Wealth International, Limited

Offshore News Digest for Week of July 18, 2005

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

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Monaco’s citizens had all but concluded that their bachelor prince would never have children. Now they are trying to guess how many illegitimate offspring Prince Albert has fathered. It was Albert, 47, who volunteered the information. In an interview on French television on the eve of his coronation last week, he acknowledged that he was the father of a two-year-old boy with Nicole Coste, a Togolese former flight attendant. And he suggested this was not his only illegitimate child.

This is not the only change. Since the death of Prince Rainier in April, speculation had been mounting about what course Albert would pursue. Last week Monaco found out. He told a gathering of his subjects that money laundering would no longer be tolerated. Some of his guests almost choked on their champagne. “Money and virtue must be combined permanently,” said Albert, adding that he was considering abandoning the policy of banking secrecy. This was a novel approach in Monaco, whose prosperity is built on a reputation for discretion.

Link here.


At 32.5 meters wide and 80,000 tons dead-weight, the largest vessels able to traverse the Panama Canal are not big by today’s standards. Some container ships are twice as big as the “Panamax” limit, and oil tankers five times as large. Even so, the canal is operating close to capacity. But the share of world sea cargo that passes through it has dropped from 5.6% in 1970 to 3.4% in 2004, according to Pablo Armuelles of the University of Panama’s Institute of Canal Studies.

The Panama Canal Authority (PCA), an autonomous body that has operated the waterway since the United States handed it over to Panama in 1999, is trying to squeeze the most from it under a modernization plan which aims to boost capacity by 20% compared with 1997. The PCA wants to achieve a similar increase in canal traffic over the next two decades. To do so, it is due to present in a few months’ time a plan to widen the waterway by building new locks which can handle ships about twice as big as Panamax vessels. But this plan has been a few months away for about a year. The hold-up is because Panama’s constitution requires widening to be put to a referendum. But the government of Martín Torrijos, president since September 2004, is highly unpopular. That is because of a much-needed reform of the near-bankrupt public-sector pension scheme. Faced with protests, the government has suspended implementation of the reform for 90 days. That has also held up the referendum, originally planned for November. For now, expansion is as stuck as a post-Panamax ship in a canal lock.

Link here and here. Corruption still a problem, say Panamanians – link.


There is an increasing awareness in Latin America of a clash between liberal democracy and populism and there is no greater proponent of the latter than Hugo Chávez. His closest ally is Fidel Castro and he has proudly declared himself a Fidelista, a follower of Fidel Castro. The U.S. is alarmed by such developments after having spent decades trying to ensure that South America would not have another Cuba. Besides Cuba, Venezuela is securing closer ties with China which also worries the U.S. Hugo Chávez has also attempted to spread his “Bolívarian revolution” throughout the region. General Bolívar defeated the Spanish army in a protracted war between 1810 and 1821 and became known as El Libertador (the liberator) who created Greater Colombia which at one time comprised Venezuela, Colombia, Ecuador, Bolivia, Panama and Peru. The General’s military skills, however, were far greater than his political abilities and although he dominated Venezuelan affairs until 1820, he was replaced by an illiterate but cunning rebel general, José Antonio Paez.

The Venezuelan president has appealed to the masses with his economic vision and has not concentrated on the slow but steady strengthening of institutions that creates the conditions leading to permanent growth in investment but, as Charles de Gaulle once noted, “in order to become the master, the politician poses as the servant.” Hugo Chávez presides over a political system that concentrates power but which has no checks and balances in place. This backdrop has made Washington look askance at all the other left-wing governments in Latin America, namely, Argentina, Brazil, Chile and Uruguay. But although crude oil has produced crude politics in Venezuela, things change and the present situation there should not be allowed to affect the long-term strategy for future regional relationships.

Those other 4 countries with left-wing governments have, in varying degrees, also developed relations with China, a country that is considered by the U.S. as an interloper, intruding into Washington’s historical sphere of influence. Furthermore, China is competing with the U.S. for oil and natural resources and Washington can see that U.S. power, including the role of protector, is diminishing in east Asia after over half a century’s prominence. It would be a mistake in the current situation for the U.S. to look at South America’s other left-wing governments and see the face of Hugo Chávez because there is a distinction to be made. The government headed by Hugo Chávez has more of the characteristics of the military regimes that leftist governments south of Caracas vigorously opposed in their fight for democracy. Their source of inspiration is more likely to have been Adam Smith’s doctrine of free enterprise rather than the revolutionary convictions of the late and legendary Che Guevara.

Bolivia, in some ways, is distinctly different to the rest of Latin America, with some countries, such as Peru, seemingly caught in a vacuum between the 16th and 21st centuries; Argentina, meanwhile, yearns to be a part of Europe. But Bolivia does not try to be anything other than itself. When reflecting on developments in Latin America it is well to be reminded of something Miguel de Cervantes wrote: “Every one is as God made him and often times a good deal worse”. In Latin America, as elsewhere, the same can be said of countries.

Link here.


The future of three of the Pacific’s smallest countries is under threat as their inhabitants seek new lives elsewhere. The tiny nations of Niue and Tokelau are losing people at such a rate that their viability has been cast in serious doubt. The neighboring Cook Islands, although larger, have also been drastically depleted by migration. All three are former British colonies but have close historical links with New Zealand and their inhabitants are automatically granted New Zealand passports. Although their homelands are regarded by many as enviable tropical idylls, a dire lack of job opportunities has propelled thousands of islanders to opt for a better life abroad. The population of Niue, which means “Behold the Coconut”, is now just 1,200, down from 4,000 when the island was granted self-government 30 years ago. In contrast, 18,000 Niueans live in New Zealand, 1,500 miles to the south-west. Tokelau is in a similarly precarious position – just 1,500 people now call the archipelago home while 6,000 of their compatriots have moved to New Zealand.

In the neighboring Cook Islands, named after the explorer Captain James Cook, the population stands at around 15,000, but nearly four times that many have migrated to New Zealand and Australia. A study by the Secretariat of the Pacific Community, a regional development body, shows that the population of Niue and the Cooks is continuing to decline while that of Tokelau is stagnant. Tucked up beside the International Date Line, all three are suffering from critical shortages of people aged between 15 and 24, the age group which normally propels economic growth, the secretariat reported. “Not only are they the future labor force, they are the people who will produce the next generation,” said Arthur Jorari, a population expert from the secretariat. “Once people have tasted life in New Zealand, it’s very hard to attract them back.”

An official headcount of Niue’s population last year was hushed up, reportedly because it showed the population had dipped as low as 1,000 – barely more than the 840 inhabitants of the Vatican, the world’s smallest state by population. Despite this, Niue’s Prime Minister, Young Vivian, is upbeat about the future. The island’s 20-member legislative council is to embark on a concerted effort to lure Niueans back from New Zealand by boosting farming and fisheries. There are plans to develop organic farming on Niue in the hope of exporting fruit and vegetables to New Zealand.

Link here.

Lava bombs, cargo cult await Vanuatu visitors.

You live on the edge – literally as well as figuratively – when you visit Yasur Volcano. Standing on the rim of the crater, you feel the shock wave against your body every time the volcano explodes, sending glowing molten lava “bombs” into the air. “If you look up and the lava bomb above you doesn’t seem to be moving, that means it’s heading straight for you and you’d better get out of the way in a hurry,” said John Seach, the Australian volcanologist who had organized our visit. You must get permission from (and pay a fee to) the local village to visit the volcano. Although the volcano is “carefully monitored during periods of high activity,” no mention is made of liability insurance.

Vanuatu gained independence in 1980; it was formerly administered jointly by Britain and France as the New Hebrides. This country of about 200,000 comprises a Y-shaped string of 83 islands, a 3-hour flight northeast of Australia. The capital, Port Vila, has a 24-hour outdoor market plus a scattering of shops and banks reflecting its English-French heritage and Australia-New Zealand neighbors (and its status as a tax haven). Because there is no income tax, the country earns its revenue from a value-added tax of 12.5% plus import duties of up to 70%, making most items relatively expensive.

Link here.


A ruling by Russia’s Constitutional Court last week has given tax inspectors the right to reopen investigations into a company’s tax affairs beyond the three year statute of limitations. However, the tax service failed to convince the court that the statute of limitations itself is unconstitutional and should be overturned. The court’s ruling came in response to a $1.4 billion back tax claim against oil giant Yukos for 2001, and another case involving pensioner Galina Polyakova, who was ordered to pay taxes on a dacha she sold in July 1999. Although inspectors demanded she pay up in May 2002, the courts did not back up the claim until three years had passed.

Tax and legal experts warn that that a watering down of the statute of limitations for tax prosecutions could undermine all sorts of business and investment decisions. It also further undermines President Putin’s recent assurances to investors that they have nothing to fear from the Russian authorities and that the country is open for business.

Link here. Vladimir Putin: Spy turned politician (a look back) – link.


