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HOW LATINS VIEW THE U.S.
Many readers will be familiar with the dictum “poor Mexico, so far from God and so close to the United States,” uttered by Mexican dictator Porfirio Díaz at the turn of the 20th century. The latest in-depth survey of attitudes and values across the hemisphere conducted by Latinobarómetro, a prestigious research organization, indicates that Latin Americans are now a lot closer to God and farther from the U.S. than in Porfirio Díaz’s time.
There has been a gradual erosion of support for the Catholic Church in Latin America. Rather than a move away from religion, this signifies the consolidation of a phenomenon that has been quietly taking place for some years – the rise of evangelical churches. An overwhelming 85% of the population of Latin America declares itself religious. The novelty is that 15% of the population now declares itself Protestant rather than Catholic.
The second important finding has to do with attitudes toward the U.S. Around 40% of Latin Americans have a favorable opinion of the U. S., a much smaller figure than 10 years ago. In Argentina, Venezuela, Uruguay, and Bolivia, the figure is lower. Despite the fact that more Latin Americans than ever want to migrate to the U.S. (it is estimated that one million illegal immigrants came into the country last year) and that many families depend on cash remittances from migrants based in the U.S., a majority of Latin Americans continue to view their northern neighbor with suspicion. There is a subtle connection between these two findings that is worth noting.
The spectacular growth of Protestantism in countries like Brazil, Guatemala, Peru and, to a lesser extent, Mexico, is one of the ways in which ordinary Latin Americans have revolted against centralized power. The Catholic Church is perceived as being attached to the elites. Among many Latin Americans, there is the perception that the U.S. is too closely allied with political and business elite groups. These are the very groups that ordinary Latin American citizens have been revolting against for decades. Among some Latin Americans, the U.S. is perceived as another pillar – like the Catholic Church, traditional parties, or the military – of the prevailing system.
How does one rectify this? Apart from the obvious way – lending less support to measures seen to reinforce the prevailing system based on legal discrimination between those who are close to government and those who are not, I can think of only one way: a massive increase in exchanges that do not pass through official institutions of any kind. In other words, a greater communication between civil societies rather than between governments or entities perceived as being part of the status quo.Link here.
DIEBOLD VOTING MACHINES ARE SHOWN TO BE EASILY HACKED
A Finnish security expert has proved to the supervisor of elections in Leon County, Florida that it is an easy task to hack Diebold voting machines. Harri Hursti took part in a fake election in Leon County using what Diebold calls unhackable technology. At the beginning of the test election the memory card programmed by Harri Hursti was inserted into an Optical Scan Diebold voting machine. Hursti had pre-loaded the memory card with plus and minus votes. The eight ballots were run through the optical scan machine. Correct results should have been Yes-2 votes and No-6 votes. However, just as Hursti had planned, the results tape read Yes-7 and No-1. The Hursti Hack does require a moderate level of inside access, however it does not require a password and it is the same level of access given thousands of poll workers across the USA.Link here.
U.S. CONGRESSIONAL DELEGATION PROMOTES CAFTA IN COSTA RICA
A high-level delegation of U.S. Congressmen is visiting Costa Rica this week in an attempt to persuade the government of President Abel Pacheco to ratify the Central American Free Trade Agreement, and to warn that the country risks being marginalized as a regional trading partner if it remains outside of the agreement. Signed into law by George W. Bush in April, the CAFTA is designed to reduce trade barriers between the U.S. and the Central American signatories, which comprise Costa Rica, the Dominican Republic, Guatemala, El Salvador, Honduras and Nicaragua.
CAFTA would immediately eliminate duties on more than half the value of U.S. farm exports to the region, expand intellectual property (IP) protections and open telecommunications and other markets. Costa Rica’s government wants to move towards freer trade with the country’s partners, but legislators and the unions are not so sure. After some delay, President Abel Pacheco submitted the CAFTA to the Legislative Assembly in late October, in the face of threatened strikes. The legislative process is expected to take several months, but the outcome is seen as likely to be positive.
The business community had been demanding that Pacheco send the agreement to the assembly, saying that by waiting, Costa Rica could lose business opportunities, foreign investment and jobs. After the approval of CAFTA last month by Nicaragua, Costa Rica remains the only signatory country that has not ratified the agreement.Link here.
BOLIVIA VOTES IN ANTI-U.S. PRESIDENT
The results are not yet final, but unofficially Bolivians have just overwhelmingly voted in their first indigenous President, and one who has already branded U.S. President George W. Bush, a terrorist. Evo Morales joins a number of other recently elected leaders in the region who are opposed to key U.S.-backed economic and social policies, and have made a name for themselves expressing anti-U.S. sentiments. But while Bolivia’s new leader ran on a platform certain to antagonise the U.S., with promises to nationalize the country’s gas reserves and legalize the mass production of coca, the key ingredient in cocaine, one regional analyst says Mr. Morales may not act on those policies once he takes power.
Dr. Peter DeShazo is a former career diplomat who is now the Director of the America’s Program at the Center for Strategic and International Studies in Washington, said, “The vote for Evo Morales indicates that Bolivians want change. That’s what Morales promised, and that’s what he’s seen to represent. They want jobs, they want to live better, they want respect. The indigenous people that have been at the bottom of Bolivian society for centuries and they want change.
“… [P]eople talk about the shift … to the left, but I think there’s a sense of mixing things up. These are people who are democratic political figures who came up through the democratic system. They rule democratically. They pursue market oriented economic policies that attract foreign and domestic investment, and they have cordial relations with the United States. So the issue is more complex. If you say a trend to the left, I’m not exactly sure what that means. People who have, who are left of the center, that may be, but in terms of the relations with the United States, that doesn’t make that much of a difference.”Link here.
Morales to nationalize bolivia oil, gas.
The winner of Bolivia’s presidential elections has repeated his vow to nationalize oil and gas and said he will void at least some contracts held by foreign companies “looting” the poor Andean nation’s natural resources. Indian coca farmer Evo Morales said he will not confiscate refineries or infrastructure owned by multinational corporations. Instead, his government would renegotiate contracts so that the companies are partners, but not owners, in developing Bolivia’s resources, he said. “Many of these contracts signed by various governments are illegal and unconstitutional. It is not possible that our natural resources continue to be looted, exploited illegally, and as the lawyers say, these contracts are legally void and must be adjusted,” Morales said. Bolivia’s proven and potential reserves total 48.7 trillion cubic feet of natural gas, second only to Venezuela in South America, according to the U.S. Department of Energy.Link here.
BABY BOOMER FACTS YOU MAY NOT KNOW
In 2006, the oldest of the baby boomers, the generation born between 1946 and 1964, will turn 60 years old. Among the Americans celebrating their 60th will be our two most recent presidents, George W. Bush and Bill Clinton. Other well-known celebrities reaching this milestone include Cher, Donald Trump, Sylvester Stallone and Dolly Parton. To commemorate this occasion, the Census Bureau has compiled a collection of facts relating to this generation.Link here.
HONG KONG SEES 19% SURGE IN INWARD DIRECT INVESTMENT
The market value of Hong Kong’s stock of inward direct investment surged 19% on 2003 to $3.52 trillion last year, with the ratio to GDP at 273%, the territory’s government announced. The stock of outward direct investment also rose 18.8% to HK$3.13 trillion at market value. Direct investment inflow for the year surged to HK$265.1 billion while outflow rose sharply to $356.1 billion, resulting in a net outflow of HK$91 billion. Hong Kong’s inflow and outflow of direct investment rose markedly last year as compared with 2003, reflecting the improvement in investment environment in Hong Kong as well as in other markets.
The Mainland continued to feature distinctly in Hong Kong’s external direct investment, both as a source and as a destination. This reflects the city’s unique position as a gateway to the vast Mainland markets as well as a platform for Mainland enterprises to access global markets. This important strategic role has become more entrenched along with the expansion of the Closer Economic Partnership Arrangement and strengthening of economic co-operation within the Pan-Pearl River Delta region.
According to Hong Kong’s external direct investment statistics for 2004, released by the Census & Statistics Department, the British Virgin Islands accounted for 29.2% of the total stock of inward direct investment, while Bermuda took up another 7.7%. The Mainland was the most important source of inward direct investment here, accounting for 29% of the total stock, reflecting the importance of investment from the Mainland in Hong Kong.
The Mainland’s investment in Hong Kong covered a range of economic activities, including investment holding, real estate, and various business services; wholesale, retail and import-export trades; and transport and related services. Other major investor countries and territories included the Netherlands and the U.S., accounting for 8.7% and 6.9% of the total. The most common economic activities undertaken by Hong Kong’s direct investment enterprises in the Mainland were communications, manufacturing, and investment holding, real estate and various business services.Link here.
FOUNDER OF DEFUNCT CANADIAN HEDGE FUND FACES JAIL IN ISRAEL
The net is tightening around Boaz Manor, founder of defunct Canadian hedge fund Portus Asset Management, who fled to Israel last February and is being pursued by liquidators KPMG, who have now asked an Israeli judge to imprison Manor if he will not co-operate with them. A Tel Aviv judge last week gave Manor three days to deliver more than 100 diamonds worth $11.6 million, allegedly bought with Portus funds, to KPMG, or face arrest. At another hearing last week, the judge rejected Manor’s appeal against a magistrate’s court ruling that ordered him to answer questions presented by KPMG. Manor’s lawyer had claimed that he has severe psychiatric problems, and therefore cannot meet KPMG.
