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ABRAMOFF SCANDAL ANOTHER CASE OF FRAUD IN THE MURKY WORLD OF OFFSHORE CASINOS
Nail-biting congressmen who accepted gifts and entertainment from überlobbyist Jack A. Abramoff may have Konstantinos (Gus) Boulis to thank for their current predicament as much as their own poor judgment. Boulis, a Greek entrepreneur, was forced to sell SunCruz, his offshore casino operation, as part of a secret settlement with the feds in a fraud case – and the buyers were Abramoff and Adam Kidan (who pleaded guilty last month to criminal charges of defrauding lenders in the September 2000 deal). In fact, the August indictment in the casino case was strong enough to persuade Abramoff that he needed to bring the separate but intertwined federal probe in Washington, D.C. to a swift conclusion – or face a prodigious amount of jail time. So he pleaded guilty to three felony counts in the political scandal, as well as to two counts in the SunCruz affair, in exchange for becoming a cooperating witness.
Abramoff, 47, may have gotten rich off of kickbacks from Indian tribes he represented. But SunCruz was to have been a springboard for even greater wealth. His firm at the time, Preston Gates & Ellis, had done work for the offshore gambling operation. Acquired for $147.5 million, SunCruz was then an $80 million (sales) business, consisting of 11 boats in Florida and South Carolina. Abramoff and Kidan, a disbarred lawyer, planned to use the company to get additional management deals of Indian casinos and to push SunCruz’s operations into the Northern Mariana Islands in the Pacific. Abramoff and Kidan traveled to at least a dozen countries, including China and the U.K., to scout potential expansion spots for what they called “the shining star” of the industry.
But he and Abramoff had trouble with Gus Boulis. After selling his casino boats, Boulis threatened to kill Kidan – but was himself murdered in a hail of gunfire in February 2001 on a Fort Lauderdale, Florida street. After a lawsuit by the Boulis estate, Kidan pushed SunCruz into bankruptcy in June 2001. A U.S. magistrate judge found that Kidan and Abramoff falsified documents saying they had already paid $23 million in cash to induce a unit of Wells Fargo, along with Citadel Equity Fund, to come up with a $60 million loan to buy the business. By pleading guilty to those charges, as well as to fraud and public corruption in the D.C. case, Abramoff could face a decade in jail.Link here.
CHILE’S ROAD AHEAD
Chile’s steady course will continue regardless of who wins the runoff presidential election this Sunday. That election pits Socialist Michelle Bachelet, the daughter of an Air Force officer who died in Pinochet’s prisons, against Sebastián Piñera, a billionaire businessman who opposed Pinochet toward the end of his rule and managed to defeat Joaquín Lavín, the other conservative candidate, in the first round. The differences between Bachelet – representing the governing coalition that has been in power for 16 years – and Piñera, who has emerged as the new conservative leader, are not small, especially in relation to civil liberties and ideological roots. But, unlike every other Latin American country, whoever wins Chile’s presidential election will not alter the path that country has been following for a generation. Among developing nations nowadays, that can only be said of central European, Baltic and East Asian countries.
Former communist countries, especially the Baltic and the central European nations, have adopted a model based on free trade and political democracy under the rule of law. Elections revolve around small variations of that basic model. Thanks to this, and even though there is still a long way to go in order to complete the de-socialization of those nations, 40 million citizens have overcome poverty in the last six years alone. Among Latin American nations, the only equivalent case is that of Chile, where more than one million people abandoned poverty in the last decade and where no more than one fifth of the population suffers serious privations.
Chile has two great challenges ahead. First, it needs to deepen its reforms toward the free society. Secondly, the ruling coalition needs, at some point, to lose to the opposition so that Pinochet’s ghost can dissipate once and for all. Spain’s transition from dictatorship to democracy was not complete until the right, under José María Aznar, showed that it was no longer Franco’s right. Chile’s transition will not be complete until the governing center-right shows it has buried Pinochet.
As for the social and economic model, complacency is the real enemy. Chile is not yet a developed nation or a fully free society. Its per capita GDP, some $7,000, lags behind Israel, Cyprus and Puerto Rico. There are still too many poor people. And many other “emerging” countries are galloping ahead. Even Hungary, under communism a generation ago, has now practically eliminated poverty. Many reforms are pending in Chile, including tax, labor and education reforms. Because they will mean rolling back the dead hand of the state, a consensus will be needed along the lines of the consensus that has accompanied other reforms. Neither candidate has offered further reform along those lines. Without it, Chile will still shine by comparison with its neighbors, but in international terms will be middle of the table. The impressive results so far indicate there is no reason for Chileans to settle for middle of the table.Link here.
CHINA MULLS MORE MEASURES TO DISCOURAGE SECOND HOME OWNERSHIP
China is mulling a punitive new tax on those purchasing second homes, as the authorities continue in their quest to cool the housing market and increase the supply of adequate housing for low- and middle-income citizens. Su Kexing, vice director general of the Land Use Department of the Ministry of Land and Resources, told a recent Beijing seminar that new legislation will ensure residents of basic property will pay no property tax, while owners of second homes, villas and luxury residence will be taxed heavily. Su also warned that the authorities will crack down on developers and officials who continue to build villas despite their being banned by the State in 2003.
As part of China’s ongoing efforts to curb speculation and the construction of luxury apartments, Construction Minister Wang Guangtao announced last month that new policies would be designed to restrict land available for high-end developments while encouraging medium to low-priced projects. Last year, the government attempted to head off a real estate bubble by raising home-loan interest rates, limiting urban demolition and levying taxes on housing sales. However, Mr. Wang said that despite these efforts, the amount of housing available to low and middle-income families was inadequate.
The government is concerned that housing prices are steadily moving beyond the reach of ordinary citizens, particularly in growth centers like Shanghai, where prices have jumped nearly 70% in the past two years.Link here.
INVESTMENT CONFIDENCE RETURNING TO RUSSIA IN WAKE OF YUKOS AFFAIR
Russia saw a net inflow of capital into the private sector in 2005 for the first time in the post-Soviet era, suggesting that business confidence is slowly returning to the country after a period which saw the authorities become increasingly dictatorial in the business sector. Preliminary data published by Russia’s central bank last week showed that net inflows of private sector capital into Russia reached $300 million in 2005. This compares with a net outflow of capital of $8 billion in 2004 – up from a $1.9 billion outflow in 2003 – when a politically charged tax probe against the oil firm Yukos and its former chief executive Mikhail Khodorkosvky was reaching its height.
Deputy Prime Minister Alexander Zhukov told a televised meeting of the Russian Cabinet that the central bank data was evidence of a “positive change” in Russia’s investment climate. Confidence in the Russian business environment has taken a severe battering after the highly-publicized trial of former Yukos boss Khodorkosvky, who was jailed last year after being found guilty of tax evasion, fraud and embezzlement. It is a widely held belief that Khodorkosvky was punished more for his political ambitions than for tax crime, and it is felt by many observers that the breaking up of Yukos following its $28 billion bill for back tax was a ploy by the Kremlin to exert greater control over the oil industry.
Despite the recently unveiled figures, a slew of back tax investigations against other firms, not only in the oil industry, has exacerbated the feelings of uncertainty and insecurity experienced by many investors in Russia over the past eighteen months.Link here. Yukos hit with another claim for back tax – link.
DUBAI MERCANTILE EXCHANGE FORGING AHEAD WITH NEW COMMODITIES OPERATION
The Dubai Mercantile Exchange (DME) unveiled recent developments in the creation of a new commodities exchange that will initially develop and trade a Middle East Sour Crude Oil Futures contract. The DME aims to meet the growing market need for price discovery of Middle East Sour Crude Oil while simultaneously addressing the time zone gap between Europe and Asia by providing a hub for the trading of energy futures, options and other products. Commenting on the announcement, DME Chief Executive Officer, Gary King said that, “The establishment of an exchange and the securing of a new Middle East Sour Crude Oil Futures contract is a complex process. However, in line with the guidance that we have given our potential customers, we expect to meet our stated goal of a launch in the fourth quarter of 2006.”Link here.
THE APPEAL OF LISTING IN HONG KONG
Hong Kong is a city that lives on its connection to China. The former British colony serves as port, intermediary, service center, and more for the mainland. But Hong Kong has also been dogged by the fear that China’s booming cities – especially Shanghai – will soon eclipse it. One special source of anxiety is that as more world-class mainland companies go public, they will issue shares on the Shanghai and Shenzhen exchanges, and scorn Hong Kong’s bourse.
Well, the world just got evidence that Hong Kong’s supremacy is still assured. On January 13, Hong Kong Exchanges & Clearing, the company that manages the city’s security exchanges, released its 2005 figures. Last year, mainland companies raised $24.7 billion in Hong Kong. In contrast, total money raised in Shanghai and Shenzhen combined amounted to just $4 billion. These figures put paid to the notion that Hong Kong will be eclipsed by Shanghai as the financial heart of greater China anytime soon. Despite some improvements, mainland exchanges are still battling problems of corruption, fraud, and uncertainty caused by the huge overhang of nontradable shares controlled by state-linked entities. Hong Kong, meanwhile, has distinguished itself as the undisputed preferred destination for mainland companies.
