Offshore News Digest for Week of March 27, 2006

GLOBAL LIVING & BUSINESS

LIVING IN THE VALLEY OF LONGEVITY IN ECUADOR

Greetings from the beautiful Valley of Longevity in Ecuador and an update on the real estate scene in and around the area. Vilcabamba and the nearby villages continue to cast their spell on savvy world travellers who recognize a unique location with unusual benefits when they see one. The highly touted health benefits derived from the energy fields of intersecting ley lines seem to bear out the legends. It is amazing how many people I hear from who have vague plans to move here upon their retirement. But, like everywhere else in the world where the countryside is beautiful and the living is easy, progress is inexorable. So my advice is “Don’t wait much longer or you will miss the boat.”

Vilcabamba has sprung into the modern age with long awaited cellular service, internet (in most areas) and several new and excellent restaurants and small businesses. This, of course, means property values are rising though still a bargain by U.S. standards. No longer is it possible to buy country property for a few thousand dollars a hectare and properties within the town have risen accordingly. But let me back up a little with the welcome news that beautiful and valuable properties are still available. The days of $35,000 homes, however, are long gone and, to be perfectly blunt, most of the homes in this price range that you may have read about, would not be considered houses in the western sense. In order to inform (and certainly not discourage) let me give you an honest and realistic picture of real estate in the less populated areas of Ecuador.

So many of us look at a stunning piece of property, fall in love with it and set in motion the process of purchase without fully understanding the challenges of living or building in a less developed country than that to which we have been accustomed. There are few paved roads outside of the towns and often only donkey trails to many areas. Picturesque yes, but not so charming in the rainy season or when the novelty of hauling everything (including groceries) on the backs of a 4 legged animal has passed. Most country dwellings consist of 2 to 3 rooms usually with dirt floors. Again somewhat charming but with the potential to leave you with a lifetime of problems in the rainy season unless everything is well sealed and protected by a sufficiently overhanging roof. There would be no hot water (if any running water at all), no indoor bathroom and often no electricity. To upgrade these homes to even basic western standards can be relatively expensive and their structure many be insufficiently sophisticated to be able to withstand additional weight or change. Occasionally a home with all the basic “luxuries” does come on the market and if the price is fair I always recommend these as a first choice for those wishing to move here with a minimum of unexpected and unbudgeted expense. The alternative is to buy a nice piece of property and build your own home. Normally it is considerably cheaper than trying to remodel something that may not be architecturally sound – but keep that original 2 roomer while your home is being built.

Many folks however, are not planning to actually move here full time, but plan a 2 or 3 month stay each year and would prefer to take advantage of the eternally spring like temps here and avoid the miserable cold of winter back home. For them a nice place in or very near to, a local town is a much better choice and much easier to find someone to keep an eye on their property while they are gone. It is possible to spend 3 months a year here on a visitor’s visa without any special visa or legal expenses. Forget the much advertised $1,400 investors visa. It is now very much a thing of the past and to qualify for an investor’s visa you must now be prepared to put up $25,000. There are other attractive visas available for retirees and other classifications. Bearing in mind the above and making sensible decisions, I believe this valley to be one of Natures’ most beautiful and healthy places to live.

THE TRUE STATE OF REAL ESTATE IN KENYA

Property investors are taking confidence in Kenya’s recent change of government and reaping rewards from Kenya’s attractive real estate market. Spot targeted property investment has been popular in the most desirable tourist destinations in Kenya for a number of years – even before many believed the economic and political climate to be stable and “safe” enough for significant financial commitment to be made to Kenya.

Following the democratic ousting of the former president in 2002, Kenya’s economic fortunes have slowly but surely begun improving and now overseas investors are beginning to plow substantial funds into Kenya’s property sector. Investors have a growing confidence in Kenya now that the newly elected president has made a commitment to his people to promote Kenya to the wider world, encourage donor support and strengthen the country’s economy by rooting out corruption and targeting foreign direct investment for the creation of employment and business opportunities in Kenya. Determining factors for foreign direct investment inflows into Kenya are political stability and predictability, improved labour conditions, stable legal environment, the openness of the economy and incentives such as taxation breaks for example. So far the government of Kenya are holding true to their word and working on improving all of these areas and they are being financially rewarded as foreign direct investment (FDI) percentages are increasing annually.

Property investors have always been drawn to Kenya as have international tourists. The beauty and rich natural diversity of this African country are irresistible forces after all. Tourists came to Kenya to visit wildlife reserves and the beautiful Indian Ocean beaches even during the years of political disharmony. And real estate investors targeted these areas through the purchase of accommodation to let out to tourists and also through the development of small commercial ventures to target tourism. Now that international confidence in Kenya is beginning to show in the form of increased international financial commitment, so property investor interest has broadened and increased. The most popular areas for real estate investment in Kenya remain the game reserves and resorts all along the Indian Ocean coast from Lamu to Diani and beyond, but the range of micro-market sectors being targeted by the investor has diversified. Tourism is still the number one market sector real estate investors target in Kenya, but coming up close on its heals are the second home and retirement sectors.

Property investment opportunities are in abundance in Kenya and it is an exciting emerging market for real estate investors. Because the increase in property prices is limited to certain areas of the country and is only benefiting the higher income sectors of society, it is being argued that this does not constitute a boom. The argument is valid – but the plain and simple truth is that investing in property in Kenya can return an investor impressive rental income and substantial capital growth returns – but as with any emerging real estate sector in the world, an investor has to do his or her due diligence on which areas of the country actually have the necessary demand to sustain profitability.

DUBAI REAL ESTATE MARKET IS STILL HEADED UPWARDS, DESPITE 60% STOCK MARKET TUMBLE

Investors in Dubai have had to cope with a 60% fall in the local stock market over the last few months, but the real estate market is still headed upwards, boosted by a new law giving freehold rights to GCC nationals and to a limited extent to non-GCC expatriates. Law No 7 of 2006 regarding the registration of property grants ownership rights to UAE nationals, GCC nationals, companies owned by UAE and AGCC nationals and public joint stock companies. Foreigners will be able to buy interests in land only in respect of certain areas, and with the approval of three “master developers”, Emaar, Al Nakheel, and Dubai Real Estate, after completing payment for their purchase.

It appears that in practice foreigners will be limited to buying whole developments in the nominated areas. While this may be a disappointment for individual expatriates, it should still encourage further foreign investment into development projects. Detailed rules and regulations governing registration requirements, documentation, filing application, fees and other issues have yet to be issued. The registration fee for any transaction under the law will be 2% of the total value of the property, of which 1.5% has to be paid by the purchaser and the rest by the seller.

While real estate prices have boomed in Dubai lately, and will presumably continue to do so at least for a time, the stock market is a different story, falling almost 60% from its all-time high reached last summer. It has been going up for a long time, however, so investors who got in early will not have been hurt too much.

GOOD MORNING, VIETNAM

Vietnam – a nation of 83 million people on a thin strip of lush country slammed up against the Gulf of Tonkin and the South China Sea. Excluding various islands, the land area of Vietnam is not much bigger than New Mexico, though it supports a population more than 40 times as large. In the south is Ho Chi Minh City (locally, it is still often referred to as Saigon, even though the name officially changed in 1976). And all along the coast on the way north are plenty of sun-kissed fishing villages and quiet, pristine beaches – such as those found in Nha Trang. The green jagged mountains inland, carpeted in dense misty jungles, provide a stunning backdrop. Most of the people on the beaches are adventurous foreigners – Americans, Germans, Australians and French. Mostly, they stay in foreign-built resort-style buildings dotting the bay. It is usually hot, often wet, and sometimes wetter.

The seafood is always fresh, usually alive moments before it is eaten. Right up to the water’s edge, women pull up their full nets from colorful boats. The women gut fish, chop squid, wrestle with shellfish and cook up interesting pots of fish, noodles, peppers and other goodies. This is one of the places in the world where the dollar goes a long, long way. A family can eat like kings for $7 or less. In Hanoi, the capital city in the north, you see busy tree-lined streets full of cars, cycles, scooters, and – as if to remind you of its fading past – rickshaws. Old French villas evoke Vietnam’s colonial history. The swirl of noise and smells assaults your senses.

This is Vietnam. For Americans, it inevitably stirs up ugly memories, or at least a painful chapter in U.S. history. The Vietnamese people and countryside bear the physical and psychological scars of that not-too-distant conflict as well. Yet, Vietnam is rapidly changing, with time and market forces doing their parts to mend old wounds and bring new growth. Vietnam still produces a lot of old-world agricultural goods, e.g., rice, coffee, cotton, tea, pepper, soybeans, sugar cane, peanuts, and bananas – more than 60% of the work force is engaged in agriculture in some way. However, the manufacturing and service industries are growing and taking bigger slices of the pie as the years roll by. The Vietnamese make garments and shoes, as well as glass, tires, and steel. They produce cement and paper and mine for coal. But there is much more to the story.

The Vietnamese economy has quietly become one of the fastest growing in the world, approaching the scorching pace of India and China. It is also become a magnet for foreign capital. In 2005 alone, investment in Vietnam totaled over $5 billion. Already, about 260 U.S. firms have invested directly in Vietnam. In 2006, another $6 billion is expected. This includes major technology and infrastructure projects. In the last week of February came the most telling announcement yet. The Vietnamese government approved Intel’s plans to build the biggest single technology project in the history of Vietnam – a chip assembly plant in Ho Chi Minh City, an investment that could cost as much as $605 million. This major turning point was barely mentioned in the mainstream press. The work at the plant will be labor intensive and require a sophisticated work force, which is why insiders are impressed with the deal. It means Intel believes the Vietnamese can do more than the expected low-skilled jobs. More foreign investment will surely follow Intel’s lead.

