Wealth International, Limited

Offshore News Digest for Week of February 6, 2006

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

Global Living & Business Taxes Asset Protection / Legal Structures Privacy Law Opinion & Analysis



Direct Democracy in Switzerland by Gregory A. Fossedal is a unique book that unintentionally highlights the abject failure of American representative democracy to limit and control government growth. In contrast, it details the Swiss model of direct democracy and confederation that successfully has preserved personal liberty and controlled government. It is a system that should be copied in the U.S. and the world.

Comparing the history of the American Republic and the Swiss Confederation clearly shows how fleeting and short-lived representative democracy is. Stability is the hallmark of Swiss direct democracy. This tiny nation is heralded by champions of liberty and limited government because of its dedication to armed neutrality and financial, economic and personal freedoms. Small wonder that the Swiss Confederation is hated by tax hungry politicians, special interests and those who would deny others both liberty and wealth.

Why is Switzerland so different from the rest of the world? How could they retain a decentralized, limited central government controlled by the people when most other nations have failed? I believe the Swiss centuries-long success is due to two unique political institutions. First is the political structure of direct democracy protected by the right of national referendum and initiative. The second is their decentralized structure of state confederation where most of the powers and authority are based at the local and cantonal (provincial) level. This is a timely reminder that there is a successful, peaceful, prosperous, democratic example, a possible solution to the ethnic, religious and political differences that does not require big government at home, or aggressive military intervention abroad. The book also shows the EU how to avoid the fatal mistakes of the American model

Link here.


A life at sea sounds like a dream to many. Others would wish for a mixture of land and ocean. Ferrying people and cargo between Antigua and Barbuda, Greg Urlwin has found the perfect blend. In the early 80’s, Urlwin decided he wanted to follow in his uncle’s wake, and sail to the Caribbean. Before that, he says, he had been in a university in New Hampshire, studying “everything and nothing”. “I came down here for a year,” he says, “and stayed, two, went home, and was even less interested in being there than I had been before. I realized that all this university was getting in the way of my education, so I came back here.” He made a 20-year career sailing yachts from Antigua to Europe, Alaska, the U.S. coast and the Panama Canal.

But that too eventually grew dull, and Urlwin wanted something new. Today, he is the captain of the Barbuda Express, the only passenger sea link between sister islands Antigua and Barbuda. Setting up the business was no easy feat, however. “Banks, they hate financing boats. Added to that, knowledge of boats and the ability to pay for them are two of the most mutually exclusive activities on the planet.” Eventually, Urlwin got backing from a family member and two friends to purchase a second-hand wave-piercing Catamaran from Florida. Though not the most profitable business in the world, he says, “It was something I knew that I could do, and I could do well. You try to find a business that you want to start: swim with the dolphins, a new golf course, and there’s always someone that’s against you. I knew this was something that they wanted, nobody was going to be against me; it just seemed like a natural fit.”

Previous attempts to bridge the distance over the years had failed. Urlwin credits his success to the type of boat he uses. Instead of being carried by the waves in the notoriously unsettled channel, the Cat goes through them, making for a much smoother ride. Passengers range from cricket teams to construction workers, to sightseers and hotel workers. In addition, he ships produce and sporting gear. The vessel makes the 180-minute round trip daily, leaving Urlwin little time to do anything else but run his business. “When I get some leisure time, I’ll tell you.”

His love for the Caribbean is made up of simple things. “I think the more relaxed lifestyle, the climate, the people, the fact that in Antigua, we have people from all over the world, and people from all over the world visit here. It’s an unpretentious lifestyle here, nobody really cares what you drive, which is so much different from the States, where it’s all about what you drive and what you wear. There, it’s work every minute of your life and accumulate a whole bunch of toys and have no time to enjoy yourself. It’s he who dies with the most toys wins.” He says there is nothing he longs for within the shores of North America. He spends his days between the sister islands, and most nights rests his head on the relatively untouched Barbuda, home to around 1,500 people. The only thing he says might make him move back to the States – and this only temporarily – would be if his other half decides to further her studies there.

Link here.


I see Mercosur as my passport to living and working in the South American continent. By getting my Argentine residency now, while it is relatively easy, I am making sure that my family has greater freedom to live where and how it wants to. Many people do not know what Mercosur is. I did not know before moving to Buenos Aires 18 months ago. Mercosur is a political and economic bloc of countries, similar to the EU. Five countries in South America – Argentina, Brazil, Paraguay, Uruguay, and Venezuela – are members. Five other South American countries are associate members – Bolivia, Chile, Colombia, Ecuador, and Peru. Colombia signed an agreement at the end of 2005 that moves it closer to becoming a full member.

Growing up in the U.S., I did not have a clear idea of the limitations that the borders of different countries place on people. When I was 17, my father lost his job, and we moved between States, from Oklahoma to Texas. We had to get new driving licenses and register the cars in the new state, but other than that, the move had the same challenges that any move has … packing, unpacking, registering in new schools, etc. We could have been moving across town. We could drive across the state border without being stopped. We did not have to show any identification. We did not need any kind of visa to enter. My father found a new job and did not have to have a work permit. We did not have to worry about paying any duties when we brought our truck load of things from one state to another.

This is what happens to the borders between countries as they form a political and economic bloc. You no longer need to have visas, work permits, or pay duties on your personal items. You become free to take yourself, your family, your possessions, and your money from one country to another, just as my family did when we moved from Oklahoma to Texas. We are planning a driving trip to neighboring Uruguay. We are member of the Argentine Automobile Club. They have emergency road service, in addition to maps and other services. For example, we also bought our car insurance from them. Since Argentina is a member of Mercosur, we can drive our car into any Mercosur country and the insurance is valid. We can drive our car from Argentina to Uruguay and back without any problems. You can not drive a car between the U.S. and Mexico without getting additional Mexican insurance.

I lived and traveled in Spain before it became a member of the European Community – when its scenery, people, and climate made it a lovely place to live, but there were few jobs and a great deal of poverty. When the announcement was made that Spain would become a member of the European Community, investment poured into Spain, and it has become a land of opportunity. Europeans from other countries come not only to vacation, as they had done before, but to buy real estate. Many buy second homes for their vacations and have retired there. They invested wisely. Right now in Argentina, you only need to show $800 monthly income as an individual or family to get residency. This creates an incredible opportunity. If I am correct, Mercosur will grow in influence and my family and I are gaining access to all of South America at bargain basement prices with our Argentine residency.

Link here. Wikipedia entry for Mercosur here.

The differences between Buenos Aires and the rest of Argentina.

We just got back from Buenos Aires a little while back and frankly I am exhausted. When I was an exchange student here in Argentina (I am originally from the U.S.) one thing that all of the exchange students noticed was that for the first few weeks (or even months) you were always tired. The programs’ representatives said that that was completely normal, thus thwarting any of our hopes of acquiring some exotic disease that would be really cool to talk about back home. And that was how I felt after our Buenos Aires trip. It is the culture shock that takes its toll on you physically.

How is it that I am talking about culture shock after being in the country for almost 10 years? Well, the summed-up version is that Buenos Aires is almost like another country compared to the rest of Argentina. Obviously, the country as a whole has pretty much the same customs, like drinking mate, the weekend “asados”, having lots of friends and family always around, but there are some things that are noticeably different. Apparently most of BA is what I would call atheistic. You are probably thinking that most of the country is Catholic, but hold on a second. I say atheistic because siesta is my one true religion, and in BA siesta is on its way to becoming extinct (insert sad little whimper here).

In the interior I would venture to say that probably 80 or 90% of activities take a break after lunch, and then start up again at around 5 p.m. Most businesses, schools, doctor’s offices, etc. all work that way. But not in BA. They get up and go, and do not stop until 6 p.m. or so – typical hours in most other parts of the world. We were in BA visiting my in-laws for an extended period of time, so it was like a little vacation for us. So after lunch you can imagine that since I was on vacation, and with a full stomach, I could hear my pillow calling me from afar! But we had to keep up the rhythm, going here or there, doing this or that. Another thing that is noticeable is the time. In BA you say at 3:15, you mean 3:15. In the interior 3:15 could mean 3:30 or 3:45.

If you walk around downtown Tucumán during the siesta, or on Sunday, most places will be closed and you will have to sit in one of the very few coffee shops that are open all the time (there are a couple in the downtown area). But things are slowly changing. I can see that in another 10 years or so, a lot of the country will have adjusted to being on the BA schedule, working 9-5, phasing out the siesta (hopefully I will be self-employed by then!), picking up the pace etc. But even though BA does move at a faster pace, I think that when its residents have the chance, they really do know how to slow down and just take things in stride. We must not forget that that is the Latin way of life. What good is living life if you cannot sit back and enjoy the scenery right? Even if it is just every once in a while.

Link here.


Nearly half of the world’s nations are corrupt, and many of them are not doing very much about it at all. From corrupt courts and police to government ministries, even heads of state, the most fundamental rights and government services are dispensed largely to those who pay for it – under the table into just the right hands. By international standards, 72 of 158 nations monitored by Transparency International and a German-based think tank at the University of Passau are deemed corrupt. They range from the tiny military dictatorship of Myanmar to some of the world’s largest countries – Russia and Indonesia.

