Wealth International, Limited

Offshore News Digest for Week of August 1, 2005

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

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When Vicente Fox took office as Mexico’s president in December 2000, hopes were high that he would transform the nation from a corruption-tainted, slow-moving bureaucracy into a vibrant, safer country overflowing with entrepreneurship. He was something of a rebel. He had dared to take on the long-entrenched Institutional Revolutionary Party (known by its Spanish initials, PRI), a mix of big business, labor and political bosses that served its own interests instead of the people’s. The country was desperate for change. Fox, a former state governor, Coca-Cola executive and rancher, brimmed with optimism about the changes he would make. With the full force of the NAFTA behind him, the goals for Fox’s National Action Party included 7% annual economic growth, creating a middle class and establishing the rule of law.

Five years into Fox’s 6-year term economic growth may hit 3.7% this year, down from 4.4% last year, following three years of near stagnation. Half of its 106 million people live in poverty. Drug-motivated murderers and kidnappers roam the cities with impunity. For the 13,144 homicides committed in Mexico in 2002 (the latest year for which figures are available), only 769 people were prosecuted. Mexico ranked the 21st most corrupt country among 145 countries in a survey by Transparency International. Amid such conditions it is no surprise that an estimated 5.3 million Mexicans have illegally immigrated across the 2,000-mile border to the U.S. At a rate of 400,000 a year, they keep coming, risking their lives in the process.

To be sure, Mexico is not the basket case it used to be. The stock market is up 138% since early 2003. But while countries like India and China boom, Mexico’s economy fell from 10th to 12th largest globally last year, overtaken by India. Mexico’s economy delivered a $676 billion gross domestic product last year. It might easily have been 20% larger if Fox had been able to deliver on his promises. Here is how things might look different.

Link here.


Caribbean nations, better known for their pristine beaches than their poverty and unemployment, are trying to pull together economically and politically at a two-day summit that started last Thursday amid regional rivalries. Venezuela and the U.S. are tugging the 25 members of the Association of Caribbean States, or ACS, in different directions – free trade or Venezuela’s vision of an “economy based on solidarity.” Venezuelan Foreign Secretary Ali Rodriguez denied his country was trying to use oil to export President Hugo Chavez’s “Bolivarian” revolution, but acknowledged that Venezuela will continue offering crude on favorable terms – and even in barter trades – to countries in the region.

“We have a constitutional mandate to develop an economy based on solidarity, not mercantilism,” Rodriguez said. “In fact, we oppose the slimy, mercantilist view of things. But it’s totally false to say that we are using oil as a political weapon to spread the revolution,” Rodriguez said. “We are among those who are totally convinced that if there is one thing you can’t export, that’s revolution.” Chavez has used the name of 19th century South American independence hero Simon Bolivar to describe the vaguely socialist, stridently anti-U.S. program he has championed in Venezuela.

Mexican President Vicente Fox, on the other hand, called for a “strategic alliance” of open markets and free trade in the region. “We want to cut down the obstacles to trade and investment,” Fox said at the opening session of the summit. Populist Panamanian President Martin Torrijos took a middle line, calling for “democracy with social sensitivity,” and warning that “unless there is a more equal distribution (of income), it will generate a series of resentments and nobody knows when they could explode.”

The divisions in ideology were as stark as the differences in income in the Caribbean: Just one day after the U.S. Congress approved America’s vision for the region’s economy – the Central America Free Trade Accord, or CAFTA – Rodriguez held out Venezuela’s trade deals with Argentina as a model. Argentina pays for Venezuelan oil with cattle and elevators.

Link here.


Investors living outside their country of origin have become less optimistic about market prospects, worried about high oil prices and sluggish growth, according to a poll. A survey of about 200 expatriate investors showed that 25% of them expect markets to be higher in a year’s time, down from 53% in October last year, online broker Internaxx said. Fears about the growth-sapping impact of high oil prices and the state of the U.S. economy took top spot for reasons for waning confidence, while concerns about low consumer confidence and the weak euro-zone economy also dampened optimism.

Cheaper international travel, the expansion of multinational firms and modern communications have made expatriate investors a more important part of the global financial market in recent years. Internaxx, a joint venture of Banque Generale du Luxembourg and brokerage company TD Waterhouse, has estimated that there are, for example, about 300,000 UK expatriates working overseas. The firm polled expat investors living in Britain, continental Europe, Asia and the Middle East. Some 54% of respondents said they were uncertain about future market growth, up from 9% last autumn. Investors taking an optimistic stance cited prospects for the Asian economy as their justification.

Link here.


Steve Arthur drives his SUV past the 9-hole golf course, the health spa and the church of his new neighborhood. He points to the plot where his 3,000-square-foot home will be built. “In any other place in the world, this is a national park” he says, indicating the lush mountains enfolding a cluster of $quarter-million homes in the gated community of Valle Escondido in Boquete, Panama. In mile-high Boquete, the tropics meet the mountains to create a landscape so lush even the air seems green. The weather is usually delightful. It is a far cry from Willcox, Arizona where Arthur grew up. Last year Arthur and his wife moved to Valle Escondido, the first of a growing number of gated retirement communities cropping up in the highlands and islands of Panama.

Lured by Panama’s natural beauty and foreigner-friendly tax system, Arthur and thousands of Americans like him are pumping hundreds of millions of dollars into the country of 3 million people. In 1995, to encourage tourism as the departure of the U.S. military neared, Panama passed Law 8, exempting tourism-related businesses from taxes on profits and property. Second homes subleased part of the year and retirement communities such as Valle Escondido all fall under Panama’s broad tourism umbrella.

Since the U.S. military left in 1999 after the turnover of the Panama Canal, Panama has been scrambling to find its place in the 21st century and diversify its economy beyond activities traditionally centered on the canal, such as its international banking center and the duty-free zone. Tourism is one option. There is also something called “residential tourism” – communities such as Valle Escondido. Boquete, a former coffee-producing town of 18,000, has been ranked among the best places in the world to retire by Modern Maturity and International Living magazines.

Those who eschew the gated-community ethic have other options. Erland Hinsch is building a home with his Panamanian wife. Hinsch is hooked on the town’s tranquil setting. He drives his 1985 Land Rover over the bumpy dirt road just as a drizzling rain begins to fall in Boquete. Called bajareques, these daily refreshing rains cleanse the town and leave it looking like a living, breathing postcard of pristine mountaintops rising into the low-lying clouds. “You can live well here for $1,000 a month. You can have maids, cars, a house – you can’t even blink for that in the United States,” Hinsch says. Hinsch is supervising construction of a two-story, 2,800-square-foot home, contracting Panamanians for the construction. The cost? About $45,000. Of the gated communities, he says, “It is just way too American. You don’t come down here to live like an American; you adapt to Panama’s culture.”

Link here.

Panama’s geography spawns a “global shopping mall”.

It is not just a canal. It is a “cluster”. Panama’s pivotal geography has given rise to many variations on the floatage or portage trade routes that existed even before Columbus. It has spawned a “global shopping mall”, the Colon Free Zone, said Raul Moreira, Colon Free Zone director of planning and finance. International businessmen and women fly in daily, ordering wholesale merchandise ranging from canned meat to women’s underwear that arrives days later at their businesses throughout the Americas. Though merchandise is tax-free, the Free Zone earns Panama about $20 million per year through rents and administrative fees and employs 18,000, Moreira said.

Herstel Levy, a fabric store owner, said the Free Zone offers shoppers convenience. “I sell textiles but they don’t need me,” said Levy, an Iranian Jew who has lived in Panama for 32 years. “They can go to China. I give them accessibility. I fly to China, go to the factories, speak Chinese, and I can do in three days what takes them a month.”

If Colon’s Free Zone is the canal’s economic offspring on the Atlantic side, its Pacific equivalent is the IBC: Panama’s International Banking Center. Housing branches of banks whose home offices range from Argentina to the Netherlands, attracted here by Panama’s stable, dollarized economy and convenient banking secrecy laws, the Manhattan-type skyline is visible from most of Panama City.

Link here.

Panama’s colorful crafts preserve culture.

Migdalia Preciado sits on a wooden bench across from her home with a palm-thatched roof. It is among 200 houses crammed onto an island the size of two football fields off Panama’s Caribbean coast. Her blouse is two finely embroidered panels sewn front and back. These multilayered appliqués, known as molas, are Panama’s most famous native craft. Molas take weeks to complete. Although prices average about $15, they enable Kuna women to be the primary cash earners in this matriarchal society. The Kuna are one of seven recognized native groups comprising the ethnic culture of a country that most Americans probably do not realize is anything other than home to a canal. The Kuna were the first to enter the cash economy, when builders of the canal started buying their molas during the early 1900s. Today, every indigenous community in Panama is trying to do the same, yet retain its identity.