Hong Kong’s importance as a mainland financial center actually seems to be growing. As of December 31, mainland companies – defined as those domiciled in China or their Hong Kong-registered subsidiaries – accounted for 39% of the bourse’s capitalization, up from 30% in 2004, and up from just 5% a decade ago. According to the data released on January 13, mainland companies last year accounted for 46% of daily turnover and 91% of all new listings. The flood of new listings and secondary offerings last year has helped catapult Hong Kong up the ranks of global markets. With $1.05 trillion in capitalization, Hong Kong last year overtook the main bourses of Spain to become the 8th-largest market in the world, behind No. 7-ranked Deutsche Borse. Shanghai is ranked a distant No. 19, and Shenzhen is No. 30.
Gone are the days when Hong Kong’s market was dominated by property conglomerates and trading houses, known locally as hongs. Mainland cell-phone operator China Mobile is the 2nd-largest stock with market capitalization of $9.35 billion, while China Construction Bank holds the No. 3 slot with $7.8 billion. HSBC Holdings (HBC) is No. 1. No. 4-ranked Hutchison Whampoa, traditionally a Hong Kong conglomerate, now derives a significant chunk of its earnings from its ports and retail operations in China.
The bigger question today is how long the current bout of China fever will last. Investors have taken a couple of serious beatings from China stocks in Hong Kong in the past 10 years. But somehow their China hunger comes back – and Hong Kong remains the place to satisfy it.Link here.
SWISS PRIVATE BANKERS ASSOCIATION PRESIDENT SAYS PRIVATE BANKS ARE DOING FINE
Swiss private bankers say they are not endangered by increasing pressure from the big banks in chasing and managing wealthy clients. They argue that although there are still plenty of rules and regulations that take up their time, 2006 should be a year when they can concentrate more on their businesses. “It is funny that everybody wishes to know if we are the last pandas or a dying breed,” said Pierre Darier, president of the Swiss Private Bankers Association. “In fact, we have never been as strong because [although] we are fewer we are more powerful in the sense that the business has been growing and we are successful.”
At a news conference in Bern, Darier explained that the strengths of the 14 members of his association were the continuity and confidence they built with clients over the long term. “We are in the business of catering to the needs of fairly wealthy families, structuring the way they deal with us and managing the money as best we can, and hopefully with good performance and in the end passing on the money to the next generation.” Darier said that clients who dealt with the private bankers – where at least one partner within the bank assumes unlimited liability for the bank’s commitments – generally came with money that was set apart as a security in the longer term for the family. “Therefore they want it to grow regularly … without taking a big risk.”
But the likes of Swiss banking giants UBS and Credit Suisse have increasingly been focusing their attention on wealthy clients in recent years and putting pressure on the private bankers. Among the advantages for the “big boys” are economies of scale, IT strengths and broad distribution and product possibilities. In recent years the number of private bankers has fallen as the sector consolidates but Darier does not think that this represents a particular threat as long as they manage their business in a “clever” way. He said he did not believe the private bankers were particularly subject to consolidation. It was a matter of finding the right people to continue the business.Link here.
PANAMA ISSUES DETAILS OF NEW 30-YEAR BOND
Panama has now published more details of the bond swap it announced last week. The country is offering 230 basis points above comparable U.S. treasuries on its new 30-year global bond which matures in 2036. The bond is being offered in exchange for up to $2.8 billion of its shorter-dated global debt. Panama says it wants to extend its debt maturity profile and reduce its short-term debt burden by swapping existing earlier-maturing debt into longer-dated debt. The deal is being jointly managed by HSBC and JP Morgan.
In November, Panama offered a new $980m 20-year benchmark sovereign bond, in exchange for four of its global bonds, maturing in 2008, 2011, 2012 and 2020. That new paper matures in 2026. In October, Panama filed with the U.S. S.E.C. to issue up to $2 billion worth of debt. Panama said it planned to issue the securities to raise money for general refinancing and other spending needs. The “shelf registratio”q allows Panama to sell securities in one or more offerings, determining details such as size and price at the time of sale.
The Panamanian economy expanded by 6.2% in the first six months of 2005, as measured by the monthly index of economic activity. The most dynamic sectors included fish and seafood exports, agriculture products and tourism. The government forecast economic growth in 2005 of between 4.5% and 5%, below the 6.1% growth witnessed in 2004, which was partly a result of temporary real estate tax breaks. The tax breaks, which gave exemption from real estate taxes for up to 20 years, had led to a construction boom in 2004.
Fiscal austerity measures agreed last February are being implemented by the government, with the IMF’s strong approval, and are expected to dent the economy this year. The package seeks to raise revenues from new business taxes, in a bid to reduce the country’s level of debt. The legislature voted 46 to 28 in favor of the measures, which will include a new 1.4% tax on companies’ gross revenues, and a levy on firms operating in the Colon Free Trade Zone – the largest free port in the Americas. Finance Minister Ricaurte Vasquez said that the fiscal reform package will “stabilize Panama’s public finances and establish conditions for the economic and social growth of the country.”Link here.
SINN FEIN CALLS FOR INCREASE IN IRELAND’S 12.5% CORPORATE TAX
Party rejects “the theory of supply and demand” and “the correlation of low taxation and low wages with competitiveness”.
Sinn Fein is calling for an increase in Ireland’s corporate tax rate to 17.5%, in a major economic policy document advocating a greater emphasis on social justice and rejecting “mainstream market orthodoxies” such as the theory that low taxation equals higher investment. Speaking at the opening of a Sinn Fein party conference on an all-Ireland enterprise and job creation discussion document, General Secretary of the party Mitchell McLaughlin stated that the party’s priority is to “build a just economy, dynamic public services and a real enterprise culture that can deliver high skilled and high paid jobs. … Central to this vision is a clear understanding of the kind of economy we want – that is, a strong economy based on equality and social justice.”
One of the central elements of Sinn Fein’s economic vision is a flat rate of corporate tax to be applied throughout the whole of Ireland, including the North. While this could be a popular suggestion for companies in Northern Ireland, many of which pay corporate tax at the UK rate of 30%, firms in the Republic are unlikely to welcome an increase in their 12.5% corporate tax rate. Asked in a press briefing yesterday whether an increase in tax would drive out foreign investors, McLaughlin said that he “flatly rejected” such an argument. “We reject many mainstream market orthodoxies, including ‘trickle down’ theory, the theory of supply and demand, the correlation of low taxation and low wages with competitiveness, the belief that inward investment is the panacea for economic problems, and the oversimplified equation of growth with well-being and social progress,” he told the party conference.Link here. Ireland woos Bollywood (India’s film industry) with promise of tax breaks. – link.
IRS GLOBAL SETTLEMENT INITIATIVE DEADLINE APPROACHES
The IRS has warned taxpayers that there will be no extension to the January 23 global settlement program deadline, under which taxpayers are given the opportunity to settle civil tax disputes involving certain transactions deemed abusive by the agency. According to the IRS, the settlement initiative allows taxpayers the opportunity to quickly and efficiently close out a wide range of abusive transactions. “This is a last-chance opportunity for taxpayers to put these deals behind them,” commented IRS Commissioner Mark W. Everson. The settlement program covers 21 transactions consisting of both listed and non-listed transactions. With the exception of applicable penalties, which vary depending on the level of abusiveness, the settlement terms are identical for all 21 transactions.
Under the Settlement Initiative, the taxpayer must concede 100% of the transaction’s tax benefits. The taxpayer will be allowed to treat as an ordinary loss the full transaction costs claimed on the tax return, including promoter and professional fees. Penalties will vary depending on the transaction. No penalty will be due if the taxpayer made a voluntary disclosure under a program announced in 2002 or if they received a tax opinion letter that was not part of a package sold by a tax promoter, but was given by a tax adviser meeting certain tests.Link here.
U.K. TAX COLLECTORS’ OBSTINANCE LEAVES MANY SMALL BUSINESSES FACING AN UNCERTAIN TAX FUTURE
It has emerged that HM Revenue and Customs intends to seek a review of the recent decision by the Court of Appeal in a key test case involving Section 660A settlements legislation, leaving many thousands of small businesses in the UK continuing to face an uncertain tax future. In an announcemen, HMRC indicated that it will petition the House of Lords directly to seek leave to appeal, despite the fact the Court of Appeal refused the taxman the right to challenge its judgment in the Lords.
According to HMRC, Geoff and Diana Jones, owners of Arctic Systems, a small IT consulting company, had sought to illegally reduce their tax bill by allocating income and dividends to the less active partner in the business to take advantage of their tax allowance and lower tax rate. However, overturning an earlier ruling by the High Court, a three member Court of Appeal panel ruled last December that the tax department had pushed its interpretation of the law too far, and stated that the couple’s remuneration arrangements did not constitute pre-planned tax avoidance. MRC’s apparent determination not let the issue rest angered the Professional Contractors Group, which helped the Joneses fund their legal battle. According to PCG chairman Dr. Simon Juden, HMRC’s decision to petition the Lords will leave hundreds of thousands of small businesses in the UK facing an uncertain future regarding tax. Pointing to the judges’ decision, Dr. Juden argued that “the honest way to proceed” would be for the government to “legislate openly and clearly”.
James Kessler QC, the leading tax barrister who has helped PCG fund the case, believes that the Revenue is not only being unfair to small businesses, but that it is also wrong in law. Mr. Jones generated £91,000 in fees in the tax year investigated by the Inland Revenue, paying himself around £7,000 in salary while his wife received around £4,000 in salary. The rest, after expenses and corporation tax had been subtracted, was distributed as a dividend split between himself and his wife, who owned a half share in the company. “They are asking people to value the contribution of their spouse,” Mr. Kessler noted. “That is an almost impossible exercise and will vary from year to year.”Link here. U.K. tax bodies publish guidance apropos of Arctic Systems tax dispute case. – link.