In some nations, the corruption is as basic as greasing the palms of the village police chief to let a bar stay open an hour past the regular closing time, or paying off a telephone company clerk to expedite installation of a phone line. In other cases, corruption means millions in payoffs, often to secret foreign-bank accounts, where development funds are siphoned that should have been used to expedite roads, schools, bridges or basic health and sanitary facilities designed to improve the lives of their people.

Africa is clearly the most seriously corrupt region, since nine of the 16 most seriously corrupt nations are on that continent, with Chad occupying the No. 1 spot. In 2002, the African Union estimated that the continent was losing $150 billion a year to corruption, and things have not improved much since. Two of the 16 members of the current most-corrupt list are former Soviet republics, Turkmenistan and Tajikistan, while three are in Asia and two are in Latin America. In many cases, corruption is used to maintain power for the ruling governments that may be fighting civil wars or insurgencies using diverted funds to buy arms. Some African nations are making valiant efforts to harden their stand against corruption – particularly Nigeria, where a reformist government has taken some important steps at the federal level. But as one leading, international corruption monitor said, “It probably doesn’t go beyond the top dozen members of the government.”

Link here.


Antigua and Barbuda plans to raise EC$51m on the ECSE in March, joining other Caribbean nations who have recently floated bonds on the exchange, including St. Lucia and St Vincent and the Grenadines. The privately-owned ABI Bank Ltd. – formerly Antigua Barbuda Investment Bank Ltd – will manage the issue, which will take the form of 91-day Treasury Bills, and will be offered to the public through ECSE broker-dealers. St Vincent and the Grenadines’ 91-day, EC$16 million Treasury Bill issue, auctioned on the Regional Government Securities Market using ECSE’s primary market platform on January 31st was oversubscribed by $4.7 million. A competitive uniform price auction methodology was used and the resulting interest rate was 5.00%.

The previous week, the Government of St. Lucia issued EC$25 million fully-subscribed 10-year bonds on ECSE’s primary market platform, with a coupon fixed at 6.5%. ECSE says it enjoyed a year of success in 2005, its 4th year of operation, as the market outperformed all other regional markets in terms of returns to investors. According to ECSE, which is based in St. Kitts & Nevis, the total overall return to investors was 15.5% last year, surpassing the returns available on any other regional market or on any other traded or non-traded publicly available financial asset class. The ECSE also successfully implemented its strategy to expand into the wider CARICOM area, undertook an organizational restructuring, and embarked on a new market awareness program.

From January 1 to December 31, 2005, the ECSE EC-Share Index appreciated by 9.53%, which, the bourse said, “was not achievable in any other asset class or financial market.” Growth recorded by the index was almost double that of the closest competitor, the Barbados Stock Exchange, whose BSE Local Index recorded an increase of 5.19% over the year, while the performance of the other markets “paled in comparison”, with most showing declines in values, the Exchange noted. “This spectacular performance reflects a significant increase in shareholder value, and coupled with an average dividend yield of approximately 6.0% for the year, amounts to a total overall return of 15.5% to investors,” the ESCE stated.

Link here.


The Dubai Mercantile Exchange (DME) has unveiled its plans to launch a new trading hub concept on an electronic trading floor, in an effort to capitalize on local liquidity, draw regional market participants and attract financial institutions from the Middle East and internationally. Addressing participants at the Cambridge Energy Research Associates Week 2006 conference in Houston, DME Limited CEO Gary King explained the DME’s vision to meet the growing market need for price discovery of Middle East sour crude oil.

“Against the backdrop of high oil prices, booming regional stock markets and significant liquidity, the DME looks to build upon strong regional confidence and the desire for alternative investment products and risk management,” Mr. King stated. The DME is also hoping to fill the time zone gap between Europe and Asia by providing a new center for the trading of energy futures, options and other products, enabling the energy industry to help its global customers manage risk more effectively.

Under unique plans, the floor of the DME will be made up of a number of hubs, each of which will consist of four- to six-seat clusters that will be made available to regional and international financial institutions as well as trading companies. Each hub will contain all the necessary hardware for traders to execute their trades electronically and manage their risk from the Exchange floor.

Link here.



The Senate last week approved a $70 billion tax-cutting measure without including President George W. Bush’s much vaunted extension of the 15% rate on capital gains and dividends, although senior Republicans are confident that the measure will make compromise legislation yet to be agreed with the House of Representatives. In a 66-31 vote, Senators approved a measure that includes a one year “fix” to the Alternative Minimum Tax designed to prevent 15 million taxpayers from falling into a system intended to prevent wealthy taxpayers from reducing their tax liability to next-to-nothing through various credits and deductions. It has been estimated that 15 million mostly middle class taxpayers will fall into the AMT trap this year because the system was not indexed to inflation.

However, crucially, the Senate bill has omitted a two year extension to the capital gains and dividend tax cut, which is due to expire at the end of 2008 under legislation passed in 2003, as Republican moderates, concerned at the level of the federal deficit, continue to defy President Bush’s repeated calls for these tax cuts to be extended in order to preserve the momentum of economic growth. The House is expected to begin the process of initiating final talks on the legislation this week. Both chambers would have to give final approval to a compromise measure.

Link here.


A U.S. appeals court has ordered a lower court to re-examine a case in which the IRS had accused the tool maker Black and Decker of avoiding tax through its use of a banned tax sheltering arrangement. In doing so, the Court of Appeals overturned a 2004 decision by a lower court judge, who had dismissed the IRS’s case. The case centers on a complex set of transactions which Black & Decker says it undertook legitimately in an attempt to create a $561 million capital loss. However, the IRS argues that the transactions were a sham with no economic purpose other than to avoid tax. B&D has countered that a law banning the use of “contingent liability shelters” was not in effect at the time of the transaction.

Originally, Black & Decker had claimed it was owed $57 million in tax refunds from the IRS, but the agency refused to accept the claim and in turn counter-sued the company for tax, interest and penalties totalling $215 million, according to court documents. Sending the case back to the lower court, Judge M. Blane Michael wrote on behalf of the three judge panel that, “We conclude that neither the IRS nor the taxpayer [Black & Decker] is entitled to summary judgment under the controlling tax statutes.” The judges also noted that there remained “unresolved issues of material fact.”

Link here.


Positions have hardened between Switzerland and the EU over advantageous corporate tax rates granted by a number of Swiss cantons. The EC made it clear that it would not tolerate such practices in talks with Michael Ambühl, State Secretary in the Swiss foreign ministry. After a meeting in Brussels with Eneko Landaburu, director general of the commission’s external relations, Ambühl said the EU had “expressed its concern”. Landaburu from Spain appeared less diplomatic in an interview with French-language Swiss radio. “It’s a political problem when we see practices which lead to very pronounced tax evasion and which penalize our member states.” France and Germany are strong supporters of this view but the majority of EU members have not yet made their views known.

The tax issue arose in September in a letter sent by the commission questioning whether the central Swiss cantons of Zug and Schwyz granted unfair tax advantages to foreign firms. Canton Obwalden has since joined their ranks by introducing at the beginning of the year similar tax breaks to attract companies and wealthy people. Ambühl reaffirmed the Swiss position that cantonal tax advantages granted to some companies do not violate the 1972 free trade agreement signed between Brussels and Bern, which covers trade in a certain number of goods. Switzerland, which is not a member of the EU, is to give Brussels a more detailed report on its views in the middle of this month. “It’s therefore a legal question,” Ambühl told Swiss journalists in the Belgian capital. He added that there was no talk of the issue having ramifications for bilateral relations.

Link here.


For years during the Cold War, the capitalist countries of the West benefited from far more dynamic economic systems than their Eastern rivals. Today, however, the former communist countries are making a determined bid to turn the tables. Nine nations from the old Soviet Bloc have adopted simple and fair flat tax regimes, and others are poised to follow suit. These countries are rejecting the European social model of progressive taxes and implementing a system based on the notion that all citizens should be treated equally. Four of the flat-tax countries – the three Baltic states and Slovakia – are members of the EU, and a fifth, Romania, is due to join in 2007. The success of their new low-tax systems in attracting investment and stimulating economic growth is putting increasing pressure on their high-tax Western European partners to consider tax reforms that might ultimately lead in a similar direction – despite strong political opposition in many countries.

Under a flat tax, all households receive a generous family-based allowance, and are then taxed at a low rate on any income above that amount. Graduated tax rates are abolished and all loopholes are eliminated. This type of tax reform simultaneously creates a simple and transparent tax system and minimizes tax penalties on work, saving and investment. Free-market Estonia was the first to adopt a flat tax, implementing a 26% rate in 1994, not long after the collapse of the Soviet Union. The two other Baltic states followed in the mid-1990s, with Latvia choosing a 25% rate and Lithuania 33%. Learning from its neighbors, Russia shocked the world with a 13% flat tax that went into effect in 2001. The idea was taken up in 2003 by Serbia, which adopted a 14% rate. Slovakia climbed on the bandwagon the following year with a 19% rate, as did Ukraine, which chose 13%. Romania joined the flat tax revolution in 2005, with a 16% rate, along with Georgia, which chose 12% – giving it the honor (at least so far) of having the lowest rate.

