Wealth International, Limited

Offshore News Digest for Week of June 13, 2005

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

Global Business Taxes Asset Protection Privacy Law Opinion & Analysis



No one likes paying taxes. Especially those big-hearted public servants in international institutions that work selflessly for the common good. The Financial Times describes a wonderful tax dodge availablke to Eurocrats:

Those working in Europe have since 1991 also been able to save tax-free through Amfie, a co-operative set up in tax-friendly Luxembourg. However, the Grand Duchy is becoming a bit more hostile, thanks to the efforts of the EU and OECD, which drew up a blacklist of tax havens. It has just passed the EU savings directive, which will force EU citizens to pay tax on savings throughout the Union from July 1, 2005.

Well, not all of them, it appears. “No need to panic,” trumpets the Amfie website. “Your association is working with its financial partners to provide you with suitable tax exempt products.” Such dogged protection of its members, who buy a share each, explains its burgeoning appeal.
Link here.

EU slow to recover misspent money.

Member states should do more to trace and recover misspent EU funds, with over €1 billion of aid payments going astray each year according to a European Parliament study. The EU’s anti-fraud body, OLAF, also faced flak over the wasted funds when MEPs adopted Austrian socialist Herbert Bosch’s non-binding report on budgetary control. OLAF has so far recovered just 1.87% of the estimated €5.34 billion that went astray between 1999 and 2003, Mr. Bosch noted. The parliament’s budgetary committee fears that the real level of misspending could be even higher, with EU members failing to live up to their auditing responsibilities. The post-enlargement figures for 2004 are expected to show similar results.

Link here.

Eutopia is dead. What now?

“Don’t panic” is not a very complicated message, but it is one that Europeans suddenly seemed to need to hear. Within hours of the Dutch vote, the European airwaves filled with noisy predictions of disaster. Without the constitution, the Euro currency would collapse, the European Union would break apart, the whole continent would soon tumble from unity into chaos.

But the European constitution failed because Europeans did not want it. The document was a poorly drafted mess that injured European democracy by transferring powers from national legislatures to the unelected and high-handed European Commission and the unelected and even more high-handed European Court of Justice. By contrast, Europeans do want the Euro and the EU. Neither is going anywhere. On the contrary, the defeat of the ill-conceived European constitution offers Europe its best chance in years to solve real problems that affect real people.

Link here.

Europe’s deceptive Constitution.

The E.U. Constitution claims to promote decision-making and control at the national level, yet the actual language gives more control to the bureaucrats in Brussels.

Link here.

Europe, interrupted

For decades now, advocates of a “greater Europe” – to serve as a counterbalance to the U.S., to secure greater prosperity for European inhabitants, to restore former glory, or perhaps to enhance the power of EU bureaucrats in Brussels – has been a dream of European statesmen, leaders and the aforementioned Brussels bureaucrats. That dream seems to be dying – or is it?

Link here.


At least one referendum has produced a EU-friendly result, even if it was in a non-EU country. On June 5th, the notoriously Eurosceptic voters of Switzerland endorsed, by a 55-45% majority, plans to join the 13 EU countries in the Schengen passport-free travel zone (it already has two other non-EU members, Iceland and Norway). Voters also approved of joining the EU’s Dublin agreement on handling asylum seekers, and of participating in more co-ordination of policing and crime-fighting.

Coming only four years after the Swiss rejected talks on EU membership by 77-23%, the decision to join Schengen was essentially pragmatic. This is one of the building-blocks in a series of bilateral accords struck with Brussels over the past four years to let Switzerland reap the practical benefits of co-operation with the EU, while keeping at arm’s length the tighter political commitment of full membership. Smaller crossing-points were already deserted because of local police agreements. Customs checks on shoppers and trade will remain. By saying yes, the Swiss have agreed to entrust at least part of their defensive ring to other countries.

Another referendum, on September 25th, to approve the extension of a bilateral agreement on the free movement of workers to cover the ten new EU members, may prove a sterner test. Under a guillotine clause agreed with Brussels, its rejection would nullify the bilateral accord on Schengen, and maybe earlier deals too. The campaign will be grubby. Just as the “Polish plumber” symbolised fears of cheap labour from the east during the French referendum, so “Polish butchers” featured in the anti-Schengen drive in Switzerland. They will be back in the run-up to September 25th.

Link here. EU labour accord splits Swiss People’s Party – link.

Swiss pay the price for “island life”.

In an interview, price administrator Rudolf Strahm says Switzerland’s political isolation has turned it into a “high price island”, and calls for far-reaching reforms to bring the cost of living into line with neighbouring countries. He says that, in addition to a lack of competition in several key domestic sectors, the Swiss economy is increasingly suffering the consequences of over-priced imports. His comments come against the background of a growing public debate about the overall cost of living in Switzerland, sparked in part by the forthcoming arrival on the Swiss market of German retail discounters Aldi and Lidl.

Link here.


When armed Spanish police raided a cocaine-laden trawler on the high seas late last month, just one member of the smuggling gang was onboard. But police knew exactly where to look for the foreigners linked to the $400 million haul. The ringleaders, a Brit and two Irishmen, were arrested back on the Costa del Sol, a 120-kilometer strip of Spain’s Mediterranean coast that is second home to a continent’s criminal class.

If organized crime is a globalized business these days, then Spain could be its European headquarters. More than 60% of the cannabis that enters the continent, as well as half the cocaine, is believed to pass through Spanish territory. And for a concentration of villainy there is nowhere to beat the Costa del Sol, a sun seekers’ paradise that doubles as a mobsters’ trading post. Local media cite an Interpol estimate that the region is now home to 18,000 foreign criminals of 70 nationalities. Shady services on offer range from arms trafficking to prostitution and money laundering. “This is the center of crime for Europe and maybe the whole world,” says Wensley Clarkson, a British crime writer who spends six months of the year at his home near Marbella, the Costa’s principal resort. “It’s a combination of Chicago in the 1930s and Miami in the 1990s.”

The Costa’s international allure presents an awesome challenge to crime busters. With 320 days of sunshine and more golf courses per head than anywhere else in the world, it pulls in the largest and richest mix of expats and holidaymakers in Europe. But the Costa’s clinching criminal charm is location. Morocco, which supplies most of Europe’s cannabis, is just 30 kilometers across the Mediterranean, and not far away the tiny British colony of Gibraltar makes a fat living as a tax haven and money laundry.

Link here.


The Isle of Man’s expert adviser is encouraging Manx officials to examine whether its original terms of association with the EU are still in its best interests. All the Crown Dependencies’ terms are through Protocol 3 of the UK’s terms of accession. The battered EU Constitutional Treaty, rejected last week by the French and the Dutch, would bring all different terms from around the nations together under a new Protocol 8. The actual content would remain unchanged.

Professor Alastair Sutton, a senior lawyer with Brussels-based practice White & Case, speaking in the Isle of Man, said that the islands’ relationship with Europe had been benign. Guernsey, Jersey and the Isle of Man had traditionally taken a low profile to preserve the traditions of independence. “The agreement was made to preserve access to the EU for agricultural and horticultural products and that aim has been broadly achieved. I would like to question whether the protocol today actually still serves the economic interests of the Isle of Man.”

Link here.

No need for death penalty in Isle of Man, just the threat of England’s taxes.

Reading the crime pages in local newspapers is not exactly a must-do vacation activity. But in some places, the term crime has a different meaning compared to what we see back home. Take my recent trip to the Isle of Man, for example. This tiny island nation located on a craggy piece of limestone between Scotland and Ireland has one of the lowest crime rates in all of Europe, a fact reflected in the constable’s docket section of the local newspapers.

A few of the island’s 70,000 residents explained why the sort of serious crime that makes life back home so interesting is largely absent here. The Isle of Man is considered something of a tax haven for U.K. residents, with a 10% income tax, the lowest in all the British Isles. (For the record, the Isle of Man is a dependent self-governing territory of the British Crown, but not part of the U.K.) In the few instances when locals are caught committing a serious crime, the authorities deal with them in the cruelest way imaginable – offenders are exiled to mainland England where income taxes can run as high as 52%. The threat of high taxes is enough of a deterrent that the main criminal court in Douglas is open only one day every two weeks, locals say.

Link here.


Building on an accord between Britain and the U.S., finance ministers of the world’s wealthiest nations agreed to wipe out $40 billion in debt owed by 18 of the world’s poorest countries as part of a major assault on global poverty. The decision by the Group of 8, the world’s leading industrial nations and Russia, fulfilled a decades-old dream of anti-poverty activists, who have argued that payments on old loans drain the limited resources of the world’s poorest nations, most of which are in Africa, keeping millions of people mired in poverty.

