Offshore News Digest for Week of July 11, 2005

GLOBAL BUSINESS

THE GREAT BRAZILIAN LAND GRAB

A giant arbitrage is about to take place on the world agricultural market. Farmers will sell – already are selling – overpriced American and European farmland and are buying underpriced Brazilian farmland. Add to the existing economics a possible reduction in agricultural subsidies – it may yet happen – and you have the makings of a transfer of farm wealth from the northern to the southern hemisphere. While developing China emerges as a manufacturing hub and India as the service industry’s back room, Brazil – in the words of former U.S. Secretary of State Colin Powell – is becoming an “agricultural superpower”. In the last several years Brazil has become the world’s largest exporter of beef, soybeans, coffee, orange juice, sugar and chicken. The bumper crops are one big reason why President Luiz Inácio Lula da Silva’s left-leaning government could claim a 5.1% real GDP growth rate last year.

Farming in Brazil is a rough way to make a living. But Brazilians who know how to dodge the criminals and the bureaucrats name their farms Eldorado and Ouro Verde (Green Gold) with good reason. According to a recent Credit Suisse First Boston study, total production costs in the U.S. heartland are $235 an acre. In Brazil’s heartland, where transportation to faraway ports is a huge expense, those same costs are still just $162 an acre. The USDA estimates that the average soy farmer in the Brazilian state of Paraná enjoyed a 51% profit margin last year. Corn producers in Bahia cleared 44%. Cotton earned 39% in Mato Grosso.

LUXEMBOURG SAYS YES IN VOTE FOR EU CONSTITUTION

Luxembourg on Sunday threw the slimmest of lifelines to the EU’s ailing constitution, when the tiny grand duchy voted in favor of the treaty resoundingly rejected by France and the Netherlands. The decision keeps alive the European ambitions of Jean-Claude Juncker, Luxembourg’s veteran prime minister, who threatened to quit if he lost the vote. Luxembourgers supported the constitution by 56.5% to 43.5% in the referendum, a slightly larger margin of victory than government officials had expected. The result will bring modest cheer to Brussels after the French and Dutch double No votes six weeks ago plunged the EU into a political crisis. Despite Mr. Juncker’s optimism, many diplomats believe the treaty, which sets new rules for the enlarged EU, cannot be revived after its rejection by two founder members of the 25-state bloc.

But though the constitution has largely disappeared from the Brussels radar screen, the vote, also by an EU founder member – which is home to several of its institutions – is significant. European leaders decided last month to put the constitution on ice, scrapping the 2006 ratification deadline for all member states to allow time to rebuild citizens’ faith in the Union. But Luxembourg’s decision to continue with its poll and Sunday’s Yes vote leaves open the slenderest of possibilities that the treaty could be resurrected over the next few years if the French and Dutch governments agree to hold new referendums.

HONG KONG GAINING MOMENTUM AS INTERNATIONAL FINANCIAL CENTER

Hong Kong’s growth as an international financial center has continued to gain momentum since the former British territory was handed back to China in 1997, according to a report in the Chinese state media. Xinhua reports that Hong Kong held first place in the region and third place globally in terms of capital raised, with the total raised from initial public offerings and post IPO equity funds reaching HK$265 billion (US$34.4 billion) last year. According to Paul Chow, chief executive of Hong Kong Exchanges and Clearing (HKEx) this is a trend that has continued into 2005, with total funds raised through IPOs expected to set a monthly record total of US$6.4 billion for the month of June. Market capitalization also hit a new high of about US$855 billion at the end of last year, nearly 50% higher than the pre-1997 level.

In the banking sector, figures from the Hong Kong Monetary Authority show that banks enjoyed good profitability last year as aggregated pre-tax operating profit rose to 1.3% from 0.9% at the time of the Asian financial crisis. Hong Kong’s banks also boast a capital adequacy ratio of 16% which is double the 8% minimum ratio set by the Basel Committee. The report noted that Hong Kong’s foreign exchange reserves remained the world’s 7th largest in May at US$122.4 billion, while Hong Kong ranks as the 6th largest foreign exchange market in the world, and seventh largest market for over-the-counter forex derivatives.

The city has also become one of the region’s major asset management centers. In 2003, total assets of fund management business amounted to HK$2,950 (US$380 billion), 63% of which was sourced from overseas investors. Hong Kong has ranked as the world’s freest economy for eleven years running according to the Heritage Foundation. It has also been ranked as the world’s 2nd most competitive economy and Asia’s most competitive economy by the World Competitiveness Yearbook 2005.

LONDON’S BANKS TALKED VIA SECRET CHATROOM DURING TERROR ATTACKS

A secret internet chatroom helped keep London’s financial markets open after last week’s bomb attacks, it has been revealed. The Bank of England, the Treasury and the Financial Services Authority switched to the chatroom to talk to the major banks about how they were coping. A spokeswoman for the Bank of England said it was the first time the facility had been used. It was created in the aftermath of the 11 September 2001 attacks in the U.S. The secure chatroom is located on the government’s Financial Sector Continuity website. London’s financial markets kept trading despite the disruption caused by the bomb blasts.

PARADISE FOUND: HOW THESE RETIREES DID IT

Janet and Newton Osborne had been thumbing through retirement community brochures from all over the U.S. when Newton, a professor of obstetrics at Howard University, considered the possibility of retiring in Panama – the country where he was born. “There are certain advantages to Panama,” says Osborne, who has lived in the U.S. for 45 years and is planning to retire in the next few months. “I won’t have to shovel snow, and I won’t have to pay property tax for the next 20 years.”

So in 2001 he took a trip to visit both a coastal and a mountain community. He chose the latter and brought Janet to Boquete a few months later to look at property. They purchased a lot on a hill overlooking a golf course and have built a three-bedroom white-stucco house with a red-tile roof (total cost was about $250,000). “You can hear the sound of rivers here,” says Janet. “It’s very peaceful.”

(At the bottom of the article are links to similar short sketches of people who retired to San Carlos de Bariloche, Argentina; Dubrovnik, Croatia; Mérida, Mexico; and Phuket, Thailand.)

TORRIJOS SLOWLY REGAINING SUPPORT IN PANAMA

Martín Torrijos is slowly regaining public backing in Panama, according to a poll published in La Prensa. 38.8% of respondents rate the president’s performance as excellent or good, a 14.6% increase since June. Torrijos won the May 2004 presidential election as a candidate for the Revolutionary Democratic Party (PRD) with 47.4% of the vote.

The Central American country was the site of public demonstrations in June, after the government announced plans to reform the Social Security system – which is currently facing a $4 billion U.S. deficit – by urging workers to pay higher contributions. The proposal contemplates gradually rising the retirement age for men from 62 to 65 years, and for women from 57 to 60 years. It also establishes that workers should contribute to the fund for 20 years instead of 15 in order to retire with a pension. On July 5, the Panamanian government officially opted to “suspend” the reforms for three months. Torrijos said the 90-day period would allow revisions on certain aspects of the proposed changes.

U.S.-CANADIAN BORDER FACES DOUBLE-BARRELED THREAT

Canada and the U.S. are leaving their economies “hostage” to terrorists with painfully slow movement on beefing up border crossings, Canadian business leader Perrin Beatty planned to tell a Senate committee. Beatty, in speaking notes for an appearance before the Senate Foreign Relations Committee, says relying on bridges “built by our grandparents”, especially at the busiest Windsor-Detroit crossing, is an invitation to disaster and “incalculable” economic loss. “Do we believe the terrorists are aware of this vulnerability?” asks Beatty, president of the Canadian Manufacturers and Exporters. “What other two nations would leave their economies hostage in this way? Governments must act now, even if special legislation is required.”

Appearing less than a week after the devastating terrorist attacks in Britain, Beatty needed to target his pro-trade speech to an audience primarily concerned about security ever since the United States was hit on September 11, 2001. “Canada’s business community understand that it is not a choice between our physical and economic security,” he explained in his speech. “If either is undermined, the terrorists win.” But it was also an opportunity to emphasize the costs of border delays to both countries – an estimated CN$12.5 billion a year – caused by more traffic and complex new security measures that Beatty says need to be simplified.

Canada is one of five countries listed by al-Qaida terrorists as a potential target. The others – the U.S., Australia, Spain and Britain – have all suffered major attacks. Business leaders and politicians from north of the border have stepped up lobbying efforts on faster action to improve key crossings.

LIGITGATION HAS SWISS FIRMS COUNTING COST OF DOING BUSINESS IN U.S.

The U.S. is known as the land of opportunity and many household names in Switzerland have established a major presence there. But the U.S. is also considered to be a land of litigation – something which many Swiss firms have learnt to their cost. Over the past seven years Swiss firms or their insurers have had to pay out a total of more than SFr10 billion ($7.9 billion) in legal fees, fines or out-of-court settlements. The most famous legal settlement – which made headlines around the world as much for the acrimony surrounding it as the amount of money involved – came in 1998, when Switzerland’s two largest banks, UBS and Credit Suisse, reached a $1.25 billion settlement with Holocaust survivors whose assets were lost during the Second World War.