The flat tax revolution has been so successful that Estonia is lowering its rate to keep pace with other nations. The Estonian flat tax is now down to 24% and is supposed to fall to 20% by 2007. Lithuania is also planning to drop its rate to 24% in response to competitive pressure. But this may be just the tip of the iceberg. Lawmakers in Croatia, Bulgaria, and Hungary are discussing the flat tax. Opposition parties in the Czech Republic have promised to implement a 15% flat tax if they win the next election. Hopes for a flat tax in Poland, however, suffered a setback in October when the ostensibly right-wing Law and Justice Party chose to form a government without including the pro-flat tax Civic Platform parliamentary group.

Despite such widespread enthusiasm, it is legitimate to ask whether the flat tax revolution is a good thing – particularly as it has not so far spread to any Western European countries. An idea is not necessarily good just because it is being widely adopted. After all, numerous countries nationalized industries after World War II, only to discover that government-owned companies misallocated resources and placed heavy burdens on taxpayers. The trendy flat tax has wide support among public finance experts, who see it as especially beneficial for developing and transition economies that need faster growth and better tax compliance.

The flat tax embodies the following principles: (1) Tax income at the lowest possible rate to encourage pro-growth behavior. (2) Tax income only once, so there is no bias against saving and investment. (3) Eliminate back-door industrial policy by removing preferences. Other important advantages of the flat tax include simplicity and territoriality. It should be noted, however, that Central and Eastern European nations do not have perfect tax systems. None of them has adopted the pure version of the flat tax first proposed by Professors Robert Hall and Alvin Rabushka at Stanford University, and many of the flat-tax countries are still plagued by extremely high payroll taxes.

But these flaws notwithstanding, empirical evidence already shows that tax reform is having a desirable impact. The Baltic nations, for instance, are the most prosperous of those that emerged from the former Soviet Union. The Russian Federation, which followed the Baltic States in adopting a flat tax, is the next most prosperous of the former Soviet Republics. The evidence from Russia, where the 13% flat tax has helped produce an economic boom, is particularly striking. In addition to faster growth, Russia’s tax reform has dramatically improved tax compliance. Over the past four years, inflation-adjusted income tax revenue in Russia has grown by more than 100%, demonstrating that people are willing to produce more and pay their taxes when the system is fair and tax rates are low.

The economic performance of flat tax countries should not come as a surprise. After all, Hong Kong, which introduced a flat tax in 1947, has been among the world’s fastest growing economies ever since. Much less well known is the experience of the Channel Islands, the small British territories off the Normandy coast of France, which have become very wealthy in part because of their low-rate flat tax systems.

Tax competition comes into play when politicians feel compelled to lower taxes for fear that jobs and capital will migrate to nations with more attractive tax systems. This is why the flat tax is causing anxiety in Western Europe. Leftist politicians complain about “harmful” tax competition because it is increasingly difficult to maintain a welfare state when those that pay the bills have the option of fleeing to more hospitable climes. Acting at the behest of nations such as France, Germany and Sweden, international bureaucracies such as the European Commission and the OECD have launched major campaigns to thwart tax competition. The Commission has had some success. All EU member states have to apply Value Added Tax (VAT) rates of at least 15%. But the Commission has also failed in several areas. It has been pushing to harmonize corporate tax rates for nearly 20 years with no success. The obstacle – at least from the perspective of high-tax nations – is that EU decisions on tax policy must be unanimous, allowing individual nations to veto plans for EU-wide taxes. Lower-tax nations like Britain, Ireland, Slovakia, and Estonia have thus been able to block the high-tax countries from pursuing a tax harmonization agenda.

Some Western European lawmakers see the handwriting on the wall and have begun to talk about the possibility of a flat tax in their own countries. While there is certainly not yet a political consensus for reform, Spain, Denmark, The Netherlands, Germany and the United Kingdom are among the nations where the flat tax is being examined. The fact that these discussions are even taking place is testimony to the force of tax competition. It will be a long struggle, however, before any of the 15 older, Western EU member states adopts the flat tax. Nonetheless, it may just be a matter of time before the “tax curtain” is breached and the flat tax spreads to the West. One potential catalyst is China. If current speculation that China may implement a flat tax in 2006 is correct, it could be the spark that lights the fuse for a new wave of international flat tax reform.

It is important to bear in mind that a flat tax is not a cure-all for Central and Eastern Europe, and would not solve all of Western Europe’s problems either. But theory and evidence suggest that tax reform in the main body of the European Union would mean stronger growth, as it has in Central and Eastern Europe. There are good reasons to believe that a flat tax would also improve tax compliance in the West, in the same way that it has reduced evasion and avoidance in the East. A flat tax in Western Europe could also reduce political corruption, just as it has curtailed interest-group pleading in Eastern Europe.

Both inside the EU and beyond, Central and Eastern Europe’s flat tax revolution is serving as a role model for developing and transition economies. The flat tax demonstrates that it is possible to grow faster and create a more transparent tax code. The most important lesson, however, is that the European social model is not monolithic. Graduated tax rates are not an inevitable feature of modern tax systems. The continuing pressures of tax competition may soon make systems based on the Marxist doctrine of “from each according to ability” relics of the past.

Link here.

The Spirit of Reform

America considers itself the land of new ideas, and in many respects it is. Yet the truth is that by the time we embrace them, so-called new ideas are usually anything but new. Most were hatched decades before being adopted. They had to travel a long and winding road, enduring repeated examination, debate – and rejection – before finally winning acceptance and bringing about real change.

The flat tax is no different. When I ran for president in 1996 and 2000, I proposed that today’s monster federal income tax code be scrapped and replaced by a single tax rate for individuals and businesses. The flat tax would do away with all but a few basic exemptions and deductions, eliminating the confusion and complexity of the current tax code and letting you fill out your return on a simple postcard or sheet of paper. A simple proposal, but one that promises, as you will see in succeeding chapters, to transform not only the tax system but the nation as well, revitalizing the economy and changing our lives dramatically for the better. Back then, this was portrayed as a new and radical idea. In fact, the flat tax has been around for decades.

In the 1940s and 1950s, Americans had come to believe that, as a modern country, we needed to swallow the medicine of catastrophically high tax rates. Like castor oil, they were supposed to be good for us. In much the same way that Americans in the 1950s trusted that “Father Knows Best”, the title of the classic television show of that era, we felt the government knew best about how to tax us and deploy our money. But it does not. The federal tax code has grown into a 9-million-word, multi-headed hydra of countless brackets, deductions, and exemptions. Rates have come down significantly in the past 25 years. Yet when all of Washington’s exactions – not just the income tax, but also Social Security and Medicare taxes and numerous excise taxes – are added together with state and local taxes, we annually surrender as much as 50% or more of our income to Uncle Sam and his equally voracious state and local kin.

Every April 15th – and for entrepreneurs, every quarter – we keep saying we have had enough. Like Howard Beale in the classic movie “Network”, we want to throw open the window and shout at the top of our lungs, “We’re mad as hell and not going to take it anymore.” But we don’t. We may be incensed at tax time and consider the federal tax code an unfair, excessive burden. But most of us accept today’s system as a fact of life, as immutable as lousy weather.

Until recently, few people have been bold enough to suggest that we do not have to take it, that the system can be changed – and that real change can work. But, as this book will show, reform is not only possible, it is essential – and inevitable. The flat tax has already produced results around the world – from Russia to Hong Kong and elsewhere. It is part of a new worldwide wave of tax simplification that has implications for America’s competitive position in the world economy.

Link here (scroll down to piece by Steve Forbes).


The IRS has issued its annually updated list of so-called “Dirty Dozen” tax scams for 2006 along with an alert to taxpayers this filing season to watch out for schemes that promise to massively reduce or eliminate taxes. Two new schemes have worked their way onto the list in 2006: “zero wages” and “Form 843 tax abatement” – in which filers use IRS forms to claim that their tax bills have been wrongly inflated. Also high on the list in 2006 is “phishing”, a favorite ploy of identity thieves, who steal personal information for financial gain – recent years have seen increasing numbers of criminals working through the Internet, posing even as representatives of the IRS itself, with the goal of tricking unsuspecting taxpayers into revealing private information that can be used to steal from their financial accounts.

Several of the usual suspects from last year remain on the list, for example, schemes that seek to exploit charitable organizations, and the use of frivolous arguments to claim that no tax is owed. “When it comes to taxes, everyone has to pay their fair share,” IRS Commissioner Mark W. Everson stated. “I urge taxpayers not to be taken in by hucksters who promise to lower or eliminate taxes. Getting caught up in the Dirty Dozen or similar schemes can lead to big headaches.” Also on the “dirty dozen” list of schemes are zero wage returns, trust misuse, fivolous arguments, return preparer fraud, “Credit Counseling Agencies” fraud, abuse of charitable organizations and deductions, employment tax evasion, “no gain” deduction, and offshore transactions designed to evade taxes. Two noteworthy scams have dropped off the list this year are “claim of right” and “corporation sole”.