HUNGARY’S LIBERALS PUSH FOR 20% FLAT TAX
Hungary’s liberal SZDSZ party, a junior partner in the country’s governing coalition, wants to follow the example set by many other countries in Central and Eastern Europe by introducing a flat tax following elections which are due to be held in later in the Spring. Hungary’s youthful Economy and Transport Minister Janos Koka proposed a 20% flat tax system, including personal income tax, value-added tax and corporate tax. Koka, an IT entrepreneur who was appointed to the cabinet last year at the age of 32, also wants to abolish the unpopular local business tax, which is levied on a company’s total revenues rather than its profits at rates of up to 2%. “We’re seeing a flat tax race in this region (Central and Eastern Europe) and we need to address that,” Koka stated.
He stressed that the proposal was a liberal program and not endorsed by the Socialists, the main party in the coalition. The Socialists have rejected flat taxes on the grounds that it would mean that “the head of a successful business would pay the same tax rate as a low-income worker.” In June of last year, a proposal to introduce a single 21% flat-rate corporate, personal income and value added tax was rejected by the government, which has instead committed itself to a 5-year programme of tax reforms designed to reduce the total burden of taxation as a percentage of the country’s economy and to create a higher degree of stability in the tax system. At present, Hungary’s personal income tax rates range from 18% to 36%, while corporate tax rate is levied at 16%. The top VAT rate in Hungary was cut to 20% from 25% on January 1.Link here.
TAX EVASION PLOT LEADS TO DEPORTATION OF TWO JORDANIAN MEN
The former owners of a North Charleston, South Carolina grocery will soon be deported to their homeland of Jordan for conspiring to cheat the federal government out of thousands of dollars through a tax evasion scheme, authorities said. Brothers Amjad and Shadi Kamleh pleaded guilty in August to devising and carrying out a scheme to avoid federal regulations designed to track large transfers of money. The ruse allowed them to hide more than $100,000 in profits from the Red & White Grocery on Rivers Avenue and funnel money to a joint bank account in Amman (Jordan’s capital) federal authorities said. A flurry of bank transactions with a high-dollar total initially led to concerns that the scheme was tied to money laundering, drug smuggling or terrorism, but no evidence was found to confirm those suspicions, authorities said.
On Jan. 3, the pair were sentenced in Charleston to 11 months imprisonment, which they have already served at the Charleston County jail while awaiting trial. The brothers also must forfeit $395,000 and face deportation, said Assistant U.S. Attorney Carlton R. Bourne Jr. Altaf Adam, lawyer for Amjad Kamleh, said the brothers were hard-working immigrants who had no criminal intent behind their actions. They were simply trying to avoid unnecessary paperwork and unwanted scrutiny that Middle Easterners often face in the wake of the war on terror, he said.
Immigration and Customs Enforcement agents began looking at the Red & White Grocery as part of a larger investigation launched in May 2002 into the hiring of undocumented aliens by local convenience store owners. Informants told federal agents that Arab men who were in the country illegally routinely traveled from New York to Charleston to take under-the-table jobs in several stores, including the Rivers Avenue Red & White, according to an agent’s affidavit. Agents would eventually arrest or process 30 foreign workers in the area as a result of the investigation. Agents searched the Red & White store in February 2005 and found evidence that the Kamlehs had employed one foreigner whose student visa had run out. They also found documentation of a tax evasion scheme conducted by the Kamlehs, who had sold the business to new owners about five months earlier, the affidavit stated.
Diaries found in the business seemed to indicate profits far in excess of what had been reported to the federal government for the 2001 through 2003 tax years. Shadi Kamleh, 26, was the vice president of Zakash Food, and Amjad Kamleh, 34, was the corporation’s treasurer. Investigators determined that the two men had been writing a large number of checks payable to cash from the corporation’s account at Wachovia Bank. At least 273 checks were written between March 2000 and October 2002, all for amounts between $9,000 and $9,900 – just below the threshold that would have triggered notification to the federal government. Investigators suspected the practice was designed to conceal assets and circumvent federal law requiring banks to report all cash transfers exceeding $10,000. Fueling concern was the amount of transactions, which totaled $2.5 million, and the fact that some of the money had been funneled to a bank account in the Middle East.
The diaries gave the false impression that the store was a gold mine because the brothers recorded their gross sales under the heading “net profit”, Adam said. If the business was earning as much as the diaries suggested, it would have sold for more than it did when the Kamlehs unloaded the store in 2004 for $275,000, he said. Adam said the brothers sent some of their money to an account at the Arab Bank in Amman because “they could see the writing on the wall” after 9/11 and wanted to protect their assets. The balance in March 2005 was $350,000, roughly the amount they agreed to forfeit to the government, authorities said.
But Bourne said the Kamlehs were not as innocent as Adam would suggest. Evidence showed they were well aware of the federal reporting requirements before embarking on their scheme, he said. In fact, Amjad Kamleh told investigators that a former store owner had instructed the Kamleh family to avoid transactions over $10,000 “so the IRS does not know how much money you are getting,” an affidavit stated.Link here.
IS A ROTH 401(K) RIGHT FOR YOU?
As if employees did not have enough complications in their benefit plans already, now they will have a new decision to make: whether to switch from a conventional 401(k) plan to a Roth plan. With a Roth, you get no tax deduction for your retirement savings, but all the money that comes out at the other end is tax free. For a lot of upper-income taxpayers, the Roth is the better deal. And potentially a lot of money is involved. Contributions, often invested in mutual funds, can be up to $20,000 a year. This gatefold guide will help you make the decision. Here is a look at how a Roth might work – or not – for four sets of people of different ages and circumstances. You can try out your own numbers on Forbes’s calculator.Link here.
SPAIN TAKEN TO TASK OVER TAX TREATMENT OF NON-RESIDENTS
The EC announced this week that it has decided to refer Spain to the European Court of Justice over its taxation of non-residents’ capital gains realized on the sale of Spanish immovable property. Under Spanish law, capital gains of resident individuals derived from immovable property are taxed at a rate of 15%, whereas similar capital gains of non-resident individuals are taxed at a rate of 35%. The Commission also revealed that it has decided to refer Spain to the Court of Justice over its taxation of non-residents’ employment-related income. Under current Spanish rules, employment related income is generally subject to a final withholding tax at a rate of 25% when it is paid to non-resident individuals whereas for resident individuals it is taxed according to a progressive scale.
The Commission considers that Spanish tax legislation in these two areas fails to conform to the EC Treaty requirements, in particular to the non-discrimination principle, and is referring the matters to the ECJ because Spain has not changed its legislation, despite the Commission’s formal request of July 2005.Link here.
U.K. TREASURY COULD DRIVE CORPORATIONS TO REDOMICILE OUTSIDE U.K.
A senior UK tax lawyer says that Treasury hostility towards the corporate sector could drive major companies out of the country. Jonathan Ivinson, Head of Tax at Hogan & Hartson says, “Gordon Brown believes that UK corporates do not pay enough in taxes. He has no idea that by restructuring their affairs and relocating staff out of the UK they could leave a huge hole in the public finances.” Mr. Ivinson says that at least one FTSE 100 company is investigating domiciling itself outside the UK following an 18-month crackdown by Revenue & Customs on tax avoidance.
Other companies are so angry at the clampdown on previously accepted business practices that they are refusing to co-operate with Revenue’s attempts to understand corporate tax planning. Last November, PricewaterhouseCoopers warned the Treasury that Britain faces becoming less attractive to big companies because of HMRC’s aggressive campaign against tax avoidance. Richard Collier-Keywood, head of tax at PwC, said, “A lot of UK tax is paid by relatively few companies, and many of those have a choice about where they site some of their operations – the tax situation could persuade them to site discretionary additional business elsewhere.”Link here.
EASY MONEY CAN RUIN PEOPLE … AND ENTIRE NATIONS
“Do not give your children too much money, too soon,” say the old timers. “You may not care about the money itself, but you would hate to see it ruin their lives.” Easy money can be as corrosive as battery acid or television, or as treacherous as a creeping tide. At the beginning of the 16th century, Spain discovered easy money in the New World. All it had to do was to plunder it from the Aztecs and Incans. The Spanish crown was soon the richest and most powerful in Europe. The Spanish army pranced all over Europe. Only a few years later its fleet was washed up on the rocks of Scotland, and Spain itself was bankrupt. The Iberian Peninsula remained the poorest part of Europe for the next four centuries.
“In 1961, housewife Viv Nicholson won today’s equivalent of £3 million on the pools [$5 million in the lottery],” writes Jeff Randall in the Daily Telegraph. She then “delighted the tabloids by telling them that she was going to ‘spend, spend, spend’. In a matter of months, the woman was ‘skint’ [busted]. The report does not mention it, but we would not be surprised to find that she was also divorced, her children were in jail, and that she voted for Tony Blair. Easy money ruins people, and ruins whole nations.
Mr. Randall quotes our book, Empire of Debt, and then elaborates. “Our see-it, want-it, have-it culture is creating a sad class of debt junkies who are in so deep that the bailiffs will need to hire Captain Nemo to find them.” Randall continues, “Instead of confronting their problems, these feckless borrowers simply close their eyes and sign the chit.”
“Plastic fantastic,” he says is creating a whole new group of people who live with far more debt than they can comfortably carry. In the old days, a man who saved money was a miser. Nowadays he is a wonder. Mr. Randall refers to the British. Americans may be in worse shape. In America, debt has become an art form. Last year, a new record was set for personal bankruptcies in the U.S. – more than two million people went broke. Right there, you might do a double take. There was no recession in 2005. There was no stock market crash. Employment was near its highest level ever. Why were so many people going belly up?