British Chancellor of the Exchequer Gordon Brown, the major force in putting together the debt-relief package, announced that the poor nations’ debt to the World Bank, the African Development Bank and the IMF would be wiped out. Richer countries have agreed to replenish the reserves of the funding organizations as necessary. Brown said the debtor nations would be relieved of $15.6 billion in payments on the $40 billion over the next 10 years, and the savings would be funneled to urgent needs in health, education and infrastructure development.

The decision qualifies 14 countries in Africa and four in Latin America for immediate debt forgiveness. An additional 20 countries could qualify over the next two years. Brown said the total size of the debt relief package could eventually reach $55 billion, believed to be the largest such initiative in history. The deal was seen as a victory for Brown, who in recent months has held long, tough talks with fellow finance ministers to gain support for his debt-relief proposal.

Link here. “The first step forward”, says The Guardianlink.

The debt dilemma: poor nations need economic freedom.

The agreement among the world’s economically developed countries, called the G-8 countries, to forgive more than $40 billion in debt owed by some of the world’s poorest countries to international institutions like the World Bank and the IMF could be the beginning of a fresh start for those poor countries. But if the agreement simply marks a continuation of previous government-to-government aid policies, it will do little to improve life for the people in those countries, most of them in sub-Saharan Africa.

What those countries need most is economic freedom, reduction in official corruption and a commitment to the rule of law (which simply means that rulers are subject to the same laws that govern their subjects). The record confirms that countries that institute such policies experience economic development and those that remain mired in corrupt official policies remain poor – except for those in a position to skim foreign aid or trade deals.

In the 1960s per capita GDP in East Asia and the Pacific was lower than in sub-Saharan Africa. But most Asian countries, while not models of laissez-faire, adopted market-friendly policies. According to Brent Schaefer, a fellow in international regulatory affairs at the Heritage Foundation, even Indonesia saw GDP increase (in constant terms) from $249 per capita in 1960 to $1,000 in 2003. Nigeria, by contrast, saw its per capita GDP increase only from $224 to $248. Unfortunately, while some of those who campaigned for debt forgiveness understand some of this, the evidence is that most do not.

Link here.


With more than 80% of the world’s 8,000+ hedge funds registered with the Cayman Islands Monetary Authority (Cima), 2004 saw a sizeable increase in investments by institutional and high-net-worth investors in U.S. debt and equity markets carried out through Cayman-based investment funds. And if the first quarter of 2005 is any indication, this year is on track to set another record. Indeed, the number of hedge funds registered with Cima showed an increase of approximately 23% from those registered in the first quarter of 2004. The rate of hedge fund formation continues in Cayman at a rapid rate, owing largely to an array of advantages that the jurisdiction offers to investors.

Specifically, Cayman provides hedge funds with a no-tax jurisdiction, a sophisticated financial infrastructure that includes major banks and accounting firms, and therefore the ability to achieve measurable savings, which are then passed along to investors. As a result, Cayman has quickly developed as the pre-eminent jurisdiction for the offshore alternative investment industry.

The trends prevalent in the marketplace today bode well for the alternative investment industry. The pace of formation of hedge funds continues to outstrip last year, despite increased regulation by the SEC. Private equity funds are having no difficulty raising new money for their successor funds and the appetite for acquisition by these funds should keep international M&A lawyers gainfully employed.

Link here.


The deconstructionist theory of political history would indicate that, if empirical facts exist at all, they are secondary to the primacy of creating a persuasive and cohesive narrative. New Labour did it with devastating effect in the 1990s to prejudicially encapsulate Conservative rule. Last month’s general election shows that the Tories have yet to reciprocate with their own seductive polemical narrative of the Blair Government.

Faced with a historic negative stereotypical view of tax havens, the Isle of Man has worked hard to construct, project and thereby seize its own narrative. In order to draw the individual storylines together and create a coherent branding narrative, the island has, over the last 12 months, embarked on a national branding project. During the course of the next six months, a series of brand propositions will be tested on the local population and selected persons internationally. It is accepted that for a national brand to create momentum is a prerequisite so that it has a powerful emotional resonance to the ordinary person. It must be a collective expression of belief by the citizen and not a top-down mandate from government or the business sector. In the latter cases, it would probably be perceived as a marketing campaign and quickly fade from consciousness.

It is still, perhaps, too early to evaluate properly whether the island’s own narrative will win out. What is certainly true is that the presentation of the island in the international media is a lot more complex, interesting and positive than it was a decade ago.

Link here.


After two weeks of protests that reflected a sharp decline in his popularity, President Martin Torrijos has blinked in the standoff with unions and business leaders over a far-reaching reform plan. In a nationwide address this week, Torrijos agreed to a 90-day “discussion period” with the growing ranks of opponents of new laws he backed to put Panama’s finances on stronger footing and lay the groundwork for a $5- billion expansion of the Panama Canal. The announcement comes as polls show that Torrijos’s approval rating has fallen below 30% from the mid-60s a month ago. More than 500 people have been arrested during the demonstrations, and businesses estimate their losses caused by the disturbances at $80 million. Classes at public schools and two universities have been suspended indefinitely.

A referendum on the 10-year project to expand the canal had been planned for November. But reaction to Torrijos’s reforms and the severe financial pain they inflict on the middle class have been so vehement that many observers doubt the referendum would pass if were it held today. “People are angry because there was little public consultation or debate over the reforms,” said Jorge Giannareas, a political analyst and law professor. “Although sentiment in Panama is in favor of the canal expansion, many people would vote against it now just to punish Torrijos.”

As a result of the reforms, which take full effect next year, average middle-class wage earners stand to lose 25% of their take-home pay, Giannareas said. More than 80,000 teachers, construction workers and government employees have been on strike since Torrijos-backed legislators passed a bill in late May to overhaul Panama’s generous social security system. Many Latin countries are facing similar crises, but Panama’s pension system is perhaps closest to hitting the wall. If left untouched, it could go broke as early as 2010. The reform increases contributions by wage earners by nearly 40%, while extending the retirement ages of men to 65 from 62 and of women to 62 from 57, changes strongly opposed by unions. To receive full benefits, workers now must contribute a portion of their wages for a minimum of 25 years, up from 15.

In February, Torrijos rammed through a bill to erase yawning deficits and broaden the tax base, one of the weakest in the hemisphere. Annual tax collections equate to only 9% of annual economic output. Mexico, which is often singled out as a country with weak tax collection, takes in 12% of annual economic output. Wall Street generally applauded the Torrijos changes as politically courageous and fiscally responsible.

Link here.


Bermuda’s runaway development is costing the Island its traditional character and turning it into “another Hong Kong”, a meeting on sustainable development heard this week. And many in the 50-strong audience at Whitney Institute said they were opposed to plans to widen Town Cut in St. George’s and Two Rock Passage in Hamilton Harbour to accommodate the latest mega-cruise ships. The meeting was held by the sustainable development project team, set up by Government earlier this year to write a sustainable development plan for Bermuda.

Audience members expressed concerns about foreigners holding land in Bermuda and highlighted the need for a moratorium on certain types of. One man warned, “We are moving forward as such a rapid pace, it’s hard to stop a runaway train. Do you want to live in Hong Kong?” Another man said, “Stop kidding yourselves, Hong Kong is here already. If you don’t believe it, wait until the buildings finish going up in west Hamilton.” Other people at the meeting raised the issues of immigration, crime, affordable housing, the cost of medical coverage for seniors, and the erosion of the Island’s coral reefs. People frequently voiced misgivings about the potential impact of mega-cruise ships, expanding the Town Cut and the increasing impact of noise and traffic congestion.

Link here.


Ex-pats often give newcomers among them an appraising eye as they ask about “their story” – this, an invitation to describe what it was that caused them to abandon home and hearth for distant parts. The answers, of course, depend a great deal on the locale of the conversation. If it is a tropical beach where catching rays by day and dancing away the nights are the primary attractions, you will hear one thing. If it is a mini-version of what was left behind, but doable at a greatly reduced cost of living, you will hear another. But if the ex-pat community has grown up as an integral part of an indigenous culture you will note that the questioner is listening closely for clues that the newcomer is looking to embrace more than just an escape. Such is especially true in the Mexican state of Michoacan, where no one is looking to attract newcomers unless they bring with them an appreciation for authenticity. …

Link here.


A while ago, the World Bank published a report on the most dangerous places to live on earth. That report by the World Bank defines places as dangerous to live when they are threatened by natural disasters, such as floods, earthquakes and hurricanes. According to that report, the award of being the most dangerous place on earth to live goes to Taiwan. 73% percent of Taiwan’s population are threatened by at least three natural disasters. 90% of folks in Bangladesh, Nepal, Haiti and Malawi are threatened by at least two natural disasters.