KPMG also says that it had obtained a lien on up to $20.7 million over Manor’s property in Israel, representing $3.1 million that Manor allegedly transferred to his lawyer and $17.6 million missing from Portus’s funds. KPMG told an Ontario court in November that it will again ask a Hong Kong judge to order Manor’s sister-in-law to answer questions about the missing diamonds. Yu Jieying picked up $8.8 million worth of diamonds, including a 22-carat gem, which Manor arranged to be purchased, said KPMG lawyer John Finnigan.
Portus was put into receivership in March and in June KPMG won an Ontario court order compelling Boaz Manor to account for all the money originating from the now-insolvent hedge fund. KPMG said in court reports that managers of Portus skimmed up to 13% of assets. KPMG wants to have Portus declared bankrupt in order to speed up distributions to the 26,000 cheated investors. The report says that to date, about CN$662.15 million and about US$37.2 million have been found and secured in 130 Portus bank and investment accounts in Canada, the Turks and Caicos and the Cayman Islands, out of more than $800 million that was collected. The majority of Portus assets remain tied up in notes issued by France’s Société Générale which were purchased for $529 million, and mature between 2008 and 2011.Link here.
LOOKING AT U.S. JOB GROWTH IN NEW LIGHT
This feels like shooting a sacred cow. After hearing for decades that small business was the nation’s growth engine for job creation, I was caught off guard by an American Enterprise Institute report that essentially throws that idea into the pot of urban legends. That is what Veronique de Rugy suggests in a paper released this month by the public policy research organization, which defines itself as an advocate for private enterprise and limited government. It seems that the ultimate goal of her essay is to attack the $600 million annual budget of the U.S. Small Business Administration and its grants and credit programs for small businesses. But in order to do that, the author has to make the case that small business is not worth it. In short, small businesses do not deserve the spending programs, tax incentives, set-asides, and regulatory exemptions that government gives them, de Rugy contends.
Interesting stuff, given that survey after survey indicates that small businesses have added and will continue to add more jobs than big businesses. De Rugy says those deal with “statistical fallacies”. The paper’s high points (or low points, depending on your point of view): 1.) The percentage of people working in small business has stayed constant over the last decade. 2.) Real job growth comes only from a small percentage of small companies that grow big. 3.) All small businesses are not important economic generators in our “new” economy, and the generic “small business” category is useless.
Both political parties have it wrong, she says, citing small-business paeans from both Democrats and Republicans. “In the absence of government intervention, resources are quickly shifted from inefficient uses to more productive uses. Special programs designed to help small businesses are likely to hinder this process and will distract entrepreneurs and investors from focusing on servicing the needs of consumers.” The paper says those who tout job creation statistics would do better to look at “gross job flows” than “net job creation”. De Rugy does that, concluding that small businesses may create jobs but they also destroy them at higher rates than big businesses.Link here.
SAUDIS TO BUILD $26.7 BILLIONRESORT, PORT, FINANCIAL CENTER ON RED SEA
The 55 sq. km site, north of the tourist and commerce center of Jeddah on the Red Sea, is due to be completed in two to three years, officials said. King Abdullah City, which is expected to boost tourism and trade in the kingdom, is the latest multi-billion-dollar development in the booming Gulf Arab region. 30% of the consortium’s capital will be floated. However, no date was set for what could be one of the Middle East’s largest public share offers. Situated near the town of Rabigh, it is an hour’s drive from Muslim shrines in Mecca and Medina, visited annually by millions of pilgrims. Officials said that some 500,000 pilgrims could use the facilities, including 3,500 hotel rooms, marina and golf course.
Publicity material suggested that the resort will also try to attract the kind of tourism not normally associated with Saudi Arabia, where the authorities enforce a strict form of Islam involving gender segregation in public and banning alcohol. A video unveiled at a press conference, offering an image of male tourists in shorts, proclaimed “the dawn of a kingdom in a new colour”.Link here.
NO BREAKTHROUGH IN SWISS-EU TAX DISPUTE
Talks between Switzerland and the EC have failed to settle a dispute over the low corporate tax in some Swiss cantons. The EU argues that special tax rates accorded to holding companies in parts of Switzerland distort competition and violate a free-trade agreement. Bern rejects the allegation. Following the talks last week, the Commission said dialogue would continue in a bid to resolve differences between the two sides. The head of the Swiss Mission in Brussels, Bernhard Marfurt, said Switzerland had reaffirmed its position that the 1972 agreement only dealt with trade. He said the Commission had failed to show how certain cantonal tax practices influenced commercial dealings.
Switzerland intends to provide its responses to the Commission at the beginning of next year. If no agreement is then reached within three months and the Commission believes it can prove that Switzerland violated the free-trade agreement, the EU will be entitled to take retaliatory measures. Marfurt said these could include reversing customs concessions, but added “we are a long way from that point at present.”Link here.
IRISH COURTS ACCUSED OF FAVORING WEALTHY IN TAX EVASION CASES
An Irish parliamentary committee has criticized the courts for giving lenient sentences in cases of tax evasion by wealthy individuals and businesses. The Dail Public Accounts Committee expressed concern last week over the “very small” number of prosecutions for serious tax evasion during 2003, when only six sentences were handed down. The members accused the courts of practicing “establishment prejudice” by treating wealthy business people favorably while relatively small fraud cases appeared to be punished with disproportionately stiff sentences.
To illustrate its concerns, the Committee drew attention to a case where a defendant and his company were fined the relatively small sum of €1,750 for evading some €1.6 million in tax. By contrast, a person who wrote fraudulent cheques totalling €5,300 was given a custodial sentence of 18 months. “There have only been about half a dozen prison sentences handed out for serious tax evasion in the past 10 years and that is very low,” observed Committee member and Green TD Dan Boyle. “We have to move away from fines and towards prison sentences if we are to bring home to people the seriousness of this crime. People who tend to be involved in major tax frauds, by their very nature, are often well off and can easily afford fines.”Link here.
Ireland propped up by U.S. multinationals, thanks to low corporate tax rates.
Cheap corporation taxes in Ireland means that five out of the country’s top 10 most profitable firms are American multinationals. With a basic corporation tax rate of 12.5%, it has also transpired that the most profitable firm is a subsidiary of Microsoft called Round Island One. This firm handles EMEA licensing for Microsoft. But others in there include Intel, Oracle and Dell.
The flow of U.S. dollars into the Irish economy has attracted criticism from other EU countries but is spearheaded by the Irish Development Agency (IDA). The EU is muttering about uniform tax rates across the economic bloc but that could cause firms like Dell and Intel to spread their wings and fly away. Earlier this year new cash for an Intel fab extension at Leixlip was being held up by Eurocrats. EU regulations mean inward investment from foreign firms are now subject to close scrutiny. µLink here.
Microsoft subsidiary Is Ireland’s most profitable firm.
Round Island One, which controls the licensing rights to Microsoft software programs sold in Europe, the Middle East and Africa, reported €3.23 billion ($3.88 billion) in pre-tax profit for the 2004 fiscal year, a study revealed. With one of the world’s lowest rates of corporate tax, Ireland offers significant tax advantages to American companies looking for a European base or seeking to reduce tax bills by booking sales through an Irish subsidiary, and Round Island One was one of five U.S. firms in the top 10 most profitable list.
Google, which recently announced a major expansion of its Dublin office, “significantly lowered” its tax bill for the first nine months of 2005 thanks in part to its Irish operation, with the firm’s effective tax bill having fallen to 31% from 39%. The revelations that U.S. firms have been lowering their tax bills through their Irish operations has led some sections of the American media to label Ireland as a “tax haven”. However, the Irish government has so far stood firm in its commitment to retain a low rate of corporate tax. Nonetheless, Dell chief executive, Kevin Rollins recently warned that the computer giant would consider relocating if corporate taxes in the Republic increase.Link here.
IRS RELEASES GUIDANCE FOR SCHEDULE M-3, USED BY LARGER S CORPORATIONS
The IRS has released draft Schedules M-3 and instructions for corporations that file Forms 1120PC, 1120L and 1120S. When finalized, these Schedules M-3 will be used by property and casualty insurance corporations, life insurance corporations, and S corporations that have total assets of $10 million or more, starting with tax years ending on or after December 31, 2006. Schedule M-3 increases transparency of compliance risk in income tax return filings by requiring affected companies to provide a more detailed reconciliation between financial accounting net income and taxable income than in the past.
“The increased disclosure provided by Schedule M-3 enables IRS to more readily distinguish returns with potentially higher compliance risk from those with lower compliance risk,” noted Deborah M. Nolan, IRS Large and Mid-Size Business Division Commissioner. “The ability to select or de-select returns for examination more quickly and with more visibility to potential compliance risk will lead to reduced examination cycle time and increased currency. Ultimately that translates to reduced taxpayer burden and improved tax compliance.”
In coming months the IRS and Treasury plan to meet with affected stakeholder groups to discuss the new Schedules M-3 and instructions. It is expected that the schedules will be finalized this coming summer.Link here.
