Offshore News Digest for Week of March 6, 2006

GLOBAL LIVING & BUSINESS

MYSTERIES OF VENEZUELA REVEALED

Since 1999, when Hugo Chavez first became president of Venezuela, the country has been clouded in mystery and intrigue. Chavez’s socialist agenda and ongoing theatrics with Cuban dictator Fidel Castro and U.S. President George Bush have sent up red flags regarding Venezuela all over the democratic world. In spite of all the political posturing and bloviating in the media, the country remains one of the most unspoiled vacation destinations in the world, whether visiting the beaches, mountains, Amazon, or plains. It also remains one of the best countries to get more bang for your dollar, whether buying real estate, or just eating dinner out. The most recent background information on the political and econmomic situations in Venezuela will surprise a lot of readers and challenge their perceptions that this is a “communist” country or that the future of this place is bleak.

“A disastrous two-month national oil strike from December 2002 to February 2003, temporarily halted economic activity. The economy remained in depression in 2003, declining by 9.2% after an 8.9% fall in 2002. Despite continued domestic instability, output recovered strongly in 2004, aided by high oil prices,” says The CIA Factbook. The political situation is now stable again, after two or three years of unrest. In fact, the economy is now booming due to these higher oil prices. According to a recent issue of The Economist, “Emerging-market indicators show that Venezuela is the fastest growing country in the world. GDP growth is up 11.2% year-on-year change (as of 2005 figures), and it is the only country in the world which registered double digit growth rate.” (China, the second highest, kicked in at 9.5%, imagine that!) Even more impressive, industrial production is up 23.1%. That is mostly local money. As a result, confidence is high locally, hence the political calm. Instead of taking money out of the country, local business leaders and government are keeping it in and reinvesting it.

As for Chavez and any perceived anti-American attitude, it has been at least partially caused by the U.S. government and its policies from what I have been able to research on the subject, as well as from speaking with the locals on my four trips through the Caribbean coast of Venezuela since April, 2005. The Chavez government was against the wars in Afghanistan and Iraq. However, we know many other countries were also against these wars, some of them supposed allies of the USA. Of course, the way this was covered in the U.S. media and responded to by the Bush government shined a dim light on U.S.-Venezuela relations. In spite of this deterioration in relations, the people in the country have remained very friendly towards the Americans visiting their country. I found no bad attitudes, resentment or maltreatment of any kind directed towards my family and me. Also, to eradicate any perceived anti-American perception, Chavez has put in place much tougher penalties for any crimes against foreigners in general and Americans in particular.

From the investors angle, although the “up cycle” seems to have started, property prices are still at a historical low and the currency exchange, which was around 680 Bolivars to the dollar in 2000 after Chavez took office (CIA Factbook), is now 2,150 to one and fixed by the government. That is the official rate, you can exchange dollars privately and receive between 2,400 to 2,700 Bolivars to the buck, depending on the amount you exchange. The low prices and high exchange rate combine for a great opportunity to buy. This is the time all offshore investors look for, prices have not risen much but the economy is taking off. Foreigners can directly own real property in Venezuela the same as a citizen can . No Venezuelan corporation or fideicomiso (bank trust, as in parts of Mexico) is needed, although you could set up a Venezuelan corporation and buy through it if that is what helps your personal situation. Another fact makes the coastal area of Miranda state, which includes hundreds of miles of both gorgeous coastline and natural canals, particularly attractive to investors.

We all know the tourist Mecca in Venezuela has been Margarita Island for many years. Previous governments have pumped much money into developing and marketing the island. However, due to present day politics, this has been changing. It turns out that the governor of Nueva Esparta, the state that Margarita is in, is of the opposition party, not Chavez’s party. Their differences run deep enough that Chavez is no longer concerned with further development and promotion of Margarita. The governor of Miranda state, where Rio Chico and Isla de Oro is located, is a former vice-president of Chavez. Between them, they want to make the Caribbean coast of Miranda the next tourist capital of Venezuela. If you have visitied Margarita Island lately, you may have noticed that it does not shine like it once did. Times are changing for Caribbean Venezuela.

I have been researching emerging markets in Latin America and the Caribbean, as well as traveling to them to search out properties for years. I have been to Mexico, Panama, Nicaragua, Colombia, and the Bahamas. Nowhere have I found lower prices, an “earlier-in” time for investing, a better exchange rate or more beautiful beaches. You owe it to yourself to visit. At least visit our website to get a taste of what you are missing. Be well, and hope to see you there soon.

THE SLOVAK TIGER ECONOMY – REAL ESTATE INVESTMENT IN BRATISLAVA

Slovakia has long been identified by corporations and economic commentators as one of the most progressive new economies in Central Europe and most promising for foreign investment. A combination of solid macroeconomic policies, comprehensive tax and social welfare reform, a strategic location to European markets and a tradition of manufacturing excellence and highly qualified labour are among the factors that have attracted high levels of foreign direct investment.

While the Slovak economy continues apace, there are key milestones as investors we need to keep in mind. One of these is entry into the euro, which Slovakia is scheduled to join in January 2009. In preparation for this, on Friday 25 November Slovakia made the unexpected announcement that it has joined the ERM-2 exchange rate mechanism, a waiting room where the currency proves its stability for a minimum of two years before full euro adoption. With investors eyeing the emerging European markets closely, Slovakia is keen to set itself apart and make most of its strong fiscal record and reforms. As Global Insights reports, “Bratislava’s unexpected move toward early membership in the ERM-II was an indication that Slovakia wants to differentiate itself from its larger neighbours, all of which are struggling to control fiscal deficits.”

For the property investor the paving of the way for an appreciating currency is excellent news, but another factor to keep in mind is the current trade deficit. The current account is set to improve massively in 2007 as Slovakia begins to export cars, not just importing products as it is at present, and this will in turn not only further drive the appreciation of the currency but also drive wages and employment upward. With Bratislava already suffering a shortage of residential accommodation and ageing Communist housing stock, it is no surprise that developers are in a race to provide the kind of new build accommodation as the economic factors outlined above lead to wealthier local labor and a growing foreign workforce.

By the end of this year Andrej Durkovsky, the mayor of Bratislava, will announce the latest master plan of Bratislava. The last master plan of the city was published in 1976, and it has been recognized over the last few years that another was needed to represent the vision and ambitions of Bratislava in the 21st century. In consultation with a variety of stakeholders, Durkovsky has said that what we can expect from the master plan is a detailed outline for the development of Bratislava as a “white city” – a center for commerce, services and businesses. In particular Durkovsky has pointed to the industrial eye-sore to the east of Bratislava, expressing an intention to create the kind of water-side living and business parks similar to London’s Docklands. It has long been recognized that Bratislava is unconnected to the majestic Danube that runs through it, and the focus of strategic investments on the banks of the river promise to provide some of the most valuable opportunities for the property investor in the upcoming years.

DATA SHOWS AMERICA’S JOB GROWTH BENEFITS IMMIGRANTS, OUTSOURCERS

On February 20 Forbes.com told its readers with a straight face that “the American job-generation machine rolls on. The economy will create 19 million new payroll jobs in the decade to 2014.” Forbes took its information from the 10-year jobs projections from the Bureau of Labor Statistics, U.S. Department of Labor, released last December. If the job growth of the past half-decade is a guide, the forecast of 19 million new jobs is optimistic, to say the least.

Large corporations, which have individually dismissed thousands of their US employees and replaced them with foreigners, claim that jobs outsourcing allows them to save money that can be used to hire more Americans. The corporations and the business organizations are very successful in placing this disinformation in the media. The lie is repeated everywhere and has become a mantra among no-think economists and politicians. However, no sign of these jobs can be found in the payroll jobs data. But there is abundant evidence of the lost American jobs. Information technology workers and computer software engineers have been especially heavily hit by offshore jobs outsourcing. Engineering jobs in general are in decline, because the manufacturing sectors that employ engineers are in decline. For the past five years U.S. job growth was limited to the areas of education and health services, state and local government, leisure and hospitality, and financial services. There was no U.S. job growth outside these four areas of domestic nontradable services.

It is not only the Bush regime that bases its policies on lies. Not content with outsourcing Americans’ jobs, corporations want to fill the remaining jobs in America with foreigners on work visas. Business organizations lie about a shortage of engineers, scientists and even nurses. Business organizations have successfully used pubic relations firms and bought-and-paid-for “economic studies” to convince policymakers that American business cannot function without H-1B visas that permit the importation of indentured employees from abroad who are paid less than the going U.S. salaries. It is amazing to see free-market economists rush to the defense of H-1B visas. The visas are nothing but a subsidy to U.S. companies at the expense of U.S. citizens.

All of the occupations with the largest projected employment growth (in terms of the number of jobs) over the next decade are in nontradable domestic services. None of this projected employment growth will contribute one nickel toward producing goods and services that could be exported to help close the massive U.S. trade deficit. Few of these jobs classifications require a college education. Among the fastest growing occupations (in terms of rate of growth), seven of the ten are in health care and social assistance. Judging from its ten-year jobs projections, the Department of Labor does not expect to see any significant high-tech job growth in the U.S. The knowledge jobs are being outsourced even more rapidly than the manufacturing jobs were. The so-called “new economy” was just another hoax perpetrated on the American people. Obviously, the facts do not fit the Bush regime’s globalization hype. The only thing America has left is finance, and now that is moving abroad.

