe will have to take this into account.” He said the outcome spoke clearly of the Dutch concerns about a “loss of sovereignty, about the speed of the changes and about our financial contribution.”

Voter turnout was high, at about 63%. The referendum was not binding, but there was a consensus in Parliament that lawmakers would respect the outcome if more than 30% of those eligible voted. “The government will respect the vote,” Mr. Balkenende told reporters.

Link here.

No-vote lobby gains ground in Luxembourg.

If a French rejection of Europe’s constitutional treaty seemed unlikely earlier this year, a No vote by passionately pro-Europe Luxembourg would have been inconceivable. But after the political shockwaves created by the overwhelming French No vote and the expectation that the Dutch will reject the constitution on Wednesday, even Luxembourg’s endorsement is no longer certain. While the Luxembourg Yes camp remains in the lead, opponents are gaining ground ahead of the referendum on July 10 in the tiny Grand Duchy, which houses many of the EU’s big institutions. The Yes camp’s lead narrowed from 59% last month to 46% in May, while support for the No vote grew from 23% to 32%t, according to the Ilres polling group. Rejection could cause profound changes to the country’s political scene because Jean-Claude Juncker, prime minister, has threatened to quit if the referendum is lost.

Links here and here.

EU constitution referendum to be shelved in U.K.

Jack Straw is today preparing to pull the plug on Britain’s referendum on the EU constitution. Senior Whitehall sources said the Foreign Secretary will announce that the Bill paving the way for Britain’s vote is to be put on hold. The move, which follows “no” votes by the French and Dutch, is a further sign the controversial treaty is in its death throes. Britain is unwilling to be the first country to declare the treaty dead, but Mr. Straw is expected to use his statement to MPs to make clear the difficulties of resuscitating it. According to reports, he will tell MPs the Bill allowing for a referendum in the UK is to be put on ice indefinitely.

Link here.

Blair prepares for “bruising battle” between rival visions of Europe.

Tony Blair was on a collision course with Jacques Chirac as the Government prepared to announce that the UK was shelving plans for a referendum after Sunday’s overwhelming French “no” to the EU constitution. Mr. Blair broke a holiday in Tuscany to make it clear that he now intended to use the forthcoming British presidency to lead a bruising battle between “old Europe” and “new Europe” over the reform of the EU economies. The French vote has placed the EU at the crossroads of a historic dispute over its future direction.

As the ripples of France’s resounding rejection of the constitution continued to wash across Europe, the EC’s president, Jose Manuel Barroso said the French had created a “very serious problem” for Europe, whose enlargement plans have now been stopped in their tracks. The Dutch are poised to reject the treaty tomorrow by an even larger margin than the French, in effect killing off the constitution. President Chirac will announce a new government line-up under a new prime minister who is expected to preserve the French “social model” – a response to the result in France.

Senior ministerial sources confirmed that the UK’s referendum was in effect dead. Jack Straw, the Foreign Secretary, will tell the Commons that Britain wants to see economic reform agreed in Europe before the EU can return to ratifying the treaty by holding a series of referendums. The Government is expected to insist it does not want to hold a referendum on the constitution until the French “no” has been overturned. The Government believes it is impossible to win a referendum in the UK on a document that cannot come into force as things stand – it must be ratified by all 25 states. Downing Street believes several other nations due to hold polls, including the Czech Republic, Poland, and possibly Ireland, may side with Mr. Blair in the fight for economic reform. But there were rumours of an emergency summit being called to stop Mr. Blair putting the referendum on ice.

Link here. The “No” that is shaking Europe – link. EU constitution: what happens next? – link.

Economic confidence was falling even before treaty vote.

The EU’s economic mood had worsened for the fourth month running even before this week’s political turmoil over the EU constitution, according to an official survey. The “economic sentiment” index compiled by the European Commission fell in May to its lowest level since October 2003, pointing to a slowdown in economic activity in the second quarter. The index has been on a declining trend since last October. Particularly sharp drops were seen in May in the UK and Poland neither of which are in the eurozone but France and Italy also saw falls. Spain and Germany saw rises, however.

The results almost certainly reflected the impact of high oil prices and the delayed effects of last year’s euro appreciation although on Tuesday the currency reached another seven-month low against the dollar. But the political attacks on business and market economics in Germany and France also had a negative effect, economists said. Mark Cliffe, economist at ING financial markets, said “the worse is yet to come in terms of confidence”, after Sunday’s French referendum vote. “We have got an extended period of recrimination and argument that will put a lot of pressure on the European Central Bank to respond.”

Link here.

Dutch and French voters have now spoken, and the fallout will be immense.

The euro, the common currency shared by 12 EU nations, will weaken considerably as Europe enters a long period of political instability. Recriminations from the collapse of the constitution will be played out over months, not days. And the economics of integration that have dominated Europe for the last 30 years have come to an end. Forget convergence. The big trend in the next few years will be Europe’s economies going their own way, not with each other. In time, even the euro’s survival might be called into question.

In itself, the result should not matter very much. The constitution has a grand title, though the content is rather ordinary. It tidied up a lot of the rules and procedures about how Europe is governed. Yet there was nothing of ground-breaking importance in it. In that sense, Europe could muddle along without a constitution in much the same way it has in the past. Still, that would miss the bigger point. Since the constitution has been so decisively rejected by the voters, it puts a stop to any plans for further integration. Electorates will not tolerate it. An elected EU president? Forget it. A harmonized tax system? Don’t make us laugh. A single European army? Only in the dreams of a few “eurocrats” in Brussels. The path that the large European countries followed toward a single government now seems to have reached a dead-end.

Link here.


European leaders’ long-held dream of anchoring the continent’s greater unification in its first constitution was dissolving before their eyes last night after the Dutch delivered the second crushing blow to the idea in three days. Both the turnout and the margin of victory for the no camp were substantially higher than opinion polls had predicted. Following the French rejection of the treaty at the weekend, the second blow from another founding EU member left the European elite reeling and facing the prospect of a protracted period of recrimination, conflict and crisis.

The Dutch revolt against their rulers in The Hague and Brussels was without parallel. For 50 years, the Netherlands has been a stronghold of European integration, home to the Maastricht treaty that produced the most striking instrument of unification – the euro single currency. As last weekend in France, the no triumph was ascribed to multiple factors all merging into a voters’ mutiny.

The three-party center-right coalition of the Christian democrat prime minister, Jan Peter Balkenende, is strongly in favor of the constitution. It is also the most unpopular government in living memory. The Dutch are wary of forfeiting their veto in European policy making. As the biggest per capita net contributors to the Brussels budget, they also feel bullied by the bigger countries and let down by the single currency, seen to have brought steep price rises while the currency’s rulebook has been flouted with impunity by Germany and France. The economy is stagnant and unemployment has risen to 7%.

Growing anti-Muslim sentiment, opposition to EU membership for Turkey, and fears over losing control of immigration policy all contributed to the debacle for the pro-European camp, producing a surly and hostile electorate. The no camp was helped rather than hindered by a hapless government pro campaign which was late in getting off the ground and appeared to take the electorate for granted.

Link here.

Old-fashioned democracy thwarts EU’S grand plan.

Before the Netherlands rejected a new European constitution Wednesday, something out of the ordinary happened: Voters held hundreds of debates about it in town halls and coffeehouses. A similar raging discussion preceded France’s resounding “no” vote three days earlier – with a more in-your-face French flavor. In a typical scene, finger-jabbing sheep farmer Jose Bove told gathered crowds that “200 years after the (French revolution’s storming of the) Bastille, the people of the left today are going to wreck this constitution!” With their votes, the French and Dutch people did indeed shatter the proposed constitution. They sent another message as well: Europe is not dead; it is being democratic. And that is important, too.

Link here.

Europe’s statist nightmare – beginning of the end?

I was traveling to Paris last week just before the French referendum on the European Union Constitution, not quite sure how to react to its impending defeat. Most of the voices against the Constitutional Treaty were from the socialist Left, who criticized the “Anglo-Saxon liberalism” that allows people to work more than 35 hours a week, and the xenophobic Right, epitomized by Jean-Marie Le Pen whose candidacy in 2002 resulted in Jacques Chirac’s re-election and all the misery that it brought the world.

