Wealth International, Limited

Offshore News Digest for Week of May 8, 2006

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

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



The decision to become an expatriate, to pack your bags and leave your home country is an enormous and very far reaching one, but a recent BBC report revealed just how popular a decision living and working abroad has become, particularly for UK residents. The report claimed that up to 500 British residents a day are leaving the UK with the intention of spending at least a prolonged period living abroad, and that a large percentage of those who move abroad do so before retirement and with the intention of seeking employment overseas. There are three main areas of consideration worthy of your attention if you too are planning on living and working abroad and this article details them for you.

Which overseas country fulfils all of your lifestyle requirements best? Begin by considering your reasons for moving abroad in the first place – if your decision is being driven by costs of living or climate requirements for example, certain countries will immediately rule themselves in and out of your list of perfect destinations. If you want to enjoy a very different culture or way of life think about the practicalities of life in countries that have very different value systems or ways of life to your own and how well you will actually adapt to life in such a country. Do you speak any foreign languages? If so, think about the countries where those languages are spoken. Are you moving abroad by yourself? If yes, know that it can be a very lonely experience initially and mentally prepare yourself for this.

Which overseas country offers you the most appropriate or best employment opportunities? Do you have a specific skill or vocation? Do your skills and qualifications translate in every single overseas country, or some countries but not in others? How easy will you find it to get the employment abroad that you have trained for? Will language be a barrier to your skills if so do you need to learn a foreign language or move to an English speaking country? Think again about the local economy of any country you are considering and find out how much your skill will earn you – will that be enough to live on -–will that be enough to allow you to afford to travel home one day? Many people move overseas and price themselves out of their old economy and cannot then afford to move back home. Some countries have residence visa and work permit permission restrictions, and you need to think about whether you can overcome these hurdles and whether you have the most in-demand skills to obtain a work permit or residence visa.

Consider the practicalities of relocating to your ideal country and finding somewhere to live. If you are moving abroad to live overseas for a long period how easy and affordable is it to find rental accommodation? Will you rent furnished or unfurnished – which is more common? If you are expatriating for good you may want to one day buy a house of your own – if so, are foreign residents allowed to buy freehold property in the country you have chosen? What are house prices like, how easy or otherwise is it to secure finance to purchase? As you can see the considerations you need to make before moving abroad are many and are also far reaching.

Link here.


Costa Rica’s state run telecommunications provider has signed a deal with Global Crossing, the U.S. internet and telecommunications firm, that will significantly enhance the Central American country’s internet capacity. At a signing ceremony last week, Global Crossing announced plans to extend its core network to Costa Rica through the extension of its Pan American Crossing (PAC) system via the Unquí cable landing point in Esterillos. Costa Rica’s connection to PAC, which runs along the west coast of Central America from Panama to Los Angeles, will give the country access to Global Crossing’s global IP network delivering services in more than 600 cities in 60 countries. Construction is expected to be complete as early as fourth quarter 2007, although the project is subject to additional government approval.

“Latin America continues to be an integral part of our global strategy, and we’re building on our successes in this region by extending our core network to Costa Rica,” commented John Legere, CEO of Global Crossing. “This agreement provides ICE/RACSA with a robust solution for worldwide connectivity from the Pacific coast, and enables the delivery of seamless, premier IP solutions to Costa Rican based businesses and end users taking advantage of all the benefits of world-class Global Crossing network.”

Global Crossing says that it is currently seeing “explosive demand growth” for converged IP services around the globe as well as in Latin America. In 2005, the number of Global Crossing’s converged IP customers tripled, while IP VPN traffic grew more than 300%. The number of Global Crossing’s IP customers in Latin America grew by 80% in 2005. Global Crossing already has a significant presence in Latin America and the Caribbean with offices and operational facilities in 12 of the region’s major cities. Its sub-sea and terrestrial cable systems connects South America, Mexico, Central America and the Caribbean to the rest of its global network. The company has also announced that it will be making upgrades to its Mid-Atlantic Crossing (MAC) system, which connects North America to Latin America through the Caribbean.

Link here.

Arias reclaims reins of power in Costa Rica, vows to push through CAFTA.

Nobel Peace Prize winner Oscar Arias Sanchez assumed power for the second time in Costa Rica this week and has vowed to push through the Central American Free Trade Agreement and important fiscal reforms. Costa Rica is the only country that has not yet ratified the agreement, which has aroused vociferous protest from labor unions who fear job losses will ensue after the country is opened up to greater foreign competition. Under CAFTA, 80% of U.S. exports of consumer and industrial goods will become duty-free in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic, immediately, with remaining tariffs phased out over 10 years.

Arias argues that CAFTA is vital to ensure Costa Rica’s future economic prosperity and has signalled his determination that his government “will not cede” any ground in its fight to push through legislation that will give effect to the trade deal. Arias sees the adoption of CAFTA as central to his belief that Costa Rica should embrace free trade rather than shrink from it.

Link here.


All over the world, high-end planned communities are springing up, driven by demand from wealthy customers who want to live not only in luxurious homes but in luxurious environments, among their own. From Florida to Mumbai, Istanbul to Dubai, developers are creating small utopias where the wealthy will feel at home. Having equally rich neighbors is only part of it. Gated communities often provide a clubhouse-like social center with a restaurant and fitness club, private woods for walking the dog, in-house nursery schools and maybe even a golf course – not to mention a discreet but armed security detail to keep undesirables away. “People are looking for somewhere private with all amenities on site,” says Alexei Temnov, who markets real estate in and around Moscow for Knight Frank to clients willing to pay up to $20 million for a property. Today there are about 500 luxury communities around Moscow, estimates Temnov, with more springing up monthly.

The idea is to create a wealthy model village. Rublyovo-Arkhangelskoye, a new $3 billion development 3 kilometers outside Moscow’s ring road, bills itself as “a complete urban environment.” It will boast a faux-medieval Citadel where “musicians entertain and street artists add color to the surroundings”, an old town of pseudo-European shopping streets along a grand canal, a residential new town, a fishing village and marina on the banks of the Moscow River, plus suburban cottages around horse-filled paddocks. And, of course, an area for large, secluded mansions. When completed in 2009, Rublyovo-Arkhangelskoye will house some 30,000 residents in an area almost twice the size of Monaco. “We are trying to make it in the architectural style of old European cities like Prague, Amsterdam and Munich,” says Viktor Novichkov, one of the project’s directors.

The architecture may be old style, but the interiors are the latest word in design and comfort. 40 minutes outside Istanbul, Kemer Country is a gated community of Ottoman-style clapboard houses with overhanging gables and cobbled streets set in the rolling woodlands of Thrace. Kemer’s formula has proved so popular among Turkey’s SUV-driving yuppies that it is spawned at least a dozen imitators. In Independence, Florida, developers are creating a series of communities based on idealized historical American villages, starting with Colonial houses in “Signature” to an evocation of “a wilderness tamed to become the breadbasket of the world” in “The Meadows”. Clients who buy the properties are mostly families who “want to feel very secure” and value “old-fashioned community spirit,” says Bob Bruno, director of sales at Independence.

But few planned-community projects can compete with The World, a multibillion-dollar development off the coast of Dubai built on 300 man-made islands in the shape of the continents. Each island can be themed according to its buyers’ wishes. Half have already been bought by Russians, who have christened them Moscow, Omsk and Chechnya.

Links here and here.


South Korea, China and Japan have agreed to form a task force within the year to produce a roadmap for the creation of a common Asian currency, mimicking the euro. “South Korea, China and Japan have agreed on the concept of an Asian Currency Unit (ACU) and will start discussions for its creation this year in an effort to promote financial integration of Asia,” South Korea’s Deputy Prime Minister and Finance and Economy Minister Han Duck-soo told reporters last week. Han made the announcement after meeting with China’s Jin Renqing and Japan’s Sadakazu Tanigaki at the 6th meeting of finance ministers of the three neighbours, held on the sidelines of the Asian Development Bank (ADB)’s annual meeting.

The idea of an Asian single currency similar to the Euro has been discussed in the region since the Asian financial crisis in the late 1990s, as a way of insulating individual economies against volatile swings in the value of the U.S. dollar. “The idea of developing a single Asian currency has widely been shared by Asian policymakers, but there has been no concrete action on government level,” noted Kwon Tae-kyun, head of the South Korean Finance Ministry’s International Finance Bureau, who attended the tripartite meeting. “The three nations shared views that it is time to start a debate on the creation of a common currency. For that ultimate goal, we will form a joint research team this year," he added.

However, while the major players in the Asia are keen to start the ball rolling towards the adoption of a single currency, the region’s politicians concede that the ACU could be decades in the making, noting that it took European countries 30 years to introduce the Euro. Asian finance ministers have also been discussing the consolidation of a regional liquidity support system, called the Chiang Mai Initiative (CMI), adopted in 2000 to battle speculative runs on currencies. By signing foreign exchange swap deals for the past years, the countries have doubled the amount of emergency funds to be provided to currency crisis-hit nations to some $75 billion.

Link here.