Although indigenous groups comprise about 6$ of Panama’s 3 million inhabitants, their reservations cover 22% of the country. Magdalina Jimenez models a traditional Ngöbe dress to women learning how to make money with handicrafts. Preciado’s reservation, Kuna Yala, extends along Panama’s eastern Caribbean seacoast toward the border with Colombia. It includes the San Blas Archipelago – 365 islands, 49 inhabited – and part of the mainland. Kuna men fish, snorkel for lobster and hunt iguana, tapir, and collared peccary, known in Arizona as javelina. They grow sugar cane, corn, bananas, rice, and tropical fruits. Because Kuna Yala is autonomous, its members can trade with a foreign nation without Panamanian intervention. In exchange for coconuts, Colombian ships leave goods such as coffee and machetes. Their autonomy dates to 1925, when the Kuna rose up against occupying Panamanian police, killing 22 of them but losing many of their own as well. A truce negotiated by the U.S. military led to Kuna self-rule, and February marked the 80th anniversary of the victory.

Link here.

Panamanian leader says his country will not receive Taiwan president.

Panama’s vice president said in an interview with a Panamanian TV station that it would be inconvenient for his country to accept a visit from President Chen Shui-bian because of celebrations being held for the country’s president. According to the China Times, Vice President Samuel Lewis Navarro told Panama’s national network Televisora Nacional Panama (TVN) that the decision to not host Chen on his tour of Latin America was made based on Panama’s internal considerations and was not related to the two governments’ bilateral relations, which Navarro indicated would remain unaffected.

Navarro emphasized that Panama has no intention of interfering in disputes between Taiwan and China and has no intention of making changes to its foreign policy. Taiwan and Panama have maintained formal diplomatic relations since 1933 and Panama has promised Taiwan that it would limit relations with China to trade and commerce. But a Chinese-language news report by Voice of America in May said that President Torrijos has sought advice from the U.S. on switching formal diplomatic ties from Taipei to Beijing.

Link here. Panama and Cuba agree in principle to normalize ties – link.

Panama pleased with WTO decision on banana tariffs.

The government of Panama proclaimed itself pleased with the World Trade Organization’s decision in favor of nine Latin American banana-producing countries, thus rejecting the attempt of the EU to increase tariffs on this fruit next year. During a press conference, Panama’s Trade and Industry Minister Alejandro Ferrer congratulated officials who presented the case to the WTO on behalf of the Latin American banana-producing nations. The EC intended to increase tariffs on Latin American banana imports from €75 euros ($90) per ton to €230 ($278 dollars) per ton. WTO’s Arbitrage Commission ruled that the EU decision hinders Latin American banana producers from accessing the European banana market. Ferrer said that Panama, like the other Latin American banana producers, will go bankrupt if the EU raises the tariffs from the current €75 per ton.

Link here.


With 1.5 million Britons considering moving abroad next year, Bupa International reveals the advice the current expat community has found most valuable. And top of the list of priorities is financial advice. More than three expats in four find advice on money matters valuable. More general tips about moving abroad and information about local healthcare are almost as valuable as financial concerns, with over half the expats saying they are important. Just one potential emigrant in three finds help finding schooling of value. Help setting up bank account was cited by 76% of expats, help with their taxes and financial situationby 73%, and general advice on what to do before moving abroad by 72%.

Link here. Bupa International’s travel guide on moving to another country may be found here.


With the growing understanding of Islamic Banking and the needs of the global communities who use these services, what is the role of Islam in banking? Following the 9/11 attacks in America, many changes occurred in how we view and treat the needs of Muslim communities in the banking industry. On the one hand, the U.S. introduced legislation to regulate the Hawala method of transferring money between American immigrants and their families in Asia and the Middle East. On the other, the UK government decided to endorse the opening of Europe’s first fully-compliant Islamic bank with a local mandate. So what are the implications of the Islamic faith in banking, and what are banks doing to exploit the opportunities these create?

Before discussing the implications, it is worth explaining how the markets we are going to discuss operate. First, there is Hawala – an ancient method of transferring money between people in Asia. Today, it is a method of transferring money overseas that does not involve complex payment infrastructures and processes, but more of a trust with traditional ways of doing business. Second, there is the growth of Islamic banking in the “Western” world. Mainstream Western financial instruments that are interest-bearing, such as a mortgage, credit card, loan or savings account, are forbidden. Interest, as with usury in traditional Christian and Catholic traditions, is considered to be evil and under the Quran, interest – or riba – is specifically prohibited. Therefore, other ways to buy a car or own a house are used in Islamic banking. So, two systems – one official, Islamic Banking, and one unofficial, Hawala – that work closely in line to allow the free flow of funds between global Muslim communities. So what?

Well, what is interesting is that we now see Western financial providers muscling in on the Islamic financial markets. These offerings are likely to grow. After all, few banks can afford to ignore a market that is under-served and offers great opportunity. The opportunity is an industry with over $230 billion of assets that is growing by more than 15% per annum. Western interest in Islamic Banking as a growth market is a new phenomena, but is one that will become significant in those markets over the next decade.

Link here.


An increase in deposits in the Isle of Man will cushion the potential negative effects of the European Savings Tax Directive according to John Aspden, chief executive of the Financial Supervision Commission. The FSC’s annual report for 2004-05 shows an increase in deposits of 16.4% to £33.1 billion from £28.4 billion. This figure includes a 19.3% increase in sterling deposits and a 9.1% increase in non-sterling. During the same period there was a 17$ increase in funds managed or administered from the Island. Mr. Aspden said that the true effect of the withholding tax, introduced on July 1, will be seen in the next six months, but that the sharp increase in deposits should cushion any decreases.

“The finance sector has achieved a slightly lower contribution to total GDP due to diversification, but there have been good growth figures for deposits of 16.4% and funds of 42%, with strong profitability in the CSP sector. The fact that we have seen that rate of growth, gives quite a good cushion against which to absorb any losses that there might be. The effect of the ESTD will be seen during the next six months to December. That is when statements come into deposit holders letter boxes, showing retention tax. This is a good cushion to absorb those outflows,” he said.

Link here.


Former Guernsey-Finance chief executive Talmai Morgan called for the States to show restraint to help to save the sector, and also criticized too much government interference and the threat of the nanny state. He is concerned about the future, particularly following corporate tax reform in 2008. He said that the island must remember that the finance industry was here for tax reasons. “We must make sure that Guernsey is a sufficiently competitive jurisdiction for it to remain here because we now have no end of competition which is getting better and better in what they do.” He said that the island had to remember how lucky it was.

“Guernsey is extremely fortunate to have the finance industry here. It is in effect the goose that lays the golden eggs and long may that continue. Instead of harping on about the problems it creates, we should be doing all in our power to ensure the long-term sustainability for the long-term benefit of Guernsey. And it is the people of Guernsey who should be very careful not to take the socialistic approach. It is failing and has done in so many other countries and Guernsey should ensure it lives within its means,” he said.

“Some of our politicians want to deal with everything straight away. They want to deal with everything right now without giving adequate thought to who will pay for it all and the economic effects of spending too much. There is too much political correctness. There is too much interference in people’s everyday lives. The society of Guernsey functions best if people are more self-reliant. We should not ape the failed social experiments of the UK and elsewhere.

“Human rights should be balanced by the human rights and responsibilities. At the moment there are rights without responsibilities, which is nonsense. It is the sort of nonsense that has led in the UK to people being imprisoned in their own homes. If you go down the human rights road, then you can end up in some very unexpected places. It is different from the idea of decency that was initially envisaged,” he said. He said that Guernsey’s smoking ban and proposed new drinking laws smacked of government interference. “It is a nanny state. The state provides everything for us and that sort of society is the antithesis of freedom.”

Link here.


Nobel Laureate Ed Prescott thinks Europe will lower the burden of government, primarily because politicians have no choice. Spain already has lowered tax rates and liberalized labor markets, he explains, and Germany is poised to enact similar reforms. All this is true, but Prescott may be too optimistic. With a few exceptions such as Ireland, politicians in Western Europe are taking – or have taken – only modest steps in the right direction. This is akin to a strangler letting his victim take a few shallow breaths. This is better than letting the victim die, to be sure, but hardly a cause for celebration.

Link here.

IMF cuts eurozone growth forecast.

Estimates for growth in the 12-nation eurozone have been revised down by the International Monetary Fund. The IMF cut its forecasts for growth to 1.3% for this year from 1.6%, and to 1.9% in 2006 from 2.3%. However, the IMF said the European Central Bank (ECB) had been right to keep interest rates at 2% rather than cut them to boost flagging economies. The IMF also warned that commentators were becoming too pessimistic about the eurozone’s prospects. Government officials in Germany, Italy and Austria have been urging the ECB to bring rates down as their economies struggle to make headway in the face of near zero-growth. The IMF report came on the eve of an ECB meeting which is expected to leave interest rates at 2%.