As I rose to leave the train, I noticed that my leather briefcase had disappeared from the overhead compartment. Walking to luggage rack near the exit, I found my suitcase had also vanished. Luckily, all my valuables were in a shoddy backpack which had survived the 90-minute journey from Brussels. A very kind train official offered his assistance, as we searched all the empty compartments. He then took me to the lost-and-found. Nothing there. Would I like to file a report with the police? Knowing that this would do little to turn up my bags but would have the salutary effect of driving up the official crime statistics, I said yes, I would. We made our way to the police station, only to find it closed. It was 10 a.m. on a Thursday.

This is typical of a society that turns over all responsibility to the state. It is what Margaret Thatcher called “the nanny state” and what the late Pope John Paul II warned about when, in his 1991 encyclical letter Centesimus Annus, he criticized the welfare state and its “inadequate understanding of the tasks proper to the State.” The nanny state, with its bloated, unaccountable bureaucracy and its centralized power, stands in direct contradiction to the principle of subsidiarity in Catholic social teaching. Subsidiarity means that a community of a higher order should not interfere in the internal life of a community of a lower order, depriving the latter of its functions, but rather should support it in case of need and help to coordinate its activity with the activities of the rest of society, always with a view to the common good. People who expect the state to do everything for them will come to do nothing for themselves, whereas a healthy democracy depends on notions such as self-governance and moral responsibility supported by vibrant religious faith and practice. It is no surprise that Europe’s woes continue as governmental power grows and faith lags.

The clearest lesson of the failed referendum is that Europe’s governing elite has suffered a tremendous defeat, a symptom of its growing “democratic deficit”. The political class in European countries like France and Italy is nothing short of imperious. It simply does what it wants, with little or no regard for the well-being of the average citizen, and at great economic and even spiritual cost. When the rare reformer proposes some necessary changes, such as lower taxes, less regulation, pension or labor-market flexibility, the unions and other vested interests come down on this person like a ton of bricks. And nothing changes. The EU is in a serious crisis. The bureaucrats in Brussels may have been able to steamroll the concerns of Ireland, Denmark, and even Britain, but when France and the Netherlands say no, the game is up.

Certainly, the French vote against the EU constitution was not wholly motivated by a reaction against the welfare state – many voters were hoping to preserve it and their privileges. But the referendum affirmed the truth that John Paul voiced so eloquently about human nature being “made for freedom”. The brakes are being applied, and by the very people whom EU bureaucrats and politicians have treated so dismissively – voters.

Link here.


Were the skeptics right? In early 1998, University of Bonn Professor Manfred J.M. Neumann mobilized 155 fellow economists to protest the coming introduction of the European common currency. The euro was dangerously premature, they argued in open letters published in major newspapers. Big countries such as Germany and France lacked the flexible labor markets they needed to compensate for losing control over monetary policy as a tool to promote growth. Needless to say, the protests had little effect. The euro blasted off on January 1, 1999, as planned.

Six years later, Neumann’s warning seems ominously prescient. Far from becoming a powerhouse to compete with the U.S. and Asia, Europe in the past four years has been nearly stagnant, with average annual growth in the euro zone of of 1.2% since 2002. Meanwhile, it is hard to overlook the superior economic performance of EU members that stayed clear of the common currency. Britain and Sweden have enjoyed healthy expansions and lower unemployment. Britain’s jobless rate is 4.7%, compared with 8.9% for the euro zone.

Even common currency champions such as European Central Bank President Jean-Claude Trichet see little chance of a euroland boom anytime soon. Just as Neumann predicted, overregulated labor markets in much of the euro zone prevent pay scales from reacting fast enough to competitive pressure from abroad. And individual countries can no longer compensate for these rigidities by devaluing their currencies to boost exports, usually through the swift downward movement of interest rates. “Unfortunately,” says Professor Neumann ruefully, “we were right.” Can the euro survive? That is a question no one wants to contemplate. The pressure is on European leaders to make sure they never have to.

Link here.


Technically, the French have voted against the constitution which was drafted to improve the executive procedures and efficiency of the EU following its enlargement to 25 member countries. However, in reality, the significance of the rejection was much deeper, encompassing such issues as political dissatisfaction with President Jacques Chirac and in particular the economic under-performance of the eurozone over the last 10 years. Europe now finds itself at a crossroads, with the future direction of closer political and economic integration at stake. Although the French have not delivered a mortal blow to the EU, it is clear that our collective vision of Europe will need revision. France was a founding member of the union and a driving force behind its development, so it is inevitable that at the very least its momentum will fade and at worst it will start to unwind.

Put simply, the eurozone economy is performing very poorly in relation to the rest of the developed world and has done so for a prolonged period. Economic growth has been stagnating in spite of exceptionally low interest rates, unemployment is very high and consumer and business confidence is negative. It is unlikely that the French would have voted against the constitution if their economy were flourishing.

The French “non” is a signal that the voters do not believe that the current approach to European economic integration is working and they are right in that because their standard of living is falling relative to many of their competitor countries. More alarmingly, they also look to be resisting the free-market ethos of the single market, embodied in the free movement of capital, goods and labor, in favour of a more nationalist, protectionist, socialist approach to Europe which would attempt to suffocate competition and blindly defend French self-interest. In this, they are wrong. The French seem to blame their economic woes on the expansion of the EU and the more general forces of globalisation, which in many of their eyes are harming French jobs and wealth.

The economic impact of the French referendum does not bode well for the eurozone. The speed of economic integration and reform, desperately needed, will slow from an already sluggish pace. The uncertainty the decision brings about the future of Europe will send a negative message to the world and overseas investors, who may withhold capital and investment. Any movement towards a protectionist Fortress Europe will also discourage investment and competition, with all the benefits they bring.

Link here.


Calm returned to Panama Saturday after eight people were injured and 207 detained in days of demonstrations against the government’s pension reform measures, according to the local press. But further protests may erupt if the government took a negative attitude to the controversial reform on the pension system, Andres Rodriguez, an organizer of the demonstration, was quoted as threatening. In response, the government has declared the indefinite strike illegal. The respite followed riots on Friday, when demonstrators and anti-riot police clashed near the National Assembly (congress).

The proposed reform includes an increase of payment by workers to the pension fund and the extension of the retirement age from 57 to 62 for women and 62 to 65 for men over a period of 10 years. The demonstrators also demanded the participation of workers in policy making and a referendum on the social security reforms in the country.

Link here. Panamanians want Torrijos to do more – link. President Torrijos divides views in Panama – link.


India excels at polishing diamonds as tiny as a hundredth of a carat. Masters of this craft in Antwerp, Belgium, and in Tel Aviv excel at handling diamonds of a carat or more. But pushing into the broad middle as the newest diamond power is China, a nation long enamored of jade that ignored diamonds for much of its half century of communist rule. The past is no longer holding it back. Several dozen privately owned foreign companies, most of them very secretive, have set up diamond polishing and jewelry manufacturing operations in china, many based in Panyu, a city about 80 miles up the Pearl River from Hong Kong. With a potent mix of experience, cheap labor, advanced technology and strict quality controls, they are challenging the industry leaders, especially India.

China now imports $800 million a year worth of rough diamonds and polishes them to become worth about $1.1 billion, accounting for 6% of the value added by the world’s $4.6 billion diamond polishing industry. India, with a million diamond workers and an 80% share of the diamond polishing business, is nervous. Alarmed by the pace and skill with which China is improving, India’s diamond industry leaders say that in diamonds, as in so many other businesses, China’s advance cannot be stopped.

Link here.


Recently released statistics reveal that new registered companies in the Cayman Islands grew 23% in 2004 and the statistics signal a healthy economy and a growth in international business in spite of interruptions caused by Hurricane Ivan, according to financial industry experts. Wayne Panton, a partner with local law firm Walkers, said the high growth in companies is really welcome news. The overall figure of 23% was broken down to 26% growth for exempt companies, 21% growth for resident companies and 14% for foreign companies.

Non-resident companies experienced a nominal decrease of 3%. Mr. Panton explained what these statistics mean to the economy. “The main growth is with exempted companies as we see this growth fuelled by international financial institutions which view Cayman as the premiere offshore center and underlines Cayman’s fine reputation in the mutual funds, including hedge funds, and structured finance areas.” He stated the 21% growth in resident incorporations was likely a result of new status holders establishing companies over 2004. The 14% growth for foreign companies reflected growth in the Exempted Limited Partnership registration numbers since a portion of those will also involve the registration of a foreign company as a general partner in Cayman.