America remains a land of opportunity – but for foreigners – not for the native born. A country whose work force is concentrated in domestic nontradable services has no need for scientists and engineers and no need for universities. Even the projected jobs in nursing and school teachers can be filled by foreigners on H-1B visas. The United States is the first country in history to sell out and to destroy the prospects and living standards of its labor force. It is amazing to watch freedom-loving libertarians and free-market economists serve as full time apologists for the dismantling of the ladders of upward mobility that made the America of old an opportunity society. America has begun a polarization into rich and poor. The resulting political instability and social strife will be terrible.

“BERMUDA MODEL” HAS FLAWS, SAYS ITS PREMIER TO THE CAYMANS

Bermuda’s constitution may appear as something for other overseas territories to aspire to but it is not without its faults, Premier Alex Scott has told Cayman Islands’ politicians. Limitations on the amount of freedom Bermuda has to make its own decisions and agreements with overseas countries and international bodies such as the UN are amongst the drawbacks, according to the Premier. And – at the end of the day – the UK-appointed Governor has the power to veto legislation approved by Parliament. In some ways other jurisdictions, such as the Caymans and the Turks and Caicos Islands, have hidden “nuggets” within their constitutions that he would like to see incorporated in Bermuda’s.

Mr. Scott expressed his thoughts during a visit to the Cayman Islands while attending the ruling People’s Progressive Movement party convention. He said Bermuda and Cayman are “constitutional fellow travelers” within the Commonwealth’s overseas territories. “I must admit that while Bermuda may have what some describe as an advanced constitution, in my view Caymanians have passed into law a few legislative nuggets that leave me green with envy,” said Mr. Scott. Acknowledging that Bermuda has taken control of many of its own decisions with an internal self Government, he spoke of a degree of frustration felt that the UK is unwilling to risk giving Bermuda full responsibility for its own affairs. Mr. Scott said Bermuda’s “model” was not a panacea and he urged Cayman to look at all the constitutional options open to it.

THAILAND’S ECONOMY RISKS STALLING ON POLITICAL CRISIS

Thailand’s economic growth may stall as a snap election held amid calls for Prime Minister Thaksin Shinawatra’s resignation hurts corporate and consumer confidence. Thaksin is campaigning to win an April 2 poll announced 10 days ago when he dissolved parliament following weekly mass protests in the capital Bangkok. Opposition parties are boycotting the election. Since the dissolution of parliament Thailand has postponed signing a free trade accord with Japan and put negotiations on a similar agreement with the U.S. on hold. The government will probably delay a deadline for foreign companies bidding for a slice of 1.7 trillion baht ($43.8 billion) earmarked for public works, which Thaksin has proposed as an economic driver for the next five years.

“A lot of investors are not going to look at anything else apart from politics at the moment for as long as there is nobody who has any credibility running the country,” said Sanyalaksna Manibhandu, a vice president for institutional research at Kim Eng Securities (Thailand) Pcl, the country’s biggest stockbroker. “If we don’t have the leadership in place, things like government spending cannot help the economy.” Thaksin himself acknowledged the potential economic impact of lingering political uncertainty and demonstrations, just an hour before the country’s National Economic & Social Development Board cut its 2006 GDP growth forecast.

PHILIPPINES NO LONGER THE “ARGENTINA OF ASIA”

Welcome to the “Argentina of Asia”. That is how many investors view the Philippines, a place with vast potential that never seems to get its act together. The most recent crisis in Manila – an alleged coup attempt against President Gloria Arroyo – was a reminder that while 5% growth may look good, it is not enough for the Philippines to thrive. The nation also needs political stability to convince investors it will not default on debt, Argentina style. Reports of plotting generals and televised images of riot police fending off thousands of protesters would seem to be the last thing the Philippines needs. Asia’s 13th-biggest economy already gets scant foreign direct investment and 10% of the population has fled for lack of jobs at home.

In fact, those angling to oust Arroyo may be proving precisely that the Philippines, unpredictable as it is, enjoys growing political stability. “What the world seemed to miss is that the stock market didn’t plunge, the peso didn’t collapse and bond yields didn’t shoot up,” said Luz Lorenzo, economist at ATR Kim Eng Securities. “And people here in the Philippines didn’t panic.” Central bank governor Amando Tetangco has a similar take on things. “The way I see it, the Philippines is an event-rich country – there is always something going on,” he said in an interview. “But in all cases, there is a knee-jerk reaction and then things start to correct.”

Perhaps the clearest sign a crisis is unlikely is the hundreds of 20-somethings on the streets of Manila’s financial district at 3 a.m. Far from loitering or being up to no good, they are working the nightshift at call-centers. While India’s wealth of well-educated English speakers gets most of the headlines, the Philippines is quietly grabbing its share of fast-growth outsourcing industries. That the call-center crowd has little interest in grabbing banners and marching against Arroyo shows why “People Power” is losing its appeal. Arroyo’s biggest success is returning a sense of fiscal sanity. The Philippines continues to swim in debt, much of it foreign, yet the budget deficit is moving in the right direction. It is expected to fall to 2.1% or less of GDP this year from 2.7% in 2005.

NO NURSING HOME FOR ME, I AM GOING CRUISING!

About 2 years ago my wife and I were on a cruise through the western Mediterranean aboard a Princess liner. At dinner we noticed an elderly lady sitting alone along the rail of the grand stairway in the main dining room. I also noticed that all the staff, ships officers, waiters, busboys, etc., all seemed very familiar with this lady. I asked our waiter who the lady was, expecting to be told that she owned the line, but he said he only knew that she had been on board for the last four cruises, back-to-back.

As we left the dining room one evening I caught her eye and stopped to say hello. We chatted and I said, “I understand you’ve been on this ship for the last four cruises.” She replied, “Yes, that’s true.” I stated, “I don’t understand” and she replied, without a pause, “It’s cheaper than a nursing home.” So, there will be no nursing home in my future. When I get old and feeble, I am going to get on a Princess Cruise Ship. The average cost for a nursing home is $200 per day. I have checked on reservations on a Princess and I can get a long term discount and senior discount price of $135 per day.

LIVING LIKE CLOCKWORK

Switzerland evokes many images to the more bizarre mind … yodelling all the way to the anonymously numbered bank account in perfect time with one’s impeccably calibrated “gnomes” chronometer, lusty alpine maids dancing buckets of fresh frothing milk down from the high pastures to the gentle lilt of cowbells and exhilarating drone of an ogling alpenhornist emitting the aftershock of a high fibre diet, mountains, gaily painted chalets, fairy tale castles, Matterhorns of mouth-watering chocolate, and the rhythmic chafing of leather shorts, etc, etc. My own images include returning as a broken whippersnapper from sublimely socialist Bulgaria in 1972 via Zurich, to find consumer society in abundance, floors so clean that a chap might have dined on the tiles and the most costly wet shave your man ever had the decadent effrontery to indulge in. Submitting the expense claim to my handler at MI6 for said scraping was tricky, but what price fame?

There is certainly plenty of that billeted on Lake Geneva. The Aga Khan, David Bowie, Michael Schumacher and the teenage heiress to the Onassis fortune, Athina Roussel, are scattered among the water’s edge estates. Guarded from the elements by majestic snow capped peaks, an idyllic picture postcard view from every window and a clement lakeside microclimate would swing it for most of us. Before you rush off to claim your slice of residential Switzerland, there are a few aspects to the debate worthy of mention. Swiss property is not cheap, but it is hot – inflated by the notoriety of the neighbors. Acquiring resident status greatly assists in circumventing the complexities of property purchase, and residency prerequisites for EU citizens have softened over the past year. Other nationalities are judged on a case-by-case basis, where personal wealth and predictable contribution are the economic trump cards.

For those gutter taxophobics among us who have sent our children to the door to advise the VAT man that Daddy is on a secret assignment in the Arctic Circle and is not expected home for several years, Switzerland is a tax haven. Most celebrities are well advised on income protection and the Cantons offer lower income tax and far more innocuous tax laws than most countries in Europe, as well as the USA and Japan. Switzerland may be a neutral entity, but a melange of German, French and Italian ingredients has created a rich cultural recipe. If your “situations vacant” advertizement is worded, “seeking an alternative habitat where privacy, natural beauty and tranquillity offset an overdose of Wall Street adrenalin,” then a Swiss home may be the response you are looking for.

HONG KONG NAMED AS “ASIAN CITY OF THE FUTURE”

Hong Kong has been selected as the overall winner in the “Asian City of the Future 2005/6”, competition organized by fDi, part of the Financial Times Business group. Hong Kong was the winner of 4 of the 7 categories, including Best Transport, Best IT & Telecommunications, Best Quality of Life and Best Foreign Direct Investment Potential. Hong Kong also was the runner-up in the Best Human Resources category.

The magazine received more than 60 entries from investment promotion agencies, development authorities and national and regional governments. The panel of judges was comprised of fDi’s editorial team and business executives based in the Asia Pacific region. Courtney Fingar, a fDi reporter, noted, “A member of the elite group of truly world-class cities on a par with London, New York and Paris, Hong Kong continues to fend off pretenders to its Asian throne. This is, in turn, the unique advantage that Hong Kong provides to its foreign investors, and it is one not to be underestimated: come and get a piece of the Chinese action, the city says, but from a safe, stable, somewhat familiar base camp. It is an alluring pitch that will ensure Hong Kong’s spot near the top of the FDI league tables for many years to come.”