Other companies which have ended up spending large sums of money in and out of U.S. courtrooms in recent years include Geneva-based biotechnology firm Serono, engineering group ABB and recruitment firm Adecco. Earlier this year Serono – Europe’s largest biotech firm – announced it was putting aside $725 million to cover legal action in the U.S. The provision relates to an investigation into the marketing of its Serostim Aids drug. Four former Serono sales and marketing executives had been charged in connection with a conspiracy to offer and pay kickbacks to doctors in return for writing prescriptions for Serostim. Basel-based pharmaceutical giants Roche and Novartis have also come under investigation in the U.S.

Away from the world of pharmaceuticals, Adecco – the world’s largest employment agency – faced the wrath of U.S. investors in the aftermath of an accounting scandal which revealed major control weaknesses in the firm’s North American operations. Last year Adecco delayed publication of its 2003 results, which led to a collapse in the company’s share price and wiped around SFr7 billion off the firm’s value. Investors lost billions and the chairman, finance chief and the head of Adecco’s North American operations all lost their jobs. To make matters worse, investors took out class-action suits against the firm. The cases have since been thrown out of a California court, but an appeal against the ruling could still be launched.

Despite the spate of investigations, legal cases and settlement plans, a recent study revealed that Swiss firms still enjoy a relatively good reputation in the U.S. and elsewhere. Presence Switzerland – the government agency charged with promoting Switzerland around the world – says all the indications are that “the image of the country and of Swiss firms abroad is generally good”. But the agency warns that Switzerland’s reputation should not be taken for granted and that “repeated cases of bad news” would almost certainly have an impact on how the country is viewed overseas.

TAXES

JOHN MENARD PAID A $216 MILLION PERSONAL TAX BILL FOR 2002. THE IRS WANTS MORE

Think you pay high taxes? Wisconsin retailer John R. Menard Jr., 65, forked over $216 million to the Treasury for 2002 on taxable income of $559 million, according to documents filed in a Tax Court case. This puts him among the biggest taxpayers in the nation, if not the biggest, and surely earns him at the least a free ride on a Navy jet fighter. For comparison, the top 400 taxpayers in 2000 paid an average of $39 million, according to an IRS study. Menard’s income in 2002 was 15 times what he reported the year before. But as it happens, he smartly planned it that way to benefit from tax-rate cuts and to avoid the double taxation of corporate dividends.

The IRS has been after Menard Inc. for allegedly disguising dividends to John Menard by improperly deducting tens of millions in excess salary payments to its founder and paying millions more in expenses for his race car team. (In September a Tax Court judge largely agreed.) Menard Inc., a 200-store home improvement chain, was a C corporation. That means that salaries, including those of the owners, are deducted from pretax income. Corporate profit remaining after those salaries is taxed twice, once at the corporate level and again on the owner’s personal return if and when the income is distributed as a dividend.

So Menard, who owns 89% of the $6 billion (sales) company, converted to an S corp in 2002. That form pays no corporate taxes. Instead, it passes all its income, deductions and credits directly to its owner’s 1040 return. Since profits are taxed just once, at the same rate as salary, it does not matter if the owner takes a big salary. The tax advantages of S corps grew after the 2001 tax cut reduced the top individual income tax rate from 39.6% to 35% – the same as the corporate rate. While the “S” stands for “small business”, there is no limit on how big or profitable an S corp can be, just on how many shareholders it can have (100), which explains why public companies do not use it.

So is the IRS finally satisfied with Menard’s $216 million? Nope. For 2002 it still wants another $12 million in taxes and $1.3 million in penalties from Menard personally.

SENATORS AGREE “BASIC PARAMETERS” OF ESTATE TAX CUT

The U.S. Senate is edging closer towards a bipartisan consensus on new legislation that would permanently reduce the estate tax burden, although it is questionable whether this will be achieved before the Congressional recess in August. According to Sen. John Kyl (R-Arizona), he and the ranking Democrat on the Finance Committee, Sen. Max Baucus (D-Montana) have reached agreement on the “basic parameters” of an estate tax compromise which will entail a lowering of the tax rate in combination with an increase in the estate tax threshold.

Initially Republicans had hoped to permanently repeal the estate tax, but have failed to gather the 60 votes needed to clear a procedural hurdle in the Senate. Currently, the estate tax threshold is $1.5 million, which is set to rise to $3.5 million (and $7 million for couples) in 2009 under tax cuts passed in 2001. Meanwhile, rates are set to decline to 45% in 2009 before being repealed for one year. However, under the 2001 legislation, the tax will then be resurrected at the pre-2001 rate of 55%.

DEMOLISHING SHAKY TAX SHELTERS

New York Attorney General Eliot Spitzer may get all the press, but the Justice Department and IRS have reason to strut, too. The two have amassed an impressive enforcement record against businesses and the individuals and advisers who transformed sketchy tax shelters into business-as-usual in the late 1990s. In June, the IRS and DoJ were successful against a 3rd major accounting giant, when KPMG admitted “unlawful conduct”. And since 2000, the IRS has collected $3.5 billion from about 1,200 taxpayers who invested in just one kind of shelter. “We have changed the landscape,” says IRS Commissioner Mark Everson.

Thanks to the shelter crackdown, mainstream firms seem to be steering clear of the sometimes bizarre schemes that flourished at even reputable outfits in the late 1990s and early 2000s, industry observers say. Enriched by the bull market, the wealthy fell for elaborate deals that were short on economic value and designed solely to create paper losses to offset taxable gains. “No one is selling the kind of junk that was being sold in 1999,” says Joseph Bankman, a Stanford Law School professor and taxation expert. “The market has pretty much dried up.”

Of course, tax management – the legal kind that helps lower tax bills through planning and investment – certainly has not gone away. The tax-services bazaar has expanded into a wider set of providers – from law firms to Wall Street and insurers, which are happy to help well-heeled companies and individuals to lighten their tax loads. And certainly, the tax-advice business has not gone away, even as it spreads beyond the Big Four and other accounting firms. Major law firms increasingly have gotten into the act, since giants KPMG, Ernst & Young International, and PricewaterhouseCoopers were sullied in 2003 investigations spearheaded by Congress. Still, under intensified legal and enforcement pressures, the market for minimizing taxes may now splinter.

No matter who is offering the help, taxpayers who want to ease a tax burden now must make doubly sure their efforts will pass muster with the IRS. Though pressed for resources, the agency continues to pursue tax evaders and lately has been particularly attacking misuses of charitable organizations. One scheme now vexing the IRS involves individual donors who set up charities that they control … which appear primarily to benefit the donors. In another scheme, taxpayers donate easement rights to historic home facades to preservation outfits and then claim deductions, even though local zoning may bar the homeowner from making any changes.

IRS recovers $3.7 billion from “Son of Boss” tax shelters.

The IRS has recovered more than $3.7 billion in unpaid taxes, interest and penalties from users of the illegal “Son of Boss” tax shelter, the agency said. The IRS deemed Son of Boss abusive in 2000 and has said it resulted in more than $6 billion in estimated understatements of taxes due from some 1,800 taxpayers. These were mostly wealthy individuals such as corporate executives seeking to shelter huge gains from business or stock sales during the late 1990s market boom. To date, more than 1,200 people have taken advantage of the settlement offer. About 750 taxpayers passed on the settlement.

Son of Boss was a variant of another illegal tax shelter called the Bond and Options Sales Strategy. It used financial products, such as currency options and government securities, to create what the IRS called artificial tax losses that were used to offset big profits from asset sales. Under the terms of the settlement, participants were required to concede their entire claimed tax loss and pay a 10 to 20% penalty. In exchange, they were allowed to deduct part of their out-of-pocket transaction costs, which generally ran to 6 to 7% of the claimed tax loss.

SECRECY IS LIFTED IN SOME TAX COURT TRIALS

Burton W. Kanter, one of the nation’s most prominent tax lawyers, spent a career pushing the limits of the tax laws. He used creative tax planning to finance such movies as One Flew Over the Cuckoo’s Nest and The Rocky Horror Picture Show. He pioneered the use of foreign trusts to reduce taxes. He lectured for decades on his creative tax structures at the University of Chicago Law School and wrote a regular column in The Journal of Taxation. In 1994, the I.R.S. accused Mr. Kanter and two other prominent businessmen of creating an elaborate scheme to commit tax fraud, and it challenged tax returns from the three men for the 1970’s and 1980’s.

The case is still unresolved, and Mr. Kanter is dead, but his case has become much more than a dispute involving a few taxpayers. The case has radically changed the way the U.S. Tax Court – the place where individuals and companies can dispute their tax bills – will hear and decide some cases. Last week, the tax court announced that it would end a 20-year-old practice of keeping secret reports prepared by its hearing judges, known as special trial judges. The court said it was making the change because of a Supreme Court ruling in March that criticized the tax court’s secrecy and ordered the release of the report in Mr. Kanter’s case.

The Kanter report was released at the end of May, and it caused a stir among tax lawyers. It was strikingly different from the final opinion in the Kanter case, even though the front page of the opinion stated that the court “agrees with and adopts the opinion of the special trial judge.” In fact, the special trial judge’s report found that there was not enough evidence that the three men had committed tax fraud, whereas the final court opinion said they had. “This is going to fundamentally change how these cases are heard by special trial judges,” said Norman R. Williams, an assistant professor of administrative law at the Willamette University College of Law. “The Kanter case was obviously the precipitating and, I think, exclusive factor that generated this rule change.”