Reports that expatriates are finding Hong Kong a less attractive place to live in and work have raised much concern among the business community. Business people worry that they will have trouble recruiting foreign talent to help innovate key sectors of its economy, including finance, high-tech and entertainment. The injection of foreign expertise is widely seen as essential to maintaining Hong Kong’s lead as an international financial center servicing the economic development on the Chinese mainland.

Most of the newspaper and Internet reports indicating the attitude shift are based on an annual survey published last month by an international human resources group. Hong Kong’s ranking among the list of desirable cities for Western expatriates fell a few notches in the latest survey. The results of the survey were seen to be further augmented by government immigration figures which show the arrivals and departures of Americans, British, Canadians and Australians dropped by 14% to 79,190, continuing a steady decline in recent years. The number of Western expatriates with work visas reportedly fell 30% from 113,600 in 1998. A combination of reasons has been cited for the decline, including the rising cost of living, deteriorating air quality, shortage of schools for expatriates’ children and rising job opportunities in Shanghai and other mainland cities. A top government advisor is quoted as saying, “There is no short-term solution to any of these problems facing Hong Kong.”

Rising property prices have driven up the cost of living in Hong Kong since the economy began to recover some 18 months ago. The depreciation of the Hong Kong dollar in tandem with the U.S. dollar against other major currencies has further pushed up prices of many imports, especially those from Japan. There is little the government can do to arrest the rise in living costs. But it is unclear how much this has contributed to the perceived decline in Hong Kong’s attractiveness to expatriates.

Is there still plenty of business to do in Hong Kong? The answer is not so much about the immigration figures but rather about the performance of the Hong Kong economy, activities on the Hong Kong Stock Exchange and, ironically, swings in property prices. Continuous strong growth in recent months in all economic sectors, particularly exports is widely seen as an indication and the economic recovery from the 7-year slump is gathering momentum. Strengthening confidence in the economic prospects has suck in an increased flow of domestic and foreign investment funds to the local bourse as indicated by the sharp increase in average daily turnover and rising share prices. It seems reasonable to assume that the sharp increase in housing cost is a reflection of the underlying economic strength.

To be sure, the cost of living and the general quality of life are important for attracting foreign talent to come to work in Hong Kong. There is little the Hong Kong government can do to ease rising costs. It has reiterated that it is taking concrete measures to combat pollution in cooperation with Guangdong authorities. But at the end of the day, it is still business opportunity that counts.

Link here.


A bill that seeks to outlaw all gambling over the internet by updating the Wire Act will shortly be taken up the House Judiciary Committee. The bill, sponsored by Rep. Bob Goodlatte (R-Virginia), chairman of the House Judiciary subcommittee on crime, amends the Wire Act to make it clear that its prohibitions include Internet gambling by updating the current legislation to take into account new technology.

The bill expands the existing prohibition to include all bets or wagers, not merely bets or wagers on sporting events or contests, but explicitly excludes securities and commodities transactions, indemnity and insurance contracts, and fantasy sports leagues. Gambling business will be prohibited from accepting certain forms of non-cash payment, including credit cards and electronic transfers, for the transmission of bets and wagers under Goodlatte’s amendments. The provision also provides an “enforcement mechanism” to address the situation where the gambling business is located offshore but the gambling business used bank accounts in the U.S., in defiance of a recent WTO ruling. This ruling upheld a complaint by Antigua & Barbuda, where many gambling websites are based, that U.S. laws unfairly discriminate against remote online gaming companies, contradicting its service sector commitments that it made when the WTO was formed in 1995.

However, Goodlatte argued that, “Virtual betting parlors have attempted to avoid the application of United States law by locating themselves offshore and out of our jurisdictional reach. These offshore, fly-by-night Internet gambling operators are unlicensed, untaxed and unregulated and are sucking billions of dollars out of the United States,” he added. Goodlatte’s bill also provides an additional tool to fight illegal gambling by allowing injunctions against any party in order to prevent and restrain violations of the Act. For example, law enforcement could use such injunctions to get assistance from ISPs to remove or disable access to hypertext links to online gambling sites that violate the Act.

Link here.


The Barbados Central Bank says the economy expanded at an estimated annual rate of 4.4% in the first quarter of 2006, marking its 7th consecutive quarter of real GDP growth above 3%. Much of the island’s economic exuberance is due to preparations for the cricket World Cup. The Bank says that non-traded sectors continued to fuel the expansion, bolstered by an ongoing construction boom, while a pick-up in tourism and manufacturing activity boosted traded output. Unemployment remains low, while inflation shows signs of moderating. The Government recorded a budgetary surplus, due to buoyant tax revenues.

The tourism industry staged a partial recovery during the first three months of 2006, as longstay tourism compensated for restricted itineraries forced on cruise operators by high fuel costs, expanding by approximately 4.1%. Sugar production declined by 2.8%. Non-sugar agriculture and fishing rebounded from a 1.6% decline between January and March 2005 to post growth of 2.1%. The construction industry advanced by 9.7%, after growing by 16.0% a year. Total Government revenue surged by an estimated 25.0% during the quarter, underpinned by strong growth in tax revenues. Direct taxes grew by 42.4% despite the lowering of the personal, corporate and property tax rates and the raising of personal allowances. There was a spike of about 21.1% in indirect taxes, as prepayments of value-added tax (VAT) and import duties made in 2005 were recorded in early 2006. The Central Bank says that the Barbadian economy is expected to equal its 2005 performance in 2006, with real GDP set to grow by about 4%, led once more by the nontraded sectors.

Link here.


The Isle of Man was chosen by the South Korean island of Jeju as an example of an exceptional role model for e-commerce development, the Manx government has announced. In a television programme aired on South Korea’s national network, the Isle of Man was described as, “an IT paradise created on a tourist island”, following a visit by reporters from Jeju’s television station. “The economy, which has been led by tourism and finance, has seen the special targeting of IT industries over the last ten years. Its industrial structure is making sustained economic growth possible even in a global recession. The Isle of Man’s core strategy to develop IT industries is to attract foreign companies by drastically reducing taxes. Corporate taxes will be reduced to 0%, giving the Island the world’s lowest corporate tax rate.” The report also praised the Manx government’s policy of placing education at the center of its IT strategy.

Link here.



Who pays for Wall Streeters’ yachts? Why, you do, with one of your favorite tax deductions. It is the one for interest. You use it to write off your mortgage. Financiers use it to shelter business profits. The quaint theory that interest should be taxable income for the recipient and a deductible cost for the payer goes back to the earliest days of the tax code almost a century ago. In the house market the tax law inflates prices, making us feel wealthier (although we do not live any better as a result). On Wall Street it creates true wealth, not just the paper kind. It makes the kind of money that can be used to pay for yacht crews.

The interest deduction has the perverse effect of rewarding dirty balance sheets. If a business makes $1 billion flying airplanes, it will owe $350 million of federal tax if its capital comes entirely from equity. It owes no corporate tax if the whole profit is paid out in the form of interest. This gives rise to a wonderful opportunity for financial engineers. They replace equity with debt, cutting tax bills and pocketing a fee for their efforts.

There are two ways to turn equity into debt. One is to do a debt-financed takeover. You do not have to be particularly adept at running the acquired company, just smart enough to claim the interest deduction, in order to make a fortune. This tax arbitrage explains how a junk-bond king, M&A dealster or leveraged-buyout titan can accumulate a quick billion. Another method is to persuade corporations to buy in their own shares, shrinking their equity base and thus their tax bills. This dirtying-up of corporate balance sheets is now taking place on a grand scale.

The would-be reformer David F. Bradford, a Princeton economist, said in his blueprint for a 21st-century tax code that we should stop treating interest as income, stop letting taxpayers claim interest as a deduction and stop rewarding Wall Street’s financial engineers. Last year Bradford died in a tragic accident. The interest deduction lives on. It is probably good for another century.

Link here.


In a ruling released last week, the IRS stated that organizations that provide seller-funded down-payment assistance to home buyers do not qualify as tax-exempt charities. Down-payment assistance programs provide cash assistance to homebuyers who cannot afford to make the minimum down payment or pay the closing costs involved in obtaining a mortgage. Such programs can qualify as tax-exempt charitable and educational organizations under Internal Revenue Code section 501(c)(3) when properly structured and operated. In Revenue Ruling 2006-27 the IRS provided a detailed discussion of the guidelines.

The ruling makes it clear that seller-funded programs are not charities because they do not meet the requirements of section 501(c)(3). Increasingly, the IRS revealed, it has found that organizations claiming to be charities are being used to funnel down-payment assistance from sellers to buyers through self-serving, circular-financing arrangements. In a typical scheme, there is a direct correlation between the amount of the down-payment assistance provided to the buyer and the payment received from the seller. Moreover, the seller pays the organization only if the sale closes, and the organization usually charges an additional fee for its services. The IRS is currently examining 185 organizations that operate down-payment-assistance programs.

Link here.

Mortgage Bankers Association calls for new laws after IRS ruling.