Link here.



As part of its drive to increase tax receipts, HM Revenue & Customs is writing to people with offshore bank accounts, asking them to explain why no tax is due. This follows a EU savings directive, seeking to counter cross-border tax evasion, which came into effect last month. Under the new rules, offshore tax havens must withhold some interest earned on EU residents’ accounts and provide information on these to EU tax authorities. In addition to the 25 EU states, the directive covers Guernsey, Jersey, Gibraltar and the Isle of Man among other jurisdictions.

Andrew Wyatt a director of Chiltern tax consultants said, “HMRC is giving these people 30 days to reply with an explanation of why there is no tax liability. Our information is that these letters are being issued in cases where HMRC feels that tax fraud has taken place but there is sufficient doubt to stop just short of pursuing the taxpayer under the Hansard process, which applies to suspected serious tax fraud. This is a very heavy-handed approach. Many people are unaware of whether their overseas income is taxable in the UK.”

Link here.


The IRS will boost the number audits it performs of Subchapter S corporations, according to the Associated Press. The IRS plans to examine later this year 5,000 randomly selected S corporation returns from the 2003 and 2004 tax years. The agency expects to finish the audits within two to three years. An S corporation tax status is favorable for small businesses since, while it allows for the same liability as more traditional C corporations, it enables companies to avoid double taxation, the situation in which both the company and its shareholders are taxed. Instead, income is passed directly through to the stockholders, who alone are taxed on it. What is more, shareholders can offset business losses incurred by the corporation against their own income.

An IRS spokesperson told AP that S corporations will have to show their financial records to IRS examiners, who will decide whether income and expenses were accurately reported and the correct tax paid. There is no difference, he said, between such audits and those of other business types. The government plans to take the data and analyze it to gauge how compliant companies are with tax law. From there, it will determine if changes need to be made in tax policy or the Internal Revenue Code.

Link here.


Gibraltar, in an official release, confirmed it complies with the taxation of Savings Directive, denying recent statements in the Channel Islands press alleging differences with the UK on the matter. The Government of Gibraltar notes statements in the Channel Islands which refer to a “last minute problem” and “an initial difference of views between the UK and Gibraltar” in the implementation of the Taxation of Savings Directives between the UK and Gibraltar and demanding a “quick resolution to the problem”. There have even been calls for UK to “force” Gibraltar to comply with the Directive. These remarks are based on lack of familiarity with the facts. Gibraltar already is within the ambit of and complies with the Savings Directive.

However, the Directive does not apply as between the UK and Gibraltar because we are not separate member states in relation to each other. Nevertheless, the two governments are in discussion to agree appropriate arrangements for exchange of information between them outside of the legal framework of the Directive. The two Governments have jointly announced that they are working together with a view to agreeing such arrangements during the next few months. “Crown Dependencies appear to be getting over excited about this issue”, said a Gibraltar government source.

Link here.


Federal prosecutors have notified as many as 20 former partners at the accounting firm KPMG LLP, including some who were members of its senior management team, that they could face criminal charges for their role in selling tax shelters in the 1990s. Government lawyers have not yet decided whether to bring criminal charges against the firm, but they are asking for tough concessions from KPMG as the price of any potential settlement. At the same time they also are focusing on individual executives involved in the tax shelters, according to sources, who spoke on condition of anonymity because of the delicate stage of the investigation.

Earlier this year, federal prosecutors in New York had recommended that KPMG face criminal charges, but senior Justice Department officials in Washington expressed concerns about the prospect of another accounting firm collapse after the 2002 demise of Arthur Andersen LLP and the Supreme Court’s reversal in May of Andersen’s criminal conviction, according to the sources. Instead, both prosecutors and the firm continue to negotiate. The KPMG probe, which dates back several years, could be the next major case in a string of business fraud prosecutions that surfaced after the collapses of Enron and WorldCom. KPMG was one of several firms that sold questionable tax shelters to wealthy clients, creating lucrative sources of revenue.

After reports of possible criminal charges against KPMG appeared in June, the firm issued a statement apologizing for “unlawful” activity by former partners and pledged to cooperate with investigators. The firm turned over batches of documents, pressured dozens of tax executives to resign, and imposed caps on their attorney fees. Analysts say those moves could help persuade regulators to forgo an indictment and instead impose lesser sanctions. That gives little solace to the former partners, several of whom testified at a 2003 Senate hearing – which cited internal KPMG correspondence about whether the shelters would pass muster with the IRS. Some of the officials speculated in memos released at the Senate hearing that the firm should roll the dice and approve the deals, since it was likely to make more in fees than any penalties the government would impose. “The only possible way to have made these people behave – they were so far below professional standards – is in fact that some people have to go to jail,” said Calvin H. Johnson, a tax law professor at the University of Texas at Austin who has written about the KPMG case.

Link here.



In 1998 Michael Gallop, an insurance broker, and his wife set up a family foundation – primarily to support their son’s Agoura Hills, California public school. They later deducted $262,000 in contributions to it. But last year the IRS revoked the foundation’s tax exemption and denied their deductions. An IRS agent concluded that the Gallops retained too much control over the charity, paid personal obligations (such as synagogue dues) from it and set it up as part of a “tax avoidance scheme” promoted by a Utah firm. As a supporting organization, the foundation was supposed to be overseen by the school. But the school’s principal told the IRS he had never been to a board meeting. One of the alleged promoters originally represented the school on the board. The Gallops deny any impropriety and are fighting both the revocation and a big personal tax bill in U.S. Tax Court. They say the foundation is meeting a desperate need in public education, having provided $9,600 in grants to the school through 2002.

Have people been misusing the charitable deduction? The IRS sure thinks so. The Senate Finance Committee agrees and is rustling up the biggest overhaul of this part of the code in 36 years. Charles Grassley (R-Iowa), the committee’s chairman, and Max Baucus (D-Montana), its senior Democrat, plan to introduce a corrective bill later this summer. If you are either a big donor or a small one who pushes the limits, the legislation may crimp your style.

Some donors are not even keeping up with the existing lax rules. In late July the Vanguard Charitable Endowment Program sent warning letters to 32 folks who set up tax-deductible donor-advised funds in 1998 but have not yet directed a penny from those funds to an operating charity. The message: Recommend a minimum $500 charitable grant by June 30, 2006 or Vanguard will take over the fund and select future recipients itself. The token payout requirement is a relic of a looser regulatory era. Under one proposal at which Grassley and Baucus are looking, the 32 close-fisted Vanguard donors, whose funds total $7 million, would have to dole out $1.4 million, not $16,000, in grants, pronto.

Link here.


Worldwide there are over 70 tiny tax haven destinations that offer no-tax or low-tax status. Among these destinations different jurisdictions tend to be havens for different types of taxes, and for different categories of people or companies. India and Mauritius executed the Double Taxation Avoidance Agreement (DTAA) in 1982 with the sole purpose of mutually strengthening their economies. Since then, Mauritius has been considered a virtual tax haven for offshore investment. Most investors, especially from highly taxed countries, preferred to route their operations through this paradise tropical island, as they benefited under its tax structure with negligible rates. However, since 2000 Mauritius has become a controversial podium with its Supreme Court’s intervention on the residency status.

With the controversies on investments through Mauritius moving to the forefront, Singapore will be the most sought after destination. Many investors including large financial institutions will soon shift to Singapore from Mauritius. Strategically located, Singapore has the reputation as an attractive financial center and is an outstanding haven for offshore funds. The government also provides numerous incentives to help foreign companies with their start-ups. The political and economic stability of the country is an added attraction and offers security to investors.

Link here.


Officers of the Central Detective Unit arrested two elderly American men after they allegedly attempted to deposit a “fraudulent” $57.2 million at the First Caribbean Bank. The men were a 62-year-old Miami resident and a 71-year-old of Ohio reportedly. Assistant Commissioner with responsibility for Crime, Reginald Ferguson confirmed that the large amount of money caught the attention of bank employees who sought the assistance of officers from the Commercial Crime Unit. According to a Guardian source there is a possibility the incident is somehow connected to an Internet-based fraud scheme that authorities have been investigating. However, head of the Commercial Crime Unit, Drexel Cartwright, declined to comment on the matter.