CHANNEL ISLAND SARK CUTS BACK, BUT DOES NOT ELIMINATE, FEUDAL INFLUENCE

The island with Europe’s last feudal system has voted against completely abolishing the role of landowners in its government. After an extraordinary meeting of Sark’s parliament, the Chief Pleas, it agreed to reduce the number instead. Landowners will now be reserved 14 seats in the Chief Pleas, with the total number of seats on the body reduced from 52 to 28. The other 14 seats will be made up of elected people’s deputies. The public will also vote to decide which landowners are given seats. The current set-up is that the legislature gives all 40 landowning tenants an automatic seat in Chief Pleas, with a further 12 seats for elected Deputies.

The measures were approved by 25 votes to 15 and the move follows European human rights laws which mean Sark can no longer be run in the same way. The island has come under pressure to adopt universal suffrage, in accordance with the European Convention on Human Rights. Some doubt remains whether the Privy Council will approve the changes as having gone far enough. But Sark’s Seneschal, Reg Guille, said Chief Pleas are prepared to defend their decision in the European courts and a fund is being started to cover legal costs.

TAXES

EU’S COMMISSIONER FOR TAXATION DEFENDS CORPORATE TAX BASE HARMONIZATION

Laszlo Kovacs has argued that it makes “no sense” for member states who support tax competition to simultaneously oppose harmonization of the corporate tax base as companies have no effective yardstick with which to measure the broadness of the tax base. In an interview, Mr. Kovacs repeated his strong support for new legislation that will harmonize the basis of corporate taxation, and he stated his aim to have proposals drafted by 2008 despite opposition from several member states, notably Ireland and the U.K. These member states fear that harmonization will erode sovereignty over tax legislation and would be the first step towards a centrally-determined single European corporate tax rate by the back door.

On the other side of the argument stand France and Germany, which are seeking to limit tax competition – and a stream of companies switching investment to low-tax Eastern European member states – by imposing a minimum corporate tax rate. However, Mr. Kovacs said that he was a passionate supporter of tax competition within the EU, and that harmonization of the tax base would help strengthen tax competition by making national tax systems more comparable and transparent to businesses. “With all my due respect to tax sovereignty, I believe that competitiveness is at least as important as tax sovereignty, if not more. The harmonization of the tax base would not reduce competition. On the contrary, it would make competition more transparent,” he added. He argued that there is “simply no sense” comparing, for example, Ireland’s 12.5% corporate tax rate against Spain’s 25% rate or Hungary’s 16% rate if businesses have no idea how broad the corporate tax base is.

CHINA TO DRAFT CORPORATE TAX UNIFICATION LAW BY MID-2006

The Chinese government is accelerating its push to reform the country’s corporate tax regime, and new legislation that will unify the corporate tax rate paid by domestic firms and foreign-backed enterprises will be submitted to the cabinet in the summer, according to one senior minister. Vice Finance Minister Lou Jiwei was quoted by the Xinhua state news service as stating that the State Council will submit to the Standing Committee of the National People’s Congress (NPC) plans for a new corporate tax law by August.

Currently, the official rate of corporate tax in China is 33%. However, in an attempt to attract higher levels of foreign investment as the authorities sought to develop a market-based economy, various deductions and waivers have allowed foreign-funded firms to pay tax at an effective rate of 14%, while domestic firms effectively pay corporate tax at about 24%. While it is uncertain at what level the government will set set the unified corporate tax, ministers have previously hinted that all firms will pay tax at a similar rate to that currently paid by domestic firms.

SOUTH KOREA TO BAN OFFSHORE INVESTORS FROM TAX TREATY BENEFITS

The South Korean finance ministry has drawn up a list of several “tax havens” from which investors will be prevented from taking advantage of double tax treaties in an effort by the authorities to clamp down on “treaty shopping”. According to a report in the Financial Times, Ireland, Labuan, Belgium and the Netherlands are among the countries and offshore territories named on the list. Under new laws set to be introduced from July 1, 2006, investors from these countries will be subject to withholding taxes of up to 27.5% on South Korean income, including that derived from interest, dividends, and capital gains. The move is the latest step by the South Korean government to clamp down on what it considers as aggressive tax avoidance by foreign entities.

VIRGIN ISLANDS ARE AT CENTER OF DISPUTE ON TAX BREAK

The U.S. Virgin Islands and several wealthy financiers who own homes there are working to persuade Congress to drop a new requirement that at least half the year be spent in the islands in order to get a tax break intended to spur their economic development. The economic development program allows an effective federal income tax rate of just 3.5% for bona fide residents of the Virgin Islands. It has drawn wealthy Americans from the mainland and kindled an economic boom. But the program, whose benefits have been available for decades, has also allowed some homeowners who spend little time in the islands to avoid federal taxes estimated at $400 million. At least one person, who lived in the islands less than one month a year and nonetheless claimed the program’s benefits for income he generated selling insurance in Massachusetts, has pleaded guilty to tax fraud.

The new requirement, adopted by the IRS under legislation enacted by Congress in 2004, is intended to crack down on the practice. The program has long required individuals who benefit from the tax break, as well as companies that do so, to commit $100,000 of capital, employ 10 local residents, buy goods and services from local suppliers and promise to make charitable donations. But until January 31, when the new restriction took effect, there was no explicit residency requirement. The I.R.S. instead used a “facts and circumstances” test to assess eligibility. As a result of the change, individuals claiming the benefit must now prove that they have spent 183 days in the Virgin Islands during the year.

In response, the Virgin Islands Tax Working Group, which represents people who benefit from the break, paid $200,000 last year for lobbyists. The government of the Virgin Islands is just as eager as the beneficiaries to have the new restriction eased. Donna M. Christensen, the islands’ delegate to Congress, describing the rule as onerous, wants Congress to reduce the requirement to 122 days over three years, or an average of a little more than a month annually.

U.S. Virgin Islands in danger.

It was a typical IRS back door maneuver. Without hearings, without notice, in the dead of night in late 2004, an obscure provision affecting taxes in the U.S. Virgin Islands was slipped into a 650-page bill that amended U.S. Internal Revenue Code. The USVI provision has caused financial havoc in the islands, a sunny paradise that has been America’s little-known offshore tax haven for decades. Many hundreds of wealthy individuals and hundreds of businesses could be driven away and the USVI Treasury could lose upwards of $300 million in annual revenues – all because some faceless IRS bureaucrats decided a few people were abusing the law.

The U.S. Virgin Islands, St. Croix, St. Thomas, and St. John, have been U.S. territorial possessions since they were bought from Denmark in 1917. Since 1922, USVI residents and corporations have paid their federal taxes on their worldwide income to the USVI Internal Revenue Bureau (IRB), not the IRS. Legal residents of the islands who move there, those who are born there, or those who become naturalized U.S. citizens in the VI, for purposes of U.S. federal gift and estate taxes, are treated as nonresidents of the U.S. Since the VI has no estate or gift taxes, this means that upon death their estates owe zero federal or state estate or gift taxes.

But as they say on late night sales TV programs, “But wait. There’s more!” To attract investment, the USVI government grants generous tax relief packages including a 90% exemption on corporate U.S. federal income taxes for VI chartered corporations, partnerships and limited liability companies. Owners of VI entities who are bona fide residents are eligible for a 90% exemption on taxes on income these entities produce. Because the VI has no state or local income tax, bona fide residents pay an effective U.S. federal income tax rate of just 3.5% – and that has drawn wealthy Americans from the mainland and created a sustained (until now) economic boom.

For decades smart U.S. investors, including the Rockefellers, with business activities ranging from petroleum production, aluminum processing, hotel and other tourism activities, banking, insurance, and other financial services, have enjoyed USVI income with few taxes. This allowed investors to live in their second home anywhere in the U.S. for the spring, summer, and fall, then come home to the VI for the winter. The USVI government and wealthy financiers who own homes there are working to persuade Congress to drop the new requirement that at least half the year be spent in the islands in order to get a tax break intended to spur their economic development. If it ain’t broke, don’t fix it. Leave America’s only offshore tax haven alone.

TAXPAYERS SHOW STRONG SUPPORT FOR COMPLIANCE, ENFORCEMENT CLAIMS IRS

American taxpayer support for overall compliance has reached an all-time high, according to an annual survey commissioned by the IRS Oversight Board. The 2005 IRS Oversight Board Taxpayer Attitude Survey, conducted by NOP World, showed that 88% of taxpayers feel that it is “not at all” acceptable to cheat on your income taxes – the highest level recorded since tracking began in 1999. Attitudinal support for compliance also remains strong, with nearly three out of four people questioned agreeing that it is everyone’s civic duty to pay their fair share of taxes (72%).

Support for turning in tax cheaters also surpassed last year’s record high, with 30% agreeing that it is everyone’s personal responsibility to report people who cheat on their taxes, a six point increase from 2004 and 11 points from 2003. Moreover, the survey found that 82% say that their own personal integrity has the greatest influence on whether or not they report and pay their taxes honestly – double the number who cite any other factor. IRS Oversight Board Chairman Raymond T. Wagner, Jr. observed that, “There seems to be many more taxpayers who believe it’s important to follow the rules and pay what’s owed than there are those who feel it is okay to get a free ride – that’s great news. And while most taxpayers continue to feel strongly that the IRS should target large corporations and high-income individuals who cheat on their taxes, they also believe it is important to ensure compliance from other groups, such as small businesses and lower income taxpayers.”