The tax court is the only place where taxpayers can contest I.R.S. assessments before having to pay them. There are 19 regular judges of the court, appointed to 15-year terms by the president, and a handful of special trial judges, hired by the chief judge of the court, who regularly travel to 77 cities to hear claims. Many cases before the court involve small amounts and can be decided by either type of judge. But every so often, a special trial judge tries a case that he is not allowed to decide because of the large sums of money involved – at least $50,000. In those cases, the special trial judge submits a recommendation to a senior judge for review and approval. “The tax court is seen as a place that a taxpayer ought to be able to go and get a fair shake, and the secrecy here, and the outcome in these cases, does raise the question as to whether they’re getting a fair shake,” said Alan B. Morrison, a senior lecturer at Stanford Law School, who wrote a supporting brief for the three taxpayers in the Supreme Court case. The court’s secrecy, “confirmed now by a major change in a decision, is a big deal, and it’s not right,” he said.

ASSET PROTECTION

LIVING WELL ON PRACTICALLY NOTHING

Tired of being one of the rats in the rat race? Are you trying to take a different path than mindless consumerism and debt? Author Edward Romney has some excellent techniques on how to achieve independence on an ordinary income. Living Well on Practically Nothing is radically different than most financial and self-help books, newsletters or infomercials. No get-rich-quick fantasies, Texas-sized “guru” egos, or risky speculations using OPM (other people’s money, or borrowing) are promoted or suggested.

As might be expected from someone who grew up in Depression-era New Hampshire, Romney is full of old-time Yankee common sense, thrift and wisdom. While that does not sound like the basis for an interesting 21st century book, the utter scarcity of those traits in modern society makes Romney’s advice and observations leap off the page and into the reader’s mind. Buy a modest, affordable house (sometimes for $50,000 or less) in an age of “bigger is better” and a monstrous real estate bubble? It can still be done in a number of states. Living on a boat in coastal areas or an old school bus in the desert southwest are other ways to survive on a minimum amount of cash.

What kind of person would drive a 10-year old car when they can get a no-money-down payment plan from just about any car dealer? Why spend big bucks for designer clothes when the same items are available for a dollar or two at thrift shops? If this makes sense to you, then Living Well on Practically Nothing will be one book that will be read and re-examined many times. As Romney points out in his wise old uncle/curmudgeonly style, following the herd only leads to debt slavery and a gnawing dissatisfaction with life. While some of Romney’s suggestions are admittedly offbeat and not practical for most folks, the book is a very solid piece of outside-the-box thinking and sensible counsel.

LOOPHOLES EXPOSED IN EU-WIDE TAX INITIATIVE

Only a week after the introduction of an EU law that allows tax authorities to trace savings accounts across Europe, there are concerns that loopholes might threaten its effectiveness. The law is expected to help the Revenue Commissioners to track savings held by Irish people in other EU member states. The Gibraltar government, which has signed up to the directive, said last week it did not have to share information with tax authorities in Britain. It claims that tax authorities must only share information about deposit interest paid in an EU state to someone resident in another state.

“In the eyes of the EU, Gibraltar and Britain are not separate member states,” said Phil Austin, chief executive of Jersey Finance, which represents the finance industry in Jersey. “The Gibraltar government is therefore arguing that the cross-border obligations to exchange information do not apply between Gibraltar and Britain.” Although Gibraltar said it would share information with the other 24 EU member states, tax experts said British residents held the majority of non-resident savings accounts in Gibraltar. A tax expert said,0 “It’s likely that Gibraltar will strike a deal with Britain to apply withholding tax to any non-resident savings, rather than to exchange information.”

Other loopholes are linked to product types and back tax. Investment products, such as trusts or structured bonds, do not come within the remit of the directive. Also, savers need only pay tax on interest earned on accounts from July 1 this year. Savers will not have to declare or pay tax on any interest earned before that date. Recent reports suggest that at least 5% of money tied up in offshore accounts was moved before the EU Savings Tax Directive became law.

Monaco and Andorra tax haven status threatened by EU tax directive?

Media reporting of a new EU savings tax directive has left many people wondering whether European tax havens could soon become obselete. The July directive requires banks throughout Europe, including low and no tax areas such as Gibraltar, Monaco, Malta and Andorra, to disclose bank account owner information to their home country’s tax authority. But Roger Munns, Managing Director of tax haven property specialists Tribune Properties, says that some of the reporting has been less than accurate. “The purpose behind this directive is primarily aimed at those who hold illicit funds, such as drug dealers, who will need to look outside of the European banking system to place large cash deposits. The main attraction of Monaco and Andorra is the zero per cent income and inheritance taxes, and this remains intact and there are no plans whatsoever to change this.”

Monaco and Andorra have long been favoured destinations for the well to do, but with new technology allowing businessmen and women to run their offices from anywhere in the world, operating from low tax bases has seen added interest for Europe’s primary tax havens, doubling property prices in the last ten years. Both Monaco and Andorra are outside the EU, and their signing of the directive voluntarily is often overlooked in the media’s analysis of any effects on the two small countries long term popularity. Property prices have risen steadily over the last decade, often topping 10% a year, but this year has seen a slow down of that increase. Both Monaco and Andorra’s property prices have seen a leveling off this year, according to Tribune Properties, but say this can be explained by factors other than the new EU directive.

EU EXTORTIONISTS

Imagine you own a successful business, and you have a much larger and less efficient competitor. Your inefficient competitor has demanded you make payments to him or he will pressure your suppliers to stop doing business with you. I have just described classic criminal extortion, as now conducted by some governments in the European Union. In the above example, substitute France, Germany and Italy for the “inefficient competitor”; smaller, low tax jurisdictions for the “successful business”; global financial institutions for “suppliers”; and coerced taxes and information for “payments”. Now you begin to understand what is going on.

On July 1, the controversial European tax savings directive took effect. This requires 25 EU members and 15 other countries and independent territories to institute an automatic information exchange system. This would require financial institutions to report to the citizen’s home country any interest earned outside that country. Or countries may withhold taxes on interest income at a rate that will rise to 35%. Yet, June 30, the day before the directive became effective, the EU Commission had the unmitigated gall to announce it would try by amendment to make the directive even more onerous on the signers and to extend it to jurisdictions that have not signed on, like Singapore and Hong Kong. This, again, proves paying blackmailers only whets their appetites.

CHINESE FIRMS PONDER OVERSEAS INVESTMENT RULES

Chinese companies with plans to list their assets indirectly overseas have been left steaming after the foreign exchange watchdog issued two notices earlier this year. All of the parties whose interests may be affected have joined in heated discussions and a desperate search for answers to questions raised by the two documents. According to the two notices, published respectively in January and April, the State Administration of Foreign Exchange (SAFE) will be more active in checking out what many insiders call “roundtrip investments”.

To enjoy tax breaks and other preferential treatment available only to foreign investors, many Chinese citizens have registered companies overseas, mostly in tax havens such as the British Virgin Islands and Cayman Islands, and then invested in China through the overseas-incorporated firms. In recent years, offshore companies have played an important role in many listing schemes. These overseas companies, which take over the assets of companies in China, become vehicles that may be listed on foreign bourses to raise funds.

According to the notices, “roundtrip investments”, including mergers and acquisitions that form a crucial part of listing schemes, will be subject to SAFE approval. Officials and supporters of the move said it is aimed mainly at stopping investors from enjoying unfair tax breaks. The decision is also meant to prevent managers of State-owned companies from transferring State firms’ assets to overseas-incorporated companies they personally control. In addition, the step will also be helpful in the fight against money laundering, corruption among officials and financial criminals’ attempts to move assets out of China, supporters of the plan said. But opponents say rules announced in the two notices make it highly unlikely roundtrip investors will be granted approval.

BOOK ALLEGES THE CAYMANS ARE A HAVEN FOR CORPORATE CASH AND GLOBAL GREED

The sunny Cayman Islands, by the numbers, are quite a place. The Caymans (population 44,270) are the 5th-largest banking center in the world. More than 65,000 companies are registered there. Some 600 of these are banks and trust companies, holding external assets of $800 billion in U.S. currency – twice as much as all the banks in New York City have on deposit. The draw is that there are no income taxes in the Caymans. (The islands raise revenue through import duties and stamp sales.) Neither is there much in the way of business regulation. And the Caymans’ Confidential Relationships (Preservation) Law keeps snooping governments from investigating individuals’ bank accounts or business portfolios.

To former BBC producer and reporter William Brittain-Catlin, author of The Dark Side of the Global Economy, the Caymans are “a slave to global capitalism”. Pressed to compete in the world economy, the islands found their niche as a tax haven, cleverly snatching up the post of leading Caribbean offshore destination after the Bahamas elected a socialist-leaning president in 1968. Since then, however, the Caymans have been battered by politicized reformers in rich countries, now eager to see their companies exploit the islands for economic growth, now in need of a political victory in the fight against the ugly graft that offshore centers hide.