Link here.

Everson “welcomes” new IRS operating budget. FY 2007 initiatives detailed.

IRS Commissioner Mark Everson welcomed the 1.4% increase in the tax authority’s operating budget over last year’s figures. In a statement, he observed that, “The Administration’s 2007 budget proposal shows a strong commitment to the work we’re doing at the IRS. The overall $10.7 billion operating budget is a responsible request in light of the current budget environment.”

Measures proposed in the fiscal 2007 budget designed to help close the $300 billion annual “tax gap” will: (1) clarify the circumstances in which employee leasing companies and their clients can be held jointly liable for Federal employment taxes, (2) require debit and credit card issuers to report to the IRS gross reimbursements paid to certain businesses, (3) require increased information reporting for certain non-wage payments made by Federal, State and local governments to procure property and services, (4) amend collections due process procedures applicable to Federal employment taxes, and (5) expand return preparer identification and penalty provisions.

Link here.



The following horror story is true. It is my story. If this can happen to me, it can happen to you. If this story will not persuade you to buy some gold coins or to set up a gold storage account outside the U.S., I do not know what will. If owning gold is more than you can handle, then you need to consider an off-shore banking account. I will get to that at the end of this report.

A month ago, I was planning a morning flight out of Memphis to Atlanta. I had a 6:15 flight. So, at about 5:00 a.m., I went to my local bank. There, I inserted my ATM debit card. I entered $100 to withdraw. I got a note out of the machine, “Insufficient Funds”. I was convinced that I had $500 in the account. I use it for my monthly bills. I do not keep much money in it because I worry about identity theft. I had a plane to catch, so I could not wait to find out what was wrong. When I got to Atlanta, I called my wife. I told her about the problem. She looked into it. Here is what she found out. A bank employee in the bank’s Alabama operation had frozen my account two weeks earlier. The bank had not notified me of this freeze. Why had she done it? Because she was ordered to by a woman in the Texas Department of Revenue. What had that to do with my account in Mississippi? I had not been living in Texas since 1998.

My wife called the woman who ordered my bank account frozen. She was told that she had not paid taxes since 2003 on a solely owned corporation operating in Texas. But she owed no taxes. That corporation had ceased operating in Texas or anywhere else. A corporation is a legal entity. It is not a proprietorship. Why had they frozen my account? A month earlier, I had added my wife to the account. Her name came up on a computer operated by the woman in Texas. So, because of a corporate account still on the books in Texas, my account in Mississippi was frozen. My wife had her accountant send a FAX to the woman in Texas, telling her that the corporation no longer operated in Texas. The woman then contacted the woman in Alabama, who removed the freeze. In the meantime, every check I had written bounced. I was then assessed bounced-check fees by every one of them.

The lady in Texas told my wife that she freezes accounts all day long. That is her job. Obviously, she is very good at it. As for the size of the tax said to be owed, she refused to disclose to my wife’s accountant on what basis the tax was assessed. Why no warnings – from Texas or the bank? Because this tactic will not work if the account holder has the opportunity to withdraw the funds. So, here is the deal. A tax-collecting bureaucrat in Texas uses a data base to identify every bank account in the country that has a person’s name on it. Irrespective of the legal separation of a corporation from the assets of that corporation’s officers – the so-called “veil of the corporation” – the tax collector can freeze any bank account in any bank in the country. She just contacts a low-level bank employee – the freeze lady, I guess – to freeze an account, and on the bureaucrat’s word, the account is immediately frozen. The owner of the account is not informed of the freeze until the checks start bounding or the ATM reports “Insufficient Funds”.

Link here.

Frozen bank account ruffles nuns.

The nuns of the Holy Name Monastery say they have been swept into the net cast by the nation’s antiterrorism laws. The sisters say the monastery’s main bank account was frozen without explanation in November, creating financial headaches and making the Benedictine nuns hopping mad. They were told the Patriot Act was the cause. “I think the Patriot Act is unwise, let’s say, and that if it happened to us, it can happen to anybody,” said Sister Jean Abbott, the monastery’s business manager. “I think people need to know that nobody is safe from, in some cases, really ridiculous scrutiny.”

The nuns did not know anything was amiss until November 10, when their checks started bouncing without warning and the account would not accept deposits, including paychecks from state agencies where some of the sisters hold jobs. Two of the bounced checks had gone to other charities, Abbott said. Others went to pay Visa and utility bills. In all, the account was frozen for a week. In that time, 22 checks were returned with an ominous but baffling stamp, “Refer to Maker”. Before everything was straightened out, the nuns ran up $399.56 in fees, which were later reimbursed by their apologetic local bank, Abbott said. The mess took nearly three months to remedy, she said.

“It was annoying,” Abbott said. “I wasn’t angry with our local bank because they were doing the best they could.” The corporate entity that owns the bank is another issue. Sister Mary Clare Neuhofer said it was Wachovia. Kevin Bezner, a spokesman for Wachovia, declined to comment, citing privacy concerns. Abbott said she was told the troubles started because one 80-year-old nun who is a signatory to the account did not have her Social Security number and photo ID on file. “Clearly an international spy,” Abbott said wryly. None of the nuns has given the bank that information, Abbott said. “We’ve been in business 116 years. No one’s ever asked.”

Against the Patriot Act from the start, the sisters have members of Congress on speed dial, Abbott said. “They’ll be hearing from us now that this is all settled.” Among the lesser-known parts of the USA Patriot Act are banking provisions designed to help law enforcement agents track potential terrorists and money launderers. The law holds financial institutions accountable if money is funneled through them to terrorist organizations. Consequently, experts say, banks have set up a variety of rules intended to ensure they know who their customers are. But legal experts familiar with the Patriot Act disagree about what the act requires. One thing is clear. “The Patriot Act does not require that nuns’ bank accounts be frozen,” said Chris Hansen, a staff attorney with the American Civil Liberties Union in Washington.

Louis Harvey, president of Dalbar Inc., a securities research firm in Boston, said banks are required by law to make sure their records are in order. He said there are good reasons the bank did not notify the monastery its account was under scrutiny. “Let’s assume that it was not nuns and it was some money-laundering scheme run by terrorists,” Harvey said. “The last thing in the world you’d expect the bank to do is notify the terrorists.” He said banks look for patterns of activity, such as large transactions that could raise red flags. But exactly what constitutes a pattern of activity is unclear, Harvey said. The rules are vague by design.

When a bank detects suspicious activity, he said, it freezes the account and refers the matter to federal regulators. Anne Marie Kelly, a spokeswoman for FinCen, said banks are required to file suspicious activity reports, also known as SARS, but not to freeze accounts. That would be up to the bank, she said, and possibly the Office of Comptroller of the Currency. “Last year, we had what we called defensive filings of SARS, a number of banks filing on a number of accounts that upon review were not deemed suspicious,” Kelly said. “This could have been an example of that.”

Link here.


The concept of trust has been put into practice in the ordinances of several Latin American countries and more and more this type of instrument is being utilized. It allows greater versatility in contractual relationships. In Costa Rica, trusts are regulated by articles 633 onward of the Commercial Code, as follows: “Through trust agreements, the trustor gives to the fiduciary the property of assets or rights: the fiduciary is obligated to utilize them for the legal and pre-determined purposes established in the constituted act.”

In order to understand this definition in its totality, it is necessary to refer to the elements that intervene in the creation of a trust, which are, (a) Trustor – owner of the asset being placed in trust, (b) Fiduciary – administrator of the assets held in trust, and (c) Trustee – one or several natural or legal persons who oversee that the legal purpose of the trust is being carried out. [Ed: These appear equivalent to a trust’s Creator/Grantor, Trustee, and Protector, respectively, as described here.]

From the foregoing, it is understood that a trust is a legal arrangement in which the Trustor constitutes an autonomous patrimony, which is assigned to the fiduciary for the fulfilment of a specific purpose. Furthermore, it is a private contract which does not take on legal life with the characteristics, attributes and obligations of a legal entity (e.g., companies and corporations). It must be registered in the Business Registry pursuant to the Commercial Code of Costa Rica. To register the trust document or for it to take on legal life, several requirements must be met for its registration before the Public Registry. With a clear concept of trusts and the parts that intervene in the trust agreement, it is important to understand how a trust is constituted and who may create it. Among other restrictions, trusts with an indefinite purpose are prohibited.

Link here.


The Global Forum on Taxation, organized by the OECD (the “rich countries” club based in Paris), meets every year. One of its stated prime goals is to create “fair tax competition” worldwide. In November 2005, as in 2004, some major finance centers continued to refuse to commit themselves. Austria participated for the first time, but two important centers, Luxembourg and Belgium, refused to do so. There is an irony in that both are not only OECD members but also form part of the EU. Other notable absentees included Liechtenstein. Singapore, Switzerland and Hong Kong attended but are not participants in the OECD initiative.