Link here.


One year and three days after it began, the biggest trial in post-Soviet Russia ended Tuesday with a nine-year sentence for fallen tycoon Mikhail Khodorkovsky, whose oil empire was broken up after he became a political challenge to President Vladimir Putin. The 41-year-old Khodorkovsky vowed to clear his name of the charges, which included tax evasion and fraud, and his Yukos oil company promised to fight a series of court battles – keeping a spotlight on doubts about the rule of law in Russia. “Shame! Shame!” Khodorkovsky supporters chanted outside the Meshchansky court, where they rallied daily holding portraits of the capitalist-turned-philanthropist and yellow and green balloons, the colors of the Yukos company he founded and turned into Russia’s biggest oil producer.

The case also has made foreign investors anxious about doing business in Russia, with capital flight tripling in the year after Khodorkovsky’s arrest. The growth of oil exports has slowed sharply, raising questions about the state taking a stronger hand in the vital industry. In Washington, President Bush criticized Khodorkovsky’s trial in unusually blunt language aimed at a U.S. ally in the war on terrorism. “Here, you’re innocent until proven guilty and it appeared to us, at least people in my administration, that it looked like he had been adjudged guilty prior to having a fair trial,” Bush said.

While Khodorkovsky, once estimated to have a $15 billion fortune, is widely unpopular as one of the “oligarchs” who became immensely wealth during the murky post-Soviet privatization of state industries in the 1990s, many Russians saw political motives behind his trial. His supporters contend it was part of a Kremlin-driven campaign to punish him for financing opposition parties and to stifle his own political ambitions. After spending 583 days in custody, he faces 7 1/2 years more in prison, which would him jailed past the 2008 election to pick Putin’s successor and potentially the 2012 ballot as well.

Link here.

Yukos affair will weigh on Russia’s economic growth rate, says OECD.

The Russian government’s treatment of the oil firm Yukos and a subsequent wave of arbitrary and aggressive tax inspections of firms in strategically important sectors has contributed to a marked decline in Russia’s business climate, according to the OECD. In its semi-annual report on the Russian economy, the OECD warned that the behavior of the government and the tax authorities during the Yukos affair has affected business confidence to the extent that economic growth will be slower over the next two years. Despite showing robust growth of more than 7% last year, the OECD noted that overall performance of the Russian economy was disappointing, and the organisation predicted that growth will slow to 6% in 2005 and 2006, well below the average 10% growth rate seen in the other ex-Soviet states. Observing that Russian business confidence has suffered “considerable damage”, the OECD stated that, “The slowdown appears to have resulted from a policy-driven deterioration in the business climate.”

Link here.

Khodorkovsky sentenced, Russia guilty

The extraordinary sell-off of Russia’s resources in the 1990s was a terrible idea, terribly managed. But it is disingenuous, if not devious, of the Kremlin to pretend that Mikhail Khodorkovsky’s trial was an attempt to punish him for his share of that bonanza, or to set things right. He is being purged, to use a word from the not-so-distant Soviet past, because he was a threat to some people in power, and because others simply wanted to steal his company.

That is a great shame, for several reasons. One is that Khodorkovsky was in many ways the best of his breed. He was the first of the oligarchs to realize that he could build his primary bonanza, the Yukos oil company, into a global business if he abandoned the conspiratorial and piratical Russian business practices of the time. He introduced unprecedented transparency and Western-style management at Yukos and identified the major shareholders, incidentally revealing himself as the wealthiest man in Russia. Of all the companies the Kremlin could have gobbled up, this was the worst, because it destroyed what could have been a model for other enterprises, and a reassuring beacon for foreign investment.

The trial was a shame, too, because it was a setback to any notion of a rule of law in Russia. In his final statement, Khodorkovsky rightly refused to blame the judge, Irina Kolesnikova, because of the intolerable pressures she probably came under from the Kremlin. The justice system, Khodorkovsky said, borrowing a term from Lenin, had become an “impotent appendage” of the ruling powers. And it was a shame, too, for President Vladimir Putin, because the trial suggested that he was either still stuck in his old KGB persona, or too weak to curb greedy and power-hungry underlings.

Yes, Khodorkovsky became too rich too fast; yes, he was foolish to reach for political power, and yes, he has a lot to answer for. But that is no excuse for this parody of justice, in which the real loser is Russia.

Link here.

When betting on Russia, Kremlin is the wild card.

This week’s guilty verdict for Russia’s oil billionaire Mikhail B. Khodorkovsky capped a long-running tale that rocked the country’s financial elite, upset foreign investors and prompted criticism from the White House. Now investors are turning to the future, and wondering whether the case could be repeated. A Moscow court sentenced Mr. Khodorkovsky, the former chief of the Yukos oil company, and an associate to 9 years in prison on charges ranging from embezzlement to corporate and personal tax evasion. The two men were ordered to pay over $600 million.

President Bush said afterward that the trial’s outcome was a concern and that he would be watching the appeals closely. The Yukos events could produce death rattles: the prosecutor general’s office plans money-laundering charges against the two men. And the oil company, which lost billions of dollars of public market value, may step up litigation against the Russian government. But the question now is whether the Kremlin will want a role in sectors other than oil and gas. Consumer goods – like food, clothing, electronics and other retail items – are so far of no interest to the Kremlin. But sectors like oil and gas, military gear, diamonds, precious metals and mining operations, which the Kremlin deems “strategic”, could present pitfalls for investors, whether through increased government ownership or higher taxation.

Link here.



After more than a decade of haggling, the EU is now just one month away from starting its biggest, coordinated assault on tax evasion: a new law aimed at uncovering – and taxing – interest earned on the hundreds of billions in savings stashed by EU citizens outside their home countries. Yet the windfall of new revenue that some cash-strapped countries, led by Germany and France, had been hoping for is unlikely to materialize, according to bankers in Switzerland and other tax havens. Not only are historic low interest rates keeping the potential pot to be taxed low, but many investors are restructuring their deposits to legally avoid paying anything, bankers say. Others have already moved their money even farther afield – to places like Singapore – where it can remain hidden from tax collectors at home.

Most European nations have been trying for years to recoup some of the lost revenue – estimated at millions or billions of euros over the years – on interest earned by their citizens in tax havens like Switzerland and Luxembourg. Tax amnesties offered in recent years have brought some deposits back, with Italy showing better results than Germany. Places like Switzerland are now finding it harder to accept money without asking questions because of stricter money-laundering rules adopted since Sept. 11, 2001. But huge amounts of potentially taxable funds remain out of reach of EU tax collectors. In Switzerland, about SF1.2 trillion, or $975 billion, was held by foreign private investors and some three-quarters of that was not declared to tax authorities, Deutsche Bank estimated in a report last year.

The new EU law, which takes effect July 1, allows governments to track at least some of that hoard. Negotiations, which started in 1989, bogged down for years over divisions between nations that lost out on taxes, like France and Germany, and financial centers like Luxembourg and Britain that profited from the investment business. The law was eventually whittled down to aim at only interest income from savings and bonds. It covers only individuals, not companies and trusts, and earnings from other assets, like stocks and derivatives, are exempt. Finance ministers gave their final endorsement to the pact a year ago, but implementation was delayed to allow time for countries to pass the necessary legislation. In 2007, the EU will review the directive with a view to possibly broadening its scope.

Link here.


The EU could have a common corporate tax base in place within three years if all goes to plan, EU Taxation Commissioner Laszlo Kovacs told a conference in Stockholm this week. Currently, the Commission is working on plans to create a uniform approach to the calculation of corporate tax to be applied across the EU, in an attempt to cut red tape and boost the union’s competitiveness. “At the moment there are 25 different ways to calculate the corporate tax base,” noted Kovacs. “If we manage to have only one EU-wide set of rules that will increase competitiveness.” When asked when a uniform system could be in place, Kovacs replied, “My assessment is three years if everything goes well.” Kovacs reiterated that neither he nor the EC has any wish to see harmonized corporate tax rates.

Link here.