The attraction? The Vietnamese work very hard for very little by Western standards. The foreign private companies pay the best – on average, about $60 per month. State-owned enterprises paid only $19 per month. Those are cheap rates, even by the standard of the Chinese. While in China, I heard Chinese business people talk about Vietnam like Americans talk about Mexico. China is Vietnam’s largest trading partner. Much of what is happening in China is only beginning in Vietnam. Recently, the state-owned Vietcombank announced plans to list its shares in Hong Kong or Singapore. This would be Vietnam’s first overseas initial public offering. And several Western banks are taking minority positions in Vietnamese banks, anticipating future IPOs and growth.

The market has a long way to go before it approaches the likes of even China in terms of a developed stock and bond market with some semblance of disclosure. Nonetheless, all great journeys begin with a humble first step. Vietnam is on its way.

ISLE OF MAN LEADS AS CENTER OF OFFSHORE E-COMMERCE

The Isle of Man has both maintained and improved its competitiveness and currently stands as one of the world’s leading jurisdictions for e-business, according to a recently published report. The findings of the report by Charteris, the IT consulting firm, found that the Isle of Man has been “very successful in maintaining a strong and steady marketing position on e-business compared with its jurisdictional competitors. … Amongst those who are aware of the Isle of Man’s positioning, it is seen as a good example of how to get things right, and the standard to be achieved – a number of official publications by competitor jurisdictions explicitly say so,” the report observed.

Charteris noted that the decision to introduce a 0% corporate tax regime, coupled with a cap on personal income tax at a maximum level of £100,000 per annum, have been key in transforming the Island into a leader on the e-commerce front. Other factors crucial to the growth of e-commerce in the jurisdiction include increased off-Island competition as a result of the licensing of Cable & Wireless which has led to lower bandwidth costs, provision of new world-class hosting facilities in the form of Manx Telecom’s new Douglas North facility, evidence of clustering in the online gambling sector and the beginnings of “stickiness” of operators in the sector, a number of “excellent sales wins”, and clear signs of significant improvement in collaboration between business and Government on e-business and economic development issues.

BERMUDA IS THE PREFERRED PLACE TO REGISTER SHIPS AND PLANES

The Island is one of only two shipping “flag states” that received no negative indicators in the 2005 Shipping Industry Flag State Performance Table. Used to indicate standards of safety, environmental and social performance, the table of 116 flag state shipping jurisdictions shows Bermuda with no black marks next to its name – a record that outperforms the UK and 113 other countries and states. “We are world class in our shipping register,” said Junior Transport Minister Senator Walter Roban, during a Senate discussion on the budget allocation to Ministry of Tourism and Transport. “We do better quality work than the UK.”

Being a well-regarded place for registering ships brings in revenue for the country and it is estimated in the coming year almost $1 million will be generated for the Island once expenditure has been taken into account. During 2006, Sen. Roban expects another 11 new vessels to be registered under the flag of Bermuda. At the end of last year there were 135 commercial ships, including nine oil tankers, together with 255 yachts registered to fly the Bermuda flag and abide by quality standards and inspections carried out by the Department of Maritime Administration.

The register of aircraft on the Island has increased from 170 to 190 in the past year. “The most significant growth is occurring in the registration of large commercial and private category aircraft, reflecting the status of Bermuda as a preferred jurisdiction for certification,” said Sen. Roban. The Island is also the only UK Overseas Territory that has full, unconditional designation of the Governor’s aviation safety regulation powers for all aspects of aviation.

Mobile satellite company sizes up Bermuda.

Bermuda is being eyed as the first offshore location for a mobile satellite company which is poised to launch high-capacity satellites and provide voice communications at affordable prices. Mobile Satellite Ventures is working to provide next generation communications in North America, but Bermuda may benefit as well since satellite footprints reach over the Island. “Benefits will come out to countries like Bermuda from the U.S. or Canada as the satellites inherently cover with large footprints,” said Jennifer Manners, MSV’s vice president regulatory affairs. She added the company decided to approach Bermuda first because its telecommunications regime is attractive and the business environment is “very hospitable”.

MSV’s bid to take communications to the next generation has been hammered home in the wake of the 9-11 attacks followed by Hurricane Katrina when cellular and domestic telecommunications infrastructure failed. The construction of MSV’s integrated satellite-terrestrial network will resolve the problem.

BRAZIL SCANDAL WEAKENS RULING PARTY

Brazil’s government has been shaken by a scandal involving prostitutes, suitcases full of lobbyists’ cash and a violation of bank secrecy laws that brought down the finance minister. The controversy has raised questions about whether the departure of the architect of Brazil’s economic recovery will prompt President Luiz Inacio Lula da Silva to swing the country further to the left to get re-elected this year. Silva quickly named a replacement for the ousted finance chief, Antonio Palocci. New Finance Minister Guido Mantega moved to contain the damage by promising economic stability and to stay the course on Brazil’s monetary policy aimed at paying down debt and taming inflation.

Palocci’s ouster deprives Lula of a longtime ally, campaign organizer and Cabinet minister who had reassured investors by putting Latin America’s largest economy on a course of slow and steady growth. And it further tarnishes the image of Silva and the ruling Workers Party, which lost credibility last year amid allegations it paid opposition lawmakers $13,730 a month for support in Congress. Lula, who is widely expected to seek a second 4-year term in October, was not personally linked to the vote-buying scandal, but his popularity tumbled as his powerful chief of staff, Jose Dirceu, was forced to resign. Dirceu and two other legislators later were expelled from Congress and four others resigned to avoid impeachment.

MOSCOW COURT APPOINTS YUKOS BANKRUPTCY ADMINISTRATOR

Yukos, once Russia’s largest oil firm, faces the prospect of bankruptcy after a Moscow court appointed a bankruptcy administrator. The Moscow Arbitration Court has set a date of June 27 to decide whether Yukos should be declared bankrupt. A bankruptcy declaration was sought by a consortium of 14 Western banks, which includes Citigroup, Deutsche Bank and BNP Paribas, after Yukos defaulted on nearly half of $1 billion in debt. The court approved the transfer of $482 million in Yukos debt from the consortium of banks to Rosneft, the state-controlled oil company which is widely tipped to snap up Yukos’ remaining assets.

While Yukos has paid billions to the state in back taxes, and was forced to auction off its main production unit, Yuganskneftegaz, at a knock down price to help reduce its crippling debts, the company still owes the government more than $10 billion of a tax bill which eventually totalled approximately $30 billion. Yuganskneftegaz was also acquired by Rosneft, and analysts believe that the stripping of Yukos’ assets is a deliberate strategy by the administration of President Vladimir Putin to create a massive oil company capable of competing with the likes of Exxon and BP, but closely controlled by the Kremlin.

The former chief executive of Yukos, Mikhail Khodorkovsky, now languishes in a Siberian jail after being found guilty of multiple counts of tax evasion, fraud and money laundering following a highly politicized show trial which many observers believe was a demonstration of power by the Putin government. Khodorkovsky was known to harbor political ambitions of his own.

ANDEAN GAS IS NOTHING BUT GAS

The United States needs to import more natural gas. Andean countries have plenty to sell. A bunch of politicians are standing in the way. What is the result? A missed opportunity to both boost the economies of the Andean countries and further diversify U.S. energy sources, as well as to enhance hemispheric relations, making Latin America relevant. Let me quickly dispel the notion that development depends on natural resources and commodities. It does not. Some of the world’s economic stars actually lack natural resources. Commodities and primary products constitute no more than 4% of the world’s economy. In the case of Latin America natural resources have often been an obstacle to progress because they have provided despots and demagogues with a comfortable rent. In fact, many people believe that wealth is something you distribute rather than create.

Logically, a country that has abundant resources and the opportunity to exploit them profitably would be foolish not to use them for profit and development. South American leaders who love to talk about their “rendezvous with history” in their incantatory speeches are about to be stood up by her once again for failure to treat gas as a tool of development rather than of power politics.

The U.S. is fast becoming dependent on natural gas – one quarter of its electricity now comes from natural gas. Because coal and nuclear energy have become increasingly controversial, regulations have created an incentive to build gas-burning plants. Despite the U.S.’s abundant gas reserves, a number of obstacles, including political ones, has impeded a full development of its resources. The U.S. actually imports about 16% of its natural gas, most of it from Canada and, to a smaller extent, from Trinidad & Tobago. However, the expectation is that U.S. demand for imported gas will shoot up and Canada is not in a position to satisfy it. Unless major discoveries take place soon, at the current rate of production Canada’s reserves will be depleted in less than a decade.

This is where the Andean countries come in. Between them, Venezuela and Bolivia have close to 250 trillion cubic feet of natural gas. Brazil and Argentina also have huge reserves, but both countries actually import gas because of a combination of booming demand and, in the case of Argentina, shortages created by price controls. The international conditions are in place for booming gas exports in Venezuela, Bolivia and, to a lesser extent, Peru. And the shipping time from the Andes to the U.S. coast is much quicker than from Russia or the Middle East, the big competitors! But Venezuela and Bolivia have decided to blow it. Venezuela, of course, is not a realistic prospect while Chávez is in power (U.S. imports of Venezuelan oil are enough of a headache already). Bolivia was on its way to creating the right internal conditions. However, the man who is currently running Bolivia, Evo Morales, led a successful campaign to block foreign investors while in opposition. What a contrast with Trinidad & Tobago, where foreign capital was welcomed as soon as natural gas reserves were discovered and a booming petrochemical industry has materialized in recent years! Andean gas, meanwhile, is nothing but gas.