Readers expecting a good bit of muckraking from Brittain-Catlin’s book will be disappointed. The book relies heavily on press accounts and breaks no new ground on what actually goes on in the offshore world. Instead, it is a meditation on what the author sees as the evil of global capitalism, which forces nations like the Cayman Islands to exploit themselves as tax havens to stay competitive. At the heart of the book is a faintly Marxist attempt to recast human history as a dichotomy between the “onshore” – a metaphor for all that was once good, responsible and interconnected in society – and the “offshore” – the greedy, underhanded, exploitative “secret realm” that exists at the beginning of the 21st century. Thus Menelaus tamed Proteus and was rewarded with the Elysian Fields – “Menelaus’ great return home, or onshore.” The industrial revolution and the birth of modern capitalism was an utterly offshore moment, a fall from Eden even. Beethoven’s romanticism was onshore, Berg’s atonal modernism was offshore. Hegel: onshore. Bush: definitely offshore.

Not all readers will be so philosophically minded. They will stick to the stronger portions of the book, such as the discussion of the way modern companies divide their time between tax havens abroad for maximum earnings, and headquarters at home, close to the ear of a willing politician. Or the section on the Caymans’ Euro Bank scandal in the late 1990s, in which Brittain-Catlin shows real narrative skill. Britain, desperate for a victory against offshore fraud so that the Caymans could shake allegations of aiding criminals and get back to business, used an MI6 spy to gather information for a prosecution against Euro Bank. But the spook was revealed, causing a sensation that led to the defendants’ acquittal.

High jinks aside, the real question prompted by all this is how to keep companies and crooks from using offshore havens to avoid taxes, commit fraud, and conceal crime. Brittain-Catlin provides no answers. He dismisses legislative efforts as ineffectual, makes no mention of how nations might use incentives to keep their companies from heading offshore, and generally sneers at would-be reformers for thinking that capitalism “could be preserved from its rotten excesses.” This is unhelpful. Readers will have to look elsewhere for a serious solution.

PRIVACY

FEDS WANT TO EVESDROP ON AIRLINE PASSENGERS’ INTERNET ACTIVITY

Federal law enforcement officials, fearful that terrorists will exploit emerging in-flight broadband services to remotely activate bombs or coordinate hijackings, are asking regulators for the power to begin eavesdropping on any passenger’s internet use within 10 minutes of obtaining court authorization. In joint comments filed with the FCC, the Justice Department, the FBI and the Department of Homeland Security warned that a terrorist could use on-board internet access to communicate with confederates on other planes, on the ground or in different sections of the same plane – all from the comfort of an aisle seat.

The Justice Department hopes to do that with an FCC ruling that satellite-based in-flight broadband services are bound by the 1994 Communications Assistance for Law Enforcement Act, the federal law that required telephone companies to modify their networks to be wiretap-friendly for the FBI. CALEA was originally passed to preserve the FBI’s ability to eavesdrop on telephone calls in the digital age. But last year the FBI and Justice Department persuaded the FCC to interpret the law so it would apply to internet traffic over cable modems and DSL lines. The FCC has already expressed the view that in-flight broadband would likely be covered as well. The Justice Department is asking the commission to require that air-to-ground internet taps be equipped “forthwith, but in no circumstance more than 10 minutes” after the FBI requests them.

The filing comes as the FCC considers implementing a licensing scheme that would encourage more companies to enter the satellite-based in-flight broadband market. Currently, only Boeing is licensed to provide such services. Despite their safety concerns, federal agencies are generally bullish on airborne broadband, lauding its potential to enhance communications between the air and the ground during a crisis.

EMAIL SPYING “COULD HAVE STOPPED” LONDON TERRORISTS, SAYS UK HOME SECRETARY

Millions of personal email and mobile phone records could be stored and shared with police and intelligence officials across Europe to help thwart terrorist attacks. UK Home Secretary, Charles Clarke, will propose new measures at an emergency meeting of EU interior ministers which will discuss the implications of the London subway bombings. He raised the stakes dramatically by claiming they could “quite possibly” have helped prevent such attacks, by identifying in advance suspicious patterns of behavior by potential terrorists.

The move comes as the National Crime Squad has contacted internet service providers in the UK, appealing for them to preserve email messages in case they prove useful to the manhunt. The messages could include highly personal information. Although police have no powers to force compliance, the memo sent last week suggests it is “likely that the perpetrators behind the multiple explosions in central London today have used telecommunications systems in the planning and execution of their act,” and there was a risk of evidence being lost.

Clarke’s proposals for an EU-wide agreement would stop short of such intrusion into the content of emails. But it would require the storing of revealing “traffic data” – detailing who has called, or messaged whom, with times and locations – for several years, enabling individuals to be tracked across Europe and emerging networks of sympathisers to be monitored.

SCIENTISTS WORKING ON CURRENCY DETECTOR

Federal researchers are developing technology that will allow authorities to track drug money. Three different inventions are in the works to aid in the effort to detect illegal cash. Officials at the Idaho National Laboratory say one of the devices “sniffs” the air for the chemical odor of paper currency, while another utilizes electron beams to look for metals in the green ink used to print money. Scientists are also in the process of developing a device that would store the individual serial numbers of all bills.

Civil libertarians are concerned about the potential rights violations such technology could pose on individuals and how the technology will be viewed by the justice system is still unknown. The “cash sniffer” works much like the human nose, scanning the air for the smell of chemicals used in the green ink used to prints bills. If the device’s sensor detects the molecules, an alert is triggered. The second instrument detects microscopic metals in the inks used in printing cash. The device is a bit smaller than an airport x-ray machine.

The Department of Homeland Security is reviewing the new technology, which is being developed with funds from the Immigration and Customs Enforcement agency. Lab spokesman Ethan Huffman says detecting large amounts of cash could be an effective tool in the war on drugs. U.S. law prohibits bringing more than $10,000 in cash across the nation’s borders. If distributed around the world, the third device could be used to create a global database of all bills printed.

RFID FOES FIND RIGHTEOUS ALLY

Privacy advocate Katherine Albrecht, an opponent of the use of radio tags on consumer goods and in ID documents, is a woman any X-Files fan could love. She is youthful-looking and attractive, with fair skin and cherry-blonde hair. A former schoolteacher, Albrecht also has a master’s degree from Harvard, where she is completing a doctoral degree. Albrecht is suspicious of the government and big business. She has been an electrifying guest on Coast to Coast AM, the cult radio show featuring talk about aliens, ghosts, conspiracies and cryptozoology. As director of the consumer privacy group Caspian, Albrecht is a darling of the mainstream news media too. In hundreds of interviews, in a list of publications that includes Business Week and Times of London, she has warned of privacy risks posed by RFID tags, the radio devices that retailers plan to use as a replacement for bar-code labels.

Albrecht fears that retailers will match the data emitted by the tags with their customers’ information, turning each tag into a potential tracking beacon. She also suspects the government will want access to the retailers’ RFID databases. But one aspect of Albrecht’s anti-RFID crusade has been attracting a lot of attention from other privacy groups: her religious beliefs.

Albrecht does not often discuss her religious views with reporters. But she believes that RFID technology may be part of the fulfillment of the Mark of the Beast prophesied in the Book of Revelation. Other privacy rights advocates want Albrecht to help them connect with Christians who believe that RFID tags – tiny chips that emit serial numbers – are the Mark of the Beast. Many of those Christians believe humans one day will be compelled to bear a mark on their heads or wrists, to engage in the buying and selling of goods. Bill Scannell, a privacy advocate, and Lee Tien, senior staff attorney at the Electronic Frontier Foundation, are among those who have talked to Albrecht about reaching out to Christians who take parts of the Bible literally.

CELL PHONE RECORDS FOR SALE

They are not just after your credit card or Social Security numbers. Fueled by the ease of online commerce, snoops are on the trail of other personal information, too. One of the hottest markets: records of phone calls, especially from cell phones. A tool long used by law enforcement and private investigators to help locate criminals or debt-skippers, phone records are a part of the sea of personal data routinely bought and sold online in an Internet-driven, I-can-find-out-anything-about-you world. Legal experts say many of the methods for acquiring such information are illegal, but they receive scant attention from authorities.

Think your mate is cheating? For $110, Locatecell.com will provide you with the outgoing calls from his or her cell phone for the last billing cycle, up to 100 calls. All you need to supply is the name, address and the number for the phone you want to trace. Order online, and get results within hours. Carlos Anderson, a licensed private investigator in Florida, offers a similar service for $165, for all major telephone carriers. “This report provides all the calls with dates, times, and duration on the billing statement,” according to Anderson’s Web site, which adds, “Incoming Calls and Call Location are provided if available.” Learning who someone talked to on the phone cannot enable the kind of financial fraud made easier when a Social Security or credit card number is purloined. Instead, privacy advocates say, the intrusion is more personal.

LAW

THEY MADE ME A FLAG-BURNER

Last year there were 141 incidents of flag-burning in the United States. A chilling statistic, you say? But those are just the ones that were reported! We have no way of knowing how many other flags people burned in their basements. The real number, from coast to coast, may be twice that high. But don’t worry. The U.S. House of Representatives has just voted to ratify a constitutional amendment to ban flag-burning. This would repair an inexplicable oversight of the Constitution’s Framers, who made no provision whatever for protecting the flag. How could such wise men have left us with such a gaping vulnerability?