Bermuda’s long-term national economic interest lies in Bermuda’s ability to continue as a platform for International Business. This requires two successes. One – attracting and holding enough operations on its business platform so that 47,000 Bermudians are kept employed — or at least kept sufficiently economically active – and able to satisfy their needs within Bermuda’s economic environment. Two – defeating the just-over-the-horizon threat that, like a slow tsunami, is heading towards us. The threat? Using still developing control, oversight, and investigative powers spawned by computers, the Internet, the greater ease-of-passage and interchange of information, money, and accounting value; big economies will choke-off companies seeking to recognize revenues in far-off “tax free” jurisdictions. In time, Bermuda, as a “tax-free tax haven” can expect to be choked off.

Though slivers of global business will always manage to avoid significant taxation; these bits may not have enough economic mass to allow business platform Bermuda to benefit as it now benefits from the current activity of International Business. From this comes a need for Bermuda to reposition itself as a non tax haven country that does levy corporate taxes just like every other advanced economy.

A critical difference! Bermuda’s current taxes support a national economy that is small but efficient. Bermuda can shift taxes from Customs’ duty to corporate profits, give International Business an 80% profit tax rebate, take a national average corporate tax “bite” of less than two per cent, and still maintain – even improve – the standard of governance and provision that now exists.

Link here.


One of the more puzzling questions about the debate over Social Security is why we are even having it again. After all, everyone thought the problem had been fixed in 1983 by the commission headed by Alan Greenspan, who went on to become chairman of the Federal Reserve Board. At the time, the youngest baby boomers were 19. So all of the experts were fully aware of the demographic statistics now cited by President George W. Bush as the root cause of Social Security’s shortfall: that the ratio of workers to retirees would plunge from 16 to 1 to 2 to 1 when the last boomers retire decades hence. To eliminate the deficit this would create, the commission suggested hiking the Social Security payroll tax and lifting the retirement age to 67 by 2026. Congress promptly passed legislation doing just that, and President Ronald Reagan signed it.

A new study sheds light on what happened since 1983 to bring back the shortfall, which is projected to be $4 trillion over the next 75 years. Two major economic shifts occurred that Greenspan’s commission did not anticipate: The growth of average U.S. wages slowed, and income inequality soared. Together these trends explain 75% of the reemergence of Social Security’s long-term deficit, according to a paper by L. Josh Bivens of the Economic Policy Institute in Washington. The upshot is that Democrats and Republicans alike may be trying to solve the wrong problem. Rather than focusing on how many workers will be around to support retired boomers, some experts think the logical response is to recapture the revenue lost as rising inequality lifted a greater share of aggregate U.S. wages out of the reach of the 12.4% Social Security payroll tax. This year the taxable income level has been set at $90,000 a year. But the unanticipated spurt in inequality pushed more Americans over that amount. Because Social Security has forgone this extra revenue, it now taxes only 85% of collective payroll earnings, not the 90% that Greenspan and the commission had intended it to.

A look back at the Greenspan commission shows that Social Security’s problems are economic, not demographic. From this standpoint, private accounts that cut benefits for middle-class Americans do not address the real issue. In debating how to fix the system, we first need to understand what is broken.

Link here.


All over the world, from Estonia, to Albania, to Russia to Hong Kong, flat taxes are in vogue. The flat tax is being instituted to enhance economic growth, increase tax revenues and make tax codes fairer. Why not in the U.S. After all, is the world not topsy-turvy when Moscow, the onetime center of socialism, has a 13% top income tax rate compared to 35% in America, the land of the free? Former Sens. Connie Mack of Florida and John Breaux of Louisiana are trying to grapple with the issue of how to make tax reform politically palatable, as they enter their final stage of deliberations as chairmen of President Bush’s federal tax reform panel. I would suggest one politically viable way to overcome the special interest opposition to tax reform is adoption of a Freedom to Choose Flat Tax.

The potential economic gains are gigantic for American workers and firms if the tax panel adopts this approach. For example, if the $200 billion a year compliance costs attributable to the tax code could be cut in half, the financial windfall to the nation would be larger than the value of all goods and services produced by every worker and business in the states of Maine, Vermont and New Hampshire combined. On top of that, Harvard University economist Dale Jorgenson estimated several years ago that if replacing the U.S. tax code with some kind of flat and simple consumption tax would increase economic growth by about 10%.

The idea behind the Freedom to Choose Flat tax is an optional postcard flat tax, offered to tax filers as an alternative to, rather than a replacement of, the current tax code. What I propose is an Alternative Maximum Tax of 20%. The current tax laws require millions of Americans to fill out their tax forms then compute the Alternative Minimum Tax and pay the greater of the two. Under this Freedom to Choose Flat Tax, the filer would be allowed to pay the lesser of the two tax liabilities. In fact, this idea simultaneously solves the middle-class AMT problem by simply lowering the tax rate to 20% on all income and letting Americans opt into that system if they so wish.

Wage and business income would be taxed at a maximum 20 percent. The corporate tax rate would fall to 20%, but all tax credits would end. Business capital purchases would be expensed, thus eliminating complicated depreciation schedules. Capital income – from capital gains, dividends, and estates -- would also be taxed at 20%. This plan would accomplish each major goal of tax reform.

Link here.


In reply to a recent RTE Prime Time program on tax incentive schemes and residency rules, the Minister said, tax incentive schemes have been introduced and continued over the years by all finance Ministers of every Government. They were introduced with a view to providing an incentive for economic development, and not to enrich particular individuals. Many of them were introduced at a time when economic growth was very slow and there was a very high unemployment rate. The incentives have generated significant employment opportunities for skilled and semi skilled workers particularly in the construction and service industries.

As far as the treatment of non-residents with Irish connections, the Minister noted that Irish treatment of such persons was broadly in line with international practice. The Minister noted that even if non-resident in Ireland, Irish people are liable to Irish income tax on Irish income, e.g., income from directorships, rented properties, etc. Where Irish individuals have made themselves resident in tax havens they continue to be subject to a 20% withholding tax on dividends paid to them by Irish companies. What they are not liable to is Irish income tax on their income from anywhere else in the world. The Minister further noted that one of the key mechanisms mentioned in the program for the avoidance of tax by non-residents has already been closed off, a fact not mentioned in the program.

Link here.


Large Canadian corporations used the generous tax cuts of recent years to stash larger amounts of money in offshore tax havens instead of delivering productive jobs-creating investments in Canada. This is only one among other startling findings in a research paper titled “The Dubious Case for More Corporate Tax Cuts” distributed to the members of the House of Commons’ Standing Committee on Finance. The Committee is reviewing the two budget bills that prompted the very dramatic second reading votes two weeks ago.

Link here.



The founder of an anti-fraud website has himself become the victim of credit card fraud. Andrew Goodwill, managing director of Early Warning UK, a scheme set up to help retailers avoid credit card fraud, is down $600 (£329) after crooks used his credit card to pay for services online. Far from being embarrassed by becoming a victim of a credit card fraud, Goodwill reckons his case illustrates the ease of card misuse. “This can happen to anyone. I was shocked when I found that someone had spent $600 on one of my cards to pay for online poker in the States. This shows that noone is immune whether they’re the head of a major bank or a fraud prevention company,” he said.

Link here.


From small beginnings early in the 20th century, the offshore sector has grown ever faster in response to high tax rates in the developed countries, until it is estimated now that more than half of the worlds money is offshore. Offshore has no precise dictionary meaning: the word simply reflects the fact that most low tax jurisdictions are islands. Loosely, it is used to mean outside the control of the highly-taxed Western nations, although those nations could have controlled the growth of offshore jurisdictions much more tightly if they had wanted to. It is an interesting question, why they did not – maybe a combination of individual self-interest and muddle? Our Offshoring Special Report, 2005 provides indepth business, legal, political and economic perception as well as attractivness of this location as offshore tax haven. (This product is pre-publication and is due to be released in June.)

Link here.



One way to buy drinks in Baja Beach Club in Barcelona is if you let them chip you up by injecting you with a Verichip. The Verichip, made by Applied Digital Solutions is injected by a quack under local anaesthetic and is made of glass. The chip contains RFID, your name and the amount of dosh you have in your Baja account. When you go to buy a drink, a very attractive young lady apparently passes a scanner over your body. The second Tuesday of the month is implant night at the Baja and apparently British firm Surge IT systems has bought 9000 of the chips and 110 scanners for security, education and identification. Meanwhile, 1,000 people in Mexico “wear” RFID chips for medical reasons while Smith & Wesson have designed a system which means a specific gun will only work with a specifically chipped person. Holy Baja!