The MBA has called for swift passage of legislation to reform the Federal Housing Administration (FHA) after the issuance of a final rule on downpayment assistance programs by the IRS. In a ruling released last week, the IRS stated that organizations that provide seller-funded down-payment assistance to home buyers do not qualify as tax-exempt charities. The IRS decided to take action after finding that organizations claiming to be charities are being used to funnel down-payment assistance from sellers to buyers through self-serving, circular-financing arrangements.

However, speaking out against the ruling, Steve O’Connor, vice president of government affairs at MBA said that decision by the IRS will “significantly hamper FHA’s ability to serve first-time, minority and low- and moderate-income homebuyers by eliminating a source of downpayment for over a third of FHA’s borrowers.” A recent study indicated that 88% of DAP users were first-time homebuyers, exceeding the FHA average of 79%. Additionally, DAP programs served minorities at greater rates.

Link here.


The IRS has reminded large tax-exempt organizations that they have until May 15 to electronically file federal information returns. For the first time, exempt organizations are required to file these returns electronically if they have $100 million in total assets and file at least 250 returns per year – including income, excise, employment tax and information returns. “IRS has worked closely with our stakeholders to ensure that our e-filing procedures meet their needs,” commented Steven T. Miller, Commissioner of the IRS Tax Exempt and Government Entities Division. “But equally important is that e-filing greatly enhances the transparency of the operations of the tax-exempt community, a key component of public confidence.”

The IRS has already received more than 3,600 information returns this year from exempt organizations taking advantage of electronic filing, which has been available to tax-exempt organizations since 2004. The IRS received about 6,700 electronically filed information returns from tax-exempt organizations in 2005. Exempt organizations that cannot meet the May 15 deadline may request an automatic extension to August 15, 2006. Exempt organizations are encouraged to file their extension forms electronically as well.

For tax years ending on or after December 31, 2006, the electronic filing requirement will be expanded to include the year 2006 returns of tax-exempt organizations with $10 million or more in total assets that file at least 250 returns per year. In addition, private foundations and charitable trusts will be required to electronically file regardless of asset size, if they file at least 250 returns per year. Because of the ease with which organizations can electronically file, the IRS is encouraging all tax-exempt organizations to do so voluntarily.

Link here.


Concerns that the EU may reject the Island’s new tax strategy are completely unfounded according to Treasury’s chief financial officer. Mark Shimmin gave the assurance following a meeting of the European Code of Conduct group. A presentation was given to the group by UK Treasury officials on the Island’s progress towards a level tax playing field. It included a full assessment of the zero/10 corporate tax system, income tax cap and other areas.

No objections were raised by the members and Mr. Shimmin believes this gives the green light for the Island to move onwards and upwards. “The existence of tax exempt companies was identified as a harmful practice. We introduced zero rate tax across the board to resolve this. In the meeting they didn’t raise any issues or objections to our actions. Each jurisdiction is in a different position and the group will look at each in isolation. They would never have raised an issue on the zero/10 policy. Everything we have done is code compliant and we are cracking on.”

Many of the concerns have come from pressure groups such as The Tax Justice Network, that believes that the tax strategies being implemented by Crown Dependencies will be rejected by the EU. Malcolm Couch, Isle of Man Government tax assessor, said that the Island had done everything required of it. “Regularly and at least once a year, a report has gone through to the EU Code of Conduct committee, describing our progress against our commitments. Two issues have been blown up on this, some observers think certain elements of our proposals … aren’t compliant with the Code of Conduct. The other thing is that we are going ahead on changes, without seeking compliance from the EU. Both of these points are completely erroneous.”

Link here.

Jersey presents “zero/ten” tax proposals.

The Jersey government has announced that it intends to implement a “zero/ten” tax system for companies from 2009 which will incorporate a standard rate of corporate income tax of 0% and a special rate of corporate income tax of 10% into the Island’s existing schedular tax system. Under the proposals, a small proportion of companies can be subject to the 10% special rate of corporate income tax and it is proposed that this rate will apply to “specified financial services companies”. These will include banks, trust companies, collective investment fund functionaries (but not funds or fund managers), investment managers and brokers. Jersey has decided to introduce the tax system to remain compliant with the EU’s Code of Conduct on business taxation which seeks the rollback of “harmful” tax measures.

The concept of a “specified financial services group” whose members will be taxed at the 10% rate is also proposed. Financial services groups will be able to elect for this status. Shareholder taxation measures are proposed, designed to avoid trading profits being rolled up and extracted tax free by individuals resident in the Island.

It is also proposed that “look through” be introduced for investment holding companies, but not for trading companies, owned by Island residents. Looking through a company to assess a company’s shareholders on its income is an anti-avoidance mechanism. In the UK the look through provision for income looks through any offshore arrangement to which a UK resident individual has made a “transfer of assets”, subject to a motive test. “Investment company” will be defined to prevent Island residents using companies with only ancillary or incidental trading activities (and potentially subject to the 0% rate of corporate income tax) to avoid tax on investment income.

Link here.


A European Parliament working group has reached a “broad agreement” that there is a need for the existing own-resources system which funds the EU’s budget to be replaced by a scheme more understandable to the public, possibly a new tax. Lord Grenfell from the UK House of Lords, rapporteur for the working group on the “future financial resources of the Union” told members that a new form of own-resource would have to be “carefully scrutinized,” but he said that the subject of a single EU-wide levy should nevertheless “be aired.”

Support for an EU tax to fund the bloc’s budget has been growing since the eventual agreement between member states on the current 7-year budget last December exposed the system's obvious flaws. At present, the EU budget is funded through a combination of import duties, VAT revenues and direct contributions from member states – the so-called “Gross National Income resource” which is calculated according to wealth. Jose Manuel Barroso, President of the European Commission, has stated that the EU must find a way of avoiding “such a direct link between national budgets and the European budget.”

Barroso has hinted a single tax is the likely road ahead, and idea which has found support amongst the EU’s Christian Democrat leaders. However, the issue remains highly contentious as evidenced by the EU Parliamentary committee’s “lively debate” on the subject. “An EU tax can hardly be justified to the citizens at this stage and would certainly not help the cause of the European Union,” argued Christian Philip from the French National Assembly. Others, such as Spanish Senator and former MEP Carles Gasoliba, and Ilias Kallioras of the Greek Parliament, doubted it was ever going to be possible to achieve unanimity in Council on such a far-reaching decision.

Link here.


Draft legislation has been published in South Africa to implement the small business tax amnesty announced by Finance Minister Trevor Manuel in the 2006 budget. The amnesty is being put in place by the government in an attempt to entice the many small businesses currently operating in the “informal economy” to regularize their tax affairs without fear of punishment by the tax authorities. According to the South African Revenue Service (SARS), “walkabouts” in informal business areas have indicated that numerous small businesses are not registered or have not made full disclosure to the tax office. It says that the amnesty will give these business an “opportunity for regularization without fear of tax liabilities arising out of past noncompliance.” Manuel also hopes that the amnesty will help to broaden South Africa’s tax base and encourage more of a compliance culture.

The amnesty will be open to any individual, private company, close corporation, trust, unlisted public company, co-operative, insolvent estate or deceased estate meeting certain conditions. These conditions are that (1) the individual or entity must carry on a business, (2) the gross income (turnover) of the business during the 2005 tax year must not have been more than R5 million, and (3) in the case of a company or close corporation, all the shares or members’ interests must have been held directly by individuals on the last day of the 2005 tax year. A levy of 10% will be imposed on the taxable income determined for the 2005 year of assessment relating to amounts which were not declared to SARS before February 15, 2006.

Link here.



UK advisory firm PKF has estimated that following HM Revenue and Customs’ victory at the tax tribunal forcing Barclays Bank to disclose details of thousands of its customers who hold offshore accounts, the Revenue could uncover up to £4 billion in unpaid tax once investigations are extended to all major UK banks. After the IRS had considerable success in the U.S. courts with similar fishing expeditions, the Barclays case is HMRC’s test of whether it can lawfully demand such blanket data as documents about all customers with UK addresses and non-UK bank accounts.

PKF says that with offshore savings accounts becoming increasingly popular with UK citizens, in line with the easy availability of credit and debit cards, HMRC’s UK-based investigation work over a number of years has shown that, where there is tax evasion, an offshore bank account is often involved somewhere in the chain of the evader’s arrangements. Going direct for offshore accounts is, therefore, an easy way to identify much larger tax frauds. It is supposed that HMRC will now start searching the data to uncover UK residents who have not declared the interest on accounts held in offshore locations such as the Channel Islands. Although the EU’s Savings Tax Directive will be ensuring that at least 15% tax is reclaimed via the offshore authorities, the marginal UK rate of most British account holders will be much higher.

PKF tax investigations partner, John Cassidy, thinks that the Revenue’s investigations into unpaid interest will lead to more detailed scrutiny of the source of the funds placed in offshore accounts. “This is massive,” he said. “In the coming months, the Revenue will receive details of just about everybody in the UK who holds an offshore bank account. This will lead to demands for an enormous amount of tax on any undeclared interest earned on those accounts. But the Revenue will not stop there. If the source of funds deposited in the account comes from undeclared profits, the Revenue will seek tax on those amounts as well. … [L]ess than £1,000 of undeclared bank interest … led to the discovery of over £576,000 of undeclared business takings going into the account.