Seriously, folks, the purpose of this amendment might as well be to prove to the world that this is still the country that passed Prohibition. The whole thing started in 1989 when the U.S. Supreme Court ruled that flag-burning is part of “the freedom of speech” protected by the First Amendment. That was ridiculous, but so is the fury flag-burning provokes. It is a bit like the Muslim outrage over “desecrations” of the Koran. Thanks to the printing press, sacred texts are now mass-produced, hundreds of millions of them exist, and there is no way to protect them all from abuse. And a flag, also a mass-produced object, being in no sense sacred, cannot be “desecrated”.

It seems a rather tedious effort to amend the Constitution every time the Supreme Court makes an absurd ruling, which happens on average every week. Just this week it has more or less abolished property rights, a decision that may have more far-reaching effects than its merely silly 1989 decision about burning flags. If you will read the Constitution in question, you will notice that it provides for impeachment. This was meant to be used – not rarely, but always. Every government official should be constantly aware that he can lose his job if he abuses his power, just as most people know they can be fired at any time for abusing their employers’ trust. But impeachment has become a dead letter, like so much of the Constitution, and it happens so seldom that members of the Federal judiciary feel their jobs are safe, no matter what they do. Until Americans start insisting that overweening justices be canned for usurping power, we can expect them to go on treating the Constitution with contempt. Unlike flag-burners, they are a clear and present danger.

DESPITE TERROR, EUROPEANS SEEM DETERMINED TO MAINTAIN CIVIL LIBERTIES

From the 9/11 attacks through the Madrid bombings, Europeans have refused to sacrifice civil liberties in the fight against terrorism, sharply criticizing the U.S. for restricting its citizens’ rights for the sake of security. Even with the London attacks, there is little indication that this philosophical divide is narrowing. Certainly some European counterterrorism experts believe that Europe’s determination to preserve open borders, ease of movement and civil liberties has been what one German expert on terrorism, Rolf Tophoven, calls “a gift to terrorists”. It is all too easy for jihadists, once they are inside the EU, to move from one country to another, the experts say, propagating their views and setting up groups sympathetic to Al Qaeda. But from the early signs, Europe will not change course.

For one thing, it is too early to make the case that the London attacks were the product of open borders or too much tolerance of fanatical Muslim activity in Britain. Without more evidence it is impossible to know if there was a failure to gather intelligence on groups in Britain, or whether outsiders aided or directed the attacks, going to the country for that purpose. But whichever turns out to be the case, experts say, radical Muslim communities have been established in several European countries since well before the current wave of Al Qaeda-inspired attacks, and that makes the situation in Europe different from that in the U.S.

For the U.S., there was a logic to the post-Sept. 11 toughening of immigration procedures, subjecting foreigners to rigorous questioning, general suspicion and even fingerprinting, which has prompted great unhappiness among European visitors. For Europe, with a sizable radical Muslim population already in place, it makes far less sense. If potential terrorists are already inside the country, then the best way to prevent terrorism is to do what Britain was already doing, which is to keep close tabs on them. As in the U.S., there is a debate in Europe about the relative weight that needs to be given to civil liberties on the one side and law enforcement on the other. But Europeans are generally more inclined to err on the side of civil protections, because they are convinced that taking too severe a line only makes matters worse.

The Israeli-Palestinian conflict further divides European and American attitudes. Europeans are far more sympathetic to the Palestinians and prone to anti-Israel attitudes than Americans, and they have therefore tended to see a certain kind of Muslim radical oratory as the natural response of peoples with legitimate grievances. By and large, Europeans oppose the American war in Iraq, which many say is responsible for increasing the terrorist threat against them. Political leaders in Europe diplomatically avoid criticizing the U.S., but it has surely not been lost on ordinary Europeans that the countries attacked, and threatened by attack, are those that have supported the American war in Iraq.

COURT MAKES PROPERTY VULNERABLE

Is your home more vulnerable to eminent domain seizure by your local government in the wake of the Supreme Court’s 5-4 decision June 23 in Kelo v. City of New London? The ruling upheld that Connecticut city’s right to seize 15 properties from private owners and transfer the real estate to private developers for later hotel, office and conference center projects. None of the owners wanted to sell. None of the houses was considered blighted. None of the real estate will be used or owned by the city. Leonard Zax, a Washington land use attorney who represents developers and cities, says homeowners have nothing to worry about. “People are just as safe the day after the court’s decision as they were the day before” Zax said about seizures.

But listen to what Supreme Court Justice Sandra Day O’Connor had to say in dissent: “All private property is now vulnerable to being taken and transferred to another private owner, so long as it might be upgraded. … The specter of condemnation hangs over all property. Nothing is to prevent (local governments) from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall, or any farm with a factory.” O’Connor added that the high court’s decision eliminates “any distinction between private and public use of property – and thereby effectively (deletes) the words for public use from the Takings Clause of the Fifth Amendment” to the Constitution. The Fifth Amendment prohibits governments from taking private properties “for public use, without just compensation.” Traditionally “public use” was understood to mean direct public ownership and use – seizures for roadways, public buildings and the like.

But in recent decades, courts expanded the concept of “public use” to include projects that contribute to “public purposes”, even if the direct beneficiaries of the seizures were private owners such as developers and real estate investors. The most notable case, Berman v. Parker, involved the wholesale condemnation in 1954 of economically depressed, predominantly African-American neighborhoods in Washington, D.C., to be replaced by new, privately owned buildings. In the New London case, the five justices in the majority held that when a local government determines eminent domain seizures will contribute to a public benefit then the Supreme Court should give the local government “deference”, and not interfere.

Where, then, does that leave you in the event that your local government sees potential for a higher and better use for your home and land? In brief: The court’s decision leaves you in a weaker position than you might imagine, at least under federal law. As a practical matter, who is really at greater risk of such seizures? Dana Berliner, an attorney who represented the New London homeowners, says only certain categories of homeowners are at heightened risk. With the Supreme Court majority now giving “deference” to local government decisions about eminent domain seizures for private projects, Berliner expects the phenomenon to spread in the years ahead and affect thousands of homeowners who assumed they were safe. The remedy? Organize and fight such projects at the state and local levels, where you may find greater statutory protections. To assist in that effort, Berliner’s firm is sponsoring a grass-roots group, the Castle Coalition.

Well what did we expect?

I am surprised at the hostile reaction to the Supreme Court ruling in Kelo v. New London. The crux of the case is, using their analogy, that the state can take property from A to give it to B because B will pay higher taxes. The people do not like that? I shake my head in wonder! This is the exact same loathsome Leftist lunatic philosophy that has permeated everything for the last half century! But now, NOW, they are upset? The government is continually taking something away from you, whom I will refer to as A, to give it to some other guy, whom I will label as B. But now, just because it is their houses on the line, people are getting upset? What morons!

But you never hear WHY New London is making this grab for people’s property. The reason is, obviously that the morons of New London have persisted in electing Leftist morons to their government, and that government of morons has spent the last half century spending every dime they can get their hands on, and raising taxes to get MORE money to spend, and promising the moon to everybody. Now they need money. Lots and lots of money. But taxes are already so onerous that they cannot raise them any more. And why do they need so much money? They have provided for legions of city workers who are, like all government workers everywhere, grossly overpaid and under-worked, and who have benefit packages so outrageously generous that they are not even available anywhere in the private sector, and they are under-funded. They have, like the butthead citizens who elected these dimwits, spent their way to the literal edge of bankruptcy.

And so the people are upset? Hahahaha! The state has debased and destroyed their money, but they are not upset about that. The state has grown itself to be, literally, half the entire economy, but they are not upset about that. The state has now installed so many taxes on so many things that they have driven up prices, but they are not upset about that. The state has indebted every citizen alive, and citizens who are not even born yet, so heavily that the debt cannot ever be paid back, but they are not upset about that. The state has gradually eaten away at every liberty, piece by piece by piece, but they are not upset about that. They have allowed the Constitution to be gutted, bit by bit by bit, but they are not upset about that. But maybe force them to move out of their houses, and they are, all of a sudden, upset about that!

Perhaps Vox Day, in an essay on WorldNetDaily.com, encapsulated it best when he wrote, “Merely substitute a few terms in describing the system and it becomes clear that the Supreme Court has established a neofeudal oligarchy, where all land is held in the name of the federal government-king, governed by his local government-nobles and worked by taxpayer-serfs. Should one serf fail to produce a satisfactory harvest of crops-tax revenues, the noble can take the land from one serf and give it to another who promises to produce a more abundant harvest.

“This is a major expansion of the eminent domain concept, and I can confidently predict that the redefinition of the constitutional term ‘public use’ will soon be as stretched beyond recognition as the now-meaningless phrase ‘interstate commerce’ … the Orwellian term that now covers things that do not cross state lines (and thus are not interstate) and have not been sold or exchanged for other goods (and thus are not commerce).”

SENATORS PROPOSE CURBS ON PATRIOT ACT

Two senior members of the Senate Judiciary Committee introduced legislation that would lead to more restrictions on the government’s powers under the USA Patriot Act, setting the stage for a protracted legislative battle in coming months over the controversial anti-terrorism law. The proposal by Sens. Arlen Specter (R-Pennsylvania) and Dianne Feinstein (D-California) would scale back a law that the administration seeks to keep largely intact. But it also attracted immediate criticism from civil liberties advocates who say it does not adequately rein in the government’s activities.