Link here.


Companies may end up footing some of the bill for the government’s biometric identity card plans if they want to use the system to prove the identity of their customers or staff. The government said the £584 million running costs of the scheme will be recovered through fees for issuing passports and ID cards, issuing replacements of lost documents and through charges to organisations that want to use the verification service. Employers could use the system, for example, to prove that new staff were entitled to work in the UK. The Identity Card Bill includes powers to charge for this service but the government said it has not yet decided whether to apply charges. Financial services companies may also want to use the system to check the identity of customers before agreeing to a big loan.

The government’s regulatory impact assessment on the legislation said, “Employers and financial and other private service providers will need to weigh up the costs, risks and benefits of changing current practices to incorporate the use of identity cards.” As well as cutting ID fraud the cards could save money by streamlining processes, the government said. It gave the example of money laundering regulations which require banks to check the identity of customers on major transactions. Online verification of an ID card could be quicker and easier than keeping photocopies of documents such as passports, and the transaction could also be automatically recorded on the bank systems.

The government will decide on the fee structure before the first cards are issued but the system cannot be used to raise net revenue for the Treasury.

Link here.

Cost of ID cards could triple, plan could breach DRA.

The UK government has dismissed a report from the London School of Economics (LSE) which suggests ID cards could cost as much as three times as planned. The LSE’s analysis comes as the UK’s plan faces a fresh challenge from human rights organization Privacy International, which claims the cards discriminate against disabled people, up to four million of whom will not be able to use the cards.

According to The Observer, which has seen a draft version of the document, the LSE’s report says additional technology costs, the relatively short useful life span of biometric data, and the administrative cost of dealing with those who are unwilling to have ID cards will all add to the price tag. In total, the report says, the cost could be as high as £18 billion, or £300 per card.

Link here.


The identity cards bill will give the government the legal powers to set up the scheme and charge the fees it needs to recover the costs of enrollment, issuing and maintaining the cards and providing verification services. ID cards are to be introduced on a staged basis. First it will become compulsory for foreign nationals to register under the scheme, then it will be voluntary for UK nationals to register when they renew their passports.

About 80% of the adult population have a passport and new applicants from next year will be given a biometric passport. From 2008 the 3-4 million who renew their passport each year will get a combined ID card/passport valid for 10 years.

It is expected that the scheme will become compulsory in 2013 when about 80% of those who have passports will have registered under the scheme. It is expected that only about 13% of the UK resident population will not have a passport by then and they will be issued with a standalone ID card. Foreign nationals, including those from inside the EU, will also have to register. Parliament will then vote before it becomes compulsory to have an ID card but not to carry it at all times. It may then become compulsory to have the card to access various public services.

Link here.

U.S. wants to be able to access Britons’ ID cards.

The U.S. wants Britain’s proposed identity cards to have the same microchip and technology as the ones used on American documents. The aim of getting the same microchip is to ensure compatability in screening terrorist suspects. But it will also mean that information contained in the British cards can be accessed across the Atlantic. Michael Chertoff, the newly appointed US Secretary for Homeland Security, has already had talks with the Home Secretary, Charles Clarke, and the Transport Secretary, Alistair Darling, to discuss the matter. Mr Chertoff said that it was vital to seek compatibility, holding up the example of the “video war” of 25 years ago, when VHS and Betamax were in fierce competition to win the status of industry standard for video recording systems.

Mr. Chertoff also proposed that British citizens wishing to visit the U.S. should consider entering a “Trusted Traveler” scheme. Under this, they would forward their details to the U.S. embassy to be vetted. If successful, they would receive a document allowing “fast-tracking” through the U.S. immigration system. A pilot scheme will start within a few months between the U.S. and the Netherlands, allowing Dutch visitors to use a Trusted Traveler card to enter the U.S. without being subjected to further questioning or screening.

This is the latest controversy to surround Britain’s proposed combined identity card and passport due to be introduced in three years’ time. Rising costs have pushed the cost up to £93 each after the overall estimated 10-year cost of the project grew from £3.1 billion to £ 5.8 billion. There have also been problems over the effectiveness of the biometric technology which is supposed to safeguard the security of the cards. There were also verification problems with 30% of those whose fingerprint was taken during an enrollment trial of 10,000 volunteers.

Links here and here.


Thirteen federal agencies are using or plan to use radio frequency identification (RFID), a technology that federal auditors say poses information security and privacy risks that must be mitigated. Government Accountability Office auditors issued a 36-page research report last week in which they warn that, without effective security controls, data stored in microprocessor chips on RFID tags can be read by any compatible RFID reader. The report also states that security measures are necessary to protect data as it is transmitted from being intercepted by unauthorized RFID readers. Other security measures must be taken to secure databases that store data collected from RFID readers, the auditors wrote.

Link here.


“Aha, what have we here?” I enthused, polishing my palms anticipatorily after reading the AP headline above. “Politicians with principles? Bureaucrats with backbones? Public servants with juice in their jockey shorts?” States, stated the opening paragraph of the news piece, were railing against Real ID. In case you have just jolted awake from a persistent vegetative state, Real ID is a reg recently passed by the US Congerass that will turn every state’s driver’s license into National-Sozialist travel papers and create a gigantic Positronic Brain ala “I, Robot” to track us all. And it is all voluntary. States can opt out of this Amerikanski politburo centralized planning program if they wish, but the citizens of those states will not be able to get a job, get on an airplane, enter a federal building (there is always a silver lining) or, a tad on the obvious side, legally drive a car out of their home state. That is voluntarism from our komrads in Vashinktyn DC.

The justification for this, we are told, is to better identify the multitude of terrorists in our midst. What Real ID really does is (a) absolutely identify each of us so the SWAT-bots can swarm us any time we buy more than one bottle of over-the-counter Sudafed, (b) turn identity theft into a convenient one-stop-shopping experience, (c) create yet another bloated black hole bureaucracy to shovel tax billions into, and (d) turn counterfeiting into a growth industry, since, according to this very article, “All but one of the 19 hijackers in the Sept. 11, 2001, attacks had some form of U.S. identification, some of it fraudulent.” (And still they were not caught, were they?) Better documents simply mean higher prices for better counterfeiters or higher bribes to the docucrats.

But thankfully, many of the gutsy governors of our 50 sovereign states are fighting on their citizens’ behalf, threatening court challenges to the Real ID idiocy and even advocating civil disobedience by disobeying the new law. Arkansas Gov Mike Huckabee is leading the charge. "Governors are looking at all their options. If more than half of the governors agree we’re not going down without a fight on this, Congress will have to consider changing this…” Uh-oh. Rubbing palms turned into sweating palms. “Congress,” the above quote concludes, “will have to consider changing this unfunded federal mandate.” The Virginia DMV estimates it will cost them $237 million to comply.

Unfunded federal mandate. These governors are not grousing about the Soviet-style national ID cards for their citizens. They are perturbed about paying for it. They are angry about dipping into “their ow”q pockets. You know, those state pockets that were filled by emptying out our pockets. They already have a long list of self-serving vote-buying pork-rolling projects to spend state tax money on. If the federalcrats want a state’s citizens to have federal IDs, they had better pay for it from those citizen’s federal taxes, not from those citize’qs state taxes. That is moral outrage for you. Besides, BigGov bucks can be diverted into those wonderful state-level self-serving vote-buying pork-rolling projects easier than the locally stolen stash.

But if you are a libertarian you know all this stuff already. If you are not, and you do not care, you might as well return to your state of persistent vegetableism. If Americans really wanted Real ID, why did the powercrats have to sneak it past us, buried in a “patriotic” war-fighting and “charitable” tsunami relief spending bill? No, our control freak federalcrats have thrust this down our throats. It is time to barf it back into the bald-faced lying faces of the Beltway Bolsheviks. If freedom is to be the philosophy of the future, the future starts now.

Link here.


When Google’s 19 million daily users look up a long-lost classmate, send email or bounce around the Web more quickly with its new Web Accelerator, records of that activity do not go away. In an era of increased government surveillance, privacy watchdogs worry that Google’s vast archive of Internet activity could prove a tempting target for abuse. Like many other online businesses, Google tracks how its search engine and other services are used, and who uses them. Unlike many other businesses, Google holds onto that information for years.