Based on their surroundings, Mushfique Rahman and his two friends could have been standing in the Mall of America, the Minnesota retail behemoth that is the largest shopping center in the United States. Teenagers in blue jeans bought tickets to an American-style multiplex movie theater. Parents guided children through an indoor amusement park with a merry-go-round. Wealthy executives tried out the swimming pool and high tech fitness center in the new Gold’s Gym Dhaka. In truth, the three young men were standing in something they consider far better: Bashundara City, a gargantuan new $80 million shopping complex in downtown Dhaka that bills itself as the Mall of South Asia. According to the Bangladeshi developers, the 8-story, 2,000-store retail colossus is South Asia’s largest shopping mall.

The mall, which took about six years to build, is not the only sign of prosperity and Western-style consumerism emerging in Bangladesh, a nation better known for epic poverty than epic consumption. Over the last several years, new BMW, Land Rover and Volvo dealerships have opened in Dhaka, the impossibly crowded capital of about 10 million people. A handful of American-style amusement parks and upscale restaurants have also appeared. Since opening its doors last November, Bashundara City has drawn huge crowds and emerged as a symbol of progress among Bangladeshis, particularly upper-class ones who have profited handsomely from a quantum leap in garment exports to the United States and Europe.

But Bangladeshi economists say the arrival of a megamall and BMW dealership reflects something else: a widening gap between rich and poor in Bangladesh, which remains one of the world’s poorest and most densely populated nations. Mustafizur Rahman, research director at the Center for Policy Dialogue, a Dhaka-based research institute, estimated that only 5 to 6% of the people are wealthy enough to shop regularly in the capital’s new high-end stores. Over all, Mr. Rahman added, Bangladesh is experiencing its brightest economic performance in decades. Led by the surge in clothing exports, the country’s economy has grown by roughly 5 percent a year for more than a decade, and poverty has been reduced somewhat. It has also slashed its infant mortality rate by 50% in 10 years, the sharpest decline of any country in the world. Yet staggering problems remain. Only 20% of the population has access to electricity, and potentially vast natural gas reserves remain unexplored.

Link here.


Officials in two U.S. government departments are considering a proposal to extend by a year the deadline for compliance with a new rule that requires travelers returning to the U.S. from The Bahamas and other countries in the region to have passports. According to local officials in the public and private sectors, the passport proposal as it now stands could prove to be detrimental to the tourism industry to the tune of millions of dollars if the traveling public is not made aware of the changes. Currently, American visitors to The Bahamas travel on other types of photo ID’s like a driver’s licenses. Children are allowed to travel using a birth certificate.

The law passed by Congress last year will require all travelers including American citizens to present their passports when they re-enter the U.S. from other countries and territories in the Western Hemisphere. The new rule outlines a 3-stage implementation process. The first stage that would become effective January 1, 2006 would require all air and sea travelers coming from the Caribbean, Central America and South America to present passports. Stage two, which would become effective on January 1, 2007, would require that all air and sea travelers coming from Canada and Mexico to present a passport when seeking re-entry into the U.S. The final deadline of January 1, 2008 would require all American land travelers coming from Canada and Mexico to present passports when returning to the U.S.

Link here.


The Dominican Republic is one of the only places I have visited where you have to pay for your tourist visa. You stand in a line with other foreigners, pay $10 for your visa, and then stand in another line for immigration. Luckily – besides the buffet line at my hotels – this was the only time I would be kept waiting. For the local poor people, though, I was to discover that it is a country of queues. In every sizable town we passed through, people were waiting in lines, holding propane tanks in the hopes they would be one of the lucky few who would have them filled that day. It seems the Dominican government had neglected to pay the Venezuelan government for the gas the latter country has been selling them. No gas, no cooking.

If you are a person of some means, of course, you never wait in line. The propane man comes to your home regularly and fills your tanks, no problem. This disparity between rich and poor is typical throughout Latin America. It is something each new governmental administration promises to address, but they never seem to get far. So why do I, and so many foreigners who live in the DR, believe in the future of this country? Despite its recent economic ups and downs (more about that in a minute), there are signs that the country’s middle class is growing. I met many local people, well educated and articulate, who are working as secretaries, salespeople, tour guides, drivers, and employees for companies large and small. Most work in tourism-related fields as that industry is the country’s biggest source of revenue. These people love their country, believe in its future, and are champions of the less fortunate. They see progress and opportunity around every corner.

Link here.


George Osborne, the shadow chancellor, has thrown his weight behind radical proposals from senior Scottish Conservatives to lower income tax, should they ever win power. Scotland could become a low-tax “magnet” within the UK, he said, pulling off the kind of economic recovery shown by Ireland over the last decade. He has also made clear that the Tory party will not split into its component English and Scottish parts if David Cameron, his ally, wins the Conservative leadership contest in the autumn. Speaking to The Scotsman ahead of his visit to business leaders in Edinburgh today, Mr. Osborne said he expected to hear complaints about the tax burden – currently the highest in the UK as a result of business rates set by the Scottish Executive.

“The ability to reduce income tax by 3 pence in the pound is something I know the Scottish Conservatives are clearly looking at, to make Scotland a particularly attractive place for investment and for businesses to locate,” he said. “One of the advantages of devolution is that it gives Scotland an opportunity to make itself more competitive against England,” he said. Mr. Osborne is the first Conservative to confirm in public the plans which David McLetchie, party leader, discussed at an MSPs’ brainstorming session.

Mr. Osborne accepted there is support amongst his party to cut free from Scotland altogether – and revert to the pre-1965 situation where the Scottish Conservatives were a separate sister party to the English Conservatives. “There is a big temptation for the Conservatives to become the English party south of the Border,” he said. “I think flirting with English nationalism would be a profound mistake. The Conservative party is, at its heart, a unionist party. I’m determined the Conservative party remains committed to the union.”

Link here.


America’s grievances with China mounted this quarter, signaling a likely end to the post- September 11 honeymoon in China-U.S. relations and the beginning of a rocky phase. On a range of trade and economic issues, the Bush administration adopted a harsher stance, increasing pressure on Beijing to appreciate its currency to fend off criticism from Congress and domestic groups that blame China for stealing U.S. jobs and unfairly creating a massive trade surplus with the U.S.

Trade officials began taking action to curtail the flood of Chinese textiles and punish China for widespread violations of intellectual property rights. A takeover bid for Unocal Corporation by the PRC’s state-owned China National Offshore Oil Company (CNOOC) raised cries in some quarters that Beijing’s offer was part of a long-term national plan to gain strategic advantage over the U.S. Washington leaned harder on Beijing to apply economic and diplomatic pressure on North Korea to rejoin the six-party talks aimed at eliminating its nuclear weapons programs. U.S. officials openly declared that they hold China largely responsible for reining in the nuclear ambitions of its formerly “close as lips and teeth” ally, North Korea. China’s military buildup also came under sharper criticism. Mindful of the benefits to the U.S. of cooperation with China where the two countries’ interests overlap and the dangers of engaging in full-blown strategic competition with China, President George W Bush and his cabinet members attempted to keep the bilateral relationship on an even keel, while urging Chinese leaders to modify their policies to make them more compatible with US national interests.

Are U.S.-China ties headed for retrogression? It is premature to predict a downward slide, but current trends are on balance more negative than positive. Opportunities will be presented in the second half of the year that, if actively seized, could put the relationship on a more positive trajectory. The list of thorny international issues on which the U.S. and China are on opposing sides or are partially at odds keeps growing: UN reform, U.S. presence in Iraq, Iran’s nuclear programs, Uzbekistan’s crackdown, East Asian regionalism, the Proliferation Security Initiative, genocide in Sudan, North Korea’s nuclear programs, the U.S.-Japan alliance, Taiwan, and the militarization of space. Summits and other high-level meetings will provide a chance to inject new momentum into the bilateral relationship.

Link here. China’s Currency Move – link.


I stepped off the airplane into the subtropical heat of early summer and the immensity of Hong Kong, which feels like New York City on amphetamines. I was not prepared for the urban landscape rising out of the water, each jutting skyscraper taller and more impressive than the last. Hong Kong feels like the center of the universe – the universe of the really, really rich. With more Rolls Royces per capita than anywhere else in the world – and, as far as I could tell, more shopping malls than a population of 7 million could possibly sustain on its own – the wealth is palpable. And it is coming from the north – one Hong Kong resident told me that the wealthy Japanese and Korean shoppers of 10 years ago are gone, replaced by Mainland Chinese. They come to Hong Kong to shop … and blow thousands without the slightest thought, mostly on European luxury brands like Chanel and Louis Vuitton. Cash only.