Real wages actually sank in the last two years. People are simply spending more. And why not? Money was easier to come by than ever before. Every time we turn on our computer we find someone willing to lend us money. For reasons never fully understood (at least not by us) the easy money inflates asset prices, not so much consumer prices. Mainly it is because America’s empire has globalized labor rates. Anything that Asians can make and export is going down in price. This keeps prices low at Wal-Mart, but it also holds down the incomes of the people who shop there. It also puts pressure on prices for the things that Asians cannot export – such as houses, energy and healthcare. So, the working stiff is trapped between rising costs and falling income. His real cost of living is rising while his income is not.
The rich, on the other hand, have been as happy as pigs in mud. They are the ones who own financial and real assets. And those assets have floated higher on this high tide of easy money. Spend, spend, spend – they cannot believe it will ever end. They, too, will be ruined by easy money. We sit on the edge of our chair … waiting to find out how.Link here.
U.K. TAXMAN TARGETS OFFSHORE ACCOUNTS
Accountants warn that anyone caught using an offshore bank to evade tax may be prosecuted and fined. Offshore account holders are therefore being urged to own up voluntarily about undeclared funds. Interest on money in offshore accounts is paid gross – without deducting tax – but taxpayers resident in the UK must pay income tax through their self-assessment forms. Some people are legitimately exempt from paying UK tax on an offshore account if they are resident but not domiciled here.
David Rothenberg at accountants Blick Rothenberg said, “If you have unpaid tax for the 2003-4 and 2004-5 tax years you can declare it when you hand in your 2004-5 tax return, due by the end of this month. If you have undeclared income from previous years or have paid earnings into your offshore account without paying tax, you should seek advice and own up to the Revenue.” Francesca Lagerberg at accountants Smith & Williamson expects the taxman to seek permission to investigate other banks and credit-card companies.
Revenue & Customs cannot automatically get access to information about bank accounts, but can be given the go-ahead by a special commissioner of the Revenue. In a test case, commissioner John Avery Jones agreed that there were reasonable grounds to suspect that many customers of the unnamed company were failing to declare income from offshore accounts. It is expected the firm will be forced to hand over details about customers’ credit-card transactions, which will be used to trace money back to offshore banks. Inspectors will then check whether customers have reported any interest earned. Revenue & Customs expects this first inquiry to yield about £350 million in extra tax revenues.
The Revenue has already sent letters to hundreds of savers with offshore bank accounts. The letters, which have been criticized as “intimidating”, say, “HM Revenue & Customs holds information which shows that you have operated a bank account outside the UK … Experience has shown that such accounts are often associated with tax evasion … In the most serious cases we consider criminal prosecution.” If you receive such a letter, you have 30 days to respond.Link here.
BARBADOS WIDENS TAX BREAK FOR INTERNATIONAL FINANCIAL SERVICES WORKERS
Barbados is set to relax exchange controls and introduce improved tax concessions for workers in the international financial sector as a result of the 2006 Government Budget, announced by Prime Minister Owen Arthur earlier this week. While Barbados’s real economic growth at 4.1% was slightly below the 4.8% growth rate achieved in 2004, Mr. Arthur announced that the international business sector was nonetheless in a healthy condition as the jurisdiction saw a 22% increase in the number of newly incorporated entities. However, there was a drop in tourism receipts during the year.
Among the major measures announced by Mr Arthur was the removal of exchange control restrictions for travel within Caricom by Barbadian residents in line with similar policies adopted by other Caricom countries and in preparation for the introduction of the Caricom Single Marlet Economy (CSME). As a result of the change, Barbadian residents and CARICOM nationals resident in Barbados who earn foreign exchange may hold foreign currency accounts with a limit up to the equivalent of Bds$20,000 without exchange control permission provided the accounts are funded by foreign exchange of at least Bds$50,000 annually. For limits in excess of BDS$20,000 exchange control permission will be required.
Another key measure is the introduction of the enhanced tax concessions for specially qualified individuals employed in the International Financial Services Sector. The concession currently granted to non-nationals is an exemption from tax equal to 35% of their salary which can be paid in a foreign currency.Link here.
U.K. ISP’S CONCERNED OVER DATA RETENTION DIRECTIVE COSTS
Speaking at the Internet Services Providers’ Association’s 10th Annual Parliamentary Advisory Forum last week, UK Home Secretary, Charles Clarke gave a clear commitment to continue a close dialogue with the Internet industry over the transposition of the Data Retention Directive into UK law. The European Parliament last month approved proposals on data retention sent forward by the Council of Ministers which require telecommunications operators to keep details of calls, emails and internet usage for between six months to two years. Individual governments will be able to decide how long service providers will be obliged to keep data, which will not include the actual substance of communications. The Directive, which was put forward by Britain after the July 7 bomb attacks in London, passed by 378 votes in favor to 197 against and 30 abstentions.
Police and intelligence agencies will have access to call records (including data on lost calls), location information and internet logs for the detection, investigation and prosecution of specified forms of serious criminal offence (terrorism and organized crime), and not for the mere prevention of all kinds of crime. The measures will require firms to store data that can trace fixed or mobile telephone calls, time and duration of calls, location of the mobile phone being called, details of connections made to the Internet, and details – but not the content – of Internet email and internet telephony services. Details of connected calls that are unanswered, which can be used as signals to accomplices or used to detonate bombs, will also be archived where that data exists.
However, the costs involved are likely to be substantial, and ISPs in the U.K. and elsewhere in Europe are concerned that they will end up shouldering the majority of the burden, especially given that the European Parliament excluded a clause which would have made it mandatory for governments to reimburse the costs incurred by operators.Link here.
CONSUMERS VULNERABLE TO CELL-PHONE DATA THEFT
The political site AMERICAblog announced that for only $89.95 it had purchased the cell-phone records of 100 calls over three days in November 2005 made or received by former presidential candidate General Wesley Clark. Blog publisher John Aravosis wrote he had bought Clark’s phone records from the Web site Celltolls.com and his own from Locatecell.com for $110 to address failed privacy protections. The blog’s actions came after the Chicago Sun-Times published a January 5 article by reporter Frank Main in which the paper conducted a similar investigation. The story followed after the FBI informed law enforcement nationwide including the Chicago Police Department, warning officers’ phone records may be purchased online, according to Main’s article.
While no legislation is in place, dozens of online companies selling phone records exist, where buyers could purchase phone records with a credit card and a cell-phone number. According to the blog, the attempted purchasing of other cell-phone records included ABC’s George Stephanopoulos, the Washington Post’s Dana Milbank and the New York Times’s Adam Nagourney; however, Locatecell was unable to provide those records.
Criminalizing and suing online data brokers are not enough, says Chris Hoofnagle, senior counsel to the public interest research center Electronic Privacy Information Center. Bellsouth, Verizon, Verizon Wireless, SBC and the CTIA are in favor of enforcement actions but are against heighten security, according to the EPIC. In fact, the EPIC filed a petition with the FCC for heighten security safeguards to protect phone records last year, only filing a complaint with the Federal Trade Commission to investigate data broker companies a month before. “It’s identity theft,” Hoofnagle said. Instead, his organization would require telephone carriers to enhance security measures when releasing records since many times they only require the billing address and one other piece of information. For example, Hoofnagle suggests that phone companies could send a customer’s cell phone a text message notifying that their records are being released and to contact them immediately if that was wrong.Link here.
SOMEONE TO WATCH OVER YOU
Rousseau gave the first modern warning. In 1762 he published his Social Contract, which contains the famous statement, “Man is born free, but everywhere he is in chains.” H.G. Wells gave a similar warning in 1895 in The Time Machine. For modern readers, the two great novels are Aldous Huxley’s Brave New World, published in 1932, the year before Hitler came to power, and George Orwell’s 1984, published in 1949. Rousseau was attacking the archaic tyrannies that had lasted into his age. He underrated the dangers of the scientific future. Wells, Huxley, and Orwell had seen the early development of the scientific age in which we live. They raised the alarm.
Each of them understood that the new technology of their time could be use to condition human beings. Huxley, who came from a family of scientists, thought that chemistry, combined with selective breeding, could produce a society of human robots who would find happiness in subordination. Orwell modeled his police state on an experience of social thought control in the wartime BBC. A present-day author, writing about the same issues, might well turn to the technology of electronic communications. We should read about the internet, about Microsoft and Google, about supercomputers and the eavesdropping capacity of the CIA.
In the 1990s the rapid development of the internet and the personal computer gave rise to unjustified optimism. The internet gave individuals greater power of communication than global corporations had enjoyed a generation before. The combined capacity of networks of computers seemed more important than the centralized power of the largest computers. It seemed then that the internet might be a liberalizing influence, giving the individual more power relative to the State. To an extent this proved true. Many people found that they could earn a living using the internet, which left them free to choose where to live – in country or town, or in the most favorable tax jurisdiction. Governments were forced to make their tax regimes competitive, or risk losing revenue. Not much of this optimism has survived.
The 21st century has been a period in which most governments sought to reassert and extend control, often adopting policies that would once have been regarded as illegal and outrageous. The decisive event was 9-11. Public fear of terrorism gave governments the support needed to tighten systems of social control and supervision. Any president responsible for “extraordinary rendition” or Guantanamo before 9–11 would have been impeached. President Bush was re-elected. The British Government followed the lead of the U.S., passing a succession of anti-terrorism Acts, each with new restrictions on personal liberties. Historians are not surprised. Periods of threat to the nation, whether by terrorism or invasion, have always seen new limitations on personal liberty. The whole balance between the citizen and the State was altered in favour of the State.
