Wealth International, Limited

Offshore News Digest for Week of January 2, 2006

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

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Azuero Peninsula, about half way down Panama’s southern Pacific coast, is known for its traditional festivals and magnificent deep-sea fishing. The buzz surrounding the area has only intensified lately, fueled by Mick Jagger’s recent property purchase on the peninsula. Locals say that Bruce Willis followed suit by purchasing a neighboring lot, and Tommy Lee Jones keeps a property there. That kind of celebrity interest is putting the region on investors’ radar screens.

Robert Cheesbrough, of Hawaii-based Presitige World Properties, is handling several parcels of oceanfront property on the Azuero Peninsula, and says he is excited about the country’s plans for more upscale projects. At Punta Mala, in the Los Santos province, he has listed 124 acres of pristine ocreanfront for $1.85 million, which includes government concessions for private beach-front property. The property is next to luxury extate homes that are being developed by an Italian group. A small airport is only 15 minutes away, and utilities are within a mile.

For anyone who envisions Panama as a sleepy, bucolic, country the first view of the capital city may come as a shock. The skyline of Panama City, which edges Panama Canal, bristles with high-rise business towers and residential condominiums – and construction cranes that signal more buildings are on the way. The country’s reputation as a hot new destination (there are frequent comparisons to Costa Rica a dozen years ago) is based as much on the capital’s high-energy urban lifestyle as it is on the beautiful beaches of its Pacific or Caribbean coasts or its lush mountainous interior. “Panama City is like Manhattan,” says Terry Theodorou, a certified international property specialist based in California.

The building boom in Panama City, the country’s banking center, began in the 1990s. Panama is known for being very friendly to foreign investors and would-be homeowners from the U.S., offering tax incentives and a dollar-based economy (the currency is the balboa). “We love Americans,” says Theodorou, emphasizing Panama’s “low inflation, good infrastructure, cheap phone rates, and good cell phone service.” And the Panamanian government has worked hard to overcome a national image that many still associate with the Noriega years. Some of the recent development can be traced to land that became available after control of the canal was transferred to Panama in December 1999. Most of the upscale real estate in Panama City consists of futuristic high-rise condominiums, which are attractive to foreigners for their security and convenience.

Link here (PDF file).


While Monaco is a well known European tax haven, Andorra has remained little known outside of the financial community despite enjoying the same tax advantages and arguably more private banking than her better known rival. In contrast to the similar financial benefits both Monaco and Andorra residents enjoy, the two small countries have quite different climates. Monaco has good all year round weather and is located next to the South of France, while Andorra is in the Pyrenees and between early December and late April attracts nearly 10 million tourists for ski holidays. Monaco has year round tourists, peaking twice a year in May for the Grand Prix, and September for the Yacht Show.

Neither Andorra or Monaco have their own airports – Nice airport has a helicopter link, a 10 minute ride direct to Monaco, Andorra is not so fortunate and the nearest airport is Barcelona, a 3 hour drive away from the principality. Both countries have opted to stay out of the EU, preserving their ability to maintain a no income tax policy. The biggest difference is the entry price for becoming a resident – which entails buying or renting a house or apartment. One bedroom apartments in Monaco start at €800,000, but in Andorra the same size apartment starts at less than a third of the price at €250,000. And while a house in Monaco is a rarity, there is a good choice of houses for sale in Andorra, with prices starting at under €1 million.

Given Andorra’s property price advantage for would-be residents choosing between Europe’s primary tax havens, it has come as a surprise to many that the closing costs for buying a property in Andorra has not only been less than half that of Monaco, but also less than buying a property in many other mainland European countries at around 4.5%. But Andorra has just raised property closing costs by introducing a 3.5% sale of goods and services tax on property purchases starting January 1, 2006 – bringing the tax haven more in line with neighboring France and Spain. Demand for property in Andorra and Monaco is unlikely to be affected by the recent increases though, according to European tax haven specialists Tribune Properties.

Link here.


But former Eastern bloc countries are starting to offer stiff competition.

Several countries, notably in the former Eastern bloc, are putting in place more liberal economic policies, according to the Index of Economic Freedom, published annually by the Heritage Foundation, the Washington DC-based free market think tank. Hong Kong and Singapore, described in the Heritage Foundation report as “the economic jewels of Asia”, finished 1st and 2nd respectively in the rankings for the 12th straight year, but perhaps the most surprising finding of the 2005 survey was the significant representation from Europe.

Ireland, which has attracted strong investment interest from the U.S. in recent years with its 12.5% corporate tax rate, was a notable performer last year, overtaking Luxembourg and Estonia to clinch third spot in the index. Meanwhile, Iceland moved up three spaces to fifth place, where it is tied with the U.K. Estonia fell to 7th place followed by Denmark in 8th. The U.S. improved enough to re-enter the top 10 after falling out last year for the first time ever, and was considered the 9th freest economy in 2005, tied with Australia and New Zealand. Of the top 20 freest economies, 15 were in Europe, and Austria, Germany and Cyprus led the pack of 33 countries which joined the ranks of “free” economies last year.

The Heritage index rates countries on 10 broad measures of economic freedom, including trade policy, fiscal burden of government, government intervention in the economy, monetary policy, capital flows and foreign investment, banking and finance, wages and prices, property rights, regulation and black market activity. The report explains, “The countries with the most economic freedom also have higher rates of long-term economic growth and are more prosperous than are those with less economic freedom.” Of the 157 countries graded in the 2006 Index, 99 improved their overall scores, compared to 51 whose scores worsened and five that remained unchanged. The 10 most repressed economies, in descending order, were Turkmenistan, Laos, Cuba, Belarus, Libya, Venezuela, Zimbabwe, Burma, Iran, and North Korea.

Link here.

Brave New Singapore (Part 1)

Amid its pristine spires, economic prosperity, efficient subway and infrastructure, and the almost perfect cleanliness and crime-free environment of Singapore lurks an eerie fiend: slavish oppression. After serving as a British colonial outpost in Southeast Asia from 1819, the small “Parliamentary Republic” of Singapore attained peaceful independence from Britain in 1958 and set up its own government linked with Malaysia. The tropical city-state attained complete independence in 1965, and has since grown to a population of 4.24 million. The nation has virtually no agricultural production and relies completely on tourism, banking, manufacturing, and trade (imports) for survival. It has blossomed into an offshore tax haven in recent years and many multinational firms have their Asian headquarters in Singapore. Singapore is ranked second in the world (behind Hong Kong) in the Cato Institute’s Economic Freedom of the World 2005 index [see article immediately above]. During our December 2005 visit, my wife and I experienced favorable first impressions to say the least.

With the world’s second busiest port, first world shopping malls, and top-notch public services, one might be tempted to think that Singapore is a bastion of capitalism and freedom. However, upon closer scrutiny, one can see that Singapore more closely resembles Hitler’s Germany overflowing with its Brown Shirt regiment. Let us not forget that Germany emerged from the Great Depression earlier under Hitler’s rule and began to enjoy economic prosperity under him. Some have labeled Singapore’s socioeconomic system as “neomercantilist”. Others as simply “fascist”. And fascism seems to fit Singapore’s model well: a regime that 1.) exalts the nation above the individual, 2.) uses violence, propaganda and censorship to forcibly suppress political opposition, 3.) engages in severe economic and social regimentation, and 4.) engages in corporatism. When it comes to freedom, money simply is not everything.

In her online article in “Happy-face fascism”, Sue Ann Tellman rightly calls Singapore’s civil society “parental authority institutionalized in a nation-state.” Judging from reports during our recent trip to Singapore, things have not changed much in the last 11 years. The single-party nanny state has produced dire proactive policies. For example, public toilets are monitored and non-flushers are fined, jaywalkers are resolutely fined, personal grooming standards (e.g., hair length) have been regulated, the press is not free and import of foreign publications is restricted. The importation, manufacture, possession, and sale of chewing gum have been banned since 1992 (except for medical purposes).

Breaking the rules can result in beatings (with a bamboo cane), large fines, imprisonment, expulsion, and, in extreme situations, capital punishment. Hanging is the mandatory punishment for drug dealers, as one Australian teen found out in December 2005. Criminals like rapists and vandals are stripped naked and caned until their buttocks are hideously bruised and bloodied. Tellman comments, “the Government promotes ‘family values’ to provide the social stability needed for continued economic growth. In the Singaporean context this means complete subservience to the state and its social dictates.” Social stability is also “enhanced” by tight regulation of industry and trade, often including stiff payments for the privilege of doing business. If you think this sounds a little like what America is becoming you are correct, both in terms of policies pertaining to real property “ownership” and individual liberties.

Link here.

Hong Kong citizens put the brakes on house purchases.