As I hoofed it around Hong Kong, I kept thinking … how do people live here long-term? It is hot and crowded, noisy and non-stop. According to a friend, besides massive quantities of dim sum, there are two secrets: the Mid-Level escalator and weekly foot massages. I tried both. The covered escalator that takes riders from street level all the way up the mountain is 800 meters long, the longest escalator system in the world. No walking unless you want to. And about halfway up, behind an unremarkable storefront, you can get a 45-minute foot massage for $20. After a practically boiling soak in brown disinfecting bath salts, the masseur dug his well-trained digits into parts of my feet that had never been touched before. I thought I was a tough cookie, but my whimpering and yelping proved otherwise. He got it and eased up. Afterwards, I realized my friend was right … I need one of those every week, forever.

After Hong Kong, I took a side trip to Singapore. A friend warned me about taking gum into the country. “It’s illegal to chew it,” he said. I had heard about how clean and civilized Singapore is. But I found it devoid of the character and grit that makes life so rich. Even the hawker centers, lovely open-air markets packed with food vendors of every persuasion, were oddly pasteurized. One evening after drinks, though, I followed a friend and found some grit, well hidden…

Link here.


The advent of fast Internet communication and inexpensive air travel makes it easier to turn any far-flung paradise into a permanent home. Which places in the world have the most to offer? The perfect place to live or retire, of course depends on your idea of perfection. I am taking a different approach for this article. Instead of giving an overview of the better-known and increasingly-popular expatriate destinations around the world (Mexico, Costa Rica, Belize, Panama, Nicaragua, Ecuador, France, Spain, Portugal, Italy, etc.), I have decided to introduce you to 7 locales you probably do not know much about. All offer affordability and abundant recreational and cultural opportunities.

Link here.


The selection the next secretary-general of the OECD started with the naming of six candidates in a race considered wide open. Candidates from Australia, France, Japan, Mexico, Poland and South Korea will now to win support of the 30 member governments of the Paris-based OECD. The choice will be made byconsensus in December. Of the six, four are former finance ministers and two are academics. The most senior politician is Marek Belka, prime minister of Poland. France has proposed Alain Madelin, the somewhat maverick former finance minister who is one of the most economically liberal voices in France. Mexico has proposed Ángel Gurría, its finance minister between 1998 and 2000. In an interview with the FT this year, Donald Johnston, the OECD’s outgoing secretary-general, said it would be “very healthy” for the organization if his successor came from an Asian member.

Having championed transparency in corporate governance, the OECD is hoping the process will not degenerate into the usual horse-trading that occurs in the selection of leaders of international organisations. But diplomats in Paris already think nationality will play a key role in the outcome. One said the OECD needed to appoint a politically savvy candidate who was tough enough to implement the reforms needed to re-invigorate the organization. “Everybody in the OECD says that the OECD is in crisis. We need to inject some new dynamism into the organization to overcome its inertia,” the diplomat said. “The selection process has now begun but inevitably it will become a power game between the countries that are represented by a candidate.”

Link here.



A federal jury has found Honolulu businessman Michael H. Boulware guilty of failing to report and pay taxes on $10.2 million in personal income over a 9-year period. Boulware, 57, is chairman of Hawaiian Isles Enterprises – a company he founded that sells tobacco, coffee, bottled water, video games and vending machines. According to prosecutors, Boulware funneled millions of dollars from his company into his own pocket using various fraudulent schemes, including setting up dummy corporations and depositing money into secret and foreign bank accounts to avoid personal tax liability.

Boulware testified in his defense that since the money belonged to the corporation and was reported on the corporation’s books, he had a good-faith belief that he did not have to pay taxes on it. Former legislator Nathan Suzuki, currently serving three years in federal prison for conspiring with Boulware to defraud the IRS, testified under immunity for the government. Suzuki pleaded guilty earlier to conspiring with Boulware by setting up offshore corporations and bank accounts in Hong Kong and Tonga.

Link here.


It is expected that in 2008 Guernsey will follow other offshore centers such as Jersey and the Isle of Man and introduce a zero-10 regime to cope with changing international tax standards and to remain competitive. But there has been growing support, led by Treasury and Resources deputy minister Charles Parkinson, for a zero-20 rate which could reduce the tax burden on islanders, as well as the need for a payroll levy that could add around £6 million. to the cost of doing business in the island.

Peter Niven, new chief executive of GuernseyFinance, blasted the suggestions. “It would be disastrous if the island was to go to zero-20,” he said at a Chamber of Commerce lunch. “The 20 would be seen as the headline figure and used by the media and our competitors.” Mr. Niven said that a regime where there was a zero tax product and regulated businesses faced 10% corporation tax would, as reported, lead to a black hole of around £45 million. He said that Guernsey’s competition was Jersey and the Isle of Man. The latter had introduced value added tax and would be moving to zero-10 next year and was therefore ahead of the game.

Link here.


Corporate auditors would be barred from providing aggressive tax shelter advice to audit clients under rules likely to be adopted next week by U.S. regulators, said sources familiar with the matter. The Public Company Accounting Oversight Board was expected to meet before the August break to adopt tax shelter rules that it unanimously proposed last December, the sources said. The PCAOB rules would largely shut down a once booming tax shelter business for auditors. Recent scandals have already driven most auditors out of the shelter market, including Big Four firms KPMG, Ernst & Young, Deloitte & Touche and PricewaterhouseCoopers.

But formal restrictions are “a good idea” that will reduce the chance of another possible wave of scandals, said Columbia University accounting professor Itzhak Sharav. KPMG said last month it was cooperating with the Justice Department in a criminal probe of tax shelters. The firm said it took “full responsibility for the unlawful conduct by former KPMG partners” involved in the probe of shelters offered by the firm from 1996 to 2002. KPMG said the shelters being probed were no longer sold by the firm and that it had undertaken key internal reforms.

Fine points of the PCAOB rules were still being hammered out this week, but support remained firm, the sources said. As proposed, the rules would bar an auditor from providing tax advice to an audit client on “certain types of potentially abusive tax transactions.” Auditors would also be prohibited from selling individual tax services to “certain senior officers of an audit client.” Not barred under the rules, as first drafted, would be routine tax return preparation and tax compliance, general tax planning and advice and some other exempted services. The PCAOB was set up by Congress as part of 2002’s post-Enron reforms.

Link here.


In his speech to the Republican National Convention in 2004, President Bush called for substantial reforms to America’s fundamental economic systems, including the tax code, which Mr. Bush criticized as “a complicated mess, filled with special interest loopholes, saddling our people with more than 6 billion hours of paperwork and headache every year.” Traditional reform, however, may not be sufficient. Adding provisions – even those intended to simplify the code – into what is already a 9 million-word tome could lead to more confusion, more creative interpretation and more detrimental loopholes. Americans now spend on average over 28 hours each year filing their personal income taxes, and the total cost of all compliance was a staggering $200 billion in 2004. This burden is hampering the U.S. economy, drawing money away from potentially valuable initiatives and investments and into the non-productive business of creating tax shelters and developing various other tax-avoidance schemes.

Steve Forbes, a longtime proponent of the flat tax system, has released a revised prescription for America’s burdensome tax laws, and presents his argument in his new book, Flat Tax Revolution. The Forbes flat tax – a 17% tax on all personal income, with simple and generous exemptions – is the kind of idea that should inspire tax reformers. “Think of it this way,” Mr. Forbes writes, “Washington politicians take one dollar from your pocket – and then return fifty cents in various tax deductions. Wouldn’t it be better if they taxed you only that fifty cents in the first place?”

Using historical and international examples, Mr. Forbes introduces several precedents for the success of the flat tax system. With abundant economic analyses, Mr. Forbes responds to his challengers’ allegations that a flat-tax would bankrupt the government or curb charitable giving. In all, the flat tax may not be as straightforward as Mr. Forbes believes, but his rational thinking should be welcome in shaping subsequent tax-reform discussion.

Link here. First excerpt from Steve Forbes’s book here.


Chalk up another win for IRS Commissioner Mark W. Everson’s drive to boost tax enforcement. On July 11 the IRS announced that 95 executives had agreed to pay taxes – plus interest and penalties – on $500 million in stock option income they diverted into a complex tax shelter. On top of that, the agency said it has collected $4 billion from 1,300 individuals who used another scheme. Great numbers … for now. But Everson’s crackdown could soon hit its limits. The assault on abusive shelters marketed by big accounting and financial firms has driven the shelter biz underground, making the next generation of schemers much tougher to root out. With an $85 billion surge in federal revenues, pressure for tougher enforcement could ease. And the agency remains haunted by its own history. Congress, which traded on lurid tales of jack-booted and incompetent auditors in the 1990s, is slashing President Bush’s request for an 8% boost in IRS enforcement funds in half.