“There’s really no good reason to hold onto that information for more than a few months,” said Lauren Weinstein, an engineer who co-founded People for Internet Responsibility, a forum for online issues. “They seem to think that because their motives are pure that everything is OK and they can operate on a trust basis. History tells us that is not the case.”

Link here.



The Cayman Islands cooperation with the U.S. Department of Justice on two criminal investigations – including one that began more than seven years ago – culminated in a special meeting between senior Cayman and U.S. officials in Washington, D.C. Cayman Islands Chief Justice Anthony Smellie and Attorney General Samuel Bulgin met with U.S. Attorney General Alberto R. Gonzales and other officials at the U.S. Department of Justice to exchange funds, stemming from the asset-sharing agreement as part of Cayman’s Mutual Legal Assistance Treaty (MLAT) with the U.S. The Cayman delegation received just over $1.7 million, the result of the successful prosecution of the two fraud cases. For the second case, the Cayman Islands in return presented the U.S. government with $675,000, to be used as restitution for the victims of that fraud, which has been successfully prosecuted and the proceeds confiscated.

Since the MLAT’s introduction in 1990, in excess of $10 million, arising from some 230 cases in which the two governments have cooperated, has been shared with the Cayman Islands. Several million dollars have also been returned to the United States for the restitution of victims of fraud and other cases. The Cayman Islands has an agreement with the U.S. to share any proceeds from cases in which the two governments cooperated which are not to be returned, for various reasons, to victims, shareholders or creditors. The MLAT encourages use of funds for local drug rehabilitation, law enforcement and justice administration programmes.

Link here.


A Maui (Hawaii) man was sentenced to two years in prison for laundering millions of dollars in connection with a multi-ton marijuana smuggling ring and filing false income tax returns. Michael K. Ritter, 56, also forfeited $1 million to the U.S. government, which represents the value of the remaining assets he earned from his smuggling ventures, according to the U.S. Attorney’s Hawaii office. From the late 1970s to the mid-1980s, Ritter netted about $3 million by helping to smuggle at least a dozen “multi-ton loads” of marijuana into the western U.S. from Thailand, according to court documents.

Although Ritter’s offenses were committed years ago, he was subject to prosecution because he continued to manage foreign offshore trust fund accounts, according to the U.S. Attorney’s office. “This case emphasizes that we are very serious about forfeiting the ill-gotten gains of drug dealers,” said Ed Kubo, U.S. attorney for Hawaii. “Besides convicting them in federal court, we will aggressively go after and seize all their drug proceeds … and we will make sure that drug dealing is never profitable.”

Link here.


The draft Third Money Laundering Directive was voted through by the European parliament last week, without reinstating any of the members’ amendments dropped at the committee stage that would have lightened the burden for lawyers and accountants under the current regime for reporting suspicious activities. The directive, which is intended specifically to include terrorist funding as well as money laundering under the regime, is now expected to go forward for adoption by the council of ministers next month.

One amendment that survived ensures that legal advisers encouraging clients not to proceed with illegal activities will not be considered to have contravened the ban on tipping off. However, an amendment extending this to auditors and tax advisers was one of those lost before the civil liberties, justice and home affairs committee meeting earlier this month. Another would have strengthened the requirement on member states in their own legislation to exempt auditors and tax advisers from reporting suspicions arising from ascertaining their clients’ legal position, effectively extending legal privilege to cover them. This too was dropped, although the directive will oblige governments to allow privilege for lawyers acting for clients in legal proceedings, in contrast to the current Second Directive which makes this an option.

Link here.


After the Supreme Court’s reversal of Arthur Andersen’s conviction for obstruction of justice in the Enron case, there were rumblings among former Andersen partners and some legal analysts that this was the proof that the accounting firm should never have been indicted, much less found guilty. Not so fast. While the reversal makes a retrial legally feasible, though unlikely, in truth the Supreme Court’s judgment simply underscores the significance of a rule in white-collar cases: a jury cannot properly convict without first being required to conclude that a defendant had intended to engage in wrongdoing.

In its reversal, the Supreme Court focused on one issue: the jury charge given by Judge Melinda Harmon of Federal District Court in Houston that defined the standards and hurdles the jury had to clear to reach a guilty verdict. In her instructions to the jury, Judge Harmon “failed to convey the requisite consciousness of wrongdoing,” Chief Justice William Rehnquist wrote in the unanimous opinion. “Indeed, it is striking how little culpability the instructions required.”

The reason this is important is simple. White-collar cases are not akin to – and are, in fact, often the opposite of – trials involving murder or bank robbery, where everyone usually acknowledges that a crime took place and merely debate the culpability of a particular defendant. Instead, in white-collar cases, defense lawyers often admit their client’s involvement in particular acts, while arguing that no crime ever occurred. That is because a potential fraud or obstruction of justice is only illegal if the defendant acted with the knowledge and intent to commit a crime. It is hard to argue with the law’s logic: no one should be locked away in prison as punishment for making a business misjudgment.

Because the decision pertains solely to the jury instruction, the reversal yesterday says nothing about the quality of evidence marshaled by the Justice Department’s Enron Task Force, which presented a range of proof about potential motive and intent. Even though the prosecution provided evidence of intent, and even though that evidence could have allowed a reasonable juror to conclude that Andersen acted dishonestly and with consciousness of wrongdoing, the instructions issued by Judge Harmon did not require the jurors to reach such a finding. As a result, the Supreme Court is essentially arguing, there is no way the appellate courts could know if the Andersen jury cleared the analytical hurdles necessary to conclude that the firm was guilty.

None of that, legal experts said, means that the Supreme Court ruling has cleared Arthur Andersen or demonstrated anything about whether it should have been indicted. Legal experts said that the reversal in the Andersen case might well result in more careful wording of jury instructions in future white-collar cases involving Enron and other high-profile defendants. But while that may raise the hurdle a bit for the government, these experts said, it is far from a crippling blow.

Link here. Who killed Authur Andersen? It was suicide – link.


There are four important pending U.S. terrorism legal cases, which separately and together present ominous and dangerous threats to the freedom of the American people. These four cases provide good examples of how the U.S. government’s pro-empire and pro-interventionist foreign policy that holds our nation in its grip ultimately redounds to the detriment of the American people. That foreign policy policy is not only threatening the lives of the American people with the possibility of terrorist “blowback”, – and not only threatening the lives of U.S. military personnel and the people of Iraq – and not only gradually corrupting the inner spirit of the American people– and not only threatening the economic well-being of our country with out-of-control federal spending – it is also threatening the freedom of the American people through major federal assaults on civil liberties, as the Jose Padilla, Ali Saleh Kahlah al-Marri, Ahmed Omar Abu Ali, and Zacarias Moussaoui cases demonstrate.

Link here.


The Patriot Act was passed in haste, in the angst-filled days after the Sept. 11 attacks, with some lawmakers candidly admitting they never read the details. That was one of the reasons key sections included expiration dates, so calmer heads of the future would have an opportunity to fix mistakes. Now that opportunity is here, and far from removing obvious threats to civil liberties in the law, the White House and eager Senate Republicans seem bent on making it worse.

Citizens who want to keep an eye on the process will have no easy task. The most crucial debates of the Senate Intelligence Committee are being kept closed to the public. This is a terrible idea that gives credence to the worst fears of opponents of Patriot Act I. When the committee resumes its work next week, its leaders should rethink their policy and open their deliberations to the light of day. Accommodations can be made for legitimate security concerns without keeping such a bedrock issue under wraps.

One of the most common complaints about the Patriot Act is that rather than addressing the real but narrow problems with existing law, it was a wish list of powers law enforcement officials had yearned for over the years that Congress had rightly resisted conferring. Now the Bush administration and its Senate allies have come up with another: a proposal to let F.B.I. agents write their own “administrative subpoenas”, without the need to consult prosecutors or judges, in demand of all manner of records, from business to medical and tax data. There is no serious evidence that agents have been hamstrung by the lack of such wide authority. Freeing agents from getting a judge’s sign-off is an invitation to overreaching and abuse, as is a proposal to let the F.B.I. ignore postal law restraints when antiterrorism agents choose to monitor someone’s letter envelopes and package covers.