The study also found widespread support for additional IRS funding for both assistance and enforcement. 67% of taxpayers believe the IRS should receive extra funding for taxpayer assistance and 63% favor additional funding for enforcement.

RON PAUL WARNS OF UN INTERNATIONAL TAX SCHEME

April 15th is once again approaching and with it the necessity of filling out your tax return. It is a good time to reflect on the taxes you do pay – and especially on the taxes you may soon be forced to pay. Throughout the year you paid federal taxes through withholding, including Social Security payroll taxes. You also paid state income taxes, unless you’re fortunate enough to live in Texas or another state without an income tax. You paid local property taxes. You paid local sales taxes and numerous miscellaneous taxes on your vehicles and gasoline and so many other things. Like most people, you probably feel taxed to death by all these layers of taxes. Well, hold on to your wallets, because the United Nations once again has launched a plan to impose a whole new level of global taxes on us.

The latest UN tax scheme was revealed at the World Economic Forum in Davos, Switzerland in January. At this conference of the world’s financial elite, the UN Development Programme (UNDP) unveiled a UN plan to take $7 trillion from developed nations for use by the UN to save the rest of the world from all of its problems. The UN remains determined to rob from wealthy countries and, after taking a big cut for itself, send what is left to the poor countries. Of course, most of this money will go to the very dictators whose reckless policies have impoverished their citizens. According to the international bureaucrats of the UN, wherever poverty exists in the rest of the world it is always our fault. According to them, our prosperity comes not from hard work, legal protection of property rights, and our capitalist system, but rather because we exploit the poor of the third world.

Where will the $7 trillion to fund the latest UN scheme come from? Much of it is to come from a UN-imposed fine on countries that in the UN’s judgment are polluting too much. This attack on productivity will slow our economy and lead to a loss of jobs in the U.S. The UN global tax plan also resurrects the long-held dream of the “Tobin Tax”, and doubles the targeted income from such a tax to a whopping $3 trillion. The “Tobin tax”, named after the Yale professor who proposed it, would be imposed on all worldwide currency transactions. Such a tax could prove quite lucrative for the UN, given the vast amount of currency that trades hands at certain times. It also might be a politically acceptable starting point, because most average people do not engage in cross-border currency transactions. A dangerous precedent would be set, however: the idea that the UN possesses legitimate taxing authority to fund its operations. Since I was elected to Congress I have been fighting continuously against these UN efforts to pick your pocket.

ASSET PROTECTION / LEGAL STRUCTURES

THE IRS’S ANNUAL TAX SCARE INCLUDES ATTACKS ON TRUSTS

Every year about this time the American media is flooded with a carefully timed propaganda campaign from the IRS. This is a now traditional annual barrage calculated by IRS bureaucrats to scare audit nervous taxpayers into towing the IRS Form 1040 line. The approach of America’s Tax day, April 15th, in recent years has seen the IRS launch unfounded attacks on anyone with an offshore credit card, legal tax saving moves of corporate America to tax haven nations, federal prosecutions of trust and tax shelter promoters, plus dreamers who think that taxes are unconstitutional. What is remarkable is the unquestioning parroting of the IRS line by many reporters and editors.

Back on the IRS Hit Parade this year are trusts. According to the IRS, promoters urge taxpayers to transfer assets into trusts for unrealistic tax savings that do not exist. The IRS claims there are more than 200 active trust investigations underway and three dozen injunctions have been obtained against promoters since 2001. Even so, trusts are legal and a great way to protect your assets, especially offshore trusts.

Also high on the IRS list are what it calls “frivolous arguments”. Included are claims that the 16th Amendment concerning congressional power to lay and collect income taxes was never ratified, paid wages are not income, filing a return and paying taxes are merely voluntary, and being required to file Form 1040 violates the 5th Amendment right against self-incrimination or the 4th Amendment right to privacy. The IRS notes these claims are not only untrue but federal courts have thrown them out repeatedly. A classic example of tax protesters is anti-tax crusader and author Irwin Schiff who last week was sentenced to more than 13 years in federal prison for advising people that no US law requires them to pay income tax. You need to be able to distinguish between false claims about U.S. taxes and the truth to avoid suffering Schiff’s fate.

U.S. Justice Department sues sham trust promoters.

The U.S. Justice Department announced that it has sued two Las Vegas-based promoters of an alleged sham-trust tax scheme. The DoJ’s complaint alleges that the scheme in question has caused an estimated $31 million in losses to the Treasury. The suit alleges that Reinhold Sommerstedt and Daniel Young of Las Vegas sold sham-trust packages to customers for as much as $14,500 and helped their customers hide their income from the IRS in Caribbean bank accounts. The defendants’ customers allegedly used phony loans and gifts to repatriate their money while concealing their income from the IRS. Also named in the suit are Lynn Lakers, a tax-return preparer who allegedly prepared false tax returns for the phony trusts used in the scheme, and Stephen Nestor of Boise, Idaho, a former IRS revenue officer who allegedly signed tax returns on behalf of the bogus trusts.

PHONY IRS EMAILS ARE LATEST PHISHING SCHEME

Think you have got a refund coming from the IRS? Do not get tricked by a phony email asking you for a little extra information, like your bank account number, before the IRS sends you that check. Yes, the tax-time phishing scams are hitting computers everywhere. “There has been a rash of phony IRS e-mails being sent out,” said Luis D. Garcia, an IRS spokesman in Detroit.

Many consumers know to stay away from emails that supposedly are being sent by their bank or credit card company. And banks will always tell you that they are not going to send you an email out of the blue that asks for your personal financial information. Yet the phishing gangs are getting more sophisticated. The Anti-Phishing Working Group discovered that almost 50,000 phishing Web sites were created last year. And when it comes to an e-mail from the IRS? Scammers know that more than half of all tax returns, personal and business, are going to be filed electronically this year. So if you e-filed, it may not seem too odd that the IRS would email you, too.

Some taxpayers might react too quickly when they get an official-looking IRS email, just because most people want to stay on the good side of the IRS. “When somebody’s leaving a calling card and saying this is the IRS, they tend to perk up,” Garcia said. The trouble starts if you click on the link provided in the email. Then you are sent to a Web page that looks very much like a legitimate IRS Web site. And you are asked to type in personal financial information. Once the scam artists get your personal information, they can steal your identity or empty your bank account. The IRS is not going to ask you for Social Security numbers, passwords, credit card account numbers or bank account numbers via email. “We’re not going to initiate any contact by email or by phone,” Garcia said. The IRS would contact you in a notice or letter.

QUESTIONS HOUND UK CULTURE SECRETARY TESSA JOWELL ON HER OFFSHORE TRANSACTIONS

An opinion poll published on Saturday had the largest number of respondents saying that UK Culture Secretary Tessa Jowell should stay in her job despite a fortnight of the worst sort of headlines for any cabinet minister. The breakup of her marriage may well gain empathy for her among some voters. At a deeper level, the level at which politicians calculate the longer-term consequences, this leaves her position just as fragile, perhaps more weakened than ever. For even if it succeeds in making Ms. Jowell seem more innocent, it does so at the cost of making her look like more of a fool.

When Bob Woodward and Carl Bernstein were pursuing Richard Nixon over Watergate, “Deep Throat” advised the two reporters to “follow the money”. It takes some concentration to follow the money in “Jowellgate”, as it has boringly but inevitably become known. The moolah sluices and gurgles along exotic journeys through hedge funds, tax havens and secret accounts from the Virgin Islands to Gibraltar to Switzerland. The trail is fascinating to everyone except, apparently, Tessa Jowell. On her account, she did not follow the money which Italian corruption investigators allege was a bribe to her husband from Silvio Berlusconi. As her husband shoved yet another mortgage application forward for her signature, her eyebrows were never raised, her nose for trouble did not twitch.

To some, pleading ignorance is a demeaningly dumb excuse in mitigation from an experienced member of the cabinet who is also Minister for Women. One of her cabinet colleagues sniffily describes this as the “I’m just a housewife” defense. To others, it is simply incredible that Ms. Jowell could be so blithely unaware of what her husband was doing. She knew he worked for Silvio Berlusconi, a man whose ethics are not difficult to distinguish from those of a nun. Is it credible that Ms. Jowell never inquired where that $600,000 came from? Did she never question why she was being asked to sign yet another mortgage application? The trouble for Ms. Jowell is that she can only assert her integrity by putting it into opposition to her credibility.

Tony Blair has been groaning to his intimates that “all this stuff about Tessa” is reviving memories of the sequence of scandals that have tainted the character of his government. What is it about New Labour and money? Though ministers are very well paid compared with most of their constituents, they still feel poor in relation to the exceedingly wealthy people they mix with. After the umpteenth ugly headline about the Blairs and money, I once asked one of the Prime Minister’s closest advisers why he and his wife had such reckless disregard for what it did to their reputation. “They spend too much time with very rich people,” was the blunt reply. Because they work hard and carry so many responsibilities, ministers argue themselves into believing that they deserve a similar level of lifestyle to the mega-rich.