Everson, who has headed the agency since 2003, says he is “disappointed that Congress has not fully funded the enforcement we’ve asked for in recent years.” Yet he insists his tactics are working. The IRS has boosted its enforcement ranks by 800 since 2003, bringing the total to 9,800. “We’ve got a lot more resources than we had,” Everson says. Maybe, but a decade ago the IRS had 14,000 agents looking for abuses. Its diminished force of tax cops is another sign that there is less than meets the eye to this crackdown. While audit counts have risen from rock-bottom, they are still far below 1990s rates. According to the Government Accountability Office, only about 1% of individuals are audited – half the rate of a decade ago. Also falling short are audits of partnerships and Subchapter S corporations, structures that are popular with shelter creators. In 2004, the IRS audited only 2.2 of every 1,000 returns filed by these outfits, according to Syracuse University’s Transactional Records Access Clearinghouse [TRAC], which follows IRS enforcement. “The IRS is always going to be behind the eight ball,” says Ronald A. Pearlman, a former Assistant Treasury Secretary for tax policy. “They don’t have the numbers, and they never will.”

While abusive tax shelters are a top enforcement priority, the IRS still misses many scams. The IRS Oversight Board, an independent panel created by Congress, reports that in 2004 the agency pursued only 18% of known cases of abusive tax shelters and failed to collect at least $447 million, in part because it cannot afford to battle more miscreant taxpayers in court. And negligence penalties against corporations have plummeted from 1,234 a decade ago to just 25 in 2004, according to TRAC. Give the agency credit for ending the days when national accounting firms and white-shoe law firms sold abusive shelters like so much Tupperware. But as scamsters go underground and their deals get more complex, the IRS is going to have to work a lot harder to keep its enforcement drive from stalling.

Link here.



When Thomas Grasso, ex-hacker, teenage rocker and new breed of G-man, knocks on the door of a computer crook these days, he knows he will not be entering a kid’s room littered with empty pizza boxes. Now the bad guys with keyboards fishing for your ATM number are a brand of outlaw Eliot Ness would recognize. They are organized, professional. They have taken the initiative from young scofflaw techies and invented a new species of crime: identity theft. Find their command centers and “on a routine basis, we find illegal weapons, we find drugs,” said FBI agent Grasso.

As the crooks have evolved, so has law enforcement. In the 1990s, the FBI and other agencies started adding computer skills to some job descriptions. Grasso is part of that new wave. This is more than just computer hackers turning to crime. Established organized crime syndicates have added theft by computer to their repertoire. Their weapon of choice is a “phisher” site – a fake Internet site that is designed to persuade you to give up personal information that cyber crooks can use to clean out your bank account or take out loans in your name. Phishers prey on home computer users, who lose millions of dollars each year to cyber crooks who use a combination of con artist skills and sophisticated computer technology. The Gartner Group report that phishing attacks cost 1.2 million consumers $929 million in the year ending in May.

Link here.

Phishing for smaller fry.

For the last few years, cyber-crooks have blitzed consumers’ e-mail boxes with scam messages – purportedly from legitimate banks – to con recipients into revealing Social Security, bank account or credit card numbers and passwords. These come-ons, or “phishing” attempts, threaten to block consumers’ access to accounts if they fail to comply. The e-mails usually are designed to look like they are sent from legitimate financial institutions – well-known regional or national heavyweights like SunTrust Banks, Bank of America and Citibank. But now, phishers have set their con games on a new target: customers who bank at credit unions and community banks.

Phishing aimed at credit unions and community banks rose 514% between January and May, according to Cyota, a New York-based company that produces anti-fraud software for financial institutions and monitors for fake Web sites. That figure is based on Cyota customer surveys and the 1 billion e-mails the company’s anti-fraud unit scans a day. Credit unions – which generally serve a set group, such as teachers – have fewer customers and, therefore, offer phishers fewer scamming opportunities than mega-banks. Yet it is that small-operation feel that has attracted phishers looking for new targets.

Consumers, who get an average of 50 phishing e-mails a year, have grown used to “urgent” pleas from scammers pretending to be companies like Bank of America. They do not respond to most of those e-mails. But customers may have a false sense of security with community banks and credit unions because they have not been traditional phishing targets, experts say.

Link here.


Next time you are online, it might be worthwhile to consider the dangers of aimless surfing. Every time you visit a Web site or open an attachment in your e-mail, you could be downloading a spy into your computer. The “spy” is known as a keylogger – an invisible software program that identity thieves can use to track your online activity. And even if you are careful, it is probably impossible to detect if a keylogger is recording information like your credit card number or bank account password. “You won’t know it’s there, you won’t see your machine slow down, you won’t see anything unusual,” said Vincent Weafer, director of security with the digital security firm Symantec. “It can just silently watch every keystroke you type in … as if they’re standing over your shoulder.”

At least a third of online crimes can now be traced to keylogging. Part of the reason for this is that the programs are legal to obtain and the crime is relatively easy to commit. Typing “keylogger” into a simple Internet search engine returns multiple programs that are perfectly legal to buy and install. Many parents use keylogging technology to check up on the Web sites children are visiting, and some businesses use it to monitor employee activity. But in the hands of a hacker looking to steal your financial information, keyloggers are very dangerous. And as more Americans turn home computers into personal banking and bill-paying centers, the chances for identity theft grow by the day.

Experts say the most basic safety rule is to carefully monitor what is downloaded onto your computer and which sites your are visiting. Brand name sites of major banks and retailers are usually relatively safe, they say. But responding to spam e-mails or downloading free software from unfamiliar sites leave you open to potential hacking. The following are other tips to help protect yourself against key logging, spyware and other computer viruses.

Link here.


Dubai looks set to reap the rewards of a recent EU ruling under which banks are now forced to reveal information to tax authorities. The EU Savings Directive, which came into effect on July 1, obliges financial institutions in all EU member states to either disclose tax and bank information to the relevant tax authority, or charge clients a hefty withholding tax. Though the new directives will specifically affect EU residents, a number of banks in “tax havens” have also agreed to exchange customer information, including Jersey, Guernsey, the Isle of Man, the British Virgin Islands, the Cayman Islands, Switzerland, Liechtenstein, Monaco and San Marino. The reputation of discretion for some of these countries is being eroded.

Dubai has long enjoyed a reputation as a secure, tax-free jurisdiction for international banking and company incorporation. With this latest development from Europe, Dubai company registration and corporate and personal banking options are becoming more popular with international businesses and high net worth individuals. Since Dubai is neither a signatory to this directive, nor agreeing to cooperate with the OECD, it looks set to gain even further.

Link here.

The transformation of the U.A.E.

Part of the charm of living in old world Arabia is the hours spent haggling in the crooked, narrow alleys of the old souks where you will be offered a stout Turkish coffee and interesting conversation that leaves both people smiling. Then off you go to the fish market, where the Gulf shrimp are so fresh and delicious, you will kiss your fingertips. Next stop is the fruit and veg souks where produce is squeezed then bagged at a mere fraction of grocery store prices. But the recent announcement of the demolition of Abu Dhabi’s souks is bringing this way of life to an abrupt end. Typical of the warp speed transformation of the UAE, the souks are being replaced with shopping malls. Hundreds of marginalized workers are unemployed. They are out of a job and I am without an address.

Imagine, if you can, an entire country without street addresses. I have heard that Napoleon established the street number system in Europe. I do not know if that is true, but I accept it at face value. With the exception of street addresses, the face of the UAE is changing. Oil was discovered in the early 1970’s in the UAE just at the time the country was being formed. Add a visionary President and presto! Its skyscrapers and seven star hotels are everywhere you look. During the past few years, the UAE has earned a reputation for being a glamorous destination. The good news for the region is the unprecedented speed of its economic development, but in so doing, the need for camels disappears. The camel simply has no reason for being.

Link here.

Dubai, Abu Dhabi best business cities in Gulf.

Dubai has been ranked as the number one business city and Abu Dhabi achieved the fourth position among the top ten business cities in the AGCC region, according to a research by Economist Intelligence Unit. Both the cities were selected on the basis of trade, investments, projects, as well as various other industrial developments in the new millennium compared to other Gulf cities which included Doha, Kuwait City, Manama, Muscat, Jeddah, among others. A survey also revealed that although a daily business trip to Dubai costs around $100 , which is expensive compared to other cities in the Gulf, Dubai is the best as the emirate offers all the facilities and infrastructure to set up business along with the help of government departments which includes the Dubai Chamber of Commerce and the Department of Economic Development.

Link here.


The Isle of Man could suspend its financial agreement with the UK if a loophole allowing Gibraltar to operate outside the EU Savings Tax Directive is not closed. An oversight within the legislation sets out Gibraltar as a region of the UK, linked to Cornwall due to its representation by the same Member of European Parliament (MEP). Gibraltar does not have a bilateral agreement with the UK, as the Isle of Man does, meaning it can circumvent the withholding tax or exchange of information agreements on moneys held for UK residents.

Malcolm Couch, the Isle of Man’s tax assessor, said that the current situation was totally unacceptable and a level playing field was critical. He has threatened to suspend any information exchange or retention tax on UK residents’ accounts held in the Isle of Man, until the position is resolved. He said, “Gibraltar has the capacity to completely derail the savings directive. When the UK joined the European Union, its treaty of accession specifically mentioned the Isle of Man. We are a Crown dependency and subject to certain parameters, but it didn’t describe Gibraltar. As a consequence, from the EU perspective, Gibraltar is a region of the UK attached to Cornwall – it’s wonderfully perverse but true.”