In the history of Britain there have been many periods when liberty was threatened. The immediate threat is a government with a lust for control, with little respect for liberty or for the House of Commons, but enjoying the opportunity of using new technologies for social control. The British are certainly less free than we were in 1997 or 2001. The fightback will be laborious and difficult, but there is a new mood. We do not want to reach 1984 25 years behind schedule in 2009.Link here.
Wretched ID plan.
It is time for Tony Blair to recognize the tide has turned decisively against his plans to establish a national identity cards scheme. A London School of Economics (LSE) report has estimated members of the public might be charged £300 each for the card. It is difficult to see popular support for the scheme surviving when this becomes widely known. Political support has dried up too. Over the weekend, David Cameron criticized ID cards and Chancellor Gordon Brown has also hinted he is one of the dissenting cabinet ministers on this issue. It is hard to see it surviving in the long term.
Tory and Liberal Democrat peers in the House of Lords have voted for an amendment requiring the home secretary to present a detailed cost analysis of the ID card project before they will consider allowing it to proceed into law. In its response to these new assaults, the government has shown little real enthusiasm for the fight. Junior home office minister Andy Burnham’s evasiveness confirms claims by the LSE report’s authors of a “culture of secrecy”.
How reliable are the government’s “assumptions” on ID cards? Since July 7, the cards have been presented, once again, as an anti-terror measure. But there is no reason to believe the existence of ID cards would have thwarted the July 7 attackers. The government promises the scheme will not breach individual privacy. But we have learned that a central register will hold some 50 pieces of information about each of us. With all the other battles Blair has on his hands, is this really a fight he needs now?Link here.
TWO GROUPS PLANNING TO SUE OVER FEDERAL EAVESDROPPING
Two leading civil rights groups plan to file lawsuits against the Bush administration over its domestic spying program to determine whether the operation was used to monitor 10 defense lawyers, journalists, scholars, political activists and other Americans with ties to the Middle East. Former Vice President Al Gore criticized the spying program on Monday.
The two lawsuits, which are being filed separately by the American Civil Liberties Union in Federal District Court in Detroit and the Center for Constitutional Rights in Federal District Court in Manhattan, are the first major court challenges to the eavesdropping program. Both groups are seeking to have the courts order an immediate end to the program, which the groups say is illegal and unconstitutional. The Bush administration has strongly defended the legality and necessity of the surveillance program, and officials said the Justice Department would probably oppose the lawsuits on national security grounds. Justice Department officials would not comment on any specific individuals who might have been singled out under the National Security Agency program, and they said the department would review the lawsuits once they were filed. Brian Roehrkasse, spokesman for the Justice Department, added Monday that “the N.S.A. surveillance activities described by the president were conducted lawfully and provide valuable tools in the war on terrorism to keep America safe and protect civil liberties.”
The lawsuits seek to answer one of the major questions surrounding the eavesdropping program: has it been used solely to single out the international phone calls and email messages of people with known links to Al Qaeda, as President Bush and his most senior advisers have maintained, or has it been abused in ways that civil rights advocates say could hark back to the political spying abuses of the 1960’s and 70’s? “There’s almost a feeling of déjà vu with this program,” said James Bamford, an author and journalist who is one of five individual plaintiffs in the A.C.L.U. lawsuit who say they suspect that the program may have been used to monitor their international communications. “It’s a return to the bad old days of the N.S.A.,” said Mr. Bamford, who has written two widely cited books on the intelligence agency.
Although the program’s public disclosure last month has generated speculation that it may have been used to monitor journalists or politicians, no evidence has emerged to support that idea. Bush administration officials point to a secret audit by the Justice Department last year that reviewed a sampling of security agency interceptions involving Americans and that they said found no documented abuses. “We don’t have any direct evidence” that the plaintiffs were monitored by the security agency, said Ann Beeson, associate legal director for the A.C.L.U. “But the plaintiffs have a well-founded belief that they may have been monitored, and there’s a real chilling effect in the fear that they can no longer have confidential discussions with clients or sources without the possibility that the N.S.A. is listening.”
Bill Goodman, legal director for the Center for Constitutional Rights, said that in suing in federal court to block the surveillance program, his group believed “without question” that Mr. Bush violated the Foreign Intelligence Surveillance Act, which governs wiretaps, by authorizing the security agency operation. But Mr. Goodman acknowledged that in persuading a federal judge to intervene, “politically, it’s a difficult case to make. … We recognize that it’s extremely difficult for a court to stand up to a president, particularly a president who is determined to extend his power beyond anything envisioned by the founding fathers. That takes courage.”
The debate over the legality of Mr. Bush’s eavesdropping program will be at the center of Congressional hearings expected to begin next month. Former Vice President Al Gore entered the fray on Monday with a speech in Washington that accused Mr. Bush of running roughshod over the Constitution. American liberties, Mr. Gore said, “have been placed at serious risk by the unprecedented claims of the administration to a truly breathtaking expansion of executive power. As we begin this new year, the executive branch of our government has been caught eavesdropping on huge numbers of American citizens and has brazenly declared that it has the unilateral right to continue without regard to the established law enacted by Congress to prevent such abuses.”Link here. 6 million wiretapped conversations per month? – link.
LOCK ‘EM UP
The Supreme Court rocked crimnall courtrooms last January when it ruled that mandatory sentencing standards were inconsistent with the Sixth Amendment right to a trial by jury. Henceforth lower courts were free to decide punishments, using the guidelines as merely voluntary. Attorney General Alberto Gonzales, worried about lenient judges, slammed the ruling as undermining a “critical law enforcement tool”. Defense lawyers hailed it as promising to return sanity to the sentencing of nonviolent, white-collar offenders. Judges, some of whom had railed against mandatory sentences, were presumably dancing under their robes.
A year later little has changed. Under the voluntary regime 62% of 46,470 federal criminal sentences remained within the guidelines for the 10 months through October versus 68% the previous four years. In only 8% of cases did judges cite the high court’s decision while departing from the guidelines. Why are judges still hewing to the guidelines? One reason is they are required to take them into account under the Supreme Court ruling. Judges may also fear their decisions being overturned on appeal or worry about Congress ratcheting up recommended sentences.Link here.
HOW TO BE ANNOYING AND STAY OUT OF JAIL
You could hardly ask for a story more perfectly suited to mass-forwarded emailing than the one that began circulating last week to the effect that you could go to jail for annoying people with online postings. This story had everything: anti-Bush sentiment, bad law snuck in by virtue of being hidden in unrelated legislation (the Violence Against Women and Justice Reauthorization Act of 2005), abridgement of Internet freedoms, infringement of the First Amendment, stupid politics, oh, you name it. Man, it is better than the modem tax for flying around the world while the truth is still getting its Birkenstocks on.
But how true is it? Can I really go to jail if I deliberately start sending anonymous emails to annoy, say, Declan McCullagh, who wrote the story? McCullagh, unlike most journalists who might write such a story, has been covering the Net since the early 1990s. Of course, the only way we will really find out is to wait and see who gets arrested and for what or who brings a lawsuit to enjoin the government from enforcing this law and how they fare in the US courts. Annoy.com had plenty to say about its future. In the meantime, the legal types are having a fine old squabble over it. So far, two – Daniel Solove and Orin Kerr are arguing that the bill is not as bad as all that – while Eugene Volokh, further down the page from Kerr’s post, thinks the bill is just as troubling as the worriers are saying. Lawyers responding to posts on BoingBoing, however, argue that this law is essentially irrelevant.
In an email last night, McCullagh sticks by his story, noting that Kerr is a former Justice Department prosecutor while Volokh is a First Amendment scholar. What everyone seems to agree on is that the law in question was intended to update the law that makes it a crime to harass someone by telephone. If you had been awake for a week because some unidentifiable person had been dialling your number every ten minutes all night long, you could see the point of that. And no matter how the final reading of this law comes down in the end, the only Internet service that is that intrusive is VoIP, and then only if your VoIP calls come in on whatever phone rings all over your house.
Meantime, there are, of course, plenty of ways to be annoying that do not involve directly communicating with anyone, and certainly can be without using the Net to do more than coordinate the campaign. Anonymity is a separate issue. In the past, we have generally been content to allow people to send anonymous letters through the post or make anonymous phone calls from phone booths while understanding that sometimes these facilities are going to be abused. Somehow, the authorities find anonymity more threatening in the Digital Age – or perhaps it is just that present technology allows them to try to do something about it.
So the bottom line seems to be this: either this law is superfluous or it is evil. In either case, the logical thing to do is get rid of it. But, with so many pieces of legislation demanding our attention – data retention and ID cards in the UK, Real ID in the U.S., copyright everywhere – it is not clear that this is the most important thing on the list.Link here.
BUSH HAS CROSSED THE RUBICON
Dictatorships seldom appear full-fledged but emerge piecemeal. When Julius Caesar crossed the Rubicon with one Roman legion he broke the tradition that protected the civilian government from victorious generals and launched the transformation of the Roman Republic into the Roman Empire. Fearing that Caesar would become a king, the Senate assassinated him. From the civil wars that followed, Caesar’s grand nephew, Octavian, emerged as the first Roman emperor, Caesar Augustus.