In the meantime, the Guardian source cautioned the wider public “that they should be aware of the various e-mails they are receiving with regard to business transactions and ways of making money. These kinds of things should not be answered. Never give out personal information over the internet unless you know for sure who you are dealing with.” It is understood that the Internet fraud scheme that investigators are probing involves proposals being pitched over the Internet to individuals of means in The Bahamas and elsewhere in the world relating to investments that promise a high rate of return. Reportedly, local police are working with their international counterparts to crack the scheme, in which it is alleged that a Bahamian businessman lost thousands of dollars.

Link here. Quatloos, “the perfect place to start when faced with an investment proposal that sounds too good to be true” – home page.


Day in, day out, a strapping, amiable 24-year-old who calls himself Kele B. heads to an Internet cafe, hunkers down at a computer and casts his net upon the cyber-waters. Blithely ignoring signs on the walls and desks warning of the penalties for Internet fraud, he has sent out tens of thousands of e-mails telling recipients they have won about $6.4 million in a bogus British government “Internet lottery”. “Congratulation! You Are Our Lucky Winner!” it says. Kele said he has had only one response. But he claims it paid off handsomely. An American took the bait, he said, and coughed up “fees” and “taxes” of more than $5,000, never to hear from Kele again.

Festac Town, a district of Lagos where the scammers ply their schemes, has become notorious for “419 scams”, named for the section of the Nigerian penal code that outlaws them. In Festac Town, an entire community of scammers overnights on the Internet. By day they flaunt their smart clothes and cars and hang around the Internet cafes, trading stories about successful cons and near misses, and hatching new plots. Festac Town is where communication specialists operating underground sell foreign telephone lines over which a scammer can purport to be calling from any city in the world. Here lurk master forgers and purveyors of such software as “e-mail extractors”, which can harvest e-mail addresses by the million. Now, however, a 3-year-old crackdown is yielding results, Nigerian authorities say. Experts say Nigerian scams continue to flood e-mail systems, although many are being blocked by spam filters that get smarter and more aggressive.

Link here.


When Philip Egglishaw last visited Sydney and Melbourne, he left behind a who’s who and how-to guide to tax avoidance. John Garnaut reports. Philip Egglishaw, chartered accountant and international tax planning man of mystery, visited his well-to-do Sydney clients at the Sheraton on the Park in November 2003. He must have been jet-lagged by the punishing global travel program, for he left behind what have become key documents for Operation Wickenby, Australia’s largest and most ambitious tax evasion crackdown.

The first document is headed Trusts: A Simple Concept. It tells how to establish an effective “blind” and “mobile” trust – one which is instantly transferable between tax havens and where the trustees act on instructions from beneficiaries without recording or disclosing any link. Their advantages are described in unusually candid terms: “Trusts are typically used to avoid the following forms of taxation: income tax; capital gains tax; death duties; gift taxes; wealth taxes.” Especially, it seems, when coupled with financial and tax advice from Egglishaw’s firm.

The second Strachans document is Tax Planning and Offshore Administration. This how-to document says little about international tax laws but much about avoiding disclosure of company directors, shareholders and trust beneficiaries. It says: “Although it is far from adequate to rely solely upon secrecy as a basis of tax planning, it does form a natural concomitant to skilful tax planning arrangements. The required level of secrecy will be dependent upon the sensitivity of the client and the proposed type and location of the activities.” The third promotional document, Choosing the Right Jurisdiction: an Objective View, assesses the merits and pitfalls of the world’s premier tax havens. When it comes down to sheer regulatory impenetrability, it is hard to overlook the British Virgin Islands, the document claims.

Link here.


Hong Kong looks set to be a key beneficiary of a new EU ruling which took effect at the beginning of July, which 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. Since July 1, in order to keep details of their wealth private, bank customers now have the option of paying a withholding tax which will be levied directly in the country in which their savings are held. This will be charged at a rate of 15% for the first three years, 20% for the following three years, and 35% from 2011 onwards. The result, say analysts, is a movement of money away from these countries and into secure offshore jurisdictions in Asia, such Hong Kong.

Hong Kong has long enjoyed a reputation as a secure, tax-free and highly respectable jurisdiction for international banking and company incorporation. With this latest development from Europe, Hong Kong company formation and corporate and personal banking options are becoming more popular with international businesses and high net worth individuals. Since Hong Kong is neither a signatory to the EU directive, nor agreeing to cooperate with the OECD, it looks set to gain even further. Healy Consultants managing director Aidan Healy said that, “We have witnessed a trend of capital flow from Europe and the U.S. to Asia, as a result of the threat to client confidentiality posed by OECD pressures on tax haven countries. Consequently, we are now seeing a significant upturn in demand for Hong Kong companies and corporate bank accounts from our clients.”

Link here.

Hong Kong sees increase in new company registrations.

The total number of companies registered under the Hong Kong Companies Ordinance increased during the first six months of 2005 compared with the corresponding period of 2004, according to statistics released by the Companies Registry. The figures showed that the number of new local companies incorporated during the first six months of 2005 was 37,598, an increase of 17.7% from the 31,943 in the corresponding period of 2004. However, the figures indicated that the number of new foreign companies that had established a place of business in Hong Kong under the Companies Ordinance in the first six months of 2005 fell to 275, down 24% from the 363 registrations in the first half of 2004.

Link here.


The US Embassy and the IRS has warned non-resident individuals in Barbados and the Eastern Caribbean who receive income from a U.S. source that they may be targeted in an identity theft scheme. The scam, which surfaced last year in the region and has appeared again recently, uses phony IRS correspondence and an altered IRS form to trick people into disclosing their personal and financial data, which is then used to steal their identity and financial assets. The IRS warns that you should NOT respond to this request. Taxpayers should be very wary of strangers trying to obtain sensitive personal information, whether in person, over the phone, through the mail or online.

As part of the scam, an altered IRS Form W-8BEN is sent. The correspondence claims the recipient will be taxed unless they submit the requested personal and financial data. The real IRS form is used to determine whether a non-citizen is subject to withholding tax. It DOES NOT ask for personal information except, in some cases, a Social Security or IRS-Generated Taxpayer Identification Number. In addition, the recipient’s financial institution, not the IRS, sends the genuine form.

Link here.



Jamaican passports issued from the Passport Office without full security clearance according to a 2003 audit, are being seized by local and overseas immigration officials, and some of the passport holders have been questioned by the police. 12 employees who worked in the processing section of the office and who were suspended immediately after the audit’s findings were released, remain off the job as investigations by the police Fraud Sqaud continues.

The police were called in after the breaches were detected in a routine review of the processing system by the passport office. They have been asked to determine how the passports were issued without passing the office’s quality assurance tests. Donovan Nelson, publicist in the national security ministry which has oversight responsibility for the office, said the Jamaican government has notified frequently used international centers where the passports were likely to be surrendered. “We know who have them, and we know the numbers. Wherever they show up, we have taken them in,” he said. However, he said he could not comment on the case of the man who had been detained in the U.S.

The passport holder told the Sunday Observer that he was detained, interrogated and refused landing status during a trip to the U.S. He said U.S. immigration officials told him that his passport was on a list of 800 that had “stolen” identification numbers. It was not clear if all 800 mentioned by the official were Jamaican passports. The security ministry has opted not to say how many Jamaican passports were identified by the audit as fraudulently issued, saying only that the number was more than 10, but not as many as 800. Officials have also not said how many have been recovered, voluntarily or seized, in other jurisdictions.

Link here.


Until recently, the British government’s ambitious plans to introduce biometric identity cards looked dead in the water. After all, previous attempts to launch ID cards, most recently in 2003, collapsed in the face of public and political opposition to a system deemed unnecessarily intrusive and potentially costly. A June 28 survey by polling outfit YouGov showed support for ID cards had fallen to 45%, from 78% two years ago. But then came the July 7 bombings of London’s transportation system, which killed more than 50 people, and a failed similar attack two weeks later. Now the government is banking on a change in public opinion about the biometric cards, which are a central plank of the Labour government’s counterterrorism plans. Prime Minister Tony Blair calls the cards an “idea whose time has come.”

If Blair gets his way, Britain, which has not issued ID cards since Winston Churchill abolished the practice in 1952, will have the most detailed, centralized biometric database in the world by 2008. The new cards would contain personal details such as name, gender, place and date of birth, current and previous addresses, and immigration status, as well as a microchip with a digital photograph, fingerprints, and iris scans. Phased in gradually from 2008 onward, the voluntary ID cards are not expected to become compulsory before 2013 – and then only if Parliament agrees.

Britain’s idea of a centralized database that allows for sharing of information among government agencies, which is what it wants at least at home, is unusual in Europe, where many countries with ID cards have strong legal protections in place to prevent this kind of information sharing. It is an ambitious project. Before the British government can set the agenda for Europe it will need to overcome remaining opposition from civil-rights groups and politicians at home. Opponents say the new ID cards will be expensive and invasive.