Mr. Couch said his sources had confirmed that Gibraltar was actively taking advantage of the situation by attracting funds to the Island on the basis of its current position outside the directive. “They are playing a long game – not being particularly helpful to the UK in closing the gap,” he said. “Banks in Gibraltar are saying, ‘hey, it’s good, we are not covered by the directive, bring your money here and sign on this line.’ The UK issued a statement saying they would close the gap as soon as possible, but this means nothing. The Chief Minister has had conversations with Dawn Primarolo about this not being sufficient. We have put a marker in the sand, saying this is not acceptable because we need a level playing field. If the UK government can’t sort this and we can’t get satisfaction, we will suspend the UK financial agreement.”

Link here. Guernsey is not too happy either – link. The full dope on the EU Tax Information Exchange Agreement – link.


The Central Bank of The Bahamas announced that it has suspended the bank and trust licence of Leadenhall Bank and Trust Company Limited to protect the interests of depositors of the bank. In addition, Craig A. Gomez has been appointed as receiver of the bank and is authorized to assume control of Leadenhall’s affairs in the interest of its creditors and to exercise all the powers of a receiver under the Companies Act, 1992. The Central Bank did not go into specifics regarding why it took this action. But Leadenhall in recent years has been plagued with legal troubles.

In 2003, federal authorities in the U.S. filed petitions in seven federal courts in an attempt to secure the records from MasterCard accounts at Leadenhall. The U.S. government has been targeting persons it believes used credit and debit cards issued by offshore banks to hide income from U.S. tax collectors. The IRS has already announced that more than 1,200 people have admitted that they used offshore accounts or credit cards to avoid paying over $100 million in taxes. In 2004, a New York doctor pleaded guilty to money laundering charges. It is alleged that he ran more than $200,000 of taxable income through Leadenhall accounts and other accounts.

Link here.


As we progress into the 21st Century, one theme that seems to a common one among the so-called modern industrialized welfare states is a new aggressiveness towards worldwide taxation of citizens. In the case of the US, it has been the situation for some time now that the US tax authorities claim the right to tax U.S. Citizens on worldwide income regardless of where they are living and working. They even go so far to claim the right to continue taxing a citizen after that citizen may have even renounced US citizenship (and procured another in the process presumably). Death does not give you an escape, as the U.S. claims the right to tax the estate of U.S. citizens as well. Europeans on the other hand have it a bit easier in that they can declare themselves legally non-resident in their former country (while retaining citizenship) and opt out of the tax system accordingly. However, with that said, we know that the EU certainly has a Savings Tax Directive designed to collect interest from bank accounts across borders, that are owned by EU citizens.

In any event, many of these tax collection issues center around investment or banking accounts owned by citizens in another country. However, it is very interesting to note that real estate ownership is not reported, is not required to be reported and is a non taxable asset for Americans or Europeans in terms of any worldwide taxation reporting initiatives (unless you happen to have rental income and are a U.S. citizen, in which case Uncle Sam claims the right to pick your pocket, which is another matter for another day). So, for those people that very concerned about following the tax reporting regulations to the word, owning an asset such as real estate in another country may be the answer. In fact, apart from the idea of moving funds offshore to buy real estate (which is perfectly legal to do and does not invoke any sort of tax liability to do so), there are also a number of social, economic and other benefits to consider as well.

Let us put our long-term rational thinking caps on for a moment. If the U.S. and Europe have experienced explosive double-digit gains in the housing markets (a boom, if you will), is it perhaps time for some profit taking? If you do believe that there is a debt and leverage problem affiliated with the housing market in these places as well, then where will this lead socially and economically? The final question is, depending of course how you answered the first two questions – Where do you go? The surprising answer for some might be … those very countries where credit is strict and housing equity in the hands of the owners and not the bankers. For many people, the equity in their current home is the bulk of their wealth or savings. So, it stands to reason, the opportunity exists to tap into that wealth and buy a home, apartment or small farm in Argentina, Brazil, Dominican Republic, Ecuador and a host of other places where the climate is good year round, real estate prices are not overblown AND whereby perhaps the opportunity exists to draw a tax-free income from the left over funds. So, we started our discussion with the idea that buying real estate abroad may be one of the few legal non-reportable wealth transfer opportunities left (for Americans especially). However, the benefits extend far beyond just that.

Link here. Investing in real estate in Romania – link.


It certainly takes a special person to be interested in international ventures. Many, Americans in particular, have been institutionalized since birth through uninformed societal influence and bombastic, self-aggrandizing arrogance to believe that everything outside the borders of the U.S. is tragically uncivilized, as if the rest of the world exists in the background of a Feed the Children commercial. Armed with inept geographical ignorance, they pass woeful judgment on what 98% of the rest of the world calls “home”. These are precisely the people who are satisfied with a 2% return of their U.S. savings accounts (and losing a third of it to the tax man).

For the rest of us, there is literally a whole world of opportunity out there. In Part 1 we briefly discussed some general off-shore investment concepts, including deposit accounts, foreign exchange, and real estate. Given the amount of responses I received, I thought it beneficial to reiterate a few key points.

Link here.

Five key advantages of offshore investing.

The “offshore” world is a world where you can achieve greater profits … greater privacy … greater asset protection … and greater protection against unanticipated events than you can domestically. Let me tell you about what may be the single most significant reason to invest offshore. Profits!

Link here.


The United States Court of Appeals for the Fifth Circuit has clarified restrictions on family limited partnerships, a widespread estate planning technique that reduces taxes on inheritances and gifts. In its ruling, the court focused on the particulars of the much-watched case of a deceased Texas millionaire, Albert Strangi, rather than discuss a controversial legal question that estate planners had feared might come up. The appeals court carefully outlined the missteps of the Strangi family that caused the United States Tax Court to say Mr. Strangi’s assets should have been taxed using the estate tax.

In its detailed opinion, estate planners said, the appeals court provided a road map of what not to do when using family limited partnerships. “They don’t question the overall technique,” said Edward J. McCaffery, a tax professor at the University of Southern California Law School and a lawyer specializing in estate planning. “Memo to rich families: You can do it but do it the right way.”

Family partnerships allow parents to transfer assets, including real estate and securities, to their children at a lower tax rate than is assessed on estates and gifts. In a family partnership, the parents retain a few shares of ownership and their children hold most of the shares. Essentially, the argument is that even highly marketable assets become harder to sell when they are part of a partnership and thus are worth less. Family partnerships generally claim that their assets deserve a discount for this reduced ability to sell them. The I.R.S. often audits the partnerships, which have risen in popularity since the early 1990’s, tax lawyers said. “Obviously, the [I.R.S.] never liked something where 30 to 40 percent of a taxable asset’s value just sort of disappeared,” said R. Mark Williamson, a partner specializing in estate planning in Atlanta. “Almost every practicing attorney that really does this a lot has one or two cases in examination or litigation with the I.R.S. or has had one or two in the last six months or year.”

The Strangi case began in 1994, when Mr. Strangi died. The I.R.S. claimed that his children owed taxes on all $11 million in the family partnership. The family had claimed to owe taxes on $6.6 million. The tax court at first found in favor of Mr. Strangi’s estate, which represents his four children, the beneficiaries of the partnership. The appeals court then sent the case back to the tax court, saying it should either explain why it did not allow the I.R.S. to use a particular section of the tax code or retry the case. That section, 2036a of the Internal Revenue Code, says that assets that someone possessed at the time of death are taxable using estate tax rates, even if the assets have been transferred to a partnership.

The tax court issued a new opinion in the Strangi case in 2003, ruling against the estate because Mr. Strangi continued to use assets from the partnership after it was formed. Among other issues, the fact that Mr. Strangi lived in his house meant that it could be taxed as an inheritance, even though it was part of the family partnership. The tax court pointed out that 98% of Mr. Strangi’s assets were put into the partnership and that money from the partnership was used to pay debts after Mr. Strangi’s death.

Estate planners said the Strangi case was an example of a “bad fact” case, where the actions of a party were egregiously wrong. The lawyer for Mr. Strangi’s estate, Norman A. Lofgren, a partner at Looper, Reed & McGraw in Dallas, acknowledged that the facts did not work in the estate’s favor. The Strangi case, estate planning lawyers said, illustrates what not to do when setting up a family partnership. Partnerships should be for a purpose other than avoiding taxes, like limiting liability. Parents wanting to pass money on to their children should not put all of their assets in the partnership because opinions in recent cases have said that payouts to the parents disqualify a partnership from avoiding estate taxes, lawyers said.

Link here and here.