Two thousand years later in Germany, Adolf Hitler’s rise to dictator from his appointment as chancellor was rapid. Hitler used the Reichstag fire to create an atmosphere of crisis. Both the judicial and legislative branches of government collapsed, and Hitler’s decrees became law. The Decree for the Protection of People and State (February 28, 1933) suspended guarantees of personal liberty and permitted arrest and incarceration without trial. The Enabling Act (March 23, 1933) transferred legislative power to Hitler, permitting him to decree laws, laws moreover that “may deviate from the Constitution.” The dictatorship of the Roman emperors was not based on an ideology. The Nazis had an ideology of sorts, but Hitler’s dictatorship was largely personal and agenda-based. Stalin’s dictatorship over the Communist Party was based on coercion alone, unrestrained by any limitations or inhibitions.
In this first decade of the 21st century the United States regards itself as a land of democracy and civil liberty but, in fact, is an incipient dictatorship. Ideology plays only a limited role in the emerging dictatorship. The demise of American democracy is largely the result of historical developments. Lincoln was the first American tyrant. Lincoln justified his tyranny in the name of preserving the Union. His extra-legal, extra-constitutional methods were tolerated in order to suppress Northern opposition to Lincoln’s war against the Southern secession.
The first major lasting assault on the U.S. Constitution’s separation of powers, which is the basis for our political system, came with the response of the Roosevelt administration to the crisis of the Great Depression. The New Deal resulted in Congress delegating its legislative powers to the executive branch. Today when Congress passes a statute it is little more than an authorization for an executive agency to make the law by writing the regulations that implement it. Prior to the New Deal, legislation was tightly written to minimize any executive branch interpretation. Only in this way can law be accountable to the people. If the executive branch that enforces the law also writes the law, “all legislative powers” are no longer vested in elected representatives in Congress. The Constitution is violated, and the separation of powers is breached.
Despite seven decades of an imperial presidency that has risen from the New Deal’s breach of the separation of powers, Republican attorneys, who constitute the membership of the quarter-century-old Federalist Society, the candidate group for Republican nominees to federal judgeships, write tracts about the Imperial Congress and the Imperial Judiciary that are briefs for concentrating more power in the executive. Federalist Society members pretend that Congress and the Judiciary have stolen all the power and run away with it. The confirmation of Bush’s nominee, Samuel Alito, a member of the Federalist Society, to the Supreme Court will provide five votes in favor of enlarged presidential powers.
There is today no constitutional party. Both political parties, most constitutional lawyers, and the bar associations are willing to set aside the Constitution whenever it interferes with their agendas. Americans have forgotten the prerequisites for freedom, and those pursuing power have forgotten what it means when it falls into other hands. Americans are very close to losing their constitutional system and civil liberties. It is paradoxical that American democracy is the likely casualty of a “war on terror” that is being justified in the name of the expansion of democracy.Link here.
AL GORE’S IMPORTANT SPEECH VIRTUALLY IGNORED
Former vice president Al Gore gave what I believe to be the most important political speech in my lifetime, and The New York Times, “the newspaper of record”, did not report it. Not even excerpts. For the Times, it was a nonevent that a former vice president and presidential candidate, denied the presidency by one vote of the Supreme Court, challenged the Bush administration for its illegalities, rending of the Constitution and disrespect for the separation of powers. So much for “the liberal press” that right-wingers rant about. If a “liberal press” exists, The New York Times is certainly no longer a member.
The Washington Post had a short report on Gore’s address at Constitution Hall, but the newspaper, if that is what it is, managed to water down the seriousness and urgency of the message that Gore brought to the country with sneers. Gore’s address is the first sign of leadership from the Democratic party in six years. This alone makes it a major news event. But not even his own party took notice. According to reports, only one Democratic senator, Dianne Feinstein (CA) was in the audience. One would have thought the entire Democratic congressional delegation would have turned out in support of Gore’s challenge to Bush’s extraordinary claims of power. The lack of an opposition party makes the media vulnerable to intimidation by a dictatorial-minded administration.
The New York Times ownership suppressed for one year the leaked information in the paper’s possession that the Bush administration was violating the Foreign Intelligence Services Act and was spying on Americans without court warrants. Had the Times not placed a gag in its reporter’s mouth and suppressed the story, Bush may have gone down in defeat as the new Richard M. Nixon. Clearly, the Times is failing the obligations of a free press. Bush is angry at the newspaper and at the government officials who leaked the story that Bush illegally spied on American citizens. Both may be prosecuted for making Bush’s illegal behavior public. By ignoring Gore’s speech, is the Times signaling to Bush that the newspaper is willing to be a lap dog in exchange for not being prosecuted?
With the U.S. media now highly concentrated in a few corporate hands, has the Democratic Party reached the conclusion that opposition is no longer possible? Once Bush places Sam Alito on the Supreme Court, he will have a high court majority friendly to his claims that his executive powers are not constrained by congressional statutes or judicial rulings. Once a president is held to be above the law, whether for reasons of his role as commander-in-chief or any other, he can no longer be held accountable. Conservatives should fear this more than anyone. How can any conservative fail to realize that Bush’s attack on these rights is the ultimate attack on property?
Gore challenged the American people to step up to the task of defending the Constitution, a task abandoned by the media, the law schools, and the Democratic and Republican parties. If we fail, darkness will close around us.Link here.
BUSH TO CRIMINALIZE PROTESTERS UNDER PATRIOT ACT AS DISRUPTORS
Bush wants to create the new criminal of “disruptor” who can be jailed for the crime of “disruptive behavior”. A little-noticed provision in the latest version of the Patriot Act will empower Secret Service to charge protesters with a new crime of “disrupting major events including political conventions and the Olympics.” Secret Service would also be empowered to charge persons with “breaching security” and to charge for “entering a restricted area” which is “where the President or other person protected by the Secret Service is or will be temporarily visiting.” In short, be sure to stay in those wired, fenced containments or “free speech zones”.
Who is the “disruptor”? Bush Team history tells us the disruptor is an American citizen with the audacity to attend Bush events wearing a T-shirt that criticizes Bush … or a member of civil rights, environmental, anti-war or counter-recruiting groups who protest Bush policies … or a person who invades Bush’s bubble by criticizing his policies. A disruptor is also a person who interferes in someone else’s activity, such as interrupting Bush when he is speaking at a press conference or during an interview. What are the parameters of the crime of “disruptive behavior”? The dictionary defines “disruptive” as “characterized by unrest or disorder or insubordination.” The American Medical Association defines disruptive behavior as a “style of interaction” with people that interferes with patient care, and can include behavior such as “foul language; rude, loud or offensive comments; and intimidation of patients and family members.”
What are the rules of engagement for “disruptors”? Some Bush Team history of their treatment of disruptors provide some clues on how this administration will treat disruptors in the future. (1) People perceived as disruptors may be preemptively ejected from events before engaging in any disruptive conduct. (2) Bush Team may check its vast array of databanks to cull out those persons who it deems having “disruptor” potential and then blacklist those persons from events. Sounds like Bush not only has the power to unilaterally designate people as “enemy combatants” in the global “war on terror”, but to unilaterally designate Americans as “disruptive” in the domestic war against free speech. (3) The use of surveillance, monitoring and legal actions against disruptors.
So now the Patriot Act, which was argued before enactment as a measure to fight foreign terrorists, is being amended to make clear that it also applies to American citizens who have the audacity to disrupt President Bush wherever his bubble may travel. If this provision is enacted into law, then Bush will have a law upon which to expand the type of people who constitute disruptors and the type of activities that constitute disruptive activities. And, then throw them all in jail.Link here.
U.S ANTI-MONEY LAUNDERING REPORT WARNS AGAINST RISKS IN COMMODITIES TRADE
“Like gold and other precious metals, diamonds are attractive to money launderers because they are easily concealed and transported, and because they are mined in remote areas of the world and are virtually untraceable to their original source. Even when diamonds are transported openly, it is relatively easy to mislabel the quality/value of a diamond for money laundering purposes”, says the inter-agency U.S. Money Laundering Threat Assessment (MLTA), the first U.S. government-wide analysis of its kind, which investigates money laundering vulnerabilities across a spectrum of techniques used by criminals, which was released by the U.S. Federal Government today.
“There is growing worldwide recognition of the need to scrutinize unusual trade patterns involving commodities,” says the report, citing “conflict diamonds” as an example, which “emerging from non-diamond producing West African countries and exported to Belgium. Conflict diamonds are produced by rogue nations that use the proceeds to fund factions opposed to legitimate and internationally recognized governments,” notes the report, giving credit to the Kimberley Process that was instituted in response to the threat posed by conflict diamonds.
Sixteen U.S. bureaus, offices and agencies collaborated on the MLTA from the Departments of Treasury, Justice, Homeland Security, the Board of Governors of the Federal Reserve System, and the U.S. Postal Service. Each chapter of the MLTA profiles the characteristics of a specific method of money laundering, outlining the current legal and regulatory landscape and presenting known patterns of abuse, geographical concentrations, and real-world case studies. The laundering methodologies investigated range from banks and money transmitters to alternative methods, such as casinos and trade-based money laundering. The MLTA also looks at new and emerging industries, such as online payment systems and stored value cards, which are vulnerable to illicit financial activities.Link here.
Former medical marijuana distributor indicted on money laundering, drug charges.