Newly-released statistics from the Hong Kong Land Registry have revealed that December was the worst month for home sales in the territory since the outbreak of severe acute respiratory syndrome (SARS) in the first half of 2003. The total number of sale and purchase agreements for all types of building units received for registration in the Land Registry in December 2005 was 5,456. This was a decrease of 32.3% from November, 2005, and 48.1% compared with December, 2004. Of these sale and purchase agreements, 4,426 were for residential units – the lowest monthly figure since May 2003, during the SARS epidemic which severely dented Hong Kong’s economic confidence. While the territory’s economy has rebounded strongly in the last two years, analysts are blaming the slowdown in home sales on rising interest rate levels.

Nonetheless, according to the real estate agency Centaline China, Hong Kong citizens have also put the brakes on purchases in mainland China during 2005. The number of transactions undertaken by them in the mainland market fell by 8% to 17,800. However, this statistic may be evidence that measures put in place by the Chinese authorities to cool the housing market in certain hot spots are beginning to succeed. Last May, the Chinese government attempted to head off a real estate bubble by raising home-loan interest rates, limiting urban demolition and levying taxes on housing sales. The government is concerned that housing prices are steadily moving beyond the reach of ordinary citizens, particularly in growth center markets like Shanghai, where prices have jumped nearly 70% in the past two years. Apartments downtown sell for more than $300,000 – far beyond the reach of the average citizen. Shanghai this year imposed a 5.5% capital gains tax on properties sold more than once in a year.

Link here.


51 days have passed since the election of Angela Merkel as the first woman German chancellor. Usually, a newly elected political leader will be granted a grace period of 100 days to get things started his/her way before evaluation. Half of that period has expired, but it is clearly to be seen that nothing new is going to happen in Germany. After having fired the only helper who had possessed something like competence well before her election, a professor of economics not linked to any party, Angie is surrounded by the usual suspects, mostly career politicians.

The discarded professor had warned her about the risks of a raised VAT (Valor Added Tax a.k.a. sales tax), but it seems his warnings were futile. Angie’s announcing a VAT raise was one of the major reasons for the resulting stalemate situation in the German Bundestag. Weird, weird world. Once in a while, a politician’s electoral campaign promise comes true. She is, defying all warning voices, going to raise the VAT not only by two points but three, from 16% now to 19% from January 1, 2007. To worsen things more, the income tax for higher incomes will be raised from 43% to 45% as well. This so-called “Reichensteuer” (tax for the rich) will affect not only income but assets as well. So much for the start, these “features” were the main parts of the coalition negotiations with her coalition partner, The Social Democratic Party (SPD).

Meanwhile, after a few international handshakes and some legislation activities, the outline of her political concept begins to emerge from the electoral campaign fog: To buy a truce in the eternal EU dispute with the British, she promised Tony Blair Labour prime minister of the UK, €2 billion out of the German taxpayers’ pockets. During the coalition negotiations it had already become clear that the German 2006 budget will be unconstitutional due to a €40-odd billion increase in the national debt. From where she is going to get this money is a good guess.

The tax raises will have two effects. The VAT raise will cut down domestic demand. A good means to help our economy. The income tax raise will make an income increase less attractive for young and ambitious, highly educated people. The German political class has been whining and snivelling for quite a while about the increasing emigration rate of well-educated and motivated people, such as MDs, IT professionals, engineers and more. Well, to increase the pressure on this group will definitely help. Last time a German government had to face such a problem, they built a wall through Berlin and a barbed-wire fence through Germany, separating East from West. Will not help this time either, Angie.

Angela “Angie” Merkel is not a true and faithful party soldier who has served the “Ochsentour” (ox’s journey) through the party organizations, she is a professor of physics. So she should know that you cannot get something for nothing. In order to take money out of anyone’s pocket, there must be money in it. When the taxpayers’ pockets are exhausted, there is but one solution: rev up the printing presses. Inflation exceeding 3% p.a. would violate the Maastricht Treaty of Stability, but who cares? Germany has been doing so ever since that treaty came into effect. Inflation and debt are mortgages on the future, which our children will have to pay. The decreasing birth rate in Germany is one of the answers to this, and it is pouring oil into Angie’s wildfire. Her lack of ability to solve Germany’s burning problems is showing up. No solutions, just more of the usual cosmetics, administration instead of vision, obedience instead of leadership.

Good night, Abendland!

Link here.


Obwalden has just lowered its taxes to attract wealthy incomers, but is still coming to terms with its impoverished past. The new tax regime approved by voters in December came into effect on January 1, turning the canton with the highest taxes into the one with the lowest rates. But will this mark the beginning of a prosperous chapter in a canton that was always among Switzerland’s poorest, and has recorded below average growth in the modern age? A special exhibition titled “Migration” at Obwalden’s history museum chronicles how not so long ago the only hope of striking it rich was to buy a one-way ticket abroad. It tells the story of crop failure, famine and soup kitchens and portrays Obwalden émigrés who settled in Imperial Valley in California and other parts of the U.S., Canada and Brazil, having taken part in the mass exodus at the end of the 19th and beginning of the 20th century.

It is not as if Obwalden’s past has caught up with it. Closer to the truth is the fact that the canton’s modest economic growth has been insufficient to radically alter its architectural landscape. Historian Niklaus von Flüe says the tall, decorative burgher houses were built by the handful of merchants who controlled the local salt trade and returning mercenaries, who had fought under various flags of French and Italian monarchs. Each summer, locals revive the ancient trading route, leading pack animals laden with salt and cheese on the arduous journey over the mountain passes between Obwalden and northern Italy.

With the exception of a couple of ski resorts, Obwalden’s heritage is its tourist capital, and the main attraction for more than 500 years now has been the hermitage of Switzerland’s only saint, Niklaus von Flüe, remembered as Brother Klaus. “In the years following his beatification in 1947, the pilgrimage reached its apex with thousands of people coming to worship here each year,” says his namesake and descendant during a visit to the saint’s two-storey wooden house in Flüeli-Ranft. Brother Klaus is remembered as a great mystic and arbitrator, whose counsel prevented civil war from breaking out in 1481.

It has been nearly 100 years since the end of the Belle Époque, the period considered tourism’s golden age. High time for a new golden era to dawn for Obwalden.

Link here.



Income trusts, the delight of many Canadian investors and a source of concern to corporate governance experts, are now at the heart of a political scandal. Little known outside of Canada, the trusts have been booming, offering a way to tap directly into a company’s earnings, even for the smallest investors. The trusts also pay virtually no taxes, spurring a stampede of corporate conversions from ordinary stock into trusts. But last week the Royal Canadian Mounted Police confirmed that it was investigating whether possible leaks from the Department of Finance on planned tax treatment changes to the trusts may have benefited some investors. The statement comes amid a campaign for federal elections on January 23, with the now disbanded Liberal government in a very tight race.

Canada’s opposition parties, which were already campaigning on allegations of Liberal Party corruption, were quick to capitalize on the inquiry. But there was considerable skepticism in the investment community about the police ever laying charges. “My gut feel is that by the time the smoke clears and a lot of money’s wasted, I don’t think you’re going to find any clear villains,” said Thomas S. Caldwell, the chairman of Caldwell Securities.

The criminal investigation is major news in Canada. While investors have flocked to the trusts, which now make up almost 10% of the Toronto Stock Exchange’s capitalization, analysts have questioned the amounts the trusts distribute and the inflated valuations of their units. Canada’s finance minister, Ralph Goodale, has brought up other qualms. He noted that in paying out most of their income, many trusts were not retaining cash for expansion or to respond to future market changes. Adding in estimates that trusts were costing the government NC$300 million in lost taxes, Mr. Goodale went further – he froze trust conversions while the government studied their future.

An investor outcry produced a series of events leading to the RCMP investigation. In the ensuing weeks, trust units lost CN$10 to 20 billion in market value. The investment community swiftly mounted a campaign against the freeze in conversions, prominently featuring the impact on retirees. With the governing Liberal Party already severely weakened, Mr. Goodale reversed course, and ended the review of the trusts and the freeze on conversions in late November, and instead introduced cuts to dividend taxes to make traditional stocks more attractive. But in the hours leading up to Mr. Goodale’s announcement, trading volume in trust units spiked about 50% and the sector rallied 2%. That unlikely trading pattern prompted Judy Wasylycia-Leis, a member of Parliament from the left-leaning New Democratic Party, to ask the mounted police, Ontario’s securities regulator and the SEC to investigate the possibility of insider trading.

Link here.


The Costa Rican government has announced a substantial improvement in the country’s fiscal finances, thanks in large part to a huge increase in the amount of taxes collected during 2005. However, Finance Minister David Fuentes has warned that lawmakers must pass the long-delayed tax reform plan to ensure the future viability of the government budget. According to the Finance Ministry, the country’s budget deficit as of November 2005 was almost half the level it was at the same time in 2004, having fallen from 2.5% of GDP to 1.3%.

