Wealth International, Limited

Offshore News Digest for Week of June 27, 2005

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

Global Business Taxes Asset Protection Privacy Law Opinion & Analysis



Dreams of sunny skies and a lower cost of living have long made the idea of retiring abroad an inviting one. Recent studies show that in Britain alone, nearly a quarter of those approaching retirement age hope to move overseas after they stop working. But instead of focusing only on such traditional retirement haunts as Spain, France and Italy, today’s retirees also are looking at a wider range of destinations that includes Cyprus, Croatia, Portugal and even Ecuador and other spots throughout Central and South America.

It is easy to see why retirees are becoming more adventurous in their choices: The cost of plane travel has dropped within Europe, the introduction of the euro has facilitated greater mobility between member states and improvements in telecommunications, including the Internet, have made keeping in touch easier and cheaper. As a result, retirees are seeking the good life in places they might not have looked at a few years ago. One issue driving retirees to new locales is simply that the more traditional ones have become too crowded.

Link here.


Russian President, Vladimir Putin has attempted to reassure foreign investors that their input into the country’s economy is welcome and outlined new plans to make the country’s investment environment more open and competitive. Mr. Putin’s assurances came after meetings with investors from the U.S. and Germany over the weekend, who were representing companies such as IBM, ConocoPhillips, Siemens and E.ON.

Confidence in the Russian business environment has taken a severe battering after the highly-publicised trial of former Yukos boss Mikhail Khodorkovsky, who has been jailed for nine years after being found guilty of tax evasion, fraud and embezzlement, although it is widely believed that trial had more to do with Khodorkovsky’s political ambitions than with tax crime. The breaking up of Yukos after multiple multi-billion dollar claims for back taxes, not to mention back tax claims against firms across many sectors have exacerbated the uncertainty and insecurity felt by many investors in Russia over the past twelve months.

In a report published earlier this month, the OECD also noted that the tackling of basic issues, such as the strengthening of the rule of law and securing property rights, increasing the transparency and accountability of state institutions, and combating corruption are all major reform challenges for the Russian government.

Link here.


Legend has it that as long as the Barbary apes roam the rock of Gibraltar, the territory will remain safely under British rule. The British have embraced this particular piece of folklore for centuries; not even Churchill, in the throes of World War II, dared to disregard it. In 1944, with British morale battered by the war and the Rock’s monkey population dwindling, he took no chances. He ordered a shipment of Barbary macaques from Morocco, a short hop across the strait.

Little did Churchill envision how big the monkey population would grow, nor the shenanigans that would come along with it. There are now nearly 230 tailless Barbary monkeys on Gibraltar, and they do not merely live on the Rock so much as dominate it. As the last free-ranging monkeys left in Europe, the macaques happily milk that privilege, oblivious to the consternation they provoke among the Rock’s other set of primates, their human neighbors.

The monkeys do have a dedicated home, an ape den, at the reservoir up on the limestone rock that constitutes the bulk of tiny Gibraltar. But they are free to stray, and they do so, mostly in a quest for Kit-Kat bars, shady spaces, fruit trees, swimming pools and human toys. They have a special affinity for the purses, shiny cameras and plastic shopping bags that people tote around. And they have grown so used to the kindness of tourists and tour guides that little will frighten them away, not even the sharp flick of a broom or the shrill screams of children.

Like the adorable pint-sized pickpockets that abound in some European cities, often with the blessing of their parents, the monkeys do their utmost to charm and distract before making off with the loot. They have learned to preen in front of cameras and mimic snapping a picture, they jump on the heads of tourists for a laugh; they perch on the side mirrors of touring taxis and wait for their treats, and they have even figured out how to unwrap candy bars. One of their favorite tricks is swiping ice cream cones from children, leaving behind a trail of crumbs and tears. (Not surprisingly, the monkeys now suffer from tooth decay.) Nobody is supposed to feed or touch the monkeys, which carries a fine of nearly $1,000. The last time someone was punished for the offense, though, was 1918.

Cars in the neighborhood are dented and scratched because of the monkeys. They act as if it is the height of hilarity to snatch clothes off the line and scram. They also steal bread and fruit from kitchen counters and delight in disrupting a social gathering or two. “In the middle of a pool party, they will come in and jump in the pool and ruin the party,” island resident Genevieve Almeida said. Once, a monkey was found sleeping comfortably in a man’s bed.

Link here.


Fearing that the new passport rule will snuff out $2.6 billion and 188,000 jobs in the islands “instantly”, the Caribbean Hotel Association (CHA) expressed concerns over the proposed Western Hemisphere Travel Initiative requiring Americans to have a passport when traveling to the Caribbean beginning January 1, 2006. At the 2005 Caribbean Hotel Industry Conference, the CHA said the issue is not so much as the requirement as it is the introductory date itself imposed on U.S. citizens traveling to the Caribbean. Compared to the more favorable implementation January 1, 2008 for Mexico and Canada, two years in advance of their schedule means unique and serious disadvantage for the Caribbean in today’s cutthroat tourism competition.

The CHA quantified the potential impact of the rule in monetary terms. There are 35 countries in the organization, of which only eight (Barbados, Belize, Bermuda, Dominica, Guyana, St. Lucia, St. Eustasius, Trinidad and Tobago) require U.S. citizens to enter with passports. 27 countries do not require U.S. visitors to have a passport. “This is a large number. Through Oxford and the World Tourism and Tourism Council, we were able to quantify the U.S. market share to the Caribbean is 51% of total market share. Tourism employs 1 in every 5 people in the world; 1 in every 4 in the Caricom,” CHA director-general and CEO Alec Sanguinetti said.

In each of the destination of the 27 countries affected, the CHA rounded as high as 88% of U.S. market share in some destination (Bahamas 86%, Cayman Islands 80%, Jamaica 73%, Aruba 67%). Sanguinetti said the CHA is contacting the Caribbean Diasporas in the U.S. to beef up support, warning not to underestimate the impact ahead. With the given date only six months away, there is “no way” that this can be met, said Sanguinetti. Millions of passports that have to be issued to comply will not be ready. Islands will have to shoulder the burden. “It will make the Caribbean totally uncompetitive, particularly with Mexico.”

Link here.



The federal government’s campaign against income tax protesters suffered a major setback yesterday when a federal jury in Sacramento acquitted a former I.R.S. investigator on charges of helping to prepare false tax returns. The former investigator, Joseph R. Banister, 42, of San Jose, California, has become a hero to the tax protest movement, even though two of his clients are serving long prison sentences after following his advice. Mr. Banister was acquitted on charges of conspiracy and helping to prepare three false tax returns for a small California manufacturer. “Everything I have done in my entire career at the I.R.S. and after, I’ve done with integrity and honesty,” Mr. Banister said after the verdict. “My clients wanted some answers to questions about what was required.” He added, “As a C.P.A., my duties are to my clients, to make sure they get the best results.”

The defense relied heavily on the testimony of the government’s main witness, Dennis Brown, a longtime I.R.S. agent, who said it was proper for people to file protest returns as way to get their tax questions answered. The defense said that was what Mr. Banister and his client, Walter Thompson, had done. Mr. Thompson, who was convicted in January, is serving six years for failure to withhold and turn over taxes from paychecks of workers at his Cencal Aviation Products in Lake Shasta, California. Both men were charged with conspiracy, but acquitted of that charge in separate trials. Mr. Banister was charged with helping to prepare three false tax returns, which said that no withheld taxes were due, and seeking reimbursement of taxes already paid.

Mr. Banister was greeted by cheers from more than a dozen fellow tax protesters and family members as he emerged from the courtroom in Sacramento after the 4-day trial ended, according to accounts by people who were there. The verdict stirred concerns that it would encourage more Americans to refuse to pay taxes, which the Treasury, I.R.S. and the Justice Department have all acknowledged is a growing problem. The problem has prompted a renewed effort to seek civil injunctions against promoters like Mr. Banister and in some cases prosecutions of both tax protesters and their professional advisers. “This is going to encourage thousands more people who were on the fence, who were paying taxes only because they were afraid they would be criminally prosecuted,” said J. J. MacNab, a Maryland insurance analyst. She is writing a book about people who deny the legitimacy of the tax laws and attended the trial, which began June 14. Mr. Banister’s lawyer, Robert Bernhoft, said the verdict was a sign that other taxpayers need not be afraid of confronting the government.

He said the case did not set a precedent. “It just means that Joe Banister is not guilty of misconduct,” Mr. Bernhoft said. “But I hope it sends a message to policy makers in Washington that they need to re-evaluate their policies in these cases.” Mr. Bernhoft said that “American citizens have the right to ask the government questions and the government has a duty to answer in good faith … to proceed against Joe Banister with an indictment rather than simply answering his questions is un-American.”

Link here.