PRESIDENT OF THE EUROPEAN COMMISSION HINTS AT SUPPORT FOR EU TAX
Jose Manuel Barroso, President of the EC, has stated that the tortuous discussions which led to an agreement between EU leaders on the bloc’s budget for the next seven years illustrates the need for a comprehensive overhaul of the EU’s funding mechanism, and he hinted at the possibility of an EU tax to fund the budget. At present, the EU budget is funded through a combination of import duties, value added tax revenues and direct contributions from member states. However, speaking two days after the EU budget was agreed, Barroso said that the time has come for a complete review of the budget.
One of the options is likely to be a proposal for an EU tax, an idea supported by the EU’s Christian Democrat leaders including Wolfgang Schussel, Austrian chancellor, Edmund Stoiber, Bavaria’s chancellor, and Nicolas Sarkozy, leader of France’s centre-right UMP. However, such a proposal is likely to be fiercely opposed by a number of member states, including the UK, Ireland, the Czech Republic, Estonia, and Slovakia, which would all have the power to veto the measure.Link here.
GERMANY CLOSES MORE TAX LOOPHOLES
The German cabinet has backed plans to close off a number of tax loopholes which the Finance Ministry has calculated will bring in an additional €815 million (US$975 million) in revenues annually by 2010. According to a Finance Ministry statement, the measures seek to thwart tax evasion in six areas including the personal use of company cars and the trading of gasoline receipts on the internet. The measures are scheduled to go into effect next year and will increase estimated revenues by €260 million in the first year for the federal government, the 16 state governments and municipalities. The grand coalition led by Chancellor Angel Merkel has pledged to close a number of tax loopholes as the new government seeks to narrow the country’s €35 billion budget deficit in order to bring its finances back into line with the EU’s Stability and Growth Pact.Link here.
U.S. GOVERNMENT REPORT CLAIMS THAT $1 TRILLION WENT UNTAXED IN 2003
A new report claims that U.S. taxpayers did not pay tax on more than $1 trillion of income in 2003. The Commerce Department report served to highlight the differences between the Bureau of Economic Analysis’s “personal income” figure and the IRS’s adjusted gross income amount, known as the AGI gap, in 2003, the most recent data available. The difference is that the AGI figure consists only of taxable income, while the personal income measure takes into account tax-exempt income and adjustments attributable to “misreporting”, which includes both underreported and unreported income, as well as partially taxed income such as Social Security benefit payments.
According to the report, almost $425 billion of the $1 trillion gap was as a result of misreporting. The remainder of the gap was said to have no “easily identifiable” explanation. The tax gap has grown steadily since 1999 when the figure was reported at $700 million.Link here.
ALTERNATIVE MAXIMUM FOOT DRAGGING
You have got to hand it to Congress; the Alternative Minimum Tax is a cleverly named piece of legislation. However, a more accurate name would have been “The Other Higher Tax” or “The Not So Fast You Owe Even More Tax.” That is because the AMT is a second take on an individual’s income tax calculation. And if the taxes come out higher under this alternate scenario, then that is the way the deduction crumbles. Also clever – just like higher property taxes, increases in the AMT are conveniently absent from the CPI. For years, only rich people like lawyers and professional athletes had to worry about these alternate tax calculations. The tax was mainly designed to keep rich people with a smorgasbord of deductions from getting off without paying anything. But because the AMT was never indexed for inflation (surely an oversight), the tax is trickling down into the upper middle and middle classes.
Taxpayers have been shielded from the full whammy of the AMT thanks to cobbled together exemptions over the years. Even so, an estimated 3-4 million households will have to pay the AMT version of income taxes this year. Worse, the latest exemption expires this year, and if Congress does not address the AMT between bridge building sessions, about 18 million Americans will step into the AMT’s snare in 2006. Already, according to the Tax Policy Center, those who draw the short straw of the AMT this year will fork over an additional $4,500 to the IRS. According to Time magazine, by 2007, 64% of all households making between $100,000 and $200,000 will be sucker punched by the AMT. That is, if Congress does nothing – for a change.
The problem with doing nothing is that the longer nothing gets done, the harder it will be for Congress to do something. That is because the AMT is starting to gin up real money. According to Investor’s Business Daily, the AMT will generate more revenue than the real income tax by 2008. In other words, in just a few years, the government will lose less revenue by ditching the entire tax system and keeping the AMT rather than the other way around. So will Congress do something instead of nothing? Maybe failing to index the AMT was not an oversight after all.Link here.
UK EXPATS SHOULD ESTABLISH THEIR RESIDENCES AND OFFSHORE ACCOUNTS CAREFULLY
In June Ian Shepherd lost his appeal to the Special Commissioners, an independent appeals body, after a tax inspector had ruled he was resident in the UK. Mr. Shepherd had been relying on the advice given in the HM Revenue & Customs (HMRC) guide IR20 which appeared to show that he was non-resident. But the guidance was shown to be unreliable in this case. IR20 states that, over the period you are claiming to be non-resident, you should not spend more than 90 days a year on average in the UK. Mr. Shepherd appeared to pass this test but the Commissioner who heard his case ruled it was not sufficient. The decision relied not on the counting of days but on his ongoing connection with the UK. The Inland Revenue’s contention was that Mr. Shepherd may have lived abroad but never really left the UK because he still had a home here and he still visited.
The decision could have far-reaching consequences. Steve Travis, manager of the international division at Worthing-based financial and tax advisers The Fry Group, said, “The Revenue has got its teeth into pilots and other cross-border workers and it could affect high net worth individuals as well. HMRC has been identifying groups of people who can live anywhere. … Mr. Shepherd seemed to be okay, but the Revenue said you can’t rely on IR20 as a guide to residence. It seems amazing to me, quite staggering, that it has distanced itself from its own guidance.”
The second important change to taxation is the European Savings Tax Directive which came into force on July 1 this year. This is an agreement between EU states to automatically exchange information about people who earn savings income in one member state but reside in another. Jason Walker, senior manager at financial advisers, Chase DeVere, in Bath, said, “This is a key change for some clients, especially with the Revenue checking offshore accounts. … It will affect anyone who has cash offshore [in a withholding country, which includes the Isle of Man]. They would be looking to move it. But if they want it to stay in cash, they can put it in a cash bond. This means that you don’t pay a withholding tax. That’s a way round it.”
Jonathan Spring-Rice, associate sales director of independent financial adviser Towry Law, said that there has been much more general co-operation recently between HMRC in the UK and other countries’ tax offices. Mr. Travis concurred, and added, “There is a lot more co-operation, right across different types of clients, both retired and working. We have seen investigation cases where the Revenue has presented clients with a copy of their French or Spanish tax declarations. It gets copies just to make sure that they are singing the same tune across different borders. We have even seen claims under double taxation treaties on pensions, checking to see if tax is being paid in the other country. This kind of information exchange is only going to increase.”Link here.
HEDGE FUND WIZARD WAS JUST RUNNING A PONZI SCHEME
A hedge fund whiz kid who bragged publicly that his fund’s sky-high returns let him fly around in private jets and buy a new Lamborghini was in fact running a classic Ponzi scheme, the SEC charged. Regulators froze the personal assets of Bret Grebow, a trader at HMC International LLC, a Montvale, New Jersey-based hedge fund. Grebow and the fund’s portfolio manager, Robert Massimi, were accused of “ongoing fraud” that began in 2001 and ran for more than four years, according to the rare emergency action filing.
In February 2004, Grebow featured prominently in a Wall Street Journal article describing the return of “high living” on Wall Street. He was quoted liberally discussing his fondness for driving in his $160,000 Lamborghini and flying in jets. “It’s fantastic. They’ve got my favorite cereal, Cookie Crisp, waiting for me, and Jack Daniel’s on ice,” Grebow told the Journal. He later discussed how he and his girlfriend took $10,000 three-hour flights to New York, and how he paid $12,000 to fly himself and some friends to the Super Bowl on a Learjet 55.
But according to the SEC, Grebow’s deep pockets were lined not with profits from savvy trading, but with his fundholders’ investments. The SEC alleges that the pair stole $5.2 million of the fund’s nearly $13 million in assets. Grebow pinched $2 million himself, and Massimi transferred another $1.5 million to an account in his wife’s name. Their strategy, sucking in more than 80 investors, was sold as a supposedly low-risk version of day trading. In fact, it was a classic pyramid scheme. Deposits from new investors were used to pay fake returns to existing investors. The scheme relied on that classic hedge fund scam: the fake performance return.Link here.
OFFSHORE TRUSTS: VERY MUCH ALIVE AND WELL
For most of the last decade the IRS’s target shooters have slapped a big red bull’s eye on one of the most venerable of all estate planning and asset protection devices – the trust, especially the best ones – trusts located in offshore jurisdictions. The eager IRS seems to presume guilt if one dares to go offshore for any financial activity, but especially if it involves what might be a “sham” trust. Topping the IRS target list are “people selling fraudulent trusts that they claim will eliminate or reduce income or estate taxes.” The IRS warns both sellers and buyers of “fraudulent trusts” that they face fines and jail, and if intent is proven, “criminal prosecution for tax evasion.”