Link here.


All paper, as well as plastic credit and debit cards, bears a unique "fingerprint" of microscopic surface imperfections. According to Russell Cowburn, professor of nanotechnology at Imperial College London, detecting these unique patterns is easy to do with a portable laser scanner. The detection process makes use of the optical phenomenon known as laser speckle. Light coming from a focused laser is coherent, or in phase, but when it strikes a microscopically rough surface like a piece of paper, the light is scattered, producing a pattern of light and dark “speckles”. The scanner’s photodetectors digitize and record this pattern. According to Cowburn’s research, the unique speckle pattern of a sheet of paper remains recognizable even after crunching the paper into a ball, soaking it in water, baking it at 180º Celsius (350º Fahrenheit) for 30 minutes, scrubbing it with an abrasive cleaning pad or scribbling over it with a big black marker.

A cross-correlation algorithm that assesses the degree of similarity between the base-line scan and the new scan allows the paper’s identity to be verified. The odds of two pieces of paper having similar patterns are greater than 1,000 to one. These fingerprints raise the possibility of securing documents without resorting to controversial solutions like RFID tags. In the future, every passport, driver’s license and birth certificate could be scanned for its unique speckle pattern by the issuing agency. Portable scanners at border crossings or police stations would read the pattern on the document in question and match it to the baseline database. A standard desktop PC could check 10 million entries per second. This could put document forgers around the world out of business. “There is no known manufacturing process for copying surface imperfections at the necessary level of precision,” said Cowburn.

But it is still not foolproof. This sort of security would not have prevented the 9/11 terrorists from obtaining their legal Virginia driver’s licenses with false information, said Nick Fadziewicz, an expert on security at Comter Systems. Eleven of the terrorists successfully obtained those licenses using false information. Many states, including Virginia, now have much tougher requirements.

Link here.


An FBI proposal to shoehorn a sweeping and sophisticated internet wiretapping capability into emerging in-flight broadband services would be illegal, unconstitutional and costly to implement, a civil liberties group is arguing. The Washington, D.C. organization, Center for Democracy and Technology, or CDT, says it will file comments with the FCC opposing an FBI request to force satellite-based broadband service providers to equip their in-air networks with a rapid-wiretapping capability. It would let government spooks begin sniffing any passenger’s internet traffic within 10 minutes of obtaining court authorization. “If they truly believe this is needed, then they need to ask Congress to require what they’re asking,” says CDT attorney John Morris.

The FBI, Justice Department and Department of Homeland Security jointly asked the FCC for the enhanced surveillance powers last month, citing fears that terrorists could use on-board internet access to communicate with confederates on other planes, on the ground or in different sections on the same plane during an attack. The agencies also asked that carriers be required to maintain fine-grained control over their airborne broadband links. This would include the ability to cut off a passenger’s internet access quickly, deny passengers’ access without affecting the flight crew’s connection, or redirect communications to and from the aircraft in the event of a crisis.

Particularly nettlesome to civil libertarians, the plan would force providers to keep a log of every internet connection each passenger makes from the air, tied to name and seat number. The log – which would not include the contents of the communications – would have to be maintained for 24 hours after the flight, in case law enforcement wants to review it. “There are serious Fourth Amendment and privacy implications from the proposed 24-hour, full-time anticipatory wiretapping of everybody,” says Morris. “It carries enormous concern.”

Link here.


The talk “Attacking Biometric Access Control Systems” was given by Zamboni, a man who looked nothing like a real zamboni. What it described were the nine places to attack a biometric control system, and a little on how to do it. The grand scheme of it all is that there are several places to attack, the sensor, the feature extractor, the storage computer and the comparison unit. You can also attack communication between these points, be they traces on a circuit board or a network link.

The process is supposed to work like this: you enroll in the system, which usually means you put your finger in the sensor, and it takes pictures of the fingerprint until the gizmo gets enough information to do its job. This is then sent to the feature extractor, where a mathematical model is built in a way that the computer understands. That is then passed along to the storage point where it sits and waits. When you come in and place your finger on the sensor, it takes a picture and passes it to the extractor. A new model is made there, and that is sent to the comparison unit. If it thinks you are a reasonable but not absolute match for the stored template, it authorizes you.

There are several problems with this, and each point is vulnerable to an attack or several types of attack. Most systems have a common part or two, there are only a few fingerprint sensor makers out there, and they get repackaged a lot. Know the protocols used, most are publicly available to one extent or another on the web. If they are not, you can get most of the pieces on eBay for not all that much money. A little experimentation, and you are off to the races and through the intensive biometric security at the gate with nothing more than a smile, some donuts, a gummy finger and a little hacking when no one is looking. Biometrics are not anywhere near as secure as you think.

Link here.

Biometrics make people wary.

More Canadians support the use of biometric identifiers in government-issued identification, but worry that the costs might be prohibitive and that governments could abuse the system, a a new survey says. The survey found that people in both the U.S. and Canada said the passport was the most important identifying document and therefore the most appropriate for the addition of biometric identifiers. The idea was supported by 85% of Canadians, and by 79% of Americans. After passports, other kinds of documents include drivers’ licences, social insurance cards (called social security cards in the United States) and provincial health-insurance cards. All these also received strong support for biometric data.

The public perceives biometric data – fingerprints or retinal scans – as a way to help prevent fraud and identity theft, TNS privacy officer David Stark said in a statement. But many respondents to the survey expressed privacy and cost concerns about government use of the technology. In June, the U.S. Congress approved the Real ID Act, which will require state motor vehicle agencies to use a common machine-readable technology and other federal ID standards in drivers’ licences by 2008. The new requirements will be established by the Department of Homeland Security and could include adding biometric information to drivers’ licences.

The survey also asked whether respondents would support a new national identity card issued to every citizen. 69% of Canadians said they would view such a card positively, 22% would oppose to it, and one in 10 remain undecided. By contrast, just half of Americans would back a new national ID card, one-third would be against it and 17% are undecided.

Link here.


The man who almost single-handedly invented desktop encryption, Phil Zimmermann, brought his new telephony-oriented encryption program to the Black Hat security event in Las Vegas. The new encryption software – currently known only by its internal development moniker “Zfone” – is designed to stop Voice-over Internet Protocol (VoIP) traffic from being snooped on, especially across broadband links. It sits on top of the open-source Shtoom VoIP client software, with Zimmermann’s encryption integrated into the program.

Zimmermann said that the software uses a Diffie-Hellman-based public key design. This method is session-based, with keys generated for exchange between clients on a per-call basis. Both VoIP clients would need to run the program to set up such a secure link, which makes Zfone similar in principle to the famous PGP desktop encryption program Zimmerman wrote in the early 1990s. In contrast to emerging VoIP encryption protocols, Zimmermann’s scheme rejected a full Public Key Infrastructure (PKI) approach to security, fearing it would add layers of complexity to the software. The current prototype also includes a simple form of authentication, whereby callers exchange a short series of digits with one another. If the two sets of digits do not match, then the call has likely been intercepted by a third party.

The product is in its early stages, and Zimmermann is currently in discussion with potential investors for further development funds. To this point, he has created the program using his own money and some from VoIP expert Jeff Pulver. He did not give any timeline for the release of a beta version, but was considering making it available to developers who want it. There is some disagreement about whether VoIP applications currently need encryption security, with a recent Gartner presentation pointing out that few known tools allow for eavesdropping with this form of communication. However, history demonstrates that this will change as VoIP gains popularity.

Links here and here.


Without any real Senate debate, the Real ID Act of 2005 was passed by Congress in May and promptly signed into law by President Bush. It got no debate because it was tacked onto an emergency spending bill needed for U.S. troops in the Middle East – no congressperson was going to vote against it. Politically underhanded tactics aside, if you are not philosophically opposed to the concept of a national identity card, the law is not a disaster. However, it leaves a few too many unanswered questions that could turn it into one. At a minimum, regardless of how those questions are answered, you and I will have to pay more for a driver’s license – which will double as the national ID – and we will have to wait longer to get one.

Although some critics have decried the very existence of a national ID card in the U.S., pointing out that we have opted against creating one numerous times in our history, driver’s licenses and Social Security cards have functioned much as national ID cards do in other countries. The more significant changes occur behind the scenes, and they affect your privacy. The new driver’s license will differ from the old one in three major ways. First, the databases that house the data – your name, address, phone number, Social Security number, and the like – will no longer be isolated in the state where you live, but rather will all be linked together. Second, the license must incorporate “machine-readable” technology that will be uniform throughout the nation. Previously, states chose their own technology without reference to national standards. Third, the DMV must check your information with several sources (including a new check on your immigration/citizenship status) prior to issuing you a license.