The rules about who pays taxes to the government of Guam and who pays taxes to the IRS are being changed. The federal government wants to make it more difficult for people to pay their taxes in the territories – a change prompted by local tax policies in the U.S. Virgin Islands, which is being used as a tax haven by some. Unless you are physically present in a U.S. territory at least 183 days out of the year, you must file your tax returns with the IRS, according to the American Jobs Creation Act of 2004. While there are some exceptions – such as being absent as a full-time student or for medical care – the end result could be a loss of tax revenue for Guam and the other territories because the rules make it more difficult to file tax returns with territorial governments. Guam’s primary tax break is its qualifying certificate, which waives taxes for some businesses, provided they invest part of their savings locally and hire mostly local labor.

Under the old tax policy, anyone who was on Guam at the end of the tax year filed their taxes there, regardless of how long they have been here, according to Revenue and Taxation. Under the new rules, taxpayers must attest to being a bonafide resident here, with no strong connections to any other place, otherwise they file with the IRS. Guam and the other U.S. territories have until July 11 to comment to the IRS about the proposed tax changes. Comments will be taken into account before the final rules are written, according to the IRS Web site.

Link here. Analysis of EDC changes paint bleak picture for U.S. Virgin Islands – link.


Taxpayers holding money overseas that has not been declared to the UK government should be given a tax amnesty when new EU rules come into effect on July 1, accountant Steven Bruck of Blick Rothenberg has urged. The EU Savings Tax Directive will require banks throughout the EU, the Channel Islands, the Isle of Man and a number of other territories, to either deduct a withholding tax from depositors, or disclose their identity to their home tax authority. Switzerland, Andorra, Liechtenstein, Monaco and San Marino have all agreed to deduct a withholding tax from accounts, even though they have not signed up to the directive. “The offer of a tax amnesty would encourage those with offshore accounts to bring their money home. If the British tax authorities are serious about eliminating illegal tax practices this might be a sensible time to introduce a tax amnesty,” said Mr. Bruck.

A spokesman for HM Revenue & Customs was not aware of any amnesty being offered, but said anyone “with any concerns should not hesitate to get in touch with us.” The spokesman added, “We have sophisticated processes to target those in the hidden economy. We work closely with other agencies, including sharing intelligence to uncover tax avoidance. Those who cheat the system will be subject to our scrutiny sooner rather than later.”

Link here.


The Caymanian government has passed legislation requiring banks and other financial institutions to pass information on savings interest income to member states of the EU under the EU’s Savings Tax Directive. According to Cayman Islands Financial Secretary Kenneth Jefferson, the new law will mean that banks, mutual fund administrators and individuals who offer interest on investments will have to report savings interest income to the home country of the recipient. Under the legislation, savings income will be reported by paying agents to the Cayman Islands financial secretary, who will in turn pass the information to EU tax authorities.

Many of the UK’s offshore territories have been forced to apply the Savings Tax Directive, along with the Netherlands Antilles, Aruba and some European centres (Andorra, Monaco, Liechtenstein, San Marino and Switzerland). Most of these places will withhold tax from interest income for a transtion period of seven years. The STD applies to many types of return on savings instruments, all loosely described as interest, when received by individuals, but does not affect interest paid to companies. Under the information exchange system, the identity of recipients will be known to their home tax authorities. When tax is withheld, the identity of the recipient will not be reported, thus preserving confidentiality.

Link here.

Tax law to affect personal accounts only.

As an offshore banking tax haven, the Cayman Islands has provided a certain level of privacy for its clients. However, much of this will disappear in the advent of the EU Savings Tax Directive for 25 countries of the EU and their territories – a list that includes the Cayman Islands. The Directive is an agreement through which all relevant territories will provide automatic exchange of information on savings accounts held by EU residents. With this, the nationality of the resident is of no consequence – his country of residence is the sole criteria.

“A lot of the money that is held in the Cayman Islands is held as funds and not as personal accounts,” said Lecturer in Economics at the University College of the Cayman Islands (UCCI), Tom Phillips. On 13 February 2004 the Cayman Islands agreed to this move. The move involves the exchange of information on interest payments on savings incomes of EU residents. The impact on the Cayman Islands is not as severe as people may think. In large part the Cayman Islands is involved in large institutional funds. The Directive will affect individuals only,” Ted Bravakis, Director of Public Relations, Portfolio Finance and Economics, explained. As far as changes to be set up within the local economy are concerned, Mr. Bravakis said, “They will be more procedural than anything else. The onus is on the paying agent to implement these changes.

The EU Tax directive is levied on interest earned on deposits, interest bearing debt claims, such as bonds issued after 1 March 2001, accrued or captalized interest (zero coupon bonds), investment funds with at least 40% of the underlying investments in interest bearing instruments and, distributions from investment funds which relate to the interest income of the fund income from the sale, repayment or redemption of investment fund units. The Tax Directive is not levied on insurance companies or insurance income from insurance policies, stocks and shares and currency trading.

Link here.

Bermuda excluded from EU tax directive.

The EU Savings Tax directive which goes into effect July 1 will target EU citizens who have stashed funds in jurisdictions such as Guernsey and Jersey. The new Inland Revenue tax avoidance legislation does not, however, include Bermuda prompting some experts to anticipate that citizens may move their money there or to other jurisdictions that are out of reach of the directive. Under the Directive financial institutions in EU member states, certain dependent and associated territories of members states, including the Isle of Man and the British Virgin Islands will have to submit information about savings income received by EU individuals not resident in the country where the account is held. The directive, which is designed to ensure that funds are subject to taxation once they return to their home country, is part of a broader initiative to curtail money-laundering, to track the proceeds of drug-dealing and identify the source of money used to fund terrorism.

Bermuda is the only British Overseas Territory not included in the list of EU countries and their Dependent Territories subject to the directive. A poll of 500 senior finance professionals from the Isle of Man, Jersey and Guernsey – jurisdictions that fall under the directive – found that more than half believed the directive was “bad news”. Many are uncomfortable with the information exchange aspect of the legislation and believe it will result in capital flowing to jurisdictions where interest reporting is not an issue.

“We are concerned that people might start to move their money to other countries where it can retain its mystery and remain hidden from the Inland Revenue,” said Patrick Firth, managing director at Butterfield Funds Services in Guernsey. He added that a windfall of new revenue may not materialize as many investors are restructuring their deposits to legally avoid paying anything. Hedge funds, investments in films, venture capital funds and private equity funds may in fact benefit from the directive since they fall outside the legislation.

Link here.


Three investors have sued Bank One Corp., which is now part of JPMorgan Chase & Co., accusing it of marketing a tax shelter that let rich investors improperly hide millions of dollars. The lawsuit, filed in an Illinois state court last month and moved to federal court in Chicago on June 13, alleges fraud and malpractice, and seeks punitive damages. Other defendants include Deutsche Bank AG, American Express, the law firm White & Case LLP, and the defunct accounting firm Arthur Andersen.

The case involves two shelters called Homer and Bart, named for cartoon characters in the TV show The Simpsons. This is the latest case involving alleged improper tax shelters. KPMG LLP, the accounting firm, this month apologized for helping set up illegal shelters, hoping to avoid a possible indictment like the one that destroyed Andersen. According to the complaint, Deutsche Bank provided loans and conducted related transactions to help carry out the tax avoidance strategy, and it worked with its lawyers White & Case to design Homer.

According to the complaint, Bank One approached Texas-based law firm Jenkens & Gilchrist in January 2001, seeking a legal opinion legitimizing the Bart shelter and hoping the firm could use its marketing muscle to promote it. Over the next few months, Jenkens and Bank One, together with Deutsche Bank and White & Case, reworked Bart into Homer, a shelter involving options trading that might hide losses and appeal more to taxpayers, the complaint said.

Link here.


Accenture Ltd. thought it won an exemption in Congress last year from penalties on U.S. companies that have moved to tax havens such as Bermuda. Now the company is trying to make sure the IRS agrees. Accenture is lobbying Congress to make a so-called technical correction to the law to prevent any challenge from the tax collector. Aides to New York Congressman Charles Rangel, the top Democrat on the House Ways and Means Committee, say they are objecting to the proposed fix, complicating a process that usually requires the consensus of top congressional tax-writers, their aides, Treasury Department officials, and the Joint Committee on Taxation.

Congressional Democrats, who won a ban on Accenture and other companies that have established legal addresses in tax havens such as Tyco International Ltd. and Ingersoll-Rand Ltd. from bidding on government contracts, may use the squabble as an opportunity to raise new objections.

A provision in last year’s $145 billion corporate tax bill would treat companies that move to Bermuda and other tax haven countries as U.S.-based for tax purposes, denying them tax breaks. The law exempts companies that completed a move prior to March 4, 2003. According to the firm, it is concerned the IRS might argue it is not grandfathered along with Tyco and Ingersoll-Rand because of the way it formalized its Bermuda incorporation. Without a wording change in the law, Accenture says it risks a battle with the IRS, even though Accenture said Congress intended for the firm to be grandfathered.

Link here.



Jersey is now the center of the biggest tax avoidance crackdown in Australian history thanks largely to Jersey-born and bred Philip Jepson Egglishaw, the face in Australia for a particularly successful firm of accountants called Strachans. The establishment firm offers to provide clients with “directors, secretaries, registered office, shareholders invoicing, etc.”, ie, everything necessary to give the appearance of a genuine business.