IRS saber rattling against trusts goes back to 1997 when that agency issued a warning to U.S. persons to shun what they described as “abusive trust arrangements … that are not permitted under federal tax laws.” The warning came shortly after Congress clamped down on foreign trusts created by U.S. grantors. (A grantor, also called a settlor, is the person or entity that creates and funds a trust.) That law required, for the first time, extensive reporting of offshore trust “events” including creation, annual income and distributions to trust beneficiaries, as well as appointment of a U.S.-based “limited agent” to respond to IRS inquiries. Beneficiaries for the first time had to report income received from an offshore trust. [See WIL’s “Offshore Trust Structuring and Its Impact on the United States Taxpayor” summary of the matter.]
The lure of supposedly tax-free income is a powerful one. But U.S. taxpayers cannot say they were not warned about these restrictions. Even before the IRS issued its threats, the American Bar Association and several state attorneys general issued similar warnings. The IRS only was restating established rules that good U.S. tax planners already follow. As far back as 1976, Congress tried to restrict the ability of U.S. persons to form an offshore trust and obtain related tax benefits during their lifetime.
I, as an attorney, emphatically disagree that trusts are on the way out as an estate planning tool. There still is great utility in offshore trusts as asset protection devices and they certainly are worth the efforts required to create and maintain them. Trusts have been around since ancient Egypt and Rome. They have survived because of their unique and useful qualities and will endure, notwithstanding all the world’s eager tax collectors. But the IRS anti-trust campaign has sown dissension among some professional offshore planners in America and elsewhere. In this sense, the IRS won ground because many planners now advise clients that establishing an offshore trust could trigger automatic IRS audits. That is not really true, but for timid souls it is scary. These IRS initiatives are part of a wider global attack on legal tax avoidance.
Beware of false claims of offshore trust tax savings. In truth, offshore trusts offer few tax savings during a U.S. grantor’s lifetime, but they do provide effective asset protection against civil creditors. In pursuing a properly configured offshore trust, a creditor has to bring his claim in a foreign court that is much less receptive to various “deep pocket” theories popular among U.S. contingency fee lawyers. An offshore trust can also qualify as a “non-U.S. investor” avoiding regulations by the SEC that prohibit U.S. persons from purchasing many types of profitable offshore investments. Under U.S. tax rules, during a grantor’s lifetime, he or she must pay tax on annual income generated by trust assets and investments.
For Americans, a domestic or offshore trust is “income tax neutral” – all trust income is treated as the U.S. grantor’s personal income and taxed accordingly. That the trust is “offshore” does not negate the U.S. grantor’s personal obligation to report trust income. Even with these restrictions, a citizen of a foreign nation is free to create an offshore trust with U.S. citizens or residents as beneficiaries. Income received by U.S. beneficiaries from such trusts is tax-free. Thus, American citizens or residents can receive tax-free income from trusts established by wealthy relatives who themselves are neither U.S. citizens nor U.S. resident aliens. But the foreign grantor must not be acting as an agent or nominee for those U.S. beneficiaries. As you might imagine, the IRS is highly suspicious of offshore trusts set up by foreign citizens who U.S. beneficiaries claim are such “loving relatives” – especially if your “loved one” turns out to be your offshore attorney.Link here (subscribers only).
CANADIANS’ PERSONAL DATA VULNERABLE TO REACH OF U.S. PATRIOT ACT
NDP House Leader and Justice Critic Kevin Deveaux is calling on the Minister of Justice, Michael Baker, to release his Department’s plans for protecting Nova Scotians who have personal information stored in American data bases – accessible to the FBI under section 215 of the USA Patriot Act. Last Thursday negotiators for the U.S. Senate and the House of Representatives agreed to extend the major powers of the Patriot Act which were due to expire at the end of the month, for another four years. Under the Patriot Act U.S. security agencies can access individual personal information contained in records held by any American-based company.
The Government of Canada has proposed allowing federal departments to cancel contracts with U.S. based companies that may, under the Patriot Act, have access to information on individual Canadians. Currently, some programs like the federal student loan program are administered by American-based companies. Deveaux raised the issue during the this Fall’s sitting of the Legislature, and last spring introduced Bill 163, the Freedom of Information and Protection of Privacy Act (amended) which included a clause to require all records containing personal information of individual Nova Scotians that are managed or controlled by a public body to be housed in Canada.(3(c)).Link here.
BUSH LETS NATIONAL SECURITY AGENCY SPY ON AMERICAN CITIZENS UNLAWFULLY
Months after the Sept. 11 attacks, President Bush secretly authorized the N.S.A. to eavesdrop on Americans and others inside the U.S. to search for evidence of terrorist activity without the court-approved warrants ordinarily required for domestic spying, according to government officials. Under a presidential order signed in 2002, the intelligence agency has monitored the international telephone calls and international email messages of hundreds, perhaps thousands, of people inside the U.S. without warrants over the past three years in an effort to track possible “dirty numbers” linked to Al Qaeda, the officials said. The agency, they said, still seeks warrants to monitor entirely domestic communications.
The previously undisclosed decision to permit some eavesdropping inside the country without court approval was a major shift in American intelligence-gathering practices, particularly for the N.S.A., whose mission is to spy on communications abroad. As a result, some officials familiar with the continuing operation have questioned whether the surveillance has stretched, if not crossed, constitutional limits on legal searches. “This is really a sea change,” said a former senior official who specializes in national security law. “It’s almost a mainstay of this country that the N.S.A. only does foreign searches.” Nearly a dozen current and former officials, who were granted anonymity because of the classified nature of the program, discussed it with reporters for The New York Times because of their concerns about the operation’s legality and oversight.
The Bush administration views the operation as necessary so that the agency can move quickly to monitor communications that may disclose threats to the U.S., the officials said. Defenders of the program say it has been a critical tool in helping disrupt terrorist plots and prevent attacks inside the U.S. Administration officials are confident that existing safeguards are sufficient to protect the privacy and civil liberties of Americans, the officials say. In some cases, they said, the Justice Department eventually seeks warrants if it wants to expand the eavesdropping to include communications confined within the U.S. The officials said the administration had briefed Congressional leaders about the program and notified the judge in charge of the Foreign Intelligence Surveillance Court, the secret Washington court that deals with national security issues.
The White House asked the Times not to publish this article, arguing that it could jeopardize continuing investigations and alert would-be terrorists that they might be under scrutiny. After meeting with senior administration officials to hear their concerns, the newspaper delayed publication for a year to conduct additional reporting. Some information that administration officials argued could be useful to terrorists has been omitted. While many details about the program remain secret, officials familiar with it say the N.S.A. eavesdrops without warrants on up to 500 people in the U.S. at any given time. Several officials said most people targeted for N.S.A. monitoring have never been charged with a crime.Link here.
Finally we have a Washington scandal that goes beyond sex, corruption and political intrigue to big issues like security versus liberty and the reasonable bounds of presidential power. President Bush came out swinging on Snoopgate – he made it seem as if those who did not agree with him wanted to leave us vulnerable to Al Qaeda – but it will not work. We are seeing clearly now that Bush thought 9-11 gave him license to act like a dictator, or in his own mind, no doubt, like Abraham Lincoln during the Civil War.
No wonder Bush was so desperate that The New York Times not publish its story on the National Security Agency eavesdropping on American citizens without a warrant, in what lawyers outside the administration say is a clear violation of the 1978 Foreign Intelligence Surveillance Act. I learned this week that on December 6, Bush summoned Times publisher Arthur Sulzberger and executive editor Bill Keller to the Oval Office in a futile attempt to talk them out of running the story. The Times will not comment on the meeting, but one can only imagine the president’s desperation.
The problem was not that the disclosures would compromise national security, as Bush claimed at his press conference. His comparison to the damaging pre-9/11 revelation of Osama bin Laden’s use of a satellite phone, which caused bin Laden to change tactics, is fallacious. Any Americans with ties to Muslim extremists – in fact, all American Muslims, period – have long since suspected that the U.S. government might be listening in to their conversations. Bush claimed that “the fact that we are discussing this program is helping the enemy.” But there is simply no evidence, or even reasonable presumption, that this is so. And rather than the leaking being a “shameful act”, it was the work of a patriot inside the government who was trying to stop a presidential power grab.
No, Bush was desperate to keep the Times from running this important story – which the paper had already inexplicably held for a year – because he knew that it would reveal him as a law-breaker. He insists he had “legal authority derived from the Constitution and congressional resolution authorizing force.” But the Constitution explicitly requires the president to obey the law. And the post 9-11 congressional resolution authorizing “all necessary force” in fighting terrorism was made in clear reference to military intervention. It did not scrap the Constitution and allow the president to do whatever he pleased in any area in the name of fighting terrorism.Link here.
F.B.I. WATCHED ACTIVIST GROUPS, NEW FILES SHOW
Counterterrorism agents at the F.B.I. have conducted numerous surveillance and intelligence-gathering operations that involved, at least indirectly, groups active in causes as diverse as the environment, animal cruelty and poverty relief, newly disclosed agency records show. F.B.I. officials said that their investigators had no interest in monitoring political or social activities and that any investigations that touched on advocacy groups were driven by evidence of criminal or violent activity at public protests and in other settings.