Some countries that are already members of the forum will have to change their practices and laws to meet the standards that the OECD wants in place. The ease with which this can be achieved, not to mention (in some cases) the political considerations involved, is far from certain. Then there are two more hurdles: the participation of all finance centers has to become a reality to achieve the constantly mentioned “level playing field”, and, after that, forum participants will have to reach unanimous agreement on policies. As to unanimous agreement, the late Dean William R. Inge of St. Paul’s, London, reminds us that “it is useless for the sheep to pass resolutions in favor of vegetarianism while the wolf remains of a different opinion.” In this case there is more than one wolf to deal with.

This is, in fact, the 10th anniversary of the OECD’s tax harmonization initiative. There is a lot at stake. The IMF, when it made its last estimate, reckons that $5,000 billion is held offshore. Initially, the OECD decided on the stick, rather than the carrot, approach but found that this was not realistic – especially when the U.S. government perceived an intention to clamp down on tax competition. At the last meeting the new message was about “mutual benefits” but the crucial problem remains that the OECD is guilty of double standards. It is because of this that Panama, while a participant in the initiative, has publicly declared that its agreement depends on universal compliance.

Panama, unlike the Cayman Islands and similar British dependencies, remains on the periphery of the OECD’s influence to throw away the carrot and resort to direct or indirect coercion. This realization by many has fueled the growth in Panamanian companies, trusts and foundations. Such growth offshore is frustrating for many tax hungry OECD members who have enough difficulties in collecting revenue from a domestic population. OECD officials, for instance, estimate that the U.S. IRS has only enough auditors to check the books of each American business for one day every 10 or 11 years. Future OECD pressure may bring, figuratively speaking, light rain to the Isthmus but not hurricanes. Not so for the Cayman Islands and other dependent finance centers that have both nature’s and the OECD’s particular kinds of pressure to deal with. Panama does not.

Link here.


Australian Treasurer, Peter Costello has announced that the government will be allocating an additional A$305 million (US$225 million) over the next 6 years to fund the ongoing multi-agency operation designed to crack down on offshore tax schemes and fraud. Codenamed “Operation Wickenby”, the campaign has over the last six months pooled the collective resources of the Australian Tax Office, the Australian Crime Commission, the Australian Federal Police, the Australian Securities and Investments Commission and the Commonwealth Director of Public Prosecutions, to uncover and punish those promoting and using offshore tax schemes.

Costello explained that those suspected of fraud and fiscal crime will be brought to book under a number of statutes. Over the past four years, the government has placed much emphasis on enforcing the tax laws, allocating A$173 million to enforce business compliance, $326 million on a range of taxation and superannuation compliance activities, and A$28 million on additional revenue compliance activities on import duties and goods and services tax assessments. Australia also recently hosted the OECD sponsored 2005 Global Forum on Taxation, the principal forum for progressing efforts towards effective exchange of information between countries on criminal and civil tax matters.

Link here.


The European Commission announced that it has launched, under EC Treaty state aid rules, a formal investigation into Luxembourg’s 1929 legislation exempting holdings and financial companies from corporate taxation. Says the Commission, “Luxembourg’s 1929 legislation on exempt holdings establishes a special corporate vehicle to attract multinational groups’ financing, licensing and coordination activities to Luxembourg. The 1929 exempt holdings are companies established in Luxembourg, which solely exercise certain activities such as financing, licensing, management and coordination services within the multinational groups to which they belong. The 1929 holdings are exempt from Luxembourg’s business taxes on earnings, including dividends, interest and royalties as well as on payments, including dividends and royalty fees.

“While the original objective of the scheme was to favur the distribution of profits within a multinational group without incurring multiple taxation, the globalization of financial markets and the modern regulatory framework for financial services have rendered the 1929 legislation obsolete.” The Commission has expressed concern that the 1929 legislation creates significant distortions to competition and market efficiency particularly in the financial sector, without contributing to any significant extent to economic development.

Link here.


A front-page article in the Wall Street Journal reports on how Singapore is attracting huge amounts of capital from Europe. Much of this capital flow is caused by the implementation of the European Savings Tax Directive, a tax harmonization scheme that requires nations (including some non-EU jurisdictions such as Switzerland) to either impose taxes on nonresident bank interest or to share information about accounts with foreign governments (who then would tax the money). The Directive has a number of loopholes, but many taxpayers apparently would prefer to move their money out of Europe rather than deal with the hassle. This means, of course, that Europe will have less investment and job creation. Nations like France and Germany could lower tax rates and reduce double-taxation to keep money from escaping, but feckless politicians play class warfare politics even though people suffer:

… when Swiss authorities acceded to pressure from the European Union to discourage tax evasion, the door opened for a new challenger to woo the world’s wealthy: Singapore. The tiny Asian nation has beefed up account secrecy protections, has changed trust laws and has begun allowing foreigners who meet minimum wealth requirements to purchase land and become residents. Now private-banking money is flooding in from … Europeans moving money from Switzerland for tax purposes. … The money flow demonstrates how one nation, in the borderless world of international banking, can use banking regulation as an economic development tool – and how complicated it is for tax authorities around the world to plug revenue leaks.

… Under pressure from the EU to crack down on tax evasion, Switzerland imposed a withholding tax last July on some accounts held by EU citizens. “Singapore is one way of getting around the withholding tax,” said Raymond J. Baer, chairman of Zurich private bank Julius Baer Holding Ltd. … Singapore’s private-banking expansion is part of a broad effort to diversify its economy. … Switzerland’s private-banking industry, currently home to about 30% of offshore assets globally, was a model. … In 2001, Singapore stiffened laws against breaching the confidentiality of bank customers, making penalties for violators even tougher than in Switzerland. … Swiss bankers say the withholding tax and the continuing push to further restrict client confidentiality are discouraging wealthy Europeans from keeping money in Switzerland. Singapore isn’t a member of either the EU or the OECD, so it hasn’t faced the same pressure. By keeping money in Singapore, Europeans can avoid the new tax, some bankers say.
Link here.



James Risen’s State of War: The Secret History of the CIA and the Bush Administration reviewd

The challenges posed to American democracy by secrecy and by unchecked presidential power are the two great themes running through the history of the Iraq war. How long the war will last, who will “win”, nd what it will do to the political landscape of the Middle East will not be obvious for years to come, but the answers to those questions cannot alter the character of what happened at the outset. Put plainly, the President decided to attack Iraq, he brushed caution and objection aside, and Congress, the press, and the people, with very few exceptions, stepped back out of the way and let him do it.

Explaining this fact is not going to be easy. Commentators often now refer to President Bush’s decision to invade Iraq as “a war of choice”, which means that it was not provoked. The usual word for an unprovoked attack is aggression. Why did Americans – elected representatives and plain citizens alike – accede so readily to this act of aggression, and why did they question the President’s arguments for war so feebly? The whole business is painfully awkward to consider, but it will not go away. If the Constitution forbids a president anything it forbids war on his say-so, and if it insists on anything it insists that presidents are not above the law. In plain terms this means that presidents cannot enact laws on their own, or ignore laws that have been enacted by Congress.

The Foreign Intelligence Surveillance Act of 1978 is such a law. It was enacted to end years of routine wiretapping of American citizens who had attracted official attention by opposing the war in Vietnam. The express purpose of the act was to limit what presidents could ask intelligence organizations to do. But for limits on presidential power to have meaning Congress and the courts must have the fortitude to say no when they think no is the answer. In public life as in kindergarten, the all-important word is no. We are living with the consequences of the inability to say no to the President’s war of choice with Iraq, and we shall soon see how the Congress and the courts will respond to the latest challenge from the White House – the claim by President Bush that he has the right to ignore FISA’s prohibition of government intrusion on the private communications of Americans without a court order, and his repeated statements that he intends to go right on doing it.

Nobody was supposed to know that FISA had been brushed aside. The fact that the National Security Agency (NSA), America’s largest intelligence organization, had been turned loose to intercept the faxes, emails, and phone conversations of Americans with blanket permission by the President remained secret until the New York Times reporters James Risen and Eric Lichtblau learned over a year ago that it was happening. What James Risen learned in the course of his reporting can be found in his newly published book State of War: The Secret History of the CIA and the Bush Administration, a wide-ranging investigation of the role of intelligence in the origins and the conduct of the war in Iraq. Risen contributes much new material to our knowledge of recent intelligence history.

Digging out intelligence history is a slow process, resisted by officials at every step of the way, and Risen’s work will be often quoted in future accounts of the Iraq war. But nothing else in Risen’s book rivals the NSA story in importance, revealing that the President not only authorized the NSA to eavesdrop on Americans without seeking court orders, but to listen in a new way, by intercepting a large volume of communications among categories of people, and then analyzing or “mining” the data in those calls for suspicious patterns that might offer “potential evidence of terrorist activity”. “This is the biggest secret I know about,” one official told Risen.

Link here.

Telecoms let NSA spy on calls.

The National Security Agency has secured the cooperation of large telecommunications companies, including AT&T, MCI and Sprint, in its efforts to eavesdrop without warrants on international calls by suspected terrorists, according to seven telecommunications executives. The executives asked to remain anonymous because of the sensitivity of the program. AT&T, MCI and Sprint had no official comment. The Senate Judiciary Committee is beginning hearings on the government’s program of monitoring international calls and emails of a domestic target without first obtaining court orders. At issue is whether the surveillance is legal, as President Bush insists, or an illegal intrusion into the lives of Americans, as lawsuits by civil libertarians contend.