Egglishaw has been travelling annually to Australia for at least a decade to meet his network of lawyers, accountants and clients. He offers to build and manage offshore structures involving trusts and companies in Jersey and the Virgin Islands, Swiss bank accounts and agency agreements that potentially disguise the true nature of transactions. Australian lawyers and accountants introduce him to their clients who want to “go offshore”. The clients send money and some are alleged to receive invoices for services never rendered, enabling them to gain tax deductions on the money.

Egglishaw manages the money for their benefit and helps to wipe their fingerprints. On request, he returns the money to entities related to the clients via “gifts”, “inheritances” or “loans”, often through credit cards. He is said to charge a modest 10 to 20% for the trouble. The local tax industry, which lives in the grey zone between the Tax Act’s loopholes and anti-avoidance provisions, says it is shocked that something so crude could be so prevalent here. But it should not be. Today’s schemes were abundant in the 1980s and probably have been ever since.

Link here.

Face of tax haven mastermind revealed.

This is the first image of the alleged mastermind of what is said to be Australia’s largest tax scandal in 25 years. Philip Jepson Egglishaw, under criminal investigation for allegedly engineering tax avoidance schemes worth more than $300 million, is pictured in his high school graduation year, 1971. At 18, the young chess champ and scholar had little notion of the rise to stupendous wealth and worldwide property holdings that awaited him, nor of the scandal that would erupt over his dealings half a world away, 34 years later.

But Mr. Egglishaw, from the English Channel Island of Jersey, now presides over an extraordinarily secretive Swiss-based chartered accountancy firm, Strachans SA, that employs Fort-Knox style security and a deep suspicion of prospective clients. It would be arguably easier to see the Prime Minister than the elusive partners of Strachans. Would-be clients who cold-call without reference from an existing customer are given short shrift.

When The Courier-Mail called Strachans asking for tax advice, Mr. Egglishaw’s partner Phil de Figueiredo asked how the newspaper obtained the company’s number and who had recommended the firm. “We would need to know the name of the person who recommended you as we only take on cases which have been referred to us by other professionals or by contacts whom we already know,” he said. “We don’t just take anybody off the street. It’s the nature of the business that we need to tread a bit carefully and vet our clients.”

In Australia, Mr. Egglishaw has been more forward in his dealings, canvassing would-be clients in the fields of entertainment, sport and law. He has lured some prominent Australians described by the tax office as “household names”. Strachans promotes itself as providing “specialist company and trust administration services around the globe”, including services for “international sportsmen and women and those involved in the entertainment industry”. The schemes under investigation allegedly involve the creation of phony invoices for services and expenses not performed to claim illegitimate tax deductions inside Australia.

Link here.


Foreign funds and companies operating in Korea through tax havens abroad paid 20 billion won ($19 million) in local corporate income taxes last year, according to the National Tax Service (NTS) data. Foreign investors based in overseas tax heavens that do not have double taxation avoidance treaties with South Korea are obliged to pay corporate income and other taxes according to domestic laws, but those operating via tax heavens such as Labuan in Malaysia, which have signed double taxation pacts with Korea, do not pay taxes to Korea on capital gains made in Korea.

Under the double taxation avoidance pacts, capital gains on the sale of shares and properties by foreign investors are not taxed and the same is true with respect to Korean investments in foreign countries, including the U.S. and Japan. Currently, Korea has signed agreements with 62 countries to avoid double taxation. “Only a few countries that harbor tax havens have signed double taxation treaties with Korea. It is not correct to say that foreign investors headquartered in all tax heavens are exempted from local taxation,” an NTS official said.

But the problem is that the majority of inbound foreign investment originates from tax havens that have signed the treaty with Korea to avoid paying taxes on capital gains realized from their businesses in Korea. Foreign investors headquartered in various tax havens invested a total of $8.9 billion in Korea as of the end of last year, according to the NTS. Of the total, about $6.6 billion investments came from Labuan.

The government said early this month that it would revise tax treaties with other countries and domestic tax rules to prevent foreign capital from dodging taxes by using tax havens. It plans to turn in a revision to the National Assembly this year under which the tax authority will be allowed to tax any capital gains earned by a paper company headquartered in a tax haven abroad. The government would also track down the real investor of a paper company and levy a tax on capital gains, interest and dividend income earned by the real investor, if it is found they set up a bogus firm to evade taxes.

However, the government’s plan to revise the double tax treaties is expected to face difficulties as such an amendment will only be possible if counterpart nations are willing to sign new tax treaties. NTS official Chae Kyoung-soo said that it is unlikely that Malaysia will cooperate with Korea as it receives commissions from foreign funds that use Labuan as a conduit when investing in Korea, and if funds are forced to pay taxes to the Korean tax authority, most will leave Labuan.

Link here.


The IRS is investigating whether unauthorized people gained access to sensitive taxpayer and bank account information but has not yet exposed any privacy breaches, an official said last week. The U.S. tax agency – whose databases include suspicious activity reports from banks about possible terrorist or criminal transactions – launched the probe after the Government Accountability Office said in April that the IRS “routinely permitted excessive access” to the computer files. The GAO team was able to tap into the data without authorization, and gleaned information such as bank account holders’ names, social security numbers, transaction values, and any suspected terrorist activity. It said the data was at serious risk of disclosure, modification or destruction.

“There is no evidence that anyone who was not authorized accessed the data outside the GAO,” said Sheri James, a spokeswoman for the Treasury’s Financial Crimes Enforcement Network (FinCEN), which is working with the IRS to address the concerns of the GAO, the investigative arm of Congress. “The assessment remains ongoing at this time,” James said. IRS officials were not immediately available for comment. FinCEN is responsible for administering the Bank Secrecy Act, under which banks must file suspicious activity reports on transactions they believe could be linked to money laundering or terrorism financing. The IRS stores this data for FinCEN.

As their name suggests, the reports are filed based on suspicions, not necessarily proof, and the vast majority never lead to investigations or prosecutions. Unauthorized access to the information held by the IRS raises concerns about the privacy rights and civil liberties of innocent banking clients as well as ordinary taxpayers. Starting in October, when FinCEN rolls out a new computer system called BSA Direct, the agency will for the first time take control of all BSA data from filing to dissemination, which it hopes will significantly bolster data security. Taxpayer data will remain with the IRS, which the Treasury says is addressing its “computer security deficiencies”.

Concerns about privacy violations through weak computer security are mounting in the United States, where a string of companies this year have reported stolen or misappropriated customer data, including Bank of America, ChoicePoint, and Reed Elsevier. Since ChoicePoint announced in February it mistakenly sold 145,000 consumer profiles to a ring of identity thieves, dozens of other organizations, from banks to universities, have announced security breaches of their own.

Links here and here.


Bermuda’s Finance Minister Paula Cox has announced that amendments to legislation dealing with exempted and overseas partnerships are designed to enhance Bermuda’s international business product. Speaking in the House of Assembly, Mrs. Cox explained that the Exempted Partnerships Amendment Act 2005 and the Overseas Partnerships Amendment Act 2005 will cater to those with “more sophisticated uses for a Bermuda partnership”. She also stated that the amendments will ensure consistency across companies and partnership legislation.

However, she told the House that the main purpose of the amendments will be to bring the partnership legislation into line with amendments that have been made to the Companies Act 1981. According to Mrs. Cox, approximately 602 partnerships have registered in Bermuda since the Exempted Partnership Act 1992 and the Overseas Partnerships Act 1995 were enacted, providing the Government with approximately $1.26 million in revenue annually. Two-thirds of these Bermuda-registered partnerships are investment holding companies. The Minister also revealed that the government was taking note of how legislation is written in other offshore financial centres such as the British Virgin Islands and the Cayman Islands, in an attempt to determine whether Bermuda’s approach to soliciting international business is currently too cautious.

Link here.


A thief stole my credit card number. Am I a victim of identity theft?

No. Card theft is technically not the same as identity theft. Card theft occurs when an unauthorized person uses your credit card number from an existing account to make purchases. True identity theft occurs when someone uses your personal information – such as your Social Security number, birth date, mother’s maiden name – to impersonate you and apply for new credit accounts in your name. Identity thieves can also use your Social Security number to obtain work, which means that income they earn could be reported to the IRS as your income.

How do thieves get information to use my credit card or steal my identity?

Most credit card thieves still get information the old-fashioned way – by stealing a purse or wallet, sifting through documents in a mailbox or Dumpster or skimming cards. Skimming occurs when employees in retail business or restaurants, for example, swipe credit cards twice – once using their employer’s credit card reader and a second time using their own reader. Insider theft also occurs when employees of companies or agencies that process documents containing Social Security numbers and other sensitive data steal it. A relatively new way to steal massive numbers of credit card numbers involves hacking databases, such as occurred in a recent incident involving a credit card processing company in Arizona. In that case, a thief or thieves accessed information for about 40 million credit card accounts. Identity thieves can get information the same way – by hacking data brokers such as ChoicePoint and Lexis-Nexis – or by obtaining Social Security numbers by sifting through public records, some of which are available online.