The E-ZPass automatic toll-paying system, as it is called on the East Coast, seemed like idle gadgetry when it was introduced a decade ago. E-ZPass is one of many innovations that give you the option of trading a bit of privacy for a load of convenience. You can get deep discounts by ordering your books from Amazon.com or joining a supermarket “club”. In return, you surrender information about your purchasing habits. Some people see a bait-and-switch here. Over time, the data you are required to hand over become more and more personal, and such handovers cease to be optional. Neato data gathering is making society less free and less human. The people who issue such warnings – whether you call them paranoids or libertarians -- are among those you see stuck in the rippling heat, 73 cars away from the “Cash Only” sign at the Tappan Zee Bridge toll booth.

Paying your tolls electronically raises two worries. The first is that personal information will be used illegitimately. The computer system to which you have surrendered your payment information also records data about your movements and habits. It can be hacked into. The second worry is that personal information will be used legitimately – that the government will expand its reach into your life without passing any law. In the U.S., voters have, again and again, risen up against any libertarian trammeling of government in its fight against crime. People waver on whether to trade privacy for convenience, but they are pretty untroubled about trading privacy for security. On occasion, E-ZPass records have been used to track down criminal suspects. When such crime-fighting aids are available, people clamor for them.

In more and more walks of life, if what you want to do is not trackable, you cannot do it. Most consumers have had the experience of trying to buy something negligible and being told by a cashier that it is impossible because “the computer is down.” Today everything is traceable. Altered plant DNA is embedded in textiles to identify them as American. Man-made particles with spectroscopic “signatures” can be used, for example, as “security tags” for jewels. The information collected about consumers is the most sophisticated and confusing taggant of all. It is a marvelous tool, a real timesaver and a kind of electronic bracelet that turns the entire world into a place where we are living under house arrest.

Link here.


The F.B.I. has collected at least 3,500 pages of internal documents in the last several years on a handful of civil rights and antiwar protest groups in what the groups charge is an attempt to stifle political opposition to the Bush administration. The F.B.I. has in its files 1,173 pages of internal documents on the A.C.L.U., the leading critic of the Bush administration’s antiterrorism policies, and 2,383 pages on Greenpeace, an environmental group that has led acts of civil disobedience in protest over the administration’s policies, the Justice Department disclosed in a court filing this month in a federal court in Washington.

The filing came as part of a lawsuit under the Freedom of Information Act brought by the A.C.L.U. and other groups that maintain that the F.B.I. has engaged in a pattern of political surveillance against critics of the Bush administration. A smaller batch of documents already turned over by the government sheds light on the interest of F.B.I. counterterrorism officials in protests surrounding the Iraq war and last year’s Republican National Convention. F.B.I. and Justice Department officials declined to say what was in the A.C.L.U. and Greenpeace files, citing the pending lawsuit. They said there might be an innocuous explanation for the large volume of files on the A.C.L.U. and Greenpeace, like preserving requests from or complaints about the groups in agency files.

But officials at the two groups said they were troubled by the disclosure. “Why would the F.B.I. collect almost 1,200 pages on a civil rights organization engaged in lawful activity? What justification could there be, other than political surveillance of lawful First Amendment activities?”, asked Anthony D. Romero, executive director of the A.C.L.U.

Link here.


What if you had committed the perfect crime? It is the year 2020, and in a brilliant heist, you have managed to steal the infamous Hope diamond. The police suspected you all along – they have even brought you in for questioning – but the diamond has been safely hidden away, and the FBI has no leads on its location. Your slimy attorney assures you that they have no evidence and will be forced to release you in a matter of moments. You smile arrogantly at the police detective. It looks as though you are going to make a clean getaway.

But the detective only smiles back and slowly dons a pair of mysterious-looking glasses. Strangely enough, he asks you to recite your name. As soon as the words “John Doe” escape your lips, he slaps a pair of handcuffs on your wrists and escorts you to the prison to be arraigned on charges of theft. Chillingly enough, he instantly knows about the safe deposit box in New Zealand where the diamond is tucked away and, what is more, he now has the combination that only you knew about. It is almost as if he can read your mind. That is because he can. It is just one of many developments analysts predict will shake the future of security. It might sound like the plot of a fast-action sci-fi flick, but the mind-reading concept already is being applied.

Link here.


The underlying strength of biometrics is that it uses patterns that are unique to each individual. Your fingerprints belong to you alone, and unlike that password to your online bank account, you can never lose it. Albertson’s, the No. 2 supermarket chain, is one of hundreds of retailers testing biometric payment systems that let customers pay for purchases with a mere swipe of a finger. You register your fingerprint and your bank account with a service provider – the main ones are Pay By Touch and BioPay. When you shop at a participating merchant, you just swipe your finger and the payment is automatically transferred from your bank to the merchant – you do not have to hand over a card, sign a receipt or punch in a PIN. Earlier this year, Albertson’s joined the Pay By Touch network and is testing the service at four of its stores in the Portland, Oregon area. “One thing we’ve heard repeatedly from our customers is that they would like to speed up the checkout process,” Albertson’s spokeswoman Shannon Bennett said. The feedback has been “very positive” she said, although the company has not announced any expansion plans for the program.

If you travel internationally, then soon you will be carrying some high-tech identification. The Department of State has launched a plan to introduce electronic passports that come with a chip that stores the usual personal information as well as a digital photo which enables biometric comparison through the use of facial recognition technology at international borders. According to State Department spokeswoman Joanne Moore, the electronic passports are still in test mode, but partial implementation is planned for the fall and full implementation in 2006.

No biometric technology is 100% reliable, and privacy advocates are concerned with another problem – centralized databases holding huge amounts of personal information. “Whenever you’re collecting uniquely identifiable information that you can’t change, that’s a very bad idea. It’s a honeypot for hackers and attackers,” Pam Dixon, executive director of the World Privacy Forum, said. “Biometric technology would seem like it’s a fantastic fix for identity theft, but once the ultimate identifier is stolen, there is no recourse for an individual to prove who they are.” While victims of identity theft can get a new credit card number, change their address and even apply for a new Social Security number, they cannot change their DNA.

Link here.



Days after the attacks on London on July 7, Gordon Brown flew to Brussels. The speech the chancellor proceeded to give was timely and could have ramifications for the City of London. “Just as there will be no safe haven for those who perpetrate terrorism, there will be no hiding place for those who finance terrorism,” Brown told the European parliament. The chancellor was demanding urgent implementation of a plan to seize terrorists’ assets and beef up the EU’s money laundering regulations. However, even though Brown’s initiative seemed eminently sensible after the atrocities of July 7, what he had to say was not music to the ears of everyone in the UK – where some businesses and consumers feel weighed down by rules designed to hinder the financing of terrorism and stamp out money laundering, but whose efficacy is questioned.

Link here.

U.K. banks on alert for “backpacker” terrorists.

Banks and the Financial Services Authority are scrambling to devise new ways to detect terrorist funds in the wake of this month’s London bombings. Financial institutions are reprogramming their computer monitoring systems to spot newly defined signs of potential terrorist activity, such as young men abruptly transferring all their assets to relatives – a possible sign of imminent “martyrdom”.

Until now, efforts to track terrorist finance have been conducted through the banking industry’s money-laundering rules, which were introduced primarily to combat organized crime. The rules require financial institutions to make “know your customer” checks and report suspicious transactions to the authorities. But these precautions failed to work in the case of the London bombers, who went undetected because they had no prior involvement in serious criminal activity and no need for large sums of money for their attacks. Nor did the Islamic terrorist attacks in America and Madrid involve great expense or complex bank transfers.

Link here.

The bombers’ money trail.

The identities of the four London bombers are now known. But now comes the even harder part, trying to identify those who were responsible for sending them on their murderous mission. According to Metropolitan Police anti-terrorist branch chief Peter Clarke, all the exhaustive work to date is just the start of the long task of identifying those responsible for sending the four to London. Noone can exist in the UK in the long term without leaving some kind of a financial trace behind. Because of this, the fact that the bombers were British – however disturbing it may be – could at least make following the money a little easier, experts say.

Among the raw data will be bank account details, credit card transactions – at least one of the bombers is believed to have been involved with credit card fraud, a common feature in recent bombings – corporate registry and charity records, as well as data from electoral rolls and police records. And from that will emerge a spider’s web of connections between the bombers on the one hand and people who have financed, supported or trained them on the other, generating a whole new set of leads for traditional investigations to take forward.

Some experts doubt investigators will come up with much on the financial front. “This wasn’t a transnational attack like 9/11,” said Loretta Napoleoni, author of Terror Incorporated: Tracing the Dollars Behind the Terror Networks. “To do a transnational attack, you need to move money internationally. The London situation is completely different. It was a localized attack done by a homegrown group,” she said. “The amount of money that was needed was peanuts. We’re talking about the explosives, three plane tickets to Pakistan, a rental car, a few train tickets and a few Tube tickets, all of which they probably paid for in cash,” she said. “I think the financial trail is going to be a dead end.”