The World Bank report itself makes sense for me. It includes ideas about preventing damage to the economy and infrastructure caused by natural disasters. However, at a personal level, my attitude may be summarised with “I don’t give a row of beans.” After going through a few of the experiences I am rambling about you get a little more relaxed. As a result, there are no longer a bunch of things that manage to make you lose your composure. Moreover, at the end of your life you cannot complain about having had to endure a life that was dull and boring. In a nutshell, looking at those events in hindsight, they contribute to making your life more colourful and interesting. In the course of time, you turn into a more rounded personality. Folks who spend half their lives in front of the box and join the ranks of the departed while being sound asleep in bed cannot honestly make this sort of claim.

Link here.


When considering taking the emotional and financial leap that is homeownership it is important to understand some of the basics of the process and potential obstacles to avoid. Buying a piece of real estate is different from other types of purchases because instead of purchasing an actual object like a car or a boat what you are really acquiring is the title to a property, the right to exclusively own, occupy and use a particular space. There are various types of rights that a purchaser can acquire and each Caribbean nation has its own laws governing these rights.

Many Caribbean islands also have laws that govern what types of rights are transferable to foreign purchasers. To help sort through these technical title matters,/solicitor should provide guidance in regards to the current status of the title, what parties have rights to that particular property, and support with the transaction details like drafting purchase and sale agreements and assisting with the transfer of the rights to you. Another important issue to address when acquiring real estate is how to transfer funds safely and efficiently – an independent third party is needed. Principles to help buyers avoid risk are given below.

Link here.


A beautiful and inexpensive place in North America where oceanfront and lakeside lots can be had for as little as $10,000, or a charming 3-bedroom home on several acres that can be yours for under $50,000. Sound like a dream? This slice of Heaven does exist. Nestled in the North Atlantic on Canada’s east coast, Nova Scotia is a little-known paradise steeped in Scottish, Irish and English history. For the potential expatriate or retiree, Nova Scotia has a lot to offer … inexpensive real estate, a low cost of living, unspoiled natural environment, friendly people and lifestyle opportunities to suit virtually every taste. Coastal property prices are among the lowest in North America and with the local government rolling out the red carpet to newcomers, it has the potential to become North America’s next great retirement haven.

Nova Scotia has long been a favorite escape for savvy Canadians and Europeans, yet few Americans live or retire in this secretive outpost. Why? Well, perhaps it is because Nova Scotia is not a destination you stumble across by accident. Canada’s second-smallest province (21,425 square miles), Nova Scotia is about half the size of Pennsylvania with a population of just under 1 million people. Its craggy 4,600-mile coastline is dotted with quaint fishing villages, lighthouses and working seaports. Over 3,800 islands lie off its shores (some are for sale). Most of Nova Scotia’s population is concentrated along the coast. The largest city is the capital, Halifax, in which about 40% of the province’s population lives (much of the interior is heavily forested and sparsely populated).

Nova Scotia is one of those places that can seduce you through its sheer natural beauty. The seemingly endless stretches of picturesque coastline, a lush green countryside, the beautiful colors of autumn, and the friendliness of its people, make it one of the most livable places in North America. The climate is another plus. Summer temperatures range from the mid 60s to the low 80s, with the winters being much milder (with less snow) that you would expect to see north of the border. Canada has some of the strictest personal and financial privacy laws in the world. Compared with many places in the U.S., Nova Scotia enjoys a low crime rate, with incidents of violence being remarkably low. Americans do not need a visa to spend up to 180 days as a tourist in Canada and non-citizens may buy property without restrictions.

Link here.



Promoters of tax shelters zealously guard the names of their wealthy clients. But in mounting an unusual court challenge against an I.R.S. ruling that branded a certain tax shelter abusive and illegal, a promoter of the shelter has had to provide a rare glimpse of the investors who bought into it. The list of those investors, disclosed in filings in federal court in San Francisco, reads like a who’s who of rich Americans. The investors are clients of Presidio, a firm that sold the tax shelters to allow investors to shield billions of dollars in income and that has gone to court to defend those shelters. Presidio, which worked with the accounting firm KPMG and which maintains that the tax shelter is legal, is seeking to force the I.R.S. to disclose the internal deliberations and legal reasoning behind its decision to ban the tax shelter.

The I.R.S. is normally prohibited from identifying individual taxpayers, unless it sues them in federal court. But the judge in this case, Vaughn R. Walker, required Presidio to identify those who bought tax shelters from it. Yesterday, Judge Walker denied Presidio’s motion to depose I.R.S. officials, saying the request was not properly written, but he said the firm could refile its request, which it said it intended to do. The I.R.S. and the Justice Department oppose Presidio’s efforts, fearing that disclosure could provide ammunition to tax shelter promoters, as well as jeopardize major criminal investigations into the promoters, including KPMG.

The case will be watched closely because it could affect the campaign the I.R.S. has been waging against what it calls “abusive” tax shelters. The I.R.S. has successfully forced law firms and others to disclose to it – though not publicly – the names of the wealthy investors who bought a variety of abusive shelters. The aggressive moves by the I.R.S. have enabled it to collect billions of dollars in back taxes and penalties from those who used them. The tax shelter in question is known informally as Son of Boss, or sales option bond strategy. It uses complex partnership structures to produce artificial losses to offset capital gains.

Presidio has said that it is cooperating with other government investigations of its tax shelter work. It is a defendant, along with KPMG and several prominent law firms, in at least a dozen civil lawsuits filed by disgruntled tax shelter investors. None of those challenges have stopped Presidio from testing how the tax code’s ambiguities and complexity stand up in a federal court. It filed more than a dozen lawsuits against the I.R.S. in October and in March after the agency told it that its role in 1999 in creating, setting up and selling these shelters to dozens of investors had put it afoul of the tax code. Steven Bauer, a lawyer for Presidio, said Thursday, “We’re asking a court of law to rule whether the tax results were appropriate under the law as it existed at the time.”

The I.R.S. in part defines an abusive tax shelter as any transaction whose “significant purpose” is avoidance of federal income tax. While it has intensified efforts to root out promoters of questionable tax shelters and aggressively go after the investors in them, it has also suffered some legal defeats in corporate tax shelter cases, like those against Black & Decker and General Electric. The highly complex world of tax shelters is full of arcane economic and legal reasoning that is difficult to analyze.

Link here.


The Tax Office is urging taxpayers who have participated in offshore tax avoidance schemes featuring fictitious deductions and concealed income to trade information in return for reduced penalties. It is understood that one of the schemes involves taxpayers claiming for nonexistent and falsely created expenses and payments. In another scheme, assessable income is derived offshore and returns to Australia disguised as a loan, an inheritance, a gift or through debit or credit cards on which no tax is paid.

Tax Commissioner Michael Carmody has said that where taxpayers provide information that might result in criminal charges, taxpayers may be able to obtain an indemnity by providing information about how the arrangements work, the identity of promoters and otherwise co-operating with the investigation. The normal penalty for underpayment of tax and tax avoidance can be 50% of the tax avoided on top of the tax that should have been paid. Cooperation can reduce the penalty by up to 80%.

Link here.

A$300 million Australian offshore tax evasion ring alleged,

Twelve wealthy and prominent figures have been targeted in raids in four states to break up a $300 million offshore tax evasion scheme. Authorities say the series of raids were the largest, multi-agency investigation of its kind in Australia. Federal Justice and Customs Minister Chris Ellison said the Australian Crime Commission, the Australian Taxation Office and the Australian Federal Police had allegedly uncovered a major, organized effort to defraud the Commonwealth of tax revenue. No arrests had been made but 12 unnamed people of interest had been identified, Senator Ellison said.

The commission said the investigation covered the promoters and participants allegedly involved in an organized tax fraud and money laundering operation using offshore financial schemes. In some cases, deductions were claimed for payments for expenses and services that were fictitious and in other cases, assessable income derived offshore was not brought to account in Australia. “This income is secretly returned to Australia disguised as a loan, an inheritance, a gift, or through credit and debit cards,” the tax office said. Tax Commissioner Michael Carmody urged anyone involved in the schemes to come forward voluntarily as penalty discounts would be considered.

Link here.

New tax haven clues point to firms’ wealthy clients.

Australia’s largest investigation of tax havens will widen to include up to 100 wealthy clients and promoters after the Tax Office and police seized documents and client lists from lawyers and other professionals in raids last week. As four national law firms confirmed that search warrants were executed last week, the Tax Commissioner, Michael Carmody, said that new leads had been uncovered and dozens of warrants to seize information would be issued in coming weeks.

In his first interview about the investigation since it began in October, Mr. Carmody said investigations had focused on one offshore promoter of tax haven schemes following the seizure of computer records in 2003. The schemes are understood to involve trusts and companies in the British Virgin Islands, the Channel Islands and Switzerland. However, Mr. Carmody said the investigation was spreading much further. “This is potentially opening up into a substantial examination of these arrangements wider than that particular promoter.” Witnesses had recently come forward with information about other promoters with similar schemes. He said tax administrators across the world had to join forces to close down tax havens, as globalization and the internet had made them inaccessible.