The documents, coming after the Bush administration’s confirmation that President Bush had authorized some spying without warrants in fighting terrorism, prompted charges from civil rights advocates that the government had improperly blurred the line between terrorism and acts of civil disobedience and lawful protest. One F.B.I. document indicates that agents in Indianapolis planned to conduct surveillance as part of a “Vegan Community Project”. Another document talks of the Catholic Workers group’s “semi-communistic ideology”. A third indicates the bureau’s interest in determining the location of a protest over llama fur planned by People for the Ethical Treatment of Animals.
The documents, provided to The New York Times over the past week, came as part of a series of Freedom of Information Act lawsuits brought by the American Civil Liberties Union. For more than a year, the A.C.L.U. has been seeking access to information in F.B.I. files on about 150 protest and social groups that it says may have been improperly monitored.Link here.
YOUR FEDERAL FILE
We know where you live. We know where all your friends live. We know what you do and we know what all of your friends do. We know where you shop and what restaurants you frequent. We know where all of your friends shop and what restaurants they frequent. We know about all of your children and your friends’ children. We know about your families and all of your friends’ families. We know where you bank. We know what you read and what all of your friends and families read. Where all of them bank as well. We know what time you get out of bed and what time you go to bed. Same applies to family and friends. We know what clothes you where and where you got them. Same applies to family and friends.
We know how many weapons you have and where you keep them and we know that you could not hit the broad side of a barn with those aforementioned weapons, if the barn were directly in front of you. You see, you have all been acquired into our uniform database. It was a pressing necessity. This is the “war on terror” after all. Good lord, what did you think that we do with all of the money that Congress throws in our direction. We use it and we use it to our advantage. Rest assured that we know what we are doing. You will just have to trust us. You will just have to trust President George W. Bush. You have no other choice. Resistance is futile.
So please, keep those chins up and mind your p’s and q’s. When the time is right, you will understand why we had to take these drastic measures. Besides, it is the patriotic American thing to do. Wouldn’t you agree? You do agree, don’t you? We will not tolerate any disagreement. Sorry but that is just not acceptable.Link here.
U.S. GOVERNMENT STEPPING UP OFFENSIVE AGAINST MORTGAGE FRAUD
Mortgage Fraud is defined as a material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan. There are two types of Mortgage Fraud, fraud for property and fraud for profit. Fraud for Property, also known as Fraud for Housing, usually involves the borrower as the perpetrator on a single loan. The borrower makes a few misrepresentations, usually regarding income, personal debt, and property value, or there are down payment problems. The borrower wants the property and intends to repay the loan. Sometimes industry professionals are involved in coaching the borrower so that they qualify. Fraud for Property/Housing accounts for 20% of all fraud.
Fraud for Profit involves industry professionals. There are generally multiple loan transactions with several financial institutions involved. These frauds include numerous gross misrepresentations including that income is overstated, assets are overstated, collateral is overstated, the length of employment is overstated or fictitious employment is reported, and employment is backstopped by co-conspirators. The borrower’s debts are not fully disclosed, nor is the borrower’s credit history, which is often altered. Often, the borrower assumes the identity of another person (straw buyer). The borrower states he intends to use the property for occupancy when he intends to use the property for rental income, or is purchasing the property for another party (nominee). Appraisals almost always list the property as owner-occupied. Down payments do not exist or are borrowed and disguised with a fraudulent gift letter. The property value is inflated (faulty appraisal) to increase the sales value to make up for no down payment and to generate cash proceeds in fraud for profit.
Federal law enforcement is working with state and local law enforcement, regulators, and the financial institution industry to combat the problem. OFHEO (Office of Federal Housing Enterprise Oversight) has passed a regulation requiring Freddie Mac and Fannie Mae to report suspicious mortgage fraud activity on a Mortgage Incident Notice (MFIN). FBI, OFHEO, and FinCEN (Financial Crimes Enforcement Network) are working to establish a reporting device similar to the banking industry’s Suspicious Activity Report.Link here.
U.S. RELEASES MONEY LAUNDERING CASE STATISTICS
About 18,500 defendants faced federal money laundering charges in U.S. courts during the years 1994 through 2001, the Justice Department’s Bureau of Justice Statistics reported. Approximately 10,600 of these defendants had a money laundering charge as the most serious offense, and of these almost 9,170 (86%) were convicted. In 2001, the last year for which the data are available, federal district courts disposed of 1,420 money laundering cases, convicting 1,243 defendants (87.5%). Of those convicted, 91% pleaded guilty and 9% were found guilty following a trial (59% of the accused who went to trial were found not guilty). The money laundering amounts ranged from $2,000 or less to more than $100 million with about 20% of cases involving more than $1 million.
Money laundering involves the conversion of illicit assets and their use to promote additional crimes (Money Laundering Control Act offenses) as well as offenses in which the financial institutions circumvent their reporting requirements, that is, Bank Secrecy Act violations. 63% of the Money Laundering Control Act charges involved fraud, bank embezzlement, transporting stolen property and counterfeiting, 16% were associated with drug trafficking, while 7% involved witness tampering, customs violations and violent crimes.
The majority of the defendants charged with money laundering during 2001 were individuals – less than 2% were commercial firms. One in three money laundering defendants had a prior adult conviction. Money laundering offenders may face penalties of prison terms of up to 20 years, fines of up to $500,000 or twice the value of the property involved and possible criminal and civil forfeiture of the value of the property or funds involved in the transaction. Among defendants convicted in 2001, nearly 3 out of 4 received a prison term with an average sentence of slightly more than 4 years. 21% of defendants convicted received a fine – the median fine was $2,750.Link here.
U.S. launches anti-money laundering working group with Middle East And North Africa.
The US Treasury Department earlier this month hosted the inaugural meeting of a new international private sector outreach working group that unites public and private sector entities – both foreign and domestic – in an effort to strengthen defenses against terrorist financing and money laundering in the Middle East and North Africa (MENA). The MENA Financial Sector Working Group (MENA FSWG) will focus on raising awareness and strengthening implementation of anti-money laundering and counter-terrorist financing practices and programs within the regions’ financial industries, particularly within the banking sectors. Notably, the MENA FSWG plans to draft an action plan to bolster ongoing efforts to develop controls to detect and disrupt terrorist financing and money laundering and foster private sector information exchange between the regions.Link here.
U.N. ANTI-CORRUPTION CONVENTION GOES INTO EFFECT
Convention highlights include an entire chapter dedicated to prevention – with measures directed at both the public and private sectors, the requirement that countries establish criminal and other offences to cover a wide range of acts of corruption if these are not already crimes under domestic law, and the requirement of international cooperation. Asset-recovery, is stated explicitly as a fundamental principle of the Convention. In the case of embezzlement of public funds, confiscated property would be returned to the state requesting it. In the case of proceeds of any other offence covered by the Convention, the property would be returned providing the proof of ownership or recognition of the damage caused to a requesting state. In other cases, priority consideration would be given to the return of confiscated property to the requesting state, to the return of such property to the prior legitimate owners or to compensation of the victims.
Article 43 obliges state parties to extend the widest possible cooperation to each other in the investigation and prosecution of offences defined in the Convention. With regard to asset recovery in particular, the article provides inter alia that “In matters of international cooperation, whenever dual criminality is considered a requirement, it shall be deemed fulfilled irrespective of whether the laws of the requested State Party place the offence within the same category of offence or denominate the offence by the same terminology as the requesting State Party, if the conduct underlying the offence for which assistance is sought is a criminal offence under the laws of both States Parties.”Link here.
HOW CONGRESS HAS ASSAULTED OUR FREEDOMS IN THE PATRIOT ACT
The compromise version of the Patriot Act to which House and Senate conferees agreed last week and for which the House voted for is an unforgivable assault on basic American values and core constitutional liberties. Unless amended in response to the courageous efforts of a few dozen senators from both parties, the new Patriot Act will continue to give federal agents the power to write their own search warrants – the statute’s newspeak terminology calls them “national security letters” – and serve them on a host of persons and entities that regularly gather and store sensitive, private information on virtually every American.
Congress once respected the Fourth Amendment until it began cutting holes in it. Before Congress enacted the Foreign Intelligence Surveillance Act (FISA) in 1977, Americans and even non-citizens physically present here enjoyed the right to privacy guaranteed by the Fourth Amendment. That Amendment, which was written out of a revulsion to warrants that let British soldiers look for any tangible thing anywhere they chose, specifically requires that the government demonstrate to a judge and the judge specifically find the existence of probable cause of criminal activity on the part of the person whose property the government wishes to search. The Fourth Amendment commands that only a judge can authorize a search warrant.
FISA unconstitutionally changed the probable cause of criminality requirement to probable cause of employment by a foreign government, hostile or friendly. Under FISA, if the government can demonstrate the foreign agency or employment status of the person whose things it wishes to search, the secret FISA court will issue the search warrant. But even FISA respects constitutional liberty, since it prohibits prosecutions based on evidence obtained from these warrants. Thus, if a FISA warrant reveals that the embassy janitor is really a spy who beats his wife, he would not and could not be prosecuted for either crime because the evidence of his crimes was obtained in violation of the Fourth Amendment’s requirement of a judicial finding of probable cause of criminal activity. Instead of being prosecuted, he would be deported.