“The message is clear for anyone holding offshore accounts. If undeclared interest is found, the Revenue will investigate thoroughly and widen its enquiries to cover the individual’s entire business life. Anyone with an offshore account should seek immediate help to rectify any problems with their tax affairs. Voluntarily disclosing any omissions from their tax returns will help to minimize any financial penalties that are likely to be levied.”

Link here and here.

Scotland’s banks braced for demands to hand over offshore information.

Scotland’s big clearing banks are braced for demands from HM Revenue and Customs to turn over details of their customers’ offshore bank accounts. The demands are expected in the wake of a controversial legal ruling last week that the tax collector says will help it track down as much as £1.5 billion of unpaid tax. The Revenue now plans to go through records to get information on UK residents who hold accounts offshore. Previously, banks were able to claim customer confidentiality.

Many UK residents use offshore accounts to hold income earned overseas that may already have been taxed in the country of origin, or to deal with overseas investments and transactions for family members who may live abroad. The ruling marks an extension of the powers of HM Revenue and Customs and will deal a sharp blow to low-tax jurisdictions, such as the Channel Islands. These have come under intensifying pressure in recent years from high-tax jurisdictions seeking to clamp down on funds fleeing their fiscal regimes.

While the ruling – described by the Revenue as a “landmark decision” – pertains to Barclays, it is expected that the Revenue will contact other banks as the search broadens. A spokeswoman for Barclays said, “Barclays has not been singled out. This is very much an industry-wide issue and it’s our understanding that other financial institutions have been contacted.”

Link here.

Irish pull money out of Isle of Man as tax man tightens the screws.

Irish residents have reportedly withdrawn hundreds of millions of euros held on deposit with Irish banks in the Isle of Man in recent months in the wake of the Irish Revenue Commission’s campaign against offshore tax evasion. Figures show that the amount of money held on deposit in the Isle of Man by individuals resident in Ireland has halved from €600 million to €300 million in the past year alone, and fallen from almost €1 billion in the last six years.

Isle of Man government officials have reportedly expressed the view that the dramatic fall in these deposits is linked to the aggressive pursuit of tax evaders, especially those holding bank accounts offshore, by the Irish tax authorities in recent years. The recent ruling by HM Customs and Revenue, the UK tax authority, in the case against Barclays offshore account holders could also influence many more Isle of Man account holders to pull money out of the jurisdiction, IoM officials said.

Last October, Chairman of the Irish Revenue Commissioners, Frank Daly, told a parliamentary committee that The Revenue’s Offshore Assets Investigation had by that point brought in additional revenues of €769.5 million. In total, the special investigations into serious tax evasion, such as Ansbacher accounts, bogus non-resident accounts and offshore holdings, had yielded additional tax revenues in excess of €2.1 billion, Daly stated. Other offshore jurisdictions have also been targeted by the Revenue Commissioners. One of the starting points of the offshore investigation related to trusts based in Jersey, and Mr. Daly told committee members that 254 individuals had come forward to make voluntary declarations relating to Jersey trusts.

Link here.


Malaysia is planning to carry out a “holistic” review of the tax regime governing the Labuan international offshore financial center as the jurisdiction vies to become a major international player in the offshore world. “We’d like to see it (a new tax structure) come out as soon as possible because it would enhance LOFSA’s competitiveness and attractiveness, in particular with other jurisdictions,” Tan Sri Dr Zeti Akhtar Aziz, chairman of the Labuan Offshore Financial Services Authority (LOFSA) said.

Labuan already has a very favorable offshore tax regime. At present, the Labuan Offshore Business Activity Tax Act 1990 (as amended 2004) provides for the reduction of or complete exemption from income tax in respect of certain business activities carried on by offshore companies in Labuan. Chargeable profits derived by an offshore company from an offshore trading activity are subject to tax at a rate of 3%. Alternatively, an offshore company which carries on an offshore trading activity may, within three months from the commencement of any calendar year, elect to be charged to tax of M$20,000 for that year of assessment. An offshore company which carries on an offshore non-trading activity is exempt from income tax altogether.

Zeti stated that LOFSA also plans to “constantly review” the existing regulatory requirements to promote business growth in the Labuan IOFC. LOFSA is also keen to develop Labuan as a major Islamic finance center, particularly in the area of reinsurance. With 2006 marking LOFSA’s 10th year, the regulator says that growth of offshore companies has been steady in Labuan since 1996, with a continuous inflow of approximately 500-600 companies being incorporated annually.

Link here.


It was the scandal that rocked the internet. A seemingly worthless painting sold on eBay in early 2000 for $135,805 – all because buyers believed it might be the work of the 20th-century abstract painter Richard Diebenkorn. It was not. Nor was the story behind the painting true. In fact, Sacramento, California, lawyer Kenneth Walton had forged the suspiciously Diebenkorn-esque signature, which appeared in an auction photograph, and concocted the hokey yarn about finding it at a garage sale some years back. Some of the highest bids, it turned out, came not from serious art-buyers but from Walton’s eBay business partner, Ken Fetterman.

Before long the tangle of deceits that led to the historic sale began to unravel on the front pages of newspapers around the country. Walton and another business partner, Scott Beach, pled guilty to federal felony charges. After three years as a fugitive, Fetterman was finally arrested while on his way to a Frisbee golf tournament in Kansas. Walton tells his side of this true internet crime story in his new memoir, Fake: Forgery, Lies, & eBay. Wired News spoke to him about the book and his experiences as an online outlaw.

Walton: “(His story) was on the front page of the Times three days in a row. I’m not sure it would have gotten the same amount of attention today. The scandal occurred right in the wake of the dot-com crash. Everyone’s stock portfolios were crashing and the internet had turned from darling to devil overnight. EBay’s stock wasn’t crashing, but the press was turning on them as well. Then I came along and gave them the perfect anecdote to go along with the idea that eBay was rampant with fraud. ... It was rampant with my fraud at the time, I suppose. There was and always is a certain amount of fraud that goes on on eBay. … In some of the sales I was involved with, they were paintings with forged signatures, and that’s the subject of the book. A lot of the paintings I sold were simply good paintings I picked up at thrift stores and antique shops and I did sometimes make huge profits on them.”

Link here.


The Dubai International Financial Centre (DIFC) has predicted that it could become one of the world’s leading funds centers following the enactment of The Collective Investment Law 2006. Legislation to regulate the managed funds industry within the DIFC was enacted by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Ruler of Dubai in April. The law sets out the framework for regulating funds and permits the operation of various types and categories of collective investment fund in the DIFC including property funds, Islamic funds, hedge funds, funds of funds and private equity funds.

“The funds sector is central to the financial services industry and to the global economy,” said Dr. Omar Bin Sulaiman, Director General of the DIFC. “The DIFC and its regulator, the DFSA, have worked extremely hard to create the right environment for the industry to come to the DIFC, and we believe that now we have achieved this, the flood gates will open and that fund managers and administrators will see the unique benefits of the DIFC and the region.” Sandy Shipton, Head of Asset Management at DIFC said that the enactment of the collective investments law represents “the final piece in the jigsaw” of Dubai’s ambition to become a world-class asset management center. While the fund industry is currently dominated by the U.S. and Europe, the DIFC believes that recently enacted legislation will soon put the Middle East on the map.

Link here.


As Americans paid more to drive in the last six months, three out of four said higher living costs prevented them from saving more for retirement, according to a new study. Americans already face gloomy retirement prospects, with 83% acknowledging they do not save enough, as experts calculate most people will have to get by on 43% less money when they stop working full time. Now, with gasoline prices hovering above $3 a gallon, many people face an even tougher struggle, Fidelity Investments, which conducts the survey twice a year, said.

The Fidelity Retirement Index, which analyzes American households’ overall retirement readiness, found that among Americans whose savings plans were pinched by higher living costs, nearly one in two had to cut the amount they regularly save for retirement. And nearly one in four said they had to delay starting to save for retirement. Americans are acutely aware of their situation with 83% now saying they are not saving enough, up from 78% in the fall of 2005, when the last survey was conducted. Three out of four working Americans said they do not have a detailed, formal retirement plan that spells out how much they need to save to live comfortably in their golden years.

Link here.


Late one afternoon in June, 2001, John W. Worley sat in a burgundy leather desk chair reading his e-mail. He was 57 and burly, with glasses, a fringe of salt-and-pepper hair, and a bushy gray beard. A decorated Vietnam veteran and an ordained minister, he had a busy practice as a Christian psychotherapist, and, with his wife, Barbara, was the caretaker of a mansion on a historic estate in Groton, Massachusetts. He lived in a comfortable three-bedroom suite in the mansion, and saw patients in a ground-floor office with walls adorned with images of Jesus and framed military medals. Barbara had been his high-school sweetheart – he was the president of his class, and she was the homecoming queen – and they had four daughters and seven grandchildren, whose photos surrounded Worley at his desk.