How will I know if my identity has been stolen? If someone charges my card will I have to pay for the items they buy? If someone steals my identity am I responsible for charges they make on new cards in my name or other damages they cause? What should I do if my wallet or purse is lost or stolen? What can I do to prevent myself from becoming a victim?

(These questions answered.)

Link here.

UK-based American citizen has been jailed for six years for theft via identity fraud.

Douglas Havard, from Dallas, Texas, made fake credit cards with stolen bank details as part of a global syndicate. The scam relied on phishing – by which online account holders are induced to give away their personal details. Havard admitted conspiracy to defraud and conspiracy to launder money. His co-accused Lee Elwood was jailed for four years for the same offences. Over £700,000 is known to have been stolen by Leeds-based Havard, but the real figure is thought to be far more. Havard, whose arrest followed an investigation involving the U.S. Secret Service and the FBI, was sentenced at Leeds Crown Court. Elwood, 25, of Royal Exchange Court, Glasgow, pleaded guilty to the same offences on 4 June.

The case was part of an investigation by the National Hi-Tech Crime Unit (NHTCU) into Eastern European crime syndicates that target UK banks and their customers. The court heard how Havard, from Holbeck, near Leeds, was supplied with stolen bank details by Russian computer hackers. He then encoded the details onto the magnetic strips of the counterfeit cards which were used at cashpoints in Britain and the U.S. and to buy and sell items online. After his arrest in June 2003, police searched Havard’s flats in Leeds and Manchester and found false passports and driving licenses, blank cashcards and the equipment used to make the counterfeits.

Link here.


The good old days are over for Europeans who have stashed their cash in Switzerland, out of sight of the tax authorities in their homeland. Starting July 1, banks in non-EU Switzerland will begin taxing the savings accounts of EU residents on behalf of their governments, implementing an accord that Bern and Brussels reached after years of painstaking talks. “This is the first time in the world that banks have agreed to levy a tax on behalf of a foreign country,” said a spokesman of the Swiss Bankers Association.

The accord is meant to crack down on tax-dodgers who take advantage of Swiss banking secrecy laws and is tied to a tightening of rules within the 25-member EU under a new directive on savings taxation. Rather than automatically revealing the identity of the account-holder, banks in non-EU Switzerland will initially levy a 15% withholding tax on the interest EU citizens earn on their savings. The rate will rise to 20% in 2008 and 35% in 2011. Swiss banks will keep a quarter of the levy to cover their costs, and hand over the rest to the saver’s home country.

In exchange for agreeing to play tax collector for the EU, Switzerland was able to protect its cherished system of banking secrecy, which has helped make the reputation of the country’s financial sector for critics and supporters alike and fuel the country’s prosperity. But even though the Swiss-EU accord is meant to cut tax evasion, it has several loopholes. The withholding tax can be avoided by shaking up one’s portfolio. The deal does not cover dividends, insurance products, capital gains or derivatives. It only applies to individuals, not businesses, so wealthy customers can create a company in Switzerland to mask their savings.

Publicly, Swiss banks say they do not fear that customers will head to other financial centres where authorities have more inroads into bank accounts. Foreign savers appreciate not only banking secrecy, but also the efficiency of Swiss banks and the country’s political stability, bankers say here. However, Swiss banks have also made strategic moves to ensure they do not lose out, spreading operations to financial centres which are not included in the deal with the EU, such as Singapore. Several large Swiss banks have opened offices in Asia in recent years, in order to “recapture” money previously held in Switzerland and attract the region’s increasingly wealthy savers.

Link here.

EU rules may fail to stamp out offshore tax evasion.

EU laws aimed at stamping out tax evasion may fail because of loopholes exempting companies and trusts in offshore havens such as the Channel Islands and as money flows to other centers including Singapore and Dubai. Under the EU savings tax directive, which was agreed on in 2003 and takes effect July 1, interest income on deposits in previously tax-free offshore bank accounts will be levied at a rate of 15% a year, increasing to 35% in 2011. “The impact on this for tax will be fairly negligible because it’s so easy to avoid,” said Prem Sikka, professor of accounting at Essex University and author of a 2002 study on tax havens. “Regulating this is one of the world’s great chess games. Each time you move a piece, the other side has already moved.”

“It’s a pretty poor piece of work because it has left so many exits,” said Richard Murphy, an accountant and director at Tax Research Ltd., an Ely, England-based consulting company. “This tax directive only applies to money held by individuals. The moment you move your money into a company or trust you’re home and dry.” To avoid paying the tax, EU residents can set up a company in the Channel Islands for as little as £50, said Sikka. “Of course there may be some loopholes, this is financial services,” said Maria Assimakopoulou, a spokeswoman at the European Commission in Brussels. “It’s too soon to speculate on its efficacy now, but if we see a dramatic way out then we have the right to propose adjustments.”

Trust companies in Jersey had “considerable growth” last year, with some reporting a 35% increase in business, said Phil Austin, chief executive of Jersey Finance, the island’s financial industry body. There has been no evidence of people forming trusts to avoid tax and the trust industry’s growth can be attributed to Jersey’s high skills-base and marketing prowess, said Richard Boleat, president of the Jersey Association of Trust Companies. The directive “is a non-event for the trust industry,” Boleat said. “I doubt very much that its going to stop money laundering and I doubt very much that it’s going to stop tax evasion.”

Money is already moving to tax havens such as tax-free Singapore, where total foreign deposits doubled last year to $157 billion, according to the Bank for International Settlements. “You’ve seen a big flood of money to non-EU territories,” said Bruce Weatherill, global private banking partner at PricewaterhouseCoopers in London. “Singapore has been the major beneficiary of the directive.”

Still, the directive is “an important first step” in the fight against tax evasion, said John Christensen, a former economic adviser to Jersey who now lobbies against tax havens. The rules have started to erode banking secrecy and proved that offshore centers can be compelled to cooperate with bigger economies. “It shows that Jersey is not quite as independent as Jersey likes to think it is,” said Murphy. “This is the first most tangible indicator that the offshore world is changing.”

Link here.

EU eyes Asian havens in tax-dodger clampdown.

Amid the big push to clamp down on tax-dodging, EU tax authorities are braced for signs that investors, ever wary of the taxman, are taking their money even farther afield. In particular, they are looking at Singapore and Hong Kong and aim to start talks with them soon about tax matters. “We know that some of the banks in the countries with which we have passed agreements have already flown to Singapore or Hong Kong and created some activities there. That is very clear,” said the European Commission’s head of tax policy, Michel Aujean. He acknowledged that the banking industry was probably busy at work trying to come up with new loopholes to the new rules going into effect on July 1.

Link here.

EU Savings taxation: frequently asked questions

Link here.


U.S. expatriates and many foreigners living in the U.S. risk penalties of up to $10,000 if they fail to report details of overseas bank and financial accounts to the U.S. Treasury by June 30. Any “U.S. person” who held more than $10,000 offshore in 2004 whether in bank accounts, stock funds, trusts and other investment accounts is expected to have completed an obscure form known as a TDF 90-22.1 (PDF file). Taxpayers who fail to comply face a $10,000 fine and a maximum civil penalty of $100,000 or 50% of the value of the offshore account, experts warn.

Accountants in the U.S. and abroad say they have been working with clients but admit that thousands could be caught out because they remain unaware of their obligation. The requirement applies to U.S. citizens living at home and abroad as well as foreign nationals who live in the U.S. and are subject to U.S. tax. Anyone with signature authority over an offshore account, as well as those with a direct financial interest in the account, can be held responsible. “There is obviously a lot of non-compliance out there,” said Clarissa Dougherty, director with PwC’s human resources services group in Los Angeles.

The push to increase reporting of overseas accounts coincides with a broader crackdown on offshore tax shelters by US tax authorities. A growing number of people are moving overseas to pursue international careers or academic studies. Taxpayers have long been required to provide information on their offshore accounts to the US government but lax enforcement has led many to flout or to keep themselves ignorant of the law, accountants said. This year’s filing deadline is the first since Congress considerably increased the penalties for non-compliance in a little-noticed provision of the 2004 American Jobs Creation Act. It also eliminated the requirement that a violation be wilful in order to incur a penalty. “The worry is that ‘non-wilful’ could extend to filing late,” said Anna Sewell, a tax consultant with Ernst & Young in London. Penalities may be waived if taxpayers can show “reasonable cause”.

The form’s importance is obscured by the fact that it is issued by the Treasury, not the IRS, and is therefore not required when completing a tax return. Its filing deadline and mailing address are different from those of IRS forms. Accountants say those most at risk of falling foul of filing rules are U.S. students studying overseas, foreign nationals who live in the U.S. and who have failed to inform their bank or stockbrokers of a change in address, and those who are U.S. citizens by birth but who have spent all or most of their life abroad and may not realize they have U.S. tax obligations.

The US is unique among industrialized nations in that citizens are subject to U.S. tax regardless of whether they live in the U.S. or not. Only Eritrea and the Philippines have similar systems.