Link here.

Tax haven promoter a smooth operator.

The man alleged to be the tax haven promoter behind the unfolding Australian Taxation Office crackdown is Philip Egglishaw, a Channel Islands accountant living in Geneva, Switzerland. Mr. Egglishaw provided written advice on tax havens, Swiss bank accounts and secret agency agreements to Australian clients as recently as last month. He has visited Australia most years for more than a decade.

The Australian Crime Commission, working with the Tax Office and the Australian Federal Police, promised “an intensive program of coercive examinations in a number of states” that would lead to criminal prosecutions. The commission confirmed Herald reports that the joint investigation had uncovered offshore promoters administering trusts and companies controlled by Australian taxpayers. It said the international money trail was obscured by fake invoices, gifts and inheritances, and complex financial structures. Mr. Egglishaw frequently operated in Australia from a spacious suite at the Sheraton Towers in Melbourne’s Southbank precinct.

Several Melbourne and Sydney lawyers said that Mr. Egglishaw had offered to structure and manage offshore assets in blind trusts – where assets were managed beyond the control of the ultimate owners – in ways that would not attract Australian tax. One lawyer said he was introduced to Mr. Egglishaw by a fellow legal partner at the Melbourne office of their national law firm, but declined his offshore tax structuring services because he did not believe they would work legally. Mr. Egglishaw’s clients said he was “as smooth as silk” and often carried an old kit bag.

Link here.

Avoid tax but do not evade it, Australian businesses told.

Big business should do everything it can to minimize its tax bill, the Business Council of Australia has declared, as it resumed its push for lower corporate and personal tax rates. BCA president Hugh Morgan said it was reasonable for Australian companies to seek to minimize their tax, provided they remained within the law. “There is a clear distinction between tax avoidance and evasion,” Mr Morgan said in response to a question about whether it was appropriate for companies to use arrangements such as tax havens to duck their tax obligations. Mr. Morgan added there was nothing requiring Australian companies to “maximize” the amount of tax they paid into commonwealth coffers.

He urged the Howard Government to cut corporate and personal tax rates to boost Australia’s international competitiveness. Mr. Morgan said Australia's corporate tax burden had now climbed to more than 5% of GDP. “If Australia had the same company tax burden as the OECD average, the company tax take in 2004 would have been nearly $16 billion lower than it was,” Mr. Morgan said. “In a world where competition for skilled labor will increasingly determine a nation’s economic performance, we cannot be wedded to tax structures and rates without considering their impact on the economy’s competitiveness internationally,” he said.

Link here.


On January 18, 2005, Anibal Acevedo Vilá was installed as governor of Puerto Rico. Puerto Rico, a Commonwealth in association with the United States, enjoys considerable autonomy in matters of taxation. Two weeks later, the governor established a Special Commission for Fiscal Reform (known as CERF by its Spanish acronym), instructing it to analyze Puerto Rico’s tax system and make recommendations for reform. CERF delivered its report on April 30. It recommended a 10-10-10 comprehensive reform of Puerto Rico’s tax system:

1.) A 10% flat tax on individuals, a marked reduction from the current top marginal 33% rate, which can reach 38% in certain conditions. Single taxpayers with annual income up to $15,000 would be exempt, as would married working couples with annual income up to $30,000. 2.) A 10% flat tax on corporations, which would double revenue from $2.4 billion to $5.7 billion. 3.) A 10% consumption tax, reduced to 9% after five years, which would replace a 6.6% general excise tax. This would be a hybrid VAT that could be implemented in less than a year.

Altogether, CERF estimates that the reforms would result in net tax revenue of $10 billion – $2 billion more than the government collected in 2004. The additional revenue, which would be collected from upper-income households and corporations, would stem from closing loopholes, and reducing evasion and avoidance.

Link here.

Puerto Rico’s tax dilemma: The case for flat taxes and the consumption tax.

Puerto Rico’s existing tax system is a complete mess. Complaints abound that the island’s tax system is inefficient, unfair, too complicated, and incomprehensible. It fosters tax avoidance, evasion, and cheating that adds up to possibly $2 billion annually, and costs millions of dollars more than it should to administer. It also costs billions in lost tax revenue from exempted operations. For decades, Puerto Rico’s tax code has generated antagonism, aggravation, and confusion among the island’s taxpaying sector. Earlier this month, after decades of patchwork solutions to Puerto Rico’s tax code by various Commonwealth administrations, the Special Commission for Fiscal Reform (CERF) presented a proposal to completely reform the local tax system.

Luis R. Benítez, co-president of the CERF and president of Puerto Rico’s Economists Association, in an exclusive interview with Caribbean Business stated the commission’s proposal literally seeks to throw Puerto Rico’s tax code into the garbage can and establish a completely new one.

Link here.


On this the 204th anniversary of the death of Benedict Arnold, one of America’s most famous traitors, it is time to consider whether some of America’s largest corporations that pay little or no federal taxes, have indeed become traitors. Large corporations are in full retreat from paying their fair share of taxes. In 2003, corporations paid just 7% of the cost of the U.S. government, according to a study by Citizens for Tax Justice. It was not always this way. At the end of the Second World War, a time when paying taxes was viewed as a patriotic duty, corporations paid half the cost of the federal government. Even as recently as the 1970s, corporate taxes accounted for 20% of federal treasury receipts.

This dramatic change has shifted the cost of paying for government to smaller businesses and individual taxpayers, while at the same time boosting corporate profits and their executive’s pay. In 2003, ten companies each reported more than $1 billion in profits to their shareholders, yet paid no federal corporate income tax. Collectively, these firms that have claimed the only way they can remain competitive is through tax breaks, earned $30 billion in profits and paid their CEOs $126 million in 2003. The average pay of the CEOs of the corporate Benedict Arnolds was $12.6 million, 51% higher than the pay of the average large-company CEO as reported by Business Week.

Who are these resurrected Benedict Arnolds? A new report published by United for a Fair Economy entitled Corporate Traitors: The Decline of Corporate Taxes and the Subsequent Rise of CEO Pay(PDF file) bestows awards on some of these tax avoiders.

Link here.


KPMG LLP, one of the Big Four accounting firms, apologized for helping set up illegal tax shelters, in a move that could help it avoid a criminal indictment like the one that destroyed Arthur Andersen three years ago. U.S. federal prosecutors have been probing certain tax services that were offered by KPMG to some of its wealthy clients between 1996 and 2002. “KPMG takes full responsibility for the unlawful conduct by former KPMG partners during that period, and we deeply regret that it occurred,” the audit firm said in a statement.

A Justice Department spokesman declined to comment, but the Wall Street Journal reported that prosecutors have built a criminal case against KPMG for obstruction of justice and the sale of abusive tax shelters. The paper, citing unnamed lawyers briefed on the case, said top department officials are debating now whether to seek an indictment of KPMG. KPMG said it has taken stringent measures to change its culture and structure and other steps to see that those responsible for wrongdoing have left the firm.

Some accounting experts said that, while an indictment could surely ground KPMG, it would not bode well for the accounting industry. Dozens of top notch corporations had to scramble around the world to find a new auditor after Arthur Andersen was brought down by an indictment over its role in the accounting fraud committed at energy trader Enron Corp. “There does not seem to be any appetite for reducing the number of audit firms any more. It is already difficult enough for a large corporate entity to retain the size and sophistication of auditors. (An indictment) will be intolerable,” said Mark Cheffers, head of auditor research firm Audit Analytics.

Links here and here.



International financial centers (IFCs) are on the front foot. IFCs have been tested, and are now resourced and resilient after upgrading their infrastructure and business models to meet the needs of a globalizing world. The traditional offshore centers (IFCs) are an essential lubricant in the global financial system. IFCs play a substantial commercial role facilitating tax-neutral transactions (often conceived in London and New York) as follows. Will increasing information exchange kill the offshore world? No. The main attraction of IFCs is not secrecy. Their fundamental appeal is the provision of a tax neutral platform, in a manner similar to London’s role as host of the Eurobond market.

In a surprising change of roles, key large countries are now under pressure to adopt disclosure standards already prevalent offshore, in order to deliver the level playing field promised by the OECD. A March 2004 report of the IMF confirms this gap in standards, noting that, “Compliance levels for offshore financial centers are, on average, more favorable than those for other jurisdictions assessed by the Fund in its financial sector work.”

The modern era for the IFCs commenced in 1998 when the OECD tabled a ground-breaking study entitled “Harmful Tax Competition: An Emerging Global Issue”. The study implicitly leveled charges of fiscal piracy against the IFCs, with suggestions that IFCs used secrecy to assist clients with evasion of taxes imposed by the larger countries. The OECD prescribed the antidote of “transparency” and demanded that the IFCs enter into agreements for exchange (i.e., provision) of information in order to facilitate better enforcement of taxes by its member states. IFCs rightly recognized the OECD demands as unprecedented, particularly in view of a longstanding rule in international law that no country is obliged to lend unilateral assistance to another in the enforcement of its taxes.