Seldom have the conditions been better for Andean countries to exponentially increase their exports of a valuable product to the U.S. market and become relevant for reasons other than white powder. Andeans just have not noticed them.

TAXES

COSTA RICA’S TAX PLAN FALLS AT FINAL HURDLE

Just when it appeared that Costa Rica’s long-delayed fiscal reform plan was about to see the light of day, a ruling by the country’s constitutional court has stopped the plan dead in its tracks, possibly terminally. In a ruling released last week, the Sala IV constitutional court once again ruled that supporters acted illegally in the Legislative Assembly by creating new procedures to “fast track” priority legislation, such as the 385 page tax bill. The court also decided that the tax bill, known as the Permanent Fiscal Reform Package, should have passed its first of two readings last month on a two-thirds majority, not a simple majority.

While supporters of the tax plan are reportedly optimistic that the procedural flaws can be corrected and the plan resurrected, the swearing in of a new administration in May following February’s elections gives them precious little time, and it would appear increasingly likely that it is the end of the road for a bill that has been batted around the legislature for the last four years. Nonetheless, reports suggest that the incoming administration of Oscar Arias Sanchez will seek to introduce its own version of the tax bill, albeit in a slimmed down version.

TAXAHOLICS, TAKE NOTE

Two recent newspaper stories underscored a problem several U.S. states are experiencing – stagnant or falling populations. The New York Times ran a piece about young people fleeing the Green Mountain State of Vermont for greener pastures, citing the lack of job opportunities. Around the same time, the Des Moines Register ran a special section on Iowa’s population problem. A century ago the Hawkeye State was home to 3% of the U.S. population. Today it is home to just 1%. Young people have been leaving in droves for decades. Both stories cited experts and politicians who offered up various solutions to stem the tide, yet both papers ignored the proverbial elephant in the room – taxes. These two states are punishers when it comes to laying levies on income. In Iowa the top income tax rate is nearly 9%, one of the highest in the country. In Vermont it is even worse, 9.5%.

Iowa and Vermont should be experiencing population booms. Thanks to high tech, folks today literally have the world at their fingertips, no matter where their feet are planted. More and more people are moving to once unlikely places to pursue a better quality of life yet still have ample opportunity to advance professionally and entrepreneurially. Iowa has a number of excellent colleges and universities. Many people find university towns to be meccas. Sure, Iowa can have cold winters. But no matter where you live – with the possible exception of San Diego – there will be some times during the year in which the weather is less than ideal. Arizona and Nevada, for example, have very hot days during the summer, yet each is a magnet for newcomers.

Vermont’s scenery is legendary, and during the 1960s and 1970s it drew New Yorkers and others like a pot of honey draws insects. But many of these migrants were hippies, and their politics soon dominated the state. The state is too often hostile to business, treating entrepreneurs and executives with a haughty disdain to rival that with which Chinese mandarins treated merchants centuries ago – a critical reason China stagnated while the West advanced. If Vermont were to take on the tax structure of neighboring New Hampshire, the state would have no shortage of people moving in to pursue jobs and set up businesses. In fact, New Hampshire and Vermont are laboratory cases of how state tax structures affect local economies. New Hampshire has avoided both a state income tax and a sales tax, and has far outpaced Vermont and high-taxing Maine.

As for other populations that are not expanding, New York State has been in a relative decline for decades. Since 1950 it has lost 14 congressional seats, and in the next census it will lose several more. This is no coincidence, for the Empire State has a tax burden that is notoriously heavy. New Jersey is in the process of emulating Vermont and New York in crushing its citizens with onerous exactions. And whoever thought the day would come that California – highly taxed and antibusiness – would start seeing tens of thousands of native-born Americans moving out of the state instead of moving in. For the first time since becoming a state 155 years ago, California will not gain, and may actually lose, congressional representation after the 2010 census.

Bottom line … taxes matter, not only on the federal level but also on the state and local levels.

U.S. TAXPAYERS INVITED BY IRS TO JOIN TAXPAYER ADVOCACY PANEL

The U.S. Internal Revenue Service announced that it is inviting “civic-minded individuals” to help improve the nation’s tax agency by applying to be members of the Taxpayer Advocacy Panel. The panel provides a forum for citizens from each state to make suggestions regarding IRS decision making. “As the IRS continues to examine taxpayers’ needs in the area of service, the Taxpayer Advocacy Panel has emerged as a vital source for gathering and providing information from the perspective of taxpayers,” stated Nina E. Olson, National Taxpayer Advocate. “TAP’s role will ultimately aid taxpayers by supplying them with the top quality service that they deserve.”

To qualify as a TAP member, applicants must be U.S. citizens and be able to commit 300 to 500 hours during the year to the panel. In addition, they must be current with their tax obligations and pass a criminal background check. Applications must be received by the TAP Office by April 28, 2006.

CHINA’S TAX BURDEN HALF THAT OF INDUSTRIALIZED ECONOMIES

Despite surging growth in the amount of tax revenues being collected by the Chinese government, a new official report has suggested that the overall burden of taxation as a share of the national economy remains low compared to most industrialized countries. A report published by the State Administration for Taxation at the weekend stated that tax revenues, inclusive of social security taxes, accounted for about 20% of China’s GDP in 2005. This, SAT stated, compares to an average of just under 30% for developing countries and an average of about 40% for industrialized economies. Nonetheless, the SAT report conceded that China’s tax burden has been rising sharply in recent years, having grown from just under 14% in 2001.

However, the report emphasises the rising tax revenues have been driven laregly by booming economic growth and foreign trade rather than by an increase in the headline level of taxation. In January, the SAT revealed that annual revenues, excluding customs duties and agricultural levies, exceeded 3 trillion yuan ($380 billion) for the first time in 2005. Beijing had expected tax revenues to increase by 11%, to 2.93 trillion yuan, but rapid economic growth, which has seen China’s GDP expand at a rate in excess of 9% per year in the past two years, pushed revenues above the 3 trillion yuan mark.

IRELAND HAS ONE OF WORLD’S LOWEST “TAX WEDGES”

Turkey, Sweden and Poland impose the highest taxes on a single-earner married couple with two children on average earnings, while Ireland, Iceland and the U.S. take the smallest slice in tax, according to the latest edition of the OECD’s annual publication Taxing Wages. Taxing Wages compares the shares of employee earnings taken by governments in OECD countries through taxation by calculating what it calls the “tax wedge”, or the difference between labor costs to the employer and the net take-home pay of the employee, including any cash benefits from government welfare programs.

In 2005, single individuals without children earning the average wage in services and manufacturing industries faced a tax wedge of 55.4% of the cost of their labor to their employers in Belgium, 51.8% in Germany and 50.5% in Hungary, compared with 17.3% in Korea, 18.2% in Mexico and 20.5% in New Zealand. The average for OECD countries was 37.3%. For a one-earner married couple with two children on average earnings, the tax wedge ranged from 42.7% in Turkey, 42.4% in Sweden and 42.1% in Poland to 11.9% in the United States, 11% in Iceland and 8.1% in Ireland. The average for OECD countries was 27.7%.

Tax wedges have shrunk over the past few years in most OECD countries. In 2000, the average tax wedge for single persons without children was 37.9%, with Belgium at the top end of the range with 57.1%, and Korea and Mexico at the bottom end with 16.4% and 16.8%. Some countries have focused their tax wedge reductions on lower paid workers. For instance, the tax wedge for single workers earning two-thirds of the average wage have fallen particularly sharply since 2000 in France (47.4% to 41.4%), Hungary (48.5% to 42.9%) and the Slovak Republic (40.6% to 35.3%).

“ALTERNATIVE TAX” HITS WALLETS HARD

You did not hit the lottery, get much of a raise or see impressive returns in 2005, but the federal government might consider you among the wealthiest Americans this tax season. About 15 million more taxpayers with incomes ranging from $75,000 to $500,000 are expected to get hit with the alternative minimum tax, created nearly 40 years ago to ensure that the richest pay their fair share of income tax. To see if they owe it, taxpayers must do normal tax calculations using income and deductions and then figure a second set based on the AMT formula, which eliminates deductions. They pay the higher amount. The AMT is expected to add $1,000 to tax bills for couples with incomes of around $100,000.

CPA Gary Krull has seen his clients pay from $20 more to $20,500 more because of the AMT. He predicts that about 7% of them will be affected by the tax on their 2005 returns, a 1% increase. David Barrett, tax partner at Freed Maxick & Battaglia CPAs PC, estimated that about half of his clients will pay the AMT this year. The tax will be a reality for more Americans for two main reasons. One is that the AMT has not been adjusted for inflation since its inception in 1969. Another factor is that the 2001 income-tax cuts did not affect the AMT, which often makes it the higher of the two taxes.

CPA Gary Wojciechowski, partner at Gaines Kriner Elliott LLP, said the government’s lopsided adjustments to the overall tax scheme have treated the taxpayers unfairly. “They’re being dishonest,” he said. “Either they didn’t understand it or they knew it was going to raise funds and they were not going tell anyone. It has gone far beyond what it was intended to do.”