In the House, lawmakers moved forward with legislation that would place far fewer restrictions on the government and would make permanent most, if not all, of the Patriot Act’s provisions. Another bill recently approved by the Senate intelligence committee would expand the government’s powers in terrorism investigations, allowing the FBI to conduct secret searches more easily and clandestinely read the mail of targeted suspects.

ACLU says House committees failed to bring Patriot Act in line with Constitution.

The American Civil Liberties Union expressed its disappointment with the two key House committees that considered legislation to reauthorize the Patriot Act, citing the unwillingness by lawmakers to reject a power grab by the administration and restore proper checks and balances to the anti-terrorism law. The Senate Judiciary Committee is expected to consider similar legislation soon. “Lawmakers had the opportunity to fix what they got wrong the first time, and instead partisan politics prevailed,” said Lisa Graves, ACLU Senior Counsel for Legislative Strategy. “The administration made a power grab, requesting that these sweeping powers remain permanent. As both chambers consider these bills, we hope lawmakers will bring the sunsetting provisions, and others, in line with the Constitution by restoring checks and balances on government power.”

Unnecessary powers.

The Patriot Act already gives government too much power to spy on ordinary Americans, but things could get far worse. Congress is considering adding a broad new investigative power, known as the administrative subpoena, that would allow the F.B.I. to gain access to anyone’s financial, medical, employment and even library records without approval from a judge and even without the target knowing about it. Members of Congress should block this disturbing provision from becoming law.

The Senate is at work on a bill to reauthorize parts of the Patriot Act that are scheduled to expire later this year. In addition to extending those provisions, the Senate Intelligence Committee is proposing to add an array of new “investigative tools”. The administrative subpoena is not the only one of the new provisions of the current bill that would endanger civil liberties, but it is the worst. When the F.B.I. wants access to private records about an individual, it ordinarily needs to get the approval of a judge or a grand jury. The proposed new administrative subpoena power would allow the F.B.I. to call people in and force them to produce records on its own authority, without approval from the judicial branch. This kind of secret, compelled evidence not tied to any court is incompatible with basic American principles of justice. It would also make it far easier for the F.B.I. to go off on fishing expeditions.

The bill would allow the F.B.I. to order that the subpoenas be kept secret. That means record holders, like banks or employers, would not be able to inform the person whose private information was being handed over. It would also make it difficult for Congress, and the public, to know whether the F.B.I. was abusing its enormous new powers. Defenders of the bill argue that a subpoena could still be challenged in court, but this is a hollow right. In many cases, the person whose records would be turned over – who has the greatest incentive to fight the subpoena – would not know what was going on. The record holder, who would be in a position to challenge the subpoena, may have little incentive to spend the money and time to do so.

The bill’s defenders note that administrative subpoenas are already allowed in other kinds of investigations. But these are generally in highly regulated areas, like Medicaid billing. The administrative subpoena power in the new bill would apply to anything the F.B.I. deemed related to alleged foreign intelligence or terrorism, and could, in practice, give the F.B.I. access to almost any private records it wanted. The proposed new administrative subpoena power is a solution in search of a problem. In testimony before Congress, the F.B.I. could not point to examples of national security investigations that were deterred by its lack of administrative subpoena power.

There could be a case that the F.B.I. should have this power in true emergencies, but that would require a very narrowly drawn provision that applied only in exigent circumstances. The Senate is considering something far more sweeping and dangerous: giving the F.B.I. an open-ended license to invade the privacy of ordinary Americans.

WHO IS WATCHING THE “NO FLY” WATCH LIST?

Heading for Oakland from Seattle to see my grandkids last week, the Alaska Airline check-in machine refused to give me a boarding pass. Directed to the ticket counter, I gave the agent my driver’s license and watched her punch keys at her computer. Frowning, she told me that my name was on the national terrorist No Fly Watch List and that I had to be specially cleared to board a plane. Any plane. Then she disappeared with my license for ten minutes, returning with a boarding pass and a written notice from the Transportation Security Administration (TSA) confirming that my name was on a list of persons “who posed, or were suspected of posing, a threat to civil aviation or national security.” No one could tell me more than that. The computer was certain.

Back home from Oakland, I called the TSA 800 number, where I rode a merry-go-round of pleasant recorded voices until I gave up. Turning to the TSA website, I downloaded a Passenger Identity Verification Form that would assist the TSA in “assessing” my situation if I sent it in with a package of certified documents attesting to who I was. I collected all this stuff and sent it in. Another 20 minutes on the phone to the TSA uncovered no live human being at all, let alone one who would tell me what I had presumably done to get on The List. Searching my own mind for possible reasons, I have been more and more puzzled. I used to work on national security issues myself for the State Department and I know how dangerous our country’s opponents can be. To the dismay of many of my more progressive friends, I have given the Feds the benefit of the doubt on homeland security. I tend to dismiss conspiracy theories as nonsense and I take my shoes off for the airport screeners with a smile.

I am embarrassed that it took my own ox being gored for me to see the threat posed by the Administration’s current restricting of civil liberties. I am being accused of a serious – even treasonous – criminal intent by a faceless bureaucracy, with no chance (that I can find) to refute any errors or false charges. My ability to earn a living is threatened – I speak on civic action and leadership all over the world, including recently at the U.S. Air Force Academy. Plane travel is key to my livelihood. According to a recent MSNBC piece, thousands of Americans are having similar experiences. And this is not Chile under Pinochet. It is America. My country and yours.

I know what I will do. If my name is not removed completely from the Watch List in 45 days I will use every resource I have got to challenge the government of a country that I love and have served. In all the press about identity theft, I find myself railing at having my identity as a patriot stolen – by my own government. This must not stand.

THE RIGHT TO SELF-DEFENSE

On June 27, in the case of Castle Rock v. Gonzales, the Supreme Court found that Jessica Gonzales did not have a constitutional right to police protection even in the presence of a restraining order. By a vote of 7-to-2, the Supreme Court ruled that Gonzales has no right to sue her local police department for failing to protect her and her children from her estranged husband.

In 1999, Gonzales obtained a restraining order against her estranged husband Simon, which limited his access to their children. On June 22, 1999, Simon abducted their three daughters. Though the Castle Rock police department disputes some of the details of what happened next, the two sides are in basic agreement: After her daughters’ abduction, Gonzales repeatedly phoned the police for assistance. Officers visited the home. Believing Simon to be non-violent and, arguably, in compliance with the limited access granted by the restraining order, the police did nothing. The next morning, Simon committed “suicide by cop”. He shot a gun repeatedly through a police station window and was killed by returned fire. The murdered bodies of Leslie, 7, Katheryn, 9 and Rebecca, 10 were found in Simon’s pickup truck. In her lawsuit, Gonzales claimed the police violated her 14th Amendment right to due process and sued them for $30 million. She won at the Appeals level. What were the arguments that won and lost in the Supreme Court?

Winners: local officials fell back upon a rich history of court decisions that found the police to have no constitutional obligation to protect individuals from private individuals. In 1856, the U.S. Supreme Court (South v. Maryland) found that law enforcement officers had no affirmative duty to provide such protection. In 1982 (Bowers v. DeVito), the Court of Appeals, Seventh Circuit held, "… there is no Constitutional right to be protected by the state against being murdered by criminals or madmen.” Later court decisions have concurred.

Losers: anti-domestic violence advocates and women’s groups, such as the National Association of Women Lawyers, failed to establish that restraining orders were constitutional entitlements. If they had succeeded, the enforcement of such orders would have been guaranteed by due process. Failure to enforce them would have been grounds for a lawsuit against the police, a precedent that local officials feared would flood them with expensive litigation. Public analysis of Rock v. Gonzales has been largely defined by these two opposing positions.

A third position cries out: Given the court’s position that the police are not obliged to protect us, responsible adults need the ability to defend themselves. Thus, no law or policy should impede the access to gun ownership. Responsible adults – both male and female – have both a right and a need to defend themselves and their families, with lethal force if necessary. If domestic violence advocates had focused on putting a gun in Jessica’s hand and training her to use it, then the three Gonzales children might still be alive.

OPINION & ANALYSIS

TERRORISM COMES WITH EMPIRE

Why did the terrorists not strike Switzerland instead of England? After all, the two countries share the same “freedom and values”, don’t they? Answer: The Swiss government did not attack Iraq. It does not meddle in the Middle East. It did not participate in the brutal sanctions against the Iraqi people. It does not maintain an empire of overseas bases. It does not go abroad in search of monsters to destroy. The Swiss government minds its own business. That is why the terrorists did not strike Switzerland.

Of course, the same cannot be said of England, whose foreign policy in the Middle East can be summed up as follows: Whatever the U.S. government does, the British government supports and joins. Thus, the British government participated in President Bush’s recent war on Iraq – a war against a sovereign and independent country that never attacked the U.S. or England or even threatened to do so. It is a war that has produced the deaths of tens of thousands of innocent people – not just American and British soldiers, but also Iraqi soldiers and civilians – none of whom had anything to do with the 9/11 terrorist strikes. That is why the terrorists struck in London instead of Bern. That is also why the terrorists struck in New York, both in 1993 and 2001, and at the Pentagon.