Worley scrolled through his in-box and opened an e-mail, addressed to “CEO/Owner”. The writer said that his name was Captain Joshua Mbote, and he offered an awkwardly phrased proposition: “With regards to your trustworthiness and reliability, I decided to seek your assistance in transferring some money out of South Africa into your country, for onward dispatch and investment.” Mbote explained that he had been chief of security for the Congolese President Laurent Kabila, who had secretly sent him to South Africa to buy weapons for a force of élite bodyguards. But Kabila had been assassinated before Mbote could complete the mission. “I quickly decided to stop all negotiations and divert the funds to my personal use, as it was a golden opportunity, and I could not return to my country due to my loyalty to the government of Laurent Kabila,” Mbote wrote. Now Mbote had $55 million, in cash, and he needed a discreet partner with an overseas bank account. That partner, of course, would be richly rewarded.

Mbote’s offer had the hallmarks of an advance-fee fraud, a swindle whose victims are asked to provide money, information, or services in exchange for a share of a promised fortune. Countless such emails, letters, and faxes are sent every year, with a broad variety of stories about how the money supposedly became available (unclaimed estate, corrupt executive, and dying Samaritan being only a few of the most popular). Worley, who had spent his adult life advocating self-knowledge and introspection, seemed particularly unlikely to be fooled. He had developed a psychological profiling tool designed to reveal a person’s “unique needs, desires and probable behavioral responses.” He promised users of the test, “The individual’s understanding of self will be greatly enhanced, increasing the potential for a fulfilled and balanced life.” And Worley was vigilant against temptation. Two weeks before the email arrived, he had been the keynote speaker at his eldest granddaughter’s graduation from the First Assembly Christian Academy in Worcester, Massachusetts. He cautioned the students about Satan, telling them, “He’s going to be trying to destroy you every inch of the way.”

Still, Worley, faced with an email that would, according to federal authorities, eventually lead him to join a gang of Nigerian criminals seeking to defraud U.S. banks, did not hesitate. A few minutes after receiving Mbote’s entreaty, he replied, “I can help and I am interested.” His only question was how Mbote had found him, and he seemed satisfied with the explanation that the South African Department of Home Affairs had supplied his name. Worley attributed this improbable event to God’s will. In emails, phone calls, faxes, and letters during the ensuing weeks, Mbote laid out the plan. If Worley would pay up-front costs, such as fees to a storage facility where the cash was being kept, and possibly travel to South Africa to collect the money, he would receive 30%, or more than $16 million.

Every swindle is driven by a desire for easy money – it is the one thing the swindler and the swindled have in common. Advance-fee fraud is an especially durable con. In an early variation, the Spanish Prisoner Letter, which dates to the 16th century, scammers wrote to English gentry and pleaded for help in freeing a fictitious wealthy countryman who was imprisoned in Spain. Today, the con usually relies on email and is often called a 419 scheme, after the anti-fraud section of the criminal code in Nigeria, where it flourishes. The scammers, who often operate in crime rings, are known as “yahoo-yahoo boys”, because they frequently use free Yahoo accounts. Many of them live in a suburb of Lagos called Festac Town. Last year, one scammer in Festac Town told the Associated Press, “Now I have three cars, I have two houses, and I’m not looking for a job anymore.” Marks are often encouraged to travel to Nigeria or to other countries, where they fall victim to kidnapping, extortion, and, in rare cases, murder. In the ‘90s, at least 15 foreign businessmen, including one American, were killed after being lured to Nigeria by 419 scammers.

Despite Nigeria’s efforts, the schemes have reached “epidemic proportions”, according to a publication by the U.S. Federal Trade Commission. The agency received more than 55,000 complaints about them last year, nearly six times as many as in 2001. The increase is due in part to the Internet, which makes it easy for scammers to reach potential marks in wealthier countries. The agency estimates that 419 swindlers gross hundreds of millions of dollars a year, not including losses by victims too embarrassed to complain. Robert B. Reich, the former Labor Secretary, who has studied the psychology of market behavior, says, “American culture is uniquely prone to the ‘too good to miss’ fallacy. ‘Opportunity’ is our favorite word. What may seem reckless and feckless and hapless to people in many parts of the world seems a justifiable risk to Americans.”

But appetite for risk is only part of it. A mark must be willing to pursue a fortune of questionable origin. The mind-set was best explained by the linguist David W. Maurer in his classic 1940 book, The Big Con, “As the lust for large and easy profits is fanned into a hot flame, the mark puts all his scruples behind him. He closes out his bank account, liquidates his property, borrows from his friends, embezzles from his employer or his clients. In the mad frenzy of cheating someone else, he is unaware of the fact that he is the real victim, carefully selected and fatted for the kill. Thus arises the trite but none the less sage maxim: ‘You can’t cheat an honest man.’”

In the early 1990s, Worley developed a 60-item questionnaire that he called Worley’s Identity Discovery Profile, which sought to quantify a person’s temperament in three areas – social and vocational, leadership, and relationships. Worley’s own profile? Inward, headstrong, and needy. The combination, he said later, made him ripe for scamming. He had abundant time to strategize with Nigerian partners, he tended to ignore warnings, and he yearned for his family’s approval. But Worley’s egotism also may have made him think he could gain the upper hand …

Link here.



The cell-phone industry and privacy advocates are calling on Congress to clarify the widespread police practice of using mobile phones to track suspects without probable cause. The industry wants clear, standardized rules governing cell-phone tracking, said Michael Sussmann, a lawyer who represents several cell-phone providers. “Some orders we see are daisy chains, where we get a subpoena for information on one person and then they want all the information on the persons calling or called by them,” Sussman said. “We don’t think these orders should include the pizza guy.” Cell providers are happy to help police in emergencies, such as finding a teen driver who has driven into a deep ditch, said Sussmann during a panel discussion at the Computers, Freedom and Privacy conference.

Real-time tracking of cell phones is possible because mobile phones are constantly sending data to cell towers, which allows incoming calls to be routed correctly. The towers record the strength of the signal along with the side of the tower the signal is coming from. This allows the phone’s position to be easily triangulated to within a few hundred yards. But the legal grounds for obtaining a tracking order is murky – not surprising since technology often outpaces legislation. The panel agreed that Congress should write rules governing what level of suspicion cops need to have before tracking people through their cell phones

The Justice Department has argued that a combination of wiretap laws governing stored communications like voicemail, plus a law that lets them learn the phone numbers people dial, allows them to track people without having probable cause. Investigators commonly bundle a request to track cell phones with orders to capture the dialing information of incoming and outgoing calls from landline or cell phones. Those orders only require investigators to certify that the information is likely relevant to an ongoing investigation. Since most of the orders are filed under seal to prevent targets from learning they will soon be tracked, little was known of the scope of, and legal justifications for, cell tracking orders.

But eight out of the 10 judges who have published decisions since August have rejected these legal arguments. Kevin Bankston, a lawyer with the Electronic Frontier Foundation, said during the panel discussion, “We’ve seen an avalanche of & decisions rejecting the government’s hybrid theory. For several years, the DOJ has been successfully pulling the wool over the eyes of magistrates.”

Link here.


PM claims it is not “a Trojan horse for an ID card”.

Australians will need a photo identity card within four years to receive Medicare and welfare payments but will not be forced to carry it at all times. The new “smart card” will contain “enhanced security” and replace 17 existing cards for Medicare benefits, family tax, child-care and unemployment payments, pensions, Austudy and pharmaceutical and transport concessions. People will be able to register for the card from the beginning of 2008 and it will be phased in over two years. The card will also be used to check identities for immigration and security purposes and to crack down on fraud. Its embedded computer chip will include a photograph, number, signature, date of birth and address. Starting 2010 people will not be able to receive government health and welfare payments without a card.

People may choose to have other information stored on the card, such as health and emergency contact details which, for example, ambulance officers could use. Although it will cost $1 billion it is estimated it will save the Government $3 billion a year. The Prime Minister, John Howard, said the Government had considered a national identity card after last year’s London bombings but in the end it “was not predisposed to adopt a national ID card.” He denied the card was “a Trojan horse for an ID card” but acknowledged it would have “enhanced security features.” He said the security features of the smart card were one reason that a separate national identity card was not deemed necessary. Its perceived “Big Brother” features were another reason.

The Government’s decision followed a number of cabinet debates. Mr. Howard said it showed a balance had been struck between ease of access to government payments and enhanced security measures on the one hand and legitimate concerns about storing personal information on the other. However some of his ministers think of it as an identity card. Before the announcement the Treasurer, Peter Costello, referred to it as just that, and then corrected himself. The president of the NSW Council of Civil Liberties, Cameron Murphy, said the card would put people at risk of identity theft and fraud. The president of the Australian Council of Civil Liberties, Terry O’Gorman, said the announcement “marked a move towards an eventual ID card.” Business reacted suspiciously, saying it could easily turn into an identity card.

Link here.


In a unanimous vote, the U.S. House of Representatives passed H.R. 4709, the Law Enforcement and Phone Privacy Protection Act of 2006. The bill introduced by Rep. Lamar Smith, R-Texas, back in February 2006 would amend Title 18 to provide criminal penalties for fraudulent sale or solicitation of unauthorized disclosure of phone records. The bipartisan legislation was approved by a vote of 409-0. “Few things are more personal and potentially more revealing than our phone records,” Smith said in a statement. “A careful study of these records may reveal details of our medical or financial life. It may even disclose our physical location and occupation – a serious concern for undercover police officers and victims of stalking or domestic violence.”