In domestic investigations, phone companies routinely require court orders before cooperating. A majority of international calls are handled by long-distance carriers AT&T, MCI and Sprint. All three own “gateway” switches capable of routing calls to points around the globe. AT&T was recently acquired by SBC Communications, which has since adopted the AT&T name as its corporate moniker. MCI, formerly known as WorldCom, was recently acquired by Verizon. Sprint recently merged with Nextel. The New York Times, which disclosed the clandestine operation in December, previously reported that telecommunications companies have been cooperating with the government, but it did not name the companies involved.

Decisions about monitoring calls are made in four steps, according to two U.S. intelligence officials familiar with the program who insisted on anonymity because it remains classified. The government has refused to publicly discuss the precise number of individuals targeted. The Times and The Washington Post have said thousands have had communications intercepted. The two intelligence officials said that number has been whittled down to about 600 people in the U.S. who have been targeted for repeated surveillance since the September 11 attacks.

Link here.

Has Thomas Sowell gone off the deep end on spying?

In my early libertarian days, Thomas Sowell was one of my heroes. First, he was a very good scholar (and I have used his book Classical Economics Reconsidered as a text – Sowell’s dissertation on Say’s Law was one of the few dissertations worth reading). His book, Knowledge and Decisions is a rigorous and excellent economic analysis, using F.A. Hayek’s classic paper, “The Use of Knowledge in Society” as a foundation. Second, Sowell has been prolific as a writer, and I always admire productive people. Third, the personal attacks that leftists – black and white – have laid upon him have been merciless and mostly evil, and I admire someone who is the target of people like that. Unfortunately, his support of the Bush Administration in particular and Republicans in general has damaged his credibility.

However, I fear the Former Great Man has crossed his own Rubicon, with his recent column in support of the administration’s post-9/11 domestic spying. What makes things even worse is the line of argument that he employs: (1) The way the question is posed by many in the media and in politics, you would think our intelligence agencies were listening in on you talking on the phone to your aunt Mabel. (2) Be serious! There are more than a quarter of a billion people in the U.S. Intelligence agencies have neither the manpower, the time, the money, nor the interest to listen in on you and your aunt Mabel. In other words, writes Sowell, these actions are OK because the chances that you actually may be caught up in an FBI dragnet unjustly are near zero.

We are opposed to such government wiretaps on the basis of principle. Yet, Sowell defends the wiretapping, at least in part, by claiming that its harmful effects are innocuous, but that its good effects overwhelm any negative ones. To put it another way, his defense is pure utilitarianism, something that would have made Jeremy Bentham proud. One wishes that the FBI or other government authorities would be able to pick out only guilty people when they “investigate” potential terrorists or other criminals. However, we know all too well that the government’s track record is one in which the innocent are swept up with the guilty. Furthermore, we have found that the government finds it much easier to go after innocent people, since they are less likely to resist or have the resources to resist government attacks.

The ideas behind the U.S. Constitution – whatever its flaws – were based upon the idea that people in authority were prone to abuse their power, so those people had to be held in check. I do not think that the framers had in mind Sowell’s probabilities – that government abuses would only harm a tiny fraction of individuals, which meant that such abuses were justified. In the end, we are left with the same issues – and the same answers. Government is based on coercion and abuse and anyone who thinks otherwise does not understand the real nature of the state.

Link here.


Alarmed by revelations that personal cell phone records are being pilfered and sold on the Internet, state and federal officials are rushing to update laws to protect consumer privacy and punish Web sites peddling the data. Attorneys general in at least three states – Illinois, Missouri and Florida – have sued to block Web sites that sell the records, while state legislators from California to Maine are pushing bills that would expressly prohibit the practice. Congress and federal regulatory agencies have also taken an interest. A bipartisan team of U.S. senators introduced legislation January 18 that would outlaw the sale and acquisition of the records. For now, however, uncertainty remains about whether a state-by-state fix or a federal solution to the problem will emerge.

The rush of legislative activity began after the Chicago Sun-Times reported on January 5 that a number of Web sites sold cell phone records – including lists of numbers dialed, as well as their locations – for as little as $100. The only information required to obtain such records is the phone number from which the calls were placed, the newspaper reported. The records are usually obtained in one of three ways– through “pretexting”, or impersonating customers; hacking into customer records online; or, in the case of wireless provider employees, releasing records without authorization, according to the Electronic Privacy Information Center (EPIC), a public interest group that monitors the issue.

And while legislators introduce bills that close all loopholes and specifically target the sale and acquisition of cell phone records, telecommunications industry officials and attorneys general say the practice is already punishable under existing laws. Illinois became the first state to sue an online records broker, and the attorneys general of Florida and Missouri quickly followed. Meanwhile, several wireless providers, including T-Mobile, Verizon and Cingular, had filed earlier lawsuits against records brokers.

No state legislation banning the sale and acquisition of cell phone records has passed, but lawmakers across the country are increasingly calling for action. In California, Democratic state Sen. Joe Simitian, who introduced the nation’s first bill banning the sale of cell phone records, said federal legislation could be more effective, but expressed skepticism at how quickly Congress would act. He said that state action might “give the feds a gentle nudge.”

Link here.

Sales stop at phone Web sites.

After a wave of negative publicity and pressure from the government, Web sites that peddled people’s private phone records are calling it quits. “We are no longer accepting new orders” was the announcement posted on two such sites, locatecell.com and celltolls.com. The Federal Trade Commission this week conducted a sweep of 40 sites known to have sold private phone records. According to the FTC’s Lydia Parnes, more than 20 sites have shut down or stopped advertising. The agency has warned about 20 other sites that they may be violating the law, said Parnes, director of the FTC’s Bureau of Consumer Protection.

While some sites appear to be closing up shop, others have seen a boom in business with the recent media attention, said Marc Rotenberg, executive director of EPIC. Rotenberg urged lawmakers to ban a practice known as “pretexting”, in which data brokers or others call a phone company, impersonate a customer and then persuade the company to release the calling records. Those records usually include whom a person called, who called them and the duration of the calls. In one case, a blogger bought the phone records of former Democratic presidential candidate Wesley Clark for $89.95.

The FTC is also investigating online data brokers. It has subpoenaed about 30 companies for information on how they are obtaining the phone records. The FCC also is expected to consider whether to tighten rules governing the nation's phone carriers and how they handle customers’ calling records.

Link here.


How many times have you walked into a doctor’s office, signed a privacy notice and worried you signed away important medical privacy rights? Let me put your mind at ease. You did not. You do not have any medical privacy rights in the first place. Signing the form is a farce. In 2003, without fanfare or publicity, the Bush administration amended the federal medical privacy rule known as HIPAA (Health Insurance Portability and Accountability Act), allowing the prying eyes of any health-related business to read your medical records, any time they want, without your knowledge or permission. Now President Bush tells us in his State of the Union Address that – thanks to his leadership – Congress is poised to pass legislation to put every American’s medical records online so they can be zapped around the world via a national electronic health network without the delay and fuss of photocopying and snail mail.

The bill is not a bad idea. We need a more efficient way to move and share medical records to improve the quality of our healthcare and reduce costs. But an electronic system to handle the most sensitive information must be built with patient control of who sees and uses that information. Without patient control, we will simply be creating the most valuable commercial database in the world. The purpose of medical records is to improve treatment, not corporate profits. The Bush administration amendment to HIPAA lists examples of the more than 600,000 businesses that can fish through identifiable medical data. They include employers, drug and insurance companies, marketing firms, accountants, banks and financial service companies, data warehousers, medical transcribers, legal firms, pharmacies and government agencies.

This past summer, a Florida medical center, a drug company and a pharmacy battled a lawsuit filed by a group of patients who received free drug samples and a brochure about a new antidepressant drug in the mail. The patients were mortified. How did the drug company know they were taking an antidepressant? How did the drug company obtain their addresses? How could they be allowed to send drug samples in the mail? What if their children had opened the mail and taken the drugs? The patients settled the lawsuit because they have little if any legal standing. HIPAA allows medical centers, drug companies and pharmacies to ship around your medical records for their own profit motive.

On several occasions, Bush has promised to protect medical privacy in the bill. In January 2005, he said, “I think my medical records should be private. I don’t want people prying into them … unless I say it’s fine for you to do so.” Exactly. It is time for Congress to admit that we do not have a privacy law any more and to build patient control into the national electronic health system before we start uploading Americans’ medical records into cyberspace for private corporations to see, use and abuse – and profit from – as they please.

Link here.


How many Chinese citizens are now in jail because of information Yahoo provided to the Chinese government? That is the question the not-for-profit Reporters Without Borders is asking. And it is a question which suggests the damage to Yahoo’s reputation will be ongoing. Yahoo suffered a wave of bad publicity last September for providing information that led to a 10-year jail sentence for Chinese journalist Shi Tao. Now, RWB has learned that a second “cyber-dissident”, Li Zhi, a 35-year-old ex-civil servant, was sentenced to eight years in prison in December, 2003 “based on electronic records provided by Yahoo,” it reported in a press release this week. According to a RWB spokesperson, the electronic records in question came from an online discussion group where Li Zhi criticized local officials in his home province of Dazhou of corruption.