At high risk of paying the tax are New Yorkers and others living in high-tax states who usually counted on lowering their federal bill by deducting local and state taxes. The AMT also does not allow other reliable tax breaks, such as mortgage and investment interest and personal exemptions for children. The AMT allows standard exemptions of $58,000 for married couples filing jointly and $40,250 for most others. What is left is taxed at 26% for incomes below $175,000 and 28% for anything higher.

KPMG DEFENDANT PLEADS GUILTY TO TAX EVASION

In what was described by IRS chief Mark W. Everson as a “watershed event” in the government’s ongoing fight against the selling of abusive tax shelters, one of the 17 defendants in the KPMG case told a New York court that he was entering a guilty plea. David Rivkin, a San Diego partner in KPMG’s “innovative strategies”, group told U.S. District Judge Lewis Kaplan that he was pleading guilty to one count of tax evasion and one count of conspiracy. Rivkin admitted to conspiring to help clients with more than $20 million each in income or capital gains to “keep the money for themselves instead of paying taxes they owed,” and wrote letters for clients testifying to the legitimacy of the shelters in the event of an IRS inquiry.

Court documents described how Rivkin’s clients were advised to invest money though Cayman Islands entities or through foreign currency transactions. The tax revenues loss to government as a result of shelters he sold to nine clients is believed to amount to about $235 million. Rivkin’s plea was surprising because he, along with the other defendants, filed motions challenging the government’s case only two months ago. It is thought that the plea could be a crucial turning point in what has been described as one of the largest criminal cases in U.S. legal history and Ravkin’s cooperation may help federal prosecutors in building a case against the remaining defendants.

The guilty plea could also help prosecutors to their widen their inquiry into other accounting firms, banks and law firms which are alleged to have assisted KPMG’s clients in evading taxes. In August 2005, KPMG agreed to pay $456 million in penalties to cover former clients who participated in the tax shelters known as Blips, Flip, Opis and Short Option Strategy. Rivkin faces a prison term of up to five years for each of the two counts, although federal prosecutors may recommend a more lenient sentence in exchange for his cooperation.

CHANGE IN JERSEY’S VAT POLICY MAY FORCE OUT ON-LINE STORES

Websites that sell CDs and DVDs from Jersey in order to avoid VAT may be forced to leave the tax haven under a change of policy by the Channel Island’s government. The tax free status enables online stores – including Amazon, Asda, Boots, Tesco and Woolworth’s – to undercut prices on the mainland, which is estimated to cost the UK government around £80 million, rising to £200 million over the next two years. CDs sell for as little as £8 while DVDs can be picked up for about £12.

However the Jersey government is less concerned with that and more worried about the effect on the local economy. It is currently pursuing an economic plan that will generate extra tax revenue and create “high value” jobs, and does not consider that the CD and DVD resellers fit into that plan. It is also concerned about the effect that they have on the island’s reputation. “The selling structure which is adopted by the retailer is little better than a sham,” it said in a statement. “The vendor, or the vendor’s parent company, and the purchaser are both located in the United Kingdom. The goods, or some of them, come from the United Kingdom, and are shipped to Jersey for a ‘sale’ before being shipped back to the United Kingdom for delivery to the customer. Jersey’s integrity in financial and commercial matters cannot but be damaged by the use of the Island as part of such a selling structure.”

The online retailers have 12 months to apply for an operating licence, though under their current business model they will not receive one, according to the policy statement. Although music retailers are the worst-affected, tax-free imports have also hit opticians through cheap contact lenses and firms selling vitamins and food supplements.

EU CALLS FOR END OF “DISTORTIVE” OFFSHORE MALTESE TAX REGIMES BY 2010

The EC said it has formally requested the Maltese government to phase out two “distortive” offshore tax regimes by the end of 2010. The commission said that under these regimes, revenues from foreign sources paid to shareholders of Maltese Companies with Foreign Income (CFI) and International Trading Companies (ITC) are subject to “minimal or no taxation”. The EU executive said the schemes “seriously distort competition and trade”. It said that Malta has one month to accept the proposed measures, otherwise the commission may open a formal state aid investigation.

EU competition commissioner Neelie Kroes said, “The schemes provide sizable aid to companies that are owned by non-Maltese and produce revenues outside of Malta. (They) are therefore highly distortive without promoting growth of the Maltese economy.” In 1994, Malta adopted the two business tax regimes for multinational groups setting up special-purpose companies which carry out cross-border activities.

U.S. TREASURY SECRETARY PROMISES TAX CODE SIMPLIFICATION

Speaking at a meeting of the Tax Executives Institute this week, U.S. Treasury Secretary John Snow pledged tax code reform in order to simplify the legislation. Citing Albert Einstein’s famous remark that the tax code was the only thing “inpenetrable to the human mind”, Mr, Snow announced that, “I’m here to let you know how dedicated I am, and how dedicated President Bush is, to making the tax code better for all Americans. That means simpler and better for businesses and individuals, fairer and more pro-growth. The President has shown real leadership on improving the tax code already throughout his term, acting on major pro-growth tax relief measures in 2001, 2002, and 2003, and in signing the JOBS bill in 2004.”

He continued, “Simpler-but-fair, as you well know, is a hard balance to strike. The President’s Panel on Tax Reform did some excellent work on this subject, and it was an important first step toward eventual overhaul of the code. This is something that we only get the chance to do every 20 years or so. And so we need to take the time to do it right, to build understanding and to build support for change. … [But] We have to be very careful to avoid the temptation by some to use “tax reform” as cover to actually raise tax rates! That is not real tax reform – and it would be a step in the wrong direction. As virtually all main-stream economists will tell you, higher tax rates actually create dead-weight losses by reducing economic output.”

TURKEY RISKS IMF’S WRATH OVER TAX CUTS

Finance Minister Kemal Unakitan has stated that the government was considering tax cuts in various sectors, a policy which could bring the country into conflict with the International Monetary Fund, which has provided substantial loans for the Turkish government. In a speech, Mr. Unakitan indicated the the government was “moving towards” tax cuts for certain sectors of the economy. Mr. Unakitan did not elaborate further on this statement, but it is thought that the bulk of the tax cuts will be directed towards the tourism industry – Turkey’s main foreign currency earner – which has suffered as a result of the bird flu scare and a strengthening domestic currency.

The minister’s comments come soon after the Turkish government decided to cut value added tax for the textile industry, much to the chagrin of the IMF which has warned that the tax cut could breach the terms of a $10 billion loan agreement. The IMF has also reportedly expressed concern at the government’s pace of structural reform. Turkey is keen to reduce its tax burden not only to bring its economy into line with the EU, which it is hoping to join in the coming years, but also to reduce the size of the black economy. It is estimated that about half of all economic activity in Turkey is unregistered and untaxed, while those who do pay tax are often penalized by punitive rates.

ASSET PROTECTION / LEGAL STRUCTURES

ON THE VIRTUES OF IBC’S AS ASSET PROTECTION DEVICES

If you are engaged in a business or profession that can be carried out in a foreign nation, business privacy may be another reason to go offshore. Unlike U.S. and many other nations’ business laws and reporting requirements, selected offshore tax havens offer almost complete business anonymity. This greater privacy can work in your favor if you are a consultant, trader, or in export-import management. A good example of a business anonymity haven is offered by Panama. There you can form an international business corporation (IBC) at a cost of about $1000, with annual maintenance costs even lower. [Note: WIL offers Panama Corporations. See this page.] More importantly for privacy, the IBC can be formed by “nominee” directors who hold the organizing meeting and turn over control to you. There is no requirement that the true beneficial owners be listed in public.

In Panama bearer shares still are legal – which means that each share is made out to “Bearer” without any identification of a specific owner. Thus transfer of shares and ownership can be done in private. Corporate beneficial ownership need only be disclosed to the attorney creating the IBC. That information is not made public unless a Panamanian court orders it based on corporate criminal activities. So long as your Panama IBC conducts its activities outside Panama and does no business within the nation (except minimal housekeeping chores), you are completely free of Panamanian taxes.

Your home nation may have reporting requirements with which you must comply. For example, if a U.S. person controls an offshore bank account or an IBC, that must be reported to the IRS. [See WIL’s “To IBC or not to IBC?” for further discussion.] But an offshore IBC also may allow payment of legitimate travel and business expenses, deferral of certain home nation taxes, and it shelters your business from law suits filed in the courts of the businessperson’s home jurisdiction.

PERSONAL BANKRUPTCY FILINGS UP 30% LAST YEAR, SETTING RECORD

Personal bankruptcies soared 30% to a record high last year, surpassing 2 million for the first time, as financially strained people rushed to file before new restrictions took effect October 17. A new law, which brought the most comprehensive revision of the U.S. Bankruptcy Code in a quarter-century, made it more difficult to erase credit card and other debts in bankruptcy. Prior to its enactment, the number of bankruptcy filings had been fairly stable. “It is ironic that, at least in the short term, a law Congress hoped would reduce bankruptcies instead caused the largest upward spike in history,” said Samuel Gerdano, executive director of the American Bankruptcy Institute, an organization of bankruptcy judges, lawyers and other experts. By contrast, he said, personal bankruptcy filings have fallen sharply so far this year under the impetus of the more stringent law.

The law bars those with above-average income from Chapter 7 – where debts can be wiped out entirely – except under special circumstances. Those deemed by a new “means test” to have at least $100 a month left over after paying certain debts and expenses must file instead a 5-year repayment plan under the more restrictive Chapter 13. A group representing bankruptcy attorneys has contended, in a report released last month, that the law has failed to stop abuses and has stymied people who have legitimate reasons to file for bankruptcy.