“I have been working day and night filling out these forms and half the people out there don’t even know they need them,” said Liz Zitzow, a London-based accountant who specializzes in preparing tax returns for U.S. expatriates.

Link here.



This is not a scene from a futuristic movie: it will happen to you, and it will cost you. One day, you will go to a government office, such as the London Passport Office near Victoria, and be shown to a reception area, where you will fill out a form, giving your name, age, gender, postcode, and ethnic background. You will be ushered into a booth, where you will face a hi-tech camera, which will speak to you in a voice like a dalek’s. The machine will tell you not to grin while it scans your facial measurements. It will instruct you to sit forward and watch the two ellipses in the camera lens while it examines your irises. When the machine has finished with you, you will put four fingers and a thumb on a glass scanner, so that your fingerprints can be entered on a national database.

When the visit is over, you will be the latest entry on the national register, with your unique National Identity Registration Number (NIRN), a piece of plastic, and an invoice for around £100, or much more according to some estimates. For the rest of your life, the Government will know who you are. Identity cards have been a talking point for so long that it might seem like an idea that is never going to happen. In fact, it is just a few years from becoming part of the way we live. On Tuesday, the government whips in the House of Commons will round up Labour MPs to restart the legislative process for introducing ID cards, against the combined opposition of the Tories, Liberal Democrats, some of the smaller parties and at least a dozen Labour rebels. The last attempt, before the election, ran out of time when the House of Lords obstructed it, but Tony Blair is determined to see the measure on the statute book before he leaves Downing Street. This time, there does not seem to be anything to stop him.

From 2008, unless Parliament proves more rebellious than expected, it will become increasingly hard for anyone to avoid the expense and inconvenience of obtaining an ID card. Anyone who renews a passport or driving licence will be obliged to acquire a card at the same time. Further into the future – unless the experiment is brought crashing down by rising costs, computer failure and political opposition – the whole population will be obliged to own one of these expensive bits of plastic. And, for the first time ever, the Government will have a complete and constantly updated list of everyone living in the UK. If your name is not on the register, you will be liable for a £2,500 fine.

But what is it all for? Tony Blair may discover in years to come that it is one thing to push legislation through a mildly rebellious House of Commons, but arriving at that nirvana when a little piece of plastic frustrates the terrorists, health tourists, fraudsters, people-traffickers and identity-stealers could be a lot more difficult.

Link here.

Blair plays down fears over ID card costs.

Tony Blair played down fears over the cost of introducing identity cards, insisting there would only be an extra £30 to pay on top of the fee for a new biometric passport. Addressing journalists at his monthly press conference the prime minister said he was confident the public backed the government’s plans for ID cards on principle and were only concerned about the fee they would have to pay. A Mail on Sunday poll at the weekend showed only one in 10 would be prepared to pay £100 for a card – the cost estimated by an internal Home Office memo if people had to subsidize the one-fifth of the population unlikely to want to renew their passports.

But setting out the case for ID cards ahead of Tuesday’s crucial Commons vote on the issue ,Mr Blair insisted “No government is going to start introducing something that’s going to cost hundreds of pounds to people – that would be ridiculous. I think we will win the civil liberties argument by over 90 per cent. I think people will expect to know, one, that this technology actually works, and two, that it can be done at reasonable cost to them.”

The prime minister said he did not regard it as a party political issue, but an idea “whose time had come”. He said the technology was now available to make ID cards much more effective, adding, “In a time of intense global insecurity, there is now an unstoppable political momentum across the developed world for countries to use the opportunity to use new technology to make their borders more secure.” Mr. Blair refused to say whether he would be prepared to put a cap on the cost of the cards as the government was not “even at the stage where we have to make a decision about that.”

Links here and here.

U.K. ID scheme warning – from the government watchdog.

The controversial ID card scheme could turn Britain into a “surveillance society”, the Government’s own watchdog warned. Information Commissioner Richard Thomas condemned the project as “excessive and disproportionate”, adding that it would allow civil servants to build a detailed picture of how every adult lives their lives. It came as Prime Minister Tony Blair said he would drop the controversial scheme if costs began to spiral out of control. He refused to put a cap on the possible cost of the micro-chip cards but dismissed a new independent report which put the total price-tag at up to £19.2 billion. The Prime Minister insisted identity cards were “an idea whose time has come”.

On the eve of the Second Reading debate on the Identity Card Bill, data protection watchdog Mr. Thomas urged MPs to consider the impact of the Government creating a huge databank of personal details. He said the plans had to be seen alongside other developments such as the use of CCTV with automatic facial recognition, automatic number plate recognition and proposals for the satellite tracking of vehicles for road use charging. “The Information Commissioner is concerned that each development puts in place another component in the infrastructure of a ‘surveillance society’,” a paper by the commissioner said.

“To avoid this it is important that each component limits to the minimum the recording of information about individuals, otherwise we risk unleashing unwarranted intrusion into individuals lives by government and other public bodies.” The paper concluded: “The measures in the Bill go well beyond establishing a secure, reliable and trustworthy ID card.

A new study by academics at the London School of Economics estimated rolling out the hi-tech scheme would cost a minimum of £10.6 billion – without technical problems or overruns – and could spiral to £19.2 billion. Professor Ian Angell branded the system a “one-stop shop for fraudsters”, adding, “It is a dog’s dinner. I do not believe it is going to work.”

Link here.

“The Government’s latest plans sound like a recipe for chaos.”

Whatever the outcome of the Commons vote on the Government’s plans for ID cards, it seems the process is already well and truly under way. A new generation of UK passports will soon use a combination of facial recognition, iris scanning and fingerprint scanning – just like ID cards. And as early as July next year, all new passports will include a computer chip with facial recognition data. That will mean 600,000 interviews across the UK by the end of 2006, rising to 4.5 million a year from the end of 2008, covering all new passport applicants and people whose passports expire.

Since Scotland’s only passport office is in Glasgow and there is no word of that situation being reviewed, that means everyone in Scotland who wants a passport has to travel to Glasgow. It conjures up images of a census in biblical times, only instead of being required to return to the place of our birth, we will have to go to Glasgow to register with the authorities.

The Government does not have a good track record on introducing new passport technology and these latest plans, involving a tight timescale and massive numbers of face-to-face interviews as well, sound like a recipe for chaos.

Link here.

Millions to undergo UK passport interviews.

More than 4 million people a year applying for a new passport will have to attend personal interviews with the UK passport service from the end of 2008 under government plans linked to the introduction of the identity card scheme. In an interview, Bernard Herdan, chief executive of the UK passport service, said a new generation of passports would eventually use a combination of facial recognition, iris scanning and fingerprint scanning as planned for ID cards. He also revealed controversial plans being piloted with HSBC and Abbey, the high street banks, where private companies could check on customers opening new accounts by comparing their passport details against data held by the Passport Service.

Link here. UK eyes up IRIS recognition system – link.


CHELSEA, Massachusetts – Sitting in Bellingham Square, hub of this city just north of Boston, Philip Quaglione remembers when a surveillance camera hung here at Washington and Broadway. Its pole was knocked down several years ago, he says, either accidentally or by someone who did not like the unblinking eye. Now, surveillance cameras are coming back. In mid-July, Chelsea, Mass., hopes to throw the switch on a $250,000 system of 27 digital cameras with the capacity to monitor and record activity in any of its public spaces, says Jay Ash, city manager. His hope: that the system, which has cut crime in Chicago, will do the same in this high-crime city of 36,000 packed into less than two square miles.

Other small cities have similar aims. Officials in Schenectady, N.Y., reportedly plan to have eight cameras trained on the city’s main commercial zone by fall. State funds will be used. Chelsea’s ally is the US government, which will add seven more cameras in a shared-feeds arrangement that has city officials encouraged, civil libertarians concerned, and some residents wondering how electronic policing and a federal presence will affect daily life.

The federal government is involved because a few Chelsea landmarks have special post-Sept. 11 significance. The Tobin Bridge, a major gateway into Boston, plants its northern footings here. Tanks of liquefied natural gas huddle down by the Mystic River. Ash says the city would probably not retain digital images for more than 30 days. He says police officers might eventually be able to call up views from any of the cameras through the laptop computers in their cruisers. But civil liberties groups worry about the “federalization” of local police and the potential for abuse of a growing observational power.

Link here.

Record haul in D.C. by speed cameras.

The Metropolitan Police Department collected nearly $2.58 million in fines from its automated speed cameras in May – the most lucrative month in the program’s 4-year history. Officials said they broke the income-revenue record, despite just 3.4% of the 907,299 vehicles monitored by the cameras exceeding speed limits. Police officials said they have no clear explanation for the record-setting month, except that a high number of the vehicles might have been traveling at excessive speeds, which results in larger fines. “We haven’t raised the [penalty], so it’s not because of that,” said Kevin Palmer, a police department spokesman. “You speed more, you pay more.”