Parts of the existing Patriot Act are reasonable law enforcement measures, but other sections should be repealed. Chief among these is the so-called library provision that lets the government seize entire databases at libraries, hospitals and other institutions when just one person is under investigation. Another part of the law makes it a crime for record holders to let the public know when a government data sweep has occurred. Legitimate complaints that the existing law is overbearing have been heard from hundreds of state and local officials and from civil liberty and libertarian groups. Rather than addressing these flaws, Senate Republicans seem to be planning to compound them, under cover of closed hearings.

Link here.

Urge your Members of Congress to hold open and public hearings on the expansion of the Patriot Act!

The Patriot Act passed a mere 45 days after the September 11 attacks with virtually no debate or discussion. Fortunately many of the sections that expanded government power were set to expire at the end of this year. Now, some in Congress are secretly considering legislation that would make these powers permanent and expand them. Hundreds of communities – and seven states – have signaled their rejection of the excessive powers in the Patriot Act by passing resolutions. But Congress is ignoring these and other public statements of concern against the Patriot Act and holding key hearings in secret.

In order to protest to your Members of Congress, 1.) Complete the (Web page) form on the left with your information. 2.) Personalize the subject and text of the message on the right with your own words, if you wish. 3.) Click the Next Step button to send your letter to your Senators and Representative.

Link here.



In times of war, people do strange and irrational things. They also do things that they would never think of doing in peacetime – like killing and maiming people that never lifted a finger against them, that they did not know, and that they had never even spoken to. It was 100 years ago that the first war ended in what was to be a very bloody century of war. The Russo-Japanese War began on the night of February 8, 1904, with the Battle of Port Arthur, a port on the Liaotung peninsula in Manchuria that served as the primary base for the Russian fleet in the Pacific. Port Arthur, which took its name from British Royal Navy Lieutenant William C. Arthur, was a strategic seaport coveted by Russian and Japan.

Although the immediate cause of the war was the Japanese naval attack on Port Arthur, the Russo-Japanese War was preceded, as are most wars, by interventionism. Russia and Japan, at the expense of China, wanted control or “influence” in the Far East. After warring against China in the mid 1890s, Japan demanded control of Port Arthur. The European Powers objected, not because they respected Chinese sovereignty, but because they had their own ambitions in the Far East. Within a couple of years, Russia took control of Port Arthur, gaining a valuable ice-free port to supplement Vladivostok. Suppression of the Boxer Rebellion in 1900 resulted in more intervention by Japan and the European powers. Russian troops remained in Manchuria after the fighting ended. It was Russian refusal to make good on its promised withdrawal of Russian troops that led to the Russo-Japanese War.

The outcome of the Battle of Port Arthur was inconclusive, but Japan was victorious when the Siege of Port Arthur ended on January 2, 1905. The Japanese also defeated the Russians at four major land battles and two major sea battles before the war effectively ended on May 28, 1905, with the defeat of the Russian fleet at the Battle of Tsushima. Nearly the entire Russian fleet, which had sailed all the way from the Baltic coast, was destroyed in this battle in the waters of Tsushima Straits (between the Japanese island of Kyushu and South Korea), along with over 4,300 men. The Japanese lost only three torpedo boats and a little over 100 men.

The wasting of the lives of over 4,400 men in this battle is a great tragedy. But the role of the state in sending men off to war and the blind obedience to the state by the men sent off to war is an incredible outrage. The same can be said about almost any war or foreign intervention. About 130,000 men were killed in the Russo-Japanese War. Although the Treaty of Portsmouth, signed at the Portsmouth Naval Base, New Hampshire, on September 5, 1905, officially ended the war, it did not end the folly of war and intervention that is still with us one hundred years later.

Link here.


At a recent hearing on Capitol Hill, senators of both parties berated the Bush administration’s failure to ratchet up the pressure on China to reduce the value of its currency, the yuan, by branding that nation as a “currency manipulator”. The lawmakers also complained that the value of Japan’s yen is too high. But such U.S. government interference in overseas commerce is ultimately counterproductive and could lead to a greater risk of conflict with other nations.

Influential U.S. industries that sell overseas face competition from Chinese and Japanese exports made cheaper by the yuan and yen, currencies that many economists say are held below market value by their respective governments. Since 1995, the Chinese government has fixed the yuan’s value at 8.28 per dollar. The Japanese central bank, with more subtlety, purchased large quantities of dollars in 2003 to drive up the value of the dollar vis-à-vis the yen. Although Japan quit that practice in March 2004, Japanese officials have threatened to resume it if the yen continues to rise against the dollar. The artificially low yuan and yen also make U.S. exports more expensive in the large home markets of China and Japan. Although U.S. export industries are hurt by the lower yuan and yen, American consumers here at home enjoy cheaper imports from China and Japan. Less is heard about the advantages to consumers of lower foreign currencies because consumers have far fewer lobbyists in Washington than do large export firms.

Nonetheless, the world would be a better – and richer – place if the Chinese and Japanese governments avoided trying to influence the value of their currencies and instead allowed them to float in international currency markets. By distorting their own economies, those governments, like members of the U.S. Congress, are supporting prominent export industries at the expense of the common consumer. That said, the U.S. government should set a better example by avoiding the kind of pressure on the Chinese and Japanese governments (and any other government using similar practices) that members of Congress are demanding. If those governments want to shoot themselves in the foot, there is no reason why the United States needs to shoot itself in the head.

Government interference in the international marketplace can ultimately lead to a trade war among nations. In the 1930s, the Smoot-Hawley legislation that increased tariffs in the United States was followed by retaliation from other nations. Such protectionism deepened the worldwide depression, and that global economic crisis was a contributing factor to the causes of World War II. The U.S. has enough tension with a nuclear-armed China over the Taiwan issue and dual military buildups without interjecting a trade war into the mix. In fact, a healthy level of international commerce between the two countries could create a peace lobby in each nation and a greater incentive to avoid military confrontation.

Link here.


I wish to propose a salubrious anarchy, a deliberate renunciation of fealty to country, society, and government, an assertion of independence from folly and moral decay. Permit me to offer a taxing political idea: When a society ceases to be worthy of support, it is reasonable to withdraw support. The time, I submit, has come.

Here I do not mean to urge crime or counsel treason, but to suggest quiet renunciation of the national disaster. Ask yourself how much of American life pleases you. The schools are run by fools to manufacture fools, government grows more intrusive by the day, and culture is determined by the triple sewers of New York, Hollywood, and Washington. Freedom withers, not only in the ominous encroachment of police powers, but in the loss of control over schools, church, hiring, daily life. We are no longer our own. The United States is not the country we are told it is, and not the country it was.

How to escape? The beginning, and the most difficult, is a moral distancing. Those who care must disentangle themselves from the cobweb loyalties and factitious duties with which we have been unconsciously encumbered. From childhood we learn patriotism, that one must vote, that if our way is not perfect it is at least best, that we must support anything however bad because we were were born in a particular place. Let me suggest that one owes loyalty to one’s family and friends, to common decency, and to nothing else. Render under Caesar what you must, keep what you can, and swear allegiance to nothing. Here I do not mean just the government, but the zeitgeist, the miasmic stench of trashy culture, the desperate consumerism, the entire psychic odor of a society in decomposition.

Begin with things so fundamental as seldom to be reflected upon. For example, do not imagine that you are under an obligation to marry, or to have children, or to raise them as the government requires. Procreate if you choose, but only if you genuinely want to procreate. It is not your job to perpetuate a civilization that is daily less deserving of perpetuation. But, never let the government have your children. Once they are had, your responsibility is to them. Teach them at home. Better yet, go abroad. Other countries do not force you to pay for an academically retrograde moral cesspool and then to drown your children in it. You might be astonished to know Argentina, for example.

Do not tie yourself to … anything. The price of freedom is poverty: freedom grows as your needs diminish. Less apothegmatically, if you believe that you need a vast house in a prestigious suburb, then you will need a lucrative job to pay for it. Having tied your psychic contentment to such an abode you will also believe that you need impressive cars and will therefore be tied to a retirement system and, bingo, the door of the trap falls. This, we are told, is the American Dream. I fear it has become so.

Finally, work the system. The government, if you let it, will take roughly half of your income, give much of it to useless bureaucrats, much to various forms of welfare, use much to bomb countries you may have no desire to bomb, and much to force upon you services, such as horrible schools, that you do not want. The central question regarding government is whether you can take more from it than it takes from you. It is much better to receive than to give. Live cheap, work only as much as you like, enjoy life, and keep your taxes down.