The Jowell affair adds to the corrosive impression that leading luminaries of New Labour live in a different world to those they rule. Peter Mandelson’s home loan, John Prescott’s extraordinary failure to pay what he owed in council tax, David Blunkett’s continuing enjoyment of a grace-and-favor home in Belgravia – they all suggest to voters that the rules that apply to them are not observed by those who govern. The world in which huge sums slush around hedge funds and tax havens is not just remote to traditional, Labour, working-class voters. It is a universe inhabited by the super-rich which is alien to the middle classes of Middle Britain as well. Tessa Jowell brought to the cabinet someone who seemed like a normal member of the middle classes. She looks and sounds like a person who can be trusted. What are the voters now to make of New Labour when even someone they took to be one of the nice ones is drowning deep in the nasty stuff?

CITIBANK REISSUES CARDS AFTER FRAUDULENT WITHDRAWALS

Fraudulent cash withdrawls have prompted Citibank to reissue an unspecified number of credit and debit cards. The bank has also blocked PIN-based transactions of Citi-branded MasterCard cards in the UK, Russia and Canada to protect customer accounts. The issue came to light after U.S. Citibank customer Jacob Appelbaum posted on popular blog site Boing Boing details of problems he had with his cards after using a Canadian ATM. This fuelled speculation that a widespread ATM fraud issue might be in play. In response, Citibank has issued a statement designed to quell rumours. The bank has yet to respond to questions about the number of customer card accounts affected or the identity of the U.S. retailer responsible for earlier breaches that Citibank blames for the security flap.

PRIVACY

PAY DOWN YOUR CREDIT CARD BALANCE TOO MUCH, BECOME A TERRORIST SUSPECT

Walter Soehnge is a retired Texas schoolteacher who traveled north with his wife, Deana, saw summer change to fall in Rhode Island and decided this was a place to stay for a while. Last week, that he told me that he was “madder than a panther with kerosene on his tail.” He says things like that. Texas does leave its mark on a man. What got him so upset might seem trivial to some people who have learned to accept small infringements on their freedom as just part of the way things are in this age of terror-fed paranoia. It is that “everything changed after 9-11” thing. But not Walter. “We’re a product of the ‘60s,” he said. “We believe government should be way away from us in that regard.”

He was referring to the recent decision by him and his wife to be responsible, to do the kind of thing that just about anyone would say makes good, solid financial sense. They paid down some debt. The balance on their JCPenney Platinum MasterCard had gotten to an unhealthy level. So they sent in a large payment, a check for $6,522. And an alarm went off. A red flag went up. The Soehnges’ behavior was found questionable. And all they did was pay down their debt. They did not call a suspected terrorist on their cell phone. They did not try to sneak a machine gun through customs. They just paid a hefty chunk of their credit card balance. And they learned how frighteningly wide the net of suspicion has been cast.

After sending in the check, they checked online to see if their account had been duly credited. They learned that the check had arrived, but the amount available for credit on their account had not changed. They learned the same astounding piece of information about the little things that can set the threat sensors to beeping and blinking. They were told, as they moved up the managerial ladder at the call center, that the amount they had sent in was much larger than their normal monthly payment. And if the increase hits a certain percentage higher than that normal payment, Homeland Security has to be notified. And the money does not move until the threat alert is lifted.

Walter called television stations, the American Civil Liberties Union and me. And he went on the Internet to see what he could learn. He learned about changes in something called the Bank Privacy Act. “The more I’m on, the scarier it gets,” he said. “It’s scary how easily someone in Homeland Security can get permission to spy.” Eventually, his and his wife’s money was freed up. The Soehnges were apparently found not to be promoting global terrorism under the guise of paying a credit-card bill. They never did learn how a large credit card payment can pose a security threat. But the experience has been a reminder that a small piece of privacy has been surrendered. Walter Soehnge, who says he holds solid, middle-of-the-road American beliefs, worries about rights being lost.

More evidence of idiotic anti-money laundering regulations.

The federal government imposes literally $billions of costs on the financial system in an effort – at least in theory – to make it harder for terrorists and criminals to move money. For all intents and purposes, financial institutions such as banks are required to spy on their customers in an attempt to catch unusual transactions that may indicate misbehavior. If this approach actually worked, there would be an argument (at least from the utilitarian perspective) in favor of anti-money laundering laws and regulations. Unfortunately, there is no evidence that deputizing banks to spy on everybody has any impact on crime or terrorism. Instead, we get horrible blunders, such as a monastery having its account frozen. The latest example of why these laws should be repealed or radically reduced comes from Rhode Island, where a couple ran into trouble because they committed the terrible offense of paying off a credit card bill.

MANY JURISDICTIONS REMAIN VULNERABLE TO MONEY LAUNDERING, SAYS U.S. REPORT

According to a comprehensive global money laundering report by the U.S. State Department, many jurisdictions have made great strides in strengthening legislation to shield their financial systems against money laundering, terror financing and other financial crime, although, as the report observes, many offshore financial centers have more work to do in order to convince the onshore regulators that they are committed to the multilateral fight against money laundering and tax evasion. Following is a summary of the strengths and weaknesses of the laws and regulations in place in the major offshore jurisdictions and international financial centers according to the State Department report.

CAN MICROSOFT’S INFO­CARD IDENTITY MANAGEMENT SYSTEM SAVE THE NET?

Working late one night a few months back, I was just about to sign off when I decided to check my email. At the top of my inbox was a message from PayPal, “confirming” a change in my email address. But I had not changed the address. In an exhausted panic, I clicked the link to correct an obvious fraud. For a split second the browser opened not to PayPal but to an unrelated IP address. Then, almost instantaneously, the screen was replaced by what looked exactly like a PayPal window, requesting my password to sign in. This was not PayPal. It was a phishing bot. Had I been just a little drowsier, I might have been snagged by the fraud in the very act of trying to stop it.

We who celebrate the brilliance of the Internet – and in particular, its end-to-end open design – tend to ignore the maliciousness that increasingly infects it. The Net was built on trust, and it lacks an adequate mechanism to prevent fraud. Thus, it is no surprise that phishing expeditions nearly doubled last year – and phishing is just one of many evils proliferating online. It is only a matter of time until some virus takes out millions of computers or some senator’s identity is stolen. When that happens, the liberties inherent in the Internet’s early design will erode even faster than the liberties said to be protected by the Constitution.

Now, with the debut of the Info­Card identity management system, Microsoft is leading a network-wide effort to address the issue. To those of us long skeptical of the technology giant’s intentions, the plan seems too good to be true. Yet the solution is not only right, it could be the most important contribution to Internet security since cryptography.

EU PRIVACY EXPERTS SLAM EMAIL TRACKING SERVICES

Services that track whether an email has been opened will breach EU data protection laws unless the recipient has given unambiguous consent to the service, according to an opinion from the Article 29 EU Working Party on Data Protection.

The Working Party singled out the Did they read it? service as an example of a new type of service. This is not the “read receipt” service with which users of popular email software like Microsoft Outlook will be familiar, which gives an external email recipient the opportunity to accept or refuse the sender’s request for an acknowledgement that the email has been read. Instead, the service at didtheyreadit.com, from Florida-based Rampell Software, LLC, offers no opportunity to accept or refuse the tracking. It also provides additional details to senders: the date and time when the email was opened, where, geographically, the email was opened, for how long, and whether it was forwarded. Subscribers who use Yahoo!, Hotmail or AOL email services can simply add “.didtheyreadit.com” to the end of a recipient’s e-mail address to have an email tracked. Users of Outlook simply download a piece of software to add the secret tracking ability.

The independent working party, whose opinions are influential but not binding, expressed “the strongest opposition” to such services in a wider report on privacy issues related to the provision of email screening services, describing the secret data processing as “contradictory to the data protection principles requiring loyalty and transparency in the collection of personal data.” The report also considers how virus detection, spam filtering and processes used by ISPs and email service providers (ESPs) to pre-determine content are impacted by rules such as the European Convention on Human Rights, the Data Protection Directive and the Privacy and Electronic Communications Directive.

A NEW ERA OF DOMESTIC SURVEILLANCE IN AUSTRALIA

Australian security services’ powers to conduct domestic surveillance and to use the military against civilians are being strengthened in two bills before the Australian Parliament. The parliament is considering laws, almost certain to be passed, to allow authorities to monitor the phone calls, email and text messages of people not suspected of any crime.

The power to spy on suspected terrorists and serious criminals already exists. The Telecommunications (Interception) Amendment Bill was introduced to parliament on February 16. Under the bill, to qualify for your phone to be tapped, you merely need to be a “third party” to a serious crime. Police will be given a 45-day warrant to monitor a person not under suspicion in the hope it might lead to a person who would be of interest to the police. The warrant can be renewed. ASIO can obtain three-month warrants. (ASIO is the broadly the equivalent of the U.S. FBI). The warrant is issued by a judge who, according to the Australian Attorney-General Philip Ruddock, “has to take into account the seriousness of the offences being investigated, how much of the information would be likely to assist in the investigation by the agency, to what extent alternative methods of investigating it have been used, and how much use of such methods would be likely to assist the investigation by the agency of the offence”.

The judge “has to be satisfied in relation to a number of other matters; that is, the privacy of a person won’t be unduly interfered with”, Ruddock told Australian Broadcasting Commission radio. However, Terry O’Gorman from the Australian Council for Civil Liberties points out that judicial oversight is not a safeguard. “Law enforcers go judge shopping. They go to the … judges who more readily give warrants and are less questioning than others.” NSW Council for Civil Liberties president Cameron Murphy said the powers are unprecedented. “It massively expands police surveillance and it’s directly targeted against innocent people who are doing nothing wrong.” He pointed out that a phone in Australia is already 26 times more likely to be bugged than a phone in the U.S.