Governments are demanding much greater access to information to interdict criminal and terrorist activity. In the post 9/11 world it has become unfashionable to resist this. The demand for more information is styled, benignly, as “transparency” and it is treated as a self-evidently desirable end. However, it is dangerously unbalanced to seek law enforcement objectives to the complete exclusion of competing considerations in civil society, such as reasonable personal privacy. The new rules must also be designed to ensure that the considerable costs and inherent dangers in the collection of information are proportionate to the benefits associated with the activities being controlled and regulated. Scepticism concerning the ability of governments to resist the temptation to access information for unauthorised purposes is rife, particularly as there is, by definition, no opportunity to monitor unauthorized access.

Can the OECD deliver co-ordinated sanctions against the IFCs? This is very unlikely. However, IFCs perceive dangers in the attempt to restrict market access, as globalization places a premium on being connected. Accordingly, as the IMF assessment set out above acknowledges, IFCs have now largely moved to accommodate the needs of the dominant countries, adopting the aspirational standards sought by the OECD and related agencies. Having secured the cooperation of non-member states, the OECD now faces the embarrassment of an imploding project as its own members refuse to meet standards which the OECD sought to project onto non-members.

Link here.


The Swiss government has been presented with a petition, dubbed the “Schumi Initiative” after multiple Formula One world drivers champion Michael Schumacher, that aims to change the country’s laws and bring to an end its status as a tax haven. The petition seeks to end local deals that allow some 3,000 wealthy expatriates living in Switzerland to negotiate low rates of tax. Schumacher, who has an estimated fortune of £500 million, is believed to pay less than 10% of his earnings in tax and is officially listed as “unemployed” in his adopted homeland. Schumacher moved to Switzerland from Germany in 1996 to escape income taxes of 42%, coupled with 53% on investments and an extra 5% on his total tax bill to fund the rebuilding of East Germany. If the campaign is successful, Schumacher could end up paying more than 40% tax in total – almost as much as if he moved back across the border to Germany.

Links here and here.


Bermuda is where some American companies and foreign investors go to shield profits from taxes and to save money, but the state of Ohio did the reverse and lost $215 million in the inviting tax haven. The Bureau of Workers’ Compensation lost $215 million in what it says was an unauthorized hedge-fund investment with MDL Capital Management, which is actually based in Pittsburgh. Even so, the hedge fund, called the Active Duration Fund, is listed with a Bermuda address. And the contract signed by the bureau’s former chief financial officer, Terry Gasper, specifies that any disputes have to be decided in a Bermuda court. The wording of the contract also appears to hold MDL free from liability for losses. Bureau officials said the Bermuda provisions were “extremely out of the ordinary” and that Mr. Gasper acted alone and without authority of the agency’s Oversight Commission. Attorney General Jim Petro announced he had sued MDL and several of its principals because of the failed investment. The suit alleges fraud and breach of contract.

Link here.

Bahamas resident must surrender or face extradition to U.S. for hedge-fund fraud charges.

Lyford Cay resident Viktor Kozeny, who faces 17 counts of fraud-related charges in the U.S., will either have to surrender to U.S. authorities or face extradition, according to a New York City district attorney. Mr. Kozeny, a Czech financier who now holds an Irish passport, was charged on Oct 2, 2003 with grand larceny. The charges stemmed from a 2002 case where he allegedly defrauded clients of New York hedge-fund company Omega Advisors Inc. of $182 million in his dealings in Azerbaijan in 1998. He could face 25 years in prison in the U.S. Mr. Kozeny, 41, has managed to avoid arrest in the U.S. and has been living in The Bahamas since 1993.

Link here.


I have had an offshore bank account for 30 years. Now the rules on disclosure have changed do I have to notify the taxman and does this mean I face a huge tax bill? TG, London.

Nothing has changed on [your] basic duty to disclose. What has – and is – changing is the increased exchange of information between tax authorities, and the obligation of banks in the rest of the EU (and some non-EU territories) to either deduct tax at source or disclose information on account holders to other tax authorities.

If you have had an account for a while and the Revenue has not known about it then you really should write and tell them. It could well result in some questions as to why you did not disclose, what the source of the fund is and of course how much interest you have earned. The result is likely to be a tax bill plus interest (and possibly penalties) covering at least the last six years – they can go back 20 – but penalties may well be reduced for your disclosure and co-operation.

Link here.

Tax crackdown mooted on offshore U.K. account holders.

The Government is considering launching a crackdown on people who use offshore bank accounts to avoid paying tax. Officials at HM Revenue & Customers are understood to have held a meeting to discuss ways of clamping down on people who hide taxable money in offshore accounts. It is thought the Revenue wants to see a 10-fold increase in the amount of tax collected from offshore evaders, from just £30 million last year to £300 million this year. If the crackdown went ahead it would be handled by the Revenue’s Offshore Fraud Project Group.

The campaign will raise concerns in the City that banks are to be hit with a deluge of orders to provide information about their client accounts. It will also unsettle legal and accounting firms, which may have to justify a myriad legitimate tax avoidance schemes. Tax inspectors won new powers through legislation introduced in April that better enables them to investigate suspicious transactions involving offshore accounts.

A Revenue spokeswoman confirmed projected tax recoveries for the coming year had “come up for discussion” but said there was still to be a “final decision”. However, sources said the OFPG had brought in just £30 million in the year to April 2005 but was looking at “several hundred million” this year. Paul Harrison, head of tax investigations at KPMG, said, “They would not contemplate that unless they have evidence to think it is possible.” That view was shared by Simon Wilks, a tax investigations director at PricewaterhouseCoopers. Both are former Revenue inspectors. Aileen Barry, also a former Inland Revenue inspector and now at legal giant DLA Piper, said, “Three out of four investigation cases – civil or criminal – have used offshore accounts.”

Link here.


It is perfectly legal to have a bank account outside the U.K. What is illegal is investing money abroad to hide it from the taxman rather than declare the income. Also illegal (no matter where the money came from originally) is failure to declare the annual interest your overseas savings produce. If you do not receive a tax return then the duty is on you to write to the Revenue and advise them that you receive this income.

So how will this all affect you? It depends on where your savings are. If they are in the Channel Islands, Isle of Man, Austria, Belgium or Luxembourg, for example, then read the “Witholding Tax Option” below. If your savings are elsewhere in mainland Europe then read the “Reporting Countries” section. This new law is already concerning an awful lot of people who have money offshore. The withholding tax option makes such savings less attractive, and the reporting option will throw out lots of names of people who have not declared overseas income before. This may take years for the UK Revenue to sort out, but I suspect will be a factor in thousands of tax investigations.

Link here.

The EU directive on the taxation of savings income and the Channel Islands.

On 1 July the EU directive on the taxation of savings income will come into force. It will also become effective in the Channel Islands via agreements with individual countries within the EU. The directive allows three member states to adopt withholding tax for a transitional period, while the other 22 member states will adopt the automatic exchange of information option. The two options were extended to the non-EU jurisdictions, including the Crown dependencies of Guernsey, Jersey and the Isle of Man. The terminal date for the transitional period has not been determined, but a marker has been put down for the rates of withholding tax. For the first three years it will be 15%, then 20% for the following three years and thereafter 35%. After 1 July, if the EU resident does not consent to the disclosure of the interest paid to the fiscal authority where they are resident, the paying agent will have to deduct the withholding tax from the interest paid.

In very broad terms, the directive applies only to interest paid to individuals and to life tenants in receipt of interest from a trust. It follows that companies and discretionary trusts are outside the scope of the legislation, at least as regards the current legislation. In addition, dividends, including preference dividends, paid from companies are outside the scope of the provisions, as are distributions from partnerships, including limited partnerships. It is obviously easy to circumvent the legislation by using a company, although the transactions costs might be expensive. But what about a collective investment scheme based on preference shares, or a protected cell company based on a similar share structure? The latter would reduce significantly the administrative costs as regards each investor.

There are more deep-seated fears. In recent years, despite the celebrated conflict of laws rule, that one jurisdiction will not enforce the tax debts owed by a resident of another jurisdiction, this rule has been eroded in the EU both in terms of tax debts and provision of information. How long will it be before this legislation is extended to the Crown dependencies which traditionally have had sovereignty over their fiscal affairs? The directive is an inroad into this sovereignty whichever way ones looks at it.

Link here.

EU tax collectors may demand 10 years of account records.

Beginning July 1, 2005, the “European Savings Tax Directive” will come into effect. It calls for EU member states to pass details of interest payments to EU nationals to their respective tax authorities. In order to preserve their bank secrecy rules, Austria, Belgium and Luxembourg “opted out” of the information exchange, and will instead impose a withholding tax on interest payments to EU nationals. In addition, the 10 newest EU members – Cyprus, Malta, Poland, et al – will not be subject to these requirements until 2007.