The law offers very little guidance on the privacy and security measures that states must take to safeguard this new, nationwide database of information on driving-age adults. Alarmingly, the law makes no exceptions for people who have previously been allowed to keep their real address off their driver’s licenses, such as battered women or judges in sensitive positions.

Link here.



When federal agents armed with search warrants descended on the home of Puthankote Aboobacker, they discovered just how profitable the new wave of currency-trading schemes could be. The luxurious suburban house, full of new furniture, with a late-model Lamborghini and Bentley Arnage in the drive, represented only a fraction of the booty obtained by an entrepreneur who the Feds describe as one of Chicago’s most prolific foreign-exchange swindlers. The 42-year-old Aboobacker is accused of siphoning off $53 million since 1999 from a pair of trading firms set up in Arlington Heights with the help of a former Chicago Mercantile Exchange governor, Richard Kapsch.

The alleged victims hailed from the Middle East and Asia, lured by the promise of riches in the markets for euros, yen, dollars and pounds. Instead, their losses became Aboobacker’s gain through a complex money-laundering racket, federal authorities allege in court documents tied to a civil lawsuit. The operation is said to be among dozens across the country taking advantage of a controversial loophole in market regulations that has inspired a free-for-all of currency trading rip-offs. “You have unlicensed, unregulated, over-the-phone speculation with unbelievable amounts of money involved,” said Chicago commodity lawyer James McGurk.

Although Congress is slated to take up the matter this fall when it considers reauthorizing the CFTC, lawmakers have come under pressure to leave the loophole as is, industry observers say. The Chicago case involving Aboobacker is still developing, and no criminal charges have been filed. The allegations about shady business dealings at the Forex International and Chicago Forex trading firms came to light last month when federal prosecutors brought a civil forfeiture action – a year and a half after the initial raids on Aboobacker’s home and offices. The June 22 lawsuit resulted in the seizure of a half-dozen properties, two dozen bank accounts, a 2003 Lincoln Navigator and an Aero 50 motorcycle--all said to be the proceeds of massive fraud. The Bentley, Lamborghini and several other luxury vehicles that Aboobacker purchased in recent years may have been shipped out of the country, the lawsuit said.

Link here.


The U.S. Senate has voted unanimously to make permanent nearly all the main provisions of the law known as the USA Patriot Act, after Republican leaders agreed to include additional civil rights safeguards and to forestall any expansion of the government’s counterterrorism powers. The House already passed a bill of its own that would also extend the law’s surveillance and law enforcement powers, which the Bush administration considers critical to fighting terrorism. While the House and Senate bills are not identical, the differences are modest enough that congressional officials said they were confident that they could work out a compromise during negotiations between the two chambers.

The Patriot Act has become a target of criticism since it was passed in the weeks after the attacks on Sept. 11, 2001, with more than 300 communities voicing formal concerns about its effect on civil liberties. But many opponents of the law, as well as many supporters, said the Senate bill passed Friday was an acceptable compromise after months of heated debate over the scope of the government’s authority to track and eavesdrop on terror suspects. Senate Republican leaders had been eager to win approval of their measure before leaving Washington for a monthlong recess.

Link here.

Part of Patriot Act ruled unconstitutional.

A federal judge in Los Angeles has ruled that a provision of the USA Patriot Act is unconstitutionally vague, but upheld a larger part of the law. U.S. District Judge Audrey B. Collins found language in the 2001 law – making it illegal to give “expert advice” or “training” to foreign terrorist organizations – is impermissibly imprecise. The judge ruled in favor of the government by upholding a provision of the law making it illegal to give “material support” to terrorist organizations. Collins said her order – enjoining the U.S. Justice Department from enforcing unconstitutional features of the law – applies only to plaintiffs in the legal challenge her court is considering.

U.S. supporters of the Kurdistan Workers Party in Turkey and the Liberation Tigers of Tamil Eelam in Sri Lanka – which have been designated by the U.S. State Department as terrorist groups – are challenging the law. They say they want to provide humanitarian aid to the two movements, including Sri Lankan victims of last year’s tsunami, but they are afraid they will be prosecuted.

Link here.


The Department of Defense has developed a new strategy in counterterrorism that would increase military activities on American soil, particularly in the area of intelligence gathering. The move is sparking concern among civil liberties advocates and those who fear an encroaching military role in domestic law enforcement. Critics say the fears raised by the Pentagon are being used as a justification for the military to conduct wider, more intrusive surveillance on American citizens.

“Do we want, as a free people, with the notion of privacy enshrined in the Constitution and based on the very clear limits and defined role of government, to be in a society where not just the police, but the military are on the street corners gathering intelligence on citizens, sharing that data, manipulating that data?” asked former Rep. Bob Barr, R-Georgia, a constitutional law expert and civil libertarian. Barr said the new strategy is a back-door means of following through with a 2002 plan to create a massive, centralized information database using public and private records of individuals, called “Total Information Awareness”. Congress killed TIA in 2003 because of civil liberties and privacy concerns.

Link here.


The FBI has failed to review more than 8,000 hours of audio wiretap recordings related to counterterrorism investigations, a backlog that has more than doubled in size since last year, according to a new report issued yesterday. The audit by Justice Department Inspector General Glenn A. Fine also found that although the FBI has made progress in improving its translation program, the bureau is still struggling to analyze recordings quickly enough and to hire and retain qualified translators. “The success of the FBI’s foreign language translation efforts is critical to its national security mission,” the report said. It added that “key deficiencies remain, including a continuing amount of unreviewed material, instances where ‘high priority’ material has not been reviewed within 24 hours and continued challenges in meeting linguist hiring goals.”

The new findings were released on the same day that FBI Director Robert S. Mueller III faced sharp questioning from members of the Senate Judiciary Committee, who complained at an oversight hearing that the FBI is not changing quickly enough to focus on terrorist threats and has bungled attempts to implement a $170 million computer upgrade. “What happens if there’s plans for an impending attack and we don’t translate the audio until sometime after the attack?” asked Sen. Patrick J. Leahy (Vermont), the committee’s ranking Democrat. “… I worry we’re not moving fast enough to get those translated.”

Link here.


Swiss bankers reject strengthening internal surveillance and controls of financial institutions foreseen by the Federal Banking Commission. The Swiss Bankers Association, the umbrella organization of Switzerland’s banks, says it prefers “made-to-measure” solutions and not blanket state regulation. A Bankers Association statement was in response to a draft circular which the commission sent out for consultation in May. Spokesman Thomas Sutter said that, although the association, in principle, supported the goals of the circular and considered the contents to be partly correct, there was no need for additional regulation. “We feel that most of the areas [covered] are already regulated either by law or by our self-regulation. Therefore we don’t think it’s necessary to have a special circular on surveillance and control,” he commented.

Among the most controversial of the issues rejected by bankers is the commission’s idea to introduce a system whereby bank employees could announce irregularities directly to the board of directors rather than their immediate superiors. The association said it rejected this new “whistle blowing” clause because it would “radically change” the internal culture of banks as well as the atmosphere in the workplace. “We feel that in the context of a good working environment, you should be able to talk directly to your superior and tell them if there is a problem. We actually encourage banks to have this [kind of system] in place,” said Sutter. “The Federal Banking Commission explains that the whistle-blowing clause is also good for risk management but we feel there are other tools in place in banks that already promote good risk management.”

The association also criticized planned regulations on the composition and independence of boards of directors. It added that the draft circular did not differentiate enough in its scope and it would not survive a cost-benefit analysis if tested on individual cases.

Link here.


The Supreme Court’s Kelo v. City of New London 5-4 decision leaves compensation as the only remaining protection of private property. No property owner is any longer secure in his possession of his property if a private developer can convince an eminent domain authority that he can put the property to higher use as measured by projected tax revenues. Kelo’s impact is not generally recognized. Even private property’s most ardent defenders deny the impact of Kelo, which permits the use of eminent domain for private development projects. Libertarians are correct that the basic problem is eminent domain, but they are incorrect that the distinction between public and private use is “ridiculous”, and they are wrong in their supposition that state and local laws can offset the impact of the Kelo decision.

The Kelo decision has greatly diminished the protection of private property, and created fundamentally new inroads into private property. The decision threatens all private property, especially low-density residential neighborhoods that occupy desirable sites. All coastal and waterfront communities, for example, are endangered by the Kelo ruling. Money is a powerful force. The Kelo decision has made it more powerful.

Link here. Eminent domain is legal plunder – link.

Alabama limits eminent domain.