The terrorist retaliations are rooted in anger and hatred not for American and English “freedom and values”, as President Bush and Prime Minister Blair maintain, but instead in anger and hatred for U.S. and British foreign policy. Why would it be otherwise? Why should foreigners – especially radical, violent ones – react any differently to the killings and maiming of their family, friends, and countrymen than Westerners do when their family, friends, and countrymen are killed or maimed by foreigners?

If people choose to continue the empire – and the diplomatic and military glory that comes with being the world’s sole remaining empire – then they must resign themselves to the fact that their lives and freedom will be under perpetual assault by both terrorists and government officials. For those who want lives of freedom, normality, peace, prosperity, and harmony, there is but one solution: Dismantle the empire, bring the troops home and discharge them into the private sector, stop meddling in the affairs of other nations, stop trying to dominate and control the world, stop going abroad in search of monsters to destroy, and stop trying to be the world’s policeman.

The logic of suicide terrorism: it’s the occupation, not the fundamentalism.

The central fact is that overwhelmingly suicide-terrorist attacks are not driven by religion as much as they are by a clear strategic objective: to compel modern democracies to withdraw military forces from the territory that the terrorists view as their homeland. From Lebanon to Sri Lanka to Chechnya to Kashmir to the West Bank, every major suicide-terrorist campaign – over 95% of all the incidents – has had as its central objective to compel a democratic state to withdraw.

Since suicide terrorism is mainly a response to foreign occupation and not Islamic fundamentalism, the use of heavy military force to transform Muslim societies over there, if you would, is only likely to increase the number of suicide terrorists coming at us. The central motive for anti-American terrorism, suicide terrorism, and catastrophic terrorism is response to foreign occupation, the presence of our troops. The longer our forces stay on the ground in the Arabian Peninsula, the greater the risk of the next 9/11, whether that is a suicide attack, a nuclear attack, or a biological attack.

Lest we forget; these were Blair’s bombs.

In all the coverage of last week’s bombing of London, a basic truth is struggling to be heard. It is this: no one doubts the atrocious inhumanity of those who planted the bombs, but no one should also doubt that this has been coming since the day Tony Blair joined George Bush in their bloody invasion and occupation of Iraq. They are “Blair’s bombs”, and he ought not be allowed to evade culpability with yet another unctuous speech about “our way of life”, which his own rapacious violence in other countries has despoiled.

Indeed, the only reliable warning from British intelligence in the run-up to the invasion of Iraq was that which predicted a sharp increase in terrorism “with Britain and Britons a target.” A House of Commons committee has since verified this warning. Had Blair heeded it instead of conspiring to deceive the nation that Iraq offered a threat, the Londoners who died on Thursday might be alive today, along with tens of thousands of innocent Iraqis.

Three weeks ago, a classified CIA report revealed that the Anglo-American invasion of Iraq had turned that country into a focal point of terrorism. None of the intelligence agencies regarded Iraq as such a flashpoint before the invasion, however tyrannical the regime. On the contrary, in 2003, the CIA reported that Iraq “exported no terrorist threat to his neighbors” and that Saddam Hussein was “implacably hostile to Al-Qaeda.” Blair’s and Bush’s invasion changed all that. In invading a stricken and defenceless country at the heart of the Islamic and Arab world, their adventure became self-fulfilling. Blair’s epic irresponsibility has brought the daily horrors of Iraq home to Britain.

THE STANDARD OBJECTION THAT ANARCHY WOULD LEAD TO BATTLING WARLORDS IS UNFOUNDED

On two separate occasions in the last couple of weeks, people have asked me a familiar question: “In a system of ‘anarcho-capitalism’ or the free-market order, would society not degenerate into constant battles between private warlords?” Unfortunately I did not give adequate answers at the times, but I hope in this article to prove the adage that later is better than never.

When dealing with the warlord objection, we need to keep our comparisons fair. It will not do to compare society A, which is filled with evil, ignorant savages who live under anarchy, with society B, which is populated by enlightened, law-abiding citizens who live under limited government. The anarchist does not deny that life might be better in society B. What the anarchist does claim is that, for any given population, the imposition of a coercive government will make things worse. The absence of a State is a necessary, but not sufficient, condition to achieve the free society.

To put the matter differentl: It is not enough to demonstrate that a state of private-property anarchy could degenerate into ceaseless war, where no single group is strong enough to subjugate all challengers, and hence no one can establish “order”. After all, communities living under a State degenerate into civil war all the time. We should remember that the frequently cited cases of Colombia and now Iraq are not demonstrations of anarchy-turned-into-chaos, but rather examples of government-turned-into-chaos. For the warlord objection to work, the statist would need to argue that a given community would remain lawful under a government, but that the same community would break down into continuous warfare if all legal and military services were privatized.

Now that we have focused the issue, I think there are strong reasons to suppose that civil war would be much less likely in a region dominated by private defense and judicial agencies, rather than by a monopoly State. The voluntary arrangements of a private property society would be far more conducive to peace and the rule of law, than the coercive setup of a parasitical monopoly government.

THE ASYMMETRICAL RHETORIC OF WAR AND PEACE

Rhetoric is the technique of verbal persuasion. Those of us who favor limited civil government and extensive self-government like to think that logic is on our side. The problem is, rhetoric is not. Rhetoric mobilizes emotion. Its primary goal is to produce an emotional response that in turn produces a specific action. Those of us who write direct-response copy know from years of measurable responses to our ads that emotion sells. Logic is there to justify the emotional commitment that the copywriter’s copy produces in the reader. Here is the problem facing those who favor limited civil government and extensive self-government: personal responsibility is a difficult sell. From the day that Adam blamed Eve, and Eve blamed the serpent, mankind has been in a fruitless quest to shift blame and avoid personal responsibility for failure.

It takes long chains of reasoning to defend the free market as a means of coordination. Most people cannot follow these long chains of reasoning. Adam Smith invoked the rhetorical image of the invisible hand. That was an effective tactic. It worked because Western intellectuals in the mid-eighteenth century associated this image with providence. The problem was that Smith’s image failed to persuade intellectual socialists, who appeared soon after The Wealth of Nations appeared. They had abandoned the idea of providence. Smith’s image failed to persuade them. They looked instead for an institutional replacement for the non-existent Deist god of the Scottish Enlightenment. They found it in the state: the visible hand.

It took two centuries for the popularity of the image of the visible hand to fade. It took the visible failure of the Soviet Union to convince most Western intellectuals that the visible hand of central planning could not be relied on to deliver the goods. The Soviet Union’s visible hand had always been arthritic, but the USSR projected military power and imposed systematic domestic violence. Most Western intellectuals respect visible power above everything else. They are still unable to follow long chains of economic reasoning, but they have looked at what China has done under the free markets and what socialism did for Russia, and they finally have concluded that the free market does work like an invisible hand. The logic of the free market has not persuaded them. The visible results have persuaded them.

The case for peace is mostly logical. The case for war is mostly rhetorical. So, men keep going to war. Sin has a more ready market than righteousness. Then what offers hope? Reality. The visible hand of war, like the visible hand of central planning, eventually produces widespread losses. Eventually, someone says, “Let them eat rhetoric.” The caloric content of rhetoric is nil. When the rhetoric of the sacred no longer extends to military funerals, the visible hand of war is getting close to the end of its popularity. Swords are not yet being converted into ploughshares, but the politicians who favored war with their rhetoric are beginning to resemble Damocles.

THE TERRORISM TO COME

Terrorism has become over a number of years the topic of ceaseless comment, debate, controversy, and search for roots and motives, and it figures on top of the national and international agenda. It is also at present one of the most highly emotionally charged topics of public debate, though quite why this should be the case is not entirely clear, because the overwhelming majority of participants do not sympathize with terrorism. Confusion prevails, but confusion alone does not explain the emotions. There is always confusion when a new international phenomenon appears on the scene. This was the case, for instance, when communism first appeared (it was thought to be aiming largely at the nationalization of women and the burning of priests) and also fascism. But terrorism is not an unprecedented phenomenon. It is as old as the hills.

30 years ago, when the terrorism debate got underway, it was widely asserted that terrorism was basically a left-wing revolutionary movement caused by oppression and exploitation. Hence the conclusion: Find a political and social solution, remedy the underlying evil – no oppression, no terrorism. The argument about the left-wing character of terrorism is no longer frequently heard, but the belief in a fatal link between poverty and violence has persisted. Whenever a major terrorist attack has taken place, one has heard appeals from high and low to provide credits and loans, to deal at long last with the deeper, true causes of terrorism, the roots rather than the symptoms and outward manifestations. And these roots are believed to be poverty, unemployment, backwardness, and inequality. It is not too difficult to examine whether there is such a correlation between poverty and terrorism, and all the investigations have shown that this is not the case.

Reducing poverty in the Third World is a moral as well as a political and economic imperative, but to expect from it a decisive change in the foreseeable future as far as terrorism is concerned is unrealistic, to say the least. It ignores both the causes of backwardness and poverty and the motives for terrorism. It is no longer a secret that the carriers of international terrorism operating in Europe and America hail not from the poor, downtrodden, and unemployed but are usually of middle-class origin.