But that is not all. Receiving almost no corporate media coverage, a Senate committee recommended on January 31 the passage of a bill that will make it easier for the Australian Defence Force (ADF) to police and shoot civilians. The powers go well beyond dealing with a terrorist threat and in important respects put the military above state criminal laws.

WHY DATA MINING WILL NOT STOP TERROR

In the post-9/11 world, there is much focus on connecting the dots. Many believe data mining is the crystal ball that will enable us to uncover future terrorist plots. But even in the most wildly optimistic projections, data mining is not tenable for that purpose. We are not trading privacy for security. We are giving up privacy and getting no security in return.

Most people first learned about data mining in November 2002, when news broke about a massive government data mining program called Total Information Awareness. The basic idea was as audacious as it was repellent: suck up as much data as possible about everyone, sift through it with massive computers, and investigate patterns that might indicate terrorist plots. Americans across the political spectrum denounced the program, and in September 2003, Congress eliminated its funding and closed its offices. But TIA did not die. According to The National Journal, it just changed its name and moved inside the Defense Department. This should not be a surprise. In May 2004, the General Accounting Office published a report listing 122 different federal government data-mining programs that used people’s personal information. This list did not include classified programs, like the NSA’s eavesdropping effort or state-run programs like MATRIX.

The promise of data mining is compelling, and convinces many. But it is wrong. We are not going to find terrorist plots through systems like this, and we are going to waste valuable resources chasing down false alarms. To understand why, we have to look at the economics of the system. Security is always a trade-off, and for a system to be worthwhile, the advantages have to be greater than the disadvantages. A national security data-mining program is going to find some percentage of real attacks and some percentage of false alarms. If the benefits of finding and stopping those attacks outweigh the cost – in money, liberties, etc. – then the system is a good one. If not, you would be better off spending that capital elsewhere.

Data mining works best when you are searching for a well-defined profile, a reasonable number of attacks per year and a low cost of false alarms. Credit-card fraud is one of data mining’s success stories. All credit-card companies mine their transaction databases for data for spending patterns that indicate a stolen card. Many credit-card thieves share a pattern – purchase expensive luxury goods, purchase things that can be easily fenced, etc. – and data mining systems can minimize the losses in many cases by shutting down the card. In addition, the cost of false alarms is only a phone call to the cardholder asking him to verify a couple of purchases. The cardholders do not even resent these phone calls – as long as they are infrequent – so the cost is just a few minutes of operator time.

Terrorist plots are different. There is no well-defined profile and attacks are very rare. Taken together, these facts mean that data-mining systems will not uncover any terrorist plots until they are very accurate, and that even very accurate systems will be so flooded with false alarms that they will be useless. Data mining is like searching for a needle in a haystack. There are 900 million credit cards in circulation in the U.S. About 1% (10 million) cards are stolen and fraudulently used each year. When it comes to terrorism, however, trillions of connections exist between people and events – things that the data-mining system will have to “look at” – and very few plots. This rarity makes even accurate identification systems useless.

PATRIOT fails to stop actual attacks.

If there is a better place to be on a spring day than the middle of campus in Chapel Hill, North Carolina, I have yet to find it. Friday’s normal noon-time bustle even added a giddy buzz of anticipation for Carolina’s weekend hoops clash with Duke. Then a rented silver Jeep Cherokee Laredo rounded a building, accelerated, and plowed into a throng of students. Mass murder was averted only via sheer luck and the ability of strong, young bodies to bounce off a fender or windshield and crash into brick without sustaining a mortal wound. Mohammed Reza Taheri-azar, 22 and a native of Iran, stands charged with nine counts of attempted murder. After he surrendered to local police Taheri-azar “allegedly made statements that he acted to avenge the American treatment of Muslims,” according to an FBI official. Authorities now seem to be downplaying this statement as the investigation continues.

But there is no downplaying the disconnect between actual acts of terror and America’s anti-terror policy. The soon-to-be permanent PATRIOT Act, which we are told non-stop is the vital key to stopping attacks, fights terror as prosecutors and politicians would like it to be – as a top-down, centrally-managed form of organized crime. Yet terror exists, and will continue to exist, as an opportunistic, ad hoc phenomenon, no matter how many national security letters are issued.

For Taheri-azar, the sifting of motives and indicators has begun, but results are thin. Classmates and professors profess shock. After fearful police blew the door off of Taheri-azar’s apartment they found no al Qaeda secret decoder ring, unless a book by Cornell West now counts. No link to Kinko’s has emerged. A seemingly comfortable home in a South Charlotte suburb where Mo-Mo went to high school affords no obvious data to mine. Yet the vital lesson hides in plain sight.

Box cutters, airliners, rental cars. This is how you make war on a free society from within. A Ryder truck, fertilizer, plastic barrels. These are the building blocks of terror. A quick mind and dark heart are the only two really indispensable (and, fortunately, fairly rare) components for making mayhem. The folly of PATRIOT is that it pretends to give the good guys access to those hearts and minds, in real time and on tape. But it is the mother of all knowledge problems. This approach supposes that if enough info can be sucked up, evil intent will become clear, and authorities can swoop in and stop it.

Such diffusion of attention masks the real threats. The one undisputed terror weapon to be deployed against America was anthrax. The government’s best guess – facts have been hard to come by in the now stone-cold case – is that the anthrax came from U.S. government sources. An unofficial source that was twisted to some sick purpose, to be sure, but a very narrow target for improved oversight and security. This does not require a PATRIOT-sized revamping of the state’s investigative powers over every citizen of the republic in order to correct. Worse, official Homeland Security doctrine, along with billions in flat-out pork, has pushed ever more lethal weapons in ever more hands around the country.

This is exactly the opposite of security. Every deputy sheriff in America with access to a full-on military arsenal creates another target of opportunity for those quick minds. Alert the NSA: They will not be phoning Pakistan for instructions. Nor will they be moving large amounts of cash around their banking accounts, or suddenly paying off credit card balances, or buying airline tickets in a hurry, or any of the millions of mundane things our PATRIOT-addled government now tracks. They will, however, round the corner on some beautiful, innocent day, and something horrible will happen.

LAW

CONGRESS RENEWS PATRIOT ACT

The House renewed the USA Patriot Act in a cliffhanger vote Tuesday night, extending a centerpiece of the war on terrorism at President Bush’s urging after months of political combat over the balance between privacy rights and the pursuit of potential terrorists. Bush, forced by filibuster to accept new curbs on law enforcement investigations, is expected to sign the legislation before 16 provisions of the 2001 law expire on Friday. The vote was 280-138, just two more than needed under special rules that required a two-thirds majority. The close vote caught senior Republican aides in both chambers by surprise. Sen. John Sununu, R-New Hampshire, the sponsor of the new civil liberties protections, worked the House floor as representatives cast their votes.

Nonetheless, the vote marked a political victory for Bush and will allow congressional Republicans facing midterm elections this year to continue touting a tough-on-terror stance. Bush’s approval ratings have suffered in recent months after revelations that he had authorized secret, warrantless wiretapping of Americans. That issue helped fuel a two-month Senate filibuster that forced the White House to accept some new restrictions on information gathered in terrorism probes. Republicans declared the legislative war won, saying the renewal of the act’s 16 provisions along with new curbs on government investigatory power will help law enforcement prevent terrorists from striking.

But the debate over the balance between a strong war against terrorists and civil liberties protections is far from over. The Senate Judiciary Committee is holding hearings on the domestic wiretapping program. Additionally, Chairman Arlen Specter, R-Pennsylvania, the chief author of the Patriot Act renewal, has introduced a new measure “to provide extra protections that better comport with my sensitivity of civil rights.” Despite its passage the Patriot Act still has staunch congressional opponents who protested it by voting “no” even on the part of the bill that would add new civil rights protections. During the Senate’s final debate last week, Sen. Russell Feingold, D-Wisconsin, said he was voting “no” because the new protections for Americans were so modest they were almost meaningless. Such objections echoed during the House debate Tuesday, where the measure was supported by 214 Republicans and 66 Democrats and opposed by 13 Republicans, 124 Democrats and one Independent.

PATRIOT ACT EMAIL SEARCHES APPLY TO NON-TERRORISTS, JUDGES SAY

Two federal judges in Florida have upheld the authority of individual courts to use the Patriot Act to order searches anywhere in the country for emails and computer data in all types of criminal investigations, overruling a magistrate who found that Congress limited such expanded jurisdiction to cases involving terrorism. The disagreement among the jurists about the scope of their powers simmered for more than two years before coming to light in an opinion unsealed earlier this month. The resolution, which underscored the government’s broad legal authority to intercept electronic communications, comes as debate is raging over President Bush’s warrantless surveillance program and the duties of Internet providers to protect personal data.

A magistrate judge in Orlando, James Glazebrook, first questioned the so-called nationwide-search provision in 2003, after investigators in a child pornography probe asked him to issue a search warrant requiring a “legitimate” California-based Web site to identify all users who accessed certain “password-protected” photos posted on the site. Magistrate Glazebrook said that in passing the Patriot Act, Congress made clear its focus was on terrorism. He said there was nothing in the language Congress adopted in the days after the September 11, 2001, terrorist attacks that suggested the nationwide-search provision should apply to garden variety federal cases. He also noted that many of the examples given during legislative debate involved terrorism. The then chairman of the Senate Judiciary Committee, Senator Leahy, D-Vermont, described the nationwide-search language as applying in terrorism cases, the court noted.