The dramatic improvement in the government’s budget has come about thanks to a more aggressive tax collection campaign by the ministry which, according to Fuentes, has led to a huge 20.5% jump in tax revenues over the year as the government collected 1.14 trillion colons ($2.25 billion). In addition, the ministry has reported that the launch of a new customs system, known as Information Technology for Customs Control (TICA) has led to a 57% increase in the amount of tax collected at the Pacific port of Caldera.

However, with debt repayments pushing government spending up by 9.3%, the minister went on to warn that there remains a longer term threat to Costa Rica’s economic stability unless the long-awaited fiscal reform package, which proposes to raise tax revenues by $500 million is approved. First put forward in 2002, the tax package has been a divisive piece of legislation and its opponents have used a number of delaying procedures to ensure that it remains bogged down in the legislative assembly, despite attempts to fast track the legislation.

The tax plan will introduce some major changes if passed, such as a switch to worldwide taxation from the current territorial tax system, meaning that tax will have to be paid on worldwide income by those resident in Costa Rica. However, a recent amendment would mean that worldwide income will only be taxed if brought back into the country. Foreign individuals living in Costa Rica who can prove that their income has already been taxed in another jurisdiction, or are able to show that income is to be invested in the country, would also be exempt. In a bid to make the corporate taxation system more transparent and efficient, the bill proposes a general tax rate of 30% on all types of economic activity, a departure from the current system whereby companies declare and pay tax separately on each activity. Another important change will be the introduction of value added tax, or IVA, which will replace the 13% sales tax and expand coverage to all but a handful of exempt services, such as water and electricity up to certain usage limits.

Link here.


China’s economy has ensured that the authorities have collected a record amount of tax in 2005, as recently-released figures show that annual revenues exceeded 3 trillion yuan ($380 billion) for the first time. Statistics published by the State Administration for Taxation reveal that revenues, excluding customs duties and agricultural levies, greatly exceeded government forecasts last year as the final tally reached 3,087 billion yuan. Beijing had expected tax revenues to increase by 11%, to 2.93 trillion yuan, but rapid economic growth, which has seen China’s GDP expand at a rate in excess of 9% per year in the past two years, has pushed revenues above the 3 trillion yen mark. Similar levels of economic growth are expected to push revenue collection higher still in 2006, when China’s tax revenue is estimated to rise 17.5% to 3.61 trillion yuan ($450 billion).

China is set to introduce a number of tax reforms in the coming years as the government attempts to modernize and streamline the tax system. One of the most important of these is corporate tax reform, which will see the tax rates paid by domestic enterprises and foreign-backed business unified, most likely at a rate of or near 24%. Currently, foreign invested companies pay tax at a rate of 11% to 14% versus 24% for domestic firms.

Link here.


The government has set a priority for 2006 onwards of curbing tax evasion and boosting budgetary revenue, according to its revised 2005-2008 growth and stability plan. Among the moves contained in the program are computerized cross-checks of invoice data and a public awareness campaign to show that tax payers are harmed by tax evaders. In addition, Value Added Tax will be imposed on new housing and fuel tax is to rise by 5.0% in 2006 to reach a 20% hike by the end of 2009 in line with a rate floor set by the EU.

Link here.


Reports in the Indian press have revealed that the Income Tax Department is planning to take on additional commissioners in its international taxation division in order to increase scrutiny of multinational corporations operating in India, which the government suspects are evading large amounts of tax through transfer pricing arrangements. According to a report from the Times of India, the Central Board of Taxation has already approved a request for six additional commissioners to augment the existing team of nine commissioners in the international tax department, as the number of multinational firms under scrutiny increased from 1,000 to 1,500 in the last financial year.

India’s Income Tax Department has become very active in enforcing transfer pricing laws, issuing additional tax demands of more than R12 billion on foreign companies in the last financial year and reportedly recovering some R1 billion in unpaid tax. Companies targeted by the tax department have included Samsung, HLL, Sony, Bank of America, Coke, Microsoft, and Hero Honda.

The Finance Act 2001 introduced detailed Transfer Pricing Regulations in India as of April 1, 2001, to apply from the assessment year 2002-2003. Income arising from international transactions has to be computed having regard to arm’s length pricing. Costs or expenses allocated or apportioned between two or more associated enterprises also follow an arm’s length rule. The basic criterion determining whether an enterprise is “associated” is participation in management, control or capital (ownership) of one enterprise by another enterprise. Participation may be direct or indirect or through one or more intermediaries. It appears that one may go to any layer of management, control or ownership in order to assess association.

Link here.


The IRS has proposed new regulations that will significantly reduce the tax filing burden for nearly 950,000 small business owners. Beginning January 1, 2006, certain employment tax filers will be able to file the new Form 944 (Employer’s Annual Federal Tax Return) once a year rather than filing Form 941 (Employer’s Quarterly Federal Tax Return) four times a year. The new Form 944 will reduce burden on eligible small employers who file quarterly returns with little or no employment tax due. Most employers who file Form 944 will be able to make a single payment with their annual return. Eligible employers are those with estimated annual employment tax liability of $1,000 or less.

New employers who expect to owe $1,000 or less in total annual employment tax (approximately $4,000 or less in annual wages) also are eligible to file Form 944. These employers can indicate their estimated tax amount when applying for their EIN (Employer’s Identification Number) on Form SS-4. The IRS will notify the employer to file either Form 944 or Form 941 in the same notice indicating the taxpayer’s new EIN.

Link here.

Treasury and IRS finalize rules regarding Roth 401(k) contributions.

The U.S. Treasury Department and the IRS issued final regulations regarding sections 401(k) and 401(m) related to designated Roth contributions. Roth contributions were added to the Code by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and are effective for taxable years beginning after December 31, 2005. Designated Roth contributions allow for employees to designate all or a portion of their section 401(k) employee deferrals as Roth contributions, which would receive treatment much like a Roth IRA contribution, i.e., they would be contributed on an after tax basis, but qualified distributions of those contributions, plus earnings, would be tax-free.

Link here.

IRS hikes fees for certain advanced rulings.

Following a little-publicized announcement earlier this week, the IRS is to dramatically hike some of the fees that it charges for advice and advanced rulings to business and individual taxpayers on certain complex tax issues. Starting next month, the IRS will charge anything from $500 to $3,000 for an advance ruling on the tax consequences of unusual rollovers from 410(k) plans into other types of retirement account. Last year, the agency charged just $95 for the same service. In other areas, business owners enquiring about their simplified employee pension plans face a fee of $9,000, up from $2,750, while multinational businesses that need to know the amount of tax they owe on imported goods will have to pay as much as $50,000 – 10 times last year’s minimum fee.

IRS spokesman Terry Lemons was quoted as explaining that the new fees “more accurately reflect the cost to us of delivering the service,” and the agency also points out that certain fees for less well-off taxpayers are being reduced or eliminated next year, while mutual funds, insurance firms and marketers of retirement plans will see fees cut to $200 from $280.

Link here.



A new website has appeared on the internet to help people find and be informed about offshore banking accounts. “While many people associate offshore bank accounts with organized crime or illegal activities, this is mainly due to the fact that their only exposure to international banking has come from the cinema.” says Frank Hamilton, manager of Offshore Banking Accounts. “This site was created to inform people about this perfectly legal enterprise that can assist you in finance management. These types of accounts actually provide a much-needed service and are especially helpful to individuals or companies with international business holdings or those who work outside their own country.”

Offshore banking can provide easy access to funds, as well as distribute funds to international locations quickly and without a lot of red tape. These accounts are not intended to hide your assets for the purpose of tax evasion. Hamilton also points out 5 benefits of offshore banking accounts.

There are many myths and fallacies surrounding offshore banking. While you should make every effort to get as much information as possible before choosing an offshore bank facility, do not believe everything you hear.

Link here.


You may have heard of a group of nomadic people who call themselves “PTs” and wander around the globe. These letters stand for, among other things, “permanent tourist” or “perpetual traveler”. The idea for PTs came form a reclusive writer who calls himself W.G. Hill. As the story goes, Hill read an article by Charles Schultze, an international newsletter writer, who advocated the concept of becoming a “permanent tourist” or “perpetual traveler” thus not having a permanent residence in any one nation or place. Hill expounded on this seductive idea with a series of books that lead many of his readers to believe falsely that they could somehow free themselves of paying U.S. taxes by roaming the world and joining the PT movement.

The PT theory might have some validity if a person is a citizen of a country that imposes taxes on the basis of residence, such as Canada or the U.K. Those lucky persons may be able to reduce their national taxes significantly by taking up residence in an offshore tax haven and returning to their original nations only for a limited time each year. But the PT theory is not valid for U.S. persons (either U.S. citizens or resident aliens) who, under American law, are taxed on the basis of their citizenship or alien status. The U.S. person is subject to U.S. taxes on his or her worldwide income, regardless of where on earth he or she lives. There is a modest exception to U.S. income taxes, with up to $80,000 each year for income earned outside the U.S. being tax-exempt, if the U.S. person also lives and works outside the U.S. for at least 330 days in any 12 consecutive months and meets certain other requirements.