Officials also reported a record-low 3.1% of motorists were caught by the cameras in March and April and that the number of violations has declined since January 2004. Of the 31,016 speeding violations in May, 23,716 were for going 11 to 15 mph faster than the speed limit, which is a $50 fine. Another $50 is added for each additional 5 mph beyond the limit, with a maximum fine of $200. Of the tickets received in May, 290, or less than 1%, were for the maximum fine for traveling more than 25 mph above the limit.

The automated system, which now has 10 mobile speed-cameras, has generated more than $75 million in fines since it started in August 2001. So far this year, the system has generated more than $10 million in fines, with monthly revenues exceeding $2 million in January, February, April and May. The city’s automated system for photographing red-light runners has generated more than $31 million in fines since 1999. Police and city officials say the program makes streets safer by discouraging speeders and those who run red lights. However, critics say the program focused more on revenue than safety. For example, the speed zone in the 2800 block of New York Avenue in Northeast that routinely generates thousands of citations is a six-lane highway exiting and entering the city, but is not close to homes, hospitals, schools or other safety zones. Lt. Byron Hope, the police department’s traffic-safety coordinator, said officers have indefinitely stopped monitoring the stretch.

Link here.


The names of more than 30 fugitives, including 9 murder suspects and one person on the F.B.I.’s most-wanted list, did not trigger any warnings in a test of the nation’s passport processing system, federal auditors have found. Insufficient oversight by the State Department allows criminals, illegal immigrants and suspected terrorists to fraudulently obtain a United States passport far too easily, according to a report on the test by the Government Accountability Office. The lapses occurred because passport applications are not routinely checked against comprehensive lists of wanted criminals and suspected terrorists, according to the report, which was provided to The New York Times by an official critical of the State Department who had access to it in advance. For example, one of the 67 suspects included in the test managed to get a passport 17 months after he was first placed on an F.B.I. wanted list, the report said.

The State Department also too often fails to aggressively pursue leads that could allow the government to catch black-market sellers of fake identification documents essential to getting a fraudulent passport, said Michael Johnson, a former State Department security official. Once issued, a passport typically becomes a critical tool for illegal immigrants who are seeking work or who want to travel internationally, as well as for people involved in drug smuggling, money laundering, Social Security fraud and even terrorism, the federal auditors said. “A fraudulent passport can enable a holder to conceal his true identity and his citizenship,” said Senator Susan Collins, Republican of Maine and chairwoman of the Homeland Security and Governmental Affairs Committee. “These are exactly the kinds of problems that allowed the terrorists to attack our country.”

State Department officials said they were already moving to expand the crosschecking of passport applications against more complete lists of suspected criminals and terrorists. But they disputed reports that the department had been lax in its investigation of suspected fraud. “The United States passport, I believe, is among the most valuable documents on the planet,” Maura Harty, assistant secretary for the State Department’s Bureau of Consular Affairs, said in an interview. “What we have is a tremendous challenge knowing how people who ought not have a passport would like to try to get one from us.” The department has not done enough, federal auditors say, to prevent people using fraudulent documents from getting passports.

Link here.



Cities may now seize homes and businesses and hand them over to private developers to raise tax revenue. That is what the Supreme Court decided yesterday in Kelo v. New London, a 5-4 ruling that strips Connecticut homeowner Susette Kelo and several others of their homes and land. By siding with New London, the court drastically expands traditional eminent-domain powers beyond highways and fighting urban blight. This is a resounding defeat for ordinary landowners and a threat to property rights. Homeowners now own their homes only if the government wants them to.

The novel element in this case is New London’s rationale, which avoids traditional public-use and blight-reduction arguments and relies on a naked revenue-and-jobs-enhancement logic. The city argues that because the replacement uses can pay more taxes and provide more jobs, it will make better use of the properties than the ordinary people who currently own them. This stands the Fifth Amendment’s takings clause on its head. Interpretations of that clause (“Nor shall private property be taken for public use without just compensation”) have varied, but it is a novelty for the Supreme Court to condone the government’s forcible transfer of private property from a party that has not broken the law to another private party so that city coffers can be filled with additional revenue. This is a far cry from railroad and highway building – traditionally seen as legitimate reasons for use of eminent-domain powers.

The dissenters were careful to point out that wealthy developers are now likely to exploit the precedent at the expense of the poor and those without political influence. Most disturbingly, the majority was comfortable with New London’s argument. This decision will prompt glee among developers, lobbyists and big-government enthusiasts. A wave of property seizures may well take place in its wake. Cities may now take land from ordinary people and hand it to preferred customers to build shopping malls, hotels or other richly taxable properties. The only thing cities will have to do to justify their actions will be to argue that revenues and tonier neighborhoods will result. So much for property rights.

Links here and here.

Horrible Supreme Court decision eviscerates property rights.

In just two weeks, the Supreme Court has rendered two major decisions on the limits of government. In Raich v. Gonzales the Court said there are effectively no limits on what the federal government can do using the Commerce Clause as a justification. In Kelo, it has now ruled that there are effectively no limits on the predations of local governments against private property. These kinds of judicial encroachments on liberty are precisely why Supreme Court nominations have become such high-stakes battles. If President Bush is truly the “strict constructionist” he professes to be, he will take note of the need to check this disturbing trend should he be presented with a High Court vacancy.

Link here.

A libertarian defense of the Kelo decision and limited federal power.

In my own view, although the Court’s reasoning in Kelo was flawed, the right result was reached, namely: the Court did not overturn New London’s condemnation action or the decisions of Connecticut State courts that upheld this action. Most libertarian criticisms of Kelo are, I believe, flawed in legal-constitutional analysis as well as in libertarian considerations of federalism and decentralization. Let me briefly summarize my view here before elaborating. The Fifth Amendment’s provisions on eminent domain limit the federal government only. The argument that it now applies to the States because it was incorporated into the Fourteenth Amendment is flawed. It is not part of “substantive due process” and the argument that it is part of “privileges or immunities” is not persuasive. Therefore, the federal Constitution neither regulates State takings, nor empowers the federal courts nor government to review or overturn State takings practices or laws. For the Court to overturn a State eminent domain law, it would have to assume power not granted to it in the Constitution, which means it would be ignoring the Constitution’s limits and thus, acting like an unlimited government. Which is a bad thing.

Link here.

We’re all Indians, now.

What goes around comes around.

If any of us had an honest grounding in history, we learned that long before any of us were born, invaders from the European continent began and pretty much successfully concluded a systematic genocide against the aboriginal natives of the American continents. Despite the fact that we filed the serial numbers off of their own government system and used it as the basis for our own United States, the “Indian savages” were not exactly treated kindly. Entire tribes were wiped out, memories of those tribes and their leaders occasionally survive today as names of our public schools or a river. Other tribes were forced west by better-armed populations, to be eventually confined in government-established reservations.

But a government promise dies swifter than the waning moon at times, as discoveries of gold, silver, copper, iron, uranium and other resources usually resulted in the appearance of a BIA agent backed by a U.S. Army Cavalry Battalion to shove them away and onto a different piece of ground deemed worthless by those in power, there to start all over, if they could. By a vote of five to four, the Supreme Soviet of the United States, whom I refer to as “the nine whores in black robes” (an insult to both black robes and honest working girls), has declared every last one of us to be an Indian. By a vote of five to four, one of the more important parts of the 5th amendment has been repealed.

Thomas Jefferson warned against vesting sole authority for interpreting the Constitution in judges. He warned that they would turn into an oligarchy and a tyrannical one at that. Turns out he was more right than we knew.

Link here.

Big government business.

Last week’s Supreme Court ruling in Kelo v. New London should indeed be alarming to all homeowners and business owners, who have now learned that they will own their property only as long as their local government thinks they should. But it should also serve to further demonstrate that the economic agenda of Big Business is the same as the agenda of the American Left: bigger government and central management of the economy.

The media like to portray big business as lobbying to be free of government intrusion, with regulators and lawmakers acting to curb these free-market cowboys. In truth, Big Business wants the government to be bigger. Much of big business’s work on K Street is to give the government more control over the economy. This ruling on eminent domain is just another win for the unholy alliance of Big Business and Big Government.

Link here.

Uninformed expropriation.

If you were told the government could take your real property and give it to another preferred, private person, would you be more or less prone to make improvements on your property? If you were a clear-thinking person with a basic knowledge of economics, you would reply, “less prone”. Unfortunately, five U.S. Supreme Court justices – David Souter, Ruth Bader Ginsburg, Stephen Breyer, John Paul Stevens and Anthony Kennedy – failed that elementary question last week in Kelo v. City of New London. Many others have commented on their faulty legal reasoning. I will leave that to the lawyers. But clearly, the decision was bad economics.

Those familiar with economic literature know that protection of private property is a key ingredient in economic development and prosperity. Those who are abreast of the writings of the American Founding Fathers are also aware that they understood the importance of the protection of private property. So here we have five members of the court who get an “F” both in economics and history. I would not have mentioned their names if this were merely a rare lapse on their part, but there is a continuing pattern of both an inability to see the consequences of their decisions and a lack of understanding of the historical record.