As the directive is still not in effect, details of exactly how it will operate are only now coming into view. And there is one “shocker”: tax collecting authorities in EU countries have been advised that there are no legal barriers at an EU level to prevent them from requiring banks and other interest-payers to provide information on interest earnings in previous years. The rumor in the European banking industry is that this period may extend as far back as 10 years. If you live in one of the EU countries that will be exchanging data pursuant to the directive, and have at anytime during the past 10 years had a bank account in another “data exchange” EU country, and did not pay tax on the interest from this account, you could face a serious problem. If you face this situation, I recommend that you consult with a tax advisor immediately to determine your options.

Incidentally, overseas territories and dependencies of EU members are subject to the directive, including Andorra, Aruba, the British Virgin Islands, the Cayman Islands, Gibraltar, Guernsey, the Isle of Man, Jersey, Monaco, San Marino and the Turks & Caicos Islands. (Bermuda, however, is exempt.) All of these overseas territories and dependencies will withhold taxes rather than participate in information exchange. Several non-EU jurisdictions, particularly Switzerland and Liechtenstein, will withhold tax as well. The U.S. is also enforcing the directive, but the Bush administration has blocked its implementation. As we have pointed out before, this directive is easily avoided by banking outside the EU. Singapore, Hong Kong, Dubai and Panama are all possible alternatives.

Link here.


The concept of asset-protection planning seemed novel as recently as 10 years ago. Many thought it limited to offshore trusts and were suspicious of would-be users’ motives, suspecting tax evasion or fraud. Today asset-protection planning has more respect. I recommend it become part of every estate plan. But asset-protection planning is not limited to offshore trusts. It includes the proper form of ownership of assets and business, as well as integrating trusts into estate plans.

My experience leads me to believe that the professional advisory community needs to do a better job urging clients to use trusts, rather than making outright bequests. Given today’s litigous climate, it is surprising to see that wills still are drafted to provide for outright distributions upon attainment of certain ages. Drafters might believe they are merely following their clients’ wishes. I submit that they are not asking the right questions – or alerting clients to the pitfalls of their choices.

Instead of asking clients when they want children to receive their inheritance, I suggest asking clients if they have any concerns that their children might one day get divorced or face financial difficulties. Might a child ever have to give a personal guarantee to a bank for their business loans? Or choose a career with large malpractice risks? Most clients I advise have such concerns. While the usual reasons for structuring an inheritance as a trust include worries about spendthrift children or disabled beneficiaries, trusts can be a good option even when heirs are neither. It should never be overlooked that trusts can confer tax benefits and protect future beneficiaries from creditors.

Link here (PDF file). Links to more articles on asset protection here.


As the cost of malpractice insurance has skyrocketed in many states, some physicians have reduced the amount of coverage they carry or even dropped coverage entirely. The problem is that without insurance, a doctor who loses one malpractice case could lose all of his or her financial assets. A better strategy might be taking a higher deductible on a malpractice policy. But some physicians’ current malpractice coverage is inadequate for a large jury verdict. With insurance rates so high, though, doctors may be unable to increase coverage. While not completely bare, these physicians leave themselves open to lawsuits in excess of their coverage. Many plaintiffs will settle for what an insurance company will pay, but in some cases they will go after the doctor’s own assets.

“To the extent that you have a good asset-protection plan in place, and you appear to be judgment-proof, you’re less likely to have actions brought against you to begin with,” says Thomas Langdon, an attorney and professor of taxation at The American College in Bryn Mawr, Pennsylvania. He explains that most personal-injury lawyers take cases on a contingency basis, so they do not get paid unless they can win and collect. The first thing they do when they get a prospective client is look at the defendant’s assets. If they do not think they can seize enough in assets, they will not bring the case.

Once there is a case against you, any move you make to protect your assets will be deemed a fraudulent conveyance and nullified by the court. To avoid this, doctors need to make arrangements long in advance and protect their assets before any malpractice case arises. The first step, Mr. Langdon says, is to make sure that existing property is titled appropriately. A physician could transfer ownership to a spouse and protect assets that way. Of course, the spouse could always get sued or divorce the physician, causing additional problems.

Another option Peter Calfee, a CFP and CPA in Cleveland, suggests is to create an irrevocable trust for someone else’s benefit, such as a child. Since you do not own the money, a creditor cannot attach it. You will not be able to use the money for your own benefit, but you can ensure that there are funds available for your child’s education. Again, the trust would have to be set up well in advance of any potential lawsuits. It might seem nice if you could create a trust for your own benefit and keep money for yourself that is free from creditors. Traditionally, common law forbids this practice, but in the past couple of years, five states – Alaska, Delaware, Nevada, Rhode Island and Utah – have passed laws overriding common law. What is unknown is whether or not these trusts provide protection for out-of-state residents. A doctor in New York could set up a trust in Delaware, but a New York court could declare the trust invalid.

Gideon Rothschild, co-chairman of the private client services group at the New York law firm Moses and Singer, says that domestic trusts could provide significant protection to out-of-state residents, a safer approach would be to set up a trust outside the U.S. entirely. If assets are held in a jurisdiction outside the country, it will be even more difficult to recover the assets and even more of an incentive for a plaintiff to settle a case.

Link here.


The “Bankruptcy Abuse Prevention and Consumer Protection Act” is a hypocritical sell-out of our greater public interest to the favored few. Its misleading title is geared to sucker our acceptance of poison made to look like honey. After all, who would argue that those who abuse bankruptcy laws should be prevented from doing so? However, the vast majority of bankruptcies are legitimate cases of financial devastation wrought by catastrophic medical expenses, job loss, death or divorce. In fact, the non-partisan American Bankruptcy Institute estimates that at most only 3% of filers “abuse” the system by getting debts discharged that they could actually pay.

Yet Congress and the president demean hard-hit working Americans suffering illness, downsizing or outsourcing by lumping them with the scant few who do abuse the system. And while punishing the innocent, they protect the wealthiest and most flagrant abusers. The rich, whether an Enron executive or a run-of-the-mill millionaire, can still shield their cash in “asset protection trusts” that are beyond the reach of creditors. But median income earners will be put in a quasi-debtor prison by allowing creditors to snatch future earnings to pay off debts that for over 100 years have been rightfully forgiven

The new law will deny a “fresh start” to many hapless families by replacing the judge’s review of actual income, expenses and circumstances with a rigid formula that ignores reality in favor of standardized assumptions. More ominously, the law ends protection against eviction and makes it harder for one to keep their car. Worst of all, President Bush and Congress has further legitimized the credit industry’s unethical predatory behavior. The law is so bad that 90 of the country’s top law professors wrote a letter to the Senate opposing its passage.

Link here.


Where a trust is subject to English law, trustees who wish to enter into a particular transaction but who do not have power to do so can apply to the courts for that authority. If the court is satisfied that the transaction would be “expedient” (in the context of the trust as a whole), it can then confer on the trustees the necessary power. But there are limits to this jurisdiction. In particular, for more than 50 years it has been clearly established that such an application, made under Section 57 of the Trustee Act 1925, can only permit the court to confer a power “in the management or administration” of the property vested in the trustees. It cannot authorize any modification of the trusts which affect that property. This situation and this limitation are mirrored in the legislation of many offshore territories. But the overall effect of Section 47 of the Trustee Act 1975 (Bermuda) is crucial in distinguishing English law from Bermudian law.

A trust governed by the law of Bermuda may be in a special position. Provided that the trustees need the authority of the courts in Bermuda to enter into a transaction that the courts can legitimately regard as “expedient”, it may be possible to obtain an order of the court which not only confers the power to enter into the transaction, but also varies the trusts in appropriate terms – something which hitherto has been considered impossible. There is considerable scope for creative thinking here.

Link here.



Browsing news stories on the web can be a fairly traumatic experience these days for those of us who value limited government and individual liberty. Hardly a day goes by without some new outrage being perpetrated by our government at some level. The most recent travesty to catch my eye was a little gem from Knight Ridder Newspapers written by David Goldstein. He reports a new plan by the U.S. Department of Education to create a database with information on all students from nearly every college and university in the country. The department’s proposed database would include the students’ names, social security numbers, racial and ethnic backgrounds, and a plethora of information concerning grades, courses, and degrees. The department is justifying the plan by claiming that it will improve their ability to maintain educational excellence in our university system.

The skeptical observer may view this as just one more example of our overbearing government engaging in left wing, politically correct authoritarianism. The federal government has already set up an intrusive system in our public schools which allows them to monitor achievement by ethnicity and gender. The libertarians among us may ask whether this is a legitimate function of government and whether the very existence of the Department of Education is permitted by our constitution. We may further question whether such a system will have any effect on actual student achievement. We might even criticize this plan as an unwarranted intrusion upon students’ privacy rights.