A federal grand jury has indicted a former medical marijuana distributor on 19 counts of drug and money laundering, authorities said. The indictment alleges that Richard James Marino grossed about $2.75 million in the eight months he operated Capitol Compassionate Care, a medical marijuana store in Roseville, California from January to September 2004. U.S. Attorney McGregor Scott said that Marino was a big-time narcotics trafficker who tried to hide behind California’s voter-approved medical marijuana law. But Scott said even under the Compassionate Use Act, it is illegal to sell marijuana for profit.
Assistant U.S. Attorney William Wong wants Marino held without bail. He said much of the income from Marino’s marijuana operation was still unaccounted for, making him a potential flight risk. California’s medical marijuana law allows patients to use pot if it is recommended by a doctor, but under federal law, it is still a crime to cultivate, possess or use marijuana for any reason.Link here.
FEDERAL COURTS AND THE GROWTH OF GOVERNMENT POWER
The Senate hearings regarding the confirmation of Judge Samuel Alito to the Supreme Court demonstrated that few in Washington view the Constitution as our founders did. The Constitution first and foremost is a document that limits the power of the federal government. It prevents the president, Congress, and the Supreme Court from doing all kinds of things. But judging by last week’s hearings, the Constitution is an enabling document, one that authorizes the federal government to involve itself in nearly every aspect of our lives. The only controversy, it seems, is whether the current nominee will favor the power of one branch over another, or the preferences of one political party over another. Last week’s hearings were purely political, because the role of Supreme Court justices has become increasingly political.
Nearly all of the Senators, witnesses, and Judge Alito himself spoke repeatedly about the importance of respecting Supreme Court precedents. The clear implication is that we must equate Supreme Court decisions with the text of the Constitution itself, giving them equal legal weight. But what if some precedents are bad? Should the American people be forced to live with unpopular judicial “laws” forever? The Constitution itself can be amended. Are we to accept that Supreme Court rulings are written in stone?
Also troubling was the apparent consensus among both the Senators and Judge Alito that Congress has no authority to limit federal court jurisdiction by forbidding it to hear certain types of cases. This is completely false: Article III Section 2 of the Constitution plainly grants Congress the authority to limit federal court jurisdiction in many kinds of cases. It is perfectly constitutional for Congress to pass court-stripping legislation to reflect public sentiment against an overreaching Supreme Court.
We are being told two very troubling things: (1) Supreme Court decisions are the absolute law of the land, equal in weight to the text of the Constitution itself. Supreme Court precedents should never be changed, and all nominees to the Court must accept them as settled law or be disqualified. (2) If the American people do not like any of the “laws” created by the Supreme Court, they have no choice but to live with them unless by some miracle the Court later overturns itself. The people have no recourse through Congress to address unpopular Court decisions.
The ramifications of these assertions are very serious. They mean the Supreme Court not only can invalidate the actions of Congress or the President, but also craft de facto laws that cannot be undone by the people’s elected legislators! This is wildly beyond the role of the federal judiciary as envisioned by the founders. They certainly never intended to create an unelected, lifetime-tenured, superlegislature. Our federal courts, like the rest of our federal government, have become far too powerful.Link here.
WHAT HAVE LOS SUPREMOS BEEN SMOKING?
Earlier this year, the Supreme Court, acting again like a gang that smoked too much bad weed, ruled that the federal government has the right to prohibit people from growing marijuana for medicinal purposes. The Court relied on an interpretation of the Constitution’s Commerce Clause that basically gave the feds unlimited control over any activity that Congress or federal agencies sought to influence. Justice Clarence Thomas had an eloquent dissent in which he laid out the absurdity of the majority’s position:
Diane Monson and Angel Raich use marijuana that has never been bought or sold, that has never crossed state lines, and that has had no demonstrable effect on the national market for marijuana. If Congress can regulate this under the Commerce Clause, then it can regulate virtually anything – and the Federal Government is no longer one of limited and enumerated powers. … By holding that Congress may regulate activity that is neither interstate nor commerce under the Interstate Commerce Clause, the Court abandons any attempt to enforce the Constitution’s limits on federal power.
The Court’s majority based its decision on the 1942 case of Wickard v. Filburn. This is one of the most misunderstood landmark cases of the last century. Confusion about farm policy resulted in undermining everyone’s freedom. The Franklin Roosevelt administration had created a separate legal class of citizens – wheat farmers – and had minimized their freedom in order to boost wheat prices. In Wickard, the Supreme Court, for one of the first times, went hip-deep into the new administrative-law regimes spun out of the 1930s. The justices basically made fools of themselves through their complete lack of understanding of the federal policies that led to the de facto takeover of every wheat farm. According to the Court, the government’s intent to benefit some wheat farmers gave government officials the authority to absolutely control all wheat farmers – even those who were not selling their wheat. The notion that the government was entitled to regulate that which it subsidizes basically permits Congress, the president, and federal bureaucrats to seize control of whatever they throw money at.
To assume that subsidies do not subvert liberty is to believe that politicians do not like power. It is only a question of time until some politician or some bureaucrat finds it in his interest to exercise the power latent in the subsidy. The politicians and bureaucrats come to feel that the money they dole out is their own – and try to exercise the management rights inherent in public property that they have long since denied to the owners of private property. Moreover, with the recent Supreme Court medical marijuana decision, this doctrine is stretched to even further extremes. As a result of a horrible legal decision issued more than 60 years ago, the federal Leviathan is able to continue expanding its controls over the lives of the American people.Link here.
ALTERED STATE OF THE UNION
Neither Democrats nor Republicans, neither liberals nor conservatives will admit it. They have all been in on the swindle. Fed budgets and budget deficits are a bi-partisan flim-flam. Together, the two parties have connived to add more to U.S. public debt in the two Bush administrations than in all the administrations and all the Congresses that came before them put together. Even the Bush-friendly Heritage Foundation tattles that federal deficits are expected to rise to $1 trillion per year in the next decade. The national debt is expected to triple to $16 trillion. Much of this debt can be traced to the never-ending war in Iraq. It has already gone on longer than America’s participation in World War II. And now two professors, one from Harvard and the other from MIT, put the cost at four times as much – as much as $2 trillion, or about $20,000 per homeland family.
“We came, we saw, we borrowed,” says our very own Texas Tiberius. Americans want things they cannot afford. They have no choice. They have to borrow. Debt levels have soared: public debt, private debt, student debt, credit card debt, mortgage debt, and business debt. Still, many, many economists believe the nation is better off in 2006 than it was in 2000. Indeed, there are so many of them that if you laid them all end to end, it would be a good thing. That the nation is not the same as it was when George W. Bush entered the Oval Office, no one doubts. That it is worse off is the burden of this little memo.
The American empire, circa 2006, is a grotesque and remarkable thing. It has troops stationed all over the world and a military budget greater than all the rest of the world combined. The expense is worth it, say supporters. Without it the world economy could not expand. “The hidden hand of the market will never work without a hidden fist – McDonald’s cannot flourish without McDonnell Douglas, the designer of the F-15,” as imperial cheerleader, Thomas L. Friedman explains. But for all the money spent, America’s commerce actually loses market share (the trade deficit hit a new record in 2005; experts expect it to top $800 billion in 2006). And Americans themselves grow poorer. It is not the same nation … or the same empire … we used to know. It owes more money to more people and is less able to pay.Link here (scroll down to piece by Bill Bonner).
FREE VERMONT: GREEN MOUNTAIN BOYS PONDER SECESSION
Organizers billed the Vermont Independence Convention of October 28 as “the first statewide convention on secession in the United States since North Carolina voted to secede from the Union on May 20, 1861.” North Carolina, the final state to join the Confederacy, overcame its unionist scruples with some reluctance. By contrast, the 250 or so Vermonters gathered in Montpelier, that coziest of state capitals, gloried in the prospect of disunion. Montpelier is the only McDonald’s-less state capital in the land, and from its late October splendor issued a Jeffersonian firebell in the night, ringing a warning to the national capital: the United States deserve a break(up) today. Only in Vermont, with its town-meeting tradition and tolerance of radical dissent, would the golden-domed State Capitol be given over to a convention exploring the whys and wherefores of splitting from the U.S. And all for a rental fee of $35!
Thomas Naylor, a Mississippi native and longtime professor of economics at Duke, who in best contrarian fashion flew north in retirement to the Green Mountain State, is the founder, theoretician, and chief sticker-of-stamps-on-envelopes for the Second Vermont Republic (SVR), which declares itself “a peaceful, democratic, grassroots, libertarian populist movement committed to the return of Vermont to its status as an independent republic as it once was between 1777 and 1791.” The SVR has a clear, if not simple, mission. “Our primary objective is to extricate Vermont peacefully from the United States as soon as possible.” The SVR people are not doing this to “make a point” or to stretch the boundaries of debate. They really want out. Although SVR members range from hippie greens to gun owners – and among the virtues of Vermont is that the twain do sometimes meet – Naylor describes his group’s ideological coloration as “leftish libertarian with an anarchist streak.”
The SVR lauds the principles and practices of direct democracy, local control of education and health care, small-scale farming, neighborhood enterprise, and the devolution of political power. The movement is anti-globalist and sees beauty in the small. It detests Wal-Mart, the Interstate Highway System, and a foreign policy that is “immoral, illegal, and unconstitutional.” It draws inspiration from, among others, Aleksandr Solzhenitsyn, who in bidding farewell to his neighbors in Cavendish, Vermont, where he had lived in exile for 17 years, praised “the sensible and sure process of grassroots democracy, in which the local population solves most of its problems on its own, not waiting for the decisions of higher authorities.”