If passed in the Senate, the legislation would impose serious criminal penalties against those people who sell, transfer, purchase or receive confidential phone records of a telephony company without prior consent of the customer. These persons could spend up to 10 years in prison and a fine of up to $500,000. “We need to pass this bill to demonstrate that we take seriously the obligation to protect the confidentiality of consumer telephone records and to make clear to data thieves that their conduct will result in a felony conviction,” Smith added. “This legislation supports crime victims, prosecutors, companies and individuals who have been the targets of this fraud.” The legislation to be referred to the Senate will be up against two similar bills. All three are in response to the awareness of individuals posing as a phone-company customer in order to access a customer’s records and disseminating the information.

The particular activity had been exposed by a large number of reports on online data-broker sites who advertise such illegal services, offering to obtain personal phone records for as low as $90. Former presidential candidate Gen. Wesley Clark was among those who could have experienced phone data theft, when the political site AMERICAblog announced in January that for only $89.95 it had purchased Clark’s cell-phone records of 100 calls over three days in November 2005. Blog publisher John Aravosis wrote he had bought Clarks phone records from the Web site Celltolls.com and his own from Locatecell.com for $110 to address failed privacy protections. AMERICAblog’s action came after the Chicago Sun Times published a January article by reporter Frank Main in which the paper conducted a similar investigation.

Link here.


If you are a fan of the Star Trek spin-off television series, The Next Generation, you know about the Borg. The Borg is a highly advanced and aggressive network of humanoid drones that is part organic, part artificial life. At birth, a Borg infant is implanted with chips that give it improved mental and physical abilities. The chips link the baby’s brain to a collective consciousness which gives it seamless access to all knowledge assimilated by the Borg over thousands of years. The resulting drone is collectively aware, but not aware of itself as a separate individual. The Borg travel in giant cube-shaped spaceships that seek out and assimilate technology. When a Borg ship encounters humans, it captures them and makes them Borg using the same implants that babies receive. It informs them, “We are the Borg … resistance is futile.” Humans who refuse assimilation are killed.

Are we becoming the Borg? We are … and we are embracing the transition. Consider VeriChip, a microchip implant from Applied Digital Solutions (ADS) recently approved for human use by the FDA. The VeriChip is implanted under your skin, and scanned with a reading device to reveal medical data. The chip is linked to a database that provides additional information about your medical conditions. VeriChips are currently being implanted in Alzheimer’s patients and other persons deemed incapable of caring for themselves, although thousands of perfectly healthy people are now getting chipped, “just in case”. In Mexico, the attorney general and his top aides were chipped for security purposes. ADS has proposed replacing military “dog tags” with the VeriChips. The technology is also used in animals.

Of course, the chips can carry more than just medical information. For instance, with an e-commerce application called “VeriPay”, rather than swipe a card or pay cash, you can buy anything with a mere wave of your hand - at the Baja Beach Club in Spain, patrons with a VeriPay microchip implant can pay for cocktails with a swipe of the arm. There are already prototypes that can scan your purchases of products containing a compatible RFID (radio frequency identity) chip, and deduct the balance from your bank account, as you walk through the door. The method of paying for RFID-numbered products is not particularly important so long as the purchaser can be positively identified. And what could be more convenient – or secure – means of identifying someone than an implantable microchip? When these technologies converge, we will have developed something that looks surprisingly similar to a Borg technology prototype.

As more industries point out the advantages of implanting microchips under individuals’ skin, you have to wonder if the day will come when resistance to this new “safer, easier” method of identification really will be futile. Banks are already excited about the prospects of implantable microchips. Credit and debit cards can be lost or stolen, putting your money at risk. But an implanted microchip can also link you directly to your bank account and can never be lost. In addition, it eliminates the need to use cash. Why risk using cash, which can be lost or stolen, when a more secure microchip implant is available? Banks dislike cash, because it does not earn money for the bank. Governments do not like cash because cash is not easily tracked. It does not take much imagination to predict that once implantable microchips are widely used for financial transactions, momentum will build for cash to be eliminated (as a security and anti-crime measure, of course).

A world with most humans living with implantable microchips could evolve into the ultimate police state. Microchips would replace all of current forms of ID. You might not be able to withdraw money from the bank, or buy or sell anything, without it. At the touch of a button, your assets could be frozen, medical treatment denied, etc. The ultimate punishment would be to have your chip deactivated. In that case, you could no longer exist, since all personal and financial interactions would require verification of identity and confirmation of sufficient assets to complete a transaction.

Yet, most people would probably go along with the system, because of its potential to reduce crime, make medical care more accessible, etc. “There are enough benefits that outweigh the concerns people have about privacy,” claims ADS Chairman and CEO Richard Sullivan. It is even possible that an advanced microchip could be equipped with a satellite modem to allow you to browse the Internet anywhere you are. This ability begins to approach the “collective consciousness” achieved by the fictional Borg. Proponents of implantable microchips deny such a nightmare scenario could come to pass, because their use is “voluntary”. But “voluntary” is not an appropriate word to describe something that might one day be required to merely exist as a human being.

An example of how “voluntary” is actually “involuntary” recently emerged from Great Britain, where the Tory party has proposed that pedophiles receive microchip implants after their release from prison that would allow them to be tracked by satellite. Release would be conditional on “voluntarily” receiving an implant. What politician in Britain or anywhere else has the guts to stand up in favor of the privacy rights of pedophiles? Yet, by implanting microchips into the likes of pedophiles and other persons whose proclivities disgust most people, we begin descending a slippery slope into Borg-dom. There should be a core principle that microchips should never be implanted in anyone, unless it is a truly voluntary act. By defending the rights of society’s undesirables, you defend your own, and prevent society’s descent into the Borg.

Links here and here.



Bill Lerach is sorry, genuinely sorry. The securities lawyer, best known for bedeviling corporate executives with shareholder suits, felt compelled to go after some of his own in the Enron scandal. On behalf of shareholders he sued Vinson & Elkins, Enron’s law firm, on the theory that it participated in the fraud that led to Enron’s collapse. “It broke our hearts to go after them,” Lerach says of the 700-lawyer Houston firm. He must have been sobbing all the way to the court clerk’s office, transporting a suit with a $40 billion damage claim. V&E says it should not be sued for merely providing legal advice to somebody else.

For decades most courts dismissed such cases, decreeing that lawyers are accountable only to their clients, not to people their clients may have injured. No longer. In the relentless search for new targets to sue and new ways to find legal liability, plaintiff lawyers have come upon the deliciously ironic idea of going after other lawyers. “We’ve seen mistakes that wouldn’t necessarily result in a lawsuit five years ago becoming a lawsuit now, even out in the boonies,” says Ariel Hessing of Walnut Advisory Corp., a legal malpractice underwriter in Warren, New Jersey. “It’s become routine for lawyers to sue lawyers.”

Suits against lawyers by nonclients, once practically unknown, now account for 10% to 15% of new claims against big law firms, said Lawrence Zabinski of Attorneys’ Liability Assurance Society, at an American Bar Association meeting on legal malpractice in April. The claims “are the product of ever-increasing plaintiff lawyer creativity,” Zabinski said. Imagine, lawyers hoist with their own petard. While the number of standard legal malpractice claims have remained steady, awards are getting bigger. Malpractice insurance is almost unaffordable for some high-risk specialties such as securities and patent law, where damage claims can run into hundreds of millions of dollars. Premiums have jumped about 20% for other business lawyers, to around $15,000 per year, says Hessing.

One by-product of all this litigation is defensive lawyering, as attorneys write elaborate memos to justify their behavior in case they get sued. A session at the ABA malpractice meeting called “Death by Laptop” reminded lawyers that they can be held liable for failing to back up important documents or even for having obsolete technology below the current “standard of care”. Doctors, who face this kind of judicial second-guessing every day, can only smile. It is not just blockbuster securities cases that are giving lawyers fits. Partners are filing age-discrimination suits against their own law firms for demoting them to make room for younger attorneys. Even routine practices, such as the assembly-line production of documents in real estate closings, have become a minefield as banks sue their own lawyers over soured loans.

“Lawyers were among the last to really feel the impact of malpractice litigation, because we were the gatekeepers to the courts,” says Ronald Mallen, an attorney with Hinshaw & Culbertson in San Francisco and coauthor of the five-volume textbook Legal Malpractice. Now, he says, “the gatekeepers have opened the gates.”

Link here.


Cornel West broke new ground for academics when he made a rap album while teaching at Harvard. Now three law professors have cranked out a comic book, in an effort to explain copyright law to young filmmakers and other creative types. “We figured we could write a scholarly article, but only our relatives and colleagues would read it. And we thought about making a film, but that was beyond our scope,” says James Boyle, professor at Duke University School of Law. So he and fellow Duke law prof Jennifer Jenkins enlisted Keith Aoki, a law professor at the University of Oregon who is also an artist, and the trio produced Bound by Law? Tales from the Public Domain, a surprisingly well-drawn comic with a strong point of view, that copyright holders have gone too far in protecting their content. It appears that the law profs did not impermissibly borrow plot elements from that famous 1943 Superman comic in which the Prankster copyrights the alphabet and tries to extract tribute from everybody who writes anything.