Passage of the new bankruptcy law came after eight years of strenuous efforts by congressional backers, banks and credit card companies. Supporters said the new provisions were needed to curb abuses of the bankruptcy system. Opponents said the changes would be especially hard on low-income working people, single mothers, minorities and the elderly and would remove a safety net for those who have lost their jobs or face mounting medical bills.

U.S. BUSINESSMAN INVESTMENT FRAUD TRIAL COMMENCES IN MONACO

A fraud trial began yesterday in the Principality of Monaco involving a U.S. businessman who is accused of defrauding investors to the tune of millions of euros after a brokerage firm that he owned collapsed. The Hobbs-Melville brokerage folded in 2000 leaving a €140 million hole in its accounts, according to Reuters. William Hobbs Fogwell, 71, the company’s owner, was arrested in Poland in 2001 and extradited to Monaco. He now faces charges of fraud, breach of trust and forgery.

Wealthy investors had invested sums of up to €8 million each in the company, lured by the promise of returns of between 30% and 60%. While things appeared to be running smoothly for investors in the five years prior to the collapse of Hobbs-Melville, many suspected that things were amiss when the company began to make late payments and failed to honor other obligations to its stakeholders. Citing one investor in the firm, Reuters reported that Hobbs-Melville made risky bets in the short-term money markets. It is thought that around 500 investors have lost money, and 300 of them have hired 50 lawyers to press their case.

Monaco has renewed its determination to rid itself of the image as a haven for financial criminals and money launderers. he case of Sir Mark Thatcher, son of Margaret Thatcher, has highlighted how attitudes are changing in Monaco as the Principality bids to win its removal from the OECD’s list of allegedly “uncooperative tax havens”. Sir Mark had been seeking permanent residence in Monaco, after being refused an entry visa to the U.S. in April last year following his conviction by a South African court for his part in a plot to stage a coup in the oil-rich African state of Equatorial Guinea. However, Monegasque officials have made it clear that Thatcher is not welcome in Monaco and that his temporary residence permit will not be renewed.

U.S. JUSTICE DEPARTMENT SUES LAWYER WHO ALLEGEDLY SET UP BOGUS NEVIS CORPORATIONS

A Seattle lawyer who allegedly helped customers set up bogus corporations in Nevis, West Indies to avoid filing U.S. taxes, has been sued by the U.S. Justice Department. The DoJ announced it had filed a civil injunction suit in federal court in Seattle to block disbarred Seattle lawyer, Bruce Hawkins, from promoting the alleged tax-fraud schemes. The government alleges that Hawkins helped several customers set up the fake corporations in Nevis so that customers could falsely claim their funds were held in foreign-controlled corporations and not subject to tax. Hawkins also allegedly helped customers set up sham Nevada corporations to help customers treat non-deductible personal expenses as tax-deductible business expenses.

The lawsuit asks the court to order Hawkins to give the Justice Department a list of his customers’ names, addresses, e-mail addresses, Social Security numbers, and telephone numbers. But Hawkins said he was morally and ethically barred from divulging his client list to the government. Since 2001, the Justice Department has sought and obtained injunctions against more than 160 tax-scam promoters and fraudulent return preparers. During fiscal 2005, 68 individuals were convicted on charges of promotion and use of abusive tax schemes designed to evade taxes.

WHERE MILLIONAIRES STASH IT AWAY

Faster economic growth in India and China and record oil prices are creating a bigger group of millionaires drawn to Singapore, where taxes are among Asia’s lowest. Assets managed for offshore clients by private banks in Singapore climbed about 25% in 2005, the world’s biggest gain, according to Roman Scott, a Singapore-based partner at Boston Consulting Group. “Singapore will be the fastest-growing offshore private banking center in the next five years,” Roland Knecht, Asia head at the Zurich-based Clariden Bank, said. The unit of Credit Suisse Group manages $35 billion for clients with assets of €1 million, or $1.22 million, and opened its first overseas branch in Singapore in November. Knecht plans to increase staff in Singapore to 50 by the end of 2006 from 32 when the office opened.

Switzerland, the world’s biggest offshore banking center, still dwarfs Singapore. Private banking clients held SF1.38 trillion, or $1.07 trillion, there in 2004, according to the Swiss National Bank. Singapore ranked #6 worldwide as an offshore private banking center last year. The Caribbean islands ranked second, followed by Luxembourg, the U.S. and the Channel Islands, according to Scott at Boston Consulting Group. Singapore is the world’s fastest-growing market for millionaires. The city of 4.35 million had 48,500 people with assets of more than $1 million at the end of 2004, up 22% from a year earlier, according to a report by Merrill Lynch and Cap Gemini. That was the biggest jump of 16 countries worldwide tracked by the survey.

Individuals had 154.6 billion Singapore dollars, or $95.6 billion, in assets under management in Singapore at the end of 2004, up 40% from a year earlier, according to the latest data from the Monetary Authority of Singapore. That was more than double the 19% increase in Hong Kong to HK132 billion, or $17 billion, in 2004, according to the Hong Kong Securities and Futures Commission. Hong Kong had $379 billion in overall assets under management, including those held by institutions, vs. Singapore’s $350.8 billion. Singapore’s offshore private banking assets rose by about a quarter last year to 200 billion Singapore dollars, beating an estimated 20% gain in Hong Kong and a 5% increase in Switzerland, according to Scott at Boston Consulting Group. “With China and India in the region, Singapore will be used, to a large extent, as the Switzerland in Asia,” said Kong Eng Huat, managing director of Merrill Lynch’s private banking unit in Singapore.

Some money that used to go to Swiss banks will flow to Singapore after a 15% withholding tax on interest income on Swiss deposits took effect last year, said Daniel Truchi, head of Société Générale’s Asian wealth management branch in Singapore. The Swiss tax will rise to 35% in 2015. Singapore amended its tax laws in 2004 to attract more overseas wealth. Residents do not pay tax on income they earn overseas. Investment gains earned in Singapore from stocks and other financial instruments are also tax-exempt.

PRIVACY

THE INTERNET AND YOU: ‘TIL DEATH DO YOU PART AND BEYOND

Forget about Andy Warhol’s “15 minutes of fame”. By now there may be a full dossier about you sitting right there on the Internet for all to see, complete with contact information, your life preferences, what you have done, who you know. Chances are, you (or your computer savvy kids or grand kids) put a lot of it there! We are talking about the so-called “social networking” web sites – MySpace, Facebook, Friendster, Hi5, Live Journal and Orkut. These network users easily create personal web pages to be viewed by anyone on the user’s “friends” list – often by anyone with a Net connection. Millions of mostly young people have created profiles on these web sites – 62 million on MySpace, 60 million on Hi5, 24 million on Friendster, just to name some of the common sites. True, the info most post on the web pages is usually trite and innocuous – but pages are easily stored, waiting for the day when a prospective employer, spouse, litigant or government investigator decides to investigate them.

And no, just because your teen-age daughter deleted her profile posing suggestively does not mean it disappeared. It may be in an online archive such as http://www.archive.org, that says it can pull up 55 billion web pages in a database going back to 1996. It works. I found old versions of my web site dating back to 1998, when I first created it! I am not opposed to social networking web sites. Indeed, they make my job much easier. When I need to investigate someone, especially a younger person, I will go first to the pages of their web sites to learn about them. Now it is easier for investigative journalists to dig up dirt on politicians, prospective judicial nominees, names in the news. Even if the information is not on the web page itself, users list names of friends in their social networks. An investigator need only contact those friends to fill in the blanks.

Call me paranoid if you want, but consider how the U.S. Deptartment of Homeland Security would react if your “social network” included suspected terrorists or their acquaintances? These associations already may be “data mined” by government computers. What is your profile? If a friends’ list contains suspected criminals you may be questioned or even listed as a risk to “national security?” Stalkers love these profiles. As an experiment, I searched one of these web sites for teenage females who attend a high school near where I live. Within seconds, I had a list of more than 100 girls. Several had sexually suggestive screen names. The bared all – their full names, birthdays, likes and dislikes and names of buddies. A photo showed exactly what each girl looks like. Add to all this the threat of identity theft. If you know someone’s name, residential address and date of birth, plus a few other tidbits, it is not difficult to obtain their Social Security number – and from then on the impersonation can destroy their credit.

As a colleague who writes widely on privacy issues told me, “Don’t post anything on the Internet that you wouldn’t mind reading the next day (or 10 years from now) in The New York Times.” Good advice, I would say.

200,000 HP STAFF EXPOSED DUE TO LAPTOP THEFT

Financial services companies appear to have it in for their technology customers, with Fidelity Investments adding to a spate of laptop thefts. A laptop lost by Fidelity this month has exposed 196,000 current and former HP employees. “This is to let you know that Fidelity Investments, record-keeper for the HP retirement plans, recently had a laptop computer stolen that contained personal information about you, including your name, address, social security number and compensation,” employees learned via email. Fidelity has also set up a web site that “includes some immediate steps that you can take to protect yourself, as well as information about how to enroll for a 12-month period of credit monitoring at no cost to you and a Fidelity call center number in case you have additional questions.”