There is a way by which a U.S. person legally can become a PT of sorts – but it takes careful, long range planning and a degree of courage and determination, as well as expert tax and legal advice. One leading offshore attorney, Marshall Langer, calls it “the ultimate estate plan” – and that is expatriation. Legally, to benefit from the PT idea he or she, first, must acquire a second citizenship from another country, preferably one that taxes only on the basis of actual residence, such as Canada. The second step is to cease to be a resident of the U.S. and establish residence in another nation, hopefully a tax haven. Lastly, the U.S. person must formally end U.S. citizenship by signing a formal declaration at a US embassy or consulate in a foreign country, as prescribed by law.

Now the IRS can claim tax jurisdiction over ex-citizens for a period of 10 years, but if you and your assets are long gone they may have trouble collecting. And keep in mind most that nations, even ones that are tax havens for foreigners, will tax residents on the income earned within their borders.

Link here.


Sir Mark Thatcher has fallen foul of Monaco’s desire to clean up its image. The son of the former British Prime Minister, Margaret Thatcher learned recently that his bid to remain in the Principality has been refused. Sir Mark had been seeking permanent residence in Monaco, after being refused an entry visa to the U.S. in April last year following his conviction by a South African court for his part in a plot to stage a coup in the oil-rich African state of Equatorial Guinea. Thatcher was given a four year suspended jail term and fined $500,000 in a plea bargain, and is also no longer welcome in South Africa, where he had resided from 1995.

However, Monegasque officials have made it clear that Thatcher’s temporary residence permit will not be renewed, and some reports have suggested that he will be ejected from the Principality before the temporary permit expires. While officials have not given specific reasons as to why Thatcher is no longer welcome in Monaco, one spokesman referred to “the wish of Prince Albert, at the time of his accession to the throne, to put ethics and morality at the heart of life in Monaco.” Prince Albert II, who assumed the throne following the death in April of his father, Prince Ranier, has stressed his commitment to continuing the campaign, launched by his father, to crack down on money laundering and improve the reputation of the Principality.

Link here.


CIMA has released its annual report for 2004/2005 which shows continuing growth in the jurisdiction’s offshore business sectors, despite the impact of Hurricane Ivan in September 2004. The report records that during the year to the end of June 2005, the number of active mutual funds regulated by the Authority grew by 21% to 6,527 funds at 30 June. Meanwhile, captive insurance licences increased 7% to 709. In the banking sector, while the total number of banking and trust licences declined by 22 to 312, due mainly to consolidations worldwide, the assets and liabilities of licensees increased. Total international assets booked through banks in the Cayman Islands stood at $1,265 billion at 30 June and liabilities totaled $1,250 billion at the same date.

In addition, the Authority negotiated and signed several instruments enabling the lawful exchange of information with international and local authorities. These included bi-lateral memoranda of understanding with Bermuda and the Isle of Man, and a multilateral MOU with nine regional regulators. CIMA processed over 100 requests for assistance from overseas regulatory authorities.

Link here.


The Bahamas has been rated as the top IFC in the western hemisphere by the banking industry magazine, The Banker. Inaugurating its first ever “Financial Centers of the Future” awards, The Banker said that the time had come to “provide recognition to those centers excelling in terms of growth … quality of regulation and supervision; infrastructure and business support services; as well as overall political and economic stability.” The magazine, a Financial Times publication, said that it awarded the accolade to The Bahamas on the basis of its attractive location, favorable tax environment, political stability, legal structure and regulatory framework. The Cayman Islands was awarded the runner-up spot by the magazine.

The Isle of Man scooped the European award, with Jersey nominated as the runner up. In Asia Pacific, the magazine deemed Singapore to be the leading IFC, with Sydney in second place. Meanwhile, Bahrain was awarded the best IFC in the Middle East and Africa, with Dubai the runner up.

Link here.



It is not every day you see a mainstream newspaper step outside the safe zone and take up the activist role. The Oakland Tribune is daring to do so. An editorial last week titled “Big Brother is watching” listed some of the most egregious examples of how George Orwell’s 1984 has been becoming truer and truer of America itself. “It took 21 years longer than expected, but the future has finally arrived. And we don’t like it … We are fighting a war with no end to create a peace with no defined victory. We occupy a foreign land that doesn’t want us, while at home our civil liberties are discounted … Meanwhile, our government is becoming omnipresent, spying on us whenever it deems it necessary. War is peace. Freedom is slavery. Ignorance is strength. George Orwell was right after all.”

The editorial went on with more background on the Orwell work itself, then issued an appeal to its readers. “We think it’s time for Congress to heed the warning of George Orwell. To that end, we’re asking for your help: Mail us or drop off your tattered copies of 1984. When we get 537 of them, we’ll send them to every member of the House of Representatives and Senate and to President Bush and Vice President Dick Cheney. Feel free to inscribe the book with a note, reminding these fine people that we Americans take the threat to our liberties seriously. Remind Congress that it makes no sense to fight a war for democracy in a foreign land while allowing our democratic principles to erode at home. Remind President Bush that ours is a country of checks and balances, not unbridled power. Perhaps our nation’s leaders can find some truth in this fiction and more carefully ponder the road we’re traveling. Bring or mail your books to the Oakland Tribune, 401 13th St., Oakland CA 94612. Doors are open from 8 a.m. to 5 p.m.”

Link here.


The Department of Homeland Security will begin testing passports embedded with radio frequency identification (RFID) technology at the San Francisco International Airport mid-January, a spokesperson for the agency said. Australia, New Zealand and Singapore have begun to issue passports to travelers with RFID chips. Many pass through the San Francisco, making it a likely location to test the technology, according to Anna Hinken, a US-Visit spokesperson at the Department of Homeland Security. “We’re bringing technology to the borders and chose RFID as one to help reach the goals of expediting safe entrance into the United States,” she said.

In October, the U.S. State Department issued final regulations on passports issued after October 2006, stating all would have embedded RFID chips that carry the holder’s personal data and digital photo. Specifications for the passports were developed by the International Civil Aviation Organization (ICAO), a United Nations agency.

There are more trials underway. RFID chips have been embedded in I-94 forms. People who frequently cross U.S. borders to work, for example, are required to carry these forms. Tests at the five border crossings will continue through spring 2006. A formal evaluation on the project is scheduled by March. The department will then make a decision on whether to continue the program.

Link here.


A group of German privacy hackers have come up with a portable device that can wipe a passive RFID-Tag permanently. While it is known that RFID tags could be wiped, it usually took some fairly cumbersome microwave gear to get the job done, and the result could damage whatever the tag was installed on. But, according to the group’s website here, two developers have managed to make a functioning prototype and produce plans that everyone can use to build their own RFID-Zapper. The site says that RFID-Tags are likely to further threaten and compromise the privacy of consumers.

Currently it is possible to send an RFID-Tag to sleep, but the privacy group feels that this is bad because it can be can be reactivated without your knowledge. “To defend yourself against such measures, you might want a small, simple and relatively appealing gadget to permanently deactivate RFID-Tags around you and to deactivate RFID-Tags in recently bought clothes without damaging them,” they say. The RFID-Zapper generates a strong electromagnetic field with a coil, which should be placed as near to the target RFID-Tag as possible. A strong shock of energy disables the Tag.

Link here.



Caught in gratuitous and illegal spying on American citizens, the Bush administration has defended its illegal activity and set the Justice (sic) Department on the trail of the person or persons who informed the New York Times of Bush’s violation of law. Note the astounding paradox. The Bush administration is caught red-handed in blatant illegality and responds by trying to arrest the patriot who exposed the administration’s illegal behavior. Bush has actually declared it treasonous to reveal his illegal behavior! His propagandists, who masquerade as news organizations, have taken up the line. To reveal wrong-doing by the Bush administration is to give aid and comfort to the enemy.

Compared to Spygate, Watergate was a kindergarten picnic. The Bush administration’s lies, felonies, and illegalities have revealed it to be a criminal administration with a police state mentality and police state methods. Now Bush and his attorney general have gone the final step and declared Bush to be above the law. Bush aggressively mimics Hitler’s claim that defense of the realm entitles him to ignore the rule of law. Bush’s acts of illegal domestic spying are gratuitous because there are no valid reasons for Bush to illegally spy. The Foreign Intelligence Services Act gives Bush all the power he needs to spy on terrorist suspects.

The problem is that Bush has totally ignored the law and the court. Why would President Bush ignore the law and the FISA court? It is certainly not because the court in its three decades of existence was uncooperative. There are two possible reasons. One reason is that the Bush administration is being used to concentrate power in the executive. The other reason is that the Bush administration could not go to the FISA secret court for warrants because it was not spying for legitimate reasons and, therefore, had to keep the court in the dark about its activities. What might these illegitimate reasons be? Could it be that the Bush administration used the spy apparatus of the U.S. government in order to influence the outcome of the presidential election? Could we attribute the feebleness of the Democrats as an opposition party to information obtained through illegal spying that would subject them to blackmail?