RWB counts 81 journalists and dissidents currently jailed on questionable grounds. The details of those prisoners’ cases are all just ticking time bombs that could further damage reputations of U.S. Internet companies if it turns out that they are now in jail because of information those companies willingly gave the Chinese government. It is one thing to comply with the law in foreign countries. It is another to become a surveillance arm in those countries or to be complicit in censoring their citizens. The fast-growing Chinese Internet is perhaps the most appealing market in the world right now, but what will it cost U.S. companies to remain there?

Link here.



A partner in the financial services practices of Katten Muchin Rosenman LLP warned that new rules just finalized by the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) impose a significant burden upon broker–dealers, futures commission merchants, introducing brokers, mutual funds, banks, and trust companies. The rules, announced by FinCEN December 21, have been in the works since 2002, he said. Hedge funds are not covered. Some of what FinCEN now mandates would be good practice even without a regulation, Mr. Simkin noted. “You don’t want to become known as the instrument that al-Qaeda traded through,” he said.

The rule takes effect on April 4 for any new accounts opened by U.S. financial institutions on that date or subsequently. It takes effect on October 2 for any accounts that are already open or will be opened prior to April 4. Institutions now, or beginning as the rules take effect, will have to collect much more information than they did before. They will need to know and record who or what the customer is, who owns it, who controls it, what business it is in and the market it serves, and the historical relationship of the customer to the account-maintaining institution at issue.

“There also has to be a periodic review of trading in the account, to see whether it’s consistent with what they said they’d be doing and whether there’s been any activity that looks like laundering,” which would require a suspicious activity report, said Mr. Simkin. How often must this periodic review take place? FinCEN has not said, precisely. Mr. Simkin said, “Obviously, it’s what’s reasonable under the circumstances.” An especially relevant circumstance is the frequency of activity in the account.

The new regulation implements the foreign-correspondent banking provisions and the private-banking provisions of Section 312 of the USA Patriot Act. In essence, it requires the covered financial institutions to apply due diligence to correspondent accounts maintained for certain foreign financial institutions.

Link here.


U.S. authorities have charged two ex-employees of the Bank of China, a major government-controlled financial establishment, with stealing over $485 million and laundering money via casinos in Las Vegas. A federal grand jury alos charged Xu Chaofan and Xu Guojun, along with their wives, Kuang Wan Fang and Yu Ying Yi, with racketeering and fraud. The scam reportedly began in 1998, and authorities have been investigating the theft for over two years now. The charges allege that the two ex-bank managers moved stolen money through shell companies in Hong Kong and Canada before arriving in the U.S. and settling there illegally. Investigators in charge of the case report that a $2 million deposit was made into a Las Vegas hotel and casino account in April, 2001. Thus far, no further details on this specific gaming venue, or any other, have been released.

The group of four Chinese nationals was busted and detained in October, 2004. Investigators have been able to piece together this complex scheme, operated in several countries around the globe, mainly thanks to the extensive cooperation provided by law enforcement officials abroad. Although Las Vegas casinos are said to be involved in this international money laundering case, official reports on the investigation do not comment on such involvement.

Link here.


The Securities Commission of the Bahamas moved to give assurance that it acted with due diligence in the matter of Dominion Investments Ltd. – the Bahamas based company caught in a whirlwind of scandal over money laundering allegations. The president of the company Martin Tremblay was indicted in a U.S. federal court earlier this month accused of laundering $1 billion for drug dealers, tax cheats and swindlers. Tremblay transferred the ill-gotten gains to bank accounts in The Bahamas, the U.S. Canada and elsewhere, according to federal prosecutors. Bahamian securities regulators maintained yesterday that they acted swiftly on this end, taking their lead from U.S. authorities.

The Commission also insisted that it acted quickly in conjunction with the police to ensure that the books and the records of the company were secured and to prevent any further business transactions. Tremblay, 43, resigned as the managing director of Dominion and surrendered his Principal License on March 4, 2005, but he remains the sole beneficial owner of the company. Esther Weir succeeded him as managing director days later. Even before then, inspections had revealed certain “operational deficiencies”, the Securities Commission confirmed.

Tremblay faces a 20 year prison term if found guilty. He pleaded not guilty at a brief hearing in a Manhattan federal court. U.S. prosecutors said in their case that in return for large commissions, Dominion Investments took in cash from drug dealers, tax evaders and other clients seeking to hide the illicit source of their money and transferred the funds to various other bank accounts. Tremblay laundered $50 million from a tax evasion and wire fraud scheme and helped hide $3 million in proceeds from the sale of so-called date-rape drug kits, according to the indictment.

Link here.


A dozen mainly American shareholders in the beleaguered Russian oil company Yukos, which continues to reel from a succession of back tax claims, have launched a civil lawsuit against the Russian Federation and state-owned companies for their part in wiping millions of dollars off the value of the company’s shares. The group of 12 investors, holders of ADRs in Yukos, claim to have lost millions of dollars as a result of the “de facto renationalization” of the company, parts of which were sold off in a state-organised auction to help pay back tax debts which reached approximately $28 billion.

According to a report by the German weekly Der Spiegel, holders of ADRs make up 15% of Yukos’s shareholding. Before the arrest and subsequent imprisonment of former Yukos chief executive Mikhail Khodorkovsky for crimes ranging from tax evasion to money laundering, this holding was said to be worth some $6 billion. The plaintiffs are being represented by Washington D.C.-based law firm Covington and Burling, which has named the defendants in the lawsuit as the Russian Federation, the state-controlled firms Gazprom, Gazpromneft, Rosneft and Rosneftgaz and top officials of the companies, including Gazprom chairman Dmitry Medvedev and Rosneft chairman Igor Sechin. The defendants have each been accused of playing a part in violating US securities law by “falsely assuring” the public that the Putin administration did not intend to renationalize Yukos.

Link here.


On January 24, a SWAT team in Fairfax shot and killed Salvatore J. Culosi Jr., an optometrist who was under investigation for gambling. According to a January 26 front-page story in The Post, Culosi had emerged from his home to meet an undercover officer when a police tactical unit swarmed around him. An officer’s gun discharged, killing the suspect. Culosi, police said, was unarmed and had displayed no threatening behavior.

It is unlikely that the officer who shot Culosi did so intentionally. But it is also unlikely that the investigation into this shooting will address why police sent a military-style unit to arrest an optometrist under investigation for a nonviolent crime and why the officers had their guns drawn when approaching a man with no history of violence.

This is not the first time a SWAT team in Virginia has killed someone while serving a gambling warrant. In 1998 a team in Virginia Beach conducted a 3 a.m. raid at a private club believed to be involved in organized gambling. Security guard Edward C. Reed was sitting in a parked car outside the club, which had been robbed a few months earlier. As the black-clad police team raided, a few officers confronted Reed, who had fallen asleep. Reid awoke and, probably startled by the sight of armed men outside his car, reached for his gun. The SWAT team shot and killed him. Reed’s last words were, “Why did you shoot me? I was reading a book.”

During the past 15 years, The Post and other media outlets have reported on the unsettling “militarization” of police departments across the country. Armed with free surplus military gear from the Pentagon, SWAT teams have multiplied at a furious pace. Tactics once reserved for rare, volatile situations such as hostage takings, bank robberies and terrorist incidents increasingly are being used for routine police work. Eastern Kentucky University’s Peter Kraska – a widely cited expert on police militarization – estimates that SWAT teams are called out about 40,000 times a year in the U.S. In the 1980s, that figure was 3,000 times a year. Most “call-outs” were to serve warrants on nonviolent drug offenders. That statistic is troubling enough, but it is compounded by the raids, particularly in drug cases, being based on tips from notoriously unreliable informants, often with no corroborating investigation. This leads to the “wrong address” raids we frequently hear about in the news.

Now police military-style units are increasingly being deployed on gambling raids, too. An alternative weekly, the Cleveland Scene, reported last year that Jaycees and American Legion clubs in northeastern Ohio “are being raided with the kind of firepower once reserved for drug barons and killers on the lam.” These gambling crackdowns carry a whiff of hypocrisy. Even as it sends SWAT teams to protect citizens from the scourge of gambling, Virginia spends $20 million a year promoting its state lottery. As police in Ohio knock over private poker games, the Ohio Lottery pulled in $2.15 billion in 2005.

Fairfax apparently serves all of its search warrants with SWAT teams. But officials and county residents need to ask themselves if they want to live in a community in which routine police work and vice warrants are carried out by officers armed with gear more appropriate to a battlefield. Their answer may determine whether Salvatore Culosi represents an accident or a trend.

Link here.



“A celebration of concentrated wealth.” That is what Washington Post sportswriter Tony Kornheiser called the National Football League’s two-week long pre-Super Bowl party binge. Every Super Bowl Sunday, corporate executives and politicians exchange besotted, sodden backslaps, amidst an atmosphere that would shame Jack Abramoff. Only this year the bacchanalia – complete with ice sculptures peeing Grey Goose vodka and two tons of frozen lobster flown directly to the stadium – is happening in the U.S.’s most impoverished, ravaged city: Detroit.