On October 15, 2001 Congress enacted the Patriot Act. Together with its offspring the Intelligence Authorization Act for Fiscal 2004 and the Intelligence Reform Act of 2004, the Patriot Act not only permits the execution of self-written search warrants on a host of new subjects, it rejects the no-criminal-prosecution protections of its predecessors by requiring evidence obtained contrary to the Fourth Amendment to be turned over to prosecutors and mandating that such evidence is constitutionally competent in criminal prosecutions. The new version of the Patriot Act purports to make all of this congressional rejection of our history, our values, and our Constitution the law of the land.
So, any representative or Senator who votes for the House/Senate conference approved version will be authorizing federal agents on their own, in violation of the Constitution, and without you knowing it, to obtain records about you from your accountant, bank, boat dealer, bodega, book store, car dealer, casino, computer server, credit union, dentist, HMO, hospital, hotel manager, insurance company, jewelry store, lawyer, library, pawn broker, pharmacist, physician, postman, real estate agent, supermarket, tax collectors, telephone company, travel agency, and trust company, and use the evidence thus obtained in any criminal prosecution against you.
Why would Congress, whose members swore to uphold the Constitution, authorize such a massive evasion of it by the federal agents we have come to rely upon to protect our freedoms? How could the men and women we elect to fortify our freedoms and write our laws so naïvely embrace the less-freedom-equals-more-security canard? Why have we fought for 230 years to keep foreign governments from eviscerating our freedoms if we will voluntarily let our own government do so? The unfortunate answer to these questions is the inescapable historical truth that those in government – from both parties and with a few courageous exceptions – do not feel constrained by the Constitution. They vote for legislation they have not read and do not understand. Their only fear is being overruled by judges. In the case of the Patriot Act, they should be afraid. The federal judges who have published opinions on the challenges to it have all found it constitutionally flawed.
The Fourth Amendment worked for 200 years to facilitate law enforcement and protect constitutional freedoms before Congress began to cut holes in it. Judges sit in every state in the Union 24/7 to hear probable cause applications for search warrants. There is simply no real demonstrable evidence that our American-value-driven-constitutional-privacy-protection-system is in need of such a radical change. A self-written search warrant, even one called a national security letter, is the ultimate constitutional farce. What federal agents would not authorize themselves to seize whatever they wished? Why even bother with such a meaningless requirement? Who would trust government agents with this unfettered unreviewable power? The Framers did not.Link here.
On civil liberties myopia: Bush did not start the war on the Bill of Rights.
By ascribing all the civil liberties problems of this country to one date, September 11, 2001, and one administration, George W. Bush’s, the liberal establishment has avoided any unpleasant analysis of our systemic civil liberties problems that might point back in its members’ direction. Sure it is wonderful the Patriot Act reauthorization is meeting some opposition in the Senate, but let us not forget who supported the egregious bit of legislation in the first place. If we only blame Bush, we are only getting it half right.Link here.
DRUG THUGS RAID HOME, STEAL STUFF
About a dozen federal agents raided the home of a San Francisco couple who operate a local medicinal marijuana club early Tuesday, seizing 122 plants and an estimated $20,000 in assets. Shortly after noon, several agents of the Drug Enforcement Administration remained in vans outside the club, apparently waiting for a warrant to search it as well. No local law enforcement officers took part in the raid on the home of the club’s operators, activists said. The club is next door to the California Marijuana Party, an organization that lobbies for the national legalization of medicinal use of the drug. The raid was the first of its kind in the city since June. Those raids were the first in the Bay Area since the U.S. Supreme Court ruled this summer that the federal government had the authority to prosecute people whose activities are legal under state law.Link here.
DID THE BUSH ADMINISTRATION LIE TO CONGRESS AND THE 9/11 COMMISSION?
One of the more puzzling mysteries of 9-11 is what ever happened to the flight recorders of the two planes that hit the World Trade Center towers. Now it appears that they may not be missing at all. Counterpunch has learned that the FBI has them. Flight recorders (commonly known as black boxes, though these days they are generally bright orange) are required on all passenger planes. There are always two – a flight data recorder that keeps track of a plane’s speed, altitude, course and maneuvers, and a cockpit voice recorder which keeps a continuous record of the last 30 minutes of conversation inside a plane’s cockpit. These devices are constructed to be extremely durable, and are installed in a plane’s tail section, where they are least likely suffer damaged on impact. They are designed to withstand up to 30 minutes of 1800-degree heat (more than they would have faced in the twin towers crashes), and to survive a crash at full speed into the ground.
All four of the devices were recovered from the two planes that hit the Pentagon and that crashed in rural Pennsylvania. In the case of American Airlines Flight 77, which hit the Pentagon, the FBI reports that the flight data recorder survived and had recoverable information, but the voice recorder was allegedly too damaged to provide any record. In the case of United Airlines Flight 93, which hit the ground at 500 mph in Pennsylvania, the situation was reversed – the voice recorder survived but the flight data box was allegedly damaged beyond recovery. But the FBI states, and also reported to the 9-11 Commission, that none of the recording devices from the two planes that hit the World Trade Center were ever recovered.
There has always been some skepticism about this assertion, particularly as two N.Y. City firefighters, Mike Bellone and Nicholas De Masi, claimed in 2004 that they had found three of the four boxes, and that Federal agents took them and told the two men not to mention having found them. (The FBI denies the whole story.) Moreover, these devices are almost always located after crashes, even if not in useable condition (and the cleanup of the World Trade Center was meticulous, with even tiny bone fragments and bits of human tissue being discovered so that almost all the victims were ultimately identified).
Now there is stronger evidence that something is amiss than simply the alleged non-recovery of all four of those boxes. A source at the National Transportation Safety Board, the agency that has the task of deciphering the date from the black boxes retrieved from crash sites-including those that are being handled as crimes and fall under the jurisdiction of the FBI-says the boxes were in fact recovered and were analyzed by the NTSB. “Off the record, we had the boxes,” the source says. The official word from the NTSB is that the WTC crash site black boxes never turned up. For its part, the FBI is still denying everything, though with curious bit of linguistic wiggle room.
What the apparent existence of the black boxes in government hands means is unclear. If the information in those boxes is recoverable, or if, as is likely, it has been recovered already, it could give crucial evidence regarding the skill of the hijacker/pilots, perhaps of their strategy, of whether they were getting outside help in guiding them to their targets, of how fast they were flying and a host of other things. Conspiracy theories abound, with some claiming the planes were actually pilotless military aircraft, or that they had little or nothing to do with the building collapses. The easiest way to quash such rumors and such fevered thinking would be openness. Instead we have the opposite: a dark secrecy that invites many questions regarding the potentially embarrassing or perhaps even sinister information that might be on those tapes.Link here.
A NATION OF RATFINKS
“A free man must be able to endure it when his fellow men act and live otherwise than he considers proper. He must free himself from the habit, just as soon as something does not please him, of calling for the police.” ~ Ludwig von Mises
Totalitarianism used to be the product of the Hitlers and Stalins of the world, but your neighbors are beginning to grasp the power of a centralized government that exists exclusively to metastasize its evils throughout every human endeavor – a government that never sleeps and is always ready to put its nose into anyone’s business. Just give the feds a call, they are ready and willing to assist with any effort that increases their power and influence. 24/7.
Do not want to eat at a restaurant that allows smoking? You can either tell the owner that you are leaving because the smoke offends you, or you can work to force an outright ban on smoking. Approaching the owner is uncomfortable, but calling the local office of your congressman is easy. In fact, it will be a positive experience. Trust me, the elected ears want to hear your complaints. The constituent services worker in any congressional office loves these ideas. She will listen attentively and be willing to work with you. Is it not all about children, health, etc? No, it is all about interventionism and coercive power. But in this instance coercion is on your side.
Will your idea withstand judicial review? Certainly. The courts have already declared private property that exists for commercial purposes to be places of public convenience. The judges will have no problem accepting a law that bans smoking in all restaurants and bars. Nor will they consider a ban of Snickers in the lunch bag a violation of personal property rights. You will also be on the side of externalities and econometrics. Studies will appear that banning snacks in the school lunch bag will result in an annual x% increase in the local and national economies. Do not believe them? Prove them wrong, or at least try to prove them wrong. You will find that their arguments morph as fast as those from a cornered Keynesian. Every time you think their pinned, a new argument will wrestle itself free. No matter that each new argument refutes a prior one. With conflict and contradiction comes a new government panel or commission, or both. Something has to give, and that something is your liberty.Link here.
GUILTY WHEN CHARGED
While enjoying the Christmas season in the comfort of your home, take a minute to say a prayer for the wrongfully convicted. American prisons are full of wrongfully convicted persons. Many were coerced into admitting to crimes they did not commit by prosecutors’ threats to pile on more charges. Others were convicted by false testimony from criminals bribed by prosecutors, who exchanged dropped charges or reduced sentences in exchange for false testimony against defendants. Not all the wrongfully convicted are poor. Some are wealthy and prominent people targeted by corrupt prosecutors seeking a celebrity case in order to boost their careers.