The latest leak follows a string of laptop losses by Ernst & Young that exposed information on Sun Microsystems, Cisco and IBM employees. Ernst & Young has provided a similar service to Fidelity, although the auditing firm was a bit less proactive with its laptop losses. A single laptop containing information on the Sun, Cisco and IBM workers went missing, and Ernst & Young waited close to two months to inform some of the employees about the loss. This information was revealed here in a string of exclusive stories. Ernst & Young had another four laptops stolen from a Miami conference room when its workers left their kit in the room as they went out for lunch.

Fidelity lost HP’s employee data to impress HP.

Given the recent spate of laptop losses affecting major companies, many of you have wondered why the likes of Fidelity and Ernst & Young would let crucial customer information leave their own servers and desktops in the first place. Well, in Fidelity’s case, we have learned that the company had a really important demo to perform – one that apparently required it to load 200,000 HP workers’ personal information on a laptop. So how did a Fidelity employee manage to lose track of this laptop then? “This seems to be an isolated incident, and simply the result of human error,” HP said. Human error indeed.

U.S. REPRESENTATIVE OBJECTS TO IRS DATA SALE PROPOSAL

Connecticut Congresswoman, Nancy Johnson last week objected to an IRS proposal that would allow confidential tax returns to be sold to marketing companies and data brokers. Johnson is a senior member of the House Ways and Means Committee, which oversees the IRS. According to published reports, the IRS is considering a proposal allowing accountants and tax preparers to sell Americans’ tax returns to third-parties like marketing firms and database managers. Current IRS rules prohibit the practice.

In a letter to IRS Commissioner Mark W. Everson, Johnson argued that confidential tax and financial information should be given every protection. “Right now Americans are fulfilling their civic duty by filing their income tax returns with the IRS. They expect their tax returns to be kept confidential, even if they use a tax-preparer to navigate our complex income tax code,” Johnson wrote. “The IRS should protect Americans’ privacy, not let it be sold to the highest bidder.”

“TAG ALL THE FOREIGNERS” POSSIBLE UK ID CARD SALES PITCH EMERGES

The Institute for Public Policy Research (IPPR) suggestion that the UK’s illegal immigrant population should be offered amnesty does not on the surface look entirely helpful to the Government. Could it be that one of the top Blairite think tanks has joined those sinking their fangs into Mr. Tony? Perhaps – but the department of strange coincidences sees a strong possibility that this is a lifeboat whose time is coming. The Identity Cards Act finally (but one still hopes, temporarily) made it onto the statute book yesterday, and the Passport Service and all of its ultra vires identity-related activities will magically transform itself into the Identity and Passport Service tomorrow (April 1). We still do not accept that this is entirely legal – but phase one of the Government’s incredible, improbable and unworkable joined-up border-watch, security and immigration policing system has now been given the Parliamentary green light, and immigration is one of the areas where it should bite first.

So consider how it is supposed to work vis a vis immigration, and while doing so suspend disbelief, because as we will shortly explain it is not really necessary for it to work to any significant extent for the IPPR’s shock suggestions to acquire a certain attractiveness and utility. All that is needed is for the Government to claim that it is working. Claiming things are working when they are patently not is something of a special skill of this regime.

The theory behind the system runs approximately as follows. Overseas visa applicants have their biometrics read as part of the application and can therefore be positively identified on entry to the country. Because their biometrics are on record, the chances of intercepting and deporting overstayers increases, at least in theory. Biometrics are also taken from new asylum applicants, so again they are on record and can theoretically be nicked and returned. Non-UK EU citizens will in the future have to have an ID card if they are resident in the UK for longer than three months. This last one will not be in place for a while yet as compulsion can only be applied to them when it is also applied to UK citizens (EU law talking here), but it is an important aspect of the “ring of steel” in that it provides a means of differentiation between say, Underpaid Polish cockle-picking EU citizens (good) and underpaid Ukrainian cockle-picking non-EU citizens (bad).

After several years of teeth-pulling the Government finally confessed last year that it was possible after all to estimate how many illegal immigrants were at large in the UK and that the number was, um, maybe as high as 570,000. Rounding them all up and deporting them would take forever, cost a fortune and alienate large sections of the population, but amnestying them (as Spain did recently) would send the popular press ballistic. The arguments in the US concerning the Mexican border and illegal immigration cover similar territory, as do arguments raging right across the developed world. The typical outcome is that the Government talks tough on immigration measures and tries to shut off the routes that continually top up the numbers of in-country illegals, but tiptoes away from confronting the question of what you do about all of the ones who have got here already. But one day they are going to have to. Only one option, regularization or amnesty, stands any chance of significantly reducing the size of the illegal/irregular population. A regularization process, the IPPR argues, would raise £1 billion for the Treasury through tax revenues, and “could be combined with the issuing of ID cards to foreign nationals in 2008.”

Which is the punchline. If a Government can claim that its e-Borders and biometric ID measures are shutting off the entry points, that there are clear economic benefits to bringing illegal workers into the tax system, and that this is a one time, “give yourself up or you’re out” offer, maybe it can sell it. The IPPR’s suggested policy option covering ID cards, incidentally, is that “Internal controls (e.g., ID cards)” will make it easier for police to “identify irregular migrants” and provide “disincentives to enter a country as it is more difficult to live and work there.” Figure out for yourself where on the road to pass laws these “internal controls” will take us.

LAW

NSA EAVESDROPPING PROGRAM BROADER THAN PREVIOUSLY DESCRIBED

The Bush administration has assiduously avoided any talk about the actual workings of its program to intercept the phone calls and e-mails of people in the U.S. who are suspected of having links to terrorists abroad. Officials’ unwavering script goes like this: Present the legal justifications for the president to authorize domestic electronic surveillance without warrants, but say nothing about how the National Security Agency actually does it – or about what else the agency might be doing.

But when Attorney General Alberto Gonzales appeared before the Senate Judiciary Committee on February 6 to answer questions about the program, what he did not say pulled back the curtain on how the NSA decides which calls and e-mails to monitor. The agency bases those decisions on a broad and less focused surveillance than officials have publicly described, a surveillance that may, or may not, be legal. In a hearing that lasted more than eight hours, Gonzales, who did not testify under oath, dutifully batted away senators’ inquiries about “operational details” and stayed silent, under determined questioning by some Democrats, about other warrantless programs that the president might have secretly authorized. When the hearing finally ended, so did Gonzales’s comments on the program.

Until 22 days later. On February 28, Gonzales sent committee Chairman Arlen Specter, R-Pennsylvania, a six-page letter, partly to respond to questions he was unprepared to answer at the hearing, but also “to clarify certain of my responses” in the earlier testimony. Gonzales’s letter was intriguing for what else it did not say, especially on one point. With exacting language, he narrowed the scope of his comments to address only “questions relating to the specific NSA activities that have been publicly confirmed by the president.” Then, as if to avoid any confusion, Gonzales added, “Those activities involve the interception by the NSA of the contents of communications” involving suspected terrorists and people in the U.S. Slightly, and with a single word, Gonzales was tipping his hand. The content of electronic communications is usually considered to be the spoken words of a phone call or the written words in an electronic message. The term does not include the wealth of so-called transactional data that accompany every communication – a phone number, what calls were placed to and from that number, the time a call was placed, whether the call was answered and how long it lasted, down to the second, the time and date that an e-mail message was sent, as well as its unique address and routing path, which reveals the location of the computer that sent it and, presumably, the author.

“You will get a very full picture of a person’s associations and their patterns of activity,” said Jim Dempsey, the policy director of the Center for Democracy and Technology, an electronic-privacy advocacy group. “You’ll know who they’re talking to, when they’re talking, how long, how frequently. … It’s a lot [of information]. I mean, a lot.” According to sources who are familiar with the details of what the White House calls the “terrorist surveillance program”, and who asked to remain anonymous because the program is still classified, analyzing transactional data is one of the first and most important steps the agency takes in deciding which phone calls to listen to and which electronic messages to read.

Far from the limited or targeted surveillance that Gonzales, President Bush, and intelligence officials have described, this traffic analysis examines thousands, perhaps hundreds of thousands, of individuals, because nearly every phone number and nearly every e-mail address is connected to a person.

AUSTRALIA’S FINANCIAL ORGANIZATIONS, AND EVEN LAWYERS, TO BECOME GOVERNMENT SPIES

If you open a bank account, get a credit card or loan, or even lay a large bet with the TAB you could be secretly reported to the Federal Government under a proposed crackdown on money laundering and terrorism. The Anti-Money Laundering and Counter-Terrorism Financing Bill 2005, to be debated this year, forces people to give much more information about their income and assets to financial institutions than at present. It requires employees of financial agencies, gaming organizations and bullion dealers to make “risk assessments” of clients to determine the possibility of the money being used in money laundering or funding of terrorist activities. If they have serious concerns they must report them to federal authorities.

A second tranche of the legislation will extend to dealings with pawnbrokers, bookmakers, jewelers, real estate agents, the TAB or anyone else dealing with thousands of dollars in cash. Though the Australian Bankers Association supports the philosophy, privacy groups, unions and some credit organizations have a bleak view. Anna Johnston, the chairwoman of the Australian Privacy Foundation, said she thought the approach was heavy-handed. “They are proposing to sweep up the transactions of everyone in the net of surveillance,” she said. “We think it is a licence for racism and profiling. Some people will not make eye contact in a bank for religious reasons. You can have indigenous people, Muslims or people with a Middle Eastern background. What is even more disturbing is that these reports are secret and people have no idea that the report has been made.”