Last week, British government ministers appealed to EU nations to urgently put in place more tools to stop the financing of terrorist groups in Europe and abroad, with a special focus on money-laundering operations. But Napoleoni said she is skeptical that governments will make any meaningful dent in terrorist financing. “Talking about finance is very sexy, but the truth is that they should have implemented legislation a long time ago and they haven’t. Now it’s too late,” she said. “We’re always a step behind these guys, especially on the financing. I really think it’s time to stop pretending.”

Links here and here.


Federal bank examiners have not acted quickly or strongly enough in enforcing laws intended to prevent terrorists and other criminals from laundering money through U.S. banks, according to an internal review released yesterday by a key bank regulatory agency. The study, which reviewed the way regulators have monitored banks with a history of inadequate controls, found that problems have been allowed to fester. Eight of the 36 banks in the sample had failed to correct problems cited by the Office of the Comptroller of the Currency (OCC), the report said.

Link here.


Last month, President Bush stepped to a lectern at the Ohio State Highway Patrol Academy in Columbus to urge renewal of the USA Patriot Act and to boast of the government’s success in prosecuting terrorists. Flanked by Attorney General Alberto R. Gonzales, Bush said that “federal terrorism investigations have resulted in charges against more than 400 suspects, and more than half of those charged have been convicted.” Those statistics have been used repeatedly by Bush and other administration officials, including Gonzales and his predecessor, John Ashcroft, to characterize the government’s efforts against terrorism. But the numbers are misleading at best.

A Washington Post analysis of the Justice Department’s list of terrorism prosecutions shows that 39 people – not 200 – have been convicted of crimes related to terrorism or national security. Most of the others were convicted of relatively minor crimes such as making false statements and violating immigration law – and had nothing to do with terrorism, the analysis shows. Overall, the median sentence was just 11 months.

Taken as a whole, the data indicate that identifying terrorists in the U.S. has been less successful than the government has often suggested. The statistics provide little support for the suggestion that authorities have discovered and prosecuted hundreds of terrorists. In fact, among all the people charged as a result of terrorism investigations in the three years after the 9/11, attacks, The Post found no demonstrated connection to terrorism or terrorist groups for 180 of them.

Link here.


The Patriot Act, drawn up and signed into law while the physical dust and emotional debris of Sept. 11 was still settling, is up for renewal at the end of the year. While the act itself remains law, there are key provisions that must be renewed as they were meant to expire at the end of this year. Those who want it strengthened and those who wish to weaken it are raising their voices with members of Congress. And some, such as the head of the House Judiciary Committee Rep. James Sensenbrenner of Wisconsin, want to make the provisions permanent. We have already suggested the White House would do better to ensure proper funding of Homeland Security to local communities rather than getting involved in the partisan wrangling of the Patriot Act. And that is the crux of the issue.

To eliminate more freedoms and rights, to hold someone without charging them or to restrict and spy on anyone the government chooses undermines 229 years of American history. For is that not what we detested about Saddam Hussein’s reign over the people of Iraq? Because to take away freedoms in the name of a stronger nation only weakens this great country in the long run.

Link here.

An expected vote on the Patriot Act this week will test whether Congress has the political fortitude to stand up to President Bush.

Link here.

Renewing the Patriot Act.

President Bush is urging lawmakers to renew 16 surveillance provisions of the Patriot Act set to expire at the end of the year, while critics continue to charge the provisions violate civil liberties. Following a background report, two legal analysts discuss the debate that has begun in Congress.

Link here.


Alarmed by the prospect of local governments seizing homes and turning the property over to developers, lawmakers in at least half the states are rushing to blunt last month’s U.S. Supreme Court ruling expanding the power of eminent domain. In Texas and California, legislators have proposed constitutional amendments to bar government from taking private property for economic development. Politicians in Alabama, South Dakota and Virginia likewise hope to curtail government’s ability to condemn land. Even in states like Illinois – one of at least 8 that already forbid eminent domain for economic development unless the purpose is to eliminate blight – lawmakers are proposing to make it even tougher to use the procedure. The Institute for Justice, which represented homeowners in the Connecticut case that was decided by the Supreme Court, said at least 25 states are considering changes to eminent domain laws.

In June, the Supreme Court ruled 5-4 that New London, Connecticut, had the authority to take homes for a private development project. But in its ruling, the court noted that states are free to ban that practice – an invitation lawmakers are accepting in response to a flood of e-mails, phone calls and letters from anxious constituents.

Link here.


Dutch laws restricting illegal money transfers as part of efforts to crack down on terrorist financing and money laundering have had little effect, the Finance Ministry said. About €600 million ($720 million) is transferred legally by Dutch immigrants to relatives in other countries, the ministry said in a report to parliament. But the amount passed through illegal channels may be even higher, the report said. The Dutch introduced laws in 2002 requiring financial institutions to record all international transactions, report suspicious exchanges to a central authority, and demand that both senders and receivers identify themselves.

But the report said legal immigrants tend to avoid such official banks, which charge high rates for their services compared with the underground method, known as hawala transfers. Illegal immigrants and criminals avoid them even more. “In practice, the tracking down and prosecuting of underground bankers is not an easy task,” the report said. “Until now, efforts have only led to a handful of convictions.” Problems include language barriers, the lack of written records for such banks and their near-invisibility to outside observers. Hawala transfers are paperless arrangements based on trust and oral agreements. The system is commonly used in the Middle East, parts of Asia and Africa. The report said punishments for processing illegal transfers are mild, making it is difficult for prosecutors to persuade judges to allow wiretaps or other forms of surveillance. Even when one illegal operation is shut down “the vacant place in the network is quickly filled,” the report said. It also noted that even transfers through the official channels can be problematic, with 31,000 suspicious cash transfers recorded in 2004.

Link here. Accountancy body steps up Caribbean anti-money laundering drive – link.



Imagine a country where the making of some laws can be done behind closed doors, where government agents can enforce laws in secret, and where the courts can accept secret evidence and compel silence about the mere existence of cases brought before them. If you find that hard to imagine in the United States of America, think harder. In a time of terrorism, even core democratic principles can be challenged – or subverted.

Although we can find many examples of U.S. citizens’ systematic exclusion from meaningful participation in and oversight of their own governance these days, just one federal law, the USA Patriot Act, exemplifies many of the problems of such secrecy. As this column was being written, House and Senate leaders were working out their differences, sometimes behind closed doors, on whether to reauthorize the counterterrorism law enacted in a panic after the 9/11 attacks of 2001. The act, for the most part, is a law enforcement wish list and a civil libertarian’s nightmare. Even in its haste Congress imposed a 4-year limit on many of the more controversial provisions, which have drawn fire from both ends of the political spectrum. The sunset date on those 16 provisions arrives at the end of this year.

The so-called “library provision” of the act, Section 215 – which allows secret warrants for “books, records, papers, documents and other items” from businesses, hospitals and other organizations – has been particularly controversial. Critics charge that government agents can use this power to paw through the library loans or bookstore purchase records of ordinary Americans. Certainly, all of this should be subject to full and fair public debate in the reauthorization process. Instead, some drafting of the revisions has occurred in secret and a good measure of the discussion has occurred behind closed doors, shutting out not only the public and the press but on occasion the members and staffs of the minority party.

As a threatened society, we have come to put more and more trust in secrecy – even when it has nothing to do with our security. But in an open society, secrets cannot save us. The problem with excessive government secrecy is that it is a refuge for incompetence – or worse. It is a policy reeking of desperation – or worse. It is reflexive rather than deliberate, defeatist rather than courageous. And in the end it hides not only what our leaders know but, more important, what they do not know. Lawmaking and enforcement in a panic is democracy in disarray. When accompanied by unnecessary secrecy, it can be a democratic disaster. Just how far down this road must we travel before we realize that neither security nor freedom is our destination?

Link here.


What do you say we take terrorism out of Media World and look at it in the real world as it really is? What you will find is that terrorism is not the threat it is portrayed to be in Media World and by politicians. First of all, a terrorist attack is a media event. No terrorist in the world is so stupid as to believe that blowing up a few buildings and people is going to bring down a government or even change its basic policies. What gets blown up and who gets killed are really not that important. What is important is media attention. What the terrorist wants to do is publicize his cause and send out a recruiting message that the big, bad enemy can be hurt.

What about the risk? Dearly beloved, you are in greater danger driving your kids to school or crossing a busy street. The odds of any one of us being the victim of a terrorist attack are minuscule. I infuriated one of the TV fearmongers once by pointing out that in 2001 our own criminals killed four times as many Americans as the attacks on Sept. 11 did. The terrorists killed 3,000; homicides totaled 12,000. Moreover, that year, about 101,000 Americans were killed in accidents. About 2 million died of natural causes. Why sit around fretting about terrorists when flu and pneumonia in 2001 killed 62,000 Americans. As hard as it might be to believe, in 2001, more than 15,000 Americans were killed in falls, most of them in and around the home. The only thing you need to do to protect yourself from a terrorist attack is be someplace else. In a country of 3 million square miles, 99.99% of us will always be someplace else. As a threat to human life, terrorism ranks somewhere close to snake and spider bites.