Until it happens to them or to a member of their family, Americans are clueless to the corruption in the criminal justice (sic) system. Most prosecutors are focused on their conviction rates, and judges are focused on clearing their court dockets. Defendants are processed accordingly, not in terms of guilt or innocence. “Law and order conservatives” wrongly believe that the justice (sic) system is run by liberal judges who turn the criminals loose. In actual fact, the system is so loaded against a defendant that very few people, including the totally innocent, dare to risk a trial. Almost all (95-97%) felony indictments are settled by a coerced plea. By withholding exculpatory evidence, suborning perjury, fabricating evidence, and lying to jurors, prosecutors have made the risks of a trial too great even for the innocent. Consequently, the prosecutors’ cases and police evidence are almost never tested in court. Defendants are simply intimidated into self-incrimination rather than risk the terrors of trial.
According to Yale University law professor John Langbein, “The parallels between the modern American plea bargaining system and the ancient system of judicial torture are many and chilling.” Just as the person on the rack admitted to guilt in order to stop the pain, the present day defendant succumbs to psychological torture and cops a plea, whether he is innocent or guilty, in order to avoid ever more charges.
Michael Tonry, director of Cambridge University’s Institute of Criminology, reports that the U.S. has the highest percentage of its population in prison than any country on earth, including dictatorships, tyrannies, and China. The U.S. incarceration rate is up to 12 times higher than that of European countries. Unless you believe Americans are 12 times more criminally inclined than Europeans, why is one of every 80 Americans (not counting children and the elderly) locked away from family, friends, career, and life? Part of the answer is the private prison industry, which requires inmates to fuel the profits of investors. Another part of the answer is career-driven prosecutors who want convictions at all costs. Yet another is the failure of judges to rein-in prosecutorial abuses. Another part of the answer is the hostility of Americans to defendants and indifference to their innocence or guilt.
In America, defendants are no longer innocent until they are proven guilty. They are guilty the minute they are charged, and the system works to process the guilty, not to determine innocence or guilt. Americans in their ignorance and gullibility think that only the guilty would enter a guilty plea. This is the uninformed opinion of the naive who have never experienced the terror and psychological torture of the U.S. criminal justice (sic) system.Link here.
THE TOTAL CORRUPTION OF THE REGIME
The Great Powers of the twentieth century were built on the 19th century foundation of far greater freedom of science and capitalism which vastly increased human material creativity, efficiency, and wealth. Though there were many local variations, the Great Powers were built by central governments using those foundation assets to pursue national and global goals of imperial aggrandizement by building vast bureaucratic systems to mobilize moral, political, financial and military power. These growing bureaucratic states were able to continue growing and amassing wealth and all other forms of power for roughly a century, though at decreasing rates as the inevitable suffocation of creativity and efficiency by bureaucracy grew steadily. In the last several decades, however, the suffocating effects of bureaucracy have grown more rapidly than the real economies. This led the ever more power-inebriated and hubris-blinded governments and their ever more vast imperial corporations to use the ancient borrowing, currency inflation and credit-weakening methods to continue growing in the short run, though more in official statistics than in reality.
These methods inevitably eroded the incentives of the real economies over the long run and finally began to produce Great Financial Bubbles and Crashes that could be overcome in the short run by using more of the same methods that destroyed the long run prospects of real creativity and growth. In recent decades these massively centralized, bureaucratized and inflated states have become totally corrupt at the top and “trickle down” corruptions of all forms on the lower depths of society. This in turn has generated soaring distrust, cynicism, loathing of politics and government and corporations, social fragmentation and disintegration, and soaring conflicts ranging from incivility and massive disruptions by “demos” to civil wars over drugs, gangs, and much else.
The Soviet System was the most centralized of the Great Powers, so it moved through this entire cycle of take-off of government powers to the great crash far faster than the others have done. The other “communist” systems were generally less centralized and bureaucratized, but have all crashed or been held up and increasingly engulfed by the growth of the more free “underground” economies displacing them, as is most obvious in China. The European “democratic socialist” models of centralization and bureaucratization slowed down at an accelerating rate over decades, then a few decades ago began to stagnate at an accelerating rate, though Britain partially “freed up” some segments of the economy and began using more cautious inflationary policies to grow a bit more. The U.S. began centralizing later and did so at a slower pace, and is only now finishing up the massive centralization of corporate production in huge bureaucracies, education in huge education factories trying to meet the Testing Plans of bureaucratic central planners, and so on. The U.S. also controls the global currency and has used that vast power to borrow and inflate at rapidly accelerating rates without suffering massive consumer price inflation at home.
But by the 1980’s and 1990’s America was a highly socialized, centralized, bureaucratized state with vast overt and secret police armies, an immense prison industry for anyone violating the drug import and pricing dictates, and so on. Almost all informed, intelligent Americans quickly became aware that their society had become highly corrupt at the top, though few would admit to themselves that this was now total, so they became more corrupt themselves to get ahead, while distrust and loathing of the politicians and government soared. All of the Great Powers became Caesarist and imperialist. The politicians were lured by the lust for power, wealth and glory into ever more militaristic and exploitative policies. Caesarism in Rome totally destroyed the Republic, though the external forms were kept in place and massively displayed to deceive the ignorant plebians. This vast explosion of American Caesarism will probably lead to terrible defeats for the U.S. Empire and extreme “reforms” at home.
The American Global Empire was intended to solve the growing Great Financial and Economic Crisis of the U.S., the so-called “overstretch”. The massive growth of the guerilla movements and armies in the Muslim World and the growing defeat by them in Afghanistan and Iraq are now vastly exacerbating the Great Financial and Economic Crisis. The U.S. Empire was already in grave peril because of the stagnating effects of a century of rapid growth of centralization, bureaucratization, debt, credit risk, suffocation of creativity and efficiency, decline of growth and all the effects of these. Now the failing Caesarist Plan is vastly accelerating the growth of all of those problems. All of these major dimensions of America’s Great Global Crisis are now interdependent with each other, each amplifying the others. The Great Global Crisis is thus growing very rapidly now.
It is conceivable that the U.S. will suffer some minor crash and pull back from all of these disastrous policies and stabilize its Empire at a lower position of global power. I doubt it can be done. The problems are so interdependent and extreme now that it seems pretty clear that the System is totally corrupt – “rotten” – at the top, very much like the Soviet System by the 1980’s. Small crises and crashes are likely to accelerate into a Great Crash that can only be dealt with by getting out of The System in some way. I used to think we could limp along from one bubble to another for decades. We have been doing that since the 1980’s, but I now expect the Great Reckoning, the Great Crash, is getting quite near. There are many possible triggers out there waiting to be pulled …Link here.
THE LIBERTARIAN NATURE OF CHURCHES
The local church is a wonderful institution. They are self-sufficient institutions that do much good for their people and the culture at large. Churches and Christianity in general are attacked by certain elements of society and also by some in the libertarian movement. This is unfortunate. To detractors of Christianity, local churches are just havens for “hypocrites”. An even worse offense to some is that they benefit from favorable tax laws and that they rely on coercion for success. However, the big picture shows that most churches are examples of successful libertarian ideals in action.
First of all, churches are self-supporting. That nasty collection plate that so many people like to make fun of which is passed each week is the source of income for the church that pays all the bills. That means the church’s own people voluntarily pay the bills. There are no government subsidies. Nobody is being taxed by the State today to support my church or any other church. If a church wants a paid pastoral staff, then the church makes provisions for that (and most pastors I know, give above and beyond 10% of that same money back to the church in their tithing). Some churches have objections to having a paid pastoral staff. They use that money for other purposes based on how their congregations see fit. It is their choice, their decision.
Basically, any money that is spent is by the consent of the people. If the people look at how money is being spent and do not like it, then they can make changes. Most churches have a very transparent policy regarding letting their people see how much money is being taken in and spent and how it is being spent. So those little collection plate (some churches use an even more anonymous collection box in the back of their churches) are not only symbols of spiritual devotion, they are also wonderful little instruments of libertarianism in action.
The state is not forcing anyone that is indifferent or opposed to church and/or Christianity to support a church financially or to attend church functions. That is the true meaning of “separation of church and state”, not the new modern liberal meaning. Only the most ignorant and biased would fail to admit the great amount of good that local churches have done in terms of humanitarianism worldwide and also in terms of emotional and spiritual support for those within their doors. Many people are resentful of churches benefiting from favorable tax laws. The problem is not churches or Christians, it is the tax code itself.
There is indeed a structure of authority within the local church. As a pastor, people are supposed to “submit” to my authority and other sources of authority within the church. But guess what, all submission is completely voluntary. Nobody is forcing anyone to view me as their pastor or even as a legitimate figure.Link here.
THE “CHRISTMAS ARTICLE”
“Give me 26 lead soldiers and I will conquer the world,” said Benjamin Franklin, referring to the alphabet as printing press type (the quote, with varying numbers of “soldiers” depending on the alphabet in use, has also been attributed to Marx and Gutenberg). As succinct a summation as any, I think, of the correct notion that it is ideas which ultimately determine the disposition of people and things. Bad ideas produce bad results – before Lenin and Stalin came Marx. Good ideas produce good results – it took Paine and Jefferson to spur a country to “fight for liberty” by decidedly more physical means.