Magistrate Glazebrook denied the search warrant, but it was recently disclosed that the government appealed to a federal judge, G. Kendall Sharp, who granted it without explanation. The scenario played out again late last year, after prosecutors presented Magistrate Glazebrook with an application for a search warrant directed to Yahoo. The government asked that Yahoo produce web pages, documents, and usage logs pertaining to two -mail addresses and a Web site allegedly linked to an Orlando man, Earl Beach, under investigation for involvement in child pornography. Magistrate Glazebrook allowed searches of Mr. Beach’s home and computers, but again rejected prosecutors’ request to acquire data located across the country. Again, prosecutors appealed. Judge Gregory Presnell took up the question and concluded that “it seems” Congress did intend to authorize nationwide search warrants in all cases, not just ones pertaining to terrorism. However, the judge acknowledged that the language Congress used was far from clear. The chief federal defender in Orlando, R. Fletcher Peacock, said the dispute was a straightforward one pitting literal interpretation against legislative intent. “Judge Presnell was more willing to go behind the language of the statute and look at the statutory intent, and clearly Judge Glazebrook was not,” the attorney said.

Privacy advocate, Kevin Bankston, said there is no question that the Justice Department wanted the Patriot Act to include nationwide-search authority for all crimes, but whether lawmakers accomplished that task is another question. “I don’t know that Congress knew what it was voting on,” he said. Magistrate Glazebrook said in a brief interview that he could not discuss the specific cases that prompted the legal disagreement over the Patriot Act, but that he expects the question to arise again. “It is certainly something that will come up,” he said. “There are a lot of interesting issues surrounding that.”

THE LIFE AND DEATH OF PUBLIC RECORDS

Sometimes it is the small abuses scurrying below radar that reveal how profoundly the Bush administration has changed America in the name of national security. Buried within the Intelligence Reform and Terrorism Prevention Act of 2004 is a regulation that bars most public access to birth and death certificates for 70 to 100 years. In much of the country, these records have long been invaluable tools for activists, lawyers and reporters to uncover patterns of illness and pollution that officials miss or ignore. In These Times has obtained a draft of the proposed regulations now causing widespread concern among state officials. It reveals plans to create a vast database of vital records to be centralized in Washington and details measures that states must implement – and pay millions for – before next year’s scheduled implementation.

The draft lays out how some 60,000 already strapped town and county offices must keep the birth and death records under lock and key and report all document requests to Washington. Individuals who show up in person will still be able to obtain their own birth certificates and, in some cases, the birth and death records of an immediate relative, and “legitimate” research institutions may be able to access files. But reporters and activists will not be allowed to fish through records, many family members looking for genetic clues will be out of luck, and people wanting to trace adoptions will dead-end. If you are homeless and need your own birth certificate, forget it. No address, no service.

Some of state officials around the country are questioning whether the new regulations themselves illegally tread on states’ rights. But the feds have been coy. Richard McCoy, public health statistic chief in Vermont, one of the nation’s 14 open-records states, says, “No state is mandated to meet the regs. However, if they don’t, then residents of that state will not be able to access any federal services, including social security and passports. States have no choice.” But while the public loses access to records, the federal government gains a gargantuan national database easily cross-referenced in the name of national security. The feds’ claim that increased security will deter identity theft and terrorism is facile. Wholesale corporate data gathering is the major nexis of identity theft. As for terrorism, all the 9-11 perpetrators had valid identification.

Meanwhile, the quiet clampdown on vital records is part of a growing consolidation of information at the federal level. “That information will dovetail with the Real ID Act of 2005,” says Marc Rotenberg of the Electronic Privacy Information Center. “Real ID cards are the other shoe that is scheduled to drop in three years.” That act, signed into law last May, establishes national standards for state-issued driver’s licenses and ID cards, and centralizes the information into a database. Aside from public health and privacy concerns, closing vital records incurs a steep intangible cost: It undermines community in places where that healthy ethos still survives. In small town America, the local clerk’s office is a sociable place where government wears the face of your neighbor. Each year, Vermont’s 246 towns distribute their vital statistics to all residents. “It’s the first place everybody goes in the Town Report,” says state archivist Gregory Sanford. “Who was born, who died, who got married, who had a baby and wasn’t married.”

This may not be the most dramatic danger to democracy, but it is one of the Bush administration’s many quiet, incremental assaults on the health of America’s body politic. And it may end up listed on the death certificate for open society.

TSA AIRPORT “SECURITY” EXPOSED AS A FARCE AGAIN

This is another example of exactly who the “Patriot Act” is designed to control and subjugate: the law-abiding American Citizen. Our borders are left wide open to millions of illegals – including any terrorists who want to walk in – and they are permitted to fly our airlines with no identification. As the lock-down of the civil liberties of American citizens escalates, illegal aliens and potential terrorists often get a free pass as is clearly shown in the following account … just one more in the continual stream of reports of the fascism descending on our nation … fully and totally aided and abetted by the U.S. Congress.

OPINION & ANALYSIS

AMERICA’S GLORIOUS EMPIRE OF DEBT

Let us take a moment to stand back and gaze at America’s great Empire of Debt. It is the largest edifice of debt ever put up. It sustains the most magnificent world economy ever assembled. It brings more wealth to more people than any system ever before devised. Not only is it incomparably effective, it is also immeasurably entertaining. For it has its burnished helmets and flying banners; its intellectuals and its gladiators; its Caesars, Antonys, Neros, and Caligulas. It has its temples, its forum, its Capitol, its senators; its praetorian guards; its via Appia; its proconsuls, centurions, and legions all over the world as well as its bread and its circuses in the homeland and its costly wars in periphery areas.

The Roman Empire rested on a classical model of imperial finance. Beneath a complex and nuanced pyramid of relationships was a foundation of tribute formed with the hard rock of brute force. America’s empire of debt, on the other hand, stands not as a solid pyramid of trust, authority, and power relationships, but as a rickety slum of delusion, fraud, and misapprehension.

“My tax guy has been bugging me. … You know, real estate is where it is at.” In June 2005, NBC quoted a young woman who had bought a second home at a Colorado resort. According to the report, more than a third of the houses sold in the previous 12 months were not primary residences, but second homes or investments. Down at the bottom of the pyramid are petty agents spreading deceit and misinformation – such as the aforementioned “tax guy”. You would think a young woman could trust her certified tax advisor to give her sound counsel. Instead, he urges her to get into the most bubbly property market in American history. Naturally, she went for it, aided no doubt by a whole industry of professional dissemblers. Press reports tell us that appraisers routinely stretch valuations to help close a deal. Mortgage lenders know perfectly well the appraisals are lies, but they wink at them with one eye while winking at the borrower’s phony income declaration with the other. Again, according to the press reports, lenders no longer verify income claims. They have gone blind!

The financiers know damned well that many buyers cannot really afford to pay for the houses they buy, but they see no point in mentioning it. Nor do the investors want to know. They are in on the scam, too. The smartest of them even have figured out how it works: The Fed holds down short-term rates below the inflation rate so that investors in long-term mortgage financing and buyers of U.S. Treasury obligations can make an easy profit. Further up the steps of imperial debt are whole legions of analysts, economists, and full-time obfuscators whose role is to make us all believe six impossible things before breakfast and a dozen more before dinner.

Economists, commentators, and policymakers take up these distortions and add their own twists. It is obvious to anyone who bothers to think about it that an economy that spends more than it earns is in decline. But try to find an economist willing to say so! They have all become like rich notables in the time of Trajan, doing the emperor’s work whether they are on his payroll or not. On the issue of the trade deficit, they will say what the senators and consuls want to hear. One nation buys things that it cannot afford and does not need with money it does not have. Another sells on credit to people who already cannot pay and builds more factories to increase output. Every level colludes with every other level to keep the flimflam going. On the banks of the Potomac, people of all classes, rank, and station are pleased to believe that all is well. And there, at the Federal Reserve headquarters, is another caste of loyal liars.

From the center to the furthest garrisons on the periphery, from the lowest rank to the highest - everyone, everywhere willingly, happily, and proudly participates in one of the greatest deceits of all time. At the bottom of the empire are wage slaves squandering borrowed money on imported doodads. The spectacle is breathtaking. And endlessly entertaining. We are humbled by the majesty of it.

NUCLEAR ASSISTANCE TO INDIA: BUILDING A FUTURE MENACE?

The Bush administration has signed a new nuclear pact with India that effectively lifts a moratorium on India’s purchase of Western nuclear fuel, technology, and parts. The agreement also allows India to expand its nuclear weapons program in exchange for international inspections of only its civilian nuclear activities. Some conservatives and the liberal arms control community have justifiably opposed the agreement. The conservative opponents perceptively argue that Iran, North Korea, and other “rogue” nations, under international pressure to end their nuclear programs, will object to the double standard of allowing India, which has defied the Nuclear Non-proliferation Treaty, to build as many nuclear weapons as it wants with foreign assistance. However, the Bush administration cares less about all this than it does the misguided goal of building up a democratic India as an Asian counterweight to a rising autocratic China.