Because reporting of suspicions was mandatory, institutions would be inclined to err on the side of over-reporting. Raj Venga, the executive director of the Association of Permanent Building Societies, said the lifeblood of the societies was customer relations. “We think that laws requiring us to be very intrusive cannot be good,” he said.

The proposed legislation includes financial institutions and individuals such as lawyers and accountants who might perform equivalent services. But the future coverage of lawyers, accountants, real estate agents and others will require them to extend their inquiries of clients beyond financial transactions. John North, the president of the Law Council of Australia, said the legislation was totally unacceptable. “It strikes at the heart of lawyer-client confidentiality,” he said. “Lawyers are already the most regulated profession. This one-brush approach will cause impossible problems for the administration of justice.”

VANUATU’S COMPANIES TOLD TO COMPLY WITH MONEY LAUNDERING LAWS

Companies in Vanuatu have been reminded by the head of the jurisdiction’s Financial Intelligence Unit that heavy fines will be imposed on those who do not comply with recently amended anti-money laundering legislation. “Section 19 After Part 2 and under Part 2A of the Financial Transactions Reporting clearly states that financial institutions are to report financial transactions to the unit,” the FIU Manager was quoted as explaining. “Financial institutions are also reminded of the heavy penalties for non compliance with the provisions of the Act.” The FTRA came into force on February 24 2006, but Section 19 does not become effective until September 1 2006.

FREE 40 MILLION AMERICANS: PRIVATIZE MARRIAGE

Civilization is built upon the family. It is the primary relationship within which all values are transmitted to future generations. From the family grows the clan and the tribe, and ultimately the city and the state. Although this idea of the beginning of the state may not be recognized in the 21st century, the concept of marriage and family is at the heart of a political and social debate throughout America and beyond.

Debate about marriage is necessary because its costs and consequences impact all of us. It is at once the most personal and the most public of acts. In the debate about marriage, those who stand for “traditional” marriage and those who want to adjust that term to modern times all work within a worldview that places the state at the heart of the debate. Into that debate we must inject the view that persons, and voluntary groups of persons should not have their behavior mandated by the state. The failure to allow voluntary organizations to help manage marriage is perhaps understandable, but it is the core source of many of the problems we confront today.

Marriage is an ancient institution. Like all human institutions it works best when the parties involved know that their various investments will be respected and the intention of the marriage contract enforced. Through most of human history marriage has been the institution that was used to ensure the safety of the children and the perpetuation of subsequent generations – an expensive endeavor. Marriage was originally formed before any known system of philosophy and before any understanding of the causality described through economics. The current chaos surrounding marriage cannot be resolved by more state action.

Marriages fail at exceedingly high rates. To understand why this is taking place we must examine how this happened. For centuries the Catholic Church was the arbiter of the dissolution of marriage in Europe. Marriage was a life time commitment. By the time America freed itself from English rule, America did not control the dissolution of marriage through a particular church. Practices of marriage dissolution, such as those followed by the Puritan Church, were giving way to civil solutions.

This public route was deemed necessary in early America because marriage was considered a public good and therefore its dissolution needed to be for the common good. This idea, collectivist in nature, denied to individuals their contract right and ignored the covenant many had made. However, its purpose was clear – to protect other citizens from having to care for children or a spouse unable to care for themselves. As typically occurs, the creation of this “public good” led to the sense that all incidents of marriage were completely under state control – ignoring economics and natural rights. The consequences of this state model are perfectly predictable. When racial discrimination was a central part of politics, states prohibited persons of different races from marrying. When the eugenics movement swept across America, criminals and those deemed unfit were prevented from marrying or were sterilized to prevent their “breeding”. Marriage’s legacy in America has therefore been one of complete state control of marriage and its incidents. Instead of human action and choice, the heavy hand of legislation is the only tool used to shape marriage.

By the middle of the 1800’s America had placed divorce in the hands of the courts and approximately 100 years later in the 1960’s, beginning in California “no-fault” divorce swept through America. Today marriage – the legal creation of the state of being married – through a license is one of the easiest legal events of great significance. The ease with which marriage is contracted fails to make participants aware of the weight and significance of the contract they are signing. Dealing with problems upon the dissolution of marriage or disputes that may arise even within marriage can be incredibly complex. State divorce courts have grown to prodigious levels, an array of social workers, therapists and other “experts” are enriched by the divorce bonanza ushered through state divorce gates. These courts and these experts hold virtually every family in their jurisdiction in complete control – their judgments can be disturbed only upon a showing of an abuse of discretion. The inscription on those courthouses should read like the inscription on the gates Dante places at the entrance to Hell, “Abandon all hope, ye that enter there.”

When states adopted no-fault dissolution laws, they failed to account for the ability of the law to shape attitudes and actions. Nobody was prepared for the tsunami of broken families swept into domestic courts or the assets gobbled up by courts, attorneys and other forms of loss. Theory was applied directly to the lives of millions and the theory, unexamined for the potential impact, ignored the reality of a marriage as a vehicle for holding the capital investment of two individuals making a shared investment unique to that couple. In fact, no contract built on a collectivist model can work for any specific couple. Virtually nobody predicted that countless marriages involving children would dissolve. Nobody predicted that numerous long time marriages that appeared happy to everyone and to one of the spouses would end in dissolution. Nobody predicted that nearly 50% of all marriages would fail. No-fault created a devastating legal reality – marriage was no longer attached to contract, commitment or children. Instead, marriage was about autonomous fulfillment that could be judged by either spouse at any time in the marriage.

As marriage continues to be shaped, society itself will be reshaped to deal with the new situations created by these new realities. What the “no-fault” proponents failed to recognize, the new marriage proponents fail to recognize all the more – marriage is easy, the consequences of marriage including its dissolution are not. Marriage as mandated by the State today destroys the capital of trust, embeds deceit and mangles lives. Antagonism and distrust across gender lines and within families is also rising. One of the costs of no-fault divorce is the very fabric of family trust and continuity. It need not be so. One of the most important and beneficial ways marriage reform can occur is to allow individuals to choose their own private marriage contract – along with the means, outside of the State, to mediate and enforce that contract.

When our investment in marriage is easily destroyed, it is natural that we reconsider whether or not marriage is purposive today. As issued by the State it is not. It is an agreement whose dissolution transfers wealth into the hands of those who have grown like barnacles on the whole system. We created these encrusted constituencies because we failed to use the principles of natural rights and the insights gained from an informed understanding of how markets impact human choice. No excuse exists for allowing a state structure of divorce – worthy of the former Soviet bloc – to limit what is arguably the most purposive human activity.

OPINION & ANALYSIS

FORMER TOP GOP STRATEGIST KEVIN PHILLIPS ON AMERICAN THEOCRACY

A generation ago Phillips wrote The Emerging Republican Majority which Newsweek described as the “political bible of the Nixon administration.” Throughout the 1970s and 1980s Phillips was viewed as one of the GOP’s top theoreticians and electoral analysts. But no more. Phillips is now warning that the party – and the country as a whole – is headed for potential disaster. Phillips sums up his concerns in the title of his new book, American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century. A review in the Sunday New York Times said the book may be “the most alarming analysis of where we are and where we may be going to have appeared in many years.” The book examines issues ranging from peak oil to the rapture to the future of the American empire.

On President Bush, Philips said, “It’s really an appalling thing, because I – in the course of the last couple of days, as my book tour started, I’ve talked with a number of conservatives, people running conservative publications, old aides from the Republican campaigns back in the 1960s and 1970s, and everybody agrees, and some are even starting to say it semi-publicly: this man is a national embarrassment. … [S]ome just because they know him and don’t think anybody with his lack of qualifications should be president, others that think that the country has a black eye, others that think that conservatism is now being threatened as much as liberalism was in the late 1960s by the Johnson administration. This is just a convergence of the ineptitude of one man, of the complicity of a number of other senior people in the administration … and a horrible situation for the Pentagon …”

Questioned on the oil industry “oligarchy” in Washington, Philips replied, “[T]he Republicans are the principal vehicle of this. But they are by no means the only vehicle, when Lloyd Bentsen was the Vice Presidential nominee for the Democrats. He was somebody very closely connected to the oil industry. It turns out that Al Gore’s father was closely connected to the oil industry, and he continued the relationship with Armand Hammer of Occidental, and as a result, David Ignatius of the Washington Post wrote a big piece back several years ago saying we really had almost everybody in the 2000 election was oil-connected. It wasn’t just the two Republicans. It was Al Gore, too. … This is no criminal conspiracy or anything. This is just a major resource, having evolved as something that’s part and parcel of the American economy and American supremacy. And you can’t just wish it away. It’s a vested interest of the first order.”

“I think [the Iraq war] was principally over oil. … [Also,] the Middle East is a battleground of biblical Armageddon and everything. And that’s swimming into play. [T]his is very central to the whole Republican constituency. What you’ve got is that 45% of American Christians believe in Armageddon, and the more religious ones, the fundamentalists and evangelicals more than anybody else. So, my assumption is that the Bush electorate is probably 50 to 55% people who believe in Armageddon and probably more or less the same numbers who believe that the Antichrist is already on earth. And when you have this backdrop and you have a president who got his start in national politics as his father’s liaison with the religious right back in 1987 and ‘88, you just have an enormous exposure to this whole psychological context and an awareness on the part of people in the White House that this huge constituency interprets the Middle East in this very unusual way.”