These issues are not a matter of “liberal” versus “conservative”, but an ability to see beyond the first order effects of any decision, and with both the knowledge and understanding of history and economics to know what are the likely long-term ramifications of any policy.

Link here.

Could a hotel be built on the land owned by Supreme Court Justice David H. Souter? A new ruling by the Supreme Court which was supported by Justice Souter himself itself might allow it. A private developer is seeking to use this very law to build a hotel on Souter’s land.

Link here.


A crackdown on money laundering is being hindered because some financial services groups are focusing too narrowly on complying with the letter of anti-laundering regulations, says Britain’s Financial Services Authority. Philip Robinson, the FSA’s financial crime sector leader, said recently that financial services groups must priorities the ultimate goal of detecting and deterring crime, and not follow procedures simply to avoid reprisals from the regulator. “I want them to defend against their firm being used by criminals, not against the regulator fining them,” he said. He repeated this message in a recent speech at a conference on financial crime.

The anti-money laundering regime is being overhauled as the government seeks to tackle crime by tracking down organised crime gangs and limiting their ability to raise and transfer funds. But Mr. Robinson said the implementation of anti-money laundering regulation would depend on the FSA’s approach, which it has sought to make less prescriptive in the past year. “We will be focused on delivering regulation that is proportionate and focused.”

Link here.

UK businesses are paying too much to fight money laundering, a new survey suggests.

Backed by the City of London and the Institute of Chartered Accountants, the report says the cost of regulation to fight money laundering is too high. Its authors say the businesses surveyed were “overwhelmingly negative”, complaining that the UK was heavily regulated – but no better protected. The cost could drive businesses out of the City, the report warned. The report was commissioned by the Corporation of London and the Institute of Chartered Accountants in England and Wales in the wake of new rules which came into effect last year.

The rules, the result of the massive 2002 Proceeds of Crime Act, extended a duty to report suspicious activity from the financial sector to all businesses handling “high-value” transactions, such as jewelers, estate agents and car dealers. The result, experts say, has been a surge in “suspicious activity reports” to the National Criminal Intelligence Service, swamping its staff. But according to the authors, consultancy Z/Yen, most of the 386 responses to an online survey said the extra regulation was failing to produce results – although they acknowledged that those who were unhappy were more likely to have responded.

The Corporation of London’s Michael Snyder said in a foreword to the report that the UK applied international rules with “particular vigor”. That vigor was, however, reaching a “tipping point where past, current and future costs of the legislation are perceived to be greater than the benefits.” The report calls for stiffer penalties, more publicity for successful cases, more sharing of feedback from helpful reports and better application of existing rules for seizing criminal assets.

Link here.


Two leading civil rights groups charge in a new study that the Bush administration has twisted the American system of due process “beyond recognition” in jailing at least 70 terror suspects as “material witnesses” since the Sept. 11 attacks, and the groups are calling on Congress to impose tougher safeguards. The report, which is to be released next week by the groups, Human Rights Watch and the American Civil Liberties Union, found that the 70 suspects, about a quarter of them American citizens and all but one Muslim men, were jailed – often for weeks or months – in American facilities without being charged with a crime. Ultimately, only seven men were formally accused of supporting terrorism, the report said.

The report, paid for in part by the Open Society Institute, founded by the financier George Soros, charges that many of the men held as material witnesses were “thrust into a Kafkaesque world of indefinite detention without charges, secret evidence and baseless accusations.” With Congress locked in a dispute over the government’s powers under the antiterrorism law known as the USA Patriot Act, the report reflects an effort by civil rights groups to expand the debate to other legal tools the Bush administration is using against terrorism. The groups recommended a number of new restrictions on the law’s use, and aides to Senator Patrick J. Leahy of Vermont, the ranking Democrat on the Judiciary Committee, said he would introduce legislation to limit the government’s ability to detain a material witness indefinitely.

The material witness law, enacted in 1984, allows federal authorities to hold a person indefinitely if they suspect that the person has information about a crime and might flee or be unwilling to cooperate. The law has been used for many years to compel the testimony of thousands of illegal immigrants in smuggling investigations and other cases. But since the Sept. 11 attacks, the FBI has significantly expanded the use of the law in terrorism inquiries. Justice Department officials have defended their view of the law in interviews and Congressional testimony, saying they have sought to use it sparingly and have tried to follow legal safeguards, including allowing those who are jailed to contact lawyers and challenge their detention.

Link here.


I love what the Roman fellow said: “Nothing human is alien to me.” But I have long regarded Michael Jackson as the test case of that venerable adage. Even in California, he stands out. Still, I am relieved that he was not convicted. If it is the government versus Michael Jackson – or, as they say, The People v. Michael Jackson – I will root for Michael every time. Too many of the people have been having too much unholy glee at Michael’s expense. They remind me of the mob who turned out to punish the woman caught committing adultery, with the law on their side and stones in their hands. Jesus did not criticize the law, but he suggested that the first stone be thrown by some guy who had never sinned himself. The woman walked (albeit with a firm warning).

As the prosecution brought lurid testimony against Jacko, I asked myself how I might be made to look if the government could invite, or force, all the acquaintances I have ever made to testify against me. The truth would be bad enough. But add to that the lies that my enemies would be glad to repeat, and which the public would be willing to believe, and even an acquittal would not do much to repair the damage.

Link here.


The USA Patriot Act, in the name of fighting terrorism, allows the government to find out which books and Internet sites a person has seen. It lets investigators secretly search homes and monitor phone calls and e-mail. Now, officials in the wealthy New York City suburb of Summit are using the law to justify forcing homeless people to leave a train station – an action that sparked a $5 million federal lawsuit by a homeless man. Richard Kreimer, who filed the lawsuit in March after being kicked out of the train station, said the Patriot Act defense makes no sense. “Unless they’ve been smoking those funny cigarettes, I can’t see how my civil lawsuit has anything to do with the Patriot Act,” said Kreimer, 55, who is acting as his own attorney.

But Summit officials argue they are protected by a provision regarding “attacks and other violence against mass transportation systems.” Town attorney Harry Yospin has used the law as one of more than a dozen defenses in the case. Edward Barocas, legal director of the American Civil Liberties Union of New Jersey, said the Patriot Act defense is weak: “Nothing in the Patriot Act lets them kick homeless people out of train stations.” The U.S. Justice Department also criticized Summit’s use of the law. “That represents a fundamental misunderstanding of what the Patriot Act is,” spokesman Kevin Madden said.

Link here.



If you take something to read at the beach this summer make sure it is not one of George Orwell’s books. The comparison with current events will ruin your day. In what was then the futuristic, nightmare world of 1984, written in 1949, Orwell introduced the concepts of “newspeak”, “doublethink”, and “the mutability of the past”, all concepts that seem to be alive and well in 2005, half a century after Orwell’s death. In the ever-changing rationale of why we went to war in Iraq, we can imagine ourselves working in Orwell’s “Ministry of Truth”, in which “reality control” is used to ensure that “the lie passed into history and became the truth.”

And what about the Bush administration’s insistence that all is going well in Iraq? In the Ministry of Truth, statistics are adjustable to suit politics – “merely the substitution of one piece of nonsense for another,” Orwell wrote. “Most of the material that you were dealing with had no connection to anything in the real world, not even the kind of connection that is contained in a direct lie. Statistics were just as much a fantasy in their original version as in the rectified version.” Welcome to the Iraq war, Mr. Orwell.

What of Donald Rumsfeld’s newspeak, or was it doublethink, saying that “no detention facility in the history of warfare has been more transparent” than Guantanamo? The deaths by torture in Abu Ghraib and Afghanistan sound very much like what happens in Orwell’s fictional torture chamber, Room 101. He might as well have been writing about the Bush administration’s redefinition of torture when he wrote about using “logic against logic, to repudiate morality while laying claim to it.”

In the effort to squash dissent, as evidenced by moves to change the Sentate’s filibuster rules, there seems to be the belief among the majority that they will always stay in the majority, that they will never lose the Senate, and, therefore, never themselves need to filibuster. Orwell had something to say about this too. “Power worship blurs political judgment,” he wrote in an essay, “because it leads, almost unavoidably, to the belief that present trends will continue. Whoever is winning at the moment will always seem to be invincible.”

There are any number of Guantanamo defenders who could fit neatly into George Orwell’s essay when he wrote, “In our time, political speech and writing is largely the defense of the indefensible.”

Link here.


Last Friday the price of light sweet crude oil on the New York Mercantile Exchange for August delivery closed 16 cents short of $60/barrel – the highest price ever and an ironic outcome for the millions of Americans who believe that cheap oil was the reason for Bush’s invasion of Iraq. Equally shocking to Americans was the announcement that China has outbid U.S. oil giant Chevron for the American oil company, Unocal. Polls showing that a majority of Europeans have a higher opinion of China than of the U.S. were another blow to the pumped-up self-esteem of Americans, deluded as they are by Bush administration hubris and claims of American “exceptionalism”.