Being somewhat of a cynic, I have been wondering if the appearance of this plan at this particular time might have additional, ulterior motives … ones that are even more sinister than the standard government mania for social engineering. Specifically, why does this proposal call for unique identifying numbers to be attached to students’ performance records? If the system merely desires to track overall achievement and race/gender statistics, why include the social security numbers?

While I admit that this may just be an example of bureaucracy run amok, I smell something else in the air. Namely, the government is now mired in a seemingly endless war in the Middle East. The military’s most acute need in Iraq is not for hordes of infantrymen. The most urgent requirements are for a relatively small number of young people with certain skills. In particular, they need doctors, nurses, medics, computer experts, and people with skills in various Middle Eastern languages. And this is where that wonderful little database over at the Department of Education comes into play. You might call me paranoid … but don’t say you were not warned.

Link here.


Canada’s secret eavesdropping agency is undergoing its biggest expansion in decades as it takes on a greater role in the fight against terrorism. The clandestine Communications Security Establishment, a wing of the Defence Department that snoops on foreign conversations and messages, has made its primary mission the countering of dangerous extremists. Staff levels at the Ottawa-based CSE are expected to jump to 1,650 from about 950 before the Sept. 11, 2001 attacks.

Link here.


Nearly 32,000 of the terror suspects considered “armed and dangerous” who were logged onto the government’s master terror watch list were designated for the lowest level of security handling, requiring no immediate action by law enforcement officers who might encounter them on the streets, the Justice Department’s inspector general claimed. In a report assessing the watch list, the inspector general’s office found a weakness that “places front-line law enforcement officers in a vulnerable position” because they may not realize the danger posed by a suspect they confront.

But federal officials who maintain the list disputed that finding, saying the inspector general, Glenn A. Fine, had misconstrued the process used for determining the risk posed by suspects within the U.S. The officials said in interviews that any terror suspect encountered by law enforcement officials should be considered dangerous, but that legal restrictions prevented them from ordering the suspect held without an arrest warrant or other evidence.

The report said the watch list project had made “significant strides” in the last two years in consolidating the various federal lists. But the inspector general also found some significant weaknesses in the project, including inadequate training and rapid turnover among employees staffing the screening center’s 24-hour call center, computer problems, inaccurate or incomplete data, coordination errors and a lack of long-range planning. The inspector general offered 40 recommendations for improving the system, and the F.B.I. said it had already adopted many of them.

Link here.


Plans to introduce identity cards have suffered a serious setback with the publication of a poll which discovered rising public hostility to the scheme. The number of voters backing the move has slumped from more than 80% to 55% in six months, according to the survey of 1,010 voters by ICM Research. The number of opponents has more than doubled to 43%. The rebuff came two weeks after the Government reintroduced the ID Cards Bill, which it had to put aside as time ran out before the last election. Anti-ID card campaigners have argued that support for the cards would haemorrhage once the cost and civil liberties implications became better known.

Link here.


The European Parliament’s efforts to stop the contentious Framework Decision on Data Retention have failed. Under it, ISPs and telcos will now be compelled to collect data on their users. Despite the measures, the European Parliament committee on Civil Liberties, Justice and Home Affairs believes “Individuals involved in organized crime and terrorism will easily find a way to prevent their data from being traced. … Possible ways of doing so include using ‘front men’ to buy telephone cards or switching between mobile phones from foreign providers, using public telephones, changing the IP or email address when using an email service or simply using Internet service providers outside Europe not subject to data retention obligations. If all the traffic data covered by the proposal did indeed have to be stored, the network of a large Internet provider would, even at today’s traffic levels, accumulate a data volume of 20-40,000 terabytes. The act requires phone companies and ISPs to retain customer data such as the time, date and location of sent and received emails and phone calls for 12 to 36 months. The content of the communications, however, will not be retained.”

Link here.


The head of the federal agency working to keep terrorists from laundering money in U.S. banks told 1,300 bankers that they are America’s “eyes and ears” when it comes to spotting suspicious banking activity. But William Fox, director of the Treasury Department’s Financial Crimes Enforcement Network, aka “FinCen”, also urged the bankers to “calm down a little bit” and use their judgment when deciding whether to report a customer’s actions.

Since the Sept. 11, 2001, terrorist attacks, federal regulators have stepped up enforcement of the Bank Secrecy Act, an anti-money laundering law, passed in 1970, that makes banks responsible for reporting unusual cash activity. Fox said bankers are filing too many suspicious activity reports (SAR) because they are worried that missing a possible terrorist will ruin their company’s image or garner a fine. Fox said “defensive filing” is bogging down his department – he gave an example of a company that filed a SAR when a worker stole bacon from the cafeteria.

The jump in “defensive filing” began in earnest after two banks recently received large fines for not filing SARs, said ABA spokesman John Hall. Since 1996, banks have filed more than 1 million SARs. Hall said that in the first six months of 2004, banks filed 25% more SARs than the first half of 2003. Part of the problem is the lack of fixed rules concerning what exactly qualifies as “suspicious activity”, Fox said, acknowledging that the government has done a “poor job of providing information” to banks to help them analyze the risks some customers could pose. To help bankers, FinCen plans to hold a series of free seminars.

Link here.


If Alistair Darling gets away with spying on 32 million drivers with great big speed cameras in the sky, it could revolutionize motoring. Signs will read Dorking 50 (quid, not miles). Instead of Little Chefs, motorways will boast Little Banks offering second mortgages to complete your journey.

Arguments about government initiatives can be finely balanced but road charging is a policy so bonkers you fear Darling is drunk in charge of a government. Has he swigged too much eyebrow dye? Existing taxes on petrol are fair. We pay in proportion to how much we drive and the Inland Revenue looks to the fuel efficiency of company cars when charging us for the benefit. If he must punish wicked motorists for driving to work he could bring in tolls on ultra-congested roads such as the M25 and M6. Why waste billions on hardware when ministries are incapable of even operating their own software?

That, however, is almost trivial. What should drive motorists really mad is the intrusion. Wherever you are, the government will know. So if you are bunking off work or just heading for a solitary stroll on a salty beach, fear not, your secret is safe with the secretary of state for transport. What with ID cards and police cameras, your every move is tracked. And then companies will join in the fun. Already they electronically tag workers. They also insert microchips in their products to keep tabs on customers. We are all, it seems, suspects now.

At least sad exhibitionists on Big Brother enjoy being ogled – the rest of us just want our privacy back. This is the real death of liberal England. How those enemies of freedom, the mad bad mullahs, must be laughing – oops, we will not be able to say that when the new legislation on religious hatred is passed.

Link here. UK road pricing plan heralds the ID card for cars – link.


Washington retreated from its demand that close allies, including many European countries, begin to issue new high-tech passports from the end of October. But there was confusion about whether French and Italian citizens could still be singled out as requiring visas to enter the U.S. The decision will give the 27 “visa-free” countries an extra year to start adopting full-scale biometric passports. It follows lobbying by the U.S. travel industry, which feared losing billions of dollars if visitors were put off. The EU had also warned that countries needed another year to finish the documents, which are part of “anti-terror” drives. The U.S. had threatened to demand visas from new passport holders if the countries did not start issuing the passports from October 26.

But after meetings with European officials, Alberto Gonzales, U.S. attorney-general, announced the new requirements and a one-year delay. Passports issued from October 26 will have to contain digital photographs printed in the documents. Almost all European visa-waiver countries already have these. Of the 15 visa-free EU nations, only Italy and France do not meet that requirement, issuing instead passports containing laminated photographs considered more vulnerable to tampering. Mr. Gonzales said the cases of France and Italy had been “addressed and resolved”. But Washington would not confirm that they would be guaranteed visa-free access after October.

Washington has for more than two years insisted visa-free countries begin introducing biometric passports to prevent terrorists using fakes. The passports will include digital photographs and personal data embedded on an electronic chip. The U.S. has issued passports with digital photographs since 1998, but is not yet producing biometric passports. Roger J. Dow, president of the Travel Industry Association of America, said the postponement was “critical to our nation’s economy, our diplomatic efforts with key allies and it helps to enhance our image abroad. The ‘welcome mat’ is indeed out for all visitors.”

Links here and here.



For the first century of their country’s history, American lawmakers and judges repeatedly looked beyond America’s borders, particularly to England, for precedents that could help their own legal thinking. Over the next century, America ardently supported efforts to create a framework of international laws and institutions. But since the end of the cold war, and particularly since the election of George Bush, it has grown increasingly resistant to “foreign” influence. Or so many outsiders claim. In fact, the debate about the relationship between American law and foreign laws is more complicated than it appears, and Americans themselves are far from united (or consistent) on the subject. Some, such as John Bolton, set to become Mr. Bush’s ambassador to the UN, believe that treaties that constrain American sovereignty in any way are “not legally binding”; but Mr Bush cited Iraq’s transgressions of international law as part of the reason to go to war. Mr. Bush has pulled America out of the International Criminal Court (ICC) and the Kyoto agreement on the environment, ignored international laws of war and sent terrorist suspects into legal limbo in Guantánamo; yet America is among the strongest backers of global rules on trade, finance and international investment.