You will still read of the rot and running sores of a declining culture, but it will bother you less. These things are your problem only to the extent that you feel yourself to be part of the society that produces them. Do not fight the government, as it will win. Do not try to reform society, because you cannot. Laugh at it. Live well. Read much.

Link here.


Ask any freedom-minded person about the most crooked deal in American history, and it is likely that Social(ist) Security or the Federal Reserve System will be chosen. Even though both of those monumental scams are definitely worthy of mention, one other government-controlled shell game may be the biggest ripoff of all. I am referring to America’s college education system and its undeserved veneer of respectability. Countless millions of parents have been brainwashed into believing that their offspring will be forced to endure a lifetime of misery and poverty if they do not pick up at least a 4-year degree. Since this is a widely accepted doctrine, then it needs to be held to some serious scrutiny.

Just what do students receive for (in many cases) going tens of thousands of dollars into debt for a college diploma? Forget the hype and look at what actually takes place on campus. The vast majority of college students endure the grind to improve their career prospects and earning potential. That is a perfectly logical reason to attend school, but it is no secret that college classes are long on irrelevant theory and short on practical knowledge.

Look at the typical university business department. How many of the professors have real world experience in a free enterprise position? Have they ever run their own business – even a hot dog pushcart? Do they know what it is like to be a mid-level functionary in the corporate world? It is safe to say that the average small shop owner or office worker has a far better grasp of how business really functions than Dr. Stuckup with his Ph.D. So why are these clueless statists anointed as “experts” in a subject when they lack practical knowledge of even the basic facts of life? The same analogy also applies to marketing, journalism, broadcasting, the sciences, and other career-oriented courses. As the saying goes, those who can, do – and those who can’t, teach.

The most diabolical part of the deal: Taxpayers lavishly subsidize higher education even while students go into debt slavery for their own reprogramming! Maybe those eggheads are not as stupid as they act, as they have built a giant, lucrative make-work program for themselves. As with any other aspect of life, government interference in the market exacerbates the problem. Here is some advice to students: NEVER ask anyone associated with a college financial aid office if taking a loan is a good idea.

So what is the solution to flushing the sewer of American academia? Pay professors what they are truly worth. Since that would violate minimum wage laws in many cases, I may have created a whole ‘nother problem.

Link here.


The U.S. government gave the slave trade a boost by offering money for Al Qaida and Taliban fighters. Afghan and Pakistani war lords simply rounded up people who looked Arab or foreign and sold them to the Americans as captured fighters. The “fighters” apparently included relief workers, refugees, and Arab businessmen. The tribunals looking into the classification of Guantánamo prisoners as “enemy combatants” have uncovered numerous examples of hapless victims of a naïve U.S. government too flush with money.

The Bush administration, of course, denies that it bought its detainees, as it denies everything. However, on May 31, 2005, Michelle Faul of the Associated Press reported that in March, 2002, leaflets and broadcasts from helicopters in Afghanistan enticed Afghans to “Hand over the Arabs and feed your families for a lifetime.” One leaflet said, “You can receive millions of dollars. This is enough to take care of your family, your village, your tribe for the rest of your life, pay for livestock and doctors and school books and housing for all your people.”

Najeeb al-Nauimi, a former Qatar justice minister leads a group of lawyers representing 100 detainees who were sold to the naïve Americans. He says a consortium of wealthy Arabs are buying back fellow citizens kidnapped by Pakistani gangs before they can be sold to the Americans. More is going on here than merely unintended consequences of a hairbrained policy. The Bush administration has proven itself to be utterly irresponsible in the use of power. And it keeps demanding more power, including the suspension of our civil liberties in order to better fight “terrorism”.

Aside from September 11, an event of several years ago, the only terrorism the U.S. has experienced is the terrorism Bush created by invading Iraq. Why are we worried about Osama bin Laden when the moronic Bush administration is so adept at creating terrorism? Notice the pattern. Bush creates terrorism and then suspends our civil liberties in the name of his war on terror. The real terror Americans experience comes from their own government. Indeed, consider the terror the accounting firm, Arthur Anderson, and its 85,000 worldwide employees experienced as a result of the gestapo tactics of federal prosecutors …

Link here.


What level of government (local, state, federal, multinational institution or none) should regulate the following: What trees you may cut on your home property, whether you may burn logs in your home fireplace, and what identification you need to open a bank account in your local bank? Traditionally, it was not considered anyone else’s business, including the government’s, as to what trees, flowers and other plants one grew on one’s own property. Slowly, local governments and zoning authorities began regulating these decisions. As the influence of agricultural and environmental interests grew, federal laws and regulations were passed regarding which crops and trees could be grown or removed from private property.

When I was a child, no identification was required to open a bank account, and almost every school kid in America had a passbook savings account. Today, you need extensive documentation to open a bank account because of both the U.S. and internationally mandated “know your customer” regulations. We should be asking why Americans and citizens of other countries are forced to meet the requirements of unelected bureaucrats in an international organization (the Financial Action Task Force or FATF in this case), which has the effect of making it very difficult for students and other innocent people to get bank accounts. (FATF will claim it only gives recommendations – but if banks and countries do not follow those, FATF threatens to “black list” them, making difficult the conducting of necessary corresponding banking relationships.)

Over the last 80 years, we have seen the endless drift of government power from local, to state and regional to the federal and now increasingly to multinational institutions that have become quasi-governments fulfilling some government functions, particularly on trade, financial, environmental regulation and even criminal justice, given the advent of the International Criminal Court. The drift toward global statism has continued at a relentless but measured pace, so, like the frog in the pot, we do not realize we are being boiled to death. As government gets more distant from the people, it is more likely fundamental individual rights will be trampled, and the individual will feel he has less power. We should not let ourselves just drift into supernational statism but, instead, have a genuine debate about what powers may and may not be delegated to each level of government, including those of multinational organizations.

Link here.


Students of American history know that had the French not arrived in time to support the colonials in their struggle to secede from the British Empire, modern investors might now be concerned with how the American pound was faring against the euro. While the French were motivated primarily by the opportunity to have another whack at the British, it is nonetheless true that Americans owed the outcome of the so-called “Revolutionary War” to France’s intervention.

There is a more recent indebtedness to France that most Americans lack the decency to acknowledge: the refusal of Chirac’s regime to join forces with George W. Bush’s unprovoked aggression against Iraq, the first step in a neocon-inspired effort to get the world to prostrate itself at the feet of American emperors. By refusing to join with such lap dogs as Tony Blair – eager to roll over in exchange for any morsel of recognition from the grand imperator – the French became a symbol to other nations of the importance of pursuing a course of principled integrity in dealing with others.

Americans are not the only people indebted to a French obstinacy at being stampeded into a destructive herd frenzy. In voting to reject the constitution of the EU, France may have dealt a crushing blow to the efforts of the political establishment to create another monolithic state system, a result that will doubtless benefit the people of Europe. Dutch opponents of the EU, perhaps taking heart from the French, amassed a nearly 62% “nee” vote. The German parliament – not the voters – had earlier ratified the EU constitution, a reflection, perhaps, of a continuing desire for centralized power that has characterized that nation since at least 1870.

I have long been of the opinion that vertically-structured power systems – such as that implicit in the nation-state – are bound to collapse, taking with them the civilized societies upon which they feed. I have been amazed, however, at how rapidly this disintegrative process has progressed. The demise of the Soviet Union was the first major victim of the arrogance of centrally-directed authority. I also believe – as the subtitle to this continuing E-book suggests – that the United States will likewise succumb to the fatal virus of coercive bigness. I have had the same confidence that the European Union would be unable to sustain itself, but I did not suspect it would be delivered stillborn.

The French and the Dutch people – though not their political leaders – may well have saved European societies from having fastened around their necks the kind of vertically-structured, repressive, and violent super-state system now in retreat before the quiet forces of chaos and complexity. A Europe of independent but cooperative Luxembourgs, Liechtensteins, Switzerlands, and Hollands will be far more productive and peaceful than would be a Europe organized on the models of hegemony that tyrannized and rampaged that continent in the past. Europeans, like the rest of the world, will learn to organize themselves along horizontal lines of networked relationships, wherein “tops” and “bottoms” no longer have meaning. The vertical power structures will continue to waste away, the shrill voices of their occupants becoming more and more distant from the lives of ordinary people.

Link here.
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