Alabama became the first state to enact new protections against local-government seizure of property allowed under a U.S. Supreme Court ruling that has triggered an explosive grass-roots counteroffensive across the country. Republican Gov. Bob Riley signed a bill that was passed unanimously by a special session of the Alabama Legislature, which would prohibit governments from using their eminent-domain authority to take privately owned properties for the purpose of turning them over to retail, industrial, office or residential developers. Calling the high court’s June 23 ruling “misguided” and a “threat to all property owners,” Mr. Riley said, “A property rights revolt is sweeping the nation, and Alabama is leading it.”

The backlash against the judicial ruling has not received much attention in the national press, although legislative leaders in more than two dozen states have proposed statutes and/or state constitutional amendments to restrict local governments’ eminent-domain powers. Besides Alabama, legislation to ban or restrict the use of eminent domain for private development has been introduced in 16 states, including Connecticut. Legislators have announced plans to introduce eminent-domain bills in seven more states. In addition, public support is being sought for state constitutional prohibitions in several states.

In an elaborate signing ceremony in the State Capitol’s historic Old House Chamber, Mr. Riley said, “Alabamians can rest assured that their homes, farms, business and other private property are safe from being seized by government for a shopping center, or a factory, an office building or new residential development.” The signing immediately won praise from leading property rights advocates who had condemned the ruling and have lobbied state legislatures to block such practices.

Link here.


Switzerland’s top court blocked the transfer of bank account details to a French judge who is conducting a money-laundering probe linked to the half-brother of Osama bin Laden, Yeslam bin Laden. French authorities failed to give sufficient reasons justifying the transfer of the bank details, the Lausanne, Switzerland-based federal court said in a July 15 ruling that was published on the court’s Web site. Judge Renaud van Ruymbeke at the Paris Court of Appeals in November requested the information for a money laundering probe linked to a 2002 investigation of a company directed by bin Laden. The case is being sent back to the Swiss federal prosecutor for a new decision.

Link here.


The New York Civil Liberties Union filed suit against the city to keep police from searching the bags of passengers entering the subway, organization lawyers said. The suit claimed that the two-week old policy violates constitutional guarantees of equal protection and prohibitions against unlawful searches and seizures, while doing almost nothing to shield the city from terrorism. It argues that the measure also allows the possibility for racial profiling, even though officers are ordered to randomly screen passengers.

“While concerns about terrorism of course justify – indeed, require – aggressive police tactics, those concerns cannot justify the Police Department’s unprecedented policy of subjecting millions of innocent people to suspicionless searches,” states the suit. Among five plaintiffs was Brendan MacWade, 32, of Brooklyn, who escaped the World Trade Center towers after they were struck by hijacked planes on Sept. 11, 2001. “I want to catch terrorists as much as any politicians or officials but this policy does not work,” he said.

Another plaintiff, Joseph Gehring Jr., who identified himself as a lifelong Republican, said he was disappointed to find subway riders accepting the police inspections so docilely. “Here we were giving up our rights to what was obviously a publicity stunt,” he said. “We are becoming accustomed to having our civil liberties taken away.”

Link here.



Corporate Social Responsibility is a buzzword with growing implications. These days, more or less everyone is in favor of it. The standard position is “yes, of course, but how?” But the real questions are, should the state decide what, how and where companies produce and invest? Should interest-groups decide the future direction of companies? In recent years, the CSR trend has become very strong. Political decisions and public opinion are building momentum behind the concept. Since companies are the route to prosperity, the debate is essential. And since companies are the core of capitalism – the expression of man’s creativity protected by private property and freedom – it is also a discussion about principles.

The pursuit of self-interest creates wealth. That is what changed after thousands of years of misery and poor conditions for people. Today, the average person in the U.S. or Europe lives better than the kings and queens of the Middle Ages. The wealth of the average Swede increased 10 times between 1870 and 1970. The entrepreneurs and innovators who created the small businesses that grew to large exporting firms wanted to produce great products and make a profit. ABB, Volvo, IKEA, Ericsson, SAAB – there are many examples. And the living standard increased. We now live decades longer, child mortality has dropped and literacy is total. Companies, focusing on their main aim, promoted the general interest. In recent years, we have seen this phenomenon played out even more dramatically in South East Asia. Hundreds of millions of people have been brought form poverty to reasonable living standards.

That does this have to do with CSR? To me, CSR is about making companies and their owners focus on other things besides their self-interest. They should not only concentrate on producing the best clothes, for example, but also on social matters. And they should not be allowed only to seek profit, if that is what they wish, since that is not “responsible”. Sometimes showing your customers that you are a “good company” can increase profits. But that is just a fraction of the CSR issue. To a large extent it is about the state trying to force companies to do things the politicians want. And to an even larger extent, it is about pressure groups trying to force companies to do what they want. Owners should not be dragged into believing that their company is no good if it does not fit someone else’s definition of social responsibility.

Link here.


In Iraq, like everywhere else, if things do not add up, it is safe to assume that politics is involved. Although the insurgency in recent months has worsened, Gen. George W. Casey, the commander of U.S. forces in Iraq, astonishingly claims that security in Iraq has improved and that substantial U.S. troop withdrawals are possible by as early as next spring. What gives? The congressional elections in 2006. Although Bush administration officials have implied that demands by Democrats for a U.S. troop withdrawal timetable are “unpatriotic” and “aid the enemy”, when electoral politics is involved, the administration is all too willing to predict troop reductions during a specified time period. They know that the Democrats will try to make political hay – probably starting around next spring – from the growing unpopularity here at home of the continued occupation of Iraq. By showing some incremental and token progress toward getting out of the quagmire, the administration hopes to contain the damage Democrats could do on this issue at election time.

This short-term politically-expedient strategy, however, will not help the administration toward its long-term goal of stabilizing Iraq and, in fact, will undermine both it and Republican electoral prospects in the 2008 election. Most independent military experts agree that to win decisively against the insurgency, the 140,000 U.S. forces now in Iraq are insufficient. As in Vietnam, U.S. troops routinely clear areas of guerrillas, only to have them return when those overextended forces leave to douse another fire somewhere else. If a quarter of U.S. forces were withdrawn – as Lt. Gen. John R. Vines, a senior military commander in Iraq, has dangled in front of journalists – the problem of “overstretch” would only get worse.

One reason that U.S. forces have not been able to defeat the rebels is the continuing and astounding ignorance of counterinsurgency warfare tactics by the U.S. Army – an organization that, even after the debacle in Vietnam, has concentrated on fighting conventional wars against nation-states. This ignorance was on display when Gen. Casey opined, “insurgencies need progress to survive, and this insurgency is not progressing.” In fact, as George Washington, the North Vietnamese, and the anti-Soviet Mujahedin fighters in Afghanistan demonstrated, insurgents need only to keep an army in the field and “not lose” until the big power gets exhausted and goes home.

The administration needs to give up on the fantasy of a permanent military presence in Iraq and completely and rapidly withdraw its forces from that country. Republican electoral fortunes will be better in the short-term and long-term if the administration realizes that the war cannot be won – either by U.S. forces or the Iraqi security services – and cuts its losses.

Link here.


Just about everyone lives under a State. States are what the world has come to. We and our forefathers have both chosen this order and had it imposed on us. Can this whole order be a bad mistake? Yes, it can, if it is based upon faulty theory. Believing in spontaneous generation, not the germ theory of disease, doctors did not know enough to wash their hands 140 years ago. We are like those doctors. States were far weaker only 50 years ago and weaker still 100 years ago. Are bigger and stronger and more intrusive States, like the germ theory of disease, a great boon for mankind, a wonderful discovery that prolongs and saves lives? The bloody 20th century, a ton of evidence to the contrary, and the best theory all strongly suggest the opposite: All States harm mankind and the bigger they are the more harm they cause.

If the State destroys, then why is it the dominant political form? Basically because it gains power over its subjects who, for a variety of reasons, either cannot or do not resist that power. The reactions of the State’s citizens to the State fall into a great many categories, ranging from love to hate, indifference to resistance. Three prominent categories are worth mentioning. There are those who do not like the State but do not resist it. They realize that the State possesses the monopoly of legal violence in the area over which it rules and they view it as an irresistible force. They do not think it is worth fighting City Hall. Their behavior looks like those who are indifferent.

Then there are people who would like to resist. Some even try but they fail to do much. They discover that the rulers are clever enough to prevent serious organized resistance from groups within the State. The rulers have a catalog of methods of control, including co-opting, subsidy, taxes, smear, propaganda, force, law, ballot access control, press dominance, etc. Then there are very many people who loyally support, even love, the State. There are many reasons why they cling to the State.