The decline in economic and diplomatic standing that Americans have suffered under Bush is exceptional. How much longer will Americans support the incompetent Bush administration that is driving them and their country’s reputation into the ground?

Link here.


Even though the Iraqi people and their ruler, Saddam Hussein, had nothing to do with the 9/11 attacks, President Bush was correct in once again linking 9/11 with his invasion and occupation of Iraq in his speech to the nation last night. Why? Because the motivation behind the 9/11 attacks was the same as the motivation behind the insurgency in Iraq: U.S. foreign policy. Contrary to what Bush has long maintained, the 9/11 terrorists, like their predecessors who attacked the World Trade Center in 1993, were motivated not by hatred for America’s “freedom and values” but instead by anger arising from the bad things that the U.S. government has done to people overseas, especially in the Middle East.

President Bush’s attack on Iraq was nothing more than part and parcel of the pro-empire, pro-interventionist, pro-militarist foreign policy that has long generated deep anger and hatred among people of the Middle East against the U.S.. Thus, why should it surprise anyone that an invasion and occupation that have produced not only the deaths of countless more innocent people but also additional misery and devastation for the Iraqi people would generate the deep anger and resistance that similar-type U.S. policies have produced in the past?

While it is certainly possible that President Bush will yet pull the rabbit out of the hat in Iraq, it increasingly appears that his war will prove to be one of the biggest debacles in U.S. history. If so, both Republicans and Democrats will undoubtedly be encouraging Americans to “stay the course” by simply being more selective with respect to future wars that their Cold War military empire elects to wage. It is up to us libertarians to continue raising the vision of the American people to a higher level – encouraging them to reject the entire pro-empire, pro-interventionist, pro-militarist, pro-big-government paradigm by which conservatives, neoconservatives, and leftists have guided our nation for the past several decades.

Link here.


For at least 30 years now, the right has fought against, the Republican Party has run against, and more recently, the Bush administration has claimed victory over the “moral relativism” of liberals, the permissive parenting of the let-them-do-anything-they-please era, and the self-indulgent, self-absorbed, make-your-own world attitude of the ‘60s. Since September 11th, we have been told again and again, we are in a different world … finally. In this new world, things are black and white, good and evil, right and wrong. You are for or you are against. The murky relativism of the recent past, of an America in a mood of defeat, is long gone. In the White House, we have a stand-up guy so unlike the last president, that draft dodger who was ready to parse the meaning of “is” and twist the world to his unnatural desires.

In his speeches, George Bush regularly calls for a return to or the reinforcement of traditional, even eternal, family values and emphasizes the importance of personal “accountability” for our children as well as ourselves. And yet when it comes to acts that are clearly wrong in this world – aggressive war, the looting of resources, torture, personal gain at the expense of others, lying, and manipulation among other matters – Bush and his top officials never hesitate to redefine reality to suit their needs. When faced with matters long defined in everyday life in terms of right and wrong, they simply reach for their dictionaries.

You want to invade a country not about to attack you. No problem, just pick up that Webster’s and rename the act “preventive war”. Now, you want an excuse for such a war that might actually panic the public into backing it. So you begin to place mushroom clouds from nonexistent enemy atomic warheads over American cities. You sweep opponents up on a battlefield, but you do not want to call them prisoners of war or deal with them by the established rules of warfare. No problem, just grab that dictionary and label them “unlawful combatants”, then you can do anything you want. If questioned on the subject of torture, after emails from FBI observers at the prison lay out the various acts of abuse and torture committed in grisly detail, the Vice President simply insists, as he did the other day, that those prisoners are living the good life in the balmy “tropics”.

What the Bush administration has proved is that, if you have a mind to do so, there is no end to the ways you can define “is”. No administration has reached not just for its guns but for its dictionaries more often, when brought up against commonly accepted definitions of what is. Here is the strange thing, then, no one in our lifetime has found the nature of reality to be more definitionally supple, more malleable, more … let us say it … postmodern and relative (to their needs and desires) than the top officials of the Bush administration.

As a group, the top figures in this administration have often seemed like so many aggressive children let loose in the neighborhood sandbox by deadbeat dads and moms. Does nobody wonder where those mommies and daddies, the people who should have taught them right from wrong, actually went? Certainly, their children are, in the best ‘60s manner, all libido. Let me, in fact, suggest a label for them that, I hope, catches their truest political nature: They are immoral relativists. Yet, even for the most self-absorbed among them, the ones most ready to twist reality (and the names we give it) into whatever shape best suits their needs of the moment, reality does have a way of biting back. Count on it.

Link here.


As Thomas Jefferson lay dying at his hilltop estate, Monticello, in late June 1826, he wrote a letter telling the citizens of the city of Washington that he was too ill to join them for the 50th-anniversary celebrations of the Declaration of Independence. Wanting his letter to inspire the gathering, he told them that one day the experiment he and the founders started would spread to the whole world. “To some parts sooner, to others later, but finally to all,” he wrote, the American form of republican self-government would become every nation’s birthright. Democracy’s worldwide triumph was assured, he went on to say, because “the unbounded exercise of reason and freedom of opinion” would soon convince all men that they were born not to be ruled but to rule themselves in freedom. It was the last letter he ever wrote. The slave-owning apostle of liberty, that incomparable genius and moral scandal, died 10 days later on July 4, 1826, on the same day as his old friend and fellow founder, John Adams.

It is impossible to untangle the contradictions of American freedom without thinking about Jefferson and the spiritual abyss that separates his pronouncement that “all men are created equal” from the reality of the human beings he owned, slept with and never imagined as fellow citizens. American freedom aspires to be universal, but it has always been exceptional because America is the only modern democratic experiment that began in slavery. From the Emancipation Proclamation of 1863 to the Civil Rights Act of 1964, it took a century for the promise of American freedom to even begin to be kept.

Despite the exceptional character of American liberty, every American president has proclaimed America’s duty to defend it abroad as the universal birthright of mankind. John F. Kennedy echoed Jefferson when, in a speech in 1961, he said that the spread of freedom abroad was powered by “the force of right and reason”; but, he went on, in a sober and pragmatic vein, “reason does not always appeal to unreasonable men.” The contrast between Kennedy and the current incumbent of the White House is striking. Until George W. Bush, no American president – not even Franklin Roosevelt or Woodrow Wilson – actually risked his presidency on the premise that Jefferson might be right. But this gambler from Texas has bet his place in history on the proposition, as he stated in a speech in March, that decades of American presidents’ “excusing and accommodating tyranny, in the pursuit of stability” in the Middle East inflamed the hatred of the fanatics who piloted the planes into the twin towers on Sept. 11.

If democracy plants itself in Iraq and spreads throughout the Middle East, Bush will be remembered as a plain-speaking visionary. If Iraq fails, it will be his Vietnam, and nothing else will matter much about his time in office. It would be a noble thing if one day 26 million Iraqis could live their lives without fear in a country of their own. But it would also have been a noble dream if the South Vietnamese had been able to resist the armored divisions of North Vietnam and to maintain such freedom as they had. Lyndon Johnson said the reason Americans were there was the “principle for which our ancestors fought in the valleys of Pennsylvania,” the right of people to choose their own path to change. Noble dream or not, the price turned out to be just too high.

There is nothing worse than believing your son or daughter, brother or sister, father or mother died in vain. Even those who have opposed the Iraq war all along, who believe that the hope of planting democracy has lured America into a criminal folly, do not want to tell those who have died that they have given their lives for nothing. This is where Jefferson’s dream must work. Its ultimate task in American life is to redeem loss, to rescue sacrifice from oblivion and futility and to give it shining purpose. The real truth about Iraq is that we just do not know – yet – whether the dream will do its work this time. This is the somber question that hangs unanswered as Americans approach this Fourth of July.

Link here.

Greatest Generation

The trouble with these individual yearnings is that they leave the man feeling restless, like he is waiting for a drink that never comes. After a while, he figures it is all a waste of time. He is staring into the “abyss”, as existential philosophers put it. He is looking for something that cannot be found … at least not in the popular press or on television. He feels weak. He feels hollow. He knows he is just a member of what Sophocles called a “deathward-going tribe of men”. “What do your lives mean except that they go to nothingness?” asked the Greek.

So, the man begins to think not only of his own, personal yearnings and strivings, which he knows are petty and unimportant, but of those of his tribe … his nation … and his generation. He itches for something bigger than himself, grander … something so remote and abstract that he really has no idea what it is … but it seems great to him. It seems meaningful. It stinks of purpose. And he believes that if he takes a gulp, as though it were patent medicine, he will be cured. Michael Ignatieff seems to have drunk a lot of the stuff. “Who Are Americans to Think That Freedom Is Theirs to Spread?” is the title of a recent piece …

The America of Jefferson – where men were expected to mind their own business – is as dead as a Bolshevik. And now there is only one dominant imperial ideology left. The latest, greatest generation has taken it up like a truant picks up a hand grenade. It gives him a sense of power – until it blows up on him. That it has not quite blown up yet is a source of great hope, comfort and delusion for this 4th of July.

Link here (scroll down to piece by Bill Bonner).
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