The Bush administration, backed by the neoconservative Federalist Society, has brought the separation of powers, the foundation of our political system, to crisis. The Federalist Society, an organization of Republican lawyers, favors more “energy in the executive”. Distrustful of Congress and the American people, the Federalist Society never fails to support rulings that concentrate power in the executive branch of government. September 11, 2001, played into neoconservative hands exactly as the 1933 Reichstag fire played into Hitler’s hands. Fear, hysteria, and national emergency are proven tools of political power grabs. Now that the federal courts are beginning to show some resistance to Bush’s claims of power, will another terrorist attack allow the Bush administration to complete its coup?

Link here.


Police were given sweeping powers to arrest people for every offence, including dropping litter, failure to wear a seat belt, and other minor misdemeanors. The measures, which came into force on January 1, are the biggest expansion in decades of police powers to deprive people of their liberty. Prior to 2006, officers could generally arrest people if they suspected them of committing an offence which carried at least five years in prison. They will now have the discretion to detain someone if they suspect any offence and think that an arrest is “necessary”.

The civil liberties organization Liberty said the change represented “a fundamental shift” in power from the public to the police and the state and was open to misuse. It pointed out that powers to stop people under anti-terrorist legislation, which the public had been reassured would be applied correctly and sparingly, were wrongly used against an elderly heckler at the Labour Party conference this past autumn. There are also worries that the new arrest laws will create major problems for constables, whose judgment on the “necessity” of an arrest is likely to be routinely challenged in the courts, particularly under human rights legislation.

Officers will have to satisfy themselves of “a person’s involvement or suspected involvement or attempted involvement in the commission of a criminal offence” and that there are “reasonable grounds for believing that the person’s arrest is necessary.” They will also have the power to take digital photographs of suspects on the street when they have been arrested, detained or given a fixed penalty notice. The Home Office said the move would save time spent in taking suspects to a police station to be photographed and that it would “greatly reduce the ability of suspects to deny that they were the person in question.” But many people fear that the move will create a vast database of photographs of innocent citizens which could be kept even if the police decide not to take any further action against them.

Hazel Blears, the Home Office minister, said, “It is vital that the police are equipped with the powers they need to enable them to do their jobs properly and effectively. The powers need to be updated to reflect modern policing priorities and the changing nature of criminal activity. We need to maintain the crucial balance between the powers of the police and an individual’s rights. The introduction of a single, rationalized power of arrest simplifies arrest powers and requires the police officer to consider the necessity of the arrest.”

Link here.


The FIBA said it will bring together regulators and financial executives to analyze the new USA Patriot Act regulations with a meeting in Miami. Pat Roth, FIBA executive director, said the banking industry has been waiting for the implementation of the regulations – known as Section 312 – for more than four years. Section 312 was part of the original USA Patriot Act, which Congress passed in October 2001. However, the final regulations to implement Section 312, which covers private banking and correspondent banking, were not published until last month. Due to Section 312, FIBA said, securities broker-dealers, futures commission merchants and introducing brokers in commodities are now specifically included and must apply the same anti-money laundering provisions the USA Patriot Act requires of banks.

“U.S. financial institutions will need to analyze what they are currently doing and determine whether additional enhanced due diligence will be necessary for their international transactions,” FIBA said. “Foreign banks outside the U.S. should also pay close attention to Section 312, since it will impact their ability to do business with banks in the U.S.” Roth said one of the goals of FIBA’s annual conference this year is to help the international financial sector understand and apply Section 312.

Link here.


Oppenheimer fined $4 million by NYSE.

New York Stock Exchange member Oppenheimer & Co. got a rude pre-New Year’s awakening from the exchange’s regulatory body: fines totaling $4.15 million as a result of two separate disciplinary actions. According to the NYSE, Oppenheimer was assessed $2.8 million for deficiencies in its anti-money-laundering (AML) program – an action jointly brought by NYSE and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) – and $1.35 million for operational failures traceable to the integration of acquired brokerage accounts in 2003. In total, the penalty is one of the 10 biggest levied by NYSE regulators over the last quarter century, according to an NYSE Regulation spokesperson.

“A broker-dealer cannot place the financial markets and its customers at risk by its own inadequacies, especially in the areas of anti-money laundering and customer accounts,” said Susan L. Merrill, NYSE Regulation’s chief of enforcement. “As these cases illustrate, adequate staffing, infrastructure and procedures are a prerequisite to doing business.” Oppenheimer settled by consenting to the fines and censure in both cases, without admitting or denying guilt. In the AML instance, Oppenheimer agreed to submit a report on its AML policies and procedures and the implementation of any policies, procedures and practices recommended in the regulators’ report. They found that from 2002 to 2004, Oppenheimer had violated AML and suspicious-activity-report (SAR) requirements as mandated by the Bank Secrecy Act. The firm’s alleged failure to develop an adequate AML program resulted in a lack of proper management oversight, internal controls and policies and procedures for detecting and capturing suspicious transactions.

The Bank Secrecy Act requires a broker-dealer to report any transaction of at least $5,000 that it knows, suspects or has reason to suspect may derive from illegal activity. According to the NYSE hearing panel, Oppenheimer failed to report on a timely basis suspicious transactions involving several million dollars that occurred in 2003. The firm also filed SARs involving a foreign branch that were materially incomplete “and contained only a general, generic description of the suspicious activity,” according to the hearing panel document.

Regulators have been scrutinizing financial institutions for AML violations since Riggs Bank of Washington was fined $25 million in 2004 for failing to flag suspicious transactions in foreign accounts. “It is unfortunate that many prominent U.S. financial institutions have been disobeying money-laundering, securities, and corporate-governance laws to conceal illicit activities,” commented Selva Ozelli, a CPA and international tax expert.

Link here.

Russian immigrant billionaire questioned in Israel money laundering case.

Israeli police grilled Russian immigrant billionaire Arkady Gaydamak in connection with an international money laundering probe, prompting him to announce he was suspending all charitable contributions. Police spokesman Mickey Rosenfeld said Gaydamak, who leaped to fame in Israel last year by buying the Betar Jerusalem soccer club, was questioned by investigators probing suspected money laundering in Bank Hapoalim, the country’s largest bank. Gaydamak had no immediate comment on the interrogation, which Israeli media said lasted seven hours and was continuing into the afternoon. Israel Radio put the scale of the suspected money laundering at $50 million.

But Gaydamak, an international businessman who has been active in areas ranging from banking to agriculture and mining, said in a statement that he was suspending all contributions to at least a dozen charities in Israel. “This is an unreasonable situation whereby police are not substantiating suspicions or real charges against him, while at the same time certain police officials are creating a public mood of a trial and verdict,” said the statement issued by public relations firm Gitam Porter Novelli. “Until a final and clear decision is made by the national authorities about the sources of his money, Mr. Gaydamak is ceasing all contributions and aid to organizations and groups with which is he in contact,” it said. Since purchasing Betar for an undisclosed sum, Gaydamak has become one of the most talked-about men in Israel.

Link here.

Cook Islands has been conditionally removed from the FATF “blacklist”, but the ante is being upped.

The Head of the Cook Islands Financial Intelligence Unit (FIU), Cath Kara, recently met the newly appointed chairman of the FATF review group Mr. Kanzaki. Mr Kanzaki’s predecessor Mr. Kawakami visited the Cook Islands in November 2004 to evaluate progress and to “decide” whether the Cook Islands should be removed from the “blacklist”. The decision was favorable and the Cook Islands was conditionally removed in February 2005. This removal will be further discussed at the FATF Plenary in South Africa in mid-February 2006. The chairman and the FATF secretariat are happy with the progress of the Cook Islands and do not see any reason for the Cook Islands not to be fully removed from the detrimental “blacklist” at this plenary.

According to Kara, the conditions imposed by the FATF have been fulfilled BUT there are still some implementation issues which if not rectified could work against the country. The FATF has upped the ante by amending the recommendations. The updated recommendations are more detailed and they must remain committed to full implementation prior to the evaluation visit. Kara strongly urges and encourages both private sector and government agencies to remain diligent and commit resources to implement their obligations and responsibilities under the Anti-Money Laundering and Combating of Terrorist Financing laws.

Link here.

War on money laundering claims first business casualty in South Australia.

Proposed Australian legislation to combat money laundering could have a big impact on small businesses, especially those in the financial service sector. It calls for banks, credit unions, stockbrokers, accountants, lawyers and others to have strategies enabling them to identify customers, report suspicious transactions and maintain transaction surveillance. The proposals were released by the Federal Government earlier this month and, although still only in the form of a draft Bill, already have claimed their first South Australian casualty.