States are defined by their possession of a monopoly of legalized violence in a territorial area. But they usually also possess another signal feature: a peculiar pyramidal power structure. The State has a leadership consisting of a rather small group of men. Below each leader is the entire power of the people, and this amplifies the leader into a powerful concentrated force. This process brings power-loving men into positions of power. This turns a nation’s pinnacle into a power-wielding dynamo that can be turned internally or externally. The leaders represent all their subjects in their inter-State (called international) relations. The various rulers, many being power-loving men, often do not get along with one another and have ambitions to expand their rule. Hence, the system of States with their concentrated powers is geared to produce strife and often war of a more serious scope than mankind’s wars before the advent of States. Total war is an invention of the modern State.

If the masses have evil aspirations, and they do, the State focuses and embodies them. If the leaders have evil impulses, and they do, they are given greater scope. Hardly ever do leaders work as hard for peace as they do for conquest, because the State is power and attracts those who wish to use power. Peace talk comes mainly from those outside the State system. Even peaceable rulers are trapped by the system, often their own nasty subjects, and find it hard to promote peace. The results are deadly for the human race.

The State imposes, controls, robs, kills and invades, all of which is wrong. These actions are unhealthy for the souls of the citizens. They are also very costly. But I think we may not fully understand the long-term dynamic of some of these costs. Costly social programs, once begun, go on and on and on. War can last generations, even after it supposedly has officially ended. Often with public consent, often without it, States consciously and rationally choose to begin conflicts, but are the underlying calculations flawed? Shortsighted? Do peoples and rulers fail to count all the costs of conflicts? Do they fail to understand the longstanding unhappiness these choices bring? Do they underestimate how long conflicts last and how the human and property costs mount? I hypothesize that this is the case.

Four elements of psychology underlie my hypothesis. 1.) Human beings can be very determined. 2.) Human beings can pass memories of injustice on indefinitely. 3.) Human beings are prepared to die for what they believe in. 4.) The horizon of a leader is approximately his tenure of leadership which is far shorter than the collective and enduring memories of those who bear the ultimate costs of his decisions. To a leader and his cheerleaders, power looks a lot better in the short-run than in the long-run. But none of them will be around in the long-run. They will not even be around beyond a few terms in office. This is a strong argument for greatly limiting State power.

Link here.

The Ethos of Weeds

We may look and think that the absolute power of the monarchs has been discarded by modern thinking and the civilized nature of modern man. However, this is far from the truth. That which began as a check on this man-god power, parliamentary democracy, has been perverted into support for the state. Whether we like it or not the divine right of kings, with its accompanying religious fervor, has been turned around and now stands as the divine right of parliaments, with the demands of the parliaments being no less than that of the kings.

What is it about government that holds man’s loyalty and allows others to rule them? It is the antediluvian and seductive idea, perpetuated by a governmental priesthood, that the worst in society is capable of sheltering, protecting, and caring for all of the society. It is the pipedream that this time, this government, in this land with this people will establish and keep its promise to “establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessing of Liberty to ourselves and our Posterity.” This covenant of lies presides not just as the opiate of the deluded masses but as the creed of its fanatical religious adherents ever since the first social weeds, of the hoary past, sought to rule over the orchard.

Link here.


GOP leaders this week sent House Republicans home for the summer with some political tips, helpfully laid out in 12 “Ideas for August Recess Events”. Drop by a military reserve center to highlight increased benefits, the talking points suggest. Visit a bridge or highway that will receive additional funding, or talk up the new prescription drug benefit for seniors. Having skirted budget restraints and approved nearly $300 billion in new spending and tax breaks before leaving town, Republican lawmakers are now determined to claim full credit for the congressional spending. Far from shying away from their accomplishments, lawmakers are embracing the pork, including graffiti eradication in the Bronx, $277 million in road projects for Speaker J. Dennis Hastert (R-Illinois), and a $200,000 deer-avoidance system in New York.

When the year started, President Bush made spending restraint a mantra, laying out an austere budget that would freeze non-security discretionary spending for five years and setting firm cost limits on transportation and energy bills. But now, as Congress fills in the details of the budget plan, there is little interest in making deep cuts and enormous pressure to spend. Lawmakers have seen little to fear from a political backlash, some acknowledge, and Bush has yet to wield his veto pen. In fact, the White House has proved itself largely unable to overcome the institutional forces that have long driven lawmakers to ply their parochial interests with cash. When lawmakers return in the fall, they are almost certain to vote for more tax cuts. They also will vote on a huge new defense spending bill. But proposals for cutting entitlement programs including Medicaid have yet to pick up much support.

“If you look at fiscal conservatism these days, it is in a sorry state,” said Rep. Jeff Flake (R-Arizona), one of only eight House members to vote against the $286.5 billion transportation bill that was passed the day before the recess. “Republicans don’t even pretend anymore.” Last week, Congress approved transportation and energy bills that burst through the president’s cost limits. Annual spending bills are inching above caps set by Congress itself in its budget plan for 2006. And a massive water projects bill passed by the House last month authorizes spending that would exceed current levels by 173%. “You have to be courageous to not spend money,” said Sen. Tom Coburn (R-Oklahoma), “and we don’t have many people who have that courage.”

Indeed, Congress has exceeded the allocations or assumptions in its budget resolution four times – and the year’s legislative work is far from complete. According to the nonpartisan Committee for a Responsible Federal Budget, those budget violations have raised spending through 2010 by roughly $2.2 billion above Congress’s limits and tacked $115 billion onto the federal budget deficit through the end of decade, including $33 billion in 2006 alone. That $33 billion may be tantamount to a rounding error in a $2.6 trillion budget, but it is 10% of the $333 billion budget deficit the White House has forecast for the fiscal year that ends Sept. 30. “There’s a rising level of frustration with the disconnect between where the vast majority of conservatives are in this country and how Congress is behaving,” said former representative Pat Toomey (R-Pennsylvania), whose Club for Growth political action committee finances the campaigns of conservative candidates. “There’s going to be a wake-up call sooner or later.” For now, Congress and the White House are locked in a pattern of skirting their own constraints.

Link here. The Grand Old Spending Party: How Republicans became big spenders – link.


Here are five propositions that merit serious consideration. They come from an economist, an english professor, a political scientist, a journalist, and a sociologist, all of them logical realists, people taking a realistic view of our world (a world in which 170 million people were killed in the last century by governments, less than half in war).

Friedrich Hayek said history would look back at the 20th century as an age of superstition, a time when man thought he knew more than he did, that in doing away with what it considered superstitions the Enlightenment created new superstitions. His examples include the notions that one can have freedom without responsibility, that political solutions exist for most problems, and that a government can and will manage a society for the benefit of all.

Richard Weaver added two things to this discussion. He stated our troubles began when thinkers abandoned belief in universals (universal laws) and he added that the essence of a society (its soul) shows up in everything it does, its art, its architecture, the food it eats, and the way people relate to one another. In attempting to understand why supposedly civilized man fought two brutal world wars he concluded we were sentimental and barbaric and had an obscene news media.

Eric Voegelin defined science as a search for truth in all the realms of being, and said we have erred in calling unscientific any discipline that does not use the empiricism that works so well for the hard sciences. Properly defined, the scientific method should be whatever works for the subject being investigated, whatever provides clarification. The proper methodology for political science, which was his field, must consider the spiritual as well as the material. History shows all societies establishing their rules and laws through religion, and understanding themselves, knowing their essence by their consideration of both the spiritual and material worlds. All have failed in the past and always the first step was abandoning their religion or adopting a false one, which essentially left their people not knowing who they were.

In his book, The Theme Is Freedom, M. Stanton Evans argues that political freedom developed in the West because in Christendom, unlike other cultures, rulers were no longer the word of God, but had to obey God like everybody else. While still powerful, they remained responsible to God and the Law. Our idea of constitutional government, that is government restrained by a fixed set of rules, evolved from this.

Robert Nisbet said “the quest for community springs from some of the powerful needs of human nature – needs for a clear sense of cultural purpose, membership, status, and continuity.” These needs have been satisfied throughout history by communities like the family, church, neighborhood, and local fraternal, ethnic, and voluntary associations. For two centuries the state has attempted to displace and absorb these “intermediate associations”, and so far as it has been successful they have been destroyed and a cult of individualism developed. This individualism has “… come to mean only isolation, loneliness, disconnectedness, alienation and despair …” and people vulnerable because they believe an all-powerful state can provide the community they are seeking.

If there is any merit to these ideas, that we are superstitious, sentimental and barbaric, think it unnecessary to consider the spiritual world, have forgotten the origin of our freedoms, and are seeking community in an omnicompetent state, all the while being incredibly skilled at building machines, some of them destructive, our problems today, our wars and our family breakdown are easy to understand. They can be seen as the consequence of adopting secular belief based on materialistic assumptions, and giving up our “intermediate institutions.” The more this is done, the less consideration will be given to the spirit of the individual and the spirit of society, and since both are necessary for a society to survive, the more likely it will be to fail.

Link here.
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