What you have to realize is that the few terrorists who actually exist are supporting a large industry in the United States. President Bush bases his whole administration on it. But it is all a racket. Do you think if the U.S. government were really concerned about terrorists that it would continue to allow more than 1 million illegal aliens to cross our borders every year? To paraphrase Winston Churchill, never have so few been lied to so often by so many.

Finally, I would remind you that mortality for our species is 100%. We are all going to die one way or another, so there is nothing a terrorist can do to us that is not going to happen anyway. Do not live in fear. Do not let a bunch of opportunistic politicians, greedy entrepreneurs, burned-out Hollywood screenwriters and brain-deficient television people scare you into one minute of discomfort. The war on terrorism is 99% fertilizer.

Link here.

Bush’s Folly

The Iraq War is tragic, wicked, and unjustifiable. It is also a failure in terms of attaining the main national security goal of the U.S. Not only that, this failure was entirely predictable before the war began. In short, starting the Iraq War was a senseless and foolish act – folly – from the point of view of enhancing the security of the U.S., a Bay of Pigs writ large. This conclusion is not, I will argue, an exercise in Monday morning quarterbacking.

Link here.

Suicide Terrorists

Ron Paul, before the U.S. House of Representatives, July 14, 2005

Mr. Speaker, more than half of the American people now believe that the Iraqi war has made the U.S. less safe. This is a dramatic shift in sentiment from 2 years ago. Early support for the war reflected a hope for a safer America, and it was thought to be an appropriate response to the 9/11 attacks. The argument was that the enemy attacked us because of our freedom, our prosperity, and our way of life. It was further argued that it was important to engage the potential terrorists over there rather than here. Many bought this argument and supported the war. That is now changing.

It is virtually impossible to stop determined suicide bombers. Understanding why they sacrifice themselves is crucial to ending what appears to be senseless and irrational. But there is an explanation.

I, like many, have assumed that the driving force behind the suicide attacks was Islamic fundamentalism. … (But) Robert Pape, author of Dying to Win, explains the strategic logic of suicide terrorism. Pape has collected a database of every suicide terrorist attack between 1980 and 2004, all 462 of them. His conclusions are enlightening and crucial to our understanding the true motivation behind the attacks against Western nations by Islamic terrorists. After his exhaustive study, Pape comes to some very important conclusions. … [T]he strongest motivation, according to Pape, is not religion but rather a desire “to compel modern democracies to withdraw military forces from the territory the terrorists view as their homeland.”

Link here.


The U.S. House of Representatives voted 272 to 162 in April to abolish the estate tax. President Bush needs eight Senate Democrats to cross the aisle so that total repeal becomes filibuster-proof in the upper chamber. Regardless of the Senate outcome, a big cut in the estate tax looms. Unhappy with this inevitability, estate-tax supporters have used the media to spread the false notion that repeal will save the rich from having to “give back”.

An April article in USA Today described the belief among estate-tax supporters that “wealthy Americans owe a special debt because their wealth would not be possible without tax-supported schools and regulatory agencies.” In the same article, William Gates Sr. voiced his support for the tax as “a fair payback to society for the opportunity to do business in our marvelous economy and society.” Leaving aside the questionable value of tax-supported schools and regulatory agencies, not to mention the millions of jobs created, charities funded, and taxes already paid by the wealthiest Americans, Gates and the pro-estate-tax lobby get the whole concept of giving back exactly backwards. When the brilliant few innovate and improve our existence, we are receiving their very best and being given to in spades. The estate tax penalizes society’s greatest benefactors, and for doing so should be repealed.

Link here.


Everywhere in my town, particularly around holidays, banners proclaim “Freedom isn’t free. Thank the military.” I beg to differ. Freedom is free, and the military not only is one of the elements threatening our freedom in the U.S., but was never intended to protect our freedom in the first place. Our framers decided that the natural right of each individual to own weapons, and to form a militia with his neighbors, was the best guarantor of freedom. Further, there is no provision in the Constitution for a permanent, standing army – to the contrary, the framers considered a standing army a constant threat to liberty.

Why? First, a standing army requires support via taxation. As we have seen recently, as Eisenhower warned when leaving office, and as General Smedley Butler revealed a generation before Eisenhower: If you start with a standing military, replete with high-ranking officers anxious to further their careers; add a presidential administration and a few hundred Congressmen eager for bloc support, campaign contributions, and cushy jobs after leaving office; then add a few dozen large corporations armed with lobbyists and poised to make huge profits from war; you get wars. Note that children of Congressmen, military officers, and corporate executives rarely are killed in these wars.

This is the worst transfer of wealth imaginable – the lives of the poor and young are snuffed out to line the pockets of the rich and conscienceless. Each time there is a war, elected officials raise your taxes, and most of the additional money confiscated from you goes to the corporations who provide the planes, bombs, and tanks that kill innocents abroad and destroy their property and infrastructures. The latter, of course, are rebuilt later with more of your tax money.

U.S. military forces have not successfully defended Americans against an attack since the War of 1812, which itself was brought on, in part, by Jefferson’s idiotic embargo against the UK. Remember also that the Japanese attacked Pearl Harbor because of FDR’s strangling embargo. Our Navy was caught by surprise because FDR did not have the decency to inform them that the Japanese were on the way. That did not fit into his plans. A “surprise” attack was better to enrage the U.S. populace and get us to support entry into WWII. What can the US military do to protect our freedom in the future? Nothing.

The biggest threat to our freedom is not foreign invasion anyway. The biggest threat is Washington itself – the presidential administration, Congress, and the Supreme Court. We have lost privacy and civil liberties precipitously since 9/11, and our military can do nothing to stop that. The military forces never were intended to protect us from our own government, nor have they ever been in any nation. As ominous as the taxation required to support the military, though, is the second reason it is a potential threat to our liberty: It can be turned against us by Washington. We saw this in the civil-rights upheavals of the 1960s, at Kent State, in Waco, and worst, in 1861.

What can we do, then, to recapture our freedom? Take responsibility for it.

Link here.


Crocodile tears are being shed by the nation’s governors at the prospect of a bill – the Real ID act – mandating federal regulations of drivers’ licenses, becoming law. One of their complaints is that it will be expensive – as though the states ever worried about that! State governments are very profitable enterprises, and need worry more about ways to spend the money than to acquire it. Besides, if need be, you-know-who can foot the bill. One of the more amusing arguments I have seen on the internet is that the driver’s license is not intended for identification, but to assure the competency of the driver. Oh, please! Drivers’ licenses are simply another revenue-raising scheme. When I got mine, the only “competency” that was required was the ability to hand over a few bucks. The license arrived shortly thereafter in the mail. Today it costs very much more, in time and money, to get a license, but are today’s newly licensed drivers any more competent than we were? Obtaining a driver’s license, therefore, is a little like obtaining a grammar school diploma. Everybody gets one – what does that prove?

Of course, after the appropriate weeping and wailing, the governors will stop their sniffling and accept the new law. Yes, they could refuse, but in that case, residents of their states would not be allowed to board an airplane, or enter any federally protected building. Gosh, I guess that means if the IRS sues you, you will not be able to attend the trial!

Of course, in all the hot air being blown about, there is a conspicuous absence: no governor has, or likely ever will, suggested abolishing drivers’ licenses, thus making moot the question of using that license as a federal ID. Nor have any of the governors made the obvious point that there is nothing in the Constitution that even hints at a grant of authority to the federal government to control the issuance of licenses by the state – assuming such licenses serve a valid purpose in the first place. I realize that the Constitution is a dead letter, but if the governors are so truly horrified at the prospect of a national drivers’ license ID, they could hold the feds feet to the fire with the Constitutional argument, knowing that no federal official will publicly acknowledge his profound contempt for that document.

Would the states be punished by Washington for exerting their sovereignty? Of course, but it would work both ways. The states could retaliate. For example, the state could make it a crime for any state-licensed business or individual to send any tax monies to Washington. State troopers could escort state citizens onto airplanes, or into federally guarded buildings.

Have things come to such a pass? Well, it would seem so, if freedom is not to be nibbled into oblivion. The pretext for the Real ID law is the fight against terrorism, but the law only makes “proper” ID more difficult to obtain. A dedicated terrorist will obtain the necessary documents to obtain his driver’s license, rest assured. But, in truth, he does not need to. The mere whisper of “terrorism” has already convulsed our society and inconvenienced the citizenry without the terrorist having to set off so much as a firecracker. And it will eventually dawn upon our rulers that individuals without proper ID can commit acts of terrorism despite that handicap. If your state will not protect your rights, who will? And if it cannot, who needs it?

Link here.
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