Adelaide insolvency firm SimsPartners recently acted to wind up a workplace-based credit union that deemed the changes too onerous. SimsPartners partner Nick Cooper said one of the main difficulties was finding directors and managers who met the definition of “responsible persons” under the proposed laws. “The key objective of these changes is to prevent financial institutions failing, due to either incompetence or dishonesty of management, board members, auditors and actuaries,” he said. “The minimum standard for a director of a credit union is to understand the role of a director and have a general knowledge of the institution, its business and its regulatory environment. Smaller workplace-based credit unions are generally formed by the members for the members and often recruit directors from their own ranks. While these directors are well-meaning, under the proposed regulations many do not have the skills to be deemed ‘responsible persons’.”

Mr. Cooper said the compliance costs for small to medium-sized businesses were also a challenge. He would not name the credit union that closed but said it decided the compliance costs, and the costs involved in training directors to fit the definition of fit and proper persons, was a major factor in its decision to disband.

Link here.

Money laundering booms in the UAE.

Money laundering is flourishing in the United Arab Emirates where fraudsters can pull off complex tax scams or buy speed boats with paper bags of cash with relative ease, officials say.

Link here. Sheikh Maktoum bin Rashid al Maktoum, the Vice President of the UAE and Ruler of Dubai has died at the age of 62 – link.

Bangladesh initiates drive against money laundering

Goaded by the recent spurt in terrorist activity, Bangladesh plans to bring in tighter controls to check money-laundering and inflow of funds from possible terrorist outfits. The country’s central bank will organize a yearlong training and awareness programme aimed at making money-laundering prevention regulations more effective. The major components of the program, expected to start from mid-January, are to train commercial bank officials and anti-money-laundering compliance officers. The central bank will also take up a public awareness program through the media, highlighting the negative effects of money laundering.

Link here.

Thailand Anti-Money Laundering Office targets southern insurgency.

The Anti-Money Laundering Office will seize assets of persons alleged to have involved in spreading unrest in Thailand’s far South, including hard cash which might, otherwise, be funneled out of the country. AMLO Secretary General Pol Maj-Gen Peeraphan Prempooti said that evidence was being gathered in order to seize the assets of the suspected insurgents under arrest warrants, especially those who might have deposited large sums of money overseas. Instead of leaving cash in domestic bank accounts, some suspected insurgents transfer it to overseas banks to evade possible confiscation by AMLO, according to Pol Maj-Gen. Peeraphan.

Donations in cash had been provided to foundations set up by insurgent networks in the far South, but much had been embezzled by the suspected insurgents only to serve their own interests, the AMLO chief said. They had bought automobiles and homes and sent their children to European countries to advance their studies with the embezzled money, he said.

Link here.


The Greek Cypriot government has reacted angrily to reports that Cherie Booth, a leading barrister and wife of the British Prime Minister Tony Blair, is defending a British couple in a politically sensitive case involving property rights in the Turkish-occupied part of the divided island. According to reports in the British media, Ms. Booth’s chambers, Matrix, last month confirmed that she would be heading the defence of David and Linda Orams, who were accused in a Cypriot court in April of illegally occupying an originally Greek Cypriot property in the north of the island. The couple were ordered to demolish their home and return the property to Meletis Apostolides, the Greek Cypriot who owned the property prior to the Turkish invasion in 1974.

As the Greek Cypriot ruling cannot be enforced in northern Cyprus, lawyers lodged the judgment with the British High Court. This means that the decision can be applied against the Orams’s assets in Britain. It is believed that Ms. Booth, who specializes in European human rights law, took up the Orams’s appeal after being approached by their London-based Turkish-Cypriot lawyers. While Downing Street has insisted that Ms. Booth is acting strictly in a professional capacity as a leading QC, the Greek Cypriot government has found it hard to separate her involvement in this most politically sensitive of cases from her status as the wife of the British Prime Minister, and Nicosia has suggested that the Turkish North wishes to make political capital from the affair. “For our part, we wonder why the services of Mrs Blair were requested in this particular case,” Greek Cypriot government spokesman Kypros Chrysostomides stated. “It is clear that the Turkish lawyers who give instructions to Mrs. Blair want to exploit her capacity as wife of the British Prime Minister, presumably believing that in this way they can influence the British justice as well,” he added.

Mr. Chrysostomides also pointed out that the UK government has advised British citizens against purchasing property in Northern Cyprus because title cannot be guaranteed and the breakaway region is recognized only by Turkey. It is known that many hundreds or even thousands of British buyers have been taking advantage of lower property prices in the north, despite worries over title and possible compensation claims.

Link here.


In an interview given ahead of his country’s assumption of the EU presidency, Austrian Chancellor, Wolfgang Schussel condemned the ECJ for what he suggested was interference in the national affairs of EU member states. Mr. Schussel argued that the ECJ “has in the last couple of years systematically expanded EU competencies, even in areas where there is decidedly no community law. … Suddenly, judgements emerge on the role of women in the German federal army, or on access of foreign students to Austrian universities – that is clearly national law.” [Ed: Does this have a familiar ring to it?]

The Austrian Chancellor revealed that debate on the future role of the ECJ will be one of the Austrian presidency’s key priorities during its six month stint at the helm of the EU. Most of the ECJ’s high-profile rulimgs have been wtih respect to the single market, which is clearly within the EU’s jurisdiction, and many of them have had to do with taxation, often to the detriment of Member State budgets. It may be that this underlies Austria’s unhappiness with the Court as much as anything else.

Link here.



The Political Folly Awards of 2005

As with bestselling books by big authors from publishing conglomerates and Oscar-winning films from giant studios, so, when it comes to the Political Folly Awards, the famed PFs, ever fewer members of the Bush administration and associated bureaucrats, spooks, and Pentagon officials took ever more of them in 2005. Unfortunately, our secret panel of judges, all former members of Foreign Intelligence Surveillance Act (or FISA) courts, saw no alternative but to distribute the PFs as they did. We want, however, to give you our ironclad guarantee of probity as we run through the winners for 2005: No unwarranted decisions were made this year.

Link here.

The 10 Most-Read Articles on LewRockwell.com for 2005 – link.

Beware the New Year: a threat assessment.

With Patrick J. Fitzgerald working full-time to bring the corruption at the heart of the Bush presidency to light, and other investigations into the dark heart of this administration making substantial progress, the prognosis for 2006 may seem unnaturally bright – especially if, like me, you have been following every twist and turn of Fitzgerald’s probe. However, it would not hurt to take a walk on the dark side, if only to tamp our expectations down to a more realistic level. This means conducting a threat assessment, that is, listing and analyzing the major factors threatening the peace of the world, looming darkly just over the horizon. …

Link here.

Prognostications for the coming year.

“History can predict nothing except that great changes in human relationships will never come about in the form in which they have been anticipated,” warned Dutch historian Johan Huizinga. Famous misanthrope Ambrose Bierce once ironically defined the future as “that period of time in which our affairs prosper, our friends are true and our happiness is assured.” In all sincerity I hope that my glummer predictions for the coming year fail and that we all have a prosperous, amicable and happy 2006. Happy New Year!

Link here.

Global predictions for 2006.

Everyone thinks they can predict the future. No one really can except in the most general way, but that will not deter me from making mine! History and some knowledge of the world give us a cloudy glimpse of the future. Here are some predictions with which to conjure.

Link here.


It seems like a good time to catch up on the so-called “bird flu threat”. The truth is, although the actuality of the “pandemic threat” appears to be vastly exaggerated, this is turning out to be such a blatant example of how governments and bureaucracies can create a problem, while purporting to solve one that really was not there before, it is instructive just to follow the trails it has left in its wake. The gist of what is now coming to light is this:

A.) The medicine most often recommended for combating avian flu, Tamiflu (produced by Roche Pharmaceuticals, whose American subsidiary used to be headed by current Bush Administration Secretary of Defense Donald Rumsfeld), is turning out not only to be ineffective in curing or limiting that disease, the virus is actually proving to be mostly immune to its effects.

B.) The expected effects of the migration of wild birds have apparently been negligible to non-existent, in spreading the deadly H5N1 virus, even among birds. The only real “outbreaks” continue to occur on chicken and duck farms in Asia, where primitive methods of hygiene are now being altered by government edict, so that personal handling of diseased fowl is limited.

C.) The method of waiting until the bird flu mutates into a human-transferable version, and then hoping to vaccinate humans with a preventive or curative injected live (but denatured) virus, would be called “reversing cause-effect” by most sane people. Fortunately, some researchers in China have just announced the creation of a vaccine that will affect the birds themselves, and be administered orally, nasally or even as a spraying potion. If they can stop the virus from spreading among poultry, the need for multi-billion dollar research campaigns and widescale human vaccinations will become as spurious as they were with the previous panic in the 1970s over the “swine flu epidemic”.

D.) And finally, we have confirmation of something that has been rumored but not confirmed up until now. This “avian flu” has actually been with us for over 45 years, since at least 1959 when it was identified in Scottish chickens. It now affects a few more species of birdlife than it once did, and it is more likely to kill them without treatment! Beyond that, it is still just meandering along, pretty much as it was back when it was first sighted and identified.