Every day, I see a dozen Paines, a dozen Jeffersons to the left and right of me, taking aim at the enemy and firing well-placed volleys (and me with my popgun, trying to measure up). Sometimes the effect is immediately visible. Sometimes it is delayed. But it is there, and it is felt. A reasonable measure of that effect may be derived by simply noting the increasing attraction of the word “libertarian” to people of all political stripes … and that attraction ever so slowly manifests itself not only as an attraction to word, but to deed.
For some reason, I have always felt more thankful at Christmas than at Thanksgiving. Maybe it is because Yule falls right after Bill of Rights Day, Boston Tea Party Day and South Carolina Secession Day, instead of on the day Lincoln marked down for celebrating the shelling of Vicksburg and the breaking of Pickett’s Charge. In any case, I am thankful.Link here.
THE CHRISTMAS KERFUFFLE
Upon leaving a San Francisco shop last week, I wished the clerk a cheery “Merry Christmas”, only to be met with a surly “Happy Holidays” in return. With that simple exchange, our positions at opposite ends of the political spectrum were revealed. The celebration of Christmas has indeed been overshadowed by politics in recent years, to the point where every greeting is pregnant with meaning. And even non-Christians are swept up in the Christmas kerfuffle.
As a member of the Jewish faith, I have never once felt intimidated, bothered or offended by Christmas. In fact, I grew up celebrating Christmas and still do to this day. Not the religious aspects, but rather the festive trappings of the holiday. I also light the menorah candles each year to mark Hanukkah. While this might earn me the disapproval of traditionalists on both sides of the fence, I confess it simply to illustrate that one holiday need not endanger another. Yet the political battle over Christmas rages on. Conservatives are upset over what has been dubbed the “war on Christmas”, while liberals accuse them of overreacting to what is essentially a non-event. But who is right?
Skeptics of the “war on Christmas” narrative often point out that the trappings of Christmas are everywhere. The commercialization of Christmas has led to an onslaught of retail madness in recent years – the evidence is all around us. But the religious underpinnings of Christmas (the birth of Jesus Christ), not to mention the actual name of the holiday itself, are at risk of disappearing from the public sphere. All across the country, city halls, chain stores, and public squares are erecting “holiday trees” in lieu of Christmas trees. Nativity scenes are being banned in town squares, public buildings and even some malls. The singing of Christmas carols such as Silent Night in public schools and caroling in public parks and public housing are becoming rarities. Court cases brought by groups such as the ACLU and Americans United for Separation of Church and State have taken the clause that never appeared in the constitution to ridiculous levels – and chipping away at Christmas is just one of the results.
What is at the heart of this campaign to erase Christmas? I argue that it is the creeping multiculturalism that has taken hold of our nation. Instead of a melting pot, we have a system whereby Christianity, the majority religion, is being subordinated to all the others in the interest of “equality”. Accordingly, Christmas has to be diminished so that no feels left out. But this sort of excessive pandering to “diversity” is becoming ludicrous. Have we become a nation of insecure adherents to psychobabble? Does the mere presence of Christmas really threaten non-Christians? Simply being a member of a minority group is not tantamount to being oppressed. Perhaps we should remember that when thinking about the Christmas kerfuffle.Link here.
DEFENDING EBENEZER SCROOGE
Christmas is no time for insults, but somehow it is the only season when someone can slap you with the one name that really hurts: Scrooge. Simply say the word and there is no explanation necessary. “Scrooge”. It is often a playful insult, but when spoken seriously you know what it means: Heartless. Unforgiving. Spiteful on a day that calls for generosity.
Well, on this Christmas Eve, again I go where no “contrarian” may have gone before. I wish to defend – yes, defend – Ebenezer Scrooge. A while back I saw a version of A Christmas Carol on TNT, with Patrick Stewart (of Star Trek: Next Generation fame) as Scrooge. Obviously, the challenge of the role is to be as unlikable as possible, and Mr. Stewart was all this and more. He was loathsome. His Scrooge bristled with a hatred that was hard to watch. There was even a moment when I wondered why an actor would take such a part. Right away, however, I remembered that Patrick Stewart is just one of many gifted and famous actors who have interpreted Scrooge over the years – George C. Scott, Albert Finney, and even Mr. Magoo among them.
Yet A Christmas Carol itself gives the best reply to why the role has dramatic appeal. It is the same answer to why he deserves a word of defense. Ebenezer Scrooge changed for the better. He emptied his own repulsive character, and filled himself instead with goodwill and charity. Scrooge experienced the spiritual transformation that was first explained to a fellow named Nicodemus a very long time ago. Charles Dickens knew this when he wrote A Christmas Carol. He would find it a curious irony indeed that we remember who Scrooge was, instead of the new man he became.Link here.
I wish to urge you to secede – not politically from the union, but from the culture, which is, after all, decadent and nutty. Recently I flipped on CNN Headline News. The first story was about educators and students complaining that it takes too long to take the SAT (three hours and 45 minutes). Given how many functional illiterates graduate from college, I would say the test is not long enough. It has been watered down through the years. The second major story on the national news show was a complaint by a spokeswoman for a whore’s union about dangerous working conditions. It was not clear if she wanted police to escort the whores to their motel rooms or if she wanted the FBI to run background checks on the johns. At any rate, the folks at CNN thought this was a most important story to share with the American people.
As I said, our society is decadent and nutty. We all have to do what we have to do to make a living, but beyond that, we have a great deal of freedom to live our lives by our own values. For example, if you do not approve of gay marriage, then don’t marry a gay person. If you disapprove of abortion, don’t get one. If you dislike drugs and tobacco, don’t use them. If you are opposed to war, don’t participate in it. If you are against gambling, don’t bet. It is my observation that most of what people vociferously complain about are not things they are forced to do, but things that other people choose to do. A favorite phrase of my father – “None of your business” – seems to have become obsolete in our busybody society. The government is a busybody, its supporters are busybodies, and its opponents are busybodies, making it a conflict among busybodies as to which aspects of people’s private lives the government should regulate.
Most of today’s polluted culture comes into our homes via television and the Internet. Neither is a necessity. Both are easily controlled by thoughtful people. Nobody forces us to watch or read anything. Nobody forces us to buy anything or to spend more than we earn. We have plenty of freedom, but too often we cede it to commercial interests, which tell us to watch this, do that, buy this, go here or go there. We can, however, by active concentration lead a quiet, thoughtful life free from the clamoring crowd.
Buddhists sometimes say that people seeking enlightenment are like thirsty people surrounded by water. By that they mean what is sought is easily at hand if we only recognize it and reach out and take it. The solution to all of the ills of our nutty culture lies not in Washington but in the hearts and minds of the American people. The culture is really us. Therefore, by changing ourselves, we can change the culture. We just have to learn to say “No”.Link here.
THE CHRISTMAS THAT ALMOST WASN’T
The state does not like competition, and especially from religion. The religious leaders in the time of Christ tried to use this against him. They led Jesus to Pilate and accused him, saying, “We found this fellow perverting the nation, and forbidding to give tribute to Caesar, saying that he himself is Christ a King” (Luke 23:2). When Pilate sought to release the Lord the leaders protested, saying, “If thou let this man go, thou art not Caesar’s friend: whosoever maketh himself a king speaketh against Caesar” (John 19:12). During the ministry of Paul the Apostle, the leaders accused the Christians of doing “contrary to the decrees of Caesar, saying that there is another king, one Jesus” (Acts 17:7).
Yet, some of the state’s greatest apologists are religious. Pastors and other Christian leaders who serve as spokesmen for Bush, the Republican Party, and the war in Iraq are fond of reciting their “obey the powers that be” mantra as if that somehow means that Christians should blindly follow whatever the president or the government says. It is a good thing that the wise men that came bearing gold, frankincense, and myrrh to the young Christ child were not part of the Religious Right.
Herod the king was troubled when the wise men came to Jerusalem seeking Jesus after they had seen “his star in the east” (Matthew 2:2). Herod sent for the wise men and “inquired of them diligently what time the star appeared” (Matthew 2:7). Then he commanded the wise men to go to Bethlehem and “search diligently for the young child; and when ye have found him, bring me word again, that I may come and worship him also” (Matthew 2:8). We know from what Matthew records later that Herod wanted to do nothing of the kind. Joseph was told later that “Herod will seek the young child to destroy him” (Matthew 2:13). After the wise men saw the Christ child, worshipped him, and presented him with their gifts, they were “warned of God in a dream that they should not return to Herod” (Matthew 2:12).
The wise men were faced with a dilemma: Obey the government or obey the command of God. To them the decision was a no-brainer. “They departed into their own country another way” (Matthew 2:12). Like the Hebrew midwives, Saul’s footmen, the three Hebrew children, the prophet Daniel, and the apostles, the wise men refused to obey the state. If they had been dupes and lapdogs of the ruling parties, like so many Christians are today, the wise men would certainly defend Herod’s actions and label his opponents as traitors and anti-slaughter weenies. Then they would associate his opponents with that evil political party that was against Herod for purely political reasons. I thank God for the courage of the wise men and the fact that Christmas was. Merry Christmas.Link here.
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