In general, there are three main areas of conflict. The first involves foreign treaties that America has subscribed to: what force do they have in America? The second, which tends to be focused on the Supreme Court, revolves around the relevance of foreign legal practices to America. The last has to do with how far overseas American courts can reach.

It is tempting to claim that America has always been worried by international treaties. (“Against the insidious wiles of foreign influence,” George Washington wrote in 1796, “the jealousy of a free people ought to be constantly awake.”) In fact, as long as global rules and institutions helped its own interests, America was happy to go along with them. But, as Philippe Sands, a professor of law at University College, London, argues in Lawless World, his latest book, “The rules which were intended to constrain others became constraining for their creators.” And so the pendulum swung back.

Link here.


A closed-door vote by the Senate Intelligence Committee last week to expand law enforcement powers under the USA Patriot Act is prompting sharp criticism from some conservative leaders who are otherwise among the most vocal allies of President Bush and the Republican leadership in Congress. The conservative leaders – who have formed a coalition with critics on the left, including the American Civil Liberties Union – vowed to press their concerns in coming days with public statements, rallies and radio advertisements in key congressional districts.

The White House and the congressional leadership generally enjoy enthusiastic support from conservative activist organizations. But now, said conservative activist Grover Norquist, every major conservative grass-roots organization has expressed concern about expanding the Patriot Act. He emphasized that his concern was directed not at the White House but at Congress. Other conservative leaders, however, are aiming their criticism at both ends of Pennsylvania Avenue.

Link here. Patriot Second Act – editorial.

Conservatives, liberals align against Patriot Act.

Conservative groups have found common ground with the liberal ACLU in their opposition to the USA Patriot Act and pledge to wage a high-profile fight against it, claiming even its renewal is shrouded in secrecy. Former Rep. Bob Barr, who led conservative efforts to impeach President Clinton, is leading a group called “Patriots to Restore Checks and Balances” that is focused exclusively on opposing the renewal of the Patriot Act. The effort also has the enthusiastic support of three of the most influential conservatives in Washington, Grover Norquist of Americans for Tax Reform, David Keene of the American Conservative Union and Phyllis Schlafly of the Eagle Forum.

“They support this effort because the true conservatives understand the Constitution and understand when it is threatened,” Mr. Barr said. “They are not your neo-cons and typical Washington insiders. This is a broad array of conservative groups.” Brad Jansen, an adjunct scholar at the conservative Competitive Enterprise Institute, has also joined Mr. Barr’s effort, and said he will prove today that opposition to the Patriot Act is a political winner. “Virtually all conservatives are concerned about arbitrary government power,” Mr. Jansen said. “This is one of the tenets of our faith and you see it all across the board.”

Link here.

Can patriots survive the Patriot Act?

Like everyone else I will be celebrating the 4th of July as the birthday of our great nation, but I will be doing so with a nagging sense of foreboding about how much longer it will still be a nation that protect the rights set forth in the Constitution. It is an aspect of politics, liberal or conservative, that those who believe in America’s historic role come together when the Constitution is threatened.

Walter M. Brasch, Ph.D., is as liberal as I am conservative. He teaches journalism at Bloomsburg University in Pennsylvania. His latest book, America’s Unpatriotic Acts: The Federal Government’s Violation of Constitutional and Civil Rights was recently published and it documents how the Patriot Act and its enforcement should scare the daylights out of everyone. I find myself in the company of some of the most famed liberals, Noam Chomsky and Paul Krassner, among others, recommending that anyone concerned about where this nation is currently headed, read Dr. Brasch’s book.

The great service Dr. Brasch has rendered is to have meticulously documented the ways elements of the Bill of Rights have been trashed. “Enforcement of the Patriot Act butts against the protections of six amendments to the Constitution: the First (freedom of religion, speech, press and assembly, and the right to petition the government for redress of grievances.) Fourth (freedom from unreasonable search). Fifth (right against self-incrimination and due process). Sixth (due process, the right to counsel, a speedy trial, and the right to a fair and public trial by an impartial jury). Eighth (reasonable bail and freedom from cruel and unusual punishment), and Fourteenth (equal protection guarantee for both citizens and non-citizens).” Nothing, Dr. Brasch, rightly concludes justified then or now rendering the Bill of Rights a mere platitude.

Simply stated, if the U.S. is to be the exemplar of freedom, it must conduct itself within the limits of the Constitution and with respect for the Geneva Convention. When such laws are jettisoned in the name of “national security”, there is no security for any American. It is the worst kind of foolishness to think that the federal government is going to nobly enforce the USA Patriot Act without yielding to the temptations of its authoritarian powers. This piece of legislation needs to be significantly reformed to insure judicial oversight remains an essential element of investigate actions and law enforcement.

Link here.

Civil libertarians praise House Patriot Act vote.

Advocates of rewriting the USA Patriot Act are claiming momentum after the House, despite a White House veto threat, voted to restrict investigators from using the anti-terrorism law to peek at library records and bookstore sales slips. Wednesday’s 238-187 vote came as lawmakers ramped up efforts to extend the Patriot Act, which was passed quickly in the emotional aftermath of the Sept. 11, 2001, terrorist attacks. When Congress passed the law, it included a sunset provision under which 15 of the its provisions are to expire at the end of this year.

White House press secretary Scott McClellan said Thursday that weakening of the act could draw a veto from President Bush, who pressured Congress to renew all provisions of the law during a visit with Ohio police in Columbus last week. Rep. Bernard Sanders (search), I-Vermont, sponsor of the provision that would curtail the government’s ability to investigate the reading habits of terror suspects, said the vote would help “rein in an administration intent on chipping away at the very civil liberties that define us as a nation.” The vote reversed a narrow loss last year by lawmakers concerned about the potential invasion of privacy of innocent library users. They narrowed the proposal this year to permit the government to continue to seek out records of Internet use at libraries.

Links here and here.



After defeating al Qaeda, at least in their own minds, top officials of the Bush administration are now contemplating a war against “violent extremism.” (I call it the WAVE.) Apparently, the already grandiose “Global War on Terrorism” just was not extravagant enough for an administration that thinks really big. Although administration officials implicitly acknowledge the spreading conflagration of global Islamic jihad, they are oblivious to their own culpability in causing it.

The real problem is that the administration, in permanent campaign mode even after reelection, has always regarded the GWOT as a political marketing gimmick, both at home and abroad. But alas, all good marketing campaigns eventually get stale and that is evidently what has happened to the GWOT. In Washington, changes in surface rhetoric often signal transformation in underlying policy. Instead of concentrating its efforts to capture or kill the leadership of al Qaeda, the terrorist group that actually attacked the U.S., the administration came up with the broader GWOT catchphrase so that an invasion of Iraq could fit under its umbrella. Who knows what additional administration monkey business will be perpetrated under the cover of the even wider WAVE.

GWOT, however, will be hard to replace. It was an ideal federal program, generating the demand for even more intensive government security efforts. Without any apparent introspection about the Bush administration’s role in inflaming violent Islamic extremism worldwide by invading Muslim territory, senior government officials are now turning their planning efforts toward combating the expected diffusion around the globe of a new generation of radical jihadists trained and given combat experience in the Iraq insurgency. In the business world, a product with a self-generating demand is the Holy Grail. Under the GWOT, the U.S. security establishment has achieved that lofty goal. But because the WAVE crusades against an even wider definition of international “misbehavior”, greater results in generating anti-U.S. hatred around the world should be expected.

Link here.


There is a formerly great nation amongst us that has become a country full of people who live in a gross denial of the truth. This denial has grown past crisis proportions. This monstrous rejection of the truth – the big lie – this refusal to face up to facts – has led this once freedom-loving land into becoming a nation of neurotics. As this neurosis grows, and is freely allowed to grow by the adults of this country, it will leave generations of mentally scarred children in its wake.

It is in this once great land that a man became their leader. This man was loved by many. Scorned by some. But it is this man who lived an entire life of denial – thereby cheating himself of the benefit of spiritual growth that comes with defeating denial – It is this man who learned to cheat and lie. It is this man, whose words have become even more believed and popular than the words of Jesus Christ himself.

How else could it be explained that this man’s lies are forgiven or ignored? Lies that have led to the deaths of at least hundreds of thousands of innocent people; lies that have lead to the deaths of thousands of the very same people he swore to protect? How else could it be explained that this man is allowed to keep his position as leader of this once great nation? How else could it be explained except that this man is himself a neurotic in a nation of neurotics?

Link here.
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