Oh and lest we forget, these new programs being approved by Congress include a side provision that will indemnify all the Big Pharma manufacturers from any liability, in case their miracle drugs turn out to be either ineffective, or worse than the cure, due to the usual list of side effects that seem to keep cropping up with pretty much everything the FDA approves these days. And the police state advocates are fairly drooling, since if they can convince the American public just how serious this alleged danger is, they are all ready to impose even stricter restrictions on our lives, on behalf of “the emergency that is certain to happen” according to “leading health experts”. Don’t you feel better, knowing your government is bound and determined to turn this into yet another “War on” scenario?

Link here.


America now faces a catastrophic dilemma in Bush’s World War Against the Muslim World, and its occupation of the heartland of that world, the Persian Gulf region. The U.S. will suffer great losses if it continues this policy and great losses if it ends them. The U.S. can continue to invade, occupy and otherwise control (through proxy regimes) the Muslim World to control their oil and, thereby, unintentionally feed the vast “blowback” the U.S. has already created, a raging, soaring firestorm of Muslim Rebirth aimed (as Muslims see it) at ending the American rule of their world and planned destruction of Islam.

The U.S. could only “win” this war by bankrupting itself and turning the world permanently against itself. Or the U.S. can withdraw from all of its vast military bases in the Muslim World, end its vast wars against Muslim nations, and end its support for its pseudo-Muslim proxy police states, thereby ending its vast feeding of the Rebirth of Islam movements, but also ending direct control over the oil. No halfway measures are possible. If the U.S. withdraws partially, that will be seen as weakness and the Muslim Revolution Against the American Threat will soar faster. No American “New Initiative” is possible in the Muslim World because the U.S. is now seen as The Great Satan incarnate by almost all Muslims, an evil force that is absolutely bent on destroying Islam by force and by pop-culture and bribes.

Each of the horns of this dilemma presents some awful prospects. The rational decision maker would be concerned with trying to see which looks less catastrophic. It is not at all clear that Bush et al will make their decisions for the future of America and the world on any rational basis. They are desperate not to suffer the awful wound to their vanity of “losing a war”. But it is vitally important for Americans to try to see through all the lies and real complexities of the situation and recognize that there are now only these two very broad choices in the awful dilemma Bush et al have unintentionally created for us.

Over the past half century the U.S. has paid for and helped in every way the Muslim World, from North Africa to Indonesia, to control and milk the vast wealth of Muslim states, especially their oil wealth. The U.S. has invaded and occupied two of the largest Muslim states, Iraq and Afghanistan. The U.S. has also built massive military bases throughout the oil-rich Persian Gulf and is now doing so in the oil-rich Central Asia. This presents any intelligent Muslim among this vast nation of nearly one and a half billion people with a simple choice. One, he can go along with the American Imperial Tyranny which rules over almost all Muslims to get ahead personally and help modernize the Muslim World, thereby giving him and all Muslims a chance for a more prosperous life, but also feel as if he is losing his soul as a Muslim one little step at a time. Or, two, he can try to reverse this half-century of increasingly oppressive and tyrannical American rule over the Muslim World by becoming part of the vast and soaring Born-Again Muslim Community, stigmatized as “Jihadism”.

This is a soul-wrenching choice. It would appear that somewhat more than half of them, varying from one nation to another, have already chosen to forsake the path to what they see as loss of their souls. They are profoundly anti-American now, probably around 80% or more of them. Even Pakistan and Iraq, among the most secularized and Westernized Muslim nations, have become extremely radical Muslim nations in just a few years. This is a remarkably rapid change. It seems very likely that the continued American occupation or other control of their nations through tyrannical proxies will now rapidly convince almost everyone to become radically Islamist and radically anti-American.

I think the rational choice is to get out of the region, and try to make amends with all of the Muslim World, just as we should avoid terrible wars with China, Russia, Europe, and all other significant nations out of simple self-interest. America could not even defeat the small nation of communist Vietnam. It is losing its vast war against the tiny guerilla armies of the tiny Sunni nation in Iraq. It cannot possibly win a World War against an immense, mobilizing Muslim World that now sees America as hell-bent on destroying Islam.

Link here.


The dilemma the U.S. has had for a half-century is that the priorities it must impose on its budget and its imperial plans have never guided its actual behavior and action. It has always believed, as well it should, that Europe and its control would determine the future of world power. But it has fought in Korea, Vietnam, and now Iraq – the so-called “Third World” in general – where the stakes of power were much smaller.

The American priorities were specific, focused on individual nations, but they also set the U.S. the task of guiding or controlling the entire world – which is a very big place and has proven time and again to be far beyond American resources and imperial power. In most of those places in the Third World where the U.S. massively employed its power directly it has lost, and its military might has been ineffective. The U.S.’s local proxies have been corrupt and venal in most nations where it has relied upon them. The cost, both in financial terms and in the eventual alienation of the American public, has been monumental.

The Pentagon developed strategic airpower and nuclear weapons with the USSR as its primary target, and equipped itself to fight a massive land war in Eastern Europe. Arms makers much preferred this expensive approach, and they remain very powerful voices in shaping US foreign and budgetary policy. But the Soviet enemy no longer exists. The U.S. dilemma, and it is a fundamental contradiction, is that its expensive military power is largely useless as an instrument of foreign policy. It lost the war in Vietnam, and while it managed to overthrow popular regimes in Brazil, Chile, and elsewhere in Latin America, its military power is useless in dealing with the effects of larger social and political problems – and Latin America, the Middle East, and East Asia are more independent of American control than ever. Strategically, also, the U.S. is far worse off in the oil-rich Middle East because it made every mistake possible.

The basic problem the world today confronts is American ambition, an ambition based on the illusion that its great military power allows it to define political and social trends everywhere it chooses to do so. Now just as the Warsaw Pact has disappeared, NATO is well along in the process of breaking up and going the way of SEATO, CENTO, etc. The Bush Administration produced a crisis with its alliance and has created profound instability in Iraq, which was always an artificial state since the British created it after World War I resulted in the end of the Ottoman Empire. The world is escaping the U.S., but it is also escaping the forms of control which were in place when the USSR existed and states were too poor to build nuclear weapons. The world is more dangerous now, in large part because the U.S. refuses to recognize the limits of its power and retains the ambitions it had 50 years ago. But the spread of all kinds of weapons also has its own momentum – one that U.S. arms exports aids immeasurably.

We live in a tragic world and war is considered more virtuous than peace – and since arms-makers profit from wars and not peace, conventional wisdom is reinforced by their lobbies and by preaching the cult of weaponry. The world is escaping American control, and Soviet prudence no longer inhibits many movements and nations. World opposition is becoming decentralized to a much greater extent and the U.S. is less than ever able to control it – although it may go financially bankrupt and break up its alliances in the process of seeking to be hegemonic. This is cause for a certain optimism, based on a realistic assessment of the balance-of-power in the world. I think we must avoid the pessimism-optimism trap but be realistic. Although the Americans are very destructive, they are also losing wars and wrecking themselves economically and politically. But for a century the world has fought wars, and while the U.S. has been the leading power by far in making wars since 1946, it has no monopoly on folly.

But it is crucial to remember that the U.S. is only a reflection of the militarism and irrationality that has blinded many leaders of mankind for over a century. The task is not only to prevent the U.S. from inflicting more damage on the hapless world – Iraq at this moment – but to root out the historic, global illusions that led to its aggression.

Link here.


Things are grim hereabouts. We are now deep in the Mexican winter. It is hellishly cold. You almost need a long-sleeved shirt. Instead I wore my thick tee that said Soy Un Autentico Hijo de la Chingada, this constituting my formal wear. It is like truth in packaging. Bodacious tropical flowers swarmed over Stu’s balcony, all purple and orange like complex bruises and flaming lipstick red. They glow as if they had batteries. (I was visiting Stu on Lake Chapala, a nasty traffic-ridden gringo enclave near Guadalajara.) The flowers had a nervous look, as if realizing that a drop of a mere forty degrees Fahrenheit would cause them to freeze. It was a near thing. In the background some damned fool was water-skiing on Lake Chapala. If he fell in that sump of concentrated chemical offal he would mutate into something with tentacles and climb up trellises to eat children. Probably a good idea. I mean, things with tentacles have to eat too.

It being New Year’s, I doubtless ought to say something profound about the passage of time, or the meaning of life, or What is Art? Or the significance if any of the last year. It is what columnists do, although we do not know any more about it than anyone else. (You did not know that time was passing, right? You need me to tell you? OK. It is. Send money.) All right, then. Here is Cosmic Truth: Each year is more comedic than last. We are all idiots. Life is a sitcom. There is no hope. Now you know.