The group’s seriousness of purpose is evident in its literate monthly, Vermont Commons, which includes contributions on such topics as family and organic farming, community-supported agriculture, land trusts, and local currencies – constituting in sum, a humane and practicable alternative to the Empire of Wal-Mart and Warfare. The tincture is green, but conservative, too, and although Naylor refuses to kiss up to his state’s hack politicians – he calls Democratic Sen. Patrick Leahy “a world-class prostitute” – the Republican lieutenant governor has praised the SVR for “their energy and their passion.”
Secessionist whispers have soughed through Vermont for years. The presidency of George W. Bush has made the fanciful seem a little less fantastic. As Naylor asks, “Do you want to go down with the Titanic? No empire has survived the test of time.” The Second Vermont Republic confounds those who would analyze it using the language of practical politics. It pursues with humor and a dogged optimism a goal that seems manifestly impossible. It speaks radical notions with a conservative diction. It operates at the political fringe yet attracts such eminent establishmentarians as John Kenneth Galbraith, who communicated his “pleasure in, and approval of the Second Vermont Republic.”
It is no small portion of Vermont’s charm that the secessionists were given use of the state house in Montpelier, which lent a certain sobriety to what might otherwise have been a rambunctiously motley conference. Under a portrait of George Washington, Naylor, the founding father of this republic in gestation, charged that the U.S. government has “no moral authority … it has no soul,” and he denied the salvific properties of the Democratic Party: “It doesn’t matter if Hillary Clinton or Condoleezza Rice is the next president – the results will be equally grim.” The SVR takes no position on abortion, gay rights, gun control, and the like. These are questions to be debated within an independent Vermont. Devolution is the great defuser of explosive issues – let Utah be Utah, let San Francisco be San Francisco, let Vermont be Vermont.
When a delegate asked the inevitable Civil War question, Naylor met it head on. “South Carolina and the Confederate states had a perfect right to secede,” he told the assembly. He recommended Tom DiLorenzo’s debunking The Real Lincoln and said, “the bottom line of the Civil War was preserving the Empire.” I expected audible gasps and fainting Unitarians, but the unsayable, having been said, was not confuted. Would not the Empire treat a seceding Vermont with as little forbearance as Lincoln showed South Carolina in 1861? Naylor scoffed. “Would all of the black and white Holsteins be destroyed or perhaps the entire sugar maple crop be burned?”
Frank Bryan, introduced by Naylor as “hands down the most interesting person in Vermont … since Solzhenitsyn left the state,” confessed to being “sad” and “melancholy” because “my nation needs Vermont to secede.” Bryan has long been achingly ambivalent about secession. He is, like many decentralists, an American patriot who reveres the crazy old idiosyncratic America and whose heart stirs to patriotic tunes. But something has happened. The country seems to have gotten away from itself. “The reservoirs of citizenship are dried up, and that’s why we’ve got to secede,” asserted Bryan. After eight hours of small-scale democracy in action, the assembled Vermonters voted to “peacefully and democratically free [themselves] from the United States of America.” You may call it a lark, but on this last Friday before Halloween 2005, I thought I saw it grow wings.
An independent Vermont is not a joke, nor is it an ignis fatuus. It is the shape that hope takes in the darkening shadow of a crumbling Empire. John McClaughry, the Vermonter who heads the free-market Ethan Allen Institute, detects “a virulent anti-American leftism” in the SVR, adding, “whether this goes so far as a willingness to forswear the continued receipt of Social Security checks from the despised U.S. of A. the organizers have yet to say.” Naylor responds that expatriates currently receive their Social Security checks without incident. And to the common argument that Vermont receives $1.15 for every dollar it sends to Washington and therefore would shortchange itself by separating from the Union, Frank Bryan has replied, “Would you rather have $10,000 to spend any way you want or $11,500 that you have to spend as I say?”
McClaughry is a cussed original whose work I have long admired, but unless the defining characteristics of “anti-American leftism” are a loathing of Wal-Mart, the Iraq War, and Big Government and a fondness for organic farming, town meeting, and a Vermont First ethic, the SVR seems to me a wholesomely shaggy band of ur-Americans, not anti-Americans. Yeah, I saw a fistful of nuts at the Montpelier convention. But they were the sort of free-floating crazies who show up wherever two or more people are gathered in the name of revolution.
I heard much talk of the need for libertarian conservatives and anti-globalist leftists to work together. There is a sense that the old categories, the old straitjackets, must be shed. When Reverend Matchstick preaches that we need decentralism because communities that ban genetically modified food must have the power to enforce those bans, he is speaking a language that pre-imperial conservatives will recognize – the language of local control. Russell Kirk would understand. When the “Vermont nationalist” CEO of a consulting firm insists that Vermont should have the right to determine where (and where not) its national guard is deployed, I hear an echo of the Old Right. Why should the Vermont National Guard be shipped overseas to fight the Empire’s wars? “Long Live the Second Vermont Republic and God Bless the Disunited States of America,” concluded Thomas Naylor. You got a better idea?Link here.
“WAR ON TERROR” CONTINUES TO CREATE TERRORISTS
The CIA’s recent botched attempt to kill al Qaeda’s number two man, Ayman Zawahiri, in Pakistan illustrates why the Bush administration’s overly aggressive “war on terror” actually motivates terrorists to attack the U.S. Certainly, capturing or killing the brains behind al Qaeda is an important goal. Unfortunately, in the U.S. method of warfare – which unduly emphasizes attrition, heavy firepower and sophisticated weaponry, even against guerrillas and terrorists – the technology of killing has outstripped the quality of human intelligence needed to hit the correct targets. The CIA’s unmanned Predator drone fired missiles that killed many Pakistani civilians, including women and children, but apparently not Zawahiri.
Making things even worse, the killing of women and children continues to spark public outrage all across Pakistan, leading to mass protests in all of Pakistan’s major cities and the trashing and burning of a U.S.-supported aid organization. Such public ire will make it even less likely that the U.S. will receive accurate future intelligence about where Zawahiri and his boss, Osama bin Laden, are hiding, even though the prices on their heads are substantial. And to shore up the popularity of his war on terror at home, which has been dragged down by an incongruous, unnecessary, now unpopular war in Iraq, President Bush has combined these reckless military actions with cowboy rhetoric, which only further stoke the flames of anti-U.S. hatred among radical Islamists. To the Muslim world, the president’s war on terror looks much like a war on Islam that threatens to make the clash of civilizations a self-fulfilling prophecy.
Yet even the unlikely uniting of the Islamic world would not necessarily create a severe threat to the U.S. Arab countries, only a subset of the Islamic world, have not even been able to unite against Israel, their mortal enemy. It would be even harder for the more geographically and ethnically diverse global Islamic community to unite under one ruler. Even if the entire Sunni Islamic world coalesced rapidly into one empire, any threat to the U.S. – which would not be inevitable – would be tempered by the fact that many of the countries uniting are economic basket cases.
President Bush should ratchet down the war on terror to make it more effective. The U.S. should improve human intelligence and strike al Qaeda only when the information is bulletproof. More importantly, to reduce terrorists’ motive for attacking the U.S. in the first place, the administration should quietly withdraw the unneeded land forces from Persian Gulf countries and its support for their authoritarian, venal rulers.Link here.
As coincidence would have it, Mark Crispin Miller’s new book, Fooled Again, documenting the Republican theft of the 2004 presidential election, arrived in the same mail delivery with the January 12 edition of the Defuniak Springs Herald, the locally owned weekly newspaper in a Florida panhandle county seat. The Florida panhandle is thorough-going Republican. Even Democrats run as Republicans. Nevertheless, the newspaper’s editor, Ron Kelley, believes that American political life is measured by something larger than party affiliation. In his editorial, “The shepherds and the sheep,” Kelley reports that two Florida counties have banned any further use of Diebold voting machines after witnessing a professional demonstration that the machines, contrary to Diebold’s claim, are easily hacked to record votes differently from the way in which they are cast by voters.
The pre-election statement by Diebold’s CEO that he would work to deliver the election to Bush was apparently no idle boast. In five states where the new “foolproof” electronic voting machines were used, the vote tallies differed substantially from the exit polls. Such a disparity is unusual. The chances of exit polls in five states being wrong are no more than one in one million. Miller describes considerably more election fraud than voting machines programmed to count a proportion of Kerry votes as Bush votes. Voters were disenfranchised in a number of ways. Miller reports incidences of intimidation of, and reduced voting opportunities for, poorer voters who tend to vote Democrat. Some of Miller’s evidence is circumstantial. However, he documents widespread Republican dirty tricks and foul play. The media’s indifference to a stolen election burns Miller as much as the stolen election itself.
Miller is not alone in his concerns. The non-partisan U.S. Government Accountability Office (GAO) in response to congressional request investigated a number of complaints regarding the electronic voting machines, and noted several problems in its September 2005 report. Curiously, the media has shown no interest in the GAO report. In my opinion, a free press has proven to be inconsistent with the recently permitted highly concentrated corporate ownership of the U.S. media.
The electronic voting machines leave virtually no paper trail and their use involves private potentially partisan corporations tabulating the votes with proprietary software that is not transparent. A number of counties in various states have decided to return to paper ballots that can be verified and recounted. But now that Republicans have learned that they can use the electronic machines to control election outcomes, the disenfranchisement of Democrats is likely to be a permanent feature of American “democracy”. Miller directs our attention to Bush’s high-handed treatment of dissenters. If electronic voting machines programmed by private Republican firms remain in our future, dissent will become pointless unless it boils over into revolution. Power-mad Republicans need to consider the result when democracy loses its legitimacy and only the rich have anything to lose.Link here.
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