Link here.


The Supreme Court ruled, 5 to 3, that Arkansas state officials were wrong to take away the home of a Little Rock man for nonpayment of real estate taxes. The majority held, in a ruling that could affect how other states handle property takeovers, that the officials did not do enough when they sent certified mail to 717 North Bryan Street, telling Gary Jones that he was delinquent in his taxes, and when they published a notice of public sale in The Arkansas Democrat-Gazette.

As it turned out, there was no public sale, because no bids were submitted. The state was thus permitted to negotiate a private sale of the property, and it did, to one Linda Flowers. The state then sent yet another certified letter to 717 North Bryan, telling Mr. Jones that his property was about to be sold unless he paid up. He did not pay, and Ms. Flowers bought the house in 2002 for just over $21,000, about a quarter of its fair market value. Mr. Jones learned about the sale from his daughter, who had learned about it after Ms. Flowers served an eviction notice.

The problem for Mr. Jones – and, as it turned out, for the state of Arkansas – was that he had moved out of the house in 1993, after he and his wife separated, and apparently never knew that it was about to be sold. “Mr. Jones should have been more diligent with respect to his property, no question,” Chief Justice John G. Roberts Jr. wrote. “People must pay their taxes, and the government may hold citizens accountable for tax delinquency. But before forcing a citizen to satisfy his debt by forfeiting his property, due process requires the government to provide adequate notice of the impending taking.” Noting that the certified mail sent to 717 North Bryan had been returned because Mr. Jones was not there to sign for it, the chief justice wrote, “In response to the returned form suggesting that Jones had not received notice that he was about to lose his property, the state did – nothing.”

The dissenters were Justices Clarence Thomas, Antonin Scalia and Anthony M. Kennedy. Their dissent, written by Justice Thomas, essentially found that Mr. Jones had created his own problems, and that the state had fulfilled its duty in trying to notify him before the house was sold.

Link here.


Canadian financial institutions, casinos and other businesses must report large cash transactions and suspicious activities to a federal agency whose job is to fight money laundering and fraud. Some of the rules for that reporting will change at the end of this month, and businesses and their software providers must make adjustments. The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) was set up in 2000 to collect, analyse and sometimes disclose financial intelligence in order to detect and prevent money laundering. The FINTRAC regulations include a long list of requirements. For instance, financial institutions, casinos and certain other businesses must report to FINTRAC any transaction in which they receive $10,000 or more in cash. They must also obtain identification.

The rules themselves are not changing at present. The federal Department of Finance did release a consultation paper last June on proposed changes to anti-money-laundering and anti-terrorist financing rules, but no action has been taken on those proposals yet, due largely to the change in government earlier this year. On May 29, though, a new set of guidelines governing the details of FINTRAC reporting will take effect. The changes involve things like the addition of new fields to the reports, said Peter Lamey, a spokesman for FINTRAC. FINTRAC will also start sending reports back to the business that submits them if data is missing or incomplete, he said.

Link here.


The Jersey Financial Services Commission published a consultation paper on a proposed new Money Laundering (Jersey) Order and accompanying Handbook for the Prevention and Detection of Money Laundering and Terrorist Financing, to replace the existing Guidance Notes for the Finance Sector. The purpose of the consultation paper is to convey proposals to update Jersey’s measures to combat money laundering and terrorist financing so that these are consistent with certain key elements of the revised Financial Action Task Force (FATF) “Recommendations on Money Laundering and Terrorist Financing”. The FSC says the proposals are consistent with Jersey’s commitment to the implementation of international standards to combat money laundering and terrorist financing.

The draft Money Laundering Order and Handbook propose a number of important changes. In particular – (1) A risk-based approach to customer due diligence is set out, that permits reduced or simplified measures in the case of lower risk relationships, and requires enhanced customer due diligence in the case of higher risk relationships. (2) Much more emphasis is placed on customer due diligence measures other than identification and verification of identity, and, in particular, on ongoing monitoring of unusual, complex, and higher risk activity and transactions. (3) More customer friendly ways of verifying the identity of applicants for business or customers, including scope for greater reliance on a single document to verify identity in lower risk circumstances, for example, a passport.

In addition, the consultation paper highlights that the FATF recommendations require the extension of measures to combat money laundering and terrorist financing to non-financial businesses and professions, and to include certain activities conducted by lawyers, accountants and estate agents, and the sale of high value goods for cash. The paper considers how Jersey might address this requirement. David Carse, Director General of the Commission, said, “These proposals are intended to enable Jersey to meet its international obligations, in line with the standards established by the [FATF] …”

Link here.


In the wake of the 9-11 tragedy the PATRIOT Act’s sponsors and the Bush administration insisted and repeated that this unprecedented suspension of civil liberties was absolutely necessary to protect Americans against terrorists and terrorism. The explicit promise was made that this law that waived numerous guaranteed constitutional rights and safeguards, would not be used to prosecute other crimes.

No sooner than the Act became law, with convenient provisions that allowed the government to act in secret while accounting to no one, then they began to use the law in all sorts of alleged criminal activities that had no relation to terrorism without any judicial oversight. Last week, Congress forced the FBI to admit that it issued thousands of subpoenas to banks, phone companies and Internet providers last year, aggressively using powers under the PATRIOT Act to monitor the activities of thousands of U.S. citizens. The report was the first to detail the government’s use of a controversial form of administrative subpoena that can be issued without court oversight – an FBI agent files a paper in his own files that replaces a probable cause subpoena that used to require a judge or magistrate’s approval for a search and seizure of evidence. According to the new report, the FBI issued 9,254 national security letters in 2005, covering 3,501 U.S. citizens and legal foreign residents.

The PATRIOT Act was supposed to be an “anti-terrorist” law, but the Act is used for easy secret police action against any alleged “crime” the Feds choose. Two federal judges ruled in secret that the Act can be used in any criminal investigation, not just those involving alleged terrorism. In Arizona, the Act was used to convict, possibly wrongfully, a U.S. citizen of Lebanese extraction, of buying stolen baby food! Eight years in prison based on evidence obtained with secret anti-terrorist investigations that the defense counsel was not allowed to see. The Act has been used against Las Vegas night club owners who allegedly engaged in bribery and wire fraud and against alleged money launderers in many cases.

Link here.



Sometimes I talk to people who think that the Mises Institute is all worked up in a frenzy over nothing. After all, we are free to speak our minds, and no one is arrested for expressing opinions not held by those in charge of the government. You can persuasively argue that the U.S. economy is the most prosperous in the history of the world, and that this prosperity is spread over all sectors of society. The economy is still growing. We talk of despotism and yet new businesses are started constantly, and there is no evident lack of opportunity. Precisely what do we want to do but are not permitted to do? What is all this talk about the need to free the economy before despotism chokes the life out of it? And what is all this talk about the need to reform the currency, when inflation does not seem to be that bad after all?

Well, a major part of the real estate of our website and publications is taken up with answering these questions, and I will not attempt a summary of it all in one talk. But I do want to draw your attention to an insight of Frédéric Bastiat’s, that there are two kinds of costs to state interference with economic life, one seen and one unseen. It is the unseen ones that are the largest. By unseen he really means the prosperity, innovations, and increases in quality of life that do not come about due to some sort of interference in the ability of the market to make it happen.

This is a hugely important point. The other day, a young economist named Mark Brandly did some speculative calculations on some possible unseen effects. He points out that from 1959 to 2005, the real GDP increased an average of 3.37% annually. Let us say that America’s massive tax, regulatory, welfare, and warfare state decreased real economic growth by 1% per year – a very conservative estimate. GDP would be 55% higher than it is. Even if we look at it statically, the median family income would be $68,000 instead of the $44,000 it is today. And if we eliminate the tax bite that takes 35% of income, the real increase would be much higher. What might have been done with that money? How much investment? How much savings? How much in wealth passed from generation to generation? We are talking about incredible amounts of lost wealth – losses in prosperity that we will never see.

Think of the contest between power and market as two parallel foot races on a track that never ends. One group of runners have worked out rules for how closely they can run to others, which lanes they can stay in, how often they stop for breaks, agreements on what constitutes good behavior and what to do with offenders, and all the rest. Let us call them market runners. But none of these rules apply to the motley crew of runners one lane over. These runners represent the state – the power runners. They see their job as productive interference. They run alongside the others – though they are far less fleet of foot – and their activity consists in throwing tacks, banana peels, monkey wrenches, or anything else to hobble the runners. They help some runners and hurt others. They grab food, clothes, and shoes. They set up barriers, require detours and random stops, fiddle with the clock – anything to make their presence known and felt. Of course they desire ever more tools and power, and of course they always claim that they are doing all this for the good of all runners.