The link between terrorism and nationalist, ethnic, religious, and tribal conflict is far more tangible. These instances of terrorism are many and need not be enumerated in detail. Solving these conflicts would probably bring about a certain reduction in the incidence of terrorism. But the conflicts are many, and if some of them have been defused in recent years, other, new ones have emerged. Nor are the issues usually clear-cut or the bones of contention easy to define – let alone to solve. As in the war against poverty, the initiatives to solve local conflicts are overdue and should be welcomed. Making peace is not an easy option. It involves funds and in some cases the stationing of armed forces. There is no great international crush to join the ranks of the volunteers. China, Russia, and Europe do not want to be bothered, and the U.S. is overstretched.

Lastly, there should be no illusions with regard to the wider effect of a peaceful solution of one conflict or another. The assumption that a solution of a local conflict (even one of great symbolic importance) would have a dramatic effect in other parts of the world is unfounded. Such a warning against illusions is called for because there is a great deal of wishful thinking and naïveté in this respect – a belief in quick fixes and miracle solutions. Tackling these supposed sources of terrorism, even for the wrong reasons, will do no harm and may bring some good. But it does not bring us any nearer to an understanding of the real sources of terrorism, a field that has become something akin to a circus ground for riding hobbyhorses and peddling preconceived notions.

There can be no final victory in the fight against terrorism, for terrorism (rather than full-scale war) is the contemporary manifestation of conflict, and conflict will not disappear from earth as far as one can look ahead and human nature has not undergone a basic change. But it will be in our power to make life for terrorists and potential terrorists much more difficult. Experience teaches that a little force is indeed counterproductive except in instances where small groups are involved. The use of massive, overwhelming force, on the other hand, is usually effective. But the use of massive force is almost always unpopular at home and abroad, and it will be applied only if core interests of the state are involved.

Two lessons follow: First, governments should launch an anti-terrorist campaign only if they are able and willing to apply massive force if need be. Second, terrorists have to ask themselves whether it is in their own best interest to cross the line between nuisance operations and attacks that threaten the vital interests of their enemies and will inevitably lead to massive counterblows. Terrorists want total war – not in the sense that they will (or could) mobilize unlimited resources; in this respect their possibilities are limited. But they want their attacks to be unfettered by laws, norms, regulations, and conventions. In the terrorist conception of warfare there is no room for the Red Cross.

The why-do-they-hate-us question is raised in this context, along with the question of what could be done about it – that is, the use of soft power in combating terrorism. Disturbing figures have been published about the low (and decreasing) popularity of America in foreign parts. Yet it is too often forgotten that international relations is not a popularity contest and that big and powerful countries have always been feared, resented, and envied – not loved. This has been the case since the days of the Assyrians and the Roman Empire. Big powers have been respected and feared but not loved for good reasons – even if benevolent, tactful, and on their best behavior, they were threatening simply because of their very existence. There is no known way for a big power to reduce this feeling on the part of other, smaller countries – short of committing suicide or, at the very least, by somehow becoming weaker and less threatening. Soft power is important but has its limitations.

Big powers will never be loved, but in the terrorist context it is essential that they should be respected. As bin Laden’s declarations prior to September 11 show, it was lack of respect for America that made him launch his attacks. He felt certain that the risk he was running was small, for the U.S. was a paper tiger, lacking both the will and the capability to strike back. After all, the Americans ran from Beirut in the 1980s and from Mogadishu in 1993 after only a few attacks, and there was every reason to believe that they would do so again.

Life could be made more difficult for terrorists by imposing more controls and restrictions wherever useful. But neither the rules of national nor international law are adequate to deal with terrorism. Many terrorists or suspected terrorists have been detained in America and in Europe, but only a handful have been put on trial and convicted, because inadmissible evidence was submitted or the authorities were reluctant to reveal the sources of their information – and thus lose those sources. As a result, many who were almost certainly involved in terrorist operations were never arrested, while others were acquitted or released from detention.

In the last resort, the problem is, of course, the human condition. In 1932, when Einstein attempted to induce Freud to support pacifism, Freud replied that there was no likelihood of suppressing humanity’s aggressive tendencies. If there was any reason for hope, it was that people would turn away on rational grounds – that war had become too destructive, that there was no scope anymore in war for acts of heroism according to the old ideals. Freud was partly correct: War (at least between great powers) has become far less likely for rational reasons. But his argument does not apply to terrorism motivated mainly not by political or economic interests, based not just on aggression but also on fanaticism with an admixture of madness. Terrorism, therefore, will continue – not perhaps with the same intensity at all times, and some parts of the globe may be spared altogether. But there can be no victory, only an uphill struggle, at times successful, at others not.

PSYCHOTHERMIA (HEAT ANXIETY) – WEAPON OF MASS DESTRUCTION

There has never been a mass hysteria in the world compared to the present global warming fiasco. It is so comical and unreal that it defies belief. I thought the side stream smoke scam was as bad as it could get but the Greenland melt, the Himalaya crackup, the Eskimo panic, and the CO₂ asphyxiation of us all makes me feel that I am living in an insane asylum. Reuters Health tells us from the Internet that “EWEA says it can hit the target of generating 75 gigawatts of electricity – or 5.5 percent of demand – by 2010… With initiative and government intervention to remove long term support for the CO₂-emitting fossil fuel power industry, this could rise to 12 percent by 2020.” The underlining is mine – this is the key to the whole program of destruction we are facing. They are after control of your car, your temperature in your home and office, airline and bus transportation – control of all energy so they can ration it “fairly”. Control of energy means control of the world – an international dictatorship.

The useful idiots who do most of the talking and agitating, the Bryonys of this world (more about this sad little girl below), will awaken some day and realize that they do not have enough heat in the house, no refrigeration so the food is rotting and there are no trucks to deliver more rotting food There is no more use of fossil fuel – coal, oil, natural gas – or nuclear; so the world is winding down. Only the windmills will be turning, but not for long, as there is no transportation, spare parts or wires to storage batteries and converters – all these things require fossil fuel for manufacture. The windmills themselves require fossil fuel for manufacture. The cost is so high in the producing of these Don Quixote contraptions that the net energy return is close to negative.

Even the animal huggers are abandoning their precious birds in favor of the human race – can you believe that? “Renewable energy specialist” Bryony Worthington of Friends of the Earth, says it is every man (and animal) for himself: “…birds have to take second place to saving the planet. … The bottom line is that climate change is happening, endangering us all. It is extremely scary,” she told Reuters. Well, Bryony, this whole farce is indeed scary because you ignorant people are driving the world toward an “emissions control” international dictatorship that is designed to destroy our industrial society.

You have got to get a hold of yourself, Bryony. You have a condition called Heat Anxiety. It is similar to High Anxiety only more stupid. Your brain is heating up and will soon steam out from your ears and nose. Please, Bryony, repeat after me: There is no global warming. There is no global warming. There is no global warming. Learn to live with it. Fret about something else like endangered human species such as smokers, white Christian males, and classical music lovers.

ENGLAND, CA. 1941, THROUGH THE EYES OF GEORGE ORWELL

As I write, highly civilized human beings are flying overhead, trying to kill me. They do not feel any enmity against me as an individual, nor I against them. They are “only doing their duty”, as the saying goes. Most of them, I have no doubt, are kind-hearted law-abiding men who would never dream of committing murder in private life. On the other hand, if one of them succeeds in blowing me to pieces with a well-placed bomb, he will never sleep any the worse for it. He is serving his country, which has the power to absolve him from evil.

One cannot see the modern world as it is unless one recognizes the overwhelming strength of patriotism, national loyalty. In certain circumstances it can break down, at certain levels of civilization it does not exist, but as a positive force there is nothing to set beside it. Christianity and international Socialism are as weak as straw in comparison with it. Hitler and Mussolini rose to power in their own countries very largely because they could grasp this fact and their opponents could not.

Also, one must admit that the divisions between nation and nation are founded on real differences of outlook. Till recently it was thought proper to pretend that all human beings are very much alike, but in fact anyone able to use his eyes knows that the average of human behaviour differs enormously from country to country. Things that could happen in one country could not happen in another. Hitler’s June purge, for instance, could not have happened in England. And, as western peoples go, the English are very highly differentiated. There is a sort of back-handed admission of this in the dislike which nearly all foreigners feel for our national way of life. Few Europeans can endure living in England, and even Americans often feel more at home in Europe.

When you come back to England from any foreign country, you have immediately the sensation of breathing a different air. Even in the first few minutes dozens of small things conspire to give you this feeling. The beer is bitterer, the coins are heavier, the grass is greener, the advertisements are more blatant. The crowds in the big towns, with their mild knobby faces, their bad teeth and gentle manners, are different from a European crowd. Then the vastness of England swallows you up, and you lose for a while your feeling that the whole nation has a single identifiable character. Are there really such things as nations? Are we not forty-six million individuals, all different? And the diversity of it, the chaos! The clatter of clogs in the Lancashire mill towns, the to-and-fro of the lorries on the Great North Road, the queues outside the Labour Exchanges, the rattle of pin-tables in the Soho pubs, the old maids hiking to Holy Communion through the mists of the autumn morning – all these are not only fragments, but characteristic fragments, of the English scene. How can one make a pattern out of this muddle?