Being in Mexico adds perspective, at least if you watch the great booby hatch to the north. I especially like the Warn Terr, the preferred toy of the latest Bush. Down here we read all about how the feddle gummint is keeping terrace out of the U.S. so everyone will be safer than probably lots of them want to be. (I’d rather be in danger. Just leave me alone.) Anyway, it is all PR. A couple of weeks back a friend drove a Mexican woman and her two kids to the airport in Guad to fly to a border town where a coyote was going to smuggle them across the border. And did. Nobody thought much about it. Coyotes are regarded hereabouts as a form of public transportation, like light rail. Only the gringos are clueless. But that is a given.

Crossing the border illegally is as illegal as downloading illegal music. How, I asked a Mexicana whose brother frequently crosses, do they do it? “Oh, tunnels, coyotes, people mail passports back. There are lots of ways.” Oh. When you consider the ease with which drugs go into the U.S., and get delivered to every small town, at prices you cannot refuse, you realize that the Warn Terr could not keep the Queen Elizabeth II from coming across the border on wheels. With a marching band in front. Criminal enterprise is far more efficient than government. Though probably less criminal.

Things look strange to the North, very strange. After profound analysis and some air guitar, Stu and I decided that the gringos actually want a police state. (Remember, it was late at night. But I think the same thing in the morning.) Why wouldn’t they? The folk who yowl about civil liberties like alley cats undergoing a hard birth are mostly writers and artists and others of the professionally disagreeable, who are always yelling, “Yo momma” at politicians. They amount to … what? Two percent of the population? The rest want 500 channels on the cable, beer, porn, easy sex and two weeks a year at Disney World. They do not read much, largely because of honest inability, and count on their fingers, up to maybe six. They would be perfectly happy to have storm troopers on every corner. Uzis and flack jackets lend drama to lives that do not have any. Hitler was a consumer product.

Link here.


In order to decrease the size of government and the State, it’s helpful to understand what makes them grow larger in the first place. Robert Higgs calls our attention to this important question in Crisis and Leviathan, in which he reviews the main explanations such as the impact of interest groups and focuses our attention on the roles of crises and ideology. I have stressed that over long periods of time people tend to follow out the fundamental rules of the game. If these allow gains through the State, then sooner or later, political entrepreneurs will discover and invent ways to capture such gains.

Here I consider a related process called the “tyranny of the status quo”, which is a tendency for certain situations to stay the same, as they are, and not revert to what they were before. The present rules over the past and the future. We tend to stick and be stuck in our current rut. Milton Friedman popularized this idea regarding the permanence of government programs. For example, once Medicare is enacted, getting rid of it is well-nigh impossible. It becomes accepted and part of the status quo. The tyranny of the status quo helps government grow. While this is true, the status quo changes whenever any program, such as Medicare, is enacted. The tyranny of the status quo is not the whole story of why we have big government.

Existing conditions change, and so far in America they have usually changed in one direction since the Revolution. Governments tend to grow and States tend to gain power. This goes on until the system collapses through a revolution of some sort. At that point we need other models to describe why and when breakdowns occur and what happens thereafter. Enter Robert Higgs and others who wonder how and why this growth of the State occurs. There are several complementary explanations that describe the how of the process, even if they do not always get at the why of it. This growth is difficult to explain in detail, but less difficult in general form. In this respect the problem resembles that of understanding the specific ups and downs of the stock market. Even after they have happened, no one ever knows why they happened although they pretend to. However, the long-term growth mirrors that of the underlying economy.

We cannot understand the stock market in detail because its total action aggregates billions or trillions of bits of information that no one is privy to. Similarly, the “macr”q changes in our political system result from many individual “micro” decisions that we can never fully fathom. With due regard for the clan of conspiracy theorists who regularly regale me with the notion that there exists some group who for a hundred years has planned and plotted the political situation we are in with some aim in mind, which is either world government, barbarism, feudalism, or Armageddon (take your pick), I do believe that minds have been at work but in a far more complex mosaic of typically uncoordinated aims and actions than we or any historians will ever figure out. Some of what has happened we can understand, but there are inherent limits to the knowledge we can attain. Despite the fact that individuals take action, we do not get the State that we deserve, even though it does in a way reflect individual acts and values.

One explanation (among several) of our Brobdingnagian State is that growth of government sometimes occurs via a ratchet effect. A big event happens, like World War I. The State assumes powers it did not have before the war. Afterwards, the status quo ante is never fully restored, even though the emergency, real, contrived, or imagined, is over. The new status quo is one of increased State power, perhaps with some reversion back to the previous situation. This rise and partial reversion is the ratchet effect. This story fits some events, but for the continuing onslaught of laws from 1965 onwards it does not seem to apply. Pinpointing a shock like World War I or the Great Depression that creates the ratchet is easy. Understanding how the event maps into increased State power is where things get interesting and we know less. It appears to me that the powers-that-be work the electorate’s psychology to make this happen.

The main explanation of the tyranny of the status quo is “status quo bias”. The rulers create “events” that affect voter preferences. Once these events happen, the status quo bias sets in and voters support, e.g., the war. Status quo bias is a cluster of decision-making behaviors that have been measured experimentally and observed in practice by researchers in behavioral economics and finance. For example, people randomly given coffee mugs are more reluctant to sell them than people randomly given money are to buy coffee mugs. The ownership of the mug itself changes their preferences in favor of the mug. All a leader has to do is “endow” citizens with the war, instead of a mug. Once they take “ownership” of it, they will be reluctant to give it up. It is that easy.

Rulers do not actually require a change in ideology in order to get their way in a democracy and gain power. They can succeed in dominating the nation if enough of the electorate is made bereft of ideology, simply mute or dumb on critical issues. To help rulers succeed, public education needs only to remove minds from exposure to our culture’s founding ideas or present enough competing ideas so as to leave children confused and turned off of all ideology. Then the rulers can write their wills upon the tabulae rasae at opportune times.

Link here.


At the beginning of 2005, Sandy Springs was an unincorporated Georgia suburb with a history of grousing that its taxes were subsidizing the rest of Fulton County rather than funding needed services at home. At the beginning of 2006, it is the 7th largest independent city in the state, population circa 85,000, and has mostly succeeded in crawling out from under the Fulton authorities’ rule. The wealthy town’s new government consists of a mayor, a city council, and a skeleton crew of public employees. Nearly everything else, from public works to urban planning, will be provided by the private sector, with a reluctant county continuing to cover police, fire, and 911 services in the immediate future.

At first glance, that might look like a radical libertarian utopia. My friend Geoff Segal has written happily that “they privatized virtually every city function” and has joked about how that might affect the Free State Project. Mayor Eva Galambos certainly sounded like a libertarian as she opened her inaugural address last month, declaring that her town had “harnessed the energy of the private sector to organize the major functions of city government instead of assembling our own bureaucracy.” But there is a fly or two in the ointment, problems not just in Sandy Springs but with the way local officials across the country have come to think about privatization and property rights.

Most of Sandy Springs’ services are nominally provided by private industry. But the consumer is the government of Sandy Springs. For the individual citizen, there will be no competing companies with competing qualities, competing prices, competing anything. Different enterprises will contend for the cit’qs business, but the average resident will still face a municipal monopoly. It is just that the government is negotiating its contracts with companies rather than its own employees. When city leaders talk about privatization, that is almost invariably what they mean: a government contract, not an open marketplace. If you are not satisfied with the way the local trash collection agency does its job – or if you are reasonably satisfied, but still think you could get a better deal from someone else; or if you have no plans to switch yourself, but would like the company to face the spine-tickling prospect that you might – then you have no more recourse than you would if your garbagemen worked directly for the city.

Now, sometimes such semi-public services are an improvement, especially when the bidding process is competitive and transparent. Sometimes they are worse, especially when the process is closed or corrupt, or when there is not a bidding process at all. They are most likely to work well when the favored firm gets most of its profits in a real marketplace, where it has to learn customer-friendly habits to survive.

The second problem arrives when the city offers a “service” that the citizen would rather forego altogether. If the primary function of government is busybodyism, then Sandy Springs has proven itself adept at statecraft. On December 27, before the new government was even a month old, the city’s code officers have issued 51 written warnings for infractions such as not keeping up with property or having junk cars in full view of neighbors. Councilman Tibby DeJulio explained to The Atlanta Journal-Constitution that “People have property rights, but neighbors have property rights and we need to protect property values.” (Rare indeed is the local pol who understands that “property rights” and “property values” refer to two different ideas.) The movement to incorporate Sandy Springs was driven not merely by the benefits of spending tax dollars closer to home, but by the desire to spend that money enforcing a distinct vision of how the neighbors should behave. The result is not merely an increase in code enforcement, but new restrictions on strip clubs and porno shops.

I do not really buy the argument, but it is interesting that the best defense of this town is a federalist one, involving the virtues of competing jurisdictions and local autonomy rather than the fact that it is buying its services from formally private vendors. The best thing about Sandy Springs might not be the fact that you would want to live there, but the fact that you do not have to.

Link here.
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