Using this metaphor, we gain insight into the difference between systems of government. In relatively free systems, some rules constrain the motley crew of problem runners. They cannot do everything they want to do. In total systems of governance, the power runners have complete discretion. They have the ability to call the race to a complete halt, as they have done under many socialist systems. Their role is always and everywhere destructive. The only difference between groups of power runners is the degree to which this is true.

Let us return to what is seen and unseen. What is seen is the visible damage the power runners cause in the course of the foot race. We see the bruises, the cuts, the broken bones, the shackles, the barriers, and the detours. What we do not see is how far the runners might have run had they been unshackled and free to go as fast as they wanted. We do not see the happiness, creativity, and improved prowess that have been lost. All these are costs, but they are incalculable.

The well-documented paranoia of the Bush circle has infected the whole regime. The entire government – elected officials, appointed staff, permanent bureaucracy – has shifted in the last decade from pretending to be the peopleafs servants to admitting that they regard the people as a threat. That is why we see the stream of legislation permitting ever more power to spy, confiscate, and jail without trial. Never has Franz Oppenheimerafs view of the state been more clearly on display. It is there to dominate, exploit, and protect itself against any challenges to its power. It clings to power like Gollum holding the ring. And that power is deployed, not for the ostensible purpose of protecting people but for protecting the state and its interests. Its rule is destroying all that is good.

Friends, I fear that hard times may be coming. We must prepare for battle. We have no time to waste. DC is considering price controls, more crackdowns on political dissidents, more inflation, more spending, and more wars. We are not battling for nothing. We are battling for the future of civilization. We have a choice: we can accept the fate they give us, or we can take the future into our hands. Let us make the right choice.

Link here.

A world too complex to be managed.

What an immense mass of evil must result … from allowing men to assume the right of anticipating what may happen. ~~ Leo Tolstoy

The eagerness of so many people to accept superficial answers to complex problems, is what keeps the political rackets in business. People are aware that they have insufficient information upon which to make predictions about intricate economic and social relationships and, presuming that the state has access to such knowledge, allow it to take on this role. What these individuals generally fail to understand is that state officials are equally unable to chart or direct the course of complex behavior.

Current society is rapidly being transformed from vertically-structured, institutionally-dominant systems into horizontally-interconnected networks. Our world is becoming increasingly decentralized, with questions arising as to the forms emerging social systems may take. The study of chaos informs us that the multifaceted, interrelated nature of complex systems render our world unpredictable. As our understanding of chaos deepens, our faith in institutional omniscience will likely be abandoned.

Our experiences with the state should make us aware of how misplaced has been our confidence in the centralized planning and direction of society. It is commonplace to speak of the “unintended consequences” of political intervention. This is just a way of acknowledging the inconstancy and unpredictable nature of complexity. Politics functions the way much of traditional medicine does: to repress troublesome symptoms with remedies that produce exponential increases in other symptoms requiring additional medications. If you look inside an elderly person’s medicine cabinet and see the many drugs that are used to suppress symptoms brought on by previous drugs, you will see a perfect parallel to the expansion of governmental “solutions” to politicogenic “problems”.

There are simply too many unidentifiable factors working on events in our lives for any of us to make accurate predictions of the future. Kierkegaard understood the problem of correlating prior learning and future conduct. “Philosophy is perfectly right,” he declared, “in saying that life must be understood backward. But then one forgets the other clause – that it must be lived forward.” The state has no clearer crystal ball into the future than do you or I. To the contrary, it is more accurate to suggest that you and I are less prone to error in the management of our personal affairs, than is the state in trying to direct the lives of hundreds of millions of individuals. If you or I make an error in judgment, you or I suffer the consequences. When the state errs in its planning, mankind in general may suffer.

A major lesson that will likely emerge from the study of chaos is that our world is simply too complex to be centrally managed. If we are to live well in an inconstant and unpredictable society, we need all the personal autonomy and spontaneity that we can muster. In words that have become increasingly familiar to us, “nothing grows from the top down.”

Link here.


Since George Bush took office way back in 2001, I have been trying to understand his source of success. I simply could not figure how he won elections and re-elections. To put it very simply, he just does not seem to bring much to the plate. He had no success in any of his business ventures. His oil company went bust because it could not find oil. His reign with his baseball team, The Texas Rangers involved some sweetheart land deals that included manipulating investors. His fictional military career was generally a farce. And he has a history of DUI and reported drug abuse. His public speaking skills are the topic of many comedians’ jokes. His butchering of the English language has inspired collections of Bushisms. For most people, this combination of attributes would send a job résumé straight to the shredder.

While there may be more, I have identified 6 of the most prominent reasons that seem to behave much like the pistons of the engine that drives the Bush machine. First, Bush has a simple agenda. He is a follower of the KISS rule. The 2nd characteristic of the Bush presidency that keeps him afloat is tied to the concept of sunk cost fallacy and how this applies to supporting wars. Some people believe that because we have given so many American lives (not to mention enemy and civilian lives) to the cause that we owe it to them to continue the war until it is won. The 3rd source of Bush power comes from the blueprint for world domination set forth in the Rebuilding America’s Defenses (RAD) document prepared by the tunnel-visioned neoconservatives at the Project for the New American Century (PNAC). This blueprint powers the Bushmobile by giving his administration a plan to follow. Embedded into this source of Bush power is the war machine in general. There are people who believe the nation needs to be at war to keep our war skills at their best. Add to that group, the people who believe that conquering the world is a right of a superpower, and add to them the voices of the business world that thrive on military contracts.

His 4th source of clout comes from something called The K-Street Project. This refers to the mega millions of American dollars that are made available to the Bush Administration and to The Republican Party through lobbyists. This topic alone deserves serious examination by the astute American who wishes to know how Washington works. Money corrupts, and large amounts of money corrupt absolutely. The 5th source of Bush power is his brain, also known as turd blossom Karl Rove. Rove is the mastermind behind the Bush administration. Karl Rove is also the master dirty trickster who manages to have opponents of Bush smeared with lies and innuendo. Having a personal Svengali on his staff saves George Bush from ever having to get his own hands dirty. The 6th source of Bush power is God Almighty. By claiming to be a good Christian, he jumps on the Jesus bandwagon and spews the message that if you oppose Bush you oppose God. Bush has manipulated the church-going, God-fearing congregations to vote “right” under the assumption that his conservative beliefs are in harmony with God. Also included in this area of Bush support are the Zionist Jews who think the RAD plan and the idea of America building military bases in Iraq suits their vision very well. It was a masterful accomplishment to get the evangelical fundamentalists to vote with the Jews.

If we are able to identify the actions or features that have put this president into power, perhaps we will be more careful in the future before electing another president who would lie to put our country into a war. Perhaps too, we may be more alert to the dangers of our entire government being blindly led in one direction.

Link here.
The Decline and Fall of Bush – link.


Just now the furor over illegal immigration from Mexico is a’boil, with much billingsgate and vituperation emanating from practically everywhere. Well and good. People should all afflict each other as vigorously as they can. I mean, why were we put on earth if not to be disagreeable? Howsomever, I have received email telling me how poorly educated the Mexicans are. Hmmm. Maybe. You can make a case for it. I know that immigrant kids do terribly in school in the U.S., which augurs ill indeed. Most kids do not read here either. Still, I found myself wondering just how bad the Mexican schools really are.

My stepdaughter, Natalia, aged 14 and in the 8th grade, attends a public school in downtown Guadalajara, La Escuela Estatal Secundaria Manuel M. Dieguez Numero 7 para Senoritas. I am not an authority on Mexican education and cannot say whether hers is typical of urban Mexican schools. Nor do I know enough about American middle schools in general to make comparisons. The following are scans of pages from her texts of mathematics and biology accompanied by a few observations. I found them interesting.

It may be that all of this is now standard in the 8th grade in the U.S. For all I know, American texts may be more advanced. I cannot make comparisons with things I do not know about. But these do not seem to me to be bad books. Certainly when I was an 8th grader we did not get much of this. Still, I have my doubts as to whether the big-city schools in America are greatly ahead of Guadalajara. Detroit recently had, and probably still has, a 47% rate of functional illiteracy. Guadalajara does not. If someone were inspired to compare the foregoing material with what students, if so they can be called, are learning in downtown schools in, say, Washington, DC, Chicago, and New York, I would be interested to see the results. It will be said, correctly, that the cities of America are populated by extensive underclasses of blacks and Hispanics. True enough. However, they are still American kids (now or soon to be) who are learning nothing. Natalia would eat them alive.

I have some familiarity with the suburban, mostly white schools of Arlington County, Virginia, just outside of Washington, because my daughters went to them. At least one of these schools served populations living in very pricey neighborhoods. The girls came home with misspelled handouts from affirmative-action science teachers, and they learned about Harriet Tubman and oppression. Of the sciences they learned very little. I knew bright kids who had trouble with the multiplication tables. Yes, there are schools and schools, some better than others, and advanced-placement and such. I do not suggest that Mexico has a great school system, because it does not. Yet Natalia, in her particular school, is better off than she would be in Washington, heaven knows, or the Virginia suburbs. Ain’t that something?

Link here.
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