Underlying the Bush administration’s strategic embrace of India is the “democratic peace theory” – the premise that democracies do not go to war with each other. This theory is widely held in the popular imagination and among the U.S. foreign policy elite, including that of the Clinton and George W. Bush administrations, but is of questionable validity. India is democratic, but not “highly democratic”, and is neither peaceful nor stable, and does not always fulfill its international commitments. India is a “new democracy” and has been since its creation in 1947. Elections are held, but it is hardly a liberal democracy in the Western sense. Empirical data show that countries in the process of democratizing are especially prone to go to war. Also, in the past India has been a seething cauldron of ethnic and religious violence.

If the American Revolution, the U.S. Civil War, the Boer War, and World War I, among others, do not discredit the democratic peace theory outright, the frosty relations between India and the U.S. during the Cold War should give the Bush administration pause. India was loosely aligned with the Soviet Union during that period and often hostile to U.S. policy. In short, selling India nuclear fuel and technology and other weapons (in the works) in order to develop a regional counterweight to an authoritarian China may be a risky gamble that blows up in the U.S. government’s face. 20 years down the road, India may be more of a threat to U.S. interests than China. The future is hard to predict and the U.S. has not always been good at identifying who the next enemy will be.

Actively containing the Chinese by building up India, improving relations with increasingly autocratic Russia, and strengthening U.S. Cold War-era alliances ringing China may create a self-fulfilling prophecy – a threatened, hostile China. The U.S. would be better off keeping its powder dry and remaining neutral in the Indian-Chinese competition. If one does rise faster than the other and become a menace, the U.S. can always then help the other. But given the poor U.S. track record of identifying future enemies, it might be a big mistake to pour a lot of resources into a strategic relationship with India at the present time.

WHAT TO DO ABOUT BIG GOVERNMENT? HOW ABOUT NOTHING

Articles espousing a re-birth of freedom, and decrying the growth of tyranny, often end with an exhortation to return to traditional American values, instill a new reverence for the Constitution, or, in extremely vague terms, to right things. But how? Good question. As our skiff floats downstream toward Niagara, it is worthwhile to point out the danger ahead. But when the roar of the falls, and the mist in the air, are obvious, the time has come to shift the emphasis from the clear and undeniable danger to the solution.

How do we get out of this mess? Previously, I made a modest suggestion for doing that, and evidently succeeded – at least as regards “modest”. A difficulty facing anyone who has a plan to restore freedom is that a large percentage of those hearing it will ignore it, or forget it, while others will have plans of their own which, at least in their opinions, are far superior. So I am going to try again, if only so that I can claim I tried. My suggestion this time will require even less of you than I previously asked. It is simply this: do nothing.

Consider – has there ever been a successful popular revolution against a powerful government? I am no historian, but if such a revolution took place in the past, it was not something I learned about in school, or since. You can cite the American revolution of the 18th century, but that was hardly popular. Roughly two thirds of the Americans at that time were either indifferent, or hostile, to the idea of revolution. Yet we can point to the collapse of the Soviet Union, and East Germany, as two examples of tyrannies that came to an end, with, probably, some genuine benefit to the peoples formerly enslaved by those regimes. Did the governments fall because of some uprising by the masses? Of course not. But fall they did.

At some point, governments over-reach themselves. They become too big to act efficiently, even in crushing enemies or stifling dissent. Bureaucrats vie with other bureaucrats for power and influence. They keep secrets from one another. The government is self-destructing, out of control. It flails about wildly, torturing here, bombing there, invading somewhere else. Domestically it lies about its crimes, and then lies about the lies. It imprisons those it thinks might possibly be enemies, without any semblance of due process. It bullies and bribes. It tolerates no criticism. Yesterday’s buddies are today’s terrorists.

So if you regard our present big-government as the source of most of our national problems, do not fret about what to do. Just wait. It is falling apart. That does not mean that the fallout will be painless or smooth, or that some new, equally bad, bunch of crooks might not replace it. But whoever follows the present gang in Washington will walk tentatively, cautiously. For a while, at least, the will of the people will have force. That will be our opportunity. We need not contemplate ways to bring down the towering edifice of tyranny that confronts and threatens us. We need only stand ready to build upon the rubble when it collapses.

GORE VIDAL, ON WHERE AMERICA IS HEADED

Interviewer: Gore Vidal, finally, can I ask you to engage in prophecy just for a moment? Look down the track. Four more years of George Bush. What will America and what will the world look like, in your opinion?

Gore Vidal: Well, an unholy mess. The dollar declines in value. There is no way that you can up it. There is nothing you can do. The wars will continue. There will be an attempt made in Iran and Syria, other places that look exciting. The United States will go broke. It is as simple as that. That is what ended the British Empire. One of the reasons we got into World War I was that in 1914, under the Asquith Government, the government fecklessly ran out of money, and here they were, supposed to be fighting the central powers, Germany and so on. The same thing is happening to us. We do not have the money to pay the debts. Now, great nations that are rich in a sense do not go bankrupt the way individuals do, because you cannot put a valuation on them, but you can certainly show lack of confidence in their currency if it goes down, down, down, which it is now doing, and interest rates go up, up, up. As the interest rates go up, then we have the problem of inflation, which will give social insecurity to everybody, because the price of bread will suddenly get very high, which it has never been in the United States since the early ‘30s. So I would say that, in the long run, the world will be saved American despotism by the coming bankruptcy of the country. Now, that will have awful fallout for everybody. I do not even want to look into that crystal ball.

HARRY BROWNE, R.I.P.

Harry Browne, author of a dozen books and hundreds of articles on politics, economics and investing, and the Libertarian Party’s presidential candidate in 1996 and 2000, has passed away. We have lost a great libertarian. In Harry’s last published article, “Why You’re A Libertarian”, he gave the answer simply. You are a libertarian because “you’re willing to tolerate anything that’s peaceful, and you practice the principle of live and let live – opposing the initiation of force (violence) against anyone for any purpose.” This is the radical conception of libertarianism that he espoused, reduced to its glorious basics, ethically compelling, and unencumbered by a single concession to the statist impulse.

It is for these principles that I am a libertarian, and his campaigns were crucial in my development as one. In 1996 I followed the campaign unusually closely for a freshman in high-school. Young and naïve, I believed that Bob Dole was the lesser of two evils, but Harry helped to open the doors to a much deeper understanding of political reality. He ran a radical campaign, though, as always, he was able to make radical liberty sound appealing. Whereas many libertarian activists have managed to water down the message of liberty and yet still come off as extremist kooks, Harry demonstrated a rare ability to take principled ideas, backed up by complicated concepts in history and economics, and explain them to the average thinking person without losing focus of the goal of unbridled liberty and the forever incompetent and immoral state that would always make things worse.

He was so convincing. One of the most convincing voices in the movement, in fact. He was notoriously civil, too, angering warmongering callers on his radio show and making talking heads such as Sean Hannity turn the color of blood simply by stating the truth politely, without raising his voice, allowing his detractors to lose their own arguments in enraged disbelief as Harry just sat there, smiling, good-natured, unwavering and sincere. And how many other political candidates could respond to obscure questions about everything from environmental policy to secession with accessible answers, common sense, and an arsenal of solid facts? It is important for Americans to hear and read the kind of pithy arguments that Harry had mastered by his 2000 campaign. See his article on the seven vital principles of government for a wonderful sampling of his clear and concise treatment of the nature of the state.

During the 2000 campaign, I told the candidate that I was very glad that he had chosen, despite the protests of rightwing elements within the movement, to stress that if he were elected, the first thing he would do is pardon all federal drug offenders. I respected that, and told him that I thought it would actually win him more votes than it would lose him. He replied to me that even if it lost him votes, he would still say it. He saw it as a moral imperative to oppose oppression, to say plainly and openly that libertarians cared about its victims and wanted to see the state violence stop immediately. His speeches could topple Berlin Walls in the minds of the yet unconvinced. One friend of mine gave up on leftist politics altogether after she heard him speak in person.

For many libertarians, Harry’s greatest shining moments came after his stint in electoral politics. Starting on the day after 9-11 with his courageous article “When Will We Learn?” he was one of the brightest lights among the antiwar voices in the movement, explaining clearly that the terrorist attacks were a response to years of aggressive U.S. foreign policy, and that more acts of U.S. terrorism, such as the impending war in Afghanistan, were not the answer. He got a lot of heat for his remarks. But he made me proud that I had voted for him, the only candidate from the 2000 election to come out explicitly and unconditionally against the entire slate of disastrous and immoral domestic and foreign policies known collectively as the war on terror.

The loss of Harry Browne, on March 1, 2006, is a tragedy for the libertarian movement. It is the newest reason to sympathize with a joke he cracked as emcee of a banquet at the 2004 Libertarian Party Convention in Atlanta, the last time I saw him, when he said, in reference to a libertarian activist he much admired who had passed away several years before, “I hate death.” Dryly, he continued, “If I were president, I would outlaw death. And just like every other law, Congress would be exempt.” Harry appeared fond of joking. From what I could tell, he appreciated the pursuit of happiness nearly as much as he appreciated life, his “obsession” with which led to his “obsession” with war – its great adversary – and liberty, for which he fought without flinching throughout his admirable life. He will be warmly regarded and highly respected as long as there are libertarians, and, I do believe, his influence has helped ensure that there always will be.