Detroit’s power elites in government and the auto industry are rolling out the red carpet while many of its people shiver in fraying rags. This contrast between the party atmosphere and abject urban suffering has been so stark, so shocking and so utterly revealing that news coverage on the city’s plight has appeared in the sports pages of the New York Times and Detroit Free Press, among others.

Only a Bush speechwriter could not notice the gritty backdrop while limos clog the streets and escort services are flying in female reinforcements like so much shellfish. Detroit – and there is no soft way to put this – is a city on the edge of the abyss. Its 2005 unemployment rate was 14.1% - over 2½ times the national level. Its population has plummeted since the 1950s from over 2 million to fewer than 900,000, and more than one-third of its residents live under the poverty line, the highest rate in the nation. In addition, the city has in the past year axed hundreds of municipal employees, cut bus and garbage services, and boarded up nine recreation centers. NORAD, the North American Aerospace Defense Command, will be flying sorties over Ford Field to protect everyone from terrorist missile attacks. There is no NORAD, however, on the streets of Detroit to protect people from Operation Enduring Class War otherwise known as the Super Bowl.

Link here.


I have been a conspiracy buff for over 45 years. I got my spurs at age 16 when I wrote a paper on Roosevelt and Pearl Harbor. As far as I am concerned, that one is still in the top five. But I am not greedy. I will let others have their top five. Over the years, I have stumbled into lots more conspiracies. Their name is legion. Some are more evil that others. Some are harder to prove than others. Some are hidden in plain sight – or, in the case of 9/11, plane site. Others are deep.

There are so many of them that no one can pursue all of them. In fact, the mark of a deranged conspiracy buff is someone who pursues dozens of them at once. He believes that there is one grand conspiracy behind all of them. If he did not conclude this, he could not dream of ending them all, which is his foremost dream. All of us who have spent any time following through on this or that conspiracy have met these deranged people. Their world is filled with conspiracies. They are surrounded on all sides. They whisper and look both ways in a room where only you and they are present. I feel sorry for them. They do not specialize. They really do not know much about any of these conspiracies. Their fears are scattered like pollen in the spring. There is another variety of conspiracy buff who, while less pathetic, is more of a pain. That is the man who has discovered his first conspiracy. Not the conspiracy of conspiracies, but his very first, real-life cover-up. And woe unto you if you do not embrace it as the discovery of the century.

The problem is, there is a vastly greater supply of conspiracy theories than demand for them. So, the price of most conspiracy theories is zero – zero support, zero interest, and zero future interest (probably). It takes a fanatic to pursue one of them with the passion required to keep it alive. Without fanatics, most of these theories die. They are like newly hatched turtles in the sand that are now racing to the ocean. The predatory birds pick off most of them. We are all in this together. Most of the conspiracies we love to hate are not much more powerful than we are. That is the good news. On the other hand, a few of them are very powerful. These are usually the ones that have a well-accepted public persona and a hidden elite. The Communists used to organize front groups. By the time they figured out this technique, it was already ancient.

The Communists rarely had the Federal government behind any of their fronts, ready to write a check. The conspiracies that matter do. This is why they matter. Self-funded conspiracies rarely amount to anything. They have neither the leadership nor the supporters to produce anything of significance. It is when they get the state involved that their schemes become a major threat to the public good. So, I will listen to your story of a super-powerful conspiracy if you will listen to mine. But remember, I have probably been at this a lot longer than you have. Your eyes will glaze over before mine will.

Link here.

Shunned in America: Australian national TV airs 9-11 documentary.

Perhaps the most controversial documentary produced about the 9-11 attacks was recently aired on Australia’s “TEN” television network and placed second in the ratings. Despite efforts to suppress the information and questions raised in 911 – In Plane Site, an increasing number of military experts and commercial airline pilots are coming forward to support and validate the information contained in the documentary. Many are now calling for a re-opening of the investigation into the September 11 attacks.

The 90-minute program was aired nationwide in Australia and resulted in a much higher than usual response from viewers. Emails poured into the producers of 911 – In Plane Site expressing support and appreciation for the production, as well as sadness, fear and anger because of the apparent cover-up of facts about the tragedy, according to the report in the documentary. Dave vonKleist, producer of the documentary, said he is hopeful that the attention the video has received in Australia will prompt U.S. networks to give serious consideration to airing the program.

“The compelling evidence presented so authoritatively in the documentary needs to be shown to the people of the world. The story we have been told and the evidence just do not match. The American people have a right to see this,” said vonKleist. “Every country has been dramatically affected by 9-11, and the evidence indicates that we all have been lied to by government officials. The public and the media have been deceived. Journalists have a responsibility to be the eyes and ears of the public, and to hold public officials accountable. Now that this evidence is available journalists should be anxious to bring it to light for public examination.” Information about the documentary can be found on a web site maintained by vonKleist at www.911inplanesite.com.

Link here.


Has the UK run clean off the rails? First there was Theodore Dalrymple’s catalog of horrors in Our Culture, What’s Left of It, with its report of foul language and fouler habits across wide stretches of the British Isles. Now comes Lynne Truss’s “big systematic moan” (her own words) – Talk to the Hand: the Utter Bloody Rudeness of Everyday Life. People do not bother to say please and thank you any more. They disregard one’s personal space and violently react to small remonstrances. There is disrespect for older people, disrespect for professional people, disrespect for property, and a general collapse of civility in a boorishly bare-skinned tats and Eff-Off world.

But then Ms. Truss resorts to a cliché. The surrounding rudeness is seen less as a product of civilized decadence – of hell-bent amoral egos accountable neither to God nor man – and more as a throwback to tribal ways. Talking about the declining use of verbal appeasements like “sorry”, she says we use them to avoid “being brained by a screeching savage wielding a bleached thigh-bone.” The image is indelible – especially for anyone who may have seen the new King Kong with its travesty of tribal life – but the figure of speech is overwrought.

Surprising though it may seem, it can reasonably be argued that in nine out of ten of the archaic societies recorded by anthropologists there was less screeching and more politeness, less boorishness and more decency and dignity, than you will find in some western societies today. And as Lewis Mumford suggested 50 years ago in The Transformations of Man – a book and writer we shall be returning to – due respect should be paid to the courtesies of an older world we have irretrievably lost.

Link here.


After three years of war in Iraq, reporting and debate continue to ignore the key fact: The U.S. invasion was a mistake. President Bush himself acknowledges this. He says the war was based on intelligence and the intelligence was wrong. So, then, what is right about the war? If we believe Bush, he would not have taken America and Iraq to war if he had been given correct, instead of incorrect, intelligence about Iraqi weapons of mass destruction and connections to al Qaeda. In view of this, why is Bush intent on continuing the war? Why is it important to win a war that should not have happened and only happened because U.S. intelligence was mistaken?

The war is extremely expensive. It has cost thousands of dead and maimed Americans and tens of thousands of dead and maimed Iraqis. The war has already cost $200-$300 billion and is being financed by foreign borrowing. Distinguished economists put the long term cost of the war to the U.S. in the $1-$2 trillion range. This is an enormous sum to spend on a war that President Bush says is based on mistaken intelligence. Why, then, does Bush continue to fight the war? The mistaken war has damaged America’s reputation, harmed our alliances, enraged Muslims against us, and radicalized Middle Eastern politics. The CIA reports that the war has provided al Qaeda with recruitment and a training ground. The U.S. military is trying to ascertain whether its attempted occupation of Iraq is creating insurgents faster than they are being killed. In view of the available facts, how can Bush in his state of the union address tell Congress and the world that the U.S. is winning in Iraq? Why did Congress stand and applaud? What does it mean to win a war that should not have been started?

Having admitted that his invasion of Iraq is based on incorrect intelligence, why did Bush claim in his state of the union address that his war in Iraq is central to the war against terrorism? He must mean that his mistake created terrorism where it did not exist, and, having created the terrorism, he must now fight it even if doing so creates yet more terrorists. A rational response to Bush’s mistake would be to remove the cause of the insurgency by apologizing for the mistake and withdrawing U.S. military forces. The invasion and occupation of Iraq have destroyed Iraq’s infrastructure, entire villages and towns, families, careers, and public safety. What America has done to Iraq is a monstrous crime. And Bush says it is because of a mistake in intelligence.

A mistake in intelligence in more ways than one. It is extraordinary that after admitting to erroneously starting a war, Bush wants to do it all over again – this time against a more formidable foe, Iran. America’s adulation of ignorance gives Bush a free hand to repeat his mistake on a larger scale. Karl Rove used 9-11 to recast Bush as the archetypal hero vowing retribution on those who struck at innocent America. Enamored of this role, Americans have ceased to think. There is no sign of intelligence or accurate reporting on Iran in the newspapers, on television or even over PBS radio. The explosive situation in the Middle East needs to be defused, not aggravated. Bush’s approach is insane. It serves no legitimate purpose. There is no reason for it. Why is it happening?

Link here.
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