“The right embraced [Ronald Reagan], because that was at point in time … where, in my opinion, during the 1960s and 1970s, the left had pushed much too hard against religion in an attempt to create a more secular society. And this just grossly mis-underestimated the role that religion plays in the United States, and it created this huge backlash. So the balance was beginning to be restored in the 1980s, and now the pendulum has swung, so the abuse is on the part of the religious right, the people who were complaining about being abused 30 or 40 years ago.”

BOOK REVIEW: THE DISPOSABLE AMERICAN

New York Times reporter Louis Uchitelle is a mild and measured man, but he has hit his boiling point. “Everyone who talks to me about the book wants to make it about finding an enemy or blaming or politics … they don’t get it, and you don’t either,” he says in an interview. “This is not a book about unemployment. It’s simply a book that sticks to what happens to people after they’ve been laid off.”

That is exactly what will make his new book, The Disposable American: Layoffs and Their Consequences, difficult for many to digest. He simply tells what happens to workers, blue- and white-collar alike, after they are laid off, and the stories taken together paint a picture of Americans unable to fully recover from the toll that two decades of downsizing have had on productivity and dignity. In doing so, he challenges conventional business reporting, political rhetoric and Wall Street wisdom that says layoffs are the best way to cut costs, that a constantly shifting workforce is the law of the land, and that caring about workers is antithetical to good business. Using anecdotal and statistical evidence, Uchitelle reminds readers that before the layoff became a popular and socially acceptable form of cost-cutting, it was a sign of corporate failure and a violation of acceptable business behavior – because corporate America decided that a dedicated highly skilled labor force was the most efficient and profitable way to manage capitalism’s most unruly and unpredictable variable, the worker.

Over the course of 90 years, companies began to trade job security, pensions and profit-sharing for dedication, skill and motivation. He also fairly lays out the economic forces, primarily globalization, that made the American version of job security an economic liability, allowing the system that took nearly a century to create to be undone in about two decades. Like it or not, there are plenty of people who do not care about the fact that laid-off workers may suffer from depression, are often forced to take a more menial or worse-paying job, or that private lives are damaged by the loss of a job and the esteem it confers. And since this is the overarching theme of the book, The Disposable American may not prove ultimately convincing. One could argue that a successful book would offer responses to this new debate, and Uchitelle does not convincingly do this. But he deserves credit for putting the hard questions on the table, and we can only hope that Americans together try to answer these questions.

ISRAELI LOBBY – THE REPORT

Professor Stephen M. Walt, professor at the John F. Kennedy School of Government of Harvard University, and John J. Mearsheimer, professor in the Department of Political Science at the University of Chicago, have published an eye-opening report, entitled, “The Israel Lobby and U.S. Foreign Policy”. Needless to say, at this time in our nation’s history, it could not come at a more critical time. As Americans feverishly attempt to understand the workings of the twisted mind of a totally out-of-control genocidal lunatic and mass-murdering warmongering buffoon and his gang that has hijacked the government of the U.S., explanations for his unilateral and unnecessary invasion abound in limitless speculation and inquiry. However, the most frequently offered rationale, if that is what it can be called, is that it was primarily about oil. But considering the hostility of Israel, its penchant and perfected planning and execution of terror, it becomes increasingly clear that the foreign policy of the U.S. is dictated by Israel.

Mearsheimer and Walt’s paper leaves absolutely no doubt that Israel not only controls our entire government, our Pentagon, our foreign policy and our political parties, but our media as well. Digressing a moment from the natural order of topics in their magnificent paper, let us move immediately to the report’s treatment of Israeli control of the American corporate mainstream establishment media, as it will be the intention of that un-American element and institution to work hard and feverishly to spike and cover up this damaging report that exposes the motivational madness of the Bush regime.

Addressing the section, “Manipulating the Media”, Mearsheimer and Walt offer, “In addition to influencing government policy directly, the Lobby [AIPAC] strives to shape public perceptions about Israel and the Middle East. It does not want an open debate on issues involving Israel, because an open debate might cause Americans to question the level of support that they currently provide. Accordingly, pro-Israel organizations work hard to influence the media, think tanks, and academia, because these institutions are critical in shaping popular opinion. … The Lobby’s perspective on Israel is widely reflected in the mainstream media in good part because most American commentators are pro-Israel. The debate among Middle East pundits, journalist Eric Alterman writes, is dominated by people who cannot imagine criticizing Israel. He lists 61 columnists and commentators who can be counted upon to support Israel reflexively and without qualification. Conversely, Alterman found just five pundits who consistently criticize Israeli behavior or endorse pro-Arab positions. Newspapers occasionally publish guest op-eds challenging Israeli policy, but the balance of opinion clearly favors the other side.”

What it does not say in the report is the astonishing control that Israel sympathizers, and therefore supportors of the Bush crime machine, overwhelming own, manage and operate print and TV and cable electronic news reporting. The report then turns to a brief analysis of the New York Times, “America’s newspaper of record” and, as Bernie Goldberg has revealed, the national editorial gatekeeper and assessor of what is newsworthy and what is not. You may rest comfortably sure that this Mearsheimer and Walt report will not make it.

The report’s opening remarks now: “U.S. foreign policy shapes events in every corner of the globe. Nowhere is this truer than in the Middle East, a region of recurring instability and enormous strategic importance. Most recently, the Bush Administration’s attempt to transform the region into a community of democracies has helped produce a resilient insurgency in Iraq, a sharp rise in world oil prices, and terrorist bombings in Madrid, London, and Amman. With so much at stake for so many, all countries need to understand the forces that drive U.S. Middle East policy. … This situation has no equal in American political history. Why has the United States been willing to set aside its own security in order to advance the interests of another state? One might assume that the bond between the two countries is based on shared strategic interests or compelling moral imperatives. As we show below, however, neither of those explanations can account for the remarkable level of material and diplomatic support that the United States provides to Israel.”

The report concludes, “Can the [Israeli-AIPAC] Lobby’s power be curtailed? One would like to think so … But that is not going to happen anytime soon. AIPAC and its allies [including Christian Zionists] have no serious opponents in the lobbying world. They know it has become more difficult to make Israel’s case today, and they are responding by expanding their activities and staffs. Moreover, American politicians remain acutely sensitive to campaign contributions and other forms of political pressure and major media outlets are likely to remain sympathetic to Israel no matter what it does.”

THE LATEST DEFAMATION OF JEFFERSON

Perhaps the biggest lie of all that has been perpetrated by the Straussian/neocon court historians is that Abraham Lincoln was a Jeffersonian. In fact, Lincoln’s law partner William Herndon once said that Lincoln “hated Jefferson” as a man and as a president. Lincoln was the anti-Jefferson. Jefferson was the apostle of states’ rights, enunciated in his famous Kentucky Resolve of 1798. Lincoln waged the bloodiest war in American history to destroy the Jeffersonian states’ rights doctrine. Jefferson authored America’s Declaration of Secession from the British empire, known as the Declaration of Independence. Lincoln’s overriding purpose in his war was to destroy the secessionist and states’ rights principles of the Declaration (while using slick rhetoric designed to pretend that he revered the document).

Jefferson was against protectionism, central banking, and “internal improvement” subsidies. Lincoln devoted his entire political career to lobbying and proselytizing for these very things. Jefferson was a strict constructionist. Lincoln eviscerated constitutional liberty by illegally suspending habeas corpus, shutting down the opposition press, imprisoning thousands of political opponents, confiscating firearms, and many other atrocities. Jefferson was a southern agrarian. Lincoln was a corporate trial lawyer who represented northern banking and railroad interests. The two men were almost exact opposites politically and philosophically. The notion that Jefferson would have supported Lincoln’s invasion of the southern states is outrageous. Indeed, one of Jefferson’s descendants, Thomas Garland Jefferson, was among the VMI cadets who were killed by federal soldiers at the Battle of New Market.

I was reminded of all of this recently upon learning of a conference to be held at Grove City College on April 5–6 under the title, “Mr. Jefferson Goes to the Middle East.” It is not Mr. Jefferson who has “gone to the Middle East,” of course, but George W. Bush. The clear implication of the title of the conference is that George W. Bush’s unprovoked invasion of Iraq is somehow “Jeffersonian”. The neocons at Grove City apparently believe that our mumbling, tongue-tied president is no less than Thomas Jefferson personified. But this is unequivocally the opposite of the trut. Jefferson was opposed to a standing army, let alone one that would wage imperialistic wars of conquest, even under such “benevolent” sounding guises as spreading democracy. (As for democracy per se, Jefferson was hardly a fan of it. He believed it needed to be “bound by the chains of the Constitution.”) It was Lincoln, not Jefferson, who made a “god” of “democracy”.

Jefferson wished “well to the progress of liberty in all nations,” but still, “Commerce with all nations, alliance with none, should be our motto,” he wrote to Thomas Lomax in 1799. This flatly contradicts the theory put forth by neocons (and even a few libertarians) that America somehow has a duty to intervene militarily in the affairs of other countries in the name of preserving our liberty at home.

Unlike Lincoln, who instituted the first federal conscription law, Jefferson was also opposed to that imposition on liberty. “The breaking of men to military discipline is breaking their spirits to principles of passive obedience,” he warned in a 1788 letter to John Jay. In light of all this it is clear that the title of the upcoming Grove City College conference is extraordinarily deceiving. It should be changed to “Mr. Lincoln Goes to the Middle East.” It was the Party of Lincoln, not Jefferson, that put America on the road to imperialism with the Spanish-American war. And it is the Party of Lincoln, not Jefferson, that is currently engaged in an imperialistic war of conquest in the Middle East.